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TMI Blog2020 (8) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... leaded that in case of performance guarantee extended by the assessee, the contract entered by the Itelnet UK Ltd (on behalf of which the assessee has provided performance guarantee) with third party customers, it was actually the assessee who is undertaken they were as Itelnet UK Ltd subcontracts the work back to the assessee. The assessee is not exposed to any default risk on account of performance guarantee as it is the assessee itself who performs the work for the customer. Thus, the provision of performance guarantee by assessee with third party on behalf of its AE, Itelnet UK Ltd, has benefited the assessee itself since the actual service to be provided to third party was outsourced by the assessee by its AE. It is further pleaded that entire compensation received from the customer back to the assessee. We have noted that there is no finding of TPO on these facts. Considering the aforesaid factual aspects this part of ground of appeal related with performance guarantee is restored to the file of assessing officer/TPO to examine the effect and pass the order a fresh in accordance with law - appeal related with performance guarantee is allowed for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its appeal for AY 2010-11 in ITA No. 1560/Mum/2015 has raised following grounds of appeal; 1. Whether on facts and circumstances of the case and in Law, the Hon'ble DRP is justified in deleting the adjustment made on account of adjustment of notional interest on the difference in price at which investment was made in equity shares of Associated Enterprise and price arrived on application of NAV method following the decision of Bombay High Court in the case of Vodafone India Services Pvt. Ltd. in Writ Petition No. 871 of 2014? 2. The assessee in its cross appeal for AY 2010-11 in ITA No. 1664/Mum/2015 has raised following grounds of appeal; 1.0 Re: Adjustment of ₹ 2,70,65,250/- as regards provision of guarantee: 1.1 The learned Assessing Officer/Dispute Resolution Panel/ Transfer Pricing Officer have erred in making an upward adjustment of ₹ 2,70,65,250/- to the total income of the Appellant by holding that transaction of provision of guarantee by the Appellant to its Associated Enterprise ( AE ) is not at arm's length. 1.2. The learned Assessing Officer/Dispute Resolution Panel/Transfer Pricing Officer erred in not appreciating that, considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that opportunity of being heard was not given to produce the TDS certificates during the assessment proceedings. 3.3. The Appellant submits that the Assessing Officer be directed to allow the TDS credit of ₹ 60,259,755/- and to re-compute its tax liability accordingly. 4.0 Error in computing the tax payable under Minimum Alternate Tax (MAT) to the extent of ₹ 39,930,634/- 4.1 The learned Assessing Officer has erred in computing the tax payable at 18% instead of 15% on the book profit under Minimum Alternate Tax (MAT). 4.2 The Appellant submits that the Assessing Officer be directed to recompute the tax payable at 15% instead of 18% on the book profit computed under section 115JB of the Act. 3. Brief facts of the case are that the assessee-company is engaged in Business of providing web enabled customer care services, business process outsources services, and information technology enabled services (ITes). The assessee-company filed its return of income for Assessment Year 2010- 11 on 05.10.2010 declaring total income at Rs. Nill after claiming deduction under section 10A. Along with the return of income, the assessee furnished report under Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld DRP was only of ₹ 40,34,245/-, which is admittedly below the prescribed limit of ₹ 50 lakhs fixed by CBDT in its Circular for filing appeal by the revenue before the Tribunal. Thus, the appeal filed by the revenue is dismissed due to low tax effect. 6. Now, turning the various grounds of appeal raised by the assessee, the ground No. 1 relates to adjustment on account of corporate and performance guarantee. The ld. AR for the assessee submits that provision of corporate guarantee does not lead to any income generation for the assessee and does not fall within the ambit of section 92C of the Act. The determination of guarantee fee of 1.25% p.a. is arbitrary and incorrect. The Tribunal in various decision held that guarantee is not an international transaction. 7. In alternative submissions the ld. AR for the assessee submits that the DRP confirmed the action of TPO by following the order of their predecessor for AY 2008-09 and 2009-10. In appeal for AY 2008-09 2009-10 the Tribunal in ITA No. 483/Mum/2013 and 1808/Mum/2014 dated 16th June 2020, by following the decision of Bombay High Court in Everest Kento Cylinders Ltd [2015] 58 taxmann.com 254 (Bombay), re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering a similar situation, where in the matter of guarantee commission fee the adjustment made by the income-tax authorities was based on instances of commercial banks providing guarantees. The Hon ble High Court has explained that instances of commercial banks providing guarantees could not be compared to instances of issuance of corporate guarantee. As per Bombay High Court, when commercial banks issue bank guarantees, the same is quite distinct in character than the situation where a corporate issues guarantee to the effect that, if a subsidiary associated enterprise does not repay a loan, the same would be made good by such corporate. Keeping the aforesaid ratio of the Bombay High Court, it is quite clear that the manner in which the Transfer Pricing Officer has proceeded to determine the arm's length rate based on the probable rate being charged by the commercial banks is not justified. In this view of the matter, three per cent rate of guarantee commission fee determined as arm's length rate by the income-tax authorities cannot be approved, though the ld. DRP in its direction has already restricted it to 1.5%. In the alternative, the addition that is required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d pass the order a fresh in accordance with law. 12. In the result this part of grounds of appeal related with performance guarantee is allowed for statistical purpose. 13. Ground No. 2 relates to adjustment of interest received from loans to AEs. The ld. AR for the assessee submits that the assessee provided loans to its four AEs. The TPO made adjustment of ₹ 22,60,391/- based on domestic cost of borrowing i.e. State bank of India (SBI) rate + 3% markup resulting in to a total rate of 9% for all the loans. While making adjustment the TPO followed the order of DRP for AY 2008-09 and 2009-10. The DRP affirmed the action by following the order of their predecessor for AY 2008-09 and 2009-10. The ld. AR for the assessee submits that the assessee had correctly charged and benchmarked interest received on loans advanced to AEs at LIBOR plus 2%. The ld AR for the assessee submits that rate of interest on loans advanced to foreign company should be computed based on the market determined interest rate applicable to currency and the country in which loan is to be repaid and hence rate of SBI fixed deposit rate cannot be applied for the purpose of benchmarking. The ld AR for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the decision of CIT Vs Tata Autocomp System Ltd (supra). The assessee is directed to provide necessary details to AO/TPO. In the result this Ground of appeal is allowed for statistical purpose. 16. Considering the order of the Tribunal for earlier years, we direct the AO/TPO to compute the interest by following the order of Tribunal in AY 2008-09 and 2009-10 dated 16.06.2020. In the result this ground of appeal is partly allowed. 17. Ground No. 3 relates to short deduction of TDS of ₹ 168,01,746/- The ld AR for the assessee submits that while filing return of income the assessee claimed tax credit of ₹ 6,02,59,755/-. The AO while passing the assessment order and computing tax liability granted credit to the extent of ₹ 4,3458,009/-, without assigning any reasons. The ld AR for the assessee prayed for passing appropriate direction to the AO. 18. The ld. DR for the revenue fairly submits that this issue may be restored to AO to verify the facts and to grant the appropriate credit of tax to the assessee. 19. Considering the submissions of the ld. representative of the parties the AO is directed to verify the fact and grant appropriate relief to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1.50% for provision of performance guarantee by simply relying on the DRP directions of the prior year i.e. AY 2010-11. 1.4. The Appellant submits that the Assessing Officer be directed to delete the upward adjustment of ₹ 2,53,51,510/- made by him to the Appellant's total income and to re-compute its total income and tax liability accordingly. 2.0 Re: Adjustment of ₹ 1,20,03,931/- as regards provision of loans: 2.1. The learned Assessing Officer/ Dispute Resolution Panel/Transfer Pricing Officer have erred in making an upward adjustment of ₹ 1,20,03,931/- to the total income of the Appellant by holding that international transaction relating to interest received on loans granted by the Appellant to its AEs is not at arm's length. 2.2. The learned Assessing Officer/the Dispute Resolution Panel/the Transfer Pricing Officer erred in appreciating that under the given facts and circumstances of its case and the various judicial precedents and law prevailing on the subject, the interest received by it from its AEs on the loans granted by it is at arm's length and hence no adjustment in respect thereof was called for. 2.3. The Appellant su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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