2016 (9) TMI 1440 - AT - Income Tax

TPA - corporate guarantee commission - international transaction in terms with section 92B - Held that - There is service rendered to A.E. by providing guarantees and therefore invoking provisions of T.P. does arise on the facts of the case. Since the DRP has also followed its earlier order for the A.Y. 2009-2010 we uphold the finding of the DRP that the corporate guarantee is an international transaction. Thereafter we also direct the Assessing Officer to adopt rate as 0.53% as corporate guarantee commission as done in the earlier assessment year. Thus Ground of appeal No.4 is rejected and ground of appeal No.5 is treated as allowed for statistical purposes. Interest on Loans & Advances given by the Appellant to AE - rate of interest - Held that - We direct the Assessing Officer to re-workout the interest on the loan brought by the assessee to it s a.E. at LIBOR 2.75% as against LIBOR 4.75% charged by the Assessing Officer/TPO.

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3) read with section 144C and section 92CA(3) of the Income Tax Act, 1961.
2. Transfer pricing adjustment for corporate guarantees.
3. Transfer pricing adjustment for loans and advances given to Associated Enterprises (AEs).

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant challenged the assessment order passed by the Deputy Commissioner of Income Tax under section 143(3) read with section 144C(5) of the Income Tax Act, 1961, arguing that it is "bad in law and void ab-initio." This issue, however, was not adjudicated as it was deemed general in nature.

2. Transfer Pricing Adjustment for Corporate Guarantees:
The assessee provided a bank guarantee of Rs. 62,83,52,637 to its AE during the financial year 2008-09. The TPO considered this an international transaction and deemed a 2% fee reasonable. The DRP upheld this finding. The Tribunal noted that in the previous assessment year (2009-2010), a similar issue was decided against the assessee but directed the AO to re-compute the corporate guarantee fee at 0.53%. The Tribunal upheld the DRP's finding that the corporate guarantee is an international transaction and directed the AO to adopt a corporate guarantee commission rate of 0.53%.

3. Transfer Pricing Adjustment for Loans and Advances:
The assessee provided an advance of Rs. 9,28,37,001 to SST North America Inc., an AE, for the acquisition of JYACC Inc., New York. The TPO treated this as an international transaction and charged interest on it. The DRP confirmed the chargeability of interest but directed the TPO to adopt LIBOR+ 4.75% basis points. The Tribunal, referring to its decision for the AY 2009-2010, directed the AO to adopt LIBOR+ 2.75% as the appropriate interest rate, instead of LIBOR+ 4.75%.

Conclusion:
The Tribunal concluded by partly allowing the assessee's appeal. The corporate guarantee was confirmed as an international transaction, but the fee was directed to be recalculated at 0.53%. For the loans and advances, the interest rate was directed to be recalculated at LIBOR+ 2.75%. The general grounds of appeal were not adjudicated.