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TMI Blog2022 (8) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... t with variance in figures. Accordingly, with the consent of the parties, cross appeals for assessment year 2010-11 are treated as the lead matter and findings rendered therein shall apply mutatis mutandis to the cross appeals for assessment year 2011-12. ITA No. 2711/Mum/2017 Revenue's appeal- A.Y. 2010-11 3. In its appeal for assessment year 2010-11, Revenue has raised following grounds: "1. Whether on facts and in circumstances of the ease and a law, the CIT(A) is correct in holding that the addition has been wrongly made without appreciating the fact that the PE in India has to be treated as separate entity and the interest payable by the said PE is to be taxed in India in the hands of PE as income. 2. Whether on facts and in circumstances of the case and in law, the CIT(A) is correct in holding that the provisions of section 40(a)(i) do not apply without appreciating that the interest was chargeable to income. Whether on facts and in circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the details and allow depreciation without appreciating the fact that the AO had disallowed the depreciation only after verification. 4. Whether on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and in law the Ld. CIT(A) was right in the allowing relief to the assessee based on the decision of the Bombay High Court in Everest Kento Cylinder Limited (378 ITR 57 (Bom)), which clearly stated that no comparison(for transfer pricing purposes) can be made between guarantees issued by commercial banks(like the assessee) with corporate guarantee issued by a holding company for benefit of its A.E. (subsidiary company)and the commission to be charged in the case of bank guarantees necessarily has to be higher than that of corporate guarantees? 10. The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing officer be restored. 11. The Appellant prays that the appeal is maintainable in this case in view of Circular No. 21/2015 dated 10.12.2015 of the CBDT." 4. The issue arising in grounds no. 1 and 2, raised in Revenue's appeal, is pertaining to taxability of interest payable to head office of the assessee. 5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a bank incorporated in Japan having its head office at Tokyo. The assessee opened branch offices in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the ITAT Special Bench in the case of Sumitomo Mitsu Banking Corp. 136 ITD 66 (Mum)(SB), wherein it was held that interest paid by Indian branch of the assessee bank to its overseas head office is not chargeable to tax in India. The Tribunal in assessee‟s own case in ITA No.7479/Mum/2007, vide order dated 25-7-2012, has held as under :- "The Ld. DR, however, has fairly and frankly conceded that both the issues involved in this appeal of the revenue are squarely covered by the recent decision of Special Bench of the Tribunal in the case of Sumitomo Mitsu Banking Corp. vs. DDIT 136 ITD 66 (Mum)(SB) wherein it has been held that interest paid by the Indian Branch of the assessee bank to its overseas head office is not chargeable to tax in India. As further held by the Special Bench in the said case, the provisions of sec.195 consequently would not be attracted in case of such payment of interest by the Indian Branch to overseas Head office and the question of disallowance of the said interest by invoking the provisions of sec.40(a)(i) does not arise. Respectfully following the said decision of the Special Bench of this Tribunal, we uphold the impugned order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer and therefore is dependent on the order(s) passed in previous years. Thus, we find no infirmity in order passed by the learned CIT(A) on this issue. Accordingly, grounds no. 3 and 4, raised in Revenue's appeal, are dismissed. 14. The issue arising in grounds no. 5 to 9, raised in Revenue's appeal, is pertaining to transfer pricing adjustment on account of back-to-back counter bank guarantee. 15. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year, head office of the assessee in Japan executed inter-bank indemnities, against which Indian branch issued guarantees on behalf of the clients of overseas branches. The Indian branch received guarantee commission ranging from 0.10% to 0.50% depending on loan. For the year under consideration, Indian branch received Rs. 78.09 lakhs as commission. During the course of transfer pricing assessment proceedings, assessee was asked to furnish complete details regarding this international transaction. In reply, assessee submitted that the commission was received for furnishing the bank guarantees to the Indian customers at the request of the head office. The assessee further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clients are located in India, the overseas branches of Mizuho Corporate Bank Ltd and Mizuho Bank Ltd request the Indian branch to provide such guarantees to the beneficiary and provide a back-to-back counter bank guarantee to the Indian branch. It is the plea of the assessee that such back-to-back counter bank guarantee is to cover any financial liability that Indian branch would incur on behalf of these overseas branches in connection with the guarantees issued to Indian clients on their behalf. It is further submitted that where the client of the overseas branch defaults and the guarantee would be invoked then under the back-to-back guarantee issued to Indian branch, the overseas branch would make the payment to Indian branch, which would then onward make the payment to the beneficiary in India. In this regard, it is also the submission that Indian branch provide support services towards processing of these guarantees such as receiving swift instructions, issuing the guarantee on stamp paper and couriering the same to the party in India, maintenance of log of original documents, sending reports on project basis, reconciliation of transactions received versus those processed etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee would be invoked then, under the back to back guarantee issued to assessee, the overseas branch would make payments to assessee which would onward then make the payment to the beneficiary in India." 