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2016 (5) TMI 262 - ITAT MUMBAI

2016 (5) TMI 262 - ITAT MUMBAI - [2016] 49 ITR (Trib) 113 - Transfer pricing adjustment - application of the rate of 3% take by the Transfer Pricing Officer to determine the arm's length rate of the international transaction of provision of corporate guarantee on behalf of the associated enterprise - Held that:- The Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd.(2012 (11) TMI 1099 - ITAT MUMBAI) considering a somewhat similar situation has explained that instances of comme .....

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has proceeded to determine the arm's length rate based on the probable rate being charged by the commercial banks is not justified. In this view of the matter, we are unable to approve 3% rate of guarantee commission fee determined as arm's length rate by the income-tax authorities. In the alternative, the addition that is required to be sustained is the position canvassed by the assessee before the Transfer Pricing Officer i.e. adoption of 0.50% as arm's length rate for the purpose of determin .....

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milar issue has been decided against the assessee for assessment year 2007-08 ) by following earlier decision of the Tribunal for assessment year 2006-07. Depreciation @ 15% confirmed - Decided against assessee - ITA No. 859/MUM/2014, ITA No. 768/MUM/2014 - Dated:- 29-4-2016 - Shri G. S. Pannu, Accountant Member And Shri Sandeep Gosain, Judicial Member For the Petitioner : Shri Dhanesh Bafna & Shri Arpit Agarwal For the Respondent : Shri Sanjeev Jain ORDER Per G. S. Pannu, AM The captioned c .....

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tion to corporate guarantee on behalf of a foreign subsidiary. On the given facts and circumstances of the case and in law, the Learned Commissioner of Incometax (Appeals) ('CIT(A)') erred in upholding the action of the Assessing Officer (the AO') in making addition of ₹ 18,05,400/to the total income of the Appellant on account of transfer pricing adjustment of guarantee commission on corporate guarantee issued by the Appellant on behalf of a foreign subsidiary. The Appellant p .....

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n of 15% applicable to the block of 'plant and Machinery' as against the rate of 60% (i.e. rate applicable to the block' Computer') . Ground 3: Disallowance of claim of Depreciation on Jodhpur Property of ₹ 1,86,692/- On the given facts and circumstances of the case and in law, the Learned the learned Commissioner of Incometax (Appeals) ('CIT(A)') erred in upholding the action of the Assessing Officer (' the AO') in making addition of ₹ 1,86,692/to the .....

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f Hon'ble Kolkata ITAT in Samiran Majumdar {280 ITR (AT) 74 (Kolkata)]." 2. "Whether on the facts and circumstances of the case whether the CIT(A) is right in allowing depreciation on Switches & Routers at the rate of 60% instead of 15% relying upon the decision of Hon'ble ITAT, Special Bench, Mumbai in the case of Datacraft India Ltd. [ITA No. 7462 & 754/Mum/2007]." . 2. Before we proceed to adjudicate the respective Grounds of appeal, the background of the case i .....

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before the CIT(Appeals) , who has allowed partial relief. In this background, both Revenue and assessee are in appeal before the Tribunal on the respective grounds of appeal. 3. First, we may take up the appeal of the assessee, wherein the first issue is in relation to an addition of ₹ 18,05,400/- made to the total income on account of transfer pricing adjustment with respect to the corporate guarantee issued by the assessee on behalf of its foreign associated enterprise. In this context, .....

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at assessee had not charged any fee for providing corporate guarantee on behalf of its associated enterprise and, therefore, he determined an amount of ₹ 18,05,400/- being adjustment required to be made to the returned income on this count. During the year under consideration, the assessee had provided a corporate guarantee on behalf of its associated enterprise M/s. Thomas Cook Mauritius Operations Co. Ltd. for banking facilities availed by it from HSBC bank to the extent of ₹ 6,01, .....

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arantee commission fee. On this basis, the Transfer Pricing Officer worked out an addition of ₹ 18,05,400/- being 3% of ₹ 6,01,80,000/-. The Assessing Officer determined the income accordingly in terms of section 92CA(4) of the Act. The CIT(Appeals) has also affirmed the aforesaid action and accordingly assessee is in further appeal before us. 3.1 It is noted that before the lower authorities, assessee had resisted the aforesaid action on various grounds. Firstly, the stand of the as .....

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enterprise and that assessee had also not incurred any cost in respect of such corporate guarantee. Apart therefrom, assessee also opposed the adoption of 3% rate as a measure to determine arm's length rate and instead contended that a rate of 0.50% was quite justified. 4. Before us, the assessee has primarily argued that the rate of 3% adopted by the income-tax authorities in order to determine the arm's length rate of the impugned international transaction was untenable and instead poi .....

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dated 12/06/2013. It was also pointed out that so far as the decision of the Tribunal in the case of Everest Kento Cylinders Ltd.(supra) is concerned, the same has since been affirmed by the Hon'ble Bombay High Court vide ITA No.1165 of 2013 dated 8th May, 2015 also and in this manner, it is sought to be made out that application of a rate of 0.50% to determine the arm's length rate towards guarantee commission fee would be justified. 5. On the otherhand, Ld. Departmental Representative .....

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ia) Ltd., vs. Addl. CIT, in ITA Nos.7519& 7990/Mum/2011 dated 8/01/2014, wherein rate of 2.08% has been approved. 6. We have carefully considered the rival submissions. Be that as it may, the only dispute that the assessee has contested before us relates to the application of the rate of 3% take by the Transfer Pricing Officer to determine the arm's length rate of the international transaction of provision of corporate guarantee on behalf of the associated enterprise. Therefore, we confi .....

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tment made by the income-tax authorities was based on instances of commercial banks providing guarantees. The Hon'ble Bombay High Court has explained that instances of commercial banks providing guarantees could not be compared to instances of issuance of corporate guarantee. As per Hon'ble Bombay High Court, when commercial banks issue bank guarantees, the same is quite distinct in character, than the situation where a corporate issues guarantee to the effect that, if a subsidiary assoc .....

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me-tax authorities. In the alternative, the addition that is required to be sustained is the position canvassed by the assessee before the Transfer Pricing Officer i.e. adoption of 0.50% as arm's length rate for the purpose of determining the arm s length income on account of guarantee commission fee in the present case. The Ld. Departmental Representative had referred to certain decisions of the Mumbai Tribunal, wherein a rate higher than 0.50% has also been approved in order to determine t .....

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of the case and on the basis of the material available on record, we, therefore, proceed to uphold the rate of 0.50% for the purpose of determining the arm's length rate of the guarantee commission fee. In this view of the matter, we set-aside the order of CIT(Appeals) and direct the Assessing Officer to determine the addition in view of our aforesaid direction. Thus, on this aspect assessee partly succeeds. 7. The second Ground in the appeal relates to the action of the income-tax authoriti .....

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