AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1371
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....d in law in ignoring that the corporate guarantee extended by the assessee company to its AE is an international transaction as per explanation to section 92B, and accordingly an arm's length charge should be imputed in relation to the same. 3. That on the facts and circumstances of the case the ld. CIT(A) has erred in law in categorizing the corporate guarantee as shareholder service not warranting any charge. 4. That on the facts and circumstances of the case, the ld. CIT(A) has erred in law in not appreciating the fact that the corporate guarantee has provided benefit to the AE and the assessee should charge a fee for its services in the form of guarantee charge. 5. That the appellant craves for leave to add, delete, amend or modify any ground before or at the time of appellate proceedings. " 3. Ground no. 1 raised by the Revenue reads as follows: "That on the facts and circumstances of the case, the ld. CIT(A) has erred in law in stating that CUP should not be the most appropriate method for sale of finished goods without appreciating the fact that goods sold by the appellant to the AEs and non-AEs are comparable in all aspects and hence CUP shall provide arm's le....
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.... the conditions prescribed in sub-clause (a) (ii) of sub rule (1), which states that comparable uncontrolled price method, by which, such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market. In order to make applicable, the Comparable uncontrolled price method (CUP-method), these conditions are essential to fulfill. We note that in assessee's case under consideration, no adjustments have been made by ld TPO on account of differences in market and economic conditions of countries in which products have been sold to independent third parties. The ld TPO has failed to take into account the profile of consumers, preference amongst consumers, purchasing power, etc. In the assessee's case under consideration, the assessee had sold its products to independent third parties in different countries like Kenya, Congo, Angola, Uganda, Sri Lanka, USA, etc. The prices at which the products were sold to third party distributors in these countries are being compared by the Ld. TPO with those so....
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....e:444:ml" with "Emita Skin Care Body Lotion- Rose &Glycerine :100ml". We note that there are huge difference in terms of volume, that is, "444ml Vis-à-Vis 100ml". There is difference in terms of quality that is, "All Purpose Vis-à-Vis "Rose &Glycerine". There could be difference on account of customer preference, normally the customer prefers to buy the product, where he gets 1+1, that is, where he gets one free unit, on purchase of one unit. There is market preference also, the market for the same product in USA is different than in Bagaladesh. We note that ld TPO/AO failed to do necessary adjustment on account of customer preference, market preference and market strategy to sale the product in different geographical area, therefore, the application of CUP method in the assessee's case under consideration fails. We note that theassessee had sold over 250 different products to AEs. The Ld. TPO however selectively shortlisted only 56 products to conduct benchmarking analysis under CUP Method. Even in respect of these 56 products, the Ld. TPO, later on, noted that 12 products were showing that the prices at which assessee had sold products to its AE's were higher....
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....stances of the case and availability of reliable data. We note that the assessee has been consistently exporting goods to its AEs located abroad. In all the earlier years, the transactions involved sale of goods were benchmarked under the TNMM Method, as evident from the TP study report for the earlier Assessment Years 2010-11 & 2011-12. In none of the past assessments, the Revenue has rejected the TP analysis and the transactions were accepted to be at arm's length under the TNMM method, therefore it was imperative for the Ld. TPO to bring on record the change in facts or law and give cogent reasoning before departing from the settled position and rejecting the application of TNMN Method. It is a well settled legal position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon'ble Supreme Court in Radhasoa....
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....epend upon business strategies, market conditions, competitions, market penetration schemes, geographical locations, climatic conditions, etc. Guidelines issued by OECD also recognized the business strategies adopted by the companies which have a bearing on profitability levels. Para 1. 60 and 1. 62 of OECD guidelines for the sake of ready reference are reproduced hereunder: "Para 1. 60 of the Guidelines states as under: "Business strategies also could include market penetrate schemes. A taxpayer seeking to penetrate a market or to increase its market share might temporarily charge a price for its product that is lower than the price charged for otherwise comparable products in the same market. Furthermore, a taxpayer seeking to enter a new market or expand (or defend) its market share might temporarily incur higher costs (e. g. due to start-up costs or increased marketing efforts) and hence achieve lower profit levels than other taxpayers operating in the same market". Further, para 1. 62 of the OECD Guidelines states as under: "When evaluating a taxpayer's claim that it was following a business strategy that temporarily decreased profits in return for higher long-run ....
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....omising to pay the lender the money owed to it by the borrower (obligor) on whose behalf the guarantee is given, if the borrower fails to pay back the debt due to the lender. A guarantee to a lender that a loan will be repaid, guaranteed by a company other than the one who took the loan, is called a corporate guarantee. The ld Counsel for the assessee submitted before us that extending corporate guarantee for borrowings by subsidiaries was a shareholder activity, that it was not an international transaction, that no fee was warranted since no cost was incurred, and that bank guarantees were not comparable to corporate guarantees since the business of the bank was different from that of a corporate. Before us, ld DR for the Revenue submitted that there are plethora of judicial pronouncements wherein it has been held that the corporate guarantee is in the nature of service provided by the taxpayer to its associate enterprises(AEs) and hence should bear a charge. The judgments have explicitly held that after the Income Tax Act,1961 was amended by the Finance Act, 2012 to include 'guarantee' within the definition of "international transaction" with retrospective effect from....
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....either. The concept of issuance of corporate guarantees as a shareholder activity is not alien to the transfer pricing literature in general. . " ". . . . We have noticed that the 'OECD' Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations specifically recognizes that an activity in the nature of shareholder activity, which is solely because of ownership interest in one or more of the group members, i. e. in the capacity as shareholder "would not justify a charge to the recipient companies". It is thus clear that a shareholder activity, in issuance of corporate guarantees, is taken out of ambit of the group services. Clearly, therefore, as long as a guarantee is on account of, what can be termed as 'shareholder's activities', even on the first principles, it is outside the ambit of transfer pricing adjustment in respect of arm's length price. " " . . . . We are in agreement with these views. There can thus be activities which benefit the group entities but these activities need not necessarily be 'provision for services'. The fact that the OECD considers such activities in the services segment does not alter the charact....
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....have a bearing on the profits, income losses or assets of the enterprise . . . :" "Para 31.... The contents of the Explanation fortifies, rather than mitigates, the significance of expression 'having a bearing on profits, income, losses or assets' appearing in section 92B( 1) of the Act . . . " "Para 33 . . . . The onus is on the tax authorities to demonstrate that the transaction is of such nature as to have 'bearing on profits, income, losses or assets of the enterprise' and has to be on real basis even if in present or in future, and not on contingent or hypothetical basis . . . . " "Para 32. . . . There can be a situation in which a guarantee default takes place and therefore, the enterprise may have to pay the guarantee amount but such a situation even if that be so is only ahypothetical situation . . . . . " "Para 32 . . . . . When an assessee extends an assistance to the associated enterprise which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its prof....