Corporate guarantee commission and book-profit adjustments: 50:50 split under interest saving method, with section 14A kept out of section 115JB.

Transfer pricing treatment of corporate guarantee commission is discussed with reference to the interest saving method, and the note states that a 50:50 split between guarantor and borrower was adopted on the facts before the Tribunal. It also records that disallowance under section 14A cannot be directly imported into book profits under section 115JB; computation under Explanation 1 to section 115JB(2) must be made independently, following Vireet Investment. In addition, the note refers to a direction to verify the assessment records and recompute total income in light of a pending rectification request and earlier reliefs.

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Issues: (i) Whether the transfer pricing adjustment on corporate guarantee commission was to be determined by adopting an equal split of interest savings between the guarantor and the borrower under the interest saving method; (ii) Whether disallowance computed under section 14A could be added to book profits while computing liability under section 115JB; (iii) Whether the Assessing Officer was required to re-work the total income in light of the pending rectification request and the earlier reliefs granted in connected rounds.

Issue (i): Whether the transfer pricing adjustment on corporate guarantee commission was to be determined by adopting an equal split of interest savings between the guarantor and the borrower under the interest saving method.

Analysis: The controversy concerned the ALP of guarantee commission in a second round of proceedings. The Tribunal noticed that comparable coordinate-bench decisions had adopted a 50:50 split, while also noting the contrary observation that such split is not a universal standard and must ordinarily depend on the facts and circumstances of each case. On the record before it, and taking guidance from the coordinate-bench decisions, the Tribunal directed adoption of the 50:50 split for determining the ALP under the interest saving method.

Conclusion: The issue was decided in favour of the Assessee; the transfer pricing adjustment was to be recomputed by adopting a 50:50 split.

Issue (ii): Whether disallowance computed under section 14A could be added to book profits while computing liability under section 115JB.

Analysis: The issue was treated as covered by the Special Bench ruling in Vireet Investment Pvt. Ltd., which held that computation under clause (f) of Explanation 1 to section 115JB(2) must be made independently and without resorting to section 14A read with Rule 8D. Applying that principle, the additions made to book profits on account of section 14A disallowance were held unsustainable and the book-profit computation was directed to be redone accordingly.

Conclusion: The issue was decided in favour of the Assessee; the section 14A-related additions to book profits were set aside.

Issue (iii): Whether the Assessing Officer was required to re-work the total income in light of the pending rectification request and the earlier reliefs granted in connected rounds.

Analysis: The Tribunal accepted that the assessee's rectification application under section 154 was pending and that the assessment working required verification in light of the submissions regarding reductions and set-off of earlier reliefs. It therefore directed the Assessing Officer to verify the assessment records and re-compute taxable income after considering the assessee's claim.

Conclusion: The issue was decided in favour of the Assessee to the extent of a direction for re-computation.

Final Conclusion: The common order granted substantive relief on the transfer-pricing and book-profit issues, while other grounds were treated as consequential or general, resulting in partial allowance of the appeals as a whole.

Ratio Decidendi: In transfer-pricing disputes concerning corporate guarantee commission, the interest saving method may justify an equal split on the facts of the case, and book-profit computation under section 115JB must be made independently of section 14A read with Rule 8D.

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