2022 (11) TMI 1058 - AT - Income Tax

TP adjustment on account of guarantee commission - DR objected to the application of 0.5% for benchmarking the transaction of corporate guarantee fees - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in 63 Moon Technologies Ltd (formerly Financial Technologies India Ltd) 2021 (12) TMI 989 - ITAT MUMBAI for assessment years 2009 10 and 2010 11, while deciding similar issue directed the corporate guarantee fee be computed at 0.5%. Disallowance made on account of interest on payment of Zero Coupon Convertible Bonds - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case for assessment years 2009 10 it is clear that the amount of debenture redemption premium is accrued and liable to be deducted. Hence, in the background of aforesaid discussion and precedents, we set aside the orders of the authorities below, and decide the issue in favour of the assessee. Disallowance u/s 14A - necessity of recording satisfaction - HELD THAT - The satisfaction as required to be recorded under the provisions of section 14A of the Act is not limited to merely disagreeing with the submission of the assessee and requires that the AO should also provide the basis for reaching such conclusion, after having regard to the accounts of the assessee. However, it is evident from the record that in the present case the AO merely disagreed with the suo moto disallowance offered by the assessee u/s 14A and straightaway computed the impugned disallowance by applying the provisions of Rule 8D. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in assessee s own case cited supra, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 3 raised in Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Transfer pricing adjustment on account of guarantee commission.
2. Deletion of disallowance made on account of interest on payment of Zero Coupon Convertible Bonds (ZCCBs).
3. Disallowance under section 14A of the Income Tax Act, 1961.

Detailed Analysis:

1. Transfer Pricing Adjustment on Account of Guarantee Commission:
The Revenue challenged the CIT(A)'s decision to restrict the quantum of Financial Guarantee Commission to Rs. 29.96.743/- as against Rs. 1,49,83,713/- determined by the Transfer Pricing Officer (TPO). The CIT(A) reduced the rate of Financial Guarantee Fee from 2.5% to 0.5%, relying on the decision in CIT Vs. Everest Kanto Cylinders Ltd., which the Revenue argued was inappropriate due to differences in credit rating and financial strength between entities. The Tribunal noted that in the assessee's own case for previous assessment years, the corporate guarantee fee was directed to be computed at 0.5%. The Tribunal found no substantial question of law raised by the Revenue and dismissed this ground, affirming the CIT(A)'s decision to apply a 0.5% rate.

2. Deletion of Disallowance Made on Account of Interest on Payment of Zero Coupon Convertible Bonds (ZCCBs):
The Revenue contested the CIT(A)'s deletion of the disallowance of Rs. 45,30,80,094/- claimed as interest/premium payable on ZCCBs. The AO had disallowed this claim, arguing that no amount was debited to the profit and loss account and no TDS was deducted. The CIT(A) allowed the appeal based on the Tribunal's decision in the assessee's own case for previous years. The Tribunal upheld the CIT(A)'s decision, citing precedents that support the claim of pro-rata premium on ZCCBs as an allowable deduction, even if not debited to the profit and loss account but to the share premium account. The Tribunal found the AO's reasoning unsustainable and dismissed this ground.

3. Disallowance under Section 14A of the Income Tax Act, 1961:
The Revenue appealed against the CIT(A)'s deletion of the disallowance under section 14A, which the AO had computed at Rs. 3,53,99,792/- using Rule 8D, against the assessee's suo moto disallowance of Rs. 51,68,657/-. The CIT(A) followed the Tribunal's decision in the assessee's own case for previous years, which required proper satisfaction and reasoning from the AO for rejecting the assessee's disallowance. The Tribunal reiterated that the AO must record non-satisfaction with the assessee's disallowance based on objective criteria from the accounts. Since the AO failed to provide such reasoning, the Tribunal upheld the CIT(A)'s decision and dismissed this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, affirming the CIT(A)'s decisions regarding the transfer pricing adjustment, the deletion of disallowance on ZCCBs, and the disallowance under section 14A. The Tribunal emphasized adherence to precedents and proper application of legal principles in transfer pricing and disallowance matters.