TaxTMI 
TaxTMI 
2025 (7) TMI 367
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....) 2. This appeal filed by the Revenue against the order of the Ld. CIT(A)-10, Hyderabad arising out of the order passed U/s. 143(3) r.w.s. 263 r.w.s 92CA of the Income Tax Act, 1961 (in short "the Act"), dated 20/12/2019 for the AY 2011-12. 3. Brief facts of the case are that the assessee is a company deriving income from manufacturing of instant coffee / soluble coffee, filed its return of income for the AY 2011-12 on 29/09/2011, declaring a total income of Rs. 30,45,17,213/-. Assessment was completed U/s. 143(3) r.w.s 92CA(3) of the Act on 17/03/2015 determining the total income of Rs. 31,07,62,680/- and made addition of Rs. 62,45,470/- as proposed by TPO towards difference in Arm's Length Price in respect of interest charged on loans. Subsequently, the case was subjected to revision U/s. 263 of the Act and the Ld. Pr. CIT, Guntur has passed the order U/s. 263 of the Act, dated 08/11/2016 and directed the AO to examine the Bank Guarantees including corporate guarantees to its 100% subsidiaries and determine the ALP thereon to examine the applicability of provisions U/s. 271AA for failure to report the international transaction in the books of account. Thereafter, a reference wa....
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....ational transaction is violation of ratio laid down by Madras High Court in the c.ase of PCIT vs. Redington (India) Ltd [2020] 122 taxmann.com 136? 5. Any other grounds that may be urged at the time of hearing." 5. At the outset, the Learned Departmental Representative submitted that the CIT(A) is not justified in holding that corporate guarantee to Associated Enterprises is not an international transaction. He further submitted that the Ld. CIT(A) has erred in appreciating the fact that with clarificatory amendment made to section 92B of the Act w.e.f 01/04/2002, corporate guarantee is clearly an international transaction as per section 92B of the Act. The Ld. DR further submitted that by providing corporate guarantee the assessee is liable to pay to the lender entire loan amount including interest in the event of default by the borrower / AE and thus has a direct bearing on the profits or income or losses or assets of the assessee. In support of his arguments, the Ld. DR relied on the decision of the Hon'ble Madras High Court in the case of PCIT vs. Redington (India) Ltd [2020] 122 taxmann.com 136. 6. Ld. Authorized Representative (in short "Ld. AR") submitted that the Ld. CI....
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....rial placed on record. During the appeal hearing, the Ld.AR argued that providing corporate guarantee to its AE would not constitute an international transaction as held by various tribunals and hence no adjustment is required. The ld.AR further submitted that the AE is 100% subsidiary of the assessee company, hence it is the obligation of the assessee to extend it's support to improve the business and smooth running of the company without any financial impediment. Therefore the Ld.AR submitted that the corporate guarantee is given to it's AE in the commercial interest and no expenditure was incurred, thus there is no case of any adjustment and no addition is warranted in the assessee's case. The Ld.AR invited our attention to the decision of ITAT Kolkata, 'C' Bench in the case of DCIT, Circle-8(1), Kolkata Vs. M/s EIH Ltd., [2018] 89 taxmann.com 417 (Kolkata - Trib) wherein Hon'ble ITAT held as under : "12.12. Thus, we hold that when a parent company extends an assistance to the subsidiary, being associated enterprise, such as corporate guarantee to a financial institution for lending money to the subsidiary, which does not cost anything to the parent company, and which does not....
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....on'ble Delhi High Court in the case of Skies Satellite. We have also analysed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd., (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." 5.2. Similar view was taken up by the Coordinate Bench of ITAT, Hyderabad in the case of Batronics India Ltd. (supra). In the instant case, the facts are identical. The assessee had given corporate guarantee to its 100% subsidiary and the AE for the purpose of business. The assessee had not incurred any....
