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TMI Blog2025 (2) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee to AEs to 0.41% as against 1.25% in the case of Greatship Global Offshore Services Pte, and. Greatship Global Energy Services Pte Ltd, Singapore [GGES] as held by the Transfer Pricing Officer (TPO)/Assessing Officer (AO) (b) Without prejudice to the above, the relief granted by the Ld. CIT(A) is excessive 2. (a) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in applying the ruling in the assessee's own case for earlier years which in turn are based on the judgements in the case of Everest Kanto Cylinders Limited (ERC) of Ld. CIT(A) Mumbai (34 Taxmann.com 19 (Mum Trib) dtd. 23.11.2012) and decision of Hon'ble Bombay High Court (ITA No. 1165 of 2013 dated 8.05.2015 for A.Y. 2007-08) without appreciating and ignoring certain important facts having bearing on the benchmarking such as: (i) The quotation obtained by the Everest Kanto Cylinders Ltd. India (EKC-India) was in respect of transaction of a guarantee obtained by the Indian entity having strong financial and asset base and not in respect of Everest Kanto Dubai - the foreign entity with weaker financial strength and thereby impacting the comparability in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee to its Ads, thereby exposing itself to a lending business risk se well as the single customer risk by charging fee for such guarantee below the comparable ALP rate, which the assurance would have done, had it stood guarantee to any third party is uncontrolled conditions as in section 92F(ii)? 5. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in failing to see that AE had no credit- worthiness and financial capacity to service its own loan and in such a situation assessee standing guarantee for the loan, it had to be remunerated at arm's length as per section 92F(ii)? 6. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that the Assessing Officer has recorded the dissatisfaction as mandated under section 14A(2) of the Art which does not have any prescribed format? 7. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in restricting the disallowance u/s 14A to the suomoto disallowance of Rs. 9,93,001/-made by the assessee as against computed by the AO at Rs. 31,62,500/-u/s 14A r.w.r 8D of the IT Rules, 1962. 8. Whether on the facts and under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (DRP) for the Assessment Year 2015-2016 arrived ALP guarantee commission rate of 1.25% using external CUP method and proposed upwards transfer pricing adjustment of INR.14,35,86,295/- vide order, dated 01/11/2019, passed under Section 92CA(3) of the Act. 6. On 13.12.2019, the Assessing Officer passed Draft Assessment Order under Section 143(3) read with Section 144C(1) of the Act proposing aforesaid transfer pricing adjustment of INR.14,35,86,295/-. Further, the Assessing Officer also proposed a disallowance of INR 9,93,001/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 [for short 'IT Rules'] in addition to the suo-moto disallowance of INR 21,69,499/- made by the Appellant in the return of income. 7. The Appellant did not file reference before the Dispute Resolution Panel and therefore, Final Assessment Order was passed on 28/01/2020 making the above additions proposed in the Draft Assessment Order. 8. The Assessee preferred appeal before the CIT(A) against the Final Assessment Order. Vide order dated 19/12/2023, the CIT(A) disposed off the aforesaid appeal as partly allowed deleting the transfer pricing addition of INR 14,35,86,295/- and disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that same view has been taken by the co-ordinate bench of the Tribunal in the case of the Appellant for the assessment years 2008-09 (ITA No.7673/Mum/2012), 2009-10 (ITA No.1703/Mum/2014), 2011- 12 (ITA No.1457/Mum/2016) and 2012-13 (ITA No.1287/Mum/2017). 12. The relevant extract of the decision of the Tribunal for Assessment Year 2012-13 (ITA No.1287/Mum/2017) and 2014- 15 (ITA No.6083/Mum/2018) reads as under: "9. We have heard.....................................................In fact, involving identical facts the Tribunal in the assessee's own case for A.Y 2008-09, ITA No. 7673/Mum/2012 and A.Y 2009-10, ITA No. 1703/Mum/2014, vide a consolidated order dated 21.06.2019 had approved the determination of ALP of corporate guarantee provided by the assessee to a foreign bank for facilitating raising of loans by its foreign AE on the basis of the Internal CUP i.e guarantee commission that was paid by the assessee to a bank for standing guarantee on its behalf for a third party. Further, the Tribunal after drawing support from the order of the Hon'ble High Court of Bombay in the case of CIT Vs. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom), had approved the determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerations which apply for issuance of Corporate Guarantee were distinct and separate from that of Guarantee provided by the banks and, therefore, the two transactions were incomparable. In our considered opinion, similar parity of reasoning is applicable in the present case too because the considerations which weigh for raising of bonds, that too in Indian market, are quite distinct and incomparable with the instance of providing of Corporate Guarantee to a bank abroad in connection with raising of loan from such bank by the AE of assessee outside India. Therefore, in our considered opinion, the exercise carried out by the TPO to arrive at the impugned arm's length rate suffers from an inherent misconception as the benchmarking has been done between two incomparable situations. Therefore, we are unable to uphold the stand of the income-tax authorities. 