CYIENT LIMITED,HYDERABAD V. DCIT., CIRCLE-1(1), HYDERABAD

ITA 913/HYD/2024

AI Insights

Cyient Limited appealed against the order of the TPO, which had recharacterized its services and adjusted the transfer pricing of corporate guarantees and a letter of comfort provided to its AEs. The TPO had treated the services as Knowledge Process Outsourcing (KPO) rather than software development, and had benchmarked the corporate guarantee fees at 1.9%, based on bank rates, instead of the 0.53% charged by Cyient. The Tribunal dismissed the recharacterization of services and adjusted the benchmarking of corporate guarantees to 0.53%, aligning it with ECB rates. Furthermore, the Tribunal found that the letter of comfort did not constitute an international transaction as it did not involve any financial commitment from Cyient to cover the AEs' liabilities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31773 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2020-2021
• Other Referred Cases: Dabar India Limited v. Addl. CIT, Reliance Industries Ltd. v. ACIT, Hetero Labs Limited v. ACIT, Mylon Laboratories Ltd. v. ACIT, Four Soft Ltd. v. Dy. CIT, Advanta India Ltd. v. Addl. CIT, Infotech Enterprises Ltd. v. Addl. CIT, Everest Kento Cylinder P Ltd v. ACIT, GMR Infrastructure Ltd v. ACIT, Jain Irrigation Systems v. ACIT, United Breweries (Holdings) Ltd. vs. Karnataka State Industrial Investment and Development Corporation, The India Hotel Company Ltd. vs. DCIT, Asian Paints Limited vs. Addi. Commissioner of Income Tax LTU, SIRO Clinpharm (P.) Ltd. vs. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Proportionate interest; Transfer pricing; International transaction; Retrospective amendment; Liquidation
• Section: 64; 251; 22; 133(6); 13; 92CA; 72; 92B; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “A” BENCH, HYDERABAD BEFORE SHRI LALIET KUMAR, HON’BLE JUDICIAL MEMBER & SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER I.T.A.No.913/HYD/2024 (ASSESSMENT YEAR: 2020-21) CYIENT LIMITED 4th Floor, Plot No 11 Software Units Layout Madhapur - Telangana 500081 [PAN: AAACI4487J] Vs.. DCIT - CIRCLE 1(1) B Block 7th Floor IT Towers, Masab Tank Telangana - 500004 (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri Vijay Mehta, AR राजस्व का प्रतततितित्व/ Department Represented by : B. Bala Krishna, CIT(DR) सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 23.12.2024 घोषणा की तारीख/Date of Pronouncement : 06.01.2025 O R D E R PER SHRI LALIET KUMAR, HON’BLE JUDICIAL MEMBER: 1. The present appeal is being filed by the assessee for the A.Y. 2020-21 feeling aggrieved by the order passed by the Learned Transfer Pricing Officer [hereinafter in short “Ld.TPO”] on the following grounds: - 1) The order passed by Ld. AO/DRP is bad in law, illegal and non est. 2) Ld. TPO/DRP/A.O. has erred in not accepting the characterization of the assessee as software development provider', The Ld. DRP has erred in observing that the nature of services provided by the assessee are engineering services, computer aided design/engineering. design and modelling etc. and same are in the nature of 'Knowledge Process I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 2 Outsourcing (KPO)' services. The Ld. DRP has erred in further observing that the adjudication on this ground is unnecessary. 3) Ld TPO/DRP/A.O. has erred in proposing/confirming the addition of Rs. 8,13,50,422/- on account of corporate guarantee fee in respect of guarantee by the assessee in favour of AE 4) The Ld. TPO/DRP/A.O, has erred in proposing/confirming the rate of guarantee fee of 1.90% based on the rates charged by the banks to its customers as against 0.53% charged by the assessee to its AEs. 5) Ld TPO/DRP/A.O, has erred in proposing/confirming the addition of Rs. -1,12,21,130/- on account of fees for letter of comfort given by the assessee in favour of AES 6) The Ld. TPO/DRP/A.O. has erred in proposing/confirming the rate of fee for letter of comfort at 1.90% based on the rates of guarantee fees charged by the banks to its customers. 7) The Ld. TPO/DRP/A.O. has erred in not providing copy of the information gathered by the TPO u/s. 133(6) of the Act from various banks. 8) The Ld. TPO/DRP/A.O. has failed to appreciate that the reference made to the TPO by the A.O. is bad in law. The Ld. TPO/DRP/A.O. ought to have appreciated that the mandatory conditions to invoke the jurisdiction u/s. 92CA of the Act did not exist. 9) The appellant craves to add, modify or amend the above grounds of the appeal.” 2. At the outset, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that assessee is not pressing Ground No. 1 and therefore it was prayed that Ground No. 1 may dismissed as not pressed. In view of the submissions of Ld.AR. Ground No. 1 is dismissed as not pressed. 3. With respect to Ground No. 2, Ld. AR had drawn our attention to Para No.3.2.3 of the TPO order which is to the following effect:- “3.2.3. The assessee's characterization of its services was examined carefully and the relevant details were examined from the TP Document. The observations of TPO were brought to the attention of the assessee seeking detailed replies and information. The replies and relevant I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 3 documentary evidences were submitted on behalf of the assessee. Accordingly, after a careful perusal of the information available on record and submissions made on behalf of the assessee, the claims of the assessee in respect of the characterization of the services were rejected. However, since the margins of the assessee in respect of the International Transaction of Provision of Services to the AE' were with in the Arm's Length Range, as calculated by TPO, no adverse inference is being drawn in respect of the transaction declared under provision of services to the AE. 4. Ld.AR therefore drawn our attention to the Para No. 2.1.2 of the Ld. DRP direction which is to the following effect :-. 2.1.2 Having considered the submissions, it is seen that the assessee is involved in wide range of services. It is seen that the some of the services provided by the assessee such as engineering services, computer aided design/engineering, design and modelling, etc. are in the nature of KPO services. However, in view of the comments of the TPO, the Panel deems that adjudication on this ground is unnecessary, as no variation has been proposed by the TPO for these services as the same are found to be at arm's length. The relevant extract of the TP order is reproduced below: “3.2.3. The assessee's characterization of its services was examined carefully and the relevant details were examined from the TP Document. The observations of TPO were brought to the attention of the assessee seeking detailed replies and information. The replies and relevant documentary evidences were submitted on behalf of the assessee. Accordingly, after a careful perusal of the information available on record and submissions made on behalf of the assessee, the claims of the assessee in respect of the characterization of the services were rejected. However, since the margins of the assessee in respect of the International Transaction of Provision of Services to the AE' were with in the Arm's Length Range, as calculated by TPO, no adverse inference is being drawn in respect of the transaction declared under provision of services to the AE.” 2.1.3 Therefore, this ground is dismissed.” 5. It is the contention of the Ld.AR of the assessee before us that TPO / DRP have decided the ground without giving any reasons for concluding that the assessee was rendering Knowledge Process Outsourcing [in short “KPO”] services and was not a software developer. It was further submitted that the TPO I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 4 has merely rejected the contention of the assessee that it is SDS and not KPO for that Assessing Officer noted that the Arm’s length price of the assessee was within the range and no adverse inference could be drawn in respect to the transaction. It was submitted by the Ld.AR that the finding of the DRP/TPO which is to the similar effect will be binding on the assessee for the subsequent assessment years and therefore, it is necessary a suitable direction may be issued to both authorities as both the authorities had failed to adjudicate this issue on merit. 6. Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] submitted that if the appropriate direction is issued by the Tribunal then the revenue has no objection. 