GODREJ CONSUMER PRODUCTS LTD,MUMBAI vs. ASST CIT CIR 14(1)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.(TP) No.1899/Mum/2015 (निर्धारण वर्ा / Assessment Year: 2010-11) Godrej Consumer Products बिधम/ ACIT, Circle 14(1)(2) 4th Floor, Room No.460, Ltd. Vs. Kalyaniwalla & Mistry 3rd M.K. Marg, Mumbai- Floor, Army & Navy 400020. Building, 148, M.G. Road, Fort, Mumbai-400001. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCG3365J (अपीलाथी /Appellant) (प्रत्यथी / Respondent) .. Assessee by: Shri Farrokh V. Irani/ F.H. Bilimonia Revenue by: Shri S. Senthil Kumar (DR) सुनवाई की तारीख / Date of Hearing: 11/06/2019 घोषणा की तारीख /Date of Pronouncement: 05/09/2019 आदेश / O R D E R PER AMARJIT SINGH, JM: The present appeal has been directed against the assessment order dated 30.10.2015 passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, passed in pursuance of the direction of Disputes Resolution Panel -III, Mumbai [hereinafter referred to as the “DRP”] u/s 144C(5) of the I.T. Act, 1961 dated 22.12.2014 for A.Y. 2010-11. 2. The assessee has raised the following grounds of appeal: -

ITA No. 1899/M/2015 A.Y.2010-11 “The learned Dispute Resolution Panel erred in confirming the action of the Assessing Officer in computing the deduction under Section 801C of the Act claimed by the eligible units of the Appellant, by excluding transport subsidy, transport recoveries, claims received, miscellaneous income, sundry balances written back and net gain on exchange difference forming part of the 'Other Income of such eligible units and in reducing the deduction claimed accordingly. 2) The learned Dispute Resolution Panel erred in confirming the action of the Assessing Officer in rejecting the claim raised by the Appellant during the course of the assessment proceedings that the expenditure incurred oil buyback of shares is revenue expenditure and is allowable under the provisions of Section 37(l) of the Act. TRANSFER PRICING ISSUES Corporate Guarantee given on behalf of the Associated Enterprises 3) The learned Dispute Resolution Panel erred in holding that the transaction of giving corporate guarantees by the Appellant on behalf of its Associated Enterprises would fall within the definition of an "international transaction" under Section 92B of the Act and thereby erred in determining the Arm's Length price in respect of such Transaction. 4) The learned Dispute Resolution Panel erred in confirming the credit ratings of the Associated Enterprises at "131313-" for the purpose of benchmarking the guarantee fee without appreciating that the Associate Enterprise's credit rating equaled that of the Appellant. 5) The learned Dispute Resolution Panel erred in confirming use of the data relating to rate of interest on corporate bonds in India to benchmark the guarantee commission given to its Associated Enterprises, which in any event is not in public domain. 6) The learned Dispute Resolution Panel erred in holding without any basis that the arms length rate of corporate guarantee commission in respect of the guarantees given by the Appellant Company in favour of its Associated Enterprises is at 3% per annum. 7) Without prejudice, and in any event, the Appellant submits that the transfer pricing adjustment made in respect of corporate guarantees given by the Appellant on behalf of its Associated Enterprises is highly arbitrary and excessive and needs to be reduced substantially. Interest on Loan advanced to the Associated Enterprise

