DCIT, KOLKATA V. HIMADRI SPECIALITY CHEMICAL LIMITED, KOLKATA

ITA 2223/KOL/2025

AI Insights

The case involves Himadri Speciality Chemical Limited, which appealed against the adjustments made by the Transfer Pricing Officer (TPO) regarding the Arm's Length Price (ALP) of interest on loans and the Standby Letter of Credit (SBLC) fees. The TPO had made significant upward adjustments, which the CIT (A) later reduced or removed, leading to the Revenue's appeal. The Tribunal examined the methodologies used by the TPO and the CIT (A), focusing on the application of the CUP method and the appropriate benchmarks for international transactions. The Tribunal found that the CIT (A)'s decisions were well-supported by judicial precedents and aligned with the principles of transfer pricing under the Income Tax Act.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 838980 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 24-09-2025
• Other Referred Cases: Aurionpro Solutions vs. Addl. CIT, CIT vs. Cotton Naturals (I) Pvt. Ltd., MK Shah Exports Ltd. vs. ACIT, Tata Autocomp Systems Ltd. vs. CIT, Siva Industries and Holding Ltd. vs. Asst. CIT, Natural Remedies Pvt. Ltd. vs ACIT, Eicher Motors Limited vs JCIT, Sun Pharmaceutical Industries Ltd. vs CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVEEN KISHORE
• Assessee Lawyers: S. K. TULSIYAN; PUJA SOMANI; ARS; RECORDING AN FINDING
• Keywords: Business income; Revenue expenditure; Transfer pricing; International transaction; Rule of consistency; Capital expenditure; Competent authority; Wholly owned subsidiary
• Section: 115JB; 10B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRIPRADIP KUMAR CHOUBEY, JM ITA No.2223/KOL/2025 (Assessment Year: 2012-13) DCIT Aaykar Bhawan Poorva, 5th Floor, room No.515, Kolkata-700107, West Bengal Vs. Himadri Speciality Chemical Limited 8th floor, Room No.15,23A, N.S. Road, Kolkata-70001, West Bengal (Appellant) (Respondent) PAN No. AAACH7475H Assessee by : Shri S.K. Tulsiyan& Ms. Puja Somani, ARs Revenue by : Shri Praveen Kishore, DR Date of hearing: 12.02.2026 Date of pronouncement: 17.02.2026 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-22(hereinafter referred to as the “Ld. CIT(A)”] dated 08.01.2025 for the AY 2011-12. 2. At the outset, we observe from the appeal folder that there is a delay of 147 days in filing the appeal by the department in support of which a condonation petition was filed. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approvals from the competent authorities, which took quite a long time and accordingly, the delay may be condoned. The ld. AR, on the other hand, did not oppose the condonation of delay. Printed from counselvise.com Page | 2 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 Considering the reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing. 3. The issue raised in ground no.1 to 4 and 8 is against the order of ld. CIT (A) deleting the Arm’s Length Price adjustment of ₹3,97,99,637 as made by the ld. AO/Transfer Pricing Officer on account interest on loan. 3.1. The facts in brief are that the assessee is a public limited company engaged in processing of coal tar & coal tar pitch to produce various products of coal tar pitch and valuable products like Oil, Naphthalene, etc. The company filed the return of income on 30.11.2012, declaring total income at ₹ nil under normal provisions and book profit of ₹80,89,27,608/- u/s 115JB of the Act. The case of the assessee was selected for scrutiny and the notices along with questionnaire duly issued and served upon the assessee. The assessee company has also two Windmills in Maharashtra having capacity to produce wind energy of 2.5 MW. The assessee entered into international transactions with its associated enterprise M/s Himadri Global Industries Ltd. (HGIL) and accordingly, the matter was referred to the ld. Transfer Pricing Officer for determining the Arm’s Length Price (ALP), who computed the adjustment of interest component charged by the assessee company by making upper adjudgment on account of interest on loan to HGIL by the assessee company at ₹3,97,99,637/-. Based on the said Transfer Pricing Officer report, the ld. AO added back the total upward adjustment of interest loan of ₹3,97,99,637/- to the income of the assessee. 3.2. In the appellate proceedings, the ld. CIT (A) allowed the appeal of the assessee on this ground by taking into consideration and submissions of the assessee by observing and holding as under:- Printed from counselvise.com Page | 3 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 ““4.4 Addition u/s 92CA on account of loan to HGIL Rs.3,97,99,637 The appellant had extended a loan to its wholly-owned subsidiary in Hong Kong, Himadri Global Investment Limited (HGIL). This loan was ultimately for the benefit of Shandong Dawn Himadri Chemical Industry Limited (Shandong). Since Shandong was the ultimate beneficiary of the loan, the arm's length analysis was conducted based on the financials of SDHCIL, as evidenced by the audited accounts of HGIL. The appellant contended that to evaluate the creditworthiness of the borrower and the assosciated risk, the credit profile of the ultimate borrower, rather than the intermediary company, should be considered. Therefore, assessing the credit rating of Shandong aligns with legal principles and adheres to the arm's length standard of transactions. In support of this approach, the appellant relied on the Transfer Pricing Guidelines on Financial Transactions, Inclusive Framework on BEPS: Actions 4, 8-10 issued by the OECD in February 2020. 4.5 The Id. TPO, however, rejected the methodology adopted by the appellant, which involved analysing comparable loan transactions, and instead applied a lower-ranked approach in the hierarchy the cost of funds method-based on the financials of the appellant company. The Id. TPO determined the cost of funds for the assessee as the minimum return it would expect from the borrower, calculating this cost using the average interest rate paid by the appellant on borrowings in India. Additionally, the TPO disregarded the use of LIBOR in determining the interest rate, citing it as a foreign index. The Id. TPO applied the risk profile or credit rating of the borrower in determining the interest rate. He noted that bank will price the loan based on LIBOR plus additional basis points for the risk undertaken by the bank. The id. TPO finally noted that Arm's length interest would be calculated by applying credit spread to the cost of funds to the assessee. For the brought forward loan he calculated the weighted average cost of funds for assessee at 4,47% and the credit spread for CCC rated borrower at 600 basis points and computed the Arm's length interest at 10.47%. He further noted that the assessee converted the past year loan of Rs. 44,48,36,000 into equity of HGIL towards investment of 70,000,000 shares of HGIL w.e.f. 01-01-2011. The Id. TPO treated this entire investment as interest free loan, In respect of fresh loan given during the year by the appellant to HGIL, the id. TPO calculated the Arm's length interest by adding LIBOR plus 63 bps i.e. 1.15% to the credit spread of 600 basis points at 7.15% 4.6 The appellant, objecting to the observations made by the TPO, has relied on several judicial precedents which have consistently held that the domestic prime lending rate is not applicable in the context of international transactions. Instead, the international rate, such as LIBOR, should be used as the benchmark rate for evaluating such as LIBOR, should be used as the benchmark rate for evaluating such transactions. 4.7 In the case of Aurionpro Solutions (2021) 128 taxmann.com 437 the Hon'ble Mumbai Tribunal held that where the assessee advance loans to its AEs 128 taxmann.com 437 the hon'ble determining the Arm's Length Interest is the assessee and not the AE and the appropriate the tested party for rate of interest would be LIBOR 2% as follows: \"8.7 Under the Transfer Pricing Regulations, an international transaction has to be compared with an uncontrolled transaction between unrelated parties which means that an international transaction is tested with the transaction, if the Printed from counselvise.com Page | 4 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 assessee could have entered into a similar transaction with unrelated third party and thereby the income of the assessee would have earned from a similar transaction with an uncontrolled party. Thus, the same income is expected or deemed to have been earned from the transaction with the AEs. The underlining principle of determining the ALP is based on the transaction between the unrelated parties. The income of the assessee should not be effected as reduced and therefore, the same is compared with the income or expenditure as the case may be earned or incurred by theassessee, if it would have been between the assessee and the unrelated parties. Therefore, tested party for the purpose of determination of ALP is the assessee and not the AES. 8.8 in the case in hand, the assessee has advanced loans to the AEs without charging any interest; therefore, the transaction has to be tested with a situation, had the assessee invested or advanced or deposited the said amount with an unrelated third party and thereby the income, which would have been earned by the assessee is expected to have been earned from the transaction of advancing loans to the AEs 8.9. Thus, on principle, we do agree with the DRP on the point of the tested party for determining the Arm's Length interest rate that would have been earned by the assessee by advancing loans to the unrelated third party. 