TaxTMI 
TaxTMI 
2025 (6) TMI 1989
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....DRP erred in assessing the Interest income from income tax refund for Rs. 1,27,00,000/- (arises due to excess of TDS over-assessed tax liability) as Income from other sources instead of Business Income. 3. The Ld. FAO and DRP both grossly erred in not following the ITAT Mumbai order in the Appellant Company's own case and also failed to appreciate that unless there is an order from the High Court to suspend the operation of the order of the ITAT, the order of ITAT in Appellant Company's case is binding on them. 2. Briefly stated, facts of the case are that the assessee is engaged in the business of shipping operation and transportation of the crude oil, rigs and bulk transportation services. The assessee was having two streams of income, shipping business and non-shipping business. For the year under consideration, the assessee filed return of income on 14.03.2022 declaring total income at Rs. 26,38,220/-. In the return of income, income from shipping business was offered on presumptive basis under Tonnage Tax Scheme provided u/s 115BA of the Income-tax Act, 1961 (in short 'the Act'). The income from non-shipping business has been offered under the normal provis....
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....es availed by EOSL from the Indonesian third party bank amounting to Rs. USD 65,00,000 (equivalent to Indian Rs. 29.22 crores). Under the second transaction, the assessee had provided an assurance for execution of one transaction of transfer of rigs from its group companies to parties identified by the third party bank and pursuant to said arrangement the assessee had provided put options to buy certain preference share worth USD 30 million to be issued by Special Purpose Vehicle. 5.2 The learned TPO noted that the assessee charged corporate guarantee fee of 0.5% for international transactions in relation to Associated Enterprise (AE) namely 'OGDSHIL' and NIL in respect of another AE namely 'Varada', applying 'other method' as 'most appropriate method' for benchmarking. The learned TPO rejected the benchmarking carried out by the assessee as same was not in accordance with the provisions of the Act. The learned TPO however, invoking section 133(6) of the Act gathered information from various banks with respect to guarantee commission charged by them. A list of information gathered is reproduced as under: S. No. Bank Name Rate 1. Kotak Mahindra Bank 0.45% 2. ....
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....ch was a need of funds and had approached foreign bank. The quotation obtained by EKCL (India) was the rate to be charged for guarantee for EKCL India Ltd. and was not for standing guarantee for EKC (Foreign AE) situated in the foreign jurisdiction. Therefore, examined from this angle the CUP was defective and could not have been used. However, this important aspect went unnoticed in the litigation process. It may be noted that assessee (EKCL) had used rate of Bank Guarantee as starting point. 6. Another important point to be noted is that EKCL India had used the bank guarantee rate of 0.6% (i.e. a quotation by ICICI Bank to EKCL) as the starting point after making a slight downward adjustment. The EKCL (India) had charged guarantee commission of 0.5% as against quotation rate of 0.6%. This guarantee commission of 0.5% was accepted by the Tribunal and was not disturbed by the Hon'ble High Court of Bombay. The Hon'ble High Court also made observations on Corporate Guarantee and Bank Guarantee. It may also be noted that even in the case of EKCL (India), the assessee could not give any comparable of Corporate Guarantee. The reason is simple because Corporate Guarantee....
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....ent order." 5.7 Before the learned DRP, the assessee submitted that the guarantee on behalf of AE was provided as part of shareholding activity and it was not an international transactions. The learned DRP, however, rejected contentions of the assessee in view of provision of corporate guarantee brought into ambit of the international transactions by way of explanation to section 92B by the Finance Act with effect from 01/04/2002 and judicial precedents. 5.8 Aggrieved with the finding of the learned DRP, the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. The assessee filed a paper book containing pages 1-449. 6. Before us, the Ld. counsel for the assessee made two fold arguments, firstly, he submitted that transaction of the guarantee commission was not an international transaction. The next, without prejudice, argument of the Ld. counsel for the assessee was that guarantee commission rate should be restricted 0.25% following the order of the ITAT in assessee's own case for earlier years. Per contra, the ld DR relied on the order of lower authorities. 7. We have heard rival submission of the parties and perused the relevant mate....
