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2023 (3) TMI 906 - AT - Income TaxTP Adjustment - receipt of counter guarantee commission by the Assessee from Associated Enterprises (AE) for providing counter guarantee at the instance of its overseas AE - HELD THAT - We find rationale in the plea of the assessee that the counter guarantee with negligible risks can not per se be compared with guarantee offered by independent parties/ banks shouldering very high risk parameters as also observed by the co-ordinate bench in other assessment years. TPA made in the impugned assessment order towards counter guarantee commission is thus grossly at odds with the factual position enunciated by the co-ordinate benches and hence such adjustment is totally uncalled for. The directions of the DRP in Assessment Years 2010-11 and 2011-12 acknowledges the position taken by the assessee. The directions given while restoring the matter to the AO are self evident and does not admit of any such assumption of agreeability of any sort with CUP method as canvassed on behalf of the revenue. The Assessee in any case, would not be in a position to defend its case for TNMM method as MAM unless data collected is provided for its examination and rebuttal. It is manifest that the observations made by the Co-ordinate Bench in the first round had kept the issue entirely open to be decided denovo. We are thus not impressed by such counter argument on behalf of the Revenue.
Issues Involved:
1. Transfer Pricing Adjustment 2. Taxability of Interest on Income-Tax Refund 3. Non-Reduction of Interest Received by Indian Branches from Head Office/Other Overseas Branches 4. Short Grant of TDS Credit 5. Excess Withdrawal of Interest Under Section 244A(3) 6. Initiation of Penalty Proceedings Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue concerns the transfer pricing adjustment of INR 13,66,36,735 related to the "receipt of counter guarantee commission" from Associated Enterprises (AEs). The Assessee contended that the Revenue Authorities erred in treating the impugned transaction as a corporate/bank guarantee without appreciating the functional, asset, and risk (FAR) differences. The Tribunal noted that the Assessee used the Transactional Net Margin Method (TNMM) as the most appropriate method for determining the Arm's Length Price (ALP), which was accepted in previous years. The Revenue's use of Comparable Uncontrolled Price (CUP) data obtained under Section 133(6) was challenged for not providing the Assessee an opportunity to cross-examine the third-party banks. The Tribunal found that the Assessee's method of benchmarking the transaction using TNMM was appropriate, given the negligible risk associated with the counter guarantee backed by the AE. The Tribunal referenced its own decisions in the Assessee's favor for previous years (AY 2009-10, AY 2015-16, AY 2010-11) and ruled that the transfer pricing adjustment was uncalled for, allowing the Assessee's appeal on this ground. 2. Taxability of Interest on Income-Tax Refund: The Assessee argued that the Assessing Officer (AO) incorrectly applied a tax rate of 42.024% on the interest from an income-tax refund, despite acknowledging that it should be taxed at 10% under Article 11 of the India-Japan tax treaty. The Tribunal directed the AO to dispose of the Assessee's pending rectification application regarding this issue within three months, thus allowing the Assessee's appeal for statistical purposes. 3. Non-Reduction of Interest Received by Indian Branches from Head Office/Other Overseas Branches: The Assessee claimed that the AO erred in not reducing the interest of INR 8,46,996 received from its Head Office/other overseas branches from the assessed income. The Tribunal directed the AO to address this issue as part of the pending rectification application, allowing the appeal for statistical purposes. 4. Short Grant of TDS Credit: The Assessee contended that the AO failed to grant credit for tax deducted at source (TDS) amounting to INR 2,26,026. The Tribunal directed the AO to rectify this issue expeditiously as part of the pending rectification application, allowing the appeal for statistical purposes. 5. Excess Withdrawal of Interest Under Section 244A(3): The Assessee argued that the AO erroneously withdrew excess interest under Section 244A(3) of the Act. The Tribunal directed the AO to address this issue as part of the pending rectification application, allowing the appeal for statistical purposes. 6. Initiation of Penalty Proceedings: The Assessee contended that the AO erred in initiating penalty proceedings under Section 271(1)(c) of the Act. The Tribunal did not provide a specific ruling on this issue within the summarized judgment provided. Conclusion: The Tribunal allowed the Assessee's appeal on the transfer pricing adjustment, finding the TNMM method appropriate and rejecting the Revenue's application of the CUP method. For the other issues, the Tribunal directed the AO to dispose of the pending rectification applications within three months, allowing the appeals for statistical purposes. The Tribunal's order emphasized adherence to principles of natural justice and consistency with previous rulings.
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