8.10 The Transfer Pricing Regulation are based on the deeming principle by taking into account a hypnotical situation that instead of having transaction with AE had the assessee transacted with unrelated party what would have been the financial/commercial result of that transactions. Thus, the effect of transaction on the income of the assessee is to be seen and considered and not effect on the cost or income of the AE. Therefore, the tested party is always the taxpayer and not the AE. None of the factors under the Transfer Pricing Regulations require to consider whether the AEs would have incurred or earned more or less, but it is always considered whether the assessee had earned more or less by doing a similar transaction with an unrelated party. 8.11 Even under Rule 10B of the IT Rules, the factors prescribed for inclusion or exclusion of comparable to determine the ALP are also based on the comparison of the assessee with the chosen entities and the AE has no rule in the exercise of selecting the comparable. Thus, in our view, the interest that would have been earned by the assessee by advancing or placing the said amount with unrelated parties would be the Arm's Length interest in relation to the interest free loans/advances to the AE. The safest comparable, which can be taken as Arm's Length interest rate in such a case would be the interest on FD with the bank for a term equivalent to the term for which the loans given to the AEs. 8.12 It is pertinent to note that in case of FD with the Bank, the investment is safe as it is free from risk of credit and interest. On the other hand, if the loan/advance is given to the unrelated party, then always there is some risk of credit and interest involved insuch transaction. There is one more reason for taking the FD as an appropriate and good comparable because the lending rate by financial institutions/bank varies depending upon the credit rating of the Printed from counselvise.com Page | 5 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 borrower and further on the guarantee and secunty provided to secure the loans. 8.13 Though in principle we do concur with the view of DRP on this issue, however, since the issue of LIBOR has been considered and decided by the Tribunal in various cases as relied upon by the assessee (supra); therefore, to maintain the rule of consistency, we follow the decision of the coordinate Benches of this Tribunal, and accept LIBOR for benchmarking interest on interest free loans to AEs. Since the LIBOR is a rate applicable in the transactions between the banks and further the loans advanced by the bank to clients are secure by security and guarantee; therefore, a fcan which has been advanced without any security or guarantee as in the case of the assessee has to be benchmark by taking the Arm's Length interest rate as LIBOR plus. Though the TPO took ALP as LIBOR + 3%; however, in our view, the appropriate rate would be LIBOR plus 2%. We accordingly, direct the AO/TPO to determine the Arm's Length interest by considering the LIBOR plus 2% on the monthly closing balance of advances during the financial year relevant to the AY under consideration.\" The above decision was contested before the Hon'ble Bombay High Court in CIT v. Aurionpro Solutions Ltd. [IT Appeal No. 1869 of 2014, dated9-6-2017] wherein the Hon'ble High Court dismissed the appeal of Revenue 4.,7 In the present case, the assessee has charged interest at LIBOR 3.5%, which exceeds the benchmark rate of LIBOR + 2%. This clearly demonstrates that the price charged by the assessee was at arm's length. The Ld. TPO erred in using the appellant's cost of funds as the minimum retum required from the borrower to compute the TP adjustment. The cost of funds, being based on the domestic lending rate, cannot be appropriately used as a benchmark for international transactions. 