M/S. ESSAR SHIPPING LTD,MUMBAI V. DCIT, CIRCLE 5(1)(1), MUMBAI

ITA 6521/MUM/2024

AI Insights

The case involves M/s Essar Shipping Ltd, which appealed against the final assessment order passed by the Deputy Commissioner of Income-tax, Circle-5(1)(1), Mumbai, under the direction of the Dispute Resolution Panel (DRP). The primary issues in the appeal were the transfer pricing adjustment related to a corporate guarantee commission and the classification of interest income from an income tax refund. The Tribunal examined whether the corporate guarantee transactions constituted international transactions and whether the income from the tax refund should be considered business income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396917 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2021-2022
• Other Referred Cases: Everest Kanto Cylinders Ltd vs. CIT, Glenmark Pharmaceuticals Ltd vs. CIT, Foursoft P Ltd vs. DCIT, Tata Consultancy Services Ltd vs. ACIT, Greatship (India) Ltd vs. ACIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SURESH GAIKWAD
• Assessee Lawyers: PIYUSH CHATURVEDI
• Keywords: Business income; Transfer pricing; International transaction; TDS
• Section: 133(6); 92B; 10B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 6521/MUM/2024 Assessment Year: 2021-22 M/s Essar Shipping Ltd., 5th floor, Essar House, 11, Keshav Rao Khadye Marg, Mahalaxmi Mumbai-400034. Vs. Dy. CIT, Circle 5(1)(1), Mumbai/Assessment Unit, National Faceless Assessment Centre, Room No. 568, Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN NO. AACCE 3707 D Appellant Respondent Assessee by : Mr. Piyush Chaturvedi Revenue by : Mr. Suresh Gaikwad, Sr. DR Date of Hearing : 08/04/2025 Date of pronouncement : 30/05/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against final assessment order passed by the Ld. Dy. Commissioner of Income- tax, Circle-5(1)(1), Mumbai [in short ‘the Ld. Assessing Officer’] dated 29.10.2024 for assessment year 2021-22, pursuant to the direction of Ld. Dispute Resolution Panel (DRP). The grounds raised by the assessee are reproduced as under: 1. The Ld. FAO under the direction of DRP had erred in law and in fact in making a TP adjustment of Rs. 3,42,83,120/ calculated @ 1.40%. Without Prejudice the Learned FAO/TPO ought to have restricted the Guarantee Commission @ 0.25% following the ITAT order in the Assessee's own case. 2. The Ld. FAO under the direction of DRP erred in assessing the Interest income from inco 1,27,00,000/ tax liability) as Income from other sources instead of Business 3. The Ld. FAO and DRP both grossly erred in not following the ITAT Mumbai order in the Appellant Company's case and also failed to appreciate that unless there is an order from the High Court to suspend the operation of the order of the ITAT, the order of ITAT in Appellant Company's case is binding 2. Briefly stated, facts of the case are that the engaged in the business of shipping operation and transportation of the crude oil, rigs and bulk transportation services. The assessee was having two streams of income shipping business. For the year under considerati filed return of income on 14.03.2022 declaring total income at Rs.26,38,220/-. In the return of income business was offered on presumptive basis under Tonnage Tax Scheme provided u/s 115BA of the Income ‘the Act’). The income from non under the normal provisions of the Act. The return of income filed by the assessee was selected for scrutiny M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 f Ld. Dispute Resolution Panel (DRP). The grounds raised by the assessee are reproduced as under: The Ld. FAO under the direction of DRP had erred in law and in fact in making a TP adjustment of Rs. 3,42,83,120/- as Corporate Guarantee Commission taking calculated @ 1.40%. Without Prejudice the Learned FAO/TPO ought to have restricted the Guarantee Commission @ 0.25% following the ITAT order in the Assessee's own case. The Ld. FAO under the direction of DRP erred in assessing the Interest income from income tax refund for Rs. 1,27,00,000/- (arises due to excess of TDS over tax liability) as Income from other sources instead of Business Income. The Ld. FAO and DRP both grossly erred in not following the ITAT Mumbai order in the Appellant Company's case and also failed to appreciate that unless there is an order from the High Court to suspend the operation of the order of the ITAT, the order of ITAT in Appellant Company's case is binding on them. Briefly stated, facts of the case are that the engaged in the business of shipping operation and transportation of and bulk transportation services. The assessee was having two streams of income, shipping business and shipping business. For the year under consideration, the assessee filed return of income on 14.03.2022 declaring total income at n the return of income, income business was offered on presumptive basis under Tonnage Tax cheme provided u/s 115BA of the Income-tax Act, 1961 ‘the Act’). The income from non-shipping business has been offered under the normal provisions of the Act. The return of income filed by the assessee was selected for scrutiny assessment M/s Essar Shipping Ltd 2 ITA No. 6521/MUM/2024 f Ld. Dispute Resolution Panel (DRP). The grounds raised The Ld. FAO under the direction of DRP had erred in law and in fact in making a TP adjustment of Rs. as Corporate Guarantee Commission taking calculated @ 1.40%. Without Prejudice the Learned FAO/TPO ought to have restricted the Guarantee Commission @ 0.25% following the ITAT order in the The Ld. FAO under the direction of DRP erred in assessing me tax refund for Rs. (arises due to excess of TDS over-assessed tax liability) as Income from other sources instead of The Ld. FAO and DRP both grossly erred in not following the ITAT Mumbai order in the Appellant Company's own case and also failed to appreciate that unless there is an order from the High Court to suspend the operation of the order of the ITAT, the order of ITAT in Appellant Briefly stated, facts of the case are that the assessee is engaged in the business of shipping operation and transportation of and bulk transportation services. The assessee shipping business and non- on, the assessee filed return of income on 14.03.2022 declaring total income at , income from shipping business was offered on presumptive basis under Tonnage Tax tax Act, 1961 (in short shipping business has been offered under the normal provisions of the Act. The return of income filed assessment and statutory notices under the Act were issued and complie course of the scrutiny proceedings, the Assessing Officer observed international transactions carried out by the assessee and accordingly issue of determination of arm’s length price of those international transactions was referred to th Officer. The Transfer Pricing Officer (TPO) propose Rs.3,42,83,120/- to the international transaction of the guarantee commission. The Assessing Officer taking into consideration, the transfer pricing adjustment propos assessment order on 27.12.2023 additions related to the corporate issues. The assessee filed objection before the said draft assessment order before the Ld. DRP. Consequent to the direction of t passed this impugned final assessment order wherein following two additions were made : S.NO Description 1 T.P additions on account of Guarantee Commission 2 Interest income excess of TDS over assessed as income from other sources instead of Business Income Grand Total (1+2) 3. Aggrieved, the assessee is in appeal before the Tribunal by way of grounds reproduced above. M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 notices under the Act were issued and complied with. During the course of the scrutiny proceedings, the Assessing Officer observed international transactions carried out by the assessee and accordingly issue of determination of arm’s length price of those international transactions was referred to the Ld. Transfer Pricing Officer. The Transfer Pricing Officer (TPO) proposed to the international transaction of the guarantee commission. The Assessing Officer taking into consideration, the transfer pricing adjustment proposed by the TPO, assessment order on 27.12.2023, wherein he also proposed other related to the corporate issues. The assessee filed objection before the said draft assessment order before the Ld. DRP. Consequent to the direction of the Ld. DRP, the Assessing impugned final assessment order wherein following two additions were made : Additions (in INR) T.P additions on account of Guarantee Commission 3,42,83,120/ Interest income from income tax refund (arises due to excess of TDS over-assessed tax liability) is assessed as income from other sources instead of Business Income 1,27,00,000/ Grand Total (1+2) 4,69,83,120/ the assessee is in appeal before the Tribunal by way of grounds reproduced above. M/s Essar Shipping Ltd 3 ITA No. 6521/MUM/2024 d with. During the course of the scrutiny proceedings, the Assessing Officer observed international transactions carried out by the assessee and accordingly issue of determination of arm’s length price of those e Ld. Transfer Pricing d adjustment of to the international transaction of the guarantee commission. The Assessing Officer taking into consideration, the , issued a draft wherein he also proposed other related to the corporate issues. The assessee filed objection before the said draft assessment order before the Ld. DRP. he Ld. DRP, the Assessing Officer impugned final assessment order wherein following two Additions (in INR) 3,42,83,120/- 1,27,00,000/- 4,69,83,120/- the assessee is in appeal before the Tribunal by way 4. Before us, the Ld. counsel for the assessee filed a Paper Book containing pages 1 to 449. 