7. We have heard rival contentions and perused the material available on record. Undoubtedly, TPO / DRP in the present case have not decided the issue about profile of assessee i.e. KPO or software developer, further both have not given any reasons as to why the services rendered by the assessee would fall under the category of KPO and not under software developer services. In the light of the non-availability of the reasons for treating the assessee as KPO by TPO / DRP, we are of the considered opinion that the finding given by the DRP/TPO will not be as binding and issue of whether the assessee is KPO or software developer is left open to be decided based on the facts and circumstances arising in the subsequent year. Therefore, Ground No. 2 is allowed for statistical purposes. I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 5 8. Ground No. 3 & 4 of the assessee’s appeal reads as under: -- “3) Ld TPO/DRP/A.O. has erred in proposing/confirming the addition of Rs. 8,13,50,422/- on account of corporate guarantee fee in respect of guarantee by the assessee in favour of AE 4) The Ld. TPO/DRP/A.O, has erred in proposing/confirming the rate of guarantee fee of 1.90% based on the rates charged by the banks to its customers as against 0.53% charged by the assessee to its AEs.” 9. In this regard Ld.AR had drawn our attention to the order of the TPO wherein the TPO at Page No. 5 to 7 had decided the issue as under: - “3.3.1. On perusal of the details furnished in the TP Document, it is observed that the assessee had provided corporate guarantees on behalf of its AE s and in respect of the same it was argued that it charged corporate guarantee fee @ 0.53%. In respect of the same it was stated that the same was as per the judgment of Hon'ble jurisdictional ITAT in assessee's own case without carrying out any benchmarking analysis. In this respect it is important to note that the questions of Transfer Pricing comparability are questions of fact and results of one year cannot be applied as such on the facts of the subsequent years. In other words the process of bench-marking cannot be bypassed unless the same has specifically been directed by Hon'ble bench. In absence of any benchmarking carried out by the assessee with respect to said international transaction, information was gathered u/s. 133(6) from various banks information with regard to the guarantee fees charged on bank guarantees provided and the details are as under: - Guarantee Fees for AY 2020-21: S.No. Name of the Bank Guarantee Fees 1. SBI 1.30% 2. Canara Bank 1.50% 3. HDFC Bank 1.80% 4. Axis bank 2% 5. Union Bank of India 3% 6. Punjab National Bank 3% 35th Percentile 1.80% Median 1.90% 65th Percentile 2% I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 6 3.3.2 Accordingly, the arm’s length rate of corporate guarantee fee is taken at 1.90% under CUP and it is proposed to determine the arm’s length price of the transaction as under: Amount of Corporate Guarantee at the end of the year under examination in INR 567,64,11,550/- Arm’s length rate of guarantee fee 1.9% Arm’s Length price of Corporate Guarantee fees 10,78,51,819/- Corporate Guarantee fees received by the assessee 2,65,01,397/- Adjustment proposed 8,13,50,422/- 3.3.2. It should be noted that the above adjustment was proposed considering 1.9% ALP for the entire year. The taxpayer was requested to provide copies of agreement entered into between AEs and taxpayer, to ascertain whether the Guarantees in respect of these amounts were outstanding for the whole year or a part of the year. Since the relevant details were not been provided the Guarantee Fee is being calculated for the whole amount outstanding for all of the year. 3.3.3. In the replies it was argued that the Corporate Guarantee at 0.53% is as per the judgment of Hon’ble Hyderabad bench of ITAT in assessee' own case. In this respect it is being pointed out that the questions about determination of ALP of International Transactions are questions of fact and conclusions on the same cannot be applied as such from one year to another. In other words, the bench-marking process cannot be ignored or bypassed unless the same has specifically been directed by Hon’ble bench. The assessee cannot claim a specific price in respect of a transaction without carrying out a bench-marking. Accordingly, the claims of the assessee are being rejected since no specific objections have been raised to TPO's benchmarking, the same is being adopted. Accordingly an adjustment of Rs. 8.13,50,422/, as brought out above is being made in respect of the transaction of Corporate Guarantee Fee'. 10. In this regard, Ld.AR drawn our attention to the order of the DRP and our attention was drawn to the Paragraph 2.2.3 to 2.2.12 which is to the following effect: - I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 7 “2.2.3 Some of decisions where Corporate Guarantee is treated as an international transaction and transfer pricing adjustments upheld are as under: - ▪ In this case, for the guarantee given to the bank against the financial assistance given to Its AEs, no commission was charged by the assessee-company on the ground that the said AEs were not benefited by the guarantee so given and it was the assessee who benefited as a result of commercial benefits secured for future. ITAT held that since there was a clear benefit accrued to AE by guarantee provided by assessee as it improved credit worthiness and hence lower interest rate, guarantee commission should had been charged at arm's length price (Nimbus Communications Ltd. [2013] 34 taxmann.com 298 (Mumbai - Trib.)) ▪ Provision of guarantee always involve risk and there is a service provided to AE in increasing is creditworthiness in obtaining loans in market, be from Financial institutions or from others. There may not be immediate charge on Profit & Loss account but inherent risk cannat be ruled out in providing guarantees. Transaction of providing corporate guarantee involves service rendered to AE and, therefore, provisions of transfer pricing can be invoked in respect of such a transaction (Prolifics Corporation Ltd. v. Dy. CIT [20151 55 taxmann.com 226 (Hyderabad - Trib.) • ITAT held that the assessee did incur costs on issuance of the guarantee to its subsidiary and, for that reason, the issuance of guarantee indeed had a bearing on the profits and income of such enterprise. And hence the issuance of guarantees, on the facts and in the circumstances of this case, constituted an 'international transaction' (Advanta india Ltd. [2015] 64 taxmann.com 251 (Bangalore - Trib.)) ▪ Corporate guarantees issued by assessee to Indian bank for benefit of Its US subsidiary is an international transaction within meaning of section 928. Though immediate transaction was between assessee and CIT Bank of India. benefit of guarantee was for US Subsidiary and, hence, assessee had rendered a service to its US subsidiary for which it must charge fees at an arm's length. (Infotech Enterprises Ltd. v. Addi, CIT (2014] 41 taxmann.com 364 (Hyderabad -Trib.)) • The tribunal held that the corporate guarantee provided by the assessee comes within the scope and ambit of 'international transaction\" by virtue of Explanation | (c) to section 92B of the Act as inserted with retrospective effect. (Four Soft Ltd. Dy. CIT[2014] 44 taxmann.com 479/149 ITD 732 (Hyderabad- Trib.)) I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 8 ▪ Transaction of providing corporate guarantee involves service rendered to AE and. therefore, provisions of transfer pricing can be invoked in respect of such a transaction following decision of Four Soft Ltd.(supra). (Mylan Laboratories Ltd. [2015) 63com 179 (Hyderabad - Trib.)) • Tribunal rejected the argument of assessee that it is the responsibility of the parent company to provide guarantee to its subsidiaries / AEs, therefore. In principle, no commission is chargeable and held that CG is an International transaction. (Reliance Industries Ltd.v. CIT (IT Appeal No. 4475 (Mum.) of 2011, dated 13-9-2013]) • The Tribunal in Mumbai in the case of Everest Kento Cylinder P Ltd (TS-309-ITAT-2014(Mum)-TP), considered and distinguished, namely the cases of Bharti Airtel Limited vs. ACIT and Redingtan (India) Limited Vs. ACIT and held that corporate guarantee is an international transaction. • It was held by the Hon'ble ITAT. Mumbai in the case of Omni active Health Technologies Ltd in 92 taxmann.com 88 that: \"transaction relating to provision for guarantee and payment of commission for services by AE to assessee would fall within definition of term 'interational transaction' under section 92B as retrospective amendment brought in by Finance Act, 2012 to section 92B has now set at rest all ambiguities about status of guarantee being an international transaction\". 2.2.4 There is no dispute that corporate guarantee is an international transaction. This has been so held in various judgements of the Tribunals such as: i) Zee Entertainment Enterprises Ltd. vs Ad. CIT, Range 11(1). Mumbai in 81 Taxmann.com 379( Mumbai-Tri)( AY. 08-09) ii) Aster (P) Ltd. Vs DCIT, Circle -1(1). Hyderabad in 81 taxmann.com 297 (Hyderabad-Tri) (A.Y. 10-11 & 11-12) ii) Manugraph India Ltd vs DCIT 3(2), Mumbai in 62 taxmann.com 347 (Mumbai- Tri)( A.Y. 10-11) iv) Ladshya Media (P) Ltd. vs DCIT 10(2)(1) . Mumbai in 80 taxmann.com 309 (A.Y. 10-11) 2.2.5 In view of the above discussion and decisions, we hold that the provision of corporate guarantee by the assessee to its AE constitutes international transaction and has to be benchmarked as per the TP provisions. I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 9 2.2.6 Further, the Panel is of the opinion that the corporate guarantees (CGs) are fundamentally different from bank guarantees in their nature, risk profile, and purpose. Corporate guarantees are typically issued by a parent company to support the financial obligations of its subsidiary (associated enterprise or AE). These guarantees are often not issued for commercial consideration but to ensure the financial stability of the corporate group. Therefore, a corporate guarantee is a commitment by the parent company to fulfil financial obligations of the AE, in case it defaults. This