2019 (1) TMI 1841 - AT - Income Tax

TP Adjustment - computation of Arm Length Price ALP of certain Corporate Guarantee given by assessee for its Associates Enterprises AE - only point urged during hearing by Ld. Authorized Representative for assessee AR , Shri Hiro Rai, is that the ALP of the same should be computed @0.5% in terms of ratio of decision of this Tribunal rendered in Everest Kanto Cylinders Ltd. 2012 (11) TMI 1099 - ITAT MUMBAI . HELD THAT - TPO, adopting a rate of 2% pa., arrived at ALP of the same, based on number of days for which the CG remained in force. The adjustment thus worked out to ₹ 66.37 Lacs which was incorporated in the assessment order dated 24/04/2015. Upon further appeal, Ld. CIT, in terms of judgment of this Tribunal rendered in Glenmark Pharmaceuticals Ltd. 2013 (11) TMI 1583 - ITAT MUMBAI , reduced the same to 0.98%. Still aggrieved, the assessee is in further appeal before us. Upon due consideration of factual matrix, we find that since the decision of this Tribunal rendered in Everest Kanto Cylinders Ltd. Vs. DCIT 2012 (11) TMI 1099 - ITAT MUMBAI in estimating the CG @0.5% has already been affirmed by Hon ble Bombay High Court, we reduce the same to 0.5% per annum. The Ld. AO is directed to recompute the impugned addition in terms of this order. The appeal stands partly allowed.

Summary

Issues Involved:
Computation of Arm's Length Price (ALP) of Corporate Guarantee provided by the assessee for its Associate Enterprises (AE).

Analysis:
1. The appeal for Assessment Year 2011-12 challenges the order of the Ld. Commissioner of Income-Tax (Appeals)-58 [CIT(A)], Mumbai, regarding the computation of ALP of Corporate Guarantee. The main contention raised during the hearing was to compute the ALP at 0.5% based on a previous decision of the Tribunal affirmed by the Hon’ble Bombay High Court.

2. The Additional Commissioner of Income Tax (TPO) noted that the assessee provided Corporate Guarantee amounting to ?13.20 Crores to an Associate Enterprise. The TPO calculated the ALP at 2% per annum based on the duration of the guarantees provided. This resulted in an adjustment of ?66.37 Lacs, which was included in the assessment order.

3. Upon further appeal, the Ld. CIT referred to a judgment in Glenmark Pharmaceuticals Ltd. case and reduced the ALP rate to 0.98%. Dissatisfied with this reduction, the assessee appealed to the ITAT.

4. After considering the facts, the ITAT noted that a previous decision regarding Corporate Guarantee computation at 0.5% had been affirmed by the Hon’ble Bombay High Court. Therefore, the ITAT directed the AO to recalculate the addition at 0.5% per annum, thereby partially allowing the appeal.

5. Consequently, the appeal was partly allowed by reducing the ALP rate to 0.5% per annum. The order was pronounced on 8th January 2019.