5. The ground No. 1 of the appeal of the assessee relates to transfer pricing adjustment of the amounting to Rs.3,42,83,120/ dispute are that during the year under consideration, the assessee in its transfer pricing study reported two of guarantee commission as under: Name of the AE Amount Guarantee OGDShIL 29,22,00,000 Varada 226,16,00,000 5.1 Under the first transactions guarantee agreement where it had provided a performance guarantee on behalf of its subsidiary i.e. party bank i.e. Axis Bank in relation to credit facilities availed by EOSL from the Indonesian third party 65,00,000 (equivalent to Indian Rs. 29.22 crores). transaction, the assessee had provided an assurance for execution of one transaction of transfer of rigs from its group companies to parties identified by the third party bank arrangement the assessee had provided put options to buy certain preference share worth USD 30 million to be issued by Special Purpose Vehicle. M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 Before us, the Ld. counsel for the assessee filed a Paper Book containing pages 1 to 449. The ground No. 1 of the appeal of the assessee relates to adjustment of the ‘corporate guarantee commission amounting to Rs.3,42,83,120/-. Briefly stated facts qua the issue in dispute are that during the year under consideration, the assessee in its transfer pricing study reported two international transactions of guarantee commission as under: Amount Guarantee Rate Charged Guarantee Commission received (in Rs.) 29,22,00,000 0.5% 14,70,094 226,16,00,000 NIL NIL nder the first transactions, the company entered into a guarantee agreement where it had provided a performance guarantee on behalf of its subsidiary i.e. OGDSHIL( party bank i.e. Axis Bank in relation to credit facilities availed by EOSL from the Indonesian third party bank amounting to Rs.USD 00,000 (equivalent to Indian Rs. 29.22 crores). Under the second the assessee had provided an assurance for execution of one transaction of transfer of rigs from its group companies to parties identified by the third party bank and pursuant to said arrangement the assessee had provided put options to buy certain ence share worth USD 30 million to be issued by Special M/s Essar Shipping Ltd 4 ITA No. 6521/MUM/2024 Before us, the Ld. counsel for the assessee filed a Paper Book The ground No. 1 of the appeal of the assessee relates to corporate guarantee commission’ . Briefly stated facts qua the issue in dispute are that during the year under consideration, the assessee international transactions Guarantee Commission received (in Rs.) 14,70,094 , the company entered into a guarantee agreement where it had provided a performance OGDSHIL(EOSL to third party bank i.e. Axis Bank in relation to credit facilities availed by bank amounting to Rs.USD Under the second the assessee had provided an assurance for execution of one transaction of transfer of rigs from its group companies to pursuant to said arrangement the assessee had provided put options to buy certain ence share worth USD 30 million to be issued by Special 5.2 The learned TPO noted that the assessee charged corporate guarantee fee of 0.5% for international transactions in relation to Associated Enterprise(AE) namely another AE namely appropriate method’ the benchmarking carried out by the assessee as same was not in accordance with the provisions of the Act. however, invoking section 133(6) of the A from various banks with respect to guarantee commission charged by them. A list of information gathered is reproduced as under: S. No. 1. 2. 3. 4. 5. 6. 7. 8. 35th Percentile 5.3 The learned TPO observed that banks have charged average rate of 1.90% for charging guarantee commission. The learned TPO proposed comparable uncontrolled price(CUP) method for benchmarking using the commission, which is the guarantee to their customers. The learned TPO noted that no M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 The learned TPO noted that the assessee charged corporate of 0.5% for international transactions in relation to nterprise(AE) namely ‘OGDSHIL’ and NIL another AE namely ‘Varada’, applying ‘other method appropriate method’ for benchmarking. The learned TPO rejected the benchmarking carried out by the assessee as same was not in accordance with the provisions of the Act. The learned invoking section 133(6) of the Act gathered information from various banks with respect to guarantee commission charged by them. A list of information gathered is reproduced as under: Bank Name Rate Kotak Mahindra Bank 0.45% Standard Chartered Bank 0.75% Citi Bank 0.90% HDFC Bank 1.80% IDBI 2.00% SBI 2.40% Union Bank of India 3.00% ICICI 3.00% 0.90% Median 1.90% 65th percentile 2.40% The learned TPO observed that banks have charged average rate of 1.90% for charging guarantee commission. The learned TPO proposed comparable uncontrolled price(CUP) method for benchmarking using the mean or average bank guarantee commission, which is the rate at which banks provide corporate guarantee to their customers. The learned TPO noted that no M/s Essar Shipping Ltd 5 ITA No. 6521/MUM/2024 The learned TPO noted that the assessee charged corporate of 0.5% for international transactions in relation to ‘OGDSHIL’ and NIL in respect of other method’ as ‘most The learned TPO rejected the benchmarking carried out by the assessee as same was not in The learned TPO ct gathered information from various banks with respect to guarantee commission charged by them. A list of information gathered is reproduced as under: Rate 0.45% 0.75% 0.90% 1.80% 2.00% 2.40% 3.00% 3.00% 1.90% 2.40% The learned TPO observed that banks have charged average rate of 1.90% for charging guarantee commission. The learned TPO proposed comparable uncontrolled price(CUP) method for average bank guarantee rate at which banks provide corporate guarantee to their customers. The learned TPO noted that no internal CUP was available and therefore external CUP was applied under which the guarantee fee was quantified through a comparison of arm’s unrelated third parties providing similar guarantees under similar terms and conditions. 5.4 The learned TPO referred to the decision of coordinate bench of the Tribunal in the case of ITA No. 5031/Mum/2012 ‘Bank Guarantee(BG) with the Corporate G that TPO was not justified in mechanically picking up the as external CUP for benchmarking. The Tribunal held that commission rates could be appropriate CUP if those are properly benchmarked after making due adjustment in accordance with the provisions of the relevant rules method) of income tax rules, 1962. 5.5 The learned TPO rejected the rate of 0.5% corporate guarantee commission as per the decisi in the case of no.1131/Mum./2015, dated 7th October 201 further upheld by Hon’ble Bombay High Court , by way of the detailed reasoning in para seven of his order, relevant part of this is reproduced as under: 5. It may be noted that in the case of Everest Kanto, the Indian entity had taken a quote from ICICI Bank of India for guarantee. M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 internal CUP was available and therefore external CUP was applied under which the guarantee fee was quantified through a comparison of arm’s-length guarantee fee rates charged by unrelated third parties providing similar guarantees under similar terms and conditions. The learned TPO referred to the decision of coordinate bench of the Tribunal in the case of Glenmark Pharmaceuticals Ltd in 5031/Mum/2012, wherein the Tribunal differentiated (BG) with the Corporate Guarantee that TPO was not justified in mechanically picking up the as external CUP for benchmarking. The Tribunal held that could be appropriate CUP if those are properly benchmarked after making due adjustment in accordance with the provisions of the relevant rules i.e. Rule 10B (relating to CUP method) of income tax rules, 1962. The learned TPO rejected the rate of 0.5% for benchmarking corporate guarantee commission as per the decision of the T in the case of a Everest Kanto cylinder Ltd no.1131/Mum./2015, dated 7th October 2016, w upheld by Hon’ble Bombay High Court , by way of the detailed reasoning in para seven of his order, relevant part of this is reproduced as under: 5. It may be noted that in the case of Everest Kanto, the Indian entity had taken a quote from ICICI Bank of India for guarantee. M/s Essar Shipping Ltd 6 ITA No. 6521/MUM/2024 internal CUP was available and therefore external CUP approach was applied under which the guarantee fee was quantified through uarantee fee rates charged by unrelated third parties providing similar guarantees under