DCIT Vs JSW Energy Limited (ITAT Mumbai)
ITAT Mumbai held that disallowance made under section 14A of the Income Tax Act added to Book Profits for computing taxes under section 115JB Income Tax Act deserved to be deleted.
Facts- Assessee is a public company engaged in the business of generation of power and operation and maintenance of power plants. Assessee works on Power solutions in the states of Karnataka, Maharashtra, Rajasthan and Himachal Pradesh. Since, the assessee entered into international transactions with its associated enterprises that exceeded the threshold limit and accordingly reference was made u/s 92CA(1) of the Act to TPO to determine the ALP of such international transactions.
TPO, made an upward adjustment of Rs.10,62,65,292/- towards the receipt of interest from AE against the loan granted. TPO also computed interest on overdue receivable @8.113% at Rs.5,81,315/-. TPO further determined ALP of specified domestic transactions in respect of power generated by adopting the rate of conversion charge of power at Rs.0.75/- per unit to its captive entities as against Rs.1.3/- per unit charged by assessee. The adjustment thus proposed was Rs. 54,73,82,963/-.
AO has also made disallowance u/s. 14A r.w.s. 8D amounting to Rs. 14,85,775/-.
Conclusion- Held that adopting LIBOR-based benchmark with an appropriate spread provides a neutral, market-aligned reference rate that reflects the cost of funds in international financial markets. This approach ensures that the interest rate applied to the intra-group loans is consistent with arm’s length principles, even where the AE’s credit risk could not be independently verified and the floating rate mechanism could not be reliably enforced.
