Hasham Traders, Bangalore V. The Commissioner Of Income Tax (Appeals)- 3, Bengaluru

ITA 1/BANG/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7075 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 31-12-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMER SINGH MEENA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Set aside
• Section: 143(3); 43; 92CA

Judgement Text

IT(TP)A No.1/Bang/2021 Hasham Traders, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A No.1/Bang/2021 Assessment Year:2016-17 M/s. Hasham Traders #134, Next to Wipro Corporate Office Doddakannelli, Sarjapur road Bangalore 560 035 PAN NO :AAAFH2872F Vs. Deputy Commissioner of Income-tax Circle 4(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Shri B.K. Manjunath, A.R. Respondent by : Shri Sumer Singh Meena, D.R. Date of Hearing : 09.03.2022 Date of Pronouncement : 11.03.2022 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has filed this appeal challenging the assessment order dated 4.11.2020 passed by the A.O. for assessment year 2016-17 u/s 143(3) r.w.s. 144C(13) of the Income-tax Act,1961 ['the Act' for short] in pursuance of directions given by Ld. Dispute Resolution Panel (DRP). 2. In the grounds of appeal, the only issue urged by the assessee relates to the transfer pricing adjustment of Rs.1.19 crores relating to guarantee given to the loan taken by Associated Enterprise. IT(TP)A No.1/Bang/2021 Hasham Traders, Bangalore Page 2 of 5 3. The facts relating to the above said issue are stated in brief. The assessee is a partnership firm engaged in investment activities. The assessee has got a wholly owned subsidiary concern by name M/s. PI International Holdings LLC. The above said subsidiary availed a loan of USD 43 Million from M/s. Standard Chartered Bank, Singapore. The assessee stood as a guarantor by giving standby letter to the Standard Chartered Bank. Hence the above said bank charged guarantee commission @ 0.50% p.a. on the credit facility availed by M/s. PI International Holdings LLC. The assessee, in turn, charged 0.60% of the value of credit facility on its subsidiary towards its guarantee charges. The Ld. A.R. submitted that the rate charged by the assessee was actual plus mark up @ 20%. The assessee submitted before TPO that it has bench marked the international transactions of guarantee fee by adopting internal CUP method. Since the rate of 0.60% charged by it was more than the commission of 0.50% charged by the bank, the assessee contended that the guarantee fee charged by it on its AE is at arms length. 4. The TPO, however, took the view that the ALP of guarantee fee should be taken @ 2%. Accordingly, he determined the ALP of guarantee fee at 2% and made transfer pricing adjustment of Rs.1.37 crores. The Ld. DRP granted partial relief to the assessee by directing the TPO to adopt ALP rate at 1.75%. Accordingly, the A.O. passed the assessment order by determining the transfer pricing adjustment at Rs.1.19 crores. Aggrieved by the order passed by A.O. on this issue, the assessee has filed this appeal before us. 5. The Ld. A.R. submitted that the coordinate bench in the case of M/s. Medreich Limited Vs. ACIT (ITA No.1574/Bang/2019 & IT(TP)A No.1/Bang/2021 Hasham Traders, Bangalore Page 3 of 5 others dated 12.4.2021) has held that the corporate guarantee commission charged @ 0.50% would be at arm’s length. The Ld. A.R. submitted that the assessee has charged guarantee fee of 0.60%, which is higher than the rate of 0.50% mentioned in the above said order and hence the same is at arms length. Accordingly, he submitted that the addition made on account of transfer pricing adjustment is required to be deleted. 6. We heard Ld. D.R. on this issue and perused the record. We notice that the Tribunal, in the case of M/s. Medreich Limited (supra), has followed the decision rendered by coordinate bench in the case of M/s. Manipal Global Education Services Pvt. Ltd. (ITA Nos.163 to 165/Bang/2016), which in turn followed the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Everest Canto Cylinders Ltd. (ITA No.1165/2013 dated 8.5.2015), wherein the Hon’ble Bombay High Court had restricted the ALP of corporate guarantee to 0.50%. Accordingly, the coordinate bench in the case of M/s. Medreich Limited (supra) held as under: “9. We have heard rival submissions and perused the material on record. The learned AR has not disputed the fact that corporate guarantee commission is an international transaction. The AR only disputes 2% attributed for imputing ALP of corporate guarantee commission. On identical facts in the case of Manipal Global Education Services Pvt. Ltd. v. DCIT (supra), the Bangalore Bench of the Tribunal had imputed 0.50% as cost, instead of 2% arrived by the TPO. (A copy of TPO’s order u/s 92CA in the case of Manipal Global Education Services Pvt.Ltd. is placed on record). The TPO in the cited case also arrived at 2% by taking the credit rating of the tax payer just like this case. The relevant finding of the ITAT in the case of Manipal Global Education Services Pvt. Ltd. v. DCIT (supra), reads as follow:- “8. We have heard the parties on this issue and perused the record. We notice that the Tribunal is consistently holding the transaction of providing Corporate Guarantee as an international transaction. Hence the same is required to be examined under Arms length principles. There should not be any dispute that the provision of Corporate guarantee to its subsidiary in order to enable it to avail loans would bring benefit to the subsidiary, in which case, it is proper to compensate the assessee for those benefits under Arms IT(TP)A No.1/Bang/2021 Hasham Traders, Bangalore Page 4 of 5 length principles. We notice that the TPO has made an adjustment of 2%, considering the interest benefit @ 4% and taking the view that half of the same should be attributed to the benefit of the assessee. However, we notice that the Hon’ble Bombay High Court has approved the T.P. adjustment of 0.50% in respect of Corporate guarantee given in the case of Everest Kento Cylinders Ltd. (supra). Though the Ld AR has pleaded for an adjustment of 0.20% by placing reliance on the decision of Asian Paints Ltd. (supra), yet we notice that the Ld.AR did not highlight the parity of facts between the assessee and the case of Asian Paints Ltd. Hence, on the conspectus of the matter, we are of the view that the T.P. adjustment in respect of Corporate Guarantee may be made @ 0.50% as per other decisions of Tribunal and Hon’ble Bombay High Court referred above. Accordingly we set aside the order passed by the A.O. on this issue and direct the AO/TPO to make T.P adjustment in respect of Corporate Guarantee @ 0.50% in all the years under consideration.” 10. In the light of the above order of the Bangalore Bench of the Tribunal in the case of Manipal Global Education Services Pvt. Ltd. v. DCIT (supra), which is identical to the facts of the instant case, we direct the AO/TPO to make TP adjustment in respect of corporate guarantee at 0.50% for the assessment years under consideration. It is ordered accordingly.” 7. In the instant case, the assessee had paid guarantee fee of 0.50% to Standard Chartered Bank and in turn recouped 0.60% from its AE. In the decisions relied upon by Ld A.R (supra), the coordinate bench held that corporate guarantee commission charged @ 0.50% would be at arm’s length. We noticed earlier that the guarantee fee recouped by the assessee from its A.E was 0.60% and hence the same is required to be accepted to be at arm’s length. Accordingly, we direct the A.O. to delete the transfer pricing adjustment made in respect of corporate guarantee fee. IT(TP)A No.1/Bang/2021 Hasham Traders, Bangalore Page 5 of 5 8. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 11 th Mar, 2022. Sd/- (N.V. Vasudevan) Vice President Sd/- (B.R. Baskaran) Accountant Member Bangalore, Dated 11 th Mar, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.