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2022 (7) TMI 780 - AT - Income TaxLate payment of employees contribution towards ESIC - HELD THAT - The impugned issue has been covered against the assessee by the order of the Hon ble Gujarat High court in case of CIT vs. Gujarat State Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Ac t - Thus we confirm the addition made by the AO in this regard. Accordingly the ground of appeal raised by the Assessee is hereby dismissed. TP Adjustment - Addition on account of interest free loan advances provided to its AE - assessee before the AO/TPO contended that there cannot be any adjustment of the notional interest under the provisions of section 92C read with rule 10B of the Income Tax Rules - HELD THAT - As decided in own case 2021 (4) TMI 682 - ITAT AHMEDABAD we hold that no adjustment under the transfer pricing provisions is required to be made with respect to the interest free loans and advances by the assessee to its associated enterprises in the given facts and circumstances. Hence, the ground of appeal of the assessee is allowed and the ground of appeal of the revenue is dismissed. Upward adjustment of corporate guarantee provided by the assessee - HELD THAT - We find that the assessee has claimed the reimbursement of the actual charges incurred by it in providing the corporate guarantee from the associated enterprise. As such, no fee was charged by the assessee on account of corporate guarantee provided by the assessee. Thus the ITAT has directed to make the upward adjustment being 5% of the cost incurred by the assessee in providing the corporate guarantee to the associated enterprise. However, in the case on hand, there is no clarity arising from the order of the authorities below whether the assessee has claimed reimbursement of the actual expenses incurred by it in providing the corporate guarantee from the associated enterprises. If nothing has been charged by the assessee by way of reimbursement from the associated enterprises, then addition that needs to be sustained is actual cost incurred by the assessee in providing the corporate guarantee 5% markup of such charges in the light of the ITAT finding as given above otherwise only 5% has to be added. With this observation, the ground of appeal of the assessee is partly allowed and the ground of appeal of the Revenue is hereby is also partly allowed subject to the above direction.
Issues Involved:
1. Disallowance of employee's contribution towards ESIC. 2. Classification of loans as "international transaction" under transfer pricing provisions. 3. Addition on account of interest-free loans to Lambda Therapeutic Ltd., UK. 4. Markup of LIBOR rate by average comparable rate and Forex risk. 5. Classification of Corporate Guarantee as an "international transaction." 6. Adoption of Cost Plus Method for benchmarking the guarantee transaction. 7. Upward adjustment on account of corporate guarantee. 8. Breach of law and Principles of Natural Justice. 9. Levying interest under section 234A/B/C. 10. Initiating penalty under section 271(l)(c). Detailed Analysis: 1. Disallowance of Employee's Contribution towards ESIC: The first issue raised by the assessee was the confirmation of the addition of Rs. 2,29,053/- due to late payment of employees' contribution towards ESIC. The Tribunal noted that the issue was covered against the assessee by the Gujarat High Court's decision in CIT vs. Gujarat State Road Transport Corporation, which held that sums not credited to employees' accounts in the relevant fund by the due date are not deductible. Consequently, the Tribunal confirmed the addition, dismissing the assessee's ground of appeal. 2. Classification of Loans as "International Transaction": The assessee contested the classification of interest-free loans to its associated enterprises (AEs) as "international transactions" falling under transfer pricing provisions. The Tribunal noted that the AO/TPO considered these transactions as international transactions requiring arm's length price determination. The Tribunal observed that these loans were provided as a measure of commercial expediency and for business benefits, including higher valuation of the AEs. The CIT(A) had partly deleted the addition, recognizing the business benefits derived from the AEs. The Tribunal upheld the CIT(A)'s decision, noting that the transactions should be seen in aggregation for working out the ALP and that the assessee derived significant business benefits from these AEs. 3. Addition on Account of Interest-Free Loans to Lambda Therapeutic Ltd., UK: The CIT(A) had confirmed the upward adjustment of Rs. 43,04,408/- for interest-free advances to Lambda Therapeutic Ltd., UK, as no benefit accrued to the assessee from this AE. The Tribunal found that the assessee had derived benefits from other AEs and that the transactions were interconnected. The Tribunal held that no adjustment under transfer pricing provisions was required for these interest-free loans, allowing the assessee's ground of appeal and dismissing the Revenue's appeal. 4. Markup of LIBOR Rate by Average Comparable Rate and Forex Risk: This issue was addressed in the context of the interest-free loans provided to AEs. The AO/TPO had worked out the interest based on LIBOR plus a certain basis points for different currencies. The Tribunal, considering the interconnected nature of the transactions and the business benefits derived, held that no adjustment was required, thereby allowing the assessee's appeal. 5. Classification of Corporate Guarantee as an "International Transaction": The assessee argued that the corporate guarantee provided to its AE was a shareholder activity and not an international transaction. The Tribunal noted that the AO/TPO treated the guarantee as an international transaction requiring benchmarking. The CIT(A) had partly upheld the AO's adjustment. The Tribunal, referencing its earlier decision in the assessee's case for AY 2013-14, held that the corporate guarantee was indeed an international transaction and required benchmarking. 6. Adoption of Cost Plus Method for Benchmarking the Guarantee Transaction: The AO/TPO had used the Cost Plus Method (CPM) for benchmarking the corporate guarantee transaction, applying a margin of 24.7% on the cost. The Tribunal found that the assessee was not engaged in financial services and that the CPM was not appropriate. Instead, the Tribunal directed a 5% markup on the actual cost incurred by the assessee for providing the corporate guarantee, partly allowing the assessee's appeal and partly allowing the Revenue's appeal. 7. Upward Adjustment on Account of Corporate Guarantee: The CIT(A) had restricted the upward adjustment to Rs. 6,45,748/- from the total addition of Rs. 35,09,517/- made by the AO/TPO. The Tribunal, following its earlier decision, directed that if the assessee had claimed reimbursement of the actual expenses incurred, only a 5% markup should be added. If no reimbursement was claimed, the actual cost plus a 5% markup should be added. Thus, both the assessee's and the Revenue's appeals were partly allowed. 8. Breach of Law and Principles of Natural Justice: The assessee claimed that the lower authorities had not properly appreciated the facts and ignored various submissions, breaching the Principles of Natural Justice. The Tribunal did not specifically address this ground, implying that the detailed analysis of each issue covered the necessary considerations. 9. Levying Interest under Section 234A/B/C: The assessee contested the levy of interest under sections 234A/B/C. The Tribunal did not provide a separate analysis for this issue, suggesting that it followed the outcome of the main issues. 10. Initiating Penalty under Section 271(l)(c): The assessee contested the initiation of penalty under section 271(l)(c). The Tribunal did not provide a separate analysis, indicating that the decision on this matter would follow the resolution of the substantive issues. Conclusion: The Tribunal's order resulted in partly allowing both the assessee's and the Revenue's appeals, with detailed directions on the adjustments and benchmarking related to interest-free loans and corporate guarantees. The Tribunal emphasized the interconnected nature of transactions and the business benefits derived, impacting the transfer pricing adjustments.
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