Transfer pricing and deduction disputes: CUP-based rates, section 14A relief, inventory write-off, and remands for factual verification.

Transfer pricing and allied deduction issues were addressed across multiple assessment years: corporate guarantee commission was aligned at 1% on CUP-based reasoning, with verification of any actual recovery from the subsidiary; notional interest on delayed trade receivables was remitted for fresh examination; and interest on loans to subsidiaries was refixed for one year and remitted for another after considering bank sanction terms and borrowing rates. Section 14A read with Rule 8D disallowance was deleted because own funds exceeded investments and no expenditure was shown for exempt income. Guarantee commission paid for personal guarantees was allowed subject to verification of taxability in the directors' hands, obsolete inventory write-off was allowed, prior-period purchases were sustained, and a blanket expense disallowance for missing PAN/TDS particulars was remitted for verification.

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Issues: (i) Whether corporate guarantee commission (notional) fixed by DRP/AO is correct; (ii) Whether notional interest on delayed trade receivables from subsidiary is exigible; (iii) Whether interest rate applied on loan to subsidiary is correct; (iv) Whether disallowance under section 14A read with Rule 8D is sustainable; (v) Whether guarantee commission paid to directors for personal guarantees is disallowable; (vi) Whether write-off of obsolete inventory is allowable in AY 2021-22; (vii) Whether purchases treated as relating to earlier years are disallowable; (viii) Whether blanket 10% disallowance for lack of PAN/TDS particulars is sustainable.

Issue (i): Whether corporate guarantee commission should be fixed at the rate adopted by the DRP/AO or at 1% as held earlier by the Tribunal.

Analysis: The Tribunal considered its coordinate-bench decision in the assessee's own case for AY 2017-18 (where 1% was applied), comparative tribunal decisions, and the DRP directions; found no reason to depart from 1% and allowed verification of amount actually recovered from subsidiary.

Conclusion: In favour of assessee; corporate guarantee commission fixed at 1% for both AYs and AO to verify and allow the actual recovered amount if established.

Issue (ii): Whether notional interest on belated trade receivables from subsidiary can be imposed for AY 2020-21.

Analysis: The Tribunal relied on the Delhi High Court precedent requiring detailed inquiry and pattern analysis before treating receivables as an international transaction and considered the assessee's evidence of bank loan rates; found merits in the assessee's submissions and remitted the matter to the AO for fresh consideration with directions to examine relevant data and the Union Bank of India report.

Conclusion: Partly in favour of assessee; issue remitted to AO for fresh adjudication.

Issue (iii): Whether the interest rate applied on loans to subsidiaries (7.818% / 6.186%) is justified.

Analysis: For AY 2020-21 the Tribunal found no justification for 7.818% and adopted the assessee's 3.67% (reflective of arm's-length CUP and bank borrowing rates). For AY 2021-22 the Tribunal found record (loan sanction letter from Standard Chartered Bank and assessee's charged rates) conflicting with DRP/AO rate and set aside those orders, remitting the issue to AO to decide afresh under section 92CA(1) / CUP method, taking bank sanction letter into account.

Conclusion: In favour of assessee for AY 2020-21 (interest refixed at 3.67%); for AY 2021-22 remit to AO for fresh determination (assessee entitled to have bank sanction considered).

Issue (iv): Whether disallowance under section 14A read with Rule 8D is sustainable.

Analysis: The Tribunal examined the assessee's audited accounts and statements showing own funds exceeding investments and noted absence of material showing any expenditure incurred to earn exempt income; relied on Supreme Court precedents that proportionate disallowance is not warranted where own funds suffice and no expenditure incurred.

Conclusion: In favour of assessee; section 14A disallowance deleted.

Issue (v): Whether guarantee commission paid to directors for personal guarantees is disallowable.

Analysis: The Tribunal examined bank sanction letters requiring directors' personal guarantees, net worth certificates, tax treatment in directors' hands, and relevant case law distinguishing facts in United Breweries; found no material showing payments were camouflage for remuneration and noted potential double taxation if disallowed.

Conclusion: In favour of assessee; disallowance deleted subject to AO verifying that directors included the receipts in their returns, and if so, allow the expenditure.

Issue (vi): Whether write-off of obsolete inventory pertains to AY 2021-22 and is allowable.

Analysis: The Tribunal reviewed committee report (21.03.2021), board processes, and precedent (Excel Industries) and found inventories became obsolete in AY 2021-22 despite formal board resolution dated later; tax neutrality and timing principles considered.

Conclusion: In favour of assessee; write-off allowed for AY 2021-22.

Issue (vii): Whether purchases invoiced in earlier years but crystallised in year under consideration can be disallowed.

Analysis: The Tribunal found invoices related to earlier years and absence of supporting documents from assessee to justify crystallisation in current year; AO's disallowance sustained.

Conclusion: Against assessee; addition for prior period purchases upheld.

Issue (viii): Whether blanket 10% disallowance for freight, contract, legal and maintenance expenses for alleged non-production of PAN/TDS particulars is sustainable.

Analysis: The Tribunal noted assessee furnished substantial particulars, tax-audit report, and that AO made no specific verifications; remanded issue to AO to verify transactions and directed assessee to cooperate; directed that expenses be allowed if TDS/PAN compliance is established.

Conclusion: Partly in favour of assessee; AO's order set aside and matter remitted for verification.

Final Conclusion: The appeals are partly allowed: transfer pricing relief granted in specified respects (guarantee commission fixed at 1%; interest on loan to subsidiary refixed for AY 2020-21 and remitted for AY 2021-22; receivables issue remitted), section 14A and write-off of obsolete inventory allowed, certain non-transfer additions either remitted for verification or upheld (prior period purchases). The Tribunal has remitted multiple factual issues to the Assessing Officer for verification and fresh decisions where necessary.

Ratio Decidendi: Where comparable uncontrolled price evidence and the assessee's bank sanction/borrowing particulars demonstrate a lower arm's-length rate, transfer pricing adjustments must be aligned with CUP-based evidence; and a section 14A disallowance is not warranted where own funds suffice and no expenditure for earning exempt income is shown.

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