2018 (6) TMI 273 - AT - Income Tax

TP adjustment in respect of counter guarantee given - corporate guarantee given on overdraft facility - Held that - In respect of corporate guarantee given on overdraft facility, following the order passed by Tribunal in AY 2008- 09, we direct the Assessing Officer to restrict TP adjustment to 0.5% of average amount of loan outstanding during the year. In respect of counter guarantee given by the assessee for the guarantee given by IDBI Bank on behalf of Taj TV, we agree with the contentions of learned AR that non-fund based facility cannot be treated at par with the the fund based facility. We notice that in the case of Asian Paints (India) Ltd 2016 (11) TMI 258 - BOMBAY HIGH COURT @0.20% has been held to be appropriate by the Tribunal. Accordingly, we direct the Assessing Officer to compute TP adjustment in respect of counter guarantee given at 0.20% of the amount of counter guarantee. Disallowance made u/s. 14A - Held that - The own funds available with the assessee as at the beginning and end of the year, were more than the value of investment during those dates. Hence, as per the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT , no disallowance out of interest expenditure is called for as per Rule 8D(2)(ii) of the I.T Rules. Disallowance to be made under rule 8D(2)(iii) out of administrative expenses, only those investments which have yielded exempt income have to be considered for working out the average value of investments, as per decision rendered by Delhi Special Bench of the Tribunal in the case of Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI . As stated earlier that the assessee has furnished a statement of working of disallowance under Rule 8D(2)(iii) by considering only those investments which have yielded exempt income, as per which the disallowance worked out to ₹ 32.71 lakhs, i.e. more than the amount disallowed by the assessee. Hence for the limited purpose of verifying the above said statement, we restore this issue to the file of the Assessing Officer. If the is satisfied with the workings given by the assessee, the disallowance u/s. 14A of the Act should be restricted to ₹ 41.33 lakhs, i.e. the voluntary disallowance made by the assessee should be accepted. Otherwise, the AO may take appropriate decision in accordance with the law.

Summary

Issues:
1. Transfer pricing adjustment on guarantee fees for corporate guarantee.
2. Disallowance made under section 14A of the Act.
3. Disallowance under section 40(a)(ia) for lower deduction of tax at source on carriage fees/channel placement fees.

Transfer Pricing Adjustment on Guarantee Fees for Corporate Guarantee:
The judgment addressed the issue of transfer pricing adjustment on guarantee fees for a corporate guarantee provided by the assessee to its associated enterprise. The TPO treated the corporate guarantee as an international transaction and proposed a transfer price adjustment. The assessee argued that the corporate guarantee should not be considered an international transaction, citing relevant case law. The Tribunal, considering previous decisions, directed the Assessing Officer to restrict the transfer pricing adjustment to 0.5% of the average amount of loan outstanding for the corporate guarantee on the overdraft facility. For the counter guarantee, the Tribunal directed a transfer pricing adjustment of 0.20% of the amount of the counter guarantee, distinguishing it from fund-based facilities.

Disallowance under Section 14A of the Act:
The second issue involved the disallowance made under section 14A of the Act concerning dividend income and investments. The Assessing Officer computed the disallowance as per Rule 8D of the I.T. Rules, resulting in an addition to the income. The assessee contended that no disallowance was required as their own funds exceeded the value of investments, citing relevant case law. The Tribunal agreed with the assessee, directing that no disallowance out of interest expenditure was necessary. Additionally, the Tribunal considered only those investments yielding exempt income for the disallowance under Rule 8D(2)(iii), supporting the assessee's working of the disallowance amount.

Disallowance under Section 40(a)(ia) for Lower Deduction of Tax at Source:
The final issue pertained to the disallowance under section 40(a)(ia) for lower deduction of tax at source on carriage fees/channel placement fees. The Assessing Officer disallowed the expenditure claim due to short deduction of tax at source, considering the payments as falling within the definition of "royalty." However, the DRP, following a previous decision, deleted the disallowance, stating that the payments did not qualify as royalty. The Tribunal upheld the DRP's decision based on the interpretation that the payments were not in the nature of royalty, as supported by a decision of the Hon'ble Bombay High Court.

In conclusion, the judgment partly allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue, addressing the transfer pricing adjustment, disallowance under section 14A, and disallowance under section 40(a)(ia) comprehensively and in accordance with relevant legal provisions and precedents.