3F INDUSTRIES LIMITED,TADEPALLIGUDEM V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, RAJAHMUNDRY

ITA 434/VIZ/2024

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3F Industries Limited appealed against the Transfer Pricing Officer's (TPO) adjustment of a corporate guarantee fee at 1.95% for the assessment year 2021-22, which was contested based on previous years' assessments where a 0.50% fee was applied. The Tribunal found consistency in applying the lower rate across similar cases and previous years, thus reducing the fee to 0.50%. Additionally, the Tribunal addressed the issue of unclaimed TDS from AY 2018-19, directing the Assessing Officer to verify and allow the credit claimed in AY 2021-22. The initiation of penalty proceedings under section 270A was acknowledged but not further contested in this appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 46618 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Next Hearing Date: 19-11-2024
• Assessment Year: 2021-2022
• Appeal Filed On: 14-10-2024
• Other Referred Cases: CIT vs. Everest Kanto Ltd, M/s. Devi Sea Foods Limited vs. DCIT, Circle-3(1), Visakhapatnam
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Rule of consistency; TDS; Initiation of penalty proceedings; FORM 26AS
• Section: 143(3); 133(6); 92CA; 10B

Judgement Text

"आयकर अपीलीय अधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM (HYBRID HEARING) श्री क े.नरधिम्हा चारी, न्याधयक िदस्य एिं श्री एि बालाक ृष्णन, लेखा िदस्य क े िमक्ष BEFORE SHRI K. NARASIMHA CHARY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपीलसं./I.T.A.No.434/VIZ/2024 (निर्धारण वर्ा/ Assessment Year: 2021-22) 3F Industries Limited PB No. 15, Tanuku Road Tadepalligudem, West Godavari Andhra Pradesh - 534102 [PAN: AAACF2643K] v. Asst. CIT – Circle – 1 Aayakar Bhavan Veerabhadrapuram Rajahmundry – 533105 Andhra Pradesh (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व / Assessee Represented by : Shri Suvibha Nolkha, AR राजस्व का प्रतततितित्व / Department Represented by : Dr. Satyasai Rath, CIT(DR) सुिवाईसमाप्तहोिेकीततति/ Date of Conclusion of Hearing : 19.11.2024 घोर्णधकीतधरीख/Date of Pronouncement : 25.11.2024 आदेश /O R D E R PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER: 1. This appeal is filed by the assessee against the order of the Ld. Assessing Officer vide DIN No. ITBA/AST/S/143(3)/2024-25/1068983375(1) dated I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 2 23.09.2024 passed under section 143(3) r.w.s 144C(13) r.w.s. 144B of the Income Tax Act, 1961 [“the Act”] for the AY 2021-22. 2. Brief facts of the case are that the assessee-company is engaged in the business of manufacture and trading of edible oils and its by-products, bakery shortenings and margarine, specialty fats by importing raw material from its Associated Enterprises, filed its original return of income on 31.01.2022 for the A.Y. 2021-22 declaring an income of Rs. 1,01,67,64,257/- and the return was summarily processed under section 143(1)(a) of the Act. Subsequently, the case was selected for scrutiny under CASS and a notice under section143(2) of the Act was issued to the assessee and in response the assessee’s filed reply vide letter dated 08.12.2023. 3. During the assessment proceedings, on examining the details furnished by the assessee-company, the Ld. AO noted that the assessee-company has entered into various transactions during the AY 2021-22 with its Associated Enterprises being the subsidiary companies situated outside India. Accordingly, as per the provisions of section 92E, the assessee-company was requested to furnish the details of international transaction in Form No. 3CEB. On receiving the report from the assessee in Form No.3CEB, the same was forwarded to the TPO with the prior approval of the Ld. Pr. CIT for computation of Arm’s Length Price [ALP] of the transactions entered into by the assessee with its Associated I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 3 Enterprises [AEs] outside India. The Ld. TPO in his report made U/s. 92CA(3) of the Act observed that during the year, the assessee has provided Corporate Guarantee on behalf of its subsidiaries. The Ld. TPO also observed that the assessee has reported the same in Form 3CEB as “shareholder activity” by using other method. The assessee further submitted that 3F India has provided shareholder corporate guarantee on behalf of its overseas subsidiaries in the capacity of a holding company. The guarantee provided by the company is due to the AEs being subsidiaries to 3F India, which is provided for the benefit of the Group and not as a revenue earning service and hence no guarantee fee should be computed. The assessee’s contention before the Ld. TPO was in order to attract the ALP adjustment, the transaction has to qualify as an ‘international transaction’ in the first stage. Referring to section 92B(1) the assessee submitted before the Ld. TPO that the said section provides for computation of income arising from international transaction by applying arm’s length principle. The assessee also submitted