ACG Associated Capsules Private Limited Vs DCIT (ITAT Mumbai)
ITAT Allows 50:50 Split in Corporate Guarantee Commission Because Interest Savings Benefited Both Parties; Transfer Pricing Addition Reduced Because ITAT Applied Interest Saving Method with Shared Allocation; Book Profit Addition Set Aside Because MAT Computation Must Be Independent of Rule 8D; ITAT Directs Recalculation of Taxable Income Because Earlier Reliefs Were Not Properly Given Effect
In, the Income Tax Appellate Tribunal (ITAT), Mumbai, disposed of three appeals filed by the assessee for Assessment Years (AYs) 2010-11, 2012-13, and 2013-14 involving common issues relating to transfer pricing adjustment on corporate guarantee commission, computation of book profits under Section 115JB, and computation of taxable income.
For AY 2010-11, the dispute concerned transfer pricing adjustment relating to corporate guarantee commission. In the first round of proceedings, the Transfer Pricing Officer (TPO) had determined the arm’s length price (ALP) of guarantee commission at 4.03%, which was reduced to 0.70% by the first appellate authority. Subsequently, the Tribunal had remanded the issue to the TPO with directions to apply the “interest saving approach.”
During the set-aside proceedings, the TPO computed interest savings at 1.10% and allocated the entire benefit to the assessee as guarantor, rejecting the assessee’s contention that the interest savings should be shared between the guarantor and borrower. Based on this, transfer pricing adjustment of Rs.29,47,560/- was proposed and incorporated in the draft assessment order. The DRP dismissed the assessee’s objections, following which the final assessment order was passed.