kind of financial backing often does not involve an immediate cash outflow and is primarily a measure of internal financial support within the corporate structure. On the contrary, bank guarantees are commercial products provided by financial institutions, is an assurance to third parties of payment in the event of default by the applicant. They are legally enforceable instruments involving higher risk for the bank, which has no direct control over the applicant's financial practices, thus necessitating higher fees to cover the associated risk. 2.2.7 In view of the above, the Panel notes that despite the clear distinctions between corporate and bank guarantees, there has been inconsistency in judicial precedents regarding the appropriate arm's length price (ALP) for corporate guarantees. This Inconsistency has led to a lack of uniformity in determining the appropriate rate for CG commissions. For instance, in the case of CIT y. Everest Kento Cylinders Ltd., the Bombay High Court recognized the distinct nature of corporate guarantees and upheld a rate of 0.5%, emphasizing that the considerations for issuing a corporate guarantee differ significantly from those for bank guarantees. Similarly, in the case of Glenmark Pharmaceuticals Ltd. v. Addl. CIT, the Mumbai Bench of the ITAT held that a rate of 0.53% was appropriate for a corporate guarantee, distinguishing it from bank guarantees whose rates were found to be inapplicable for comparison due to their commercial and higher-risk nature. Additionally, in Manugraph India Ltd. v. Dy. CIT, a rate of 0.5% was again justified reinforcing the view that lower rates are appropriate for CGs comparable to the higher rates for bank guarantee. 2.2.8 However, these cases also reveal that different tribunals and courts have varied in their determination of the appropriate rate for corporate guarantees. In Asst. CIT v. Glenmark Generics Ltd., the ITAT upheld a rate of 1% for the corporate guarantee commission, which contrasts with the lower rates in . other cases. This variability illustrates the lack of a standardized approach by the several judicial authorities, in determining the ALP for CGs. 2.2.9 Further, the Panel notes that as stated in preceding paras, the Issue of Corporate Guarantee Commission has been examined by various courts and variable rates have been prescribed. The Rate of ALP for computing Corporate Guarantee Commission depends on the facts of each individual case. The amount of guarantee commission on a corporate guarantee can depend on several factors such as the perceived risk associated with providing the guarantee, the financial stability of the company receiving the I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 10 guarantee and the likelihood of default, Duration and Size of Guarantee, Creditworthiness of the Guarantor and other relevant factors. The Panel is of the view that in calculating the guarantee commission, there cannot be an approach of one size fits all and the amount of commission will depend upon the relevant factors in each case. 2.2.10 Furthermore, the Panel notes from the Assessee's submissions, that the assessee has not provided the facts in support of its arguments as to why a lower rate of interest for corporate guarantee shall be applied. The assessee has not made supporting submissions such as credit rating of its A and its credit worthiness, which would help support the assessee's claim for a lower rate. The Panel opines that the rate of corporate guarantees is directly related to the risk assumed in providing such guarantees. It is seen that the Assessee has neither demonstrated nor ascertained the amount of risk involved in giving these corporate guarantees to its AE. Therefore, in the absence of both the credit rating and the quantified amount of risk, the Panel is constrained to infer that the risk involved should be considered at a moderate intensity and therefore, the rate adopted of 1.9% by the TPO is deemed justified. Accordingly, the Assessee's plea in this regard is hereby rejected. 2.2.11 With regard to the contention that the TPO failed to follow directions given by ITAT in assessee's case for AY 2006-07, the Panel is of the view that the general rule that is being applied over many years is that the doctrine of res judicata is not applicable in tax matters. This is because each year's assessment is final only for that year and does not govern later years. Each year's assessment and decision is hence final to only that financial year and hence so determines the liability of the assessee of that particular financial year or period. It is open to the authorities to consider the issues and position of the assessee in the subsequent years. Considering the same, this plea of the assessee is not acceptable. 2.2.12 In view of the above discussion, we do not find any merit in these contentions raised by the taxpayer and the grounds raised on these issues are hereby rejected. 2.3 Ground of objection No. 3: Financial Support to Subsidiary Company.” 11. Ld.AR had submitted that the TPO / DRP had decided and held that the Corporate Guarantee Fees “subject matter of the grounds of appeal before us” are the international transactions withing the meaning of law. It was submitted by the Ld.AR that in the present case, the TPO has benchmarked the interest on corporate guarantee @1.9%, the assessee in response to the notice has mentioned I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 11 that instead of 1.9%, the corporate guarantee rate is required to be computed @0.53% and for that purpose the assessee relied upon the decision of the coordinate bench in the case of the assessee. The assessee further submitted that 19 corporate guarantees were given by the assessee for various amounts for periods ranging from the period of 365 days to 91 days. Our attention was drawn to following table giving the details of the corporate guarantee, the term and rate of interest charged on the amount, is mentioned as under : Sr.No. Name of the subsidiary (borrower) Period No. of days Guarantee amount as on 31.03.2020 (in foreign currency) Guarantee Commission Rate of interest charged on loan In Foreign Currency In INR 1. Cyient Inc USA 01.04.2019 to 31.03.2020 365 88,00,000 1,67,200 2,84,10,696 LIBOR +100 POINTS (1.92% TO 3.43%) 2. Cyient Inc USA 01.04.2019 to 31.03.2020 365 66,00,000 1,25,400 3. Cyient Inc Usa 01.04.2019 to 31.03.2020 365 55,00,000 1,04,500 4. Cyient Defence Services Inc Usa 01.04.2019 to 31.03.2020 365 33,00,000 62,700 45,10,202 LIBOR +100 POINTS (3.36%) 5. Cyient GmBH 01.04.2019 to 31.03.2020 365 46,00,000 87,400 69,61,837 Euribor + 150points (1.50%) 6. Cyient Europe Ltd. 01.04.2019 to 17.08.2019 139 NIL (Op. Balance 10,00,00) 7,236 4,16,20,575 Term Loan 1– Euribor +78 points (0.78%) Term Loan 2 – LIBOR + 115 POINTS (2.95%) Working capital loan 1 – 2.26% 7. Cyient Europe Ltd 01.04.2019 to 17.08.2019 139 NIL (Op. Balance 15,00,000) 10,853 8. Cyient Europe Ltd 01.04.2019 to 31.03.2020 365 1,65,000 3,13,500 9. Cyient Europe Ltd 01.04.2019 to 31.03.2020 365 55,00,000 1,04,500 10. Cyient Europe Ltd 05.12.2019 to 31.03.2020 117 20,00,000 12,181 I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 12 Sr.No. Name of the subsidiary (borrower) Period No. of days Guarantee amount as on 31.03.2020 (in foreign currency) Guarantee Commission Rate of interest charged on loan In Foreign Currency In INR 11. Cyient Europe Ltd 20.09.2019 to 31.03.2020 193 69,00,000 69,321 Working capital Loan 2 – 1.29% 12. Cyient SRO 01.04.2019 to 17.08.2019 139 NIL (Op. Balance 13,25,54,000) 3,18,367 25,94,748 Working capital Loan – 2.68% 13. Cyient SRO 05.12.2019 to 31.03.2020 117 8,80,000 5,35,956 14. Cyient Singapore P.Ltd. 01.04.2019 to 30.06.2019 91 NIL (Op. balance 38,76,38,160) 26,527 24,60,948 LIBOR + 135 POINTS (1.35%) 15. Cyient Singapore P.Ltd. 18.10.2019 to 31.03.2020 165 10,00,000 8,589 16. Cyient Australia Pty Ltd., 01.04.2019 to 17.08.2019 139 NIL (Op. balance 16,75,15,062) 17,384 84,46,002 WORKING CAPITAL Loan – 1.65% 17. Cyient Australia Pty Ltd., 01.04.2019 to 31.03.2020 365 30,80,000 58,520 18. Cyient Australia Pty Ltd., 18.08.2019 to 31.03.2020 227 24,20,000 28,596 19. Cyient Australia Pty Ltd., 20.09.2019 to 31.03.2020 193 20,00,000 20,093 Total 9,50,05,008 12. It was submitted by the Ld.AR that, TPO/DRP had erred in directing to compute corporate guarantee for 365 days. It was submitted that instead of charging the corporate guarantee for full year, it should be restricted for the actual period for which the guarantee, was given and therefore direction is required to be given to the Ld. AO/TPO to benchmark interest on corporate guarantee on the actual period of the guaranteed. I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 13 13. On merit it was submitted that the assessee had received a notice for providing the details and the assessee has written a letter which is available at Page No. 13 of the paper book and in the said letter our attention was drawn at Page No 14 which is to the following effect. “Further to the above, we have enclosed to this letter, the agreement copies of the corporate guarantee issued during the year - Annexure 4B and also the agreements of the guarantees liquidated during the year- Annexure 4C”. 