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TMI Blog2018 (12) TMI 1647X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP. Although the CIT(A) has duly made a mention of this direction of the DRP for assessment year 2006-07, it is apparent that he has not considered the directions of the DRP while deciding this issue. We also note that the assessee has not filed any appeal against this direction of the DRP for assessment year 2006-07. Accordingly, in view of the factual matrix, this issue needs to be restored to the file of the CIT (A) to be decided afresh after considering the directions of the DRP in this regard in assessment year 2006-07 and after giving the assessee a proper opportunity present its case. Accordingly, this ground stands allowed for statistical purposes. Addition of excess claim of depreciation u/s 32 - capital subsidy under West Bengal Incentive Scheme, 2000 as part of interest fixed asset - AO reduced the cost of the fixed assets by the capital subsidy and consequently reduced depreciation - HELD THAT:- As decided in assessee s own case , [ 2018 (10) TMI 1629 - ITAT DELHI] CIT (A) has noted that he has examined the documents relating to West Bengal Incentive Scheme, 2000 and that further this subsidy is a one-time receipt. It has also been mentioned that nowhere on the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al transaction entered into by the assessee with its AEs. The TPO passed the order u/s 92CA(3) of the Act on 31.10.2011 and proposed to make an addition of ₹ 17,76,54,391/- on two international transactions, namely Corporate Guarantee and Interest on loan. Thereafter, the AO passed the final assessment order u/s 143(3) r.w.s. 144C(3) of the Act on 31.01.2012 by assessing the normal income at ₹ 206,74,23,681/-. 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) who allowed part relief on account of corporate guarantee and held that corporate guarantee rate of 0.5% was appropriate and that the rate of 0.6% should be taken as CUP for benchmarking the counter guarantee given by the assessee to ABN Amro Bank for the loan availed by Dabur, U.K. The relevant findings have been given in paras 5.5 to 5.7 of the impugned order which read as under: "5.5 I have carefully considered the submissions made by the appellant. The AO has observed that the Appellant has failed to charge service fees for the corporate guarantee given to its UK Subsidiary. The ALP of services fee for providing corporate guarantee has been computed by the TPO/ AO at 4.75% against NIL char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required for applying CUP have not been satisfied In present case, the appellant has given corporate guarantee to a foreign bank for providing loan to its foreign AE in foreign currency The situation adopted by the TPO in CUP method is of Indian bank giving guarantee in India for amount in INR Bank guarantee and corporate guarantee are also not identical instruments. In corporate guarantee, primary liability is of borrower and liability of guarantor arises only in case of default on part of borrower. In case of bank guarantee, liability is only of the person who has obtained bank guarantee Moreover, in present case, the concerned bank is ABN AMRO whereas TPO has used data obtained from different banks in India and it is very likely that rates charged by banks are quite different. In the case of Glenmark Pharmaceuticals Ltd. Vs. Addl. CIT (supra) the Hon'ble ITAT, Mumbai has observed as under: "16. List of Decisions of Tribunal - Approved Corporate Guarantee rates: Further, to substantiate assessee's Guarantee commission rate at 0.53% is competent and is at arm's length, Ld Counsel tabulated the list of the decisions of the Tribunal and the GC rates as approved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no third party would have given corporate guarantee without charging any fee. The appellant contended that rate of 4.75% charged by the AO/TPO is improper and un-realistic. Further, in various rulings cited by the appellant, the rate of corporate guarantee has been upheld at 0.5%. The appellant has submitted a letter from Royal Bank of Scotland (RBS) (formerly ABN AMRO bank) wherein it has been mentioned that the same loan that was taken by the overseas AEs on the basis of appellant's corporate guarantee at interest rate of LIBOR plus 0.5% was available without corporate guarantee at a rate of LIBOR Plus 1.5%, other terms and conditions remaining the same. On the basis of this letter, the appellant argued that Dabur UK got a benefit of 1.0% interest rate. This benefit is attributable to both corporate guarantee provided by it and bargaining power and other financial strengths of the borrower. According to the appellant, the rate of guarantee fee, if it is at all to be charged, therefore should not exceed 0.5% and that shall also be in line with what has been upheld in judicial decisions referred supra. I have carefully examined the submission of the appellant. For AY 2007-08, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the guarantee agreement was entered between ABN Amro Bank UK and Dabur Pharma Ltd India and no guarantee charges were levied on the appellant by ABN Amro Bank. The guarantee fee was directly paid by the UK subsidiary of the Appellant. The appellant has submitted that no guarantee fee can be recoverable again by it from its UK subsidiary. I have carefully considered the submission of the appellant. In the present case, ABN Amro Bank has given the guarantee to Hospira Inc, US for the loan of USD 5.20 Millions availed by Dabur Oncology Ltd UK (Dabur UK) on