DEVI SEA FOODS LIMITED, VISAKHAPATNAM V. DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE -3(1), VISAKHAPATNAM

ITA 156/VIZ/2022

AI Insights

The case involves M/s Devi Sea Foods Limited, which appealed against the final assessment order for the Assessment Year 2018-19, which included adjustments for notional interest on overdue receivables from AEs and a corporate guarantee commission charged to its AE. The TPO had made these adjustments based on the premise that the receivables and the corporate guarantees constituted international transactions under Section 92B of the Income Tax Act, 1961, and required separate benchmarking. The Tribunal examined whether these adjustments were in line with the arm's length principle and whether the assessee's methods of accounting for these transactions were appropriate.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 135889 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-11-2022
• Assessment Year: misc
• Appeal Filed On: 25-01-2022
• Other Referred Cases: PCIT vs. Kusum Health Care (P) Ltd, PCIT vs. Amadeus India (P) Ltd, Pegasystems Worldwide India Pvt Ltd vs. ACIT, DCIT vs. CCL Products (India) (P) Ltd, Vestas Technology R & D Chennai Private Limited vs. ACIT, Gimpex (P) Limited vs. ACIT, Det Norske Veritas vs. ADIT, Hackett Group (India) Ltd vs. DCIT, ERM India (P) Ltd. Vs. NEC, Turner International India (P.) Ltd vs. ACIT, Agilent Technologies India (P.) Ltd vs. DCIT, Indo American Jewellery Ltd vs. CIT, Sharda Spuntex vs. PCIT, CIT vs. Vaibhav Gems Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 92; 92B; 14A; 133(6); 250; 64; 113

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.156/Viz/2022 (निर्धारण वर्ा / Assessment Year : 2018-19) M/s Devi Sea Foods Limited 50-1-51/1, A.S.R.Nagar Seethammadhara Visakhapatnam [PAN : AABCD0248B] Vs. Deputy Commissioner of Income Tax Circle-3(I) Visakhapatnam अपीलधथी की ओर से/ Appellant by : Shri D.Anand, AR प्रत्यधथी की ओर से / Respondent by : Shri M.N.Murthy Naik, CIT(DR) सुिवधई की तधरीख / Date of Hearing : 01.12.2022 घोर्णध की तधरीख/Date of Pronouncement : 16.12.2022 O R D E R Per Shri S.Balakrishnan, Accountant Member : This appeal is filed by the assessee against the final assessment order passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short ‘Act’) in DIN & Order No.ITBA/AST/S/143(3)/2022-23/1043663982(1) dated 29/06/2022 for the Assessment Year (A.Y.)2018-19 arising out of the directions of the Learned Dispute Resolution Panel-1, Bengaluru-1 in F.No.209/DRP-1/BNG/2021-22 dated 23.05.2022 passed u/s 144C(5) of the Act for the A.Y.2018-19. 2 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam 2. Brief facts of the case are that the assessee is a company, engaged in the business of export of processed and frozen shrimp, shrimp feed and power generation from windmills. The assessee entered into various i n t e r n a t i o n a l t r a n s a c t i o n s w i t h i t s A s s o c i a t e d E n t e r p r i s e s ( A E ) a n d b e n c h m a r k e d i t’s i n t e r n a t i o n a l t r a n s a c t i o n s u n d e r T r a n s a c t i o n N e t M a r g i n M e t h o d ( T N M M ) . T h e a s s e s s e e f i l e d it’s r e t u r n o f i n c o m e f o r t h e a s s e s s m e n t y e a r 2 0 1 8-19 o n 28. 1 1 . 2 0 1 8 a d m i t t i n g a t o t a l i n c o m e o f R s. 3 0 0 , 9 1 , 8 1 , 9 8 0/-. T h e c a s e w a s r e f e r r e d t o t h e T r a n s f e r P r i c i n g O f f i c e r [ T P O ] f o r d e t e r m i n i n g A r m s L e n g t h P r i c e ( A L P ) u / s 9 2 C A ( 3 ) i n r e s p e c t o f i t s i n t e r n a t i o n a l t r a n s a c t i o n e n t e r e d i n t o w i t h A E. In r e sp o n se t o t h e n o t i c e s o f t h e L d . T P O , t h e a s s e s s e e fi l e d v a ri o u s su b mi s si o n s o n l i n e, t h r o u g h e-p r o c e e d i ng f a c i l i t y f r o m t i m e t o t i me . T h e L d .TP O v i d e i t s o rd e r i n D I N N o . I TBA /T P O / F / 9 2 C A 3 /2 0 2 1-2 2 / 1 0 3 4 5 5 7 9 9 9 ( 1 ) dat e d 3 1 /0 7 / 2 0 2 1 h a s r e c o m m e nd e d t h e f o l l o w i ng a d j u st m e nt s : S l . N o . D e s c ri p t i o n A d j u st m e n t u / s 9 2 C A ( 3 )( i n R s . ) 1. C o r p o r a t e G u a r a n t e e 1 , 6 2 , 6 5 , 4 0 1 2. O u t s t a n d i ng T r a d e r e c e i v a b l e 6 , 0 6 , 8 8 , 4 1 1 T o t a l a d j u s t me nt u /s 9 2 C A ( 3 ) 7 , 6 9 , 3 3 , 8 1 2 3 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam 3. P u r su a nt t o t h e o r d e r o f t h e L d . T P O , t h e A O h a s p a s s e d a d r a f t a s s e s s me nt o r d e r u / s 1 4 3 ( 3 ) r . w . s . 1 4 4 C o f t h e A c t o n 2 1 . 0 9 . 2 0 2 1 a n d m a d e a n u p w a rd T P a d j u st m e n t a n d a s s e ss e d t h e t o t a l i nc o m e a t R s . 3 0 8 , 7 5 , 1 3 , 2 4 5 /- b y m a ki ng t h e f o l l o w i ng d i sa l l o w a n c e s : 1. D i s a l l o w a nc e u / s 8 0 G 1 , 6 9 , 5 0 0 2. D i s a l l o w a nc e u / s 9 2 C A ( 3 ) 7 , 6 9 , 3 3 , 8 1 2 3. D i s a l l o w a nc e u / s 1 4 A r . w . R u l e 8 D 1 2 , 2 7 , 9 5 3 T o t a l 7 , 8 3 , 3 1 , 2 6 5 4. A g g ri e v e d b y t h e o r d e r o f t h e L d . A O , t h e a s s e ss e e fi l e d o b j e c t i o n s b e f o re t h e L d . D R P-9 , B e ng a l u r u a n d c h a l l e n g e d t h e u p w a rd a d j u s t me n t s. Th e L d . DR P , re l y i n g o n v a r i o u s j u d i c i a l p r e c e d e nt s c o n fi r m e d t h e d i s a l l o w a nc e p r o p o se d b y t h e A O , b u t d i re c t e d t h e A O to v e r i fy t h e c l a i m w i t h r e g a r d t o e x e mp t i o n o f d i v i d e n d f ro m i n v e st m e nt i n De v i S e a F o o d s I nc . , U S A t o t h e e x t e nt o f 8 0 , 9 0 , 0 0 0 /- a nd i f fo u n d c o r re c t, e x c l u d e t h e s a me w h i l e c o m p u t i n g t h e d i s a l l o w a n c e a s p e r R u l e 8 D o f I . T . R u l e s, 1 9 6 2 . A g g r i e v e d b y t h e o rde r p a s s e d b y t h e A O b a s e d o n t h e d i re c t i o n s o f t h e L d . D R P, t h e a s s e ss e e i s i n a p p e a l b e f o r e u s a nd r a i se d t h e f o l l o w i ng g r o u nd s : 1. T h e F i n a l A s s e s s m e n t o r d e r i n c o r p o r a t i n g T r a n s f e r P r i c i n g a d j u s t m e n t p a s s e d b y t h e l e a r n e d A s s e s s i n g O f f i c e r 4 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam (“AO”) p u r s u a n t t o d i r e c t i o n s i s s u e d b y t h e D i s p u t e R e s o l u t i o n Panel (“DRP”) under the Income Tax Act, 1961 (“the Act”) is c o n t r a r y t o l a w , f a c t s a n d c i r c u m s t a n c e s o f t h e p r e s e n t c a s e . A d j u s t m e n t t o w a r d s i n t e r e s t o n O v e r d u e r e c e i v a b l e s 2 . 1 T h e T r a n s f e r P r i c i n g O ff i c e r ( T P O ) / A O e r r e d i n i m p u t i n g n o t i o n a l i n t e r e s t o n o v e r d u e r e c e i v a b l e s f r o m A s s o c i a t e d E n t e r p r i s e ( A E ) a n d t h e D R P e r r e d i n s u s t a i n i n g t h e s a i d a d j u s t m e n t . 2 . 2 . T h e D R P / T P O / A O f a i l e d t o a p p r e c i a t e t h a t t h e d e l a y i n t h e r e a l i z a t i o n o f o u t s t a n d i n g r e c e i va b l e s f r o m A E c a n n o t b e c o n s i d e r e d a s a n i n t e r n a t i o n a l t r a n s a c t i o n a s i t d o e s n o t f a l l w i t h i n t h e p u r v i e w o f t h e c a p i t a l f i n a n c i n g a s c o n t e m p l a t e d u n d e r s e c t i o n 9 2 B o f t h e A c t . 2 . 3 . T h e D R P / T P O / A O e r r e d i n n o t a p p r e c i a t i n g t h e f a c t t h a t t h e A c t p r o v i d e s f o r t a x i n g o n l y r e a l i n c o m e w h e t h e r r e c e i v e d o r a c c r u e d u n d e r t h e n o r m a l p r o v i s i o n s . 2 . 4 . T h e D R P / T P O / A O e r r e d i n n o t a p p r e c i a t i n g t h e f a c t t h a t t r a n s f e r p r i c i n g a d j u s t m e n t c a n n o t b e m a d e o n h y p o t h e t i c a l a n d n o t i o n a l b a s i s u n t i l a n d u n l e s s t h e r e i s s o m e m at e r i a l o n r e c o r d t h a t t h e r e h a s b e e n u n d e r c h a r g i n g o f r e a l i n c o m e . 