TaxTMI 
TaxTMI 
2023 (12) TMI 1312
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....eved in ITA No.1852/Mum/2022, has raised following three grounds of appeal:- "Ground No. 1 i. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming adjustment on account of computation of arm's length price of the corporate guarantee [email protected]% (Rs.127.46 lakh) which ought to be earned by the appellant for guarantee given on loans taken by Associated Enterprises (AE). ii. The learned CIT(A) erred in not appreciating corporate Guarantee by the appellant for its AE is not an "International Transaction "as per Provision of Income Tax Act, 1961. iii. The learned CIT (A) erred in not appreciating that transaction of Corporate Guarantee for loans taken by its associated enterprise has no bearing on the profit, income, loss or assets of the Appellant therefore same is not international transaction under section 92B of the Act. It does not come within ambit of section 92B of the Act as no income arises from the said transaction. Ground No. 2. On the facts and circumstance of the case the learned CIT(A) erred in confirming disallowance /addition of Rs.93,145 made by AO under se....
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....), without realizing the fact that the transfer pricing study is highly facts-based and it differs from case to case and that all the factors in Rule 10B have to be considered for every case and every year independently and that a rate decided in a different case for different set of facts and for different year cannot be adopted as such to the instant assessee, which would be violative of the specific provisions in Rule 10B?" (iii) Whether on the facts and circumstances of the case, the Hon'ble CIT(A) is right in holding that the fee for the guarantee issued by the instant assessee for the loans availed by KEC US LLC & KEC Transmission LLC from banks should be estimated at 0.20% placing reliance upon the decision in assessee's own case by Hon'ble ITAT for AY 2012-13, which relied on Everest Kanto case [58 Taxmann.com 254], without realizing the fact that there was an independent sanction letter of credit arrangement with ICICI Bank, wherein under a guarantee scheme commission of 0.6% per annum was paid by Everest Kanto and so the rate of 0.5% was adopted for corporate guarantee, whereas there are no such facts in the instant case? (iv) Whether on the ....
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....cing Officer) on 28th July, 2016. After discussion, the learned Transfer Pricing Officer made three adjustments to the Arm's Length Price of the international transaction and proposes a total adjustment of Rs.28,62,73,044/-, by order under Section 92CA(3) of the Act on 30th October, 2017. 07. The learned Assessing Officer incorporated the above Arm's Length Price adjustment in the assessment order. As the learned Transfer Pricing Officer in his order mentioned that assessee has entered into international transaction of performance guarantee, corporate guarantee and interest on advances given to its Associated Enterprises and the penalty may be initiated under Section 271G of the Act. 08. During the course of assessment proceedings, the learned Assessing Officer noted that assessee has claimed an amount of Rs.19,14,56,000/- on account of exchange loss and the learned Assessing Officer asked the assessee that why same should not be disallowed. Assessee submitted that this exchange loss is in respect of forward contracts on Mark to Market basis and same is neither contingent nor merely a provision and therefore, it should be allowed. The learned Assessing Officer noted t....
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....lobal amounting to Rs.567,15,50,461/-, which was benchmarked by the learned Transfer Pricing Officer determining the Arm's Length Price at the rate of 2% computing an adjustment of Rs.12,74,68,445/-. iii. With respect to ground no.3, other corporate guarantees issued by the assessee where the assessee itself has charged guarantee and commission at the rate of 0.6% based on a facility letter by its own bank at the same rate was held to be at arm's length. Thus, on the corporate guarantee adjustment of Rs.14,16,12,705/-, was partly deleted. The learned CIT (A) followed the decision of the coordinate Bench in assessee's own case. iv. With respect to the disallowance under Section 14A, under Section 115JB of the Act was conformed. 012. Accordingly, the appellate order was passed, where both the parties are aggrieved. 013. The ld Authorised representative submitted that :- i. Coming to the appeal, in the grounds of appeal of assessee, ground number 1 relates to the adjustment confirmed by the learned CIT - A on account of the arm's-length price of the corporate guarantee commission at the rate of 0.20% on guarantee given by the assessee to the banker....
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.... loan from the Bank of Rs. 52,28,78,445 which was benchmarked by the assessee at the rate of guarantee commission fee of 0.60%, the learned transfer pricing officer adopted the arm's-length price at the rate of 2% and made an addition of differential sum of Rs. 1,894,260/- which was also considered by the learned CIT - A following the decision of the coordinate bench in assessee's own case adopted 0.60% as the arm's-length price. iv. guarantee to the same associated enterprise which was given to bancs Saudi for availing working capital loan from Bank by the associated enterprises which is guaranteed by the assessee amounting to Rs. 1,183,322,139/- which has been benchmarked by the assessee adopting the corporate guarantee fee of 0.6% which was benchmarked by the learned transfer pricing officer at the rate of 2% and made a differential addition of Rs. 6,964,569/-. The learned CIT - A following the decision of the coordinate bench in assessee's own case for assessment year 2017 - 18 has determined the arm's-length price at the rate of 0.60%. v. On ground number 2 of the appeal of the assessee and stated that the learned CIT - A has confirmed the adjustment to the b....
