TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 1366
X X X X Extracts X X X X
X X X X Extracts X X X X
....n available on record. 3. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred by restricting the CG rate at 0.5% without considering the credit rating of the AE which is a vital factor while availing loan from a financial institution, and accordingly, the effective rate of interest was calculated and CG rate was determined accurately. 4. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in determining the arm's length rate of interest on adhoc basis and not in accordance with 92C of the Income-tax Act,1961 (the Act) read with Rule 10B & Rule10C of the Income-tax Rules, 1962 (the Rules). 5. That whether on the facts and circumstances of the case, the Ld. CIT(A) was right in Law in allowing Excise duty exemption as capital receipt while the assessee has treated the same as revenue receipt in its book, return of income as well as during assessment. 6. That whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the Excise duty exemption adjustment in computation of MAT u/s 115JB. 7. That whether on the facts and circumstances of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d judicial precedence and looking to the facts of the case, the estimated Corporate Guarantee fees can be charged within the range of Ld. Assessing Officer during the course of assessment proceedings observed that international transaction has taken place and referred the matter to Transfer Pricing Officer, who after considering the submission of the assessee, held that Corporate Guarantee fees @ 1.22%, 1.69% and 1.27% of the respective loan amounts should be treated as income of the assessee. Ld. Assessing Officer accordingly made the addition of Rs. 43,67,295/-. Aggrieved, the assessee preferred appeal before the ld. CIT(Appeals) firstly claiming that the said Corporate Guarantee given to the Associated Enterprises do not come under the purview of international transactions and also raising an alternative plea that in view of the settled judicial precedence and looking to the facts of the case, the estimated Corporate Guarantee fees can be charged within the range of 35. Ld. D.R. vehemently argued supporting the orders of ld. Transfer Pricing Officer and the ld. Assessing Officer. 36. Per contra, ld. counsel for the assessee reiterated the submissions made befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....through the decisions referred and relied upon by the ld. counsel for the assessee. We note that the assessee-company had following inter-company guarantee arrangements for its Associated Enterprises:- (i) Providing a Corporate Guarantee to Standard Chartered Bank (SCB) for a term loan/letter of credit facility on behalf of Greenlam Asia Pacific Pte. Ltd. ("Greenlam Asia"); (ii) Providing a Corporate Guarantee to United Overseas Bank (UOB) for a commercial property loan on behalf of Greenlam Asia; and (iii) Providing a standby Letter of Credit (SBLC) to City Bank N.A. for on behalf of Greenlam America Inc. ("Greenlam USA") and Greenlam Asia. 38. Inter-corporate guarantees are a common business practice. Within an affiliated corporate group, some entities represent higher credit risks than others. The weaker entities may either be unable to obtain financing or may be able to obtain credit facilities only upon unfavourable terms. When a corporate borrowing group includes multiple businesses, it is common for lenders to look to guarantees of corporate affiliates to support the credit facility. In the instant case, the corporate guarantee has been pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n was charged by the assessee company on the ground that the said AEs were not benefited by the guarantee so given and it was the assessee who benefited as a result of commercial benefits secured for future. In support of this stand of the assessee, the Id. counsel for the assessee has contended that business strategy should be taken into consideration while making any TP adjustments in respect of such transactions and has relied on the OECD Transfer Pricing Guidelines issued in 2010. As stated in para 1.59 of the said guidelines, the business strategies should also be examined in determining comparability for transfer pricing purposes and certain illustrations of such business strategies are also given therein. As stated in para 1.60 of the said guidelines which has been relied upon by the Id. Counsel for the assessee, business strategies also could include market penetration schemes and taxpayer seeking to penetrate a market or to increase its market share might temporarily charge a price for its product that is lower than the price charged for otherwise comparable products in the same market. As explained further, a tax payer seeking to enter a new market or expand (or defend) i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issue to be decided is the quantum of adjustment to be made in case of assessee. According to appellant, comparables selected by it were from areas not far from Singapore and having similar economic situations, whereas cases selected by TPO were from America where AEs were not operating. Had the case selected by appellant being considered, there would have been no requirement TP adjustment. Alternative argument was put forth stating that Arm's Length guarantee fee should not exceed 0.5%. Further alternative argument given was that the adjustment should not exceed the difference between interest determined by the TPO and the actual cost incurred by the subsidiaries. As noted earlier, in contrast to appellant's comparables drawn by Asia Pacific Region, the TPO had taken comparables from America. There, it is seen that comparables taken by assessee as well as TPO were not from Singapore. In view of non-availability of comparables from Singapore, it may be appropriate to delve into judicial pronouncements on rate of Guarantee fee for TP adjustment i) In the case of Everest Kento Cylinder Ltd (Supra), assessee's AE availed loan from ICICI Bank for which assessee ga....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xemption is capital receipt as against the ld. AO's order, wherein the same was treated as revenue receipt. 4.1. The facts in brief are that during the year the assessee has availed excise duty of Rs. 87,81,58,550/- in terms of excise notification no.50/2023, dated 10.06.2023, in respect of manufacturing unit of the assessee which are eligible for 100% excise duty exemption in respect of goods manufactured for a period of ten years from the date of the commencement of the production. The assessee has two manufacturing unit (i) Rudrapur Plywood Unit (ii) Rudrapur MDF Unit. The date of commencement of productions were made on 6th and 13th March 2007 respectively. The assessee claimed exemption in respect of these units comprising Rs. 40,39,05,189/- for Rudrapur Plywood Unit and Rs. 47,42,53,361/- in respect of Rudrapur MDF Unit. 4.2. After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered by the decision of the co-ordinate Bench in assessee's own case in ITA No.402/GTY/2019, for A.Y. 2015-16, vide order dated 19th December, 2022, which has also been confirmed by the Hon'ble High Court of Gauhati as repor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the capital receipt and the finding of the Id. CIT(Appeals) that the excise duty exemption is not liable to be taxed under the normal provisions of the Income Tax Act being not in dispute for us, the alleged capital receipt cannot be categorised as part of the book profit. In the case of assessee being covered by the excise duty notification, such sum collected on the goods manufactured and sold is in the nature of incentive subsidy given for establishing the units in backward areas and to generate employment opportunities. The said fact is evident from the office memorandum dated 07.01.2003 of Ministry of Commerce and Industry, which reads as under:- 3.4 On perusal of the above, it can be seen that incentive in the form of Excise Duty Exemption has been given with an objective to achieve industrialization in the backward areas of Himachal Pradesh and Uttaranchal and to generate employment opportunities. The object of the assistance was not to enable the businessman to run the business more profitably but encourage a businessman to set up a new unit or expand the existing unit for overall economic development of the state. Hence, the incentives granted by the Government of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be accepted by the Assessing Officer and the only limited power he has to increase/ decrease the book profit as arrived at by the assessee is only in terms of the Explanation to Section 115J of the Act. In addition to the criteria listed in ITB 35.2 (a) (d), the following criteria shall apply. In the present case, the Revenue is not invoking the explanation to Section 115J of the Act to vary the book profit declared in the audited accounts of the respondent-assessee. Thus, the question as proposed herein does not give rise to any substantial question of law as it also stands concluded against the Revenue by the decision of the Apex Court in Apollo Tyres Ltd. (supra)." 33. It is to be noted that the present issue is also consequential to the substantial question of law No. 1, framed by this Court, vide order, dated 09.06.2023. 34. We having already concluded that the excise duty exemption availed by the assessee being in the nature of a capital receipt in the hands of the assessee; we are also in respectful agreement with the decision of the High Court of Bombay that the same also cannot be added to arrive at the book profit of the assessee under the provi....