Transfer Pricing Adjustment Upheld, Disallowance Confirmed for AY 2015-16

The Tribunal upheld the deletion of the Transfer Pricing adjustment on Corporate Guarantee fees, citing established precedents supporting the assessee's fee rate. The Tribunal found the TPO's benchmarking method lacking in comparative data and rationality. Consequently, the upward adjustment was dismissed. Regarding the disallowance under Section 36(1)(va) for AY 2015-16, the Tribunal upheld the disallowance in line with the Supreme Court's ruling in Chekmate Services Pvt. Ltd. v. CIT. The decision partially favored the Revenue for AY 2015-16 and dismissed the appeal for AY 2016-17.

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Issues Involved:

1. Transfer Pricing Adjustment on account of fees/commission for Corporate Guarantee given by the assessee on behalf of its Associated Enterprise (AE).
2. Disallowance towards deposit of employee PF & ESI contribution claimed under section 36(1)(va) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment on Corporate Guarantee Fees:

The Revenue challenged the deletion of the Transfer Pricing adjustment made on account of the Corporate Guarantee fees provided by the assessee for its AE. The primary contention was that the Ld. CIT(A) erred in not following a recognized approach for determining the Corporate Guarantee (CG) Fee and arbitrarily adopting a rate based on factually distinguishable judgments. The Revenue supported the "interest saved approach" adopted by the TPO, which assigns 50% of the interest saved as Corporate Guarantee Fee to the assessee.

The Tribunal noted that the issue of Corporate Guarantee Fee is well-settled and has been consistently decided in favor of the assessee in various judicial precedents, including the Bombay High Court's decision in CIT v. Everest Kanto Cylinder Limited and the ITAT Kolkata's decision in Berger Paints India Limited. The Tribunal observed that the assessee had already charged a Corporate Guarantee Fee at the rate of 0.50%, which falls within the accepted range of 0.3% to 0.5% established by various decisions. The Tribunal also found the TPO's basis of using a 'CCC' credit rating for benchmarking the fee to be devoid of any comparative factual data and the equal split of the benchmarking rate between the assessee and its AE to lack rationality.

Consequently, the Tribunal upheld the Ld. CIT(A)'s decision to delete the upward adjustment towards the Corporate Guarantee Fee, dismissing the Revenue's grounds on this issue.

2. Disallowance under Section 36(1)(va) of the Act:

This issue pertains to the disallowance of the employee PF & ESI contributions claimed under section 36(1)(va) for AY 2015-16. The Ld. Counsel for the assessee conceded that the issue is settled against the assessee in light of the Supreme Court's judgment in the case of Chekmate Services Pvt. Ltd. v. CIT. The Supreme Court held that the deduction under section 36(1)(va) cannot be claimed for delayed deposits of employees' contributions to PF, even if deposited within the due date of filing the return, as per Section 43B.

The Tribunal, respecting the Supreme Court's judgment, dismissed the assessee's ground on this issue, thereby upholding the disallowance under section 36(1)(va).

Conclusion:

The Tribunal's decision resulted in the partial allowance of the Revenue's appeal for AY 2015-16 (pertaining to the disallowance under section 36(1)(va)) and the dismissal of the appeal for AY 2016-17 (pertaining to the Corporate Guarantee Fee adjustment). The order was pronounced in the open Court on 28th February 2023.

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