TaxTMI 
TaxTMI 
TaxTMI 
2015 (12) TMI 683
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..../- on account of adjustment in respect of guarantee commission for guarantee provided to banks in respect of loans taken by Associated Enterprises ('AEs') Original ground 2. erred in making adjustment of Rs. 2,47,07,596j- on account of guarantee commission; Supplementary Ground 2.1 Without prejudice to above, while computing adjustment on account of arm's length price of guarantee commission, erred in applying the rate of guarantee commission to the entire amount of guarantee of USD 2.34 million, instead of restricting the adjustment only to the actual amount of loan availed by the AE from the overseas bank during the year; Addition of Rs. 63,44,901/- on account of adjustment in respect of interest on loan given to AEs : Original ground 3. erred in making adjustment ofRs.63,44,901/- on account of interest on loan given to AE; Supplementary Ground 3.1 Without prejudice to above, erred in not providing the benefit of the variation of 5 percent from the arithmetic mean as provided in the proviso to Section 92C(2) of the Act, while making the adjustment to the value of international transactions of the Appellant; The Appellant craves, to consider each of the above....
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.... Total (A) 0.09 41.03 90.52 Other investments Investments in immovable properties 0.00 0.00 0.00 GPT Steel Industries Pvt. Ltd 2.00 2.00 2.00 Solar Explosives Limited 0.45 0.00 0.00 Shivalik Global ltd. 0.30 0.00 0.00 Investment in Mutual Funds Fixed Maturity Plan/Growth Oriented Schemes 0.00 10.00 10.00 Other Mutual funds/Dividend Oriented Schemes 10.37 1.27 0.10 Total 10.37 1.27 10.10 Total(B) 13.12 13.27 12.10 Grand Total (A+B) 13.22 54.30 102.62 Learned AR also invited our attention to the investment made in UTI fixed maturity/growth plan amounting to Rs. 10 crores and contended that if it is excluded from opening and closing value of investment, disallowance under Rule 8D would work out to be Rs. 1.39 lakhs only. Accordingly, it was pleaded that even if any disallowance is to be made u/s.14A, the same should be restricted to Rs. 1.39 lakhs. 4. We have considered rival contentions and found that disallowance under Rule 8D has been worked out by the AO on the total investment, which included investment made in mutual funds with growth scheme. Such mutual fund investment is required to be ....
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....ok profit u/s.115JB. 6. The next grievance of the assessee relates to addition made in respect of corporate guarantee amounting to Rs. 2,47,07,596/- 6.1 Rival contentions have been heard. The assessee provided corporate guarantees to its owned subsidiaries namely, EKC International FZE (EKC Dubai) and EKC Industries (Tianjin) Limited (,EKC China) amounting USD 23 million and USD 4 million respectively. The said subsidiaries are set-up for expanding the business of the assessee of manufacture of cylinders in Dubai & China region which are huge markets for the assessee. For this purpose assessee approached ICICI Bank, Bahrain branch and the said bank agreed to provide term loans for working capital and capital expenditure to the subsidiary company. For this purpose assessee company provided corporate guarantee to ICICI Bank by way of Deeds of guarantees. The assessee company charged a guarantee commission of Rs. 44,00,799/- @ 0.5% p.a from EKC Dubai for such corporate guarantee. This was on the basis of internal CUP available to the assessee. It was explained that assessee had an independent sanction "letter of Credit arrangement" between ICICI Bank India in respect of Inland and F....
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....justment. On the facts of the case, assessee had paid 0.6% as guarantee commission to ICICI Bank India and has charged @ 0.5% to its AE. In connection with corporate guarantee given to EKC China, it is submitted that the non-recovery of any guarantee commission was on account of restriction under Chinese regulations and accordingly non-recovery of guarantee commission is to be considered at arm's length. Further, by giving guarantee, the assessee protects its strategic, business and economic interest in the subsidiary and ensure goodwill and reputation of the group. 7. On the other hand, learned DR relied on the order of lower authorities. 8. We have considered rival contentions, carefully gone through the orders of the authorities below and found that assessee company had provided bank guarantee in respect of advances given by HSBC Ltd. to its AE. For this purpose assessee company has charged guarantee commission of Rs. 44,00,799/- @ .05% p.a. from EKC Dubai for such guarantee. Similarly assessee was having sanctioned letter of credit arrangement between ICICI Bank India Ltd. in respect of Inland and Foreign LC, where a guarantee commission of 0.6% p.a was to be paid by the ....
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....is not primarily a source of revenue CIS it mainly seeks compliant behaviour from the assessee vis-a-vis certain norms, and these norms cannot be given effect from a date earlier than the date norms are being introduced. However, as we have decided the issue in favour of the assessee on merits and even after taking into account the amendments brought about by Finance Act 2012, we need not deal with this aspect of the matter in greater detail. 35. When it was put to the learned Departmental Representative that there could be a view that issuance of guarantees could be outside the ambit of scope of 'international transaction' itself, he submitted that there are large number of decisions in India and abroad, notably in Canada, dealing with the determination of arm's length price of guarantees. His argument seemed to be that even such a view is to be upheld, entire transfer pricing jurisprudence will be turned upside down. There does not seem to be any legally sustainable merits in this argument either. As for the decisions dealing with quantum of ALP adjustments in the guarantee charges, in none of these cases the scope of 'international transactions' under sectio....
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....nate bench in the case of Mahindra & Mahindra (supra), referred to in the DRP order, but that decision does not deal with the scope of amended section 92 B and leaves the issue open by stating that post insertion of Explanation to Section 92 B, the matter will have to be examined in the light of the amended law. We have held that even after the amendment in Section 92 B, amending Explanation to Section 92 B, a corporate guarantee issued for the benefit of the AEs, which does not involve any costs to the assessee, does not have any bearing on profits, income, losses or assets of the enterprise and, therefore, it is outside the ambit of 'international transaction' to which ALP adjustment can be made. As we have decided the matter in favour of the assessee on this short issue, we see no need to address ourselves to other legal issues raised by the assessee and the judicial precedents cited before us. 36. For the reasons set out above, and as we have held that the issuance of corporate guarantees in question did not constitute 'international transaction' within meanings thereof under section 92B, we uphold the grievance of the assessee and direct the Assessing Officer ....
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....ing of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the IGIGI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length. The difference of 0.1% can be ignored as the rate of interest on which IGIGI Bank, Bahrain Branch has given loan to AE (i.e. subsidiary company) is at 5.5%, whereas the assessee is paying interest rate of more than 10% on its loan taken with IGIGI Bank in India. Thus, such a minor difference can be on account of differential rate of interest. Thus, on these facts, we do not find any reason to uphold any kind of upward adjustment in ALP in relation to charging of guarantee commission." As the facts and circumstances of the case during the year under consideration are pari materia, respectfully following the decision of the Tribunal in assessee's own case, we direct the AO to compute arm's length price of transaction as per the direction given by the Tribunal in the above order for A.Y. 2007-08. 10. The next grievance of the assessee relates to addition of Rs. 63,44,901/- on account of adjustment in respect of interest on loan advanced to EKC Duba....