similar The learned TPO referred to the decision of coordinate bench Glenmark Pharmaceuticals Ltd in wherein the Tribunal differentiated uarantee(CG) and held that TPO was not justified in mechanically picking up the BG rates as external CUP for benchmarking. The Tribunal held that BG could be appropriate CUP if those are properly benchmarked after making due adjustment in accordance with the i.e. Rule 10B (relating to CUP for benchmarking on of the Tribunal a Everest Kanto cylinder Ltd in ITA which has been upheld by Hon’ble Bombay High Court , by way of the detailed reasoning in para seven of his order, relevant part of this is 5. It may be noted that in the case of Everest Kanto, the Indian entity had taken a quote from ICICI Bank of India for guarantee. The Bank in India had given the q the actual transaction was obtaining loan by the assessee's foreign entity from a bank situated in a foreign jurisdiction. In the case of Everest Kanto, the Indian company EKCL(India)was standing as a guarantor for entity funds and had approached foreign bank. The quotation obtained by EKCL (India) was the rate to be charged for guarantee for EKCL India Ltd. and was not for standing guarantee for EKC (Foreign AE) situated in the f angle the CUP was defective and could not have been used. However, this important aspect went unnoticed in the litigation process. It may be noted that assessee (EKCL) had used rate of Bank Guarantee as st 6. Another important point to be noted is that EKCL India had used the bank guarantee rate of 0.6% (i.e. a quotation by ICICI Bank to EKCL) as the starting point after making a slight downward adjustment. The EKCL (India) had charged guarante 0.5% as against quotation rate of 0.6%. This guarantee commission of 0.5% was accepted by the Tribunal and was not disturbed by the Hon'ble High Court of Bombay. The Hon'ble High Court also made observations on Corporate Guarantee and Bank also be noted that even in the case of EKCL (India), the assessee could not give any comparable of Corporate Guarantee. The reason is simple because Corporate Guarantee is extended only in the related party scenario and there will not be comparable transaction. Therefore, even in that case point for benchmarking of corporate guarantee was rate of commission charged by the banks on Bank Guarantee which was used by making some adjustments. Therefore, it is admit that nearest comparable transaction is that of Bank Guarantee. 7. It is also relevant to state another point that the application of rate as decided in Everest Kanto cannot be the standard for every assessee. It is very well the lending bank institution is different for different customers depending upon various factors such as repayment capacity, asset, credit rate etc. and similar for bank guarantee. Therefore, the banks also give different quotation an clients in bank guarantee case which may be more than in addition most of the banks also charge processing fees in addition to the rate of Bank Guarantee. The processing charge effectively increases the rate of guarantee. M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 The Bank in India had given the quote to the Indian entity whereas the actual transaction was obtaining loan by the assessee's foreign entity from a bank situated in a foreign jurisdiction. In the case of Everest Kanto, the Indian company EKCL(India)was standing as a guarantor for entity in foreign jurisdiction which was a need of funds and had approached foreign bank. The quotation obtained by EKCL (India) was the rate to be charged for guarantee for EKCL India Ltd. and was not for standing guarantee for EKC (Foreign AE) situated in the foreign jurisdiction. Therefore, examined from this angle the CUP was defective and could not have been used. However, this important aspect went unnoticed in the litigation process. It may be noted that assessee (EKCL) had used rate of Bank Guarantee as starting point. 6. Another important point to be noted is that EKCL India had used the bank guarantee rate of 0.6% (i.e. a quotation by ICICI Bank to EKCL) as the starting point after making a slight downward adjustment. The EKCL (India) had charged guarantee commission of 0.5% as against quotation rate of 0.6%. This guarantee commission of 0.5% was accepted by the Tribunal and was not disturbed by the Hon'ble High Court of Bombay. The Hon'ble High Court also made observations on Corporate Guarantee and Bank Guarantee. It may also be noted that even in the case of EKCL (India), the assessee could not give any comparable of Corporate Guarantee. The reason is simple because Corporate Guarantee is extended only in the related party scenario and there will not be any uncontrolled comparable transaction. Therefore, even in that case point for benchmarking of corporate guarantee was rate of commission charged by the banks on Bank Guarantee which was used by making some adjustments. Therefore, it is admit that nearest comparable transaction is that of Bank Guarantee. 7. It is also relevant to state another point that the application of rate as decided in Everest Kanto cannot be the standard for every assessee. It is very well-known fact that rate of interest charged by the lending bank institution is different for different customers depending upon various factors such as repayment capacity, asset, credit rate etc. and similar for bank guarantee. Therefore, the banks also give different quotation and charged differently to different clients in bank guarantee case which may be more than in addition most of the banks also charge processing fees in addition to the rate of Bank Guarantee. The processing charge effectively increases the guarantee.” M/s Essar Shipping Ltd 7 ITA No. 6521/MUM/2024 uote to the Indian entity whereas the actual transaction was obtaining loan by the assessee's foreign entity from a bank situated in a foreign jurisdiction. In the case of Everest Kanto, the Indian company EKCL(India)was standing as a in foreign jurisdiction which was a need of funds and had approached foreign bank. The quotation obtained by EKCL (India) was the rate to be charged for guarantee for EKCL India Ltd. and was not for standing guarantee for EKC (Foreign AE) oreign jurisdiction. Therefore, examined from this angle the CUP was defective and could not have been used. However, this important aspect went unnoticed in the litigation process. It may be noted that assessee (EKCL) had used rate of 6. Another important point to be noted is that EKCL India had used the bank guarantee rate of 0.6% (i.e. a quotation by ICICI Bank to EKCL) as the starting point after making a slight downward e commission of 0.5% as against quotation rate of 0.6%. This guarantee commission of 0.5% was accepted by the Tribunal and was not disturbed by the Hon'ble High Court of Bombay. The Hon'ble High Court also made Guarantee. It may also be noted that even in the case of EKCL (India), the assessee could not give any comparable of Corporate Guarantee. The reason is simple because Corporate Guarantee is extended only in the any uncontrolled comparable transaction. Therefore, even in that case the starting point for benchmarking of corporate guarantee was rate of commission charged by the banks on Bank Guarantee which was used by making some adjustments. Therefore, it is admitted fact that nearest comparable transaction is that of Bank Guarantee. 7. It is also relevant to state another point that the application of rate as decided in Everest Kanto cannot be the standard for every f interest charged by the lending bank institution is different for different customers depending upon various factors such as repayment capacity, asset, credit rate etc. and similar for bank guarantee. Therefore, the banks d charged differently to different clients in bank guarantee case which may be more than in addition most of the banks also charge processing fees in addition to the rate of Bank Guarantee. The processing charge effectively increases the 5.6 After considering submission of the assessee and discussion of the decisions relied upon, the learned TPO proposed transfer pricing adjustment of Name of the AE Amount Guaranteed OGDSHIL 29,22,00,000 Varada 226,16,00,000 In view of the above, the amount of Rs. 3,42,83,120/ is being treated as an adjustment u/s.92CA of the I.T Act, 1961 in respect of Guarantee fee chargeable on the Guarantee given on behalf of AEs based on the above discussion. 