ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5(1), KOLKATA vs. EMAMI LIMITED, KOLKATA

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ITA 1330/KOL/2024Status: DisposedITAT Kolkata01 April 2025AY 2017-187 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the NFAC. Regarding the corporate guarantee fee, the Tribunal found no infirmity in the NFAC's order, which followed the coordinate bench's decision for AY 2013-14 and 2014-15, holding that the 1% corporate guarantee fee charged by the assessee was at arm's length. The NFAC's reasoning, which noted the TPO's benchmarking exercise suffered from fundamental infirmity and cited various High Court and Tribunal decisions, was accepted. Consequently, the Revenue's grounds related to this issue were dismissed. Concerning the inter-unit transfers, the Tribunal found the NFAC's order to be reasonable. The NFAC had deleted the transfer pricing adjustment by agreeing with the assessee that higher profitability of eligible units was due to commercial decisions to manufacture higher margin products and relied on decisions like DCIT vs. M/s Century Plyboards (I) Ltd. and Greenply Industries Ltd. vs. ACIT. The Tribunal respectfully followed these decisions and directed the deletion of the transfer pricing adjustment of ₹91,71,780/- and ₹87,75,918/- made in relation to inter-unit transactions. The Revenue's appeal was dismissed.

What were the facts?

This appeal by the Revenue challenges the order of the National Faceless Appeal Centre, Delhi (NFAC), dated March 15, 2024, for Assessment Year 2017-18. The Revenue's appeal was filed with a delay of 30 days, which was condoned by the Tribunal due to bonafide and sufficient administrative reasons. The core dispute revolves around two main issues: corporate guarantee fees and adjustments related to inter-unit transfers of eligible/non-eligible units. The NFAC had partly deleted the addition of ₹34,85,222/- made by the Assessing Officer (AO)/Transfer Pricing Officer (TPO) concerning corporate guarantee fees. Additionally, the NFAC deleted an adjustment of ₹2,14,32,920/- made by the TPO/AO on account of eligible/non-eligible units between the assessee and its Associated Enterprises.

What were the issues?

1. Whether the National Faceless Appeal Centre (NFAC) erred in partly deleting the addition of ₹34,85,222/- made by the AO/TPO concerning corporate guarantee fees charged by the assessee to its Associated Enterprises, thereby holding the 1% corporate guarantee fee to be at arm's length? (Question of law and fact, concerning Section 92C of the Income Tax Act, 1961). - Assessee's Contention (implied by NFAC's order): The NFAC followed its predecessor's findings for earlier assessment years and various High Court and Tribunal decisions, holding that the 1% corporate guarantee fee is at arm's length, and the TPO's benchmarking exercise suffered from fundamental infirmities. - Revenue's Contention (implied by appeal): The Revenue challenged the appellate order wherein the NFAC partly deleted the addition. 2. Whether the NFAC erred in deleting the arm's length price adjustment of ₹2,14,32,920/- made by the TPO/AO on account of inter-unit transfers of eligible/non-eligible units between the assessee and its Associated Enterprises? (Question of law and fact, concerning Section 92C and Section 80-IE of the Income Tax Act, 1961). - Assessee's Contention (implied by NFAC's order): The NFAC agreed with the assessee that higher profitability of eligible units was due to manufacturing higher margin products and commercial decisions, not due to any arrangement with related parties. The NFAC relied on decisions in DCIT vs. M/s Century Plyboards (I) Ltd. and Greenply Industries Ltd. vs. ACIT. - Revenue's Contention (implied by appeal): The TPO had made an adjustment on the basis that inter-unit transactions involving transfer of raw materials between eligible and non-eligible units were undertaken on a cost-to-cost basis without any mark-up, which increased the eligible profit for claiming higher exemption.

Which sections of the Income-tax Act were involved?