2 . 5 . W i t h o u t p r e j u d i c e t o t h e a b o v e , t h e D R P / T P O / A O e r r e d i n i m p u t i n g n o t i o n a l i n t e r e s t o n d e l a y e d r e c e i v a b l e s d e s p i t e t h e f a c t t h a t t h e p r i m a r y t r a n s a c t i o n h a s a l r e a d y b e e n t e s t e d a n d c o ns i d e r e d t o b e a t a r m s l e n g t h u n d e r T r a n s a c t i o n N e t M a r g i n M e t h o d a t t h e e n t r y l e v e l, o u g h t n o t t o h a v e s e p a r a t e l y b e n c h m a r k e d o u t s t a n d i n g r e c e i v a b l e s . 2 . 6 . T h e D R P /A O /T P O o u g h t t o h a v e a p p r e c i a t e d t h a t t h e a p p e l l a n t h a s e a r n e d a v e r y h i g h a r m s l e n g t h n e t m a r g i n t h a n t h a t o f t h e c o m p a r a b l e c o m p a n i e s ( i e . , 20.98% a s a g a i n s t 4.38% t o 6 . 0 3 % w i t h e x p o r t i n c e n t i v e c o n s i d e r e d a s o p e r a t i n g i n c o m e a n d 1 2 . 4 9% a n d -0 . 3 8% w i t h o u t e x p o r t i n c e n t i v e ) . I t i m p l i e d l y d e m o n s t r a t e s t h a t t h e a p p e l l a n t i s c o m p e n s a t e d f o r c o s t of d e l a y e d r e c e i v a b l e s t h r o u g h h i g h e r o p e r a t i n g m a r g i n e m b e d d e d i n s a l e s t o A E . 2 . 7 . W i t h o u t p r e j u d i c e t o t h e a b o v e , t h e D R P / T P O / A O e r r e d i n n o t a p p r e c i a t i n g t h a t t h e a p p e l l a n t h a s n o t c h a r g e d 5 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam i n t e r e s t o n d e l a y e d r e a l i z a t i o n o f o u t s t a n d i n g r e c e i v a b l e s f r o m N o n-A E ' s a n d a s s u c h t r a d e r e c e i v a b l e t r a n s a c t i o n s w i t h r e s p e c t t o A E a r e t o b e d e e m e d t o h a v e b e e n d o n e o n a r m ' s l e n g t h b a s i s b y a p p l y i n g i n t e r n a l C U P m e t h o d , a s r e s o r t e d b y t h e a p p e l l a n t . 2 . 8 . T h e D R P / A O / T P O o u g h t t o h a v e a p p r e c i a t e d t h a t t h e i n t e r n a l C U P i s s u p e r i o r a n d m o r e a p p r o p r i a t e i n t h e g i v e n f a c t s o f t h e c a s e c o m p a r e d t o e x t e r n a l C U P m e t h o d a d o p t e d b y T P O . 2.9. W i t h o u t p r e j u d i c e t o t h e a b o v e , t h e D R P / T P O / A O e r r e d i n n o t c o n s i d e r i n g t h e f a c t t h a t t h a t t h e C U P m e t h o d m a n d a t e s p r e c i s e a n d e x a c t c om p a r a b i l i t y a n d a s s u c h t h e T P O e r r e d i n i n c o r r e c t l y a d o p t i n g e x t e r n a l C U P m e t h o d a n d i m p u t i n g i n t e r e s t a s p e r S B I s h o r t t e r m d e p o s i t r a t e s , w h i c h i s n o t a p p l i c a b l e i n r e s p e c t o f d e e m e d s e c o n d a r y t r a n s a c t i o n . 2 . 1 0 . T h e D R P e r r e d i n s t a t i n g t h a t d e t a i l s o f N o n –AE s r e l a t i n g t o c r e d i t p e r i o d , t e r m s e t c . w a s n o t p r o v i d e d w i t h o u t a p p r e c i a t i n g t h a t t h e s a i d d e t a i l s w a s a l r e a d y p r o v i d e d t o D R P / T P O . 2.11. W i t h o u t p r e j u d i c e t o t h e a b o v e , t h e D R P/ T P O / A O e r r e d i n n o t a p p r e c i a t i n g t h a t u n l i k e i n t h e c ase o f a s e r v i c e p r o v i d e r w h o w i t n e s s e s p r o m p t r e a l i z a t i o n o f d u e s a s t h e s e r v i c e s a r e a l r e a d y r e n d e r e d , t h e t u r n a r o u n d t i m e o f r e a l i z a t i o n o f i n v o i c e s r a i s e d b y a n e x p o r t e r w o u l d b e w i d e a s t h e r e w o u l d b e d e l a y i n t r a n s i t o f g o o d s t o t h e p u r c h a s e r . 