that no service has been rendered by 3F India and further when a parent company extends an assistance to the subsidiary, being an AE, such as corporate guarantee to a financial institution for lending money to the subsidiary, which does not cost anything to the parent company and which does not have any bearing on its profits, income losses or assets, it will be outside the ambit of international transaction u/s. 92B(1) of the Act. Thus, the assessee submitted that the transaction can be said to be one of quasi-equity or shareholder activity. Therefore, it is in the interest of the group I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 4 that the assessee has provided corporate guarantee to its AEs. It is the submission of the assessee that as the AEs are not benefitted by the guarantee so given and it was the assessee who benefitted as a result of commercial benefits secured for future and that the business strategy should be taken into consideration while making any TP adjustments in respect of such transaction. 4. After considering the submissions of the assessee as well as on perusal of the relevant information obtained from 6 commercial banks u/s. 133(6) of the Act and the fee charged by them on the Financial Guarantee, the Ld. TPO observed that the various banks charge fee ranging from 1.3% to 3%. Hence, for computation of ALP the median of the various rates was adopted as the ALP as provided in Rule 10B of the IT Rules, 1962 and thus the Ld. TPO worked out the ALP to 1.95% for the corporate guarantee of above Rs. 10 Crs. Accordingly, the Ld. TPO computed the corporate guarantee at Rs. 72,39,391/- and made the TP adjustment u/s. 92CA of the Act. Thus, the Ld. TPO observed that the Ld.AO is required to enhance the total income of the taxpayer by Rs.72,39,391/- by way of TP adjustment U/s. 92CA(3) of the Act and passed the order dated 18.12.2023. 5. Aggrieved by the adjustment made by the Ld. TPO and against the draft assessment order dated 18.12.2023, the assessee raised its objections before the Ld. Dispute Resolution Panel, Bengaluru [“Ld. DRP”]. The Ld. DRP, after I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 5 hearing the submissions of the assessee and on perusal of the objections raised against the TP adjustment made by the Ld. TPO, observed that they do not find any merit in the contentions raised by the assessee and the grounds raised by the assessee are rejected and accordingly passed the directions dated 04.09.2024. Giving effect the directions of the Ld. DRP, the Ld. AO passed the final assessment order on 23.09.2024 and determined the total income of the assessee at Rs. 102,40,03,648/-. 6. Aggrieved by the final assessment order of the Ld. AO, the assessee is in appeal before us by raising the following grounds of appeal: - “Based on the facts and circumstances of the case, 3F Industries Limited respectfully submits that in the order passed by Hon'ble Deputy Commissioner of Income Tax, Circle 1(1), Hyderabad (Ld AO') under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ('the Act) dated 23 September 2024, the Ld. AO / Ld. Transfer Pricing Officer ('TPO\") and the Hon'ble Dispute Resolution Panel ('DRP') erred in: Ground No 1: Notional guarantee fee on shareholder's guarantee Making adjustment on the shareholders corporate guarantee provided to the banks for loans availed by the AE, without appreciating the fact that guarantee was provided for the benefit of the 3F Group. Ground No 2: Without prejudice to the above ground, not undertaking appropriate benchmarking analysis and upholding the ad-hoc approach adopted by Ld. TPO i.e. a) No method chosen by the Ld. TPO to benchmark the corporate guarantee transaction. b) Not undertaking a detailed benchmarking analysis and considering financial guarantee as bank guarantee Ground No 3: Without prejudice to the above ground, the Hon'ble DRP erred in not providing directions basis various judicial precedents of considering a lower rate to benchmark corporate guarantee transaction. I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 6 Ground No 4: Without prejudice to the above ground, failed to follow directions given by ITAT for the same issue in the Assessee's own case for AY 2014-15 and AY 2016-17. Ground No 5: Without prejudice to the above ground, the Hon'ble DRP erred in not appreciating the fact that corporate guarantee fee@ 0.5% has been computed by the Company for AY 2020-21 and is offered to tax in computation of income for the AY 2023-24. Other issues: Ground No 6: The Ld. AO, while computing the total income and tax in the computation of income, pursuant to passing of final order, erred in not providing the credit of unclaimed brought forward TDS Pertaining to AY2018-19 claimed in AY 2021-22 in ROI. Ground No 7: The Ld. AO was not justified and rather grossly erred in law and in facts by initiating penalty proceedings under section 270A of the Act by falsely stating that the Assessee has under-reported the income.” 