Section 92C,Section 80-IE,Section 80-IA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, KOLKATA

Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM

For Appellant: Shri Akkal Dudhewala, AR
For Respondent: Shri Ranu Biswas, DR
Hearing: 18.03.2025Pronounced: 01.042025

This is an appeal preferred by the Revenue against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 15.03.2024 for the AY 2017-18.

2.

At the outset, we note that there is a delay in filing the appeal by the Revenue by 30 days for which the condonation petition was filed. Having perused the contents of the condonation petition, we find that the delay in filing the appeal was due to some administrivia reasons which we find to be bonafide, genuine and sufficient. Accordingly, the

3.

The issue raised by the Revenue in ground no.1 to 6 is in respect of corporate guarantee challenging the appellate order wherein the ld. CIT (A) has partly deleted the addition made by the ld. AO/ Transfer Pricing Officer to the tune of ₹34,85,222/- in respect of international transaction, qua corporate guarantee by the assessee to its Associated Enterprises.

4.

After hearing the rival contentions and perusing the materials available on record, we find that the issue is similar to the issue as has been decided in A.Y. 2013-14 and A.Y. 2014-15 by the co- ordinate Bench of the Tribunal in assessee ‘s own case and the ld. CIT (A) by following the same held that the corporate guarantee fee of 1% charged by the assessee is to be at arms’ length. The finding of the ld. CIT (A) on this issue is extracted below:-

“Having perused the findings of the Ld. TPO, it is noted that his analysis of ascertaining the stand-alone credit rating of the AE at CCC had no rationale basis. Even the identification of loan comparables to arrive at margin of 400 bps is found to have been done without citing the relevant FAR and Economic Analysis undertaken by him. It is accordingly noted that the benchmarking exercise carried out by the TPO suffered from fundamental infirmity and hence cannot be accepted. It is further noted that, my predecessor in appellant's own case for earlier AYs 2013-14 & 2014-15 had found the CG fee of 1% charged by the assessee to be at arm's length. I also note that various High Courts and the Hon'ble Tribunal have held the arm's length price of corporate guarantee fees to be in the range of 0.20% to 0.50%, and some of the relevant citations are as follows: 1. PCIT v. Redington (India) Ltd. (2021) 430 ITR 298 (Mad HC) 2. CIT v. Asian Paints (India) Ltd. [2016] 75 faxmann.com 152 (Bom. HC) 3. Berger Paints India Ltd. v. DCIT [2022] & 918/Kol/2017 (ITAT Kolkata) 4. Electrosteel Castings Ltd v. DCIT [2019] IT(SS)A No.47-60/Kol/2014 (ITAT Kolkata)

6.

The issue raised in ground no.7 to 11 is against the deletion of arm’s length price adjustment of ₹2,14,32,920/- by ld. CIT (A) as made by the ld. Transfer Pricing Officer/ AO on account of eligible / non-eligible units between the assessee and its Associated Enterprises.

7.

We find that the facts in brief are that the ld. Transfer Pricing Officer has made a transfer pricing adjustment of ₹1,79,47,698/-, in relation to Inter-Unit transfer of eligible units at Abhoypur and Pantnagar. The ld. Transfer Pricing Officer noted that the inter-unit transactions involving transfer of raw materials between eligible units and non- eligible unit were undertaken on cost-to-cost basis without any mark- up to increase the eligible profit of the eligible unit for claiming of higher exemption of the profit. Accordingly, the Transfer Pricing Officer computed the adjustment at ₹91,71,780 and ₹87,75,918/- respectively for both eligible unit and non-eligible unit.

8.

The ld. CIT (A) deleted the said adjustment by observing and holding as under:-

“It is well known that higher or lower profit of a business unit in comparison to other units can be as a result of the cumulative effect of several factors. For instance, from the facts of the present case, it is noted that the major factor for higher profitability of eligible units was that it was manufacturing products such as Kesh King, Zandu Balm, Boroplus, Navratna which have higher contribution margins in comparison to the

10.

In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 01.04.2025.

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