4.8 It is further seen that the interest charged by the appellant exceeds the benchmark interest rate in Hong Kong, which was approximately 0.5%. The appellant also highlighted that HGIL had secured a loan from HSBC Bank in Hong Kong during the current year at LIBOR + 275 basis points, serving as an extemal comparable. In contrast, the assessee charged interest at LIBOR + 350 basis points. This indicates that the interest rate charged by the assessee was higher than the local lending rate in Hong Kong. Applying the CUP (Comparable Uncontrolled Price) method, it is evident that the lending rate applied by the assessee was at arm's length, as even an external comparable, HSBC Bank, had charged alower rate than the assessee. The Ld. TPO's approach does not reflect comparable prices charged by independent lenders, making it less appropriate than the methodology employed by the assessee, 4.9 In view of these facts, no upward adjustment is warranted in this case, as the transaction is demonstrably at arm's length. Accordingly, the AO is directed to delete the TP adjustment of 3,97,99,637/-. This ground of appeal is therefore allowed. 4.5. Addition u/s 92CA on Arm's length price of SBLC fee - Rs.9,92,126- For the purpose of establishing the greenfield project by Shandong, HGIL obtained external loans from HSBC Bank in Hong Kong at an interest rate of LIBOR plus 275 basis points. This loan was secured through a Standby Letter of Credit (SBLC) issued by the State Printed from counselvise.com Page | 6 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 Bank of India, which utilized the sanctioned limit of Himadri India. The appellant argued that the guarantee provided in favour of HGIL was intended to support its own business objective of expanding operations in coal tar pitch. The guarantee, therefore, was not independently executed to benefit the associated enterprise (AE) but was a part of the appellant's broader business strategy. Any potential benefit to the AE, if it existed, was purely incidental and an unavoidable outcome of this strategy.” 3.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has advanced loan to its wholly owned subsidiary in Hong Kong, Himadri Global Investment Limited (HGIL) and the said loan was given ultimately for the benefit of Shandong Dawn Himadri Chemical Industry Limited (Shandong). The assessee computed the Arm’s Length Price of the loan by benchmarking the transaction by using Comparable Uncontrolled Price (CUP), wherein the arm’s length interest rate was calculated at LIBOR + 340 bps while the interest charged by the assessee at LIBOR + 350 BPS. The transfer pricing report is available at page no.49 to 55 of the Paper Book. We also note that the Himadri Global Investment Limited (HGIL) took a loan from HSBC bank at LIBOR + 275 bps in Hong Kong, whereas the interest charged by the assessee at a LIBOR + 350 bps meaning thereby the interest charged by the assessee from HGIL was more than the interest rate charged locally in Hong Kong and the same is not in dispute. We note that the ld. CIT (A) allowed the appeal of the assessee by recording an finding that interest rate charged by the assessee was higher than the local lending rate in Hong Kong and applying the CUP method. It is evident that lending rate applied by the assessee was at Arm’s Length Price even at an external comparable as HSBC has charged lower interest than the rate of interest charged by the assessee from its AE. The ld. CIT (A) also noted that the ld. Transfer Pricing Officer’s approach does not reflect comparable price as adopted by the assessee. The case of the assessee finds support from the following decisions:- Printed from counselvise.com Page | 7 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 a). Commissioner of Income-tax-2 vs. Tata Autocomp Systems Ltd. [2015] 56 taxmann.com 206 (Bombay)/[2015] 230 Taxman 649 (Bombay)/[2015] 374 ITR 516 (Bombay)/[2015] 276 CTR 481 (Bombay)[03-02-2015], wherein it has held as under: “7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law. ” b). In case of CIT Vs. Cotton Naturals (I) Pvt. Ltd. (2015) 5 ITR-OL 1 (Delhi), wherein it has held as under:- “14. We note that the comparable uncontrolled price method is the most appropriate method in order to ascertain the Arm’s Length Price of the international transaction as that of the assessee. We agree with the assessee's contention that where the transaction was of lending money in foreign currency to its foreign subsidiaries the comparable transactions, therefore, was of foreign currency tended by unrelated parties. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company. In such a situation, domestic prime lending rate would have no applicability and the international rate fixed being Libor should be taken as the benchmark rate for international transactions. 