2022 (6) TMI 1300 - AT - Income Tax

TP Adjustment - corporate guarantee - international transaction ot not? - HELD THAT - From plain reading of definition it is clear that lending or borrowing of money between two or more enterprises also comes under the definition of international transaction. When the assessee has provided guarantee on behalf of its AE for availing loan facility it definitely bearing on the profits or loss of the assessee and thus it falls within the definition of international transaction and thus providing corporate guarantee is an international transaction which needs to be bench marked to determine ALP of such transaction - TPO has rightly held that providing corporate guarantee is an international transaction and hence we reject the arguments of assessee. As regards imputing rate of commission on guarantee it is a well settled principle of law by the decision of various courts including the decision in the case of CIT v. Everest Kento Cylinders Ltd. 2015 (5) TMI 395 - BOMBAY HIGH COURT wherein it has been clearly held that no comparison can be made between the guarantee issued by commercial banks as against corporate guarantee issued by holding company for benefit of its AE a subsidiary company for computing ALP of guarantee commission. When it comes rate of commission at which such corporate guarantee needs to be bench marked then depending upon each case a reasonable rate may be adopted and thus in the said case has upheld 0.5% commission on corporate guarantee. 0.5% is the reasonable rate for benchmarking corporate guarantee given by the assessee to its subsidiary AE. We direct the AO to make adjustment towards corporate guarantee fee @ 0.5% of total corporate guarantee given by the assessee to its AE. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Assessment order challenged by the assessee.
2. Addition made without considering evidence.
3. Disallowance of interest payment savings.
4. Disallowance of guarantee commission claim.
5. Error in calculating presumptive valuation.
6. Disallowance under section 14A.
7. Disallowance of routine payment for bank facilities.

Detailed Analysis:

1. The appeal challenges the final assessment order passed by the Assessing Officer under sections 143(3), 92CA, and 144C(13) of the Income Tax Act for the assessment year 2014-15. The Dispute Resolution Panel directed the assessment following which the appeal was filed by the assessee.

2. The assessee raised multiple grounds of appeal, including contentions that the assessment order was against the law and facts, and the addition of Rs.32,47,200 was made without considering the evidence presented by the appellant.

3. The Transfer Pricing Officer (TPO) made an upward adjustment of Rs.32,47,200 towards guarantee fee charged by the assessee to its subsidiary for providing a corporate guarantee. The TPO considered the guarantee fee as an international transaction and applied a rate of 1.98% based on the total guarantee amount.

4. The Dispute Resolution Panel confirmed the TPO's adjustments and held that providing a corporate guarantee is indeed an international transaction. The Panel rejected the arguments of the assessee regarding the rate of guarantee fee and sustained the additions made by the Assessing Officer.

5. The arguments presented by the assessee regarding the nature of corporate guarantee as an international transaction and the appropriate rate for guarantee commission were considered. The Tribunal upheld that providing a corporate guarantee falls under the definition of an international transaction and directed the AO to adjust the guarantee fee at a reasonable rate of 0.5%.

6. The issue of disallowance under section 14A was also raised by the assessee but was dismissed as not pressed during the hearing. The Tribunal partially allowed the appeal based on the above considerations.

7. The judgment was pronounced on June 15, 2022, in Chennai, with the appeal being partly allowed based on the Tribunal's findings and directions regarding the assessment issues raised by the assessee.