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2020 (9) TMI 276 - AT - Income TaxTP Adjustment - adjustment relating to corporate guarantee - TPO benchmarked the transaction of guarantee fees @1.25% which is average of fees charging for bank guarantee by banks - HELD THAT - Almost on similar set of facts in assessee s own case for A.Y. 2013-14 2020 (1) TMI 607 - ITAT MUMBAI the TPO made adjustment of corporate guarantee @ 1.25% and on appeal before the Tribunal the same was reduced to 0.5% by following the decision of the Hon'ble Bombay High Court in the case of Everest Canto Cylinders Ltd. 2015 (5) TMI 395 - BOMBAY HIGH COURT . Considering the decision of the Hon'ble Jurisdictional High Court we accept the alternative pleas of the learned A.R. of the assessee to restrict the adjustment on account of corporate guarantee @0.5% till July 2013 till the corporate guarantee remained in existence. The learned TPO is directed accordingly to restrict the adjustment on account of corporate guarantee @0.5% till July 2013. In the result, this ground of appeal is partly allowed. Interest on loan given to AE - commercial expediency of loan given to subsidiary - assessee submits that interest on the loans given to AE to be benchmark by using the prevalent rate in the country where loans utilised for appropriate LiBOR rates - HELD THAT - As decided in own case 2018 (11) TMI 864 - ITAT MUMBAI AR submitted that the assessee had advanced loans in foreign currency i.e. US Dollars and therefore, the benchmarking was to be done at LIBOR and to support the same, additional evidences in the shape of outward remittance advices issued by the bank and other documents has been placed - For the aforesaid limited purpose, the matter stand remitted back to the file of Ld. AO / TPO with a direction to the assessee to provide requisite details information to substantiate the claim. This ground stand partly allowed for statistical purposes -, respectfully following the orders of the coordinate benches of the Tribunal this issues is restored back the file of TPO/AO to pass the order by following the directions in 2018 (11) TMI 864 - ITAT MUMBAI . Disallowance under Section 14A - DRP affirmed the disallowance made by AO holding that disallowance made by him is in accordance with Rule 8D(2)(iii) being .5% of average value of investment - HELD THAT - Considering the submission of the learned A.R. of the assessee that no exempt income was earned by the assessee and the AO has not identified any exempt income, therefore, following the decision of the Tribunal in assessee s own case for A.Y. 2013-14, wherein the Coordinate Bench has followed the decision in the case of Chem Invest Ltd. vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT and Principal CIT vs. Ballarpur Industries Ltd. 2016 (10) TMI 1039 - BOMBAY HIGH COURT no disallowance in this regard for the year under consideration is warranted. Therefore, the AO is directed to delete the entire disallowance under section 14A. MAT adjustment - Since we have deleted the entire disallowance under section14A, similarly no adjustment on account of disallowance of section 14A in the book profit under section 115JB is warranted as per the decision of the Special Bench of the Delhi Tribunal in Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI . In the result this ground of appeal is allowed. Disallowance of interest under section 36(1)(iii) - HELD THAT - Respectfully following the decision of the Coordinate Bench in earlier assessment years 2020 (1) TMI 607 - ITAT MUMBAI wherein it was held that the assessee has sufficient interest free funds available with it and the advances was given for commercial expediency - delete the addition/disallowance under Section 36(1)(iii) hence we are in agreement with the submissions of the assessee that this ground of appeal is covered in favour of the assessee. Addition on account of mismatch in 26AS data - HELD THAT - As relying on own case 2018 (11) TMI 864 - ITAT MUMBAI we restore the issue to the file of the AO to reconsider the issue and verify the facts including reconciling the entries in Form-AS26 and grant appropriate relief to the assessee in accordance with law. In the result this ground of appeal is allowed for statistical purposes.
Issues Involved:
1. Adjustment pertaining to Corporate Guarantee (CG) to Associated Enterprise (AE) 2. Adjustment pertaining to Interest on Loan given to AE 3. Disallowance of Interest under section 36(1)(iii) of the Act 4. Disallowance under section 14A read with Rule 8D 5. Mismatch of income as per Form 26AS data 6. Short grant of IDS credit 7. Non-grant of set-off of brought forward business losses and unabsorbed depreciation 8. Levy of Interest under section 234A 9. Levy of Interest under section 234B 10. Penalty under section 271(1)(c) of the Act Detailed Analysis: 1. Adjustment pertaining to Corporate Guarantee (CG) to Associated Enterprise (AE): The assessee provided a corporate guarantee to its AE, which was withdrawn effective from 1 April 2012. The TPO made an adjustment of ?20,58,028 under Section 92CA(3) of the Act. The DRP upheld this adjustment. The Tribunal noted that in a similar case for A.Y. 2013-14, the adjustment was restricted to 0.5% of the guarantee amount following the decision of the Hon'ble Bombay High Court in CIT vs. Everest Kanto Cylinder Ltd. The Tribunal directed the TPO to restrict the adjustment to 0.5% till July 2013 when the guarantee was in existence. 2. Adjustment pertaining to Interest on Loan given to AE: The assessee granted loans to its AE, LMI, with interest rates of 13% and 14%. The TPO made an adjustment of ?13.07 crore. The Tribunal noted that in previous years, the issue was restored to the TPO for fresh benchmarking. The Tribunal directed the TPO to consider the precarious financial condition of the AE and apply appropriate CUP for benchmarking, considering the loans as "stressed assets." The Tribunal also directed the TPO to consider the LIBOR rates for benchmarking. 3. Disallowance of Interest under section 36(1)(iii) of the Act: The AO disallowed ?64,95,182 under Section 36(1)(iii) on the grounds that interest-free funds were advanced to subsidiaries out of interest-bearing funds. The Tribunal noted that in previous assessment years, it was held that the assessee had sufficient interest-free funds and the advances were given for commercial expediency. The Tribunal deleted the disallowance. 4. Disallowance under section 14A read with Rule 8D: The AO disallowed ?5,13,050 under Section 14A read with Rule 8D. The Tribunal noted that the assessee did not earn any exempt income during the year and followed the decision in the assessee's own case for A.Y. 2013-14, wherein it was held that no disallowance under Section 14A is warranted when no exempt income is earned. The Tribunal directed the AO to delete the disallowance. 5. Mismatch of income as per Form 26AS data: The AO made an addition of ?24,03,464 due to a mismatch in Form 26AS data. The Tribunal restored the issue to the AO to verify and reconcile the entries in Form 26AS and grant appropriate relief to the assessee. 6. Short grant of IDS credit: The issue was rendered infructuous due to a rectification order passed by the AO on 18.03.2019. 7. Non-grant of set-off of brought forward business losses and unabsorbed depreciation: The issue was rendered infructuous due to a rectification order passed by the AO on 18.03.2019. 8. Levy of Interest under section 234A: The issue was rendered infructuous due to a rectification order passed by the AO on 18.03.2019. 9. Levy of Interest under section 234B: The issue was rendered infructuous due to a rectification order passed by the AO on 18.03.2019. 10. Penalty under section 271(1)(c) of the Act: The Tribunal noted that this ground of appeal is premature and needs no adjudication. Conclusion: The appeal was partly allowed, with specific directions given to the TPO/AO for fresh consideration and adjustments in accordance with the Tribunal's findings and previous decisions. The Tribunal emphasized the need for proper benchmarking and verification of facts before making any adjustments.
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