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.... issue is squarely covered in favour of the assessee as held by the learned CIT - A. Therefore he submits that this issue is also covered in favour of the assessee. ix. He extensively referred to the various orders of the coordinate benches in assessee's own case as well as the written submissions made before the learned CIT - A) in respect of transfer pricing additions/-. In the result, he submitted that there is no infirmity in the order of the learned CIT - A so far as the appeal of the learned AO is concerned. 014. The learned departmental representative vehemently supported the orders of the ld TPO and AO. He submitted that i. corporate guarantee is an international transaction is now considered and decided in favour of the revenue by the several benches as well as the Honorable madras High Court in case of Redington India Ltd. Therefore, the ground of the assessee that corporate guarantee cannot be considered as an international transaction is devoid of any merit. On the issue of the benchmarking he submitted that there are 2 types of guarantees provided by the assessee. Assessee has provided a performance guarantee as well as the corporate guarantees, pe....
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.... 15.52% for financial year 2010 - 11, 12.51% for financial year 2011 - 12, 10.70 per 4% for financial year 2012 - 13 and 10.36% for financial year 2013 - 14. Correspondingly and adjustment of Rs. 139,072,569/- was made. The learned that CIT - A has deleted the addition following the decision of the coordinate bench in assessee's own case for assessment year 2012 - 13. He submits that no independent party would have given such a huge advance to its joint-venture and therefore the interest should have been charged by the assessee, the deletion of the arm's-length price adjustment by the learned CIT - A is incorrect. 015. The learned authorised representative reiterated the submission already made in its rejoinder. 016. We have carefully considered the rival contention and perused the orders of the lower authorities. We have also carefully considered the various judicial precedents cited before us in the assessee's own case for earlier years and subsequent years. 017. During the course of hearing we directed the assessee to furnish the fresh guarantee fee benchmarking based on the present functions, assets and risk involved considering the economic circumstances. The assessee....
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....e JV partner advanced a sum of Rs. 863,645,539/- which is outstanding without charging any interest. The claim of the assessee is that the amount was given in earlier years and the joint-venture is now facing a huge cash crunch due to operational losses and therefore it is not appropriate to charge any interest. The assessee also claimed that the advance has been made to the joint-venture to meet the deficit in cash flow while executing project in South Africa. It is the advance out of matter of commercial prudence to protect the business interest of the assessee in the project of the joint-venture. Assessee has also stated that there is a difference between providing advance and loan to its associated enterprises and providing advances as a business partner. It is also claimed by the assessee that the entire advances are not recoverable and therefore substantial part of those advances are written off in the financial year 2016 - 17. Therefore, no interest could be charged. The learned transfer pricing officer held that no independent party would have given such advance to any third-party and therefore the interest is required to be charged. As the advance was pertaining to financi....
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....tion of total income reflecting income of Rs. 229.71 Crores. 2.4 Since the assessee carried out certain international transactions with its Associated Enterprises (AE), a reference u/s 92 CA (1) was made to Ld. Joint Commissioner of Income Tax (Transfer Pricing)-2(3), Mumbai (in short "TPO") for determination of Arm's Length Price (ALP) of these transactions. One of such transaction was advances given by the assessee to one of its AE for Rs. 2069.94 Lacs. The advances were given to an AE namely EJP KEC Joint Venture, South Africa in various tranches during the year, which has been tabulated at para 6.1 of Ld. TPO's order. The perusal of the same would show that the advances given in earlier years were Rs. 828.80 Lacs whereas fresh advances given during the year were for Rs. 1903.83 Lacs (after adjusting forex fluctuations of Rs. 166.11 Lacs), thus aggregating in all to Rs. 2732.63 Lacs. The currency of loan was denominated in US dollars without any security. Accordingly, the assessee was asked to provide requisite details as to benchmarking of this transaction. 2.5 The assessee submitted that comparable uncontrolled price (CUP) was selected as most appropriate met....
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....to opening advances and fresh advances, net TP adjustment thus proposed worked out to be Rs. 245.43 Lacs, as computed in para 6.1 of the order. The TP adjustment, thus proposed, was incorporated while framing assessment order. 3. Before Ld. CIT(A), the assessee reiterating the submissions asserted that the advances given to its AE were not in the nature of loan and hence, interest was not charged on such advances. The Ld. TPO failed to appreciate that assessee's role in the transaction as an entity substantially interested in the joint venture and proceeded to treat the assessee merely a fund provider. The funds were advanced as a business partner so as to sustain the business of joint venture and with a view to protect own interest. The advances were given to resolve the problem of cash crunch and the therefore, the ultimate beneficiary would be assessee himself since the assessee was 50% partner in the joint venture. Therefore, the concept of loan could not be applied to the assessee's case since the cost and benefit would ultimately accrue to the same person. However, not convinced, the adjustment was confirmed, against which the assessee is under further appeal before ....
