TaxTMI 
TaxTMI 
2025 (6) TMI 1046
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....g 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 adequate information with respect to the actual guarantees issued by these banks; c) I....
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.... 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 submissions and perused the materials available on record. We find that assessee is a commercial bank having its head office in Melbourne, Australia. Australia and New Zealand Banking Group (ANZ) commenced its ba....
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....rtaining 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% Median 1.80% 65th Percentile 2.00% 2.3. From the perusal of the information received from the banks, it is seen that the bank guarantee rates are 1.80%. 2.4. Accordingly, ld. TPO benchmarked the guarantee fee transaction of the assessee after taking into account the judicial precedent in the case of Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. Everest Kanto Cylinders Ltd [2015] 58 taxmann.com ....
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....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 beneficiary bank i.e. issue guarantee in India on behalf of clients of overseas branches of ANZ based on the counter guarantee issued by such overseas ANZ branches. Since assessee is acting as the beneficiary, the entire risk of discharging the bank guarantees is borne by overseas ANZ branch issuing the counter guarantee. The assessee merely provides support service in connection with processing of the guarantees, typing out the guarantee agreement based on swift message received and issuing....
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....nd 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 guarantees issued by it based on counter guarantee received from overseas branches of ANZ. The assessee also furnished the sample documents enclosing the copy of swift message received from ANZ New York advising the assessee to issue guarantee to Indian beneficiaries like Reliance Infrastructure Ltd., and providing counter guarantee. 3.8. The assessee also placed on record the copy of the swift message from assessee to ANZ New York confirming that guarantee has been issued to Reliance Infrastru....