2023 (10) TMI 1180 - AT - Income Tax

Corporate guarantee commission at 0.35% deemed arm's length, Section 14A disallowance deleted for mechanical application

ITAT Mumbai allowed the assessee's appeal on multiple grounds. The tribunal held that corporate guarantee commission at 0.35% per annum was at arm's ... TP Adjustment - ALP for corporate guarantee - HELD THAT:- Respectfully following the said decisions of the coordinate 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 0.35% per cent per annum is at arm’s length not requiring any transfer pricing adjustment. Disallowance u/s 14A r.w. Rule 8D - assessee has suo moto disallowed expenses - Mandation of recording satisfaction - HELD THAT:- As decided in M/S GREATSHIP (INDIA) LTD. CASE [2022 (12) TMI 1464 - ITAT MUMBAI] the dissatisfaction has been recorded, however, the same is not in accordance with mandate of Section 14A(2) of the Act as the Assessing Officer has acted in a mechanical manner based upon conjecture/surmise and has recorded dissatisfaction without having regard to the accounts of the Appellant and/or the computation of suo moto disallowance made by the Appellant under Section 14A of the Act. The general hypothesis made by the Assessing Officer fails to meet the mandate of Section 14A(2) of the Act in view of the methodical computation of disallowance furnished by the Appellant taking into the account the actual expenditure incurred by the Appellant. Accordingly, we delete the addition. Computation of book profit making adjustment on account of addition made in respect of guarantee commission and disallowance made u/s 14A r.w Rule 8D by the assessing officer - HELD THAT:- We find that AO has neither made any discussion nor proposed any addition in the draft assessment order pertaining to making adjustment in the book profit u/s 115JB of the Act and also made no discussion or addition in the final assessment order. Therefore, following the decision of Sanmina SCI India (P) Ltd. (2017 (8) TMI 663 - MADRAS HIGH COURT) and decision of Woco Motherson Advances Rubber Technologies Ltd. [2017 (4) TMI 660 - GUJARAT HIGH COURT]. We have already deleted the aforesaid further addition made u/s 14A of the Act on the basis adjustment made by the assessing officer in the computation of book profit u/s 115JB of the Act. In view of the above facts and judicial findings, the appeal of these grounds of appeal of the assessee are allowed. Short credit of TDS - HELD THAT:- As ITAT in the case of the assessee itself for assessment year 2018-19 [2022 (10) TMI 1209 - ITAT MUMBAI] in appeal against intimation u/s 143(1) has allowed the appeal in favour of the assessee. Therefore, we direct the AO to allow the claim of TDS credit as directed by the ITAT in the case of the assessee as referred above, therefore, this ground of appeal of the assessee is allowed for statistical purpose. Issues Involved:1. Violation of principles of natural justice by AO/TPO.2. Non-confrontation with material relied upon for transfer pricing adjustment.3. Classification of financial guarantees as 'international transactions'.4. Financial guarantees as shareholder activity.5. Determination of Arm's Length Price (ALP) for financial guarantees.6. Transfer pricing adjustment on guarantee commission.7. Rejection of internal Comparable Uncontrolled Price (CUP) method.8. Consistency in following internal CUP method.9. Arbitrary computation of ALP for financial guarantees.10. Suo moto disallowance of expenditure under Section 14A.11. Consistency in method for disallowance under Section 14A.12. Additional disallowance under Section 14A read with Rule 8D.13. Invocation of Rule 8D without objective satisfaction.14. Incorrect assessment of Income from Other Sources.15. Incorrect assessment of Business Loss.16. Incorrect computation of Book Profit under Section 115JB.17. Disallowance of transfer pricing adjustment in Book Profit computation.18. Disallowance under Section 14A in Book Profit computation.19. Short credit of TDS.Summary:Issue 1 to 9: Transfer Pricing Adjustment of Rs. 2,81,85,587/-The assessee contended that the TPO erred in making a transfer pricing adjustment of Rs. 2,81,85,587/- on account of guarantee commission at 1.25% per annum. The assessee had used internal CUP to benchmark the guarantees given, charging a commission of 0.30% per annum. The ITAT Mumbai had previously accepted this method for the assessee's earlier assessment years. The Tribunal found no reason to deviate from its earlier decisions and upheld the assessee's method, allowing grounds 1 to 9.Issue 10 to 13: Disallowance under Section 14A read with Rule 8DThe assessee had disallowed Rs. 10,42,637/- suo moto under Section 14A. The AO, however, computed a disallowance of Rs. 33,51,576/-. The Tribunal noted that the AO did not objectively disprove the assessee's allocation of expenses and acted on presumptions. Referring to its earlier decisions, the Tribunal directed the AO to delete the additional disallowance, allowing grounds 10 to 13.Issue 14 & 15: Incorrect AssessmentsThese grounds were not pressed by the assessee and were dismissed.Issue 16 to 18: Computation of Book Profit under Section 115JBThe AO did not propose any adjustments in the draft assessment order under Section 115JB. The Tribunal, citing decisions from higher courts, ruled that no adjustments could be made in the final assessment order if not proposed in the draft. Consequently, the Tribunal allowed these grounds.Issue 19: Short Credit of TDSThe Tribunal directed the AO to allow the TDS credit as per the ITAT's earlier decision for the assessee's assessment year 2018-19, allowing this ground for statistical purposes.Conclusion:The appeal was partly allowed, with significant relief granted to the assessee on major grounds of transfer pricing adjustments and disallowances under Section 14A. The Tribunal emphasized consistency with its past decisions and adherence to judicial precedents.