2022 (12) TMI 379 - AT - Income Tax

Tax Tribunal: Transfer Pricing adjustment deleted, corporate guarantee commission upheld.

The Tribunal partially allowed the appeal by directing the deletion of the Transfer Pricing adjustment of Rs. 2,84,73,482 related to profit attributable ... TP Adjustment on account of profit attributable - international transaction - HELD THAT:- The issue stands decided in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal in assessee's own case [2018 (8) TMI 1196 - ITAT HYDERABAD] to hold that there is no international transaction during the relevant financial year - we hold that there is no international transaction during the relevant AY and the addition made by the AO is accordingly deleted. No absence of any contrary material brought to our notice by the learned Departmental Representative we direct the AO to delete the addition made by him on account of Transfer Pricing Adjustment. Addition of corporate guarantee - why the corporate guarantee commission rate applied @ 1.6% is very fair and reasonable especially when the risks assumed by the assessee is much more? - HELD THAT:- DRP while deciding the issue has noted the following bench marking provision of corporate guarantee by assessee company to its AEs. So far as the various decisions relied on by the learned counsel for the assessee are concerned, these in our opinion are distinguishable and not applicable to the facts of the present case. In our opinion, every case depends on its own sets of facts and cannot be applied as a binding precedent in other cases. In view of the detailed reasoning given by the DRP/A.O., we uphold the order of the A.O./TPO/DRP on this issue. Accordingly, the grounds raised by the assessee on this issue are dismissed. Issues Involved:1. Transfer Pricing Adjustment on Profit Attributable to Intangible Assets2. Commission on Corporate GuaranteeIssue-wise Detailed Analysis:1. Transfer Pricing Adjustment on Profit Attributable to Intangible Assets:The assessee, a company engaged in animation and multimedia production, filed its return for the Assessment Year 2014-15. During scrutiny, the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of international transactions with its Associated Enterprises (AEs). The TPO noted various international transactions, including product income, consultancy fees, loans, and reimbursements. The TPO made a Transfer Pricing (TP) adjustment of Rs. 2,84,73,482, attributing profit to the assessee company under the Profit Split Method in connection with intangible assets sold to its AE, DQ Ireland.The Dispute Resolution Panel (DRP) confirmed the addition made by the AO/TPO. The assessee appealed to the Tribunal, arguing that the issue was covered by the Tribunal's decision in the assessee's own case for the Assessment Year 2010-11, where it was held that there was no international transaction during the relevant assessment year. The Tribunal, after considering the orders of preceding years, held that the facts of the instant year were identical and directed the AO to delete the addition of Rs. 2,84,73,482 made on account of TP adjustment.2. Commission on Corporate Guarantee:The second issue involved an addition of Rs. 1,69,66,363 on account of commission on a corporate guarantee provided by the assessee to its subsidiary, DQ Entertainment (Ireland) Ltd. The assessee argued that providing a corporate guarantee is a shareholder activity and not a service, thus not requiring compensation. The TPO, however, computed the guarantee fee at 1.6% per annum, resulting in the adjustment.The DRP upheld the TPO's rate, citing the Safe Harbour Rules and CBDT notifications which prescribe a minimum commission of 1% per annum. The DRP noted that the risks assumed by the assessee were significant, justifying the 1.6% rate. The Tribunal, agreeing with the DRP's detailed reasoning, upheld the addition, stating that the provision of a corporate guarantee involves inherent costs and risks, which need to be compensated at ALP.Conclusion:The Tribunal allowed the appeal in part. It directed the deletion of the TP adjustment of Rs. 2,84,73,482 related to profit attributable to intangible assets, following its earlier decisions. However, it upheld the addition of Rs. 1,69,66,363 on account of commission on the corporate guarantee, agreeing with the DRP's assessment that the 1.6% rate was fair and reasonable given the risks involved.