GIMPEX PRIVATE LTD., CHENNAI V. ACIT CENTRAL CIRCLE 1(2), CHENNAI

ITTPA 57/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8787 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 17-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SRINIVASA RAO IRS
• Assessee Lawyers: D ANAND
• Keywords: Related party transaction; Capital asset; Business income; Transfer pricing; International transaction; Source of fund; Retrospective amendment; Question of law; Wholly owned subsidiary; Notional interest
• Section: 92B; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, D (TPC) BENCH : CHENNAI . , !' # $! # % . & , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T(TP)A. NO.57/CHNY/2018. / ASSESSMENT YEAR : 2014-2015 M/S. GIMPEX PRIVATE LTD, NO.282, LINGHI CHETTY STREET, CHENNAI 600 001. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2) CHENNAI. [PAN AAACG 2482P] ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI. D. ANAND, ADVOCATE /RESPONDENT BY : SHRI. SRINIVASA RAO, IRS, CIT. /DATE OF HEARING : 27-03-2019 ! /DATE OF PRONOUNCEMENT : 05-04-2019 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE WHICH IS DIRECTED AGAINST AN ORDER DATED 11.09.2018 OF LD. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2), CHENNAI PASSED U/S .143(3) READ WITH SECTION 144C(5) OF THE INCOME TAX ACT, 1961 (IN SHO RT THE ACT), IT(TP)A NO.57 /2018 :- 2 -: PURSUANT TO THE DIRECTION DATED 17 TH AUGUST, 2018 OF LD. DISPUTE RESOLUTION PANEL. 2. FACTS APROPOS ARE THAT ASSESSEE A COMPANY TRADING IN MINERALS AND MAIZE, HAD INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES ABROAD ON FIVE ITEMS OF TRADING NAMEL Y BARYTES, BENTONITE, IRON ORE, MILLSCALE, COAL AND MAIZE, DUR ING THE RELEVANT PREVIOUS YEAR. AS PER THE ASSESSEE, THE FIRST FIVE OF THESE WERE METALLIC / NON-METALLIC MINERALS. DETAILS OF SUCH INTERNATIONAL TRANSACTIONS WERE AS UNDER:- SL.NO NATURE OF INTERNATIONAL TRANSACTION AMOUNT (IN B.) METHOD ADOPTED 1 PURCHASE OF WOOD PULP 1,15,195 CUP 2 SALE OF TRADED GOODS 2,61,20,19,702 3 RECOVERY OF EXPENSES 16,59,979 4 REIMBURSEMENT OF EXPENSES 66,890 LD. AO MADE A REFERENCE TO THE LD. TRANSFER PRICIN G OFFICER FOR ANALYZING THE ARMS LENGTH PRICES OF THE INTERNATION AL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. ASSES SEE HAD BENCH MARKED ITS TRANSACTIONS WITH AE CONSIDERING COMPARA BLE UNCONTROLLED PRICING (CUP) AS THE MOST APPROPRIATE METHOD (MAM ). BREAK-UP OF IT(TP)A NO.57 /2018 :- 3 -: THE SALES MADE BY THE ASSESSEE TO ITS AES DURING T HE RELEVANT PREVIOUS YEAR WERE AS UNDER:- SL. NO ASSOCIATED ENTERPRISE DESCRIPTION TRANSACTION UNIT OF MEASUREMENT QUANTITY AMOUNT OF TRANSACTION 1 SPG MINERALS PTE LIMITED SALE OF MILLSCALE METRE TONNES 85,744 67,60,20,585 SALE OF BARYTES PODWER METRE TONNES 81,987 79,13,12,953 SALE OF DE OIL RICE BRAN METRE TONNES 32 36,47,925 SALE OF BROKEN RICE METRE TONNES 247 39,00,572 SALE OF YELLOW MAIZE/ CORN METRE TONNES 9,000 3,97,54,025 SALE OF BENTONITE METRE TONNES 200 12,61,647 SALE OF BARYTES LUMPS METRE TONNES 56,100 46,20,10,428 SALE OF IRON ORE FINES METRE TONNES 78,115 51,83,67,368 2 SPG VIETNAM TRADING LTD SALE OF YELLOW MAIZE/ CORN METRE TONNES 987 1,57,44,199 TOTAL 261,38,61,766 ASSESSEE HAD CONSIDERED THE RATES PUBLISHED IN PLA TT (PRESUMABLY S&P GLOBAL PLATTS INSIGHT MAGAZINE) FOR ITS CUP A NALYSIS. LD. TPO SOUGHT TO REJECT THIS METHODOLOGY ON A REASONING THAT ASSESSEE COULD NOT PROVIDE ONE TO ONE TRANSACTION MAPPING TO JUSTIFY ADOPTION IT(TP)A NO.57 /2018 :- 4 -: OF CUP AS MAM. LD. TPO, THEREAFTER SOUGHT TO BENCH MARK THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE CONSIDER ING TNMM. WHILE DOING SO, LD. TPO SEGMENTED THE IRON ORE/ MILLSCALE TRADING FROM OTHER BUSINESS OPERATIONS OF THE ASSESSEE. LD. TPO IDENTI FIED FIVE COMPANIES AS PROPER COMPARABLES AND ARRIVED AT AN AVERAGE PR OFIT LEVEL INDICTOR (PLI) OF 4.89% FOR SUCH COMPANIES. THE COMPANIES I DENTIFIED BY THE LD. TPO AND THEIR PLIS WERE AS UNDER:- SL.NO NAME OF THE COMP ANY OP/OC MARGIN 1 MBG COMMODITIES PVT LTD 1.98 2 MAHESHWARI LOGISTICS LTD 3.58 3 NARSINGH ISPAT LTD 3.65 4 OSWAL MINERALS LTD 9.45 5 SHARDA MA ENTERPRISES PVT LTD 5.78 AVERAGE 4.89% AS PER THE LD. TPO PROFIT LEVEL INDICATOR OF THE AS SESSEE FOR ITS IRON ORE / MILLSCALE SEGMENT REFLECTED A LOSS OF 6.54%. TH IS WAS WORKED OUT BY THE LD. TPO AS UNDER:- OPERATING INCOME 3477725370 OPERATING COST 3721251663 OPERATING PROFIT ( - ) 243526293 OP/OC ( - ) 6.54% ACCORDING TO HIM, PLI OF THE ASSESSEE WAS WAY BELOW THAT OF THE COMPARABLE SELECTED BY HIM, CALLING FOR AN ALP ADJU STMENT. .. IT(TP)A NO.57 /2018 :- 5 -: 3. BASED ON THE ABOVE REASONINGS, LD. TPO PUT THE AS SESSEE ON NOTICE AS TO WHY ITS PROFIT FROM IRON ORE / MILL SCALE SEGMENT SHOULD NOT BE CONSIDERED AT 4.89%. REPLY OF THE ASSESSEE WAS THAT SUCH COMMODITIES WERE SOLD IN BULK AND IN ITS LINE OF BU SINESS TNMM COULD NOT BE CONSIDERED AS MAM. AS PER THE ASSESSEE, IT HAD MADE SIMILAR SALES TO THIRD PARTIES AND INVOICES RAISED ON SUCH PARTIES CLEARLY INDICATED THAT THE PRICES WHICH WERE CHARGED BY IT ON ITS AES FOR MILLSCALES WERE FAR HIGHER. FURTHER, AS PER THE A SSESSEE, MBG COMMODITIES PVT LTD, MAHESHWARI LOGISTICS LTD, NARS INGH ISPAT LTD, OSWAL MINERALS LTD AND SHARDA MA ENTERPRISES PVT LT D WHICH WERE SELECTED BY THE LD. TPO FOR HIS COMPARABLE STUDY W ERE MAINLY ENGAGED IN LOGISTICS AND COAL TRADING AND COULD NOT BE CONSIDERED AS GOOD COMPARABLES. HOWEVER, LD. TPO WAS NOT IMPRESS ED BY THE ABOVE REPLY. ACCORDING TO HIM, THE COMPARABLES WERE SELEC TED BY HIM USING PROWESS DATABASE WHICH WAS NEUTRAL IN NATURE, THAT TOO, AFTER APPLYING FILTERS FOR SELECTING COMPANIES TRADING IN MINERALS, WHILE EXCLUDING THOSE HAVING SALES BELOW ONE CRORE OR RELATED PARTY TRANSACTION IN EXCESS OF 25% OR PRODUCT DISSIMILAR ITY. THUS, ACCORDING TO HIM, ASSESSEES CONTENTION THAT COMPANIES CON SIDERED FOR TNMM STUDY WAS INAPPROPRIATE WAS NOT ACCEPTABLE. FURTH ER, AS PER LD. TPO, ASSESSEES ENDEAVOR FOR USING CUP AS MAM COULD NOT BE ACCEPTED SINCE IT FAILED TO MAKE A ONE TO ONE COMPARISON. T HUS, AS PER THE LD. IT(TP)A NO.57 /2018 :- 6 -: TPO, ALP ADJUSTMENT WAS REQUIRED ON THE SALE VALUE OF IRON ORE/MILL SCALES TO THE AES, APPLYING THE AVERAGE PLI OF 4.8 9% OF THE COMPARABLES. LD. TPO PROPOSED AN UPWARD ADJUSTMENT OF B14,61,31,923/-. 4. APART FROM THE ABOVE, LD. TPO ALSO FOUND THAT ASSES SEE HAD PROVIDED CORPORATE GUARANTEE FOR A LOAN OF US DOLLA R 16 MILLION RAISED BY ITS ASSOCIATED ENTERPRISE NAMED M/S. SPG MININ G PTE LTD IN SINGAPORE. ACCORDING TO HIM, ASSESSEE HAD NOT CHARG ED ANY GUARANTEE FEE FOR THIS. AS PER THE LD. TPO, ANALYSIS OF BANK GUARANTEE RATES CHARGED BY VARIOUS BANKS REVEALED AN AVERAGE RATE O F 2.19% . THIS WAS ARRIVED BY THE LD. TPO AS UNDER:- BANK ANNUAL RATE PUNJAB NATIONAL BANK 3% HDFC BANK 1.80% AXIS BANK 1.75% CANARA BANK 2.03% ICICI 1.28% INDIAN BANK 4% STATE BANK OF INDIA 1.30% UNION BANK OF INDIA 3% INDIAN OVERSEAS BANK ( NON RURAL BRANCH) 1.56% AVERAGE 2.19% THOUGH THE ASSESSEE EXPLAINED THAT THE VERY SAME AE HAD PROVIDED AN INTEREST FREE SECURITY DEPOSIT OF RS.26.95 CRORE S TO IT AND THE IT(TP)A NO.57 /2018 :- 7 -: CORPORATE GUARANTEE WAS GIVEN SO AS TO ENABLE TH E AE TO AVAIL OF A LOAN, THIS WAS NOT ACCEPTED. LD. TPO WAS OF THE OP INION THAT BY VIRTUE OF THE EXPLANATION INSERTED IN SECTION 92B OF THE ACT THROUGH FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 , SUCH GUARANTEE PROVIDED TO AN AE BECAME INTERNATIONAL TRANSACTION . ACCORDING TO THE LD. TPO, HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GLENMARK PHARMACEUTICALS (2017) 398 ITR 439 HAD AFFIRMED A DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE NAME OF IN THE CASE OF EVEREST KANTO CYLINDERS LTD VS. ACIT, (2015) 113 DTR 108 AND HAD HELD THAT PURSUANT TO THE ABOVE AMENDMENT IN SECTION 92B OF T HE ACT, CORPORATE GUARANTEE COULD BE CONSIDERED AS AN IN TERNATIONAL TRANSACTION. ASSESSEE DID RELY ON A DECISION OF A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AN EARL IER YEAR, BUT THE LD. TPO REFUSED TO TAKE COGNIZANCE OF THAT SINCE, ACCOR DING TO HIM, THE SAID DECISION WAS RENDERED WITHOUT CONSIDERING THE AMENDMENT MADE TO SECTION 92B OF THE ACT. ACCORDING TO HIM, ASSE SSEE OUGHT HAVE CHARGED ATLEAST 1.98% AS INTEREST ON THE VALUE OF CORPORATE GUARANTEE GIVEN BY IT. AN UPWARD ADJUSTMENT OF B2 ,02,75,200/- WAS PROPOSED BY THE LD. TPO. 5. IN ADDITION TO ABOVE, LD. TPO ALSO FOUND THAT ASSES SEE HAD RECEIVABLES OF RS.261,20,19,702/- DUE FROM M/S. SPG MINING PTE LTD IT(TP)A NO.57 /2018 :- 8 -: AND M/S. SPG VIETNAM TRADING, BOTH OF WHICH WERE A ES. AS PER THE LD. TPO BY VIRTUE OF THE EXPLANATION ADDED TO SEC TION 92B OF THE ACT THROUGH FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002, RECEIVABLES WHICH WERE OUTSTANDING BEYOND THE NORM ALLY ALLOWED CREDIT PERIOD WAS EXIGIBLE TO A TRANSFER PRICING ADJUSTMENT. THOUGH THE ASSESSEE RELIED ON A DECISION OF DELHI BENCH O F THE TRIBUNAL IN THE CASE OF TECHBOOKS INTERNATIONAL PVT LTD VS. DCIT (2015) 44 CCH 295, LD. TPO HELD THAT AN UPWARD ADJUSTMENT APPLYING AN INTEREST RATE OF 12.83% WAS REQUIRED TO BE MADE ON THE RECEIVABLES REMAINING OUTSTANDING BEYOND THE CREDIT PERIOD GIVEN BY THE A SSESSEE. AN UPWARD ADJUSTMENT OF B6,18,43,887/- WAS PROPOSED. 