TaxTMI 
TaxTMI 
2023 (7) TMI 1582
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.... primarily in the business of cultivation, manufacturing and sale of tea. The assessee owns tea estates in the State of Assam and West Bengal. It sold tea in both the domestic and international markets and earns revenue therefrom. It has filed its return of income for A.Y. 2014-15 electronically on 30.09.2014 declaring total income of Rs. 28,79,66,760/-. The case of the assessee was selected for scrutiny assessment. A perusal of Form No. 3CEB revealed to the ld. Assessing Officer that the assessee had entered into international transaction s within the meaning of section 92CA of the Act with its Associate Enterprises and these transactions were required to be referred to the concerned TPO. Accordingly he referred those transactions to the ld. TPO, who determined Arm's Length Price. The suggestions made by the ld. TPO towards adjustment of the Arm's Length Price of transactions, which we are going to take into consideration in the following part of the order, have been considered by the ld. Assessing Officer and the additions were made accordingly. The ld. CIT(Appeals) has briefly carved out these international transactions and thereafter took into consideration the each transaction....
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....ppellant company and in that view of the matter the transfer pricing provisions ought not be applied to this international transaction. The Ld. AR also pleaded that the corporate guarantee provided to FLFZCO is not an international transaction within the meaning of section 92B and therefore the transfer pricing adjustment deserves to be deleted. The ld. AR has alternatively claimed that the corporate guarantee fee be benchmarked at 0.5% as suo motu offered by the appellant company. 4. After giving thoughtful consideration to the facts of the case, the provisions of law, and judicial precedents available on this subject; I find that the Hon'ble ITAT, Kolkata in their decision rendered on 12.09.2018 in the case of Dy. CIT Vs National Engineering Industries Ltd (ITA No. 986 & 987/Kol/2017) has held their earlier decision in the case of M/s Tega Industries Ltd (supra) to be per incuriam and held that the corporate guarantee was indeed an international transaction amenable to transfer pricing provisions contained in Chapter X of the Act. The relevant extracts of the judgment is as follows: 15. We have given a careful consideration of the rival submissions and perus....
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.... The total value of corporate guarantee given by the assessee to its AEs was USD 10.5 million. For the A.Y. 2012-13, the assessee has offered an amount of Rs. 20,54,850/- as corporate guarantee fee charged on such loan to the AE. The corporate guarantee fee was determined @0.38% on the value of corporate guarantee. We made it dear that guarantee fee arrangement is an international transaction but the guarantee fee percentage as determined by the TPO @ 3% is not correct on various counts, as explained above. We note that various decisions of Coordinate Benches of Mumbai Tribunal, where':":, the bank guarantee commission has been charged from 0.5% to 1 %. List of such decisions, are as under: We note that assessee-company had included a Guarantee Commission @0.38%, being the average cost of all bank guarantees taken by the Assessee from the Indian Banks, should not be considered at arm's length, that is, guarantee commission charged by bank is not a arm ' length price. Normally bank decides the guarantee commission based on the credit rating of the company, credit spread and past and future financial performance of the company therefore, the same should not be tr....
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....rate guarantee does not qualify as an international transaction as it does not find mention in Section 92B and therefore no transfer pricing adjustment is possible. However in view of the amendment as set out above and insertion of the Explanation to Section 928, the Legislature has explicitly clarified that issuance of corporate guarantee falls within the meaning of 'International transaction'. Therefore respectfully following the decision of Hon'ble ITAT, Kolkata (supra) and in light of the amended provisions of Section 92B, I hold that the issuance of corporate guarantee falls within the meaning of 'international transaction' and in that view of the matter I am of the considered view that it is required to be benchmarked under Chapter X of the Income-tax Act, 1961. However the corporate guarantee rate of 1.75% ascertained by the Ld. TPO is highly excessive and unreasonable. It is noted that the prevailing LIBOR rate of Banks for actual borrowings & lending was much lower than the aforesaid CG rate of 1.75% determined by the Ld. TPO for a non-fund based financial assistance. 7. It is noted that in the following cases the coordinate Benches of the Hon&....
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....aration of the stand alone accounts of the eligible units. Also the data available to apply average annual weighted price method was sufficiently large and therefore reliable. It is however noted that the Ld. TPO failed to pin point any infirmity in this benchmarking exercise conducted by the appellant. Instead after examining the details, he selectively changed the method from annual average price method to monthly average price method only in few instances of inter unit transfers wherein the monthly average price was higher than the annual average price. Such selective application of the monthly average price method is held to be deplorable and unwarranted, I find merit in the contention of the Ld.AR of the appellant that if the Ld. TPO felt that monthly average price method was better than annual average price method, then he ought to have applied it across all eligible tea gardens for all the months. I find that had the Ld. TPO applied monthly average price method across all inter unit transfers for all the months, the overall result i.e. the aggregate transfer value so arrived at would be comparable with the aggregate value of inter unit transfers computed under the annual ave....
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....considered the peak balance of loan and proposed adjustment of Rs. 2,16,33,836/-. 13. On examination of appellant's submissions and TPO's order, I find that the adjustment proposed by the Ld. TPO was in violation of the proviso to Section 920 permitting variation of +/-3% of the ALP. In the facts of the present case the ALP interest rate was ascertained at 9.05% whereas the interest rate charged was 9% which is ex-facie within the prescribed range of +/-3% and therefore even under the methodology proposed by the Ld. TPO, the transaction in question is apparently at arm's length. It is noted that the Ld. TPO was apparently unjustified in considering the peak balance of loan i.e. Rs. 6200 lacs to compute the ALP. The correct course of action would have been to compute the simple interest of 9.05% on daily balance basis or atleast monthly balance basis. Merely because on one particular date the peak balance was Rs. 6200 lacs, the Ld. TPO could not presume that the said balance continued throughout the year to apply simple interest @ 9.05% per annum for the entire year. I find merit in the contention of the appellant that had the simple interest of 9.05% been appli....
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....erall, therefore, Ground No. 2 of the appeal stands allowed". 5. A perusal of the above order of the ld. CIT(Appeals) would reveal that basically three international transactions, whose determination of Arm's Length Price was disputed by the Revenue with the assessee. In these nine grounds of appeal, this aspect is being agitated by the Revenue. Let us take into consideration each transaction in seriatim. 6. The first transaction relates to the fees received by the assessee for giving Corporate Guarantee to its Associate Enterprises in U.K. Brief facts are that the Associate Enterprise has obtained finance/loans from ICICI Bank, UK. The assessee has extended corporate guarantees on such financial help to its AE, in lieu of that assessee has received corporate fees. In the form of 3CEB, the assessee has bench-marked the transaction involving issuance of corporate guarantee @0.5% out of abundant caution. The ld. TPO was of the view that the assessee ought to have received fees @1.75% instead of 0.5% calculated in the TP Study Report. 7. Before the ld. CIT(Appeals), the assessee took two pleas against this adjustment made by the ld. TPO. In the first-fold of argument, it was ....