M/S. ESSAR SHIPPING LTD,MUMBAI vs. DCIT, CIRCLE 5(1)(1), MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against final assessment order passed by the Ld. Dy. Commissioner of Income- tax, Circle-5(1)(1), Mumbai [in short ‘the Ld. Assessing Officer’]
dated 29.10.2024 for assessment year 2021-22, pursuant to the direction of Ld. Dispu by the assessee are r
1. The Ld and i
3,42,83
calcula
FAO/T
Commi
Assess
2. The Ld the In 1,27,0
tax lia
Busine
3. The Ld the ITA case a order f order
Compa
2. Briefly stated, engaged in the busin the crude oil, rigs a was having two stre shipping business. F filed return of incom
Rs.26,38,220/-. In t business was offere
Scheme provided u/s ‘the Act’). The income under the normal pr by the assessee was M
ITA ute Resolution Panel (DRP). The eproduced as under:
d. FAO under the direction of DRP had e in fact in making a TP adjustme
3,120/- as Corporate Guarantee Commis ated @ 1.40%. Without Prejudice th
TPO ought to have restricted the ission @ 0.25% following the ITAT or see's own case.
d. FAO under the direction of DRP erred in nterest income from income tax refun
0,000/- (arises due to excess of TDS ove ability) as Income from other sources ess Income.
d. FAO and DRP both grossly erred in no AT Mumbai order in the Appellant Comp and also failed to appreciate that unless from the High Court to suspend the opera of the ITAT, the order of ITAT in any's case is binding on them.
facts of the case are that t ness of shipping operation and tr nd bulk transportation service eams of income, shipping bus
For the year under consideratio me on 14.03.2022 declaring t the return of income, income d on presumptive basis unde s 115BA of the Income-tax Act e from non-shipping business h rovisions of the Act. The return selected for scrutiny assessmen
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
e grounds raised erred in law nt of Rs.
ssion taking he Learned
Guarantee rder in the n assessing nd for Rs.
er-assessed instead of ot following pany's own there is an ration of the n
Appellant the assessee is ransportation of s. The assessee iness and non- on, the assessee total income at e from shipping er Tonnage Tax
, 1961 (in short has been offered n of income filed nt and statutory notices under the Ac course of the scrutin international transa accordingly issue of international transac
Officer. The Transfer
Rs.3,42,83,120/- to commission. The As transfer pricing adju assessment order on additions related to objection before the s
Consequent to the d passed this impugne additions were made
S.NO Description

1
T.P additions o

Interest income excess of TD assessed as in Business Incom

Grand Total (

(1+2)
4, assessee is in appeal before the T ed above.
M/s Essar Shipping Ltd
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with. During the Officer observed assessee and h price of those
Transfer Pricing d adjustment of of the guarantee nsideration, the , issued a draft proposed other assessee filed ore the Ld. DRP.
Assessing Officer ein following two dditions n INR)
,42,83,120/-
,27,00,000/-
,69,83,120/-
Tribunal by way

Ld. counsel for the assessee file o 449. o. 1 of the appeal of the asse stment of the ‘corporate guaran
2,83,120/-. Briefly stated facts q ing the year under consideratio g study reported two internation sion as under:
unt Guarantee
Rate Charged
Gua
Com rece
22,00,000
0.5%
14,7
16,00,000
NIL
NIL t transactions, the company nt where it had provided of its subsidiary i.e. OGDSHIL
Bank in relation to credit faci nesian third party bank amoun nt to Indian Rs. 29.22 crores). Un essee had provided an assuranc f transfer of rigs from its grou y the third party bank and pu sessee had provided put options orth U 30 million to be iss
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
ed a Paper Book essee relates to ntee commission’
qua the issue in on, the assessee nal transactions arantee mmission eived (in Rs.)
70,094
entered into a a performance
L(EOSL to third lities availed by nting to Rs.U nder the second ce for execution up companies to ursuant to said s to buy certain sued by Special

PO noted that the assessee ch
% for international transaction e(AE) namely ‘OGDSHIL’ and N
‘Varada’, applying ‘other me for benchmarking. The learne arried out by the assessee as s he provisions of the Act. Th ection 133(6) of the Act gathe with respect to guarantee comm ormation gathered is reproduced
Bank Name
Rate
Kotak Mahindra Bank
0.45
Standard Chartered Bank
0.75
Citi Bank
0.90
HDFC Bank
1.80
IDBI
2.00
SBI
2.40
Union Bank of India
3.00
ICICI
3.00
0.90%

