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Facts
The appellant company provided a corporate guarantee to a bank for a loan to its subsidiary. The Assessing Officer (AO) determined the Arm's Length Price (ALP) for this guarantee at 1.4%, making an upward adjustment to taxable income. The appellant company had charged 0.25% commission for this guarantee.
Held
The Tribunal held that the commission charged at 0.5% is reasonable and appropriate, considering past assessments, ITAT rulings in the appellant's own case, and decisions of other benches and the High Court.
Key Issues
Whether the ALP/commission charged for a corporate guarantee to a subsidiary is correctly determined by the AO, or if the rate offered by the appellant is reasonable.
Sections Cited
270A(1), 143(1)
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Income Tax Appellate Tribunal, Mumbai “K” Bench, Mumbai.
Before: Shri Sandeep Gosain (JM) & Shri Omkareshwar Chidara (AM)
The appellant company has filed above cited appeal and the only issue is to be adjudicated is whether arm’s length price (ALP for short) determined by the Ld. AO with respect to corporate guarantee given to bank for granting loan to its subsidiary Global Offshore Services BV at rate of 1.4% is correct. The following grounds of appeal are taken by the appellant in the above captioned appeal :-
1. That on the facts and the circumstances of the case and in law, the Assessing Officer & Dispute Resolution Panel [hereinafter referred to as 'AO/DRP'] has erred in proposing to determine Arm's Length Price with respect to corporate guarantee given to bank for granting loan to its subsidiary Global offshore Services B.V (GOSBV) at 1.40%. Accordingly, an adjustment of Rs.4,68,59,304 has been made to the Total Taxable Income.
2. On the facts and the circumstances of the case and in law and based on the above grounds of appeal, AO/DRP has erred in initiating penalty proceedings under section 270A(1).
Various observations made by the DRP/AO in their respective orders are either incorrect or are untenable.
2 2. Thus, the only issue to be decided in this appeal is whether the ALP or commission to be charged is to be determined at 1.4% as applied by the Ld. AO or 0.25% as charged by the appellant company.
3. In this case, from the A.Y. 2015-16 to 2019-20, the appellant company itself offered commission income @ 0.5%. In the A.Y. 2017-18, the ITAT, Mumbai in appellant’s own case has decided that charging the same at the rate of 0.5% is reasonable. But, again from A.Y. 2020-21 and A.Y. 2021-22, the appellant company offered commission @ 0.25%. The assessment for A.Y.2020-21 was completed u/s. 143(1) of the Income Tax Act and hence no comment. As far as A.Y. 2021-22 is concerned, the impugned assessment year, the appellant has charged 0.25% as commission, whereas the Revenue charged the same @ 1.40% and Ld. DRP has also sustained the addition of charging @ 1.4%. In other words, 1.15% upwards adjustment was made by the Department and upheld by Ld. DRP.
As the Ld. AO and Ld. DRP have come to a conclusion of charging the commission @ 1.40% is reasonable, the appellant company is aggrieved and filed an appeal before the ITAT with the grounds of appeal mentioned in page No. 1 of this order.
During the hearing proceedings before the Bench, the Ld. AR of the appellant has submitted, in response to a question as to how much percentage was charged in earlier year in similar facts and circumstances, that for A.Y. 2015-16 to 2019-20, it was stated that the company itself charged 0.50% as commission. The Ld. DR has argued that adjustment of ALP @ 1.4% made by the Department should be upheld in view of the reasons mentioned in detail in the assessment order and the order of Ld. DRP.
In view of the following, the Bench has decided that the charging of commission @ 0.5% is held to be reasonable and appropriate :
3 a) For the A.Ys. 2015-16 to 2019-20, in similar facts and circumstances, the appellant company itself charged 0.5% commission on the same vessels and offered the same as income in its Return of Income. b) For the A.Y. 2017-18, the Hon'ble ITAT in appellant’s own case has adopted the rate @ 0.5% charging as commission is reasonable. c) The Coordinate Bench in the case of Aditya Birla Nuvo Ltd. (ITA No. 563/Mum/2018, A.Y. 2013-14 has also taken similar decision and upheld the guarantee commission @ 0.5%. d) Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd. [ITA No. 1165 of 2013 (Bom) Taxsutra.com] has held that charging of commission @ 0.5% is reasonable with respect to corporate guarantee given to bank.
The appellant of appellant is partly allowed as mentioned above. Order pronounced in the open Court on 13/02/2025.