Tribunal rules for assessee on transfer pricing, interest, and disallowance issues.

M/s. PMP Auto Components Pvt. Ltd. Versus DCIT, Cirlce 7 (3) (2) Mumbai And (Vice-Versa) And M/s. PMP Auto Components Pvt. Ltd. Versus DCIT, Cirlce 7 (3) (1) Mumbai

M/s. PMP Auto Components Pvt. Ltd. Versus DCIT, Cirlce 7 (3) (2) Mumbai And (Vice-Versa) And M/s. PMP Auto Components Pvt. Ltd. Versus DCIT, Cirlce 7 (3) ... Issues Involved:
1. Addition on account of transfer pricing adjustment of guarantee commission.
2. Incorrect computation of tax demand, interest u/s 234B & 234C, and non-grant of refund.
3. Deletion of addition of notional interest on account of loan given to associate enterprises.
4. Deletion of addition of notional interest on investment in subsidiary as deemed loan.
5. Deletion of addition on account of disallowance u/s 2(24)(x) r.w.s 36(1)(va).
6. Violation of principles of natural justice.
7. Reference made to the Transfer Pricing Officer (TPO) as bad-in-law.
8. Disallowance u/s 14A of the Act and computation of book profit u/s 115JB.

Detailed Analysis:

Issue 1: Addition on account of transfer pricing adjustment of guarantee commission
The assessee challenged the addition of Rs. 1,79,190/- on account of transfer pricing adjustment of guarantee commission. The TPO had charged commission based on rates normally charged by banks. The assessee argued that the corporate guarantee is not an international transaction and cited judgments from CIT vs. Everest Kento Cylinders Ltd. and CIT vs. Asian Paints (India) Ltd. The Tribunal found that the facts were similar to these cases and determined that the Arm’s Length Price (ALP) for the guarantee commission should be restricted to 0.5% of the guarantee amount, thus deciding in favor of the assessee.

Issue 2: Incorrect computation of tax demand, interest u/s 234B & 234C, and non-grant of refund
The assessee contended that the AO wrongly computed the tax demand and interest under sections 234B & 234C and stated that no refund was granted. The Tribunal noted that the calculation of interest is consequential based on the demand raised and directed the AO to calculate the interest strictly as per the provisions of sections 234B & 234C.

Issue 3: Deletion of addition of notional interest on account of loan given to associate enterprises
The revenue challenged the deletion of notional interest on loans given to associate enterprises. The DRP had directed the AO to adopt LIBOR plus 2% as the rate of interest for making adjustments. The Tribunal upheld the DRP’s decision, noting that the issue had been previously decided in the assessee’s favor for earlier assessment years, and found no need for TPO adjustment since the interest rate charged was 9.5% per annum.

Issue 4: Deletion of addition of notional interest on investment in subsidiary as deemed loan
The revenue contested the deletion of notional interest on investments in subsidiaries characterized as deemed loans. The DRP, following the Tribunal’s order in the assessee's own case for earlier years, directed the AO to delete the proposed addition. The Tribunal upheld this decision, emphasizing that investments cannot be re-characterized as loans and citing multiple judicial precedents supporting this view.

Issue 5: Deletion of addition on account of disallowance u/s 2(24)(x) r.w.s 36(1)(va)
The revenue challenged the deletion of disallowance of employees' ESIC contributions made beyond the stipulated period but before the due date for filing the return of income. The DRP found the assessee’s contention correct, supported by various judicial decisions, and directed the AO to delete the disallowance. The Tribunal upheld this decision, noting the contributions were made before the due date for filing the return.

Issue 6: Violation of principles of natural justice
The assessee claimed a violation of natural justice in the rejection of objections related to transfer pricing adjustments. The Tribunal did not separately adjudicate this issue, considering it would be addressed in the other grounds raised.

Issue 7: Reference made to the Transfer Pricing Officer (TPO) as bad-in-law
The assessee argued that the reference to the TPO was made without providing an opportunity to be heard, thus violating principles of natural justice. This issue was not pressed by the assessee and was decided in favor of the revenue.

Issue 8: Disallowance u/s 14A of the Act and computation of book profit u/s 115JB
The assessee challenged the disallowance of Rs. 28,33,730/- u/s 14A and its addition to book profits u/s 115JB. The Tribunal restricted the disallowance to the extent of the dividend income earned and deleted the addition to book profits, following jurisdictional High Court decisions and other judicial precedents.

Conclusion:
The Tribunal decided in favor of the assessee on most issues, including the transfer pricing adjustment of guarantee commission, notional interest on loans and investments, and disallowance u/s 14A. The revenue's appeal was dismissed, and the assessee's appeal was allowed.