TaxTMI 
TaxTMI 
2026 (7) TMI 603
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....g same issues arising out of similar factual matrix, these appeals were heard together, as a matter convenience and are being decided by way of this consolidated order. With the consent of parties, ITA No.4641/Mum/2025 A.Y. 2016-17 is treated as lead case and the decision rendered therein shall applied mutatis mutandis to other appeal. ITA No.4641/Mum/2025 A.Y. 2016-17 3. The assessee has taken the following grounds: "The Appellant objects to various adjustments on the following Grounds of Appeal which are mutually exclusive, independent and without prejudice to the other. 1. Ground No. 1 On the facts and in the circumstances of the case, the Hon'ble Commissioner of Income Tax (Appeals) - 55, Mumbai ["CIT(A)"], erred on facts and in law in not appreciating that the corporate guarantee was given by the Appellant as a matter of commercial prudence and as part of banking formalities primarily to protect the business interest of the group by fulfilling the shareholder's obligation as any financial incapacitation of the subsidiary would jeopardise the investment of the Appellant. 2. Ground No. 2. On the facts and in the circumst....
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....39;ble CIT(A), erred on facts and in law in determining Arm's Length Price of commission on corporate guarantee at 0.50% on average of amount of corporate guarantee as on 01st April 2016 and 31 March 2017 instead of computing on amount of corporate guarantee as on 31st March 2017 9. Ground No. 9 The Appellant craves leave to add, alter, modify, omit, substitute or amend all or any of the grounds of appeal before or during the course of appellate proceedings." 4. The brief facts of the case are that the assessee filed the return by declaring total income Rs. 4,34,44,700/-. The case was selected for scrutiny under the CASS. Since the assessee had entered into international transaction with its Associate Enterprise (AE), the Ld. AO made a reference u/sec. 92CA(1) of the Act to TPO. The Ld. TPO had made observations for adjustment amount of Rs. 63,78,847/- on account of Corporate Guarantee Fee (CGF) chargeable from one of the AEs, Sunbright Shipping SA, Panama. Thereafter the order u/sec. 144C(3) r.w.s. 144(3) of the Act was framed and the Ld. AO had assessed total income amount to Rs. 5,00,12,050/- after making the addition on account of CGF. The aggrieved ass....
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....ile making any TP adjustment in respect of such transactions and has relied on the OECD transfer pricing guidelines issued in 2010. The Ld. AO had applied of average bank guarantee of Rs. 0.675% in determining the ALP of guarantee commission for entire amount of CG provided to AE. 7. The Ld. AR pressed the additional ground and sought its admission, contending that the commission, if any, in respect of the corporate guarantee ought to be computed with reference to the actual outstanding loan liability of SSL-AE as on 31.03.2016 and not on the entire amount of the corporate guarantee. It was submitted that the Ld. AO erred, both on facts and in law, in determining the arm's length commission at the rate of 0.675% on the entire guarantee amount of USD 14.23 million, without appreciating that, as on 31.03.2016, the AE's outstanding liability was only USD 61,57,280, equivalent to Rs. 40,84,30,239/-. Therefore, according to the assessee, the commission, if chargeable, ought to have been restricted to the outstanding liability and not the entire guaranteed amount. 8. The Ld. AR further contended that the assessee had furnished a CG in favour of ICICI Bank on behalf of its subsi....
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....ns of judicial authorities as discussed above that the term "capital financing" includes corporate guarantee also. Further, the claim of the appellant that only financial institutions are covered under the term "during the course of business" is also misplaced. It is clear that any "capital financing activity undertaken "during the course of business" is covered in this definition. The appellant has itself agreed in its above quoted submissions that the corporate guarantee was given on behalf of AE in furtherance of own economic and business interest of the appellant and further claimed to be a part of shareholder activity and also claimed that the guarantee was given to protect the deterioration of its investments. Hence, it is clear that the decision of giving of corporate guarantee was undertaken during the course of business of the appellant. There are various decisions of judicial authorities including that of various Hon'ble High Courts where corporate guarantee has been held to be an international transaction for assessee's other than financial institutions, including those discussed above. The decisions cited by the appellant have been rendered in specific facts of ....
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....out prejudice to the above, the ALP of the commission on corporate guarantee is liable to be computed on the basis of fresh borrowing during the relevant period or, at best, the closing balance of the loan amount (Ground No. 7] 20. Without prejudice to the above and assuming without admitting that the issuance of corporate guarantee is an international transaction, it is submitted that the Arm's Length Price ("ALP") of the alleged commission on the corporate guarantee given by the Appellant is liable to be computed based only on fresh borrowings during the relevant FY or, at best, the closing balance of the loan amount. 21. It is submitted that guarantee commission can be computed only on the basis of any fresh borrowings made by the AE, for which the assessee has provided the guarantee. 22. It is submitted that since the guarantee commission is charged for assuming the risk for providing the guarantee to the bank, in respect of the loan availed by the AE, any adjustment on account of guarantee charges has to be only in respect of the actual loan availed by the AE during the year. 23. In this regard, reliance is placed on the judgment of this....
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....xposure, i.e., the outstanding loan amount. 31. It is submitted that the learned Commissioner (A) has erred in holding that the guarantee commission is liable to be computed on the basis of maximum exposure instead of the actual exposure. 32. It is pertinent to note that as per the terms of the Corporate Guarantee provided by the Appellant, the Appellant would be liable to pay only the actual amount payable by SSL to the bank. For ease of reference the relevant portion of the Corporate Guarantee is reproduced below: "3(a) In the event of any default on the part of the Borrower in payment/repayment of any of the moneys referred to Clause 2 above, or in the event of any default on the part of the Borrower to comply with or perform any of the terms, conditions and covenants contained in the Facility Documents, the Guarantors shall, upon demand to the Guarantors, forthwith pay to the Bank without demur all/part of the amounts as demanded by the Bank payable by the Borrower under the Facility Documents " 33. Further, reliance is placed on the following judgments of this Hon'ble Tribunal: (i) Sasken Technologies Ltd. Versus The Assistant C....
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....le by SSL as on 31st Mar 2016 and not on whole amount of Corporate Guarantee "The Learned AO has erred, on the facts and circumstances of the case and in law, in determining Arm's Length Price of Commission chargeable at 0.675% on the whole /entire amount of Guarantee of USD 14.23 Million (equivalent to Rs. 94,50,14,300) without appreciating the fact that the Associated Enterprises was liable to pay USD 61,57,280 (equivalent to Rs. 40,84,30,239) as on 31st Mar 2016 and restricting the amount of Commission on such liability."It is noted that this additional ground of appeal has been taken on a without prejudice basis, since it has been claimed that the impugned transaction of corporate guarantee is not an international transaction. The said claims made by the appellant have already been dismissed while disposing Grounds 1 to 6 above. Further, the TPO has been directed to adopt ALP rate of 0.5% instead of 0.675%, as discussed in the decision w.r.t. Ground 7 to 11 of appeal. In this regard, it is noted that the Hon'ble Supreme Court (SC) in the case of National Thermal Power Co. Ltd. vs. CIT (1998) has held that the appellate authorities including CIT(A) has ....
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....he Learned AO/ΤΡΟ both have computed Commission in excess by at least Rs. 36,21,943/- (63,78,847 -27,56,904). With respect to the above, the appellant in its above quoted submissions has relied upon various decisions viz. Jurisdictional Hon'ble Mumbai Tribunal in the case of Manugraph India Ltd. vs. DCIT in ITA No. 4761/Mum/2013 for AY.2008-09-Order dated 25.03.2015; Manugraph India Ltd. vs. DCIT [2021] 126 taxmann.com 358 (Mumbai Trib.) for AY.2011-12;BS Ltd. vs. ACIT [2018] 94 taxmann.com 346 (Hyderabad Trib); Jurisdictional Hon'bleMumbai Tribunal in the case of Associated Capsules Pvt. Ltd. vs. ACIT [2020] 121 taxmann.com 103 (Mumbai Trib). The appellant has further placed reliance on the decision of Hon'ble ITAT Bangalore in the case of Sasken Technologies Ltd. [TS-788-ITAT-2022 (Bang)-TP], in which reliance has been also placed on other decisions viz. in the case of Medrich Ltd. vs. Asstt. CIT [ITA No. 1574 (Bang.) of 2019, dated 12-4-2021], in the case of Manipal Global Education Services (P.) Ltd. vs. Dy. CIT [2018] 95 taxmann.com 94 (Bang - Trib.), in the case of Xchanging Solutions Ltd. vs. Dy. CIT [2017] 78 taxmann.com 54 (Bang Trib.) and in th....
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....se. To compute the actual amount of maximum exposure during the relevant Financial year, it would be more prudent to consider the average of the opening (01/04/2015) and closing figure (31.3.2016) of the relevant financial year of outstanding/maximum liability instead of considering the figure of only 31.03.2016. Therefore, the TPO is directed to compute ALP on the average amount of exposure as discussed above in the case of appellant by adopting the rate of 0.5% as discussed in Ground nos.7 to 11 above. As a result, this additional ground no.11A of appeal is considered as Partly allowed." 13. We have heard the rival submissions and perused the material available on record. The assessee has challenged the transfer pricing adjustment on account of the corporate guarantee furnished in favour of its AE and has contended that such CG does not constitute an international transaction within the meaning of section 92B of the Act. However, we find that the issue is no longer res integra. The Explanation to section 92B specifically includes transactions in the nature of capital financing, including guarantees, within the ambit of international transactions. The corporate guarantee furnis....