Dy.CIT, Circle-3(1), Hyderabad V. M/s Rain Commodities Ltd., Hyderabad

ITA 276/HYD/2014

• Counselvise Citation: 27622514 RSA 2014
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHAN SINGH SINGHANIA
• Assessee Lawyers: MANASVANI BAJPAI
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment; Commercial expediency
• Section: 92B; 234B; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 157/HYD/2014 ASSESSMENT YEAR: 2008-09 RAIN COMMODITIES LTD., (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD.), HYDERABAD PAN AABCP2276K VS. ADDL. COMMISSIONER OF INCOME-TAX, RANGE - 3 HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 276/HYD/2014 ASSESSMENT YEAR: 2008-09 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), HYDERABAD. VS. RAIN COMMODITIES LTD., (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD.), HYDERABAD PAN AABCP2276K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA & MISS MANASVANI BAJ PAI REVENUE BY : SHRI MOHAN SINGH SINGHANIA DATE OF HEARING 28-10-2015 DATE OF PRONOUNCEMENT 04-12-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: THE CROSS APPEALS OF THE ASSESSEE AND REVENUE ARE F ILED AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD, DATE D 13/12/2013. THESE APPEALS ARE DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURE AND TRADING OF CEMENT. IT FILED ITS RETURN OF INCOME ON 30/09/2008 DECLARING TOTAL INCOME OF RS. 61,26,48,100/-. THE CASE WAS SE LECTED FOR 2 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. SCRUTINY. SUBSEQUENTLY, THE CASE WAS REFERRED TO TR ANSFER PRICING OFFICER (TPO). THE AO MADE AN ADDITION OF RS. 15,36 ,04,538/- TO THE TOTAL INCOME OF ASSESSEE ON THE BASIS OF ADJUSTMENT S TO THE ALP MADE BY TPO VIDE HIS ORDER DATED 20/09/2011. THE AO ALSO DISALLOWED EXPENSES TO THE EXTENT OF RS. 54,31,383/ -. THE TOTAL INCOME ASSESSED TO TAX WAS RS. 77,16,84,021/-. 3. IN BRIEF, THE AO HAD MADE FOLLOWING DISALLOWANCE S: A) TPO NOTICED THAT ASSESSEE HAD LENT LOAN TO ITS AE TO THE EXTENT OF RS. 104.28 CRORES. TPO ADDED ARMS LENGT H INTEREST ON THE AMOUNTS ADVANCED TO AE ON THE BASIS OF INTERNA L COMMERCIAL BORROWING AND REJECTED ASSESSEES SUBMI SSION TO TREAT THE ADVANCE ON EXTERNAL COMMERCIAL BORROWING BASED ON LIBOR RATES. B) TPO NOTICED THAT ASSESSEE HAD GIVEN CORPORATE G UARANTEE TO ITS AE TO CONSORTIUM OF BANKS. HE CALCULATED ARMS LENGTH GUARANTEE FEE AND ADDED ARMS LENGTH GUARANTEE FEE OF 2% ON THE LOAN GUARANTEED. C) AO DISALLOWED SELLING AND DISTRIBUTION EXPENSES OF RS. 50,00,000/- AND REPAIRS & MAINTENANCE OF RS. 431,3 83/-, THOUGH THE SAID EXPENSES WERE EXPLAINED WITH SUPPORTING BILLS/VOUCHERS, BY OBSERVING THAT POSSIBILITY OF I NFLATION CANNOT BE RULED OUT IN VIEW OF THE VOLUMINOUS TRANSACTION S EFFECTED. 