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Facts
The Revenue appealed against the CIT(A)'s order deleting additions related to corporate guarantee fees and inter-unit transfer pricing adjustments. The assessee charged a 1% corporate guarantee fee to its Associated Enterprises, and inter-unit transfers to eligible units were made on a cost-to-cost basis, which the TPO/AO adjusted citing higher profits in eligible units.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that the 1% corporate guarantee fee was at arm's length based on previous years' orders and various High Court/Tribunal rulings. It also upheld the deletion of the inter-unit transfer pricing adjustment, finding that the TPO/AO failed to prove any 'arrangement' or 'manipulation' to derive excessive profits under Section 80-IA(10) / 80-IE, and that higher profits in eligible units could be due to commercial decisions and incentives.
Key Issues
1. Whether the corporate guarantee fee charged by the assessee to its Associated Enterprises was at arm's length. 2. Whether the transfer pricing adjustment for inter-unit transfers to eligible units was justified under Section 80-IA(10) / 80-IE of the Income Tax Act.
Sections Cited
Section 80-IA(10), Section 80-IE
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
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.
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
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.
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)
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.
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.
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
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 01.04.2025.