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2024 (3) TMI 1116 - AT - Income TaxTP Adjustment - corporate guarantee transaction given by the assessee on behalf of AE to a bank - HELD THAT - We are of the considered opinion that there is no change in facts of this present appeal, this issue is to be remitted back to the file of the ld. A.O. with the direction to determine the arm's length price ('ALP' for short) on corporate guarantee commission on the basis of the interest saving approach of the international transactions by respectfully following the above said decision in assessee own case 2023 (12) TMI 1299 - ITAT MUMBAI Addition on account of arm s length adjustment to income on interest from loans advance to AE - Neither the assessee nor the lower authorities have bench marked the transaction of the assessee lending money to its AE - A.O./TPO has considered 10.68% to be a reasonable estimation on the notional interest to be levied by the assessee on the basis of the crisil bonds and made an adjustment for the loan advanced by the assessee - TPO/A.O. has also without prejudice considered the safe Harbour Rules notified on 18.09.2013 for the loan transaction upto Rs. 50 crores where the interest rate to be applied has to be the base rate of State Bank of India as on 30th June which is 12.28% 150 basis point during the year under consideration and held that 10.68% to be at arm s length rate would be reasonable - HELD THAT - CIT(A) has also not bench marked the said transaction and had merely restricted the rate of interest to be 5% keeping in view the earlier interest rate charged by the assessee and by stating that 5% would be a reasonable rate had the assessee advanced loan within India. The assessee, on the other hand, has also not bench marked the said transaction and had charged 2% notional interest on the loan advanced to its AE. It is evidenced that to determine the arm s length price of any international transaction, there has to be a reasonable bench marking conducted by both the sides. Here the assessee and the Revenue in the present case has not carried out the same. In the absence of such bench marking, we are not justified in upholding either the interest rate considered by the assessee nor by the ld. A.O./TPO and the ld. CIT(A). For this purpose, we deem it fit to remand this issue back to the file of the ld. CIT(A) for the purpose of bench marking the said transaction. Hence, ground allowed for statistical purpose. Addition u/s. 14A read with Rule 8D - assessee had interest free fund more than the borrowed fund during the year under consideration - HELD THAT - As there are various judicial precedence on the proposition that when there are mixed funds, then the presumption would be that the assessee has made investment out of the own funds and not borrowed fund for the purpose of investment which has yielded exempt income. It is also pertinent to point out that the decision relied upon by the assessee in the case of Vireet Investment Pvt. Ltd. ( 2017 (6) TMI 1124 - ITAT DELHI has held that while computing the average value of investments only those investments which has yielded income are to be considered and not the investments which has not earned exempt income during the year. Hence, we deem it fit to remand the issue back to the file of the ld. A.O. for restricting the disallowance to the extent of the investment which has yielded the exempt income during the year under consideration and also to verify that the assessee had sufficient interest free funds during the relevant year where the assessee has made investment which had yielded the exempt income.
Issues Involved:
1. Treating giving of corporate guarantee as an international transaction u/s 92B of the Act. 2. Addition on account of arm's length adjustment to income from guarantee commission. 3. Addition on account of arm's length adjustment to income from interest on loans advanced to associated enterprise. 4. Disallowance u/s 14A of the Act r.w. Rule 8D of the Rules. Summary: Issue 1: Treating Giving of Corporate Guarantee as an International Transaction u/s 92B of the Act The assessee contested the CIT(A)'s decision upholding the AO and TPO's treatment of a corporate guarantee given to a bank on behalf of the assessee's subsidiary as an "international transaction" u/s 92B of the Act. The Tribunal observed that this issue had been previously dealt with by the Tribunal in the assessee's case for A.Ys. 2012-13 and 2013-14, where it was remitted back to the AO/TPO for benchmarking. The Tribunal directed the AO/TPO to determine the ALP on the basis of the interest saving approach of the said transaction. Thus, the issue was remanded back to the AO for re-evaluation. Issue 2: Addition on Account of Arm's Length Adjustment to Income from Guarantee Commission The assessee challenged the arm's length adjustment to income from guarantee commission, arguing that the transaction was for its own benefit and no commission was charged. The lower authorities held that the amendment to section 92B(2) applied retrospectively. The CIT(A) directed the AO to apply a rate of 0.7% instead of 4.03% on the guarantee commission. The Tribunal remanded the issue back to the AO/TPO to determine the ALP on the basis of the interest saving approach, following the decision in the assessee's earlier cases. Issue 3: Addition on Account of Arm's Length Adjustment to Income from Interest on Loans Advanced to Associated Enterprise The assessee contested the CIT(A)'s decision to uphold a 5% interest rate on loans advanced to its AE, arguing that it had charged 2% interest, which was more than the prevailing Libor rate. The lower authorities failed to benchmark the transaction, leading to an adjustment of Rs. 1,19,60,216/-. The Tribunal remanded the issue back to the CIT(A) for benchmarking the transaction and determining the ALP appropriately. Issue 4: Disallowance u/s 14A of the Act r.w. Rule 8D of the Rules The assessee challenged the disallowance of Rs. 1,00,31,857/- made by the AO and upheld by the CIT(A) u/s 14A r.w. Rule 8D. The Tribunal observed that the assessee had sufficient interest-free funds and relied on judicial precedents that when own funds are more than borrowed funds, no interest disallowance is warranted. The Tribunal remanded the issue back to the AO to restrict the disallowance to the extent of the investment which yielded exempt income during the year and verify the sufficiency of interest-free funds. Conclusion: The appeals filed by both the assessee and the Revenue were allowed for statistical purposes, with directions to the AO and CIT(A) to re-evaluate and benchmark the transactions as per the Tribunal's observations. Order pronounced in the open court on 20.03.2024.
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