6.CONCLUSION: In view of the above the following Transfer Pricing Adjustments are made to the International Transac 22. Sr. No. Nature of International Transaction 1. Guarantee Commission Total Accordingly, an adjustment of Rs. 3,42,83,120/ Transactions. The Assessing Officer may consider penalty proceedings applicable as per law against the said adjustments while framing the assessment 5.7 Before the learned DRP, the assessee submitted that the guarantee on behalf of AE activity and it was not an international DRP, however, rejected contention provision of corporate guarantee brought into ambit of the international transactions by the Finance Act with effect from 01/04/2002 and judicial precedents. M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 fter considering submission of the assessee and discussion of the decisions relied upon, the learned TPO proposed transfer pricing adjustment of ₹ 3, 42, 83, 120/-as under: Rate Charged Guarantee Commission received (in Rs.) Corporate Guarantee @ 1.4% 0.5% 14,70,094 40,90,800 226,16,00,000 NIL NIL 3,16,62,400 In view of the above, the amount of Rs. 3,42,83,120/ is being treated as an u/s.92CA of the I.T Act, 1961 in respect of Guarantee fee chargeable on the Guarantee given on behalf of AEs based on the above discussion. In view of the above the following Transfer Pricing Adjustments are made to the International Transactions entered into by the Assessee Company for Nature of International Transaction Adjustment in Rs. / Guarantee Commission 3,42,83,120 Total 3,42,83,120/ Accordingly, an adjustment of Rs. 3,42,83,120/- is made to the Transactions. The Assessing Officer may consider penalty proceedings applicable as per law against the said adjustments while framing the assessment efore the learned DRP, the assessee submitted that the guarantee on behalf of AE was provided as part of shareholding activity and it was not an international transactions. rejected contentions of the assessee in view of provision of corporate guarantee brought into ambit of the international transactions by way of explanation to section 92B by the Finance Act with effect from 01/04/2002 and judicial M/s Essar Shipping Ltd 8 ITA No. 6521/MUM/2024 fter considering submission of the assessee and discussion of the decisions relied upon, the learned TPO proposed transfer Corporate Guarantee @ Adjustment (in Rs.) 40,90,800 26,20,706 3,16,62,400 3,16,62,400 In view of the above, the amount of Rs. 3,42,83,120/ is being treated as an u/s.92CA of the I.T Act, 1961 in respect of Guarantee fee chargeable on the Guarantee given on behalf of AEs based on the above discussion. In view of the above the following Transfer Pricing Adjustments are made to the tions entered into by the Assessee Company for A.Y. 2021- Adjustment in Rs. /- 3,42,83,120 3,42,83,120/- is made to the International Transactions. The Assessing Officer may consider penalty proceedings applicable as per law against the said adjustments while framing the assessment order.” efore the learned DRP, the assessee submitted that the was provided as part of shareholding transactions. The learned of the assessee in view of provision of corporate guarantee brought into ambit of the way of explanation to section 92B by the Finance Act with effect from 01/04/2002 and judicial 5.8 Aggrieved with the finding of the learned DRP, the as in appeal before the T reproduced above. The assessee filed a paper book containing pages 1-449. 6. Before us, the Ld. counsel for the assessee made two fold arguments, firstly, he submitted that transaction of the guarantee commission was not an international transaction. prejudice, argument of the Ld. counsel for the assessee guarantee commission rate should be restricted 0.25% followin order of the ITAT in contra, the ld DR relied on the order of low 7. We have heard rival submission of the parties and perused the relevant material on record. With respect to objection of the assessee that guarantee commission is not an international transaction, we find that same DRP. The Ld. DRP introduced by way of Finance Act w.e.f. 01.04.2002, wherein the guarantee has been specifically brought into the definition of the International Transaction as under: “Explanation-for the removal of doubts, it is hereby clarified that (i) the expression \"international transaction\" shall include Capital financing, including any type of long term or short term borrowing, lending or guarantee, purchase or sale of mark securities or any type of advance, payments or deferred payment M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 with the finding of the learned DRP, the as in appeal before the Tribunal by way of raising grounds a reproduced above. The assessee filed a paper book containing pages Before us, the Ld. counsel for the assessee made two fold , he submitted that transaction of the guarantee commission was not an international transaction. Th argument of the Ld. counsel for the assessee guarantee commission rate should be restricted 0.25% followin order of the ITAT in assessee’s own case for earlier years contra, the ld DR relied on the order of lower authorities. We have heard rival submission of the parties and perused the relevant material on record. With respect to objection of the assessee that guarantee commission is not an international transaction, we find that same has already been rejec DRP. The Ld. DRP referred to the Explanation to section 92B introduced by way of Finance Act w.e.f. 01.04.2002, wherein the guarantee has been specifically brought into the definition of the Transaction. The relevant Explanation is reproduced -for the removal of doubts, it is hereby clarified that (i) the expression \"international transaction\" shall include Capital financing, including any type of long term or short term borrowing, lending or guarantee, purchase or sale of mark securities or any type of advance, payments or deferred payment M/s Essar Shipping Ltd 9 ITA No. 6521/MUM/2024 with the finding of the learned DRP, the assessee is unal by way of raising grounds as reproduced above. The assessee filed a paper book containing pages Before us, the Ld. counsel for the assessee made two fold , he submitted that transaction of the guarantee The next, without argument of the Ld. counsel for the assessee was that guarantee commission rate should be restricted 0.25% following the for earlier years. Per er authorities. We have heard rival submission of the parties and perused the relevant material on record. With respect to objection of the assessee that guarantee commission is not an international rejected by the Ld. Explanation to section 92B introduced by way of Finance Act w.e.f. 01.04.2002, wherein the guarantee has been specifically brought into the definition of the n is reproduced 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 guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business: 7.1 Further, we find that case of Foursoft P Ltd Vs DCIT in ITA No. that the guarantee given to associated enterprises located abroad in the nature of international transactions. In the case of India ltd Vs ACIT in I after considering the decision of the Bahrti Airtel ltd Vs ACIT (2014) 43 taxmann.com 150 ( Delhi upheld the transactions of guarantee to associated enterprises as in the nature of international transactions. Thu statutory provisions and the various precedents as mentioned above, we do not find providing corporate guarantee to associated enterprises in relation to borrowing is an international transaction accordingly. 7.2 With respect to the the assessee, that the issue of corporate guarantee commission is covered in favour of the assessee by way of decision in earlier years , we may would like to refer fi No. 7371/Mum/2017 for holding company of the assessee M/s Essar Global Ltd(EGL) had taken loan from ICICI bank Hong Kong branch and Singapore branch. The assessee given a letter not to transfer, assign and dispose M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 or receivable or any other debt arising during the business:” we find that coordinate bench of the T Foursoft P Ltd Vs DCIT in ITA No. 1903/Hyd/2011 the guarantee given to associated enterprises located abroad in the nature of international transactions. In the case of India ltd Vs ACIT in IT(TP)(A No. 1643/Ban/2012, after considering the decision of the coordinate bench Vs ACIT (2014) 43 taxmann.com 150 ( Delhi pheld the transactions of guarantee to associated enterprises as in international transactions. Thus, statutory provisions and the various precedents as mentioned find any error in the finding of the Ld. DRP that providing corporate guarantee to associated enterprises in relation to borrowing is an international transaction respect to the second arguments of the Ld. counsel for that the issue of corporate guarantee commission is covered in favour of the assessee by way of decision in earlier years may would like to refer firstly the decision of the No. 7371/Mum/2017 for AY 2013-14. In said assessment year, the holding company of the assessee M/s Essar Global Ltd(EGL) had taken loan from ICICI bank Hong Kong branch and Singapore branch. The assessee given a letter to the ICICI Bank undertaking assign and dispose of 49% of equity shares in Essar M/s Essar Shipping Ltd 10 ITA No. 6521/MUM/2024 or receivable or any other debt arising during the coordinate bench of the Tribunal in the 1903/Hyd/2011 held the guarantee given to associated enterprises located abroad is in the nature of international transactions. In the case of Avanta T(TP)(A No. 1643/Ban/2012, the Tribunal oordinate bench in the case of Vs ACIT (2014) 43 taxmann.com 150 ( Delhi –Trib) pheld the transactions of guarantee to associated enterprises as in in view of the statutory provisions and the various precedents as mentioned any error in the finding of the Ld. DRP that providing corporate guarantee to associated enterprises in relation to borrowing is an international transaction. We uphold of the Ld. counsel for that the issue of corporate guarantee commission is covered in favour of the assessee by way of decision in earlier years decision of the ITAT in ITA . In said assessment year, the holding company of the assessee M/s Essar Global Ltd(EGL) had taken loan from ICICI bank Hong Kong branch and Singapore to the ICICI Bank undertaking of 49% of equity shares in Essar Logistics Ltd (ELL) without prior written approval of lenders during pendency of loan i.e. a the circumstances , the Tribunal (supra) was of the view that the transaction was not of a guarantee but it was negative lien but keeping in view totally to of the circumstances, the tribunal restricted the adjustment to 0.25% of the said transactions instead of 0.5% applied by the Assessing Officer. year under consideration are distinguishable as in the instant year under consideration the transaction is a corporate guarantee and therefore ratio in the decision for the assessment year 2013 not applicable or the facts of the instant year. 7.3 Further for assessment year 2016 a lien on shares of ELL, the Tribunal in ITA No. 2014/Mum/2022, following the finding of the Tribunal in assessment year 2013 restricted the transfer pricing adjustment to 0.25% of the transaction, which we have already distinguished above. 7.4 Further in assessment year 2017 transactions of were subjected to transfer pricing adjustment. The first transaction was of negative lien on shares of ELL as was in assessment year 2013 in the earlier year restricted the adjustment to 0.25% of the transaction. The second transaction was of guarantee issue to lenders who issued a standby letter of credit in favour of the AE, who was engaged in th M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 Logistics Ltd (ELL) without prior written approval of lenders during pendency of loan i.e. a lien was provided on transfer of shares . In s , the Tribunal (supra) was of the view that the transaction was not of a guarantee but it was negative lien but keeping in view totally to of the circumstances, the tribunal restricted the adjustment to 0.25% of the said transactions instead lied by the Assessing Officer. The facts of the instant year under consideration are distinguishable as in the instant year under consideration the transaction is a corporate guarantee and therefore ratio in the decision for the assessment year 2013 not applicable or the facts of the instant year. for assessment year 2016-17, the transaction being of a lien on shares of ELL, the Tribunal in ITA No. 2014/Mum/2022, following the finding of the Tribunal in assessment year 2013 restricted the transfer pricing adjustment to 0.25% of the which we have already distinguished above. Further in assessment year 2017-18, two different transactions of were subjected to transfer pricing adjustment. The first transaction was of negative lien on shares of ELL as was in assessment year 2013-14, therefore the tribunal following is finding in the earlier year restricted the adjustment to 0.25% of the transaction. The second transaction was of guarantee issue to lenders who issued a standby letter of credit in favour of the AE, who was engaged in the sale and lease transactions of the vessels M/s Essar Shipping Ltd 11 ITA No. 6521/MUM/2024 Logistics Ltd (ELL) without prior written approval of lenders during transfer of shares . In s , the Tribunal (supra) was of the view that the transaction was not of a guarantee but it was negative lien but keeping in view totally to of the circumstances, the tribunal restricted the adjustment to 0.25% of the said transactions instead The facts of the instant year under consideration are distinguishable as in the instant year under consideration the transaction is a corporate guarantee and therefore ratio in the decision for the assessment year 2013-14 is 17, the transaction being of a lien on shares of ELL, the Tribunal in ITA No. 2014/Mum/2022, following the finding of the Tribunal in assessment year 2013-14, restricted the transfer pricing adjustment to 0.25% of the which we have already distinguished above. 18, two different transactions of were subjected to transfer pricing adjustment. The first transaction was of negative lien on shares of ELL as was in therefore the tribunal following is finding in the earlier year restricted the adjustment to 0.25% of the transaction. The second transaction was of guarantee issue to lenders who issued a standby letter of credit in favour of the AE, e sale and lease transactions of the vessels with the assessee. The assessee extended guarantee to third bank on behalf of the AE of which 350 crores. The AE obtained a standby letter of credit from bank which in turn was ultimately guaranteed by the guarantee commission. The assessee claim it to be part of shareholder activity. The learned TPO applied internal CUP and benchmark rate of the 2% as guarantee commission. The Tribunal however rejected the internal observed that in the information was not available on record for invok is ing external CUP, but for closing the matter restricted the adjustment to 0.5%, which was not objected by the revenue. The relevant finding of the Tribunal is reproduced as under: “064. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee has given a guarantee for stand by letter of credit for 358 crores wherein the associated enterprises in the UAE has availed loan from banks of US$ 53.44 million. The banks are of United States and of Sri Lanka. The learned TPO benchmarked this transaction taking the average bank guarantee rate at the rate of 2.18% by comparing state bank of India, Union of India and HDFC bank, bank guarantee rates and then deriving average at the rate of 2.18%. guarantee agreement where it has provided a performance guarantee on behalf of its subsidiary to third charged guarantee commission at the rate of 2% therefore the learned TPO adopted 2 percent per annum as internal cup and computed the arm's-length price of guarantee commission at learned dispute resolution panel approved the The comparison of the bank guarantee rate with the corporate guarantee rate as such is not acceptable therefore the action of the learned transfer-pricing officer in computing the average bank rate of guarantee at 2.18% is devoid the assessee has an internal cup where loan availed by the associated enterprises, assessee has stood guarantor, assessee charged guarantee commission at the rate of 2%, which is held to be at arm's assessee itself. This is used by the learned TPO to benchmark the M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 with the assessee. The assessee extended guarantee to third bank on behalf of the AE of which 350 crores. The AE obtained a standby letter of credit from bank which in turn was ultimately assessee. The assessee did not charge any guarantee commission. The assessee claim it to be part of shareholder activity. The learned TPO applied internal CUP and benchmark rate of the 2% as guarantee commission. The Tribunal however rejected the internal CUP due to functional differences and observed that in the information was not available on record for ing external CUP, but for closing the matter restricted the adjustment to 0.5%, which was not objected by the revenue. The the Tribunal is reproduced as under: 064. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee has given a guarantee for stand by letter of credit for 358 crores wherein the associated s in the UAE has availed loan from banks of US$ 53.44 million. The banks are of United States and of Sri Lanka. The learned TPO benchmarked this transaction taking the average bank guarantee rate at the rate of 2.18% by comparing state bank of India, Union of India and HDFC bank, bank guarantee rates and then deriving average at the rate of 2.18%. The assessee has also entered into a guarantee agreement where it has provided a performance guarantee on behalf of its subsidiary to third-party bank where assessee has charged guarantee commission at the rate of 2% therefore the learned TPO adopted 2 percent per annum as internal cup and computed the length price of guarantee commission at ₹ 42,251,637. The learned dispute resolution panel approved the above arm's-length price. The comparison of the bank guarantee rate with the corporate guarantee rate as such is not acceptable therefore the action of the pricing officer in computing the average bank rate of guarantee at 2.18% is devoid of any merit. Now the issue remains that the assessee has an internal cup where loan availed by the associated enterprises, assessee has stood guarantor, assessee charged guarantee commission at the rate of 2%, which is held to be at arm's-length by the ssessee itself. This is used by the learned TPO to benchmark the M/s Essar Shipping Ltd 12 ITA No. 6521/MUM/2024 with the assessee. The assessee extended guarantee to third-party bank on behalf of the AE of which 350 crores. The AE obtained a standby letter of credit from bank which in turn was ultimately The assessee did not charge any guarantee commission. The assessee claim it to be part of shareholder activity. The learned TPO applied internal CUP and benchmark rate of the 2% as guarantee commission. The Tribunal CUP due to functional differences and observed that in the information was not available on record for ing external CUP, but for closing the matter restricted the adjustment to 0.5%, which was not objected by the revenue. The the Tribunal is reproduced as under: 064. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee has given a guarantee for stand by letter of credit for 358 crores wherein the associated s in the UAE has availed loan from banks of US$ 53.44 million. The banks are of United States and of Sri Lanka. The learned TPO benchmarked this transaction taking the average bank guarantee rate at the rate of 2.18% by comparing state bank of India, Union Bank of India and HDFC bank, bank guarantee rates and then deriving The assessee has also entered into a guarantee agreement where it has provided a performance guarantee assessee has charged guarantee commission at the rate of 2% therefore the learned TPO adopted 2 percent per annum as internal cup and computed the ₹ 42,251,637. The length price. The comparison of the bank guarantee rate with the corporate guarantee rate as such is not acceptable therefore the action of the pricing officer in computing the average bank rate of of any merit. Now the issue remains that the assessee has an internal cup where loan availed by the associated enterprises, assessee has stood guarantor, assessee charged guarantee length by the ssessee itself. This is used by the learned TPO to benchmark the transaction of Guarantee for standby letter of credit. Guarantee against standby letter of credit is issued by Assessee in favour of the bankers who issued stand by letter of credit to the th with the AE. From AE assessee has obtained vessels on sale and lease back. Thus, the guarantee issued by the assessee in favour of bankers of its AE clearly shows that the vehicles are bought by the AE in UAE, which are leasee ba on them. Therefore, the guarantee itself is for the purpose of the business of the assessee. It has facilitated the assessee to obtain vessels on lease from its AE in the business of operation of shipping a much lesser interest rates. The internal cup adopted by the learned TPO did not have any such functions, assets and risk distribution. In the present case, Standby letter of credit given of its AE, in substance is used by the assessee for its own busines commission rate of 2% charged from its associated enterprise on altogether different transaction which is also near to average rate of bank guarantee of 2.18%, clearly proves that guarantee commission rate of 2% for this transactio enterprise has taken the standby letter of credit for supply of vessel, the same is guaranteed by the assessee to the bankers who have issued the standby letter of credit. Therefore, it is apparent that it is a term arrangement ( it does not exist in subsequent year], which cannot be compared with the long Accordingly, we reject the internal cup applied by the learned transfer pricing officer and upheld by the learned di the question that arises what should be the arm's guarantee commission. This is the transaction for oniy this year. Neither the assessee nor the learned transfer creditworthiness of the associated enterprises or the assessee. Nor the tenure of the guarantee for standby letter of credit was determined. Neither the terms nor conditions of the guarantee to the bankers who provided standby letter of credit were brought on record. the assessee is that it is the business of the assessee, which has gained because of this guarantee commission therefore the major benefit has accrued to the assessee and not to the AE, is not denied. The Assessee, Id TPO and Ld DRP without lo transaction itself, proceeded to decide the issue on the basis of judicial precedents. Such information is also not brought before us by either party. Even the full facts of the transactions are also not forthcoming. Therefore, in absence of any information about the guarantee and the functions assets and risk of both the contracting parties, and being one of transaction, the alternative plea raised by the assessee of adopting the guarantee commission rate at the rate of 0.5% follo of the honourable Bombay High Court in case of CIT versus Everest Kanto cylinders Ltd and nimbus common occasions Ltd, as same is not objected by the revenue, we direct the learned transfer pricing officer to adopt 0.5% as the appropriate M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 transaction of Guarantee for standby letter of credit. Guarantee against standby letter of credit is issued by Assessee in favour of the bankers who issued stand by letter of credit to the third parties who transacted From AE assessee has obtained vessels on sale and lease back. Thus, the guarantee issued by the assessee in favour of bankers of its AE clearly shows that the vehicles are bought by the AE in UAE, which are leasee back to the assessee and assessee is earning rental on them. Therefore, the guarantee itself is for the purpose of the business of the assessee. It has facilitated the assessee to obtain vessels on lease from its AE in the business of operation of shipping a much lesser interest rates. The internal cup adopted by the learned TPO did not have any such functions, assets and risk distribution. In the present case, Standby letter of credit given of its AE, in substance is used by the assessee for its own business. Further the guarantee commission rate of 2% charged from its associated enterprise on altogether different transaction which is also near to average rate of bank guarantee of 2.18%, clearly proves that guarantee commission rate of 2% for this transaction is on higher side. Further, the associated enterprise has taken the standby letter of credit for supply of vessel, the same is guaranteed by the assessee to the bankers who have issued the standby letter of credit. Therefore, it is apparent that it is a term arrangement ( it does not exist in subsequent year], which cannot be compared with the long-term continuance of guarantee tenure Accordingly, we reject the internal cup applied by the learned transfer pricing officer and upheld by the learned dispute resolution panel. Now the question that arises what should be the arm's-length price of the guarantee commission. This is the transaction for oniy this year. Neither the assessee nor the learned transfer-pricing officer has looked at the ness of the associated enterprises or the assessee. Nor the tenure of the guarantee for standby letter of credit was determined. Neither the terms nor conditions of the guarantee to the bankers who provided standby letter of credit were brought on record. The claim of the assessee is that it is the business of the assessee, which has gained because of this guarantee commission therefore the major benefit has accrued to the assessee and not to the AE, is not denied. The Assessee, Id TPO and Ld DRP without looking at the economics of transaction itself, proceeded to decide the issue on the basis of judicial precedents. Such information is also not brought before us by either party. Even the full facts of the transactions are also not forthcoming. absence of any information about the guarantee and the functions assets and risk of both the contracting parties, and being one of transaction, the alternative plea raised by the assessee of adopting the guarantee commission rate at the rate of 0.5% following the decision of the honourable Bombay High Court in case of CIT versus Everest Kanto cylinders Ltd and nimbus common occasions Ltd, as same is not objected by the revenue, we direct the learned transfer pricing officer to adopt 0.5% as the appropriate guarantee commission arm's-length price. M/s Essar Shipping Ltd 13 ITA No. 6521/MUM/2024 transaction of Guarantee for standby letter of credit. Guarantee against standby letter of credit is issued by Assessee in favour of the bankers ird parties who transacted From AE assessee has obtained vessels on sale and lease back. Thus, the guarantee issued by the assessee in favour of bankers of its AE clearly shows that the vehicles are bought by the AE in UAE, ck to the assessee and assessee is earning rental on them. Therefore, the guarantee itself is for the purpose of the business of the assessee. It has facilitated the assessee to obtain vessels on lease from its AE in the business of operation of shipping at much lesser interest rates. The internal cup adopted by the learned TPO did not have any such functions, assets and risk distribution. In the present case, Standby letter of credit given of its AE, in substance is s. Further the guarantee commission rate of 2% charged from its associated enterprise on altogether different transaction which is also near to average rate of bank guarantee of 2.18%, clearly proves that guarantee commission n is on higher side. Further, the associated enterprise has taken the standby letter of credit for supply of vessel, the same is guaranteed by the assessee to the bankers who have issued the standby letter of credit. Therefore, it is apparent that it is a short- term arrangement ( it does not exist in subsequent year], which