Aegis Ltd Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, adjudicated appeals filed by the assessee for multiple assessment years involving identical issues, which were heard together and disposed of through a common order. The primary disputes related to transfer pricing adjustments on corporate guarantees, re-characterisation of preference share transactions, denial of capital loss, and disallowance of interest expenditure.
In respect of corporate guarantees extended to associated enterprises, the Assessing Officer determined the arm’s length guarantee commission at 2.5% and made an adjustment. The assessee contended that the issue was already decided in its favour in earlier years, where the Tribunal accepted a rate of 1%, which had also been voluntarily offered by the assessee in its financial statements. The Tribunal, following its earlier orders for Assessment Years 2009–10 and 2010–11, held that the guarantee commission should be benchmarked at 1% and directed the Assessing Officer to adopt the same for consistency.
On the issue of subscription and redemption of preference shares, the lower authorities had re-characterised these transactions as loans and imputed notional interest. The Tribunal rejected this approach, holding that such re-characterisation without evidence of exceptional circumstances was not justified. It reiterated that genuine share transactions cannot be treated as loans merely to apply transfer pricing adjustments and deleted the addition.
