TaxTMI 
TaxTMI 
2025 (3) TMI 2096
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....mit prescribed under section 153(1) r.w.s 153(4) would prevail over and above assessment time limit prescribed under section 144C of the Act. 3. On the facts and circumstances of the case, the Transfer Pricing Officer ("Learned TPO')/AO has erred in not considering the fact that levying corporate guarantee fees on associated enterprise ('AE') which is under liquidation would result in undue financial hardship to AE. 4. On the facts and circumstances of the case, the learned TPO/AO erred in not considering corporate guarantee extended to AE as in nature of shareholders activity and erred in making adjustment to arm's length price of corporate guarantee given to AE to the tune of Rs. 2,57,08,000 by computing guarantee commission at rate of 1.00%. 5. On the facts and circumstances of the case, the learned TPO/AO erred in determining the arm's length rate in respect of corporate guarantee at 1.00% per annum after arbitrarily reducing 0.5% from comparable bank rate computed by learned TPO/AO without any scientific basis on assumption is arbitrary and invalid. 6. On the facts and circumstances of the case, the learned TPO erred in d....
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....se, the learned TPO erred in adopting 400 basis point as benchmark to Euribor as interest benchmark rate to arrive at Arm's length price for transaction without providing any basis to arrive at such price. 15. On the facts and circumstances of the case, the learned AO erred in levying interest under section 234A of the Act." 2. The assessee is a company engaged in the business of marketing domestic branded drugs and pharmaceuticals products. The assessee also provides active pharmaceutical ingredient, contract research and contract manufacturing service. The assessee filed the return of income for AY 2021-22 on 15.03.2022 declaring total income at Rs. Nil. The case was selected for any and the statutory notices were served on the assessee. The assessee has shown international transaction in the nature of guarantees with associated Enterprises (AE) and therefore reference was made the transfer pricing Officer (TPO) to determine whether the transaction with AE is at arm's length. The TPO proposed TP adjustment of Rs. 2,57,08,000 towards corporate guarantee fees and adjustment of Rs. 19,56,209 on account of interest on the deemed loan arising of the guarantee invok....
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....e lenders against the assessee. The assessee also submitted that considering the adverse financial position of the AE charging of any guarantee fee will result in adverse situation. The DRP rejected the contentions of the assessee and upheld the TP adjustment. 5. The ld AR made similar arguments before us. The ld AR submitted that the guarantees have been invoked by the SBI and BOI in the earlier years and not during the year under consideration. Therefore the ld AR argued that during the year under consideration there is no international transaction towards guarantee to AE. The ld AR further submitted that the assessee has entered into one time settlement with the lenders in 2017 and 2019 and accordingly accounted for the same as liability in the financials of earlier years. The ld AR also submitted that the outstanding liability towards the guarantee invoked is carried forward to the year under consideration since no payment is made towards the same by the assessee. The ld AR took the bench through the financial statements in this regard (Note no.43 in page 27 of PB). The ld AR drew our attention to the decision of the coordinate bench of Delhi Tribunal in the case of JE Energ....
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....ision of coordinate bench, it is clear that the submissions of the assessee for performing shareholder services do not fall under corporate guarantee were rejected. Therefore, before us also, the assessee submitted the similar arguments and we are inclined to reject the same. 7. The issue has to be analyzed based on the facts of each year, coming to the real issue in this year under consideration are, the assessee has given corporate guarantee to its step down subsidiaries while availing the loan by them in the past. In order to bench mark the transaction, it has to be evaluated every year and it cannot be held that once the guarantee is given in the past, it continued to have impact on every assessment year subsequently. In this case, the assessee has given guarantee towards the loan and primary obligation of servicing the loan to the bank when they granted loan to the step down subsidiaries. No doubt the assessee also collected fees for providing the guarantee in the past, as per records, the assessee has collected Rs. 2.7 crores in the AY 2013-14. It was adjudicated in AY 2013-14 that this transaction falls within definition of the international transaction. However, th....
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.... guarantee existed as soon as the intimation of classification of NPA. It is crystallized/non-existence of the guarantor in the beginning of the year itself, therefore, we cannot presume that the corporate guarantee existed, hence, there is no possibility that the assessee has continued the guarantee, in our view for this AY, there is no international transaction. Therefore, the TPO was wrong in initiating proceedings to bench mark corporate guarantee as there is no international transaction at the first place. 8. Coming to the issue of method adopted by the TPO is proper or not, since we held that there is no international transaction existed relating to corporate guarantee in this assessment year, it is irrelevant at this stage to adjudicate on the issue of proper method adopted by the TPO or not. Accordingly, we direct the AO/TPO to delete the addition proposed in this AY. Accordingly, the ground no 1.2.3 raised by the assessee is allowed and all other grounds relating to the issue of corporate guarantee are dismissed." 8. In assessee's case it is an undisputed fact that the AE has failed to pay the dues and that the lender banks have invoked the guarantee agains....
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....) and that of the guarantor (the assessee in this case) is coterminous and therefore cannot be deemed as a loan given by the assessee to AE. 11. The alternate argument of the ld AR is that the liability provided for by the assessee towards the one time settlement with SBI London is its own liability as per the terms of agreement and therefore cannot be deemed as a loan to the AE. Further the ld AR submitted that the AE has filed for insolvency in the Commercial Court of Madrid, Spain and the control of the AE has been handed over to the receiver vide court order dated 26.02.2014. The ld AR also submitted that since there is no scope for recovery of the dues from AE, the liability to repay to the lender has become assessee's own liability as per the contractual obligations. Therefore it is submitted that the liability cannot be held as arisen towards obligation on behalf of the AE and therefore no deemed interest can be imputed. 12. The ld DR on the other hand relied on the orders of the lower authorities. 13. We heard the parties and perused the material on record. The issue for our consideration is whether the liability created (provision made) by the assessee towards....