2022 (6) TMI 660 - AT - Income Tax

TP Adjustment - assessee provided corporate guarantee for a loan availed by assessee s AE M/s. Trianz Incorporated USA for a loan taken by the said AE from a bank in USA - whether the transaction of providing bank guarantee would amount to an international transaction or not? - HELD THAT - The law by now is well settled and this Tribunal in the case of United Spirits Ltd 2022 (4) TMI 1408 - ITAT BANGALORE held that providing bank guarantee was an international transaction. The Bench however took the view that charging of guarantee commission at 0.5% in the value of the corporate guarantee would be an appropriate addition. As the assessee himself had offered 0.875% as the appropriate arm s length guarantee commission and therefore the said decision will not be applicable as a precedent in other cases. We are therefore inclined to follow the decision of the Bengaluru Benches of the Tribunal in the case of United Spirits (supra) and hold that 0.5% of the amount of the loan for which the assessee stood as a guarantee would be the appropriate arm s length guarantee commission that the assessee ought to have earned and this addition is accordingly directed to be restricted to 0.5% of the loan amount. Adjustment pertaining to interest on delayed receivable - delayed realisation of receivables from the AE - TPO/Learned AO to recompute the interest adjustment on delayed receivables after allowing credit period of 30 days - HELD THAT - As the facts and circumstances in the present Assessment Year is identical to the facts and circumstances as it prevailed in Assessment Year 2015-16 2021 (11) TMI 1076 - ITAT BANGALORE Accepting the prayer of the parties the issue is set aside to the TPO/AO for consideration afresh on the lines indicated by the Tribunal in the order passed for Assessment Year 2015-16 in assessee s own case. Disallowance under section 14A - HELD THAT - As been the submission of the learned Counsel for the assessee that it did not earn any exempt income during the relevant previous year and therefore there can be no disallowance under section 14A of the Act. In this regard he relied on the decision of the Tribunal in assessee s own case in Assessment Year 2015-16 2021 (11) TMI 1076 - ITAT BANGALORE wherein the Tribunal held that in the absence of any exempt income no disallowance under section 14A of the Act can be made. However on perusal of the order of the Revenue authorities as well as ground No. 18 raised by the assessee it appears that the assessee earned dividend income and there is no specific ground in the grounds of appeal on this issue that the assessee did not earn any exempt income. In these circumstances we are of the view that it would be just and appropriate to set aside this issue to the AO for fresh consideration after affording assessee opportunity of being heard. Set- off of Brought forward losses not granted - HELD THAT - It would be sufficient if the AO is directed to give effect to brought forward business loss and unabsorbed depreciation in accordance with law after due verification. Deduction under section 10AA of the Act not recomputed - HELD THAT -The Hon ble jurisdictional High Court in the case of M Pact Technology Services Pvt. Ltd. 2018 (8) TMI 202 - KARNATAKA HIGH COURT had held that deduction u/s. 10AA of the I.T. Act should be computed on the assessed income and not on the returned income.

Summary

Issues Involved:
1. Adjustment of transfer price related to international transactions.
2. Corporate guarantee as an international transaction.
3. Interest on delayed receivables.
4. Disallowance under section 14A.
5. Set-off of brought forward losses.
6. Deduction under section 10AA.
7. Levy of interest under section 234B.

Detailed Analysis:

1. Adjustment of Transfer Price Related to International Transactions:
The Tribunal addressed the issue of whether the issuance of a corporate guarantee by the assessee to its AE qualifies as an international transaction under section 92B of the Income Tax Act, 1961. The Tribunal upheld the TPO's decision that providing a corporate guarantee is indeed an international transaction and must be benchmarked to determine the Arm's Length Price (ALP). The Tribunal referenced the United Spirits Ltd. case, concluding that a 0.5% guarantee commission is appropriate, rejecting the DR's reliance on the Synergies Castings Ltd. case where 0.875% was considered.

2. Corporate Guarantee as an International Transaction:
The Tribunal confirmed that providing a corporate guarantee to an AE is an international transaction. It directed the AO/TPO to restrict the TP addition to 0.5% of the loan amount, aligning with the United Spirits Ltd. precedent. The Tribunal dismissed the DR's argument based on the Synergies Castings Ltd. case, as it was not applicable as a precedent.

3. Interest on Delayed Receivables:
The Tribunal considered whether delayed realization of receivables constitutes an international transaction. The TPO had applied a 6-month LIBOR rate plus 400 basis points, resulting in an addition of Rs. 56,39,729/-. The DRP substituted the LIBOR rate with the SBI short-term deposit rate, enhancing the addition. The Tribunal remanded the issue to the AO/TPO for fresh consideration, following the precedent set in the assessee's case for AY 2015-16, directing a re-computation based on individual invoice delays.

4. Disallowance Under Section 14A:
The Tribunal addressed the quantum of disallowance under section 14A, considering the assessee's claim of not earning any exempt income during the relevant year. The Tribunal noted the absence of a specific ground asserting no exempt income and remanded the issue to the AO for fresh consideration, ensuring the assessee is given an opportunity to present its case.

5. Set-off of Brought Forward Losses:
The Tribunal directed the AO to give effect to the brought forward business loss and unabsorbed depreciation in accordance with the law after due verification.

6. Deduction Under Section 10AA:
The Tribunal ruled that deduction under section 10AA should be computed on the assessed income, not the returned income. This decision aligns with the Karnataka High Court's judgment in the M Pact Technology Services Pvt. Ltd. case, which stipulates that deductions should be based on the assessed income.

7. Levy of Interest Under Section 234B:
The Tribunal noted that the issue of interest levy under section 234B is consequential to the other grounds of appeal. The AO is directed to provide consequential relief based on the final outcomes of the other issues.

Conclusion:
The appeal was partly allowed, with the Tribunal providing specific directions for each issue, ensuring compliance with legal precedents and proper benchmarking analyses. The Tribunal emphasized the need for fresh consideration and accurate computations by the AO/TPO, ensuring the assessee's rights are adequately protected.