9911796707
TMI Blog2019 (10) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18/01/2017 by the ld. Assistant Commissioner of Income Tax (Large Taxpayer Unit) -2, Mumbai (hereinafter referred to as ld. AO). 2. The ground No.1-3 raised by the assessee is with regard to the action of the ld. CIT(A) in deleting the adjustment made on account of corporate guarantee given by the assessee on behalf of its AE by accepting 1% guarantee fee charged by the assessee to be at arm's length. 3. The brief facts of this issue are that the company is engaged in the business of manufacturing and marketing of pharmaceuticals formulation and active pharmaceuticals ingredients and carrying out research and development activities. Glenmark Pharmaceuticals Limited (GPL), the holding company of GGL (i.e the assessee) , implemente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd country Standard Chartered Bank, London Societe Generale, Paris 4. Interest rate at which loan was taken by the AE Euribor+ 385 bps Euribor+395bps 5. Amount of guarantee USD 52 mn USD 42mn 6. Guarantor (s) Glenmark Generic Limited, India Glenmark Generic Limited, India 7. Loan Type: Bilateral Term Loan (the "Facility") Bilateral Term Loan (the "Facility") 8. Security: Unsecured Unsecured 9. Tenor 4 Years 3-5 years 10. Guarantee Fee 1% 1% 11. Interest Reset Basis: (Fixed/Floating) Floating Floating 3.4. GGL has provided additional guarantee amounting to USD 10 mn and USD 4 mn against loans 1 & 2 respectively to third party lenders of GGFSA. The incremental guarantees are towards derivative instruments en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce between these two rates represent an arm's length credit guarantee fee, as this is both a quantification of the benefit that the guaranteed entity receives from the guarantee and the incremental risk that the guarantor incurs in providing the guarantee. * Used Deal Scan & Bloomberg to identify comparables. The Deal Scan did not yield sufficient number of comparables. Hence we had to proceed with bonds search from Bloomberg. * The process by which a range of arm's length credit guarantee fee was estimated for the inter-company guarantee facility can be summarized as follows: * Estimation of the credit rating of GGFSA; * Search and identification of third party comparable uncontrolled loans / bonds which are comparable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee pleaded that this provides evidence that both the pricing basis itself of international transactions of GGL with regard to receipt of Guarantee Commission Fees and the outcome of the pricing i.e. the profitability, support our view that the international transactions of GGL were in accordance with the "Arm's Length" standard required under the Indian Regulations. 3.8. The ld. TPO called for information from various banks u/s.133(6) of the Act and based on the same, he determined the ALP at 1.5% of the guarantee amount and accordingly made the adjustment of Rs. 98,62,989/- towards guarantee fee. 3.9. The assessee submitted that bank rate cannot be compared with corporate guarantee due to difference in function, assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rate at 1% should be considered to be at arm's length. 3.12. The assessee further pleaded that the ld. CIT(A) in A.Yrs. 2010-11, 2011-12 and 2012-13 had accepted guarantee commission rate at 0.5% in respect of guarantees given to AE. The ld. CIT(A) accepted the contentions of the assessee by observing as under:- "I am of view that TPO cannot blindly reject the benchmarking of the appellant without finding any defect in it. However/1 do not agree with the contention of the appellant that no guarantee commission is required to be charged. Since, the appellant had given guarantee on behalf of its AE, directly or indirectly some benefit has accrued to the AE and also the appellant has taken risk by giving guarantee, hence appellant conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Ltd 2006-07 & 2007-08 0.5% Based on rate approved in appellant's own case for A.Y 2005-06 Average Rate 0.446% In view of above reasons, I hold ALP of the corporate guarantee commission @ 0.50% p.a. However, since the appellant has already charged 1% Guarantee commission, no adjustment is required to be made. Accordingly, appeal on this ground is allowed. 4. Aggrieved, the revenue is in appeal for ground No. 1 to 3. 5. We have heard the rival submissions. We find that this Tribunal in assessee's own case for A.Yrs.2011-12 and 2012-13 in IT(TP)A Nos. 6431 & 6432/Mum/2016 dated 30/04/2009 respectively had adjudicated the very same issue wherein by following the decision of Hon'ble Jurisdictional High C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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