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....ee's appeal stands allowed in terms of our order." 019. As there is no change in the facts and circumstances of the case, and the adjustment of the arm's-length price is also on identical facts and circumstances, we respectfully following the decision of the coordinate bench upholding order of the learned CIT - A - ground number (issue number 1) of the appeal of the learned AO is dismissed 020. Issue number 2 is with respect to the corporate guarantee. The learned CIT - A has decided this issue following the decision of the coordinate bench in assessee's own case for earlier years. We find that identical issue has been considered by the coordinate bench in assessee's own case for earlier years as under:- "6.1 The grounds raised by the revenue read as under: - PERFORMANCE GUARANTEE: i. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the guarantee commission for performance of contract provided by assessee to Chadian Company for Water & Electricity (CCWE) on behalf of its AE KEC Global was at arm's length without appreciating the fact that the AE get benefited from guarantee provided by the assessee, AE....
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....y LLC on behalf of its AE i.e. KEC Global FZ LLC was not an international transaction without appreciating the fact that the term "guarantee" clearly mentioned in Explanation of section 92B(l)(c) of IT Act 1961 as an International Transaction. viii. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the guarantee commission for performance of contract provided by assessee to that guarantee commission for performance of contract provided by assessee to SNC LAVALIAN, Canada on behalf of its AE SAE Towers Holding Towers USA was arm Length without appreciating the fact that the AE get benefited from the guarantee provided by the assessee, AE was a newly floated entity and the credit rating of the AE was very low. ix. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the cost recovery was at arm's length itself as the assessee has revered 0.60% from its AE for providing guarantee for performance of contract to SNC LAVALIAN, Canada and ignored the benefit derived as a whole by the AE and also not appreciated the fact that this service will not be available to any third party by the asse....
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....y the earlier decision of this Tribunal for AY 2010-11, ITA No.5611/Mum/2015 order dated 10/07/2019 and therefore, the same view may be taken in this year. The copy of the same has been placed on record. The Ld. DR could not controvert the said position but supported the adjustments proposed by Ld. TPO. 6.3 In the above background, during proceedings before Ld. TPO, it transpired that the assessee advanced certain corporate and performance guarantee for its AE, the details of which are as follows: - Performance Guarantees: Name of Borrower AE KEC Global FZ LLC Ras Ul Khaimah KEC Global FZ LLC Ras UI Khaimah KEC Global FZ LLC Ras Ul Khaimah SAE Tower Holding LLC USA Country UAE UAE UAE USA Bank Name and Country Bank of India - India Bank of India - India N.A. Royal Bank of Scotland - India Whether amount borrowed by AE from third party without corporate guarantee No No No Yes Amount guaranteed 6,81,60,907 13,63,21,814 223,96,50,902 3,46,52,829 Loan Amount availed N.A. N.A. N.A. N.A. When guarantee given 2009 2009 2009 2010 No of days during the year which gua....
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....er amount borrowed by AE from third party without corporate guarantee No No No Yes Amount guaranteed 68160907 136321814 2239650902 34652829 Loan Amount availed N.A. N.A. N.A. N.A. When guarantee given 2009 2009 2009 2010 No of days during the year which guarantee was given 365 365 365 365 Rate recovered 0.60% 0.60% - 0.60% Purpose Towards performance of contract Towards advance payment made by customer Towards performance of contract Towards performance of contract Guarantee fee charged 408,965 817,931 207,917 ALP Guarantee fee 1.00% 1.00% 1.00% 1.00% ALP Guarantee fee (Rs.) 681,609 1,363,218 22,396,509 346,528 Adjustment 272,644 545,287 22,396,509 138,611 Corporate Guarantees: Name of Borrower AE KEC Transmission LLC USA KEC US LLC USA Country USA USA Bank Name and Country ICICI Bank -UK ICICI Bank -UK Whether amount borrowed by AE from third party without corporate guarantee No No Amount guaranteed 3236776046 2157850697 Loan Amount availed 3236776046 2....
