DCIT, CIRCLE-13(1), DEHI, DELHI vs. KOHINOOR FOODS LIMITED, PINNACLE BUSINESS TOWER

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ITA 3892/DEL/2023Status: DisposedITAT Delhi19 August 202610 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal dismissed the Revenue's appeal regarding corporate guarantee commission, upholding the CIT(A)'s reduction to 1% based on previous ITAT decisions. For interest on loans, the Tribunal partly allowed the Revenue's appeal, directing interest to be charged at LIBOR+200 bps, modifying the CIT(A)'s order of LIBOR only. The appeal regarding interest on receivables was dismissed, following a previous ITAT ruling.

What were the facts?

The Revenue appealed against the CIT(A)'s order deleting additions made by the TPO regarding corporate guarantee commission and interest on loans/receivables to Associated Enterprises (AEs). The TPO had made adjustments at 2% for guarantee commission and LIBOR+400 bps for interest, while the CIT(A) had reduced the guarantee commission to 1% and interest to LIBOR rate.

What were the issues?

Whether the arm's length price for corporate guarantee commission and interest on loans/receivables to AEs was correctly determined by the TPO and CIT(A), and whether brought forward losses were correctly disallowed.

Which sections of the Income-tax Act were involved?

Section 92C,Section 92CA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘H’: NEW DELHI

For Appellant: Ms. Ananya Kapoor, Advocate, Shri Utkarsa Gupta, Advocate
For Respondent: Shri Abhishek Deval, Sr. DR
Hearing: 03.06.2026Pronounced: 19.08.2026

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No.3892/DEL/2023 (Assessment Year: 2013-14) DCIT, Circle 13 (1), vs. Kohinoor Foods Limited, 10th Floor, Pinnacle Business Tower, Delhi. Suraj Kund Road, Shooting Range, Faridabad – 121 001 (Haryana). (PAN : AAACS2470D) (APPELLANT) (RESPONDENT) ASSESSEE BY : Ms. Ananya Kapoor, Advocate Shri Utkarsa Gupta, Advocate REVENUE BY : Shri Abhishek Deval, Sr. DR Date of Hearing : 03.06.2026 Date of Pronouncement : 19.08.2026 O R D E R PER S.RIFAURRAHMAN,AM: 1. This appeal filed by the assessee is directed against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short ‘ld. CIT (A)] dated 02.11.2023 for the Assessment Year 2013-14 raising following grounds of appeal :- “(1) That the order of the Ld. CIT(A) is factually incorrect in deleting the entire addition made by the TPO by relying upon the decision of the Hon'ble ITAT in assessee's own case in ITA Nos. 3688 to 36911/Del/2012 and ITA Nos.3867 to 3869 for the AY-2002- 03 to AY-2008-09 since the Hon'ble ITAT had only given partial relief to the assessee and had upheld guarantee

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commission adjustment under TP at the rate 1% and charging of interest on loan/receivables at 6 month LIBOR rate? (2) That the Ld. CIT(A) has erred in deleting the adjustment made by the TPO regarding the corporate guarantee at the rate of 2% per annum when even the Safe Harbour Rules laid down under Income-tax Rules provide for rate of 2% or more per annum on the amount guaranteed. ? (3) That the Ld. CIT(A) has erred in deleting the adjustment made by the TPO regarding the interest on loan without appreciating that the assessee had provided benefit to its Associated Enterprise by way of advancement of interest free loan and should have been compensated for the cost incurred in connection with such benefit. ? (4) That the Ld. CIT(A) has erred in deleting the adjustment made by the TPO regarding the interest on loan without appreciating that the basis (or benchmarking of interest for loan given to subsidiary can be obtained from the Master Circular on ECB and trade credits issued by the RBI dated 01.07.2011 wherein the ceiling of charging interest on loans exceeding 5 years is 6 months LlBOR+500 basis points and therefore, considering the risks involved owing to the financial turmoil of the Associated Enterprises as per the assessee's own submission before the TPO, LlBOR+400 basis points was a reasonable arm's length level of interest? (5) That the Ld. CIT(A) has erred in deleting the adjustment made by the TPO regarding the interest on outstanding receivables which partakes the character of a loan without appreciating that the assessee had provided benefit 10 its Associated Enterprise by way of allowing credit for payments and should have been compensated for the credit loss/cost incurred in connection with such benefit.? (6) That the Ld. CIT(A) has erred in deleting the adjustment made by the TPO regarding the interest on outstanding receivables without appreciating that the basis for benchmarking can be obtained from the Master Circular on ECB and trade credits issued by the RBI dated 01.07.2011 wherein the ceiling of charging interest on loans exceeding 5 years is 6 months LlBOR+500 basis points and therefore, considering the risks involved owing to the financial turmoil of the Associated Enterprises as per the assessee's own submission before the TPO, LlBOR+400 basis points was a reasonable arm's length level of interest.? (7) That the Ld. CIT(A) has erred in deleting the disallowance of brought forward losses of Rs.10,74,95,902/- without appreciating the fact the in earlier A. YS Le for the A. Y. 2012-13 and 2014-15, the Ld. AO was directed to verify the record and above brought forward losses and unabsorbed depreciation.?

2.

Grounds No.1 and 8 raised by the Revenue are general in nature.

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3.

With regard to ground no.2 relates to corporate guarantee, the relevant facts are, ld. TPO, during TP assessment, observed that assessee has given corporate guarantee to its Associated Enterprises (AE) and be treated the same as separate international transaction, observed that it resulted into a direct benefit to the AE. In case of default or bankruptcy of the AE, the assessee would be liable to pay the entire loan to the bank and it may not be in a position to recover that money from the AE and also observed that assessee has not charged any corporate guarantee commission on the above transaction. Accordingly, he benchmarked the transaction at 2% of the total loan against which guarantee was given by applying the Safe Harbour Rule and determined the corporate guarantee at 2% of the total amount guaranteed. Accordingly, he made an addition of Rs.1,86,10,200/- as TP adjustment. 4. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and at the time of hearing, it was submitted that similar additions were made by the AO for AYs 2008-09 and 2009-10 which was reduced to 1% by the ITAT, Delhi. Based on the above findings, ld. CIT (A) has reduced the corporate guarantee to 1% for Assessment Year under consideration. 5. Aggrieved with the above order, Revenue is in appeal before us.

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6.

At the time of hearing, ld. DR of the Revenue heavily relied on the findings of the TPO and supported the action proposed by him at 2% on the total loan guaranteed. However, he accepted the fact that in the earlier years, ITAT has given relief to the assessee @ 1%. 7. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT(A). 8. Considered the rival submissions and material paled on record. We observed that this issue is squarely covered by the decision of coordinate Bench in assessee’s own case for AY 2008-2009 vide order dated 21.07.2014 and relevant findings are as under :- “69.2 Now coming to the issue, the assessee has pleaded that they have charged 1% rate from one AE and nil from other for providing such guarantee. The assessee has demonstrated that it has received offers of similar types of guarantees from Oriental Bank of Commerce @ 0.28%; the independent directors of AE have also given similar guarantees to the AEs without charging any fee; ITAT, Mumbai Bench in the case of Nimbus Communications Ltd., cited supra, has held that commission for guarantee given by the assessee to AE @ 0.5 % was at arm’s length price which should be applied. Similarly, in the case of Reliance Industries Ltd., 0.38% is upheld as reasonable. While deciding these cases, the ITAT has considered all the aspects including bank guarantee charges of 1.5% of HSBC and various other institutions. Thus, the ITAT has upheld the TP adjustment of bank guarantee @ 0.38% in the case of Reliance Industries Limited and 0.5 % in the case of Nimbus Communications Ltd. It has been further pleaded that providing of this guarantee between the assessee and AEs amounts to shareholder activities. Principally there should be no question of any TP adjustment between the assessee shareholder and AEs on such shareholder activities. Looking at the cases of ITAT, Mumbai Bench in Reliance Industries Ltd. and Nimbus Communications Ltd., the rate of such inter group guarantees having been held at

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0.38% and 0.5% respectively, the assessee having itself charged the guarantee fee of 1% from one AE, in our considered view, in the given facts and circumstances, the guarantee commission adjustment under TP at the rate of 1% is fair and reasonable. The Assessing Officer will work it out accordingly. The assessee’s ground is partly allowed.” 9. Respectfully following the aforesaid decision, this ground raised by the Revenue is dismissed. 10. With regard to Grounds No.3 to 6 which are inter-connected, the relevant facts are, during the year under consideration, the TPO observed that assessee has given loan to its AE, M/s. Rich Rice Raisers Factory LLC to the extent of Rs.16,73,38,273/- and he observed that assessee has not charged any interest on loans given to its AE. A separate notice was issued to the assessee as to why the interest should not be charged as per TP provisions. In response, vide letter dated 30.09.2016, assessee has submitted as under :- • The assessee has stated that inspite of all of its efforts, the wholly owned subsidiaries could not generate sufficient revenue to support itself • The assessee has acknowledged that its subsidiaries and joint ventures outside India, were in need of infusion of funds due to financial turmoil and could not raise any raise any debt in local market, due to which it had to advance funds; • That the above AE could not trace any debt in local market and therefore, viable alternative available to its parent company was to remit financial support from India. • The assessee had advanced interest free loan instead of charging high rate of interest rate that would have possibly

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resulted in subsidiary being ceased to be a going concern and according to prevalent laws abroad would have to be liquidated. • The assessee has stated that same cannot be treated as international transactions. 11. After considering the above submissions, the TPO observed that during the year under consideration, assessee has give loan to M/s. Rich Rice Raisers Factory LLC and Indo European Foods Limited. After considering the submissions of the assessee, he proceeded to benchmark the interest rate by observing as under :- “Though, the basis for benchmarking or interest for loan givens to subsidiary has not been specifically mentioned In the TP Rules. Its indirect basis for benchmarking can be obtained from the Master Circular on ECB and trade credits issued by RBI dated 01.07.2011, wherein, the ceiling of charging of interest on loans exceeding 5 years. This ceiling is at 6 months LIBOR+ 500 base points. Now, this is in respect of the payment of interest on ECBs availed in India, but this is taken as a comparable in the case of assessee for receipt of the interest on the foreign loan granted by it to its AEs. In other words, this is considered as a minimum amount that should have been charged by the assessee from Its AE on the amount of loan granted. Further, Hon'ble DRP in assessee's own case has stated that LIBOR+400 bps would be an arm's length level of interest that needs to be charged for the loan advanced. After considering all the facts that have been discussed above, it is considered that an interest rate of 4.448% (6 months LIBOR = 0.448%) would be an arm’s length level of interest that needs to be charged for the loan advanced for the period of investment during the current financial year.

12.

And made ALP adjustment on interest as under :-

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No. Name of the AE Amount (in Rs.) 1. Rich Rice Raisers, Dubai 17,349,407 2. Indo European Foods Limited, UK 29,425,366 Total 46,774,773

13.

And benchmarked the rate at 4.448% (6 months Libor i.e. Libor plus 400 BPS). Similarly TPO observed that there are outstanding receivables pending from its AE’s and he proceeded to apply the same interest rate LIBOR plus basis points on the outstanding receivables also. 14. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A), after considering the submissions of the assessee, reduced the TP adjustment to the extent of Libor rate (only) based on the decision of ITAT in the AYs 2012-13, 2014-15 and 2015-16 order dated 31.07.2025 and accordingly allowed the grounds raised by the assessee. 15. Aggrieved with the above order, Revenue is in appeal before us. 16. At the time of hearing, ld. DR of the Revenue objected to the relief granted to the assessee by the ld. CIT (A), at the same time, he accepted the fact that ITAT at page 80 of the ITAT order has directed the AO/TPO to make the TP adjustment on Libor rate only instead of Libor + 400 BPS as determined by the TPO. He accepted the fact that ITAT has determined the interest by adopting Libor on both interest and interest on outstanding receivables.

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17.

On the other hand, ld. AR of the assessee brought to our notice the facts and findings of ITAT relating to interest on outstanding loan and outstanding receivables and relied on the findings of the ld. CIT (A). 18. Considered the rival submissions and material placed on record. We observed that the issue under consideration is decided by the coordinate Bench in assessee’s own case order dated 31.07.2025 (supra) and the relevant findings of the same are reproduced below :- “8. After considering the submissions, we observed that Ld. CIT(A) has noted that during the year under consideration, the assessee has advanced the loan of Rs.1570.29 lacs to its AE. While computing the arm’s length price of this transaction, the TPO had applied LIBOR+ 500 basis point for computing notional interest of attributable to this transaction. The Ld. CIT(A), however, restricted the adjustment only to the LIBOR rate. We do not find any infirmity in the order of Ld. CIT(A), therefore, these grounds of appeal are deciding as such.”

19.

After considering the findings of coordinate Bench and findings of ld. CIT (A), we noticed that it was directed to charge interest based on Libor rate only. We are not in agreement with the above said direction. The interest rate applicable in the financial market is always Libor + BPS. The Courts have held that the Libor + 200 BPS is the normal and reasonable interest rate. Therefore, we are inclined to modify the directions. The Assessing Officer/TPO is directed to charge Libor + 200 BPS on the outstanding loan. Accordingly, grounds raised by the Revenue in Grounds No.3 & 4 are partly allowed.

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20.

With regard to interest on receivables, we observed that the coordinate Bench had deleted the interest on receivables with the following observations :- “14. Similarly for Assessment Year 2014-15 and 2016-17, we observe that the assessee has made substantial sale to the Non- Associated Enterprises and has also not charged any interest on the delayed payments. We observe that in Assessment Year 2014-15 there was substantial sale to the tune of Rs.,788.13 Cr. to Non-AEs and sale to non AEs in Assessment Year 2016-17 is Rs.691.52 Cr. From these parties, the assessee has not charged any interest on the delayed outstanding. Therefore, we are of the firm opinion that the TPO as well as CIT(A) are not justified in sustaining the addition of notional interest vis-à-vis outstanding receivables with AEs. There are so many judgments on this aspect wherein it has been held that when no interest has been charged from the non AEs on delayed payments then the Department cannot attribute any notional addition towards the outstanding with its AEs. This ground of appeal of the assessee for all the three years is allowed.”

21.

Respectfully following the same, the grounds raised by the Revenue in Grounds No.5 & 6 are dismissed. 22. With regard to ground no.7, we observed that the AO made addition of Rs.10,74,95,902/- on account of disallowance of brought forward losses by considering it as no loss but profits after the assessment done for the previous years. However, in appeal, ld. CIT (A) observed that the same is deleted on the basis of directions of ITAT in the earlier year. 23. After considering the detailed submissions of both the parties, we are of the view that no such findings were given in the earlier years by the ITAT. For the sake of justice, we are inclined to remit this issue to the

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file of AO to verify the claim of the assessee and the relevant claim may be allowed after verification as per law. It is needless to say that the assessee may be given proper opportunity of being heard to the assessee. In the result, Ground No.7 raised by the Revenue is allowed for statistical purposes. 24. In the result, the appeal filed by the Revenue is partly allowed. Order pronounced in the open court on this 19th day of August, 2026. Sd/- sd/- (VIMAL KUMAR) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 19.08.2026 TS

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