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.... was provided on transfer of shares . In the circumstances, the Tribunal (supra) was of the view that the transaction was not of a guarantee but it was negative lien but keeping in view totally to of the circumstances, the tribunal restricted the adjustment to 0.25% of the said transactions instead of 0.5% applied by the Assessing Officer. The facts of the instant year under consideration are distinguishable as in the instant year under consideration the transaction is a corporate guarantee and therefore ratio in the decision for the assessment year 2013-14 is not applicable or the facts of the instant year. 7.3 Further for assessment year 2016-17, the transaction being of a lien on shares of ELL, the Tribunal in ITA No. 2014/Mum/2022, following the finding of the Tribunal in assessment year 2013-14, restricted the transfer pricing adjustment to 0.25% of the transaction, which we have already distinguished above. 7.4 Further in assessment year 2017-18, two different transactions of were subjected to transfer pricing adjustment. The first transaction was of negative lien on shares of ELL as was in assessment year 2013-14, therefore the tribunal following is finding in the earl....
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....e has stood guarantor, assessee charged guarantee commission at the rate of 2%, which is held to be at arm's-length by the assessee itself. This is used by the learned TPO to benchmark the transaction of Guarantee for standby letter of credit. Guarantee against standby letter of credit is issued by Assessee in favour of the bankers who issued stand by letter of credit to the third parties who transacted with the AE. From AE assessee has obtained vessels on sale and lease back. Thus, the guarantee issued by the assessee in favour of bankers of its AE clearly shows that the vehicles are bought by the AE in UAE, which are leasee back to the assessee and assessee is earning rental on them. Therefore, the guarantee itself is for the purpose of the business of the assessee. It has facilitated the assessee to obtain vessels on lease from its AE in the business of operation of shipping at much lesser interest rates. The internal cup adopted by the learned TPO did not have any such functions, assets and risk distribution. In the present case, Standby letter of credit given of its AE, in substance is used by the assessee for its own business. Further the guarantee commission rate of 2% c....
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....O is a directed to compute the arm's-length price adjustment accordingly." 7.6 Thus the facts of the above case are different from the facts of the instant case. 7.7 Before as the learned counsel for the assessee also relied on the decision of the coordinate bench in the case of Tata consultancy services ltd in ITA No. 5199/Mum/2019 for assessment year 201415, wherein the Tribunal following the finding in the case of the assessee for assessment year 2012-13, restricted the guarantee commission and the rate of 0.5%. The learned counsel also relied on the decision of the coordinate bench in the case of Greatship (India) Ltd in ITA No. 753/Mum/2024 for assessment year 2016-17, wherein also followed in the case of the assessee for earlier year. The facts and circumstances of those cases as well as risk parameters associated with the guarantee transaction being different in each case, the ratio of the decisions relied upon by the assessee are not applicable or the facts of the instant case. 7.8 Further we note that the Ld. TPO has also rejected the prayer of the assessee for restricting corporate guarantee commission to 0.5% as per the decision in the Everest Canto Cylinder....
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....further note that the Hon'ble Tribunal in Glenmark Pharmaceuticals Ltd. (supra) has endorsed the approach of considering the average bank guarantee commission rates as a valid CUP, subject to appropriate adjustments for the unique features of corporate guarantees. We find no reason to depart from the said reasoning. In view of the foregoing, and respectfully following the decision of the Tribunal in Glenmark Pharmaceuticals Ltd. (supra), we are of the considered opinion that the transfer pricing adjustment made by the learned TPO is in accordance with law and is, therefore, upheld. The ground No. 1 of the appeal of the assessee is accordingly dismissed. 7. The ground No. 2 of the appeal of the assessee relates to considering interest from income-tax refund under the head business income as against considered by the AO under the head 'income from other sources'. 7. We have heard the rival submissions advanced by the learned counsel for the parties and have carefully perused the material placed on record. Upon due consideration, we find that the Dispute Resolution Panel (DRP) has rightly rejected the assessee's contention and has correctly held that interest received on income-....