TaxTMI 
TaxTMI 
2022 (12) TMI 420
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;ble DRP, erred in making the transfer pricing adjustment of Rs 7,96,36,154, by re-computing the arm's length price (ALP) of the international transaction undertaken by Australia and New Zealand Banking Group Limited, Mumbai Branch (ANZ Mumbai) relating to processing fees received on account of guarantees issued by ANZ Mumbai to Indian beneficiaries (based on the corresponding back to back guarantee provided by the overseas associated enterprises (AE's)). Ground 2: Rejecting the Transactional Net Margin Method (TNMM) used by the Appellant and adopting External Comparable Uncontrolled Price (COP) method as the most appropriate method That on the facts and in the circumstances of the case and in law, the learned AO. based on the directions of the Hon'ble DRP, erred in determining the arm's length price of the international transaction undertaken by ANZ Mumbai relating to processing fees received on account of guarantees issued by ANZ Mumbai to Indian beneficiaries (based on the back to back guarantee provided by the overseas AEs) on account of the following: a) In rejecting the TNMM used by the Appellant without appreciating that the Appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Erroneous computation of total tax payable Without prejudice to the above grounds, the learned AO erred in computing the total tax liability of the Appellant. Ground 5: Erroneous computation of surcharge and education cess on the income taxable under the provisions of IA treaty The learned AO erred in levying surcharge and education cess on the income of the Appellant taxable under the provisions of IA treaty. Ground 6: Non-grant of taxes deducted at source The learned AO has erred in not granting the full credit for tax deducted at source under the provisions of Income-tax Act, 1961. Ground 7: Erroneous computation of interest under section 234B and 234C of the Act The learned AO erred in computing consequential interest under section 2348 of the Act as well as consequential interest under section 234C of the Act. Each of the grounds of appeal is referred to separately, and may kindly be considered independent of each other." 3. The only grievance of the assessee in the present appeal is against transfer pricing adjustment relating to processing fees received on account of guarantees issued to Indian benef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee selected 6 companies as comparable with single year updated margin of -3.78%. As the assessee computed its own margin at 894.70% over the operating costs incurred by it, accordingly, it claimed that the international transaction of receipt of processing fees is at arm's length price ('ALP'). 6. The Transfer Pricing Officer ('TPO') vide order dated 28/10/2016 passed under section 92CA(3) of the Act applied Comparable Uncontrolled Price ('CUP') as the most appropriate method for benchmarking the impugned international transaction. The TPO also collected information under section 133(6) from various banking companies in respect of commission received by them for guarantees issued to 3rd parties against counter guarantee issued by a foreign bank. Accordingly, the TPO came to the conclusion that Indian branch should have charged 1% as the guarantee fee of the guaranteed amount. Thus, an adjustment of Rs. 7,96,36,154 was proposed by the TPO. In conformity, the Assessing Officer, inter-alia, passed the draft assessment order under section 143(3) with section 144C(1) of the Act. 7. The learned Dispute Resolution Panel ('DRP'), vide direction dated 18/04/2017 issued under sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the entire risk of discharging the bank guarantees is borne by overseas ANZ branch issuing the counter guarantee. The assessee merely provides support service in connection with processing of the guarantees, typing out the guarantee agreement based on swift message received and issuing the said agreement to the beneficiary. The aforesaid functions performed by the assessee are not disputed by the lower authorities. When assessee is fully protected by overseas counter guarantee, we are unable to comprehend ourselves as to how CUP method could be applied therein as it would be impossible to make adjustment for the differences as per Rule 10B(1)(a) of the Income Tax Rules. In effect, we find that assessee is merely providing secretarial services or which can be loosely called as carrying out administrative functions. It is not in dispute that the assessee does not bear any risk in its books as it is fully protected by overseas counter guarantee / indemnity. In fact even assessee would not have to face the foreign exchange risk in view of the fact that whenever assessee is called upon to discharge the guarantee on behalf of the overseas branches, the assessee would first receive the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ork advising the assessee to issue guarantee to Indian beneficiaries like Reliance Infrastructure Ltd., and providing counter guarantee. 3.8. The assessee also placed on record the copy of the swift message from assessee to ANZ New York confirming that guarantee has been issued to Reliance Infrastructure Ltd., confirming that guarantee has been issued by ANZ Mumbai. By all these documents, the ld. AR was vociferous in driving home the point that the entire risk of discharging the bank guarantees is borne by the overseas ANZ branch issuing the counter guarantees wherein the assessee merely provides support services in connection with processing of the guarantees. The ld. AR also referred to page 380 of the paper book containing various swift messages received. The assessee also placed on record the reply letter dated 18/12/2015 filed before the ld. TPO in response to show-cause notice as to why 1% guarantee fee charged by third party Indian banks should not be considered as the arm's length price, placed reliance on the decision of the Mumbai Tribunal in the case of Asian Paints Ltd., vs. ACIT in ITA Nos. 2126 & 2178/Mum/2012 wherein specifically in the context of guarantee....