Corporate guarantee fees reduced to 50:50 split, royalty rates set at nil and 0.75%, ESI/EPF delay additions deleted

The ITAT Delhi ruled on multiple issues in this transfer pricing case. For corporate guarantee fees, the tribunal reduced the TPO's 75% interest benefit allocation to a 50:50 split between guarantor and borrower. On royalty adjustments, it set rates at nil for one AE and 0.75% for another. The tribunal deleted additions for ESI/EPF delays, audit report-based additions under section 43B, and accounting policy changes, finding no valid basis for these adjustments. It upheld CIT(A)'s deletion of notional interest on trade receivables and section 14A additions where no exempt income existed. The deduction under section 80G was remanded to AO for fresh consideration after proper evidence review.

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Issues Involved:
1. Corporate Guarantee Fee
2. Transfer Pricing Adjustment on Account of Royalty
3. Disallowance on Account of Delay in Deposit of ESI/EPF
4. Addition u/s. 43B Based on Audit Report
5. Addition for Change of Accounting Policy
6. Claim of Deduction as Capital Subsidy on Statutory Exemption from Payment of Excise Duty
7. Notional Interest Imputed on Trade Receivables
8. Re-computation of Deduction u/s. 80IB and 80IC
9. Addition u/s. 14A r.w.r. 8D
10. Addition u/s. 40(a)(ia) for Bank Guarantee Commission/Fee
11. Claim of Deduction u/s. 80G

Summary:

1. Corporate Guarantee Fee:
The Tribunal addressed the issue of corporate guarantee fees for Dabur Egypt Ltd., Dabur International Ltd., UAE, Dermoviva Essentials Inc., USA, and Dabur Sri Lanka Pvt. Ltd. The TPO's interest saved approach was modified to a 50:50 split of interest savings between the assessee and the AEs, reducing the service fee to 0.30% for Dabur Egypt Ltd. and similar adjustments for other entities. The Tribunal upheld this 50:50 split for the years under consideration.

2. Transfer Pricing Adjustment on Account of Royalty:
The Tribunal examined the TPO/CIT(A)'s imposition of brand royalty charges of 0.75% for Dabur International Ltd. and 2% for Asian Consumer Care Ltd. It was held that the royalty should be charged at 0.75% for both entities, following the Tribunal's earlier decisions and the principle of judicial discipline.

3. Disallowance on Account of Delay in Deposit of ESI/EPF:
The Tribunal upheld the disallowance based on the Supreme Court's decision in Check Mate Services Private Limited, which ruled against the assessee on this issue.

4. Addition u/s. 43B Based on Audit Report:
The Tribunal found that the amount of Rs. 67156645/- was not charged to the P&L account and directed the AO to delete this addition, as it was not warranted.

5. Addition for Change of Accounting Policy:
The Tribunal directed the AO to delete the addition of Rs. 63 lacs, as the assessee had already accounted for the loss due to adverse currency fluctuation in its computation of income.

6. Claim of Deduction as Capital Subsidy on Statutory Exemption from Payment of Excise Duty:
The Tribunal remanded the issue back to the AO for fresh consideration, following the principles set in earlier years.

7. Notional Interest Imputed on Trade Receivables:
The Tribunal upheld the CIT(A)'s deletion of the notional interest imputed on trade receivables, as the assessee's net margin was higher than comparables, and there was no need for separate benchmarking of receivables.

8. Re-computation of Deduction u/s. 80IB and 80IC:
The Tribunal upheld the CIT(A)'s decision to not allocate head office expenses and depreciation to eligible units for computing deductions under sections 80IB and 80IC, following the principle of consistency and earlier Tribunal decisions.

9. Addition u/s. 14A r.w.r. 8D:
The Tribunal upheld the deletion of the addition made by the AO under section 14A, as there was no exempt income during the year under consideration.

10. Addition u/s. 40(a)(ia) for Bank Guarantee Commission/Fee:
The Tribunal upheld the CIT(A)'s deletion of the addition, following the Delhi High Court's decision in JDS Apparels, which ruled that bank guarantee fees are not subject to TDS under section 194H.

11. Claim of Deduction u/s. 80G:
The Tribunal remanded the issue back to the AO to verify the 80G certificates and decide the claim of deduction accordingly.

Conclusion:
The appeals were allowed in part for statistical purposes, with several issues remanded back to the AO for fresh consideration based on the principles established in earlier years and judicial discipline. The Tribunal's decisions were consistent with the earlier rulings and upheld the CIT(A)'s findings on most issues.

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