2024 (12) TMI 644 - AT - Income Tax

Tribunal Reduces Bank Guarantee Adjustment Rate, Favoring Assessee in Dispute Over Calculation Discrepancies.

TBO TEK Limited Versus Assistant Commissioner of Income Tax, Circle 25 (1), C.R. Building, New Delhi

The Tribunal partially allowed the Assessee's appeal, deleting the addition made by the Assessing Officer. The decision acknowledged the Assessee's ... Adjustment u/s 92CA(3) - nature of Guarantee / Standby Letter of Credit, issued by Standard Chartered Bank, New Delhi and treating it as an International Transaction - CIT(A) upholding the average rate of 2.22% of nine banks, for making adjustment u/s 92CA(3) as against suo-moto adjusted by the assessee, based on actual cost incurred by the assessee - HELD THAT:- Assessee Company has given corporate guarantee for its subsidiary TEK Travel DMCC, wherein made voluntary adjustment of 0.94%. The said voluntary adjustment was in respect of actual amount paid to Standard Charter Bank for bank guarantee of Rs. 5,78,720/-. Standard Charter SLBC charge per year of 1.2% has been adjusted by the Assessee for the shorter period of nine months to 0.94%. A.O. was of the opinion that the average corporate guarantee rate at Arm’s Length Price at 2.22%, thus, the difference between the actual bank guarantee cost written back at the rate of 1.2% at Rs. 5,78,720/- and computed the amount at 2.22% of Rs. 10,27,804/-, accordingly made addition of Rs. 4,49,084/-. Considering the fact that the Assessee has made voluntary adjustment of 0.94% which is claimed be made based on the actual cost incurred by the Assessee, without going into the issue raised in Ground No. 1 and 3, considering the smallness of the amount, with an intention to put an end litigation, we delete the addition made by the A.O. which has confirmed by the Ld. CIT(A) by allowing Ground of the Assessee. Issues:Assessment of international transaction as Guarantee/Standby Letter of Credit.Validity of adjustment under section 92CA(3) based on average rate of banks.Selection of inappropriate sample by Assessing Officer.Validity of voluntary adjustment made by the Assessee.Analysis:Issue 1: Assessment of international transaction as Guarantee/Standby Letter of CreditThe Assessee filed an appeal against the order of the Commissioner of Income Tax (Appeal) for the Assessment Year 2016-17. The dispute revolved around the nature of Guarantee/Standby Letter of Credit issued by Standard Chartered Bank, New Delhi. The Tax Officer treated this transaction as an international transaction, leading to adjustments under the Income Tax Act, 1961. The Assessee contended that the authorities failed to appreciate the true nature of the transaction.Issue 2: Validity of adjustment under section 92CA(3) based on average rate of banksThe Tax Officer proposed an adjustment of Rs. 4,49,084 in relation to a corporate guarantee given on behalf of an associated enterprise. The Assessee voluntarily adjusted the amount at a lower rate based on actual cost incurred. However, the Tax Officer upheld the adjustment at a higher average rate of 2.22% of nine banks, resulting in a discrepancy. The dispute centered on the appropriateness of this adjustment under section 92CA(3) of the Act.Issue 3: Selection of inappropriate sample by Assessing OfficerThe Assessing Officer's selection of an inappropriate sample for making adjustments was contested by the Assessee. The Assessee argued that the sample chosen was not representative of the actual costs incurred, leading to discrepancies in the adjustment calculations. The Commissioner of Income Tax (Appeals) confirmed the rate without providing valid reasons for rejecting the Assessee's stance, raising concerns about the procedural fairness of the assessment.Issue 4: Validity of voluntary adjustment made by the AssesseeThe Assessee made a voluntary adjustment of 0.94% based on the actual cost incurred for a bank guarantee issued by Standard Chartered Bank. This adjustment was in response to the corporate guarantee provided to a subsidiary. The Tax Officer, however, calculated the adjustment based on an average corporate guarantee rate of 2.22%, resulting in a significant difference in the final adjustment amount. The Tribunal acknowledged the voluntary adjustment made by the Assessee and decided to delete the addition made by the Assessing Officer, thereby partially allowing the Assessee's appeal.In conclusion, the Tribunal partially allowed the Assessee's appeal by deleting the addition made by the Assessing Officer. The decision was based on the voluntary adjustment made by the Assessee and the discrepancy in the adjustment calculations. The Tribunal's ruling put an end to the litigation concerning the specific adjustment, thereby resolving the dispute in favor of the Assessee.