TaxTMI 
TaxTMI 
2022 (12) TMI 1464
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....ot confronting the Appellant with the information/material 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. T....
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.... had charged 0.3% per annum as Guarantee Commission from his AEs, in the return of income the Appellant had computed ALP at 0.35% per annum following 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 Office....
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....by the Appellant against the order of DRP for Assessment Year 2012-13 (ITA No. 1287/Mum/2017) & 2014-15 (ITA No. 6083/Mum/2018), the Tribunal accepted the ALP 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 facil....
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....e from that of Guarantee provided by the banks and, therefore, the two transactions were incomparable. In our considered opinion, similar parity of reasoning is applicable 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 m....
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.....40% p.a/0.50% p.a. In the backdrop of the aforesaid fact, we find substantial force in the claim of the ld. A.R that the aforesaid credit sanction letter too would constitute a CUP for benchmarking 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% ....
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....ssment proceedings, the Appellant filed statement giving working of expenditure disallowed under Section 14A of the Act. It was contended by the Appellant had few dedicated employees to look after its investments. The salaries and administration overheads of these employees were identifiable. 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 b....
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....rises of exempt dividend income (INR 90,47,692/-), taxable interest income (INR 4,64,16,265/-) and loss on sale of mutual funds (INR 1,546/-). On the basis of the aforesaid, the percentage of exempt income to total income from investments was computed at 16.31%. Therefore, 16.31% of total expenses 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 R....
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....mputation furnished by the Appellant. The Assessing Officer has expressed his view that the expenditure incurred by the Appellant for the purpose of earning exempt income were much greater than suo-moto disallowance of INR 6,55,409/- made by the Appellant. The reason to arrive at the aforesaid conclusion were stated to be substantial amount of new investment 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 Profi....