Tribunal decision: Transfer Pricing adjustments, guarantees, forex losses upheld. Additional ground admitted for education cess.

The Tribunal allowed the assessee's appeal in part and partly allowed the revenue's appeal. The Tribunal directed the deletion of the Transfer Pricing adjustment for business advances, confirmed the arm's length nature of performance guarantees, adjusted the corporate guarantee Transfer Pricing adjustment to 0.20%, upheld the treatment of Mark-to-Market losses on forex contracts, and admitted an additional ground on education cess for further adjudication by the Assessing Officer.

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Issues Involved:
1. Transfer Pricing Adjustment for Business Advances.
2. Performance Guarantee Adjustment.
3. Corporate Guarantee Adjustment.
4. Mark-to-Market Losses on Forex Contracts.
5. Education Cess Deduction.

Detailed Analysis:

1. Transfer Pricing Adjustment for Business Advances:
The sole subject matter of the assessee's appeal was the Transfer Pricing (TP) adjustment of Rs. 2,45,43,617/- against business advances given by the assessee to its Associated Enterprise (AE). The assessee argued that the advances were business advances to fulfill obligations as a joint venture partner and not loans, thus no interest was charged. The Ld. AO and TPO rejected this argument, treating the advances as loans and benchmarking them against LIBOR rates, resulting in a TP adjustment. However, the Tribunal found that the advances were more in the nature of capital contributions to protect the business interest of the assessee, and hence, directed the AO to delete the adjustment.

2. Performance Guarantee Adjustment:
The revenue's appeal challenged the CIT(A)'s decision that the guarantee commission for performance guarantees provided by the assessee to various entities on behalf of its AE was at arm's length. The Ld. TPO had benchmarked performance guarantees at 1% and corporate guarantees at 2%, proposing an aggregate adjustment of Rs. 13,12,45,000/-. The Tribunal found that the internal CUP (Comparable Uncontrolled Price) in the form of commission charged by the bank was the most direct and reliable method to apply the Arm's Length Principle. Since the assessee charged commission in accordance with the bank's sanction letter, no further adjustment was justified, and the grounds related to performance guarantees were dismissed.

3. Corporate Guarantee Adjustment:
The revenue's appeal also involved corporate guarantees provided by the assessee on behalf of its AEs. The Ld. TPO benchmarked these guarantees at 2%, but the Tribunal noted that both AEs were subsidiaries of the assessee and special purpose vehicles for downstream acquisition. Given the low risk and the fact that no fees were paid by the assessee, the Tribunal estimated the TP adjustment at 0.20% instead of 2%, directing the AO to recompute the same.

4. Mark-to-Market Losses on Forex Contracts:
The revenue challenged the CIT(A)'s decision to treat MTM (Mark-to-Market) losses on forex contracts as accrued losses. The Tribunal noted that this issue was covered in the assessee's favor by earlier decisions, including the Hon'ble Supreme Court's decision in Woodward Governor Ltd. and the Tribunal's own decision for AY 2009-10. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's grounds on this issue.

5. Education Cess Deduction:
An additional ground was raised by the assessee regarding the deductibility of education cess and higher and secondary education cess. The Tribunal admitted the additional ground, noting that the issue was covered in the assessee's favor by the recent decision of the Hon'ble Bombay High Court in Sesa Goa Limited. The Tribunal directed the AO to bring relevant facts on record and re-adjudicate the issue after affording reasonable opportunity of hearing to the assessee.

Conclusion:
The assessee's appeal was allowed to the extent indicated, and the revenue's appeal was partly allowed. The Tribunal directed the AO to delete the TP adjustment for business advances, confirmed the CIT(A)'s decision on performance guarantees, adjusted the corporate guarantee TP adjustment to 0.20%, upheld the CIT(A)'s decision on MTM losses, and admitted the additional ground on education cess, directing the AO to re-adjudicate the issue.

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