6. WHEN A DRAFT ORDER ON THE ABOVE LINES WAS ISSUED TO THE LD. AO, ASSEESSEE CHOSE TO MOVE LD. DISPUTE RESOLUTION PANEL. CONTENTIONS TAKEN BY THE ASSESSEE, VIZ-A-VIZ THE A LP ADJUSTMENT SOUGHT TO BE MADE ON ITS SALE OF IRON ORE/ MILLSCA LE TO AE WERE AS UNDER:- A CUP METHOD OUGHT NOT TO BE REJECTED B RATES PUBLISHED BY PLAT S SHOULD BE CONSIDERED UNDE R CUP METHOD C THE ASSESSEE HAS FURNISHED INVOICES RAISED BY THIRD PARTIES FOR SALE OF MILLSCALE IS AN UNCONTROLLED COM ARABLE PRI CE, WHICH COULD BE USED AS COMPARABLE DATA UNDER CUP METHOD FOR BENCHMARKING 'MILLSCALE. D THE TPO ERRED IN CARVING OUT IRON ORE /MILLSCALE SE GMENT FOR THE PURPOSE OF TNMM. IT(TP)A NO.57 /2018 :- 9 -: E THE OVERALL ENTITY MAR G IN IS AT 8.33% F WITHOUT PREJUDICE TO THE ABOVE, THE TPO HAS CONSIDE RED COMPARABLE COMPANIES WHICH ARE INTO TRADING IN COAL AS WELL. SIMILARLY, COAL SEGMENT SHOULD ALSO BE AGGREGATED WITH IRON ORE/MILLSCALE SEGMENT. G M ARGIN OF OSWAL MINERALS LTD, HAS BEEN ERRONEOUSL Y COMPUTED BY TPO. THE NET MARGIN WAS CONSIDERED AT 9.45% IN STEAD OF CORRECT MARGIN OF 0.45% . APART FROM THE ABOVE, ASSESSEE ALSO OBJECTED TO THE INCLUSION OF MBG COMMODITIES PVT LTD, MAHESHWARI LOGISTICS LTD, NARSINGH ISPAT LTD, OSWAL MINERALS LTD AND SHARDA MA ENTERPRISES P VT LTD, CITING THEIR FUNCTIONAL INCOMPATIBILITY. 7. VIZ-A-VIZ UPWARD ADJUSTMENT ON CORPORATE GUARANTEE, SUBMISSIONS OF THE ASSESSEE WERE AS UNDER:- A. SHARE-HOLDER ACTIVITY NECESSITY FOR COMPENSATION. T HE APPELLANT RELIES ON THE KOLKATA TRIBUNAL DECISION IN THE CASE OF DCLT VS. EIH LTD REPORTED IN [2018] 89 TAXMANN.COM 417 ( KOLKATA - TRIB.): 'EIH FLIGHT IS A STARTUP COMPANY, IT REQUIRED FUNDS PRIMARILY FOR ACQUISITION OF CAPITAL ASSETS FOR SETTING UP I S OP ERATION AND GUARANTEE FACILITIES GIVEN BY THE ASSESSEE/ASSESSEE COMPANY TO THE LENDER BANK IS NORMAL BUSINESS PRACTICE AND OBL IGATION TOWARDS A SUBS DIARY. SINCE THE AE WAS A STARTUP CO MPANY, THE ASSESSEE EXTENDED CORPORATE GUARANTEE TO THE THIRD PARTY BORROWERS AS A MATTER OF COMMERCIAL PRUDENCE TO PRO TECT ITS INTEREST BY FULFILLING THE SHAREHOLDERS OBLIGATION. THE CONTENTION OF THE ASSESSEE THAT THE CORPORATE GUARANTEE AS PRO VIDED BY THE ASSESSEE WAS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT AND BY FULFILLING THE SHAREHOLDER OBLIGATION, AS ANY FI NANCIAL INCAPACITATION OF THE SUBSIDIARY WOULD JEOPARDIZE THE INVESTMENT O F THE ASSESSEE IS AGREEABLE. THE CONTENTION OF THE ASSESSEE THAT THE OBJECTIVE OF THE ASSESSEE FOR PROVIDING GUARANTEE WAS NOT TO EARN GUARANTEE FEE BUT TO EARN RETURNS IN THE FORM OF APPRECIATION IN INVE STMENT VALUE AND IT(TP)A NO.57 /2018 :- 10 -: RECEIVE DIVIDENDS AND, THEREFORE, NO TP- ADJUSTMENT OUGHT TO HAVE BEEN MADE IN THE FACTS AND CIRCUMSTANCE OF THE CASE IS AGREEABLE. B. PROVISION OF GUARANTEE CANNOT BE CONSIDERED AS I NTERNATIONAL TRANSACTION. THE APPELLANT RELIES ON THE KOLKATA T RIBUNAL DECISION IN THE CASE OF DCIT VS. EIH LTD (SUPRA) 'COMING TO THE ALTERNATE PLEA OF THE ASSESSEE THAT, IN THE FA CTS AND CIRCUMSTANCES THE CORPORATE GUARANTEE IS NOT AN INT ERNATIONAL TRANSACTION UNDER SECTION 928, IT IS NOTED THAT TERM 'GUARANTEE' AS INSERTED IN THE DEFINITION OF 'INTERNATIONAL TRANSA CTION' IN SECTION 92B BY INSERTING AN EXPLANATION IN THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1-4-2002. E EXPLANATION STATES THAT IT IS CLARIFICATORY IN NATURE AND IS 'FOR THE REMOVAL OF DOUBTS'. THUS, IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INT ERNATIONAL TRANSACTION' UNDER THE MAIN SECTION 928. UNDER THIS EXPLANATION, FIVE CATEGORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. CLAUSES (A), (B) AND (D) DO NOT COVER GUARANTEE LENDING OR LOANS. OTHER TWO, (C ) AND (E) DEAL WITH (I) CAPITAL FINANCING, AND (II) BUSINESS RESTR UCTURING OR REORGANIZATION. CLAUSE (C) REFERS TO LENDING OR GUA RANTEE. BUT THE EXPLANATION WHICH IS OR REMOVAL OF DOUBTS OR IS CL A RIFICATORY , CANNOT BE READ INDEPENDENT OF SECTION 92B(1). SECTION 928(1), PROVIDES THOSE TRANSACTIONS INTERNATIONAL TRANSACTI ONS WHICH ARE IN THE NATURE OF PURCHASE, SALE OR LEASE T ANGIBLE OR INTANGIBLE PROPERTY (EXPLAINED BY CLAUSES (A) AND (B) OF THE EXPLANATIO N ), OR PROVISION OF SERVICES (EXPLAINED BY CLAUSE (D) OF THE EXPLANA TION) OR LENDING OR BORROWING MONEY (EXPLAINED BY CLAUSE (C) OF EXPL ANATION). THE PLAIN READING OF PROVISIONS OF SECTION 92B(1) (I.E. PURCHASES, SALES, PROVISION FOR SERVICES, LENDING OR BORROWING ANY OT HER TRANSACTION) SHOULD HAVE BEARING ON THE PROFITS, INCOMES, LOSSES OR ASS OF SUCH ENTERPRISES. THE CONDITION PRECEDENT OF A TRANSACTI ON HAVING A BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS WOUL D APPLY TO EACH OF THE AFORESAID TRANSACTION NAMELY PURCHASE, SALE, OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY OR ANY SUCH TRANSACTION. THIS UNDER STANDING GETS FURTHER CLARIFIED B WAY OF INSERTION OF EXPLAN ATION IN SECTION 928(1) BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1- 4-2002 VIDE CLAUSES (A) TO (D). IN THE SAID EXPLANATION, CLAUSE (E) ALONE HAS BEEN CARVED OUT AS AN EXCEPTION WHEREIN, THE TRANSACTION THEREON HAS BEEN SPECIFICALLY MANDATED TO BE AN INTERNATIONAL IT(TP)A NO.57 /2018 :- 11 -: TRANSACTION WHERE A TRANSACTION OF BUSINESS RESTRUC TURING OR REORGANIZATION, ENTERED INTO BY AN ENTERPRISE WITH AN AE IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES AT T HE TIME OF TRANSACTION OR AT ANY FUTURE DATE. C. THE ASSESSEE HAS NOT INCUR D ANY COST FOR PROVIDING GUARANTEE AND AS SUCH THERE IS NO IMPACT ON THE PROFIT OF THE ASS ESSEE. ACCORDINGLY, THE ADJUSTMENT FOR GUARANTEE COMMISSION IS UNWARRAN TED. THE APPE L LANT RELIES ON THE JURISDICTIONAL TRIBUNAL DECISION IN THE CASE OF REDINGTON (INDIA) LTD VS ACIT [2016] 69 TAXMANN.COM 351 AND KOLKATA TRIBUNAL DECISION IN THE CASE OF DC IT VS . EIH LTD (SUPRA). THE DRP REFUSED T FOLLOW THE JURISDICTIONAL TRIBUNAL DE CISION IN THE CASE OF REDINGTON (SUPRA) ONLY 0 THE GROUND THAT THE SAID CASE WAS DISTINGUISHED BY THE '' MUMBAI TRIBUNAL IN THE CASE OF EVEREST KANTO CYLINDER P LTD. HOWEVER, IT IS PERTINENT TO NOTE TH AT MUMBAI TRIBUNAL HAS NOT DISSENTED FROM REDINGTON DECISION RATHER IT HAS DISTINGUISHED AND HELD THAT IT IS NOT APPLICABLE AS THE FACTS ARE DIFFERENT . THE RELEVANT EXCERPTS ARE AS UNDER: IT IS CLEAR THAT THE COORDINATE BENCH HAS EXCLUDED THE TRANSACTION OF PROVIDING BANK GUARANTEE OUTS I DE THE PURV I EW OF INTERNATIONAL TRANSACTION ON THE FINDING THAT SUCH TRANSACTION HA D NO EFFECT ON PROFITS: INCOME, LOSSES OR ASSETS OF THE ASSESSEE. HOWEVER, THE FACTS OF THE INSTANT CASE ARE CLEARLY DISTINGUISHABLE WHE REIN NOT ONLY THE ASSESSEE HAS INCURRED COST FOR PROVIDING BANK GUARA NTEE BUT IT ALSO RECOVERED GUARANTEE COMMISSION FROM ITS AE. THUS, T HE ASSESSEE HAD EFFECT ON ITS INCOME AND EXPENDITURE BOTH ON ENTERI NG INTO SUCH TRANSACTION OF PROVIDING BANK GUARANTEE. ACCORDINGL Y, ASSESSEE ' WILL AT GET HELP OF THE DECISION OF THE COORDINATE BENCH TO COME OUT OF THE PURVIEW OF INTERNATIONAL TRANSACTION. IN THE INSTANT CASE, SIMILAR TO REDINGTON CASE THERE IS NO FEE CHARGED AND THEREFORE THE PRINCIPLE LA I D DOWN BY HE JURISDICTIONAL TRIBUNAL WIL L BE SQUARELY APPLICABLE. D. APART FROM THE ABOVE THE AE HAS KEPT AN INTEREST F REE DEPOSIT WITH ASSESSEE TO THE TUNE OF RS.26.75 CRORES, WJICH COVE RS 25% OF THE LOAN GUA R ANTEED. TPO'S WORKING FOR GUARANTEE F EES LOAN: S.102,40,00,000N 1 . 98% = 2,02,75,2001-. IF INTEREST IS LEVIED AT PLR R ATE OF 14 . 7 % ON INTEREST FREE SECURITY DEPOSIT: RS.26 , 75,00,000 14.75% = 3,94,56,250. SIN E THE IMPUTED INTEREST ON SECURITY DEPOSIT IS HIGHER, THERE IS NO REQUIREMENT T CHARGE GUARANTEE COMMISSI ON. THE TPO HAS ACCEPTED THIS CONTENTION IN THE IMMEDIATELY SUCCEED ING AY 2015-16 IT(TP)A NO.57 /2018 :- 12 -: ( R EFER PAGE 148 & 149 OF THE PAPER BOOK ) AND HELD T AT SINCE THE INTEREST ON SECURITY DEPOSIT IS MUCH HIGHER THAN GU ARANTEE COMMISSION THERE IS NO REQUIREMENT TO MAKE ADJUSTMENT FOR GUAR ANTEE COMMISSION. 8. VIZ-A-VIZ ADDITION PROPOSED IMPUTING INTEREST ON TR ADE RECEIVABLES, SUBMISSIONS OF THE ASSESSEE BEFORE LD. DRP WERE AS UNDER:- A. OUTSTANDING R ECEIVABLES CANNOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION AND IT DOES NOT FALL WITHIN THE PURVIEW OF CAPITAL FINANCING AS CONTEMPLATED UNDER SECTION 92B OF THE ACT SINCE THE TRANSACTION ITSELF IS NOTIONAL . ONLY SECTION 92CE WHICH COMES INTO FORCE FROM 1 . 4.2018 ENABLES THE AO TO MAKE SECONDARY ADJUSTMENT IN CASE THE PR I MARY ADJUSTMENT IS SUSTAINED. IN THIS CASE, IF IRON O R E/MILLSCALE SEGMENT IS AGGREGATED AND CONSIDERED ALONG WITH OTHER MINERALS , THE NET MARGIN WOULD BE 8.03 % WHICH WOULD BE HIGHER THAN ALP DETERM I NED BY TPO AT 4 . 89 %. IT IS SUBMITTED THAT IF THE M IN TRANSACTIONS ARE HELD TO BE AT ARMS LENGTH THEN THERE IS NO NECESSITY TO SEPARATELY IMP UTE INTEREST AS DELAY IN REALISATION WILL BE SUBSUMED AS PART OF TH E MAIN TRANSACTION. THE APPELLANT RELIES ON THE AHMEDABAD TRIBUNAL DECISION IN THE CASE OF BISAZZA INDIA PVT LTD VS ACIT REPORTED IN [2018) 97 TAXMANN.COM 423 AND GEMSTONE GLASS PVT LT D [2018) 100 TAXMANN . COM 5 [AHMEDABAD TRIB]. B. APART FROM T HE ABOVE, IT IS SUBMITTED THAT THE APPELLANT DOES N OT CHARGE INTEREST ON DELAYED REALIZATION FROM AE AS W ELL AS NON-AE DEBTORS AND ACCORDINGLY THERE I S NO REQUIREMENT TO RECOVER/CHARGE INTEREST ONLY IN RESPECT OF AE TRANSACTIONS. THE AP PELLANT RELIES ON THE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT V S INDO AMERICAN JEWELLERY L [2014] 44 TAXMANN . COM 310 (BOMBAY). FURTHER , THE APPELLANT SUBMITS THAT EVEN IF THIS HON'BLE TRIBUNA L HOLDS THAT CUP IS THE MOST APPROPRIATE METHOD, T EN ALSO INTEREST ON DELAYED R ECOVERY FROM AE DEBTORS CANNOT BE LEVIED AS THE APPELLANT H AS NOT CHARGED INTEREST ON DELAYED RECOVERY FROM NON-AE DEBTORS. C. THE TPO FAI L ED TO APPRECIATE THAT IS WAS REGULAR BUSINESS TRANSACTION AND THERE ARE TRADE RECEIVABLES WHICH W ERE RECEIVED WITHIN THE CREDIT PERIOD AND BEYOND THE CREDIT PERI OD. IT(TP)A NO.57 /2018 :- 13 -: D. IN FACT, THE ASSESSEE H S RECEIVED PAYMENTS TO THE EXTENT OF RS.1 00 , 90 , 15 , 630 OUT OF TOTAL REVENUE OF S.261, 70,22,213 WELL W ITHIN THE CREDIT PERIOD , WHICH IS EQUIVALENT TO 38 . 4 . 1 % F THE TOTAL REVENUE. ONLY RS.161 ,03,29,136 WAS COLLECTED BELAT EDLY E. APART FROM THE ABOVE, HE AE HAS KEPT AN INTEREST FR EE DEPOSIT WITH ASSESSEE TO THE TUNE OF RS.26.75 CRORE . IF IN TEREST IS LEVIED AT PLR R ATE OF 14 . 75 % ON INTEREST FREE SECURITY DEPOSIT: RS.2 ,75 , 00,000 * 14.75 % = 3,94,56,250 WOULD BE PAYABLE BY APPELLANT . F. CONSIDERING EARLY RECEIPT OF MONEY AND INTEREST FRE E SECURITY DEPOSIT , THERE IS NO NECESSITY TO RECOVER IN REST ON OUTSTAN DING. G. EVEN ASSUMING WITHOUT ADMITTING, IF INTEREST IS TO BE CHARGED, THE SAME SHOULD BE ON THE BASIS OF LIBOR RATES AS THE R ECEIVABLES ARE IN F OREIGN EXCHANGE . H. I R RESPECTIVE OF THE ABOVE , THE 'BASE RATE' ADOPTED BY TPO HAS NO SANCTITY . THE 'BASE RATE' HAS PUBLISH D IN THE 5BI WEBSITE IS ONLY IN THE RANGE OF 9.5 % TO 10 % . I. FURTHER , THE R E IS AN ERROR IN THE COMPUTATION OF INTEREST . THE TPO HAS DOU B LE COUNTED INTE R EST TO THE TUNE OF RS.L,37,31,786 ( 11,94 , 319 + 50,67 , 241 + 30 , 23 , 770 + 44 , 46 , 455) , WHICH REQUIRES TO BE DELETED. 9. HOWEVER, LD. DRP REJECTED ALL THE ABOVE CONTENTION S OF THE ASSESSEE. ACCORDING TO THEM, ASSESSEE HAD FAILED TO PROVIDE COMPLETE TRANSACTION DETAILS ON ITS TRADING WITH AES. AS PER THE LD. DRP, ASSESSEE DID NOT KEEP SEGMENTED RESULTS IN ITS BOO K FOR ITS AES AND NON AES. ACCORDING TO THEM, CUP METHOD, THOUGH IT WAS DESIRABLE, REQUIRED ACCURATE COMPARISON WHICH COULD NOT BE DON E HERE. AS PER THE LD. DRP, AVERAGE VALUE OF PRODUCT TAKEN FROM A PUBLICATION COULD NOT BE CONSIDERED AS A BASIS FOR CUP. THUS, ACCO RDING TO THEM, LD. IT(TP)A NO.57 /2018 :- 14 -: TPO WAS JUSTIFIED IN ADOPTING TNMM. AS FOR THE A RGUMENT OF THE ASSESSEE THAT IRON ORE / MILLSCALE SHOULD BE AGG REGATED WITH ITS OTHER SEGMENTS, LD. DRP WAS OF THE OPINION THAT UNLESS T HERE WAS A SERIOUS FLAW OR DEFECT IN SEGMENTAL RESULTS PREPARED BY T HE LD. TPO, ASSESSEE COULD NOT ASK FOR SUCH AGGREGATION. HOWE VER, LD. DRP DID REWORK PLI OF ONE OF THE COMPARABLES, NAMELY M/S. OSWAL MINERALS LTD AND DIRECTED THE LD. AO TO ADOPT THE PLI OF TH IS COMPANY AS 1.9% WHILE WORKING OUT THE AVERAGE PLI OF THE FIVE COMPA RABLES SELECTED BY HIM. 10. VIZ-A-VIZ CORPORATE GUARANTEE, LD. DRP WAS OF THE O PINION THAT PROVIDING SUCH GUARANTEE GAVE A DISTINCT ADVAN TAGE TO THE ASSOCIATED ENTERPRISE AND THERE WAS INHERENT COST F OR THE ASSESSEE BY ASSUMING SUCH RISK. ACCORDING TO THEM, THERE WER E VARIOUS DECISIONS OF THE TRIBUNAL, WHICH HELD THAT CORPORATE GUARANTE E GIVEN TO AN ASSOCIATED ENTERPRISE COULD BE CONSIDERED AS AN I NTERNATIONAL TRANSACTION U/S.92B OF THE ACT. SPECIFIC RELIANCE WERE PLACED ON THE FOLLOWING DECISIONS:- I) ZEE ENTERTAINMENT ENTERPRISES LTD VS. AD. CIT, R ANGE 11(1), MUMBAI IN 81 TAXMANN. COM 379 (MUMBAI-TRI) A.Y. 08- 09 II) ASTER (P) LTD VS. DCIT, CIRCLE 1(1) HYDERABAD I N 81 TAXMANN.COM 297 (HYDERABAD TRI) (A.Y. 10-11 &11-12) IT(TP)A NO.57 /2018 :- 15 -: III) MANUGRAPH INDIA LTD VS. DICT 3(2) MUMBAI IN 62 TAXMANN.COM 347 (MUMBAI-TRI) (A.Y. 10-11) IV) LADSHYA MEDIA (P) LTD VS. DCIT 10(2)(1), MUMBAI IN 80 TAXMAN.COM 309 (A.Y. 10-11) THUS, ACCORDING TO THEM, LD. ASSESSING OFFICER/TPO WAS JUSTIFIED IN CONSIDERING THE CORPORATE GUARANTEE GIVEN BY THE AS SESSEE TO ITS ASSOCIATED ENTERPRISE TO BE AN INTERNATIONAL TRANSA CTION REQUIRING AN ARMS LENGTH PRICE ADJUSTMENT. 11. VIZ-A-VIZ, NOTIONAL INTEREST ON OUTSTANDING TRADE RECEIVABLES, LD. DRP WAS OF THE OPINION THAT NON-CHARGING OR UN DER-CHARGING OF INTEREST ON EXCESS PERIOD OF CREDIT ALLOWED TO AN ASSOCIATED ENTERPRISE WAS AN INTERNATIONAL TRANSACTION COMING WITHIN THE AMBIT OF DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DU RING THE COURSE OF BUSINESS APPEARING IN CLAUSE (C) OF THE EXPLANA TION INTRODUCED IN SECTION 92B OF THE ACT THROUGH FINANCE ACT, 2012 W ITH RETROSPECTIVE EFFECT FROM 01.04.2002. RELYING ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF BECHTEL INDIA PVT LTD. VS. ACIT, (2017) 50 CCH 30, LD. DRP HELD THAT LD. ASSESSING OFFICER/ TPO WAS JUSTIFIED IN CONSIDERING THE EXCESS PERIOD OF CREDIT GIVEN TO TH E ASSOCIATED ENTERPRISE ON THE RECEIVABLES AS INTERNATIONAL TR ANSACTION REQUIRING AN ARMS LENGTH PRICE ADJUSTMENT. IT(TP)A NO.57 /2018 :- 16 -: 12. BASED ON THE DIRECTIONS FROM THE LD. DRP, LD. ASSES SING OFFICER THEREAFTER COMPLETED THE ASSESSMENT. 13. NOW THE GROUNDS TAKEN BY THE ASSESSEE ASSAIL THE U PWARD ARMS LENGTH PRICE ADJUSTMENTS MADE ON ITS ASSOCIAT ED ENTERPRISE SALES TO ASSOCIATED ENTERPRISE, CORPORATE GUARANT EE AND OVERDUE RECEIVABLES AS ALSO ADOPTION OF TNMM AS MOST APPROP RIATE METHOD AS AGAINST CUP. 14. LD. AUTHORISED REPRESENTATIVE STRONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMITTED THAT EVEN IF TN MM WAS CONSIDERED AS THE MOST APPROPRIATE METHOD, MISTAKE WAS COMMIT TED BY THE LD. TPO IN CARVING OUT ASSESSEES TRADING IN IRON ORE/ MILLSCALE AS A SEPARATE SEGMENT. AS PER THE LD. AUTHORISED REPRE SENTATIVE, OPERATING MARGIN OF THE COMPARABLES WERE ARRIVED ON AN AGGREGATE BASIS. HOWEVER, ACCORDING TO HIM, SUCH AVERAGE PRO FIT RATE OF THE COMPARABLES WERE USED FOR BENCH-MARKING THE TRAN SACTIONS OF THE ASSESSEE IN THE IRON ORE/ MILLSCALE SEGMENT ALONE. ACCORDING TO HIM, MBG COMMODITIES PVT LTD WAS TRADING IN COAL AND L OGISTICS, MAHESHWARI LOGISTICS LTD WAS TRADING IN VARIETY OF PAPERS, NARSINGH ISPAT LTD WAS TRADING IN COAL, HARD COKE, IRON OR E, LIME STONE, MANGANESE ORE ETC., OSWAL MINERALS LTD WAS TRADING IN ALLOYS AND MINERALS WITHOUT SEPARATE REPORTABLE SEGMENTS AND SHARDA MA IT(TP)A NO.57 /2018 :- 17 -: ENTERPRISES PVT LTD WAS TRADING IN COAL. THUS, AC CORDING TO HIM, IT WAS A MIXTURE OF COMPANIES SELECTED BY THE LD. TPO HAVI NG DIFFERENT SEGMENTS, FEW OF WHICH WERE COMMON. AS PER THE LD. AUTHORISED REPRESENTATIVE, THE LD. TPO FELL IN ERROR WHEN HE WORKED OUT THE PLI OF THE ASSESSEE FOR IRON ORE/MILLSCALE, IGNORING TH E OTHER MINERALS TRADED BY IT. ACCORDING TO HIM, A COMPARISON OUGHT HAVE BEEN DONE ONLY ON AGGREGATE BASIS. FURTHER, ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE, THERE WAS NO REASON TO CONSIDER EAC H MINERAL AS A SEPARATE SEGMENT WHEN THE ADMITTED FACT WAS THAT AS SESSEE HAD NEVER DONE ANY SEGMENTATION IN ITS BOOKS. AS PER THE LD. AR, IF ALL THE MINERALS TRADED BY THE ASSESSEE WERE CONSIDERED TO GETHER, ITS PROFIT MARGIN WOULD BE 8.33%, WHICH WAS MUCH HIGHER THAN THE AVERAGE MARGIN OF 4.89% FOR THE COMPARABLES SELECTED BY THE LD. TPO. FURTHER, AS PER THE LD. AUTHORISED REPRESENTATIVE, LD. TPO WHILE COMPUTING ASSESSEES PLI, HAD EXCLUDED FOREX EXPEND ITURE WITHOUT ANY JUSTIFICATION. LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT ONLY 43% OF THE ASSESSEES REVENUE WAS FROM ASSOCIATED ENT ERPRISE WHEREAS 57% OF ITS SALE WERE TO NON ASSOCIATED ENTERPRISE , THAT TOO SIMILAR TO WHAT WERE TRADED WITH ITS ASSOCIATED ENTERPRISES. A CCORDING TO HIM, LOWER AUTHORITIES HAD REFUSED TO SEGREGATE THE AS SOCIATED ENTERPRISE/ NON ASSOCIATED ENTERPRISE TRANSACTIONS, WHILE DOING SUCH A SEGMENTATION ARTIFICIALLY FOR ARMS LENGTH ADJUSTME NT. SUBMISSION WAS IT(TP)A NO.57 /2018 :- 18 -: THAT LD. TPO TOOK ONLY THE IRON ORE/MILLSCALE, IG NORING THE OTHER SEGMENTS WHICH HAD SUBSTANTIAL PROFITS. ACCORDING TO HIM, ALL THE TRADING ACTIVITIES OF THE ASSESSEE WITH ITS ASSOCIA TED ENTERPRISES SHOULD BE CONSIDERED AS ONE SEGMENT AND IF SO CONS IDERED, THE PROFIT MARGIN OF THE ASSESSEE WOULD BE 8.33% AS WORKED OU T IN PAPER BOOK PAGE NO . 72 AND THIS WAS MORE THAN COMPARABLE TO THE MARGIN OF 4.89% OF THE SELECTED COMPARABLES. IN ANY CASE ACCO RDING TO HIM, IF THE LD. TPO WANTED TO STICK TO A SEGMENTATION, M/S. MAHESWARI LOGISTICS LIMITED, M/S. SHARDA MA ENTERPRISES LTD A ND M/S. NARSINGH ISPAT LIMITED SHOULD GO OUT OF THE LIST OF COMPARA BLES DUE TO THEIR FUNCTIONAL DISSIMILARITY. 15. VIZ-A-VIZ, CORPORATE GUARANTEE, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSOCIATED ENTER PRISE TO WHICH ASSESSEE HAD GIVEN SUCH GUARANTEE PROVIDED ON IN TEREST FREE DEPOSIT OF B26.95 CRORES TO THE ASSESSEE. ACCORDING TO H IM, PROVIDING CORPORATE GUARANTEE WITHOUT ANY FEES COULD NOT BE C ONSIDERED AS AN INTERNATIONAL TRANSACTION EVEN AFTER THE EXPLANATIO N ADDED TO SECTION 92B OF THE ACT, THROUGH FINANCE ACT, 2012 W.E.F. 0 1.04.2002. SPECIFIC RELIANCE WAS PLACED ON A DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. EIH LTD (2018) 52 CCH 37 . ACCORDING TO HIM, WHEN A PARENT COMPANY EXTENDED AN ASSISTANCE TO IT S WHOLLY OWNED IT(TP)A NO.57 /2018 :- 19 -: SUBSIDIARY IN THE NATURE OF A CORPORATE GUARANTEE, WHICH DID NOT HAVE ANY BEARING ON ITS PROFIT, LOSS, INCOMES, LOSSES O R ASSETS, IT WOULD BE OUTSIDE THE AMBIT OF THE DEFINITION OF INTERNATION AL TRANSACTION AS GIVEN IN SECTION 92B(1) OF THE ACT, EVEN AFTER THE AMEND MENT TO THE SAID SECTION, THROUGH FINANCE ACT, 2012 WITH RETROSPE CTIVE EFFECT W.E.F. 01.04.2002. AS PER THE LD. AUTHORISED REPRESENTAT IVE THE CASE OF EVEREST KANTO CYLINDERS LTD (SUPRA) RELIED ON BY THE LOWER AUTHORITIES WAS NOT COMPARABLES ON FACTS, SINCE IN THE SAID CAS E THE PARENT COMPANY HAD CHARGED 0.5% FOR RENDERING SERVICES I N THE NATURE OF PROVIDING CORPORATE GUARANTEE. 16. ALLUDING TO THE INTEREST ADJUSTMENT MADE ON THE OVERDUE RECEIVABLES FROM ASSOCIATED ENTERPRISE, LD. AUTHOR ISED REPRESENTATIVE SUBMITTED THAT OUT OF TOTAL SALES OF B261 CRORES T O ASSOCIATED ENTERPRISES DURING THE RELEVANT PREVIOUS YEAR, SUB STANTIAL PART WAS RECEIVED MUCH EARLIER TO THE EXPIRY OF THE CREDIT P ERIOD OF 45 DAYS. THE DELAY IN RECEIVING THE DUES, AS PER THE LD. AUT HORISED REPRESENTATIVE WAS NOT MANY. ACCORDING TO HIM, IT WAS NORMAL IN TRADING TRANSACTIONS, THAT SOME DUES WERE RECEIVED BELATEDLY WHEREAS SOME ARE RECEIVED EARLIER. RELYING ON THE DECISION S OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF BISAZZA INDIA (P) LTD VS. DCT, (2018) 97 TAXMANN.COM 432 AND THAT OF GEMSTONE GLASS PVT LTD VS. DCIT, (2018) 100 TAXMANN.COM 5 , LD. AUTHORISED REPRESENTATIVE IT(TP)A NO.57 /2018 :- 20 -: SUBMITTED THAT ONCE TNMM METHOD WAS ADOPTED, ANY NOTIONAL CHARGES FOR OVERDUE RECEIPTS STOOD SUBSUMED IN THE BENCH MARKING AND NO FURTHER ADJUSTMENT WAS REQUIRED FOR OVERDUE RECEIVABLES. LD. AUTHORISED REPRESENTATIVE ALSO RELIED ON A JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO AMERICAN JEWELLERY LTD, (2014) 44 TAXMANN.COM 310 . 17. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES SUBM ITTED THAT SEGMENTATION OF RESULTS, BETWEEN THE DIFFERENT MINE RALS TRADED BY THE ASSESSEE WAS RIGHTLY DONE BY THE LD. TPO CONSIDERIN G THE NATURE OF THE VARIOUS MINERALS DEALT BY THE ASSESSEE. ACCORDING TO THE LD. DEPARTMENTAL REPRESENTATIVE, LD. TPO HAD APPLIED CO RRECT FILTERS FOR SELECTING THE COMPARABLES. FURTHER, AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, CUP COULD NOT BE ADOPTED SINCE ASS ESSEE HAD NOT MAINTAINED ONE TO ONE COMPARABILITY DATA BUT HAD R ELIED ON CERTAIN PUBLICATIONS, AUTHENTICITY OF WHICH WAS QUESTIONAB LE. CONTENTION WAS THAT MISTAKE POINTED OUT BY THE ASSESSEE ON THE PL I OF M/S.OSWAL MINERALS LTD ONE OF THE SELECTED COMPARABLES WAS AC CEPTED BY THE LD. DRP, AND THERE WAS NO REASON WHY ANY FURTHER RELIEF SHOULD BE GIVEN TO THE ASSESSEE. IT(TP)A NO.57 /2018 :- 21 -: 18. VIZA-VIZ THE ADJUSTMENT FOR CORPORATE GUARANTEE, L D. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT BY VIRT UE OF EXPLANATION ADDED TO SECTION 92B OF THE ACT THROUGH FINANCE ACT , 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 PROVIDING COR PORATE GUARANTEE BECAME AN INTERNATIONAL TRANSACTION AMENABLE TO AN ARMS LENGTH PRICE ADJUSTMENT. SPECIFIC RELIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EVEREST KANTO CYLINDERS LTD (SUPRA). ACCORDING TO HIM, THE SAID DECISION WAS SOUGHT TO BE DISTINGUISHED BY THE LD. AUTHORISED REPRESENTATIVE APPLYING A WRONG LOGIC. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE , ASSESSEE WAS IN A WORSE POSITION SINCE IT DID NOT CHARGE ANY FEE AT ALL, WHEN IN THE CASE OF EVEREST KANTO CYLINDERS LTD THE CONCERNED ASSESSEE HAD CHARGED FEES OF 0.5%. 19. IN SO FAR AS INTEREST ON OVERDUE RECEIVABLES WAS CO NCERNED, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS WAS ALSO COVERED BY THE EXPLANATION TO SECTION 92B OF THE ACT ADDED THROUGH FINANCE ACT, 2012. ACCORDING TO HIM, LD. ASSESSING OFFICER /TPO HAD ADOPTED A RATE OF INTEREST TAKING PROPER COMPARABLES AND THER EFORE ASSESSEE COULD NOT BE AGGRIEVED ON THE UPWARD ADJUSTMENT CA RRIED OUT. 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. FIRST WE TAKE U P THE ISSUE REGARDING IT(TP)A NO.57 /2018 :- 22 -: ADOPTION OF TNM METHOD AS MAM AGAINST CUP CONSIDERE D BY THE ASSESSEE. WE ARE OF THE OPINION THAT ASSESSEE HAVIN G NOT MAINTAINED SEGMENTAL RESULTS IN ITS BOOKS OF ACCOUNTS, NOR PRE PARED SEGMENTAL RESULTS, LD. TPO WAS JUSTIFIED IN REJECTING CUP AS THE MOST APPROPRIATE METHOD. AS POINTED OUT BY THE LD. DRP ADOPTING CU P MEANS THERE SHOULD BE EXACT COMPARABLES AND A COMPARABILITY DO NE WITH RATES OF MINERALS PUT OUT IN A PUBLICATION, IN OUR OPINION W OULD NOT SUFFICE THE REQUIREMENT OF A CUP ANALYSIS. 