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Facts
The assessee is in appeal against the final assessment order for AY 2017-18, which includes disallowance of interest on unsecured loans, disallowance under section 14A, transfer pricing adjustment on corporate guarantee, and denial of set-off of brought forward losses.
Held
The Tribunal deleted the disallowance of interest under Section 36(1)(iii) based on prior year's order where sufficient own funds were available. The disallowance under Section 14A was deleted as no exempt income was earned. The TP adjustment for corporate guarantee was partly allowed by directing the AO to adopt an ALP rate of 0.5%. The set-off of brought forward losses was directed to be allowed as per law.
Key Issues
Whether disallowance of interest on unsecured loans and Section 14A disallowance are justified? What is the Arm's Length Price for corporate guarantee? Can brought forward losses be set-off?
Sections Cited
143(3), 144C(13), 92CA(3), 36(1)(iii), 14A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI LALIET KUMAR, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(ि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.
Set-off of brought forward losses The only indulgence sought by Ld. AR is mere direction from us to Ld. AO to allow the set-off of brought forward losses in accordance with law. The Ld. AO is accordingly directed to allow the set-off of losses in accordance with law once the same get crystallized as per latest orders of earlier years. This ground stand allowed for statistical purposes.
The appeal stands partly allowed. Order pronounced on 01-07-2025.