TMI Blog2020 (9) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... PO, would be justified. Accordingly, these grounds stand dismissed. Adjustment arising out of guarantee for advance payment provided by assessee to Chadian Company for Water Electricity (CCWE) - HELD THAT:- As decided in own case for AY 2010-11 . [ 2019 (9) TMI 437 - ITAT MUMBAI] Tribunal has concluded that the rate as applicable to performance guarantee would apply to this guarantee also. Following the same principle, we hold that the rate of 0.60% as adopted for performance guarantee to CCWE would apply to this guarantee also. Since, the assessee has already charged a rate of 0.60%, no further adjustment would be required. Accordingly, these grounds stand dismissed. Adjustment arising out of performance guarantee - The transaction is in the form of indemnity provided by the assessee to BEC with a view to secure the performance of the contract entered into by BEC with assessee s AE. The assessee did not charge any commission by submitting that the assessee was entirely compensated and therefore, no further charge was called for. TPO estimated the same @1%. - HELD THAT:- In assessee s own case for AY 2010-11 [ 2019 (9) TMI 437 - ITAT MUMBAI] Tribunal has concurred with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -to-market losses arising on the foreign exchange contracts which were outstanding at the year-end - HELD THAT:- As evident from factual matrix itself, the issue is covered in assessee s favor by the decision of this Tribunal for AY 2009-10 and held that MTM losses on hedging contracts would be accrued losses and hence, an allowable expenditure. Additional ground - Education cess and higher and secondary education cess paid by the assessee - allowable as deduction while computing business income of the assessee - HELD THAT:- We admit the additional ground of appeal and direct Ld. AO to bring the relevant facts qua the same on record and re-adjudicate the same after affording reasonable opportunity of hearing to the assessee. This ground is admitted and allowed for statistical purposes. - I.T.A. No.17/Mum/2018 And I.T.A. No.115/Mum/2018 - - - Dated:- 14-9-2020 - Shri Amarjit Singh, JM And Shri Manoj Kumar Aggarwal, AM For the Assessee : S/Shri Vijay Mehta and Anuj Kisnadwala- Ld. Ars For the Revenue : S/Shri Akhtar Husain Ansari Shri Michael Jerald- Ld.Sr.DRs ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. Aforesaid cross-appeals for Assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer Pricing)-2(3), Mumbai (in short TPO ) for determination of Arm s Length Price (ALP) of these transactions. One of such transaction was advances given by the assessee to one of its AE for ₹ 2069.94 Lacs. The advances were given to an AE namely EJP KEC Joint Venture, South Africa in various tranches during the year, which has been tabulated at para 6.1 of Ld. TPO s order. The perusal of the same would show that the advances given in earlier years were ₹ 828.80 Lacs whereas fresh advances given during the year were for ₹ 1903.83 Lacs (after adjusting forex fluctuations of ₹ 166.11 Lacs), thus aggregating in all to ₹ 2732.63 Lacs. The currency of loan was denominated in US dollars without any security. Accordingly, the assessee was asked to provide requisite details as to benchmarking of this transaction. 2.5 The assessee submitted that comparable uncontrolled price (CUP) was selected as most appropriate method (MAM) with AE being the tested party. The assessee explained that its AE had availed a loan facility from ICICI Bank UK @ 3 months LIBOR + 120 bps. This transaction could be used as internal CUP to benchmark the transaction. The advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee reiterating the submissions asserted that the advances given to its AE were not in the nature of loan and hence, interest was not charged on such advances. The Ld. TPO failed to appreciate that assessee s role in the transaction as an entity substantially interested in the joint venture and proceeded to treat the assessee merely a fund provider. The funds were advanced as a business partner so as to sustain the business of joint venture and with a view to protect own interest. The advances were given to resolve the problem of cash crunch and the therefore, the ultimate beneficiary would be assessee himself since the assessee was 50% partner in the joint venture. Therefore, the concept of loan could not be applied to the assessee s case since the cost and benefit would ultimately accrue to the same person. However, not convinced, the adjustment was confirmed, against which the assessee is under further appeal before us. The Ld. CIT(A) agreed with assessee s submissions that that the ALP of the loans was to be determined on the basis of rate of interest being charged in the country where the loan was received /consumed and directed Ld. AO to recompute the ALP. 4. Upon car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the guarantee commission for performance of contract provided by assessee to Chadian Company for Water Electricity (CCWE) on behalf of its AE KEC Global was at arm's length without appreciating the fact that the AE get benefited from guarantee provided by the assessee, AE was a newly floated entity and the credit rating of the AE was very low. ii. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the cost recovery was at arm's length itself as the assessee has recovered 0.60% from its AE for providing guarantee for performance of contract to CCWE, and ignored that benefit derived as a whole by the AE and also not appreciated the fact that this service will be available to any third party by the assessee. iii. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the guarantee for advance payment provided by assessee to Chadian Company for Water Electricity (CCWE) on behalf of its AE KEC Global was at arm's length without appreciating the fact the AE get benefited from the guarantee provided by the applicant, the AE was a newly floated entity, and the credit rating of the AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom its AE for providing guarantee for performance of contract to SNC LAVALIAN, Canada and ignored the benefit derived as a whole by the AE and also not appreciated the fact that this service will not be available to any third party by the assessee. CORPORATE GUARANTEE : x. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the corporate guarantee providing to ICICI Bank on behalf of KEC USA LLC Transmission LLC USA was not an international transaction without appreciating the fact that the transaction was of nature of guarantee given and the AE get benefited from the corporate guarantee provided by the assessee, which was a facility provided to its AE. XI. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the corporate guarantee provided to ICICI Bank on behalf of KEC USA LLC Transmission LLC USA was not an international transaction without appreciating the fact that the TPO has determined the benefits of the AE as ALP. xii. On the facts and circumstances of the case, the Ld.CIT(A) was not justified in deciding that the Corporate guarantee provided to ICICI Bank on behalf of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N.A. Royal Bank of Scotland - India Whether amount borrowed by AE from third party without corporate guarantee No No No Yes Amount guaranteed 6,81,60,907 13,63,21,814 223,96,50,902 3,46,52,829 Loan Amount availed N.A. N.A. N.A. N.A. When guarantee given 2009 2009 2009 2010 No of days during the year which guarantee was given 365 365 365 365 Rate recovered 0.60% 0.60% - 0.60% Purpose Towards performance of contract Towards advance payment made by customer Towards performance of contract Towards performance of contract Corporate Guarantees: Name of Borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing LLC USA Country UAE UAE UAE USA Bank Name and Country Bank of India -India Bank of India India N.A. Royal Bank of Scotland - India Whether amount borrowed by AE from third party without corporate guarantee No No No Yes Amount guaranteed 68160907 136321814 2239650902 34652829 Loan Amount availed N.A. N.A. N.A. N.A. When guarantee given 2009 2009 2009 2010 No of days during the year which guarantee was given 365 365 365 365 Rate recovered 0.60% 0.60% - 0.60% Purpose Towards performance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 10/07/2019, assailing the stand of Ld. first appellate authority in providing the relief to the assessee, in this regard. The copy of the order has been placed on record wherein we find that the revenue s appeal was partly allowed by the co-ordinate bench. In the above background, ground-wise adjudication to the appeal would be as follows. 7.1 Ground Nos. (i) (ii) are related with adjustment arising out of performance guarantee of ₹ 6.81 Crores provided by assessee to an entity namely Chadian Company for Water Electricity (CCWE) on behalf of its AE KEC Global, FZ LLC. It transpired that the assessee gave a bank guarantee to CCWE, a customer of its wholly owned subsidiary company (KEC Global, FZ LLC) for performance of contract entered into between AE and its customer i.e. CCWE. The bank guarantee was given by Bank of India. The bank utilized the guarantee facility sanctioned to assessee while sanctioning aforesaid bank guarantee to assessee s AE. The assessee, based on letter obtained from the bank, charged guarantee commission of 0.60% from its subsidiary. The Ld. TPO estimated the same @1%. We find that this issue is contained in paras 5.1 to 8 of the cited deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny commission by submitting that the assessee was entirely compensated and therefore, no further charge was called for. The Ld. TPO estimated the same @1%. We find that this issue is contained in paras 2 to 5 of the cited decision of Tribunal in assessee s own case for AY 2010-11. The Tribunal has concurred with assessee s submissions that the contract which was awarded to its AE would get assigned in assessee s favor wherein the assessee would be obligated to execute the contract on its own by using its own infrastructure, which would in turn, result in assessee deriving the entire contractual revenue and huge profits therefrom. Hence, there would be no need to make any adjustment on Arm s Length principles. Facts being pari-materia the same, respectfully following the same, we hold that the assessee was justified in not charging any fees against the same. These grounds stand dismissed. 