Tribunal Rules on Arm's Length Price Adjustments and Capital Gains, Directs Review of Tax Credits

The Tribunal partly allowed the appeals concerning Arm's Length Price (ALP) adjustments for corporate guarantees in A.Ys. 2012-13 and 2013-14. It upheld the corporate guarantee as an international transaction and determined a lump sum corporate guarantee commission of 0.9%. Additionally, the Tribunal directed the Assessing Officer to reexamine the denial of carry forward set-off losses under 'capital gains' for A.Y. 2010-11 and review the capital gains addition of Rs. 21,02,947/- for A.Y. 2012-13. The appeal regarding non-credit of tax paid on distributed profits under section 115-O of the Act for A.Y. 2013-14 was accepted in part.

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Issues:
1. Arm's Length Price (ALP) adjustments for corporate guarantees in A.Ys. 2012-13 & 2013-14.
2. Denial of carry forward set-off losses under 'capital gains' for A.Y. 2010-11.
3. Upholding capital gains addition of Rs. 21,02,947/- for A.Y. 2012-13.
4. Non-credit of tax paid on distributed profits under section 115-O of the Act for A.Y. 2013-14.

Arm's Length Price (ALP) Adjustments for Corporate Guarantees:
The appeals involved challenges against ALP adjustments for corporate guarantees in A.Ys. 2012-13 and 2013-14. The argument presented was that corporate guarantees should not be treated as international transactions under section 92B of the Income Tax Act, 1961. However, the Tribunal held that a corporate guarantee constitutes an international transaction based on legal precedents. The Tribunal determined a lump sum corporate guarantee commission of 0.9% for both assessment years, overruling the TPO's higher rate.

Denial of Carry Forward Set-Off Losses:
Regarding the denial of carry forward set-off losses under 'capital gains' for A.Y. 2010-11, the Tribunal noted that a previous order had restored the issue to the Assessing Officer for verification. As this restoration was not considered by lower authorities, the Tribunal directed the Assessing Officer to reexamine the matter in line with judicial consistency. Consequently, the second substantive ground was allowed for statistical purposes.

Upholding Capital Gains Addition:
In the case of the capital gains addition of Rs. 21,02,947/- for A.Y. 2012-13, the Tribunal disagreed with the Revenue's argument that the claim could not be entertained without a revised return. Citing legal precedent, the Tribunal emphasized the appellate authorities' jurisdiction to consider new grounds. The Assessing Officer was directed to review the capital gains addition grievance on merits within three hearing opportunities.

Non-Credit of Tax Paid on Distributed Profits:
For the issue of not granting tax credit on distributed profits under section 115-O of the Act for A.Y. 2013-14, the Tribunal noted the assessee's decision to no longer pursue the claim as the credit had already been provided in subsequent years. Consequently, the Tribunal accepted the appeal in part on this ground.

In conclusion, the Tribunal partly allowed both appeals, providing detailed reasoning and directions for each issue raised. The order was pronounced on 11th May 2021, with specific instructions for further computations and case files.

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