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2018 (8) TMI 1816 - AT - Income TaxTP Adjustment - classification of corporate guarantee as international transaction - HELD THAT - No transfer pricing adjustment is to be made in case of no diversion of profits out of India. The flagship company of the assessee has accumulated brought forward losses to the tune of ₹ 290 crores and subsidiaries are also in heavy losses. Therefore, it cannot be said that there was any intention of diversion of profits out of India. Further, we find that the assessee has not incurred any cost in providing corporate guarantee. See BHARTI AIRTEL LIMITED (BHARTI CRESCENT) 2014 (3) TMI 495 - ITAT DELHI and MICRO INK LIMITED VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX VAPI RANGE, VAPI 2015 (12) TMI 143 - ITAT AHMEDABAD Thus transfer pricing adjustment on account of corporate guarantee fee made during the years under consideration are bad in law. Respectfully following the decision of the coordinate benches supra we direct the Assessing Officer to delete the additions - Decided in favour of assessee
Issues:
Transfer pricing adjustment on corporate guarantee as an international transaction. Analysis: The appeals and cross objections were against the order of the Commissioner of Income Tax (Appeals) for assessment years 2008-09, 2009-10, and 2010-11. The assessee challenged the transfer pricing adjustment on corporate guarantee as an international transaction. The TPO found that the assessee provided corporate guarantees to AEs without charging any compensation, leading to an upward adjustment. The AO made an addition based on the TPO's order. The CIT(A) treated the bank guarantee as an international transaction but directed to compute it at a lower rate. The Revenue appealed, and the assessee cross-objected. The issue revolved around the classification of corporate guarantee as an international transaction under section 92B of the Income-tax Act, 1961. The Tribunal referred to various judicial decisions on similar matters. It was noted that for a transaction to be an international transaction, it must impact profits, incomes, losses, or assets of the enterprise. The Tribunal found that no transfer pricing adjustment should be made if there was no diversion of profits out of India. The Tribunal also considered that the assessee did not incur any cost in providing the corporate guarantee. Previous decisions by other benches supported the view that corporate guarantees without cost implications do not fall under the ambit of international transactions. Based on the precedents and legal interpretations, the Tribunal held that the transfer pricing adjustment on corporate guarantee fees made during the relevant years was not valid in law. Therefore, the Assessing Officer was directed to delete the additions related to transfer pricing adjustments concerning corporate guarantee fees. As a result, the appeals by the Revenue were dismissed, and the cross objections of the assessee were allowed. The judgment was pronounced on 17.05.2018.
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