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

ITAT Hyderabad dismissed Revenue's appeal regarding transfer pricing adjustment on corporate guarantee. CIT(A) had restricted interest rate to 0.53% instead of TPO's determination of 1.8%. ITAT upheld CIT(A)'s order based on precedent decisions including Aurobindo Pharma Limited case which applied 0.50% rate. Revenue's appeal lacked merit. Separately, ITAT rejected disallowance under Section 14A, holding that Finance Act 2022 amendment was prospective, not retrospective, following NCC Infrastructure Holdings Limited precedent.

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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.

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