ITAT Delhi Backs Havells India Ltd on Corporate Guarantee, Shahenshah Scheme Provision and Section 80IC Deduction

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed the Revenue’s appeal in the case of DCIT Vs Havells India Ltd for Assessment Year (AY) 2010–11. The dispute concerned:

  • Transfer pricing adjustment on corporate guarantees extended to Associated Enterprises (AEs),
  • Allowability of provision for sales incentives under the “Shahenshah Scheme”, and
  • Eligibility of deduction under Section 80IC on interest income.

The Tribunal held that all three issues were already settled in favour of the assessee in earlier years and found no justification to deviate from those precedents. Consequently, the order of the Commissioner of Income Tax (Appeals) [CIT(A)] was fully upheld and the Revenue’s appeal was rejected.

Background of the Appeal

The impugned assessment for AY 2010–11 was framed under Section 143(3) read with Section 144C(1) of the Income Tax Act 1961, following the Transfer Pricing Officer’s (TPO) order under Section 92CA(3). The Revenue challenged the CIT(A)’s order dated 07.04.2025 on the following broad issues:

  1. Restriction of transfer pricing adjustment for corporate guarantee to 0.5% instead of a higher rate adopted by the TPO;
  2. Deletion of disallowance of provision of Shahenshah Scheme (sales incentive to dealers/distributors);
  3. Deletion of disallowance of deduction under Section 80IC on interest income from fixed deposits.

The Tribunal considered each issue in the light of its own earlier decisions in Havells India Ltd’s previous assessment years and other judicial precedents.

Transfer Pricing on Corporate Guarantee

Revenue’s Grounds

Grounds 1 to 5 of the Revenue’s appeal questioned the CIT(A)’s decision to:

  • Treat corporate guarantee as warranting only a 0.5% guarantee commission,
  • Reject the TPO’s higher rate (around 4.71% / 4.56% as per assessment order),
  • Disregard, according to the Revenue, the distinct commercial factors applicable to the assessee’s guarantees.

The Revenue contended, inter alia, that:

  • Each corporate guarantee differs depending on tenure, terms and conditions, risk exposure, currency risk and economic conditions.
  • Havells India Ltd issued the corporate guarantees without any security or margin from its AE, thereby exposing itself to considerable risk.
  • The TPO’s rate was derived from real-time data from financial institutions and not from conjecture.
  • CIT(A) incorrectly adopted a “universal” rate of 0.5% allegedly without appreciating the factual differences between Havells and the cases relied upon.

Assessee’s Stand

The assessee argued that the exact issue had already been adjudicated by the Tribunal in its own case for earlier years, notably:

  • AY 2014–15 in ITA No. 6509/Del/2018 (order dated 09.05.2022),
  • As well as AYs 2011–12 to 2013–14, where similar corporate guarantee adjustments were considered.

In those decisions, the Tribunal directed that the arm’s length commission for corporate guarantees to AEs should be fixed at 0.5%.

Tribunal’s Reference to Earlier Order

The Bench examined its decision for AY 2014–15, where the Tribunal had considered: