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TMI Blog2021 (2) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... length interest should be determined by applying LIBOR rate. Addition made on account of adjustment made towards fee on corporate guarantee - Assessee had not charged any commission/fee from the AEs for the corporate guarantee so provided, the Transfer Pricing Officer determined the fee/commission for corporate guarantee @ 1.25% on the quantum of loan availed and proposed an adjustment - HELD THAT:- As rightly observed by learned first appellate authority, the Tribunal, Mumbai Bench, in Everest Kanto Cylinders Ltd. v/s DCIT, [ 2012 (11) TMI 1099 - ITAT MUMBAI] while negating identical contention made by the assessee has held that provision of corporate guarantee is an international transaction. The aforesaid decision of the Co ordinate Bench has also been upheld in case of the same assessee as reported in [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] . That being the case, we do not find any merit in the submissions of the assessee that provision of corporate guarantee is not an international transaction. As regard the arm's length rate of fee/commission, the assessee relying upon the decision of the Asian Paints India Ltd. [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing of cut and polished diamonds. During the year under consideration, the assessee had entered into international transactions with its overseas AEs. In the course of proceedings before him, the Transfer Pricing Officer noticed that the assessee has advanced loans to two of its AEs situated in Hong Kong and United Arab Emirates (UAE) for capital funding of the subsidiary. However, such loans were advanced without charging any interest. Being of the view that such interest free loans would not have been advanced to third parties, the Transfer Pricing Officer proceeded to determine the arm's length interest and proposed an adjustment of ₹ 56,19,348. The adjustment proposed by the Transfer Pricing Officer was added back to the income of the assessee. 4. The assessee contested the aforesaid addition before learned Commissioner (Appeals). After considering the submissions of the assessee in the light of the decisions relied upon, learned Commissioner (Appeals) directed the Assessing Officer to determine the arm's length interest applying LIBOR rate. 5. Reiterating the stand taken before the departmental authorities, learned Counsel for the assessee submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submitted, the provision of corporate guarantee being a shareholder s activity will not come within the ambit of international transaction as defined under section 92B of the Act. Without prejudice, he submitted, the commission on corporate guarantee should be reduced to 0.2% as against 0.5% determined by learned Commissioner (Appeals). In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Asian Paints (India) Ltd., [2016] 75 Taxman.com 152 (Bom.). 12. The learned Departmental Representative strongly relied upon the observations of learned Commissioner (Appeals). 13. We have considered rival submissions in the light of decision relied upon and perused material on record. As far as the contention of learned Counsel for the assessee that provision of corporate guarantee is not an international transaction, we are not convinced with it. A reading of Explanation 1(c) of section 92B of the Act, makes it clear that the provision of any kind of guarantee will come within the ambit of international transaction under section 92B of the Act. Further, as rightly observed by learned first appellate authority, the Tribunal, Mumbai B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased from the concerned entities. Further, to verify the genuineness of these purchases the Assessing Officer issued notices under section 133(6) of the Act to the concerned parties. As observed by the Assessing Officer, in response to such notices one of the party, M/s. Nayan Gems furnished its reply along with documentary evidences confirming the sales made to the assessee. The Assessing Officer, however, was not convinced with the evidences furnished. Further, he noticed that while completing assessments for Assessment Year 2006 07 and 2012 13 the Assessing Officer had held the purchases made from the very same parties as non genuine and has disallowed 5% of such purchases. Following the decision taken in earlier assessment years, the Assessing Officer disallowed 5% out of the purchases made, thereby, making an addition of ₹ 2,19,539. Though, the assessee contested the aforesaid addition before learned Commissioner (Appeals), however, it was unsuccessful. 16. The learned Counsel for the assessee submitted, the assessee has furnished all documentary evidences to prove the genuineness of purchases. He submitted, even in response to the notices issued under section 133( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, as far as M/s. Nayan Gems is concerned, in our considered opinion, keeping in view the documentary evidences filed by the assessee and the reply/information received from Nayan Gems, the purchases can be considered to be genuine by giving a benefit of doubt to the assessee. However, the same is not the case with the purchases made from Sun Diam. Though, it may be a fact that the assessee has furnished some documentary evidences to prove the purchases, however, they are not conclusive evidence to prove the source of purchase. Thus, it can be concluded that the assessee purchased the goods from some other source. Therefore, to that extent, the genuineness of purchases made from Sun Diam still remains in doubt. In view of the aforesaid, to take care of any leakage of revenue on account of suppression of profit from the alleged purchases from Sun Diam the profit element embedded in such purchases has to be treated as income of the assessee. Having held so, it has to be decided what should be the reasonable rate of profit which can be applied. As noticed, the Assessing Officer has referred to a report of the task group for Diamond sector published by the Government of India, Minist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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