Tribunal allows appeal, overturns transfer pricing adjustments. Compliance ordered on TDS credit grant.

The appeal was allowed by the Tribunal, with transfer pricing adjustments and disallowances made by the Assessing Officer and DRP being deleted. The Tribunal directed compliance with its earlier order regarding the grant of TDS credit.

---

---

Issues Involved:
1. Violation of the principle of natural justice by the Transfer Pricing Officer (TPO).
2. Classification of financial guarantee as an "international transaction" under Section 92B of the Income Tax Act.
3. Determination of Arm's Length Price (ALP) of financial guarantees at 1.25% per annum.
4. Transfer pricing adjustment of INR 17,09,03,763/- on account of guarantee commission.
5. Non-confrontation with information/material under Section 133(6) of the Income-tax Act.
6. Classification of financial guarantees as shareholder activity.
7. Rejection of internal CUP method and ALP of 0.40% p.a. for guarantee commission.
8. Arbitrary computation of ALP for financial guarantees.
9. Interest rate on loan to AE at LIBOR + 2.9% not at arm's length.
10. Transfer pricing adjustment of INR 33,25,360 for loan to AE.
11. Non-compliance with DRP order for AY 2011-12.
12. Rejection of benchmarking analysis for interest on loan to AE.
13. Arbitrary computation of ALP for loan to AE.
14. Disallowance of expenses under Section 14A read with Rule 8D(2)(iii).
15. Invocation of Rule 8D without objective satisfaction.
16. Non-grant of TDS credit of INR 45,41,995/-.

Issue-wise Detailed Analysis:

Ground No. 1 & 2:
The appellant did not press these grounds. Ground No.1 pertained to the violation of the principle of natural justice, and Ground No.2 pertained to the classification of providing guarantees as an international transaction. These grounds were disposed of as not pressed.

Ground No. 3 to 8:
These grounds addressed the determination of the ALP of financial guarantees given by the appellant to its AEs at 1.25% per annum by the DRP. The appellant argued that the AEs were wholly owned subsidiaries with adequate securities and credit ratings similar to the appellant, justifying a lower guarantee commission rate of 0.4%. The Tribunal noted that in previous years, similar issues were decided in favor of the appellant, accepting the ALP determined by the appellant. The Tribunal followed its earlier decisions and held that the corporate guarantee commission determined by the appellant at 0.40% per annum was at arm's length, thereby deleting the transfer pricing addition of INR 33,50,97,840/-. Ground No. 8 was disposed of as infructuous.

Ground No. 9 to 13:
These grounds challenged the adoption of an interest rate of LIBOR plus 3.332% per annum for benchmarking interest charged on loans to AEs. The appellant argued that the issue was covered in its favor by Tribunal decisions for previous years, where the interest rate of LIBOR plus 2.9% was held to be at arm's length. The Tribunal, following its earlier decisions, deleted the addition of INR 33,25,360/- on account of upward transfer pricing adjustment relating to interest charged to AEs. Ground No. 13 was disposed of as infructuous.

Ground No. 14 & 15:
These grounds pertained to the disallowance of INR 28,79,506/- under Section 14A read with Rule 8D of the Income Tax Rules. The appellant argued that it had methodically identified expenses related to exempt income and disallowed them. The Tribunal noted that the Assessing Officer had rejected the appellant's computation without recording dissatisfaction, which was not in accordance with Section 14A(2). Following its earlier decision, the Tribunal deleted the disallowance of INR 28,79,506/-.

Ground No. 16:
This ground related to the failure of the Assessing Officer to grant TDS credit of INR 45,41,995/-. The appellant argued that the Assessing Officer had not taken steps pursuant to the Tribunal's earlier order. The Tribunal directed compliance with its earlier order, allowing the ground.

Conclusion:
The appeal filed by the appellant was allowed, with the Tribunal deleting the transfer pricing adjustments and disallowances made by the Assessing Officer and DRP. The Tribunal directed compliance with its earlier order regarding the grant of TDS credit. The order was pronounced on 27.06.2022.

---