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TMI Blog2016 (1) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as revenue’s appeal are treated as allowed for statistical purposes. - ITA No. 157/Hyd/2014, ITA No. 276/Hyd/2014 - - - Dated:- 4-12-2015 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri Deepak Chopra and Miss Manasvani Baj Pai For The Revenue : Shri Mohan Singh Singhania ORDER PER S. RIFAUR RAHMAN, A.M.: The cross appeals of the assessee and revenue are filed against the order of the CIT(A)-IV, Hyderabad, dated 13/12/2013. These appeals are disposed off by this common order for the sake of convenience. 2. The assessee is engaged in the business of manufacture and trading of cement. It filed its return of income on 30/09/2008 declaring total income of ₹ 61,26,48,100/-. The case was selected for scrutiny. Subsequently, the case was referred to Transfer Pricing Officer (TPO). The AO made an addition of ₹ 15,36,04,538/- to the total income of assessee on the basis of adjustments to the ALP made by TPO vide his order dated 20/09/2011. The AO also disallowed expenses to the extent of ₹ 54,31,383/-. The total income assessed to tax was ₹ 77,16,84,021/-. 3. In brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US Double Taxat ion Avoidance Agreement. (DTAA) . 6. Determining the interest rate at spread size over LIBOR without under taking any object ive analysis. Revenue s ground: 2. The CIT (A) ought to have appreciated that the LIBOR plus cannot be taken as the base for the purpose of TP adjustment in respect of interest on loan advanced to the AE for the international transactions in view of the latest frauds regarding LIBOR since Barclays bank UBS were fined by the United States Department of Just ice for at tempted manipulat ion of the LIBOR and Eur ibor rates and ult imately UBS agreed to pay to regulators. Ld. AR submitted that the assessee through its SPV, RCUSA acquired Juniper Investment LLC, which in turn owned another company, CII Carbon LLC for a sum of USD 620,175,000. The assessee provided loans to RCUSA which in turn invested the amount as preferred stock in Rain CII Holdings LLC. With the above investment, RCL operated seven coke calcining plants in USA and as a result of acquisition, the group became the largest producer of CPC in the world. Ld. AR submitted that the assessee had the option of funding the SPV either in the form of share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Tribunal in the cases of Four Soft Pvt. Ltd. (supra), Siva Industries Holdings Ltd. (supra) and Vijay Elecricals Ltd., (ITA No. 1159/Hyd/2013. It was held in the case of Siva Industries as below: Once the transact ion between the assessee and the AE is in foreign currency and the transact ion is an internat ional transact ion, then, the transact ion would have to be looked upon by applying the commercial principles in regard to internat ional transact ion. If this is so, then the domest ic prime lending rate would have no applicability and international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it is LIBOR rate which has to be considered while determining the arm s length interest rate in respect of the transact ion between the assessee and the AE s. Considering the above view, we are inclined to accept the decision of the CIT(A) and accordingly we dismiss the grounds of assessee as well as ground 2 of the revenue. 11. ALP adjustment on corporate guarantee Assessee s grounds of appeal: The ld. CIT(A) has erred in 7. Making adjustment while determinat ion of ALP on the shareholders corporate guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be charged, the method of computation of the guarantee fee was erroneous. Ld. AR also submitted that there is no cost to the assessee as it was given on the basis of Holding company and there is no profit involved in this year. Ld. AR submitted that the transaction was not relating to this year. (Refer pages 56 to 59 of paper book - relates to PY 2005-06.). Ld. AR relied on the following decisions: 1. Four Soft Pvt. Ltd., (supra) 2. Bharti Airtel Ltd. Vs. ACIT (ITA No. 5816/Del/2012 3. Redington (India) Ltd., Vs. JCIT, (ITA No. 513/MDS/2014). 12. Ld. DR submitted that the assessee had not reported this transaction as international transaction. He submitted that the case Glenmark Pharmaceuticals Vs. ACIT (ITAT-Mumbai) had made after considering some calculation to arrive the figure 0.53% whereas the CIT(A) in the present case had adopted 1.25% without any basis. He also submitted that the TPO had analysed the risk factor in this transaction since the guarantee was given without any security. He also submitted that even though there is no cost to the assessee but there is intrinsic benefit to the AE. He submitted that he relies on the order of AO/TPO and justified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar transactions has to be arrived at before determining ALP. This issue of the percentage at which the corporate guarantee can be benchmarked has come up before various benches of the Tribunal. We find that in the case of Glenmark Pharmaceuticals Vs. ACIT in ITA No. 5031/Mum/2012, dated 13/11/2013, the Tribunal has examined the approach of the assessee therein in determining the percentage of corporate guarantee to be methodical and found it to be appropriate. Thus, the tribunal has laid down guidelines for determination of rate of corporate guarantee. In the case before us, the AO adopted 2% of the loan guaranteed and the same was reduced to 1.25% by the ld. CIT(A) without any basis or study in this matter. We find that in the decision of the coordinate bench of this Tribunal in Four Soft Pvt. Ltd. (supra), and also the decision of the Hon ble Mumbai High Court in the case of M/s Everest Kanto Cylinder Ltd. Vs. DCIT, it was held that commercial banks guarantees are easily encashable in the event of default hence higher commission is justified for them, whereas in case of corporate guarantee the parent company would repay loan in case its AE defaults. Further, it was held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of 0.5% from its AE can be said to be at arms length. The difference of 0.1% can be ignored as the rate of interest on which ICICI Bank, Bahrain Branch has given loan to AE (i.e. subsidiary company) is at 5.5%, whereas the assessee is paying interest rate of more than 10% on its loan taken with ICICI Bank in India. Thus, such a minor difference can be on account of different ial rate of interest. Thus, on these facts, we do not find any reason to uphold any kind of upward adjustment in ALP in relat ion to charging of guarantee commission. Hence, the addit ion of ₹ 28,50,353/ - on account of TP adjustment on guarantee commission is hereby deleted and the order of the CIT(A) is set aside. Accordingly, ground NO.2 is treated to be allowed. Following the above decision of the Mumbai Bench, which has been upheld by the Hon ble High Court, we find that in the circumstances of the said case, it was held appropriate to charge the corporate guarantee at 0.50% from its AE and that it can be said to be at arm s length. However, in the case before us, we find that there is no corporate guarantee commission charged by the assessee. Therefore, we remit this issue to the file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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