2023 (8) TMI 209 - AT - Income Tax

TP Adjustment - corporate guarantee given by the assessee company to its AEs - international transaction or not? - HED THAT - We have also gone through the decision of this Tribunal in the assessee s own case for the AY 2014-15 2023 (2) TMI 1174 - ITAT VISAKHAPATNAM wherein the Tribunal, after analyzing the issues at length, held that the corporate guarantee commission is an international transaction and should be charged @ 0.50% on the corporate guarantee amount given to the AEs. Thus we hereby hold that the corporate guarantee commission is an international transaction and should be charged @ 0.50% on the corporate guarantee amount given to the AEs. Decided in favour of assessee partly.

Summary

Issues Involved:
The main issues involved are:
(i) Whether the corporate guarantee given by the assessee company to its AEs for the loan taken by the AEs can be considered as an international transaction as per the provisions of section 92B of the Act or not?
(ii) Whether the TP adjustment made by the Ld. TPO in the corporate guarantee commission @ 2% and restricted by the Ld. CIT(A) @ 1% on the amount guaranteed as corporate guarantee given to AEs is justifiable or not?

Corporate Guarantee as International Transaction:
The appeal was filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) concerning the assessment year 2016-17. The assessee, engaged in the business of edible oils and agro-based products, provided corporate guarantees to its Associated Enterprises (AEs) outside India. The Ld. TPO observed that the corporate guarantee provided by the assessee falls within the definition of an international transaction. The assessee contended that the guarantee was provided for the benefit of the 3F Group and did not qualify as an international transaction. The Ld. TPO computed the ALP for the corporate guarantee and made adjustments under section 92CA of the Act. The Ld. CIT(A) directed the Ld. AO to adopt a 1% guarantee fee. The main issue was whether the corporate guarantee constituted an international transaction as per section 92B of the Act.

TP Adjustment on Corporate Guarantee Commission:
The Tribunal considered the arguments presented by both parties. The Ld. AR contended that the corporate guarantee given by the assessee was not an international transaction as no fee was charged to the AEs. The Ld. DR supported the orders of the Revenue Authorities. The Tribunal referred to its decision in the assessee's own case for the AY 2014-15, where it was held that the corporate guarantee commission is an international transaction and should be charged at 0.50% on the amount guaranteed to the AEs. Citing various judicial pronouncements, the Tribunal upheld the decision and applied it to the present case. Therefore, the TP adjustment made by the Ld. TPO at 2% and restricted by the Ld. CIT(A) at 1% was deemed justifiable based on the principles of consistency and previous rulings.

Conclusion:
The Tribunal partly allowed the appeal of the assessee, holding that the corporate guarantee commission constituted an international transaction and should be charged at 0.50% on the amount guaranteed to the AEs. The other grounds raised by the assessee were considered consequential and needed no separate adjudication. The decision was pronounced in open court on 6th March 2023.