4. AGGRIEVED WITH THE ASSESSMENT ORDER, ASSESSEE PR EFERRED APPEAL BEFORE THE CIT(A). CIT(A) HAD GIVEN RELIEF T O THE ASSESSEE AS UNDER: I) ALP ADJUSTMENT ON INTEREST ON ADVANCE TO AE: CIT(A) HAD DIRECTED AO TO ADOPT LIBOR PLUS FOR THE PURPOSE OF TP ADJUST MENTS IN RESPECT OF INTEREST ON LOAN ADVANCED TO THE AE BY R ELYING ON THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF A) FOUR SOFT PVT. LTD., 3 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. VS. DCIT, [2014] 149 ITD 732 (HYD.) AND B) SIVA IND USTRIES & HOLDINGS LTD. II) ALP ADJUSTMENT ON GUARANTEE FEE: CIT(A) HAD GIVEN PARTIAL RELIEF TO ASSESSEE, REDUCING THE GUARANTEE FEE FROM 2% TO 1.2 5%. ACCORDINGLY, AO WAS DIRECTED TO ADOPT 1.25% ADJUSTMENT ON LOAN G UARANTEED . 5. AGGRIEVED BY THE ORDER OF CIT(A), BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 6. WE DEAL THE ISSUES IN GROUND WISE. 7. ALP ADJUSTMENT ON INTEREST ON ADVANCE TO AE: ASSESSEES GROUNDS OF APPEAL: 2. NOT APPRECIATING THE FACT THAT THE WOS WAS SET UP FOR ACQUISITION BY THE APPELLANT COMPANY AND LOAN WAS TO FUND THE AC QUISITION. 3. MAKING TP ADJUSTMENTS TO THE LOANS PROVIDED TO WOS WITHOUT APPRECIATING THE FACT THAT THE SAME WAS PROVIDED A S A MEASURE OF COMMERCIAL EXPEDIENCY. 4. NOT APPRECIATING THE FACT THAT ACQUISITION RESUL TED IN BENEFIT AND EXPANSION OF THE APPELLANTS BUSINESS. 5. DISCRIMINATING THE US WOS IN DETERMINING THE AR MS LENGTH PRICE (ALP) FOR LOANS VIS--VIS SIMILAR LOANS PROVIDED BY PARE NT COMPANY TO INDIAN SUBSIDIARIES IN VIOLATION OF ARTICLE 26 OF INDIA US DOUBLE TAXATION AVOIDANCE AGREEMENT. (DTAA). 6. DETERMINING THE INTEREST RATE AT SPREAD SIZE OV ER LIBOR WITHOUT UNDERTAKING ANY OBJECTIVE ANALYSIS. REVENUES GROUND: 2 . THE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE LI BOR PLUS CANNOT BE TAKEN AS THE BASE FOR THE PURPOSE OF TP ADJUSTMENT IN RESPECT OF INTEREST ON LOAN ADVANCED TO THE AE FOR THE INTERNATIONAL T RANSACTIONS IN VIEW OF THE LATEST FRAUDS REGARDING 'LIBOR' SINCE BARCLAYS BAN K & UBS WERE FINED BY THE UNITED STATES DEPARTMENT OF JUSTICE FOR ATTEMP TED MANIPULATION OF THE LIBOR AND EURIBOR RATES AND ULTIMATELY UBS AGREED TO PAY TO REGULATORS. LD. AR SUBMITTED THAT THE ASSESSEE THROUGH ITS SPV, RCUSA ACQUIRED JUNIPER INVESTMENT LLC, WHICH IN TURN OWNED ANOTHER COMPANY, CII CARBON LLC FOR A SUM OF USD 620,175,000. THE ASSESS EE PROVIDED LOANS TO RCUSA WHICH IN TURN INVESTED THE AMOUNT AS PREFERRED STOCK IN RAIN CII HOLDINGS LLC. WITH THE ABOVE INVESTMENT , RCL OPERATED 4 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. SEVEN COKE CALCINING PLANTS IN USA AND