2023 (3) TMI 653 - AT - Income Tax

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 ... TP Adjustment - determination of ALP of the financial guarantee given by the Appellant to its AEs @ 1.25% per annum by the DRP - DRP has while reducing the rate of guarantee commission from 2.07% as determined by the TPO to 1.25% relied upon the order of DRP for the Assessment Year 2013-14 and 2014-15 - HELD THAT:- Respectfully following the said decisions of the co-ordinate benches of the Tribunal in the case of the Appellant for the Assessment Years 2011-12 [2021 (10) TMI 822 - ITAT MUMBAI], 2012-13 [2021 (4) TMI 254 - ITAT MUMBAI], 2013-14 [2021 (10) TMI 453 - ITAT MUMBAI] and 2014-15 [2021 (4) TMI 254 - ITAT MUMBAI], we hold that corporate guarantee commission determined by the Appellant at the rate of 0.40 per cent per annum is at arm’s length not requiring any transfer pricing adjustment. Adoption of interest rate @ LIBOR plus 3.332% per annum as appropriate rate to benchmark interest charged on loan to AEs - TPO had determined ALP taking interest rate of 6.17 percent per annum which was reduced to LIBOR plus 2.9% by the DRP - HELD THAT:- Since the same loan is continuing during the relevant assessment year, we do not see any reason to depart from a view consistently taken by the Tribunal in the case of the Appellant for the immediately preceding assessment years in respect of the same loan transaction. We delete the addition on account of upward transfer pricing adjustment relating to interest charged to AEs. Disallowance u/s 14A of the Act read with Rule 8D - necessity of recording satisfaction - HELD THAT:- We note that the Appellant had methodically identified actual expenses which can be reasonably treated as relatable to the exempt income and disallowed such expenses under Section 14A. However, the Assessing Officer had, without recording dissatisfaction, rejected the computation/statements furnished by the Appellant. The Tribunal has, in identical facts and circumstances, decided this issue in favour of the Appellant vide order [2021 (10) TMI 822 - ITAT MUMBAI] pertaining Assessment Year 2011-12 holding that the satisfaction recorded by the Assessing Officer in rejecting Appellant’s computation was not in accordance with the mandate envisaged under section 14A(2) of the Act - we delete the disallowance made by the Assessing Officer under Section 14A of the Act read with Rule 8D(2)(iii). Grant credit of tax deducted at source - intimation u/s 143(1) - HELD THAT:- Appellant not being satisfied filed appeal before the Tribunal which was disposed off vide order [2020 (2) TMI 21 - ITAT MUMBAI] giving certain directions to the Assessing Officer. The Ld. Authorised Representative for the Appellant submits that the Assessing Officer has not taken any steps pursuant to the order passed by the Tribunal. In the interest of justice we deem it appropriate to comply with the order passed by the Tribunal while passing appeal effect order. 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.