9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (9) TMI 1101 - AT - Income TaxTP Adjustment - adjustment arising out of performance guarantee provided by assessee to an entity - HELD THAT - The bank guarantee was given by Bank of India. The bank utilized the guarantee facility sanctioned to assessee while sanctioning aforesaid bank guarantee to assessee s AE. The assessee, based on letter obtained from the bank, charged guarantee commission of 0.60% from its subsidiary. The Ld. TPO estimated the same @1%. We find that this issue is contained in assessee s own case for AY 2010-11. 2019 (9) TMI 437 - ITAT MUMBAI as concluded that internal CUP in the shape of commission charged by the bank, would be most direct and reliable way to apply Arm s Length Principle. Further, when there was absolutely no loss to the assessee and entire cost was recovered from the AE, no further adjustment would be required. Applying the said principle to year under consideration, we find that the assessee has charged commission in accordance with the bank s sanction letter and therefore, no further adjustment, as proposed by Ld. TPO, would be justified. Accordingly, these grounds stand dismissed. Adjustment arising out of guarantee for advance payment provided by assessee to Chadian Company for Water Electricity (CCWE) - HELD THAT - As decided in own case for AY 2010-11 . 2019 (9) TMI 437 - ITAT MUMBAI Tribunal has concluded that the rate as applicable to performance guarantee would apply to this guarantee also. Following the same principle, we hold that the rate of 0.60% as adopted for performance guarantee to CCWE would apply to this guarantee also. Since, the assessee has already charged a rate of 0.60%, no further adjustment would be required. Accordingly, these grounds stand dismissed. Adjustment arising out of performance guarantee - The transaction is in the form of indemnity provided by the assessee to BEC with a view to secure the performance of the contract entered into by BEC with assessee s AE. The assessee did not charge any commission by submitting that the assessee was entirely compensated and therefore, no further charge was called for. TPO estimated the same @1%. - HELD THAT - In assessee s own case for AY 2010-11 2019 (9) TMI 437 - ITAT MUMBAI Tribunal has concurred with assessee s submissions that the contract which was awarded to its AE would get assigned in assessee s favor wherein the assessee would be obligated to execute the contract on its own by using its own infrastructure, which would in turn, result in assessee deriving the entire contractual revenue and huge profits therefrom. There would be no need to make any adjustment on Arm s Length principles. Facts being pari-materia the same, respectfully following the same, we hold that the assessee was justified in not charging any fees against the same. These grounds stand dismissed. Corporate guarantees provided on behalf of its 2 AEs namely KEC Transmission LLC, USA and KEC US LLC, USA - International tarnsaction or not? - HELD THAT - It is quite discernible that the assessee had definite obligation under the corporate guarantee and to say that that the same shall have no bearing on profits, incomes, losses or assets of the assessee would not be a correct proposition. Even as per assessee s own submissions, if the said guarantee was not provided, the assessee would have been obligated to infuse equity capital in its wholly owned SPV AEs with a view to enable downstream acquisition of SAE Towers Ltd. USA which would have entailed assessee s resources. This is further fortified by the fact that fact that guarantees have specifically been brought within the ambit of term international transactions by way of amendment to explanation (i)(c) to Sec.92B by Finance Act, 2012 w.e.f. 01/04/2002. Arguments that the said transactions could not be considered to be international transaction do not convince us and therefore, we hold that the same was to be benchmarked on ALP principles. Benchmarking rate of 2% as adopted by Ld. TPO - assessee s risk in such a case would be very low since both the AEs were assessee s subsidiaries only. Therefore, considering the fact that it was a corporate guarantee for which no fees was paid by the assessee and going by the ratio of the decision of coordinate bench of the Tribunal in Everest Kanto Cylinders Ltd. Vs. DCIT 2012 (11) TMI 1099 - ITAT MUMBAI as affirmed by Hon ble Bombay High Court 2015 (5) TMI 395 - BOMBAY HIGH COURT we estimate the TP adjustments against both these transactions @0.20%. The Ld. TPO / Ld. AO is directed to recompute the same in terms of our above order. The grounds stand partly allowed. Mark-to-market losses arising on the foreign exchange contracts which were outstanding at the year-end - HELD THAT - As evident from factual matrix itself, the issue is covered in assessee s favor by the decision of this Tribunal for AY 2009-10 and held that MTM losses on hedging contracts would be accrued losses and hence, an allowable expenditure. Additional ground - Education cess and higher and secondary education cess paid by the assessee - allowable as deduction while computing business income of the assessee - HELD THAT - We admit the additional ground of appeal and direct Ld. AO to bring the relevant facts qua the same on record and re-adjudicate the same after affording reasonable opportunity of hearing to the assessee. This ground is admitted and allowed for statistical purposes.
