Corporate guarantees require transfer pricing benchmarking while Kenya tax credit denial remanded under Rule 128 retrospectivity issues

ITAT Mumbai ruled on multiple transfer pricing and tax credit issues. The tribunal held corporate guarantees constitute international transactions requiring ALP benchmarking at 0.20% rate. Regarding Kenya tax credit denial, the tribunal found Rule 128 (effective 2017) cannot apply retrospectively to 2015 returns and remanded for verification. TDS credit denial was also remanded for proper verification of income attribution. Section 14A disallowance under 115JB was decided favorably for assessee following precedent, as no exempt income was received. Business advances to South Africa JV were deemed capital contributions protecting business interests, not loans requiring TP adjustment. Guarantee commission rate was increased from 0.2% to 0.6% following coordinate bench precedent.

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Issues Involved:
1. Transfer pricing addition on account of corporate guarantee.
2. Short credit for taxes paid in Kenya u/s 90 of the Income-tax Act, 1961.
3. Short credit of TDS credit.
4. Disallowance u/s 14A while computing book profits u/s 115JB.
5. Deletion of TP adjustment in respect of business advances.
6. Deletion of addition on account of corporate guarantee.
7. Transaction of giving guarantee as an international transaction.
8. Restriction of guarantee commission.

Summary:

1. Transfer Pricing Addition on Account of Corporate Guarantee:
The first grievance of the assessee is regarding the transfer pricing addition on account of corporate guarantee. The issue was decided against the assessee by the Coordinate Bench in earlier assessment years, where it was held that the transactions should be benchmarked on ALP principles, and the TP adjustments were estimated at 0.20%. Respectfully following the findings of the Coordinate Bench, this ground is dismissed.

2. Short Credit for Taxes Paid in Kenya u/s 90 of the Income-tax Act, 1961:
The assessee claimed Double Taxation Avoidance Relief for taxes paid in Kenya, which was denied by invoking Rule 128 of the I.T. Rules. The Tribunal noted that Rule 128 came into effect from 01.04.2017 and could not be applied to a return filed on 27.11.2015. The issue was set aside to the Assessing Officer for verification and allowing the credit of tax paid in Kenya after due verification. This ground is allowed for statistical purposes.

3. Short Credit of TDS Credit:
The assessee was denied TDS credit on the grounds that the impugned income was not shown as its income. The Tribunal directed the Assessing Officer to verify in whose hands the income has been shown and allow the credit of Tax Deducted at Source as per the relevant provisions of the law. This ground is allowed for statistical purposes.

4. Disallowance u/s 14A while Computing Book Profits u/s 115JB:
The Tribunal found that an identical issue was decided in the assessee's favor in an earlier year, where it was held that no disallowance u/s 14A could be made if the assessee had not received any exempt income during the year. Respectfully following the findings of the Coordinate Bench, Ground No. 4 is allowed.

5. Deletion of TP Adjustment in Respect of Business Advances:
The Tribunal noted that the issue was considered and decided in the assessee's favor in earlier years, where it was held that the advances were more in the nature of capital contribution and were made to protect the assessee's business interest. Respectfully following the findings of the Coordinate Bench, Ground No. 1 is dismissed.

6. Deletion of Addition on Account of Corporate Guarantee:
The Tribunal noted that the issue was considered and decided in the assessee's favor in earlier years, where it was held that the rate of 0.93% for performance guarantees was accepted as the arm's length rate of guarantee fee. Respectfully following the findings of the Coordinate Bench, Ground No. 2 is dismissed.

7. Transaction of Giving Guarantee as an International Transaction:
The Tribunal noted that this issue was decided in favor of the revenue, making the ground otiose.

8. Restriction of Guarantee Commission:
The Tribunal noted that the issue was decided in favor of the assessee in earlier years by restricting the corporate guarantee rate at 0.2%. However, for A.Y. 2018-19, the Tribunal directed to apply a corporate guarantee rate of 0.6%. Respectfully following the latest decision, the Assessing Officer is directed to apply a corporate guarantee rate of 0.6%. This ground is partly allowed.

Conclusion:
The appeals were partly allowed for statistical purposes, with specific directions given to the Assessing Officer for verification and recomputation as per the Tribunal's findings.

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