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2016 (5) TMI 633 - AT - Income TaxTransfer pricing adjustment - addition on guarantees given to the bankers on behalf of overseas subsidiaries of the Appellant - Held that - It is very important to bear in mind the fact that right now we are dealing with amendment of a transfer pricing related provision which is in the nature of a SAAR (specific anti abuse rule), and that every anti abuse legislation, whether SAAR (specific anti abuse rule) or GAAR (general anti abuse rule), is a legislation seeking the taxpayers to organize their affairs in a manner compliant with the norms set out in such anti abuse legislation. An anti-abuse legislation does not trigger the levy of taxes; it only tells you what behavior is acceptable or what is not acceptable. What triggers levy of taxes is non-compliance with the manner in which the anti-abuse regulations require the taxpayers to conduct their affairs. In that sense, all anti abuse legislations seek a certain degree of compliance with the norms set out therein. It is, therefore, only elementary that amendments in the anti-abuse legislations can only be prospective. It does not make sense that someone tells you today as to how you should have behaved yesterday, and then goes on to levy a tax because you did not behave in that manner yesterday. At best the amendment in Section 92B, at least to the extent it dealt with the question of issuance of corporate guarantees, is effective from 1st April 2012. The assessment year before us being an assessment year prior to that date, the amended provisions of Section 92 B have no application in the matter. For this reason also, the impugned ALP adjustment must stand deleted. We must, however, make it clear that what we have stated above, in the context of retrospective amendment, is specifically in the context of transfer pricing legislation which, as we have observed earlier, being an anti-abuse legislation, seeks a degree of compliant conduct by the taxpayers rather than being primarily a source of revenue. - Decided in favour of assessee
Issues Involved:
1. Transfer Pricing Adjustment for Guarantees 2. Deduction under Section 80IB(8A) Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment for Guarantees: The primary issue revolves around the addition of ?40,64,424 as a transfer pricing adjustment related to guarantees given by the assessee to bankers on behalf of its overseas subsidiaries. The assessee argued that the transfer pricing proceedings initiated under section 92CA(1) were without jurisdiction and should be quashed. Additionally, the assessee contended that the granting of guarantees is not an international transaction under Transfer Pricing regulations and that the bank guarantee commission charged by the banks (1.75%) was reimbursed by the subsidiaries to the appellant. Therefore, the additional guarantee commission imputed by the AO/TPO should be deleted. The Transfer Pricing Officer (TPO) noted that the assessee did not charge any fees or commission for issuing these guarantees. The TPO required the assessee to show cause why an arm’s length price adjustment @ 3% should not be made. The TPO concluded that the corporate guarantees are covered by the definition of 'international transaction' under section 92B and that the assessee should have charged fees at an arm’s length price. The TPO adopted 3% as an arm’s length price for issuance of the guarantee, resulting in an ALP adjustment of ?1,13,40,000. The CIT(A) upheld the TPO's decision, stating that the furnishing of corporate guarantees is an international transaction as per the amended provisions of section 92B, effective retrospectively from 01.04.2002. The CIT(A) also rejected the appellant's contention that the reference made by the AO to the TPO was without proper jurisdiction. The CIT(A) further noted that the appellant did not benchmark this international transaction and upheld the 3% rate applied by the TPO. The Tribunal, however, disagreed with the CIT(A) and TPO. It observed that the issuance of corporate guarantees, in the nature of quasi-capital or shareholder activity, does not amount to a service for which arm's length adjustment can be done. The Tribunal referenced the decision in Micro Ink vs ACIT, which emphasized that the determination of arm's length price can only be done in respect of an 'international transaction' as defined under section 92B. The Tribunal concluded that the issuance of corporate guarantees by the assessee was not in the nature of 'provision for services' and should be treated as shareholder participation in the subsidiaries. 2. Deduction under Section 80IB(8A): The second issue pertains to the deduction of ?18,64,72,586 under section 80IB(8A) of the Income Tax Act. The Assessing Officer (AO) contended that the assessee did not fulfill the statutory conditions required under section 80IB(8A)-II & IV of the Act and Rule 18DA of the I.T. Rules, 1962. The AO argued that mere approval from the prescribed authority does not exempt the assessee from fulfilling the statutory conditions for claiming the deduction. The CIT(A) allowed the deduction, and the Tribunal upheld this decision, noting that the issue was covered in favor of the assessee by decisions of the coordinate benches in the assessee’s own case for the assessment years 2003-04 to 2008-09. The Tribunal found no reason to deviate from these earlier decisions and upheld the order of the CIT(A). Conclusion: - The appeal filed by the assessee was allowed, resulting in the deletion of the transfer pricing adjustment related to corporate guarantees. - The appeal filed by the Assessing Officer was dismissed, upholding the deduction under section 80IB(8A) as allowed by the CIT(A).
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