Issues Involved:
1. Transfer Pricing Adjustment for Business Advances. 2. Performance Guarantee Adjustment. 3. Corporate Guarantee Adjustment. 4. Mark-to-Market Losses on Forex Contracts. 5. Education Cess Deduction. Detailed Analysis: 1. Transfer Pricing Adjustment for Business Advances: The sole subject matter of the assessee's appeal was the Transfer Pricing (TP) adjustment of ?2,45,43,617/- against business advances given by the assessee to its Associated Enterprise (AE). The assessee argued that the advances were business advances to fulfill obligations as a joint venture partner and not loans, thus no interest was charged. The Ld. AO and TPO rejected this argument, treating the advances as loans and benchmarking them against LIBOR rates, resulting in a TP adjustment. However, the Tribunal found that the advances were more in the nature of capital contributions to protect the business interest of the assessee, and hence, directed the AO to delete the adjustment. 2. Performance Guarantee Adjustment: The revenue's appeal challenged the CIT(A)'s decision that the guarantee commission for performance guarantees provided by the assessee to various entities on behalf of its AE was at arm's length. The Ld. TPO had benchmarked performance guarantees at 1% and corporate guarantees at 2%, proposing an aggregate adjustment of ?13,12,45,000/-. The Tribunal found that the internal CUP (Comparable Uncontrolled Price) in the form of commission charged by the bank was the most direct and reliable method to apply the Arm's Length Principle. Since the assessee charged commission in accordance with the bank's sanction letter, no further adjustment was justified, and the grounds related to performance guarantees were dismissed. 3. Corporate Guarantee Adjustment: The revenue's appeal also involved corporate guarantees provided by the assessee on behalf of its AEs. The Ld. TPO benchmarked these guarantees at 2%, but the Tribunal noted that both AEs were subsidiaries of the assessee and special purpose vehicles for downstream acquisition. Given the low risk and the fact that no fees were paid by the assessee, the Tribunal estimated the TP adjustment at 0.20% instead of 2%, directing the AO to recompute the same. 4. Mark-to-Market Losses on Forex Contracts: The revenue challenged the CIT(A)'s decision to treat MTM (Mark-to-Market) losses on forex contracts as accrued losses. The Tribunal noted that this issue was covered in the assessee's favor by earlier decisions, including the Hon'ble Supreme Court's decision in Woodward Governor Ltd. and the Tribunal's own decision for AY 2009-10. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's grounds on this issue. 5. Education Cess Deduction: An additional ground was raised by the assessee regarding the deductibility of education cess and higher and secondary education cess. The Tribunal admitted the additional ground, noting that the issue was covered in the assessee's favor by the recent decision of the Hon'ble Bombay High Court in Sesa Goa Limited. The Tribunal directed the AO to bring relevant facts on record and re-adjudicate the issue after affording reasonable opportunity of hearing to the assessee. Conclusion: The assessee's appeal was allowed to the extent indicated, and the revenue's appeal was partly allowed. The Tribunal directed the AO to delete the TP adjustment for business advances, confirmed the CIT(A)'s decision on performance guarantees, adjusted the corporate guarantee TP adjustment to 0.20%, upheld the CIT(A)'s decision on MTM losses, and admitted the additional ground on education cess, directing the AO to re-adjudicate the issue.
|
