TMI Blog2022 (8) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made during the assessment years 2007 08 and 2008 09. We find that in the aforesaid assessment years, AO has passed orders giving effect to the directions of CIT(A) and accordingly, granted depreciation under the Act. Since, in respect of assets added in preceding years, depreciation is year to year deduction available to the taxpayer and therefore is dependent on the order(s) passed in previous years. Thus, we find no infirmity in order passed by the learned CIT(A) on this issue. Accordingly, grounds no. 3 and 4, raised in Revenue s appeal, are dismissed. TP adjustment on account of back-to-back counter bank guarantee - HELD THAT:- No details have been furnished to support the claim that no risk was borne by the Indian branch. Further, though in Form No. 3 CEB assessee has claimed to determine the arm s length price of international transaction of issuing bank guarantee against the counter guarantee issued by the associated enterprise by applying CUP method, however, there are no details available on record as to how such benchmarking has been carried out by the assessee. We find that the TPO, by considering the rate charged by Bank of Baroda for issuance of guarantee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember For the Assessee : Shri Madhur Agarwal For the Revenue : Shri K.C. Selvamani ORDER PER SANDEEP SINGH KARHAIL, J.M. The present cross appeals have been filed by the assessee and the Revenue challenging the separate orders of even date 24/01/2017, passed under section 250 of the Income Tax Act, 1961 ( the Act‟) by the learned Commissioner of Income Tax (Appeals) 57, Mumbai [ learned CIT(A) ], for the assessment years 2010 11 and 2011 12. 2. Since both the cross appeals pertains to the same assessee and issues involved are also common, therefore, these cross appeals were heard together as a matter of convenience and are adjudicated by way of this common order. In both the cross appeals, identical grounds have been raised except with variance in figures. Accordingly, with the consent of the parties, cross appeals for assessment year 2010 11 are treated as the lead matter and findings rendered therein shall apply mutatis mutandis to the cross appeals for assessment year 2011 12. ITA No. 2711/Mum/2017 Revenue s appeal- A.Y. 2010 11 3. In its appeal for assessment year 2010-11, Revenue has raised following grounds: 1. Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order based on the rate chart of State Bank of India @ 1% where amount of loan was more than 1 USD and 1.8% for rest amount of loan, to issue guarantee against 100% counter guarantee by reputed international Banks, without adjudicating as to how the rate applied by the TPO is not comparable with the relevant international transaction. 8. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in directing to re-compute the ALP rate of commission in respect of the guarantees by making an addition of 10% increase in the rate of commission currently being charged by the assessee to arrive at the arm's length rate without analysing the functions performed, assets used and risks undertaken by the assessee bank? 9. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was right in the allowing relief to the assessee based on the decision of the Bombay High Court in Everest Kento Cylinder Limited (378 ITR 57 (Bom)), which clearly stated that no comparison(for transfer pricing purposes) can be made between guarantees issued by commercial banks(like the assessee) with corporate guarantee issued by a holding company for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue. 7. On the other hand, learned Authorised Representative ( learned AR ) submitted that this issue has been decided in favour of the assessee by coordinate bench of the Tribunal in assessee s own case in preceding assessment years. 8. We have considered the rival submissions and perused the material available on record. We find that coordinate bench of the Tribunal in ADIT (International Taxation) vs M/s Mizuho Corporation Bank Ltd., in ITA No. 3282/Mum./2009 etc., vide order dated 26/03/2014, for assessment year 2005 06, while deciding similar issue in favour of assessee, observed as under: 16. The issue with regard to addition of interest income earned by the head office from the branch office had already been decided by the Tribunal in assessee‟s own case in favour of the assessee by relying on the decision of the ITAT Special Bench in the case of Sumitomo Mitsu Banking Corp. 136 ITD 66 (Mum)(SB), wherein it was held that interest paid by Indian branch of the assessee bank to its overseas head office is not chargeable to tax in India. The Tribunal in assessee‟s own case in ITA No.7479/Mum/2007, vide order dated 25-7-2012, has held as under :- The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 2007 08 and 2008 09 allowed the appeal filed by the assessee on this issue. Being aggrieved, the Revenue is in appeal before us. 12. During the course of hearing, learned DR vehemently relied upon the order passed by the AO. On the other hand, learned AR placed reliance on the impugned order on this issue. 13. We have considered the rival submissions and perused the material available on record. In the present case, depreciation was claimed, inter-alia, in respect of addition to the assets made during the assessment years 2007 08 and 2008 09. We find that in the aforesaid assessment years, AO has passed orders giving effect to the directions of the learned CIT(A) and accordingly, granted depreciation under the Act. Since, in respect of assets added in preceding years, depreciation is year to year deduction available to the taxpayer and therefore is dependent on the order(s) passed in previous years. Thus, we find no infirmity in order passed by the learned CIT(A) on this issue. Accordingly, grounds no. 3 and 4, raised in Revenue s appeal, are dismissed. 14. The issue arising in grounds no. 5 to 9, raised in Revenue s appeal, is pertaining to transfer pricing adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d DR vehemently relied upon the order passed by the TPO. On the other hand, learned AR submitted that the entire transaction of issuing the bank guarantee on behalf of the clients of the overseas branches is secured by the counter/back to back guarantee issued by the overseas branch. The learned AR further submitted that there is no credit risk in this transaction. In support of its submissions, learned AR placed reliance upon the decision of coordinate bench of Tribunal in Australia and New Zealand Banking Group Ltd vs DCIT, in ITA No. 1106/Mum./2017, vide order dated 13/04/2022. 