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 length, requiring no transfer pricing adjustment, following coordinate bench decisions. Regarding disallowance under Section 14A read with Rule 8D, the tribunal found the AO's dissatisfaction was recorded mechanically without proper regard to the assessee's accounts and suo moto disallowance computation, thus deleting the addition. The tribunal also deleted adjustments in book profit computation under Section 115JB as the AO made no discussion or addition in the assessment order. TDS credit claim was allowed following a previous ITAT decision favoring the assessee.

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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 8D
The 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 Assessments
These grounds were not pressed by the assessee and were dismissed.

Issue 16 to 18: Computation of Book Profit under Section 115JB
The 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 TDS
The 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.

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