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....mmission in accordance with the bank's sanction letter and therefore, no further adjustment, as proposed by Ld. TPO, would be justified. Accordingly, these grounds stand dismissed. 7.2 Ground Nos. (iii) & (iv) are related with adjustment arising out of guarantee for advance payment provided by assessee to Chadian Company for Water & Electricity (CCWE) on behalf of its AE KEC Global, FZ LLC for Rs. 13.63 Crores. The assessee has given a bank guarantee to its wholly owned subsidiary company (KEC Global, FZ LLC), to guarantee the advance payments by assessee to its AE towards a contract to be executed by the AE. The bank guarantee was given by Bank of India. The bank utilized the guarantee facility sanctioned to assessee while sanctioning bank guarantee to assessee's AE. The bank charged a guarantee commission of 0.60% from assessee and the said rate was recovered from its AE. The Ld. TPO estimated the same @1%. We find that this issue is contained in paras 8.1 to 11 of the cited decision of Tribunal in assessee's own case for AY 2010-11. The Tribunal has concluded that the rate as applicable to performance guarantee would apply to this guarantee also. Following the ....
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....e fees charged by the assessee was at Arm's Length Price. Therefore, the impugned order would not require any interference on our part. These grounds stand dismissed. 7.5 Ground Nos. (x) to (xii) arises out of corporate guarantees provided by the assessee on behalf of its 2 AEs namely KEC Transmission LLC, USA and KEC US LLC, USA. The corporate guarantees were given to ICICI Bank, UK to secure the finances provided by the said bank to two of assessee's AEs. The said financing was stated to be utilized for the purpose of downstream acquisition of the business of SAE Towers Ltd., USA. The assessee submitted that for the aforesaid purposes, a special purpose vehicle (SPV) i.e. KE US LLC was formed to facilitate KEC to make downstream acquisition of business in USA. The guarantee was stated to be wholly and exclusively for the purpose of facilitating the assessee and hence, it was not a case where any services were rendered to the SPV in any manner. Rather SPV provided services to KEC by way of facilitating the downstream acquisition. Therefore, no fees were charged against the same. Another plea raised was that the assessee merely fulfilled shareholders' functions. To put it ....
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.... from the guarantor would be different in comparison to situation where the guarantee was provided to the guaranteed. Therefore, the fees charged by the bank from the holding company could not constitute internal CUP for charging the rate from AE without proper adjustment. Since the rates charged by the banks to Indian companies ranged between 1.10% to 3% depending upon various factors, the ALP rate would be between 1.5% to 3.5%. Since the loan was taken for business purposes, the appropriate rate would be 2%. Accordingly, the transactions were benchmarked @2% and adjustments were proposed. The TP adjustments, thus proposed, were incorporated in the assessment order. Upon further appeal, Ld. CIT(A) directed Ld. AO to apply the appellate decision dated 28/07/2016 for AY 2011-12. 7.7 The perusal of appellate order for AY 2011-12, as placed on record, would show that Ld. CIT(A) observed that there was no cost element involved in the transaction of issuance of corporate guarantee. The assistance provided by the assessee to its AE would not have any bearing on profits, incomes, losses or assets of the assessee and therefore, the transaction of issuance of guar....
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....orrower of all the secured obligation and undertake with finance party that whenever either borrower does not pay the amount as and when due under or in connection with any finance document, the guarantor will immediately on demand by the bank, pay that amount as it was the principal obligor in respect of that amount. The AEs were stated to be Special purpose vehicle with a view to enable the assessee in downstream acquisition of the business of an entity namely SAE Towers Ltd., USA. The assessee has not charged any fees from its AEs in providing the corporate guarantee, inter-alia, by submitting that no cost was involved and the stated transactions would have no bearing on profits, incomes, losses or assets of the assessee. However, upon perusal of terms of corporate guarantee deed executed by the assessee in favor of the bank, as placed on record, we find that in case of payment default, the assessee was obligated to pay the amount demanded by the bank as if it was the principle obligor in respect of that amount. The liability of the assessee extended to the guaranteed amount of 110 Million US Dollars. In the event of default, the assessee as a guarantor, was liable to p....
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....al guarantee and performance guarantee issued by the assessee are covered by the decision of the coordinate bench in assessee's own case wherein the guarantee fees with respect to various guarantees where the assessee has recovered the guarantee commission at the rate of 0.6% was upheld, therefore all these guarantees are continuing guarantee from the earlier years and there is no change pointed out before us in the functions, assets and risk of the parties or any change in the economic conditions, respectfully following the decision of the coordinate bench we confirm the order of the learned CIT - A. 022. With respect to the financial guarantee given to ICICI bank United Kingdom on behalf of keys the transmission LLC and KC US LLC (whole owned subsidiary of the assessee), no guarantee fee was charged, the learned CIT - A following the decision of the coordinate bench in assessee's own case has upheld the arm's-length guarantee fees of 0.20%. As the learned departmental representative could not point out any change in the facts and circumstances of the case as well as any variation in the functions, assets and risk of the parties or change in economic conditions and further as i....