Transfer pricing adjustment on standby letter of credit charges upheld only for the unrecovered bank commission borne by the assessee.

Transfer pricing adjustment on standby letter of credit charges was restricted to the unrecovered portion of the bank commission borne by the assessee for the associated enterprise. The appellate authority found that the bank had levied commission for issuing the standby letter of credit, that only part of that cost was recovered from the associated enterprise, and that the balance remained an expense of the assessee. No adjustment was warranted for amounts directly charged by the bank to the associated enterprise or for amounts already recovered. The challenge to deletion beyond the unrecovered amount failed, and the restriction of the adjustment was upheld.

---

---

Issues: Whether the transfer pricing adjustment made in respect of standby letter of credit charges, to the extent of non-recovery from the associated enterprise, was liable to be deleted or restricted.

Analysis: The dispute turned on whether the assessee had borne a cost for issuance of the standby letter of credit for the associated enterprise and whether the non-recovered portion of the bank commission could be treated as an adjustment in the international transaction. The appellate authority found that the bank had charged commission for the standby letter of credit, that only part of the amount had been recovered from the associated enterprise, and that the balance represented a cost borne by the assessee. It was further found that no adjustment could be made for amounts directly charged by the bank to the associated enterprise or for the amount already recovered by the assessee.

Conclusion: The restriction of the transfer pricing adjustment to the unrecovered amount was upheld, and the assessee's challenge to the addition failed.

---