ITAT upholds CIT(A)'s decision on Section 80IB, 14A, scrap income, and transfer pricing.

The ITAT upheld the CIT(A)'s decision in favor of the assessee regarding the deduction under Section 80IB for common head office and selling expenses, disallowance under Section 14A read with Rule 8D, deduction for income from the sale of scrap, and transfer pricing adjustment for corporate guarantee. The revenue's appeals were partly allowed, with adjustments made in the corporate guarantee fee, while the appeals of the assessee were dismissed.

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Issues Involved:
1. Deduction under Section 80IB for common head office and selling expenses.
2. Disallowance under Section 14A read with Rule 8D.
3. Deduction under Section 80IB for income from the sale of scrap.
4. Transfer pricing adjustment for corporate guarantee.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB for Common Head Office and Selling Expenses:
The primary issue was the apportionment of common head office and selling expenses for computing profits of units eligible for deduction under Section 80IB. The assessee maintained separate books for eligible units and apportioned common expenses based on a methodology previously accepted by the ITAT Kolkata and the Calcutta High Court. The AO proposed a different apportionment based on turnover, leading to a disallowance of Rs. 9,38,54,750/-. The CIT(A) ruled in favor of the assessee, relying on earlier decisions. The ITAT upheld the CIT(A)'s decision, emphasizing judicial consistency and the scientific and reasonable basis of the assessee's methodology.

2. Disallowance under Section 14A read with Rule 8D:
The AO disallowed Rs. 55,04,432/- under Section 14A read with Rule 8D, arguing that the assessee's investment was funded by borrowed capital. The CIT(A) deleted the disallowance, noting the assessee's substantial own funds and lack of specific reasons from the AO. The ITAT upheld the CIT(A)'s decision, referencing the assessee's own funds exceeding investments and the absence of a nexus between borrowed funds and investments. The ITAT also cited the Supreme Court's decision in South Indian Bank Ltd. v. CIT, which supported the assessee's position.

3. Deduction under Section 80IB for Income from Sale of Scrap:
The AO disallowed Rs. 76,94,000/- from the sale of scrap, arguing it was not derived from the eligible business. The CIT(A) allowed the deduction, relying on the ITAT's decision in the assessee's favor for AY 2008-09. The ITAT upheld the CIT(A)'s decision, noting consistent judicial precedents and the direct nexus between the scrap generation and the manufacturing process, making it eligible for deduction under Section 80IB.

4. Transfer Pricing Adjustment for Corporate Guarantee:
The AO made adjustments for corporate guarantees provided to the assessee's subsidiaries in Cyprus and Nepal, treating them as international transactions and applying a guarantee fee of 3.6% and 3% respectively. The CIT(A) deleted the adjustments, considering the guarantees as shareholder activities not warranting fees. The ITAT, following recent legal developments and the Madras High Court's decision in PCIT v. Redington (India) Ltd., held that corporate guarantees are international transactions. However, it determined a reasonable guarantee fee of 0.35%, directing the AO to apportion the fee based on the actual period the guarantee was effective.

Conclusion:
- The appeals of the assessee were dismissed.
- The revenue's appeals were partly allowed, with adjustments in the corporate guarantee fee.

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