TMI Blog2023 (3) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently would not be attracted in case of such payment of interest by the Indian Branch to overseas Head office and the question of disallowance of the said interest by invoking the provisions of sec.40(a)(i) does not arise - Decided in favour of assessee. Adjustment u/s 92CA(3) - compensation received sought by the assessee in the international transaction relevant to issuing of bank guarantee on the strength of back to back guarantee by the AEs - HELD THAT:- As decided in assessee own case [ 2022 (8) TMI 1130 - ITAT MUMBAI] we deem it appropriate to remand this issue to the file of TPO for de novo benchmarking of impugned international transaction of issuing bank guarantee against counter guarantee issued by the associated enterprise. Assessee is directed to produce all the documents before the TPO in support of its claim. TPO shall be at liberty to call for any details or documents for proper benchmarking of the impugned international transaction. Thus following the decision of ITAT we restore this issue to the file of TPO for adjudicating de novo as directed by the ITAT in the decision as referred supra, therefore, the appeal of the revenue is allowed for statistical pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the case, when, such adhoc method is not a prescribed method for determination of ALP w's 92C of the IT Act, 1961. 6. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) erred 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, as against the ALP rate computed by the TPO in his order based on the rate chart of State Bank of India @ 1% where amount of loan was more than 1 million USD and @ 18% 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. 7. Whether on 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assesse itself for A.Y. 2005-06. The relevant part of the decision of CIT(A) is reproduced as under: 5.2 Ground No.2: 5.2.1 This ground is against the action of the AO in treating the branch as a representative assessee/agent of its head office u/s 163(1)(c) without according any show cause to the appellant. 5.2.2 This issue is covered by my predecessor's decision in appellant's own case in Appeal No CIT(A)-57/Arr.149/2016-17 for AY 2011-12 dated 24.01.2017 For ready reference, the findings given in that order is reproduced below: I have considered the order of the AO and submissions made by the assessee. During the appellate proceedings, the assessee's AR submitted a copy of order of the Hon'ble ITAT in assessee's own case for the AY 2005-06. Identical case for AY 2005-06 wherein identical issue has been dealt by the Hon'ble ITAT, the relevant portion of the order is as under: The Revenue is in appeal against order of CIT(A) in deleting the disallowance made under Section 40(a)(a). We have considered rival contentions and found that disallowance has been made by the AO on the plea that branch office in India has been treated as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and dismiss the said appeal. The above decisions on interest allowability and interest income of the Hon'ble ITAT in the assessee's own case have been adjudicated in favour of the assessee and in view of this, these parts of ground of appeal are allowed. One more issue which has been raised is that a notice u/s 163(1) of IT. Act. 1961 was not given to the assessee branch before treating it as agent to its head office First of all, even though the branch has been treated as agent to head office. it is not necessary to invoke provisions of section 163 and give notice u/s 163 because branch and the head office are the same entity and only for assessing the income under IT Act, 1961, these two are being treated separately. Hence, it is held that it was necessary to issue notice under section 163 of IT. Act, 1961 to the branch of the bank as agent of the Head Office of the Bank In nutshell, ground of appeal is partly allowed. 5.2.3 Respectfully following the decision of my predecessor, this ground of appeal is partly allowed. 4. During the course of appellate proceedings before us the ld. Counsel submitted that identical issue similar facts has been adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of sec.40(a)(i) does not arise. Respectfully following the said decision of the Special Bench of this Tribunal, we uphold the impugned order of the Ld. CIT (A) giving relief to the assessee on both the issues involved in this appeal of the revenue and dismiss the said appeal. 6. Following the decisions of the ITAT as supra we don t find any merit in the grounds of appeals of the Revenue. Further, it is also clear from the findings of the ld. CIT(A) wherein held that it is not necessary to invoke provision of section 163 and give notice u/s 163 because the branch and the head office were the same entity and inadvertently at the concluding part he stated it was necessary to issue notice under section 163 of the Act. Therefore, the grounds of appeals no. 1 to 3 of the revenue stand dismissed. Ground No. 4 to 8: 3. The TPO has passed order u/s 92CA(3) of the Act on 23.12.2015 where adjustment u/s 92CA(3) of Rs.2,38,66,708/- was made towards compensation received sought by the assesse in the international transaction relevant to issuing of bank guarantee on the strength of back to back guarantee by the AEs. Accordingly, the AO has made adjustment of Rs.2,38,66, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas branches of Mizuho Corporate Bank Ltd and Mizuho Bank Ltd have requested MHCB, India Branch to provide such guarantees to the beneficiary and provide a back to back counter-bank guarantee to MHCB, India Branch to cover any financial liability that MHCB, India Branch would incur on behalf of these overseas branches in connection with guarantees issued to Indian clients on their behalf. 