2023 (4) TMI 884 - AT - Income Tax

Tribunal affirms CIT(A) decisions on arm's length price, TDS, and recreation club payments.

DCIT, Circle-11 (1), Kolkata Versus M/s Eveready Industries India Ltd.

The Tribunal upheld the CIT(A)'s decisions on all issues involved in the case. This included dismissing the Revenue's appeal regarding the arm's length ... TP adjustment - interest charged by the assessee on loans given to its associate enterprise/subsidiary - AO benchmarked the transaction taking the interest rate at which the assessee would get the loan in India and thereby made the transfer pricing adjustment by taking the interest rate @ 14.47% - HELD THAT:- The loan was advanced by the assessee to its wholly owned subsidiary for strategic acquisition abroad with a view to further the assessee’s business profile. DR could not rebut the above plea of the ld. AR that the loans were benchmarked as per relevant market rate of the relevant currency in which loans were advanced and as per the prevailing rate in that foreign country. As relying on case of Russell Credit Ltd. [2020 (1) TMI 781 - ITAT KOLKATA] and M/s Britannia Industries Ltd. [2018 (11) TMI 1744 - ITAT KOLKATA] we hold that the ld. CIT(A) rightly applied the case laws and deleted the impugned loan interest arm’s length price adjustment made by the Assessing Officer. Ground Nos.1 to 4 are accordingly dismissed. Disallowance u/s 40(a)(ia) - non-deduction of TDS on payment paid on account of advertisement to St. Xavier’s Alumni Association - HELD THAT:- As in the appellant’s own case for assessment year 2008-09 to 2010-11 his predecessor [CIT(A)] has deleted the impugned disallowance observing that the payee i.e. St. Xavier’s Alumni Association was recognised by the department as a charitable institution and its income was exempt and therefore, there was no escapement of income and the assessee was not obliged to deduct TDS, since the income of the said institution/payee was not taxable. Decided against revenue. Disallowance u/s 40A(9) for payments made to the employees’ recreation club - AO disallowed the said expenditure observing that the said club was a distinct entity and contribution made by the assessee to the said club was not allowable as business expenditure - CIT-A deleted the addition as relying on own case as held that recreation club was integral part of the assessee itself, where, the contribution was collected from employees and this was matched by the assessee for providing recreational facilities as a measure of employee welfare and since the payments were not made to any third party association or trust, rather, the payments represented expenditure on in-house employee welfare activities, the expenditure was allowable - HELD THAT:- The facts and issues involved in Revenue’s appeal for assessment year 2012-13 & 2013-14 are exactly identical except the amounts involved and our findings, given above, will mutatis mutandis apply to all the captioned appeals. In view of this all the appeal filed by the Revenue are hereby dismissed. Issues Involved:1. Deletion of arm's length price adjustment on account of interest income on loans to associate enterprises (AEs).2. Determination of arm's length rate of interest in accordance with Section 92C of the Income Tax Act.3. Methodology for determining credit rating by the Transfer Pricing Officer (TPO).4. Application of LIBOR for benchmarking interest rates.5. Disallowance under Section 40(a)(ia) for non-deduction of TDS on advertisement payments.6. Disallowance under Section 40A(9) for payments made to employees' recreation club.Summary:Issue 1-4: Arm's Length Price Adjustment on Interest IncomeThe Revenue contested the deletion of an arm's length price adjustment of Rs. 1,49,23,786/- made by the Assessing Officer (AO) on interest income from loans given to AEs. The assessee had advanced a loan to its AE, M/s Novenor SAS France, and applied the Comparable Uncontrolled Price (CUP) method for benchmarking, using the LIBOR rate. The AO, however, benchmarked the transaction using the domestic interest rate in India at 14.47%. The CIT(A) deleted the addition, noting that the TPO did not provide reasons for rejecting the CUP method and that the LIBOR rate was appropriate for foreign currency loans. The CIT(A) also referenced multiple judicial precedents supporting the use of LIBOR. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's grounds.Issue 5: Disallowance under Section 40(a)(ia)The Revenue challenged the deletion of disallowance under Section 40(a)(ia) for non-deduction of TDS on a payment of Rs. 2,94,000/- to St. Xavier's Alumni Association for advertisements. The CIT(A) deleted the disallowance, referencing earlier years' decisions where it was held that the payee was a charitable institution with exempt income, thus not requiring TDS deduction. The Tribunal found no distinguishable facts for the current year and dismissed this ground of appeal.Issue 6: Disallowance under Section 40A(9)The Revenue appealed against the deletion of disallowance under Section 40A(9) for payments made to the employees' recreation club. The CIT(A) deleted the disallowance, noting that the club was an integral part of the assessee, and the contributions were for employee welfare, not to a third-party entity. The Tribunal upheld this finding, dismissing the Revenue's appeal.Conclusion:The Tribunal dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s decisions on all the issues involved.