ACIT Vs Matrix Power-(Wind) Pvt. Ltd. (ITAT Hyderabad)
Transfer Pricing Adjustment Deleted Because PLR Held Appropriate Benchmark for Rupee-Denominated NCDs; Employee Remuneration Allowed Because AO Failed to Prove Expenditure Was Unreasonable or Non-Genuine; No Nexus Between Lower Revenue and Higher Employee Costs, ITAT Upholds Deletion of Disallowance; Rule 46A Objection Rejected Because Supporting Documents Were Not Treated as Additional Evidence.
The Income Tax Appellate Tribunal (ITAT), Hyderabad, dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year (AY) 2021-22. The appeal involved two issues: (i) disallowance of employee benefit expenses of ₹8,04,95,000, and (ii) transfer pricing (TP) adjustment of ₹13,02,752 relating to interest paid on Non-Convertible Debentures (NCDs).
The assessee, engaged in the business of generating electricity through wind resources, filed its return declaring a current year loss and nil total income. During scrutiny, the Transfer Pricing Officer (TPO) made an adjustment of ₹13,02,752 by recomputing the arm’s length interest on NCDs issued to its Associated Enterprise. The TPO applied an interest rate of 8.61% instead of the 11% coupon rate paid by the assessee. Separately, the Assessing Officer (AO) disallowed employee benefit expenses of ₹8,04,95,000 on the ground that employee benefit expenses had increased substantially while revenue from operations had declined, and the assessee had not satisfactorily explained the increase.