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 MHCB, India Branch, the overseas branch would make the payment to MHCB, India Branch which would then onward make the payment to the beneficiary in India. In connection with the aforementioned transaction, MHCB, India Branch provides support services towards processing of these guarantees such as receiving swift instructions, issuing the guarantee on stamp paper and couriering the same to the party in India, maintenance of log of original documents, sending reports on a periodic basis, reconciliation of transactions received versus those processed etc. In the instant case, the entire risk of discharging the bank guarantees is borne by the overs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Using the CUP method, MHCB, India Branch is transacting with its overseas AEs at arm's length in respect of bank guarantee Commission (as defined in Section 92F of the Act). In view of the above contention, the entire risk of discharging the bank guarantees is borne by the overseas branches issuing the Counter bank guarantees and MHCB, India Branch provides support services in connection with the processing of the bank guarantees. The Learned AO has erred in considering the guarantee fees charged by the Indian Bank as comparable, without considering the fact that Funding cost is higher for the nationalized banks whereas ours being a Japanese bank where the funding cost is low and hence the said guarantees can be issued at lower rates and accordingly the Arm's Length Price for counter bank guarantee commission is justified. Also in AY 2011-12 our grounds of appeal on the issue of percentage on guarantee commission was accepted by the learned CIT (A).The CIT(A) has passed the impugned order directing the AO to recomputed the commission for guarantee by making an addition of 10% increase in the rate of commission currently being charged by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank guarantee is borne by the overseas branches issuing the counter bank guarantee. As per the assessee, Indian branch only faces element of foreign exchange risk as it would receive processing fee from its associated enterprise in foreign currency and there could be difference in USD, Yen and Indian rupee conversion rates as on the date of receipt of remittance and the booking date. As per Form No. 3CEB, forming part of the paper book, the assessee claimed to have applied CUP method for determining the arm s length price of the international transaction of issuing bank guarantee against counter guarantee issued by the associated enterprise. The TPO rejected the contention of the assessee and noted that functions performed, assets used and risk undertaken by the assessee for both transactions i.e. for inter-bank indemnity transaction with its associated enterprises and for the guarantee issued to the third-party customers without any back-toback guarantee is same. The TPO also noted that even for the similar third party transactions the bank always secures itself fully with collateral security to cover against the risk. Ultimately, the TPO, by applying the rate charged by the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decision, as noted by the coordinate bench in para 3.7, the taxpayer also filed details of guarantees. 19. However, in the present case, apart from the claim of the assessee that guarantees have been issued to the clients of the overseas branches, in respect of which counter/inter-bank indemnity was executed by the overseas branches, the assessee in the factual paper book has filed the details of commission earned from the bank guarantee issued on behalf of the overseas branches. We find that there is no detail/ document with regard to the counter guarantee/indemnity executed by the overseas branch. Also there is nothing available on record in support of assessee s claim that money has been charged to the overseas branch and overseas branch recover these amounts from the third-party clients and paid them to 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 8. As the facts and the issue involved in these grounds of appeals are the same as grounds no. 1 to 3 vide supra in ITA No. 2867/Mum/2022 therefore, applying the same findings mutatis mutandis, these grounds of appeal of the revenue are also dismissed. ITA No. 2869/Mum/2022 Ground No. 1 to 3: 9. As the facts and the issue involved in these grounds of appeals are the same as grounds no. 1 to 3 vide supra in ITA No. 2867/Mum/2022 therefore, applying the same findings mutatis mutandis, these grounds of appeal of the revenue are also dismissed. Ground No. 4 to 8: 10. As the facts and the issue involved in these grounds of appeals are the same as grounds no. 4 to 8 vide ITA No. 2867/Mum/2022 therefore, applying the same findings mutatis mutandis, these ground of appeal of the revenue are allowed for statistical purpose. ITA No.2870/Mum/2022 11. As the facts and the issue involved in these grounds of appeals are the same as grounds no. 1 to 3 vide supra in ITA No. 2867/Mum/2022 therefore, applying the same findings mutatis mutandis, these grounds of appeal of the revenue are also dismissed. ITA No.2871/Mum/2022 12. As the facts and the issue inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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