TaxTMI 
TaxTMI 
2014 (1) TMI 1024
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....o international transaction inasmuch as the Appellant stood as guarantor in respect of the working capital facilities granted by the Bank to the Appellant's subsidiary. 3. The Ld. CIT (A) erred in law and on facts in dismissing the additional ground of appeal raised by the Appellant praying for allowance of deduction of Rs.15,49,880/ - being the amount paid by the Appellant towards guarantee charges levied by the CITIBANK, POLAND in respect of working capital facilities availed by the Appellant's subsidiary, as per the decision of the Supreme Court in the case of S.A. Builders (288 ITR 1). The appellant prays that the reliefs on the aforesaid grounds of appeal be allowed and the appellate order be modified accordingly." The assessee vide letter dated 2-12-2013, has also filed additional ground, which reads as under :- Without prejudice to Ground No.2 raised by the Appellant, the Learned CIT (A) erred in law and on facts in upholding an addition of Rs.52,24,068/- being the upward adjustment made by the Transfer Pricing Officer to the arms' length price without appreciating that the upward adjustment cannot increase the amount of Rs.15,49,880/- being the amount paid by the Appell....
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....tion under Section 10B. It was explained that the said amount is received mainly from parties for making late payments of sale invoices. Some components of the interest was received from MSEB on security deposit placed with them. Thus, it was submitted that this amount is eligible for deduction under Section 10B. The AO did not accept such submission of the assessee and excluded the amount of Rs.21,61,170/- while computing deduction under Section 10B of the Act. 5. The treatment given by the AO was agitated in the appeal filed before the CIT(A). It was submitted that the amount of Rs.21,61,170/- comprised of two components - one component of Rs.19,87,300/- was an interest received from parties from whom the assessee is purchasing raw material for making early payment of their dues. It was submitted that the said amount has inextricable link with the core business activity of the assessee, therefore, should be considered to be eligible for deduction under Section 10B. Another amount of Rs.1,73,870/-, was received from MSEB on security deposits and it was claimed that the same is also eligible for deduction under Section 10B of the Act. Learned CIT(A) has rejected the said contentio....
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....ble for the deduction under Section 10B. Therefore, she pleaded that order of CIT(A) should be confirmed. 8. We have heard both the parties and their contentions have carefully been considered. Though there is contradiction in the stand taken by the assessee before the AO and CIT(A), however, the documents submitted by the assessee suggest that what was submitted by the assessee before the CIT(A), was the correct position. Therefore, if any mistake is committed by the assessee in stating the facts before the AO that mistake was corrected at the stage of appellate proceedings before the CIT(A). However, the benefit, if available to the assessee under the provisions of law, cannot be denied, simply on the basis of that assessee has taken contradictory stand before the AO and CIT(A). The facts can be verified from the documents filed by the assessee. If the assertions of the assessee are correct, then according to the aforementioned decision of the Hon'ble Delhi High Court in the case of Advance Detergents Ltd (supra), the amount received by the assessee on overdue payments from customers, is to be considered to be eligible for deduction under Section 10B of the Act. We, therefore, r....
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.... and no other expenses were incurred for giving the guarantee, therefore, the transaction should not be evaluated for the purpose of TP provisions. But, the TPO did not accept such submissions and before adding the aforementioned amount of Rs.15,49,880/-, which was paid as guarantee fee to the bank, he added following two amounts to arrive at arms' length price of the transactions :- (i) A sum of Rs.75,944/- as interest on the payment made by the assessee as guarantee fee. According to the learned TPO, the assessee was required to recover the said amount from its AE and it did not recover, therefore, interest was chargeable on the said amount. He found that the aforesaid interest charged by European Central Bank was at the rate of 3.40%. Adding 150 basis points, the interest rate was worked out to 4.90% per annum and accordingly, the interest of Rs.75,944/- was computed. (ii) Rs.35,98,244/- for evaluating the service of the assessee for providing guarantee on the basis of aforementioned comparables. The amount of Rs.35,98,244/- has been worked out as follows :- I. SBLC given for II. US$ III. 15,00,000 IV. Currency rate Rs. 46.46 Total am....
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....of this order was placed on record and was also given to the learned AR. In the said order, the issue relating to guarantee commission has been discussed as under :- "10. Apropos Ground No.8; during the course of proceedings before Ld. TPO it came to the notice that assessee had issued counter guarantee amounting to Rs.2,92,53,940/- with regard to its AE and had received guarantee commission @ 1.2% per annum amounting to Rs.3,49,711/- and such transaction was not reported in TP study. The TPO required the assessee to explain the same and vide letter dated 24/08/2011 it was submitted as under: "The assessee submits that for all its borrowings guarantee is provided by Technimont SpA, Italy and the assessee has not paid any consideration for this guarantee. Further, the assessee submitted that State Bank of India is a lead banker in its multiple banking consortium and they have issued sanction letter to TICB which details the rate of 1.2% as BG Commission. Based on the same rate, TICB has also recovered guarantee commission from its AE at the rate of 1.2% per annum. In light of the above TICB humbly submitted that considering the facts of the case the rate of 1.2% pa charged by TICB....
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....e rate charged by it from its AE, we decline to interfere in the addition upheld by Ld.DRP. This ground of the assessee is dismissed." Thus, it was submitted by the learned DR that the addition in this regard deserves to be sustained. 14. We have heard both the parties and their contentions have also been considered. During the course of hearing, it was not disputed by the learned AR that impugned transactions fall within the definition of the "international transaction" of the assessee with its AE, which required evaluation of arms length price under the provisions of Income Tax Act. It was also not denied by the learned AR that no amount has been changed by the assessee from its subsidiary on account of bank guarantee. The inclusion of interest to the commission amount paid by the assessee was also not disputed. The dispute, if any, raised by the learned AR was with regard to evaluation of service rendered by the assessee in the shape of bank guarantee to its AE which was determined on the basis of comparables given by the assessee during the course of hearing before the TPO and the said calculation has also been reproduced in the above part of this order. On the basis of figur....