GLOBAL OFFSHORE SERVICES LIMITED , MUMBAI V. NFAC, DELHI, DELHI

ITA 592/MUM/2022

AI Insights

Global Offshore Services Limited appealed against the assessment order for the assessment year 2017-18, which involved adjustments to the arm's length price of corporate and performance guarantees provided to its associated enterprises (AEs). The TPO had increased the guarantee commission rates based on average bank rates, leading to significant adjustments. The Tribunal examined the historical context of similar transactions in previous assessment years, where lower rates were accepted, and found that the assets securing the corporate guarantees were adequately valued. For performance guarantees, the Tribunal upheld the TPO's decision, setting the ALP at 0.5%, consistent with earlier rulings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132072 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: K
• Next Hearing Date: 06-12-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 29-03-2022
• Other Referred Cases: ITA No.2055/MUM/2016, ITA No.7321/MUM/2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value
• Section: 143(3); 133(6); 144C

Judgement Text

vk;dj vihyh; vf/kdj.k eqacbZ ihB ßdsÞ eaqcbZ Jh fodkl voLFkh] U;kf;d lnL;],oa Jh xxu xks;y] ys[kkdkj lnL; ds le{k IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K” BENCH BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI GAGAN GOYAL, ACCOUNTANT MEMBER vk-v-la- 592@eaqcbZ@2022 ¼fu-oa- 2017&18½ ITA No.592/MUM/2022 (A.Y.2017-18) Global Offshore Services Limited 101 A Wing, Swapnabhoomi, S K Bole Road, Dadar West, Mumbai-400 028 PAN No. AAACG2204K ..... vihykFkhZ/Appellant cuke Vs. Addl./Jt./Dy./ACIT/ITO/National Faceless Appeal Centre, Delhi ..... izfroknh/Respondent vihykFkhZ }kjk@Appellant by : Shri Nitesh Joshi izfroknh }kjk@Respondent by : Ms. Samruddhi Hande lquokbZ dh frfFk@Date of hearing : 07/12/2022 ?kks”k.kk dh frfFk@Date of pronouncement : 20/02/2023 vkns’k/ ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the assessment order dated 02/02/2022 passed u/s 143(3) r.w.s. 144C (13) r.w.s.144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The assessee in appeal has primarily assailed the findings of Assessing Officer (AO) on two counts: P a g e | 2 ITA No.592/MUM/2022 (A.Y.2017-18) GLOBAL OFFSHORE SERVICES LIMITED I) Determination of arm’s length price (ALP) of Corporate Guarantee extended by assesse to its AE, Global Offshore Services B.V. (GOSBV) at 2% thereby making adjustment of Rs.8,98,25,206/-. II) Determination of ALP of Performance Guarantee extended on behalf of AEs Garware Offshore International Services Pte. Ltd. (GOISPL) and Global Offshore services B.V. (GOSBV) at 2%, thereby making adjustment of Rs.22,03,747/-. 2. The brief facts of the case as emanating from records are: The assessee is primarily engaged in the business of charter of offshore vessels. During the period relevant to assessment year under appeal, the assessee inter alia entered into international transactions with its AEs with respect to charging of commission on corporate guarantee and performance guarantee. The assesse provided corporate guarantee to its AE Global Offshore Services B.V. and charged commission at the rate of 0.5%. The assessee had also extended performance guarantee to its AEs Garware Offshore Services Pte. Limited and Global Offshore Services Limited B.V, without charging commission. The Transfer Pricing Officer (TPO) did not accept ALP determined by the assesssee in respect of corporate guarantee and performance guarantee. The TPO in order to determine the ALP of the facility extended by the assesse to its overseas AEs collected the information from various banks u/s 133(6) of the Act and computed average rate which comes to 2.18%. Bank Name Rate State Bank of India (SBI) 1.75% Union Bank of India (UBI) 3% HDFC Bank 1.80% Average: 2.18% The TPO applied average rate of 2% on corporate guarantee/performance guarantee commission and made aggregate adjustment of Rs.9,20,28,953/- (corporate guarantee commission- Rs.8,98,25,206/- and performance guarantee commission- Rs.22,03,747/-). The assessee filed objections before the Dispute Resolution Panel P a g e | 3 ITA No.592/MUM/2022 (A.Y.2017-18) GLOBAL OFFSHORE SERVICES LIMITED (DRP). The DRP rejected the objections raised by the assessee and confirmed the order of TPO. The AO passed the impugned assessment order in line with the directions of the DRP. Hence, the present appeal. 3. Shri Nitesh Joshi appearing on behalf of the assessee submits that the assessee had extended corporate guarantee in respect of the borrowings made by AE. The assessee charged guarantee fee at 0.5%, the TPO increased the guarantee rate commission to 2% based on average bank guarantee commission. The learned Counsel submits that in AYs 2011-12 and 2012-13 in assessee’s own case, the Tribunal had accepted 0.25% corporate guarantee commission at arm’s length. The learned Counsel pointed that the Tribunal upheld 0.25% guarantee commission. After considering the fact that the fair market value of the vessels exceeded the loan amount. The learned Counsel further submits that in respect of performance guarantee, the assesse had not charged any fee. The TPO determined the ALP thereof at 2% which was upheld by the DRP. The learned AR pointed that this issue was also considered by the Tribunal in assesse’s own case in AYs 2011-12 and 2012-13, wherein guarantee fee of 0.25% was held to be at arm’s length. 