2023 (2) TMI 292 - AT - Income Tax

Tribunal Adjusts Corporate Guarantee to 0.5%, Deletes Sales Incentive Disallowance; Remits 80IC Deduction for Review.

The tribunal partially allowed the appeals, directing adjustments to the arm's length price of the corporate guarantee to 0.5% and deleting the ... TP Adjustment - corporate guarantee provided to AEs - HELD THAT:- We are of the considered opinion that since ITAT has decided the issue in assessee’s own case AY 2014-15 [2022 (5) TMI 685 - ITAT DELHI] and the same has not been reversed by Hon’ble jurisdictional High Court, we follow the same and direct that disallowance be restricted to 0.5% as has been held in the above order of the ITAT. Disallowance in respect of provision made for sales incentive under Shahenshah Scheme - HELD THAT:- As we find that the issue is decided by the ITAT in assessee’s own case 2014-15 [2022 (5) TMI 685 - ITAT DELHI] in assessee’s favour consistently, hence we follow the same and are of the opinion that the provisions made in this regard are allowable - we direct that the disallowance in this regard is to be deleted. Deduction/rejection allowable u/s 80IC - AO noted that in the preceding year, the assessee was disallowed section 80IC deduction on interest income and held the same was not allowable in this year also - HELD THAT:- Since in assessee’s own case AY 2009-10 [2021 (1) TMI 741 - ITAT DELHI] the issue is decided in favour of the assessee, we hold that principally the issue is in favour of the assessee. Revenue authorities have also pointed out that assessee has not given necessary breakup and particular of interests mentioned in CIT’s order as above. We remit this issue to the file of the AO to obtain the necessary breakup and follow the ITAT order as above. Issues Involved:1. Addition on account of the alleged difference in arm's length price of international transactions.2. Addition on the ground that no commission was charged for providing a corporate guarantee.3. Disallowance of provision made for sales incentive under the 'Shahenshah Scheme.'4. Reduction of deduction allowable under section 80IC of the Act.5. Deduction of education cess and secondary and higher education cess.Issue-wise Detailed Analysis:1. Addition on account of the alleged difference in arm's length price of international transactions:The assessee contested the CIT (A)'s decision to confirm the addition of Rs. 3,80,00,000/- based on the Transfer Pricing Officer's (TPO) findings. The TPO had treated the corporate guarantee as an international transaction and determined its arm's length price at 1.15% of the outstanding loan amount. The CIT (A) upheld this addition. The assessee argued that the corporate guarantee was a shareholder activity, not an international transaction, and no costs were incurred for issuing it. The tribunal referred to a previous ITAT ruling in the assessee's favor, which directed that the disallowance be restricted to 0.5%.2. Addition on the ground that no commission was charged for providing a corporate guarantee:The TPO's determination of the arm's length price for the corporate guarantee was based on data from the State Bank of India. The CIT (A) confirmed this addition. The assessee argued that the corporate guarantee was not an international transaction and that no notional income should be imputed under section 92. The tribunal referenced a prior ITAT decision in the assessee's favor, which set the adjustment rate at 0.5% instead of 1.15%.3. Disallowance of provision made for sales incentive under the 'Shahenshah Scheme':The AO disallowed Rs. 3,89,27,433/- of the provision made for sales incentives, stating it was not based on a scientific or logical basis. The CIT (A) confirmed this disallowance. The assessee argued that the provision had been consistently allowed by the ITAT in previous years. The tribunal followed the precedent and directed the deletion of the disallowance.4. Reduction of deduction allowable under section 80IC of the Act:The AO disallowed the section 80IC deduction on interest income, a decision upheld by the CIT (A). The CIT (A) argued that the interest receipts were income from other sources and not connected to the business of the eligible unit. The tribunal noted that in previous years, the ITAT had allowed the deduction, considering the interest income to be inextricably linked to the business. The tribunal remitted the issue back to the AO to obtain the necessary breakup of interest income and follow the ITAT's previous order.5. Deduction of education cess and secondary and higher education cess:The assessee chose not to press this ground, and the tribunal dismissed it as not pressed.Conclusion:The appeals were partly allowed, with the tribunal directing specific adjustments and remitting certain issues back to the AO for further verification. The tribunal's decisions were largely based on precedents set in the assessee's own previous cases. The order was pronounced on November 25, 2022.