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2021 (10) TMI 822 - AT - Income TaxTP adjustment - adjustment of corporate guarantee commission - HELD THAT - Co-ordinate bench in assessee's own case while commenting on adequacy of ALP of the corporate guarantee fees determined by the assessee after examining various decisions rendered by the Tribunal and decision in the case of CIT v/s. Everest Kanto Cylinder Ltd. 2015 (5) TMI 395 - BOMBAY HIGH COURT concluded, that corporate guarantee as determined by the assessee at 0.43% requires no interference. In assessment year under appeal, the assessee has worked out corporate guarantee commission at 0.41% by adopting internal CUP. Thus, in light of the decision of co-ordinate bench in assessee s own case 2021 (4) TMI 254 - ITAT MUMBAI and parity of facts, we see no reason to take a different view. Following the above decision, we hold that corporate guarantee commission determined by the assessee is at arms length, requires no adjustment. Consequently, the findings of the AO in the impugned order on this issue are set-aside and ground no.1 to 7 of the appeal are allowed. Disallowance u/s 14A read with Rule 8D - Assessee argued as no satisfaction has been recorded by the AO before rejecting assessee s computation of suo-moto disallowance - HELD THAT - The provisions of section 14A(2) of the Act mandates that having regard to the accounts of assessee, if the AO is not satisfied with correctness of the claim of the assessee in respect of expenditure incurred in relation to earning of exempt income, the AO shall determine the expenditure to be disallowed for earning exempt income in accordance with Rule 8D. Thus, the AO is under obligation to record his dissatisfaction before rejecting assessee s computation of suo-moto disallowance under section 14A. Such satisfaction has to be recorded in objective manner having regard to the accounts of the assessee. A perusal of the draft assessment order reveals that the AO has rejected the computation of assessee without even examining the computation furnished by the assessee. The AO in the draft assessment order has discussed general principles for making disallowance under section 14A read with Rule 8D and has also referred to a case laws. However, there is no observation/comments whatsoever by the AO on the computation made by the AO. Thus, the satisfaction recorded by the AO in rejecting assessee s computation is not in accordance with the mandate envisaged under section 14A(2) - We find merit in the contentions of the assessee and direct the AO to delete the additional disallowance. Addition made on account of mismatch in books of the assessee and tax statement in Form-26AS - HELD THAT - In proceedings before the DRP, the assessee furnished additional evidence. Remand report was sought from the AO on additional evidences filed by the assessee. After reconciliation the difference was reduced to ₹ 30,29,102/-. - The assessee in order to reconcile the difference furnished statements giving party-wise details of receipts on which tax was deducted. The statements were further classified into tonnage non-tonnage receipts. Since, the assessee has been able to reconcile substantial entries and there was discrepancy only in respect of minuscule part of entries in Form 26AS, it would not be justified to make addition merely on the basis of AIR information keeping in view the fact that the assessee is in shipping business having tonnage non tonnage receipts, there would always be some possibility of mismatch in Form 26AS vis a vis books of assessee. We find that in the case of A.F. Ferguson Co. Vs. JCIT 2015 (1) TMI 306 - ITAT MUMBAI Tribunal held that the Revenue cannot made addition solely on the basis of AIR information. The assessee cannot be asked to prove in negative, the onus is on the AO to prove that the assessee has received the income - no reason to sustain addition made in respect of mismatch in Form-26AS.
Issues Involved:
1. Adjustment on account of guarantee commission. 2. Disallowance of expenses under section 14A read with Rule 8D. 3. Addition made in respect of difference in gross receipts as per Books of assessee and Form-26AS. 4. Interest charged by the assessee from its Associated Enterprises (AEs) on loans advanced in foreign currency. Issue-wise Detailed Analysis: 1. Adjustment on Account of Guarantee Commission: The assessee contested the Transfer Pricing Adjustment on account of guarantee commission. The assessee provided corporate guarantees for loans taken by its AEs, without charging any commission. The assessee made a suo-moto adjustment of ?4,77,00,897/- based on the guarantee commission rates it paid to ABN Amro Bank and Kotak Mahindra Bank, determining the ALP at 0.41%. The TPO rejected this and re-computed the commission at ?29,08,59,126/- at the rate of 2.5%. The Tribunal noted that similar adjustments in preceding and succeeding assessment years had been decided in favor of the assessee, establishing that the ALP of corporate guarantee fees determined by the assessee at 0.43% was reasonable. The Tribunal upheld the assessee's method of using internal CUP and directed the AO to delete the adjustment. 2. Disallowance of Expenses under Section 14A read with Rule 8D: The assessee had earned tax-free income and made a suo-moto disallowance of ?35,74,694/- under section 14A. The AO re-computed the disallowance to ?39,97,745/-, adding ?4,23,051/-. The Tribunal found that the AO had not recorded any dissatisfaction with the assessee's computation as required under section 14A(2). The Tribunal directed the AO to delete the additional disallowance, noting the lack of objective dissatisfaction. 3. Addition Made in Respect of Difference in Gross Receipts as per Books of Assessee and Form-26AS: The AO proposed an addition of ?7,30,99,620/- due to mismatch in Form 26AS, which was reduced to ?30,29,102/- after reconciliation. The Tribunal observed that the assessee had reconciled substantial entries and that discrepancies in Form 26AS are not uncommon in the shipping business. Citing precedents, the Tribunal held that additions solely based on AIR information are unsustainable and directed the deletion of the addition. 4. Interest Charged by the Assessee from Its AEs on Loans Advanced in Foreign Currency: The Revenue's appeal contested the interest rate charged by the assessee on loans to AEs, which was at LIBOR+2.9% and LIBOR+3%. The Tribunal noted that the issue had been previously decided in favor of the assessee in earlier years, affirming the reasonableness of the interest rate charged. Additionally, the appeal was dismissed due to low tax effect as per the CBDT Circular No. 17/2019. Conclusion: The appeal of the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the issues of guarantee commission adjustment, disallowance under section 14A, and addition due to mismatch in Form 26AS. The Revenue's appeal was dismissed due to low tax effect and on merits, affirming the interest rate charged by the assessee on loans to AEs.
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