EXCELRA KNOWLEDGE SOLUTIONS PRIVATE LIMITED,HYDERABAD vs. ACIT, CIRCLE - 8(1), HYDERABAD

The Assessee has raised the following grounds of appeal: 1. “The assessment order dated 23-01-2026 passed by the LdAO, Circle-B(1), Hyderabad making an adjustment of Rs.88,72,747 U/s 92CA is bad in law.

The Ld.A.O/Ld.TPO/Ld.DRP, erred in bench marking the transaction of corporate guarantee provided by the assessee to its AE and imputing a guarantee fee at 1.9% considering the average bank guarantee rates as Arms length price amounting to Rs.87,51,590.

Ld.TPO/Ld.DRP, failed to appreciate that the assessee is not in the business of providing financial services including guarantees. To protect its investment in subsidiary, the bank guarantee was extended for a sum of Rs.46.06 crores.

Ld.TPO/Ld.DRP erred in computing the interest on outstanding receivables at a sum of Rs.1,21,157 in the assessment order dated 23/01/2026.

Ld.TPO/Ld.DRP, failed to appreciate that the assessee did not charge interest on outstanding receivables from Non-AE transactions also.

Ld. TPO/Ld.DRP, erred in imputing fee for corporate given to its AE and interest on outstanding receivables after accepting the price of primary transaction with its AE at Arms' length.

Without Prejudice, Ld.TPO/Ld.DRP, erred in allowing a credit period of 30 days without any basis while computing the interest on outstanding receivables.

Ld.TPO/Ld.DRP, erred in not allowing the outstanding payables against the outstanding receivables while computing the interest [Net off].

The assessee craves leave to add, amend and/or after the above ground appeal, at any time before or at the time of hearing of the appeal.”

Ground no.1 is general in nature and therefore does not require any specific adjudication as depending upon the outcome of the specific grounds raised by the assessee. 4. Ground nos.2 and 3 are regarding the TP adjustment made on account of corporate guarantee provided by the assessee to the AE.

The learned Authorised Representative of the Assessee has submitted that the assessee has provided corporate guarantee to its 100% subsidiary/AE at USA for availing the loan from bank. The assessee has not reported this transaction as international transaction as assessee believes that as per the OECD TP guidelines the corporate guarantee is a form of intra-group services requires two step analysis as to whether a service has actually been rendered and consequently, whether the Arm’s Length charges are warranted. Thus, the assessee has taken a stand that corporate guarantee to its AE does not constitute intra-group services. Further, the learned Authorised Representative of the Assessee has submitted that the assessee is not raising this issue of international transaction before the Tribunal and the grievance of the assessee is only the Arm’s Length rate of corporate guarantee commission/fee applied by the TPO at 1.90%. The learned Authorised Representative of the Assessee has thus submitted that in various case law precedents on this issue it is held that the corporate guarantee fee @ .5% to .6% is at arm’s length for benchmarking the guarantee rates. Thus, he has submitted that the guarantee rate and percentile may be considered at 0.5% as against Transfer Pricing Officer [in short “TPO”] applied at 1.90%. In support of his contention, he has relied upon the following decisions: i. Order of ITAT, Hyderabad in the case of Cyient Ltd vs. DCIT [2025] 172 taxmann.com 45. ii. Order of ITAT, Hyderabad in the case of Aurobindo Pharma Ltd. vs. ACIT [2023] 152 taxmann.com 469. iii. Order of ITAT, Hyderabad in the case of Vivimed Labs Ltd. vs. ACIT [2023] 147 taxmann.com 456. iv. Order of ITAT, Hyderabad in the case of ACIT vs. NCC Ltd., [2023] 157 taxmann.com 144. 6. On the other hand, the learned DR has submitted that the rate of corporate guarantee fee depends upon the character of debt transactions, possibility of repayment or liquidation and therefore, it depends upon the risk-taking capability with respect to the said party and the transaction therefore, there cannot be a standard rate applicable for all the transactions. Thus, the learned DR has submitted that the decisions relied upon by the assessee cannot be applied without considering the risk assumed by the assessee by providing corporate guarantee. The level and degree of risk in a particular transaction are the guiding factor for deciding the corporate guarantee fee/charges. She has relied upon the Orders of the authorities below.

We have considered the rival submissions as well as relevant material on record. The assessee has provided the corporate guarantee to its wholly owned AE at USA for availing loan from the bank and therefore, it is not a case of taking an unforseable risk in providing corporate guarantee to its AE when the assessee is doing business through the AE. In any case, this issue has been considered by this Tribunal as well as various High Courts in a series of Judgments. In the recent decision this Tribunal in the case of Cyient Ltd vs. DCIT (supra), has considered an identical issue in Para nos.10 and 11 as under:

Now coming to the second issue, ie., at what rate the corporate guarantee charges are required to be computed. In this regard, the TPO/DRP had relied upon the rate of corporate guarantee charges as charged by the financial institutions namely bank. At Page No.6 of his order TPO taken the median of the 35 percentile and 65 percentiles as bank charges and computed at 1.90%. If we look into the document and the showcause notice issued by the TPO which is available at Page No. 18 then it is clear that the ALP of interest as applied for ECB loan was computed at 1.67%. At Page No. 20 of the paper book, in paragraph No.21.6 it was mentioned as under: -

Now the question arises whether the ALP computed for external commercial borrowing @1.67% can be juxtapose or applied to the corporate guarantee @1.9%. In our view the answer is no, and this Tribunal while deciding the issue in the case of Hetero Labs Limited, v. ACIT (supra), as relied upon by the assessee, held that the rate of interest required to be applied is 0.53% and not 1.9%. For that purpose, the Tribunal has relied upon another Co-ordinate Bench decision in the case of Mylon Laboratories Ltd v. ACIT in ITA No.2123/Hyd/2011 and held that 0.5% is required to be applied. Accordingly, respectfully following the decision of the Co-ordinate Bench in the case of Hetero Labs Limited, v. ACIT (supra) we direct the TPO to compute the charges at 0.53% as corporate guarantee charges. 22. The question whether the approach of the Tribunal by restricting the corporate guarantee at 0.53%, is correct. For that purpose, we have to see what benefit the assessee would have been passing to the AE by giving the corporate guarantee. In fact, corporate guarantee charges paid for the corporate guarantee cannot be equated with the rate of interest at what the external commercial borrowings has been borrows. In the case of ECB loans, risk and rewards are more than the corporate guarantees. The Corporate guarantee is required to be enforced in case of failure on the part of part of borrower. In, case of ECB, not only the principle borrowed, is required to pay borrowed sum beside that other action can also be taken. Moreover, the Co-ordinate Bench in the case of Reliance Industries Ltd. v. C ACIT (supra) and Dabar India Limited (supra) have already adjudicated the issue and held that the interest benefit if any is required to be splitted between the guarantor and borrower. 23. No facts and figures brought to our notice as to whether the credit rating of the AE of the assessee was substantially low and at what rate the interest would have been borrowed by it or at what rate the bank would issue the corporate guarantee in its favour. In our considered opinion that the ECB rate is already determined by the TPO at 1.67%, then in our considered opinion corporate guarantee cannot c be 1.67% it is to be substantially less therefore we are of the considered opinion that the view taken by the Co- ordinate Bench in the case of Hetero Labs Limited, v. ACIT (supra) whereby the corporate guarantee charge has been restricted to 0.53% was appropriate and in accordance with law. Accordingly, we allow this ground raised by the assessee." 11. In this view of the matter and respectfully following the decision of the co-ordinate Bench of the Tribunal in assessee's own case, we direct the Assessing Officer to restrict the addition towards corporate guarantee commission @ 0.53% on total corporate guarantee given to A.E. and also restrict the commission/fee to the actual period of guarantee given by the assessee to it's A.E.

Ground nos.4 to 8 of the assessee’s appeal are regarding the adjustment made by the TPO and modified by the DRP in respect of interest on outstanding receivables from the AE.

The learned Authorised Representative of the Assessee has submitted that after the DRP directions, the adjustment on this account has been made by allowing 30 days as credit period and LIBOR + 450 basis points as ALP. The learned Authorised Representative of the Assessee has thus submitted that the limited grievance of the assessee on this issue is that normal credit period of 60 days shall be allowed and ALP for interest on outstanding receivables from AE should be LIBOR + 200 basis points. In support of his contention, he has relied upon the following decisions:

We have considered the rival submissions as well as relevant material on record. There have been a lot of deliberations on this issue at the level of this Tribunal as well as by the Hon’ble High Courts. This Tribunal has taken a consistent view that when the receivables are outstanding in foreign currency then, in case of cross-border transactions the appropriate rate to adopt is LIBOR rate of interest instead of the Prime Lending Rate [in short “PLR”] as applied by the TPO. Though, in the case of the assessee, the DRP has applied LIBOR + however, the 450 basis points applied by the DRP is also not in consistent with the view taken by this Tribunal. In case of HARSCO India (P.) Ltd. vs. DCIT (supra), the ITAT, Hyderabad Tribunal has considered an identical issue in Para nos.5 to 10 as under:

Thus, it is clear that this issue is settled by the decision of the Special Bench of this Tribunal as well as various Judgments of Hon’ble High Courts. In case of CIT vs. Tata Auto Corpus System the Hon’ble Bombay High Court has upheld the decision of the Tribunal to benchmark the interest at prevailing LIBOR rates instead of repaying the loan rates. Accordingly, to maintain the rule of consistency and following the earlier decisions of this Tribunal, we hold that LIBOR + 200 basis points shall be the ALP for benchmarking the transaction on outstanding receivables from AE. Further as the normal outstanding period is considered as 60 days, therefore, instead of 30 days allowed by the DRP, the Assessing Officer is directed to allow the credit period of 60 days as normal credit period without any interest. Ground nos.4 to 8 of the assessee’s appeal is allowed.

In the result, appeal of the Assessee is partly allowed.