2024 (7) TMI 1177 - AT - Income Tax

Assessee wins appeal as guarantee fees to associated enterprise deemed justified under Section 92CA

Bosch Rexroth (India) Ltd. Versus The Income Tax Officer Ward-1 (1) (3) Ahmedabad

Bosch Rexroth (India) Ltd. Versus The Income Tax Officer Ward-1 (1) (3) Ahmedabad - TMI Issues:Transfer Pricing Adjustment on payment of guarantee fees to Associated Enterprise.Detailed Analysis:Issue 1: TP Adjustment on Guarantee FeesThe appeal concerns an adjustment made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO) regarding the payment of guarantee fees to the Associated Enterprise (AE) by the assessee. The Arm's Length Price (ALP) of the guarantee fees was determined at NIL, leading to an upward adjustment proposed by the TPO amounting to Rs. 52,91,667. The TPO found that no distinct benefit accrued to the assessee from the guarantee, and the transaction was benchmarked at NIL due to lack of services rendered by the AE. The Dispute Resolution Panel (DRP) upheld the TPO's decision, leading to the present appeal.Issue 2: Comparison with Previous YearThe assessee highlighted a similar transaction in the previous year (F.Y. 2009-10) where a guarantee fee was paid to the AE, resulting in a lower effective borrowing cost compared to bank rates. The Tribunal had deleted the addition made in the previous year, and this decision was upheld by the Hon'ble Gujarat High Court. The inconsistency in the treatment of the guarantee fee in the present year compared to the previous year formed a crucial aspect of the appeal.Issue 3: Judicial PrecedentsThe Tribunal referred to the judgment of the Hon'ble Gujarat High Court in the previous year's case, emphasizing the economic rationale for the guarantee fee based on the lower borrowing costs and favorable operating margins. The Tribunal concluded that the present case mirrored the facts and circumstances of the previous year, where the addition was deleted by the Tribunal and upheld by the High Court. Consistency in judicial decisions was deemed essential for legal certainty and fairness.ConclusionAfter thorough consideration of the arguments presented by both parties and the judicial precedents, the Tribunal found that the TP adjustment made by the AO/TPO and upheld by the DRP was unjustified. The addition of Rs. 52,91,667 on account of the guarantee fee payment to the AE was deleted, and the ground raised by the assessee was allowed. As a result, the appeal of the Assessee was allowed, and the order was pronounced in the Open Court on 12th July 2024 at Ahmedabad.