21. NOW COMING TO THE TNM METHOD, ADOPTED BY THE LD. TP O, HE HAD ARRIVED AT AN AVERAGE PLI AT 4.89% FOR THE FIV E COMPARABLE COMPANIES SELECTED BY HIM. ASSESSEE HAD OBJECTED TO THESE COMPARABLES BUT LD. TPO HAD JUSTIFIED HIS SELECTION WITH THE FOLLOWING COMMENTS. WITH REGARD TO ASSESSEE'S OBJECTION ABOUT COMPARA BLES, IT IS PERTINENT TO MENTION HERE THAT PROWESS IS A NEUT RAL DATABASE AND THIS OFFICE HAS APPLIED STANDARD FILTE RS (AS GIVEN UNDER), AFTER QUALITATIVE AND QUANTITATIVE AN ALYSIS TO LOCATE, POTENTIAL COMPARABLES PRIMARILY THEY ARE TE STED OR RELATED PARTY TRANSACTIONS, PERSISTENT LOSS MAKING AND TO LOCATE FUNCTIONAL SIMILARITY. THE SELECTION OF COMP ARABLES IS OBJECTIVE, HENCE NO CHERRY PICKING EXERCISE HAS BE N ADOPTED AND THE OBJECTION OF THE ASSESSEE IS NOT ACCEPTABLE. ALSO, THE SAID COMPAN IES ARE PRIMARILY ENGAGED IN THE TRADING IN MINERALS AND IN TNMM BROAD FUNCTI ON SIMILARITY ONLY CAN BE ACHIEVED AND SURGICAL PRECIS ION IS NOT REQUIRED. IT(TP)A NO.57 /2018 :- 23 -: SEARCH FILTERS:- SEARCH PROCESS FOR GIMPEX LIMITED A.Y. 2014-15. CRITERIA PRODUCE NAME TRADING IN MINERALS SALES ABOVE ONE CRORE COS. MAKING PERSISTENT LOSS RELATED PARTY TRANSACTION >25% PRODUCT SIMILARITY THUS ADMITTEDLY, LD. TPO HIMSELF HAS ADMITTED THAT IN A TNM METHOD ONLY BROAD FUNCTIONAL SIMILARITY COULD BE ACHIEVED AND SURGICAL PRECISION WAS NOT REQUIRED. THE TYPE OF FUNCTIONA L PROFILE OF THE COMPARABLES SELECTED BY THE LD. TPO CLEARLY CORROBO RATES THIS VIEW OF THE LD. TPO SINCE VERY FEW AMONG THESE COMPARABL ES, IF AT ALL ANY, WAS INVOLVED ONLY IN IRON ORE / MILLSCALE SEGMENT. IN THE CASE OF M/S. MBG COMMODITIES PVT LTD, IT IS CLEARLY STATED IN ITS BALANCE SHEET AS ON 31.03.2013 (PAPER BOOK PAGE NO. 62) THAT THEIR O PERATIONS MAINLY WERE TRADING IN COAL AND LOGISTICS. M/S. MAHESH WARI LOGISTICS LTD IT(TP)A NO.57 /2018 :- 24 -: (PAPER BOOK PAGE NO.68) WERE IN LOGISTICS SERVICES, SUPPLY OF COAL, LIGNITE & PET COKE, MANUFACTURING KRAFT PAPER AND TRADING IN VARIETY OF PAPERS. M/S. NARSINGH ISPAT LTD (PAPER BOOK PAGE NO .64) WAS TRADING IN COAL, HARD COKE, IRON ORE, LIME STONE, DOLOMIT E MANGANESE ORE AND A VARIETY OF OTHER ITEMS. M/S.OSWAL MINERALS LTD ( PAPER BOOK PAGE NO.67) WHICH WAS FOURTH COMPARABLE SELECTED BY TH E LD. TPO WAS PRIMARILY TRADING IN ALLOYS & MINERALS AND THERE WE RE NO SEPARATE REPORTABLE SEGMENTS. M/S. SHARDA MA ENTERPRISES PV T LTD (PAPER BOOK PAGE NO.63) WAS IN A SINGLE LINE OF BUSINESS OF TR ADING IN COAL. LD. TPO DOES SAY THAT THE PLI WORKED OUT BY HIM FOR THE ABOVE COMPARISON WERE FOR THEIR IRON ORE/ MILLSCALE SEGM ENT, BUT CLEARLY, THIS COULD NOT HAVE BEEN SO. NONE OF THE COMPARABL ES WERE TRADING IN IRON ORE/ MILLSCALE, EXCEPT MAY BE M/S. OSWAL MINER ALS LTD. THEY WERE ALL DOING VARIED BUSINESS COMPRISING OF LOGISTICS, SUPPLYING COAL, LIGNITE & PET COKE, TRADING IN VARIETY OF PAPERS. THUS, TH E PLI OF THE COMPARABLES SELECTED BY THE LD. TPO COULD ONLY BE THE RESULT OF THEIR AGGREGATE TRADING ACTIVITIES AND NOT FOR THE MILLS CALE OR IRON ORE SEGMENT ALONE. NEVERTHELESS THE LD. TPO CHOSE TO C OMPARE THE SAID AVERAGE PLI WITH THE SEGMENTED PLI OF THE ASSESSEE FOR ITS IRON ORE/ MILLSCALE TRADING. IF ALL THE SEGMENTS IN WHICH AS SESSEE TRADED WERE AGGREGATED, WHICH AGGREGATION IS AVAILABLE AT PAPER BOOK PAGE 132, THIS WOULD CLEARLY INDICATE THAT PLI OF THE ASSESS EE CAME TO 8.33%. IT(TP)A NO.57 /2018 :- 25 -: THIS WORK-OUT, WHICH WAS PROVIDED BY THE ASSESSEE TO LOWER AUTHORITIES IS REPRODUCED HEREUNDER:- PARTICULARS IRON ORE & MILLSCALE FINES BARYTE S COAL BENTONITE OTHERS (YELLOW MAIZE, BROWN RICE, RICE BRAN) TOTAL OP/OC - 3.39% 22.67% 5.27% 26% 25.30% 8.33% THE ABOVE WORK OUT HAS NOT BEEN DISPUTED BY THE REV ENUE. IT MAY BE TRUE THAT ASSESSEE HAD NOT MAINTAINED SEGMENTAL AC COUNTS AND THE ABOVE WORKING CAN HAVE THEREIN SOME ALLOCATION OF COMMON EXPENSES. NEVERTHELESS, LD. TPO CONSIDERED ASSESSE E TO HAVE MAINTAINED NO SEGMENTAL DATA. WHEN THE TRADING WAS MAINLY IN MINERALS, IN OUR OPINION THERE WAS NO REASON WHY AN AGGREGATED RESULT COULD NOT HAVE BEEN CONSIDERED FOR THE ARMS LENGTH PRICE ANALYSIS WHEN TNM WAS CONSIDERED AS MAM. EVEN IF WE PRESUME THAT AVERAGE PLI WORKED OUT BY THE LD. TPO WAS CORR ECT, AND EVEN IF WE SUBSTITUTED THE NEGATIVE PLI OF 6.54% WORKED OUT BY THE LD. TPO WITH THE NEGATIVE PLI 3.39% OF CONSIDERED BY THE AS SESSEE FOR ITS IRON ORE/ MILLSCALE SEGMENT, STILL ITS AGGREGATE PLI WA S MUCH MORE THAN THE AVERAGE PLI OF 4.89% OF THE SELECTED COMPARABLES. IN OUR OPINION, IN SUCH CIRCUMSTANCES, THERE WAS NO SCOPE FOR MAKIN G ANY ARMS IT(TP)A NO.57 /2018 :- 26 -: LENGTH PRICE ADJUSTMENT BASED ON TNMM METHOD ON TH E TRADING RESULTS OF THE ASSESSEE. WE HAVE THUS NO HESITATIO N IN DELETING THE UPWARD ADJUSTMENT OF B12,66,82,138/- MADE BY THE LD. ASSESSING OFFICER ON ASSESSEES TRADING WITH ITS ASSOCIATED E NTERPRISES. 22. NOW WE TAKE UP THE QUESTION OF UPWARD ADJUSTMENT F OR CORPORATE GUARANTEE FEES. IN OUR OPINION, THE QUE STION WHETHER CORPORATE GUARANTEE WOULD BE AMENABLE TO A ARMS LEN GTH PRICE ADJUSTMENT, WHEN NO FEE IS CHARGED BY ASSESSEE ON AN ASSOCIATED ENTERPRISE WHICH WAS ITS WHOLLY OWNED SUBSIDIARY, STANDS ANSWERED BY KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF EIH LTD (SUPRA ). THE BENCH AFTER CONSIDERING THE JUDGMENT OF HONBLE BO MBAY HIGH COURT IN THE CASE EVEREST KANTO CYLINDERS LTD (SUPRA), HAD HELD AS UNDER AT PARA 12.1 TO 12.17 OF ITS ORDER:- 12.1. THE ASSESSEE FILED OBJECTIONS BEFORE THE LD D RP. THE LD. DRP UPHELD THE TRANSFER PRICING ADJUSTMENT PERTAINING TO THE RECEI PT OF CORPORATE GUARANTEE FEE. AGGRIEVED BY THE DECISION OF THE LD. DRP AND THE FI NAL ORDER OF THE AO, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. ASSESSING OFFICER (AO) / TRANSFER PRICING OFFICER (TPO) ERRED IN TREATING THE CORPORATE GUARANTEE EXTENDED BY THE AP PELLANT TO ITS AE AS INTERNATIONAL TRANSACTION AND DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS LD. PANEL) ERRED IN C ONFIRMING AS THE SAME AS AN INTERNATIONAL TRANSACTION WITHOUT APPREC IATING THE FACT THAT IT DOES NOT FALL WITHIN THE AMBIT OF INTERNAT IONAL TRANSACTION U/S 92B OF THE ACT. 1.2 THE LD. AO/TPO AND THE LD. PANEL FAILED TO APPR ECIATE THE FACT THAT CORPORATE GUARANTEE HAS BEEN ADVANCED BY THE A PPELLANT AS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT THE BUSINE SS INTEREST OF THE GROUP BY FULFILLING THE SHAREHOLDERS OBLIGATION AS ANY FINANCIAL INCAPACITATION WOULD JEOPARDIZE THE INVESTMENT OF T HE APPELLANT. IT(TP)A NO.57 /2018 :- 27 -: 1.3 WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO/TPO AND LD. PANEL FAILED TO APPRECIATE THE CORPORATE GUARANTEE EXTEND ED BY THE APPELLANT IS PART AND PARCEL OF THE MANAGEMENT AGREEMENT ENTE RED INTO WITH THE AE AND SAID AGREEMENT TAKE DUE CARE TOWARDS APPROPR IATE REMUNERATION FOR CORPORATE GUARANTEE. 1.4 WITHOUT PREJUDICE TO THE ABOVE, THE LD. PANEL E RRED IN ARBITRARILY CONFIRMING THE ARMS LENGTH GUARANTEE COMMISSION RA TE OF 3%, WHEN A NOMINAL GUARANTEE COMMISSION RATE OF 0.3% - 0.5% HA S BEEN ACCEPTED IN VARIOUS LEGAL JURISPRUDENCE. 12.2. THE LD. AR CONTENDED THAT THE CORPORATE GUARA NTEE WAS GIVEN BY THE ASSESSEE TO THE SUBSIDIARY AE M/S. EIH MAURITIUS HEREIN (EIH FLIGHT) TO FUND THE SET UP OF THE SAID SUBSIDIARY COMPANY IN ITS YEAR OF OPERATION. A CCORDING TO THE LD. AR, SINCE M/S. EIHFLIGHT IS A START UP COMPANY, IT REQUIRED FUNDS PRIMARILY FOR ACQUISITION OF CAPITAL ASSETS FOR SETTING UP ITS OPERATION AND GUARANTEE F ACILITIES GIVEN BY THE ASSESSEE COMPANY TO THE LENDER BANK IS NORMAL BUSINESS PRACT ICE. ACCORDING TO THE LD. AR, THE PROVISION OF THE SAID FUNDS FOR INITIAL ESTABLISHME NT WAS THE RESPONSIBILITY OF SHAREHOLDERS OF M/S. EIH FLIGHT I.E. THE ASSESSEE I N THIS CASE AND IT WAS DISCHARGING THAT RESPONSIBILITY TO ITS SUBSIDIARY AS SHAREHOLDE R. AS SAID BEFORE, SINCE THE AE WAS A START UP COMPANY, THE ASSESSEE EXTENDED CORPORATE GUARANTEE TO THE THIRD PARTY BORROWERS AS A MATTER OF COMMERCIAL PRUDENCE TO PRO TECT THE INTEREST BY FULFILLING THE SHAREHOLDERS OBLIGATION. ACCORDING TO THE LD AR, TH E CORPORATE GUARANTEE AS PROVIDED BY THE ASSESSEE WAS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT BY FULFILLING THE SHAREHOLDER OBLIGATION AS ANY FINANC IAL INCAPACITATION OF THE SUBSIDIARY WOULD JEOPARDIZE THE INVESTMENT OF THE ASSESSEE. HE RELIED ON THE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TE GA INDUSTRIES LTD. VS DCIT (ITA NO.1912/KOL/2012) WHEREIN IT WAS HELD THAT THE PROV ISION OF CORPORATE GUARANTEE IS IN THE NATURE OF SHAREHOLDER ACTIVITY AND HENCE, NO TP ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE IS REQUIRED. OUR ATTENTION WAS DRAWN TO THAT CASE WHEREIN THE TRIBUNAL AFTER EXAMINING THE FACTS OF THAT CASE OBS ERVED THAT THE ASSESSEES EXPECTATION FROM PROVISION OF GUARANTEE WAS NOT THA T OF A GUARANTOR I.E. TO EARN A GUARANTEE FEE, RATHER, THE EXPECTATION WAS OF A SHA REHOLDER TO PROTECT ITS INVESTMENT INTEREST, TO HELP IT ACHIEVE THE ASSESSEES BUSINES S OBJECTIVE. THUS, ACCORDING TO THE LD. AR, THE OBJECTIVE OF THE ASSESSEE FOR PROVIDING GUARANTEE WAS NOT TO EARN GUARANTEE FEE BUT TO EARN RETURNS IN THE FORM OF AP PRECIATION IN INVESTMENT VALUE AND RECEIVE DIVIDENDS. THEREFORE HE PRAYED THAT THE ADJ USTMENT MADE BY THE LD TPO MAY BE DELETED. 