Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2022 (4) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (4) TMI 1438 - AT - Income TaxTP Adjustment - Selection of Most Appropriate Method MAM - TNMM V/S CUP - determination of Arm s Length Price (ALP) of the international transaction relating to processing fees received on account of guarantees issued to Indian companies based on counter guarantee from overseas branches - rejection of Transactional Net Margin Method (TNMM) used by the assessee and adopting external Comparable Uncontrolled Price (CUP) method as MAM - HELD THAT - We hold that TNMM method would be the Most Appropriate Method in the facts and circumstances of the instant case and CUP could not be applied herein because of non-availability of data. In any case in respect of adjustment made simply relying on 133(6) information from the market had been deleted by this Tribunal in the case of Asian Paints Ltd. 2014 (1) TMI 16 - ITAT MUMBAI It is also prudent to note that the same transactions were accepted by the ld. TPO upto A.Y.2012-13 in the case of the assessee. Hence, even going by the rule of consistency as has been held by the Hon ble Supreme Court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT there is no need for the ld. TPO to take a divergent stand when there is no change in the facts and circumstances during the year with that of earlier years. Hence, we direct the ld. TPO to delete the adjustment made in respect of guarantee fees - Decided in favour of assessee.
Issues Involved:
1. Determination of Arm’s Length Price (ALP) for processing fees received on account of guarantees issued to Indian companies. 2. Rejection of Transactional Net Margin Method (TNMM) and adoption of Comparable Uncontrolled Price (CUP) method as the Most Appropriate Method (MAM). 3. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. Detailed Analysis: Issue 1: Determination of Arm’s Length Price (ALP) The primary issue revolves around the determination of the ALP for the processing fees received by the assessee for guarantees issued to Indian companies based on counter guarantees from overseas branches. The assessee, a commercial bank with its head office in Melbourne, Australia, issued guarantees on behalf of its Associated Enterprises (AEs) and benchmarked this transaction using the TNMM method. The assessee reported an operating margin of 237.32% on operating costs for issuing guarantees and concluded that its transaction was at arm’s length by comparing with an arithmetic mean margin of 3.07% from selected comparables. Issue 2: Rejection of TNMM and Adoption of CUP Method The Tax Authorities (TPO) rejected the TNMM method used by the assessee and adopted the external CUP method as the MAM. The TPO argued that the comparables used by the assessee were from the support services industry, which were not comparable to the activity of issuing guarantees for a commission. The TPO obtained information under section 133(6) of the Act from various banks to determine the bank guarantee rates, which ranged from 0.5% to 2%. Consequently, the TPO benchmarked the guarantee fee transaction by applying a 1% rate, resulting in a transfer pricing adjustment of Rs.10,94,55,035. The Tribunal found that the assessee's role was limited to providing support services in connection with processing the guarantees, as the entire risk of discharging the bank guarantees was borne by the overseas branches issuing the counter guarantees. Given the facts, the Tribunal concluded that the CUP method was not appropriate due to the non-availability of comparable data and held that the TNMM method was the MAM. The Tribunal directed the TPO to delete the adjustment made in respect of the guarantee fees. Issue 3: Initiation of Penalty Proceedings under Section 271(1)(c) The assessee challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal considered this issue premature for adjudication at this stage and dismissed it. Conclusion: The appeal of the assessee was partly allowed. The Tribunal directed the deletion of the transfer pricing adjustment related to the guarantee fees and dismissed the grounds related to the initiation of penalty proceedings as premature. The TNMM method was upheld as the MAM for benchmarking the transaction of processing fees received for guarantees issued on behalf of AEs.
|