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TMI Blog2019 (5) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee - ITA No. 1958/Kol /2017 - - - Dated:- 3-4-2019 - SHRI S. S. GODARA, JM AND DR. A. L. SAINI, AM For The Assessee : Dr. P. K. Srihari, CIT DR For The Respondent : Shri Akkal Dudhwewala, ACA ORDER Per Dr . A . L . Saini: The captioned appeal filed by the Revenue, pertaining to assessment year 2013-14, is directed against the order passed by the Commissioner of Income Tax (Appeal)-22, Kolkata, which in turn arises out of a fair assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the Act ) . 2 . The grievance raised by the Revenue are as follows: 1 . That on the facts and circumstances of the case, the ld . CIT(A) has erred in law in stating that CUP should not be the most appropriate method for sale of finished goods without appreciating the fact that goods sold by the appellant to the AEs and non-AEs are comparable in all aspects and hence CUP shall provide arm s len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Departmental Representative relied upon the orders of the TPO/AO . 6 . We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee s own case vide order dated 15 . 06 . 2018 . In this order, the Tribunal has inter alia observed as follows: 26 . We have heard learned arguments on both sides, perused the material available on record, and before we proceed to record our view and opinion on the issue under consideration, it is worthwhile to quota here the relevant provisions of Rule 10B of Income Tax Rules . Clause (a) of sub-rule (1) of Rule 10B defines the comparable uncontrolled price method ( CUP-Method) as follows: Rule 10B . Determination of arm s length price under section 92C . ( 1) For the purposes of sub-section (2) of section 92C, the arm s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the CUP method, highest degree of comparability is required . The CUP cannot be applied without adjustments on account of differences in market and economic conditions of countries in which products have been sold to independent third parties . For that we rely on the judgment of the Coordinate Bench Mumbai in case of Internet India Private Limited (2010) 39 SOT 93, wherein it was held as follows: We heard both parties . From the submissions made by the assessee the economic and market conditions of Thailand and Vietnam are totally different . The ld . CIT (A) has held that both the countries are located in Far East Asia and have similar demographical constitution . . . . . . . . . . We find that the TPO and the CIT(A) have assumed similarity of markets and economic conditions and have made adjustments only for the volume discount, credit offered and a small adjustment of credit risk . They have completely ignored the disparate economic and market conditions of Thailand and Vietnam and have made no adjustment for the same . . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO however selectively shortlisted only 56 products to conduct benchmarking analysis under CUP Method . Even in respect of these 56 products, the Ld . TPO, later on, noted that 12 products were showing that the prices at which assessee had sold products to its AE's were higher . Accordingly, the Ld . TPO made adjustment with reference to prices of 44 products . The Ld . TPO however, conveniently missed out to benchmark the remaining 194 (250 - 56) products sold to AEs non-AEs . We note that Compared Products by Ld TPO are not same . Even though both the compared products appear to be similar in terms of basic function i . e . cream, lotion, powder, etc but their labelling, packaging, ingredients are different . It is by now well settled principle that CUP requires high degree of comparability and where the product mix, material, composition etc . are not identical, application of CUP fails . In most of the instances, where compared products were of dissimilar sizes, Ld . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the transactions were accepted to be at arm s length under the TNMM method, therefore it was imperative for the Ld . TPO to bring on record the change in facts or law and give cogent reasoning before departing from the settled position and rejecting the application of TNMN Method . It is a well settled legal position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts . For that we rely on the order of the Hon ble Supreme Court in RadhasoamiSatsang vs . CIT 193 ITR 321 (SC) . 29 . The cornerstone of Transfer Pricing principle is the comparability analysis of a controlled transaction with an uncontrolled transaction which is substratum of arriving at Arm s length price . The controlled and uncontrolled transactions are comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, geographical locations, climatic conditions, etc . Guidelines issued by OECD also recognized the business strategies adopted by the companies which have a bearing on profitability levels . Para 1 . 60 and 1 . 62 of OECD guidelines for the sake of ready reference are reproduced hereunder: Para 1 . 60 of the Guidelines states as under: Business strategies also could include market penetrate schemes . A taxpayer seeking to penetrate a market or to increase its market share might temporarily charge a price for its product that is lower than the price charged for otherwise comparable products in the same market . Furthermore, a taxpayer seeking to enter a new market or expand (or defend) its market share might temporarily incur higher costs (e . g . due to start-up costs or increased marketing efforts) and hence achieve lower profit levels than other taxpayers operating in the same market . Further, para 1 . 62 of the OECD Guidelines states as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Associate Enterprise (AE) . 9 . After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld . AR, we find that the issue involved, in respect to corporate guarantee, in the present appeal is no longer res integra . We note that financial guarantee is a promise made by a person (the guarantor) to a lender(guaranteed party) promising to pay the lender the money owed to it by the borrower (obligor) on whose behalf the guarantee is given, if the borrower fails to pay back the debt due to the lender . A guarantee to a lender that a loan will be repaid, guaranteed by a company other than the one who took the loan, is called a corporate guarantee . The ld Counsel for the assessee submitted before us that extending corporate guarantee for borrowings by subsidiaries was a shareholder activity, that it was not an international transaction, that no fee was warranted since no cost was incurred, and that bank guarantees were not comparable to corporate guarantees since the business of the bank was different from that of a corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates for the inadequacy in the financial position of the borrower; specifically the fact that the subsidiary does not have enough shareholders funds . There can be number of reasons, including regulatory issues and market conditions in the related jurisdictions, in which such a contribution, by way of a guarantee, would justify to be a more appropriate and preferred mode of contribution vis-a-vis equity contribution . . . . . . In other words, these guarantees were specifically stated to be in the nature of shareholder activities . The assessee's claim of the guarantees being in the nature of quasi capital, and thus being in the nature of a shareholder's activity, is not rejected either . The concept of issuance of corporate guarantees as a shareholder activity is not alien to the transfer pricing literature in general . . . . . . We have noticed that the 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations specifically recognizes that an activity in the nature of shareholder activity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B (1) of the Act . . . . 11 . We rely on the judgment of the Co-ordinate Bench of ITAT, Delhi in the case of Bharti Airtel Ltd . vs . ACIT in I . T . A . No . 5816/Kol/2012, wherein the definition of international transaction in view of the amendments, vide Finance Act, 2012, had been discussed and it was held that the provision of corporate guarantee is not an international transaction . The relevant extract of the judgment is reproduced as under: Para 23 . . . . The issue whether giving a corporate guarantee amounts to an international transaction' has not been raised or discussed in the cases where ALP adjustments have been upheld and therefore those decisions cannot be put against the taxpayer . . . . . Para 27 . . . . The Explanation inserted vide Finance Act 2012 is to be read in conjunction with the main provision and in harmony with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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