2020 (1) TMI 87 - AT - Income Tax

TP Adjustment - adjustment on account of corporate guarantee fee made by the AO and confirmed by the ld. CIT (A) - HELD THAT - Old amendment vide which Explanation to section 92B has been introduced has been held to be prospective in nature, thus not applicable to the year under assessment. Because ALP of international transactions qua corporate guarantee has been determined by the AO as well as by the CIT (A) merely by relying upon the amendment vide which Explanation to section 92B of the Act by the Finance Act, 2012 has been introduced by treating the same having retrospective effect, which is no more a valid and sustainable legal proposition. When explanation to section 92B of the Act is not applicable to the year under assessment, ALP of international transaction qua corporate guarantee cannot be determined. Furthermore, assessee company has filed the return of income declaring loss of ₹ 1,35,26,955/- as on 27.09.2011 and the flagship of the assessee company has accumulated brought forward losses to the tune of about ₹ 290 crores, there is no question of diversion of profit by the assessee company out of India. Moreover, there is not an iota of material on file to prove that the assessee company has incurred any cost in providing corporate guarantee. Consequently, addition made in this case on account of TP adjustment qua corporate guarantee fee is ordered to be deleted, hence, the appeal filed by the Revenue is hereby dismissed. Since transaction qua corporate guarantee entered into by the assessee company with its AE is held not to be an international transaction, there is no question of determining the ALP of compensation for providing corporate guarantee. CIT(A) has erred in passing the impugned order confirming the order passed by the AO to the extent of determining the ALP of corporate guarantee transaction @ 1% which is not sustainable in the eyes of law. Objections hopelessly time barred having been filed with delay of 512 days - Application filed for condonation of delay is too generic in nature and reasons given in the application for condonation of delay are not acceptable. In any case, facts as to reshuffling of staff of the company and even the Financial Controller and Finance Head have left the company have also not been explained. It is settled principle of law that the appellant/cross objector, as the case may be, is to prove the delay of every single day by giving cogent reasons. So, we hereby dismiss the application for condonation of delay and cross objections filed by the assessee company are dismissed being hopelessly time barred.

Issues Involved:
1. Determination of Arm's Length Price (ALP) for corporate guarantee.
2. Classification of corporate guarantee as an international transaction.
3. Applicability of Explanation to Section 92B retrospectively.
4. Condonation of delay in filing cross objections by the assessee.

Issue-wise Detailed Analysis:

1. Determination of Arm's Length Price (ALP) for Corporate Guarantee:
The Revenue challenged the Commissioner of Income-tax (Appeals) [CIT(A)]'s decision to set the ALP for corporate guarantee compensation at 1%, which resulted in a relief of ?4,56,83,544 to the assessee. The Assessing Officer (AO) had initially computed the ALP at 2.58%, leading to an addition of ?7,45,97,179 to the assessee's income. The CIT(A) reduced this rate to 1%, following the precedent set in the assessee's own case for previous years.

2. Classification of Corporate Guarantee as an International Transaction:
The assessee contested the CIT(A)'s classification of the corporate guarantee as an international transaction. The CIT(A) invoked the provisions of Explanation to Section 92B, which was introduced with retrospective effect from 01.04.2002, and relied on the Tribunal's decision in Mahindra & Mahindra Ltd. vs. DCIT. The Tribunal noted that similar issues had been decided in favor of the assessee in previous assessment years (2008-09, 2009-10, and 2010-11), where it was held that the Explanation to Section 92B is not retrospective.

3. Applicability of Explanation to Section 92B Retrospectively:
The Tribunal reiterated that the Explanation to Section 92B, introduced by the Finance Act, 2012, is not retrospective. Consequently, the transfer pricing adjustment on account of the corporate guarantee fee made by the AO and confirmed by the CIT(A) was deemed unsustainable. The Tribunal referenced several decisions, including Bharti Airtel Ltd vs. ACIT and Micro Ink Limited vs. ACIT, which supported the view that such adjustments are only applicable prospectively.

4. Condonation of Delay in Filing Cross Objections by the Assessee:
The assessee's cross objections were filed with a delay of 512 days. The Tribunal dismissed the application for condonation of delay, stating that the reasons provided were too generic and lacked specific explanations. The Tribunal emphasized that the appellant must prove the delay of every single day with cogent reasons, which was not done in this case.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross objections. It held that the ALP determination for the corporate guarantee was not applicable for the assessment year in question due to the non-retrospective nature of the Explanation to Section 92B. Additionally, the Tribunal found no material evidence to support the Revenue's claim that the corporate guarantee had a bearing on the profits, income, losses, or assets of the enterprise. The cross objections were dismissed as they were filed with an inordinate delay without satisfactory justification.

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