TaxTMI 
TaxTMI 
2023 (9) TMI 1466
X X X X Extracts X X X X
X X X X Extracts X X X X
....t assessment order and the final assessment order be held as bad in law and consequently, the assessment proceedings and the assessment order be quashed. 2. Transfer pricing addition on account of corporate guarantee: 2.1. On the facts and circumstances of the case and in law, the DRP erred in confirming the action of the TPO/AO in holding that issuance of corporate guarantee is an 'international transaction' and consequently, transfer pricing addition of Rs. 13,97,23,463/- should be made at the rate of 1.16% of the guarantee amount. 2.2. They failed to appreciate and ought to have held that mere issuance of corporate guarantee is not an 'international transaction". 2.3. The Appellant prays that the TPO/AO be directed to delete the transfer pricing adjustment on account of corporate guarantee. 2.4. Without prejudice to the above, the rate of corporate guarantee commission be reduced reasonably. 3. Addition to income based on Service Tax Return: 3.1. On the facts and circumstances of the case and in law, the DRP erred in confirming the action of the AO in considering Rs. 43,42,62,923/- as income of Appellant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the interest levied u/s 234B and 234C of the Act. 9. General: The Appellant craves leave to add, omit or alter grounds of appeal before or during the hearing of the aforesaid matter." 3. We proceed to adjudicate the issues raised by the assessee ground wise. 4. With regard to Ground No. 1 which is in respect of Non-compliance with section 144B of the Act, Ld. AR of the assessee submitted that this ground is not pressed, accordingly, the same is dismissed as not pressed. 5. With regard to Ground No. 2, which is in respect of, transfer pricing addition on account of corporate guarantee, Ld. AR of the assessee submitted that the issue under consideration is relating to corporate guarantee given by the assessee to its Associate Enterprises in relation to various banks, Ld. AR submitted a chart, for the sake of clarity, it is reproduced below: - Sr. No Given on behalf of (AE) Given to Given on account of Value Rate of Guarantee fees recovered Addition made by DRP Remarks 1. KEC Transmission LLC and KEC US, LLC, USA (WOS) now known as SAE Tower Holding LLC ICICI Bank, UK Financing to SPV for acquistion of SAE USA's busi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....60% Total 13,97,23,463/- 6. He submitted that in the earlier assessment years i.e. A.Y. 2013-14 and 2017-18 similar issue was considered by the Coordinate Bench and decided the issue in favour of the assessee. He submitted that the corporate guarantee given to AI Sharif Group and KEC Limited Company and SAE Towers Mexico, the Assessing Officer and Ld. DRP has sustained the addition @1.16% and Coordinate Bench considered the issue and restricted the corporate guarantee @0.60%. He prayed that the same rate may be considered for the assessment year under consideration also. 7. With regard to corporate guarantee given to KEC Transmission LLC and KEC US LLC, USA (WOS) now known as SAE Tower Holding LLC, he submitted that the corporate guarantee given by the assessee in the A.Y.2011-12 and the rate for the same was also sustained by the Ld. DRP @1.16%. However, in the earlier assessment year and subsequent Assessment Years, the Coordinate Bench has sustained the same @0.20%. He prayed that following the rule of consistency the corporate guarantee @0.20% may be sustained by following the decision of the Coordinate Ben....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in 2012 for availing loan of Rs 1.22 45,86,450/- (SAR 8,45,29,440) from Bank Muscat SAOG. The recovered guarantee fee @ 0.6% of Rs 73,47,519/- The TPO determined the ALP at 2% and computed adjustment of Rs 89,57,934/- 7.1 Submission: The Appellant has made a common submission. It is submitted that corporate guarantee is not an international transaction The Appellant has also submitted that corporate guarantees were issued to enable AEs to avail credit facilities as a matter of commercial prudence primarily to protect the business interest of the group by fulfilling the shareholder's obligations. The Appellant has also claimed that non-charging of commission is justified where additional security is provided. In case of Al Sharif Group which obtained financing facility from SBI. Jeddah and Bank of Muscat, the banks obtained primary right over AEs contract receivables of project of Saudi Electricity company. While these receivables were security for the credit facility provided, the Appellant provided corporate guarantee to comply with administrative requirements. It is thus claimed that no risk was borne by the Appellant under the circumstances. As such chargin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... guarantee commission. The TPO has increased this benchmarking rate to 2% in all the 3 cases. The Appellant has submitted that benchmarking be done at 0.2% following the decision of the Hon'ble ITAT in its case in respect of benchmarking of corporate guarantee Issued by the Appellant to ICICI, UK on behalf