18. Insofar as the adequacy of 0.55% rate charged by the assessee is concerned, we find enough reasonableness in the same. In this context, the learned representative for the assessee referred to various decisions of the Tribunal, viz. Hindalco Industries Ltd. (supra), Thomas Cook (India) Ltd. (supra) and Godrej Consumer Prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... willingness to give guarantee on behalf of the AEs at a commission rate of 0.40% p.a/0.50% p.a. In the backdrop of the aforesaid fact, we find substantial force in the claim of the ld. A.R that the aforesaid credit sanction letter too would constitute a CUP for benchmarking the transaction of providing of corporate guarantee by the assessee to the banks for facilitating raising of loans by its AEs. Be that as it may, the adequacy of the ALP of corporate guarantee fee at 0.43% can also safely be gathered by drawing support from the following judicial pronouncements as had been relied upon by the assessee before the lower authorities as well as before us: Particulars Guarantee Commission rate 1 Everest Kento Cylinder Ltd. Vs. ACIT (2012) 34 CCH 0528 (Mum) [Note : Order of Tribunal upheld by the Hon'ble High Court of Bombay: CIT Vs. Everest Kento Cylinder Ltd. Vs. CIT (2015) 378 ITR 57 (Bom). 0.5 2 Reliance Industries Ltd. Vs. Addl. CIT (ITA No. 4475/Mum/2007) 0.38% 0.38% 0.38% 3 Asian Paints Ltd. Vs. Addl. CIT (2014) 149 ITD 511 (Mumbai) 0.20% .20% 4 Aditya Birla Minacs Worldwide Ltd. Vs. JCIT (2016) 47 CCH 760 (Mum) .5% 5 Godrej Household Products Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dra Bank to the Assessee expressing its willingness to give guarantee on behalf of the AEs concerned in consideration of guarantee commission of 0.30% per annum, whereas the Assessee had determined ALP Guarantee Commission Rate at 0.41% per annum. On the other hand, we note that the TPO had not brought on record any material to support Guarantee Commission Rate at 1.25% per annum and has merely placed reliance upon the order passed by the DRP for the Assessment Year 2015-2016 (which has since been overturned by the Tribunal). While the Revenue has pleaded that determination of ALP is a factual exercise which needs to be carried out on yearly basis, we find that the TPO has failed to follow this approach and had rejected the ALP determined by the Assessee for the Assessment Year 2016-2017 by following the DRP order for the Assessment Year 2015-2016. 14. In view of the above, we decline to interfere with the order passed by the CIT(A) deleting the transfer pricing addition of INR.14,35,86,295/-. Accordingly, Ground No.1 to 5 raised by the Revenue are dismissed. Ground No. 6 to 8 15. Ground No. 6 to 8 pertain to disallowance of INR 9,93,001/- made under Section 14A of the Act read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest expenditure incurred by the assessee company during the financial year under consideration relates to tonnage activity and has been treated as such. The assessee company has not claimed the interest expenditure as a deduction while computing its taxable income. Therefore the assessee company submits that no part of interest expenditure is disallowable under section 14A. * Employee Costs of common employees (common to both tonnage and non-tonnage activities of the assessee company) who are engaged in functions like Accounts, Finance, HR, etc are bifurcated between tonnage activities and non-tonnage activities in the ratio of operating revenue from the said activities-33 (tonnage): 67 (non-tonnage). * The common administration expenses aggregating to Rs. 27,79,55,232/-have been initially treated as tonnage, non-tonnage and common expenses on the basis of the number of on-shore employees working for tonnage and non-tonnage activities and also common employees. The statement giving details of allocation made between tonnage, non-tonnage and common expenses is enclosed marked Annexure 5. * Thereafter, the common administration expenses related to common employees of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - as on 31.03.2016. Further, during the year, the assessee has shown exempt dividend income of Rs. 1,38,67,351/- in its computation of income and has claimed the same as exempt. The assessee has in its Return of Income, suo-moto disallowed Rs. 21,69,499/- under section 14A of the Income Tax Act, 1961. However, the assessee has not followed Rule 8D for the purpose of computing the disallowance under section 14A. During the course of the assessment proceedings, the assessee was asked to show cause as to why Rule 8D should not be applied to compute the disallowance under section 14A r.w. Rule 8D of the Income Tax Rules. 5.2. The assessee has made its submissions on this issue vide letter dated 15.11.2019 and furnished explanation. 5.3 The contention of the assessee has been duly considered, however, the same is not accepted for the following reasons. 5.4. At the outset it needs to be mentioned that vide annexure 5 of Report u/s 44AB of the Income Tax Act 1961, the Auditors have worked out disallowance at Rs. 21,69,499/- by applying the formula of their own i.e. Percentage of exempted come to total Income from Investment. This formula not being in conformity with the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years, I hold that the Appellant has methodically calculated the disallowance u/s. 14A of the Act. The Assessing Officer is directed to delete the disallowance uis 14A of of the Act of Rs. 9.93,001/-. Ground Nos. 10 to 12 of the appeal are therefore allowed." (Emphasis Supplied) 20. Being aggrieved by the above relief granted by the CIT(A), the Revenue has carried the issue in appeal before the Tribunal. 21. Having given thoughtful consideration to the rival submissions, we find that it is admitted position that there is no change in the facts and circumstances of the present case. We note that the Assessing Officer has proceeded to invoke provisions contained in Rule 8D of the IT Rules without recording his dissatisfaction regarding the computation/methodology adopted by the Assessee to arrive at the suo moto disallowance of INR.21,69,499/- under Section 14A of the Act. The CIT(A) had granted relief to the Assessee by following the decisions of the Tribunal in the case of the Assessee for the Assessment Year 2012-13 & 2014-15 [ITA No.1287/Mum/2017 & ITA No.6083/Mum/2018 dated 05/04/2021], Assessment Year 2013-14 [ITA No.7151/Mum/2017 dated 05/10/2021], Assessment Year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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