5. Ground No.1 is general in nature, which does not require specific adjudication. The main issue in other grounds is with respect to upward adjustment in imputing notional interest on the outstanding overdue receivables from Associated Enterprises (AEs). The Learned Authorized Representative (Ld. AR) submitted that the assessee has adopted Transaction Net Margin Method 6 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam (TNMM) and therefore the interest on outstanding receivables is subsumed in the Arm’s Length Price (ALP) charged to the AEs. The AR further submitted that the assessee’s operating margin is 20.98% as compared to the comparable selected by the Ld. TPO where the operating margin is at 4.38% to 6.03%. The Ld. AR confirmed that no interest is charged on the outstanding receivables either to AE or Non-AE parties. The Ld. AR relied on the following case laws: (i) PCIT vs. Kusum Health Care (P) Ltd – [2018] 99 taxmann.com 431 (Delhi HC) (ii) PCIT vs. Amadeus India (P) Ltd [2020] 113 taxmann.com 393 (Delhi HC). (iii) Pegasystems Worldwide India Pvt Ltd vs. ACIT – [2015] 64 taxmann.com 470 (Hyd. Trib.) (iv) DCIT vs. CCL Products (India) (P) Ltd – [2019] 106 taxmann.com 11 (Visakhapatnam – Trib.) (v) Vestas Technology R & D Chennai Private Limited vs. ACIT – ITA No. 3081/Chny/2016 (Chennai Trib.) (vi) Gimpex (P) Limited vs. ACIT –[2019] 105 taxmann.com 365 (Chennai Trib.) (vii) Det Norske Veritas vs. ADIT – [2016] 67 taxmann.com 16 (Mum. Trib.) (viii) Hackett Group (India) Ltd vs. DCIT [2020] 116 Taxmann.com 631 (Hyd. Trib.) (ix) ERM India (P) Ltd. Vs. NEC [2021] 132 taxmann.com 220 (Delhi Trib.) (x) Turner International India (P.) Ltd vs. ACIT [2020]115 taxmann.com 334 (Delhi Trib.) (xi) Agilent Technologies India (P.) Ltd vs. DCIT – [2021] 124 taxmann.com 561 (Delhi Trib.) (xii) Indo American Jewellery Ltd vs. CIT – [2014] 44 taxmann.com 310 (Bombay HC). 7 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam (xiii) Sharda Spuntex vs. PCIT – 93 taxmann.com 498 (Raj. HC) (xiv) CIT vs. Vaibhav Gems Ltd – 99 taxmann.com 2 (SC) (xv) CIT vs. Vaibhav Gems Ltd – [2017] 88 taxmann.com 12 (Raj. HC) The Ld. AR heavily relied on the ratio laid down in PCIT vs. Kusum Health Care (P) Ltd [2018] 99 taxmann.com 431 (Delhi). 6. The Ld. Departmental Representative (Ld. DR) argued that there are huge delays in the receivables from AEs and hence interest is to be charged on the same on notional basis. The Ld. DR referred to the expression of “international transaction” as given in Explanation (i)(c) to section 92B of the Act and argued that deferred receivables would constitute international transaction. The Ld. DR further argued that the deferred payments or receivables arising during the course of business is in the nature international transaction and hence interest to be charged on the same. The Ld. DR further countered that the notional interest cannot be subsumed in the TNMM. The Ld. DR also argued that non-charging of interest to non-AEs is irrelevant. The Ld. DR referred to the decision of the Delhi Tribunal in the case of Bechtel India Pvt Ltd in ITA No.6530/Del/2016, dated 16 th May, 2017. 8 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam 7. We have heard the rival submissions and perused the material available on record and the orders of the Authorities below. Similar issue was considered in the assessee’s own case for the A.Y.2017-18 in I.T.A.No.75/Viz/2022 dated 09.09.2022. For the sake of clarity, we extract relevant part of the order of the Tribunal (supra) as under : “7. We have heard the rival submis sions and perused the material available o n record and the orders of the Authoritie s below. Admitted fa cts are t hat the asse ssee sell s to both the AE s n on-AE where the AE be ing the major debtor. There is no disput e with regard to the fact th at receivables i s in cl uded under the def inition of international transaction consequent to the amen dments m ade by the Finance Act, 20 12 w.e.f 01.04.20 02. There fore we are of the consi dered v iew that there is no merit in the argument of Ld A R that receivable s is not a n international transaction. Whether separate adjustment is re quir ed to be made in re