TaxTMI 
TaxTMI 
2025 (6) TMI 1046
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....'ble DRP, has erred in law and on facts in re-computing the ALP of the international transaction pertaining to processing fees received on account of guarantees issued by the Appellant to Indian beneficiaries (based on back-to-back guarantee provided by the overseas AE) and thereby making an upward adjustment of INR 2,25,13,339. Ground 2: Rejecting the Transactional Net Margin Method (TNMM) used by the Appellant and adopting External Comparable Uncontrolled Price (CUP) method as the most appropriate method The learned AO, based on the directions of the Hon'ble DRP, erred in determining the ALP of the international transaction pertaining to processing fees received on account of guarantees issued by the Appellant, on following grounds: a) In rejecting the TP documentation maintained and the benchmarking analysis conducted by the Appellant without providing any cogent reasons; b) In erroneously comparing the administrative and low-end functions performed and risks assumed by the Appellant in relation to processing services rendered in issuance of guarantees with the guarantees issued by the seven selected banks in India without obtaining ad....
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.... The learned AO has erred in not appreciating the fact that the final order passed under section 143(3) read with section 144C(3) of the Act is time barred under section 153 of the Act which prescribes the outer time limit for passing the final assessment order. Ground no 4: Initiation of penalty proceedings under section 270A of the Act The learned AO has erred in initiating penalty proceedings under section 270A of the Act for under-reporting of income. Ground no 5: Levy of interest under section 234A of the Act The learned AO erred in levying interest amounting to INR 1,91,277 under section 234A of the Act." 2. The ground No.1 raised by the assessee is with regard to determination of Arm's Length Price (ALP) of the international transaction relating to processing fees received on account of guarantees issued to Indian companies based on counter guarantee from overseas branches. The ground No.2 raised by the assessee is challenging the rejection of Transactional Net Margin Method (TNMM) used by the assessee and adopting external Comparable Uncontrolled Price (CUP) method as the Most Appropriate Method (MAM). 3. We have heard rival s....
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....ee fee adopted. Hence, he took CUP method as the MAM and after obtaining naked bank quotes reduced 0.5 per centage from the same and arrived at the rate of 1.3 per cent. 2.1. The ld. TPO observed that assessee had earned processing fees for issuing guarantees on behalf of its AEs at an average rate of 0.02%. The ld. TPO observed that assessee had used comparables that are pertaining to support services industry which are not comparable with the activity of the assessee issuing guarantee for commission. Accordingly, the ld. TPO rejected those comparables and also TNMM method adopted by the assessee and proceeded to benchmark the guarantee transaction using external CUP method. 2.2. In order to apply the CUP method, information regarding the rates charged for giving 'bank guarantee' was called from various banks u/s 133(6) of the Act, which is summarized as below: Sr. No Name of the Bank Rate 1. Standard Chartered Bank 0.75% 2. Citi Bank 0.90% 3. Union Bank of India 1.20% 4. HDFC Bank 1.80% 5. IDBI Bank 2.00% 6. State Bank of India 2.10% 7. ICICI Bank 2.50% 35th Percentile 1.20%  ....
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....ent Year 2012-13, while deleting the transfer pricing adjustment made in respect of guarantee fees, observed as under: "3.5. At the outset, we find that overseas branches of ANZ have clients who require guarantees to be issued to the beneficiaries in India. Since the beneficiaries are situated in India, the overseas branches of ANZ are situated in India. The overseas branches of ANZ request the assessee to provide such guarantees to the beneficiaries and inturn provide a back to back inter-bank guarantee / indemnity to assessee to cover any financial liability that assessee may incur in connection with guarantees issued to Indian beneficiaries on behalf of overseas ANZ branches. This is the prime function / activity carried out by the assessee with regard to the impugned international transaction. In case where the client of the overseas branch defaults and the guarantee would be invoked then, under the back to back guarantee issued to assessee, the overseas branch would make payments to assessee which would onward then make the payment to the beneficiary in India. 3.6. Hence, from the aforesaid modus operandi, it could be concluded that assessee acts as a benefic....
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.... had taken into account the third party comparable margins and compared the same with its margins using Transactional Net Margin Method. For this purpose, the assessee had taken the third party comparables which are engaged in providing liasoning services, managerial services, marketing services, administrative services and information services. Effectively all these services could be loosely termed as business support services. Hence, when the data under CUP method is not available and data of margins under TNMM is readily available, then it would be appropriate to apply TNMM method as the Most Appropriate Method (MAM) in the facts and circumstances of the instant case. 3.7. We find that assessee had explained the entire transactions and the modus operandi applied by it in respect of the guarantee transactions before the ld. TPO which are evident vide letter dated 09/10/2015 together with the fee charged for each type of services rendered by it. These details are enclosed in pages 316 to 322 of the paper book filed before us. We also find the assessee vide its letter dated 28/10/2015 had filed a detailed annexure enclosed in pages 328-331 of the paper book listing the gua....