2018 (10) TMI 127 - AT - Income Tax

Determination of Arm length price in respect of interest charged on advances given to the subsidiary company M/s Jayant PTE Ltd, which is also the Associated Enterprise(AE) of the assessee company - Held that - As decided in the assessee s own case for the assessment year 2011-12 and 2012-13 decided the issue in favour of the assessee and held that on out bound loans, the LIBOR rate should be adopted. In the instant case, the assessee has charged the interest @ 4. 5% which is more than the LIBOR rate. Respectfully following the view taken by this Tribunal in the assessee s own case for the assessment year 2011- 12 and 2012-13 supra, we uphold the order of the Ld. CIT(A) and dismiss the appeal of the revenue on this ground. Corporate guarantee fee - Held that - Similar view was taken up by the Coordinate Bench of ITAT, Hyderabad in the case of Batronics India Ltd. (2017 (9) TMI 1649 - ITAT HYDERABAD). In the instant case, the facts are identical. The assessee had given corporate guarantee to its 100% subsidiary and the AE for the purpose of business. The assessee had not incurred any expenditure towards the corporate guarantee. The revenue could not bring any evidence to establish that the assessee had incurred any expenditure for extending the corporate guarantee. As stated by the Ld. AR it is the obligation on the part of the assessee to extend the support and assistance to its subsidiaries for business development. Since the facts are identical, respectfully following the view taken by coordinate benches in the case laws cited, we hold that the corporate guarantee given by the assessee on behalf of its AE would not constitute an international transaction within the meaning of 92B of the Act. Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the appeal of the revenue.

Summary

Issues:
1. Determination of Arm's Length Price for interest charged on advances to subsidiary company.
2. Corporate guarantee fee and its adjustment.

Issue 1: Determination of Arm's Length Price for interest charged on advances to subsidiary company:
The appeal was filed by the revenue against the order of the Commissioner of Income-Tax (Appeals) regarding the determination of Arm's Length Price for interest charged on advances given to the subsidiary company, which is also the Associated Enterprise of the assessee company. The AO referred the issue to the TPO for determining Arms Length Price due to international transactions with the AE. The TPO proposed an adjustment as the interest charged was deemed not at ALP. However, the CIT(A) deleted the addition, holding that the interest charged was acceptable as it was higher than LIBOR rate, following precedents such as the decisions of the Delhi High Court and the Bombay High Court. The Tribunal upheld the CIT(A)'s decision, citing consistency with previous judgments in the assessee's own case for the assessment years 2011-12 and 2012-13.

Issue 2: Corporate guarantee fee and its adjustment:
The second issue revolved around the corporate guarantee fee charged by the TPO on a guarantee provided by the assessee to its AE. The TPO proposed an adjustment, but the assessee argued that no adjustment was warranted as the corporate guarantee was given to protect the interest of shareholders and secure credit facilities to its subsidiaries without incurring any expenditure. The CIT(A) held that providing a corporate guarantee to the AE did not constitute an international transaction under section 92B of the Act, following the decision of the Hon'ble ITAT, Hyderabad. The Tribunal, in line with various judgments, including those of the ITAT Kolkata and ITAT Hyderabad, upheld the CIT(A)'s decision, ruling that no adjustment was required as the corporate guarantee did not impact the profits, income, losses, or assets of the assessee.

In conclusion, the Tribunal dismissed the revenue's appeal on both issues, affirming the decisions of the CIT(A) regarding the determination of Arm's Length Price for interest charged on advances to the subsidiary company and the corporate guarantee fee adjustment.