15. The above view is duly supported by the following case law relied upon by the assessee's counsel. In Siva Industries and Holding Ltd. v. Asst. CIT (supra) it was held by the Income-tax Appellate Tribunal that the assessee had given Printed from counselvise.com Page | 8 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 the loan to the associate enterprise in U. S. dollars, and in such a situation when the transaction was in foreign currency and the transaction was an international transactions, the transaction would have to be looked upon by applying the commercial principles in regard to international transactions. In such a situation, domestic prime lending would have no applicability and the international rate fixed being Libor rate would have to be adopted.” c). In case of MK Shah Exports Ltd. Vs. ACIT (2019) 102 taxmann.com 536 (Kolkata-Trib.) vide order dated 16.10.2018, wherein it has held as under:- “13………. 13… …..… 8. On appeal by the assessee the CIT(A) deleted the addition made by the AO by following the decision of ITAT Chennai in the case of Siva Industries & Holdings Limited v. The Assistant Commissioner of Income- tax (supra). The following were the relevant observations of CIT(A): \"4.2 I have considered the facts of the case. The assessee had advanced a loan in foreign currency to its subsidiary ZAO Classic, Russia on which it was charged interest at the rate of 8% p.a. The TPO was of the view that price of the loan i.e. the interest charged has to be worked out on the basis of taking two parties as separate and bench-marking the price of the loan on the basis of what an independent third party would charge from ZAO Classic, Russia based on its analysis of risk associated with the loan. The assessee stated in reply to show cause notice issued by the TPO, that foreign currency loans are given by banks bearing UBOR based rate as a global practice. The average of LIBOR based rate for the year under consideration was 4.68%. Thus the rate of 8% charged by the assessee was higher than the LIBOR rate. The assessee also relied upon a number of decisions, in particular the decision of ITAT, Chennai in the case of Siva Industries and Holdings Ltd. v. ACIT, Central Circle-6(1) Chennai 46 SOT 112. In the appellate proceedings the assessee has cited some more decisions such as Four Soft Ltd. v. DCIT in ITA No. 1495/Hyd 12010, Cotton Natural (I) Pvt Ltd. v. DCIT in ITA No. 5855/De1/2012. In the case of Siva Industries and Holdings Ltd. (supra), it has been held by the Hon'ble tribunal that once the transaction is between the assessee and the AEs is in foreign currency, the transaction would have to be looked upon by applying commercial principle in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate Printed from counselvise.com Page | 9 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 fixed being LIBOR would come into play. Same view was taken by tribunal in the case of Four Soft Ltd (supra) and some other cases cited by the assessee. Further, it has been held in the decision in the case of Cotton Natural (I) Pvt Ltd. (supra), that financial position and credit rating of the subsidiary would be broadly same as the holding company and LIBOR should be taken as bench-mark without going into aspects like financial health of subsidiary. In one of the cited cases, viz.Aurionpro Solution Ltd. v. Addl. CIT in ITA NO.7872/Mum/2011, Hon'ble tribunal has observed that appropriate rate would be LIBOR plus 2%. In the assessee's case, the TPO has not countered the decision in the case of Siva Industries and Holdings Ltd. (supra) cited by the assessee before him, nor cited any authority in support of his view. The ratio given by the Hon'ble tribunal in the cases cited by the assessee is, that in the foreign currency lending, rate of interest to be adopted is to be based on LIBOR and at the most LIBOR plus 2%. As per documents given by the assessee, the average LIBOR rate for the previous year was 4.68%. Even if a mark up of 2% is given, the rate would be 6.68% whereas the assessee has charged 8% on the loan given to its AEs. It is also not in dispute that the cost of funds in the hands of the assessee is lower than 8% charged from the AE. Considering the facts and circumstances of the case and respectfully following the ratio given by the various benches of Hon'ble tribunal, the adjustment price of Rs. 40,32,011/- is deleted.\" 9. Aggrieved by the order of CIT(A) the revenue has raised ground no. 1 before the Tribunal. 10. After hearing the submissions of the ld. Counsel for the assessee we are of the view that there is no merit in ground no. 1 raised by the revenue. It has been consistently held in several decisions by the tribunal that wherever the transaction of loan between the associated enterprises is in foreign currency then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon'ble Delhi High Court in the case of CIT v. Cotton Naturals (I) Ltd. 276 CTR 445 (Delhi) and by the Hon'ble Bombay High Court in the case of Tata Auto Comp System Ltd. approving the decision of ITAT in the case of Tata Auto Comp Vol.52 SOT 48 (Mum). In view of the above settled legal position we find no merits in ground no. 1 and dismiss the same.