TaxTMI 
TaxTMI 
2019 (10) TMI 831
X X X X Extracts X X X X
X X X X Extracts X X X X
....t, 1961 (hereinafter referred to as Act) dated 18/01/2017 by the ld. Assistant Commissioner of Income Tax (Large Taxpayer Unit) -2, Mumbai (hereinafter referred to as ld. AO). 2. The ground No.1-3 raised by the assessee is with regard to the action of the ld. CIT(A) in deleting the adjustment made on account of corporate guarantee given by the assessee on behalf of its AE by accepting 1% guarantee fee charged by the assessee to be at arm's length. 3. The brief facts of this issue are that the company is engaged in the business of manufacturing and marketing of pharmaceuticals formulation and active pharmaceuticals ingredients and carrying out research and development activities. Glenmark Pharmaceuticals Limited (GPL), the holding comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....A. 2. Country of the borrower AE Switzerland Switzerland 3. Bank name and country Standard Chartered Bank, London Societe Generale, Paris 4. Interest rate at which loan was taken by the AE Euribor+ 385 bps Euribor+395bps 5. Amount of guarantee USD 52 mn USD 42mn 6. Guarantor (s) Glenmark Generic Limited, India Glenmark Generic Limited, India 7. Loan Type: Bilateral Term Loan (the "Facility") Bilateral Term Loan (the "Facility") 8. Security: Unsecured Unsecured 9. Tenor 4 Years 3-5 years 10. Guarantee Fee 1% 1% 11. Interest Reset Basis: (Fixed/Floating) Floating Floating 3.4. GGL has provided additional guaran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stimated. This rate is compared to the rate at which the borrower would obtain the funds on the same date with the same terms, but with a parental credit guarantee. Under this approach, the difference between these two rates represent an arm's length credit guarantee fee, as this is both a quantification of the benefit that the guaranteed entity receives from the guarantee and the incremental risk that the guarantor incurs in providing the guarantee. * Used Deal Scan & Bloomberg to identify comparables. The Deal Scan did not yield sufficient number of comparables. Hence we had to proceed with bonds search from Bloomberg. * The process by which a range of arm's length credit guarantee fee was estimated for the inter-company ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er adjustment (bps) Average 288.89 Lower Quartile 200.00 Median 225.00 Upper Quartile 400.00 3.7. Since the average of the credit spread of the comparable above (i.e. 288.89 bps) is less than the margin of 385/395 bps paid by the borrower (GGFSA), a guarantee fee need not be charged by the guarantor. The assessee pleaded that this provides evidence that both the pricing basis itself of international transactions of GGL with regard to receipt of Guarantee Commission Fees and the outcome of the pricing i.e. the profitability, support our view that the international transactions of GGL were in accordance with the "Arm's Length" standard required under the Indian Regulations. 3.8. The ld. TPO called for informa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... pleaded that the Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd., supra had upheld the guarantee commission rate at 0.5% to be at arm's length whereas the assessee in the instant case had charged 1% which is more than the rate fixed by the Hon'ble Bombay High Court. Accordingly, it was pleaded that assessee's rate at 1% should be considered to be at arm's length. 3.12. The assessee further pleaded that the ld. CIT(A) in A.Yrs. 2010-11, 2011-12 and 2012-13 had accepted guarantee commission rate at 0.5% in respect of guarantees given to AE. The ld. CIT(A) accepted the contentions of the assessee by observing as under:- "I am of view that TPO cannot blindly reject the benchmarking of the appellant without fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Paints Ltd. 2005-06 0.25% to 0.35% Citi Bank Page. No. 17 of order. HSBC Page No. 19 of order 3. M/s Everest Kento Cylinder Ltd v. DCIT 2007-08 0.6% ICIC Bank- Page NO 21 of the order 4. Asst. CIT v. M/s Nimbus Communication Ltd 2005-06 0.5% M/s Everest Kento has been taken as an external comparable- Page No. 10 of order 5. Asst CIT v. M/s Nimbus Communication Ltd 2006-07 & 2007-08 0.5% Based on rate approved in appellant's own case for A.Y 2005-06 Average Rate 0.446% In view of above reasons, I hold ALP of the corporate guarantee commission @ 0.50% p.a. However, since the appellant has already charged 1% Guarantee commission, no adjustme....