AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1986
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.... III 2 IT(A) No. 776/Bang/2025 2015-16 - I II 3 IT(A) No. 777/Bang/2025 2016-17 - I II 4 IT(A) No. 778/Bang/2025 2017-18 - I - B Cross Objection Appeal CO No. CO No. CO No. 1 CO 12/Bang/2025 2014-15 I II III 2 CO 13/Bang/2025 2015-16 - I II 3 CO 14/Bang/2025 2016-17 - I II 4 CO 15/Bang/2025 2017-18 - I - 2. Since the issue contended are common, these appeals were heard together and disposed off by this common Order. For the purpose of adjudication AY 2014-15 is considered as the lead case. 3. The assessee is a company and is engaged in the business of promoting infrastructure development through investments in share and securities of accompanies engaged in such activities. The assessee filed the return of income for A.Y. 2014-15 on 29/11/2014 declaring loss of Rs. 35,66,74,072/- under normal provision and book profit of Rs. 211,85,82,199/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing....
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....the Tribunal while considering the issue of disallowance of upfront and legal fees paid has held that - "8.11 We have perused the submissions advanced by both sides in the light of records placed before us. 8.12 We have perused the decisions relied by both sides vis-a-vis the facts of issue. We note that, the authorities below have not verified the facts in correct perspective. Admittedly, the assessee paid non- refundable fee for structuring, processing and advisory services to ICICI Bank in respect of NCD's issued by assessee to ICICI. The assessee claimed the entire fee in the year of accrual in computation of Income, however amortized the amount in the books of account to the securities premium account, over the tenure of the debentures. 8.13 We note that Hon'ble Supreme Court while considering the facts in case of Madras Industrial Investment Corporation Ltd. reported in 225 ITR 820, distinguished between, various situations and also observed that; "Ordinarily, expenditure incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number ....
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....al on record. We noticed that the Co-ordinate Bench in assessee's own case for Assessment Year 2010-11 has considered the issue of commission of corporate guarantee where it has been held that : "5.10 We have perused the submissions advanced by both sides in the light of records placed before us. 5.11 Primarily, we reject the argument of assessee that corporate guarantee is not an international transaction. WE find that section 92(1) requires that any income arising from an international transaction shall be computed having regard to the arms length price. To this extent, there is no dispute that the transaction in the present facts are is the transaction to the assessee and the associated enterprises and therefore falls within the ambit of section 92(1). The decision of Hon'ble Kolkata Special Bench in case of Instrumentarium Corporation Ltd. vs. DDIT in ITA Nos. 1548 & 1549/Kol/2009 & ITA No. 2058/Kol/2010 by order dated 03.08.2018 deals on this aspect at great length and therefore any transaction that has an impact on the profit or loss of the assessee has to be considered as per section 92(3) of the Act. Accordingly, the decision relied by the Ld.AR un....
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.... and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law." 5.16 Similar is the ratio laid down Hon'ble Delhi High Court in case of CIT vs. Cotton Naturals (I)(P) Ltd., reported in (2015) 55 taxman.com 523. 5.17 Respectfully following the above views we direct the Ld. TPO to compute the guarantee commission rate in accordance with the principles laid down in CIT Vs Tata Autocomp Systems Ltd. and CIT vs. Cotton Naturals (I)(P) Ltd.,(supra). Further in case of Xchanging Solutions Ltd. vs. DCIT reported in [2017] 78 taxmann.com 54 (Bangalore-Trib.), Coordinate Bench ....
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....ction are not capable of being evaluated so as to arrive at determination of the fair uncontrolled price. In the circumstances, computation methodology of TP exercise may fail. It is undisputed that failure of computation mechanism results in failure of the charge.' Thus it is clear that grievance of the assessee against the order of the TPO on the issue of ALP in respect of guarantee fees is limited only regarding the correct ALP. We further note that prior to the decisions of Mumbai Bench in the case of Siro Clinpharm Pvt. Ltd. Vs. DCIT (supra) there are series of decisions of this Tribunal including the decision in cases of Four Soft Pvt. Ltd. Vs,. DCIT (supra) and Nimbus Communication Ltd. Vs. ACIT (supra) wherein the Tribunal has taken a consistent view that providing corporate guarantee to AE is an international transaction however, the ALP of such transaction was to be computed having regard to the financial consideration as the nature of transaction between the related parties. The Tribunal has taken a view that the guarantee fees for providing corporate guarantee should not be more than 0.5%. The Hyderabad Benches of this Tribunal in the case of Four Soft Pvt.....
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.... the assessee will not come within the meaning of international transaction in terms with section 92B of the Act. It is not disputed that section 9 2B of the Act has been amended by the Finance Act, 201 2 with the insertion of Explanation I (c) with retrospective effect from 01/ 04/200 2. Explanation (i)(c) t o section 92B, reads as under: "capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business. " 25. 3 A reading of the aforesaid clause from the Explanation would make it clear that the corporate guarantee provided by the assessee comes within the scope and ambit of ' international transaction' as per the aforesaid clause. Therefore, the contention of the learned AR that the issue is covered in favour of the assessee by virtue of the order passed in assessee 's own case for A Y 2006-07 no longer holds good since the order passed by the coordinate bench is prior to the amendment made to provision of section 92B of the Act. It will be pertinent to men....