spect of rece ivables is the subject matter. The asse ssee al so sub mitted the working capital adjustment made to the operating margin of the comp arable companies and the a sses see. From t he s ubmiss ions ma de b y Ld AR, we find t hat if the ex port incentives are c onsidere d as non-ope rating income, the operating prof it ratio of the comparable compa nies i s 1.28% as aga inst th e operating margin of 4.17% o f the a s sessee. Alternatively, if the export incentives ar e consi dered as ope rating income, the operating margin of the com parable companies is 8.08% vis-à-v is the a sses see at 12.15%. We f ind from the above work i ng the assessee’s margin is significantly hi gher than the operating margin of the comparable co mpanies. There may be a delay in the coll ection of recei vables even b eyond the agree d tim e limits due to a var i ety of factors w hi ch has to be de ci ded on a case to case bas is. When TN M method is consi dere d as the most appropriate method, whi ch was also not disputed b y Revenue, the net margin thereunder would take care of such notional interest cost. It wa s further explained by Ld.AR that the impa ct of th e delay in collection of rece ivable s would have a bearing on the work ing capital o f the a s sessee. We fin d that these working cap ital adju stments on the A LP h as been already fa cto red in its pric ing / profit ability vi s-à-v is tha t of its comparable s. We therefore are of the consi dered view that any further adjustm ent to the margin of the as sessee on the outstanding recei vables ca nnot be 9 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam justifie d and no separate upward adjustment on outstanding export receivable s i s requir ed and there fore we dire ct the Ld. AO to delete the upward adjustm ent made towards overdue recei vables fr om AE. We therefore allow this ground raised by the assessee.” Respectfully following the ratio laid down by the coordinate bench of the Tribunal, we allow this ground raised by the assessee. 8. The assessee raised the following grounds with respect to adjustment towards corporate guarantee: “3.1. The TPO/AO erred in imputing corporate guarantee commission at the rate of 1.8% of the actual loan utilized by AE and the DRP erred in partially sustaining the said adjustment though it has given direction to reduce it to 1% of the actual loan utilized by A.E. 3.2. The DRP/TPO/AO failed to appreciate that the extending guarantee for loan taken by AE cannot be considered as an international transaction as it does not fall within the purview of “capital financing” as contemplated under section 92B of the Act. 3.3. The DRP/TPO/AO erred in not appreciating the fact that the Act provisions for taxing only real income whether received or accrued under the normal provisions. 3.4. The DRP/TPO/AO erred in not appreciating the fact that the Appellant has not incurred any cost in providing corporate guarantee and as such the Appellant cannot be expected to charge commission for providing corporate guarantee. 3.5. The DRP/TPO/AO failed to appreciate that the appellant has extended guarantee to its wholly owned subsidiary Devi Sea Foods Inc., USA (ie., Associated Enterprise) for furthering assessee’s own business and as 10 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam such it is shareholder’s function, which does not warrant a commission. 3.6. Without prejudice to the above grounds, the DRP/TPO/AO erred in holding that the extension of corporate guarantee has impacted the credit rating of the Assessee and consequently impacted the intangible asset without appreciating that actually there is no impact on the credit rating of the Assessee. 3.7. Without prejudice to the above grounds, the DRP/TPO/AO erred in holding that the extension of corporate guarantee is a liability and as such it has impact on the profits of the Assessee without appreciating that there was no default and as such no liability accrue during the subject AY. 3.8. The DRP erred in considering bank guarantee rate to be not less than one percent per annum on the amount guaranteed prescribed by CBDT vide Jun 2017 notification for the purpose of benchmarking the corporate guarantee transaction. 