2016 (5) TMI 262 - AT - Income Tax

Transfer pricing adjustment - application of the rate of 3% take by the Transfer Pricing Officer to determine the arm s length rate of the international transaction of provision of corporate guarantee on behalf of the associated enterprise - Held that - The Hon ble Bombay High Court in the case of Everest Kento Cylinders Ltd.(2012 (11) TMI 1099 - ITAT MUMBAI) considering a somewhat similar situation has explained that instances of commercial banks providing guarantees could not be compared to instances of issuance of corporate guarantee. As per Hon ble Bombay High Court, when commercial banks issue bank guarantees, the same is quite distinct in character, than the situation where a corporate issues guarantee to the effect that, if a subsidiary associated enterprise does not repay a loan, the same would be made good by such corporate. Keeping the said ratio it is quite clear that the manner in which the Transfer Pricing Officer has proceeded to determine the arm s length rate based on the probable rate being charged by the commercial banks is not justified. In this view of the matter, we are unable to approve 3% rate of guarantee commission fee determined as arm s length rate by the income-tax authorities. In the alternative, the addition that is required to be sustained is the position canvassed by the assessee before the Transfer Pricing Officer i.e. adoption of 0.50% as arm s length rate for the purpose of determining the arm s length income on account of guarantee commission fee in the present case. Considering the entirety of facts and circumstances of the case and on the basis of the material available on record, we, therefore, proceed to uphold the rate of 0.50% for the purpose of determining the arm s length rate of the guarantee commission fee. Depreciation on data cable and other computer peripherals - @15% OR 60% as per assessee - Held that - It was a common point between the parties that similar issue has been decided against the assessee for assessment year 2007-08 ) by following earlier decision of the Tribunal for assessment year 2006-07. Depreciation @ 15% confirmed - Decided against assessee

Summary

Issues:
1. Transfer pricing adjustment of corporate guarantee
2. Disallowance of depreciation on data cables
3. Disallowance of depreciation on Jodhpur property
4. Depreciation rate on printers, scanners, switches, and routers

Transfer Pricing Adjustment of Corporate Guarantee:
The case involved cross-appeals by the assessee and Revenue against an order passed by the Ld. CIT(A)-15, Mumbai, regarding A.Y. 2008-09. The primary issue was the addition of ?18,05,400 to the total income due to a transfer pricing adjustment related to a corporate guarantee provided by the assessee for a foreign subsidiary. The Transfer Pricing Officer determined this adjustment as the arm's length price. The assessee contested this adjustment on various grounds, including the nature of the transaction and the rate of guarantee commission. The Tribunal held that the 3% rate adopted by the authorities was not justified and directed the adoption of a 0.50% rate, citing precedents and the distinct nature of corporate guarantees. The Tribunal partially allowed the assessee's appeal on this issue.

Disallowance of Depreciation on Data Cables:
The second issue pertained to the disallowance of depreciation on data cables at a rate of 15% instead of the assessee's claim of 60%. The Tribunal referred to a precedent in the assessee's own case for the previous year and directed the Assessing Officer to allow depreciation at 60%. Consequently, the assessee succeeded on this ground.

Disallowance of Depreciation on Jodhpur Property:
The third ground involved the disallowance of depreciation on Jodhpur property amounting to ?1,86,692. The Tribunal noted that a similar issue had been decided against the assessee in previous years, following earlier Tribunal decisions. As a result, the appeal on this ground was dismissed.

Depreciation Rate on Printers, Scanners, Switches, and Routers:
The final issue concerned the depreciation rate on printers, scanners, switches, and routers. The Revenue appealed the CIT(A)'s decision to allow depreciation at 60% instead of 15% allowed by the Assessing Officer. The Tribunal found this issue identical to a previous year's appeal, which was decided in favor of the assessee. Consequently, the Revenue's appeal on this ground was dismissed.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal. The decision was based on detailed analysis of each issue, considering legal precedents and the specific facts of the case.