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TMI Blog2022 (8) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... no benefit was received by the assessee by paying the interest on the loan, which loan was in fact utilized by the associated enterprise, treated the arm s length price of the interest to be Nil and accordingly made the addition of the entire amount of interest paid by the assessee on behalf of the associated enterprise. The provisions of Chapter X shall have the relevance when assessee has claimed any expenditure or earned any income from the international transaction, which due to assessee s dealing with associated enterprise has the possibility of being manipulated in order to reduce the taxable income within India. In such situation, the income or expenditure shall be computed / determined having regard to the arm s length price. In the present case, the Revenue though treated the arm s length price of interest paid by the assessee, on behalf of the associated enterprise, as Nil, however, has not disputed the fact that assessee has not claimed such expenditure and thus even when its value is considered at par, i.e. as paid by the assessee, same will not affect the income chargeable to tax in India - Thus the payment of interest by the assessee, on behalf of the associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence these transactions were not International Transactions u/s 928 of the Act. b. The transactions were on account of commercial expediency and hence did not warrant any addition under chapter X of the Act. The Appellant prays that the aforesaid transactions should not be treated as International Transactions 928 of the Act. GROUND 2 ADDITION ON ACCOUNT OF ARM'S LENGTH ADJUSTMENT TO INCOME FROM GUARANTEE COMMISSION 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in computing the arms length price u/s 92C(3) for the corporate guarantees provided by the Appellant and thereby making an addition of notional guarantee fee of Rs. 31.50,000/-, 2 He failed to appreciate and ought to have held that the guarantee commission paid to the third party was out of the appellants own business obligation. 3 He further erred to appreciate and ought to have held that the aforesaid disallowance was made without any justification and such ad-hoc disallowance made by the Ld. AO and affirmed by the CIT(A) is bad is law and hence should not be called for. 4. The Appellant therefore prays that Arm's length adjustment made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociated enterprise i.e. M/s PT Equity Commodities, Jakarta, Indonesia, holding 55% of its share capital. During the year under consideration, assessee reported following international transaction entered into with its associated enterprise: Sr. No. Nature of transaction FY 2007 08 Method adopted by the assessee 1. Investment in Equity Share Capital of the subsidiary company M/s PT Equity Communities, Jakarta, Indonesia 7,12,13,196 CUP 5. The Assessing Officer made reference to the Transfer Pricing Officer ( TPO ) for determination of arm s length price of the international transactions entered into by the assessee. During the course of transfer pricing assessment proceedings, it was observed that amount remitted of Rs. 7,12,13,196, represented USD 17,61,849. As the shares invested was 16,50,000 shares at 1 USD, accordingly the assessee was asked to show cause as to why the investment exceeding 16,50,000 USD was made and why the excess amount of 1,11,849 USD be not considered as not in accordance with the arm s le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee to fulfill its commitment under the MOU with the other shareholders, the assessee had, inter-alia, borne the entire interest expenditure on the aforesaid loan. In the present case, the lower authorities on the basis that no benefit was received by the assessee by paying the interest on the loan, which loan was in fact utilized by the associated enterprise, treated the arm s length price of the interest to be Nil and accordingly made the addition of the entire amount of interest paid by the assessee on behalf of the associated enterprise. 8. As per the assessee, interest paid on behalf of the associated enterprise was not claimed by the assessee and therefore there should not be any transfer pricing adjustment in the present case. Before proceeding further to decide the validity of transfer pricing adjustment on this issue, it is relevant to note the object of provisions contained in Chapter X of the Act. Since participation of multinational group companies in the economic activities of the country had risen, and new complex issues had emerged from the transactions entered between two or more enterprises belonging to the same multinational group, therefore, pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the course of transfer pricing assessment proceedings, it was observed that the assessee had provided corporate guarantee to its associated enterprise without any compensation/fees. The TPO vide order passed under section 92CA(3) of the Act observed that the assessee bears costs and risks in providing such guarantee, as it has pledged its shares as security and as the directors of the assessee company has provided guarantee for the loan availed by the associated enterprise, which an independent party would not have borne without any compensation. Therefore, the TPO imputed 2.5% of the loan funds amounting to Rs. 31,50,000, as guarantee fee receivable by the assessee for provision of corporate guarantee to the associated enterprise. Accordingly, the adjustment of the aforesaid amount was proposed by the TPO. In appeal, learned CIT(A) vide impugned order dismissed the appeal by the assessee on this issue. Being aggrieved, assessee is in appeal before us. 11. During the course of hearing, learned AR submitted that computation of guarantee commission should be restricted to 0.5% by placing reliance upon the decision of Hon ble jurisdictional High Court in CIT vs. Everest Kento ..... X X X X Extracts X X X X X X X X Extracts X X X X
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