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.... appreciating the fact that by providing corporate guarantee the assessee is liable to pay to the lender entire loan amount including interest in the event of default by the borrower / AE and thus has a direct bearing on the profits or income or losses or assets of the assessee? 4. Whether the decision of the CIT(A) holding that corporate guarantee to Associated Enterprises is not an international transaction is violation of ratio laid down by Madras High Court in the case of PCIT vs. Redington (India) Ltd [2020] 122 taxmann.com 136? 5. Any other grounds that may be urged at the time of hearing." 12. In this appeal, the Revenue has raised the identical grounds with that of the grounds raised in its appeal in ITA No.97/Viz/2025 for the AY 2011-12. In both the appeals, since the similar issue (corporate guarantee) is involved, our decision given while adjudicating the Revenue's appeal for the AY 2011-12, in the above paragraphs of this order, mutatis mutandis applies to the present appeal for the AY 2012- 13 also. Accordingly, the grounds raised by the Revenue are dismissed. 13. In the result, appeal filed by the Revenue is dismissed. I.T.A. No.152/Viz/2025 (Assessment Year: ....
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....s not an international transaction without appreciating the fact that by providing corporate guarantee the assessee is liable to pay the lender entire loan amount including interest in the event of default by the borrower / AE and thus has a direct bearing on the profits or income or losses or assets of the assessee? (iii) Whether the decision of the CIT(A) holding that corporate guarantee to AE is not an international transaction is violation of ratio laid down by Madras High Court in the case of PCIT vs. Redington (India) Ltd (2020) (122 taxmann.com 136)? (iv) Whether on the facts and in the circumstances of the case and in law, the CIT(A) is justified in observing that the corporate guarantee to AE is not an international transaction as the AE is a 100% subsidiary without appreciating that section 92B of the Acts does not provide this distinction between a 100% subsidiary and other subsidiaries? C. On the issue of interest on delayed receivables: (i) Whether on the facts and in the circumstances of the case and in law, the CIT(A) is justified in rejecting the benchmarking analysis carried out by the TPO? (ii) Whether on the facts and in the circumstances of the case an....
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....e assessment order it is observed that, during the FY 2015-16 relevant to the AY 2016-17, the assessee sold its single product viz., instant coffee [146674 kgs] to the tune of Rs. 74.46 Crs to its 100% subsidiary M/s. Grandsaugreen SA, Switzerland in various packing sizes ranging from 45 gms to 500 gms and also in bulk sizes. For this, the assessee adopted CUP method and held the same to beat Arm's Length and did not suggest any adjustment. The assessee further submitted that the TPO refused to follow the CUP method and adopted TNMM method for determining the ALP and also stated that no adjustment could be made under the method as the assessee's net profit margin was highest in the industry ie., 23%. The assessee further submitted that the TPO is not able to make any adjustment under TNMM, since the AY 2015-16 onwards, Department started following CUP method but while doing so, started cherry-picking the sizes favourable to them with the sole intention of making the TP adjustment which is unfair and unjust. Later on, when the matter reached to the Ld. CIT(A), the assessee relied on various case laws as well as the decision of the Ld. CIT(A) in the assessee's own case for the AY 201....
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.... made to AE and non-AE has to be considered and adjustment has to be made. This was not considered by the TPO. The ld. CIT(A) by considering the same and gave a finding that TPO is not correct in selecting two items out of 11 items suggested adjustment for the purpose of arriving at ALP. He further gave a finding that if the entire sales is considered the irrespective of size of packaging difference is only 1.49% which is permissible limit as per provisions of law. As per proviso to sub-section (2) of section 92C, the difference to the extent of 3% is permissible. We further find that the assessee by submitting all the details explained before the TPO that the assessee has charged for AE as well as non-AE similar prices for the supply of instant coffee and no profit has been shifted to AE, however, the TPO not accepted the explanation given by the assessee and suggested TP adjustment without giving any reasons. The TPO has not given what is the reason for choosing only two sizes 100 grams and 200 grams, when the assessee specifically submitted before the TPO that out of 11 sizes, 6 sizes the assessee has charged high price and submitted that average has to be taken. Without conside....
