Case Law Details
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.
Before the Tribunal, the assessee argued that interest savings were attributable to both parties and should therefore be split equally between the guarantor and borrower in a 50:50 ratio. The Revenue contended that such allocation could not be treated as a standard rule and depended on comparative FAR analysis and other factors.
The Tribunal noted that this was the second round of litigation and observed that the assessee had relied upon decisions of coordinate benches in Dabur India Ltd. and Reliance Industries Ltd., where a 50:50 split was adopted. Taking these decisions into consideration, the Tribunal directed the TPO and Assessing Officer to adopt a 50:50 split for determining the ALP of guarantee commission using the interest saving method.
However, the Tribunal clarified that such a split should not be treated as a standard formula in all cases. Referring to the Rangachary Committee Report, the Tribunal observed that allocation of benefits depends upon facts, bargaining power, and economic circumstances of each case. It emphasized that the 50:50 ratio was not to be construed as a universal standard for transfer pricing determinations.
The Tribunal partly allowed the grounds relating to transfer pricing adjustment.
The Tribunal also examined the issue relating to computation of book profits under Section 115JB. The Assessing Officer had increased book profits by adding the amount disallowed under Section 14A while computing income under normal provisions. The Tribunal held that the issue was covered by the Special Bench decision in ACIT v. Vireet Investment Pvt. Ltd., wherein it was held that computation under Clause (f) of Explanation 1 to Section 115JB(2) must be made independently without resorting to Section 14A read with Rule 8D.
Accordingly, the Tribunal set aside the addition of Rs.74,05,261/- made to book profits and directed the Assessing Officer to recompute book profits in accordance with the Vireet Investment ruling. These grounds were allowed for statistical purposes.
The Tribunal treated the ground concerning interest under Section 234D as consequential in nature. It also directed the Assessing Officer to recompute interest under Section 244A in accordance with law.
For AY 2013-14, both parties agreed that the findings rendered for AY 2010-11 would apply mutatis mutandis. The Tribunal accordingly directed adoption of the 50:50 split for determining ALP of corporate guarantee commission involving transfer pricing adjustment of Rs.41,10,080/-.
Similarly, with respect to computation of book profits under Section 115JB, the Tribunal set aside the addition of Rs.4,51,038/- and directed fresh computation in accordance with the Vireet Investment decision.
The assessee also challenged computation of total income by the Assessing Officer. The assessee contended that while passing the impugned order, the Assessing Officer had incorrectly started computation from the gross total income determined in the original assessment order and failed to grant relief already allowed by the CIT(A) and Tribunal in earlier proceedings. According to the assessee, reliefs relating to transfer pricing adjustment, disallowance under Section 14A, and interest on temporary fixed deposits were not properly reduced while recomputing taxable income.
The assessee further submitted that a rectification application under Section 154 had already been filed before the Assessing Officer and remained pending. Considering this, the Tribunal directed the Assessing Officer to verify the assessment records and recompute taxable income after considering the submissions made by the assessee. These grounds were allowed for statistical purposes.
For AY 2012-13, the Tribunal followed the findings recorded for AYs 2010-11 and 2013-14 on identical issues.
Regarding transfer pricing adjustment of Rs.25,58,318/- on account of corporate guarantee commission, the Tribunal again directed adoption of the 50:50 split while applying the interest saving method.
For computation of book profits under Section 115JB, the Tribunal set aside the addition of Rs.2,34,211/- and directed recomputation in line with the Vireet Investment ruling.
On the issue relating to computation of total income, the Tribunal directed the Assessing Officer to verify records and recompute taxable income after considering the assessee’s submissions, since rectification proceedings were pending.
The Tribunal also held that grounds relating to computation of interest under Sections 234C and 220(2) were consequential in nature. Another general ground raised by the assessee was disposed of accordingly.
In conclusion, the Tribunal partly allowed all three appeals filed by the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. These are three appeals preferred by the same Assessee for the Assessment Years 2010-2011, 2012-2013 and 2013-2014. Since the appeals involved common issues, the same were heard together and being disposed of by way of a common order.
