2016 (9) TMI 1661 - AT - Income Tax

TP adjustment - upward adjustment on account of Corporate and Bank Guarantee charges - HELD THAT - Following the decision of Bharti Airtel Ltd. 2014 (3) TMI 495 - ITAT DELHI it held that since there is no cost involved in accepting the Corporate guarantee it will not constitute an international transaction. The DRP directed the AO/TPO to follow the above decision of the Tribunal for this assessment year also. Downward adjustment in respect of trademark license fee paid by the assessee to that singapore company - DRP have given direction in deleting the additions made by way of ALP adjustment made in the case of Trademark/license Fees and Corporate/Bank Guarantee stands at Nil to the TPO by following the Chennai Tribunal s decision in assessee s own case for assessment year 2009-10 2014 (10) TMI 669 - ITAT CHENNAI - HELD THAT - It is not the case of the Ld. DR that the impugned tribunal decisions are stayed by the Hon ble High Court. Since the DRP has followed the decisions of Tribunal 2015 (8) TMI 40 - ITAT CHENNAI for assessment year 2009-10 in assessee s own case we do not find any infirmity in the order of the DRP on the above issues and accordingly the grounds raised by Revenue are dismissed. Disallowance u/s.14A r.w Rule-8D - assessee contended that since no exempt income is earned disallowance u/s.14A would not arise - HELD THAT - The assessee has not taken the plea that the impugned investment is made in its subsidiary and hence it would not fall under section 14A r. w rule 8D as per the ratio reported in EIH Associated Hotels Ltd. 2013 (9) TMI 604 - ITAT CHENNAI before the lower authorities. Thus the factual matrix stand unverified. In the facts and circumstances this issue is remitted back to the AO for due verification and application.

Summary

Issues:
1. Upward adjustment of Corporate and Bank Guarantee charges.
2. Downward adjustment of trademark license fee.
3. Disallowance u/s.14A of the Act r.w Rule-8D.

Issue 1: Upward adjustment of Corporate and Bank Guarantee charges:
The Tribunal considered the appeal against the TPO's upward adjustment of Corporate and Bank Guarantee charges issued by the assessee to its AE. The assessee argued that accepting the Corporate guarantee did not involve any cost and thus did not constitute an international transaction. The DRP directed the AO to follow the decision of the Tribunal for the assessment year, as done in previous cases. The Tribunal upheld the DRP's decision, dismissing the Revenue's appeal.

Issue 2: Downward adjustment of trademark license fee:
The TPO made a downward adjustment of trademark license fee paid by the assessee to a Singapore company. The assessee contended that the expenditure was allowable for taxation purposes based on commercial expediency. The DRP directed the AO to follow the Tribunal's decision from the previous assessment year. The Tribunal found no infirmity in the DRP's order and dismissed the Revenue's appeal on this issue.

Issue 3: Disallowance u/s.14A of the Act r.w Rule-8D:
The AO disallowed a substantial amount u/s.14A read with Rule-8D based on the assessee's investments, even though no exempt income was earned. The DRP supported the disallowance, emphasizing that expenses were involved in the investment process, even without exempt income. The Tribunal remitted this issue back to the AO for verification and application of relevant case law. The appeal of the Revenue was dismissed, and the assessee's appeal was treated as allowed for statistical purposes.

In conclusion, the Tribunal upheld the DRP's decisions on the issues related to Corporate and Bank Guarantee charges and trademark license fee adjustments. However, the issue of disallowance u/s.14A of the Act r.w Rule-8D was remitted back to the AO for further verification based on relevant case law. The appeals were decided accordingly, with the Revenue's appeal dismissed and the assessee's appeal treated as allowed for statistical purposes.