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2017 (4) TMI 864 - AT - Income TaxTPA - ALP - Addition on corporate guarantee given to Associated Enterprise (AE) - Held that - As decided in Videocon Industries vs. DCIT 2017 (3) TMI 187 - ITAT MUMBAI in similar circumstances the details of loans vis- -vis the security thereof had already been reproduced above. It has also been brought on record that State Bank of India has charged bank guarantee commission to assessee by giving 50% concession on the rate of 1.75% which works out to approximately 0.875%. If various factors and risk involved are evaluated which is quite normal under the foreign guarantee like, country risk, currency risk and entity risk etc., then charging of corporate guarantee commission would fall down below 0.5%. Thus, this constitutes a kind of internal CUP available to the assessee to benchmark the transaction of giving corporate guarantee/letter of undertaking. Moreover, there are catena of decisions wherein this Tribunal has held that corporate guarantee commission around 0.50% can be accepted as ALP. Accordingly, we hold that the corporate guarantee commission fee which is to be recovered from AE should be 0.50% which would meet the arms length requirement. Thus, under the facts and circumstances of the case, we direct the TPO/Assessing Officer to take the corporate guarantee fee @ 0.50% and make the adjustment accordingly Disallowance of depreciation on intangible assets confirmed Disallowance on account of provisions for post retirement medical scheme - Held that - As held in assessee s own case for Ay 2009-10 similar liability has been held to be an unascertained liability which was not allowable as a deduction under section 37(1) of the Act. Disallowance of prior period expenses - Held that - Assessee has not filed any documentary evidence even before us to substantiate his claim or the payment receipt with regard to service tax for claiming exemption u/s 43B of the Act. However, considering the contention of ld. AR of the assessee, we restore this ground of appeal to the file of AO to examine the issue afresh, if the claim of the assessee is covered by the prevision of section 43B of the Act and passed the order in accordance with law.
Issues Involved:
1. Transfer Pricing Adjustment on Corporate Guarantee 2. Disallowance of Depreciation on Intangible Assets 3. Disallowance of Expenses under Section 14A read with Rule 8D(iii) 4. Disallowance of Provision for Post Retirement Medical Scheme 5. Disallowance of Prior Period Expenses Detailed Analysis: 1. Transfer Pricing Adjustment on Corporate Guarantee The first issue pertains to the addition of ?2,16,986/- on account of commission on a corporate guarantee given to an Associated Enterprise (AE). The assessee argued that this ground is covered in its favor by several Tribunal decisions, notably the case of Everest Kanto Cylinder Ltd. The Tribunal in that case upheld a guarantee commission rate of 0.5%, confirmed by the Hon'ble Jurisdictional High Court. The Departmental Representative (DR) contended that each case must be judged individually and noted that corporate guarantee commissions of 2% to 3% have been accepted in other cases. The Tribunal, considering the precedent set by the co-ordinate bench in the case of Videocon Industries vs. DCIT, directed the Assessing Officer (AO) to adjust the corporate guarantee fee to 0.5%. Therefore, this ground of appeal was partly allowed. 2. Disallowance of Depreciation on Intangible Assets The second issue involves the disallowance of ?11,90,285/- claimed as depreciation on intangible assets. The Authorized Representative (AR) of the assessee conceded that this issue is covered against the assessee in its own case for AY 2009-10. The Tribunal, acknowledging the precedent, dismissed this ground of appeal. 3. Disallowance of Expenses under Section 14A read with Rule 8D(iii) The third issue concerns the disallowance of ?1,56,87,826/- under Section 14A read with Rule 8D(iii) of the Income-tax Act. The assessee argued that this ground is covered in its favor by the Tribunal's decision in its own case for AY 2009-10. The Tribunal restored this ground of appeal to the file of the AO to decide the issue afresh, in accordance with the Tribunal's directions in the order dated 31.07.2015. This ground of appeal was allowed for statistical purposes. 4. Disallowance of Provision for Post Retirement Medical Scheme The fourth issue relates to the disallowance of ?7,19,965/- on account of provisions for a post-retirement medical scheme. The AR argued that this issue is covered against the assessee in its own case for AY 2009-10. The Tribunal, following the precedent set in the assessee's own case for AY 2009-10 and AY 2007-08, upheld the disallowance, dismissing this ground of appeal. 5. Disallowance of Prior Period Expenses The fifth issue involves the disallowance of ?5,24,659/- claimed as prior period expenses related to service tax. The AR contended that these expenses are covered under Section 43B and are allowable in the year of payment. The AO and the CIT(A) disallowed the claim, noting that the assessee had not provided evidence that the expenditure was debited in the previous year's Profit & Loss Account. The Tribunal restored this ground of appeal to the AO for fresh examination, directing the AO to verify if the claim is covered by Section 43B and to provide the assessee an opportunity to submit necessary evidence. This ground of appeal was allowed for statistical purposes. Conclusion The appeal filed by the assessee was partly allowed, with specific directions for fresh examination and adjustments by the AO on certain issues. The Tribunal's decision emphasized adherence to precedents and provided the assessee an opportunity to substantiate its claims with adequate evidence. The order was pronounced in the open court on 15th March 2017.
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