14. Ld.AR had submitted quite contrary to record (supra) the finding was given by the TPO that the assessee has not provided any information. As mentioned in the paragraphs reproduced above, Ld.AR submitted that the finding by TPO is factually incorrect as the assessee has provided the necessary details for the period in which the guarantees have been given. In the same letter which is at Page No 13 the assessee has submitted the reason for coming to the conclusion why the 0.53% is required to be applied and our attention was drawn to Page No.15 and 16 of the Paper Book. It was submitted that there is a rational behind as to why the Tribunal had benchmarked interest on corporate guarantee of 0.53% and our attention was drawn to the reasoning given by the coordinate benches in the case of Dabar India Limited v. Addl. CIT in ITA No. 3241 & 6525/MUM/2014 dated 18.02.2021 wherein the Tribunal in Paragraph No.127 had held as under: - “127. So far as the corporate guarantee issued on behalf of Naturalle LLC, UAE is concerned, a perusal of the details furnished by the assessee in the I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 14 paper book shows that the assessee has saved incremental interest of 1.025% due to guarantee provided by the assessee which was only with effect from September, 2007. Therefore, we find merit in the argument of the ld. Counsel that the proportionate interest saved by the Naturalle, LLC was only for a period of 7 months and accordingly, interest saving on only 0.60% was made by Naturalle, LLC. We have held in the preceding years that interest benefit be split between the guarantor and borrower on 50:50 basis. Therefore, applying the said rule, the benefit can be attributed to the service fee on account of guarantee at 0.30%. We accordingly modify the order of the CIT(A) and direct the AO to restrict the service fee/commission for providing such corporate guarantee at 0.30% on the amount of Rs.13.06 crores provided to Naturalle LLC, UAE. The grounds of appeal Nos.7 and 8 filed by the assessee are accordingly partly allowed.” 15. Ld.AR had drawn our attention to another decision of the Tribunal which is in the case of Reliance Industries Ltd. v. ACIT in ITA No. 579/MUM/2021 dated 14.10.2022, wherein the Tribunal in Para No. 74 and 75 had held as under:- “74. The brief facts of the case pertaining to this issue are: The assessee had benchmark commission on corporate guarantee given for its AE by following yield spread approach, based on offer letters issued by the banks. In these offer letters the interest on loan chargeable by the banks to the AE with assessee’s guarantee and without guarantee as compared in the rate differential is divided amongst the AE and the assessee equally. Accordingly, guarantee commission was charged by the assessee from its AE at 50% of the interest rate differential. The TPO, though accepted the yield spread method adopted by the assessee, however, did not accept the division of interest rate differential in 50:50 ratio and assigned at least 60% of the rate differential to the assessee. Further, the TPO adopted long term rates even for short guarantees and accordingly made adjustment of Rs. 40,39,46,916. The learned CIT(A) vide impugned order by following the decision of coordinate bench of Tribunal in assessee’s own case in preceding assessment years, accepted the benchmarking done by the assessee by following the yield spread approach with split of 50:50 in respect of both short-term and long-term guarantee. Being aggrieved, the Revenue is in appeal before us. 75. Having heard both the parties and perused the material available on record, we find that this is a recurring issue and has been decided in favour of the assessee in preceding assessment years. We further find that in assessment years 2014–15 and 2015–16, coordinate bench of the Tribunal vide order dated 08/03/2022, observed as under: I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 15 “82. Having heard the rival contentions and having perused the material on record, we find that this is a purely factual matter, which permeates from year to year, and once the coordinate benches have consistently held, right from 2011-12 onwards, that 50:50 allocation is reasonable, and there is no change in the material facts, we see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee‘s own cases for the preceding assessment years. We, therefore, approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.” 16. It was submitted that the coordinate Benches of Hyderabad had uniformly applying the rate of 0.53%. Ld.AR drawn our attention to the to the decision of the Co-ordinate Bench in the case Hetero Labs Limited, v. ACIT in ITA No. 312 & 313/HYD/2023 dated 21.05.2024, wherein the Tribunal has held in Para No. 9 to 9.2.1 as under: - “9. We have heard the rival arguments and perused the material on record. The TPO at pages 22 to 24 of the order had made the adjustment of Rs.1.48 crore in the hands of the assessee on account of Corporate Guarantee. While computing the same, the TPO/Assessing Officer had captured the Corporate Guarantee fee at 1.8% at the outstanding loan amount. The Ld.CIT(A) while hearing the appeal of the assessee has granted the relief to the assessee on the ground no.1 that the TPO is not correct in comparing that Corporate Guarantee with the Bank guarantee and determined the Arm's Length Price of corporate guarantee based on bank guarantee rate. The Ld.CIT(A) has granted relief to the assessee by relying upon the decision of co-ordinate Bench of the Tribunal in the case of Mylon Laboratories Ltd Vs. ACIT (ITA No.2123/Hyd/2011) and had computed the corporate guarantee commission @0.53as against 1.90% as determined by the TPO. 9.1. The submissions of both the assessee as well as the Revenue are captured hereinabove. Infact, we have the occasion to examine the identical issue recently in the cases of M/s. Aurobindo Pharma Limited, Hyderabad Vs. ACIT, Central Circle – 1(2) (ITA No.485/Hyd/2022 dt.27.04.2023 and ITA No.1860/Hyd/2019 for A.Y. 2015-16). In the case of M/s. Aurobindo Pharma Limited (ITA No.485/Hyd/2022 dt.27.04.2023) (supra), we have held as under : “8. We have heard the rival contentions of the parties and perused the material available on record. The issue of whether the corporate bank guarantee given by the assessee on behalf of its AE is an I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 16 international transaction or not, is no more res integra, as the explanation to section 92B of the Act itself had made it abundantly clear that if the assessee is providing the capital financing, including any type of long term or short term borrowing, lending or “guarantee”, purchase or sale etc., then such transaction shall be considered as international transaction. Undoubtedly, the assessee has given Corporate Guarantee on behalf of its AE, which fact has not been disputed by the assessee either before the TPO or before the DRP and, therefore, we are of the opinion that the corporate guarantee given by the assessee is an international transaction and, therefore, the same has rightly been held so by the lower authorities. 8.1 Having held that the corporate guarantee issued by the assessee on behalf of its AE is an international transaction, the sequator to that is whether the corporate guarantee estimated by the DRP to the tune of 1% on the amount guaranteed as a corporate guarantee commission as against 0.10% was justified or not. 8.2 In this regard, the assessee had made elaborate submissions which are reproduced elsewhere and submitted that the assessee is taking the financial facilities from the SBI and is paying 0.10% as schedule of fees and charges to the bank. 8.3. We have considered the submissions and found that the charges paid by the assessee cannot be compared for the purposes of determining the ALP of corporate guarantee commission. In our view, no third party would provide similar type of services/corporate guarantee on behalf of its AE and expose itself to the risk of giving the corporate guarantee. Therefore, the charges paid by the assessee to SBI cannot be compared for the purpose of determining the ALP of corporate guarantee commission. The Co- ordinate Bench in the case of Vivimed Labs vide its decision dated 12-04-2022 had adjudicated corporate guarantee commission @ 0.5% qua the extent of the amount of the assessee’s corporate guarantee actually utilised in these four assessment years. Thereafter, similar view had been taken by various Tribunals restricting the addition to 0.5% of the amount guaranteed as corporate guarantee commission. Recently, Delhi Tribunal in the case of Havells India Ltd. Vs. ACIT (LTU) in ITA No.6509/Del/2018 dt.09.05.2022 had also echoed the above said view and held that the addition of 0.5% on the amount guaranteed would be the appropriate benchmark to determine the ALP. Similar decision was also passed by the Bangalore and Pune Benches of the Tribunals in the case of GMR Infrastructure Ltd in ITA No.344/Pun/2022 dt.25.05.2022 and Jain Irrigation Systems in ITA 822/Pun/2022 dt.22.12.2022, respectively. Respectfully following the view taken by I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 17 the Delhi, Bangalore and Pune Benches of the Tribunals in the above cited cases and also in the case of Vivimed Labs (supra), we partly allow the ground of the assessee and restrict the addition to the tune of 0.5% on the amount guaranteed as corporate guarantee commission. Thus, ground nos. 1 to 4 are partly allowed.” 