AS A RESULT OF ACQUISITION, THE GROUP BECAME THE LARGEST PRODUCER OF CPC IN THE WOR LD. LD. AR SUBMITTED THAT THE ASSESSEE HAD THE OPTION OF FUNDI NG THE SPV EITHER IN THE FORM OF SHARE CAPITAL OR LOAN. THE DECISION ON THE FUNDING IN THE FORM OF LOAN WAS A BUSINESS DECISION BASED ON COMME RCIAL EXPEDIENCY. LD. AR ALSO SUBMITTED THAT THE ACQUISI TION FOR WHICH THE LOAN WAS GIVEN HELPED THE ASSESSEE TO INCREASE ITS GLOBAL FOOT PRINT AND TO LEVERAGE THE STRENGTH OF THE COMBINED ENTITI ES FOR BETTER EFFICIENCY AND BARGAINING POWER WITH SUPPLIERS AND CUSTOMERS. LD. AR SUBMITTED THAT THE ABOVE FINANCING OF LOAN TO ITS A E ARE NOT INTERNATIONAL TRANSACTION AS BASIC OBJECTION AND EV EN OTHERWISE IT IS ACCEPTED AS INTERNATIONAL TRANSACTION, THE TPO ERRE D IN BENCH MARKING INTERNATIONAL TRANSACTIONS WITH INTEREST RA TES IN THE DOMESTIC MARKET INSTEAD OF LIBOR AS THE BASE AND NOT THE IND IAN PLR/INTERBANK RATE. LD. AR RELIED ON THE FOLLOWING DECISIONS: 1. FOUR SOFT PVT. LTD. VS. DCIT [2014] 149 ITD 732 (HYD.) 2. SIVA INDUSTRIES & HOLDINGS LTD. VS. ACIT [2011] 59 DTR 182 (CHENNAI) 3. VVF LTD. VS. DCIT[2010-TIOL-55-ITAT-MUM] 4. COTTON NATURALS (I) PVT. LTD., VS. DCIT (ITA NO . 5855/DEL/2012) 8. LD. DR RELIED ON THE ORDER OF AO/TPO. HE SUBMITT ED THAT THE FOUR SOFT PVT. LTD. (SUPRA) DECISION IS APPLICABLE ONLY TO THE FACTS OF THE FOUR SOFT AND THIS CANNOT BE APPLIED TO THE PRE SENT CASE. HE ALSO SUBMITTED THAT THE ASSESSEE HAD NOT REPORTED THE AB OVE TRANSACTION AS INTERNATIONAL TRANSACTION IN THEIR RETURN OF INC OME AND THE FUNDS INVESTED WERE BORROWED FUNDS FROM BANKS. 9. IN REJOINDER, LD. AR SUBMITTED THAT THE ASSESSEE HAD NOT REPORTED THIS TRANSACTION DUE TO THE FACT THAT THE SECTION 92B WAS AMENDED IN AY 2011-12 WITH RETROSPECTIVE EFFECT. AS SESSEE WAS NOT IN DEFAULT AND INSISTED THAT THE BENCH MARKING ON I NTEREST RATE SHOULD BE ON LIBOR PLUS. 5 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTHORITIES. THE ASSESSEE FACILITATED THE A CQUISITION OF CII CARBON LLC BY RCUSA BY LENDING LOAN TO ITS WHOLLY O WNED ENTERPRISES. THE ASSESSEE HAS TAKEN THE DECISION TO MAKE INVESTMENT IN ITS AE EITHER ON SHARE CAPITAL OR LENDING LOAN U SING ITS BUSINESS EXPEDIENCY. SINCE, IT HAD MADE THE DECISION TO MAKE LOAN TO ITS AE. BY VIRTUE OF AMENDMENT TO SECTION 92B, IT IS INTERN ATIONAL TRANSACTION. ONCE IT IS CONSIDERED AS INTERNATIONAL TRANSACTION, IT IS PRUDENT TO MAKE BENCH MARKING ALSO IN THE INTERNATIONAL ARENA. SIMILAR VIEWS WERE EXPRESSED BY THE COORDINATE BENCH OF THIS TRIB UNAL IN THE CASES OF FOUR SOFT PVT. LTD. (SUPRA), SIVA INDUSTRIES & H OLDINGS LTD. (SUPRA) AND VIJAY ELECRICALS LTD., (ITA NO. 1159/HYD/2013. IT WAS HELD IN THE CASE OF SIVA INDUSTRIES AS BELOW: ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE A E IS IN FOREIGN CURRENCY AND THE TRANSACTION IS AN INTERNATIONAL T RANSACTION, THEN, THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYI NG THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TRANSACTION. IF THIS IS SO, THEN THE DOMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICAB ILITY AND INTERNATIONAL RATE FIXED BEING LIBOR WOULD COME INTO PLAY. IN TH E CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT IS LIBOR RATE WHICH HAS TO BE CONSIDERED WHILE DETERMINING THE ARMS LENGTH INTEREST RATE IN RESP ECT OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE AES. CONSIDERING THE ABOVE VIEW, WE ARE INCLINED TO ACCE PT THE DECISION OF THE CIT(A) AND ACCORDINGLY WE DISMISS THE GROUNDS O F ASSESSEE AS WELL AS GROUND 2 OF THE REVENUE. 11. ALP ADJUSTMENT ON CORPORATE GUARANTEE ASSESSEES GROUNDS OF APPEAL: THE LD. CIT(A) HAS ERRED IN 7. MAKING ADJUSTMENT WHILE DETERMINATION OF ALP ON THE SHAREHOLDERS CORPORATE GUARANTEE PROVIDED TO BANK ON BEHALF OF WOS. 8. DETERMINING THE ALP ON THE SHAREHOLDER CORPORAT E GUARANTEE PROVIDED BY THE APPELLANT @ 1.25% ON THE GUARANTEE AMOUNT. 9. NOT APPRECIATING THE FACT THAT WOS WAS SET UP A S A SPY FOR ACQUISITION OF BUSINESS IN USA. 6 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. 10. NOT APPRECIATING THAT THE SHAREHOLDER CORPORAT E GUARANTEE IS NOT COVERED UNDER THE DEFINITION OF INTERNATIONAL TRAN SACTION U/S 92B OF THE ACT. 11. NOT APPRECIATING THAT THE AMENDMENT TO SECTION 92B WOULD NOT APPLY TO THE FACTS OF THE CASE. 12. NOT UNDERTAKING AN OBJECTIVE ANALYSIS FOR DETE RMINING THE ALP ON THE SHAREHOLDER CORPORATE GUARANTEE. 13. NOT MAKING ADJUSTMENTS FOR THE DIFFERENCES IN THE COMPARABLE TRANSACTIONS SELECTED VIS-A-VIS SHAREHOLDER CORPOR ATE GUARANTEE PROVIDED BY THE APPELLANT. 14. DISCRIMINATING THE US WOS BY DETERMINING THE A LP FOR SHAREHOLDER-CORPORATE GUARANTEE VIS-A-VIS SIMILAR SHAREHOLDER CORPORATE GUARANTEE PROVIDED BY PARENT COMPANIES TO INDIAN S UBSIDIARIES IN VIOLATION OF ARTICLE 26 OF INDIA - US DOUBLE TAXAT ION AVOIDANCE AGREEMENT. ('DTAA'). REVENUES GROUND 3. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED T HE FACT THAT ALP IS CALCULATED BY THE TPO AFTER CONSIDERING THE GUARAN TEE FEE AND BY DEPENDING ON THE CREDIT RATING OF THE AE AND ONCE THE ALP IS APPROVED, THE PERCENTAGE ON GUARANTEE FEE CANNOT BE REVISED. LD. AR SUBMITTED THAT ASSESSEE, THROUGH A COMMON FA CILITIES AGREEMENT IN CONNECTION WITH OVERSEAS ACQUISITION O F SUBSIDIARY COMPANIES, HAD PROVIDED CORPORATE GUARANTEE IN FAVO UR OF RCUSA. THE TPO HAD NOTED THAT ASSESSEE HAD GUARANTEED A CO NSORTIUM OF BANKS, WHICH PROVIDED LOANS TO RCUSA, TO INDEMNIFY THE DEFAULTS, IF ANY, ON ACCOUNT OF LOAN REPAYMENT BY RCUSA. LD. AR SUBMITTED THAT A CORPORATE GUARANTEE DID NOT FALL WITHIN THE MEANI NG OF INTERNATIONAL TRANSACTION AS DEFINED IN SECTION 92B, THAT IT WAS IN THE NATURE OF SHAREHOLDER ACTIVITY IN THE BUSINESS INTEREST OF PA RENT, THAT THE ASSESSEE WAS RESTRICTED BY LAW FROM CHARGING FEE FO R A CORPORATE GUARANTEE PROVIDED BY IT IN TERMS OF PARA 2.2.9 OF THE RBI MASTER CIRCULAR ON GUARANTEES AND CO-ACCEPTANCE DATED 02/0 7/2012, THAT A CORPORATE GUARANTEE IS SECONDARY WITH NO COST OR RI SK TO SHAREHOLDERS AND THAT IT WAS IN THE BUSINESS INTEREST OF THE ASS ESSEE. LD. AR SUBMITTED THAT WITHOUT PREJUDICE TO THE CLAIM THAT CORPORATE GUARANTEES ARE NOT TO BE CHARGED, THE METHOD OF COM PUTATION OF THE GUARANTEE FEE WAS ERRONEOUS. LD. AR ALSO SUBMITTED THAT THERE IS NO COST TO THE ASSESSEE AS IT WAS GIVEN ON THE BASIS O F HOLDING COMPANY 7 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. AND THERE IS NO PROFIT INVOLVED IN THIS YEAR. LD. A R SUBMITTED THAT THE TRANSACTION WAS NOT RELATING TO THIS YEAR. (REFER PAGES 56 TO 59 OF PAPER BOOK - RELATES TO PY 2005-06.). LD. AR RELIE D ON THE FOLLOWING DECISIONS: 1. FOUR SOFT PVT. LTD., (SUPRA) 2. BHARTI AIRTEL LTD. VS. ACIT (ITA NO. 5816/DEL/2 012 3. REDINGTON (INDIA) LTD., VS. JCIT, (ITA NO. 513/ MDS/2014). 12. LD. DR SUBMITTED THAT THE ASSESSEE HAD NOT REPO RTED THIS TRANSACTION AS INTERNATIONAL TRANSACTION. HE SUBMIT TED THAT THE CASE GLENMARK PHARMACEUTICALS VS. ACIT (ITAT-MUMBAI) HAD MADE AFTER CONSIDERING SOME CALCULATION TO ARRIVE THE FIGURE 0 .53% WHEREAS THE CIT(A) IN THE PRESENT CASE HAD ADOPTED 1.25% WITHOU T ANY BASIS. HE ALSO SUBMITTED THAT THE TPO HAD ANALYSED THE RISK F ACTOR IN THIS TRANSACTION SINCE THE GUARANTEE WAS GIVEN WITHOUT A NY SECURITY. HE ALSO SUBMITTED THAT EVEN THOUGH THERE IS NO COST TO THE ASSESSEE BUT THERE IS INTRINSIC BENEFIT TO THE AE. HE SUBMITTED THAT HE RELIES ON THE ORDER OF AO/TPO AND JUSTIFIED THE ACTION OF THE AO. 13. AFTER TAKING INTO CONSIDERATION THE ABOVE DECIS ION OF THE TRIBUNAL AND THE RATIO OF THE FOUR SOFT PVT. LTD. (SUPRA), W E HOLD THAT THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION . FOR THE SAKE OF CLARITY AND READY REFERENCE, WE REPRODUCE THE RELE VANT PARAS BELOW: 25.4 IN THE AFORESAID VIEW OF THE MATTER, WE AGREE WITH THE TPO THAT ALP OF THE CORPORATE GUARANTEE HAS TO BE DETERMINED AS IT FAL LS WITHIN THE SCOPE AND AMBIT OF AN INTERNATIONAL TRANSACTION AFTER THE RETROSPECTIVE AMENDMENT TO SECTION 92B. HOWEVER, IT APPEARS THAT THE TPO HAS APPLIED THE RATE OF 3.75% , WHICH IS APPLICABLE TO BANK GUARANTEE ISSUED BY THE BANK. AS THE CORPORATE GUA RANTEE IS NOT IN THE NATURE OF BANK GUARANTEE, THE RATE APPLICABLE TO BANK GUARANTEE P ROVIDED BY THE BANK CANNOT BE APPLIED TO CORPORATE GUARANTEE WHICH IS PROVIDED B Y A GROUP COMPANY. IN CASE OF GLENMARK PHARMACEUTICALS VS. ACIT IN ITA NO. 5031/M UM/2012, DATED 13/11/2013, THE MUMBAI BENCH OF THE TRIBUNAL AFTER ANALYSING T HE FACTS IN THAT CASE HAD HELD THAT 0.53% CORPORATE GUARANTEE RATE IN THAT CASE W AS APPROPRIATE . THE ITAT HYDERABAD BENCH IN CASE OF INFOTECH ENTERPRISES LT D. IN ITA NO. 115/HYD/2011 AND IN ITA NO. 2184/HYD/2011, DATED 16/01/2014 WHILE C ONSIDERING IDENTICAL ISSUE OF DETERMINING ALP OF CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE TO ITS AE FOLLOWED THE RATIO LAID DOWN IN CASE OF GLENMARK PHARMACEUT ICALS VS. ACIT (SUPRA) AND REMITTED 8 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. THE ISSUE BACK TO THE TPO TO DECIDE THE QUANTUM OF CORPORATE GUARANTEE RATE BY FOLLOWING THE METHOD ADOPTED IN CASE OF GLENMARK P HARMACEUTICALS (SUPRA). 26. SINCE THE ISSUE IN THE PRESENT CASE IS IDENTIC AL TO THE ISSUE DECIDED BY THE ITAT, HYDERABAD BENCH IN CASE OF INFOTECH ENTERPRISES (S UPRA), FOLLOWING THE SAME, WE ALSO REMIT THIS ISSUE TO THE FILE OF THE TPO TO DECIDE THE QUANTUM OF CORPORATE GUARANTEE RATES ACCORDINGLY. IF THE ASSESSEE IS ABLE TO BRIN G ON RECORD ANY COMPARABLES WITH REGARD TO CORPORATE GUARANTEE, THE TPO MAY ALSO CO NSIDER THE SAME WHILE DETERMINING ALP OF CORPORATE GUARANTEE. THE TPO MUST PROVIDE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. T HIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. THUS, THE GROUNDS 7 TO 11 ARE REJECTED. 14. AS REGARDS GROUNDS 12 TO 14 ARE CONCERNED, WE F IND THAT THEY ARE RELATING TO COMPUTATION OF ALP. THE AVERAGE MAR GIN OF THE COMPARABLES IN SIMILAR TRANSACTIONS HAS TO BE ARRIV ED AT BEFORE DETERMINING ALP. THIS ISSUE OF THE PERCENTAGE AT WH ICH THE CORPORATE GUARANTEE CAN BE BENCHMARKED HAS COME UP BEFORE VAR IOUS BENCHES OF THE TRIBUNAL. WE FIND THAT IN THE CASE OF GLENMA RK PHARMACEUTICALS VS. ACIT IN ITA NO. 5031/MUM/2012, DATED 13/11/2013 , THE TRIBUNAL HAS EXAMINED THE APPROACH OF THE ASSESSEE THEREIN I N DETERMINING THE PERCENTAGE OF CORPORATE GUARANTEE TO BE METHOD ICAL AND FOUND IT TO BE APPROPRIATE. THUS, THE TRIBUNAL HAS LAID DOWN GUIDELINES FOR DETERMINATION OF RATE OF CORPORATE GUARANTEE. IN TH E CASE BEFORE US, THE AO ADOPTED 2% OF THE LOAN GUARANTEED AND THE SA ME WAS REDUCED TO 1.25% BY THE LD. CIT(A) WITHOUT ANY BASI S OR STUDY IN THIS MATTER. WE FIND THAT IN THE DECISION OF THE COORDI NATE BENCH OF THIS TRIBUNAL IN FOUR SOFT PVT. LTD. (SUPRA), AND ALSO T HE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF M/S EVERES T KANTO CYLINDER LTD. VS. DCIT, IT WAS HELD THAT COMMERCIAL BANKS GU ARANTEES ARE EASILY ENCASHABLE IN THE EVENT OF DEFAULT HENCE HIG HER COMMISSION IS JUSTIFIED FOR THEM, WHEREAS IN CASE OF CORPORATE GU ARANTEE THE PARENT COMPANY WOULD REPAY LOAN IN CASE ITS AE DEFAULTS. F URTHER, IT WAS HELD THAT THE CONDITIONS FOR ISSUANCE OF CORPORATE GUARANTEES ARE DISTINCT AND SEPARATE FROM BANK GUARANTEE. ACCORDIN GLY, THE HONBLE HIGH COURT UPHELD ITAT DECISION OF GUARANTEE COMMIS SION @ 0.50%. 9 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. THE RELEVANT PORTION OF ITAT, MUMBAI DECISION IS RE PRODUCED FOR CONVENIENCE: 21. SO FAR AS THE LEARNED SENIOR COUNSELS CONTENT ION THAT GUARANTEE COMMISSION IS NOT AN INTERNATIONAL TRANSACTION AND THERE COULD NOT BE ANY METHOD FOR EVALUATING THE ALP FOR THE GUARANTEE CO MMISSION, WE DO NOT FIND ANY MERIT IN THE SAID CONTENTION IN VIEW OF T HE AMENDMENT BROUGHT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FR OM 1-4- 2002 BY WAY OF EXPLANATION ADDED IN SECTION 92B. PAYMENT OF GUARA NTEE FEE IS INCLUDED IN THE EXPRESSION 'INTERNATIONAL TRANSACTION' IN VIEW OF THE EXPLANATION I(C) OF SECTION 92B. ONCE THE GUARANTEE FEE FALLS WITHIN T HE MEANING OF 'INTERNATIONAL TRANSACTION', THEN THE METHODOLOGY PROVIDED IN THE RULES ALSO BECOMES APPLICABLE. HERE IN THIS CASE, IT IS UNDIS PUTED THAT THE ASSESSEE IN ITS T.P. STUDY REPORT AND ALSO THE TPO, HAVE AC CEPTED THAT IT IS AN INTERNATIONAL TRANSACTION AND CUP IS THE MOST APPR OPRIATE METHOD FOR BENCHMARKING THE CHARGING OF GUARANTEE FEE. WE ALS O DO NOT AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT THERE C OULD NOT BE ANY COST OR CHARGE OF GUARANTEE FEE BY PROVIDING CORPORATE GU ARANTEE TO ITS SUBSIDIARY BECAUSE THERE IS AN ALWAYS ELEMENT OF B ENEFIT OR COST WHILE PROVIDING SUCH KIND OF GUARANTEE TO AE. HOWEVER, I N THIS CASE, THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTEE COMMISS ION FROM ITS AE, THEREFORE, IT IS NOT A CASE OF NOT CHARGING OF ANY KIND OF COMMISSION FROM ITS AE. THE ONLY POINT WHICH HAS TO BE SEEN IN THI S CASE IS WHETHER THE SAME IS AT ALP OR NOT. WE HAVE ALREADY COME TO A C ONCLUSION IN THE FOREGOING PARAS THAT THE RATE OF 3% BY TAKING EXTE RNAL COMPARABLE BY THE TPO, CANNOT BE SUSTAINED IN FACTS OF THE PRESENT C ASE. WE ALSO FIND THAT IN AN INDEPENDENT TRANSACTION, THE ASSESSEE HAS PAID 0.6% GUARANTEE COMMISSION TO ICICI BANK INDIA FOR ITS CREDIT ARRA NGEMENT. THIS COULD BE A VERY GOOD PARAMETER AND A COMPARABLE FOR TAKING IT AS INTERNAL CUP AND COMPARING THE SAME WITH THE TRANSACTION WITH THE A E. THE CHARGING OF 0.5% GUARANTEE COMMISSION FROM THE AE IS QUITE NEA R TO 0.6%, WHERE THE ASSESSEE HAS PAID INDEPENDENTLY TO THE ICICI BANK AND CHARGING OF GUARANTEE COMMISSION AT THE RATE OF 0.5% FROM ITS AE CAN BE SAID TO BE AT ARMS LENGTH. THE DIFFERENCE OF 0.1% CAN BE IGNORED AS THE RATE OF INTEREST ON WHICH ICICI BANK, BAHRAIN BRANCH HAS GIVEN LOAN TO AE (I.E. SUBSIDIARY COMPANY) IS AT 5.5%, WHEREAS THE ASSESSEE IS PAYIN G INTEREST RATE OF MORE THAN 10% ON ITS LOAN TAKEN WITH ICICI BANK IN INDI A. THUS, SUCH A MINOR DIFFERENCE CAN BE ON ACCOUNT OF DIFFERENTIAL RATE OF INTEREST. THUS, ON THESE FACTS, WE DO NOT FIND ANY REASON TO UPHOLD ANY KIN D OF UPWARD ADJUSTMENT IN ALP IN RELATION TO CHARGING OF GUARANTEE COMMIS SION. HENCE, THE ADDITION OF RS.28,50,353/ - ON ACCOUNT OF TP ADJUS TMENT ON GUARANTEE COMMISSION IS HEREBY DELETED AND THE ORDER OF THE CIT(A) IS SET ASIDE. ACCORDINGLY, GROUND NO.2 IS TREATED TO BE A LLOWED. FOLLOWING THE ABOVE DECISION OF THE MUMBAI BENCH, W HICH HAS BEEN UPHELD BY THE HONBLE HIGH COURT, WE FIND THAT IN T HE CIRCUMSTANCES OF THE SAID CASE, IT WAS HELD APPROPRIATE TO CHARGE TH E CORPORATE GUARANTEE AT 0.50% FROM ITS AE AND THAT IT CAN BE S AID TO BE AT ARMS LENGTH. HOWEVER, IN THE CASE BEFORE US, WE FIND THA T THERE IS NO CORPORATE GUARANTEE COMMISSION CHARGED BY THE ASSES SEE. THEREFORE, WE REMIT THIS ISSUE TO THE FILE OF THE AO/TPO TO DE TERMINE THE ALP OF THE CORPORATE GUARANTEE BY FOLLOWING THE JUDICIAL P RECEDENTS, MORE 10 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. PARTICULARLY, THE CASE OF GLENMARK PHARMACEUTICALS VS. ACIT (SUPRA). IN THE RESULT BOTH THE ASSESSEES AS WELL AS REVENU ES APPEAL ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 14. THE GROUND 15 OF THE ASSESSEE RELATING TO TDS & TCS CREDIT, IS ALSO REMITTED BACK TO THE FILE OF AO. 15. OTHER GROUNDS 16 & 17 ARE RELATING TO LEVY OF I NTEREST U/S 234B AND LEVY OF INTEREST ON TP ADJUSTMENT ARISING OUT O F RETROSPECTIVE AMENDMENTS ARE DISMISSED AS THESE ARE AUTOMATIC AND CONSEQUENTIAL TO THE ADDITIONS MADE TO THE TOTAL INCOME OF THE AS SESSEE. 16. IN THE RESULT, APPEALS OF ASSESSEE AND REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 4 TH DECEMBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 4 TH DECEMBER, 2015 KV COPY TO:- 1) RAIN COMMODITIES LTD. (PRESENTLY KNOWN AS RAIN I NDUSTRIES LTD.) RAIN CENTER, PLOT NO. 3A, SRINAGAR COLONY, HYDE RABAD 500 073. 2) ADDL. CIT, RANGE 3, 7 TH FLOOR, IT TOWER, HYDERABAD 3) CIT(A) - IV, HYDERABAD 4) CIT - III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 11 ITA NO. 157 & 276/HYD/2014 RAIN COMMODITIES LTD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER