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

The Tribunal partially allowed the Assessee's appeal, deleting the addition made by the Assessing Officer. The decision acknowledged the Assessee's voluntary adjustment of 0.94% for the bank guarantee, contrasting with the Officer's 2.22% rate. This resolution favored the Assessee, addressing discrepancies in adjustment calculations and ending the specific litigation.

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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 Credit
The 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 banks
The 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 Officer
The 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 Assessee
The 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.

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