\" Printed from counselvise.com Page | 10 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 14. Respectfully following the above binding precedent, we uphold the contention of the assessee, since the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in ITA No. 2149/Kol/2014 for Assessment Year 2008-09 (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings and the ld. CIT(A) has allowed the appeal of the assessee. We find no reason to interfere in the said order of the ld. CIT(A) and the same is hereby upheld. Therefore, this ground of appeal of Revenue is dismissed.' 14. Since the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings and the ld. CIT(A) has allowed the appeal of the assessee by following the judgment of Tribunal in assessee`s own case. Therefore, and ground no. 1 and 2 raised by the Revenue are dismissed.” 3.4. We therefore, do not find any infirmity in the appellate order and accordingly uphold the order of the ld. CIT (A) by dismissing the ground no.1 to 4 and 8 in the Revenue’s appeal. 4. The issue raised in ground nos.5,6 and 7 is against the order of ld. CIT (A) restricting the SBLC fees rate to 0.5%, which is much lower than the SBLC rate of 1.62% determined by the ld. Transfer Pricing Officer. 4.1. The facts in brief are that the for the purpose of establishing the greenfield project by Shandong, HGIL obtained external loans from HSBC bank in Hong Kong at an interest rate of LIBOR plus 275 basis points. This loan was secured through a standby Letter of Credit (SBLC) issued by the State Bank of India, which utilized the sanctioned limit of Himadri India. The guarantee provided by the assessee in favour of HGIL was intended to support its own business objective of expanding operations in coal tar pitch and was not intended to benefit the associated enterprise. The ld. Transfer Pricing Officer computed the Arm’s Length Price of SBLC issued by the SBI at the rate of 1.62% which comes to ₹9,92,126/-. While, the ld. CIT (A) Printed from counselvise.com Page | 11 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 reduced the Arm’s Length Price to 0.5% by observing and holding as under:- “4.6 Furthermore, the assessee emphasized that the guarantee transaction was not specifically designed to confer any advantage upon the AE to the detriment of the appellant. Instead, it served the appellant's interests, with any benefit to the AE being merely an ancillary consequence. In support of its position, the assessée referred to judicial precedents, which established that for a corporate guarantee to qualify as an international transaction under Section 928 of the Income Tax Act, 1961, it must be issued primarily for the benefit of the AE, incur a cost to the assessee and have a direct impact on the profits, income, losses, or assets of the enterprise. 4.7 The Ld. TPO, however, held that the guarantee was given by SBI out of the sanction limit of Himadri India and thus, the assessee had incurred certain cost in creation of liability with SBI. Accordingly, arm's length price of SBLC fee was computed @ 1.62% by the learned Ld. TPO at Rs.9,92,126. 4.8 In the case of Tega Industries Ltd. I.T.A. No. 539/Kol/2022, the hon'ble Kolkata ITAT vide order dated 08-04-2024 held that corporate guarantee fee constitutes an international transaction subject to ALP and 0.5% as the appropriate rate for the same. The relevant extract is as follows: \"so far as the Ground relating to calculation of corporate guarantee fee is concerned, we find that this issue has come up before various judicial forums and corporate guarantee fee range of 0.2% to 0.5% has been found to be justified. We find support from the judgment of the Hon'ble Bombay High Court in the case of CIT v. Everest Kento Cylinders reported in (2015) 378 ITR 57 (Bom), and are inclined to give part relief to the assessee directing the TPO to compute corporate guarantee fee @ 0.5% and delete excess amount added in the hands of the assessee.\" 4.9 Keeping in view of the above decision the Ld. AO/TPO is directed to compute the quantum of fee at 0.5% instead of 1,62%. Thus, the disallowance on this count is restricted to 0.5%. This ground of appeal is therefore partly allowed.” 