4. Per contra, Ms. Samruddhi Hande representing the Department vehemently defending the assessment order and the findings of DRP/TPO submits that the value of vessels may not be the same during the period relevant to the assessment year under appeal. Therefore, the findings given by the Tribunal holding 0.25% as ALP in AYs 2011-12 and 2012-13 may be reasonable in the said assessment years. However, in the facts of the assessment years under appeal, determination of ALP at 0.25% may not be at arm’s length. In respect of ground no. 2, the learned Departmental Representative (DR) submits that the assessee had determined the ALP for extending performance guarantee at nil. The assessee has to provide internal CUP for determining the ALP. 5. Rebutting the arguments made on behalf of the Department, the learned Counsel submits that the vessels against which corporate guarantee was extended still P a g e | 4 ITA No.592/MUM/2022 (A.Y.2017-18) GLOBAL OFFSHORE SERVICES LIMITED have market book value more than the loan amount including interest. If the value of vessels has depreciated over the period of time, the loan amount has also reduced as the assessee has been paying loan all these years. The learned Counsel for the assessee furnished a chart giving the details of the vessels, the date in which it was acquired, liability, book value and market value. The same is noted herein below: Sr. No Name of Vessel Acquired in AY Liability (USD in Mn) Book Value as on March 2017 (USD- MN) Market Value as on March 2017* (USD in Mn) 2011-12 2012-13 2017-18 1 MV Cristal (earlier known as MV Beaucephalus)** 2011-12 48.17 48.13 35.08 50.92 49.00 as on Noverm ber 2016 2 MV Makalu 2014-15 - 38.35 47.68 45.00 as on Noverm ber 2016 3 MV Shergar 2013-14 - 6.44 13.56 10.00 as on Noverm ber 2016 4 MV Olympus 2015-16 - 30.51 37.75 44.75 as on October 2014 Total 48.17 110.38 149.9 1 148.75 6. We have heard the submissions made by rival sides and have examined the orders of authorities below. The ground no. 1 and 2 of appeal are taken up together as both relate to a common issue of guarantee commission. The assessee has charged corporate guarantee commission at the rate of 0.5%. The TPO has determined ALP of corporate guarantee at 2% based on average bank guarantee commission. We find that in AYs 2011-12 and 2012-13, the issue of ALP of corporate guarantee commission P a g e | 5 ITA No.592/MUM/2022 (A.Y.2017-18) GLOBAL OFFSHORE SERVICES LIMITED was adjudicated by the Co-ordinate Bench in assessee’s own case in ITA No.2055/MUM/2016 and ITA No.7321/MUM/2016 vide orders dated 10/06/2020. The Tribunal after considering the facts of the case held as under: “17. Having considered rival submissions, we find that the value of the vessels which has been provided as a scrutiny to the lender bank is much more than the amount borrowed. Therefore, the loan provided by the lender bank is fully secured. It is also a matter of record that the corporate guarantee provided by the assessee is unsecured. Keeping in view the aforesaid facts, we are of the considered view that the guarantee fee charged by the assessee @ 0.25% is at arm’s length requiring no further adjustment. Ground no. 3 is allowed.” In the impugned assessment year, the assessee has itself charged corporate guarantee commission at the rate of 0.5% that is an increase of 0.25% from earlier assessment years. The assessee has pointed that during assessment years 2013-14 to 2016-17, there were transactions of corporate/performance guarantee, since no reference was made to the TPO, guarantee fee charged by the assessee was accepted by the Department. The assessee has also filed a chart giving comparative analysis of loan liability and market value of the vessels. An analysis of the same shows that the market value of the vessels is much more than the loan liability. Thus, the loan liability is fairly secured against the assets of the AE. The upward adjustment made by the TPO is thus, directed to be deleted. The assesee succeeds on ground no. 1 of the appeal. 7. In ground no. 2 of appeal, the assessee has assailed ALP adjustment in respect of performance guarantee. We find that in AYs 2011-12 and 2012-13 arm’s length rate of performance guarantee commission at 0.25% was held to be reasonable by the Co- ordinate Bench. The findings of the Co-ordinate Bench were based on the facility availed by the assessee from Bank in the relevant period. In the impugned assessment year no material is placed before us to show that rate of performance guarantee is 0.25%. In the impugned assessment year, the assessee has not charged any fee for performance guarantee. Taking cue from the rate of corporate guarantee commission, we hold performance guarantee commission rate of 0.5% at arm’s length. The ground no. 2 of the appeal is allowed in the aforesaid terms. P a g e | 6 ITA No.592/MUM/2022 (A.Y.2017-18) GLOBAL OFFSHORE SERVICES LIMITED 8. In ground no. 3 of appeal, the assessee has assailed initiation of penalty proceedings u/s 270A (1) of the Act. Challenge to penalty proceedings at this stage is pre-mature, accordingly, ground no. 3 of the appeal is dismissed. 9. The ground no. 4 and 5 of the appeal are general in nature and hence, require no separate adjudication. 10. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on Monday the 20 th day of February 2023. Sd/- Sd/- (GAGAN GOYAL) (VIKAS AWASTHY) Yks[kkdkj lnL;/ACCOUNTANT MEMBER U;kf;d lnL;/JUDICIAL MEMBER eaqcbZ/Mumbai, fnukad/Dated: 20/02/2023 Mahesh R. Sonavane izfrfyih vxzsf”kr of the Order forwarded to: 1. vihykFkh/The Appellant , 2. izfroknh/The Respondent. 3. vk;dj vk;qDr ¼v½/ The CIT(A)- 4. vk;dj vk;qDr/ CIT 5. foHkkxh; izfrfu/kh] vk;- vih- vf/k-] eqacbZ/DR, ITAT, Mumbai 6. xkMZ QkbZy/Guard file. BY ORDER, //True Copy// P a g e | 7 ITA No.592/MUM/2022 (A.Y.2017-18) GLOBAL OFFSHORE SERVICES LIMITED (Dy. /Asst. Registrar)/ Sr. Private Secretary ITAT, Mumbai