|CORAM:||D. Karunakara Rao (AM), Vijay Pal Rao (JM)|
|SECTION(S):||14A, 92CA, Rule 8D|
|GENRE:||Domestic Tax, Transfer Pricing|
|CATCH WORDS:||ALP, exempt income, LIBOR, Transfer Pricing|
|DATE:||March 25, 2015 (Date of pronouncement)|
|DATE:||March 27, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|(i) Growth mutual funds do not yield dividend and so s. 14A/ Rule 8D does not apply, (ii) S. 14A/Rule 8D disallowance for admin exp cannot exceed allocable exp debited to P&L A/c, (iii) ALP of funds lent to AE should be as per LIBOR, (iv) ALP of corporate guarantee to be at 0.5%|
(i) Growth mutual fund does not yield any dividend/exempt income, therefore, the provisions of section 14A would not apply on the investment in growth mutual funds.
(ii) As regards the disallowance of administrative expenses in respect of the investment yielding exempt income the computation made under Rule 8D cannot exceed the total allocable expenditure for earning the exempt income debited the P&L Account. Accordingly, the AO is directed to reconsider the disallowance u/s 14A by excluding the investment in the Growth mutual funds scheme and further to earmark and identify the item of expenditure debited by the assessee in the P&L Account which can be allocated in relation to earning the exempt income.
(iii) The ALP of loan granted by the assessee to its subsidiary, though from its internal accruals and without incurring any cost, has to be determined as per LlBOR and not the average yield rates considered by the TPO.
(iv) The transaction of giving corporate guarantee to the bank, though held not to be an international transaction in Bharti Airtel Ltd (ITA No 5816/Del/2013) dated 11 March 2014, the arm’s length guarantee commission charges can be considered at the rate of 0.5% as held by the Tribunal in a series of other decisions.