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 disallowance of the sales incentive provision under the "Shahenshah Scheme." The issue regarding the section 80IC deduction was remitted back to the AO for further verification. The tribunal dismissed the education cess deduction issue as not pressed. The decisions were guided by precedents from the assessee's previous cases. The order was pronounced on November 25, 2022.

---

---

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.

---