PUNJAB CHEMICALS & CROP PROTECTION LTD.,MOHALI vs. THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 1, CHANDIGARH

(िनधा�रणवष� / Assessment Year: 2017-18) Punjab Chemicals & Crop Protection Ltd. Addl. CIT बनाम/ Milestone-18, Ambala-Kalka Road, Range-1 VPO Bhankharpur, Derabassi Chandigarh Vs. District SAS Nagar Mohali-140201 �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACP-9904-H (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Sh. Anil Khanna (CA). – Ld. AR ��थ�कीओरसे/Respondent by : Ms. Tarundeep Kaur (CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 24-06-2025 घोषणाकीतारीख /Date of Pronouncement : 01-07-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1.1 Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of final assessment order dated 02-02-2022 as passed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 144C(13) pursuant to the directions of Ld. DRP dated 29-11-2021. During this year, a reference was made to Ld. Transfer Pricing Officer (TPO) and an order u/s 92CA(3) was passed on 24-01-2021 pursuant to which a draft assessment order was passed by Ld. AO on 23-04-2021 which was objected to by the assessee before Ld. DRP. 1.2 The Ld. AR advanced arguments and placed on record Tribunal’s common order dated 22-05-2025 for AYs 2008-09 & 2009-09. The Ld. CIT-DR also advanced arguments. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. 1.3 Though the assessee has raised multiple grounds of appeal

, however, the grounds as urged by Ld. AR are – (i) Disallowance of interest u/s 36(1)(iii) for Rs.43.68 Lacs; (ii) Disallowance u/s 14A for Rs.0.23 Lacs; (iii) Transfer Pricing (TP) adjustment on Corporate Guarantee; (iv) Set-off of brought forward losses. These grounds are adjudicated as under.

2. Disallowance of interest u/s 36(1)(iii) In view of the fact that the assessee paid interest on unsecured loans and the assessee had Capital Work-in-progress (CWIP), Ld. AO proceeded to compute interest disallowance u/s 36(1)(iii). The opening CWIP was Rs.232 Lacs whereas closing CWIP stood at Rs.496 Lacs. The interest attributable to average CWIP computed at 12% would be Rs.43.68 Lacs which was to be disallowed but allowed to be capitalized by the assessee. The DRP had confirmed similar addition for AY 2009-10 and therefore, taking same stand, interest was disallowed for Rs.43.68 Lacs u/s 36(1)(iii). Aggrieved, the assessee is in further appeal before us. We find that Tribunal, in the cited order for AY 2009-10, has deleted this disallowance on the ground that the assessee was having sufficient own funds to make further investments in CWIP. Similar facts exist in this year. This being the case, the impugned disallowance stands deleted. The depreciation as allowed to the assessee upon capitalization would stand reversed.

3. Disallowance u/s 14A The Ld. AO computed disallowance u/s 14A @1% of average investment which worked out to be Rs.0.23 Lacs. The Ld. DRP confirmed the same. The undisputed fact is that the assessee has not earned any exmept income during the year. Therefore, this disallowance has no legs to stand. We order so.

4. Transfer Pricing (TP) adjustment of Corporate Guarantee The Ld. TPO computed Arm’s Length Price of Corporate Guarantee Charges at Rs.59.52 Lacs. The same was computed at the rate of 1.92%. The assessee charged corporate guarantee fees for Rs.4.90 Lacs. The Ld. DRP restricted the same to the extent of Rs.29.76 Lacs. Accordingly, shortfall of Rs.24.85 Lacs was TP adjustment made in the hands of the assessee. The Tribunal, in AY 2008-09 has adjudicated this issue as under: - 6.2 We find that revenue has computed corporate guarantee charges @1.5% and made adjustment of Rs.117.85 Lacs in the hands of the assessee. We are of the opinion that by extending this guarantee, the assessee has granted benefit to its AEs and therefore, this transaction would be an international transaction for which Arm’s Length Price is to be computed. Considering various judicial decisions holding the field including the decision of Hon’ble Bombay High Court in CIT vs. Everest Kento Cylinders Ltd. (58 Taxmann.com 254) wherein Hon’ble Court has upheld charging of rate of 0.5% by the assessee, we direct Ld. AO to compute the ALP of these transactions by accepting rate of 0.5%. The corresponding grounds stand partly allowed.

Taking the same view, we direct Ld. AO to adopt ALP rate of 0.5%. This ground stands partly allowed.