Median
1.90
65th percentile
2.40
PO observed that banks have c arging guarantee commission. T ble uncontrolled price(CUP) ng the mean or average b is the rate at which banks pr customers. The learned TPO
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
arged corporate ns in relation to NIL in respect of ethod’ as ‘most ed TPO rejected same was not in e learned TPO red information mission charged d as under:
e
%
%
%
%
%
%
%
%
%
%
charged average
The learned TPO method for ank guarantee rovide corporate noted that no internal CUP was av was applied under w a comparison of ar unrelated third parti terms and conditions
5.4 The learned TPO of the Tribunal in th
ITA No. 5031/Mum
‘Bank Guarantee(BG that TPO was not jus as external CUP for commission rates co benchmarked after m provisions of the re method) of income ta
5.5 The learned TP corporate guarantee in the case of no.1131/Mum./2015
further upheld by H detailed reasoning in reproduced as under 5. It may be entity had ta
M
ITA vailable and therefore external which the guarantee fee was qua rm’s-length guarantee fee rat ies providing similar guarantee s.
O referred to the decision of co he case of Glenmark Pharmac m/2012, wherein the Tribuna
G) with the Corporate Guarante stified in mechanically picking u r benchmarking. The Tribunal ould be appropriate CUP if tho making due adjustment in acco elevant rules i.e. Rule 10B (r ax rules, 1962. O rejected the rate of 0.5% for commission as per the decision a Everest
Kanto cylinder
5, dated 7th October 2016, w
Hon’ble Bombay High Court , n para seven of his order, relevan
:
noted that in the case of Everest Kan aken a quote from ICICI Bank of India f
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
l CUP approach antified through tes charged by es under similar oordinate bench euticals Ltd in al differentiated ee(CG) and held up the BG rates l held that BG ose are properly rdance with the relating to CUP r benchmarking n of the Tribunal
Ltd in ITA which has been by way of the nt part of this is to, the Indian for guarantee.

The Bank in I the actual tra entity from a Everest Kanto guarantor for funds and ha
EKCL (India)
India Ltd. and situated in th angle the CU
However, thi process. It m
Bank Guaran
6. Another im the bank gua
EKCL) as th adjustment. T
0.5% as again of 0.5% was a Hon'ble High observations also be noted could not give is simple bec related party comparable t point for be commission c used by mak that nearest c
7. It is also r rate as decid assessee. It is the lending depending up credit rate etc also give diff clients in ban most of the ba of Bank Guar rate of guara
M
ITA

India had given the quote to the Indian e ansaction was obtaining loan by the asse bank situated in a foreign juri iction.
o, the Indian company EKCL(India)was s r entity in foreign juri iction which w ad approached foreign bank. The quotatio was the rate to be charged for guaran d was not for standing guarantee for EKC he foreign juri iction. Therefore, exami
UP was defective and could not have is important aspect went unnoticed in may be noted that assessee (EKCL) had ntee as starting point.
mportant point to be noted is that EKCL In arantee rate of 0.6% (i.e. a quotation by he starting point after making a sligh
The EKCL (India) had charged guarantee nst quotation rate of 0.6%. This guarante accepted by the Tribunal and was not dis
Court of Bombay. The Hon'ble High Cou on Corporate Guarantee and Bank Guar d that even in the case of EKCL (India), e any comparable of Corporate Guarante cause Corporate Guarantee is extended y scenario and there will not be any transaction. Therefore, even in that cas enchmarking of corporate guarantee charged by the banks on Bank Guarante king some adjustments. Therefore, it is comparable transaction is that of Bank Gu relevant to state another point that the ded in Everest Kanto cannot be the stand s very well-known fact that rate of intere bank institution is different for differe pon various factors such as repayment ca c. and similar for bank guarantee. Therefo fferent quotation and charged differentl nk guarantee case which may be more th anks also charge processing fees in addit rantee. The processing charge effectively antee.”
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A No. 6521/MUM/2024
entity whereas essee's foreign
In the case of standing as a was a need of on obtained by ntee for EKCL
C (Foreign AE) ined from this e been used.
the litigation d used rate of ndia had used
ICICI Bank to ht downward commission of ee commission sturbed by the urt also made rantee. It may the assessee ee. The reason d only in the y uncontrolled e the starting was rate of ee which was admitted fact uarantee.
application of dard for every est charged by ent customers apacity, asset, fore, the banks ly to different an in addition tion to the rate increases the 5.6 After considering the decisions relied pricing adjustment of Name of the AE
Amount
Guaranteed
OGDSHIL
29,22,00,000
Varada
226,16,00,000
In view of the abov adjustment u/s.92C on the Guarantee giv
6.CONCLUSION:
In view of the above
International Transa
22. Sr. No.
Na
Tr
1. Gu
To Accordingly, an adj
Transactions. The As as per law against th
5.7 Before the lear guarantee on behalf activity and it was n
DRP, however, rejec provision of corpor international transac the Finance Act w precedents.
M
ITA g submission of the assessee an d upon, the learned TPO pro f ₹ 3, 42, 83, 120/-as under:
Rate Charged
Guarantee
Commission received (in Rs.)
Corporate
Guarante
1.4%
0.5%
14,70,094
40,90,80
0
NIL
NIL
3,16,62,4
ve, the amount of Rs. 3,42,83,120/ is CA of the I.T Act, 1961 in respect of Guar ven on behalf of AEs based on the above e the following Transfer Pricing Adjustme actions entered into by the Assessee Com ature of International ransaction
Adjus uarantee Commission
3,42, otal
3,42, justment of Rs. 3,42,83,120/- is made ssessing Officer may consider penalty pr he said adjustments while framing the as rned DRP, the assessee subm f of AE was provided as part not an international transaction cted contentions of the asses rate guarantee brought into ctions by way of explanation to with effect from 01/04/2002
M/s Essar Shipping Ltd
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nd discussion of oposed transfer e ee
@
Adjustment (in Rs.)
00
26,20,706
400
3,16,62,400
being treated as an rantee fee chargeable discussion.
ents are made to the mpany for A.Y. 2021- stment in Rs. /-
83,120
83,120/- to the International roceedings applicable ssessment order.”
mitted that the of shareholding ns. The learned ssee in view of ambit of the section 92B by 2 and judicial

Logistics Ltd (ELL) w pendency of loan i.e.
the circumstances , transaction was not keeping in view to restricted the adjustm of 0.5% applied by t year under considera under consideration therefore ratio in the not applicable or the 7.3 Further for asse a lien on shares of E following the finding restricted the tran transaction, which w
7.4 Further in a transactions of were first transaction was assessment year 201
in the earlier year transaction. The sec lenders who issued who was engaged in M
ITA without prior written approval o
. a lien was provided on transfe the Tribunal (supra) was of th of a guarantee but it was ne tally to of the circumstances ment to 0.25% of the said trans the Assessing Officer. The facts ation are distinguishable as in t the transaction is a corporate e decision for the assessment y facts of the instant year.
essment year 2016-17, the tran
ELL, the Tribunal in ITA No. 20
g of the Tribunal in assessmen nsfer pricing adjustment to we have already distinguished ab assessment year
2017-18, subjected to transfer pricing a s of negative lien on shares of 3-14, therefore the tribunal foll restricted the adjustment to cond transaction was of guar a standby letter of credit in fa the sale and lease transaction
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
f lenders during er of shares . In he view that the egative lien but s, the tribunal sactions instead s of the instant the instant year e guarantee and year 2013-14 is nsaction being of 14/Mum/2022, t year 2013-14,
0.25% of the bove.
two different adjustment. The f ELL as was in lowing is finding o 0.25% of the rantee issue to avour of the AE, ns of the vessels with the assessee. T bank on behalf of th standby letter of cre guaranteed by the guarantee commissi shareholder activity.
benchmark rate of th however rejected the observed that in the invok is ing external adjustment to 0.5%, relevant finding of th
“064. We have caref the orders of the low for stand by letter enterprises in the million. The banks a TPO benchmarked t rate at the rate of 2. of India and HDFC average at the rate guarantee agreemen on behalf of its su charged guarantee c
TPO adopted 2 perc arm's-length price learned dispute reso
The comparison of guarantee rate as s learned transfer-pric guarantee at 2.18%
the assessee has an enterprises, assesse commission at the ra assessee itself. Thi
M
ITA he assessee extended guarante he AE of which 350 crores. The edit from bank which in turn assessee. The assessee did n ion. The assessee claim it The learned TPO applied int he 2% as guarantee commissio internal CUP due to functional e information was not availabl
CUP, but for closing the matte
, which was not objected by th e Tribunal is reproduced as und efully considered the rival contentions an wer authorities. The assessee has given a of credit for 358 crores wherein the UAE has availed loan from banks of are of United States and of Sri Lanka. T this transaction taking the average bank
.18% by comparing state bank of India, U
C bank, bank guarantee rates and the e of 2.18%. The assessee has also ente nt where it has provided a performance bsidiary to third-party bank where ass commission at the rate of 2% therefore t cent per annum as internal cup and com of guarantee commission at ₹ 42,25
olution panel approved the above arm's-le f the bank guarantee rate with the such is not acceptable therefore the ac cing officer in computing the average ba is devoid of any merit. Now the issue re n internal cup where loan availed by the ee has stood guarantor, assessee charged ate of 2%, which is held to be at arm's-le is is used by the learned TPO to benc
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
ee to third-party e AE obtained a was ultimately not charge any to be part of ternal CUP and n. The Tribunal differences and le on record for er restricted the he revenue. The der:
nd perused a guarantee associated
US$ 53.44
The learned k guarantee
Union Bank en deriving ered into a e guarantee sessee has the learned mputed the 1,637. The ength price.
e corporate ction of the ank rate of emains that associated d guarantee ngth by the chmark the transaction of Guara standby letter of cre who issued stand by with the AE. From A back. Thus, the gua of its AE clearly sho which are leasee ba on them. Therefore business of the as vessels on lease from much lesser interest did not have any s present case, Stand used by the asses commission rate of altogether different bank guarantee of rate of 2% for this tr enterprise has taken same is guaranteed the standby letter of term arrangement ( be compared with Accordingly, we reje pricing officer and up the question that ar guarantee commissio the assessee nor th creditworthiness of tenure of the guara
Neither the terms no provided standby le the assessee is tha gained because of th has accrued to the Assessee, Id TPO a transaction itself, pr precedents. Such in party. Even the full
Therefore, in absenc functions assets and of transaction, the a the guarantee comm of the honourable B
Kanto cylinders Ltd objected by the reve adopt 0.5% as the ap
M
ITA antee for standby letter of credit. Guaran edit is issued by Assessee in favour of t y letter of credit to the third parties who
AE assessee has obtained vessels on sale arantee issued by the assessee in favour ows that the vehicles are bought by the A ack to the assessee and assessee is ear e, the guarantee itself is for the purp ssessee. It has facilitated the assessee m its AE in the business of operation of t rates. The internal cup adopted by the le such functions, assets and risk distribu dby letter of credit given of its AE, in su see for its own business. Further the f 2% charged from its associated en transaction which is also near to aver
2.18%, clearly proves that guarantee c ransaction is on higher side. Further, the n the standby letter of credit for supply of d by the assessee to the bankers who h of credit. Therefore, it is apparent that it it does not exist in subsequent year], wh the long-term continuance of guaran ect the internal cup applied by the learne upheld by the learned dispute resolution p rises what should be the arm's-length p on. This is the transaction for oniy this ye he learned transfer-pricing officer has loo the associated enterprises or the assess antee for standby letter of credit was d or conditions of the guarantee to the ba etter of credit were brought on record. T at it is the business of the assessee, his guarantee commission therefore the m assessee and not to the AE, is not d and Ld DRP without looking at the ec roceeded to decide the issue on the basis nformation is also not brought before us facts of the transactions are also not fo ce of any information about the guarant d risk of both the contracting parties, and alternative plea raised by the assessee mission rate at the rate of 0.5% following t
Bombay High Court in case of CIT vers and nimbus common occasions Ltd, as s enue, we direct the learned transfer pricin ppropriate guarantee commission arm's-le
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
ntee against the bankers transacted e and lease r of bankers
AE in UAE, rning rental pose of the e to obtain shipping at earned TPO tion. In the ubstance is guarantee terprise on rage rate of commission associated f vessel, the have issued t is a short- hich cannot ntee tenure ed transfer- panel. Now price of the ear. Neither oked at the see. Nor the determined.
ankers who
The claim of which has major benefit denied. The conomics of s of judicial s by either forthcoming.
tee and the d being one of adopting the decision sus Everest same is not ng officer to ength price.

Accordingly, ground
The learned TPO i adjustment accordin
7.6 Thus the facts o the instant case.
7.7 Before as the le the decision of the co services ltd in ITA No 15, wherein the Trib assessee for assessm commission and the the decision of the co
Ltd in ITA No. 753
wherein also followed
The facts and circ parameters associat different in each case assessee are not appl
7.8 Further we note of the assessee for r
0.5% as per the deci holding that guarant additional fees, so Ev
M
ITA number 2 of the appeal of the AO is part is a directed to compute the arm's-le ngly.”
of the above case are different f earned counsel for the assesse oordinate bench in the case of T o. 5199/Mum/2019 for assessm bunal following the finding in ment year 2012-13, restricted rate of 0.5%. The learned couns oordinate bench in the case of G
3/Mum/2024 for assessment d in the case of the assessee umstances of those cases a ted with the guarantee tra e, the ratio of the decisions reli licable or the facts of the instan e that the Ld. TPO has also reje restricting corporate guarantee ision in the Everest Canto Cylin tee rates vary by client due to verest Kanto's rate cannot be ap
M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
tly allowed.
ength price from the facts of e also relied on Tata consultancy ment year 2014- the case of the d the guarantee sel also relied on Greatship (India) year 2016-17, for earlier year.
s well as risk ansaction being ied upon by the nt case.
ected the prayer commission to nder Ltd (supra) credit risk and plied uniformly.

Copy of the Order forward
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.

////

M
ITA he appeal of the assessee is dism ed under Rule 34(4) of the ITA esult on notice board on 30.05
/-
S
AUDHARY)
(OM PRAK
MEMBER
ACCOUNTA ded to :

BY ORDER

(Assistant Re

ITAT, Mu

M/s Essar Shipping Ltd
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A No. 6521/MUM/2024
missed.
AT Rules, 1963
5.2025. KASH KANT)
ANT MEMBER
R, gistrar) umbai