7. We proceed to dispose off the appeal by adjudicating the issues ground wise. 8. Ground Nos. 1 to 5 are with respect to whether the TP adjustment made by the Ld. TPO in the corporate guarantee commission @ 1.95% on the amount guaranteed as corporate guarantee given to AEs is justifiable or not? On this issue, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that, Ld.TPO has considered 1.95% towards corporate guarantee fee as TP adjustment during the impugned assessment year. The Ld. AR pleaded that this Bench of the Tribunal in the assessee’s own case for the AYs 2014-15, 2016-17 & 2020-21 has taken a view that the corporate guarantee fee should be charged @ 0.50% on the corporate guarantee given to the Associated Enterprises. It was also admitted by the Ld. AR that the assessee has already I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 7 computed 0.50% as corporate guarantee fee and declared the same while filing the return of income. The Ld.AR therefore pleaded that the additions made based on the directions of the Ld. DRP shall be deleted. 9. Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] relied on the orders of the Ld. Revenue Authorities and argued in support of the same. 10. We have heard both the sides and perused the material available on record. We have also gone through the orders of the Ld. Revenue Authorities. The issue raised by the assessee in this appeal is with respect to charging the corporate guarantee commission @ 1.95% of the corporate guarantee estimated at Rs.72,39,391/-. The Ld. DRP while confirming the order of the Ld. TPO has observed that the doctrine of res judicata is not applicable to the tax matters and thereby upheld the TP adjustment of Rs. 72,39,391/- being 1.95% of the corporate guarantee fees. However, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y.2020-21 and decided the issue in favour of the assessee by relying on various case laws including the decision of the Hon’ble Bombay High Court in the case of CIT vs. Everest Kanto Ltd reported in 378 ITR 57 this Bench of the Tribunal has held as under: I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 8 “8. We have heard both the sides and perused the material available on record. We have also gone through the orders of the Ld. Revenue Authorities. The only issue raised by the assessee in this appeal is with respect to charging the corporate guarantee commission @ 1.9% of the corporate guarantee estimated at Rs.2,08,11,742/-. The Ld. DRP while confirming the order of the Ld.TPO has observed that the doctrine of res judicata is not applicable to the tax matters and thereby upheld the TP adjustment of Rs. 2,08,11,742/- being 1.9% of the corporate guarantee fees. However, in the assessee's own case in the earlier AYs 2014-15 and 2016-17 by relying on various case laws including the decision of the Hon'ble Bombay High Court in the case of CIT vs. Everest Kanto Ltd reported in 378 ITR 57 this Bench of the Tribunal has held as under: 8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. We have also gone through the decision of this Tribunal in the assessee’s own case for the AY 2014-15 (ITA No.473/Viz/2017, dated 16/2/2023) wherein the Tribunal, after analyzing the issues at length, held that the corporate guarantee commission is an international transaction and should be charged @ 0.50% on the corporate guarantee amount given to the AEs. For the sake of reference and brevity, we hereby extract the relevant paragraphs of the said Tribunal’s order for the AY 2014-15 (supra) which reads as under: “6. We have heard the rival submissions and perused he material available on record and the orders of the Ld. Revenue Authorities. It is observed from the order of the Ld. TPO that the Ld. TPO has obtained a rate of fees charged by State Bank of India on the issuance of financial guarantees given for the computation of ALP and the tested party with respect to the guarantees given to the AEs. The Ld. TPO has thus concluded that the median of the ALP works out to 1.60% on the corporate guarantee given to AEs. In the case of CIT vs. Redington India Ltd [2021] 430 ITR 298, Hon’ble Madras High Court held that corporate guarantee given to the AE is covered by the retrospective amendment made by the Finance Act, 2012. In the case of CIT vs. Everest Kanto Ltd reported in 378 ITR 57 the Hon’ble Bombay High Court held that the corporate guarantee commission is an international transaction and should be charged @ 50% on the corporate guarantee amount given to the AEs. In the case of M/s. Devi Sea Foods Limited vs. DCIT, Circle-3(1), Visakhapatnam in ITA No. 75/Viz/2022 (AY; 2017-18), dated 09/09/2022 this Bench of the Tribunal has held that the corporate guarantee given to the AE is an international transaction and shall be chargeable @ 0.50% on the amount of corporate guarantee given to the AEs. In view of the above discussions and by respectfully following the ratio laid down in various judicial pronouncements as discussed above, we are of the considered view that the corporate guarantee commission is an international transaction and should be charged @ 0.50% on the corporate guarantee amount given to the AEs. We therefore partly allowed the grounds raised by the assessee.” I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 9 9. Considering the identical facts and circumstances of the instant case with that of the assessee’s own case decided by this Tribunal in ITA No.473/Viz/2018 (supra) as well as following the principles of consistency and respectfully following the decision of this Tribunal, we hereby hold that the corporate guarantee commission is an international transaction and should be charged @ 0.50% on the corporate guarantee amount given to the AEs. It is ordered accordingly. Thus, the Ground No.1 raised by the assessee in its grounds of appeal is partly allowed.” 