ITA No.1827/MUM/2026 (AY 2010-2011)
2. We would first take up appeal for the Assessment Year 2010-2011
3. The present appeal is directed against the Final Assessment Order, dated 20/01/2026, passed under Section 143(3) read with Section 254 and 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], as per directions, dated 19/12/2025, issued by the CIT(DRP-1), Mumbai-1 (hereinafter referred to as ‘the DRP’) under Section 144C(5) of the Act for the Assessment Year 2010-2011.
4. Ground No. 1 to 1.3
4.1. Ground No. 1 to 1.3 raised by the Assessee pertain to Transfer pricing adjustment on account of corporate guarantee commission.
4.2. In the first round of proceedings, the Transfer Pricing Officer [‘TPO’] had computed Arms Length Price (ALP) of Guarantee Commission at 4.03% and which was reduced to 0.70% by the first appellate authority. Vide Order, dated 04/12/2023, the Tribunal set aside the said issue of determination the ALP on corporate guarantee commission to the files of the TPO by applying the interest saving approach.
4.3. In the set-aside proceedings, applying the interest savings approach, the TPO arrived at interest saving of 1.10% and allocated it entirely to corporate guarantee rejecting the contention of the Assessee that the interest saving was attributable to other factors also. Thus, vide Transfer Pricing Order, dated 26/06/2025, passed under Section 92CA(3) of the Act giving effect to the Order passed by the Tribunal, the TPO proposed transfer pricing addition of INR.29,47,560/- which was incorporated in the Draft Assessment Order, dated 07/11/2025. The objections filed by the Assessee before the DRP were dismissed vide Order, dated 9/01/2026. Therefore, the Assessing Officer passed Final Assessment Order, dated 29/01/2026. Now the Assessee had carried the issue in appeal before this Tribunal.
4.4. The contention of the Assessee is that the interest savings were attributable to both the guarantor and the borrowers, and therefore, the interest saved should ideally be split between the parties to the transaction i.e. the borrowers and the guarantor. The TPO failed to consider the submissions of the Assessee to attribute the savings in the interest rate equally in the ratio of 50:50 between the Assessee and its AE.
4.5. Per Contra, the Learned Departmental Representative submitted that the 50:50 split cannot be adopted as the standard basis of allocation of interest savings as the same depending upon comparative FAR analysis and other factors. Since the Assessee had failed to provide the relevant details, the Assessing Officer was justified in allocating the interest savings to the Assessee.
4.6. In rejoinder, the Learned Authorised Representative for the Assessee submitted that that this was second round of proceedings and the Assessee had furnished all details/documents requisitioned by the TPO.
4.7. We have given thoughtful consideration to the rival submissions and have perused the material on record.
4.8. During the course of the hearing, the Assessee had placed reliance on the following decisions of Co-Ordinate Benches wherein spilt of 50:50 was adopted the Tribunal – (a) decision of the Delhi Bench of the Tribunal in the case of Dabur India Ltd. vs. ACIT in ITA Nos. 3114, 3241, 6256 & 6525/Del/2014 (refer para nos. 23 at page nos. 18 & 19) and (b) decision of the Mumbai Bench of the Tribunal in the case of Reliance Industries Ltd. v/s. ACIT reported in [2022] 143 taxmann.com 194 (Mumbai Trib.) (refer page No. 35 at para nos. 73 to 76). It is admitted position that this is second round of litigation. As contended by the Revenue the facts relevant for determination of the interest saving split are not on record. The Assessee has contended that the details/documents requisitioned by the TPO were furnished. Therefore, given the aforesaid, taking into consideration the decision of Co-Ordinate Benches of the Tribunal, we direct the TPO/Assessing Officer to adopt split of 50:50 for determining ALP of the Guarantee Commission using the interest saving method.
4.9. However, it is clarified that, in view of the following observations by the Rangachary Committee in its Report 1 50:50 split should not be considered as a standard by either the assessee or the TPO and the same is required to be determined as per facts and circumstances of each case:
“5.7.6 Whether there should be splitting of savings between guarantor and guarantee? 5.7.6.1 The Committee is of the view that that a guarantee fee can be charged when there is an explicit benefit arising due to guarantee provided by the Guarantor to the borrower. Besides, this benefit may need to be split between the Guarantor and the borrower, as at arm’s length, parties to the guarantee transactions bargain to share the benefit arising out of such transaction, keeping in view the relative bargaining power of each party. However, there are practical difficulties to split such benefit based on relative bargaining theory, which again would be based on so many economic factors and some estimates, as it is not possible to establish the assumptions or pin point with reasonable accuracy the splitting of such benefit. It depends and varies based on facts and circumstances of a case. However, the Committee considered proposing Safe Harbour for guarantee commission after allowing adjustments including adjustment for relative bargaining power at 50:50 split which should not be construed as a standard by the TPOs while applying arm’s length principle. If any assessee feels, in the facts and circumstances of his case, that due to the guarantee provided by the guarantor, there is no benefit accruing to the borrower or that the benefit accruing to the borrower, after considering all factors, including passive association and relative bargaining power, does not justify guarantee commission at the specified Safe Harbour rate, it always has the option not to opt in for Safe Harbour and justify the same before the TPO with proper transfer pricing documentation. So, in view of the Committee, the cases of no benefit or less benefit would effectively not opt in for Safe Harbour guarantee commission rates.”
4.10. With the above directions/observations, Ground No. 1 to 1.3 raised by the Assessee are partly allowed.
5. Ground No. 2 to 2.3
5.1. Ground No. 2 to 2.3 raised by the Assessee challenge the computation of Book Profits under Section 115JB of the Act by the Assessing Officer to the extent the Assessing Officer increased the Profit as per the Profit & Loss Account by the amount disallowed under Section 14A of the Act while computing income under normal provisions of the Act.
5.2. We have considered the rival submission and have perused the material on record.
5.3. We find that the issue raised for consideration is no longer res-integra. The Special Bench of the Tribunal in the case of Assistant Commissioner of Income Tax Vs. Vireet Investment Pvt. Ltd.: [2017] 165 ITD 27 (Delhi –Trib) (SB), has held that the computation in terms of Clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to computation as contemplated under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The relevant extract of the said decision reads as under:
“6.22 In view of above discussion, we answer the question referred to us in favour of asssessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.”
5.4. Accordingly, the addition of INR.74,05,261/- made by the Assessing Officer to Book Profits is set-aside with the direction to the Assessing Officer to make computation in terms of Clause (f) of Explanation 1 to Section 115JB(2) as per the decision of the Special Bench of the Tribunal in the case of Vireet Investment Pvt. Ltd. (supra) and recompute ‘Book Profits’ accordingly. In terms of the aforesaid, Ground No. 2 to 2.3 raised by the Assessee are allowed for statistical purposes.
6. Ground No. 3
6.1. Ground No. 3 raised by the Assessee pertaining to computation of interest under Section 234D of the Act is disposed off as consequential in nature.
7. Ground No. 4
7.1. Ground No. 4 raised by the Assessee relating to excessive levy of interest under Section 244AA of the Act is disposed off with the directions to the Assessing Officer to re-compute the same as per law.
8. In result, the appeal preferred by the Assessee [ITA No. 1827/Mum/2026] is partly allowed.
ITA No.9105/MUM/2025 (AY 2013-2014)
9. Next we will take up appeal for the Assessment Year 2013-2014.
10. The present appeal is directed against the Final Assessment Order, dated 14/10/2025, passed under Section 143(3) read with Section 254 and 144C(13) of the Act as per directions, dated 08/10/2025, issued by the CIT(DRP-1), Mumbai-1 (hereinafter referred to as ‘the DRP’) under Section 144C(5) of the Act for the Assessment Year 2013-2014.
10.1. During the course of hearing both the sides had agreed that our finding/adjudication on the Ground No. 1 to 1.3 and 2 to 2.3 raised in appeal for the Assessment Year 2010-2011 shall apply mutatis mutandis to the corresponding grounds raised in appeal for the Assessment Year 2013-2014. Therefore, keeping in view identical facts and circumstances, and adopting the reasoning given while appeal for the Assessment Year 2010-2011 hereinabove, we proceed to adjudicate the grounds raised in the present appeal.
11. Ground No. 1 to 1.3
11.1. Ground No. 1 to 1.3 raised by the Assessee, pertaining to transfer pricing adjustment of INR.41,10,080/- on account of corporate guarantee commission, are identical to Ground No. 1 to 1.3 raised in appeal for the Assessment Year 2010-2011, keeping in view paragraph 4 to 4.10 above, we direct the TPO/Assessing Officer to adopt split of 50:50 for determining ALP of the Guarantee Commission using the interest saving method. Thus, Ground No. 1 to 1.3 raised by the Assessee are partly allowed.
12. Ground No. 2 to 2.3
12.1. Ground No. 2 to 2.3 raised by the Assessee challenge the computation of Book Profits under Section 115JB of the Act by the Assessing Officer to the extent the Assessing Officer increased the Profit as per the Profit & Loss Account by the amount disallowed under Section 14A of the Act while computing income under normal provisions of the Act and the same are identical to Ground No. 2 to 2.3 raised in appeal for the Assessment Year 2010-2011, keeping in view paragraph 5 to 5.4 above, Accordingly, the addition of INR.4,51,038/- made by the Assessing Officer to Book Profits is set-aside with the direction to the Assessing Officer to make computation in terms of Clause (f) of Explanation 1 to Section 115JB(2) as per the decision of the Special Bench of the Tribunal in the case of Vireet Investment Pvt. Ltd. (supra) and re-compute ‘Book Profits’ accordingly. In terms of the aforesaid, Ground No. 2 to 2.3 raised by the Assessee are allowed for statistical purposes.
13. Ground No. 3 to 3.2
13.1. Ground No. 3 to 3.2 raised by the Assessee is directed against the computation of total income by the Assessing Officer. In this regard, the Assessee had made following submission:
“1. The Assessing Officer while passing the impugned Order dated 14 October 2025 u/s. 143(3) r.w.s. 144C(13) r.w.s. 254 has started with ‘Gross Total Income as per the Order dated 30 December 2016 u/s. 143(3) r.w.s. 144C(13) and has made additions/disallowance in the set-aside proceedings instead of starting with the returned income.
2. Be that as it may, even if the Assessing Officer has started as aforesaid he should have reduced the additions/disallowance made in the 1″ round of the proceedings which were set-aside by the Hon’ble Tribunal before making addition for those issues in the 2 round of the proceedings – tabulated hereunder is the correct working by the Appellant vis-à-vis the working by the Assessing Officer made in the impugned Order:
| Particulars | Computation by the Assessing Officer |
Computation as per the Assessee | Relief not Considered by the Assessing Officer |
| Gross Total Income as per Order dated 30 December 2016 | 1,48,33,38,621 | 1,48,33,38,621 | – |
| Less: Relief allowed by the CIT(A) on account of additional of depreciation | 1,26,46,017 | 1,26,46,017 | – |
| Less: Relief allowed by the Hon’ble Tribunal on account of disallowance u/s. 14A | 30,52,418 | 30,52,418 | – |
| Less: Relief allowed by the Hon’ble Tribunal on account of TP addition of corporate guarantee commission | – | 83,52,000 | 83,52,000 |
| Less: Relief allowed by the Hon’ble Tribunal on account of interest earned on temporary FD | – | 6,17,98,074 | 6,17,98,074 |
| Add: Additions/disallowance (2nd round of proceedings) | |||
| a. TP adjustment on account of corporate guarantee commissions | 41,10,080 | 41,10,080 | – |
| b. Disallowance u/s. 14A | 4,51,038 | 4,51,038 | – |
| Gross Total Income | 1,47,22,01,304 | 1,40,20,51,230 | |
| Add/Less: Deductions under Chapter VI-A on account of section 80G | 43,750 | (43,750) | 87,500 |
| Assessed Total Income | 1,47,22,45,050 | 1,40,20,07,480 | 7,02,37,574 |
3. It is further submitted that the Appellant vide its rectification application dated 09 June 2025 u/s. 154 of the Act brought the aforesaid mistakes apparent from record to the knowledge of the AO, which is pending disposal refer page nos. 370 to 371 of the paper book.”
13.2. Since the rectification application filed by the Assessee is pending adjudication before the Assessing Officer, we deem it appropriate to direct the Assessing Officer to verify the assessment records and recompute the taxable income after taking into consideration the above submission of the Assessee. In terms of the aforesaid, Ground No. 3 to 3.3 raised by the Assessee are allowed for statistical purposes.
14. In result, the appeal preferred by the Assessee [ITA No. 9105/Mum/2025] is partly allowed.
ITA No.5846/MUM/2025 (AY 2012-2013)
15. Next we will take up appeal for the Assessment Year 2012-2013.
16. The present appeal is directed against the Final Assessment Order, dated 07/07/2025, passed under Section 143(3) read with Section 254 and 144C(13) of the Act as per directions, dated 18/06/2025, issued by the CIT(DRP-1), Mumbai-1 (hereinafter referred to as ‘the DRP’) under Section 144C(5) of the Act for the Assessment Year 2012-2013.
16.1. During the course of hearing both the sides had agreed that our finding/adjudication on the grounds raised in appeal for the Assessment Year 2010-2011 shall apply mutatis mutandis to the corresponding grounds raised in appeal for the Assessment Year 2012-2013. Further, Ground No. 3.3. raised in appeal for the Assessment Year 2012-2013 are identical to Ground No. 3 to 3.3 raised in present appeal for the Assessment Year 2013-2014. Therefore, keeping in view identical facts and circumstances, and adopting the reasoning given while appeal for the Assessment Year 2010-2011 and 2013-2014 hereinabove, we proceed to adjudicate the grounds raised in the present appeal.
17. Ground No. 1 to 1.3
17.1. Ground No. 1 to 1.3 raised by the Assessee, pertaining to transfer pricing adjustment of INR.25,58,318/- on account of corporate guarantee commission, are identical to Ground No. 1 to 1.3 raised in appeal for the Assessment Year 2010-2011, keeping in view paragraph 4 to 4.10 above, we direct the TPO/Assessing Officer to adopt split of 50:50 for determining ALP of the Guarantee Commission using the interest saving method. Thus, Ground No. 1 to 1.3 raised by the Assessee are partly allowed.
18. Ground No. 2 to 2.3
18.1. Ground No. 2 to 2.3 raised by the Assessee challenge the computation of Book Profits under Section 115JB of the Act by the Assessing Officer to the extent the Assessing Officer increased the Profit as per the Profit & Loss Account by the amount disallowed under Section 14A of the Act while computing income under normal provisions of the Act and the same are identical to Ground No. 2 to 2.3 raised in appeal for the Assessment Year 2010-2011, keeping in view paragraph 5 to 5.4 above, Accordingly, the addition of INR.2,34,211/- made by the Assessing Officer to Book Profits is set-aside with the direction to the Assessing Officer to make computation in terms of Clause (f) of Explanation 1 to Section 115JB(2) as per the decision of the Special Bench of the Tribunal in the case of Vireet Investment Pvt. Ltd. (supra) and re-compute ‘Book Profits’ accordingly. In terms of the aforesaid, Ground No. 2 to 2.3 raised by the Assessee are allowed for statistical purposes.
19. Ground No. 3 to 3.2
19.1. Ground No. 3 to 3.2 raised by the Assessee is directed against the computation of total income by the Assessing Officer. In this regard, the Assessee had made submission identical to those made for the Assessment Year 2013-2014.Since the rectification application filed by the Assessee is pending adjudication before the Assessing Officer, we deem it appropriate to direct the Assessing Officer to verify the assessment records and re-compute the taxable income after taking into consideration the above submission of the Assessee. In terms of the aforesaid, Ground No. 3 to 3.3 raised by the Assessee are allowed for statistical purposes.
20. Ground No. 4 to 4.3 and 5 to 5.3
20.1. Ground No. 4 to 4.3 and 5 to 5.3 pertaining to computation of interest under Section 234C and 220(2) of the Act are disposed off as consequential in nature.
21. Ground No. 6
15.1. Ground No. 6 raised by the Assessee is disposed off as being general in nature.
22. In result, the appeal preferred by the Assessee [ITA No. 5846/Mum/2025] is partly allowed.
23. In conclusion, the three appeal preferred by the Assessee are partly allowed.
Order pronounced on 30.04.2026.
Note:
1 Second Report of the Committee to Review Taxation of Development Centres and the IT Sector – Safe Harbour, 13/10/2012
Author Bio