3.9. The DRP/TPO/AP failed to appreciate that commercial bank guarantee cannot be considered as an identical transaction under CUP method. 3.10. The DRP/TPO/AO erred in not appreciating the fact that the loan availed by AE was secured and the AE had sufficient current assets (i.e. loan utilized during the subject AY is USD 1,87,08,352/- as against net current assets of USD 3,52,08,209/-) approximately 1.88 times the credit availed by the AE. This shows that there was no chance of the Assessee being called upon by the bank to satisfy the obligation of the AE (and factually the same has not occurred till date as well). 3.11 The DRP/TPO/AO erred in not appreciating the fact that due to the skewed debt-equity ratio of the AE, the 11 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam banks would not be willing to grant loan unless it is guaranteed by the Parent (i.e. Assessee) and providing such guarantee is an onerous responsibility of a shareholder. 3.12. The DRP/TPO/AO ought to have appreciated that the provision of corporate guarantee has not resulted in reduction of rate of interest and the AE has not derived any benefit which has an impact on its profits or loss or assets. 3.13. The DRP/TPO/AO erred in not adopting any of the prescribed methods for benchmarking the corporate guarantee transaction. 3.14. Without prejudice to the above, the DRP/TPO/AO ought to have to appreciate that the 0.50% of the guarantee commission charged by the assessee on corporate guarantee given which comes to 0.80% of the actual loan utilized by A.E is higher than that of the 0.5% rate of guarantee commission as held in various judicial precedents. 3.15. In any event, the rate of 1% rate of corporate guarantee determined by DRP is high and arbitrary. 9. The issue raised in the Grounds of Appeal is with respect to adjustments made by the TPO/DRP in the corporate guarantee commission on the gross guarantee given to AE. The Ld. AR pleaded that it is not an international transaction as the assessee has not charged the AE. However, the Ld. AR submitted that in the case of CIT vs. Redington India Ltd [2021] 430 ITR 298, Hon’ble 12 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam Madras High Court held that corporate guarantee given to the AE is covered by the retrospective amendment made by the Finance Act, 2012. The ld. AR relied on the following case laws: (i) DCIT vs. EIH Ltd – [2018] 89 taxmann.com 417 (Kolkata Trib). (ii) GVK Power & Infrastructure Ltd vs. ACIT – [2018] 94 taxmann.com 415 (Visakhapatnam Trib.) (iii) CIT vs. Everest Kanto Ltd – 378 ITR 57 (Bombay HC) (iv) PCIT vs. Thomas Cook Ltd – ITA Nos. 712 & 713/2017, dated 26/08/2019. 10. The Ld. AR further submitted that the Hon’ble Courts and Tribunals have held that 0.50% on an average as corporate guarantee commission on the guarantees extended to AE, should it be treated as international transaction. The Ld. AR pleaded that the AE of the assessee had utilized only $ 13.88 Million USD and hence if the Hon’ble Bench decided to uphold the corporate guarantee as an international transaction it may be charged @ 0.50% on the amount utilized by the AE, during the subject AY. The Ld. AR also referred to the OECD guidelines wherein it is mentioned that corporate guarantee is not an international transaction and it is only a shareholder’s obligation. The Ld. AR further submitted that merely relying on the information obtained U/s. 133(6) of the Act which was not shared with the assessee, the 13 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam Ld. TPO has erred in determining the rate @ 1.8% of the corporate guarantee given to AEs. 11. Per contra, The Ld.DR submitted that Rule 10TD of the Safe Harbour Rules specifies that Corporate Guarantee to be charged at 2%. The Ld. DR further submitted that the Ld. DRP has rightly considered the issue and thereby upheld the ALP rate of 2% adopted by the Ld. TPO in respect of adjustment made to the corporate guarantee given to AE. The Ld. DR therefore pleaded that the order of the Ld.DRP / Ld.AO be upheld. 