ABAN OFFSHORE LIMITED,CHENNAI vs. DCIT, CORPORATE CIRCLE 1(1), CHENNAI

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ITTPA 48/CHNY/2026Status: DisposedITAT Chennai03 September 2026AY 2022-238 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the corporate guarantee issued by an entity on behalf of its Associated Enterprises (AEs) is an international transaction, as explained in Section 92B of the Income Tax Act, 1961, with retrospective effect from April 1, 2002. This was supported by the Bombay High Court's decision in CIT v. Everest Kento Cylinders Ltd. However, the Tribunal found that the TPO erred in comparing guarantee fees of commercial banks with corporate guarantees issued by a holding company for its AE subsidiary when computing the Arm's Length Price (ALP). The Tribunal, following its co-ordinate bench's decision in the assessee's own case and the Bombay High Court's reasoning, directed the TPO/AO to recompute the corporate guarantee fee at 0.5% of the total corporate guarantee given to its AEs. The Tribunal noted that the same guarantee was continued for the year under consideration and the revenue did not controvert the submissions or bring new materials. Ground No. 2 was dismissed as not pressed. The Tribunal did not explicitly decide on the time-bar issue raised in Ground No. 1 and 2.1-2.4, as Ground No. 2 was not pressed.

What were the facts?

The assessee, Aban Offshore Limited, filed its return of income for Assessment Year 2022-23 declaring a total loss. The case was selected for scrutiny, and due to international transactions, a reference was made to the Transfer Pricing Officer (TPO). The TPO proposed an upward adjustment of Rs. 54,28,500/- towards corporate guarantee commission at 1%. The Assessing Officer (AO) passed a draft assessment order incorporating this adjustment. The Dispute Resolution Panel (DRP) upheld the adjustment. The assessee appealed to the Income Tax Appellate Tribunal (ITAT) against the final assessment order. The ITAT noted that Ground No. 2 was not pressed and Ground No. 1 and 5 were general, while Ground No. 4 was consequential.

What were the issues?

1. Whether the final assessment order passed by the AO and the order passed by the TPO are bad in law due to the lapse of the time limit for passing the assessment order as per Section 153 of the Income Tax Act, 1961, and whether Section 153 would prevail over Section 144C. - Assessee's contention: The time limit for completing the assessment under Section 153 had lapsed, making the order erroneous and bad in law. The time limit under Section 153 should prevail over Section 144C. - Revenue's contention: Not recorded. 2. Whether the upward adjustment of Rs. 54,28,500/- towards the fee on corporate guarantee is justified. - Assessee's contention: The transaction relating to corporate guarantee is not an international transaction under Section 92B as it does not have a bearing on the assessee's profits, income, losses, or assets. It was a procedural compliance for availing loans, for commercial expediency, and a parental obligation. It did not involve any cost to the assessee, and the AE's credit rating was higher. The TPO erred in using CUP as the most appropriate method without following Section 92C procedures and comparing domestic bank rates with international transactions, violating Rule 10B(1). The comparison should be based on real transactions, not hypotheses. No comparison can be made between commercial bank guarantees and corporate guarantees. The ITAT's own case decisions restricting the fee to 0.5% should be followed. A reasonable rate should be applied, not 1%. The adjustment should be for the utilized amount and relevant period. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 92CA(3),Section 153,Section 92B,Section 92C,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S

For Respondent: Mr. K Jayaganesh, CIT

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the final order of the assessment passed by National Faceless Assessment Unit (in short "AO") passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short "the Act") dated 01.01.2026 for Assessment Year (AY) 2022-23. The assessee raised the following grounds of appeal: S No. Grounds of appeal Tax Effect 1 On the facts and in the circumstances of the case, the final Assessment order passed u/s 143(3) r.w.s 144C(13) of the Act Dated General ground 01.01.2026 by the AO and also the order passed u/s 92CA (3) dt 20.01.2025 by the TPO are bad in eyes of law and thus, unsustainable to the test of appeal.

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Time limit for passing the order has lapsed u/s 153 2 2.1 The Ld. AO erred in passing the final assessment order Technical ground without considering the legal position that time limit for completion of assessment u/s 153 has lapsed, therefore the order passed is erroneous and bad in law. 2.2 The Ld. AO ought to have considered the law position that Technical ground the time limit for passing the order has elapsed on 31.03.2025, as per section 153, so the impugned order is erroneous and bad in law. 2.3 The Ld. AO ought to have considered that the time limit Technical ground prescribed u/s 153 would prevail over time limit prescribed u/s 144C. Therefore, the order passed is liable to be quashed. 2.4 The Ld. AO ought to have fairly appreciated the fact that, the Technical ground assessment has to be completed within 12 months (shall be extended by 12 months in case of TPO reference is made) as per Sec 153 of Income Tax Act. The Ld. AO Erred in making the upward adjustment of Arm’s Length Price for Rs.54,28,500/- towards fee on corporate guarantee. 3 The Ld. AO Erred in upholding the adjustment on account of 0/- corporate guarantee of Rs.54,28,500/- without appreciating the fact that the transaction relating to corporate guarantee as international transaction u/s.92B of the Act due to the fact that such an assistance or accommodation do not have any 3.1 bearing on Assessee’s profits, income, losses or assets, and, therefore, will be outside the ambit of 'international transaction' under section 92B(1). The Ld. AO Erred in not appreciating the fact that provision As Stated Above 3.2 of corporate guarantee was a procedural compliance for availing the loan. The Ld. AO Erred in not appreciating the fact that the As Stated Above Corporate Guarantee is on account of commercial expediency 3.3 and it does not have any bearing on the profits/income of the Appellant/AE. The Ld. AO Ought to have appreciated the fact that the As Stated Above 3.4 issuance of Corporate Guarantee to banks on behalf of AE does not involve any cost to the assessee. The Ld. AO Erred in not appreciating the fact that the As Stated Above appellant provided the corporate guarantee for its own 3.5 investment and benefit, as a parental act/obligation to its newly created AEs and was a procedural compliance for availing the loan.

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The Ld. AO Erred in not appreciating the fact that provision As Stated Above 3.6 of corporate guarantee is a shareholder function and for furtherance of business of the assessee. The Ld. AO Erred in not appreciating the fact that the AE has As Stated Above 3.7 not received any benefit in the form of lower interest rate by virtue of the corporate guarantee given by the taxpayer. The Ld. AO Erred in not appreciating the fact that the Credit As Stated Above rating of the AE’s is much higher than the credit rating of the 3..8 assessee; the credit facilities are sanctioned by the banker based on the financial stability and credit rating of the associated enterprise. The Ld. AO Erred in calculating the ALP of the corporate As Stated Above guarantee fee using ‘CUP’ as the most appropriate method 3.9 without complying with the procedure laid down for computation of arm’s length price as given in the provisions of section 92C of the Act. The Ld. AO Erred in not appreciating the fact that the TPO As Stated Above 3.10 has erred in comparing the domestic bank rate with the international transaction which is not in accordance with Rule10B(1) of the Income Tax Rules, 1962. The Ld. AO Erred in not appreciating the fact that the As Stated Above comparison should be based on real transactions of similar 3.11 nature and it cannot be based on the hypothesis as to what would have happened if the assessee was to have similar transactions with non-AEs. The Ld. AO Erred in not appreciating the fact that no As Stated Above 3.12 comparison can be made between guarantee issued by commercial bank and the corporate guarantee issued by the holding company for the benefit of AE. With Prejudice to the other grounds, the Ld. AO Erred in not As Stated Above following the decision of the Hon’ble ITAT Chennai in the assesses own case wherein the Hon’ble ITAT vide IT(TP)A no. 3.13 86/CHNY/2019, IT(TP)A no. 30/Chny/2021, IT(TP)A no. 21/Chny/2022, IT(TP)A no. 5/Chny/2019, & IT(TP)A no. 40/Chny/2022 for the AY 2015-16, AY 2016-17, AY 2017-18, AY 2014-15 & AY 2018-19 respectively has restricted the corporate guarantee fee to 0.5%. The Ld. AO Erred in not appreciating the fact that when two As Stated Above 3.14 divergent views are possible, the view which is favourable to assessee should be adopted. Without prejudice to the other grounds, ought to have applied As Stated Above 3.15 reasonable rate instead of 1%.

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Without prejudice to the other grounds, the AO/DRP erred in As Stated Above 3.16 calculating the corporate guarantee for the whole year and not restricting the same to relevant period and for the utilized amount. 4. The Ld. AO erred in initiating the penalty proceedings u/s 270A General Ground despite there is no concealment of income by the appellant for the AY 2022-23. 5. The appellant may add, alter or modify any other point to the General Ground Grounds of appeal at any time before or at the time of hearing of the appeal.

2.

The assessee is engaged in the business of providing oil field services in India to oil majors like ONGC. The assessee owns jack-up rigs, floating production units and drill ships in order to provide drilling and production services to Exploration & Production (E & P’) players in the oil and gas industry. The assessee is the only Indian private player with experience in offshore, deep-water drilling and production services covering the entire spectrum of services. The assessee filed Return of Income on 28.11.2022 declaring total losses of Rs.4,81,52,907/-. The case was selected for scrutiny, and the statutory notices were duly served on the assessee. Since the assessee had international transactions, a reference was made to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP) of the international transactions the assessee is having with its Associated Enterprises (AE). The TPO proposed an upward adjustment of Rs. 54,28,500/- towards Corporate Guarantee commission at the rate of 1%. The AO passed the draft assessment order incorporating the TP adjustment. Aggrieved, the assessee filed its objections before the DRP who upheld the TP adjustment. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO as per the directions of the DRP.

IT(TP)A No.48/Chny/2026 Aban Offshore Ltd. :- 5 -:

3.

Ground No.1 & 5 are is general and Ground No.4 is consequential. These grounds do not warrant any separate adjudication. Ground No.2 is not pressed by the ld AR during the course of hearing and hence the same is dismissed as not pressed.

4.

We heard the parties and perused the materials on record. The only issue for our consideration is the upward adjustment made towards the corporate guarantee. The Ld. AR submitted that the TPO has considered the guarantee rates of the Indian Banks to arrive at the 1% commission and has applied the said rate for making the TP adjustment. The Ld. AR further submitted that the rates of the banks in India are not the correct comparable for CUP method. The Ld. AR brought to our attention that this is a recurring issue in assessee’s case, and the coordinate bench of the Tribunal has been consistently holding that the commission for corporate guarantee to be restricted to 0.5%. We in this regard notice that the coordinate bench in assessee’s own case for AY 2013-14 (ITA No.2757/Chny/2017 dated 08.11.2023) has considered an identical issue and held that: “8.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. An identical issue has been considered by the tribunal in assessee’s own case for earlier assessment year and by, considering relevant facts and also by following the decision of Hon’ble Bombay High Court in the case of CIT vs Everest Kento Cylinders Ltd (Supra), directed the TPO to compute corporate guarantee commission @ 0.5% to total corporate guarantee given by the assessee to their AE. The relevant findings of the Tribunal are as under: “6.3 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. In so far as the first arguments of the assessee that corporate guarantee per se is not an international transaction, we find that as per the definition of international transaction u/s.92B of the Act, the definition includes lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises. Therefore, from the definition of international transaction, which is very clear that the transaction of lending or borrowing also considered as international transaction. Since, corporate guarantee given to their AEs is in the nature of lending of money, which is having a bearing on

IT(TP)A No.48/Chny/2026 Aban Offshore Ltd. :- 6 -:

the profit of the assessee, the same needs to be considered as international transaction and thus, we reject the arguments of the assessee on corporate guarantee per se is not an international transaction. 6.4 Having said so, when it comes to the rate, on which, such guarantee commission needs to be computed, we find that the co-ordinate Bench of the Tribunal in the assessee’s own case for the AY 2015-16 had considered an identical issue and the Tribunal by following the decision of the Hon’ble Bombay High Court in the case of CIT v. Everest Kento Cylinders Ltd. [2015] reported in 58 taxmann.com 254, has directed the TPO to compute corporate guarantee commission @ 0.5% of total corporate guarantee given to their AEs and outstanding at the end of the relevant Financial Year. The relevant findings of the Tribunal are as under:

8.

We have heard both the sides and considered the arguments and had gone through the orders of the lower authorities.

9.

In so far as the issue that whether Corporate Guarantee issued by the Assessee to its AEs comes within the definition of International Transaction or not? The Finance Act, 2012 has inserted, an explanation to Section 92B with retrospective effect from 1st April, 2002 to include the term guarantee within the definition of international transaction. Therefore, the Corporate Guarantee issued by an entity on behalf of its AEs is an international transaction as considered by the Bombay High Court in the case of the Commissioner of Income Tax Vs. Everest Kentor Cylinder Limited reported in [2015] 58 Taxmann.com 254 (Bom.). The Hon’ble High Court has considered the issue in the light of provision of Section 92B and explanation, to come to the conclusion that guaranteeissued by an entity on behalf of its AEs, a SUBSIDIARY is international transaction. However, while benchmarking the rate of commission, no comparison can be made between guarantee issued by the commercial bank as against corporate guarantee issued by holding company for benefit for its AE subsidiary company for computing ALP of guarantee commission. The relevant observation of the Hon’ble Bombay High Court (supra) is reproduced as under: “The adjustment made by the TPO was based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of corporate guarantee. No doubt, these are contracts of guarantee, however, when they are commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default and if the bank guarantee had to be obtained from commercial banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing corporate guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the Assessee would make good the amount and repay the loan. The considerations which

IT(TP)A No.48/Chny/2026 Aban Offshore Ltd. :- 7 -:

apply for issuance of a corporate guarantee are distinct and separate from that of bank guarantee are distinct and separate from that of bank guarantee and accordingly commission charged cannot be called in question, in the manner TPO has done. The comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion, appeal does not raise any substantial question of law and it is dismissed.” 10. From the above decision of the Hon’ble Mumbai High Court, it is clear that Corporate Guarantee by an entity on behalf of its AEs a subsidiary company is an international transaction. However, while arriving at a rate, the Assessing Officer has taken comparables from commercial banks to at arrive at mean margin of 1.04% and adopted such rate to determine the ALP of corporate guarantee issued by the Assessee. The Hon’ble Mumbai High Court has confirmed the order of the Tribunal wherein the Tribunal estimated the guarantee commission at the rate of 0.50%. We therefore by considering the facts and circumstances of the case, we are of the opinion that we will fix the guarantee commission at the rate of 0.50%. 6.5 In this view of the matter and consistent with view taken by the co-ordinate Bench, we direct the AO/TPO to compute corporate guarantee fee @ 0.5% of total corporate guarantee given to their AEs.” 8.4 In this view of the matter and consistent with the view taken by the coordinate bench, we direct the TPO to compute corporate guarantee fee @ 0.5% on total corporate guarantee given by the appellant to its AE.”

5.

The Ld. AR during the course of hearing submitted that the same guarantee is continued for the year under consideration also and there is no change to the facts. The Ld. DR did not controvert the said submissions, and no new materials have been brought on record by the revenue. Therefore, we are of the considered view that the ratio laid down in the above case is applicable for the year under consideration also. Accordingly, we direct the TPO/AO to recompute the adjustment by applying the commission rate @

IT(TP)A No.48/Chny/2026 Aban Offshore Ltd. :- 8 -:

0.5% towards the corporate guarantee given by the assessee to its AE. It is ordered accordingly.

6.

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

Order pronounced on 03rd day of September, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा सद�य /Accountant Member �या�यक सद�य / Judicial Member चे�नई/Chennai, �दनांक/Dated: 03rd September, 2026. EDN, Sr. P.S EJTADA Digitally signed by आदेश क� ��त ल!प अ"े!षत/Copy to: DURGA EJTADA DURGA NARESH 1. अपीलाथ�/Appellant Date: 2026.09.04 NARESH 17:38:23 +05'30' 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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