cannot term continuance of guarantee tenure Accordingly, we reject the internal cup applied by the learned transfer- spute resolution panel. Now length price of the guarantee commission. This is the transaction for oniy this year. Neither pricing officer has looked at the ness of the associated enterprises or the assessee. Nor the tenure of the guarantee for standby letter of credit was determined. Neither the terms nor conditions of the guarantee to the bankers who The claim of the assessee is that it is the business of the assessee, which has gained because of this guarantee commission therefore the major benefit has accrued to the assessee and not to the AE, is not denied. The oking at the economics of transaction itself, proceeded to decide the issue on the basis of judicial precedents. Such information is also not brought before us by either party. Even the full facts of the transactions are also not forthcoming. absence of any information about the guarantee and the functions assets and risk of both the contracting parties, and being one of transaction, the alternative plea raised by the assessee of adopting wing the decision of the honourable Bombay High Court in case of CIT versus Everest Kanto cylinders Ltd and nimbus common occasions Ltd, as same is not objected by the revenue, we direct the learned transfer pricing officer to length price. Accordingly, ground number 2 of the appeal of the AO is partly allowed. The learned TPO is a directed to compute the arm's adjustment accordingly 7.6 Thus the facts of the above case are different fr the instant case. 7.7 Before as the learned counsel for the assessee also relied on the decision of the coordinate bench in the case of Tata consultancy services ltd in ITA No. 5199/Mum/2019 for assess 15, wherein the Tribuna assessee for assessment year 2012 commission and the rate of 0.5%. The learned counsel also relied on the decision of the coordinate bench in the case of Greatship (India) Ltd in ITA No. 753/Mum/2024 for assessment year 2016 wherein also followed in the case of the assessee for earlier year. The facts and circumstances of those cases as well as risk parameters associated with the guarantee transaction being different in each case, t assessee are not applicable or the facts of the instant case. 7.8 Further we note that of the assessee for restricting 0.5% as per the decision in th holding that guarantee rates vary by client due to credit risk and additional fees, so Everest Kanto's rate cannot be applied uniformly. M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 Accordingly, ground number 2 of the appeal of the AO is partly allowed. The learned TPO is a directed to compute the arm's-length price accordingly.” Thus the facts of the above case are different fr Before as the learned counsel for the assessee also relied on the decision of the coordinate bench in the case of Tata consultancy services ltd in ITA No. 5199/Mum/2019 for assessment year 2014 ribunal following the finding in the case of the assessee for assessment year 2012-13, restricted the guarantee commission and the rate of 0.5%. The learned counsel also relied on the decision of the coordinate bench in the case of Greatship (India) o. 753/Mum/2024 for assessment year 2016 wherein also followed in the case of the assessee for earlier year. The facts and circumstances of those cases as well as risk parameters associated with the guarantee transaction being different in each case, the ratio of the decisions relied upon by the assessee are not applicable or the facts of the instant case. Further we note that the Ld. TPO has also rejected the prayer of the assessee for restricting corporate guarantee commission to decision in the Everest Canto Cylinder Ltd (supra) guarantee rates vary by client due to credit risk and additional fees, so Everest Kanto's rate cannot be applied uniformly. M/s Essar Shipping Ltd 14 ITA No. 6521/MUM/2024 Accordingly, ground number 2 of the appeal of the AO is partly allowed. length price Thus the facts of the above case are different from the facts of Before as the learned counsel for the assessee also relied on the decision of the coordinate bench in the case of Tata consultancy ment year 2014- l following the finding in the case of the restricted the guarantee commission and the rate of 0.5%. The learned counsel also relied on the decision of the coordinate bench in the case of Greatship (India) o. 753/Mum/2024 for assessment year 2016-17, wherein also followed in the case of the assessee for earlier year. The facts and circumstances of those cases as well as risk parameters associated with the guarantee transaction being he ratio of the decisions relied upon by the assessee are not applicable or the facts of the instant case. has also rejected the prayer corporate guarantee commission to e Everest Canto Cylinder Ltd (supra) guarantee rates vary by client due to credit risk and additional fees, so Everest Kanto's rate cannot be applied uniformly. 7.9 Subsequently, the Ld. TPO taken into consideration different bank rates and considering the medium rate of 1.90% of bank guarantees, he made a downward adjustment of 0.5% and proposed rate of 1.40% in respect of both the transaction of the corporate guarantee commission as under: Name of the AE Amount Guaranteed OGDSHIL 29,22,00,000 Varada 226,16,00,000 6.3 We find that the assessee itself had adopted a guarantee commission rate of 0.5% in respect of the first transaction. It is a well-settled principle in transfer pricing jurisprudence that adjustments are to be made with reference to comparable transactions relevant to the assessment year under consideration. Consequently, the rate applied in an earlier assessment year does not constitute a binding precedent for determining the arm’s length price in a subsequent year. In the present case, the Transfer Pricin Officer (TPO) has adopted a methodology consistent with the provisions of the Income Tax Act and the Rules framed thereunder for computing the arm’s length price. The learned counsel appearing for the assessee was unable to demonstrate any infirmity either in the method of computation employed by the TPO or in the selection of comparables. It is pertinent to note that while bank guarantees issued by financial institutions to third independent entities are distinct in terms of risk profile from M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 Subsequently, the Ld. TPO taken into consideration different bank rates and considering the medium rate of 1.90% of bank guarantees, he made a downward adjustment of 0.5% and proposed rate of 1.40% in respect of both the transaction of the corporate guarantee commission as under: Rate Charged Guarantee Commission received (in Rs.) Corporate Guarantee @ 1.4% 0.5% 14,70,094 40,90,800 226,16,00,000 NIL NIL 3,16,62,400 We find that the assessee itself had adopted a guarantee commission rate of 0.5% in respect of the first transaction. It is a settled principle in transfer pricing jurisprudence that adjustments are to be made with reference to comparable relevant to the assessment year under consideration. Consequently, the rate applied in an earlier assessment year does not constitute a binding precedent for determining the arm’s length price in a subsequent year. In the present case, the Transfer Pricin Officer (TPO) has adopted a methodology consistent with the provisions of the Income Tax Act and the Rules framed thereunder for computing the arm’s length price. The learned counsel appearing for the assessee was unable to demonstrate any infirmity er in the method of computation employed by the TPO or in the selection of comparables. It is pertinent to note that while bank guarantees issued by financial institutions to third independent entities are distinct in terms of risk profile from M/s Essar Shipping Ltd 15 ITA No. 6521/MUM/2024 Subsequently, the Ld. TPO taken into consideration different bank rates and considering the medium rate of 1.90% of bank guarantees, he made a downward adjustment of 0.5% and proposed rate of 1.40% in respect of both the transaction of the corporate Corporate Guarantee @ Adjustment (in Rs.) 40,90,800 26,20,706 3,16,62,400 3,16,62,400 We find that the assessee itself had adopted a guarantee commission rate of 0.5% in respect of the first transaction. It is a settled principle in transfer pricing jurisprudence that adjustments are to be made with reference to comparable relevant to the assessment year under consideration. Consequently, the rate applied in an earlier assessment year does not constitute a binding precedent for determining the arm’s length price in a subsequent year. In the present case, the Transfer Pricing Officer (TPO) has adopted a methodology consistent with the provisions of the Income Tax Act and the Rules framed thereunder for computing the arm’s length price. The learned counsel appearing for the assessee was unable to demonstrate any infirmity er in the method of computation employed by the TPO or in the selection of comparables. It is pertinent to note that while bank guarantees issued by financial institutions to third-party independent entities are distinct in terms of risk profile from corporate guarantees issued between related parties, they are nonetheless functionally comparable, albeit with certain differentiating factors on the risk front. Corporate guarantees, though not identical, share substantial functional similarity with bank guarantees, necessitating suitable adjustments for risk differentials. In the case at hand, the TPO has relied upon the bank guarantee commission rates charged by various banks during the relevant financial year as a comparable uncontrolled price (CUP), and has prudently applied a downward adjustment of 0.5% to account for differences in risk and other qualitative factors. We further note that the Hon’ble Tribunal in Ltd. (supra) has endorsed the approach of considering the average bank guarantee commission rates as a valid CUP, subject to appropriate adjustments for the unique features of corporate guarantees. We find no reason to depart from the said reasoning. In view of the foregoing, and respectfully following the decision of the Tribunal in Glenmark Pharmaceuticals Ltd. considered opinion that the transfer pricing adjustment made by the learned TPO is in accordance with law and is, therefore, upheld. The ground No. 1 of the appeal of the assessee is accordingly dismissed. 7. The ground No. 2 of the appeal of the assessee relates to considering interest from income M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 rate guarantees issued between related parties, they are nonetheless functionally comparable, albeit with certain differentiating factors on the risk front. Corporate guarantees, though not identical, share substantial functional similarity with ntees, necessitating suitable adjustments for risk differentials. In the case at hand, the TPO has relied upon the bank guarantee commission rates charged by various banks during the relevant financial year as a comparable uncontrolled price (CUP), prudently applied a downward adjustment of 0.5% to account for differences in risk and other qualitative factors. We further note that the Hon’ble Tribunal in Glenmark Pharmaceuticals (supra) has endorsed the approach of considering the average guarantee commission rates as a valid CUP, subject to appropriate adjustments for the unique features of corporate guarantees. We find no reason to depart from the said reasoning. In view of the foregoing, and respectfully following the decision of the Glenmark Pharmaceuticals Ltd. (supra), we are of the considered opinion that the transfer pricing adjustment made by the learned TPO is in accordance with law and is, therefore, upheld. The ground No. 1 of the appeal of the assessee is accordingly The ground No. 2 of the appeal of the assessee relates to considering interest from income-tax refund under the head M/s Essar Shipping Ltd 16 ITA No. 6521/MUM/2024 rate guarantees issued between related parties, they are nonetheless functionally comparable, albeit with certain differentiating factors on the risk front. Corporate guarantees, though not identical, share substantial functional similarity with ntees, necessitating suitable adjustments for risk differentials. In the case at hand, the TPO has relied upon the bank guarantee commission rates charged by various banks during the relevant financial year as a comparable uncontrolled price (CUP), prudently applied a downward adjustment of 0.5% to account for differences in risk and other qualitative factors. We Glenmark Pharmaceuticals (supra) has endorsed the approach of considering the average guarantee commission rates as a valid CUP, subject to appropriate adjustments for the unique features of corporate guarantees. We find no reason to depart from the said reasoning. In view of the foregoing, and respectfully following the decision of the (supra), we are of the considered opinion that the transfer pricing adjustment made by the learned TPO is in accordance with law and is, therefore, upheld. The ground No. 1 of the appeal of the assessee is accordingly The ground No. 2 of the appeal of the assessee relates to tax refund under the head business income as against considered by the AO under the head ‘income from other sources’. 7. We have heard the rival submissions advanced by the learned counsel for the parties and have carefully perused the material placed on record. Upon due consideration, we find that the Dispute Resolution Panel (DRP) has rightly rejected the assessee’s contention and has correctly held that interest received on income tax refund is to be assessed under the head “Income from Other Sources.” In our considered view, the interest received on income tax refund is not derived from any commercial or business activity undertaken by the assessee, but is a statutory accretion arising solely as a consequence of excess payment of tax to the revenue. Such interest bears no proximate or real nexus with the business operations of the assessee and is, in essence, a statutory compensation granted by law for the delay in the refund of monies legitimately due. It does not partake the character of business income, nor can it be construed as arising in the normal course of the assessee’s business or trade. classification under different heads is tax neutral in certain situations, such neutrality does not hold in cases where the assessee is claiming losses or deductions against business income. We, therefore, find no infirmity in the reasoning or conclus learned DRP and accordingly uphold its findings on this issue. ground No. 2 of the appeal of the assessee is accordingly dismissed. M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 business income as against considered by the AO under the head ‘income from other sources’. We have heard the rival submissions advanced by the learned counsel for the parties and have carefully perused the material placed on record. Upon due consideration, we find that the Dispute Resolution Panel (DRP) has rightly rejected the assessee’s tion and has correctly held that interest received on income tax refund is to be assessed under the head “Income from Other In our considered view, the interest received on income tax refund is not derived from any commercial or business activity undertaken by the assessee, but is a statutory accretion arising solely as a consequence of excess payment of tax to the revenue. Such interest bears no proximate or real nexus with the business operations of the assessee and is, in essence, a statutory granted by law for the delay in the refund of monies legitimately due. It does not partake the character of business income, nor can it be construed as arising in the normal course of the assessee’s business or trade. While it may be contended classification under different heads is tax neutral in certain situations, such neutrality does not hold in cases where the assessee is claiming losses or deductions against business income. We, therefore, find no infirmity in the reasoning or conclus learned DRP and accordingly uphold its findings on this issue. ground No. 2 of the appeal of the assessee is accordingly dismissed. M/s Essar Shipping Ltd 17 ITA No. 6521/MUM/2024 business income as against considered by the AO under the head We have heard the rival submissions advanced by the learned counsel for the parties and have carefully perused the material placed on record. Upon due consideration, we find that the Dispute Resolution Panel (DRP) has rightly rejected the assessee’s tion and has correctly held that interest received on income- tax refund is to be assessed under the head “Income from Other In our considered view, the interest received on income- tax refund is not derived from any commercial or business activity undertaken by the assessee, but is a statutory accretion arising solely as a consequence of excess payment of tax to the revenue. Such interest bears no proximate or real nexus with the business operations of the assessee and is, in essence, a statutory granted by law for the delay in the refund of monies legitimately due. It does not partake the character of business income, nor can it be construed as arising in the normal course of While it may be contended that classification under different heads is tax neutral in certain situations, such neutrality does not hold in cases where the assessee is claiming losses or deductions against business income. We, therefore, find no infirmity in the reasoning or conclusion of the learned DRP and accordingly uphold its findings on this issue. The ground No. 2 of the appeal of the assessee is accordingly dismissed. 8. In the result, the appeal of the assessee is Order pronounced under Rule 34(4) of the IT by way of placing result on notice board on Sd/ (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 30/05/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// M/s Essar Shipping Ltd ITA No. 6521/MUM/2024 In the result, the appeal of the assessee is dismissed. Order pronounced under Rule 34(4) of the ITAT Rules, 1963 ng result on notice board on 30.05.2025. Sd/- Sd (RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai M/s Essar Shipping Ltd 18 ITA No. 6521/MUM/2024 dismissed. AT Rules, 1963 .05.2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai "