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TaxTMI 
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2026 (5) TMI 80
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....ns of the Hon'ble DRP, erred in making a transfer pricing adjustment of Rs 56,31,605, by re-computing the ALP of the international transaction undertaken by Australia and New Zealand Banking Group Limited, Mumbai Branch (ANZ Mumbai) relating to processing fees received on account of guarantees issued by ANZ Mumbai to Indian beneficiaries [based on the corresponding back to back guarantee provided by the overseas associated enterprises (AE's)]. Ground 2: Rejecting the Transactional Net Margin Method (TNMM) used by the Appellant and adopting External Comparable Uncontrolled Price (CUP) method as the most appropriate method On the facts and in the circumstances of the case and in law, the learned AO. based on the directions of the Hon'ble DRP, erred in determining the ALP of the international transaction undertaken by ANZ Mumbai relating to processing fees received on account of guarantees issued by ANZ Mumbai to Indian beneficiaries (based on the back to back guarantee provided by the overseas AEs) on account of the following: a) In rejecting the TNMM used by the Appellant without appreciating that the Appellant provides administrative support s....
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....under PSM as the most appropriate method without giving reason to reject TNMM adopted by the Appellate c) Without prejudice to the above sub-ground (b), in computing upward adjustment by considering those deals where the day end NPV is positive and ignoring those deals where the day end NPV is negative d) In observing that the Appellant has not maintained sufficient and appropriate documentation. Ground 5: Reimbursement of expenses, being identifiable to ANZ Mumbai and incurred specifically for ANZ Mumbai considered to be covered within the provisions of section 44C of the Act and consequent disallowance of the said expenses On the facts and in the circumstances of the case and in law, the learned AO, based on the directions of the Hon'ble DRP, erred in holding that the following expenses incurred by ANZ Mumbai, and which were reimbursed by ANZ Mumbai to the Appellant, are covered by the provisions of section 44C of the Act and thereby, disallowed the same being over and above the limit prescribed under section 44C of the Act: a) Reimbursement of telecommunication charges (Singtel leased line charges) incurred by the Appellate amount....
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....Z has a branch in India operating in Mumbai. It is involved in normal banking activities including financing of foreign trade and foreign exchange transactions. 5. During the year, assessee had issued guarantee to customer based on the counter guarantee issued by its AEs. Assessee had benchmarked this transaction using TNMM as the MAM. Assessee was asked to provide the details relating to the amount of guarantee issued by it on behalf of the clients based on counter guarantee issued by overseas branches of ANZ. Assessee was also asked to provide back-up document in respect of the above transaction and the average rate at which guarantee fees has been charged by the assessee to its AEs. All these details were submitted by the assessee. The TPO was not satisfied either with the method followed by the assessee nor the rate of guarantee fee adopted. 5.1. On the above stated facts, this issue is squarely covered by the decision of Coordinate Bench of ITAT, Mumbai in assessee's own case for Assessment Year 2020-21, in ITA No.4778/Mum/2024, dated 28.5.2025, wherein the undersigned AM is the author. Relevant extracts in this respect from the said order are as under: "2.1. Th....
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.... by the ld. AO u/s.143(3) r.w.s. 144(C)(13) of the Act dated 24.07.2024 pursuant to the directions of the ld. DRP. 3. During the course of hearing, Shri Madhur Agarwal, ld. counsel for the assessee submitted that similar issue has been decided in favour of the assessee by the Co-ordinate Bench of the Tribunal rendered in assessee's own case. 4. On the other hand, Shri Kiran Unavekar, ld. Sr. DR vehemently relied upon the orders passed by the lower authorities. 5. We have considered the rival submissions and perused the material available on record. We find that the Co-ordinate Bench of the Tribunal in assessee's own case in M/s. Australia and New Zealand Banking Group Ltd. v/s DCIT, in ITA No. 1106/Mum/2017, for the Assessment Year 2012-13, vide order dated 13.04.2022, had dealt with this identical issue. Further the same issue was also dealt by the Coordinate Bench in assessee's own case for Assessment Year 2013-14 in ITA No.5129/Mum/2017, dated 10.08.2022. The Coordinate Bench in ITA No.1106/Mum/2017 for Assessment Year 2012-13, while deleting the transfer pricing adjustment made in respect of guarantee fees, observed as under: "3.5. At the....
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.... the overseas branches, the assessee would first receive the monies from overseas branch because of the existing counter guarantee, and then discharge the same. The assessee is receiving processing fees from its AEs in foreign currency and the said fee is received immediately after the invoice is raised for the same, thereby the risk of exchange fluctuation would be very very negligible due to reduced time span involved therein. Given these undisputed facts, it would be appropriate to consider assessee as the tested party as it would be the least complex entity and its profitability could be reliably ascertained. Admittedly, the transaction which requires to be benchmarked is the receipt of processing fees by the assessee for the guarantees issued by rendering the aforesaid secretarial services. Hence, what is to be looked into is under similar terms and conditions and under similar circumstances what is the guarantee fee charged by the third party comparables from their AEs. This is what precisely assessee has done in the instant case. The assessee had taken into account the third party comparable margins and compared the same with its margins using Transactional Net Margin Method....
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....78/Mum/2012 wherein specifically in the context of guarantee fees, this Tribunal had deleted the adjustment made as the said judgement was rendered simply relying on certain data from the market. The facts of the case before us squarely fit into the facts prevailing in the case of Asian Paints Ltd. 3.9. The assessee before the ld. DRP made an alternative submission that the fee of 1% proposed by the ld. TPO may be applied in respect of fresh guarantees issued during the year. The details of fresh guarantees issued during the year were also furnished before the ld. DRP in pages 577-579 of the paper book vide letter dated 27/04/2016. But we find that the ld. DRP had merely brushed aside the same and grossly erred in stating that no details were filed by the assessee. 3.10. In view of the aforesaid observations, we hold that TNMM method would be the Most Appropriate Method in the facts and circumstances of the instant case and CUP could not be applied herein because of nonavailability of data. In any case in respect of adjustment made simply relying on 133(6) information from the market had been deleted by this Tribunal in the case of Asian Paints Ltd., referred to s....
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....der in the overseas ANZ office in respect of a particular derivative product. Upon receipt of the price from the overseas ANZ trader, the salesperson of ANZ Mumbai finally agrees the pricing of the trade with the customer inclusive of the mark-up of ANZ Mumbai. The entire amount of mark-up agreed by the ANZ India sales person with the customer is paid to ANZ Mumbai as fees, for the functions performed and risks assumed as outlined in para 2.5.2 and 2.5.3 below. A total of Rs 5,774,982 has been received in relation to the activities undertaken for the year ended 31 March 2014. Details of the income attributed to ANZ Mumbai are enclosed in Appendix 11. 6.2. For benchmarking this transaction, assessee used TNMM as the most appropriate method. According to the ld. TPO/Assessing Officer, assessee had failed to furnish details in respect of these transactions and other derivative transactions entered into. Ld. AO/TPO noted that apart from the hard markup or initial spread, assessee was not getting any compensation from other deals either in the form of hard markup or share in the soft markup or trader profit or by way of recovery of cost. According to the ld. Assessing Office....
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....deals where the day end NPV is negative. Assessee submitted that considering the nature of the transactions, even if the method of ld. TPO was to be applied, the same should have been applied on an aggregate basis i.e., considering both, the positive and negative day end NPV. Assessee submitted that once the deals are aggregated, there is no transfer pricing adjustment required. Assessee submitted that if it succeeds on this argument, then the other arguments on the correctness of method adopted by the ld. TPO may not be adjudicated and left open. 6.6. In relation to the rule of aggregation, assessee placed reliance on the following decisions wherein the Tribunal has consistently held that for such similar nature of transactions, the arm's length price has to be determined on aggregate basis - i. Barclays Bank PLC vs Additional Director of Income-tax, (International Taxation) [2018] 100 taxmann.com 476 (Mum) ii. Credit Agricole Corporate and Investment Bank (Formerly known as 'Calyon Bank') vs DCIT, Mumbai (I.T. (TP) A. No. 1479/Mum/2015) 6.7. Relevant extracts from the order of Barclays Bank PLC (supra) on the rule of aggregation are as follows:....
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.... observing in para 7.3 to 7.5 as under: - 7.3 I have received the facts and the submissions of the appellant and the learned TPO. With regard to the aggregation, the Appellant has placed reliance on the ruling of the Mumbai Bench of the Income-Tax Appellate Tribunal (Mumbai ITAT) in the case of Essar Steel Ltd. (ITA No 3727/Mum/2011), wherein the Mumbai ITAT has drawn reference to Rule 10(A)(a) of the Income tax Rules, 1962, which defines a "transaction to include a number of closely linked transactions. In such a case, the Mumbai ITAT held that if the transactions are closely linked, then they can be aggregated for determining the ALP. In the aforementioned case, it was held that if the product remains the same and the source from which the average price has been taken remains the same, it is a fit case for aggregation. A similar view was also taken by the Mumbai ITAT has upheld the aggregation of transactions as against arbitrary selection of individual items. Separately, in the case of Boskalis International Dredging International CV (ITA 4862/Mum/2008), the Mumbai. The Mumbai ITAT noted that aggregation and clubbing of the closely linked transactions are permitted unde....
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....sary verification, then the addition so made by the AO on the adjustment made by the TPO stands deleted. With this observation, the appellant's this ground is adjudicated." Aggrieved, now Revenue is in appeal before us. 14. Before us, the learned Sr. Departmental Representative relied on the TPO/ APO's order. On the other hand, the learned Counsel for the assessee stated that the issue is covered by the co-ordinate Bench of this Tribunal in the case of ACIT vs. Audco India Ltd. (2011) 47 SOT 420 (Mum), wherein it is held as under:- 10. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. We further find that the Id. CIT(A) has observed in paras 4.4 and 4.8 of his order as under. "4.4 I have perused the facts of the case, Transfer Pricing Officer's (TPO) order and assessment order thereof on this point. It is observed that the appellant had supplied the gate, globe and check valves to its AE amounting to Rs. 2,13,64,571. The primary business of the AE is sourcing of valves from the appellant company and marketing them in American marke....
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.... and suitable to it and ignore the corresponding data which goes against it. Ultimately an order to stand has to have a mark of fairness, reasonableness and judiciousness. Taking all the above facts and circumstances, I am of the view that there is no case for adjustments of Rs. 7,28,865 in respect of the export price of finished valves of L&T LLC by selectively utilizing the data where the 5% limit is lower in respect of AE and ignoring those figures/data where sale of valves to the AE are at prices higher as compared to the average prices charged to third unrelated parties. The addition so made on totality of facts is, therefore, deleted. In the absence of any contrary material placed on record by the revenue against the finding of the Id. CIT(A) and keeping in view that the difference between the sale of L&T LLC and Arm's Length Price is only 3.35% which is well within the limit of 5%, we are inclined to uphold the finding of the Id. CIT(A) in deleting the addition made by the Assessing Officer. The ground taken by the revenue is, therefore, rejected." 15. Similarly, in the case of ACIT vs. Essar Steel Ltd. (2014) 50 taxmann.com 183 (Mumbai-Trib.), wherein ....
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.... amount of markup (being the difference between transaction price and the price quoted by AE) agreed by the assessee with the customer is its remuneration for the functions performed and risks assumed. Therefore, even if the transaction ultimately results in a loss, assessee will receive its remuneration being the markup. Ld. TPO has rejected TNMM adopted as the most appropriate method by the assessee and applied PSM (revenue split). Contention of the assessee is that PSM cannot be applied as InPV is a mere profit prediction and not the real profit and therefore not a correct method to be applied on the transaction undertaken by the assessee wherein it is not undertaking any risk of profit or loss from the said transaction. Arm's Length Price (ALP) for these transactions cannot be determined on the basis of positive day end NPV. Further, ld. TPO has only considered the positive day end NPV and ignored the deals when the day end NPV is negative. Ld. TPO has not applied the same on an aggregate basis but has made a split between the positive and negative day end NPV. 7.1. In this regard, assessee furnished details to demonstrate that once an aggregation is taken into account, ther....
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....the Act and it was submitted that the provisions of section 44C of the Act would not be applicable to the same. 9.2. Ld. Assessing Officer observed that the amounts claimed as reimbursement are covered u/s.44C of the Act. According to him, since assessee has already claimed expenditure u/s.44C towards Head Office expenses, further deduction of these expenditures is not allowable over and above the statutory limit prescribed u/s.44C. Ld. DRP upheld the contention of the ld. Assessing Officer. 10. According to the assessee, with respect to telecommunication charges, the same are towards telecom leased line which is specifically for the purpose of the assessee. It cannot be considered as general administrative expense to form part of section 44C limits. For this, assessee referred to the invoices raised on the AE which were paid on behalf of the assessee and were subsequently reimbursed by the assessee to its AE. Said invoice is placed at page 760 of the paper book wherein the particulars mention "reimbursement charges towards telecom leased line connection (Singtel connect + direct link)". Assessee had furnished additional evidence before the ld. DRP where a remand report was c....
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....ANZ had provided short-term loans to ANZ Mumbai. During the year under consideration, ANZ Mumbai paid interest to its overseas branches amounting to Rs. 2,98,64,616/-. The said interest was not offered to tax by the assessee in its return of income filed in India given that the same are in the nature of 'receipt from self.' Ld. Assessing Officer, in the draft assessment order dated 26.12.2017, referred to the provisions of section 9(1)(v)(c) of the Act and held that the said section provides for a source rule for taxation and that it does not make any distinction about the payee. Further, ld. Assessing Officer held that as per Article 7(1) of the India-Australia DTAA, business income of the assessee is taxable in India only if there exists a PE of the assessee in India within the meaning of Article 5 of the said DTAA. Once the assessee opts to be governed under the beneficial provisions of the DTAA, and it is accepted that the assessee has a PE in India under the DTAA, then the single entity approach of the Act gives way to the distinct and independent entity or separate entity approach under the DTAA. Thus, the interest paid by ANZ Mumbai to the Head Office/ overseas branches ....