Case Law Details
Sundaram Fasteners Limited Vs DCIT (ITAT Chennai)
ITAT Chennai held that the corporate guarantee to Associated Enterprise (AE) is an international transaction and it has to be assessed at 0.5% of the corporate commission. Hence, directed AO to restrict the disallowance at 0.5% of the guarantee value.
Facts- The appeals of assessee is as regards to the TPO/DRP directing the AO to make adjustment to international transactions towards guarantee commission amounting to Rs.14,52,262/- in assessment year 2009-10 and amounting to Rs.20,61,723/- in assessment year 2012-13.
Another issue in this appeal of assessee relates to the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A read with rule 8D(2)(ii) & (iii) of the Income Tax Rules, 1962 by the AO and confirmed by the DRP. Notably, the assessee company has received dividend income of Rs.46,23,760/- and claimed the same as exempt u/s. 10(34) of the Income Tax Act. The assessee suo-motto has disallowed a sum of Rs.1.07 lakhs i.e., expenses relatable to exempt income u/s. 14A of the Act. The AO not convinced by the disallowance made by the assessee suo-motto, he computed disallowance under the provisions of section 14A r.w.rule 8D(2)(ii) i.e., interest expenses at Rs.2,13,77,531/- and administrative expenses under rule 8D(2)(iii) being 0.5% of average value of investment at Rs.71,24,925/- and thereby computed the total disallowance at Rs.2,85,02,456/-. The DRP confirmed the action of the AO but directed that only investment in foreign companies be excluded while computing the disallowance under Rule 8D(2)(iii). Aggrieved, the assessee has preferred the present appeal.
Conclusion- Hon’ble Madras High Court in the case of PCIT v. Redington (India) Ltd. held that the corporate guarantee is an international transaction and it has to be assessed at 0.5% of the corporate commission. Admittedly, the assessee provided corporate guarantee to its AE and the AO/DRP has confirmed the adjustment in both the years. But now, the issue being covered by the decision of Hon’ble Jurisdictional High Court in the case of Redington (India) Ltd., supra, we direct the AO to restrict the disallowance at 0.5% of the guarantee value. Accordingly, this common issue in both the appeals of assessee is partly-allowed.
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