MCLEOD RUSSEL INDIA LTD.,,KOLKATA vs. DCIT, CIRCLE 4(1),, KOLKATA

The Ld. A.R challenges the very impugned order thereby submitting that computation made and the pricing methodology adopted by the Ld. AO to determine the arms’ length price and the purported transfer pricing adjustment of Rs. 5,67,942/- made in respect of corporate guarantee fee provided by the assessee is vitiated by an error in law and fact. The Ld. A.R submits that the AO charged 0.74% as corporate guarantee fee on the amount of corporate guarantee given by the assessee company against loan given to his associate concern ignoring the decision of Tribunal passed in the assessee’s own case for Ay 2014-15 followed by the assessee’s own case for AY 2017-18 and 2018-19 in which it has been held that corporate guarantee fee in the case of assessee could be charged @ 0.50%. The ld. AR placed the copy of tribunal passed in the assessee’s own case in for AY 2014-15 dated 7.7.2023 and 454 & 458/Kol/2022 for Y 2017-18 & 2018-19 dated 17.06.2025 for our ready reference. The Ld. A.R further submits that the assessee has not claimed any exempt dividend income during the year, hence no disallowance u/s 14A read with Rule 8D is warranted. He has placed reliance on the Hon’ble Supreme Court’s decision passed in PCIT vs. Oil Industries Development Board and further placed reliance passed by Hon’ble Apex Court judgment in CIT vs. Chettinad Logistics Pvt. Ltd. The Ld. A.R has further submitted that the AO has erred in law and on facts in making disallowance Assessment Year: 2020-21 Mcleod Russel India Ltd. under the head excess remuneration of the directors. The Ld. A.R submits that the AO has not given any reason in the assessment order pointing out any mistake in the procedure prescribed under the Companies Act, being followed by the assessee before paying remuneration to directors. His prayers on this issue that the matter be remitted back to the file of AO for fresh consideration. The Ld. A.R further challenges that the disallowance of employee’s contribution to PF & ESI of Rs. 29,30,55,721/- which according to him that employee’s contribution towards provident fund beyond the due date prescribed but it was paid before the due date of final return so according to him Hon’ble Supreme Court’s verdict passed in the case of Checkmate Services Pvt. Ltd. vs. CIT is not at all applicable in the present facts of the case.

7. Upon hearing the submission of the counsel of the respective parties, the following points have been emerged: i) Transfer pricing adjustment of Rs. 5,67,942/- in respect of Corporate Guarantee Fee: It is pertinent to mention here that the AO has charged 0.74% as corporate guarantee fee on the account of corporate guarantee fee given by the assessee against the loan given to its associates concern. The Ld. A.R placed reliance on the decision of co-ordinate bench of Kolkata in his own case in which Tribunal has held that the corporate guarantee fee in the case of assessee could be charged @ 0.50%. We have gone through the order passed by the Tribunal and find that in (supra) wherein the tribunal has held thus:

“6. The first transaction relates to the fees received by the assessee for giving Corporate Guarantee to its Associate Enterprises in U.K. Brief facts are that the Associate Enterprise has obtained finance/loans from ICICI Bank, UK. The assessee has extended corporate guarantees on such financial help to its AE, in lieu of that assessee has received corporate fees. In the form of 3CEB, the assessee has bench-marked the transaction involving issuance of corporate guarantee @0.5% out of abundant caution. The ld. TPO was of the view that the assessee ought to have received fees @1.75% instead of 0.5% calculated in the TP Study Report.

13. In this appeal Ground No. 2 pertains to the Corporate Guarantee Fee worked out by the TPO, through upward adjustment of Rs. 1,40,38,728/-, has been challenged. In this case, the TPO has determined the ALP of the associated enterprise transaction of Corporate Guarantee @ 1.82% per annum. The assessee on the other hand has followed the method of computing Corporate Guarantee Fee at 0.5%, as has been done in the immediately preceding year, which is being adjudicated through this common order. For the sake of brevity, it needs to be mentioned that this issue has been discussed at length in paras 4 to 4.2 of this order. In that discussion, it has been held that Corporate Guarantee Fee @ 0.5% should be used to determine ALP. Needless to say, since the assessee has adopted this very same percentage, hence, there will be no upward adjustment. Accordingly, the assessee succeeds with regard to this ground of appeal.

