PERI (INDIA) PVT LTD.,MUMBAI vs. DY. CIT 13(1)(2), MUMBAI

The grounds no. 2 to 6 in assessee’s appeal are as under:

The brief facts of the case for deciding the aforesaid grounds are as under: The assessee is a Private Limited Company and was incorporated on 28.12.2006. The assessee is a 100% subsidiary of PERI GmbH Germany and provides design and supply of form work and scaffolding systems to Companies engaged in construction and infrastructure business. The assessee also provides technical support and services to customers in India for the use of formwork and scaffolding systems.

During the relevant assessment year, the assessee entered into following international transactions with its associated enterprises (“A.Es.”):

In the transfer pricing analysis, the assessee conducted combined benchmarking of international transactions pertaining to payment for technical services, purchase of finished goods (Mockup), payment of corporate guarantee fees, payment for availing business support services and payment of interest on trade credit, on the basis that these transactions form an integral part of assessee’s principal business of import of material for resale. Further, by adopting combined transaction approach, assessee compared its margin from its principal business activity with margins earned by other comparable companies in the same industry and claimed the international transactions to be at arm’s length price (“ALP”).

The Assessing Officer (“the AO”) made reference to Transfer Pricing Officer (“the TPO”) for the determination of ALP of the international transactions entered into by the assessee. The TPO vide order dated 26.10.2016 passed under section 92CA(3) of the Act rejected the combined benchmarking analysis conducted by the assessee on the basis that the said international transactions are not interrelated and are independent 3

The AO passed the assessment order dated 06.01.2017 under section 143(3) read with section 144C(3) of the Act, inter-alia, on the basis of adjustment proposed by the TPO.

In appeal, the Commissioner of Income Tax (Appeals) (“the CIT(A)”) vide impugned order dated 26.02.2019, inter-alia, dismissed the appeal filed by the assessee and upheld the adjustment proposed by the TPO / AO in respect of international transaction pertaining to ‘Payment of Corporate Guarantee fees’. Being aggrieved, the assessee is in appeal before us.

During the course of hearing, Shri. M.P. Lohia, learned Authorised Representative (“learned A.R.”), appearing for the assessee, submitted that provision of guarantee is specifically mentioned in the definition of ‘international transaction’ provided in Explanation (i) to section 92B of the Act inserted by Finance Act, 2012 with retrospective effect from 01.04.2002. Further, the said international transaction was also duly reflected in financials, transfer pricing study report and Form 3CEB filed by 4

On the other hand, Shri. Tejinder Pal Singh, learned Departmental Representative vehemently relied upon the order passed by the TPO/AO.

We have considered the rival submissions and perused the material available on record. In the present case, the assessee had availed a credit facility (overdraft, short term loan, Letter of Credit) from Deutsche Bank. Peri GmbH (i.e. the A.E.) had issued the corporate guarantee to Deutsche Bank of Euro 5,00,000 (approx. Rs. 2,84,40,000) on behalf of the assessee. During the relevant financial year, the assessee had paid an amount of Rs. 7,23,100 to its A.E. at the rate of 2% in respect of fees for corporate guarantee provided by the A.E. on behalf of the assessee. As per the assessee, the guarantee commission was charged based on the average cost A.E. pays on its non-liquid financial instruments to third party banks / financial institutions. The A.E. charges guarantee fee at the rate of 2% to all the A.Es. on behalf of whom corporate guarantee has been given by the A.E. to the third-party banks.

The said transaction with A.E. was also reported by the assessee in its financial statements and Form 3CEB forming part of the paper book. It is not disputed that the definition of ‘international transaction’ provided in Explanation (i) to section 92B of the Act specifically includes ‘provision of guarantee’ as one of the international transaction. Further, the controversy 5

As is evident from the facts of the present case, the TPO/AO/CIT(A) considered the provision of corporate guarantee only as a shareholder’s function being not in the nature of any service rendered by the A.E. and thus no payment was required to be paid to the A.E. As the TPO/AO rejected the combined benchmarking analysis conducted by the assessee and did not consider the said transaction as an international transaction, as claimed by the assessee, and benchmarked the same accordingly, we are of the view that matter be remanded to TPO only to benchmark the transaction of ‘Payment for Corporate Guarantee Fees’ as an international transaction.

Further, as regards the reliance placed by learned A.R. on the order passed by the Co-ordinate Bench in Kodak India (P) Ltd. v. Addl. CIT: 155 TTJ 697 as affirmed by Hon’ble Jurisdictional High Court in [2016] 288 CTR 46 in support of the submission that the matter should not be remanded, we find that the said decision is distinguishable on facts. As in the present case, TPO/AO wrongly treated ‘Provision of Corporate Guarantee’ as a

In the result, grounds no. 2 to 6 raised in assessee’s appeal are allowed for statistical purpose. Order pronounced in the open court on 14/03/2022