Tribunal remands ALP adjustment for corporate guarantees to Assessing Officer

The Income Tax Appellate Tribunal remanded the matter to the Assessing Officer for de novo adjudication regarding the adjustment made on account of the Arm's Length Price (ALP) on corporate guarantees for the assessment years 2009-10 and 2010-11. The Tribunal held that the provision of corporate guarantees constitutes an international transaction under section 92B of the Act, widening the scope post-amendment. The Tribunal emphasized the need for the assessee to contest the determination of the ALP of the guarantee commission on its merits, ensuring a fair opportunity for arguments. Consequently, both appeals were dismissed as no substantial question of law was involved.

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Issues:
Adjustment on account of ALP on corporate guarantee for assessment years 2009-10 and 2010-11.

Analysis:
The Income Tax Appellate Tribunal considered the controversy related to the adjustment made on account of the Arm's Length Price (ALP) on corporate guarantees for the assessment years 2009-10 and 2010-11. The Tribunal remanded the matter to the Assessing Officer for denovo adjudication. The issue revolved around the ALP adjustment made on corporate guarantees provided by the assessee's associated enterprises (AEs) in the USA and another entity. The Transfer Pricing Officer (TPO) had determined the ALP of the corporate guarantee by applying a commission rate, resulting in an adjustment. The Commissioner (Appeals) had deleted the adjustment, stating that the provision of corporate guarantee does not fall under the definition of international transaction as per section 92B of the Act.

However, the Departmental Representative argued that post-amendment to section 92B of the Act, the provision of corporate guarantee falls within the scope of international transactions. The Tribunal noted that the amendment widened the scope of international transactions to include various types of capital financing, including guarantees. Referring to a decision by the Madras High Court, the Tribunal held that the provision of corporate guarantees constitutes an international transaction under section 92B of the Act.

The Tribunal observed that while the Commissioner (Appeals) had deleted the adjustment based on the provision not being an international transaction, the merits of the issue were not considered. The Tribunal emphasized that the assessee should have the opportunity to contest the determination of the ALP of the guarantee commission on its merits. Therefore, the issue was restored to the Assessing Officer for de-novo adjudication, ensuring a fair opportunity for the assessee to present their arguments.

As the Tribunal remanded the matter for de novo adjudication and provided detailed reasons for the remand, it was concluded that no substantial question of law was involved in the Tribunal's order. Consequently, both appeals were dismissed based on the reasons stated.

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