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2019 (1) TMI 845
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....turned income of the appellant amounting to Rs. 16,52,19,000/- and enhancing the same by Rs. 20,57,19,110/-. 2. On the facts and circumstances of the case and in law, the Ld. AO/ Hon'ble DRP grossly erred in confirming the addition of Rs. 20,09,07,000/- to the income of the Appellant proposed by the Ld. TPO by holding that provision of corporate guarantee to its Associated Enterprise ('AE') do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 C the Act') and in doing so, the Ld. AO/ Hon'ble DRP grossly erred in upholding the Ld. TPO's action of: 2.1. considering provision of corporate guarantee as international transaction u/s 92B of the Act; 2.2. incorrectly holding that the Appellant has undertaken risk on behalf of its AEs and there is an inherent cost in giving corporate guarantees for which the Appellant should have charged a consideration; 2.3. disregarding the fact that the provision of corporate guarantee to the AE was in the nature of shareholder service; 2.4. disregarding the fact that III the absence of the corporate guarantee provided, the Appellant being the holding compa....
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....red in computing the adjustment amount by reducing the amount of interest expenditure earlier disallowed under section 14A. In this regard, the Ld. TPO erred in disregarding the revised return of income: and 4.5. erroneously computing the adjustment amount under Section 92CA of the Act. 5. The Ld. AO has grossly erred in charging interest under section 234B and 234C of the Act; 6. The Ld. AO has grossly erred in initiating penalty under section 271(1)(c) of the Act mechanically and without recording any satisfaction for its initiation." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. JE Energy Venture Private Limited, the taxpayer is a strategic "venture business" segment of Jubilant Bhartia Group. The taxpayer through its alliances with international companies provides business, marketing and technical support related to oil and gas services, power and infrastructure, financial services, trading, homeland & mega city security systems and aviation related services (sales, maintenance of aircrafts and helicopters). The taxpayer is the ultimate holding company having 100% share of Jubilant Energy Holdings BV (....
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....h the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 8. By moving a separate application, assessee company sought to raise additional grounds on the ground that the same go to the root of the case which are as under :- Ground No.7 : 7.1 That in the facts and circumstances of the case and in law, the Ld. Assessing Officer ('AO') / Transfer Pricing Officer ('TPO') has erred in disregarding the exclusion of disallowance u/s 14A of the Act made by the Appellant through its original return of income which is subsequently withdrawn by way of letter dated October 12, 2017 in accordance with judicial precedents and facts of the case. 7.2. Without prejudice, that on the facts and circumstances of the case and in law, disallowance should not be made on such investments where no exempt income has been earned by the Appellant. 7.3. Without prejudice, that on the facts and circumstances of the case and in law, disallowance should be restricted to the exempt income earned by the Appellant during the year." 9. Keeping in view the fact that the additional ground sought to be raised b....
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....(INR) ALP determined by the TPO (INR) using CUP of SBI rates Adjustment u/s 92CA (INR) 1 Interest Paid 7.485125 1.324146 6.160979 6.642190 0.481211 14. In the backdrop of the aforesaid facts and circumstances of the case and the arguments addressed by ld. ARs of the parties to the appeal, ground-wise issues in controversies are determined as under. GROUND NO.1 15. Ground No.1 is general in nature and do not require any adjudication. GROUNDS NO.2 TO 2.8 & 3 16. The taxpayer is the ultimate holding company, holding 100% shares in Jubilant Energy Holdings BV (JEHBV) and JEHBV holds 78% shares in Jubilant Energy NV (JENV) which indirectly holds 100% shares in Indian subsidiary. JENV entered into 2 loan agreements in October 2007 and August 2011 with Exim Bank. For the purpose of obtaining aforesaid loans, the taxpayer provided a corporate guarantee on behalf of JENV and as per loan agreement, the liability of the taxpayer in terms of guarantees was not to exceed the amount realized from all investments of the taxpayer in its subsidiary JEHBV and the assets and investments held by its subsidiary JEHBV or through its step down subsidiaries. 17....
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....mparable average interest rate of margin over Libor (B) 400 or 475 Interest saved (B-A) 0 22. Identical issue has already been decided in favour of the taxpayer wherein the TPO had also applied CUP method for benchmarking the transactions relating to corporate guarantee, by the coordinate Bench of the Tribunal in Glenmark Pharmaceuticals Ltd. (supra) by returning following findings :- "23. It is in this background, we take out some time to distinguish these types of Guarantees. Normally, the Bank Guarantee or Corporate Guarantee is given by a Bank or the Company as the case may be to the financing Bank for acknowledging obligation to the Terms of Contract. Bank Guarantee is provided by the Company's Banker on behalf of the Company for a certain sum of money to the Customer. If all the terms of the Contract is not fulfilled by the Company then the Customer can claim that amount from the Bank and the Bank is obligated to pay and recover from the Company. Bank Guarantee is a foolproof instrument of security for the Customer and failure to honor the guarantee is treated as deficiency of services of the Bank under the Banking Laws. On the other hand, the CG - Co....
