TaxTMI 
TaxTMI 
2026 (8) TMI 272
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....equire any specific adjudication. 2. Ground No. 3 raised by the assessee is challenging the transfer pricing adjustment of Rs. 13,88,751/- on account of corporate guarantee given by the assessee to its wholly owned step down subsidiary. 3. We have heard the rival submission and perused the materials available on record. Luminous Power Technologies Private Limited ('LPTPL') is engaged in manufacturing of inverters, batteries and Un-interrupted Power Supply ('UPS') equipment. The manufacturing function is carried out from its eligible and non-eligible units which operates as separate undertakings. The eligible units were availing income linked deductions under Section 80-IC of the Act. The company is also engaged in trading function of Home Electrical ('HE') and other products termed as non-eligible business. The Company is engaged in trading of range of electronic goods including inverters, batteries, UPS, home electricals etc. Its businesses include power backup, power storage, solution for diversified power generation, renewable and alternate energy solutions and physical infrastructure solutions for Information Technology ('IT') and Teleco....
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....ed in the audit report, in Form 3CEB vide reply to Question No. 15 thereon by the assessee while filing the return. The stand taken by the assessee is that the corporate guarantee issued to the bank on behalf of the AE is not an international transaction per se on the following grounds: - a. corporate guarantee is issued as a part of shareholder activity and hence there is no expectation of earning of income from the same by the assessee ; b. corporate guarantee is issued to promote/ protect the assessee's interest in AE which is a wholly owned step-down subsidiary of assessee ; c. no expenses in the form of guarantee fees had been incurred by the assessee for issuance of corporate guarantee. Hence the transaction of issuance of corporate guarantee has got no bearing on the determination of profit or loss of the assessee and accordingly the said transaction would not fall within the ambit of definition of international transaction as per Section 92B of the Act ; d. that Section 92 of the Act starts with the expression that any income of an international transaction need to be benchmarked at Arm's Length Price (ALP). Since, the transaction does no....
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....k guarantee charges and proposed an adjustment of Rs. 13,88,751/- on the value of corporate guarantee of Rs. 10,68,27,000/-. This action of the ld AO was upheld by the ld DRP. 9. The ld AR before us vehemently placed reliance on the decision of the Hon'ble Bombay High Court in the case of DP Jain and Co Infrastructure Private Limited referred supra wherein it has been held that where no consideration was received for issuance of corporate guarantee, the same would not be a taxable service under new CGST law. The AR also drew our attention to the relevant observation of the Hon'ble Bombay High Court in this regard wherein reliance was also placed on the decision of the Hon'ble Supreme Court rendered under service tax law referred supra. The ld AR vehemently argued that since no expense in the form of guarantee fee was incurred by the assessee for issuance of corporate guarantee, the said transaction would not have bearing on the profit or loss of the assessee. At this point in time, the Bench posed a query to the ld AR that the said transaction may not have bearing on the profit and loss of the assessee, but would certainly have a bearing on the assets of the enterprise, which is....
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.... to ld TPO and hence there is no occasion for the revenue to consider whether issuance of corporate guarantee per se is an international transaction or not requiring consequential benchmarking. The ld DR vehemently relied on the decision of the Hon'ble Allahabad High Court in case of Jubiliant Pharmova Ltd Vs. Addl. CIT reported in 452 ITR 39, wherein it held that pursuant to amendment brought in Section 92B of the Act, issuance of corporate guarantee would have to be construed as an international transaction. He stated that the SLP by the assessee against this decision was dismissed by the Hon'ble Supreme Court, which is reported in 452 ITR 226. He also placed reliance on the decision of Hon'ble Madras High Court in the case of DCIT Vs. Redington India Limited reported in 430 ITR 298, wherein it was held that even though there might not be immediate charge on profit and loss account in respect of issuance of corporate guarantee on behalf of subsidiary company for which no recovery of guarantee commission is made by the assessee, the inherent risk involved in providing guarantee could not be ruled out and hence assessee need to be compensated for the same. 11. The ld AR on rebut....
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.... said bank. It is not in dispute that the AE is a step-down subsidiary of assessee company. Hence, it is all the more necessary for the assessee company in the capacity of company of being a holding company and 100% shareholder to extend corporate guarantee to enable the subsidiary company to avail credit facility and also enable the subsidiary company to run its business. This is more from the angle of a promoter promoting his investment interest in the company where he had invested. Hence, we hold that issuance of corporate guarantee on behalf of AE (subsidiary company) is predominantly a shareholder activity of the assessee. The ld DR in this regard vehemently argued that assessee would not have extended similar corporate guarantee to outsiders who are in AEs. This argument is to be dismissed in view of the fact that only the holding company could come forward to assist the subsidiary company and obviously no outsider would come forward to help the subsidiary company. Hence, the assessee company in the capacity of promoter share holder and holding company had extended the corporate guarantee on behalf of its AE as part of shareholding activity. Having carried out a transaction a....
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....ansaction pursuant to the amendment made with retrospective effect from 1-4-2002 by the Finance Act 2012. For the purpose of benchmarking the same, respectively following the decision of Hon'ble Bombay High Court in the case of Everest Kento Cylinders Limited referred supra, we hold that guarantee commission at the rate of 0.5 percent of value of corporate guarantee would have to be determined as ALP. Accordingly, the Ground No. 3 raised by the assessee is partly allowed. 14. Ground Nos. 4 to 7 raised by the assessee are with regard to transfer pricing adjustment made in respect of Specified Domestic Transaction (SDT) on the ground that there is excess expenditure for purchase of goods. 15. We have heard the rival submission and perused the materials available on record. Without going into the merits of the disallowance, at the outset we find the Specified Domestic Transaction is explained in Section 92BA of the Act. It had categorised 6 types of transactions to fall within the ambit of SDT. We find from 01.04.2017, the first category of transaction in Clause (i) i.e. "any expenditure in respect of which payment has been made or is to be made to a person referred to any claus....
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.... of law raised in the appeal by the revenue in respective appeal memorandum could not arise for consideration particularly when the said issue being no more res integra. 16. The ld DR before us argued that though Section 92BA(i) has been omitted. The fact of such omission has not been stated in the Explanatory Memorandum for Finance Bill 2017 issued by CBDT and that the fact of omission is mentioned only by Taxmann Publication of the Income Tax Act which cannot be relied upon in the instant case. Further, the ld DR argued that either way, it is only a decision of non-jurisdictional High court which is not binding on this Tribunal. In our considered view, both the arguments advanced by the ld DR deserve to be dismissed in limine. The entire country including the office of the Income Tax Department are following the publication of Taxmann's Income Tax Act and Income Tax Rules. Taxmann Publication Agency is an approved agency by the Govt. of India. As far as Tribunal is concerned, every decision of a higher authority namely the Hon'ble High Court and Hon'ble Supreme Court are binding. Hence, judicial discipline mandates this Tribunal being subordinate authority to Hon'ble High Cour....
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....tax paying HO. 21. The ld DRP upheld the action of the ld TPO by treating the head office as a separate profit centre. The ld DRP upheld the action of the ld TPO wherein the mark up has been computed on the basis of comparable selected by the ld TPO following Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) by computing the mark up at 2.53%. 22. We find that the Head Office had been performing the functions for the entity as a whole and the same does not pertain either to tax paying unit or the tax exempt unit and instead it applies to the company as a whole. Hence, the head office cost need to be allocated to various units comprising of tax paying unit as well as tax exempt units. This activity of the head office cannot be considered as a service rendered by the head office to all of its units. The ld DR before us vehemently argued that assessee had furnished the segmental results before the ld TPO which contained trading activities being carried out in head office. The ld DR argued that all inter unit sale transactions are done between eligible units and non eligible units with a mark up of 10% thereby claiming excess deduction u/s 80IC of the Act....
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....are challenging the transfer pricing adjustment made on account of interest in respect of advance extended to AE. 30. We have heard the rival submission and perused the materials available on record. The assessee provided an advance of Rs. 13,17,33,000/- to its subsidiary LABH holding on 21.09.2013 with a view to provide financial assistance for repayment of loans and other obligations taken by its step-down subsidiary Lang Ming China which wound up its operation in October 2014, to enable Lang Ming China to pay the outstanding loan to HSBC Bank for which the assessee has provided corporate guarantee. The assessee pleaded that this lending was made as part of shareholder activity. No interest was charged on this advance by the assessee from its AE and no security has been provided by the AE to the assessee. The assessee pleaded that it is having sufficient own funds in its kitty to make this interest free advance to the AE. The assessee pleaded that it had Rs. 288.69 crores of own funds as on 31.03.2013 and Rs. 390.35 crores as on 31.03.2014 which is several times more than the interest free advance given in the sum of Rs. 13.17 crores. Accordingly, it was pleaded that borrowed ....
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.... is otherwise legitimately due to the sovereign is not given, due to assessee advancing funds to person in other country's tax jurisdiction. We are in complete agreement with this argument of the ld DR. Hence, we hold that the availability of own funds with the assessee company and the principles of commercial expediency cannot be applied for the purpose of Chapter X which deals with determination of arm's length price for international transactions carried out by the assessee. 32. We have gone through the decision of the Hon'ble Delhi High Court in the case of Cotton Naturals and on perusal of the decision, we find that the said decision does not speak anything about non inclusion of basis points with LIBOR while imputing the interest on lending/ borrowing transaction. The lending rates are determined based on the credit rating of the borrower. Hence, adding basis point with LIBOR is not prohibited in the said decision relied upon by the ld AR. No other evidence was produced by the ld AR as to why adoption of 400 basis points is incorrect. Hence, we hold that the lower authorities were justified in adoption of 400 basis points with LIBOR and applying total interest rate of 4.33....
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....ction costs Film/TVC production editing cost etc. Yearly expense 15,479,029 Advertisement Ambassador fees Ambassador Fees paid to Sachin Tendulkar to shoot for TV commercials and to be present in award functions Yearly expense 39,493,891 Advertisement Print and TV Media TV commercials. newspaper ads. cable ads etc. to push the sales in season period with products display Spot advertisement 111,751,507 Advertisement Expenses Mix nature of marketing activity i.e. Internet, social media, website advertisement and maintenance. calling. lead generation and data entry activity. radio spots online advertisement. translation costs. multilanguage development. IRCTC homepage activity etc. for selling products the Spot advertisement 83,412,652 Advertise Road show, vehicles. wall. Shop campaign Advertisement Road show, vehicles, wall painting with life of 3 to 6 months, shop branding 3 to 6 months 26,717,024 Advertisement Market research Product Market research in market through agencies which analyses the competitor's data and Assessee's presence in market. Research on t....
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....ture. In our considered opinion, the very fact that the agreement is for 6 years and payments have to be made regularly to Mr. Sachin Tendulkar itself goes to prove that it is a recurring expenditure and it may create enduring benefit only in the revenue field and not in the capital field. Further, today's celebrity would be replaced by another celebrity tomorrow. Advertisements given in visual media are short lived and had to be frequently revisited in order to keep the product alive in the mind of the customers. Hence, there cannot be any enduring benefit in the capital field by the incurrence of this expenditure. Accordingly, we hold that the brand ambassador fee paid to Mr. Sachin Tendulkar to be revenue in nature. 37. With regard to fees paid for creating designs on contractual basis amounting to Rs. 2,27,91,119/-, we find that the designs need to be redrawn having regard to the change in consumers' taste and preference periodically. Hence, there cannot be any fixed design that would prevail in the market. Since, this expenditure which has to be incurred regularly by the assessee, we hold that the same had to be treated as revenue expenditure and not capital. 38. With re....