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2020 (8) TMI 190 - AT - Income TaxTP Adjustment - adjustment made to the arm s length price of Corporate Guarantee issued in respect of payment of outstanding hire charges - TPO rejecting assessee s claim has charged guarantee commission at 2.5% which has been reduced to 1.75% by learned DRP - HELD THAT - Basis on which the Transfer Pricing Officer and learned DRP have determined the arm s length price of guarantee commission is the commission charged by the State Bank of India, Singapore Branch, @ 1.25% per annum on the bank guarantee availed by the AE. We find substantial merit in the submission of the learned Authorised Representative that performance/corporate guarantee cannot be equated with bank guarantee. Even DRP has also observed that the assessee has provided an unsecured performance guarantee. It is further evident, the assessee itself has availed a bank guarantee from ICICI Bank on payment of guarantee commission of 0.25%. Keeping in view the aforesaid facts, we are of the considered opinion that the arm s length price of the guarantee commission can be reasonably fixed at 0.25% by adopting as internal CUP the guarantee commission charged by the ICICI Bank on provision of bank guarantee to the assessee. Ground no.1, raised by the assessee is partly allowed. Addition made on account of adjustment made to the arm s length price of interest on short term loan granted to the AE - HELD THAT - Looking at the financial needs of the subsidiary, the assessee had provided short term loan for a period of 15 days or thereabout. For providing such loan, the assessee had charged interest at LIBOR plus 1.5%. The Transfer Pricing Officer, however, did not accept the rate of interest charged by the assessee. Adopting the prime lending rate of State Bank of India @ 7.50% and adding a mark up of 1.50%, the Transfer Pricing Officer determined the arm's length interest rate @ 9.% and accordingly determined the arm s length price of interest to be charged on the loan provided to the AE. While deciding the issue, learned DRP directed the Assessing Officer to charge interest @ LIBOR plus 4%. The fact that the assessee has provided a short term loan only for a period of 15 days to the AE has not been disputed. It is further noticed that assessee s AE in Singapore has availed a loan from SBI, Singapore branch at interest rate of six months LIBOR plus 250 basis points. Considering the above, we are of the view that the rate of interest charged by the assessee is at arm's length requiring no further adjustment. Ground no.2, is allowed. Levy of interest under section 234A - HELD THAT - We find that the return of income for the impugned assessment year has been filed within the due date provided under section 139(1) of the Act. That being the case, no interest under section 234A of the Act is chargeable. Ground no.4, is allowed. Levy of interest under sections 234B and 234C - HELD THAT - We hold that since levy of interest under section 234B of the Act is consequential, assessee s ground insofar as this issue is concerned, need not be adjudicated. As regards levy of interest under section 234C of the Act, we direct the Assessing Officer to charge such interest not on the assessed income, but on the income returned by the assessee. Thus, ground no.5, is partly allowed. Addition on account of difference between the interest credited to the Profit Loss account and interest as shown in Form no.26AS - HELD THAT - As submitted that the AO without seeking any explanation from the assessee has added the differential amount suo motu. Further, it has been submitted that interest amounting to ₹ 9,48,516, has been offered to tax by the assessee in the subsequent financial year. Considering the submissions made by the learned Authorised Representative, we are of the view that the issue requires to be restored back to the file of the Assessing Officer for verifying assessee s claim. The assessee must be given sufficient opportunity to reconcile the difference. After considering the submissions of the assessee, the Assessing Officer must decide the issue by taking into consideration all the evidences submitted by the assessee. With the aforesaid observations, the issue is restored back to the file of the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee.
Issues Involved:
1. Adjustment to the arm's length price of Corporate Guarantee. 2. Adjustment to the arm's length price of interest on short-term loan. 3. Adjustment to the arm's length price of Corporate Guarantee for loan availed by AE. 4. Levy of interest under section 234A of the Act. 5. Levy of interest under sections 234B and 234C of the Act. 6. Initiation of penalty proceedings under section 271(1)(c) of the Act. 7. Addition due to difference in interest credited to Profit & Loss account and Form 26AS. Detailed Analysis: 1. Adjustment to the Arm's Length Price of Corporate Guarantee: The assessee, engaged in chartering offshore supply vessels, provided a performance guarantee for its AE's outstanding bareboat charter hire charges. The Transfer Pricing Officer (TPO) determined a guarantee commission of 2.5% based on a bank guarantee commission rate of 1.25% from SBI, Singapore Branch. The Dispute Resolution Panel (DRP) reduced it to 1.75%. The ITAT found merit in the assessee’s argument that a performance guarantee cannot be equated with a bank guarantee. It was noted that the assessee had availed a bank guarantee from ICICI Bank at 0.25%. Consequently, the arm's length price of the guarantee commission was reasonably fixed at 0.25%. 2. Adjustment to the Arm's Length Price of Interest on Short-Term Loan: The assessee provided a short-term loan to its AE at LIBOR plus 1.5%. The TPO adopted SBI’s prime lending rate of 7.50% plus 1.5%, determining an arm's length interest rate of 9%. The DRP directed the interest to be charged at LIBOR plus 4%. The ITAT noted that the AE had availed a loan from SBI, Singapore Branch, at six months LIBOR plus 250 basis points. Therefore, the interest rate charged by the assessee was deemed at arm's length, requiring no further adjustment. 3. Adjustment to the Arm's Length Price of Corporate Guarantee for Loan Availed by AE: The assessee provided an unsecured corporate guarantee for its subsidiary in the Netherlands, charging a fee of 0.25%. The TPO charged a fee of 2.25%, which the DRP reduced to 2%. The ITAT found that the value of the vessels provided as security to the lender bank was much more than the loan amount, making the loan fully secured. Thus, the guarantee fee charged by the assessee at 0.25% was deemed at arm's length, requiring no further adjustment. 4. Levy of Interest Under Section 234A of the Act: The ITAT found that the return of income for the impugned assessment year was filed within the due date provided under section 139(1) of the Act. Therefore, no interest under section 234A was chargeable. 5. Levy of Interest Under Sections 234B and 234C of the Act: The levy of interest under section 234B was deemed consequential and required no adjudication. For section 234C, the ITAT directed the Assessing Officer to charge interest based on the income returned by the assessee, not the assessed income. 6. Initiation of Penalty Proceedings Under Section 271(1)(c) of the Act: The ground raised by the assessee regarding the initiation of penalty proceedings was dismissed as premature. 7. Addition Due to Difference in Interest Credited to Profit & Loss Account and Form 26AS: The addition of ?18,62,317 was made due to a difference in interest credited to the Profit & Loss account and Form 26AS. The ITAT noted that the interest income for the last quarter was not accounted for in the financial year 2011–12 but was accounted for in 2012–13. The Assessing Officer added the differential amount without seeking an explanation. The ITAT restored the issue to the Assessing Officer for verification, allowing the assessee to reconcile the difference. Conclusion: Both appeals were partly allowed. The ITAT also addressed a procedural issue regarding the delayed pronouncement of the order due to the COVID-19 pandemic, citing precedents and legal provisions to justify the delay.
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