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TMI Blog2025 (1) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... observed, that during the year under consideration the assessee has not charged any Interest on Corporate guarantee given to its AE amounting to USD 5 Million. The TPO considered interest rate of 4.01% for an arm's length level of interest that charged for the deemed Corporate guarantee advanced by the assessee to its AE and accordingly adjustment has been made. 3.1 The grounds argued being ground no. 5 to 7 are with regard to the issue if the TPO/DRP erred in considering bank guarantee rates as suitable comparable under CUP method for determination of ALP of the international transaction i.e. Stand-by Letter of Credit (SBLC) issued to foreign AE. 4. In regard to this issue the relevant facts are that during the year under consideration, the Appellant had issued a Standby Letter of Credit (hereinafter referred as 'SBLC') of USD 5 million to its foreign Associate Enterprise (hereinafter referred as 'AE'), which has been disclosed as an international transaction by the Appellant in its Transfer Pricing Study Report (hereinafter referred as 'TP Report') as made available at Pg. 326 of PB and disclosed in Form 3CEB, copy of which is made available at Pg. 60 of PB. 4.1 The TPO n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of calculating the amount of transfer pricing adjustment, as per the provisions of Rule 115 of the Income-tax Rules, 1962. The TPO incorrectly applied the conversion rate of INR 72.9 instead of the conversion rate of INR 64.8 (SBI TT buying rate), which was the rate on the last day of the relevant previous year, i.e., as of 31.03.2017. 6. Ld. DR has defended the impugned order on this aspect and has submitted that there is no difference between the SBLC and a bank guarantee and his contention was that ultimately it is the AE which is beneficiary at the cost of the assessee. He placed heavy reliance on the judgement of the coordinate Bench of the Delhi Tribunal in the case of Havells India Ltd. vs. ACIT (LTU) (2022) 140 taxmann.com 576 (Delhi-Trib.). 7. The next issue covered in Grounds Nos. 9 to 12 is if the Ld. AO/DRP while making disallowance u/s 35(2AB) of the Act, with respect to the revenue expenditure claimed by the Appellant, which was in excess of the amount quantified by the DSIR, erred in further disallowing the same also u/s 37(1) of the Act. 8. In this context the relevant facts are that the appellant incurred revenue expenditure towards scientific research of INR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of international transaction there is no justification and commercial prudence to compare the bank guarantees with corporate guarantees or SBLC as guarantors accepting the liability to compensate in respect of principal borrower have different commercial and business reasons, to enter into these transactions. While granting bank guarantees is one of the main functions of the commercial banks and the corporate guarantee or SBLC given to an AE is more or less an attempt to ensure freeing up working capital of AE and potentially securing better contract terms for the AE. 13. Therefore, the commission charged by a commercial bank under bank guarantee cannot be a benchmarking parameter and a suitable comparable for determination of arm's length price of the alleged international transaction, if some other internal comparable is available where assessed has paid commission or other charges for securing a guarantee for itself. 14. Further, we find that in M/s Technocraft Industries (I) Ltd. v. DCIT, ITA No. 6686/Mum/2014 the Mumbai Tribunal has held that as the said Appellant had issued an SBLC to its AE and had been charged a rate of 0.9% by an Indian bank for such SBLC which can be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substantial question of law and it is dismissed. There will be no order as to costs." 15.1 In the said case, the assessee had charged guarantee commission @ 0.5% from the AE. However, the TPO, taking into consideration the fact that banks and companies are charging at least 3% for providing guarantee at benchmarked arm's length price for the guarantee given by the assessee for the benefit of AE at 3% of the amount of guarantee and this was sustained by the CIT(A), but, was deleted by the Tribunal. In that case, the assessee had not benchmarked the guarantee commission. Accordingly, the assessee had taken the ALP of the said transaction at 'nil' as it had contended that no cost was incurred in providing bank guarantee for its AE and the Tribunal had not agreed to the contention of the assessee that there could not be any cost or charge of the guarantee if by providing corporate guarantee to a subsidiary because there is by way of element of benefit or cost while providing such kind of guarantee to AE. Therefore, the fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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