2023 (11) TMI 1323 - AT - Income Tax

Revenue's appeal dismissed on transfer pricing adjustment for corporate guarantee interest rate and Section 14A disallowance rejected

Asst. Commissioner of Income Tax Hyderabad Versus M/s. NCC Limited

ITAT Hyderabad dismissed Revenue's appeal regarding transfer pricing adjustment on corporate guarantee. CIT(A) had restricted interest rate to 0.53% ... TP Adjustment - treating the corporate guarantee as an international transaction - CIT(A) restricted addition to 0.53% instead of 1.8% as determined by the TPO - HELD THAT:- In the present case, the assessee is not aggrieved with the finding recorded by the ld.CIT(A) whereby the interest payable on corporate guarantee was restricted to 0.53%. Revenue is in appeal before us challenging the order and claiming that 1.8% should be applied as against 0.53% as applied by the ld.CIT(A). CIT(A) had decided the issue on the basis of the order passed by the Tribunal in the case of assessee in A.Ys. 2012-13 2016-17 to 17-18 and further this Bench in the case of M/s. Aurobindo Pharma Limited [2023 (4) TMI 1254 - ITAT HYDERABAD] also applied 0.50% as corporate guarantee, therefore, we do not find any merit in the appeal of the Revenue and uphold the order of CIT(A) whereby the ld.CIT(A) has restricted the interest payable on corporate guarantee at 0.53% instead of 1.8% as determined by the TPO. Thus, these grounds of the Revenue are dismissed. Disallowance u/s 14A - DR relied upon the amendment to Section 14A by insertion of explanation by the Finance Act, 2022 and submitted that the amendment is retrospective in nature - HELD THAT:- As decided in NCC Infrastructure Holdings Limited [2023 (6) TMI 575 - ITAT HYDERABAD] whereby the Tribunal has held that the amendment to section 14A of the Act was introduced by the Finance Act, 2022 is not retrospective and it is prospective in nature. The Tribunal in the case of NCC Infrastructure Holdings Limited (supra) had elaborately discussed the issue and decided the issue in favour of the assessee. Issues:1. Corporate guarantee fee determination based on comparability analysis.2. Disallowance of expenditure u/s. 14A of the Income Tax Act.Corporate Guarantee Fee Determination:The appeal pertains to the order of the Commissioner of Income Tax (Appeals) invoking proceedings under sections 143(3) r.w.s. 144C(3) r.w.s 144B of the Income Tax Act, 1961 for the A.Y. 2018-19. The Revenue challenged the order of the ld.CIT(A) regarding the corporate guarantee fee determination. The ld.CIT(A) restricted the interest payable on the corporate guarantee to 0.53% instead of 1.8% as determined by the TPO, relying on earlier orders. The Revenue contended that the ld.CIT(A)'s order was contrary to the TPO's order. However, the Tribunal, citing precedent cases, upheld the ld.CIT(A)'s decision, emphasizing that the interest payable on the corporate guarantee should be restricted to 0.5%. The Tribunal noted that the issue was previously decided in the case of M/s. Aurobindo Pharma Limited where a similar approach was adopted. As the ld.CIT(A) based the decision on precedent orders, the Tribunal dismissed the Revenue's appeal on these grounds.Disallowance of Expenditure u/s. 14A:The other grounds raised by the Revenue related to Section 14A of the Act. The ld.CIT(A) extensively discussed this issue in the order. The Revenue argued that the amendment to Section 14A by the Finance Act, 2022 was retrospective and applicable to all appeals. Conversely, the assessee relied on a Tribunal decision in the case of NCC Infrastructure Holdings Limited, which held that the amendment was prospective, not retrospective. The Tribunal referred to the decision in the case of Era Infrastructure (India) Ltd., where the Hon'ble Delhi High Court clarified that no disallowance under Section 14A could be made if the assessee had not earned any exempt income during the relevant year. Following this precedent, the Tribunal ruled against the Revenue on grounds 5 to 7, dismissing the appeal. The Tribunal held that in the absence of a decision by the jurisdictional High Court or the Supreme Court, decisions of other High Courts would be binding precedent. Therefore, the Tribunal upheld the ld.CIT(A)'s decision based on the legal provisions and dismissed the Revenue's appeal on these grounds as well.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the ld.CIT(A)'s orders on both the determination of the corporate guarantee fee and the disallowance of expenditure u/s. 14A of the Income Tax Act. The Tribunal based its decisions on precedent cases and legal interpretations, emphasizing the importance of comparability analysis and the applicability of legal amendments in determining tax liabilities.