2018 (5) TMI 1811 - AT - Income Tax

TPA - determination of arms length price(ALP) u/s 92C - commission chargeable by the assessee from its AE on international transaction entered into u/s 92B with its associated enterprises (AE) - Held that - Corporate guarantee provided by the assessee brought certain benefits to its AE by way of credit facility and therefore, the same was required to be compensated by its AE. Our view is duly supported by the decision of this Tribunal rendered 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 wherein the rate of commission has been adopted @0.5%. Respectfully, following the same, we estimate the impugned additions @0.5% p.a.. The Ld. AO is directed to quantity the addition and re-compute the income of the assessee in terms of our above order - decided partly in favour of assessee

Summary

Issues Involved:
Transfer Pricing adjustment on account of corporate guarantee provided to Associated Enterprise (AE).

Analysis:
1. The appeal for Assessment Year 2009-10 challenges the Transfer Pricing adjustment on a corporate guarantee provided by the assessee to its AE. The Ld. Commissioner of Income-Tax (Appeals) had upheld the Transfer Pricing Officer's adjustment of &8377; 1,66,20,644 against the corporate guarantee. The assessee, a resident corporate engaged in manufacturing, had given the guarantee to facilitate a bank facility for its AE. The TPO calculated the adjustment at 5% per annum, which was incorporated in the assessment order. The assessee contended that the guarantee was not an international transaction under Section 92B and no adjustment was necessary. The AR sought a reduction in the adjustment to 0.495% based on the rate enjoyed by the assessee from its bankers.

2. The Tribunal considered the benefits brought to the AE by the corporate guarantee, such as credit facility, and held that the AE needed to compensate the assessee for these benefits. Relying on precedent, the Tribunal estimated the adjustment at 0.5% per annum, directing the Assessing Officer to quantify the addition and re-compute the assessee's income accordingly. The decision was based on the Tribunal's ruling in Everest Kanto Cylinders Ltd. Vs. DCIT, where a commission rate of 0.5% was adopted and affirmed by the Bombay High Court. Consequently, the appeal was partly allowed, and the order was pronounced on 4th May 2018.