Tribunal allows delay due to Covid-19, upholds transfer pricing adjustments. Revenue appeals dismissed for AY 2015-16.

The Tribunal condoned a delay in filing the appeal due to the Covid-19 pandemic. It upheld the deletion of upward transfer pricing adjustment related to corporate guarantee fees, noting the total fee was at arm's length. Additionally, the Tribunal upheld the deletion of transfer pricing adjustment related to interest on loans, finding the interest rate comparable and dismissing the revenue's grounds. The Tribunal dismissed the revenue's appeals for AY 2015-16, affirming the CIT(A)'s decisions on all issues, stating the TPO's adjustments were unwarranted and transactions were at arm's length.

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Issues Involved
1. Condonation of delay in filing the appeal.
2. Deletion of upward transfer pricing adjustment related to corporate guarantee fees.
3. Deletion of transfer pricing adjustment related to interest on loans from associated enterprises.

Summary

1. Condonation of Delay in Filing the Appeal
The Tribunal condoned a delay of 497 days in filing the appeal, citing the Supreme Court's exclusion of the period from 15.03.2020 to 28.02.2022 due to the Covid-19 pandemic.

2. Deletion of Upward Transfer Pricing Adjustment Related to Corporate Guarantee Fees
Facts: The assessee, a Special Purpose Vehicle (SPV), extended a corporate guarantee to its foreign subsidiary, IDPL, through a Stand-By Letter of Credit (SBLC) issued by its holding company, SCPKL. SCPKL charged a 1% guarantee fee, while the assessee charged an additional 0.2%.

TPO's Adjustment: The Transfer Pricing Officer (TPO) benchmarked the corporate guarantee fee at 1.63%, resulting in an upward adjustment of Rs. 1,16,472.

CIT(A)'s Decision: The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the adjustment, noting that the total guarantee fee of 1.2% (1% by SCPKL and 0.2% by the assessee) was at arm's length, especially since SCPKL bore the risk and pledged its assets.

Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that the total fee of 1.2% exceeded the reasonable benchmark of 0.5% established in various rulings. The Tribunal found the TPO's approach to be fundamentally flawed and dismissed the revenue's grounds.

3. Deletion of Transfer Pricing Adjustment Related to Interest on Loans from Associated Enterprises
Facts: The assessee availed loans from its holding company, SCPKL, and its director, charging an interest rate of 13.5%. The TPO made a downward adjustment, comparing this rate to the 11.5% interest paid to another party, Silver Cross Marketing Pvt Ltd.

CIT(A)'s Decision: The CIT(A) deleted the adjustment, noting that SCPKL sourced the loan from SBI at 12.75% and charged a reasonable markup. The CIT(A) also pointed out that the interest rate of 13.5% was below the prevailing SBI PLR of 14.55% and that the loan to Silver Cross was not comparable due to different terms and amounts.

Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, citing its own ruling in the assessee's case for the previous year, where a similar adjustment was found untenable. The Tribunal noted that the interest rate of 13.5% was comparable to the prevailing PLR and dismissed the revenue's grounds.

Appeals for AY 2015-16
For AY 2015-16, the issues were identical to those in AY 2014-15. The Tribunal upheld the CIT(A)'s decision to delete the transfer pricing adjustments related to the corporate guarantee fee and interest on loans, dismissing the revenue's appeal.

Conclusion
Both appeals by the revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all issues. The Tribunal found that the adjustments made by the TPO were not warranted and that the transactions were at arm's length.

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