Jubilant Energy Pvt. Ltd. (Now known as JE Energy Ventures Pvt. Ltd.), Noida V. ACIT, Circle-1, Noida

ITA 7602/DEL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7365 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 19-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Revised return
• Section: 271(1)(c); 92D; 92B; 234B; 14A; 10B; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE HONBLE VICE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.7602/DEL./2017 (ASSESSMENT YEAR : 2013--14) M/S. JE ENERGY VENTURE PRIVATE LTD., VS. ACIT, CIR CLE 1, (FORMERLY KNOWN AS JUBILANT ENERGY PVT. LTD.) NOID A. PLOT NO.1A, INSTITUTIONAL AREA, SECTOR 16A, NOIDA 201 301 (UTTAR PRADESH) (PAN : AAACE0653L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.M. GUPTA, ADVOCATE REVENUE BY : SHRI SANJAY I. BARA, CIT DR DATE OF HEARING : 19.11.2018 DATE OF ORDER : 15.01.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. JE ENERGY VENTURE PRIVATE LIMIT ED (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 24.10.2017 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2013-14 ON THE GROUNDS INTER ALIA THAT :- ITA NO.7602/DEL/2017 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER (LD. AO)/ LEARNE D TRANSFER PRICING OFFICER (LD. TPO') [IN PURSUANCE T O THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL (LD. DRP')], ERRED IN NOT ACCEPTING THE RETURNED INCOME OF THE APPELLANT AMOUNTING TO RS.16,52,19,000/- AND ENHANC ING THE SAME BY RS.20,57,19,110/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN CONFI RMING THE ADDITION OF RS.20,09,07,000/- TO THE INCOME OF THE APPELLANT PROPOSED BY THE LD. TPO BY HOLDING THAT PROVISION OF CORPORATE GUARANTEE TO ITS ASSOCIATED ENTERPRISE (AE') DO NOT SATISFY THE ARM'S LENGTH P RINCIPLE ENVISAGED UNDER THE INCOME TAX ACT, 1961 C THE ACT' ) AND IN DOING SO, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN UPHOLDING THE LD. TPO'S ACTION OF: 2.1. CONSIDERING PROVISION OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION U/S 92B OF THE ACT; 2.2. INCORRECTLY HOLDING THAT THE APPELLANT HAS UNDERTAKEN RISK ON BEHALF OF ITS AES AND THERE IS AN INHERENT COST IN GIVING CORPORATE GUARANTEES FOR WHICH THE APPELLANT SHOULD HAVE CHARGED A CONSIDERATION; 2.3. DISREGARDING THE FACT THAT THE PROVISION OF CORPORATE GUARANTEE TO THE AE WAS IN THE NATURE OF SHAREHOLDER SERVICE; 2.4. DISREGARDING THE FACT THAT III THE ABSENCE OF THE CORPORATE GUARANTEE PROVIDED, THE APPELLANT BEING THE HOLDING COMPANY WOULD HAVE PROVIDED THE FUNDS TO THE SUBSIDIARY BY INCREASING THE SHARE CAPITAL, AND THUS THE GUARANTEE PROVIDED SHOULD BE TREATED AS QUASI- EQUITY IN NATURE FOR WHICH ARM'S LENGTH COMPENSATION IS NOT REQUIRED; 2.5. DISREGARDING THE DETAILED AND PROPER COMPARABILITY ANALYSIS SUBMITTED BY THE APPELLANT FOLLOWING THE 'INTEREST SAVED' APPROACH; ITA NO.7602/DEL/2017 3 2.6. IMPUTING THE CORPORATE GUARANTEE COMMISSION OF 1.50% BASED ON THE AVERAGE OF GUARANTEE COMMISSION RATES OF VARIOUS BANKS WITHOUT APPRECIATING THE FACT THAT THE SAME DID NOT CONSTITUTE A VALID COMPARABLE UNCONTROLLED PRICE (CUP'); 2.7. DISREGARDING THE APPELLANT'S CONTENTION THAT BANK GUARANTEE CANNOT BE CONSIDERED COMPARABLE TO CORPORATE GUARANTEE AND ADJUSTMENTS ARE REQUIRED TO NULLIFY THE DIFFERENCES BETWEEN THE TWO; AND 2.8. DISREGARDING THE JUDICIAL PRECEDENTS SUBMITTED BY THE APPELLANT ON CORPORATE GUARANTEE. 3. NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE ABO VE GROUNDS, THE LD. TPO ERRED IN HOLDING THAT THERE WE RE NO PROPER DIRECTIONS FROM HON'BLE DRP AND IN TURN ALSO ERRED BY NOT FOLLOWING THE HONBLE DRPS DIRECTIONS ON RE STRICTING THE ADJUSTMENT BASIS ARMS LENGTH CORPORATE GUARANT EE COMMISSION OF 1.50%, WHEREBY VIOLATING THE PROVISIO NS OF SECTION 144C OF THE ACT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN CONFIRMING ADDITION OF RS.48,12,110/- TO THE INCOME OF THE APP ELLANT PERTAINING TO PAYMENT OF INTEREST ON INTER-CORPORAT E DEPOSIT/LOAN FROM ITS RELATED PARTY DOES NOT SATISF Y THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOI NG SO, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN UPHOLDING THE LD. TPO'S ACTION OF: 4.1. DISREGARDING THE ARM'S LENGTH PRICE AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RULES, 1962; 4.2. INCORRECTLY HOLDING THAT THE APPELLANT DID NO T HAVE A SIMILAR TRANSACTION WITH THIRD PARTIES IN INDIA AND NOT CONSIDERING THE INTERNAL CUP APPLIED BY THE APPELLANT; 4.3. COMPARING THE RETURN EARNED BY THE APPELLANT WITH RETURN EARNED BY INVESTING IN CORPORATE ITA NO.7602/DEL/2017 4 BONDS AND APPLYING THE PRIME LENDING RATE OF STATE BANK OF INDIA , THEREBY RESULTING IN AN ERRONEOUS APPLICATION OF CUP METHOD; 4.4. ERRED IN COMPUTING THE ADJUSTMENT AMOUNT BY REDUCING THE AMOUNT OF INTEREST EXPENDITURE EARLIER DISALLOWED UNDER SECTION 14A. IN THIS REGARD, THE LD. TPO ERRED