12. Responding to the argument by the Ld.DR, the Ld.AR submitted that the assessee has to apply for opting under Safe Harbour Rules, which in the instant case the assessee has not exercised that option and hence Safe Harbour Rules cannot be applied in the instant case. 13. We have heard both the parties and perused the material available on record and the orders of the Authorities below. Similar issue was considered in assessee’s own case for the A.Y.2017-18 in I.T.A.No.75/Viz/2022 dated 09.09.2022. For the 14 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam sake of clarity, we extract relevant part of the order of the Tribunal (supra) as under : “11. We have heard both the partie s and perused the materia l available on record and the orders of t h e Authorities below. It is observe d from the order of the L d. TPO that the L d. TP O ha s obtained from var ious banks the rate o f fe es c harge d b y them o n the issuance o f financial guarantees for the computation of A LP. The Ld. TPO has thus concluded that the me di an of the A LP works out to 1.9% for t he corpora te guarantee of abov e Rs. 10 Cr s. The L d. TPO referred to section 92B of the Act which read as “any other transaction havin g a bearing on the pro fit s, income, losse s or a ssets of such enterprises” and thus concluded that in the instant case the corporate guarantee is sued on be half o f its AEs must be tax ed @ 1.9% on the guaranteed amount. The Ld. TPO also ob serve d in para 12.10 of his order that “when a default is made in making repayment by the principal de btor, the banker will be able to proceed a gainst the guarantor/surely” and hence this being the contingent liability o n the assessee, we fi nd that the Ld. TPO made the adjustment by i nstances re ferring t o the commerc ial b anks providin g f inancial g uarantees but did no t contemplate the iss ue of corporate guarantee. The concept o f bank guarantees and corporate guarantees was e xplained i n the case of Prolifi cs Corporation Ltd in I TA No.237/Hy d/2014 , dated 3 1/12/2014 by the Hyderaba d Tri bunal wherein it has obser ved that the provisio ns of corporate guarantee always involves ris k and there is a servic e provide d to the A Es in increas ing its cre ditworthines s in o bt aining loans in the market. We f ind that there must be a min imum charge on the P & L Account but there is an enhanced ri sk whi ch cannot be ruled out in providing guarantees. Ultimately, the Hon’ble Tribunal upheld the a djustme nt made on guarantee comm iss ions give n to AEs. The rel iance pl aced by the L d. A R o n the Bombay Hi gh Court dec ision in t he case o f C IT v s. Everest Kant o Lt d reported in 378 I TR 57 wherein the corp orate guarantee commiss ion was cons ider ed as an international transaction and the rate restricted to 0. 50% o f the corporate guarantee. We fin d merit in th e arguments of the L d. AR that the rate of corporate guarantee should be restricte d to the amount utilized by t he AE, @ $ 11.5 M illi on USD, but shoul d not be applied on the gro s s corporate guarantee. In view o f the above dis cus sion and by re spectfully followin g the ratio laid down b y the Hon’ble Bombay High Court in the case of CIT vs. Everest Kanto Ltd (supra) we are of the consi dered v iew that the corporate guarantee commi ssion is an int ernational transaction and should be c h arged 15 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam @ 0.50% on the cor porate guarantee amount utilized, b y t he AE. We therefore allow the grounds raise d by the assessee.” Respectfully following the ratio laid down by the coordinate bench of the Tribunal, we allow this ground raised by the assessee. 14. The assessee raised the following grounds with respect to disallowance U/s. 14A of the Act. Disallowance under section 14A 4.1. The AO erred in making disallowance under section 14A of the Act and the DRP erred in sustaining the said disallowance. 4.2. The AO/DRP failed to appreciate that in the absence of dividend income, the provisions of section 14A of the Act will not be applicable. 4.3. Without prejudice to the above, while computing the average value of investments under Rule 8D(ii), the AO ought to have excluded the investments which did not yield dividend income. 5. The Appellant craves leave to add, alter, amend, substitute, rescind, modify and / or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 15. The issue raised by the assessee in the Grounds of Appeal is with respect to disallowance U/s. 14A of the Act r.w.r 8D. The Ld. AR argued that the assessee has not earned any exempt income warranting the disallowance u/s. 14A of the Act. The Ld. AR 16 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam pleaded that the assessee’s holding shares is merely to retain the controlling interest and no income has been received by the assessee during the impugned assessment year. The Ld. AR relied on the following decisions: (i) CIT vs. Chettinad Logistics P. Ltd – 95 taxmann.com 250 (Supreme Court). (ii) CIT vs. Chettinad Logistics P. Ltd – [2017] 80 taxmann.com 221 (Madras) (iii) Marg Ltd vs. CIT – 120 taxmann.com 84 (Madras) 16. The Ld. AR placed heavy reliance on the judgment of the Hon’ble Supreme Court in the case of CIT vs. Chettinad Logistics P. Ltd., [2018] 95 taxmann.com 250 (SC). 17. Per contra, the Ld. DR supported the order of the Ld. AO. 18. We have heard both the sides and perused the materials available on record and the orders of the Authorities below. Similar issue was considered in assessee’s own case for the A.Y.2017-18 in I.T.A.No.75/Viz/2022 dated 09.09.2022. For the sake of clarity, we extract relevant part of the order of the Tribunal (supra) as under : “15. We have heard bot h the si de s and per used the materials available on re cord and the or ders of th e Authorities below. We find from the records submitted b y the Ld. AR that the assessee has not earned any exempt income durin g the relevant assessment year 17 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam mandating the invok i ng of prov isions of se ction 14A of the A ct. The Hon’ble Supreme Court in CIT vs. Chettinad Logistics (P.) Ltd (supra) ha s di smi sse d the SLP of t he Rev enue and held that s ection 14A can only be triggere d i f asse ssee claims any expen diture against an income which doe s not form part of the total income under the Act. The Hon’ble Supreme Court further observed that Rule 8D only provides for a method to determine the amount of expenditure incurre d in relation to inc ome whic h doe s not form part of the total inco me of the asse ssee. Respectfully followin g the ratio laid down by the Hon’ble Supreme Court, we allow the appeal of the assessee on this ground.” Hence, respectfully following the ratio laid down by the Hon’ble Supreme Court as well as the Tribunal (supra), we allow the appeal of the assessee on this ground. 19. In the result, appeal of the assessee is allowed. Pronounced in the open Court on the 16 th December , 2022. Sd/- Sd/- (दुव्वूरु आर.एल रेड्डी) (एस बालाकृष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याययक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 16.12.2022 L.Rama,SPS 18 ITA No.156/Viz/2022, A.Y.2018-19 Devi Sea Foods Limited, Visakhapatnam आदेश की प्रयियलयि अग्रेयषि/Copy of the order forwarded to:- 1. यनर्ााररिी/ The Assessee–M/s. Devi Sea Foods Limited, 50-1-51/1, ASR Nagar, Seetammadhara, Visakhapatnam-530013, Andhra Pradesh. 2. राजस्व/The Revenue – Deputy Commissioner of Income Tax, Circle-3(1), Visakhapatnam. 3. The Principal Commissioner of Income Tax, 4. आयकरआयुक्त (अिील)/ The Commissioner of Income Tax (Appeals) National Faceless Appeal Centre, Delhi. 5. यवभागीयप्रयियनयर्, आयकरअिीलीयअयर्करण, यवशाखािटणम/ DR,ITAT, Visakhapatnam 6. गार्ाफ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam