ACIT CIR 3(4) , MUMBAI vs. M/S. EVEREST KANTO CYLINDER LTD, MUMBAI

Appellant Asst. Commissioner of Income Tax, Circle-3(4), Mumbai (hereinafter referred to as ‘the Revenue’) by filing the present appeals for assessment years 2013-14 & 2014-15 sought to challenge the impugned orders passed by Commissioner of Income Tax (Appeals) [CIT(A)] directing to restrict the TP adjustment on account of corporate guarantee fee by raising identically worded grounds except the difference in figures of adjustment. So we take grounds of appeal from A.Y. 2014-15 inter-alia that: “(a) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is right in directing to restrict the TP adjustment of corporate guarantee fee to 0.5% instead of 2.25% charged by the TPO without discussing the facts of the case and deciding the issue on the merits of the case? (b) Without prejudice to the above, whether on the facts and circumstances of the case and in law, the relief) granted by the CIT(A) is excessive. 2.(a) Whether on the facts and circumstances of the case and in law, the Ld. C1T(A) erred in applying the ruling in the assessee's own case for earlier year (ITA No. 1165 of 2013 dated 08.05.2015 for A.Y. 2007-08) without appreciating certain important facts having bearing on the benchmarking such as : (i) The quotation obtained by the Everest Kanto Cylinders Ltd. India (EKC- lndia) was in respect of transaction of a guarantee obtained by the Indian entity having strong financial and asset base and not in respect of Everest Kanto Dubai - the foreign entity with weaker financial strength and thereby impacting the comparability in view of difference in the credit rating of the entities which admittedly form basis for guarantee rates/quotations. (ii) and not appreciating the facts that the EKC rulings [34 Taxmann.com 19 (Mum Trib) dtd. 23.11.2012 and (ITA No. 1165 of 2013 dated 08,05.2015 (Bom HC)] ignored the fact that entity obtaining loan in foreign jurisdiction for which EKC India stood as guarantor had lower credit rating. (iii) That the starting point for benchmarking was obtaining of bank guarantee quote by the EKC India, which was used for benchmarking corporate guarantee and therefore, it was not appropriate to hold that bank guarantee and corporate guarantee are different. (iv) That the Tribunal failed to fully appreciate that the corporate/comfort guarantee transactions act as important function for the AEs consequently

Pursuant to the order passed by TPO, the Assessing Officer (AO) proceeded to frame the assessment at total income of Rs.72,54,19,100/- on account of TP adjustment under normal provisions and at Rs.47,05,14,891/- under section 115JB of the Income Tax Act, 1961 (for short ‘the Act’) under section 143(3) read with section 147(3) of the Act.

Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the appeal filed by the

We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.

During the year under consideration i.e. A.Y. 2013-14 assessee entered into international transactions with its AE and one such transaction giving corporate guarantee for loans availed off by its AEs viz. EKC China for A.Y. 2013-14 detailed as under:

In A.Y. 2014-15 the assessee has given corporate guarantee for loans availed by its AE, the detail is as under: Name of AE Purpose of Loan amount No of days Guarantee borrowing (USD commission rate million) EKC Dubai Working 13 207 0.5% capital EKC Dubai Working 5.5 158 0.5% capital EKC Dubai Working 10 322 0.5% capital

Assessee in order to benchmark aforesaid transaction charged 0.5% corporate guarantee from its AEs. However, the AO, in compliance to the order passed by the TPO, has determined the arms length price of corporate guarantee transaction at 2.25% by applying the Comparable Uncontrolled Price (CUP) method. However, the Ld. CIT(A) by following the order passed by the Tribunal in assessee’s own case for A.Y. 2010-11, 2011-12 & 2012-13 upheld the corporate guarantee commission of 0.5%. The Ld. CIT(A) also followed the decision rendered by Hon’ble Bombay High Court on this issue in assessee’s own case for A.Y. 2007-08 and thereby deleted the addition made by the AO by returning following findings: “4.1. During the appellate proceedings, it is stated that "on the similar issue, the matter had travelled to the Hon'ble Bombay High Court and the Hon'ble Bombay High Court had upheld the guarantee commission of 0.5% for A.Y. 2007-08. Further, we are enclosing ITAT orders in the case of assessee upholding corporate guarantee commission of 0.5% for A.Ys. 2010-11, 2011-12 and 2012-13. 4.2. I find that the issue has been consistently decided in favour of the Appellant by higher appellate forums. The Hon'ble Bombay High Court while deciding the appeal for A. Y. 2007-08 (Income tax Appeal No. 1 165 of 13 dt. 08-05-2015) had deliberated upon the issue and held as under: "......... In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial hanks providing guarantees and did not contemplate the issue of a 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 consideration which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not a 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 we are of the view that the appeal does not raise any substantial question of law and it is dismissed. There will be no order as to costs".

Since the issue as to the corporate guarantee commission is no more res-integra at present having been successively decided by the Tribunal in assessee’s own case by upholding the corporate guarantee commission @ 0.5% as has been benchmarked by the assessee for A.Y. 2013-14 & 2014-15 which has also been confirmed by Hon’ble Bombay High Court in assessee’s own case cited as (2015) 378 ITR 57 (Bom.), the order passed by Ld. CIT(A) does not suffer from any illegality.

The Ld. D.R. for the Revenue has not controverted the legal position settled by the Hon’ble Bombay High Court on this issue in case of assessee itself.

So we are of the considered view that since the facts qua the years under consideration are identical and there is no change in the business model of the assessee for A.Y. 2013-14 & 2014-15 vis-à- vis 2010-11, 2011-12 & 2012-13 we find no illegality or perversity in the impugned findings returned by Ld. CIT(A) deleting the ALP adjustment on account of corporate guarantee made by the AO. So grounds raised by the Revenue qua the corporate guarantee commission are determined against the Revenue.

In A.Y. 2013-14 the Revenue has raised one more ground qua deleting the addition made by the AO under section 14A to

This issue has also been decided by the Hon’ble Bombay High Court in case of M/s. Essar Teleholdings Ltd. (supra) as followed by the Ld. CIT(A) wherein it has been held that the amount disallowed under section 14A of the Act cannot be added back to compute the book profit for the purpose of section 115JB of the Act. So again we find no illegality or perversity in the impugned findings returned by the Ld. CIT(A). The Ld. D.R. for the Revenue has not controverted the legal position settled by the Hon’ble Bombay High Court on this issue.

In view of what has been discussed above, both the appeals filed by the Revenue for A.Y. 2013-14 & 2014-15 are hereby dismissed.