TaxTMI 
TaxTMI 
2023 (7) TMI 740
X X X X Extracts X X X X
X X X X Extracts X X X X
....the reasons for delay, owing to Pandemic of Covid-19 during that time. It is noted that the period of delay falls during the time of Pandemic of Covid-19 which has been excluded by the Hon'ble Supreme Court in the case of suo moto Writ Petition (C) No. 3 of 2020 dated 10.01.2022 by which the period from 15.03.2020 to 28.02.2022 has been directed to be excluded for the purpose of limitation. Vide this order a further period of 90 days has been granted for providing the limitation from 01.03.2022. Accordingly, we condone the delay and proceed to admit the appeal for hearing. 3. As the issues involved in both these appeals are identical, they were heard together and are being disposed off by way of this common order. 4. We will first take up the appeal in ITA No. 200/Kol/2023 for AY 2014-15. Ground Nos. 1 to 5 taken by the Revenue are in relation to the Ld. CIT(A)'s action of deleting the upward transfer pricing adjustment of Rs. 1,16,473/- in relation to the corporate guarantee ('CG') extended by the assessee to its foreign subsidiary, M/s Indocean Developers Pvt. Ltd., Sri Lanka ('IDPL'). 5. Brief facts of the case are that the appellant is a Special Purpose Vehicle floated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny functions performed by the assessee. On these facts, therefore, the corporate guarantee commission of 0.2% charged by the assessee out of abundant caution ought not to have been disputed by the Ld. TPO in as much as the assessee had only indulged in shareholder activity by providing the said guarantee. The undersigned had also cited a series of rulings of the co-ordinate benches of the Tribunal including the jurisdictional ITAT Kolkata that 0.5% is a reasonable benchmark for ascertaining the ALP of Corporate Guarantee. As the facts on record showed that the aggregate CG fee charged was 1.2% in relation to the SBLC issued in favour of Axis Bank Hong Kong, which was higher than 0.5%, the Ld. CIT(A) had rightly held the impugned transaction to be at arm's length and therefore deleted the transfer pricing adjustment. On the other hand, the Ld. DR vehemently argued supporting the action of the Ld. TPO. 7. We have heard rival contentions and perused the material placed before us. We note that the SCPKL had issued an SBLC in favour of IDPL from Axis Bank, Hong Kong, towards the loan of USD 2.5 Million availed by IDPL. This SBLC facility was obtained by SCKPL and the assessee was onl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....disputed fact is that this facility is secured through securities provided by SCPKL to Axis Bank. The appellant comes into the transaction because the guarantee is also provided by the appellant for the said loan. It is noteworthy, though, that the appellant has pledged any assets to the Axis Bank as a collateral for this loan. The risks in case of default, are to borne by the holding company, SCPKL, whose assets are pledged as collateral. It is also undisputed that during the impugned period, SCPKL has charged a guarantee commission of 1% from IDPL coming to Rs 87,700/-. The appellant has provided a copy of the audited financials, the balance sheet, calculation of guarantee commission and tax computation, as well the ITR acknowledgement for AY 2014-15 in the case of SCPKL, upon being asked to do so u/s 250(4) of the Act. The guarantee commission, it transpires, has been offered to tax, by SCPKL, under the head other sources as per note 2.21 of the balance sheet of SCPKL. The appellant company, since it was not assuming any risk in the form of pledging of any of its assets, has also charged a smaller guarantee commission for IDPL, @ 0.2%. The purpose of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the authority 1 Nimbus Communication Limited ALP was determined @ 0.5% against TPO's determination of 1.5% [ITA No. 3644/Mum/2010] Mumbai ITAT 0.50% 2 Godrej Household Products limited Mumbai ITAT restricted TP adjustment on guarantee commission to 0.5%, following co-ordinate bench ruling in Nimbus Communications [TS- 229- ITAT-2013(Mum)-TP] [ITA No. 7369/Mum/2010] Mumbai ITAT 0.50% 3 Godrej Sara Lee Ltd Mumbai ITAT referred to the assessee's case in AY 2006-07, wherein ITAT, following the Tribunal ruling in Nimbus Communications Ltd had directed the AO to re-compute TP adjustment by applying the rate of 0.5% for guarantee commission [ITA No. 7227/Mum/2011] Mumbai ITAT 0.50% 4 Everest Kanto Cylinder Ltd. Mumbai ITAT held that TPO was not correct in determining arm's length guarantee commission @3% based on quotes on the bank's website and considered 0.5% as ALP for guarantee commission. [2015](58 taxmann.com 254) Bombay High Court 0.50% 5 Reliance Industries Limited (dated September 13, 2013) (Mumbai Tribunal) Mumbai ITAT upheld the order of CIT(A) to charge guarantee commission at the rate of 0....