Transfer pricing, mark-to-market and section 14A adjustments remitted for fresh verification; alternate R&D deduction claim allowed to be raised.

Transfer pricing adjustments for corporate guarantee commission, notional interest on delayed trade receivables, and alleged shortfall in interest on a subsidiary loan were not finally upheld; the Tribunal remitted them for reconsideration, noting comparables, business practice on receivables, and foreign-currency borrowing terms. The proposed mark-to-market addition on forward contracts was also set aside for de novo verification because the tax computation treatment under Ind AS and ICDS had not been properly examined. An alternate deduction claim for expenditure earlier denied under weighted deduction for in-house research and development was permitted to be raised and remitted for fresh adjudication. The section 14A disallowance was likewise sent back for factual verification on own funds, investment base, exclusion of foreign subsidiaries, and possible duplication.

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Issues: (i) Whether the transfer pricing adjustments for corporate guarantee commission, notional interest on belated trade receivables, and alleged shortfall in interest on loan to the subsidiary were sustainable; (ii) Whether the addition made towards mark-to-market gain on forward contracts was sustainable; (iii) Whether the assessee could press an alternate claim for deduction in respect of the expenditure denied under weighted deduction for in-house research and development; and (iv) Whether the disallowance under section 14A required interference.

Issue (i): Whether the transfer pricing adjustments for corporate guarantee commission, notional interest on belated trade receivables, and alleged shortfall in interest on loan to the subsidiary were sustainable.

Analysis: The corporate guarantee issue was examined with reference to comparable bank guarantees, the rate accepted in related material, safe harbour guidance, and the absence of justification for adopting an averaged bank rate. For belated receivables, the Tribunal noted that the assessee did not charge interest in its business practice, that the receivables had to be viewed along with the corresponding payables, and that the lower authorities had not adequately considered the documentary material. For the loan to the subsidiary, the interest rate adopted by the transfer pricing authorities was found to require reconsideration in light of the foreign currency borrowing terms placed on record.

Conclusion: The transfer pricing issues were not finally sustained and were remitted for reconsideration, with the corporate guarantee commission indicated at 1% as the appropriate benchmark.

Issue (ii): Whether the addition made towards mark-to-market gain on forward contracts was sustainable.

Analysis: The assessee had shown that the amount credited in the accounts under Ind AS was already neutralised in the tax computation by applying the Income Computation and Disclosure Standards, and the further addition by the Assessing Officer required factual verification. The Tribunal found that the competing computation positions and supporting documents had not been properly examined below.

Conclusion: The addition was set aside for de novo consideration.

Issue (iii): Whether the assessee could press an alternate claim for deduction in respect of the expenditure denied under weighted deduction for in-house research and development.

Analysis: The Tribunal held that denial of weighted deduction under section 35(2AB) did not bar consideration of an alternate deduction under the ordinary deduction provisions, and that such a claim could be examined on merits even though it was not made in a revised return. The issue was therefore required to be reconsidered in accordance with law.

Conclusion: The alternate claim was allowed to be raised and the matter was remitted for fresh adjudication.

Issue (iv): Whether the disallowance under section 14A required interference.

Analysis: The Tribunal accepted the assessee's contention that the disallowance required factual verification, particularly on the availability of own funds, the correct investment base, the exclusion of investments in foreign subsidiaries, and the possibility of duplication. Since the relevant details had not been produced before the lower authorities, the matter was considered fit for re-examination.

Conclusion: The disallowance under section 14A was not finally sustained and was remitted for verification.

Final Conclusion: The appeal succeeded only to the extent of obtaining remand and reconsideration on the disputed additions, and the assessment order was not sustained in full.

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