Corporate guarantee commissions require a 50:50 interest-saving,

Corporate guarantee commissions require a 50:50 interest-saving split, and Section 14A disallowances cannot increase book profits.

Issue

Whether the Transfer Pricing Officer (TPO) should allocate 100% of interest savings to a corporate guarantee or apply a 50:50 split between the assessee and its Associated Enterprise (AE) under the interest-saving approach.
Whether an Assessing Officer (AO) can use a Section 14A disallowance (read with Rule 8D) to increase the book profits of a company under Section 115JB.

Facts

The assessee provided corporate guarantees to its AEs across multiple assessment years (2010-11, 2012-13, and 2013-14).
The TPO calculated the Arm’s Length Price (ALP) of the guarantee commission using the interest-saving method and assigned the entire savings to the corporate guarantee.
The assessee also earned exempt income during these periods.
While calculating book profits under Section 115JB, the AO increased the net profit from the Profit and Loss account by adding back the expenditure disallowed under Section 14A read with Rule 8D.

Decision

Held, yes: The TPO is directed to adopt a 50:50 split of the total interest savings between the guarantor and the borrower to determine the ALP of the guarantee commission.
Held, yes: Adjustments under clause (f) of Explanation 1 to Section 115JB(2) must be computed independently without resorting to the formula prescribed under Section 14A and Rule 8D.
Held, yes: The additions made by the AO to the book profits using the Section 14A disallowance are legally unsustainable and are set aside.

Key Takeaways

Equitable TP Allocation: Under the interest-saving approach for corporate guarantees, the economic benefit must be shared equally (50:50) between the parent company providing the safety net and the subsidiary receiving the cheaper loan.
Separation of Book Profits: Section 115JB (Minimum Alternate Tax) is a self-contained code. The tax administration cannot automatically import normal tax computation disallowances, like Section 14A, into the statutory framework used to determine book profits.

IN THE ITAT MUMBAI BENCH ‘K’

ACG Associated Capsules (P.) Ltd.

Deputy Commissioner of Income-tax^*

Rahul Chaudhary, Judicial Member
and Jagadish, Accountant Member

IT Appeal Nos. 9105, 5846 (Mum) of 2025 and 1827 (Mum) of 2026
[Assessment years 2010-11 to 2013-14]

APRIL 30, 2026

Ketan Ved and Abdulkadir Jawadwala for the Appellant. Bhagirath Ramwat, (Sr DR) for the Respondent.

ORDER

Rahul Chaudhary, Judicial Member.- 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. v. Addl. CIT (Delhi – Trib.)/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. Asstt. CIT [2023] 198 ITD 158 (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 CoOrdinate 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 Asstt. CIT, Circle 17 (1), New Delhi v. Vireet Investment (P.) Ltd. 188 TTJ 1/165 ITD 27/58 ITR(T) 313 (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-a-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 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

21.1. 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.