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

This appeal by the assessee is directed against the assessment order dated 02/02/2022 passed u/s 143(3) r.w.s. 144C (13) r.w.s.144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The assessee in appeal has primarily assailed the findings of Assessing Officer (AO) on two counts:

The brief facts of the case as emanating from records are: The assessee is primarily engaged in the business of charter of offshore vessels. During the period relevant to assessment year under appeal, the assessee inter alia entered into international transactions with its AEs with respect to charging of commission on corporate guarantee and performance guarantee. The assesse provided corporate guarantee to its AE Global Offshore Services B.V. and charged commission at the rate of 0.5%. The assessee had also extended performance guarantee to its AEs Garware Offshore Services Pte. Limited and Global Offshore Services Limited B.V, without charging commission. The Transfer Pricing Officer (TPO) did not accept ALP determined by the assesssee in respect of corporate guarantee and performance guarantee. The TPO in order to determine the ALP of the facility extended by the assesse to its overseas AEs collected the information from various banks u/s 133(6) of the Act and computed average rate which comes to 2.18%. Bank Name Rate State Bank of India (SBI) 1.75% Union Bank of India (UBI) 3% HDFC Bank 1.80% Average: 2.18% The TPO applied average rate of 2% on corporate guarantee/performance guarantee commission and made aggregate adjustment of Rs.9,20,28,953/- (corporate guarantee commission- Rs.8,98,25,206/- and performance guarantee commission- Rs.22,03,747/-). The assessee filed objections before the Dispute Resolution Panel

Shri Nitesh Joshi appearing on behalf of the assessee submits that the assessee had extended corporate guarantee in respect of the borrowings made by AE. The assessee charged guarantee fee at 0.5%, the TPO increased the guarantee rate commission to 2% based on average bank guarantee commission. The learned Counsel submits that in AYs 2011-12 and 2012-13 in assessee’s own case, the Tribunal had accepted 0.25% corporate guarantee commission at arm’s length. The learned Counsel pointed that the Tribunal upheld 0.25% guarantee commission. After considering the fact that the fair market value of the vessels exceeded the loan amount. The learned Counsel further submits that in respect of performance guarantee, the assesse had not charged any fee. The TPO determined the ALP thereof at 2% which was upheld by the DRP. The learned AR pointed that this issue was also considered by the Tribunal in assesse’s own case in AYs 2011-12 and 2012-13, wherein guarantee fee of 0.25% was held to be at arm’s length.

Per contra, Ms. Samruddhi Hande representing the Department vehemently defending the assessment order and the findings of DRP/TPO submits that the value of vessels may not be the same during the period relevant to the assessment year under appeal. Therefore, the findings given by the Tribunal holding 0.25% as ALP in AYs 2011-12 and 2012-13 may be reasonable in the said assessment years. However, in the facts of the assessment years under appeal, determination of ALP at 0.25% may not be at arm’s length. In respect of ground no. 2, the learned Departmental Representative (DR) submits that the assessee had determined the ALP for extending performance guarantee at nil. The assessee has to provide internal CUP for determining the ALP.

Rebutting the arguments made on behalf of the Department, the learned Counsel submits that the vessels against which corporate guarantee was extended still

We have heard the submissions made by rival sides and have examined the orders of authorities below. The ground no. 1 and 2 of appeal are taken up together as both relate to a common issue of guarantee commission. The assessee has charged corporate guarantee commission at the rate of 0.5%. The TPO has determined ALP of corporate guarantee at 2% based on average bank guarantee commission. We find that in AYs 2011-12 and 2012-13, the issue of ALP of corporate guarantee commission

In ground no. 2 of appeal, the assessee has assailed ALP adjustment in respect of performance guarantee. We find that in AYs 2011-12 and 2012-13 arm’s length rate of performance guarantee commission at 0.25% was held to be reasonable by the Co- ordinate Bench. The findings of the Co-ordinate Bench were based on the facility availed by the assessee from Bank in the relevant period. In the impugned assessment year no material is placed before us to show that rate of performance guarantee is 0.25%. In the impugned assessment year, the assessee has not charged any fee for performance guarantee. Taking cue from the rate of corporate guarantee commission, we hold performance guarantee commission rate of 0.5% at arm’s length. The ground no. 2 of the appeal is allowed in the aforesaid terms.