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2019 (1) TMI 845 - AT - Income TaxTPA - Addition on account of corporate guarantee - application of CUP method for benchmarking the transactions relating to corporate guarantee - Held that:- We are of the considered view that in order to benchmark the international transactions qua corporate guarantee appropriate comparable data needs to be adopted and benchmarking made in this case on the basis of bank quotes is not sustainable, hence, the TP adjustment made by the TPO/DRP is not sustainable in the eyes of law. We are also not agreed with the contentions raised by the ld. AR for the taxpayer that providing corporate guarantee in case of its loan to its AE is not an international transaction and this issue has been rightly decided by the JTPO/DRP by treating the provision of corporate guarantee as international transaction. We are not inclined to agree with the contentions raised by the taxpayer that since no benefit has been passed on to its AE, there is no need to compensate the taxpayer because in a business transaction there is no concept of free lunch. Because without providing corporate guarantee by the taxpayer no loan would have been given to the AE; that the taxpayer has taken the risk on behalf of its AE which would not have been taken by any third party without consideration and that keeping in view the high risk involved in giving loan by any lender to the AE, the cost needs to be charged from the AE and as such, the commission received by the taxpayer for providing corporate guarantee has to be at arm’s length. However, the amount received by the taxpayer on account of commission charged for providing corporate guarantee to its AE needs to be at arm’s length price in view of the ratio of the order passed by the coordinate Bench of the Tribunal in Glenmark Pharmaceuticals Ltd. (2013 (11) TMI 1583 - ITAT MUMBAI) Transfer pricing adjustment qua SDT of payment of interest - since the rate of interest paid by the taxpayer to its related party is lower than the rate of interest paid by it to the third party lender the transaction of payment of interest by the taxpayer to its related party was at arm’s length - Held that:- When internal CUP was available and the complete data has been supplied for comparable study to the TPO/DRP, the same was required to be applied by providing an opportunity of being heard to the taxpayer. But the TPO has not preferred to make any comment on the rejection of plea of applying internal CUP raised by the taxpayer. Consequently, transfer pricing made by the TPO in respect of SDT payment of interest is not sustainable. When opportunity of being heard is not provided to the taxpayer that as to why internal CUP is not applied by the TPO, the issue is required to be set aside to the TPO to decide afresh after providing an opportunity of being heard to the taxpayer.
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