2023 (2) TMI 1174 - AT - Income Tax

TP adjustment - international transaction - corporate guarantee given by the assessee-company to its AEs for the loan taken by the AEs - HELD THAT - In the case of M/s. Devi Sea Foods Limited 2022 (9) TMI 587 - ITAT VISAKHAPATNAM this Bench of the Tribunal has held that the corporate guarantee given to the AE is an international transaction and shall be chargeable @ 0.50% on the amount of corporate guarantee given to the AEs. We are of the considered view that the corporate guarantee commission is an international transaction and should be charged @ 0.50% on the corporate guarantee amount given to the AEs. We therefore partly allowed the grounds raised by the assessee.

Summary

Issues involved:
1. Determination of whether the corporate guarantee given by the assessee to its Associated Enterprises for loans can be considered an international transaction under section 92B of the Income Tax Act.
2. Justifiability of the Transfer Pricing adjustment made by the Transfer Pricing Officer (TPO) and upheld by the Dispute Resolution Panel (DRP) in the corporate guarantee commission on the gross guarantee given to Associated Enterprises.

Analysis:
The appeal was filed by the assessee against the final assessment order passed by the Assessing Officer (AO) under the Income Tax Act for the Assessment Year (AY) 2014-15. The main contention revolved around the corporate guarantee provided by the assessee to its Associated Enterprises outside India. The TPO made a Transfer Pricing (TP) adjustment on the corporate guarantee charges, which was upheld by the DRP. The AO determined the Arm's Length Price (ALP) of the corporate guarantee outstanding and added it to the income returned by the assessee. The primary issues raised in the appeal were related to Transfer Pricing matters and other grounds such as interest levy and penalty proceedings.

Regarding the first issue, the assessee argued that the corporate guarantee given to its Associated Enterprises should not be considered an international transaction as no charges were imposed on the Associated Enterprises. The assessee relied on various judicial decisions to support this argument. However, the TPO had determined the ALP based on the fees charged by State Bank of India for similar guarantees. The Tribunal referred to past judgments and held that the corporate guarantee commission should be charged at 0.50% on the amount of the corporate guarantee given to the Associated Enterprises, considering it as an international transaction.

On the second issue, the Tribunal found the TP adjustment made by the TPO and upheld by the DRP to be justifiable based on the retrospective amendment made by the Finance Act, 2012. Citing relevant judicial pronouncements, the Tribunal concluded that the corporate guarantee commission is indeed an international transaction and should be charged at 0.50% on the corporate guarantee amount provided to the Associated Enterprises. Consequently, the Tribunal partly allowed the grounds raised by the assessee, considering the corporate guarantee commission as an international transaction.

The Tribunal considered the other grounds raised by the assessee as consequential and did not require separate adjudication. Ultimately, the appeal of the assessee was partly allowed by the Tribunal in its judgment pronounced on February 16, 2023.