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....ting to the case of CGR and the decision in the case (ITA No. 408 & 1937/M/2010). In this case, Asia Paints Ltd. (supra) gave a corporate guarantee to HSBC Bank, Singapore and Citibank, Singapore in connection with loans granted by the Bank to its AE (Berger International Ltd). 0.35% and nil are the guarantee rate charged by the HSBC and Citibank of India in year 2004-2005. Thus, it is the case of charge of CG by the Indian branches of the bank on the assessee for providing guarantee to the foreign banks. On these facts, the TPO rejected the said rates and picked the 'naked quotes' at 3% available in the website of ICICI Bank. TPO also considered the guarantee commission rates of (i) Allahabad Bank, (ii) HSBC Bank (iii) ICICI and (iv) Dutch State/FMO - Robo India Finance Ltd and rejected the same by holding that the same is unsustainable. CIT(A) reasoned that bank commission rate never higher them the interest rates charged on the loans. He, however, deleted the addition in this case. The same confirmed by the Tribunal vide its order dated 31.10.2011 and the relevant portion from the said order of the Tribunal (para 38) reads as under: "38.... Therefore, in view of....
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....the Finance Company. The charging of a guarantee commission depends upon transactions to transaction and mutual understanding between the parties. There may by a case where bank may not charge any guarantee commission, depending upon its evaluation of relationship and with a guarantee commission, depending upon its evaluation of relationship with a particular client. Therefore, universal application of rate of 2.5% for guarantee commission cannot be considered a market rate as it largely depends upon the terms and conditions on which loan has been given, risk undertaken, relationship between bank and the client, economic and business interest etc. In the case, before us when the assessee has itself paid guarantee commission at the rate varying from 0.25% to 0.6% per annum to third party and considering the fact that the assessee has stated that it has not incurred any cost for providing guarantee to the bank for the loan given to its subsidiary, we are of the considered view that applying the rate of 2.5% by TPO based on external comparables is not justifiable and cannot be confirmed. 52.11. 52.12. We are of the considered view that the Ld CIT(A) on the facts and ....
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....ntal companies etc. The additions made are legally unsustainable, if the additions are made solely based on the website information of the banks, In principle, bank guarantees (in short - BG) are different from that of the corporate guarantee. Though untested in this case, in our prima facie opinion, a Bank Guarantee comparable may not clear the test of FAR analysis, which applies equally and relevant for the CUP method of ALP studies. Reliance is placed in the case of Arvind Mills Ltd. v. Asstt. CIT [2011] 11 taxmann.com 67 (Ahd.). The commercial considerations are paramount in fixing the charges when providing guarantees to its customers. On the other hand, a corporate guarantee operates not for business considerations but to provide adequate safeguards for the financial health of its sister concerns / AEs, Guarantor, like the present assessee, sometimes duty-bound to provide guarantee to the loans given by the financial institutions to the sister concerns abroad, Bank rates are mostly customer-specific and they vary downward., if cash deposits equallent of loan are given to the Bank. Thus, comparing the bank guarantee commission transactions with the that of the corporate bank g....
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....pra). The GC rate of 3% as announced by the Bank for the Bank guarantee Transactions stand dismissed by Tribunal in all the above cases. Reasons for such rejection include: these are the 'naked quotes'; and (ii) the said 3% is always subjected to negotiations between the Bank and its customer; (iii) TPO has not provided adjustments at all before benchmarking the impugned transactions at 3%, etc. In any case, it is our opinion that the Bank Guarantee Commission Prices cannot be used as External CUPs to benchmark the Corporate Guarantee Commission Prices. Further, we find that, unlike in other cases of NIL corporate guarantee commission, the present assessee has charged the GC Rate of 0.53% and 1.47% from its AEs. Therefore, in our opinion, these rates are competent given the facts of the present case qua the rates discussed and approved by the Tribunal in adjudicating the other cases relating to the Guarantee commission transactions benchmarked using the CUP method. Therefore, the TPO's comparables are IUPs' i.e. Incomparable Uncontrolled Prices. Therefore, .we are of the opinion, the GC rates of 0.53% and 1.47% benchmarked by the assessee are fair and reasonable and....
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.... of the Tribunal, we are of the considered view that in order to benchmark the international transactions qua corporate guarantee appropriate comparable data needs to be adopted and benchmarking made in this case on the basis of bank quotes is not sustainable, hence, the TP adjustment made by the TPO/DRP is not sustainable in the eyes of law. We are also not agreed with the contentions raised by the ld. AR for the taxpayer that providing corporate guarantee in case of its loan to its AE is not an international transaction and this issue has been rightly decided by the JTPO/DRP by treating the provision of corporate guarantee as international transaction. 25. However, at the same time, we are not inclined to agree with the contentions raised by the taxpayer that since no benefit has been passed on to its AE, there is no need to compensate the taxpayer because in a business transaction there is no concept of free lunch. Because without providing corporate guarantee by the taxpayer no loan would have been given to the AE; that the taxpayer has taken the risk on behalf of its AE which would not have been taken by any third party without consideration and that keeping in view the hig....