of its AE KEC US LLC & KEC Transmission LLC The operative part of the decision is already. produced in Para 6.7. It is seen that the facts of 2 corporate guarantees are different. The 3 guarantees under consideration are for availing of regular credit facilities whereas credit facilities from ICICI, UK was for certain of which the Appellant was to be the ultimate beneficiary Therefore, the benchmarking rates cannot be same. The Appellant has already charged 0.6% rate which is based on a facility letter by its own bank, which is a good comparable. It is, therefore, held that no interference is called for in the benchmarking @ 0.6% done by the Appellant and the adjustments made by the TPO are deleted" (Emphasis Supplied) 30. On perusal of the above, it can be seen that the CIT(A) held that the transaction of issuance of corporate guarantee to be an international transa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... given to SAE Tower Holding LLC, considering the fact that the corporate guarantee given in A.Y. 2011-12 may not be proper since the assessee has not brought on record any material on the subsequent corporate guarantee awarded to SAE Tower Holding LLC , in our considered view the same rate of 0.60% may be sustained for all the corporate guarantee given by the assessee under consideration. Accordingly, ground raised by the assessee is partly allowed. 12. With regard to Ground No. 3, which is in respect of addition to income based on service Tax Return, at the time of hearing, Ld. AR of the assessee brought to our notice Page No. 11 of the Ld. DRP and submitted that the Assessing Officer observed that assessee has reported higher turnover in service tax return as compared to ITR and Assessing Officer has considered the turnover reported as per service tax return. 13. Aggrieved assessee filed objection before Ld. DRP and before Ld.DRP assessee has filed the reconciliation of turnover in service tax return and turnover shown in ITR. It was submitted that the gross amount of services as per the service tax return is Rs..5,53,02,46,110/-, out of the aforesaid amount of Rs..5,53,02,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee, amounts received before the related work is performed are included in the balance sheet, as a liability, as advance received. As and when the invoices are raised by the Assessee on the customer in terms of agreement and based on percentage of completion of the project, proportionate mobilization advance is recognized as revenue by the assessee and offered to tax. 7.6 The submissions of the assessee are considered. The percentage of completion method of accounting requires the reporting of revenues and expenses on a period-by-period basis, as determined by the percentage of the contract that has been fulfilled. The current income and expenses are compared with the total estimated costs to determine the tax liability for the year. For example, a project that is 20% complete in year one and 35% complete in year two would only have the incremental 15% of the revenue recognized in the second year. What is important here, to arrive at the correct percentage of work completed in a year, is to compute the cost of project already incurred and then compare the same with the total project cost. 7.7 It is noted, from the sample data provided by the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AACCK5599HST002 page 46 of Annexure 2). The accounting treatment is as under: - The relevant accounting policy of the Assessee as appearing in the audited accounts is as under: - "Construction contracts: When the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. The outcome of a construction contract is considered as estimated reliably when all critical approvals necessary for commencement of the project have been obtained. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable to be recovered. Contract costs are recognise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pletion of the project, proportionate mobilisation advance is recognised as revenue by the Assessee and offered to tax. The same practice is being followed by the assessee consistently over several years. Therefore, it is submitted that the instant case is not of any undisclosed turnover and therefore, the addition proposed by the Assessing Officer ought to be deleted. 19. On the other hand, Ld. DR relied on the orders of the lower authorities. 20. Considered the rival submissions and material placed on record, we observe from the submissions made by the parties that the assessee has declared various receipts before service tax authorities an amount aggregating to Rs..709,47,48,328/-, the above said amount includes an amount of Rs..43,42,62,923/- being amount received as advance from customers [mobilization advances]. As per the provisions of section 66B of Finance Act, 1994 the assessee has to pay the service tax @14% on the value of services provided or agreed to be provided in the taxable territory and collected in such manner as may be prescribed. Since assessee has to pay the service tax on the services provided as well as agreed to be provided i.e., advances, therefore ....