9.2.1 In our view, the facts of the present case are similar to the facts in the case of Aurobinda Pharma (supra). Therefore, relying upon the decision of the co-ordinate Bench of the Tribunal in the case of Aurobinda Pharma (supra), we uphold the computation of Corporate Guarantee Commission at 0.53%. Undoubtedly, in the facts of the case of Aurobinda Pharma (surpa), we had determined the amount guaranteed as corporate guarantee commission @ 0.5%. However, considering the facts of the present case, we are of the opinion that the computation of the amount guaranteed as corporate guarantee commission @ 0.53% would be appropriate. Furthermore, the Revenue cannot be worsen of thereby reducing the corporate guarantee commission from 0.53% to 0.50% in its appeal. Accordingly, the appeal of the Revenue on this aspect is without any basis. 9.2.1 The other aspect on which the Ld.CIT(A) has granted relief is that the assessee has only provided the corporate guarantee to its AE to the extent of 30.50% on the outstanding loan balance of US $ 10 million advance to its AE. In our view, the pro rata corporate guarantee is required to be calculated as directed by the Ld.CIT(A) on the amount for which the assessee has sought which would be 30.50% of the total amount of US $ 10 million advanced to its AE. Therefore, the corresponding corporate guarantee commission @ 0.53% is required to be computed on the amount of 30.50% of assessee’s share on the outstanding loan balance of US $ 93,05,376. Accordingly, grounds 2 to 4 of the Revenue appeal are dismissed.” 17. It was submitted that the Ld. AO / TPO have wrongly applied the rate at which the banks were issuing corporate guarantee and it was submitted that the said rates of interest applied by TPO/DRP as the guarantee fess by the various banks is not applicable in the present case as the risk rewards and assets employed by the banks and that of the assessee were not identical. It was further submitted by the Ld.AR that it is the duty of the TPO to brought on record the comparable instance by citing at what rate the similarly situated comparable is charging the I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 18 corporate guarantee from its AE. It was submitted by the assessee in the present case, the approach of the TPO / DRP is not in consonance with decision of the Tribunal and thereby the decision of the DRP / TPO is required to be reversed. 18. Per contra, Ld. DR had drawn our attention to the decision of the DRP and the Paragraph No. 2.2.7 of the DRP order and it was submitted that since there is inconsistence and incoherent approach of the Tribunal / High Court in benchmarking corporate guarantee charges, therefore, the decision rendered by the Mumbai Tribunal in ACIT v. M/s. Glenmark Generics Ltd., in ITA No. 5840/MUM/2017 was required to be applied and he has drawn our attention to Paragraph No.5 of the order. Ld. DR has submitted that it is the duty of the assessee to provide the comparable instances by maintaining the record as per Form 3CB and therefore lower authorities were right in applying the rate of guarantee charged by the bank financial institutions. 19. We have heard both the sides and perused the material available on record. In the present case the assessee has given the corporate guarantee to its various AEs as mentioned in the details hereinabove. From the perusal of the details of corporate guarantee hereinabove it is abundantly clear that the guarantees were given for the period varying from 365 days to 95 days. In our considered opinion the interest of corporate guarantee or the charges of corporate guarantee is required to computed on the basis of actual period, instead of one year, as the actual periods were available in the form of chart with the Ld. AO / TPO. I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 19 Therefore, we are of the considered opinion that the TPO / DRP are required to restrict the charging of the corporate guarantee charges for the actual period as against one year. In the light of the above, we issue the direction to TPO/AO to restrict the charging of the corporate guarantee only for the period for which it was issued. The TPO is directed to recompute the corporate guarantee charges for actual period only. 20. Now coming to the second issue, i.e., at what rate the corporate guarantee charges are required to be computed. In this regard, the TPO / DRP had relied upon the rate of corporate guarantee charges as charged by the financial institutions namely bank. At Page No.6 of his order TPO taken the median of the 35 percentile and 65 percentiles as bank charges and computed at 1.90%. If we look into the document and the show-cause notice issued by the TPO which is available at Page No. 18 then it is clear that the ALP of interest as applied for ECB loan was computed at 1.67%. At Page No. 20 of the paper book, in paragraph No.21.6 it was mentioned as under: - ”21.6 As the taxpayer had not received any interest amount on the financial commitment / loan provided to the AE, adjustment is warranted in the said issue and computation of the adjustment with respect to interest to be received on ECB is as under: Sl.No Description Amount 1. ECB loan / financial commitment Rs.59,05,85,810/- 2. Interest Received by the assessee (A) NIL 3. Arm’s Length Interest rate 1.67% I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 20 21. Now the question arises whether the ALP computed for external commercial borrowing @1.67% can be juxtapose or applied to the corporate guarantee @1.9%. In our view the answer is no, and this Tribunal while deciding the issue in the case of Hetero Labs Limited, v. ACIT (supra), as relied upon by the assessee, held that the rate of interest required to be applied is 0.53% and not 1.9%. For that purpose, the Tribunal has relied upon another Co-ordinate Bench decision in the case of Mylon Laboratories Ltd v. ACIT in ITA No.2123/Hyd/2011 and held that 0.5% is required to be applied. Accordingly, respectfully following the decision of the Co-ordinate Bench in the case of Hetero Labs Limited, v. ACIT (supra) we direct the TPO to compute the charges at 0.53% as corporate guarantee charges. 22. The question whether the approach of the Tribunal by restricting the corporate guarantee at 0.53% is correct. For that purpose, we have to see what benefit the assessee would have been passing to the AE by giving the corporate guarantee. In fact, corporate guarantee charges paid for the corporate guarantee cannot be equated with the rate of interest at what the external commercial borrowings has been borrows. In the case of ECB loans, risk and rewards are more than the corporate guarantees. The Corporate guarantee is required to be enforced in case of failure on the part of part of borrower. In case of ECB, not only the principle borrowed, is required to pay borrowed sum beside that other action can also be taken. Moreover, the Co-ordinate Bench in the case of Reliance Industries Ltd. v. ACIT (supra) and Dabar India Limited (supra) have already I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 21 adjudicated the issue and held that the interest benefit if any is required to be splitted between the guarantor and borrower. 23. No facts and figures brought to our notice as to whether the credit rating of the AE of the assessee was substantially low and at what rate the interest would have been borrowed by it or at what rate the bank would issue the corporate guarantee in its favour. In our considered opinion that the ECB rate is already determined by the TPO at 1.67%, then in our considered opinion corporate guarantee cannot be 1.67% it is to be substantially less therefore we are of the considered opinion that the view taken by the Co-ordinate Bench in the case of Hetero Labs Limited, v. ACIT (supra) whereby the corporate guarantee charge has been restricted to 0.53% was appropriate and in accordance with law. Accordingly, we allow this ground raised by the assessee. 24. Now coming to the other ground, assessee had drawn our attention to the Ground Nos. 5, 6, 7 & 8 of the grounds of appeal. In this regard Ld.AR drawn our attention to the to the order of the TPO whereby the issue has been discussed and adjudicated at Para No.3.4.1 to 4. “3.4.1. On perusal of the TP Document of the assesses it was noted that an amount of Rs. 68,05,86.810/- has been declared as 'Financial Support to subsidiary company. It has been described in the TP Document itself that the amount was in fact financial commitment provided in earlier years to its subsidiary Cylent Europe Limited and it was argued that it is in the nature of shareholder activity. 