SBS TRANSPOLE LOGISTICS PVT. LTD., GURGAON V. ACIT, CIRCLE- 22(2), NEW DELHI

ITA 6166/DEL/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2819 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: I2
• Assessment Year: 2013-2014
• Appeal Filed On: 03-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEERA SRIVASTAVA
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 133(6); 191; 192; 43; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘I-2’ : NEW DELHI) BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER And DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA No.6166/Del./2017 (ASSESSMENT YEAR : 2013-14) SBS Transpole Logistics Pvt. Ltd., vs. ACIT, Circle 22 (2), Plot No.217, Phase I, Sector 20, New Delhi. Near MDH Building, Gurgaon – 122 016 (Haryana). (PAN : AACCT0779Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : Ms. Bhavya Bansal, CA REVENUE BY : Ms. Meera Srivastava, CIT DR Date of Hearing : 11.03.2022 Date of Order : 06.05.2022 O R D E R PER AMIT SHUKLA, JM The aforesaid appeal has been filed by the assessee against the final assessment order dated 31.07.2017, passed under section 144C(3) read with section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) in pursuance of the direction given by the ld. Dispute Resolution Panel (DRP)- 2, New Delhi for the assessment year 2013-14. 2. In various grounds of appeal, the effective issue which has been raised is with regard to firstly, the DRP has erred on law and fact in upholding the action of the TPO for enhancing the income of the assessee by 2 ITA No.6166/Del./2017 Rs.72,54,000/- by making transfer pricing adjustment on guarantee commission @ 4.65% as against ‘nil’ shown by the assessee; and secondly, TP adjustment of Rs.63,31,572/- on account of interest receivables on loan given to AE by applying the rate of LIBOR + 550 BPS on interest free loans advances to Associated Enterprises (AES). The other grounds have not been pressed or argued. 3. Facts in brief are that the assessee company is engaged in the business of international freight forwarding by air freight services, sea freight services, international railway services and transportation. The main dispute regarding the transfer pricing adjustment in the international transaction with AE was with regard to providing guarantee to AE, Transpole Logistics, Singapore which was as under :- AE Nature of Business Transaction Amount as shown in the TP analysis (Rs.) Amount reflected in the Books of Accounts (Rs.) Transpole Logistics, Singapore Stand By Letter of Credit (Guarantee) 60,00,000 15,60,00,000 4. The assessee has provided guarantee to enable SBI Singapore to lend working capital loan to subsidiary, Transpole Logistics Pte Ltd., Singapore, for which it was stated that it has not incurred any cost for issuing guarantee nor has charged any commission from its subsidiary. In the TP analysis, it was stated that there was no impact on the profit, income, loss or assets of either of the company on account of providing guarantee. 3 ITA No.6166/Del./2017 However, ld. TPO, after detailed discussion, called for corporate guarantee external CUP and called for data from various banks u/s 133(6) which are as under :- Sl.No. Name of Bank Bank Guarantee rates 1 Syndicate Bank 2.50% 2 SBI 1.30% 3 Punjab & Sind Bank 3% 4 Indusland Bank 2% 5 South Indian Bank 3.40% 6 Federal Bank 3% 7 PNB 3% 8 Karur Vysya Bank 3% Average 2.65% 5. Accordingly, he made adjustment by taking arm’s length of computation of commission of the corporate guarantee fee in the following manner :- AE Nature of Business Transaction Amount reflected in the Books of Accounts (Rs.) Rates of Commission/ Charge/Fee earned by the assessee Arms Length Rate of Commission/ Charge/Fee Adjustment (Rs.) Transpole Logistics, Singapore. Stand By Letter of Credit provided (Guarantee) 15,60,00,000 Nil 4.65% 72,54,000 6. Thereafter, ld. TPO noted that assessee has provided loans to various AEs in the previous years but no interest has been charged, the details of which are as under :- 4 ITA No.6166/Del./2017 Transpole Container Lines Ltd., India Loan Advanced Opening – 5,93,72,229 Closing – 5,09,93,554 39,93,500 5,53,78,729 Transpole Logistics, Singapore - 2,22,36,500 2,22,36,500 Transpole Logistics, Hongkong - Opening – 1,24,26,000 1,24,26,000 Transpole Logistics, Malaysia - Opening 91,74,600 Closing – Nil 91,74,600 Transpole Logistics, Korea - Opening – Nil Closing – 1,31,68,100 1,31,68,100 Transpole Logistics Holdings, Hongkong - Opening 1,26,50,000 Closing – 4,85,21,000 4,85,21,000 7. The ld. TPO had taken US LIBOR + 550 basis points for benchmarking the interest and applied 6% interest rate to make the adjustment and computed in the following manner :- AE Nature of Business Transaction Amount as shown in the TP analysis (Rs.) Amount reflected in the Books of Accounts Difference Rate of interest Amount in (Rs.) Transpole Logistics, Singapore Stand By Letter of Credit (Guarantee) 60,00,000 156000000 9600000 4.65% 7254000 Transpole Container Lines Ltd. Loan advanced Opening 5,93,72,229 Closing – 5,09,93,554 39,93,500 55182892 12.86% 7096519.8 Transpole Logistics, Singapore - 2,22,36,500 22236500 6% 1334190 Transpole Logistics, - Opening – 1,24,26,000 12426000 6% 745560 5 ITA No.6166/Del./2017 Hongkong Closing Nil Transpole Logistics, Malaysia - Opening – 91,74,600 Closing-Nil 9174600 6% 550476 Transpole Logistics, Korea - Opening-Nil Closing – 1,31,68,100 13168100 6% 790086 Transpole Logistics Holdings, Hongkong - Opening – 1,26,50,000 Closing – 4,85,21,000 48521000 6% 2911260 Total 2,06,82,092 8. Before us, ld. Counsel for the assessee on the issue of guarantee commission, apart from stating that it was not an international transaction and there is not an impact on the profit, income, loss or assets of either of the company due to this transaction based on certain judgments cited before us, ultimately agreed that commission on corporate guarantee as charged by the TPO is much higher. It was stated that, now there are umpteen numbers of judgments wherein it has been held that bank rates cannot be considered as a comparable arm’s length rate to corporate guarantee rate, for which reliance was placed on the following decisions where 0.5% guarantee commission has been held to be reasonable :- S. No. Case law Citation Rate 1 Dabur India Ltd. vs. ACIT TS-82-ITAT-2021(DEL)-TP 0.30% 2 Manugraph India Ltd. vs. DCIT TS-113-ITAT-2015(MUM)-TP 0.50% 3 Everest Kanto Cylinders vs. DCIT 58 taxmann.com 254 (BOM HC) 0.50% 4 Asian Paints Ltd. (upheld by TS-297-ITAT-2013(MUM)-TP 0.20% 6 ITA No.6166/Del./2017 Bombay HC) 5 Thomas Cook (India) Ltd. (2016) 69 taxmann.com 443 (Mumbai Trib.) 0.50% 6 Godrej Household Products Ltd. (2014) 41 taxmann.com 386 (Mum.- Trib.) 0.50% 7 Nimbus Communication Ltd. 42 taxmann.com 139 (Mum) 0.50% 8 M/s. Reliance Industries Ltd. TS-260-ITAT-2013 (MUM)-TP 0.38% 9 Prolifics Corporation Ltd., Hyderabad ITA No.237/Hyd./2014 0.53% 9. On the issue of interest, ld. counsel for the assessee submitted that TPO/DRP has added higher rate of interest i.e. LIBOR + 550 BPS for calculating interest on loan to subsidiaries and stated that suitable benchmark is only to be taken as LIBOR as held by Hon’ble Delhi High Court in the case of CIT vs. Cotton Naturals (I) Pvt. Ltd. 55 taxmann.com 523. In any case, it is stated that if at all, in order to take risk adjustment, at best it would be added at 2% and not 5.5% as has been held in the case of Tata Autocomp Systems Ltd. 374 ITR 516. He further relied upon the following judgments wherein following rates have been applied :- S.No. Case Law Citation Rate Established 1 Aithent Technologies Pvt. Ltd. TS-8-ITAT-2021 (DEL)-TP Libor + 1.7% 2 Aithent Technologies Pvt. Ltd. ITA No.6076/Del/2016 Libor + 1.7% 3 Manugraph India Ltd. vs. DCIT TS-113-ITAT-2015 (MUM)-TP Libor + 2% 4 ACIT VS. CCL Products Ltd. ITA 192 7 193/Vizag/2017 2% interest considered at arm’s length 5 Siva Industries & Holdings Ltd. vs. ACIT (2012) 145 TTJ 197 (Chennai) Libor+ 1.58% 6 UFO Moviez India Ltd. [TS-883-HC-2016 (DEL)-TP] Libor+ 2.47% 7 Everest Kanto Cylinders vs. DCIT ITA No.550/Mum/2014 Libor + 2% 8 PMP Auto Components P. Ltd. ITA No.1484/Mum/2014 Libor + 2% 9 Tata Autocomp Systems Ltd. 374 ITR 516/56 taxmann.com 206 Euribor+0.8% 10 Kohinoor Foods Ltd. (2014) ITA Nos.3688- 3691/Del/2012 Libor + 0% 7 ITA No.6166/Del./2017 10. On the other hand, ld. DR for the Revenue strongly relied upon the order of the DRP stating that detailed reasoning has been given for confirming the TPO action. 11. We have heard the rival submission and also perused the relevant finding given in the impugned orders. The controversy before us which has been argued by the parties is limited to, whether how much guarantee commission should be charged for providing guarantee to AE and how much interest should be charged on the loan given to AEs. Insofar as guarantee commission is concerned, admittedly assessee has not shown any commission, however the argument that guarantee commission of 4.56% charged by the TPO is on higher side and external CUP for using the data from the guarantee profit by the bank cannot be used in intra-group guarantees appears to be acceptable on the facts of the case. We find that there has been consistent view by various Benches of the Tribunal and Hon’ble Bombay High Court in the case of Everest Kanto Cylinders 58 taxmann.com 254 and Glenmark Pharmaceuticals Ltd. 43 taxmann.com 191 (supra)wherein 0.5% of the guarantee commission has been held to be at arm’s length. Accordingly, respectfully following the aforesaid decisions which is also in consistent with various decision of the coordinate Benches of the Tribunal as cited supra, we hold that the guarantee commission of 0.5% will be at arm’s length and accordingly, TPO 8 ITA No.6166/Del./2017 is directed to make the adjustment for taking the guarantee commission @ 0.5%. Accordingly, grounds no.1 & 2 are partly allowed. 12. Insofar as the issue of adjustment on account of interest, the TPO/DRP has held that LIBOR + 550 BPS on interest free loan advanced to AEs should be at arm’s length price. It is not in dispute that assessee has not charged any interest on loan given to foreign AEs. Application of LIBOR should be a suitable benchmark which also has been admitted by the TPO. However, he has added 5.5% over and above LIBOR which on the facts and circumstances of the case is much higher. Looking to the fact that in most the cases, the coordinate Benches of the Tribunal have held that 1 to 2% is sufficient over and above the LIBOR rate to meet the arm’s length price. Accordingly, we direct TPO to apply LIBOR + 2% for benchmarking the interest rate which should meet the arm’s length price. Accordingly, grounds no.3 & 5 are partly allowed. 13. Ground no.4 is not pressed, hence the same is dismissed as not pressed. 14. In the result, the appeal filed by the assessee is partly allowed. Order was pronounced on 6 th day of May, 2022. Sd/- sd/- (DR. B.R.R. KUMAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 06.05.2022 TS 9 ITA No.6166/Del./2017 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A) 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.