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2019 (11) TMI 269 - AT - Income TaxTP Adjustment - addition on account of corporate guarantee fee - HELD THAT - As decided in own case 2016 (9) TMI 1456 - ITAT KOLKATA the assessee s expectation from provision of loan and guarantee are not that of a lender or guarantor i.e. to earn a market rate of interest or guarantee fee, rather, the expectation was of a shareholder- to protect its investment interest, help it to achieve acquisition of Tega Beruc for furtherance of its own business and get return in terms of appreciation in value and dividends. It can be verified from the fact that no third party would have agreed to grant loans, on an independent basis, to the tune of ₹ 5 Crores to Tega Bahamas given its skewed debt-equity ratio reflected in the balance sheet, as equity funding is mere ₹ 23 Lakhs, therefore in the present case the guarantee is a shareholder activity hence no TP adjustment on account of corporate guarantee should be required. Accordingly, we direct the Ld.DRP/AO to delete the addition Transfer Pricing Adjustment on account of interest on loan given to subsidiary company - HELD THAT - As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the Coordinate Bench in assessee s own case wherein the Division Bench of this Tribunal noticed in the additional evidences that the assessee has computed credit rating of Taga Australia at BBB and Tega US at AA by applying scientific and logical method, and submitted before this Tribunal additional evidences and directed ld. TPO/A.O for fresh examination. Accordingly, we also direct the ld. TPO/Assessing Officer to examine credit rating of Taga Australia at BBB and Tega US at AA which was computed by assessee by applying scientific and logical method. Therefore we restore this issue to the file of the TPO/AO with the direction to ascertain the arm s length price of the loan. Therefore grounds raised by Revenue are dismissed. Disallowance u/s 14A r.w.r 8D - HELD THAT - We note that Coordinate Bench of ITAT, Kolkata in the case of REI Agro vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA has held that it is only the investments which yielded dividend during the previous year that has to be considered while adjudicating the average value of investment for the purpose of Rule 8D(2)(ii) and (iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon ble Calcutta High Court 2014 (4) TMI 713 - CALCUTTA HIGH COURT in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). We note that in assessee s case, the assessee has not disallowed any expenditure under Rule 8D(2)(i), as there was no direct expense incurred by the assessee. No disallowance is attracted under Rule 8D(2)(ii) as the assessee s own funds are more than investments. Now coming to the third limb, namely Rule 8D(2)(iii), wherein we note that the disallowance can be made with reference to the dividend bearing securities. We note that the disallowance as per Rule 8D(2)(iii) by taking into account only dividend bearing securities, as per assessee s computation comes to ₹ 86,863/-, whereas the assessee has suo moto disallowed ₹ 3,50,000/- which is more than ₹ 86,863/- therefore, no further disallowance is required. Addition regarding loss from option contracts in foreign currency with banks held as Speculative loss - HELD THAT - AR has supported the order of ld. CIT(A). On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. We note that the currency option contracts were executed by the assessee with the sole purpose of hedging the export receivables import payables. Therefore, the ld CIT(A) has rightly held that the loss of ₹ 4,74,97,275/- incurred in such option currency contracts was non-speculative in nature and allowable as deduction from the profits of the business. That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. Education cess is allowable for deduction u/s 37(1) - HELD THAT - Respectfully following the judgment of this Coordinate Bench in the case of ITC Limited 2019 (4) TMI 1574 - ITAT KOLKATA we allow the claim of the assessee.
Issues Involved:
1. Disallowance/addition on account of Corporate Guarantee fee. 2. Transfer Pricing Adjustment on account of interest on loan given to subsidiary company. 3. Disallowance under section 14A r.w.r. 8D. 4. Addition regarding loss from option contracts in foreign currency with banks held as “Speculative loss”. 5. Deduction of education cess. Detailed Analysis: 1. Disallowance/addition on account of Corporate Guarantee fee: The Tribunal addressed the issue of corporate guarantee fees provided by the assessee for loans taken by its subsidiary. The Tribunal referenced its previous decision in the assessee’s own case for the Assessment Year 2008-09, where it was held that the corporate guarantee provided by the assessee was not in the nature of a service and thus did not warrant any transfer pricing adjustment. The Tribunal found no reason to deviate from this view and upheld the deletion of the addition made by the Assessing Officer (AO)/Transfer Pricing Officer (TPO) on account of corporate guarantee fees for the Assessment Years 2009-10, 2010-11, and 2011-12. 2. Transfer Pricing Adjustment on account of interest on loan given to subsidiary company: The Tribunal examined the issue of transfer pricing adjustments related to interest on loans given to subsidiary companies. The Tribunal referred to its earlier decision, which recognized that the loans provided by the holding company to its subsidiary were for commercial expediency and were quasi-equity in nature. The Tribunal directed the TPO/AO to re-examine the credit rating of the subsidiaries and ascertain the arm’s length price of the loan. The Tribunal upheld the previous decision, directing the TPO/AO to conduct a fresh examination of the credit rating and determine the appropriate interest rate. 3. Disallowance under section 14A r.w.r. 8D: The AO disallowed expenses related to exempt income under section 14A r.w.r. 8D, calculating a disallowance of ?4,51,190/-. The assessee had already disallowed ?3,50,000/-. The Tribunal noted that only investments yielding dividend during the previous year should be considered for disallowance under Rule 8D. The Tribunal upheld the CIT(A)’s decision to restrict the disallowance to the amount already disallowed by the assessee, as the assessee’s own funds were more than the investments, and no further disallowance was required. 4. Addition regarding loss from option contracts in foreign currency with banks held as “Speculative loss”: The AO treated the loss from option contracts in foreign currency as speculative and disallowed it. The Tribunal, referencing various judicial precedents, concluded that the option contracts were entered into to hedge against currency fluctuation risks associated with the assessee’s export business. The Tribunal upheld the CIT(A)’s decision to allow the loss as a business loss, noting that the option contracts were directly connected to the assessee’s business and were not speculative in nature. 5. Deduction of education cess: The assessee filed cross-objections claiming the deduction of education cess under section 37(1) of the Act. The Tribunal referenced its earlier decision in the case of ITC Limited, where it was held that education cess is allowable as a deduction. Despite the Revenue’s contention and a contrary decision in the case of Srei Infrastructure Ltd., which was remanded by the Hon’ble High Court of Calcutta, the Tribunal followed its earlier decision and allowed the deduction of education cess. Conclusion: The Tribunal dismissed the Revenue’s appeals on all grounds and allowed the cross-objections filed by the assessee, directing the AO to allow the deduction of education cess. The Tribunal’s decisions were consistent with its previous rulings and judicial precedents, ensuring that the assessee’s claims were upheld based on established legal principles.
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