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2020 (9) TMI 1101 - ITAT MUMBAITP Adjustment - adjustment arising out of performance guarantee provided by assessee to an entity - HELD THAT:- The bank guarantee was given by Bank of India. The bank utilized the guarantee facility sanctioned to assessee while sanctioning aforesaid bank guarantee to assessee’s AE. The assessee, based on letter obtained from the bank, charged guarantee commission of 0.60% from its subsidiary. The Ld. TPO estimated the same @1%. We find that this issue is contained in assessee’s own case for AY 2010-11. [2019 (9) TMI 437 - ITAT MUMBAI] as concluded that internal CUP in the shape of commission charged by the bank, would be most direct and reliable way to apply Arm’s Length Principle. Further, when there was absolutely no loss to the assessee and entire cost was recovered from the AE, no further adjustment would be required. Applying the said principle to year under consideration, we find that the assessee has charged commission in accordance with the bank’s sanction letter and therefore, no further adjustment, as proposed by Ld. TPO, would be justified. Accordingly, these grounds stand dismissed. Adjustment arising out of guarantee for advance payment provided by assessee to Chadian Company for Water & Electricity (CCWE) - HELD THAT:- As decided in own case for AY 2010-11 . [2019 (9) TMI 437 - ITAT MUMBAI] Tribunal has concluded that the rate as applicable to performance guarantee would apply to this guarantee also. Following the same principle, we hold that the rate of 0.60% as adopted for performance guarantee to CCWE would apply to this guarantee also. Since, the assessee has already charged a rate of 0.60%, no further adjustment would be required. Accordingly, these grounds stand dismissed. Adjustment arising out of performance guarantee - The transaction is in the form of indemnity provided by the assessee to BEC with a view to secure the performance of the contract entered into by BEC with assessee’s AE. The assessee did not charge any commission by submitting that the assessee was entirely compensated and therefore, no further charge was called for. TPO estimated the same @1%. - HELD THAT:- In assessee’s own case for AY 2010-11 [2019 (9) TMI 437 - ITAT MUMBAI]Tribunal has concurred with assessee’s submissions that the contract which was awarded to its AE would get assigned in assessee’s favor wherein the assessee would be obligated to execute the contract on its own by using its own infrastructure, which would in turn, result in assessee deriving the entire contractual revenue and huge profits therefrom. There would be no need to make any adjustment on Arm’s Length principles. Facts being pari-materia the same, respectfully following the same, we hold that the assessee was justified in not charging any fees against the same. These grounds stand dismissed. Corporate guarantees provided on behalf of its 2 AEs namely KEC Transmission LLC, USA and KEC US LLC, USA - International tarnsaction or not? - HELD THAT:- It is quite discernible that the assessee had definite obligation under the corporate guarantee and to say that that the same shall have no bearing on profits, incomes, losses or assets of the assessee would not be a correct proposition. Even as per assessee’s own submissions, if the said guarantee was not provided, the assessee would have been obligated to infuse equity capital in its wholly owned SPV AEs with a view to enable downstream acquisition of SAE Towers Ltd. USA which would have entailed assessee’s resources. This is further fortified by the fact that fact that guarantees have specifically been brought within the ambit of term international transactions by way of amendment to explanation (i)(c) to Sec.92B by Finance Act, 2012 w.e.f. 01/04/2002. Arguments that the said transactions could not be considered to be international transaction do not convince us and therefore, we hold that the same was to be benchmarked on ALP principles. Benchmarking rate of 2% as adopted by Ld. TPO - assessee’s risk in such a case would be very low since both the AEs were assessee’s subsidiaries only. Therefore, considering the fact that it was a corporate guarantee for which no fees was paid by the assessee and going by the ratio of the decision of coordinate bench of the Tribunal in Everest Kanto Cylinders Ltd. Vs. DCIT [2012 (11) TMI 1099 - ITAT MUMBAI] as affirmed by Hon’ble Bombay High Court [2015 (5) TMI 395 - BOMBAY HIGH COURT] we estimate the TP adjustments against both these transactions @0.20%. The Ld. TPO / Ld. AO is directed to recompute the same in terms of our above order. The grounds stand partly allowed. Mark-to-market losses arising on the foreign exchange contracts which were outstanding at the year-end - HELD THAT:- As evident from factual matrix itself, the issue is covered in assessee’s favor by the decision of this Tribunal for AY 2009-10 and held that MTM losses on hedging contracts would be accrued losses and hence, an allowable expenditure. Additional ground - Education cess and higher and secondary education cess paid by the assessee - allowable as deduction while computing business income of the assessee - HELD THAT:- We admit the additional ground of appeal and direct Ld. AO to bring the relevant facts qua the same on record and re-adjudicate the same after affording reasonable opportunity of hearing to the assessee. This ground is admitted and allowed for statistical purposes.
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