Going over the order passed by the Tribunal in the assessee’s own case, we do not have any hesitation to held that AO is hereby directed to delete the corporate guarantee fee @ 05.5% in place of 0.74%. Accordingly this issue is decided in favour of the assessee.

(ii) Disallowance u/s 14A worth of Rs. 26,59,900/-: The assessee contention is that he has not claimed any exempt dividend income during the year hence no disallowance u/s 14A read with Rule 8D is warranted. It is pertinent to mention here that the AO by relying on CBDT circular held that disallowance of expenditure u/s 14A read with Rule 8D to be made even in a case where no exempt income was earned by the assessee. It is important to mention here that the Hon’ble Supreme Court in the case of PCIT vs. Oil Industry Development Board (supra) has dismissed the SLP of the Revenue on merit by holding that no disallowance could be made u/s 14A where no exempt Assessment Year: 2020-21 Mcleod Russel India Ltd. income is earned. The Hon’ble Delhi High Court in the case of PCIT vs. TV Today Network Ltd. has further held that disallowance made u/s 14A cannot be more than exempt income earned by the assessee and CBDT Circular cannot be relied upon since it is contrary to the law laid down by Court.

Keeping in view, the Hon’ble Apex Court decision amount of Rs. 26,59,900/- should not be disallowed u/s 14A of the Act read with Rule 8D. Accordingly the same is hereby directed to be deleted. iii) Disallowance of employees contribution to PF & ESI of Rs. 29,30,55,721/- deposited beyond the due dates prescribed in the respective acts: The Ld. A.R submits that Ld. DRP has disallowed the deduction following the judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra). The submission of the Ld. A.R is that the Hon’ble Calcutta High Court in the case of CIT vs. Vijay Shree Ltd. has held that no disallowance is permissible where employee’s contribution to PF & ESI are paid prior to the due date for final return of income prescribed u/s 139(1) of the Act. It is important to mention here that in the recent decision in the case of Checkmate Services Pvt. Ltd. (supra) the Hon’ble Apex Court has held that deposit of employees’ contribution to PF & ESI specified u/s 36(1)(va) on or before due date stipulated in the respective statute is essential condition for claiming deduction. The Hon’ble Apex Court has opined that the leeway granted to Assessee to allow deduction deposits made beyond the due date, but before the date of filing the return “cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contribution which are deducted from their income. They are not part of the assessee employers’ income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in term so such welfare enactments… thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause u/s 43B or anything Assessment Year: 2020-21 Mcleod Russel India Ltd. contained in that provision would not absolve the assessee from its liability to deposit the employees’ contribution on or before the due date as a condition for deduction.”

Keeping in view, the Apex Court decision, we are not inclined to interfere in the impugned order of Ld. DRP on this issue. Accordingly, this issue decided against the assessee. iv) Disallowance of Rs. 1,38,77,836/- under the head excess remuneration to directors: The submission of Ld. A.R is that the AO has not given any reason in the assessment order pointing out any mistake in the procedure as the assessee submits that as per Schedule V to the Companies Act, 2013 Part II remuneration can be paid more than the limit if the company passes a special resolution on the shareholders meeting. It is the submission of the Ld. A.R in the case of assessee, a special resolution was passed for paying remuneration under the Act in the year 2017 and special resolution was passed for three years and it is effective in captioned year. He has brought the relevant extract of Companies Act and copy of Special Resolution.

Going over the order passed by the DRP / AO, we find that the AO did not consider the facts of the assessee on this issue accordingly, we are inclined to restore this issue before the AO with this direction to pass a speaking order on this issue after hearing the assessee. Accordingly, this issue is allowed for statistical purposes.

In the result, the appeal of the assessee is partly allowed.

Order is pronounced in the open court on 25th August, 2025

Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /प्रदीप कुमार चौबे) Accountant Member/लेखा सदस्य Judicial Member/न्याययक सदस्य Dated:25th August, 2025 SM, Sr. PS Assessment Year: 2020-21 Mcleod Russel India Ltd. Copy of the order forwarded to: 1. Appellant- Mcleod Russel India Ltd., Four Mangoe Lane, Surendra Mohan Ghosh Sarani, Kolkata-700001 2. Respondent – DCIT, Circle-4(1), Kolkata 3. Ld. CIT(A)- DRP, Delhi 4. Ld. PCIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)