9. Considering the identical facts and circumstances of the instant case with that of the assessee’s own case for the earlier AYs 2014-15 and 2016-17 as well as following the principle of consistency and respectfully following the decision of this Tribunal (supra), we hereby hold that the corporate guarantee commission is an international transaction and accordingly should be charged @ 0.50% on the corporate guarantee amount given to the AEs. Therefore, we have no hesitation to delete the addition confirmed by the Ld. DRP amounting to Rs. 2,08,11,742/- being 1.9% of the corporate guarantee amount. Thus, the grounds No. 1 to 5 raised by the assessee are allowed. Ground No. 6 raised by the assessee is consequential in nature and therefore needs no separate adjudication. It is ordered accordingly.” 11. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2020-21 and following the principle of consistency, we allow the ground raised by the assessee. Ground Nos. 1 to 5 raised by the assessee are allowed. 12. With respect to ground No. 6, Ld.AR submitted that tax was deducted at source from the income pertaining to F.Y. 2017-18 which was deposited by the following parties during the subsequent years: - i. Shaswat Agro Trading Co., ii. State Bank of India iii. Shaswat Eco Waste Trading Pvt Ltd., I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 10 13. Ld.AR further submitted that since the tax deducted at source was not reflected in the Form 26AS it was not claimed by the assessee during the A.Y.2018-19. However, the assessee claimed that unclaimed TDS pertaining to A.Y. 2018-19 during the A.Y. 2021-22. She therefore pleaded that credit for the tax shall be granted to the assessee during the A.Y. 2021-22 for the unclaimed TDS. 14. Per contra, Ld. DR argued that this issue was not raised before Ld. DRP. 15. Countering the arguments of the Ld. DR, Ld.AR submitted that this issue was raised during the scrutiny assessment before the Ld. AO. She also argued that technically since this issue was not raised before Ld.DRP cannot be a reason for denying the credit for tax to the assessee during the subsequent Financial Year. 16. We have heard both the sides and perused the material available on record. It is an undisputed fact that the tax was deducted for the income admitted by the assessee during the A.Y. 2018-19 which was remitted to the Government account during the subsequent A.Y. Thus, the assessee lost the opportunity to claim the credit for TDS since it was not appearing in Form 26AS for the A.Y. 2018-19 at the time of filing the return of income for the A.Y. 2018-19. Subsequently, these credits were appearing in the Form 26AS I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 11 for the A.Y. 2018-19 which enabled the assessee to claim the credit for tax while filing the return of income for the A.Y.2021-22. We are of the view that there cannot be unjust enrichment to the revenue arising out of the technical default or delay in deduction / deposit of tax at source by a third party. We therefore direct the Ld. AO to verify the claim made by the assessee during the A.Y. 2021-22 for the claim of tax deducted at source pertaining to A.Y.2018-19 and thereby allow the same, if found genuine. Accordingly, this ground raised by the assessee is allowed for statistical purposes. 17. Ground No.7 is with respect to initiation of penalty proceedings under section 270A of the Act which is consequential in nature needs no adjudication. 18. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 25th November, 2024. Sd/- (क े.नरधिम्हा चारी) (K. NARASIMHA CHARY) न्याधयक िदस्य/JUDICIAL MEMBER Sd/- (एि बालाक ृष्णन) (S. BALAKRISHNAN) लेखा िदस्य/ACCOUNTANT MEMBER Dated: 25.11.2024 Giridhar, Sr.PS I.T.A.No.434/VIZ/2024 3F Industries Limited Page No. 12 आदेशकीप्रनतनलनपअग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/ The Assessee : 3F Industries Limited PB No. 15, Tanuku Road Tadepalligudem, West Godavari Andhra Pradesh - 534102 2. रधजस्व/ The Revenue : Asst. CIT – Circle – 1 Aayakar Bhavan, Veerabhadrapuram Rajahmundry – 533105 Andhra Pradesh 3. The Principal Commissioner of Income Tax 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीयअनर्करण, नवशधखधपटणम /DR,ITAT, Visakhapatnam 5. The Commissioner of Income Tax 6. गधर्ाफ़धईल / Guard file //True Copy// आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam "