ACIT, CENTRAL CIRCLE-1(3), HYDERABAD vs. NCC LIMITED, HYDERABAD

सुिवधई की तधरीख/Date of hearing: 20.11.2023 घोर्णध की तधरीख/Pronouncement on: 24.11.2023 O R D E R PER LALIET KUMAR, J.M.

This appeal is filed by the Revenue feeling aggrieved by the order of Commissioner of Income Tax (Appeals) – 10, Hyderabad dt.17.03.2023 invoking proceedings under sections 143(3) r.w.s. 144C(3) r.w.s 144B of the Income Tax Act, 1961 (in short, “the Act”) for the A.Y. 2018-19.

“1. The Ld. CIT(Appeals) erred both in law and on facts of the case in granting relief to the assessee.

2. Whether the on the facts and in the circumstances of the case and in law, the CIT(Appeals) is justified in directing to charge corporate guarantee fee @ 0.53% relying on decision of the CIT(A)/ DRP for earlier assessment years without undertaking an independent comparability analysis for the year under consideration.

3. Whether on the facts and circumstances of the case and in law, the CIT(Appeals) is justified in directing to charge the corporate guarantee fee at 0.53% contravening the India Transfer Pricing Regulations, which prescribe that the data to be used for the purpose of comparability analysis should relate to the year in which the international transactions has taken place?

4. Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) is justified in directing to adopt corporate guarantee fee @0.53% relying on earlier orders without appreciating the fact the the TO has conducted a comparability analysis and arrived at the arm's length price?

5. The CIT(A) erred in deleting the disallowance of expenditure made u/s. 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules.

6. The Ld CIT(A) erred in ignoring the explanation to Section 14A w.e.f. 01.04.2022 which clearly stipulates that the provisions of this section shall apply and shall deemed to have always applied in a case where the income, not forming part of the total income under this Act has not accrued or arisen or has not been received during the previous year relevant to an assessment year.

8. The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary.”

3 served upon the assessee. Subsequently, notice u/s 142(1) was issued on 15.12.2020 which was served on the assessee. The case was also referred to the TPO for determining ALP and the adjustment of Rs.22,80,06,000/- was determined on account of ALP. Subsequently the assessment was completed by making certain additions / disallowance including addition on account of TP adjustment at Rs.22,80,06,000/- and disallowance u/s 14A of the Act at Rs.10,23,73,985/-. Thus, assessment was completed u/s 143(3) r.w.s. 144C(3) of the Act assessing the total income of Rs.361,27,68,435/-.

7. GROUNDS 2 TO 4 Before us, ld. DR submitted that these grounds are with respect to a corporate guarantee. In this regard, ld. DR has drawn our attention to the order of ld.CIT(A), where the ld.CIT(A) had passed the order treating the corporate guarantee as an international transaction, however, had restricted it to 0.53% instead of 1.8% as determined by the TPO. For the above said purposes, the ld.CIT(A) had relied upon the order of Tribunal passed in the case of the assessee for A.Ys. 2012-13 to 2014-15 and 2016-17 vide order dt.27.09.2021. The ld. DR further submitted that the order passed by the ld.CIT(A) is contrary to the order passed by the TPO and therefore, the order is required to be dismissed.

“8.3. We have considered the submissions and found that the charges paid by the assessee cannot be compared for the purposes of determining the ALP of corporate guarantee commission. In our view, no third party would provide similar type of services/corporate guarantee on behalf of its AE and expose itself to the risk of giving the corporate guarantee. Therefore, the charges paid by the assessee to SBI cannot be compared for the purpose of determining the ALP of corporate guarantee commission. The Co-ordinate Bench in the case of Vivimed Labs vide its decision dated 12-04-2022 had adjudicated corporate guarantee commission @0.5% of the qua the extent of the amount of the assessee’s corporate guarantee actually utilised in these four assessment years. Thereafter, the similar view had been taken by various Tribunals restricting the addition to 0.5% of on the amount guaranteed as a corporate guarantee commission. Recently, Delhi Tribunal in the case of Havells India Ltd. Vs. ACIT (LTU) in dt.09.05.2022 had also echo the above said view and held that the addition of 0.5% on the amount guaranteed would be the appropriate benchmark to determine the ALP. Similar decision was also passed by the Bangalore and Pune Bench of the Tribunals in the case of GMR Infrastructure Ltd in ITA No.344/Pun/2022 dt.25.05.2022 and Jain Irrigation Systems in ITA 822/Pun/2022 dt.22.12.2022, respectively. Respectfully following the view taken by the Delhi, Bangalore and Pune Tribunals in the above cited cases and also in the case of Vivimed Labs (supra), we partly allow the ground of the assessee and restrict the addition to the tune of 0.5% on the amount

5 guaranteed as corporate guarantee commission. Thus, ground nos. 1 to 4 are partly allowed.”

10. In the present case, the assessee is not aggrieved with the finding recorded by the ld.CIT(A) whereby the interest payable on corporate guarantee was restricted to 0.53%. However, the Revenue is in appeal before us challenging the order and claiming that 1.8% should be applied as against 0.53% as applied by the ld.CIT(A). As the ld.CIT(A) had decided the issue on the basis of the order passed by the Tribunal in the case of assessee in A.Ys. 2012-13 2016-17 to 17-18 and further this Bench in the case of M/s. Aurobindo Pharma Limited (supra) also applied 0.50% as corporate guarantee, therefore, we do not find any merit in the appeal of the Revenue and uphold the order of ld.CIT(A) whereby the ld.CIT(A) has restricted the interest payable on corporate guarantee at 0.53% instead of 1.8% as determined by the TPO. Thus, these grounds of the Revenue are dismissed.

9. We are not in agreement with the submissions made on behalf of the Revenue that since the Tribunal at Hyderabad is not bound by the decisions of the other Hon'ble High Courts, the findings of the learned CIT(A) following the provisions of law has to be upheld. It is pertinent to note that learned CIT(A) himself followed the decision of the Guwahati Bench of the Tribunal in the case of Williamson Financial Services Limited (supra). In the absence of any decision of the Hon'ble jurisdictional High Court/Hon'ble Supreme Court, the decisions of other Hon'ble High Courts will constitute the binding precedent to be followed by the Tribunal.