18. The coordinate bench of the Tribunal, in the aforesaid decision, noted that the taxpayer does not bear any risk in its books as it is fully protected by overseas counter guarantee/indemnity and there is also no foreign exchange risk as whenever the taxpayer is called upon to discharge the guarantee on behalf of the overseas branches, the taxpayer would first receive the money from overseas branches because of the existing counter guarantee, and then it would discharge the same. The coordinate bench further noted in the aforesaid decision that the assessee received the processing fee from the associated enterprise in foreign currency and the said fees is received immediately after the invoices are raised for the same, thereby the risk of exchange fluctuation would be very negligible due to reduce time span involved therein. We find that the coordinate bench of the Tribunal in para 3.7 of the aforesaid decision also considered the details of fee charged by the taxpayer for each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national banks, has made the transfer pricing adjustment by considering it to be an appropriate CUP. However, there is no further analysis as to how the said transaction is an appropriate CUP to the transaction undertaken by the assessee's Indian branch considering the FAR in both the transactions and whether any adjustment for differences as per Rule 10B(1)(a) of the Income Tax Rules is possible. We find that the learned CIT(A) vide impugned order on an ad hoc basis directed computation of commission for guarantee by making addition of 10% increase in the rate of commission charged by the assessee to arrive at the arm's length rate. Thus, in view of the above, we deem it appropriate to remand this issue to the file of TPO for de novo benchmarking of impugned international transaction of issuing bank guarantee against counter guarantee issued by the associated enterprise. The assessee is directed to produce all the documents before the TPO in support of its claim. Further, the TPO shall be at liberty to call for any details or documents for proper benchmarking of the impugned international transaction. In the remand proceedings, the assessee shall have the liberty to file any alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.35% to 3.65% in respect of loans/advances received from associated enterprise. Similarly, in respect of the loans and advances granted to the associated enterprise, the assessee received interest ranging from 0.05% to 0.25%. The TPO vide order passed under section 92CA(3) of the Act by applying the LIBOR rate made the transfer pricing adjustment of Rs. 7,92,204 and Rs. 11,10,660 in respect of aforesaid international transactions. Learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, assessee is in appeal before us. 25. Having considered the submissions of both the sides and perused the material available on record, we find that in the present case the assessee used USD depo rates for the purpose of granting of loans/advances to associated enterprise as well as receiving of loans/advances from associated enterprise. As per the assessee, these rates keep on fluctuating throughout the day and are also negotiated amongst the parties, therefore, same leads to variation in borrowing/lending rates. However, on the contrary, the TPO vide order passed under section 92CA(3) of the Act noted that the assessee has benchmarked the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, the CIT(A) is correct in holding that the provisions of section 40(a)(1) do not apply without appreciating that the interest was chargeable to income. 3. Whether on facts and in circumstances of the case and in law, the CIT(A) is erred in directing the AO to verify the details and allow depreciation without appreciating the fact that the AO had disallowed the depreciation only after verification. 4. Whether on facts and circumstances of the case and in law, CIT(A) is empowered to set aside the issue to the file of AO for verification of depreciation, without calling for remand report from the AO as AO has rightly verified the issue and disallowed the depreciation claimed by the assessee. 5. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing to re-compute the ALP rate of commission in respect of the guarantees by making an addition of 10% increase in the rate of commission currently being charged by the assessee to arrive at the arm's length rate without citing any basis for arriving at this ALP rate determination and applying to the facts of the case? 6. Whether in the facts and circumstances of the case and in law, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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