2019 (11) TMI 357

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....al income was determined at Rs. 1,92,66,830/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dated 31.11.2014 (in appeal No.CIT(A)-15/Curr.172/14-15) granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : "1.1 The learned CIT(A) erred in confirming the Transfer Pricing adjustment of Rs. 1,20,23,900/- made by the learned Assessing Officer in respect of corporate guarantee given by the appellant company to the banks for the purpose of loans given by them to the Appellant Company's AE. 1.2 The learned CIT(A) erred in not appreciating that giving of corporate guarantee as a collateral security does not fall within the definition of International Transaction as defined in section 92B( 1) of the Income Tax Act, 1961 as the said transaction has no bearing on profits, income, losses or assets of the appellant company. 1.3. The learned CIT(A) erred in not appreciating that - • The corporate guarantee was a collateral security • The banks had specifically provided that no guarantee commission sha....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... Associated Enterprise (A.E.) M/s. Ganesh Shipping Inc. Panama, a foreign company, subsidiary of the assessee. The assessee was asked to show cause as to why in computing Arms Length Price (ALP) of the international transactions in respect of corporate guarantee commission necessary Transfer Pricing Adjustments not be made. In response to the query of the AO, assessee made the submissions which were not found acceptable to the AO. AO noted that M/s. Ganesh Shipping Inc. Panama was 100% subsidiary of assessee and the assessee company jointly with B.G. Shrike Construction Technology Pvt. Ltd., had given guarantee on behalf of M/s. Ganesh Shipping Inc. Panama towards facilitation of loans for acquisition of vessels. AO noted that assessee has not recovered any amount towards guarantee fee from it. AO noted that the Corporate Guarantee Agreement was jointly signed by the assessee and M/s. B.G. Shirke Construction Technology Pvt. Ltd., in favour of Bank of Baroda. As per the agreement, the nature of guarantee furnished was irrevocable and unconditional. AO was of the view that irrevocable and unconditional guarantee furnished to the Bank carries a high level of risk and the transaction ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....on of the applicable rules and regulations and in such a situation, the AO was not justified in making addition of the guarantee commission. He further submitted that B.G. Shrike Construction Technology Pvt. Ltd., had also given the guarantee jointly to M/s. Ganesh Shipping Inc. Panama but no addition on account of corporate guarantee commission was made in the hands of assessee though the transaction arose from the same guarantee given. Without prejudice to the contention of the assessee that no addition be made, Ld.A.R. submitted that the rate of guarantee commission of 1.5% considered by the AO is too high. He submitted that Hon'ble Bombay High Court in the case of CIT Vs. Everest Kanto Cylinder Ltd., Vs. DCIT reported in 378 ITR 57 has held the addition on account of guarantee commission be made at 0.5%. He further submitted that in the case of Everest Kanto Cylinder Ltd., (supra), there was no stipulation or condition by the Bank for not charging commission. He therefore submitted that no addition is called for in the present case. Ld. D.R. on the other hand supported the order of AO and Ld.CIT(A). 5. We have heard the rival submissions and perused the material on record. T....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....er-alia submitted that assessee had availed loans for purchase of vessels and had paid interest of Rs. 6.42 crore during the year. As per the sanction condition of loan, assessee was required to maintain the minimum balance of 0.186 mln USD throughout the tenure of loan in DSRA account and it could not be utilized for re-payment of outstanding balances. It was submitted that assessee had earned Rs. 6,12,860/- on DSRA account and assessee as per the prevailing accounting standards has shown interest income separately and had not netted off interest payment against the interest expenditure. It was further submitted that no addition of similar interest earned by the assessee was made in A.Y. 2008-09 and 2009-10. The submissions of the assessee were not found acceptable to the AO. AO also noted that assessee also earned interest on income tax refund of Rs. 4,64,641/- AO considered the aggregate amount of Rs. 10,77,501/- as normal income. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who upheld the order of AO by observing as under : "The submissions of-the appellant are summarized as under.- i. Appellant submitted that, the interest is ea....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....er 227 ITR 172 and Pandian Chemicals 183 CTR 99. Further no netting of interest can be allowed since the interest income is to be taxed under the head "income from other sources" while interest paid is admittedly a business expenditure. Accordingly this contention of the appellant is not acceptable. ii. No submissions have been made with reference to the interest on income tax refund of Rs. 4,64,641. Accordingly the same is held to be business income and has rightly been taxed by the assessing officer as such. iii. This ground of appeal is therefore dismissed." 7. Before us, Ld.A.R. reiterated the submissions made before lower authorities and with respect to the interest earned from Bank, submitted that the interest received was not in the nature of business income and should be netted off against the income paid for the loan and since the interest paid is higher than the interest earned then there is no income earned by the assessee and therefore the amount cannot be taxed. He further submitted that assessee has opted for special provision relating to income of shipping companies under Chapter XIIG of the Income Tax Act. He submitted that as per the provisions....