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2021 (5) TMI 816
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....,525/- and computed its tax liability thereon. Subsequently, the assessee filed a revised return of income on 30-03-2013 declaring total income under normal provisions at Rs. 113,00,88,168/- after claiming set off of brought forward losses and the same book profits u/s 115 JB of the Act. The assessee is engaged in the business of design, fabrication, galvanizing and testing of transmission lines and telecom towers, all types of masts, erection of complete transmission lines and telecom towers, supply and erection of sub-station structures and overhead equipment for Railways electrification and managing infrastructure sites for telecommunication services. 3. The 1st, 2nd and 3rd grounds of appeal relate to disallowance of Rs. 18,12,94,916/- made by the Assessing Officer (AO) on depreciation claimed on assets of transmission business. Pursuant to a composite scheme of arrangement between the assessee and other companies, which was sanctioned by the Hon'ble Bombay High Court on 27.09.2006, the entire moveable and immoveable assets and liabilities of the power transaction business of KEC Infrastructure were acquired by the assessee. The assessee got these revalued and started cla....
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....se (c) to Expln1 of Section 115JB (2), the AO also added Rs. 5,33,16,399/- while arriving at Book profits under MAT provisions. 8. In appeal, the Ld. CIT (A) followed the order of the Tribunal in assessee's own case for AY 2009-10 and allowed the appeal filed by the assessee. 9. Before us, the Ld. DR reliance of the order of the AO, whereas the Ld. counsel relies on the order of the Tribunal in assessee's own case for the immediate preceding assessment year 2010-11. 10. We have heard the rival submissions and perused the relevant material available on record. The Tribunal in assessee's own case for AY 2010-11 (para 12.1 and 12.5) has followed the order of the Co-ordinate Bench for earlier years and dismissed the appeal filed by the Revenue. Facts being identical, we follow the above order of the Co-ordinate Bench and dismiss the 4th and 5th ground of appeal. 11. The 6th, 7th & 8th ground of appeal relate to performance guarantee. During the year under consideration, the assessee has provided performance guarantees for its AEs. However, these were not considered as international transactions in Form 3CEB. However, the assessee filed details of such guarantee in the tr....
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....he following : "5. We have heard the rival submissions. At the outset, we find that the assessee had only given performance guarantee in favour of Bahwan Engineering Company LLC on behalf of its AE nearly to indemnify the losses, claims, damages,if any,that may arise pursuant to non-performance of duties and obligations by the AE in execution of the contract allotted to them. Admittedly, the assessee has not charged any commission from its AE for issuance of this performance guarantee. We find that assessee had also parallelly entered into another agreement with its AE wherein in the event of AE failing in execution of the contract and the performance guarantee issued by the assessee gets invoked by Bahwan Engineering Company LLC, then the contract which is awarded to the AE gets assigned in favour of the assessee, wherein the assessee would be obligated to execute the contract on its own by using its own infrastructure, which would in turn result in assessee deriving the entire contractual revenue and huge profits there from. In these circumstances, there is absolutely no risk involved for the assessee in issuing the performance guarantee on behalf of its AE, warranting c....
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....Addl. CIT [TS-76-ITAT-2014(Del)- TP)] and Videocon Industries Ltd. v. ACIT [TS-37-ITAT-2015 (Mum)-TP], the Ld. CIT(A) held that if the transaction of issuance of guarantee does not involve any cost, then there would not be any income chargeable to tax and also it will have no bearing on profits, losses, incomes and assets of the assessee and in such a case, transaction of issuance of guarantee is out of the ambit of international transaction u/s 92B(1) of the Act. 17. Before us, the Ld. DR relies on the order of the AO, whereas the Ld. counsel relies on the order of the ITAT in assessee's own case for AY 2010-11 and supports the order passed by the Ld. CIT(A). 18. Similar issue arose before the Tribunal in assessee's own case for AY 2010-11. We find that the Tribunal has held at para 8 the following : "8. We have heard rival submissions. The primary facts stated hereinabove remain undisputed and hence, the same are not reiterated for the sake of brevity. We find that the ld. CIT(A) had rightly appreciated the contentions of the assessee which are stated hereinabove and the same are not reproduced hereunder for the sake of brevity. It is well known in the financial ma....
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....essee's own case, the assessee-company had given advance payment guarantee to CCWE on behalf of AE of the assessee for a total amount of Euro 20,06,252 (Rs. 12,14,73,944/-). This guarantee was required by CCWE, who had given contract to the AE, before giving any advance to the AE. In effect, this bank guarantee was issued to CCWE for securing the advance payment from CCWE by the AE. It was the contentions of the assessee before the TPO that bank had charged 0.93% as the guarantee commission and there was no formal guarantee agreement entered in this regard ; that the credit rating issued by CARE is A+ and credit rating of the AE was not done; no benchmarking was done by the assessee as executing guarantee in favour of a bank on behalf of the AE was not an international transaction. Also the assessee explained to the TPO that the corporate bond rates for United Arab Emirates (UAE) were not available; however, the rate of interest on borrowings made in the country in which the AE is situated is quite low in comparison with bond rate prevailing in India; therefore, Indian Corporate Bond Rates should not be applied for benchmarking ; the bank had charged the assessee 0.93% for issui....
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.... had given advances to AE. The details of the guarantee are as under : Guarantee Borrowing done by Provided to whom Purpose Amount in Rs. Corporate guarantee provided as collateral security KEC US LLC and KEC Transmission LLC, USA Global ICICI Bank (lead Arranger) Corporate Guarantee for Facility taken Facility A : USD 61.2 Million Facility B : 40.8 Million Rs. 5394180000 The AO computed the ALP of the international transactions entered into by the assessee (providing financial facility in the form of corporate guarantee to its AEs) as under : The CUP rate for guarantee fee is arrived at as below: Credit rating of Guarantor (i.e. the taxpayer) 'A+' Yield or interest rate for 5 year unsecured bond 9.45% Credit rating of AE (as discussed above) 'BBB' Yield or interest rate for 5 year unsecured bond 11.22% p.a. Benefit to AE on account of Guarantee given by the taxpayer 1.77% Particulars Amount Outstanding Guarantee Amount in foreign currency $ 121 millions Equaling to Rs. 5394180000 Borrowing of KEC US LLC, USA outstanding loan $61200000 Borrowing of KEC Tr....
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....led by AEs do form part of international transaction as per section 92B of the Act. The Ld. DR has referred to and relied upon the judgment of the Hon'ble Bombay High Court in Everest Kento Cylinders Ltd. (supra), which is referred to and relied upon before the Hon'ble Jurisdictional High Court in CIT v. Glenmark Pharmaceuticals Ltd(2017) 85taxmann.com 344 (Bom.). It is to this relevant case that we turn below. In Glenmark Pharmaceuticals Ltd v. Addl. CIT (2014) 43 taxmann.com 191 (Mum-Trib.), the relevant assessment year was 2008-09. The assessee stood guarantor for two loans besides having provided a guarantee on the letter of credit facilities granted to its AE. The assessee had charged a guarantee fee of 0.53 per cent of the guaranteed amount from its AE. The TPO holding that the assessee had failed to discharge its primary onus of benchmarking the transactions, adopted the Comparable Uncontrolled Price (CUP) for determining the arm's length price of the transactions relating to guarantee commission price charged to the AEs. He considered four comparables, which charged its customers a guarantee fee at the rate of 3 per cent per annum. Accordingly, certain adjustment ....
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....of borrowing. The TPO came to the conclusion that the banks and companies are charging at least 3% for providing guarantees and therefore, the benchmark ALP of the guarantee given by the assessee to ICICI for the benefit of the AE at 3% of the amount of guarantee. In this manner, he arrived at an amount of Rs. 34,99,003/- as guarantee commission and made adjustment of Rs. 28,50,353/-, since the amount of Rs. 6,48,650/- (equivalent to 0.5%) had already been provided for. In appeal, the Ld. CIT(A) held that the return of 3% arrived at by the TPO is justified. In further appeal by the assessee, the Tribunal deleted the adjustment of Rs. 28,50,253/- made by the TPO/AO. In appeal filed by the Revenue, the Hon'ble Bombay High Court held that : "The Tribunal as the second fact finding authority had gone into factual aspects in great detail and therefore having interpreted the law as it stood on the relevant date the order passed cannot be faulted. In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contrac....
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....of infusing equity capital into the SPV, the transactions would not give rise to any taxable event. The assessee also placed reliance on the decision of Hon'ble Apex Court in S.A. Builders (238 ITR1) to justify non-charging of fees / commission. 7.6 However, Ld. TPO, noticing the amendment made by Finance Act 2012 in Sec.92B, concluded that international transactions would include capital financing by way of guarantees which were to be benchmarked on the principle of Arm's Length Price (ALP). The Ld. TPO also reached a conclusion that that on simple comparison of the risk borne in corporate guarantee would be more than risk borne in bank guarantee since the risk in the case of default would not be covered by any asset of the entity guaranteed. The ratio of various decisions rendered by the Tribunal including the decision rendered in Everest Kanto (ITA No. 542/Mum/2012 23/11/2012) and Glenmark Pharmaceuticals (ITA No.5031/Mum/2012 13/11/2013) was considered. These decisions have already been tabulated and summarized on page nos. 19 to 21 of Ld. TPO's order. The Ld. TPO noticed that in the stated decisions, the Tribunal relied upon internal CUP and held that the commission p....
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....w our attention to the amendment brought in by Finance Act, 2012 w.e.f. 0/04/2002 in Explanation (i)(c) to Sec. 92B, to submit that the capital financing by way of guarantees have specifically been included within the ambit of international transactions. 7.9 Au Contraire, Ld. AR, by way of written as well as oral submissions, pleaded that the transactions would not fall within the definition of international transaction as defined in Sec. 92B since the guarantee was provided by assessee to its subsidiary AEs so that AEs could avail loan for the purpose of acquiring the business. It was pleaded that guarantees issued by assessee would have no bearing on profits / losses of the assessee since there was no cost involved and no guarantee commission has been paid by the assessee. The aforesaid amended explanation would have no application in terms of decision of Delhi Tribunal in Bharti Airtel Ltd. (43 Taxmann.com 150) wherein it has been held that even after the amendment to explanation to Sec.92B, corporate guarantee given for the benefit of AE having no cost to the assessee would be outside the ambit of international transactions. Another plea raised by Ld.AR is tha....
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.... further interest also. Therefore, it is quite discernible that the assessee had definite obligation under the corporate guarantee and to say that that the same shall have no bearing on profits, incomes, losses or assets of the assessee would not be a correct proposition. Even as per assessee's own submissions, if the said guarantee was not provided, the assessee would have been obligated to infuse equity capital in its wholly owned SPV AEs with a view to enable downstream acquisition of SAE Towers Ltd. USA which would have entailed assessee's resources. This is further fortified by the fact that fact that guarantees have specifically been brought within the ambit of term international transactions by way of amendment to explanation (i)(c) to Sec.92B by Finance Act, 2012 w.e.f. 01/04/2002. Therefore, the arguments that the said transactions could not be considered to be international transaction do not convince us and therefore, we hold that the same was to be benchmarked on ALP principles. The aforesaid reasoning / conclusion would also make the cited case laws of Ld. AR inapplicable to the facts of the present case. 7.11 Coming to the benchmarking rate of 2% as adopted b....