Tribunal adjusts corporate guarantee cost at 0.50% instead of 2% per ALP rules. The Tribunal partially allowed the appeals, directing the adjustment to be made at 0.50% instead of the 2% determined by the TPO for the corporate ...
Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
Provisions expressly mentioned in the judgment/order text.
Tribunal adjusts corporate guarantee cost at 0.50% instead of 2% per ALP rules.
The Tribunal partially allowed the appeals, directing the adjustment to be made at 0.50% instead of the 2% determined by the TPO for the corporate guarantee. The decision emphasized the consistent treatment of corporate guarantees as international transactions and the application of Arms Length Principles in determining the appropriate cost. The final order, pronounced on April 12, 2021, specified the adjustment percentage for the relevant assessment years.
Issues: - Whether the CIT(A) erred in confirming the action regarding international transaction on bank guarantee at 2% of guarantee value.
Analysis: 1. Background: The appeals were directed against three orders of the CIT(A) dated 03.04.2019 and 06.05.2019 for the assessment years 2012-2013 to 2014-2015. The appeals raised a common issue regarding the CIT(A)'s confirmation of the action on an international transaction related to a bank guarantee.
2. Facts of the Case: The appellant, a pharmaceutical formulations company, had a subsidiary in the UK named Medreich PLC. The appellant provided a corporate guarantee for a loan taken by the subsidiary from EXIM Bank in India. The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) to determine the Arms Length Price (ALP) of the international transaction.
3. TPO's Orders: The TPO proposed an aggregate transfer pricing adjustment based on a 2% commission on the corporate guarantee value. The TPO's decision was based on the commission charged by banks to similar entities, considering the credit rating of the taxpayer.
4. CIT(A)'s Confirmation: The CIT(A) confirmed the TPO's decision, emphasizing the commercial risk involved in providing the guarantee. The CIT(A) cited precedents and upheld the 2% cost determined by the TPO.
5. Tribunal's Decision: The appellant challenged the CIT(A)'s decision before the Tribunal, not disputing the corporate guarantee as an international transaction but objecting to the 2% rate set by the TPO. The Tribunal considered the precedents, including a judgment from the Bangalore Bench, and directed the AO/TPO to adjust the corporate guarantee at 0.50% for the assessment years in question.
6. Conclusion: The Tribunal partially allowed the appeals, ordering the adjustment to be made at 0.50% instead of the 2% determined by the TPO. The decision was based on the consistency of treating corporate guarantees as international transactions and the need to apply Arms Length Principles in determining the appropriate cost.
7. Final Order: The Tribunal pronounced the order on April 12, 2021, directing the adjustment to be made at 0.50% for the corporate guarantee for the relevant assessment years.
This detailed analysis outlines the key aspects of the judgment, including the background, facts of the case, TPO's orders, CIT(A)'s confirmation, Tribunal's decision, and the final outcome of the appeals.
Full Summary is available for active users!
Note: It is a system-generated summary and is for quick reference only.
TaxTMI 
AI OCR ✕
of 
TaxTMI 
TaxTMI 