IN DISREGARDING THE REVISED RETURN OF INCOME: AND 4.5. ERRONEOUSLY COMPUTING THE ADJUSTMENT AMOUNT UNDER SECTION 92CA OF THE ACT. 5. THE LD. AO HAS GROSSLY ERRED IN CHARGING INTERE ST UNDER SECTION 234B AND 234C OF THE ACT; 6. THE LD. AO HAS GROSSLY ERRED IN INITIATING PENAL TY UNDER SECTION 271(1)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. JE ENERGY VENTURE PR IVATE LIMITED, THE TAXPAYER IS A STRATEGIC VENTURE BUSINESS SEGM ENT OF JUBILANT BHARTIA GROUP. THE TAXPAYER THROUGH ITS ALLIANCES WITH INTERNATIONAL COMPANIES PROVIDES BUSINESS, MARKETIN G AND TECHNICAL SUPPORT RELATED TO OIL AND GAS SERVICES, POWER AND INFRASTRUCTURE, FINANCIAL SERVICES, TRADING, HOMELAND & MEGA CITY S ECURITY SYSTEMS AND AVIATION RELATED SERVICES (SALES, MAINTENANCE O F AIRCRAFTS AND HELICOPTERS). THE TAXPAYER IS THE ULTIMATE HOLDING COMPANY HAVING 100% SHARE OF JUBILANT ENERGY HOLDINGS BV (JEHBV). JEHBV HOLDS 84.02% SHARES OF JUBILANT ENERGY NV (JENV) WH ICH INDIRECTLY HOLDS 100% SHARE IN INDIAN SUBSIDIARIES. ITA NO.7602/DEL/2017 5 3. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL AND SPECIFIC DOMESTIC TRANSACTIONS (S DTS) WITH ITS AE AS UNDER :- NO. NATURE OF TRANSACTION METHOD VALUE OF TRANSACTION (IN RS.) 1 RECEIPT OF GUARANTEE COMMISSION INCOME OTHER METHOD (AS PRESCRIBED BY RULE 10AB) 27,000,000 2 INVESTMENT IN CUMULATIVE PREFERENCE SHARES 615,986,250 3 REDEMPTION OF CUMULATIVE PREFERENCE SHARES 655,560,000 4 PAYMENT OF INTEREST ON INTER CORPORATE LOAN/ DEPOSIT CUP 25,787,268 4. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS QUA PROVISIONS OF CORPORATE GUARANTEE APPLIED OTHER METHOD AS MOST APPROPRIATE METHOD (MAM) AND APPLIED COMPARABLE UNCONTROLLED PRICE (CUP) METHOD TO BENCH MARK ITS SDTS OF PAYMENT OF INTEREST ON INTER-CORPORATE LOAN . THE TAXPAYER BY TREATING ITS TRANSACTION QUA PROVIDING SERVICE O F CORPORATE GUARANTEE AS ITS SHAREHOLDER ACTIVITY, FOUND THE SA ME AT ARMS LENGTH PRICE (ALP). THE TAXPAYER FOUND ITS TRANSAC TION QUA PAYMENT OF INTEREST (SDT) AT ALP ON THE GROUND THAT THE INTEREST RATE PAID BY THE TAXPAYER TO ITS DOMESTIC RELATED P ARTY IS LESS THAN THE INTEREST RATE PAID TO AN UNRELATED LENDER. ITA NO.7602/DEL/2017 6 5. HOWEVER, THE LD. TPO IN ORDER TO BENCHMARK ITS I NTERNATIONAL TRANSACTION QUA PROVIDING CORPORATE GUARANTEE APPLI ED CUP AS THE MAM BY CALLING DATA FROM VARIOUS BANKS U/S 133 (6) OF THE ACT AND ENHANCED THE INCOME OF THE TAXPAYER BY RS.40,84 ,82,000/- ON ACCOUNT OF ALP. THE LD. TPO ALSO REJECTED THE INTE RNAL CUP APPLIED BY THE TAXPAYER TO BENCHMARK ITS SDT AND CO MPARED THE RETURN OF THE TAXPAYER WITH PRIME LENDING RATE OF S TATE BANK OF INDIA AND THEREBY ENHANCED THE INCOME OF THE TAXPAY ER BY RS.84,29,350/- ON ACCOUNT OF ALP. 6. THE TAXPAYER CARRIED THE MATTER BY WAY OF FILING OBJECTIONS BEFORE THE LD. DRP WHO HAS GIVEN PART RELIEF BY ISS UING DIRECTIONS TO THE TPO TO REVISE THE ADJUSTMENT OF RS.40,84,82, 000/- AND RS.84,29,350/- ON ACCOUNT OF CORPORATE GUARANTEE FE E AND WITH RESPECT TO INTEREST TO RS.20,09,07,000/- AND RS.48, 12,110/- RESPECTIVELY. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.7602/DEL/2017 7 8. BY MOVING A SEPARATE APPLICATION, ASSESSEE COMPA NY SOUGHT TO RAISE ADDITIONAL GROUNDS ON THE GROUND THAT THE SAME GO TO THE ROOT OF THE CASE WHICH ARE AS UNDER :- GROUND NO.7 : 7.1 THAT IN THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER (AO) / TRANSFER PRICING OFFICER (TPO) HAS ERRED IN DISREGARDING T HE EXCLUSION OF DISALLOWANCE U/S 14A OF THE ACT MADE BY THE APPE LLANT THROUGH ITS ORIGINAL RETURN OF INCOME WHICH IS SUBS EQUENTLY WITHDRAWN BY WAY OF LETTER DATED OCTOBER 12, 2017 I N ACCORDANCE WITH JUDICIAL PRECEDENTS AND FACTS OF THE CASE. 7.2. WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, DISALLOWANCE SHOULD NOT BE MAD E ON SUCH INVESTMENTS WHERE NO EXEMPT INCOME HAS BEEN EARNED BY THE APPELLANT. 7.3. WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW, DISALLOWANCE SHOULD BE RESTRIC TED TO THE EXEMPT INCOME EARNED BY THE APPELLANT DURING THE YE AR. 9. KEEPING IN VIEW THE FACT THAT THE ADDITIONAL GRO UND SOUGHT TO BE RAISED BY THE ASSESSEE COMPANY, THOUGH NOT RAISE D BEFORE THE LD. CIT (A), IS NECESSARY FOR COMPLETE ADJUDICATION OF THE CONTROVERSY AT HAND, THE APPLICATION FOR ADDITIONAL GROUNDS IS HEREBY ALLOWED. 10. UNDISPUTEDLY, THIS IS FIRST YEAR OF DISPUTE FOR ENHANCING INCOME OF THE TAXPAYER ON ACCOUNT OF ALP. IT IS AL SO NOT IN DISPUTE THAT THE TAXPAYER IS A PARENT COMPANY. IT IS ALSO NOT IN DISPUTE THAT THE LD. TPO HAS APPLIED THE BANK GUARANTEE RATE IN ORDER TO DECIDE THE ISSUE AS TO TRANSACTION OF PROVISION OF CORPORA TE GUARANTEE BY TREATING AS A LENDING BUSINESS. IT IS ALSO NOT IN DISPUTE THAT THE LD. DRP VIDE ORDER DATED DECEMBER 5, 2017 PASSED ON THE BASIS OF ITA NO.7602/DEL/2017 8 RECTIFICATION APPLICATION MOVED BY THE TAXPAYER RED UCED THE CORPORATE GUARANTEE COMMISSION RATE FROM 4.60% TO 4 .1% (I.E. 2.60% + 150BPS). 