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2023 (7) TMI 740 - AT - Income TaxTP Adjustment - corporate guarantee ( CG ) extended by the assessee to its foreign subsidiary - HELD THAT - We note that the CIT(A) had rightly taken note of facts and circumstances and held that the holding company, i.e. SCKPL, that had actually provided the guarantee along with the assessee, had in aggregate charged 1.2% (1% by SCKPL 0.2% by the assessee), which exceeded the reasonable rate of commission of 0.5%, as held in a series of rulings, and thus no upward adjustment was warranted. Decided against revenue. TP adjustment made u/s 40A(2)(b) - specified domestic transaction involving loan availed from AE, SKCPL and its director - benchmarking the interest rate paid to AEs against the interest rate paid to M/s Silver Cross Marketing Private Limited. - HELD THAT - CIT(A) had rightly found that Ld. TPO was incorrect on facts and in law in benchmarking the interest paid by the assessee to AEs with the interest paid to M/s Silver Cross Marketing Private Limited. Coming back to the determination of ALP, the assessee has placed on record the Prime Lending Rate ( PLR ) of 14.55% as notified by the State Bank of India for the year 2013. Accordingly, when the prime lending rate itself had increased over the years and stood at 14.55% for the relevant period, the comparable rate of interest could not be considered at erstwhile rates in a dynamic interest rate environment. Hence, the interest rate of 13.5% paid by the assessee to its AEs being comparable to the prevailing PLR cannot be said to be excessive. We find support from the decision of Cotton Naturals (I) Pvt. Ltd. 2015 (3) TMI 1031 - DELHI HIGH COURT - Also, the facts on record show that the AE, SKCPL had itself paid interest at the rate of 12.75% to SBI during the relevant year and therefore the interest rate of 13.5% i.e. 12.75% plus mark-up (as amended with effect 01.04.2013) charged from the AEs was fair reasonable. The ld. D/R, could not controvert this factual matrix. Decided against revenue.
Issues Involved
1. Condonation of delay in filing the appeal. 2. Deletion of upward transfer pricing adjustment related to corporate guarantee fees. 3. Deletion of transfer pricing adjustment related to interest on loans from associated enterprises. Summary 1. Condonation of Delay in Filing the Appeal The Tribunal condoned a delay of 497 days in filing the appeal, citing the Supreme Court's exclusion of the period from 15.03.2020 to 28.02.2022 due to the Covid-19 pandemic. 2. Deletion of Upward Transfer Pricing Adjustment Related to Corporate Guarantee Fees Facts: The assessee, a Special Purpose Vehicle (SPV), extended a corporate guarantee to its foreign subsidiary, IDPL, through a Stand-By Letter of Credit (SBLC) issued by its holding company, SCPKL. SCPKL charged a 1% guarantee fee, while the assessee charged an additional 0.2%. TPO's Adjustment: The Transfer Pricing Officer (TPO) benchmarked the corporate guarantee fee at 1.63%, resulting in an upward adjustment of Rs. 1,16,472. CIT(A)'s Decision: The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the adjustment, noting that the total guarantee fee of 1.2% (1% by SCPKL and 0.2% by the assessee) was at arm's length, especially since SCPKL bore the risk and pledged its assets. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that the total fee of 1.2% exceeded the reasonable benchmark of 0.5% established in various rulings. The Tribunal found the TPO's approach to be fundamentally flawed and dismissed the revenue's grounds. 3. Deletion of Transfer Pricing Adjustment Related to Interest on Loans from Associated Enterprises Facts: The assessee availed loans from its holding company, SCPKL, and its director, charging an interest rate of 13.5%. The TPO made a downward adjustment, comparing this rate to the 11.5% interest paid to another party, Silver Cross Marketing Pvt Ltd. CIT(A)'s Decision: The CIT(A) deleted the adjustment, noting that SCPKL sourced the loan from SBI at 12.75% and charged a reasonable markup. The CIT(A) also pointed out that the interest rate of 13.5% was below the prevailing SBI PLR of 14.55% and that the loan to Silver Cross was not comparable due to different terms and amounts. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, citing its own ruling in the assessee's case for the previous year, where a similar adjustment was found untenable. The Tribunal noted that the interest rate of 13.5% was comparable to the prevailing PLR and dismissed the revenue's grounds. Appeals for AY 2015-16 For AY 2015-16, the issues were identical to those in AY 2014-15. The Tribunal upheld the CIT(A)'s decision to delete the transfer pricing adjustments related to the corporate guarantee fee and interest on loans, dismissing the revenue's appeal. Conclusion Both appeals by the revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all issues. The Tribunal found that the adjustments made by the TPO were not warranted and that the transactions were at arm's length.
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