TaxTMI 
TaxTMI 
2022 (12) TMI 1464
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.... collated by him under section 133(6) of the Income-tax Act and upon which he has relied upon to make an adjustment in respect of financial guarantee commission. 3. The Assessing Officer (AO)/Transfer Pricing Officer (TPO) /Dispute Resolution Panel (DRP) erred in holding that the transaction of giving financial guarantee by the Appellant on behalf of its Associated Enterprises (AEs) was an "international transaction" under Section 92B of the Act. 4. The AO/ TPO / DRP erred in determining the Arm's Length Price of the financial guarantees given by the Appellant on behalf of its AES @ 1.25% per annum. 5. The AO/TPO/ DRP erred in making a transfer pricing adjustment of Rs. 9,43,88,840/- on account of guarantee commission. 6. The AO/TPO / DRP failed to appreciate that giving of financial guarantees by the Appellant on behalf of its subsidiaries was a shareholder activity for which no charge is required. 7. The AO/TPO/ DRP erred in rejecting the internal CUP method and arm's length price of 0.35% p.a. adopted by the Appellant for benchmarking guarantee commission. 8. The Assessing Officer/TPO/DRP failed to appreciate that the internal CUP method has been consistently....
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....ollowing internal CUP being average rate of guarantee commission paid by the Appellant to the banks, i.e. ICICI Bank, Kotak Mahindra Bank, & Yes Bank, for giving guarantee to third parties (such as ONGC, BG Exploration, Gujarat State Petroleum Corporation Ltd., Reliance Industries, & Schlumberger Asia Services Ltd. etc.) on behalf of the Appellant. Thus, making suo-moto transfer pricing adjustment of INR 41,55,262/- on account of Guarantee Commission. However, the TPO, taking note of the fact that in the transfer pricing orders for earlier assessment years external CUP was used for determining the ALP, adopted a rate of 1.25% per annum as ALP for guarantee commission, and proposed upwards transfer pricing adjustment of INR 9,43,88,840/- vide order dated 28.01.2021 was passed by the TPO under Section 92CA(3) of the Act. 6. On 19.04.2021, the Assessing Officer passed Draft Assessment Order under Section 143(3) read with Section 144C(1) of the Act proposing aforesaid transfer pricing adjustment of INR 9,43,88,840/-Further, the Assessing Officer also proposed a disallowance of INR 10,67,893/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 in addition to t....
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.... for corporate guarantee determined by the Appellant and deleted the transfer pricing addition. The relevant extract of the decision of the Tribunal for read as under: "9. We have heard.....................................................In fact, involving identical facts the Tribunal in the assessee's own case for A.Y 2008-09, ITA No. 7673/Mum/2012 and A.Y 2009-10, ITA No. 1703/Mum/2014, vide a consolidated order dated 21.06.2019 had approved the determination of ALP of corporate guarantee provided by the assessee to a foreign bank for facilitating raising of loans by its foreign AE on the basis of the Internal CUP i.e guarantee commission that was paid by the assessee to a bank for standing guarantee on its behalf for a third party. Further, the Tribunal after drawing support from the order of the Hon'ble High Court of Bombay in the case of CIT Vs. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom), had approved the determination of ALP of the corporate guarantee given by the assessee to the bank in order to facilitate raising of loan by its AE i.e on the basis of the aforesaid Internal CUP applied by the assessee. In its aforesaid order the Tribunal had observed as under: ....
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....in the present case too because the considerations which weigh for raising of bonds, that too in Indian market, are quite distinct and incomparable with the instance of providing of Corporate Guarantee to a bank abroad in connection with raising of loan from such bank by the AE of assessee outside India. Therefore, in our considered opinion, the exercise carried out by the TPO to arrive at the impugned arm's length rate suffers from an inherent misconception as the benchmarking has been done between two incomparable situations. Therefore, we are unable to uphold the stand of the income-tax authorities. 18. Insofar as the adequacy of 0.55% rate charged by the assessee is concerned, we find enough reasonableness in the same. In this context, the learned representative for the assessee referred to various decisions of the Tribunal, viz. Hindalco Industries Ltd. (supra), Thomas Cook (India) Ltd. (supra) and Godrej Consumer Products Ltd. (supra), wherein the arm' length rate of 0.5% has been approved in the matter of benchmarking Guarantee commission fee chargeable from AE. Thus, considering the entirety of the facts and circumstances of the case, in our view, Corporate Guarantee fee ....
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....rking the transaction of providing of corporate guarantee by the assessee to the banks for facilitating raising of loans by its AEs. Be that as it may, the adequacy of the ALP of corporate guarantee fee at 0.43% can also safely be gathered by drawing support from the following judicial pronouncements as had been relied upon by the assessee before the lower authorities as well as before us : Particulars Guarantee Commission rate 1 Everest Kento Cylinder Ltd. Vs. ACIT (2012) 34 CCH 0528 (Mum) [Note : Order of Tribunal upheld by the Hon'ble High Court of Bombay : CIT Vs. Everest Kento Cylinder Ltd. Vs. CIT (2015) 378 ITR 57 (Bom). 0.5 2 Reliance Industries Ltd. Vs. Addl. CIT (ITA No. 4475/Mum/2007) 0.38% 0.38% 0.38% 3 Asian Paints Ltd. Vs. Addl. CIT (2014) 149 ITD 511 (Mumbai) 0.20% .20% 4 Aditya Birla Minacs Worldwide Ltd. Vs. JCIT (2016) 47 CCH 760 (Mum) .5% 5 Godrej Household Products Ltd. Vs. Addl. CIT 41 taxmann.com 386 (Mum) .5% 6 Nimbus Communications Limited Vs. Addl. CIT (2014) 149 ITD 0508 (Mumbai) .5% 7 Hindalco Industries Ltd. Vs. Addl. CIT (62 taxmann.com 181)(Mum) .5% 8 Manugraph India Ltd. Vs. DCIT (2015) 43 CCH 348 (Mum) .5% 9 Prolif....
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....fiable. The Appellant had disallowed pro-rata expenses pertaining to these employees on the basis of taxable and exempt income earned from investments. However, the Assessing Officer discarded the computation furnished by the Appellant and proceeded to compute the disallowance under Section 14A by applying rule 8D to arrive at total disallowance under Section 14A of INR 17,23,302/-. Since the Appellant had already disallowed INR 6,55,409/- the Assessing Officer made a disallowance of balance amount of INR 10,67,893/- under Section 14A of the Act read with Rule 8D of the Rules. The objection filed by the Appellant before DRP on this issue were dismissed. Being aggrieved, the Appellant is now in appeal before us. 17. Ld. Authorised Representative for the Appellant appearing before us submitted that identical disallowances made by the Assessing Officer in preceding assessment years have been deleted by the Tribunal. The Ld. Authorised Representative for the Appellant relied upon the written submission filed before the DRP (placed at Page 1-23 of the factual paper-book @ 13-14), and letter dated 13.02.2021 filed during the assessment proceedings (placed at page No. 75 to 87 of the pap....
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....penses allocated to treasury function which came to INR 6,55,409/- [40,17,661/- x 16.31%]. Thus, the Appellant had arrived at the amount of disallowance of INR 6,55,409/- which was disallowed suo-moto by the Appellant. All relevant information and details were provided to the Assessing Officer. 20. However, the Assessing Officer had rejected the computation/statements furnished by the Appellant. The satisfaction recorded by the Assessing Officer in paragraph 5.3.3 of the Final Assessment Order read as under: "5.3.3 Recording of satisfaction The AO is satisfied that the assessee has incurred more expenditure on account of maintaining/acquiring/selling investments then already disallowed by assessee, due to the following reasons - It is seen that there is substantial amount of new investment in mutual funds to the tune of Rs 221 crores and ale of same to the tune of Rs 238 crores made during FY 2017-18. This investment had led company to earn exempt income of Rs 90.47.692as dividend on Mutual Funds. It follows that such huge investment and trading decisions are not taken casually in any business. It entails research, deliberations, large funds and engagement of personnel at va....
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....t in Mutual Fund and incurring of various expenditure (such managerial remuneration, salary bonus & allowances, employee benefit expenses, interest expenses, travelling and communication expenses) which should also have been apportioned towards earning of the exempt income. The reasoning given by the Assessing Officer is based upon presumption as the Assessing Officer has failed to point out any infirmity in the computation furnished by the Appellant. The Assessing Officer has incorrectly stated that the Appellant had disallowed certain percentage of employees cost and other expenses without giving details. We note that all the details were furnished by the Appellant vide letter dated 13.02.2021 and 10.04.2021. The letter dated 13.02.2021 was accompanied by computation calculation of disallowance, and statement of segmental Profit & Loss Account. Vide letter dated 10.04.2021 (placed at page 101 to 111 of the paper-book) the Appellant had also provided statement giving details of allocation of salary and common administration over head expenses of dedicated employees. It was explained by the Appellant that the investments were in the nature of temporary investment wherein surplus fu....