ITAT Grants Major Relief to SRF Limited, Deletes Major Additions and Treats CER & TUF Subsidy Receipts as Capital [Read Order]

The DelhiBench of the Income Tax Appellate Tribunal (ITAT), has pronounced a common order in the appeals filed by SRF Limited against assessment orders for AY 2011‑12 and AY 2013‑14. The appeals challenged transfer pricing adjustments, corporate tax disallowances, and the denial of additional claims raised during assessment proceedings.

For AY 2011‑12, the Assessing Officer (AO) and Transfer Pricing Officer (TPO) had imposed a corporate guarantee fee at 0.5%, resulting in an adjustment of ₹53.24 lakh. SRF had charged 0.25% to its wholly owned subsidiaries, based on quotations from ICICI Bank. The Dispute Resolution Panel (DRP) upheld the higher rate.

However, the ITAT relied on its own earlier orders in SRF’s cases for AYs 2010‑11, 2012‑13, 2014‑15, and 2016‑17, as well as the Supreme Court’s ruling in Glenmark Pharmaceuticals Ltd., to hold that 0.25% was arm’s length. The adjustment was deleted.

For AY 2013‑14, a similar adjustment of ₹1.07 crore was made. The Tribunal again followed its precedents and deleted the addition.

Additionally, for AY 2013‑14, the TPO had made an upward adjustment of ₹9.41 lakh on interest charged by SRF on foreign currency loans and delayed receivables from its AE. The company had charged LIBOR+225 basis points, supported by a Citibank loan to the same AE. The TPO applied LIBOR+250 bps, while the AO sustained part of the adjustment.

The ITAT, relying on Delhi High Court’s Cotton Naturals (I) Pvt. Ltd. and its own earlier rulings, held LIBOR benchmarking appropriate and deleted the adjustment.

For AY 2011‑12, the AO enhanced the disallowance under Section 14A to ₹1.17 crore, attributing interest costs despite SRF having substantial surplus funds. The company had already made a suo‑moto disallowance of ₹27.31 lakh.

The ITAT noted that in earlier years (AYs 2006‑07, 2007‑08, 2010‑11, 2012‑13, and 2016‑17), similar additions were deleted. Following these precedents, the Tribunal directed the deletion of the disallowance.

For AY 2013‑14, a similar enhancement of ₹72.78 lakh was made. The ITAT struck down the addition, reiterating that investments were made out of its own funds and no interest disallowance was warranted.

A major issue concerned the treatment of receipts from the transfer of Carbon Emission Reduction (CER) credits and the cancellation of CER contracts. For AY 2011‑12, SRF had received ₹72.81 crore and ₹64.17 crore respectively, while for AY 2013‑14, receipts amounted to ₹262.69 crore. The AO treated them as revenue receipts.

The two-membered bench comprising S. Rifaur Rahman (Accountant Member) and Sudhir Pareek (Judicial Member), following its own earlier orders and High Court rulings, held that CER receipts are capital in nature, not chargeable to tax, and must also be excluded from MAT book profits.

Similarly, the Tribunal held that the interest subsidy of ₹3.21 crore received under the Government’s Technology Upgradation Fund (TUF) Scheme was capital in nature.

Relying on various high court precedents, the ITAT directed the exclusion of the subsidy from taxable income and book profits.

Other corporate tax issues included a donation to SRF Vidyalaya (₹4.20 lakh), it was allowed as staff welfare expenditure under Section 37(1), following Mahindra & Mahindra Ltd. (Bom HC).

A short deduction of TDS (₹78,260) was deleted after the assessee produced TRACES evidence showing no default.

Depreciation on Goodwill (AY 2013‑14, ₹34 lakh) was allowed, consistent with earlier years.

Weighted Deduction u/s 35(2AB), the disallowance of ₹1.06 crore remitted to AO, noting approval of facility is key, not quantum. Additional Deduction u/s 10A(1A), short claim of ₹8.36 crore due to a clerical error directed to be rectified by AO. Excise Duty Subsidy (Kashipur Unit) was remitted to AO for fresh adjudication.

For AY 2011‑12, SRF secured relief on transfer pricing, 14A disallowance, CER receipts, donation, TDS, and MAT adjustments. For AY 2013‑14, relief was granted on corporate guarantee, foreign currency loan interest, 14A disallowance, CER receipts, goodwill depreciation, and TUF subsidy, with other claims remitted for verification.

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