12.3. ALTERNATIVELY, THE LD AR ALSO CONTENDED THAT THE CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION U/S 92B OF THE ACT. THE A SSESSEE ACCORDING TO HIM HAS NOT INCURRED ANY COST IN PROVIDING CORPORATE GUARANTEE TO ITS SUBSIDIARY COMPANY AT MAURITIUS. ACCORDING TO HIM, SINCE THE ISSUANCE OF CORPORATE GUARANTEE DOES NOT HAVEANY IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS OF THE GUARANTOR AS THERE IS NO COST ASSOCIATED WITH IT, AND WHEN THE TRANSACTION I N QUESTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRI SE, IT WILL BE OUTSIDE THE AMBIT OF EXPRESSION INTERNATIONAL TRANSACTIONS UNDER SECTI ON 92B OF THE ACT. FOR THE AFORESAID PROPOSITION, THE LD. AR RELIED ON THE CO- ORDINATE BENCH DECISION OF DELHI IT(TP)A NO.57 /2018 :- 28 -: TRIBUNAL IN THE CASE OF BHARTI AIRTEL LIMITED IN IT A NO.5816/DEL/2012. ACCORDING TO THE LD AR, THIS PROPOSITION HAS BEEN FOLLOWED BY TH E CO-ORDINATE BENCH OF AHMEDABAD TRIBUNAL IN THE CASE OF MICRO INK LIMITED VS ACIT IN ITA NO.2873/AHD/2010 AND REFERRED TO VARIOUS OTHER CASE LAWS I) REDINGTON INDIA LIMITED VS ACIT [ITA NO.513/MDS/201 4] II) VIDEOCON INDUSTRIES LIMITED VS ACIT RANGE 3(3), MUM BAI [ITA NO.6145/MUM/2012, 1728/MUM/2014, 1729/MUM/2014]; III) MANUGRAPH INDIA LIMITED VS DY. COMMISSIONER OF INCO ME TAX (I.T.A.NO.2631/MUM/2015) IV) SIRO CLIMPHARM PRIVATE LIMITED VS DCIT, MUMBAI (I.T.A.NO.1269/MUM/2015); V) SIRO CLINPHARM PRIVATE LIMITED VS DCIT, MUMBAI (I.T.A.2618/MUM/2014). 12.4. IN RESPONSE, THE LD. CIT,DR BROUGHT TO OUR NO TICE THE DECISION OF CO-ORDINATE BENCH OF HYDERABAD TRIBUNAL IN THE CASE OF PROLIFIC S CORPORATION LTD VS DCIT REPORTED IN (2015) 55 TAXMANN.COM 226 (HYDERABAD-TR IB.) DATED 31.12.2014 FOR ASST YEAR 2009- 10, WHEREIN THE TRIBUNAL HAS ACCEPT ED THE ARGUMENTS OF THE REVENUE THAT AFTER THE INSERTION OF THE EXPLANATION BY FINA NCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 2002, THE CORPORATE GUARANTEE ALSO IS A N INTERNATIONAL TAXATION. THE LD. DR ALSO CONTENDED THAT THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS EVEREST KANTO CYLINDERS LTD. IN ITA NO.1165 OF 2013 WHERE THE GUARANTEE FEE TRANSACTION WAS BENCH MARKED AND ARMS LENGTH PRICE ALP WAS MADE BY TPO AND WAS UPHELD BY THE TRIBUNAL AS WELL AS BY THE HONBL E BOMBAY HIGH COURT IN FAVOUR OF THE DEPARTMENT. ACCORDING TO THE LD. CIT DR , SU BSEQUENT AMENDMENT BY THE INSERTION OF EXPLANATION BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 2002 IN SECTION 92B(1) OF THE ACT, THE TRANSACTION IN RESPE CT OF LENDING OR BORROWING MONEY HAS BEEN EXPANDED TO INCLUDE CAPITAL FINANCING INCL UDING ANY TYPE OF LONG TERM OR SHORT TERM BORROWING, LENDING OR GUARANTEE, PURCHAS E OR SALE OF MARKETABLE SECURITIES OR ANY TIME OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENTS OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINES S. SO, ACCORDING TO THE LD. CIT,DR, SINCE THE EXPLANATION GIVES RETROSPECTIVE E FFECT FROM 01.04.2002 IT IS ABUNDANTLY CLEAR THAT THE ACT OF GRANTING CORPORATE GUARANTEE BY THE ASSESSEE TO THE AE IS IN FACT AN INTERNATIONAL TRANSACTION AND THER EFORE THE TPO WAS RIGHT TO HOLD IT ACCORDINGLY. THE LD. CIT,DR DREW OUR ATTENTION TO T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE CIT VS. EVEREST KANTO CYLIND ERS LTD., ITA NO. 1165 OF 2013 WHEREIN THE HONBLE HIGH COURT UPHELD THE ADJUSTMEN T OF 0.50% MADE BY THE TPO IN RESPECT OF GUARANTEE FEE IN A SIMILAR CASE AS TH AT OF ASSESSEE, AND, THEREFORE, ACCORDING TO HIM, THE TRIBUNAL DECISION OF BHARTI A IRTEL LTD OF DELHI BENCH IS NOT GOOD LAW. 12.5. ACCORDING TO THE LD. DR, THE TRANSACTION MENT IONED IN SECTION 92B OF THE ACT I.E. PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGI BLE PROPERTY, OR PROVISION OF SERVICES OR LENDING OR BORROWING MONEY HAS TO BE TR EATED AS AN INTERNATIONAL IT(TP)A NO.57 /2018 :- 29 -: TRANSACTION AND THE ARGUMENTS OF THE LD. AR IS NOT CORRECT TO SAY THAT THE TRANSACTION SHOULD HAVE A BEARING ON THE PROFITS, INCOMES LOSSE S OR ASSETS OF SUCH ENTERPRISES,. ACCORDING TO HIM, ONLY IN OTHER TRANSACTION I.E. IN SEC. 92B [NOT FALLING IN (A) TO (D)] WHICH IS NOT SPECIFICALLY STATED THAT IS PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SERVICES OR LEN DING OR BORROWING MONEY THERE IS A REQUIREMENT OF BEARING ON PROFIT, INCOMES, ASSETS OF SUCH ENTERPRISES. ACCORDING TO THE LD. DR, EXPLANATION BELOW SEC. 92B OF THE ACT, CLEARLY INCLUDES THE CORPORATE GUARANTEE AS AN INTERNATIONAL TRANSACTION AND A REA DING OF RESIDUAL CLAUSE (E) MAKES IT ABUNDANTLY CLEAR THAT IN CASE OF OTHER TRANSACTI ONS WHICH FALL IN (A) TO (D) THERE IS NO REQUIREMENT OF BEARING ON THE PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISES; AND ONLY IN RESPECT OF TRANSACTION SPE CIFIED IN (E) THIS REQUIREMENT CAN BE READ INTO AND IN ALL OTHER TRANSACTIONS SPECIFIE D IN (A) TO (D) NO SUCH REQUIREMENT OF PROFIT/LOSS CAN BE READ INTO AND, THEREFORE, THE TRANSACTION OF CORPORATE GUARANTEE WILL BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. THEREFORE, ACCORDING TO THE LD. DR, THE LD TPO WAS CORRECT IN NOT ACCEPTING THE ARG UMENTS OF THE ASSESSEE THAT TRANSACTIONS OF GIVING CORPORATE GUARANTEE TO THE A E WAS NOT AN INTERNATIONAL TRANSACTION. 12.6. THE LD. AR IN HIS REJOINDER EXPLAINED THAT T HE CASE CITED IN FAVOUR OF REVENUE ON THIS ISSUE BY THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF EVEREST KANTO CYLINDER LIMITED (SUPRA) WAS WHEN THE PARENT COMPAN Y CHARGED A FEE OF 0.5% ON THE AE FOR RENDERING THIS SERVICE. ON THIS FACTUAL ASPE CT, THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT HELD THAT IT IS AN INTERNATIONAL TRANSACTION. SINCE IN THE CASE IN HAND, THE ASSESSEE HAS NOT CHARGED A PENNY FROM THE AE, THE FACTS OF THE CASE IS DIFFERENT AND CASE LAW IS DISTINGUISHABLE AND, THER EFORE, THE HONBLE HIGH COURTS ORDER CANNOT COME TO THE RESCUE OF THE REVENUE. THE LD. AR POINTED OUT THAT IN THE SAID CASE, THE HONBLE BOMBAY HIGH COURT DID NOT AN SWER THE SPECIFIC QUESTION AS TO WHETHER THE ISSUANCE OF CORPORATE GUARANTEE IS INHE RENTLY WITHIN THE AMBIT OF DEFINITION OF INTERNATIONAL TRANSACTION IRRESPECT IVE OF WHETHER OR NOT SUCH TRANSACTIONS HAVE ANY BEARING ON PROFITS, INCOME, LOSSESS OR ASSETS OF SUCH ENTERPRISES U/S. 92 B OF THE ACT. ACCORDING TO LD. COUNSEL, THE HONBLE HIGH COURT WAS EXAMINING WHETHER THE ADJUSTMENT MADE BY THE TP O WHEN THE ASSESSEE IN THAT CASE IN FACT HAD CHARGED 0.5% ON THE AE AS CORPORAT E GUARANTEE COMMISSION AND THAT WAS THE QUESTION BEFORE THE HONBLE COURT AND THE HONBLE HIGH COURT DID NOT ANSWER AS TO WHETHER THE CORPORATE GUARANTEE GIVEN WITHOUT ANY FINANCIAL LIABILITY ON THE AE IS AN INTERNATIONAL TRANSACTION. THUS, AC CORDING TO LD. AR, THE DECISION IN THE CASE OF EVEREST KANTO CYLINDER LIMITED (SUPRA) CANNOT COME TO THE RESCUE OF THE REVENUE. THE LD. AR CITED THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF PADMASUNDARA RAO (DECD.) & ORS VS STATE OF TAMIL NA DU & ORS REPORTED IN 255 ITR 147 (SC) AT PAGE 148 TO BRING TO OUR NOTICE THA T A CHANGE EVEN ON A SINGLE FACT MAY CHANGE THE RATIO OF THE ENTIRE DECISION AND SO THE HONBLE BOMBAY HIGH COURT DECISION IS DISTINGUISHABLE AND CANNOT BE TAKEN AS A PRECEDENT TO ADJUDICATE THE ISSUE BEFORE US. 12.7. ACCORDING TO THE LD. AR, THE HYDERABAD TRIBUN AL IN THE CASE OF PROLIFICS CORPORATION LTD (SUPRA) DOES NOT DISCUSS AS TO WHET HER CORPORATE GUARANTEE IS A SERVICE OR NOT AND HAS NOT EXPRESSLY DEALT WITH THE QUESTION AS TO WHETHER THE EXPLANATION INSERTED BY FINANCE ACT 2012 IS RETROSP ECTIVE OR NOT. ACCORDING TO THE LD. AR, THE DELHI TRIBUNAL IN THE CASE OF BHARTI AI RTEL LTD. HAS GONE IN DEPTH TO DECIDE THE ISSUE WHICH WAS FRAMED BEFORE IT ON THIS ISSUE. SO, ACCORDING TO HIM, THE IT(TP)A NO.57 /2018 :- 30 -: DECISION OF BHARTI AIRTEL LTD IS LEGALLY SUSTAINABL E. FOR A QUESTION FROM THE BENCH THAT SINCE THERE IS A CONTRADICTORY DECISION ON THE ISSUE IN HAND, WHETHER THE QUESTION NEEDS TO BE REFERRED TO THE SPECIAL BENCH OF THE TRIBUNAL, THE LD. COUNSEL DREW OUR ATTENTION TO THE FACT THAT THE QUESTION OF LAW ARISING FROM THE TRIBUNALS DECISION IN BHARTI AIRTEL LTD HAS ALREADY BEEN ADMI TTED BY THE HONBLE DELHI HIGH COURT, THEREFORE REFERRING THE QUESTION AND CONVENI NG OF THE SPECIAL BENCH WOULD BE A FUTILE EXERCISE. 12.8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E RECORDS. WE NOTE THAT THE ASSESSEE COMPANY HAD INCORPORATED A 100% SUBSIDIARY CALLED M/S. EIH FLIGHT AT MAURITIUS FOR THE FINANCIAL YEAR 2007-08 BY INVESTI NG US $1.1 MILLION FOR THE PURPOSE OF SETTING UP ITS OFF-SHORE FLIGHT CATERING UNIT THERE (MAURITIUS). THE BUSINESS OBJECTIVE OF M/S. EIH FLIGHT WAS TO PROVIDE IN-FLIG HT CATERING SERVICES TO AIRLINE COMPANIES OPERATING IN AND OUT OF MAURITIUS. ACCORD ING TO ASSESSEE, I.E. M/S. EIH HAS BEEN IN THE INDUSTRY OF CATERING FACILITIES FOR OVER 50 YEARS, AND HAS BEEN PRODUCING 50,000 MEALS PER DAY FOR SOME OF THE BIGG EST NAMES IN AVIATION INDUSTRY INCLUDING AIR FRANCE, AIR MAURITIUS, BRITISH AIRWAY S, JET AIRWAYS, ETIHAD AIRWAYS, LUFTHANSA ETC., FOR THE PURPOSE OF SETTING UP ITS C ATERING UNIT AT MAURITIUS, THE AIRPORT AUTHORITY OF MAURITIUS PROVIDED EIH FLIGHT (100% SUBSIDIARY COMPANY OF ASSESSEE) A PLOT OF LAND MEASURING 14,000 SQ. METER S ON A RENEWABLE LEASE FOR 20 YEARS. THE FACILITY WAS TO HAVE A SERVING CAPACITY OF 10,000 MEALS PER DAY INVOLVING STATE-OF-THE-ART KITCHEN WITH BEST EQUIPMENT, LATES T TECHNOLOGICAL INNOVATIONS, PRACTICING SYSTEMS AND PROCEDURES. FOR THE PURPOSE OF SETTING UP CATERING, THE BUDGETED COST BY AN EXTERNAL CONSULTANT WHICH WAS E STIMATED TO BE AROUND US$24.3 MILLION. WE FURTHER NOTE THAT ACCORDING TO THE ASSE SSEE, ITS 100% SUBSIDIARY (EIH FLIGHT) WAS INCORPORATED WITH A MINIMAL EQUITY CAPI TAL OF US$1.1 MILLION I.E. WHICH WAS ONLY 4% OF THE TOTAL PROJECT COST AND IT WAS A PROMOTERS/SHAREHOLDERS STRATEGY TO FUND, THE START-UP COMPANY THROUGH THIRD PARTY B ORROWINGS MADE AVAILABLE TO IT WITH THE HELP OF THE PARENT COMPANYS CORPORATE GUA RANTEE. ACCORDINGLY, THE PROJECT WAS PLANNED TO START-OFF IN THE YEAR 2009 AND REMAI NING BALANCE OF US$ 23.2 MILLION WAS PLANNED BY THE SHARE HOLDER TO BE FUNDED IN THE FOLLOWING MANNER :- PARTICULARS SOURCE OF FUNDS AMOUNT SUBSEQUENT EQUITY FUNDING EIH LIMITED US$4.2 MILLION EXTERNAL LOAN FUNDING WITH THE HELP OF SHAREHOLDERS GUARANTEE TO BE PROVIDED BY THIRD PARTY BANKERS WITH THE HELP OF SHAREHOLDER GUARANTEE US$ 19 MILLION 12.9. WE NOTE THAT SINCE ASSESSEES 100% SUBSIDIARY M/S. EIH FLIGHT WAS A NEW COMPANY, THE LENDERS WOULD NOT RISK GRANTING LOANS UNLESS CORPORATE GUARANTEE IS GIVEN BY THE PARENT COMPANY I.E. THE ASSESSEE. THUS , THE ASSESSEE COMPANY BEING THE PARENT COMPANY GAVE CORPORATE GUARANTEE TO THE LEND ER BANK, SO THAT LOAN COULD BE DISBURSED TO ITS 100% SUBSIDIARY I.E. M/S. EIH FLIG HT MAURITIUS. IT WAS BROUGHT TO THE NOTICE OF LD TPO THAT THE ASSESSEE HAD NOT CHAR GED ANY FEE FOR PROVIDING SUCH GUARANTEE SINCE IT WAS THE OBLIGATION OF THE ASSESS EE TOWARDS ITS SUBSIDIARY. IT(TP)A NO.57 /2018 :- 31 -: ACCORDING TO THE ASSESSEE, SINCE THERE WAS NO FEES CHARGED BY THE ASSESSEE COMPANY FROM ITS 100% SUBSIDIARY FOR PROVIDING CORPORATE GU ARANTEE, THIS FACT WAS NOT REPORTED AS AN INTERNATIONAL TRANSACTION. THE AFORE SAID CONTENTION WAS NOT ACCEPTED BY THE LD TPO AND ACCORDING TO THE LD TPO, THE ARRA NGEMENT BETWEEN THE COMPANY AND ITS SUBSIDIARY WAS IN THE NATURE OF PROVIDING S ERVICES TO AE AND, THEREFORE, HAD TO BE CATEGORIZED AS AN INTERNATIONAL TRANSACTION. THEREAFTER THE LD TPO APPLIED THE CUP METHOD AS THE MAM FOR BENCHMARKING THE GUARANTE E FEE AND HELD THAT THE GUARANTEE FEE RATE OF 3% TO BE THE ARMS LENGTH FOR BENCH MARKING THE TRANSACTIONS OF RECEIPT OF CORPORATE GUARANTEE FROM THE SUBSIDIARY AND THUS MADE AN ADDITION OF RS.2,62,09,659/-. THE LD DRP UPHELD THE SAID ADJUST MENT PERTAINING TO THE RECEIPT OF CORPORATE GUARANTEE FEE. AGGRIEVED BY THE DECISION OF THE LD. DRP AND THE FINAL ORDER OF THE AO, THE ASSESSEE IS IN APPEAL BEFORE U S. 12.10. WE NOTE THAT M/S. EIH FLIGHT IS A STARTUP C OMPANY, IT REQUIRED FUNDS PRIMARILY FOR ACQUISITION OF CAPITAL ASSETS FOR SETTING UP IT S OPERATION AND GUARANTEE FACILITIES GIVEN BY THE ASSESSEE/ASSESSEE COMPANY TO THE LENDE R BANK IS NORMAL BUSINESS PRACTICE AND OBLIGATION TOWARDS A SUBSIDIARY. SINCE THE AE WAS A STARTUP COMPANY, THE ASSESSEE EXTENDED CORPORATE GUARANTEE TO THE TH IRD PARTY BORROWERS AS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT ITS INTEREST BY F ULFILLING THE SHAREHOLDERS OBLIGATION. WE AGREE WITH THE CONTENTION OF THE LD AR THAT THE CORPORATE GUARANTEE AS PROVIDED BY THE ASSESSEE WAS A MATTER OF COMMERC IAL PRUDENCE TO PROTECT AND BY FULFILLING THE SHAREHOLDER OBLIGATION, AS ANY FINAN CIAL INCAPACITATION OF THE SUBSIDIARY WOULD JEOPARDIZE THE INVESTMENT OF THE A SSESSEE. FOR THAT WE RELY ON THE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF TEGA INDUSTRIES LTD. VS DCIT (ITA NO.1912/KOL/2012 WHEREIN IT WAS HELD THAT THE PROVISION OF CORPORATE GUARANTEE IS IN THE NATURE OF SHAREHOLDER ACTIVITY AND HENCE, NO TP ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE IS REQUIRED. IN THE SAID CASE, THIS TRIBUNAL HAD HELD THAT THE ASSESSEES EXPECTATION FROM PROVISION OF GUARANTEE WAS NOT THAT OF A GUARANTOR I.E. TO EARN A GUARANTEE FEE, RATHER, THE EXPECTATION WAS OF A SHAREHOLDER TO PROTECT ITS INVESTMENT INTEREST, TO HELP IT ACHI EVE THE ASSESSEES BUSINESS OBJECTIVE. THUS, WE AGREE WITH THE CONTENTION OF T HE ASSESSEE THAT THE OBJECTIVE OF THE ASSESSEE FOR PROVIDING GUARANTEE WAS NOT TO EAR N GUARANTEE FEE BUT TO EARN RETURNS IN THE FORM OF APPRECIATION IN INVESTMENT V ALUE AND RECEIVE DIVIDENDS AND, THEREFORE, NO TP ADJUSTMENT OUGHT TO HAVE BEEN MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 12.11. COMING TO THE ALTERNATE PLEA OF THE ASSESSEE THAT, IN THE FACTS AND CIRCUMSTANCES THE CORPORATE GUARANTEE IS NOT AN INT ERNATIONAL TRANSACTION U/S. 92B OF THE ACT, WE NOTE THAT TERM 'GUARANTEE' WAS INSER TED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTION' IN SECTION 92B BY INSER TING AN EXPLANATION IN THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/2002 . THE EXPLANATION STATES THAT- 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE .... (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GU ARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYME NTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS.' THE EXPLANATION STATES THAT IT IS CLARIFICATORY IN NATURE AND IS 'F OR THE REMOVAL OF DOUBTS'. THUS, IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INT ERNATIONAL TRANSACTION' UNDER THE MAIN SECTION 92B. UNDER THIS EXPLANATION, FIVE CATE GORIES OF TRANSACTIONS HAVE BEEN IT(TP)A NO.57 /2018 :- 32 -: CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION O F 'INTERNATIONAL TRANSACTIONS'. CLAUSES (A) (B) AND (D) DO NOT COVER GUARANTEE, LEN DING OR LOANS. OTHER TWO, (C) AND (E) DEAL WITH (I) CAPITAL FINANCING, AND (II) BUSIN ESS RESTRUCTURING OR REORGANIZATION. CLAUSE (C ) REFERS TO LENDING OR GUARANTEE. BUT THE EXPLANATION WHICH IS FOR REMOVAL OF DOUBTS OR IS CLARIFICATORY, CANNOT BE READ INDEP ENDENT OF SECTION 92B(1). SECTION 92B(1), PROVIDES THOSE TRANSACTIONS AS INTERNATIONA L TRANSACTIONS WHICH ARE IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR IN TANGIBLE PROPERTY (EXPLAINED BY CLAUSES (A) AND (B) OF THE EXPLANATION), OR PROVISI ON OF SERVICES, (EXPLAINED BY CLAUSE (D) OF THE EXPLANATION), OR LENDING OR BORROWING MO NEY (EXPLAINED BY CLAUSE (C) OF EXPLANATION). THE PLAIN READING OF PROVISIONS OF SE C. 92B(1) OF THE ACT INDICATE THAT THE VARIOUS TRANSACTIONS MENTIONED IN SECTION 92B(1 ) OF THE ACT, (I.E. PURCHASES, SALES, PROVISION FOR SERVICES, LENDING OR BORROWING OR ANY OTHER TRANSACTION) SHOULD HAVE BEARING ON THE PROFITS, INCOMES, LOSSES OR ASS ETS OF SUCH ENTERPRISES. IN OUR OPINION, THE CONDITION PRECEDENT OF A TRANSACTION H AVING A BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS WOULD APPLY TO EACH OF T HE AFORESAID TRANSACTIONS NAMELY PURCHASE, SALE, OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY OR ANY SUCH TRANSACTI ON. THIS UNDERSTANDING OF OURS GETS FURTHER CLARIFIED BY WAY OF INSERTION OF EXPLA NATION IN SECTION 92B(1) BY THE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 01. 04.2002 VIDE CLAUSE (A) TO (D). WE FIND THAT IN THE SAID EXPLANATION, CLAUSE (E) AL ONE HAS BEEN CARVED OUT AS AN EXCEPTION WHEREIN, THE TRANSACTION THEREON HAS BEEN SPECIFICALLY MANDATED TO BE AN INTERNATIONAL TRANSACTION WHERE A TRANSACTION OF BU SINESS RESTRUCTURING OR REORGANIZATION, ENTERED INTO BY AN ENTERPRISE WITH AN AE IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF TRANSACTION OR AT ANY FUTURE DATE. 12.12. THUS, WE HOLD THAT WHEN A PARENT COMPANY EXT ENDS AN ASSISTANCE TO THE SUBSIDIARY, BEING ASSOCIATED ENTERPRISE, SUCH AS CO RPORATE GUARANTEE TO A FINANCIAL INSTITUTION FOR LENDING MONEY TO THE SUBSIDIARY, WH ICH DOES NOT COST ANYTHING TO THE PARENT COMPANY, AND WHICH DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, IT WILL BE OUTSIDE THE AMBIT OF INTERNAT IONAL TRANSACTION UNDER SECTION 92B(1) OF THE ACT. IN THIS REGARD, WE WOULD LIKE TO HOLD THAT ISSUANCE OF CORPORATE GUARANTEE BY THE ASSESSEE TO ITS AE WOULD HAVE INF LUENCE ON THE PROFITS , INCOMES, LOSSES OR ASSETS OF ENTERPRISE BUT NOT NECESSARILY HAVE ANY IMPACT ON THE PROFITS, INCOMES, LOSSES OR ASSETS AS ADMITTEDLY NO CONSIDE RATION WAS RECEIVED BY THE ASSESSEE IN RESPECT OF THIS CORPORATE GUARANTEE FRO M ITS AE. WE FIND THAT THE AHMEDABAD TRIBUNAL IN THE CASE OF MICRO INK IN ITA NO. 2873/AHD/2010 HAD OBSERVED THAT IF A SUBSIDIARY (AE IN THE INSTANT CA SE) COULD NOT BORROW MONEY FROM THIRD PARTY SOURCES ON ITS OWN STANDING AND THE GUA RANTEE PROVIDED BY THE PARENT (ASSESSEE IN THE INSTANT CASE) ENABLES IT TO MAKE S UCH BORROWING, THEN THE GUARANTEE COULD BE SAID TO BE A SHAREHOLDER FUNCTION, NOT WAR RANTING A GUARANTEE FEE. THIS RATIO WOULD SQUARELY BE APPLICABLE TO THE FACTS OF THE INSTANT CASE BEFORE US. 12.13. THE LD. CIT, DRS RELIANCE IN THE CASE OF EV EREST KANTO CYLINDER LTD. (SUPRA) WOULD NOT COME TO THE RESCUE OF REVENUE BECAUSE IN THAT CASE, THE PARENT COMPANY CHARGED A FEE OF 0.5% ON THE AE FOR RENDERING THIS SERVICE. ON THIS FACTUAL ASPECT, THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT HELD THAT IT IS AN INTERNATIONAL TRANSACTION. SINCE IN THE CASE IN HAND, THE ASSESSE E HAS NOT CHARGED A PENNY FROM THE AE, SO THE FACTS OF THE CASE ARE DIFFERENT AND CASE LAW IS DISTINGUISHABLE AND, IT(TP)A NO.57 /2018 :- 33 -: THEREFORE, THE HONBLE HIGH COURTS ORDER CANNOT CO ME TO THE RESCUE OF THE REVENUE. WE FIND THAT THE LD. AR POINTED OUT THAT IN THE SAI D CASE, THE HONBLE BOMBAY HIGH COURT DID NOT ANSWER THE SPECIFIC QUESTION AS TO WH ETHER THE ISSUANCE OF CORPORATE GUARANTEE IS INHERENTLY WITHIN THE AMBIT OF DEFINIT ION OF INTERNATIONAL TRANSACTION IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS HA VE ANY BEARING ON PROFITS, INCOME, LOSSESS OR ASSETS OF SUCH ENTERPRISES U/S. 92 B OF THE ACT. WE ALSO NOTE THAT THE AHMEDABAD BENCH OF THIS TRIBUNAL SUPRA AFTER CO NSIDERING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN EVEREST KANTO CYLINDER LTD. (SUPRA) OBSERVED AS UNDER: WE ARE UNABLE TO SEE, IN THE JUDGMENT OF HONBLE BOMBAY HIGH COURT, ANY SUPPORT TO THE PROPOSITION THAT ISSUANCE OF CORPORA TE GUARANTEE IS INHERENTLY WITHIN THE AMBIT OF DEFINITION OF INTERNATIONAL TR ANSACTION UNDER SECTION 92B IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS HA VE ANY BEARING ON PROFITS INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES. RE VENUE, THEREFORE, DOES NOT DERIVE ANY HELP FROM THE SAID DECISION. 12.14. THE LD CIT DR WOULD HAVE HAD A CASE WHERE A FEE HAS BEEN CHARGED FOR THE INTRA SERVICE WHICH HAS BEEN RENDERED (IN THE CONTE XT OF CORPORATE GUARANTEE), AND, THEREFORE, THE ASSESSEE OR THE COURT HAS TREATED IT AS AN INTERNATIONAL TRANSACTION, THEN THE CHARGE OF CORPORATE GUARANTEE HAS TO BE IN ACCORDANCE WITH ARM'S LENGTH PRINCIPLE. THIS MEANS THAT THE PRICE FOR CORPORATE GUARANTEE SHOULD BE THAT WHICH WOULD HAVE BEEN PAID AND ACCEPTED BY INDEPENDENT EN TERPRISES IN COMPARABLE CIRCUMSTANCES. IN THAT CASE TRANSFER PRICING ADJUST MENTS ARE REQUIRED. IN THAT CASE, IT HAS TO BE DETERMINED WHAT WILL BE THE ALP OF CORPOR ATE GUARANTEE COMMISSION PAID BY ASSOCIATE ENTERPRISE TO THE PARENT COMPANY PROVI DING CORPORATE GUARANTEE. SINCE THAT IS NOT THE CASE BEFORE US, WE NEED NOT GO INTO IT. 12.15. WE ALSO FIND THAT THIS VERY SAME ISSUE CAME UP FOR ADJUDICATION BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2 010-11 IN ITA NO. 530/KOL/2015 DATED 9.6.2017 , WHEREIN BY PLACING RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF A) MARICO LTD VS ACIT REPORTED IN (2016) 70 TAXMAN N.COM 214 (MUMBAI TRIB) WHEREIN IT WAS HELD THAT CORPORATE GUARANTEE WAS NO T AN INTERNATIONAL TRANSACTION ; AND B) SIRO CLINPHARM P LTD VS DCIT IN ITA NO. 2618/MUM /2014 DATED 31.3.2016 , WHEREIN IT WAS HELD THAT THE EXPLANATION INTRODUCED BY FINANCE ACT 2012 CAN BE MADE APPLICABLE ONLY FROM ASST YEAR 2013-14 ONWARDS . 12.16. MOREOVER, WE FIND THAT THOUGH THE EXPLANATIO N WAS INTRODUCED BY FINANCE ACT 2012, THE RULES WERE NOTIFIED ONLY ON 10.6.2013 . HENCE THE ASSESSEE CANNOT BE EXPECTED TO REPORT THIS TRANSACTION ALSO AS AN INTE RNATIONAL TRANSACTION IN ITS TRANSFER PRICING STUDY AND THE AUDIT REPORT THEREON. 12.17. IN VIEW OF THE AFORESAID FINDINGS AND RESPEC TFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDENTS, WE ALLOW THE GROUNDS 1.1. TO 1 .4 RAISED BY THE ASSESSEE. IT(TP)A NO.57 /2018 :- 34 -: THE BENCH HAD DULY CONSIDERED THE EXPLANATION INTR ODUCED TO SECTION 92B OF THE ACT THROUGH FINANCE ACT, 2012 WITH RETR OSPECTIVE EFFECT FROM 01.04.2002 WHILE GIVING THE ABOVE DECISION. TH E FACTS IN THE SAID CASE, IN OUR OPINION ARE VERY SIMILAR TO THE ONE HERE. ASSESSEE HAD NOT CHARGED ANY CORPORATE GUARANTEE FEE AND CORPOR ATE GUARANTEE WAS GIVEN BY IT TO ITS 100% SUBSIDIARY. FOLLOWING THE DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF EIH LTD (SUPRA ), WE ARE OF THE OPINION THAT THERE WAS NO SCOPE FOR MAKING ANY ADJUSTMENT FOR CORPORATE GUARANTEE FEES ON THE CORPORATE GUARANTEE GIVEN BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE. UPWARD ADDI TION OF B2,02,75,200/- ON CORPORATE GUARANTEE FEES STANDS D ELETED. 23. NOW WE TAKE UP THE DISPUTE REGARDING THE ARMS LENGT H PRICE ADJUSTMENT IMPUTING INTEREST ON OVERDUE RECEIVABLES . IT IS NOT DISPUTED BY THE REVENUE THAT ASSESSEE HAD NOT CHARG ED INTEREST EITHER FROM ITS ASSOCIATED ENTERPRISE OR FROM NO N ASSOCIATED ENTERPRISES, FOR DELAY IN COLLECTION OF RECEIVABLES . IT IS ALSO NOT DISPUTED THAT OUT OF THE TOTAL TRANSACTIONS OF THE ASSESSEE ALMOST 57% WERE WITH ITS NON ASSOCIATED ENTERPRISES. ONCE TH ERE IS COMPLETE UNIFORMITY FOLLOWED BY ASSESSEE IN NOT CHARGING ANY INTEREST FROM ANY PARTY, WHETHER ASSOCIATED ENTERPRISE OR NON ASSOCIA TED ENTERPRISES, IN IT(TP)A NO.57 /2018 :- 35 -: OUR OPINION THERE COULD NOT BE ANY SELECTIVE IMPUT ING OF NOTIONAL INTEREST. SUBMISSION OF THE ASSESSEE THAT OUT OF T OTAL SALES OF ABOUT OF B261 CRORES TO ITS ASSOCIATED ENTERPRISE, B100 CROR ES WAS RECEIVED WELL WITHIN THE DUE DATE AND SMALL DELAYS WERE ONL Y IN THE BALANCE OF B161 CRORES HAS NOT BEEN DISPUTED BY THE LD. DEPART MENTAL REPRESENTATIVE. ASSESSEE HAD NOT OFFERED ANY DISC OUNT TO ANY PARTY FOR PAYMENT OF BILLS BEFORE THE EXPIRY OF THE CREDI T PERIOD. HENCE, IT IS ONLY A NATURAL COROLLARY THAT IT DID NOT CHARGE ANY INTEREST FOR DELAYS ALSO. WHERE A GOOD PART OF THE DUES WERE COLLECTED EARLIER TO THE DUE DATE, IN OUR OPINION THE INSTANCES WHERE THERE W ERE DELAYS COULD NOT BE SELECTIVELY ELECTED FOR A LEVY OF CHARGE OF NOT IONAL INTEREST. SUCH AN APPROACH IF ACCEPTED WILL COMPLETELY OVERLOOK COM MERCIAL REALTIES. THAT APART, ONCE TNMM METHOD IS CONSIDERED AS THE MOST APPROPRIATE METHOD, AS HELD BY AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASES OF BISAZZA INDIA (P) LTD (SUPRA) AND GEMSTONE GLASS PV T LTD (SUPRA) THE NET MARGIN WORKED OUT THERE UNDER COULD TAKE CARE OF ALL SUCH NOTIONAL INTEREST COST, WHEREVER IT COULD BE IMPUTE D AND THERE COULD BE NO ARMS LENGTH PRICE ADJUSTMENT FOR ANY OVERDUE RECEIVABLES. WE THEREFORE DELETE ARMS LENGTH PRICE ADJUSTMENT OF B6 ,18,43,887/- MADE ON OVERDUE RECEIVABLES. IT(TP)A NO.57 /2018 :- 36 -: 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 5 TH DAY OF APRIL, 2019, AT CHENNAI. SD/- SD/- ( # $! # % . & ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:5TH APRIL, 2019 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF