Tribunal Adjusts Corporate Guarantee, Interest Expenses, AI Report, Travel Expenses

The Tribunal partly allowed the appeal, directing the AO to restrict the adjustment for the provision of corporate guarantee at 0.5%, deleting the disallowance of interest expenses under Section 14A, upholding the addition for Annual Information Report reconciliation, and allowing travel booking engine expenses as revenue expenditure. The decision was pronounced on 03-01-2019.

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Issues Involved:
1. Adjustment made with respect to the international transaction of provision of corporate guarantee for loans taken by AEs.
2. Disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.
3. Disallowance in respect of the Annual Information Report (AIR) reconciliation.
4. Disallowance of travel booking engine expenses considered as Capital Work in Progress (CWIP) in the books of account and claimed as revenue in the return of income.

Detailed Analysis:

1. Adjustment Made with Respect to the International Transaction of Provision of Corporate Guarantee for Loans Taken by AEs:
The assessee contested the adjustments made by the TPO/DRP/AO regarding the corporate guarantee provided to its subsidiaries. It argued that these transactions do not qualify as international transactions under Section 92B of the Act, and the notional adjustment of Rs. 7,14,67,809 was erroneous. The Tribunal referenced its own decision in the assessee's case for AY 2009-10 and 2010-11, supported by the Hon'ble Bombay High Court decision in CIT vs. Everest Kanto Cylinder Limited, directing the AO to restrict the adjustment to 0.5% of the loan amount. Consequently, the Tribunal directed the AO to restrict the adjustment at 0.5%, partly allowing the assessee's appeal.

2. Disallowance of Expenses Relatable to Exempt Income by Invoking the Provisions of Section 14A of the Income Tax Act Read with Rule 8D of the Income Tax Rules:
The AO disallowed Rs. 2,57,57,212 under Section 14A read with Rule 8D, over and above the assessee's suo-moto disallowance of Rs. 43,96,340. The Tribunal noted that the assessee had sufficient interest-free funds from IPO proceeds to cover the investments and referenced the Hon'ble Bombay High Court decision in CIT vs. HDFC Bank Ltd., which presumes investments were made from interest-free funds. Consequently, the Tribunal deleted the disallowance of interest expenses. Regarding administrative expenses, the Tribunal directed the AO to consider only those investments that yielded exempt income during the year, following the decision of the Special Bench of ITAT Delhi in ACIT vs. Vireet Investments (P.) Ltd. This issue was set aside and allowed for statistical purposes.

3. Disallowance in Respect of the Annual Information Report (AIR) Reconciliation:
The AO added Rs. 25,86,068 based on discrepancies between the AIR statement and the assessee's books. The assessee argued that the total tour sales recorded were higher than those in the AIR statement and that the addition should be limited to the profit margin. However, the Tribunal found no matching unaccounted purchases and upheld the addition of Rs. 25,86,068, dismissing the assessee's appeal on this issue.

4. Disallowance of Travel Booking Engine Expenses Considered as Capital Work in Progress (CWIP) in the Books of Account and Claimed as Revenue in the Return of Income:
The AO disallowed Rs. 1,20,24,914 incurred on the development of a travel booking engine and SAP software, treating it as capital expenditure. The Tribunal, referencing the Mumbai ITAT decision in Reliance Footprint Limited v. ACIT, held that these expenses were for expanding the existing line of business and did not create a new asset or provide enduring benefit. Thus, the Tribunal allowed the expenses as revenue expenditure under Section 37(1) of the Act, allowing the assessee's appeal on this issue.

Conclusion:
The appeal was partly allowed, with specific directions given for each issue. The Tribunal's decision was pronounced in the open court on 03-01-2019.

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