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TMI Blog2015 (5) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... law the Hon'ble ITAT "K" Bench Mumbai was right in deleting the addition of Rs. 28,50,353/- on account of TP adjustment on guarantee commission ?" 2. The facts in brief are as follows : The Assessee was engaged in making High Pressure Gas Cylinder services and compressed natural gas cylinder. The assessee had subsidiary company at Dubai. The assessee company filed an E-return on 31.10.2007 declaring total income of Rs. 71,90,77,156/- under the Income Tax Act, 1961 (for short "I.T.Act") and showing book profit of Rs. 70,18,79,265/- under section 115JB of the I.T.Act. The return was processed under section 143 (1) on 3.12.2008. The case of the assessee was selected for scrutiny and notice under section 143(2) dated 10.9.2008 was served on the assessee along with a questionaire. Subsequently the case was transferred to the DCIT with effect from 1.9.2010. The assessee was heard. After verifying the accounts of the assessee company a draft assessment order was prepared and served on 30.12.2010. The assessee was made aware that the objections to the draft assessment order were to be filed within 30 days from the date of service, before Dispute Resolution Panel (DRP) failing which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everaged including by virtue of its debit equity ratio which would ultimately effect the cost of borrowing. The Dubai subsidiary was newly formed, was unknown had a low credit rating and as such the TPO concluded that if the guarantee had not been provided, ICICI Bank would not have lent and advanced monies to the AE. Relying upon the principles of computing guarantee fees in a case of General Electronic Capital Canada Inc. Vs. Her Majesty, The Queen, the difference between the bank rate and PLR rate it showed a return for bearing risk followed by other banks during relevant year was 6%, while the average PLR rate was 11.35%. This shows that the return for bearing the risk was around 5.35%. It was also found in another case taken up for comparison that a public company with limited liability in which 51% stake was held by Dutch State, FMO (Nederlands Financierings Maatschappij Voor Ontwikkelingslanden N.V) had charged 2.5% for furnishing guarantee in the case of RABO India Finance Pvt. Ltd., despite the fact that FMO and RABO were not related entities. The TPO came to the conclusion that the banks and companies are charging atleast 3% for providing guarantees and therefore, the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated Enterprise would not have been granted the loan at all. In this view of the matter, he further invited our attention to the order of TPO and the fact that inquiry had been made by TPO with HSBC Ltd, Mumbai which was charging a rate between 0.15% to 3%. The Allahabad Bank was charging rate of 0.75% to per quarter to 3% per annum and foreign companies such as Dutch State, FMO has charged 2.5% in case of Rabo India Finance Pvt. Ltd. Furthermore, he submitted that EXIM Bank of USA has provided guarantee to Boeing Company of USA against the Hire Purchase Agreement for purchase of aircrafts by Jet Airways India. The EXIM bank has charged a commission of 3% plus commitment charges from Jet Airways as consideration for guarantee. Accordingly, he justified the bench mark in a arm's length price for the bank guarantee at 3% of the amount of guarantee. In this manner Mr.Malhotra sought to justify arm's length price of Rs. 34,99,003/- and therefore the adjustment to the extent of Rs. 28,50,353/-. As far as the order of the Tribunal issuing disallowance under section 14A of Rs. 1 lac is concerned, he stated that the sum is arbitrary and unsustainable specially in view of the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said rate, the prevailing LIBOR rates were ranging from 5.3% and effective rate of borrowing was @ 6.13% for term loan and 5.8% for working capital loan, which was in line with normal rates prevailing in AE country. Mr.Pardiwalla further submitted that AE had obtained loan from its bankers on first charge towards the fixed asset and further hypothecation of inventory and book debts. AE has a gross fixed asset base valued at about USD 13 million and had inventory valued at USD 7.6 million, book debts of USD 5.4 million and cash and a bank balance of USD 1.8 million. He pointed out that against a loan outstanding of USD 10 million as of 31.3.2007, assets available were to the tune of USD 27.4 million. Accordingly there was no question the Associated Enterprise not being able to obtain a loan without this corporate guarantee issued by the Assessee. 10. Having considered submissions of Mr.Malhotra for the revenue and Mr.Pardiwalla for the assessee, we are of the view that the order of the Tribunal as regards disallowance under section 14A and restricting the same to Rs. 1 lac was justified in view of the material before the Tribunal. Furthermore, having considered the fact that a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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