3.4.2. On being asked the details of the transaction, it was replied that the transaction is in the form of a letter of comfort issued by the assessee I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 22 company to one of its subsidiaries named M/s Gylent GmbH, which has advanced a loan to another AE named Oylent Europe Limited. it was submitted that in connection to the said loan the assessee issued a letter of comfort addressed to Cylent GmbH, wherein the assessee has undertaken that the borrower AE will receive adequate funding until the repayment of loan to Cylent GmbH. It was argued that a letter of comfort is different from a corporate guarantee and is a mere reassurance of performance. The reliance was placed on the judgment in case of M/s United Breweries (Holdings) Lid. vs. Karnataka Industrial Investment and Development Corporation (no citation provided) wherein the letter of comfort was provided as a document that indicates one party's intention to try to ensure that another party complies with the terms of financial transaction without guaranteeing performance in the event of the default. The attention was further invited to the judgment of ITAT Mumbai Bench in case of Asian Paints Limited vs. Addi. Commissioner of Income Tax LTU (ITA No. 2754 & 4203 of 2014) wherein it was pointed out that in a letter of comfort there is no liability or responsibility fastened with the assessee for making good the liability of the AE in case of default by the AE. Hon'ble bench further noted that it is apparent from perusal of the letter of comfort' that it is not a guarantee of any kind as there is no financial implication on the assessee. 3.4.3. Thus it appears that whether a 'Letter of Comfort' (LoC) would form an International Transaction of Corporate Guarantee or not would depend on the language of the letter. If the letter casts a financial responsibility on the assessee, which means that the assessee will have to make good the losses suffered by the lender in case of default by the borrower, then it would constitute a guarantee. In this respect the attention is being invited to para 2 of the Letter of Comfort, wherein it has clearly been mentioned that the assessee has 'undertaken to procure' that the borrower AE will receive adequate financial funding until the full repayment of the loan in such a way that the borrower AE would be capable to fulfil its obligations (repayment and interest) resulting from the loan agreement at any time and the letter has been subjected to laws of Republic of Germany. It is apparent from the language used in the Letter, that the assessee has made Itself liable to make good the losses that the lender might suffer in case of default by the borrower AE. While an undertaking to provide just the funding for desired performance would have been short of a guarantee, the funding specifically to ensure that the borrower may repay the loan and interest is in the nature of a financial guarantee that casts an obligation on the AE to make. Further, the LoC clearly says that assessee will ensure the funding of the borrower AE in such a way that it can full-fill its obligations from loan agreement (repayment and interest) at any point of time. One of the conditions mentioned is that the Loan Agreement is that the lender AE may terminate the agreement at any point of time making the borrower AE to repay the loan amount immediately. Thus assessee may even be responsible for I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 23 repayment. Also the language clearly means that in case the borrower AE is unable to pay the loans the assessee will have to ensure the funding to ensure the repayment. Thus the ultimate obligation to repay the loans, in case the AE is unable to do the same, would fall on the assessee in the event of a default. Accordingly, the undertaking is in the nature of Corporate Guarantee and in response to TPO's proposal to bench-mark the guarantee in absence of any benchmarking carried out by the assessee with respect to said international transaction, information was gathered u/s. 133(6) from various banks information with regard to the guarantee fees charged on bank guarantees provided and the details are as under : S.No. Name of the Bank Guarantee Fees 1. SBI 1.30% 2. Canara Bank 1.50% 3. HDFC Bank 1.80% 4. Axis bank 2% 5. Union Bank of India 3% 6. Punjab National Bank 3% 35th Percentile 1.80% Median 1.90% 65th Percentile 2% Since no specific objections in respect of the comparable selected by TPO, the Calculation of the adjustment in respect of the international Transaction of 'Financial Support to AE, holding the transaction to be that of a corporate guarantee, is as below Amount of commitment outstanding at the end of the year under examination in INR 59,05,85,810/- Arm’s length rate of guarantee fee 1.9% Arm’s Length price of Corporate Guarantee fees 1,12,21,130/- Corporate Guarantee fees received by the assessee 2,65,01,397/- Adjustment proposed 1,12,21,130/- 25. Ld.AR submitted that the assessee had issued a letter of comfort which is available at Page No. 27 which reads as under: - I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 24 26. On the basis of the above said “letter of comfort” it was submitted that there is no binding obligation of the assessee while granting letter of comfort and no cost has been incurred by the assessee for this letter of comfort. It was submitted that issuance of letter of comfort cannot be said to be an international transaction perse and it cannot be said to be subject matter of TP provision. It was further submitted that no ALP is required to be computed as there is no financial obligation on the assessee, even if there is any breach from appellant I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 25 after it issued a letter of comfort. It was submitted that both the entities i.e. Cylent GmbH and Cylent Europe Limited are 100% subsidy of the assessee and it will not impact the finances or revenue of the assessee. It was submitted that the letter of comfort was given by it as required within the law of Germany and therefore the order passed by the TPO benchmarking the letter of comfort @1.9% is incorrect. It was submitted that this is not an international transaction and therefore the entire addition made by the TPO / confirmed by the DRP is required to be deleted. 27. Ld.AR in support of the contention that the letter of comfort would not constitute the international transaction, the Ld. AR had drawn our attention to the to the decision of the Tribunal in the case of 4376/MUM/2010 dated 29.01.2020 and drawn our attention to the to the Paragraph 19 to 24 of the said decision which is to the following effect:- 19. Ground No.6 to 9 relates to Transfer Pricing Adjustment with respect to issuance of “Letter of Comfort”. This issue is interconnected with the grounds of appeal raised by revenue in its cross appeal. The ld. AR of the assessee submits that ld. CIT(A) deleted the adjustment against which the revenue has filed its cross appeal. The ld. AR of the assessee submits that the assessee issued Letter of Comfort to Bankers of Associated Enterprises (AE) of assessee. The assessee not reported this transaction (issuance of Letter of Comfort) in its Transfer Pricing Study Report (TPSR). The Assessing Officer made reference to Transfer Pricing Officer (TPO) for computation of Arms Length Price (ALP) of transaction reported by assessee with its AE in its report furnished under Form 3CEB. The TPO noted that the assessee has not reported about issuance of Letter of Comfort to the Banker of AE. The TPO issued show cause notice for determination of ALP with regard to issuance of Letter of Comfort. The assessee filed its reply vide reply dated 07.01.2008 & 18.01.2008. In reply to the show-cause, the assessee submitted that no adjustment is ought to be made as Letter of Comfort would not represent international transaction within the meaning of section 92B(1). It was further stated that merely an unequivocal statement of intention expressed by assessee not being bilateral, is not a transaction I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 26 and letter is a private affair between the assessee and the lender/banker (non associate and is not a transaction between two associate). The contention of assessee was not accepted by TPO by taking view that transaction relating to provision for Letter of Comfort and payment of commission for the services by AE to the assessee would fall within the definition in term of international transaction 92B of the Act. The TPO made adjustment of Rs. 8.70 crore on account of issuance of Letter of Comfort. The ld. CIT(A) after appreciating the contention of assessee concluded that issuance of Letter of Comfort does not constitute an international transaction. The ld. CIT(A) appreciated the difference between corporate guarantee and Letter of Comfort. The ld. AR further submits that there is a basic difference between corporate guarantee and Letter of Comfort. In a Letter of Comfort, the party issues only a letter that a subsidiary or group company would comply term of financial transaction and have no obligation to indemnify, however, in case of corporate guarantee, the party issuing guarantee is under obligation to the lender. The ld. AR further submits that infact this ground of appeal is also covered by the decision of Tribunal in case of The India Hotel Company Ltd. vs. DCIT in ITA No. 9087/Mum/2010 dated 06.09.2019, wherein similar ground of appeal was considered and by following the decision of earlier years in that assessee and decision of Hon’ble Karnataka High Court in United Braveries Holding Ltd. Karnataka State Industrial Investment and Development Corporation Ltd. (M.F.A. No. 4234 of 2007 (SFC), wherein it was held that Letter of Comfort merely indicates the parties assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. 20. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer/TPO. The ld. DR submits that the assessee rendered services to its AE by issuing Letter of Comfort to the lender of its AE and therefore, the issuance of Letter of Comfort is an international transaction as held by Hon’ble Bombay High Court in CIT vs. in Everest Kento Cylinders Ltd. [378 ITR 57]. The ld. DR further submits that after amendment in Explanation in Section 92B, any capital financing, lending on guarantee have become international transaction. 21. In the rejoinder submission, the ld. AR of the assessee submits that in Everest Kento Cylinders Ltd. there was no question before the Hon’ble High Court, if giving a corporate guarantee is an international transaction or not. In without prejudice submission, the ld. AR further submits that the coordinate bench of Mumbai Tribunal in SIRO Clinpharm (P.) Ltd. vs. DCIT [(2017) 88 taxmann.com 338 (Mum. Trib.)] that amendment in Explanation to section 92B by Finance Act is to be treated as effective at the best from A.Y. 2013-14 and so issuance of corporate guarantee prior to 01.04.2012 does not come within the definition of international transaction. 22. We have considered the submission of ld. representative of the parties and perused the order of lower authorities. During the reference pending before TPO, it was noted by TPO that assessee has issued a letter of Comfort to the banker of AE of assessee. The TPO has noted the relevant clause of I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 27 Letter of Comfort in para-3.5.8 of its order, consisting the following undertaking/assurance: a) it would be its endeavor not to permit the AE to enter into liquidation (whether Voluntary or compulsory); b) to enter into an arrangement with its creditors without its liability to the bank and its subsidiary and / or Associated companies being completely discharged; c) the assessee will not dispose off any shares in the AE which would result in its shareholding in the AE being reduced to a minority and non-controlling shareholding without first having received the Bank's written consent or having ensured that the AE's liability to the bank is discharged in full; d) it would be its endeavor that AE at all times has' .adequate financial resources to meet its obligations promptly and it shall be its endeavor that AE will be in a financial position to pay the moneys from time to time due to the bank; e) it would agree not to press for repayment of amounts due to it, in preference to the amounts due by the AE to the bank, from time to time; f) The assessee would furnish its annual audited financial statement of accounts and will procure that the AE will also furnish with annual audited information as may be reasonably required 23. The TPO concluded that this Letter of Comfort provide benevolent advantage to the AEs in obtaining credit facility from the Banks on better term. The TPO treated the Letter of Comfort as a guarantee. The TPO by taking view that transaction relating to provision for Letter of Comfort and payment of commission for the services by AE to the assessee would fall within the definition in term of international transaction 92B of the Act. The TPO made adjustment of Rs. 8.70 crore on account of issuance of Letter of Comfort. The TPO proceeded to determine Arms Length Price (ALP) of such guarantee commission and selected Comparable Uncontrolled Price Method (CUP) as most appropriate method. The TPO noted that HSBC Bank charged fees ranging from .15% to 3% of the value of guarantee given to its customer depending upon risk involved. The TPO determined Arms Length Commission @ 50% of 3% and arrived at the figure of 1.5% and proposed adjustment of Rs. 8,70,62,438/-. The TPO made the adjustment in the following manner: I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 28 Summary of letter of comfort/awareness issued with corresponding utilization by AE as of 31/03/2005 S. No. LOC issued by TIL to –name of bank AE Value of LOC issued for US $ Mill Exchange rate 1US$= Rs. 43,805 Commission rate @ 1.5% 1 Standard Chartered Bank Tata South East Asia Ltd. , Hongkong 5.00 21,90,25,000 32,85,373 2 Standard Chartered Bank Tata Zambia Ltd., Zambia 6.50 28,47,32,500 42,70,387.5 3 Standard Chartered Bank Tata International (PTY) Ltd., Australia 9.00 39,42,45,000 59,13,675 4 Bank of India Tata South East Asia Ltd. , Hongkong 22.50 98,56,12,500 1,47,84,187.5 5 State Bank of India Tata Africa Holdings Ltd. , South Africa 30.00 131,41,50,000 1,97,12,250 6 HSBC Tata South Asia Ltd., Hongkong 48.00 210,26,40,000 3,15,39,600 7 HSBC Tata West Asia FZE, UAE 6.50 28,47,32,500 42,70,987.5 8 Bank of Baroda Tata South East Asia Ltd., Hongkong 5.00 21,90,25,000 32,85,375 Total 132.50 580,41,62,500 8,70,62,437.5 R/o 8,70,62,438 24. Before ld. CIT(A), the assessee made elaborate submission and explained the difference between Letter of Comfort within Intra Group as well as the corporate guarantee. The ld. CIT()A) after considering the submission of assessee concluded that by issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost. The issuance of Letter of Comfort by assessee have no bearing on the profit, income or loss as the assessee did not incur any cost or expenditure for issuing such Letter of Comfort and it does not constitute international transaction under section 92B of the Act. The ld. CIT(A) concluded that there is a fundamental between guarantee and Letter of Comfort. Guarantee is a legal enforceable; however, Letter of Comfort is not. We have noted that Hon’ble Karnataka High Court in United Braveries (Holding) Ltd. vs. Karnataka State Industrial Investment and Development Corporation (supra) held that Letter of Comfort merely indicates the appellant’s assurance that respondent would comply the term of financial transaction without guaranteeing performance in the event of default. The co-ordinate bench of Tribunal in India Hotels Co. Ltd. (supra) on similar ground of appeal by following the decision of Hon’ble Karnataka High Court held that Letter of Comfort does not constitute international transaction. So far as contention of ld. DR for the revenue that after amendment in Explanation to section 92B is concerned, we have noted that co-ordinate bench in SIRO Clinpharm P. Ltd. (supra) held that amendment in Explanation to section 92B by Finance Act, effective from 01.04.2002 is to be treated as effective at the I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 29 best from A.Y. 2013-14. Thus, in view of the aforesaid discussion, we do not find any illegality or infirmity in the order passed by ld. CIT(A). In the result, Ground No. 6 to 9 (additional ground) of assessee’s appeal are allowed and consequently the grounds of appeal raised by revenue are dismissed.” 28. Similarly, Ld.AR had also drawn our attention to the to the decision of the Co-ordinate Bench in the case of ITA No. 371/MUM/2010 dated 31.01.2018 and drawn our attention to Para No.26 which is to the following effect:- “26 We have heard the rival submissions since the assessee has not bond itself for repaying the loans in the event of default by the AEs, the issue is covered by the law laid down by the Hon’ble Karnataka High Court in the case of United Braveries Holdings Ltd. (supra). Moreover, the Chennai Bench of the ITAT in TVS Logistics Services Ltd. (2016) 72 Taxmann.com 89 (Chennai Trib) has held that the letter of comfort is outside the ambit of international transaction. Hence, following the decisions of the Hon’ble Karnataka High Court and the Chennai Tribunal, we hold that the letter of comfort issued by the assessee in this case is outside the ambit of international transaction. We, therefore, dismiss this ground of appeal of the revenue.” 29. Lastly, Ld.AR had drawn our attention to the to the decision in the case of 2754/MUM/2014 dated 7.8.2021 and drawn our attention to the Paragraph Nos. 6 & 7 which is to the following effect:- “6. The learned Departmental Representative strongly relying upon the observations of learned Commissioner (Appeals) submitted, by providing letter of comfort / support to the AE, the assessee has facilitated the loan availed by AE. Therefore, it has to be treated at par with corporate guarantee. Hence, the decision of learned Commissioner (Appeal) should be upheld. 7. We have considered rival submissions in light of the decisions relied upon and perused materials on record. After going through sample copy of letter of comfort / support given to the bank towards loan availed by the AE, we have noticed that there is no liability or responsibility fastened with the assessee for making good the liability of the AE in case of any default. There is nothing on record to suggest that in case of any default by the AE, the outstanding loan will be recovered from the assessee. Pertinently, while sustaining a part of the adjustment made by the TPO, learned Commissioner (Appeals) has equated the letter of comfort / support to corporate I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 30 guarantee. In our view, on perusal of the letter of comfort / support, it cannot be construed to be in the nature of any sort of guarantee in respect of the loan liability of the AE. The only promise made by the assessee is, it will not make any divestment of the shares during the currency of the loan. In our view, in no way it makes the letter of comfort / support a guarantee of any kind as there is no financial implication on the assessee. On a careful reading of section 92B of the Income Tax Act, 1961 (in short, ‘the Act’), more particularly Explanation I(c), we are of the considered opinion that provision of letter of comfort / support cannot be termed as an international transaction within the meaning of the aforesaid provision. Our aforesaid view is well supported by the decisions cited by the learned Counsel for the assessee. Accordingly, we delete the addition of Rs.3,28,280/-. This ground is allowed.” 