TaxTMI 
TaxTMI 
2026 (8) TMI 382
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....g a guarantee fee at 1.9% considering the average bank guarantee rates as Arms length price amounting to Rs. 87,51,590. 3. Ld.TPO/Ld.DRP, failed to appreciate that the assessee is not in the business of providing financial services including guarantees. To protect its investment in subsidiary, the bank guarantee was extended for a sum of Rs. 46.06 crores. 4. Ld.TPO/Ld.DRP erred in computing the interest on outstanding receivables at a sum of Rs. 1,21,157 in the assessment order dated 23/01/2026. 5. Ld.TPO/Ld.DRP, failed to appreciate that the assessee did not charge interest on outstanding receivables from Non-AE transactions also. 6. Ld. TPO/Ld.DRP, erred in imputing fee for corporate given to its AE and interest on outstanding receivables after accepting the price of primary transaction with its AE at Arms' length. 7. Without Prejudice, Ld.TPO/Ld.DRP, erred in allowing a credit period of 30 days without any basis while computing the interest on outstanding receivables. 8. Ld.TPO/Ld.DRP, erred in not allowing the outstanding payables against the outstanding receivables while computing the interest [Net off]. 9. The....
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....t transactions, possibility of repayment or liquidation and therefore, it depends upon the risk-taking capability with respect to the said party and the transaction therefore, there cannot be a standard rate applicable for all the transactions. Thus, the learned DR has submitted that the decisions relied upon by the assessee cannot be applied without considering the risk assumed by the assessee by providing corporate guarantee. The level and degree of risk in a particular transaction are the guiding factor for deciding the corporate guarantee fee/charges. She has relied upon the Orders of the authorities below. 7. We have considered the rival submissions as well as relevant material on record. The assessee has provided the corporate guarantee to its wholly owned AE at USA for availing loan from the bank and therefore, it is not a case of taking an unforseable risk in providing corporate guarantee to its AE when the assessee is doing business through the AE. In any case, this issue has been considered by this Tribunal as well as various High Courts in a series of Judgments. In the recent decision this Tribunal in the case of Cyient Ltd vs. DCIT (supra), has considered an identica....
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....1.6 it was mentioned as under: - "21.6. As the taxpayer had not received any interest amount on the financial commitment / loan provided to the AE, adjustment is warranted in the said issue and computation of the adjustment with respect to interest to be received on ECB is as under: Sl.No. Description Amount 1. ECB loan/financial commitment Rs.59,05,85,810/- 2. Interest received by the assessee (A) NIL 3. Arm's Length Interest rate 1.67% 21. Now the question arises whether the ALP computed for external commercial borrowing @1.67% can be juxtapose or applied to the corporate guarantee @1.9%. In our view the answer is no, and this Tribunal while deciding the issue in the case of Hetero Labs Limited, v. ACIT (supra), as relied upon by the assessee, held that the rate of interest required to be applied is 0.53% and not 1.9%. For that purpose, the Tribunal has relied upon another Co-ordinate Bench decision in the case of Mylon Laboratories Ltd v. ACIT in ITA No.2123/Hyd/2011 and held that 0.5% is required to be applied. Accordingly, respectfully following the decision of the Co-ordinate Bench in the case of Hetero Labs Limited, v. AC....
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....l issue in Para no.8.3 as under: "8.3. We have considered the submissions and found that the charges paid by the assessee cannot be compared for the purposes of determining the ALP of corporate guarantee commission. In our view, no third party would provide similar type of services/corporate guarantee on behalf of its AE and expose itself to the risk of giving the corporate guarantee. Therefore, the charges paid by the assessee to SBI cannot be compared for the purpose of determining the ALP of corporate guarantee commission. The Co-ordinate Bench in the case of Vivimed Labs Ltd. v. Asstt. CIT [IT Appeal Nos. 186 to 189 (Hyd.) of 2021] vide its decision dated 12-04-2022 had adjudicated corporate guarantee commission @ 0.5% qua the extent of the amount of the assessee's corporate guarantee actually utilised in these four assessment years. Thereafter, similar view had been taken by various Tribunals restricting the addition to 0.5% of the amount guaranteed as corporate guarantee commission. Recently, Delhi Tribunal in the case of Havells India Ltd. v. ACIT (LTU) [2022] 140 taxmann.com 576 in [ITA No. 6509/Del/2018 dt.09-5-2022] had also echoed the above said view and hel....
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....i Hormann (P.) Ltd. vs. ACIT [2025] 174 taxmann.com 427. 10. On the other hand, the learned DR has relied upon the Orders of the authorities below and submitted that the DRP has considered all the facts as well as the decisions on this point and then passed the directions. 11. We have considered the rival submissions as well as relevant material on record. There have been a lot of deliberations on this issue at the level of this Tribunal as well as by the Hon'ble High Courts. This Tribunal has taken a consistent view that when the receivables are outstanding in foreign currency then, in case of cross-border transactions the appropriate rate to adopt is LIBOR rate of interest instead of the Prime Lending Rate [in short "PLR"] as applied by the TPO. Though, in the case of the assessee, the DRP has applied LIBOR + however, the 450 basis points applied by the DRP is also not in consistent with the view taken by this Tribunal. In case of HARSCO India (P.) Ltd. vs. DCIT (supra), the ITAT, Hyderabad Tribunal has considered an identical issue in Para nos.5 to 10 as under: 5. We have considered the rival submissions as well as relevant material available on record. At the out....
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.... the assessee of that particular financial year or period. It is open to the authorities to consider the issues and position of the assessee in the subsequent years. 2.1.19 Conclusively, the Panel finds the contention of the assessee without any basis and therefore, concurs with the action of the TPO. Accordingly, the plea of the assessee on these grounds are hereby rejected." 6. It is pertinent to note that, not following the decisions of the Tribunal in assessee's own case amounts to judicial indiscipline on the part of the DRP. However, since the issue has now come up before the Tribunal, therefore, we will discuss the merits of this issue. The basic question before us is, whether for benchmarking the outstanding receivables from AEs, the comparable interest rate should be PLR rate/SBI short term rate or LIBOR rate/LIBOR+ mark up. This issue was considered by the Chennai Special Bench of this Tribunal in case of Shiva Industries & Holdings Ltd. v. Assistant Commissioner of Income- tax reported in 46 SOT 112/11 Taxmann.com 404 (SB) and held in para 11 as under: "11. We have considered the rival submissions. A perusal of the order of the TPO clearly show....
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....gh Court has held in para 35 to 40 as under: "35. The LIBOR rate plus markup or the interest rate prevailing in the United States at that time, i.e. 2003 have not been examined and are not the basis on which the TPO made the adjustment and compute the interest rate for the transaction under consideration. It claimed that the LIBOR rates in the year 2002 varied between 1.447 % to 3.006 % and in the year 2003 between 1.201% to 1.487%. Rates in the year 2004 were again marginal, with the highest at 3.100% and the lowest at 1.340%. The LIBOR rate of 5.224% quoted in the TPO's order, it is pointed out, was the rate received on the investment made during the assessment year in question by the assessed. Thus, it was argued that the present case is of a long-term loan granted to the AE and the rate of interest charged was much higher than the then prevailing LIBOR interest rate. There is no finding of the TPO, the DRP or the Assessing Officer questioning the long-term transaction as such. 36. Under sub-rule (4) to Rule 10B, the data used for comparability of the uncontrolled transaction should be the data relating to the financial year in which the international trans....
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.... the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:- "The existing differences in the levels of interest rates do not depend on any place but ....
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....e question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money." 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign c....
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....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." 9. We further note that, the Pune Benche of the Tribunal in the case of DCIT vs. iGATE Global Solutions Ltd reported in (2019) 109 Taxmann.com 48 (Pune) has again discussed this issue elaborately in Para 4 to 10 as under: "4. We have heard both the sides and gone through the relevant material on record. It is observed from the order passed by the TPO that the assessee advanced loans to its two AEs, one in the USA and the other in Germany. Insofar as loan to Symphoni Interactive LLC, an Associated Enterprise in the USA is concerned, the assessee charged interest @ 6%. The ld. CIT(A) has recorded that the assessee also paid interest to another AE in the USA, namely, iGATE Corporation, ....
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....nterest charged in the country where loan is received. The Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 has also held that the currency in which the loan is to be repaid normally determines the rate of return on the money lent, i.e. rate of interest. The Hon'ble Bombay High Court in CIT v. The Great Eastern Shipping Co. Ltd. [2018] 301 CTR 642 has reiterated that the arm's length rate of interest is to be considered with reference to the country in which the loan is received and not from where it is paid. In view of these precedents, it is palpable that the viewpoint of the AO in considering the rate of interest prevalent in India, being, the lender country, as determinative of the ALP of rate of interest charged by the assessee, is not correct. To this extent, we uphold, in principle, the view canvassed by the ld. CIT(A) that the rate of interest prevalent in Germany, being, the country in which the loan was consumed, is determinative of the arm's length rate of interest charged by the assessee-lender. 7. Now we espouse the second facet of the dispute relating to the determination of the arm'....