TMI Blog2021 (4) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... s affirm the impugned corporate guarantee adjustment addition in principle and leave it to open for the TPO to finalize consequential computation in above terms. We are also of the considered opinion that the issue should be examined by the TPO calling for information from the Bank that what is the impact of the counter bank guarantee given by the assessee whether is there any liability fasten on the company in case of counter bank guarantee. If found yes, then the DRP's decision is correct. If there is no liability as submitted by the ld. AR or the assessee, then, it is a mere letter of comfort and no addition is called for. The case law relied upon by the ld. AR of the assessee is distinguishable on fact to the case of the assessee and the same are not of any help to the assessee' case. We reject the submissions of the ld. AR of the assessee that the issue of corporate guarantee by the assessee to its AEs is not an international transaction and direct the AO/TPO to decide the issue - Appeal of the assessee is treated as allowed for statistical purposes. - ITA No. 449/H/2016 - - - Dated:- 19-3-2021 - Satbeer Singh Godara , Member ( J ) And Laxmi Prasad Sahu , Mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the comparable transactions vis- -vis. shareholder's corporate guarantee; 11. Short Credit of TDS and Advance tax paid. 12. Levying of interest u/s. 234A, 234B and 234C. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal. 2. The brief facts of the case are that the assessee company has entered into international transactions with its AEs. Therefore, the AO referred the case to TPO for determination of arm's length price. The TPO vide his order dated 30/12/2014 determined the arm's length price in respect of corporate guarantee fee at ₹ 2,43,30,447/- and shortfall was arrived at ₹ 2,43,30,447/-, which was treated as adjustment u/s. 92CA of the Act, as per the following table: S. No. Name of the AE Corporate Guarantee provided (Rs.) Rate Amount (Rs. 1 Al-Ahila Environmental Services Co.LLC 8,36,33,474 2.25% 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. AR submitted that the issue of corporate guarantee by the assessee to its AEs is not an international transaction. For this proposition, he relied on various orders of coordinate bench of this Tribunal which are placed in the paper book. 7. On the other hand, the ld. DR relied on the orders of authorities below. He further submitted that providing Corporate Guarantee comes under the definition of services and providing services to AEs are already covered that it is an international transaction. The letter of comfort is a part of Bank Guarantee. Therefore, authorities below have rightly calculated the value of international transaction. 8. We have considered the submissions of both the parties and peruse the material on record as well as gone through the orders of revenue authorities. The case law relied upon by the assessee are distinguishable on facts, therefore, the same are not applicable to the case of the We refer to the following cases, where the corporate guarantee is treated as an international transaction: 8.1. In the case of Nimbus Communications Ltd. [2013] 34 taxmann.com 298 (Mumbai - Trib), The coordinate bench held that since there was a clear benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 taxmann.com 139 (Mum. - Trib.), the Tribunal held that where assessee had given corporate guarantee to its AE without charging any commission, adjustment to be made at 0.5 per cent 8.9. In the case of Reliance Industries Ltd. v. CIT [IT Appeal No. 4475 (Mum.) of 2011, dated 13-9-2013], Tribunal accepted the rate of 0.38% being average rate on which the assessee has paid guarantee commission to third party and held that the charging of a guarantee commission depends upon transactions to transaction and mutual understanding between the parties. 8.9. In the case of Mylan Laboratories Ltd. [2015] 63 taxmann.com 179 (Hyderabad - Trib.), ITAT directed the TPO to adopt 0.53 per cent as the guarantee commission rate instead of 2 per cent adopted by him. 8.10. In the case of Everest Kanto Cylinder Ltd. v. Dy. CIT [2013] 34 taxmann.com (Mum. - Trib.), ITAT held that TPO was not justified in determining ALP for bank guarantee at rate of 3 percent of amount of guarantee applying external comparables of banks without bringing into record that under which terms and conditions other banks were charging guarantee commission at rate of 3 per cent. Charging of 0.5 per cent guarantee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO at para 7.4 onwards, discusses the issue with regard to the corporate guarantee and based on the amendment made to Section 928 and relying on the information gathered from the website of 581 and other banks and the Government Guarantee policy of the Ministry of Finance Gal, the TPO worked out a fee and treated the same as arm's length price of the transaction. At this juncture reliance is respectfully placed on decision of the Hon'ble ITAT Hyderabad in the case of Prolifics Corporation Ltd., wherein the Hon'ble ITAT held that the transaction of providing corporate guarantee involves service rendered to AE and therefore, provisions of transfer pricing can be invoked in respect of such a transaction. However, we are of the view that as per the TPO himself, sated the State Bank of India, charge fee @ 1.75% of the guarantee exceeding ₹ 10 crore, he was not justified in computing the adjustment @ 2%, accordingly, we direct the A.O. to re-compute the ALP of the guarantee by applying ALP 21.75%, according to the observations made above. 8.13. Now, Hon'ble Madras High Court's recent decision in the case of PCIT Vs. Redington (India) Ltd., TCA Nos. 590 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed appropriately. The Corporate Guarantee was to the tune of ₹ 5574.13 lakhs and Bank Guarantee to the tune of ₹ 40862.34 lakhs. Further, the TPO observed that there is no time period for expiry of the guarantee. Consequently, it will demand more commission charges than the commission charged by the Banks. That apart, the assessee had taken maximum risk in providing Bank Guarantee to their subsidiaries and the entire credit risk is owned by the assessee, the Indian Company and it has to be reimbursed at maximum percentage of fees. Further, the TPO noted as to the manner in which the Bank's charge commission on guarantees extended and observed that the Bank will insist upon cash deposits/guarantee deposits/asset mortgage etc., to extend guarantees on behalf of their clients. Further, it was pointed out that if a situation arises that the Bank Guarantee has to be invoked, when the Associate Enterprise is not in good financial position, obviously, the assessee is at risk and they claim that there is no risk in providing guarantees cannot be accepted. The TPO drew a comparison between the Guarantees issued by the Bank and Guarantees issued by the assessee on behalf of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., wherein it is held that Corporate Guarantee does not involve any cost to the assessee and therefore, it is not an international transaction even under the definition of the said term as amended by the Finance Act, 2012. The Tribunal is a final authority to render findings on fact. The Tribunal failed to give any reason as to how the decision in Bharti Airtel Limited would apply to the assessee's case. Furthermore, there was no record placed before the Tribunal by the assessee that they have not incurred any cost for providing Bank Guarantee. As observed earlier, the TPO has compared the nature of documentation executed by the assessee in favour of his Associated Enterprise to come to the factual conclusion that it is a financial service. This finding of fact has not been interfered by the DRP, but the DRP was of the view that the same treatment, which was given in the previous Assessment Year should be extended for the Assessment Year under consideration also and there is no reason given by the TPO for taking a divergent view. The finding that the very same transaction for the previous Assessment Year was subject matter of TP adjustment, has not been disputed by the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trued as prospective in its application. Furthermore, the Tribunal has also not recorded in its order, more particularly, from Paragraph 92 that the assessee had argued on the issue regarding prospectivity/retrospectivity. Further, the assessee has not challenged the validity of the Explanation nor its applicability with retrospective effect. That apart, even before the DRP, such contention was not raised. The Hon'ble Supreme Court in Gold Coin Health Food Private Limited, while deciding the issue whether an amendment was clarificatory or substantive in nature or whether it will have retrospective effect held as follows: 14. The presumption against retrospective operation is not applicable to declaratory statutes ... In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his issue was considered by this Court in the case of Sudexo Food Solutions India Private Ltd. 75. The concept of Bank Guarantees and Corporate Guarantees was explained in the decision of the Hyderabad Tribunal in the case of Prolifics Corporation Limited. In the said case, the Revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of Section 92B does not enlarge the scope of the term international transaction to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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