Tribunal dismisses appeal over corporate guarantee pricing, citing non-retrospective nature of tax law

The Tribunal dismissed both the Revenue's appeal and the assessee's cross objections. It held that the Arm's Length Price determination for the corporate guarantee was not applicable for the assessment year due to the non-retrospective nature of the Explanation to Section 92B. Additionally, the Tribunal found no evidence supporting the Revenue's claim that the corporate guarantee affected the enterprise's financial aspects. The cross objections were rejected due to a significant delay in filing without adequate justification.

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Issues Involved:
1. Determination of Arm's Length Price (ALP) for corporate guarantee.
2. Classification of corporate guarantee as an international transaction.
3. Applicability of Explanation to Section 92B retrospectively.
4. Condonation of delay in filing cross objections by the assessee.

Issue-wise Detailed Analysis:

1. Determination of Arm's Length Price (ALP) for Corporate Guarantee:
The Revenue challenged the Commissioner of Income-tax (Appeals) [CIT(A)]'s decision to set the ALP for corporate guarantee compensation at 1%, which resulted in a relief of Rs. 4,56,83,544 to the assessee. The Assessing Officer (AO) had initially computed the ALP at 2.58%, leading to an addition of Rs. 7,45,97,179 to the assessee's income. The CIT(A) reduced this rate to 1%, following the precedent set in the assessee's own case for previous years.

2. Classification of Corporate Guarantee as an International Transaction:
The assessee contested the CIT(A)'s classification of the corporate guarantee as an international transaction. The CIT(A) invoked the provisions of Explanation to Section 92B, which was introduced with retrospective effect from 01.04.2002, and relied on the Tribunal's decision in Mahindra & Mahindra Ltd. vs. DCIT. The Tribunal noted that similar issues had been decided in favor of the assessee in previous assessment years (2008-09, 2009-10, and 2010-11), where it was held that the Explanation to Section 92B is not retrospective.

3. Applicability of Explanation to Section 92B Retrospectively:
The Tribunal reiterated that the Explanation to Section 92B, introduced by the Finance Act, 2012, is not retrospective. Consequently, the transfer pricing adjustment on account of the corporate guarantee fee made by the AO and confirmed by the CIT(A) was deemed unsustainable. The Tribunal referenced several decisions, including Bharti Airtel Ltd vs. ACIT and Micro Ink Limited vs. ACIT, which supported the view that such adjustments are only applicable prospectively.

4. Condonation of Delay in Filing Cross Objections by the Assessee:
The assessee's cross objections were filed with a delay of 512 days. The Tribunal dismissed the application for condonation of delay, stating that the reasons provided were too generic and lacked specific explanations. The Tribunal emphasized that the appellant must prove the delay of every single day with cogent reasons, which was not done in this case.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross objections. It held that the ALP determination for the corporate guarantee was not applicable for the assessment year in question due to the non-retrospective nature of the Explanation to Section 92B. Additionally, the Tribunal found no material evidence to support the Revenue's claim that the corporate guarantee had a bearing on the profits, income, losses, or assets of the enterprise. The cross objections were dismissed as they were filed with an inordinate delay without satisfactory justification.

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