Setting benchmark for corporate guarantee fees & importance of comparability in transfer pricing under CUP Method.

The Tribunal partly allowed the Revenue's appeal by setting a benchmark of 0.5% for corporate guarantee fees and dismissed the Revenue's appeal regarding power transfer, upholding the CIT(A)'s decision. The judgment highlights the significance of strict comparability in applying the CUP Method and the use of internal CUP data for benchmarking specific domestic transactions.

---

---

Issues Involved:
1. Corporate Guarantee Fees Adjustment
2. Transfer of Power/Electricity Adjustment

Issue-wise Detailed Analysis:

1. Corporate Guarantee Fees Adjustment:

The first issue concerns the deletion of an addition of Rs. 28,56,796/- by the CIT(A) related to corporate guarantee fees. The assessee had provided a corporate guarantee to Standard Chartered Bank, Singapore Branch for a loan taken by its AE, Dhunsari Petrochem and Tea Pte. Limited (DPTPL). The assessee benchmarked the transaction using the CUP Method at 30 bps based on interest savings. The TPO accepted the methodology but included comparables with BB+ and BB- ratings, resulting in an adjustment to 69 bps. The CIT(A) held that the TPO was unjustified in broadening the search to include BB+ and BB- ratings, as CUP requires strict comparability. The CIT(A) concluded that the corporate guarantee fee of 30 bps was fair and reasonable. However, the Tribunal found it reasonable to apply a corporate guarantee fee of 0.5% to benchmark the transaction, thus partly allowing the Revenue's appeal on this issue.

2. Transfer of Power/Electricity Adjustment:

The second issue pertains to the deletion of an adjustment of Rs. 6,75,22,000/- related to the transfer of power/electricity. The assessee, having two captive power plants (CPPs), transferred power to its non-eligible units and claimed profits under section 80IA of the Act. The TPO determined the ALP based on the average tariff orders issued by the SEB, proposing an adjustment. The CIT(A) allowed the appeal, stating that the internal CUP method, using the rate at which the non-eligible units procured power from SEB, was appropriate. The CIT(A) found that the TPO's methodology was flawed and that the SEB rates were regulated and not determined under uncontrolled conditions. The Tribunal upheld the CIT(A)'s decision, concluding that the ALC at which the non-eligible units procured power from SEB was the most appropriate ALP. The Tribunal dismissed the Revenue's appeal on this issue, affirming the CIT(A)'s comprehensive and reasoned order.

Conclusion:

The Tribunal partly allowed the Revenue's appeal on the issue of corporate guarantee fees by setting a benchmark of 0.5% and dismissed the Revenue's appeal on the issue of power transfer, upholding the CIT(A)'s order. The judgment emphasizes the importance of strict comparability in the application of the CUP Method and the relevance of internal CUP data in benchmarking specified domestic transactions.

---