ITAT directs AO to recalculate Corporate Guarantee addition at 0.5% ALP rate, reducing adjustment.

The ITAT partially allowed the appeal by directing the AO to recalculate the addition at an Arm's Length Price (ALP) rate of 0.5% per annum for Corporate Guarantee provided by the assessee to its Associate Enterprise, based on a previous decision affirmed by the Hon'ble Bombay High Court. This resulted in a reduction of the ALP rate from 2% to 0.5% per annum, thereby reducing the adjustment made in the assessment order.

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Issues Involved:
Computation of Arm's Length Price (ALP) of Corporate Guarantee provided by the assessee for its Associate Enterprises (AE).

Analysis:
1. The appeal for Assessment Year 2011-12 challenges the order of the Ld. Commissioner of Income-Tax (Appeals)-58 [CIT(A)], Mumbai, regarding the computation of ALP of Corporate Guarantee. The main contention raised during the hearing was to compute the ALP at 0.5% based on a previous decision of the Tribunal affirmed by the Hon’ble Bombay High Court.

2. The Additional Commissioner of Income Tax (TPO) noted that the assessee provided Corporate Guarantee amounting to Rs. 13.20 Crores to an Associate Enterprise. The TPO calculated the ALP at 2% per annum based on the duration of the guarantees provided. This resulted in an adjustment of Rs. 66.37 Lacs, which was included in the assessment order.

3. Upon further appeal, the Ld. CIT referred to a judgment in Glenmark Pharmaceuticals Ltd. case and reduced the ALP rate to 0.98%. Dissatisfied with this reduction, the assessee appealed to the ITAT.

4. After considering the facts, the ITAT noted that a previous decision regarding Corporate Guarantee computation at 0.5% had been affirmed by the Hon’ble Bombay High Court. Therefore, the ITAT directed the AO to recalculate the addition at 0.5% per annum, thereby partially allowing the appeal.

5. Consequently, the appeal was partly allowed by reducing the ALP rate to 0.5% per annum. The order was pronounced on 8th January 2019.

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