4.2. After hearing the rival contentions and perusing the materials available on record, we find that the ld. CIT (A) while restricting the disallowance to 0.5% followed by the decision of the co-odinite Bench in case of M/s. Tega Industries Limited vs DCIT in ITA No. 539/KOL/2022 vide order dated 08.04.2024, wherein it has been held that corporate guarantee fee constitute an international transaction subject to LLP and 0.5% is the appropriate rate for the same. The co-ordinate bench followed the decision of Hon'ble Printed from counselvise.com Page | 12 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 Bombay High Court in case of CIT Vs. Everest Kento Cylinders Ltd. [2015] 58 taxmann.com 254 (Bombay)/[2015] 232 Taxman 307 (Bombay)/[2015] 378 ITR 57 (Bombay)/[2015] 277 CTR 511 (Bombay)[08-05-2015]. Therefore, we do not find any infirmity in the order of the ld. CIT (A) and accordingly uphold the same by dismissing the ground nos.5,6 & 7 in the Revenue’s appeal. 5. The issue raised in ground no.9, is against the order of ld. CIT (A) in allowing higher deduction u/s 35(2AB) of the Act in respect of expenditure incurred on house research and development, which is higher than the DSIR guidelines. 5.1. The facts in brief are that the assessee has an in house R&D facility which is approved u/s 35(2AB) of the Act, by Department of Scientific & Industrial Research (DSIR). The ld. AO on perusal of the computation of the income observed that the assessee has claimed deduction u/s 35(2AB) of the Act of ₹2,08,72,702/- being 200% of expenses incurred on research and development expenses of ₹1,04,36,101/-, which was claimed in the profit and loss account. The ld. AO called upon the assessee to furnish the details of expenses and copy of the order issued by the competent authority as per Section 35(2AB)of the Act. The assessee furnished before the ld. AO the copy of 3CM and 3CL issued by the competent authority i.e. DSIR under the Ministry of Science and Technology, Govt. of India. The assessee also produced the copy of audited report in respect of claim of expenses of Scientific Research and Development. The ld. AO noted that in the said report the auditor had indicated that deduction u/s 35(2AB) of the Act on in-house Research and Development expenditure was ₹258.44 lacs as per DSIR, guidelines. The ld. AO noted that the assessee had claimed deduction on account Printed from counselvise.com Page | 13 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 of expenditure u/s 35(2AB) of the Act of ₹885 lacs comprising 156.64 lacs as revenue expenditure and ₹728.36 on account of capital expenditure. Therefore, the assessee has claimed the excess deduction to the tune of ₹626.56 lacs being difference of ₹885.00 lacs and 258.49 lacs. The ld. AO noted that since the assessee has claimed 200% of 626.56 which comes to 1253.12 lacs and the same was added to the taxable income. 5.2. During the appellate proceedings, the ld. CIT (A), allowed the appeal of the assessee on this issue by observing and holding as under:- “4.10 The appellant-company Incurred certain expenditure on In-House Research & Development at Mahistikry Unit, Haripal, Dist. Hooghly, which has been recognized by Department of Scientific and Industrial Research, Govt. of India (DSIR) vide letter dated 29/03/2011 and claimed weighted deduction u/s.35(2AB) of the Act. In the reconciliation statement of R & D Expenditure drawn by the appellant for tax computation purposes, the appellant had shown item-wise expenditure on revenue account as well as on capital account certified by the Auditor and taken in the income- tax computation, a brief description of which was as under :- Particulars As per Auditor Certificate (In Rs.Lacs) Taken in Income Tax Computation (In ₹Lacs) Revenue Expenditure 156.64 156.64 Capital Expenditure 760.59 728.36 Total of Revenue & Capital Expenditure 917.23 885.00 In the computation of income for the assessment year under appeal, the appellant added the revenue expenditure of Rs.1,56,64,009/- in relation to research & development and separately claimed deduction 200% of such expenditure u/s 35(2AB) of the Act amounting to Rs.3,13,28,018/. The AO allowed the same. 4.11 In respect of capital expenditure of Rs.7,28,36,886/-, the appellant-company claimed deduction u/s. 35(2AB) of the Act amounting to Rs. 14,56,73,732/-, which was 200% of the expenditure of Rs.728.36 lakhs to arrive at the business income. The A.O. observed that as per certificate issued by the DSIR, the expenditure considered for the purpose of sec. 35(2AB) of the Act was to the tune of Rs.101.80 lakhs and not Rs.728.36 lakhs as claimed by the appellant in the computation of income and therefore disallowed the deduction of 200% on Rs.626.56 lacs totaling Rs. 12,53,12,000. 4.12 The appellant submitted that capital expenditure of Rs.7,28,36,886 was incurred and once the research and development facility was approved by DSIR, the entire Printed from counselvise.com Page | 14 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 expenditure incurred on such approved facility will be allowable u/s, 35(2AB) of the Act, in as much as provisions of sec. 35(2AB) of the Act do not restrict the claim of expenditure to the amount quantified by DSIR, The appellant placed reliance on the judgment of the Hon'ble ITAT. Bangalore in the case of M/s. Natural Remedies Pvt. Ltd. vs ACIT (ITA No.704/Bang/2020) dated 01-01-2021 wherein it was held that as per section 35(2AB) of the I.T.Act, the DSIR is empowered to approve only R&D facility and not the expenditure. In other words, once the R & D facility is approved by the prescribed authority, i.e.. DSIR by issuing Form No.3CM, the expenses Incurred by the assessee have to be allowed u/s 35(2AB) of the Act. Reliance was also placed on the judgment of Hon'ble ITAT, Delhi in the case of Eicher Motors Limited vs JCIT (ITA Nos.133 & 8739/DEL/2019) wherein it was held that expenditure eligible for deduction under section 35(2AB) of the Act cannot be restricted to the amount of expenditure certified by Department of Scientific and Industrial Research ('DSIR') in Form 3CL. 4.13 The Ahmedabad Bench of the hon'ble Tribunal in the case of M/s. Sun Pharmaceutical Industries Ltd., reported in (2017) 162 ITD 484 (Ahmedabad Trib.) had held that Form No.3CL is merely a report in the form of an intimation regarding approval of in-house R & D facility to be sent from prescribed authority to the Department and once the facility is approved in Form No.3CL, the expenses incurred within the notified period have to be allowed u/s 35(2AB) of the I.T.Act. The said order of the Tribunal was affirmed by the Hon'ble Gujarat High Court in the case of CIT v. Sun Pharmaceutical Industries Ltd. reported in 250 Taxman 270 (Guj.). The Pune Bench of the hon'ble Tribunal in the case of Cummins India Limited [ITA No.309/Pun/2014 order dated 15.05.2018] had held that the action of the Assessing Officer in curtailing the expenditure and consequent weighted deduction claim u/s 35(2AB) of the I.T.Act on the surmise that prescribed authority has only approved part of expenditure inform No.3CL is not tenable in law. 4.14 I have perused these judgments and find that the claim of the assessee is fully covered by these judgments. Once the research facility is approved by DSIR, the entire expenditure incurred by the assessee is eligible for deduction u/s 35(2AB) of the Act and the claim is not dependent on the amount of expenditure approved by the DSIR. Hence the AO had wrongly disallowed 200% of actual expenditure of an amount of Rs.626.56 lakhs relying on the DSIR approved expenditure. The addition of Rs. 12,53,12,000 on this count is deleted and thisground of appeal is allowed.” 6. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has incurred capital expenditure of ₹626.56 lacs in the earlier year but the same was not claimed in that year. The assessee claimed the weighted deduction u/s 35(2AB) of the Act in the current year only. The contention of the assessee is that once the facility is approved u/s 35(2AB) of the Act there is no restriction to claim the expenditure to the amount quantified by DSIR. The ld. CIT (A) while allowing the appeal of the Printed from counselvise.com Page | 15 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 assessee relied on the decision of M/s Natural Remedies Pvt. ltd. (supra) and the decision of the Hon'ble Delhi High Court in case of Eicher Motors Limited (supra), wherein it has been held that the expenditure as allowable for deduction u/s 35(2AB) of the Act cannot be restricted to the amount of expenditure specified by the DSIR in form 3CL. The ld. CIT (A) relied on the decision of the Hon'ble Gujarat High Court in case of Commissioner of Income-tax, Vadodara-2 vs. Sun Pharmaceutical Industries Ltd. [2017] 85 taxmann.com 80 (Gujarat)/[2017] 250 Taxman 270 (Gujarat)[14- 08-2017], wherein similar issue been decided. Therefore, we do not find any infirmity in the order of ld. CIT (A). Consequently, we uphold the order of ld. CIT (A) by dismissing the ground no.9 in the Revenue’s appeal. 7. The Ground no.10 is general in nature and does not require any specific adjudication. 8. In the result, the appeal of the Revenue is dismissed. Order pronounced on 17.02.2026. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 17.02.2026 Sudip Sarkar, Sr.PS Printed from counselvise.com Page | 16 ITA No. 2223/KOL/2025 Himadri Speciality Chemical Limited; A.Y. 2012-13 Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "