TMI Blog2017 (12) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... n of adhoc 2% is not proper. In that view of the matter, the addition of 2% interest in the income is required to be quashed and set aside. - D.B. Income Tax Appeal No. 14 / 2015 In D.B. Cross Objection No. 31 / 2016 - - - Dated:- 13-10-2017 - MR. DINESH CHANDRA SOMANI AND MR. K.S. JHAVERI, JJ. For The Appellant : Mr. Prateek Kedawat with Mr. K.D. Mathur For The Respondent : Mr. Gunjan Pathak with Ms. Ishita Rawat Judgment 1. In all these appeals common question of law and facts are involved hence they are decided by this common judgment. The cross objections filed by the assessee are also decided by this judgment. 2. By way of the appeals, the appellant has assailed the judgment and order the tribunal whereby tribunal has partly allowed the appeal of the assessee. 3. This court while admitting the appeal on 14.9.2016 framed following substantial question of law:- 3.1 Appeal no.14/2015 admitted on 14.9.2016 1. Whether in the facts and circumstances of the case, the ITAT was justified in law and has not acted perversely in deleting the additions without considering the amendment in Section 92B by which the explanation was inserted with retro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year without considering the view that the average LIBOR rate existing at that time was only 0.79% and addition of adhoc 2% is unjustified, arbitrary and against the provisions of law? 4. The facts of the case are that the assessee deals in precious stones. The return of income was furnished declaring loss of ₹ 25,18,68,568/- which was processed u/s 143(1) of the Act. Thereafter the case was selected for scrutiny. The case involves transfer pricing, therefore, the same was referred to the Transfer Pricing Officer (for short the TPO ). The TPO proposed adjustment in respect of notional interest income on alleged delay in realization of sale proceeds from AEs. It was found that the assessee had extended corporate guarantee and advances to AEs for which no charges were levied. Similarly, adjustment in respect of sales to AEs were also proposed to be adjusted. The TPO thus proposed the transfer pricing adjustment in respect of the issues:- ( I) Notional interest on delayed payments. ( ii) Corporate guarantee provided to AEs without any consideration. ( iii) Notion interest on loans advanced to AEs. ( iv) Sales made by the assessee to AEs u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal while considering similar argument advanced on behalf of the assessee by placing reliance on the decision of the Four Soft Ltd. (supra), held as under: 15.2 After hearing the rival submissions we feel that Assessing Officer will have to follow the decision of the ITAT Hyderabad or the amended provision of the Act in this regard. If the Finance Bill of 2012 is passed by the Parliament amending the provisions of section 92B, with effect from 1st April, 2002, he will have to ignore the decision of the ITAT Hyderabad. In case section 92B is not amended with retrospective effect, he should grant relief to the appellant. 25.4 In the aforesaid view of the matter, we agree with the TPO that ALP of the corporate guarantee has to be determined as it falls within the scope and ambit of an international transaction after the retrospective amendment to section 92B. However, it appears that the TPO has applied the rate of 3.75%, which is applicable to bank guarantee issued by the bank. As the corporate guarantee is not in the nature of bank guarantee, the rate applicable to bank guarantee provided by the bank cannot be applied to corporate guarantee which is provided by a group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On second ground, he has also relied upon the decision of Bombay High Court in Commissioner of Income Tax vs. Tata Autocomp systems Ltd. (2015) 374 ITR 516 wherein it has been held as under:- 7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra) to reach the conclusion that ALP in the case of loans advanced to AEs would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the Revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substantial question of law and it is dismissed. There will be no order as to costs. 6.1 He relied upon the another decision of Hindalco Industries Ltd. Vs. Additional Commissioner of Income Tax (2013) 359 ITR 46 (Bom) wherein it has been held as under:- 3. On 25 September 2009, the Assessing Officer addressed a letter to the Commissioner of Income-tax-VI, Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, provided a corporate guarantee to the international banks for due performance of the facility agreement entered into by BVCo with these banks for availing the bridge loan for the acquisition of Novelis. The acquisition of Novelis was done with the express purpose of strengthening Hindalco's global position as an integrated aluminium producer with the presence in the entire value chain. This acquisition positioned Hindalco as a globally integrated aluminium producer with low-cost alumina and aluminium production facilities combined with a high-end aluminium rolled product capabilities. Therefore, looking at the objective and intent behind this acquisition, it is clear that the acquisition was intended to increase the global reach of the growth under the flagship parent company i.e. Hindalco. In the present case, the provision of Corporate Guarantee by Hindalco to international banks was in substance only to serve the limited purpose of arranging funds for overseas business expansion for Hindalco itself through the SPV. Further, in discharging its responsibility to arrange funds for this acquisition, Hindalco has provided a corporate guarantee to the internation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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