the basis of the counter guarantee of USD 5.20 Millions provided by the appellant company. For this purpose, ABN Amro Bank has charged fee @ 0.6% of the guarantee from Dabur Oncology PLC. However, ABN Amro Bank has given the guarantee to Hospira Inc, US for the said loan to Dabur UK only on the basis of the counter guarantee given by the appellant company. Without the counter guarantee given by the appellant company, ABN Amro Bank would not have given the guarantee to Hospira Inc, US for the loan of USD 5.20 Millions availed by Dabur UK. The counter guarantee given by the appellant to ABN Amro Bank for the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Indian domain and the rates charged by a third party to Dabur Oncology cannot be treated as CUP. The appellant has relied on different case laws and submitted that if internal CUP @ 6.5% based on loan from HSBC and ABN AMRO is not accepted, LIBOR Rates should be applied as a basis to benchmark the international transaction of loan in its case. The appellant has relied on the Hon"ble Delhi ITAT in the case of Cotton Naturals (I) Pvt. Ltd. (supra) and argued that the rate charged for the international transaction of loan is 7% for the FY 2007-08 (AY 2008-09) which is higher than the external LIBOR Rates prevalent during the FY 2007-08 as per table below: 1-Month 3-Month 6-Month 12-Month LIBOR RATES-March 2008 2.8066% 2.7825% 2.6798% 2.5133% For AY 2007-08, the Ld CIT(A) XXIX has held as under: "………I have also gone through various case laws relied upon by the appellant. It is noted that Hon'ble ITAT has laid down a principle that in case of foreign currency loan to a foreign subsidiary, domestic prime lending rate has no application and LIBOR comes into play. 10.5 Thus, I hold that, interest rate of 14% charged by the Ld. TPO is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been given in paras 10 & 10.1 of the said order which read as under: "10.0 Coming to the department's appeal for assessment year 2007- 08, it is seen that the transfer pricing adjustment comprise of two limbs viz. corporate guarantee fee and interest on loan. As far as the issue of corporate bank guarantee is concerned, the issue arose because the assessee had failed to 32 charge service fee for the corporate guarantee given to its UK subsidiary and the TPO, after obtaining information u/s 133(6) of the Act from State Bank of India regarding rate of bank guarantee, proposed the ALP adjustment at 4.75% as against nil being claimed by the assessee. It is well settled that providing bank guarantee is an international transaction and the same needs to be benchmarked as per provisions of Section 92(1) of the Act. The Ld. Commissioner of Income Tax (A) has also held so and thereafter he proceeded to compute the corporate guarantee fee @ 0.5%. While doing so, the Ld. Commissioner of Income Tax (A) observed that the assessee had given corporate guarantee to a foreign bank for providing loan to its foreign AE in foreign currency whereas the TPO had considered the quote for giving guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has chosen itself as the tested party, the rate to be applied was to be seen from the perspective of the tested party in the Indian bank and further for the reason that the loan advance of Dabur Thailand was from borrowed capital. While allowing relief to the assessee, the Ld. Commissioner of Income Tax (A) took into consideration the submission of the assessee that the loan advanced to the UK subsidiary was at LIBOR plus 1.1% and the loan taken by the UK subsidiary from ABM AMRO Bank was at LIBOR +1.5% with the corporate guarantee of the assessee and further the corporate guarantee loan was available to the UK subsidiary at LIBOR plus 1.5%. With respect to the loan to Dabur Thailand @7%, the Ld. Commissioner of Income Tax (A) was of the view that LIBOR plus 1.5% could be used as the basis for arriving at the ALP for the loan transaction. Accordingly, the Ld. Commissioner of Income Tax (A) held that interest of both the loans was to be charged at LIBOR plus1.5%. We also note that the Ld. DRP for immediately preceding assessment year 2006-07 has held that the foreign loan given to UK subsidiary was to be benchmarked at LIBOR plus 100 bps plus certain risk adjustment and accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outset sated that this issue is squarely covered by the earlier order dated 03.10.2018 in ITA No. 575 & 3495/Del/2014 (supra). 16. In his rival submissions, the ld. CIT DR supported the order of the AO. 17. After considering the submissions of both the parties and the material available on the record, it is noticed that a similar issue had already been adjudicated by this bench of the Tribunal in assessee's own case wherein the relevant findings have been given in para 10.2 of the aforesaid referred to order dated 03.10.2018 which read as under: "10.2 Coming to the remaining issue which is the deletion of disallowance of ₹ 20,92,221/- pertaining to capital subsidy, it is seen that the assessee had, in terms of West Bengal Incentive Scheme 2000, expanded its existing industrial unit at Kalyani, West Bengal and was accordingly eligible for a state investment subsidy of ₹ 1.50 crore in terms of the West Bengal industrial policy. This payment was received on 23.09.2006 and the assessee credited the same to its capital reserve account treating the same as capital receipt. However, the Assessing Officer treated the same as revenue receipt and reduced the same from the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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