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....ay of current FY 2015-16 vis-à-vis credit period as per their service agreement with its AEs. The TPO after a detailed discussion computed the Arm's Length interest amount to be charged Rs. 47,90,497/- and accordingly, the AO made the addition. Aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). 24. On appeal, the Ld. CIT(A) after considering the submissions of the assessee and by relying on the decision of the ITAT, Vizag Bench in the assessee's own case for the AY 2015-16 deleted the addition made by the AO vide paras 6.8.2 and 6.8.3 of his order. For the sake of immediate reference, the relevant paras are culled out as under: "6.8.2. During the course of appellate proceedings, with regard to the addition, the appellant submitted that they furnished all the details required by the TPO and also strongly objected for adjustment on this account by treating the same as international transaction. Further, the appellant contended that the TPO while computing the interest on extra period allowed to their AE, conveniently ignored the many instances of early realizations ie., less than the standard 60 days credit period which is highly unjustified. The ap....
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....he Ld.AR. in the case of Mahati Software Pvt. Ltd supra., wherein the Coordinate Bench held that no separate benchmark is required on receivables when PLI is comparable. For the sake of clarity and convenience, we extract para No.17 and 17.1 of the said order which reads as under : "17. We have heard both the parties and perused the material placed on record. In this case, there were receivables outstanding for both the assessment years which was not received in time. It was also observed that the receivables were not received during the entire year. The Ld.TPO has not furnished the delay in recovery of receivables and period of outstanding. As per the order of the TPO, the PLI margin in the assessee's case is 37.26% which is higher than the average margin of comparable case. The interest on receivables is bench marked to equate the PLI of the tax payer company with that of comparable company. The TPO has accepted that there is no arm length adjustment is required in this case on account of margin. The AO has not brought on record to show that the assessee has extended undue credit to the AE for the period beyond the time specified in the master service agreement. The AO has also....
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....rd parties. The contention of the assessee have not been disputed by the authorities below. It may also be noted here that all international transactions were accepted by the TPO to be at arm's length, except, payment of interest on loan. The authorities below have treated the delayed payment beyond 30 days as loans. In fact, no loan have been extended by the assessee. It was the amount 'due' against the A.Es. as well as non-A.E. on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra), squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstandings. The decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT vs. Kusum Healthcare Pvt. Ltd.,(supra), squarely apply to the facts and circumstances of the case. The assessee also explained that there are similar delays in collection of outstanding receivables from both A.Es and non-A.Es which is due to business and commercia....
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....ision in the case of B.C. Management services (P) Ltd we hold that the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly, we set aside the orders of the authorities below and delete the addition. The appeal of the assessee on this ground is allowed. 17.1. In the instant case the PLI is higher than comparable cases and the TPO held that no ALP adjustment is required with regard to profit margin. The assessee contended that having accepted that the PLI is higher than the comparable cases the potential loss of interest is taken care and embedded in the sale price. The department has not given the specific details such as what was the period of recovery, what was the delay, what was the reasonable delay etc., thus the department has not made out a case for charging the interest on delay. The revenue also did not controvert the submission of the assessee that due to higher margins and the long term relations and business considerations the right of interest is waived. In the case of M/s Cura Technologies supra Hon'ble ITAT, Hyderabad bench has held that no interest required to be charged on trade advances. Similar view was taken by ....
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....which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra) squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstanding. The decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT v. Kusum Healthcare Pvt. Ltd. (supra) squarely apply to the facts and circumstances of the case. The assessee also explained that there are similar delays in collection of outstanding receivables from both A.Es and non AEs which is due to business and commercial reasons. Therefore, there is uniformity in act of assessee in not charging interest from AEs and non AEs. Therefore, the decision of the Hon'ble Bombay High court in the case of CIT v. Indo American Jewellery Ltd. (supra) squarely apply to the facts of the case. 5.1 Considering the nature of business of assessee and the facts explained above, we are of the view that there was non justification for the authorities below to make adjustment ....