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.... rates accordingly. If the assessee is able to bring on record any comparables with regard to corporate guarantee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes." It is pertinent to note that in case of corporate guarantee provided to a bank or financial institution on behalf of the AE, the assessee creates a charge on its assets in favour of the bank/financial institution and to that extent the transaction of providing corporate guarantee is having bearing on the assets of the assessee and in turn the assessee cannot use those assets under charge for the purpose of availing further financial credit/loans from the bank/financial institution. Thus this Tribunal held that by providing corporate guarantee falls in the definition of international transactions as per Section 92B(1) without considering the Explanation to the said Section. As we have discussed in the foregoing part of this order that the Tribunal has been taken a consistent view that corporate guarantee provided to the AE falls i....
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....n 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) its market share might temporarily incur higher costs and hence achieve lower profit levels than other taxpayers operating in the same market. In our opinion, the relevant facts of the present case do not indicate that there was any such business strategy adopted by the assessee in not charging commission in respect of guarantees issued for its Associated Enterprises. As a matter of fact, there is nothing to suggest that any such business strategy was adopted by the assessee with specific intention or motive and the case has been sought to be made out merely on the basis of commercial expediency by claiming that the assessee was benefited as a result of giving the guarantees in the form of commercial benefits secured for future. In our opinion, such commercial expediency cannot be equated with business strategy, which is specific and well laid out. As rightly held by the ld. C....
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....terially similar to the facts involved in the case of Everest Kanto Cylinder Ltd. (supra), we prefer to follow the decision rendered by the co-ordinate Bench of this Tribunal in the said case over the decision of French Court in the case of Societe Carrefour (supra). We, accordingly modify the impugned order of the ld. CIT(A) on this issue and direct the A.O. to recompute the commission for guarantee given by the assessee to its Associated Enterprises @ 0.5% being the arm's length price. Ground No. 1 of Revenue's appeal is thus partly allowed whereas ground No. 2 of assessee's appeal is dismissed". 5. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2005-06, we respectfully follow the order of the co-ordinate Bench of this Tribunal for A.Y. 2005-06 and direct the A.O. to restrict the TP adjustment by recomputing the commission for guarantee given by the assessee to its AEs at 0.5% being the arm's length price. Ground No. 2 of the assessee's appeal for A.Y. 2006-07 is partly allowed." As it is clear that the Tribunal has followed the decision of the Tribunal for the earl....
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....r filed miscellaneous petition before the ITAT, which is the subject matter of this OGE. Before the ITAT, the taxpayer contended that against the corporate guarantee given by it to the bank, it had obtained a counter guarantee from the AE for which it should be granted appropriate adjustment. The ITAT has accepted this argument of the taxpayer relying on its decision in the case of Xchanging Solutions Ltd vs. DCIT (2017) 78 taxmann.com 54 (Bangalore-Trib) and has modified para 5.18 of order dated 25/05/2022 as under: "5.18 In the above decision, this tribunal has considered the commission on guarantee fee at 0.5%. In view of the above, we direct the Ld.AO/TPO to re-compute the rate of commission attributable to the corporate guarantee by providing appropriate adjustment for the corporate guarantee received by the assessee in the present facts of the case in the light of the above decision." 4.1 Before the undersigned, the taxpayer furnished copy of counter guarantee obtained from the AE and it is seen there from that the counter guarantee received by the taxpayer is equal to that given by the taxpayer to the bank. 4.2 Therefore, after providing appropriat....
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.... Bank USD 3,50,00,000 1% NIL NA Directly charged to AE - NIL 4 GISPL 11.07.2011 TO 09.05.2013 Bank of India SGD 20,00,00,000 1.5% NIL NA Directly charged to AE - Nil 5 GIML 27.12.2012 Axis Bank USD 2,50,00,000 1% 4,44,14,732 + 4,49,28,250 4,44,14,732 + 4,49,28,250 Charged to Assessee and recovered from AE 14. TPO made adjustment of Rs.15,45,49,138/- considering 50% of differential rate of annualized average yield on 5 years bonds. The CIT(A) followed decision of Co-ordinate Bench in assessee's own case for Assessment Year 2010-11 whereby the Tribunal directed to give credit for the amount recharged by the assessee to its AE. 15. The learned AR submitted that assessee is being charged commission by the Indian Bank and in turn assessee recharges its AE. The learned AR further submitted that assessee has not recharged the entire amount charged by the Indian bank and the CIT(A) has therefore restricted addition to the amount not recharged by the assessee to its AE. Learned AR accordingly submitted that there is no infirmit....
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.... the submissions of the appellant and the order of the TPO. It Is seen that the TPO has made adjustment towards commission for utilization of non fund based limits of the appellant by the AE. The Bank which has issued SBLC has charged commission of Rs. 2,25,000/- from the appellant and the appellant in turn has not charged the amount of commission of Rs. 2,25,000/- charged by the bank from Its AE. However, the AO on completion of TP assessment has made adjustment of Rs. 4,50,000/- holding that the appellant should have also recovered the similar amount for utilization of its non-fund based limits. It is noticed that the appellant has not recovered the amount of commission of Rs. 2,25,000/- which the bank has charged from the appellant for providing SBLC. Hence, non-recovering the amount paid by the appellant definitely has a cost, charge on the profit/assets of the appellant and to this extent the action of the AO is justified In making adjustment. However, the Assessing Officer Is not justified in assuming equivalent charge by the appellant from its AE. Having regard to the facts of the case and non-recovery of amount incurred by the appellant from Its AE, the Assessing Officer is....