9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (5) TMI 1371 - AT - Income TaxTP adjustment - selection of MAM - CUP OR TNMM - CIT(A) stated that CUP should not be the most appropriate method for sale of finished goods - HELD THAT - As decided in assessee's own case 2018 (6) TMI 962 - ITAT KOLKATA whereby the issue of CUP method Vs. TNMM has been discussed and upheld that TNMM is most appropriate method (MAM). Selective application of CUP Method by TPO is ad hoc, and without any cogent basis, hence the entire approach followed in rejecting the TP study memorandum of assessee for application of TNMM method is unjustified - Decided in favour of the assessee Corporate guarantee fee extended by the assessee company to its Associate Enterprise (AE) - international transaction - HELD THAT - . We rely on the judgment of the Co-ordinate Bench of ITAT, Delhi in the case of Bharti Airtel Ltd. vs. ACIT 2017 (1) TMI 172 - ITAT DELHI wherein the definition of international transaction in view of the amendments, vide Finance Act, 2012, had been discussed and it was held that the provision of corporate guarantee is not an international transaction. - Decided in favour of the assessee
Issues Involved:
1. Appropriateness of the Comparable Uncontrolled Price (CUP) method versus the Transactional Net Margin Method (TNMM) for determining arm's length price. 2. Classification of corporate guarantee as an international transaction. 3. Categorization of corporate guarantee as a shareholder service. 4. Requirement of charging a fee for the corporate guarantee provided. Issue-wise Detailed Analysis: 1. Appropriateness of the Comparable Uncontrolled Price (CUP) Method vs. Transactional Net Margin Method (TNMM): The Revenue contended that the CUP method should be used for the sale of finished goods, arguing that goods sold to Associated Enterprises (AEs) and non-AEs are comparable, making CUP the most appropriate method. The Tribunal referred to a previous decision in the assessee’s own case, where it was upheld that TNMM is the most appropriate method. The Tribunal noted that the Transfer Pricing Officer (TPO) failed to adjust for differences in market and economic conditions between countries where products were sold. The Tribunal emphasized that for CUP to be applicable, adjustments for differences in market conditions and consumer preferences are essential. The TPO's selective benchmarking of products and failure to adjust for significant differences led to the conclusion that CUP was not suitable. The Tribunal upheld the use of TNMM as the most appropriate method, dismissing the Revenue's appeal on this issue. 2. Classification of Corporate Guarantee as an International Transaction: The Revenue argued that the corporate guarantee extended by the assessee to its AE constitutes an international transaction as per the Income Tax Act, 1961, and should be benchmarked for arm's length pricing. The Tribunal, however, noted that several judicial pronouncements have held that corporate guarantees do not constitute international transactions. The assessee had made an estimated adjustment for the corporate guarantee fee, but the TPO had recomputed the arm's length price. The Tribunal cited precedents where it was held that corporate guarantees, being shareholder activities, do not warrant a charge as they do not affect the profits, income, losses, or assets of the enterprise. The Tribunal concluded that the provision of corporate guarantee does not constitute an international transaction, thus rejecting the Revenue's claim. 3. Categorization of Corporate Guarantee as a Shareholder Service: The Tribunal agreed with the assessee's argument that extending a corporate guarantee is a shareholder activity aimed at helping the subsidiary company and protecting its interest, rather than earning income. The Tribunal referred to the judgment of ITAT Ahmedabad in the case of Micro Link Limited vs. ACIT, which held that corporate guarantees are in the nature of shareholder activities and do not constitute international transactions. The Tribunal emphasized that such activities do not justify a charge to the recipient companies and are outside the ambit of transfer pricing adjustments. 4. Requirement of Charging a Fee for the Corporate Guarantee Provided: The Revenue argued that a fee should be charged for the corporate guarantee as it provides a benefit to the AE. The Tribunal, however, noted that the primary object of the assessee in providing the guarantee was to support its subsidiary, not to earn a fee. The Tribunal cited various judgments, including Bharti Airtel Ltd. vs. ACIT, which held that corporate guarantees do not have a bearing on the profits, income, losses, or assets of the enterprise and thus do not constitute international transactions. The Tribunal concluded that no fee should be charged for the corporate guarantee, upholding the CIT(A)'s order. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all grounds. The Tribunal reaffirmed that TNMM is the most appropriate method for determining arm's length price, corporate guarantees do not constitute international transactions, and no fee is warranted for corporate guarantees as they are shareholder activities. The Tribunal's decision was pronounced on 03.04.2019.
|