11. UNDISPUTEDLY, IN CASE OF INTERNATIONAL TRANSACT IONS QUA PROVISION OF CORPORATE GUARANTEE, THE BANK HAS ASKE D FOR GUARANTEE BY THE PARENT COMPANY I.E. TAXPAYER. IT IS ALSO NO T IN DISPUTE THAT FOR PAYMENT OF INTEREST, STATED TO BE SDTS, THE INT EREST RATE PAID BY THE TAXPAYER TO ITS DOMESTIC RELATED PARTY IS LESS THAN THE INTEREST RATE PAID TO AN UNRELATED LENDER. DECLINING THE CO NTENTIONS RAISED BY THE TAXPAYER, THE TPO IN ORDER TO APPLY CUP AS T HE MAM COLLECTED DATA FROM VARIOUS BANKS U/S 133 (6) OF TH E ACT WHICH IS AS UNDER :- S.NO. NAME OF BANK BANK GUARANTEE RATES 1. SYNDICATE BANK 2.50% 2. SBI 1.30% 3. PUNJAB & SIND BANK 3% 4. INDUSIND BANK 2% 5. SOUTH INDIAN BANK 3.40% 6. FEDERAL BANK 3% 7. PNB 3% 8. KARUR VYSYA BANK 3% AVERAGE 2.65% 12. SO, CONSEQUENTLY, THE LD. TPO RECOMPUTED THE AD JUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE FEE IN COMPLIANCE TO THE DRPS DIRECTIONS AS UNDER :- ITA NO.7602/DEL/2017 9 S.NO. PARTICULARS AMOUNT (IN RS.) 1. ARMS LENGTH PRICE 227,907,000 2. GUARANTEE COMMISSION RECEIVED FROM AE 27,000,000 ADJUSTMENT U/S 92CA 200,907,000 13. SIMILARLY, IN COMPLIANCE TO THE DIRECTIONS ISSU ED BY THE LD. DRP, THE LD. TPO RECOMPUTED THE ADJUSTMENT BY TAKIN G INTO CONSIDERATION SUO MOTU DISALLOWANCE MADE U/S 14A RE AD WITH RULE 8D QUA SDT PAYMENT OF INTEREST AS UNDER :- S. NO. NATURE OF SPECIFIED DOMESTIC TRANSACTION ALP DETERMINED BY TAXPAYER (INR) AMOUNT ALREADY DISALLOWED BY THE ASSESSEE REVISED ALP DETERMINED BY TAXPAYER (INR) ALP DETERMINED BY THE TPO (INR) USING CUP OF SBI RATES ADJUSTMENT U/S 92CA (INR) 1 INTEREST PAID 7.485125 1.324146 6.160979 6.642190 0.481211 TOTAL 0.481211 14. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES OF THE CASE AND THE ARGUMENTS ADDRESSED BY LD. ARS OF THE PARTIES TO THE APPEAL, GROUND-WISE ISSUES IN CONTROVERSIES ARE DETERMINED AS UNDER. GROUND NO.1 15. GROUND NO.1 IS GENERAL IN NATURE AND DO NOT REQ UIRE ANY ADJUDICATION. ITA NO.7602/DEL/2017 10 GROUNDS NO.2 TO 2.8 & 3 16. THE TAXPAYER IS THE ULTIMATE HOLDING COMPANY, H OLDING 100% SHARES IN JUBILANT ENERGY HOLDINGS BV (JEHBV) AND J EHBV HOLDS 78% SHARES IN JUBILANT ENERGY NV (JENV) WHICH INDIRECTLY HOLDS 100% SHARES IN INDIAN SUBSIDIARY. JENV ENTER ED INTO 2 LOAN AGREEMENTS IN OCTOBER 2007 AND AUGUST 2011 WITH EXI M BANK. FOR THE PURPOSE OF OBTAINING AFORESAID LOANS, THE T AXPAYER PROVIDED A CORPORATE GUARANTEE ON BEHALF OF JENV AND AS PER LOAN AGREEMENT, THE LIABILITY OF THE TAXPAYER IN TERMS O F GUARANTEES WAS NOT TO EXCEED THE AMOUNT REALIZED FROM ALL INVESTME NTS OF THE TAXPAYER IN ITS SUBSIDIARY JEHBV AND THE ASSETS AND INVESTMENTS HELD BY ITS SUBSIDIARY JEHBV OR THROUGH ITS STEP DO WN SUBSIDIARIES. 17. THE LD. AR FOR THE TAXPAYER CHALLENGING THE IMP UGNED ORDER CONTENDED THAT THE PRIMARY GUARANTEE PROVIDED BY TH E TAXPAYER TO JENV IS IN THE NATURE OF DOWNSTREAM GUARANTEE WIT H THE GUARANTEES PROVIDED BY THE PARENT COMPANY FOR THE O BLIGATION OF ITS SUBSIDIARY; THAT THERE IS NO ECONOMIC AND COMMERCIA L BENEFIT TO THE LENDER AS WELL AS BORROWERS; THAT THE PURPOSE OF LO AN WAS INVESTMENT IN INDIAN SUBSIDIARIES; THAT THE LOAN HA S BEEN REPAID BY THE JENV IN THE SUBSEQUENT YEARS; THAT THE GUARANTE ES GIVEN BY THE TAXPAYER AS THE SHAREHOLDER ACTIVITIES; THAT THE PR OVISION OF GUARANTEE IS QUASI-EQUITY TRANSACTION AND THAT THE PROVISION OF ITA NO.7602/DEL/2017 11 GUARANTEE IS NOT COVERED IN THE DEFINITION OF INTER NATIONAL TRANSACTION. 18. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. AR FOR THE TAXPA YER RELIED UPON THE DECISION RENDERED BY THE TPO/DRP AND THE DECISI ON RENDERED BY THE TRIBUNAL IN CASE OF M/S. TECNIMONT ICB PVT. LTD. VS. DCIT ITA NO.6394/MUM/2012 AY 2008-09) . 19. IT IS THE CASE OF THE TAXPAYER THAT SINCE THE T AXPAYER BEING A PARENT COMPANY PROVIDED CORPORATE GUARANTEE, IT IS A SHAREHOLDER ACTIVITIES AND IN SUCH CASES, CUP CANNOT BE APPLIED AND RELIED UPON THE DECISION RENDERED BY THE COORDINATE BENCH OF TH E TRIBUNAL IN GLENMARK PHARMACEUTICALS LTD. VS. ADDL.CIT (ITA NO.5031/M/2012 AY 2008-09) . 20. THE TAXPAYER HAS FURNISHED THE DETAILS OF THE L OANS TAKEN BY ITS AE FOR WHICH IT HAD PROVIDED CORPORATE GUARANTE E, WHICH IS EXTRACTED FOR READY PERUSAL AS UNDER :- DETAILS OF LOANS LOAN 1 LOAN 2 LOAN RECEIPT DATE OCTOBER 10, 2008 AUGUST 17, 2011 SANCTIONED AMOUNT (USD) 50,000,000 50,000,000 PRINCIPAL REPAYMENT AS ON DATE 50,000,000 - DATE OF REPAYMENT 10-JAN-14 NA INTEREST RATE 6 MONTHS LIBOR PLUS 5.5% TO 6 MONTHS LIBOR PLUS 8.5% 6 MONTHS LIBOR PLUS 5.5% TO 6 MONTHS LIBOR PLUS 6% ITA NO.7602/DEL/2017 12 21. THE TAXPAYER ALSO STATED TO HAVE APPLIED THE IN TEREST SAVED APPROACH AND REACHED THE CONCLUSION THAT THERE HAS BEEN NO INTEREST SAVING ON THE LOAN AVAILED OF BY ITS AE AND AS SUCH , NO GUARANTEE FEES PAYABLE BY JENV TO THE TAXPAYER AND TABULATED THE TOTAL INTEREST SAVING IN PARA 2.3, AVAILABLE AT PAGE 392 OF THE PAPER BOOK, WHICH IS EXTRACTED AS UNDER :- PARTICULARS RATE (BPS) THE LIBOR + RATE AT WHICH JENV OBTAINED FUNDS WITH CORPORATE GUARANTEE OF JEPL (A) 550 EXTERNAL COMPARABLE AVERAGE INTEREST RATE OF MARGIN OVER LIBOR (B) 400 OR 475 INTEREST SAVED (B-A) 0 22. IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN FAV OUR OF THE TAXPAYER WHEREIN THE TPO HAD ALSO APPLIED CUP METHO D FOR BENCHMARKING THE TRANSACTIONS RELATING TO CORPORATE GUARANTEE, BY THE COORDINATE BENCH OF THE TRIBUNAL IN GLENMARK PHARMACEUTICALS LTD. (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 23. IT IS IN THIS BACKGROUND, WE TAKE OUT SOME TI ME TO DISTINGUISH THESE TYPES OF GUARANTEES. NORMALLY, THE BANK GUARA NTEE OR CORPORATE GUARANTEE IS GIVEN BY A BANK OR THE COMPA NY AS THE CASE MAY BE TO THE FINANCING BANK FOR ACKNOWLEDGING OBLI GATION TO THE TERMS OF CONTRACT. BANK GUARANTEE IS PROVIDED BY TH E COMPANY'S BANKER ON BEHALF OF THE COMPANY FOR A CERTAIN SUM O F MONEY TO THE CUSTOMER. IF ALL THE TERMS OF THE CONTRACT IS NOT F ULFILLED BY THE COMPANY THEN THE CUSTOMER CAN CLAIM THAT AMOUNT FRO M THE BANK AND THE BANK IS OBLIGATED TO PAY AND RECOVER FROM T HE COMPANY. BANK GUARANTEE IS A FOOLPROOF INSTRUMENT OF SECURIT Y FOR THE CUSTOMER AND FAILURE TO HONOR THE GUARANTEE IS TREA TED AS DEFICIENCY OF SERVICES OF THE BANK UNDER THE BANKING LAWS. ON THE OTHER HAND, THE CG - CORPORATE GUARANTEE IS PROVIDED BY THE COM PANY EITHER TO THE CUSTOMER FOR THE SAME OR TO THE BANK FOR GIVING LOANS TO THE ITA NO.7602/DEL/2017 13 SISTER CONCERNS/AES OF THE SAID COMPANY; BUT IT IS NOT FOOLPROOF. FAILURE TO HONOR THE GUARANTEE MAY ATTRACT CONTRACT LAWS AND IT IS HOWEVER A LEGALLY VALID DOCUMENT AND THE CUSTOMER/B ANK CAN SUE THE COMPANY IN COURT IF IT DOES NOT PAY UP. IN THE CORPORATE GUARANTY, A GUARANTEE OF PAYMENT IS MADE BY A CORPO RATION ON BEHALF OF ANOTHER BUSINESS ENTITY. THE GUARANTEE IS PROVIDED IN CONSIDERATION OF A VENDOR PROVIDING CREDIT TO A BUS INESS ON WHOSE BEHALF THE GUARANTEE IS MADE. IN THE BANK GUARANTY, A SURETY, SURETY BOND OR GUARANTY, IN FINANCE, IS A PROMISE BY ONE P ARTY TO ASSUME RESPONSIBILITY FOR THE DEBT OBLIGATION OF A BORROWE R IF THAT BORROWER DEFAULTS. THE PERSON OR COMPANY PROVIDING THIS PROM ISE IS ALSO KNOWN AS A 'SURETY' OR AS A 'GUARANTOR'. UNDER BANK ING REGULATION, THE CASE OF DISHONORED GUARANTY IS CONS IDERED AS SERVICE DEFICIENCY. IN FIXING THE CHARGES, THE TYPE OF GUAR ANTEE, TRACK RECORD OF CUSTOMERS AND THEIR FINANCIAL POSITION ARE THE G UIDING FACTORS IN DECIDING THE GUARANTEE LIMIT, SECURITY AND MARGIN A RE OFTEN CONSIDERED ON CASE TO CASE BASIS. THEREFORE, THERE IS CONCEPTUAL DIFFERENCES IN THESE TWO TYPES OF THE GUARANTEES. H ENCE, TPO'S ARE NOT JUSTIFIED IN MECHANICALLY PICKING UP THE BG RAT ES AS THE EXTERNAL/INTERNAL CUPS, AS THE CASE MAY BE. YES, TH EY MAY TURN OUT TO BE APPROPRIATE GOOD CUPS IF THEY ARE PROPERLY BENCH MARKED AFTER MAKING DUE ADJUSTMENTS IN ACCORDANCE WITH THE PROVI SIONS OF THE RELEVANT RULES 10B (RELATING TO CUP METHOD) OF THE INCOME TAX RULES, 1962. SINCE THE TPOS HAVE NOT BEEN BENCHING THE NAK ED QUOTES OF THE BG RATES WITH PROPER AND SUSTAINABLE ADJUSTMENT S, TRIBUNAL IS CONSTANTLY DISAPPROVING THE SAID QUOTES. THE CASE O F TECNIMONT ICB (P.) LTD. (SUPRA) IS AN ABERRATION AND THE BACKGROU ND FACTS THIS CASE ARE DISTINGUISHABLE. THEREFORE, UNLESS THE 'NAKED Q UOTES' OF THE BANK GUARANTEE RATES AS GIVEN IN THE WEBSITES FOR PUBLIC , ARE ADJUSTED TO VARIOUS CONTROLLING FACTOR NARRATED ABOVE, THESE RA TES ARE NO GOOD CUPS. AO/TPO/CIT(A) HAVE NOT PROVIDED ADJUSTMENTS T O SUCH FACTORS IN BENCHMARKING THE IMPUGNED INTERNATIONAL TRANSACTIONS. DISCUSSION ON THE TRIBUNAL ORDERS ON THE CORPORATE GUARANTEE RATE- CGR: A. ASIA PAINTS LTD - ORDER OF THE TRIBUNAL: WE SHALL FIRST TAKE UP THE FACTS RELATING TO THE CASE OF CGR AND THE DECISION IN THE CASE (ITA NO. 408 & 1937/M/2010). IN THIS CASE, ASIA PAINTS L TD. (SUPRA) GAVE A CORPORATE GUARANTEE TO HSBC BANK, S INGAPORE AND CITIBANK, SINGAPORE IN CONNECTION WITH LOANS GRANTE D BY THE BANK TO ITS AE (BERGER INTERNATIONAL LTD). 0.35% AND NIL ARE THE GUARANTEE RATE CHARGED BY THE HSBC AND CITIBANK OF INDIA IN YEAR 2004-2005. THUS, IT IS THE CASE OF CHARGE OF CG BY TH E INDIAN BRANCHES OF THE BANK ON THE ASSESSEE FOR PROVIDING GUARANTEE TO THE FOREIGN BANKS. ON THESE FACTS, THE TPO REJECTED THE SAID RATES AND PICKED THE 'NAKED QUOTES' AT 3% AVAILABLE IN THE WE BSITE OF ICICI BANK. TPO ALSO CONSIDERED THE GUARANTEE COMMIS SION RATES OF (I) ALLAHABAD BANK, (II) HSBC BANK (III) ICICI AND (IV) DUTCH STATE/FMO - ROBO INDIA FINANCE LTD AND REJECTED THE SAME BY ITA NO.7602/DEL/2017 14 HOLDING THAT THE SAME IS UNSUSTAINABLE. CIT(A) REAS ONED THAT BANK COMMISSION RATE NEVER HIGHER THEM THE INTEREST RATE S C HARGED ON THE LOANS. HE, HOWEVER, DELETED THE ADDITION IN THI S CASE. THE SAME CONFIRMED BY THE TRIBUNAL VIDE ITS ORDER DATED 31.1 0.2011 AND THE RELEVANT PORTION FROM THE SAID ORDER OF THE TRIBUNA L (PARA 38) READS AS UNDER: '38.... THEREFORE, IN VIEW OF THE ABOVE FACTS OF THE 'NAKED QUOTE' AVAILABLE IN THE WEBSITE OF THE ALLAHABAD BANK, HSB C BANK AND ICICI BANK, WHERE EVEN THE REPORT ITSELF INDICATE T HAT THE RATES VARIED FROM 0.15% TO 3%. IN VIEW OF THE FACTS OF TH E CASE,.... THERE IS NO NEED TO MAKE ANY ADJUSTMENT IN THE TRANSFER PRICING ... AND THE ORDER OF THE CIT(A) REQUIRED TO BE CONFIRMED. ACCOR DINGLY, THE GROUND RAISED BY THE REVENUE IS REJECTED.' B. RELIANCE INDUSTRIES LTD. (ITA NO.4475/M/2007 & OTHE RS) (AYS2003-04 TO 2005-06)). BENCHMARKI NG OF CGC RATE IS THE ISSUE IN THIS CASE TOO FOR TH E AY 2003- 2004, ASSESSEE PROVIDED A CORPORATE GUARANTEE TO BA NK OF AMERICA IN CONNECTION WITH LOANS OF EURO 80 MILLION TAKEN BY ITS AE (I.E., TREVIRA GMBH). PARENT COMPANY DID NOT CHA RGE ANY GUARANTEE COMM ISSION TO TREVIRA GMBH. HERE ALSO, LD TPO DID NOT ACCEPTED THE SAME AND AGAIN RELIED ON THE TRANS ACTIONS WITH ROBO INDIA FINANCE PVT LTD, WHERE 2.5% OF GRANTEE C OMMISSION WAS CHARGED BY THE DUTCH STATE FMO. DURING THE ASSE SSMENT IT, ASSESSEE CITED BGR OF I CICI WITH GUARANTEE COMMISSION RATE OF 0.25%. HOWEVER, FOR TPO, 2.5% OF THE GUARANTEE COMM ISSION OF EURO 80 MILLION IS AT ARM'S LENGTH PRICE AND MADE A DDITION OF RS. 11.27 CRS IN THIS CASE. ASSESSEE TOOK AN ARGUMENT T HAT IT IS THE RESPONSIBILITY OF THE PAR ENT COMPANY TO PROVIDE GUARANTEE TO ITS SUBSIDIARIES / AES, THEREFORE, IN PRINCIPLE, NO COM MISSION IS CHARGEABLE. IN THIS CASE, ASSESSEE ALSO RELIED ON T HE GUARANTEE COMMISSION RATE OF BANK OF INDIA, WHICH VARIES 0.25 % TO 0.6%. THE GUARANTEE COMMISSION SHO ULD NEVER EXCEED 0.25% IN ANY CASE AND RELIED ON THE BANK GUARANTEE RATES OF HSBC BANK, HD FC BANK, ICICI BANK, ABN AMRO BANK, STANDARD CHARTERED BANK, BANK OF AMERICA ETC. AT THE END, CIT(A) DISMISSED THE TP O'S GUARANTEE COMMISSION RATE OF 2.% AND BENCHMAR KED THE INTERNATIONAL TRANSACTIONS APPLYING THE RATE OF 0.38% INSTEAD OF 2.5%. THE TRIBUNAL CONFIRMED THE SAME AND PARAS 52.10 TO 52.1 2 OF THE ORDER OF THE TRIBUNAL DATED 13.9.2013 ARE RELEVANT IN THI S REGARD. RELEVANT PARAS 52.10 TO 52.12 OF THE ORDER OF THE TRIBUNAL READ AS UNDER: '52.10.... HOWEVER, IT IS A FACT THAT WHILE APPLYIN G THE EXTERNAL COMPARABLES, THE TPO HAS NOT BROUGHT OUT ANYTHING O N RECORD THAT UNDER WHICH TERMS AND CONDITIONS AND CIRCUMSTANCES THE SAID PUBLIC COMPANY HAS CHARGED 2.5% R ATE OF GUARANTEE COMMISSION FOR PROVIDING GUARANTEE ON BEHALF OF THE FINANCE CO MPANY. THE CHARGING OF A GUARANTEE COMMISSION DEPENDS UPON TRA NSACTIONS TO ITA NO.7602/DEL/2017 15 TRANSACTION AND MUTUAL UNDERSTANDING BETWEEN THE PA RTIES. THERE MAY BY A CASE WHERE BANK MAY NOT CHARG E ANY GUARANTEE COMMISSION, DEPENDING UPON ITS EVALUATION OF RELATI ONSHIP AND WITH A GUARANTEE COMMISSION, DEPENDING UPON ITS EVALUATI ON OF RELATIONSHIP WITH A PARTICULAR CLIENT. THEREFORE, U NIVERSAL APPLICATION OF RATE OF 2.5% FOR GUARANTEE COMMISSIO N CAN NOT BE CONSIDERED A MARKET RATE AS IT LARGELY DEPENDS UPON THE TERMS AND CONDITIONS ON WHICH LOAN HAS BEEN GIVEN, RISK UNDER TAKEN, RELATIONSHIP BETWEEN BANK AND THE CLIENT, ECONOMIC AND BUSINESS INTEREST ETC. IN THE CASE, BEFORE US WHEN THE ASSES SEE HAS IT SELF PAID GUARANTEE COMMISSION AT THE RATE VARYING FROM 0.25% TO 0.6% PER ANNUM TO THIRD PARTY AND CONSIDERING THE FACT THAT THE ASSESSEE HAS STATED THAT IT HAS NOT INCURRED ANY COST FOR PROVID ING GUARANTEE TO THE BANK FOR THE LOAN GIVEN TO ITS SUBSIDIARY, WE ARE OF THE CONSIDERED VIEW THAT APPLYING THE RATE OF 2.5% BY T PO BASED ON EXTERNAL COMPARABLES IS NOT JUSTIFIABLE AND CANNOT BE CONFIRMED. 52.11. 52.12. WE ARE OF THE CONSIDERED VIEW THAT THE LD CI T(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE HAS RIGHTLY TAKEN AVERAGE RATE ON WHICH THE ASSESSEE HAS PAID GUARANTEE COMMISSION TO THIRD PARTY, WHICH COMES TO 0.38%. HENCE, WE UPHOLD THE O RDER OF THE CIT(A) TO CHARGE GUARANTEE COMMISSION AT THE RATE O F 0.38% BEING ALP FOR GUARANTEE GIVEN BY THE ASSE SSEE TO BANK OF AMERICA ON BEHALF OF ITS AE TREVIRA GMBH. IN VIEW OF THE ABOVE , WE REJECT GROUND NO.9 OF THE APPEAL TAKEN BY ASSESSEE AS WELL AS GROUND NO. 6 OF THE APPEAL TAKEN BY THE DEPARTMENT.' C. EVEREST KANTO CYLINDER LTD. (ITA NO.542/M/2012)(AY 2007-08) THIS IS THE CASE WHERE THE ASSESSEE PROVIDED THE CO RPORATE GUARANTEES TO THE BANK OF BAHRAIN FOR OBTAINING THE WORKING CAPITAL FACILITIES TO ITS SISTER CONCERNS UP TO USD 5 MILLION AND ALSO FOR ITTING CAPITAL LOANS. ASSESSEE CHARGED 0.5% AS GUA RANTEE COMMISSION FROM ITS SUBSIDIARY. HOLDING THE SAID CG C RATE IS NOT AT ALP, LD TPO PICKED UP BGCR OF ALLAHABAD BANK, DUTCH STATE FMO - ROBO INDIA FINANCE (P.) LTD. (SUPRA) AND BENCHMARKE D THE TRANSACTIONS @ 3% AGAINST THE ASSESSEE'S GUARANTEE RATE OF 0. 5%. CIT(A) HELD THAT THE GUARANTEE RATE CHARGED BY THE ASSESSEE HAVE TO BE SEEN FROM THE PERSPECTIVE OF THE INTERNATIONAL T RANSACTIONS AND HELD THAT THE BGCR OF 3% IS GOOD COMPARABLE I.E. 'I NCOMPARABLE UNCONTROLLED PRICE' - IUP. FINALLY, RELYING ON THE DEC ISION OF MUMBAI BENCH, ITAT IN THE CASE OF ASIA PAINTS LTD. (SUPRA) AND OTHER DECISIONS OF THE TRIBUNAL HELD THAT THE GUARA NTEE COMMISSION OF 0.5% IS AT ARM'S LENGTH. THE DECISION OF THE TRI BUNAL IS GIVEN VIDE PARA 21 OF ITS ORDER DATED, 23.11.2012 AND THE RELEVANT PORTION FROM THE SAID PARA READS AS UNDER; '21.... THUS, ON THESE FACTS, WE DO NOT FIND ANY RE ASON TO UPHOLD ANY KIND OF UPWARD ADJUSTMENT IN ALP IN RELATION TO CHARGING OF ITA NO.7602/DEL/2017 16 GUARANTEE COMMISSION. HENCE, THE ADDITION OF RS, 28 ,50,353/- ON ACCOU NT OF TP ADJUSTMENT ON GUARANTEE COMMISSION IS HERE BY DELETED AND THE ORDER OF THE CIT(A) IS SET ASIDE... .' FROM THE ABOVE ORDERS OF THE TRIBUNAL, IT IS ADEQUA TELY CLEAR THAT THE 'NAKED QUOTES' OF THE BANK GUARANTEE COMMISSION RAT ES KEPT IN THE WEBSITE OF THE BANKS SHOULD NOT BE APPLIED IN THE T P STUDIES WITHOUT ADJUSTMENTS TO VARIOUS FACTORS OF THE TRANSACTIONS. THESE FACTORS MAY BE RISK RELATED ONES, TIME RELATED GUARANTEED AMOUN T, FINANCIAL STRENGTH OF THE AES, BACKGROUND OF THE CUSTOMERS AN D THE RELATIONSHIP OF THE AES WITH THE PARENTAL COMPANIES ETC. THE ADDITIONS MADE ARE LEGALLY UNSUSTAINABLE, IF THE AD DITIONS ARE MADE SOLELY BASED ON THE WEBSITE INFORMATION OF THE BANK S, IN PRINCIPLE, BANK GUARANTEES (IN SHORT - BG) ARE DIFFERENT FROM THAT OF THE CORPORATE GUARANTEE. THOUGH UNTESTED IN THIS CASE, IN OUR PRIMA FACIE OPINION, A BANK GUARANTEE COMPARABLE MAY NOT CLEAR THE TEST OF FAR ANALYSIS, WHICH APPLIES EQUALLY AND RELEVANT FOR THE CUP METHOD OF ALP STUDIES. RELIANCE IS PLACED IN THE CA SE OF ARVIND MILLS LTD. V. ASSTT. CIT [2011] 11 TAXMANN.COM 67 (AHD.) . THE COMMERCIAL CONSIDERATIONS ARE PARAMOUNT IN FIXING THE CHARGES WHEN PROVIDING GUARANTEES TO ITS CUSTOMERS. ON THE OTHER HAND, A C ORPORATE GUARANTEE OPERATES NOT FOR BUSINESS CONSIDERATIONS BUT TO PROVIDE ADEQUATE SAFEGUARDS FOR THE FINANCIAL HEALTH OF ITS SISTER CONCERNS / AES, GUARANTOR, LIKE THE PRESENT ASSESSEE, SOMETIME S DUTY-BOUND TO PROVIDE GUARANTEE TO THE LOANS GIVEN BY THE FINANCI AL INSTITUTIONS TO THE SISTER CONCERNS ABROAD, BANK RATES ARE MOSTLY C USTOMER-SPECIFIC AND THEY VARY DOWNWARD., IF CASH DEPOSITS EQUALLENT OF LOAN ARE GIVEN TO THE BANK. THUS, COMPARING THE BANK GUARANTEE COM MISSION TRANSACTIONS WITH THE THAT OF THE CORPORATE BANK GU ARANTEE TRANSACTIONS IS PRIMA FACIE INCORRECT SO LONG AS TH E FAR ANALYSIS IS APPLIED SUCCESSFULLY AND THE CUP ARE APPROPRIATELY ADJUSTED IN ACCORDANCE WITH THE RULE 10B OF THE IT RULES, 1962. THEREFORE, APPLYING THE 'QUOTE' AVAILABLE ON THE WEBSITE OF TH E BANKS WITHOUT MAKING ADJUSTMENTS, DULY NECESSARY, MAKES ALP STUDI ES ERRONEOUS. 24. SUMMARY: THEREFORE, THERE IS NO DISPUTE ON THE USE OF CUP METHOD AS MOST APPROPRIATE METHOD TO THESE GC TRANS ACTIONS. CONTROLLABLE UNCONTROLLED PRICE - CUP METHOD IS APP LIED WHEN A PRICE IS CHARGED FOR A PRODUCT OR SERVICE AND SERVI CE IS THE CASE HERE. FURTHER, ACADEMICALLY, THE CUP CAN BE INTERNAL OR E XTERNAL. INTERNAL CUP, BEING THE COMPARABILITY OF THE SIMILAR TRANSAC TION BETWEEN THE ASSESSEE AND THE UNRELATED PARTY, ARE ADMITTEDLY NO T AVAILABLE TO EITHER PARTIES OF THE DISPUTE. THEREFORE, THE EXPLO RATION IS FOR EXTERNAL CUP REVENUE AUTHORITIES HAVE ROPED IN FOUR, OR SUCH CUPS AND MOSTLY BANKS WITH BANK GUARANTEE TRANSACTION PRICES /RATES. AS DETAILED ABOVE THE GC TRANSACTION RATES AVAILABLE O N THE WEBSITES OF BANK OF INDIA, ALLAHABAD BANK, HSBC, EXIM BANK OF U SA AND THE RABO INDIA FINANCE (P.) LTD, ARE HELD BY THE TR IBUNAL AS NOT ITA NO.7602/DEL/2017 17 GOOD COMPARABLES ON COMPARABLE FACTS. ON THIS FACTS OF THE PRESENT CASE TOO, WE ARE OF THE OPINION, THEY ARE NOT APPRO PRIATE EXTERNAL CUPS. THE 'EXTERNAL CUP' BY DEFINITION IS A PRICE C HARGED IN COMPARABLE UNCONTROLLED PRICE BETWEEN THIRD PARTIES WHEN COMPARED TO THE PRICE OF A CONTROLLED TRANSACTION WITH THE A E. NONE OF THE CUPS USED BY THE TPO FALLS WITHIN THE SAID DEFINITI ON OF EXTERNAL CUP. THUS, THERE ARE NO 'INTERNAL CUP' ON ONE SIDE AND THE CUPS USED BY THE TPO/CIT(A) ARE ALSO OUTSIDE THE SCOPE O F THE DEFINITION OF THE 'EXTERNAL CUP'. FURTHER, AS STATED EARLIER, WE FIND THAT THE 'BANK GUARANTEE' RATES ARE PRACTICALLY DIFFERENT FR OM THAT OF THE 'CORPORATE GUARANTEE' 25. FURTHER, WE FIND THERE ARE VARIOUS GC RATES IN EXISTENCE. WHILE THERE IS GC RATE OF 0.38% WHICH IS APPROVED BY THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD. (SUPRA) THERE IS G C RATE OF 0.5% AS APPROVED BY THE TRIBUNAL IN THE CASE OF EVEREST KAN TO CYLINDERS LTD. (SUPRA) AND ASSTT. CIT V. NIMBUS COMMUNICATIONS LTD . V. [2013] 34 TAXMANN.COM 298/145 ITD 502 (MUM.) THERE IS GC RATE OF 0.25% AS APPROVED BY THE TRIBUNAL IN THE CASE OF THE ASIAN P AINTS LTD. (SUPRA). THE GC RATE OF 3% AS ANNOUNCED BY THE BANK FOR THE BANK GUARANTEE TRANSACTIONS STAND DISMISSED BY TRIBUNAL IN ALL THE ABOVE CASES. REASONS FOR SUCH REJECTION INCLUDE: THESE AR E THE 'NAKED QUOTES'; AND (II) THE SAID 3% IS ALWAYS SUBJECTED T O NEGOTIATIONS BETWEEN THE BANK AND ITS CUSTOMER; (III) TPO HAS NO T PROVIDED ADJUSTMENTS AT ALL BEFORE BENCHMARKING THE IMPUGNED TRANSACTIONS AT 3%, ETC. IN ANY CASE, IT IS OUR OPINION THAT THE BANK GUARANTEE COMMISSION PRICES CANNOT BE USED AS EXTERNAL CUPS T O BENCHMARK THE CORPORATE GUARANTEE COMMISSION PRICES. FURTHER, WE FIND THAT, UNLIKE IN OTHER CASES OF NIL CORPORATE GUARANTEE CO MMISSION, THE PRESENT ASSESSEE HAS CHARGED THE GC RATE OF 0.53% A ND 1.47% FROM ITS AES. THEREFORE, IN OUR OPINION, THESE RATES ARE COMPETENT GIVEN THE FACTS OF THE PRESENT CASE QUA THE RATES DISCUSS ED AND APPROVED BY THE TRIBUNAL IN ADJUDICATING THE OTHER CASES RELATI NG TO THE GUARANTEE COMMISSION TRANSACTIONS BENCHMARKED USING THE CUP METHOD. THEREFORE, THE TPO'S COMPARABLES ARE IUPS' I.E. INCOMPARABLE UNCONTROLLED PRICES. THEREFORE, .WE AR E OF THE OPINION, THE GC RATES OF 0.53% AND 1.47% BENCHMARKED BY THE ASSESSEE ARE FAIR AND REASONABLE AND THEY SHOULD BE ACCEPTED WIT HOUT ANY MODIFICATION. THEREFORE', WE DISMISS THE TPO'S CUP AND ORDER DELETION OF THE ADDITIONS MADE BY THE AO ON ACCOUNT OF TRANSFER PRICING, PROVISIONS. IN THE RESULT, THE ORDER OF TH E CIT(A)/TPO/AO ON THE TP ADJUSTMENTS IS SET ASIDE. THUS, THE GROUNDS 1 TO 5 ARE ALLOWED AS ABOVE. 23. WHEN WE EXAMINE THE FACTS AND CIRCUMSTANCES OF THIS CASE IN THE LIGHT OF THE RATIO OF THE ORDER PASSED BY THE C OORDINATE BENCH OF THE TRIBUNAL IN GLENMARK PHARMACEUTICALS LTD. (SUPRA), WE FIND ITA NO.7602/DEL/2017 18 THAT IN THE INSTANT CASE, TPO HAS USED 8 BANKS FOR APPLYING CUP, CHARGING BANK GUARANTEE TRANSACTION PRICES/RATES SP ECIFICALLY ON BANK GUARANTEE NOT A CORPORATE GUARANTEE AS IN THE INSTANT CASE, WHICH IS CERTAINLY NOT A GOOD COMPARABLE ON THE COM PARABLE FACTS. SO, WE ARE OF THE CONSIDERED VIEW THAT ADOPTION OF 8 BANKS BANK GUARANTEE RATES IN ORDER TO BENCHMARK THE INTERNATI ONAL TRANSACTION QUA CORPORATE GUARANTEE ARE NOT APPROPRIATE EXTERNA L CUPS. SO, THE CUPS USED BY THE TPO DO NOT FALL IN THE DEFINITION OF EXTERNAL CUP. MOREOVER, BANK GUARANTEE RATES CANNOT BE CO MPARED VIS-- VIS WITH CORPORATE GUARANTEE RATES BY ANY STANDARD. SO, THE CONTENTIONS RAISED BY THE TAXPAYER THAT THE RATE CH ARGED IN THE CASE OF BANK GUARANTEE AND CORPORATE GUARANTEE CANNOT BE COMPARED UNDER RULE 10B(2) OF THE INCOME-TAX RULES, 1962 UNL ESS A REASONABLE ADJUSTMENT FOR MATERIAL DIFFERENCES IS M ADE TO THE GENERAL QUOTES OF BANK GUARANTEE IN RESPECT OF THE FACTORS INTER ALIA THAT (A) RISK PROFILES OF THE RESPONDENTS FOR THE G UARANTEE; (B) FINANCIAL POSITION OF THE LOAN APPLICANTS; (C) TERM S OF THE GUARANTEE; (D) SECURITIES INVOLVED; (E) QUANTUM OF GUARANTEED AMOUNT; (F) PERIOD OF GUARANTEE; AND (G) PAST HISTORY OF CUSTOM ERS, IS SUSTAINABLE IN VIEW OF THE DECISIONS RENDERED BY TH E TRIBUNAL CITED AS UNDER :- ITA NO.7602/DEL/2017 19 (I) M/S. GLENMARK PHARMACEUTICALS LIMITED [TS-61-HC - 2017(BOM)-TP); (II) HONBLE MUMBAI TAX TRIBUNAL IN THE CASE OF GLE NMARK PHARMACEUTICALS LIMITED VS. ADDL. CIT (ITA NO.5031/M/2012); (III) EVEREST KANTO CYLINDER LIMITED VS. DCIT (TS-7 14-ITAT-2012 (MUM)-TP) (IV) ASIA PAINTS LTD. (ITA NO.408 & 1937/M/2010) (V) NOBLE RESOURCES & TRADING INDIA PVT. LTD. [TS-7 3-ITAT- 2014 (DEL)-TP] (VI) M/S. BRITANNIA INDUSTRIES LTD. VS. DCIT [ITA NO.745/KOL/2017) 24. SO, FOLLOWING THE DECISION RENDERED BY THE COOR DINATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA CORPOR ATE GUARANTEE APPROPRIATE COMPARABLE DATA NEEDS TO BE ADOPTED AND BENCHMARKING MADE IN THIS CASE ON THE BASIS OF BANK QUOTES IS NOT SUSTAINABLE, HENCE, THE TP ADJUSTMENT MADE BY THE T PO/DRP IS NOT SUSTAINABLE IN THE EYES OF LAW. WE ARE ALSO NOT AG REED WITH THE CONTENTIONS RAISED BY THE LD. AR FOR THE TAXPAYER T HAT PROVIDING CORPORATE GUARANTEE IN CASE OF ITS LOAN TO ITS AE I S NOT AN INTERNATIONAL TRANSACTION AND THIS ISSUE HAS BEEN R IGHTLY DECIDED BY THE JTPO/DRP BY TREATING THE PROVISION OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION. 25. HOWEVER, AT THE SAME TIME, WE ARE NOT INCLINED TO AGREE WITH THE CONTENTIONS RAISED BY THE TAXPAYER THAT SINCE N O BENEFIT HAS ITA NO.7602/DEL/2017 20 BEEN PASSED ON TO ITS AE, THERE IS NO NEED TO COMPE NSATE THE TAXPAYER BECAUSE IN A BUSINESS TRANSACTION THERE IS NO CONCEPT OF FREE LUNCH. BECAUSE WITHOUT PROVIDING CORPORATE GU ARANTEE BY THE TAXPAYER NO LOAN WOULD HAVE BEEN GIVEN TO THE AE; T HAT THE TAXPAYER HAS TAKEN THE RISK ON BEHALF OF ITS AE WHI CH WOULD NOT HAVE BEEN TAKEN BY ANY THIRD PARTY WITHOUT CONSIDER ATION AND THAT KEEPING IN VIEW THE HIGH RISK INVOLVED IN GIVING LO AN BY ANY LENDER TO THE AE, THE COST NEEDS TO BE CHARGED FROM THE AE AND AS SUCH, THE COMMISSION RECEIVED BY THE TAXPAYER FOR PROVIDI NG CORPORATE GUARANTEE HAS TO BE AT ARMS LENGTH. HOWEVER, THE AMOUNT RECEIVED BY THE TAXPAYER ON ACCOUNT OF COMMISSION CHARGED FO R PROVIDING CORPORATE GUARANTEE TO ITS AE NEEDS TO BE AT ARMS LENGTH PRICE IN VIEW OF THE RATIO OF THE ORDER PASSED BY THE COORDI NATE BENCH OF THE TRIBUNAL IN GLENMARK PHARMACEUTICALS LTD. (SUPRA) AS DISCUSSED IN PARA 21 OF THIS ORDER. SO, THE TPO IS DIRECTED TO BENCHMARK THE INTERNATIONAL TRANSACTION PROVIDING CORPORATE GUARA NTEE TO ITS AE BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXP AYER. SO, GROUNDS NO.2 TO 2.8 & 3 ARE DETERMINED IN FAVOUR OF THE TAXPAYER FOR STATISTICAL PURPOSES. GROUNDS NO.4 TO 4.5 26. THE LD. TPO HAS MADE TRANSFER PRICING ADJUSTMEN T OF RS.84,29,350/- QUA SDT OF PAYMENT OF INTEREST. UND ISPUTEDLY, THE ITA NO.7602/DEL/2017 21 TAXPAYER HAS BORROWED 2 DIFFERENT LOANS FROM THIRD PARTY BANK I.E. IL&FS AND IFIN AT THE INTEREST RATE OF 15.13% PER A NNUM AND 14.50% PER ANNUM. IT IS ALSO NOT IN DISPUTE THAT D URING THE YEAR UNDER ASSESSMENT, THE TAXPAYER HAS PAID INTEREST OF RS.2,57,87,268/- TO TPPL OUT OF WHICH AN AMOUNT OF RS.1,32,41,460/- HAS BEEN SUO MOTU DISALLOWED BY TH E TAXPAYER UNDER SECTION 14A READ WITH RULE 8D OF THE ACT/RULE S. 27. THE LD. TPO MADE THE TRANSFER PRICING ADJUSTMEN T ON ACCOUNT OF PAYMENT OF INTEREST OF DEPOSIT USED EXTERNAL CUP I.E. SBI PLR RATE BY HOLDING THAT THIS LOAN WAS AVAILABLE TO THE TAXPAYER @ 9.86% PER ANNUM. 28. HOWEVER, IT IS CONTENDED BY LD. AR FOR THE TAXP AYER THAT SINCE INTERNAL CUP IS AVAILABLE ONE LOAN TRANSACTIO N REQUIRES TO BE COMPARED WITH ANOTHER LOAN TRANSACTION ONLY BY ANAL YZING BORROWERS CREDIT RATING, THE CURRENCY OF LOAN, THE COUNTRY RISK INVOLVED, THE TENOR, THE MATURITY TERM OF THE LOAN, IN THE LIGHT OF THE LOAN AGREEMENTS. 29. IT IS ALSO THE CASE OF THE TAXPAYER THAT SINCE THE RATE OF INTEREST PAID BY THE TAXPAYER TO ITS RELATED PARTY IS LOWER THAN THE RATE OF INTEREST PAID BY IT TO THE THIRD PARTY LEND ER THE TRANSACTION OF PAYMENT OF INTEREST BY THE TAXPAYER TO ITS RELATED PARTY WAS AT ARMS LENGTH. ITA NO.7602/DEL/2017 22 30. WE ARE INCLINED TO AGREE WITH THE AFORESAID CON TENTIONS RAISED BY THE LD. AR FOR THE TAXPAYER INTER ALIA TH AT WHEN INTERNAL CUP WAS AVAILABLE AND THE COMPLETE DATA HAS BEEN SU PPLIED FOR COMPARABLE STUDY TO THE TPO/DRP, THE SAME WAS REQUI RED TO BE APPLIED BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. BUT THE TPO HAS NOT PREFERRED TO MAKE ANY COMMENT O N THE REJECTION OF PLEA OF APPLYING INTERNAL CUP RAISED B Y THE TAXPAYER. CONSEQUENTLY, TRANSFER PRICING MADE BY THE TPO IN R ESPECT OF SDT PAYMENT OF INTEREST IS NOT SUSTAINABLE. WHEN OPPOR TUNITY OF BEING HEARD IS NOT PROVIDED TO THE TAXPAYER THAT AS TO WH Y INTERNAL CUP IS NOT APPLIED BY THE TPO, THE ISSUE IS REQUIRED TO BE SET ASIDE TO THE TPO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. GROUNDS NO.4 TO 4.5 ARE ALLOWED F OR STATISTICAL PURPOSES. GROUND NO.5 31. GROUND NO.5 QUA LEVY OF INTEREST U/S 234B AND 2 34C OF THE ACT NEED NO SPECIFIC FINDING BEING CONSEQUENTIAL IN NATURE. GROUND NO.6 32. GROUND NO.6 BEING PREMATURE NEEDS NO SPECIFIC F INDINGS ADDITIONAL GROUND (7, 7.1, 7.2 & 7.3) 33. UNDISPUTEDLY, THE TAXPAYER HAS SUO MOTU DISALLO WED THE AMOUNT OF RS.21 CRORES U/S 14A READ WITH RULE 8D WH ICH IS MORE ITA NO.7602/DEL/2017 23 THAN THE DIVIDEND INCOME EARNED DURING THE YEAR UND ER ASSESSMENT WHICH FACT HAS BEEN DULY DISCLOSED IN THE JTP STUDY AND HAS ALSO BROUGHT TO THE NOTICE OF THE TPO VIDE LETTER, AVAIL ABLE AT PAGE 398 OF THE PAPER BOOK. BUT THE LD. TPO/AO HAS NOT PREF ERRED TO DECIDE THE ISSUE IN CONTROVERSY. IT IS SETTLED PRINCIPLE OF LAW THAT IN ORDER TO MAKE DISALLOWANCE U/S 14A, RULE 8D CANNOT BE APP LIED MECHANICALLY AND IN ANY CASE, THE DISALLOWANCE U/S 14A CANNOT BE MORE THAN THE EXEMPT INCOME RECEIVED BY THE TAXPAYE R DURING THE YEAR UNDER ASSESSMENT. IN THESE CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE AO TO RECOMPUTE DISALLOWANCE U/S 14A I N THE LIGHT OF THE DECISIONS RENDERED BY HONBLE DELHI HIGH COURT IN MAXOPP INVESTMENTS LIMITED VS. CIT (2012) 347 ITR 272 (DEL HI) BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXP AYER. CONSEQUENTLY, ADDITIONAL GROUND IS ALLOWED FOR STAT ISTICAL PURPOSES. 34. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF JANUARY, 2019. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) VICE PRESIDENT JUDICIAL MEMBER DATED THE 15 TH DAY OF JANUARY, 2019 TS ITA NO.7602/DEL/2017 24 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.