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TMI Blog2016 (9) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... was referred to the TPO. The TPO has passed the order under section 92CA of the Act on 31.10.2012 proposing adjustments to the returned income of the assessee. Accordingly, a draft assessment order was passed on 28.02.2013 by the Assessing Officer determining the income at Rs. 97,92,70,466 by proposing the following two additions i.e., (1) TP adjustment of Rs. 43,17,62,526 and (2) Disallowance of SAP expenses of Rs. 2,34,50,000. 3. Aggrieved by the proposed additions, the assessee preferred its objections before the DRP which granted partial relief to the assessee and in accordance with the directions of the DRP the final assessment order was passed. Against the relief granted by the DRP, the Revenue is in appeal before us, while the assessee is in appeal against the confirmation of the adjustments proposed by the Assessing Officer. In the assessee's appeal, the assessee has raised as many as 27 grounds of appeal. At the time of hearing, the Learned Counsel for the assessee submitted that ground of appeal No.1 is general in nature and needs no specific adjudication and ground Nos. 24 to 26 are against the levy of interest under section 234B and 234C of the Act and being consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,947 and proposed the additions. The Assessing Officer, in the draft assessment order, proposed the addition against which the assessee raised its objections before the DRP. However, the DRP rejected the assessee's objections and therefore, the assessee is in appeal before us. 5. The Learned Counsel for the assessee, while reiterating assessee's submissions before the TPO and DRP, has drawn our attention to the order of the TPO under section 92CA of the Act to demonstrate that the TPO, instead of comparing the A.E. transactions with non-A.E. transactions, has compared the non-A.E. transactions with other controlled transactions, which according to him, is against the principles of T.P. adjustments. Further, he also submitted that under CUP method, strict comparison has to be made as to the nature and quality of the product. He has drawn our attention to pages 2 and 3 of the paper book wherein the transactions picked-up by the TPO to be not at arms length price have been analysed. The assessee has produced the comparative chart of transactions considered by the TPO to be not at arm's length and pointed out that the other product in terms of quality and composition with the type of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material on record, we find that both the assessee as well as the Assessing Officer have adopted the CUP method for the T.P. study and the determination of the arms length price of the transactions. It is also seen that the assessee has entered into various international transactions with various parties both A.E. and non-A.E. for purchase of Green Petroleum Coke ("GPC"). The Assessing Officer has picked-up only a few transactions to hold that they are not at arms length. We are convinced by the submissions of the assessee that the transactions with the A.E. should be compared with the transactions with non-A.Es and cannot be compared to any other controlled transactions. The TPO has compared the transaction of the assessee with it's A.E. with other controlled transactions which is not permissible under the T.P. regulations and guidelines. Further, the differences between the products and their quality also have not been taken into consideration by the TPO. The CUP method requires the most direct comparison between the products and in case of any variation between the products, adjustments have to be carried out for such variations before comparing the prices. It requires close s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the interest rate on long term loans and short term loans and submitted that the LIBOR rate is applicable only on short term loans. 10. Having regard to the rival contentions and the material on record, we find that in assessee's own case for the A.Y. 2008-09, 'B' Bench of this Tribunal, (to which one of us i.e., J.M. is the signatory), has considered the issue at length and at paras 10 to 14 by taking note of the decision in the case of M/s. Everest Kanto Cylinder Ltd., vs. DCIT, the ITAT has upheld the corporate guarantee fee at LIBOR + 0.50%. The relevant paragraphs are reproduced hereunder for ready reference. "10. We have considered the submissions of both the parties and perused the material facts on record as well as the orders of the revenue authorities. The assessee facilitated the acquisition of CII Carbon LLC by RCUSA by lending loan to its wholly owned enterprises. The assessee has taken the decision to make investment in its AE either on share capital or lending loan using its business expediency. Since, it had made the decision to make loan to its AE. By virtue of amendment to section 92B, it is international transaction. Once it is considered as international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und 3. The learned CIT (A) ought to have appreciated the fact that ALP is calculated by the TPO af ter considering the guarantee fee and by depending on the credit rating of the AE and once the ALP is approved, the percentage on guarantee fee cannot be revised. Ld. AR submitted that assessee, through a common facilities agreement in connection with overseas acquisition of subsidiary companies, had provided corporate guarantee in favour of RCUSA. The TPO had noted that assessee had guaranteed a consortium of banks, which provided loans to RCUSA, to indemnify the defaults, if any, on account of loan repayment by RCUSA. Ld. AR submitted that a corporate guarantee did not fall within the meaning of international transaction as def ined in section 92B, that it was in the nature of shareholder activity in the business interest of parent, that the assessee was restricted by law from charging fee for a corporate guarantee provided by it in terms of para 2.2.9 of the RBI Master Circular on guarantees and Coacceptance dated 02/07/2012, that a corporate guarantee is secondary with no cost or risk to shareholders and that it was in the business interest of the assessee. Ld. AR submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Infotech Enterprises Ltd. in ITA No. 115/Hyd/2011 and In ITA No. 2184/Hyd/2011, dated 16/01/2014 while considering identical issue of determining ALP of corporate guarantee provided by the assessee to its AE followed the ratio laid down in case of Glenmark Pharmaceuticals Vs. ACIT (supra) and remitted the issue back to the TPO to decide the quantum of corporate guarantee rate by following the method adopted in case of Glenmark Pharmaceuticals (supra). 26. Since the issue in the present case is identical to the issue decided by the ITAT, Hyderabad Bench in case of Infotech Enterprises (supra), following the same, we also remit this issue to the file of the TPO to decide the quantum of corporate guarantee rates accordingly. If the assessee is able to bring on record any comparables with regard to corporate guarantee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes." Thus, the grounds 7 to 11 are rejected. 14. As regards grounds 12 to 14 are concerned, we f ind that they are relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate method for benchmarking the charging of guarantee fee. We also do not agree with the contention of the learned counsel that there could not be any cost or charge of guarantee fee by providing corporate guarantee to its subsidiary because there is an always element of benefit or cost while providing such kind of guarantee to AE. However, in this case, the assessee has itself charged 0.5% guarantee commission from its AE, therefore, it is not a case of not charging of any kind of commission from its AE. The only point which has to be seen in this case is whether the same is at ALP or not. We have already come to a conclusion in the foregoing paras that the rate of 3% by taking external comparable by the TPO, cannot be sustained in facts of the present case. We also find that in an independent transaction, the assessee has paid 0.6% guarantee commission to ICICI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal CUP and comparing the same with the transaction with the AE. The charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the ICICI Bank and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company filed break-up of the same which includes Rs. 1,75,25,000 towards SAP Software License Fee and Rs. 3,35,000 towards SAP implementation charges. The Assessing Officer observed that the 'Expenses of SAP Implementation' is capital in nature and therefore, the same cannot be allowed as revenue expenditure. The Assessing Officer, thereafter, allowed the depreciation on the capital expenditure and brought the balance of Rs. 2,34,50,000 to tax. Aggrieved, the assessee is in appeal before us. Learned Counsel for the assessee submitted that the SAP implementation charges are revenue in nature and for this purpose, he placed reliance upon the decision of the Hon'ble Delhi High Court in the case of CIT vs. Asahi India Safety Class Ltd., reported in (2012) 346 ITR 329. 12. The Ld. D.R. on the other hand, supported the orders of the Assessing Officer and placed reliance upon the decision of the Coordinate Bench of this Tribunal in the case of Srinivasa Resources vs. ACIT reported in (2014) 41 taxmann.com 350 (Hyd.) (Trib.). 13. Having regard to the rival contentions and the material on record, we find that the Hon'ble Delhi High Court, was dealing with the case of an assessee which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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