2018 (6) TMI 1619 - AT - Income Tax

TP Adjustment - addition on corporate guarantee given by the assessee for availing loan by the associated enterprises - TPO after reducing the guarantee fee received by the assessee @1% from its AEs treated the balance amount as adjustment under section 92CA as transfer pricing adjustment which is also confirmed by the DRP - HELD THAT - As decided in assessee s own case 2018 (5) TMI 1886 - ITAT MUMBAI held that guarantee commission should be worked out at 0.50% of the average amount of the loan outstanding. We therefore following the decision of the co-ordinate Bench and maintaining the consistency with the earlier year direct the AO to delete the addition. Addition u/s 14A read with rule 8D - HELD THAT - No disallowance is attracted in respect of those investments which yielded no exempt income under the provision of section 14A read with rule 8D as has been held in the case of ACIT vs. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI . We therefore restore the issue back to the file of the AO with the direction to decide the same in the light of the ratio laid down by the special bench in the above case.

Summary

Issues:
1. Transfer pricing adjustment for corporate guarantee given by the assessee.
2. Disallowance under section 14A read with rule 8D.

Analysis:

Transfer Pricing Adjustment - Corporate Guarantee:
The appeal was against the order of the Dispute Resolution Panel for the assessment year 2012-13. The Assessing Officer (AO) observed that the assessee had engaged in international transactions with associated enterprises, leading to a reference under section 92CA(1) of the Act to the Transfer Pricing Officer. The AO made two additions, one being a transfer pricing adjustment of &8377; 63,45,801 for a corporate guarantee provided by the assessee. The issue raised was the confirmation of this addition by the DRP. The Tribunal noted that a similar issue had been decided in favor of the assessee in a previous case, where it was held that the guarantee commission should be calculated at 0.50% of the average loan outstanding. Following this precedent, the Tribunal directed the AO to delete the addition of &8377; 63,45,801, thereby allowing ground No.1 of the appeal.

Disallowance under Section 14A read with Rule 8D:
The second ground of appeal concerned the disallowance of &8377; 6,58,956 by the DRP under section 14A read with rule 8D. The assessee requested the issue to be sent back to the AO for reconsideration in light of a specific decision. The Tribunal agreed that no disallowance should apply to investments yielding no exempt income, citing a relevant case law. Consequently, the issue was remanded to the AO for fresh consideration based on the principles established in the mentioned case. As a result, the second ground of appeal was allowed for statistical purposes, and the overall appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal's decision favored the assessee on both issues, directing the deletion of the transfer pricing adjustment related to the corporate guarantee and remanding the disallowance issue under section 14A for reconsideration by the AO.