17. We have considered the rival submissions and perused the material available on record. In the present case, certain overseas branches of Mizuho Corporate Bank Ltd and Mizuho Bank Ltd have clients who require guarantees to be issued in India. Given that these clients are located in India, the overseas branches of Mizuho Corporate Bank Ltd and Mizuho Bank Ltd request the Indian branch to provide such guarantees to the beneficiary and provide a back-to-back counter bank guarantee to the Indian branch. It is the plea of the assessee that such back-to-back counter bank guarantee is to cover any financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king Group Ltd. (supra). We find that the basic facts of the aforesaid case are as under: 3.5. At the outset, we find that overseas branches of ANZ have clients who require guarantees to be issued to the beneficiaries in India. Since the beneficiaries are situated in India, the overseas branches of ANZ are situated in India. The overseas branches of ANZ request the assessee to provide such guarantees to the beneficiaries and inturn provide a back to back inter-bank guarantee / indemnity to assessee to cover any financial liability that assessee may incur in connection with guarantees issued to Indian beneficiaries on behalf of overseas ANZ branches. This is the prime function / activity carried out by the assessee with regard to the impugned international transaction. In case where the client of the overseas branch defaults and the guarantee would be invoked then, under the back to back guarantee issued to assessee, the overseas branch would make payments to assessee which would onward then make the payment to the beneficiary in India. 18. The coordinate bench of the Tribunal, in the aforesaid decision, noted that the taxpayer does not bear any risk in its books as it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee. There are also no details regarding whether the aforesaid process of charging and payment by the overseas branch is prior to or post the discharge of bank guarantee in favour of the beneficiary in India, in case of default. Thus, no details have been furnished to support the claim that no risk was borne by the Indian branch. Further, though in Form No. 3 CEB assessee has claimed to determine the arm s length price of international transaction of issuing bank guarantee against the counter guarantee issued by the associated enterprise by applying CUP method, however, there are no details available on record as to how such benchmarking has been carried out by the assessee. On the other hand, we find that the TPO, by considering the rate charged by Bank of Baroda for issuance of guarantee against 100% counter guarantee by reputed international banks, has made the transfer pricing adjustment by considering it to be an appropriate CUP. However, there is no further analysis as to how the said transaction is an appropriate CUP to the transaction undertaken by the assessee s Indian branch considering the FAR in both the transactions and whether any adjustment for differences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against counter guarantee issued by the associated enterprise. Accordingly, ground no.3 raised in assessee s appeal is allowed for statistical purpose. 23. The issue arising in grounds no. 1 and 2, raised in assessee s appeal, is pertaining to transfer pricing adjustment on account of interest received/paid on interbank placements amongst the assessee and the foreign branches. 24. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee entered into international transactions in respect of granting of loans/advances to associated enterprise as well as receiving of loans/advances from associated enterprise. Under Form no. 3CEB, assessee submitted that it has applied CUP method for determining arm s length price of the aforesaid international transaction. The assessee paid interest ranging from 0.35% to 3.65% in respect of loans/advances received from associated enterprise. Similarly, in respect of the loans and advances granted to the associated enterprise, the assessee received interest ranging from 0.05% to 0.25%. The TPO vide order passed under section 92CA(3) of the Act by applying the LIBOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The Learned CIT(A) has erred in confirming the TPO stand towards the adjustments made on interest on placements made during the year with the Associated Enterprises resulting in an addition to the Appellant income amounting to Rs. 2,61,405/ . 3. The Learned CIT(A) has erred in confirming addition to guarantee commission @ 10% on all guarantees issued by the Appellant to the Associated enterprises thereby resulting in an addition amounting to Rs. 5,64,731/ . 28. While, the Revenue has raised following grounds in its appeal: 1. Whether on facts and in circumstances of the case and in law, the CIT(A) is correct in holding that the addition has been wrongly made without appreciating the fact that the PE in India has to be treated as separate entity and the interest payable by the said PE is to be taxed in India in the hands of PE as income. 2. Whether on facts and in circumstances of the case and in law, the CIT(A) is correct in holding that the provisions of section 40(a)(1) do not apply without appreciating that the interest was chargeable to income. 3. Whether on facts and in circumstances of the case and in law, the CIT(A) is erred in directing the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrive at the arm's length rate without analysing the functions performed, assets used and risks undertaken by the assessee bank? 9. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was right in the allowing relief to the assessee based on the decision of the Bombay High Court in Everest Kento Cylinder Limited (378 ITR 57 (Bom)). which clearly stated that no comparison(for transfer pricing purposes) can be made between guarantees issued by commercial banks(like the assessee) with corporate guarantee issued by a holding company for benefit of its A.E. (subsidiary company)and the commission to be charged in the case of bank guarantees necessarily has to be higher than that of corporate guarantees? 10. The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing officer be restored. 11. The Appellant prays that the appeal is maintainable in this case in view of Circular No. 21/2015 dated 10.12.2015 of the CBDT. 29. As stated earlier, the facts for the assessment year 2010 11 as well as the issues involved are identical to the assessment year 2011 12 except with variance in figures ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
