Transfer Pricing precedent governs guarantee commission adjustments; identical functional and risk analysis led to deletion of the upward ALP adjustment.

Whether an upward transfer pricing adjustment to guarantee commission is sustainable turned on functional and risk analysis and applicability of a coordinate-bench precedent; the assessee had reissued a counter guarantee, performed limited processing functions with risks and costs back to back with the associated enterprise, and allocated a combined commission. Applying accepted transfer pricing principles (use of contemporaneous comparables and CUP methodology) and giving effect to the earlier identical reasoned decision, the ITAT set aside the ALP adjustment and allowed the assessee's ground, deleting the upward adjustment.

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Issues: (i) Whether the upward transfer pricing adjustment made by the Transfer Pricing Officer/DRP in respect of guarantee commission for Assessment Year 2020-21 (applying a benchmarking rate of 1.80%/1.55%) is sustainable.

Analysis: The question concerns benchmarking of guarantee commission charged by the assessee to an associated enterprise and whether the ALP adjustment effected by the TPO/DRP is justified. Relevant legal framework comprises transfer pricing provisions under the Income-tax Act, 1961 including provisions for TPO/DRP directions and use of contemporaneous market data and accepted transfer pricing methods such as the comparable uncontrolled price method. The factual matrix shows that the assessee reissued a counter-guarantee received from its AE and performed limited functions (processing and execution), with risks and costs back-to-back with the AE. The Coordinate Bench earlier decided the identical issue for the assessee's Assessment Year 2018-19 after applying functional and risk analysis and accepting the assessee's allocation of the combined commission, thereby deleting the upward adjustment. The present appeal involves the same material facts and identical para in the TPO order; the earlier reasoned decision is directly on point and controls the present dispute.

Conclusion: The upward adjustment to the guarantee commission is deleted and the ground raised by the assessee is allowed; the appeal is allowed in favour of the assessee.

Ratio Decidendi: Where a reasoned decision of a coordinate bench addresses an identical transfer pricing issue on the same facts and applies functional and risk analysis to accept the assessee's allocation of commission, the identical adjustment in a subsequent assessment is to be set aside and the assessee's position upheld.

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