30. Ld.AR had also drawn our attention to the to the OCD commentary in this respect and drawn our attention to the page No. 98 of the paper book at Page No. 107 to 108 as under: - “D.1.2 Effect of group membership 10.162. This section elaborates on the effect of group membership on determining the arm's length price of financial guarantees, building upon the principles laid out in Section C.1.1. 10.163. By providing an explicit guarantee the guarantor is exposed to additional risk as it is legally committed to pay if the borrower defaults. Anything less than a legally binding commitment, such as a \"letter of comfort\" or other lesser form of credit support, involves no explicit assumption of risk. Each case will be dependent on its own facts and circumstances but generally, in the absence of an explicit guarantee, any expectation by any of the parties that other members of the MNE group will provide support to an associated enterprise in respect of its borrowings will be derived from the borrower's status as a member of the MNE group. For this purpose, whether a commitment from one MNE group member to another MNE group member to provide funding to meet its loan obligations, constitutes a letter of comfort or a guarantee depends on all the facts and circumstances, including whether the commitment provides the creditor relevant legal rights to enforce the commitment. The benefit of any such support attributable to the borrower's MNE group member status would arise from passive association and not from the provision of a service for which a fee would be payable. See paragraph 7.13 on passive association.” I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 31 31. Based on above submissions, Ld.AR submitted that the approach of the Ld.AO / TPO in benchmarking the letter of comfort is erroneous and required to be deleted. 32. Ld. DR relied upon the order passed by the TPO / DRP. At the outset it was submitted that assessee has not raised, this specific ground before the Tribunal even though it has raised the ground before DRP and for that purpose Ld. DR has drawn our attention to Page No. 9 of the DRP order wherein at objection No 3.3 it was mentioned as under: - “Objection No. 3.3; Without prejudice, assuming but not accepting that the transaction of letter of comfort is in the nature of corporate guarantee, the authorities below failed to appreciate that it is outside the ambit of international transaction and therefore no adjustment is warranted on the facts of the case.” 33. On the basis of the above it was submitted that assessee has not challenged the corporate letter of comfort as an international transaction before Tribunal and hence not permissible for the assessee to raise above said issue before us. 34. Further, Ld. DR has drawn our attention to the order of the TPO/DRP and also drawn our attention to the Explanation inserted under the Act in 92B and it was submitted that after insertion of the Explanation 92B this issue is no more debatable and argued that letter of support would be an international transaction. He relied upon the decision of the Mumbai Bench of the Tribunal in the case of 5363/Mum/2017 dated 01.03.2024 whereby in earlier decision of the Tribunal in the case of Asian Paint Limited, have been distinguished by the subsequent bench I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 32 and it was held by the Tribunal that the letter of support is an international taxation. 35. We have heard both the sides and perused the material available on record. In the present case admittedly, the assessee has not raised the specific ground before us challenging the fact whether the “letter of comfort” given by the assessee to its AE is not an international transaction. We find that this specific ground was raised by the assessee before the DRP in paragraph no 3.3(supra). In view of the above this plea now raised before us cannot be adjudicated as Tribunal is duty bound to decide the grounds of appeal raised at the Time of filling of appeal or thereafter. However, there is another reason in holding that the letter of comfort given by the assessee would fall within the realm of the international transaction for that purpose we may fruitfully relying on the Explanation given in Section 92B which is as under: - “92B. Meaning of international transaction. (1) For the purposes of this section and sections 92, 92-C, 92-D and 92- E, \"international transaction\" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associate enterprise, or the terms of the I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 33 relevant transaction are determined in substance between such other person and the associated enterprise.” 36. From the perusal of the above, it is apparently clear that the financial transaction which is in the nature of guarantee would fall and would be covered by the international transaction and therefore we have no hesitation to held that “letter of comfort” which is akin to corporate guarantee would be international transaction. Corporate guarantee in financial world can be worded differently one which is given to bank / financial institutions is called as “corporate guarantee fee” when given by assessee to its related party or to business entity it is called letter of comfort. But both are having inbuilt obligation to receive the payment to lender on behalf of borrower. 37. Now the question is the international transaction is required to be benchmarked at the rate determined by the TPO @1.9% or at any other rate. The order of the TPO as mentioned hereinabove, clearly shows that at the end of the financial year the financial commitment of the assessee was Rs.59,05,85,810/- this is co-existent with the financial commitment as committed by the assessee while issuing the letter of comfort to its subsidy in terms which is available at Page No. 27. If we look into the loan agreement between Cylent GmbH and Cylent Europe Limited then it is clear that the loan amount of Euro 710000000 was given by the lender to the borrower at the interest rate of 3% and the said loan is required to be repaid in a period of 20 instalments. At Page No. 24 it is mentioned that borrower was provided the lender the guarantee for the payment I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 34 of loan in the form of “letter of support by the parent company of the lender and the borrower for the loan as attached in annexure 2 of the loan agreement” the clause at Page No 24 clearly provides that this letter of support or any other letter of comfort is nothing but a security given by the borrower to the lender and the security was issued by the assessee. 38. In our understanding, if letter of comfort or the letter of support, is given as the security, as per loan agreement then letter of comfort / letter of support would partake the character of letter of security/guarantee and in other words it would amount to corporate guarantee. In view of the above, we are of the considered view that the letter of comfort given by the assessee to the lender, was a financial instrument, equivalent to letter of guarantee, and therefore required to be benchmarked accordingly. 39. In the present case, the rate of interest payable on the borrowings i.e., ECB borrowing was @ 1.67% and the rate of interest of corporate guarantee held by us @0.53%. Therefore, in our considered opinion the same rate as held by us for corporate guarantee is required to be applied for benchmarking the letter of comfort. Accordingly, we direct TPO/AO to apply 0.53% for benchmarking “letter of comfort”. 40. In the light o the above, we are of the opinion that the order of the TPO is required to be modified and accordingly we held that the charges for letter of support / letter of comfort is required to be computed @0.53%. I.T.A.No.913/HYD/2024 CYIENT LIMITED Page No. 35 41. No other issue has been raised and accordingly all the issues are decided by us and the appeal is partly allowed. 42. In the result, appeal of the assessee is a partly allowed. Order pronounced in the open court on 6th January, 2025. Sd/- Sd/- Sd/(G. MANJUNATHA) ACCOUNTANT MEMBER Sd/(LALIET KUMAR) JUDICIAL MEMBER Dated: 06 .01.2025 Giridhar, Sr.PS आदेश की प्रतततिति अग्रेतषत/ Copy of the order forwarded to:- 1. तिर्ााररती/ The Assessee : CYIENT LIMITED 4th Floor, Plot No 11 Software Units Layout Madhapur - Telangana 500081 2. राजस्व/ The Revenue : DCIT - CIRCLE 1(1) B Block 7th Floor IT Towers, Masab Tank Telangana – 500004 3. The Principal Commissioner of Income Tax (Central), Hyderabad. 4. Dispute Resolution Panel (DRP), Bengaluru. 5. Director of Income Tax (IT & TP), Hyderabad. 6. तिभागीयप्रतततितर्, आयकरअिीिीयअतर्करण, तिशाखािटणम /DR,ITAT, Hyderabad 7. The Commissioner of Income Tax 8. गार्ाफ़ाईि / Guard file //True Copy// आदेशािुसार / BY ORDER Assistant Registrar ITAT, Hyderabad "