7.4 Ground Nos. (viii) (ix) are related with adjustment arising out of performance guarantee of ₹ 3.46 Crores provided by the assessee in favor of an entity namely SNC Lavalin, Canada (SNC) on behalf of its AE namely SAE Towers Limited, USA (a subsidiary of the assessee). The guarantee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparison of the risk borne in corporate guarantee would be more than risk borne in bank guarantee since the risk in the case of default would not be covered by any asset of the entity guaranteed. The ratio of various decisions rendered by the Tribunal including the decision rendered in Everest Kanto (ITA No. 542/Mum/2012 23/11/2012) and Glenmark Pharmaceuticals (ITA No.5031/Mum/2012 13/11/2013) was considered. These decisions have already been tabulated and summarized on page nos. 19 to 21 of Ld. TPO s order. The Ld. TPO noticed that in the stated decisions, the Tribunal relied upon internal CUP and held that the commission paid by Indian assessee to the local banks for its credit arrangement constitutes an internal CUP for comparing the transactions with its AE. However, the said rates as per internal CUP were to be adjusted since by the very nature, the foreign financial transactions are riskier than domestic ones because of the difficulties in enforcing recovery in foreign jurisdiction. Since the spread on loans depend on credit ratings of the borrowing party, it is the credit rating of borrower AE which would be relevant and not the credit rating of assessee extending the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquiring the business. It was pleaded that guarantees issued by assessee would have no bearing on profits / losses of the assessee since there was no cost involved and no guarantee commission has been paid by the assessee. The aforesaid amended explanation would have no application in terms of decision of Delhi Tribunal in Bharti Airtel Ltd. (43 Taxmann.com 150) wherein it has been held that even after the amendment to explanation to Sec.92B, corporate guarantee given for the benefit of AE having no cost to the assessee would be outside the ambit of international transactions. Another plea raised by Ld.AR is that this was shareholder s activities and hence not covered by the term international transactions as defined in explanation to Sec.92B. Reliance has also been placed on following decisions: - (i) DCIT V/s Mastek Ltd. (ITA No. 2879/Ahd/2014 dated 19/03/2018, Ahd.Tribunal) (ii) Siro Clinpharm Pvt. Ltd. V/s DCIT (ITA No. 2618/Mum/2014 31/03/2016, Mumbai Tribunal) (iii) Marico Ltd. V/s ACIT (ITA No. 8858/Mum/2011 dated 18/05/2016, Mumbai Tribunal) (iv) DCIT V/s Rohit Ferro Tech Ltd. (ITA Nos. 262 263/Kol/2018 dated 12/10/2018, Kolkata Tribunal) (v) DCT V/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat guarantees have specifically been brought within the ambit of term international transactions by way of amendment to explanation (i)(c) to Sec.92B by Finance Act, 2012 w.e.f. 01/04/2002. Therefore, the arguments that the said transactions could not be considered to be international transaction do not convince us and therefore, we hold that the same was to be benchmarked on ALP principles. The aforesaid reasoning / conclusion would also make the cited case laws of Ld. AR inapplicable to the facts of the present case. 7.11 Coming to the benchmarking rate of 2% as adopted by Ld. TPO, the same do not convince us since a pertinent fact to be noted that both the AEs were subsidiaries of the assessee which were special purpose vehicle to enable certain acquisition on behalf of the assessee and the assessee would be the ultimate beneficiary of such acquisition. Therefore, the assessee s risk in such a case would be very low since both the AEs were assessee s subsidiaries only. Therefore, considering the fact that it was a corporate guarantee for which no fees was paid by the assessee and going by the ratio of the decision of coordinate bench of the Tribunal in Everest Kanto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of appeal which read as under: - On the facts and circumstances of the case and in law the ld. CIT(A)ought to have held that the education cess and higher and secondary education cess ₹ 204,08,473/- paid by the assessee is allowable as deduction while computing business income of the assessee. The Ld. AR sought admission of the same by us, inter-alia, in terms of decision of Hon ble Apex Court in National Thermal Power Corporation Ltd. V/s CIT (229 ITR 383); Jute Corporation of India Ltd. V/s CIT (187 ITR 688) the decision of Hon ble Bombay High Court in Ahmedabad Electricity Co. Ltd. V/s CIT (199 ITR 351). The Ld. AR, pointed out that the issue, on merits, is covered in assessee s favor by the recent decision of Hon ble Bombay High Court in Sesa Goa Limited V/s JCIT (117 Taxmann.com 96 dated 28/02/2020). On the other hand, Ld. DR opposed the admission of additional ground at this stage and submitted that the issue would require factual verification which has not been done by any of the lower authorities. 8.2 Upon careful consideration of ratio of decisions as cited before us in support of admission of additional ground of appeal, the bench formed a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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