Debenture fee deduction, corporate guarantee benchmarking, and SBLC adjustment were examined under transfer pricing principles.

Debenture-related upfront and legal fees already fully claimed and allowed in an earlier year could not be allowed again in the year under consideration, as that would result in double deduction. Corporate guarantee commission under transfer pricing could not be benchmarked by simply applying bank guarantee rates; the transaction had to be tested on its own facts, and the net adjustment was worked out as nil in the giving-effect proceedings. For standby letter of credit, the transfer pricing adjustment was confined to the portion of commission cost not recovered from the associated enterprise, since only the unrecovered amount remained an expense borne by the assessee.

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Issues: (i) Whether the amortised upfront fees and legal fees paid for issue of debentures were allowable in full in the year under consideration; (ii) Whether transfer pricing adjustment on corporate guarantee commission was sustainable and, if so, at what basis; (iii) Whether the adjustment relating to standby letter of credit had to be restricted to the amount not recovered from the associated enterprise.

Issue (i): Whether the amortised upfront fees and legal fees paid for issue of debentures were allowable in full in the year under consideration.

Analysis: The fee was paid for securing debenture finance and had already been claimed and allowed in full in the earlier assessment year following the Tribunal's view that such expenditure is not to be spread over as deferred expenditure merely because it was amortised in the books. The year under consideration was the last year of the claim, so allowing 1/5th again would result in double allowance.

Conclusion: The claim of the assessee for amortised fees was not allowable again for the year under consideration, and the Revenue succeeded on this issue.

Issue (ii): Whether transfer pricing adjustment on corporate guarantee commission was sustainable and, if so, at what basis.

Analysis: Corporate guarantee was treated as an international transaction within the transfer pricing framework. However, the adjustment could not be computed by applying bank guarantee rates as if the transaction were identical to a commercial bank guarantee. The earlier coordinate bench view and the later modification recognising counter-guarantee adjustment were followed, and the net exposure had already been worked out as nil in the giving-effect proceedings.

Conclusion: The Revenue's challenge to deletion of the corporate guarantee adjustment failed, and the assessee's cross-objection on the character of the transaction also failed.

Issue (iii): Whether the adjustment relating to standby letter of credit had to be restricted to the amount not recovered from the associated enterprise.

Analysis: The assessee had borne bank commission on the SBLC and had recovered only part of it from the associated enterprise. Following the earlier coordinate bench view, the transfer pricing adjustment was confined to the unrecovered portion because only that part represented the assessee's cost not passed on.

Conclusion: The restriction of the adjustment to the unrecovered amount was upheld, so the Revenue failed on this issue and the assessee's cross-objection became infructuous.

Final Conclusion: The common order sustained the amortisation disallowance issue in favour of the Revenue while leaving the corporate guarantee and SBLC related reliefs substantially intact, resulting in a partly allowed disposition of the Revenue's appeals and dismissal of the cross-objections.

Ratio Decidendi: Expenditure on debenture-related fees cannot be allowed twice once it has already been fully claimed and allowed, corporate guarantee transfer pricing must be benchmarked on its own facts and not by bank guarantee rates, and SBLC adjustment is confined to the unrecovered cost actually borne by the assessee.

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