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../Kol/2017) ii. Britannia Industries Limited v. DCIT (ITA No. 745/Kol/2017) [96 taxmann.com 430] iii. DCIT v. Karam Chand Thapar & Bros. Coal Sales Limited (ITA Nos. 320 & 321/Kol/2021) 10. In view of the above, and as rightly observed by the Ld. CIT(A) (supra), in the instant case, that the assessee along with SCKPL had charged 1.2% (1% by SCKPL & 0.2% by the assessee) which was comparable to the above ALP rate of 0.5%, we do not see any reason to interfere in the finding of Ld. CIT(A) deleting the impugned adjustment. Accordingly Ground Nos. 1 to 5 raised by the revenue are dismissed. 11. Ground Nos. 6 to 8 of the appeal relate to the Ld. CIT(A)'s action of deleting the transfer pricing adjustment of Rs. 2,83,84,150/- made u/s 40A(2)(b) of the Act in relation to the specified domestic transaction involving loan availed from AE, SKCPL and its director. The facts of the case, as noted, are that the appellant had availed loan from its holding company, M/s SKCPL, and its director, Shri Jaideep Halwasiya, both of which carried interest of 13.5% during the year. The assessee had benchmarked the interest rate against the prevailing SBI PLR of 14.55% and therefore ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was referred to the Transfer Pricing Officer (TPO) u/s 92CA of the Act, for determination of Arm's Length Interest in the aforesaid transactions. The TPO observed that the assessee had paid interest @ 11.5% to another party, namely M/s. Silver Cross Marketing Pvt. Ltd, and held the same to be the arm's length price (ALP). Accordingly, he suggested an adjustment. The appellant has contested this action of the AO/TPO on several grounds. The appellant has stated that the TPO disregarded the fact that cost of funds to the holding company, which advanced the loan to the appellant, itself was 12.75% and hence it could not have lent funds to the appellant @ 11.5% as contended by the AO/TPO. He has further argued that ALP in a loan transaction may be determined under the Cost Plus Method (CUP) and since the cost of funds to the lender (the holding company) itself was 12.75%, the loan transaction with SCPKL should be accepted as being at arm's length and hence no transfer pricing adjustment was warranted. He has drawn my attention, in this regard, to the sanction letter from SBI, the loan creditor of SCPKL. A perusal of the same shows that interest cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... A perusal of the same shows that interest rates in the given year were around 14.55% (Page 20, PLR) Thus, interest paid @ 13.5% to SCKPCL and to 13.5% to Shri Halwasiya was clearly at arm's length and does not warrant any TP Adjustment. I also find that the appellant, during the year, has charged an interest of 16% p.a. from its wholly owned subsidiary Indocean Developers Pvt. Ltd. This rate has not been disputed by the AO/TPO. It is found that a sum of Rs. 24,88,28,562/- has been offered to tax as interest received from its subsidiary in its return (computation enclosed) and has been duly accepted by the AO. Now, if interest received @ 16% from its subsidiary has been accepted as an reasonable ALP, then I cannot understand how, in the same order, the TPO/AO can be permitted to adopt a different Arm's length interest rate for the purposes of interest paid to its holding company. Coming to the interest paid @ 11.5% to M/s. Silver Cross Marketing Pvt. Ltd. (Silver Cross) treated as ALP by the TPO it is pointed out by the appellant that the said loan transaction pertains to a smaller principal of Rs. 9.5 crores (ledger enclosed) and hence the same does not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that an identical issue was involved in the assessee's own case for the immediately preceding AY 2013-14 in ITA No.55/Kol/2018 dated 04.10.2019. In the earlier year also, a similar transfer pricing adjustment was made by the Ld. TPO by benchmarking the interest rate paid to AEs against the interest rate paid to M/s Silver Cross Marketing Private Limited. This Tribunal however noted that the AE, SKCPL had borrowed funds from SBI which was in turn advanced to the assessee. Upholding the application of the cost plus method, this Tribunal held that when the interest rate charged by SBI from SKCPL was 12.05%, the interest of 12.5% charged by the latter from the assessee was at arm's length. In the said order, this Tribunal found the benchmarking exercise undertaken by the Ld. TPO to be untenable by observing as under:- "10. Coming to the comparable, i.e M/s Silver Cross Marketing Pvt. Ltd, the assessee availed loan from Silver Cross Marketing Pvt. Ltd. in earlier years and the rate of interest @ 9.5% was fixed in the year itself. we find the loan was Rs. 9.5 crores which according to assessee is small as compared to loan in the present appeal is of Rs. 115 crores, interest rate....