ITAT Hyderabad adjusts arm's length price, allows section 14A disallowance verification.

The tribunal allowed the appeals for statistical purposes, directing the Assessing Officer to recompute the arm's length price on shareholder corporate guarantee at 1.80% instead of the TPO's 2% calculation. The tribunal also instructed the AO to verify the nature of investments for disallowance under section 14A and allowed verification of set off of previous years' losses. Issues regarding interest imposition, short credit of prepaid taxes, and MAT were remitted for further verification. The decisions were made by ITAT Hyderabad on 31st January 2018.

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Issues involved:
1. Adjustment on shareholder corporate guarantee
2. Disallowance under section 14A of the Income Tax Act
3. Set off of previous years' losses and unabsorbed depreciation
4. Imposition of interest under sections 234B and 234D
5. Short credit of prepaid taxes
6. Providing partial credit of MAT under section 115JAA

Analysis:

Adjustment on shareholder corporate guarantee:
The issue revolved around the adjustment made by the Transfer Pricing Officer (TPO) on the shareholder corporate guarantee provided by the assessee to its associated enterprise (AE). The TPO imputed a notional fee on the guarantee, considering it as an international transaction. The TPO calculated the arm's length price at 2% per annum and suggested an adjustment under section 92CA of the Income Tax Act. However, the Dispute Resolution Panel (DRP) directed the Assessing Officer (AO) to recompute the arm's length price at 1.80%. The tribunal held that the amendment to section 92B of the Act was applicable prospectively from AY 2013-14, thus allowing the assessee's appeal on this ground.

Disallowance under section 14A:
The AO disallowed expenses under section 14A as the assessee had investments generating exempt income. The DRP upheld the disallowance. The tribunal directed the AO to verify the nature of investments and exclude those generating taxable income from the disallowance calculation. The ground was allowed for statistical purposes.

Set off of previous years' losses and unabsorbed depreciation:
The AO rejected the claim for set off of carry forward losses. The DRP remitted the matter to the AO for verification. The tribunal upheld the DRP's decision to allow the AO to verify the claim with reference to records.

Imposition of interest and short credit of prepaid taxes:
The issues related to the imposition of interest under sections 234B and 234D, short credit of prepaid taxes, and partial credit of Minimum Alternate Tax (MAT) were remitted back to the AO by the DRP for verification. The tribunal dismissed the grounds raised by the assessee, directing them to provide relevant information to the AO for further consideration.

Conclusion:
The tribunal allowed the appeals for statistical purposes based on the decisions made on each issue. The judgments were pronounced on 31st January 2018 by the Appellate Tribunal ITAT Hyderabad, comprising Vice President Shri D. Manmohan and Accountant Member Shri S. Rifaur Rahman.

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