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2013 (9) TMI 199 - AT - Income TaxAdjustment of arm's length price - Corporate Gurantee given to associated enterprise - Bank guarantee commission - Held that:- As rightly held by the ld. CIT(A), a financial loan guarantee is a commitment entered into by the assessee company with a third party lender of its Associated Enterprises which obliges the assessee company to cover the risk of default by its Associated Enterprise and this act thus involves performance or carrying out of service to cover the risk of default for which “price” has to be charged - there was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been charged at arm’s length price. The commercial relationship between the assessee and its Associated Enterprises is distinct and separate from the transactions of giving guarantee and such transactions have to be considered and examined independently in order to determine the arm’s length price - Decision in case of Assistant Commissioner of Income-tax - 11(1)Versus Nimbus Communications Ltd. [2013 (9) TMI 204 - ITAT MUMBAI] followed - Decided in favour of assessee. Arm's length price - The assessee did not charge any interest on overdue payments - After a period of time of normally 30 days, would be the expected normal arm's length price - The quantification of notional interest was done by adopting interest at 2.19 % LIBOR on overdue amount beyond 30 days - A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction - What can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into - It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues – Held that the impugned addition of Rs. 12,51,175 is unsustainable in law – Following decision of Nimbus Communications Limited Versus. Assistant Commissioner of Income Tax [2011 (1) TMI 68 - ITAT MUMBAI] - Appeal is allowed. It is clearly manifest from the order of the DRP that a specific case was made out by the assessee in support of its claim for deduction on account of sundry/old balance written off before the DRP for the first time and since the case so made out by the assessee required verification by the A.O., the DRP having no power to set aside the case, declined to interfere with the decision of the A.O. Keeping in view this position, we consider it fair and proper and in the interest of justice to set aside this issue to the file of the A.O. with a direction to decide the same afresh after verifying the stand of the assessee as taken before the DRP from the relevant record.
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