ITA No. 1899/M/2015 A.Y.2010-11 8) The learned Dispute Resolution Panel erred in adopting the rate of 11.86% as the arm's length rate based on corporate bond rate without appreciating the facts of the case. 9) The learned Dispute Resolution Panel erred in confirming the action of Transfer Pricing Officer in relying on the data in relation to interest on the corporate bonds, which is not available in public domain. 10) The learned Dispute Resolution Panel erred in comparing the rates on corporate bonds in India with the rate of interest charged to the Associated Enterprise by completely overlooking the fact that the rate of interest in different geographical locations / economies cannot be directly compared. 11) The learned Dispute Resolution Panel erred in not considering the rate of interest paid on loan by the Associated Enterprise as a benchmark for determining the Arm's Length Price. 12) Without prejudice, and in any event, the Appellant submits that the transfer pricing adjustment made in respect of interest on loans given to the Associated Enterprise is highly arbitrary and excessive and needs to be reduced substantially." 3. The brief facts of the case are that the assessee company filed the return of income on 25.09.2010 declaring total income to the tune of Rs.73,75,35,780/- under the normal provisions of the Act and book profits u/s 115JB of the I.T. Act, 1961 at Rs.2,87,61,22,511/-. The return was processed u/s 143(1) of the Act, 1961. Thereafter, the case was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company is engaged in the business of manufacture of fast moving, consumer goods and manufactures toilet soaps, hair colour, liquid detergents and other toiletries. The manufacturing units of the company are located at Malanpur, Baddi, Gauhati, Sikkim and Katha and the registered office is situated at Vikhroli, Mumbai. The company has four branches at

ITA No. 1899/M/2015 A.Y.2010-11 Delhi, Chennai, Kolkata and Mumbai and distributors and C&F agents situated all over India. 4. A reference u/s 92CA(1) of the I.T. Act was made to the Transfer Pricing Officer on 23.07.2012 for computation of the Arm’s Length Price (ALP) in relation to International Transactions. The TPO passed the order u/s 92CA(3) of the Act dated 30.01.2014 who has made an adjustment of Rs.9,99,10,416/- to Arm’s Length Price (ALP) which was added to the income of the assessee company. The draft assessment order was passed u/s 143(3) r.w.s. 144C(1) of the Act. After communication on draft assessment order, the assessee filed the objection before the DRP in view of the provisions u/s 144C of the Act. The DRP-3 has also issued the direction on 22.12.2014. Thereafter, the assessment order was passed by assessing the income in sum of Rs.2,85,27,74,985/- and book profit u/s 115JB of the Act in sum of Rs.2,87,56,65,511/-, the assessee was not satisfied on the issues which has been raised above, therefore, the assessee has filed the present appeal before us. ISSUE NO. 1 5. At the very outset, the Ld. Representative of the assessee has argued that the issue no. 1 is fully covered by the decision of the Hon’ble ITAT in the assessee’s own case for the A.Y. 2009-10 in ITA. No.1299/M/2013 dated 20.04.2016, therefore, in the said circumstances, the issue is liable to be restored before the AO to decide the matter of controversy afresh in accordance with law. Under

ITA No. 1899/M/2015 A.Y.2010-11 this issue while computing the deduction u/s 80IC of the Act claimed by eligible units of the appellant, the AO excluded the transport subsidiary, transport recoveries, claims received, miscellaneous income and sundry balances written back and net gain on exchange difference forming part of the income of such eligible units and in reducing the income claim. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The copy of order dated 20.04.2016 is on the file and the relevant finding has been given as under:-

“11. We have considered the submissions of the parties in the context of facts and materials on record as well as relevant case laws. The issue arising for consideration is whether the power and transport subsidy received by the assessee for its Assam and Himachal Pradesh units should be reduced from the profit of the business for computing deduction under section 80IC. It is the claim of the assessee that as the power and transport subsidy under the subsidy scheme framed under the respective industrial policy of the concerned State Governments is for reimbursing the actual cost of power and transportation the same is operational subsidy, in other words, it enhanced the business profit of the assessee, therefore, assessee would be eligible to claim deduction under section 80IC on such subsidy. On a perusal of the industrial policy of Assam 2008, notified by the Government of Assam, it is observed that as per the fiscal incentives declared under the said policy, power subsidy will be provided to eligible unit on power tariff paid by the units on the actual units consumed for a period of five years from the date of commercial production subject to the following ceiling:– Similarly, clause 3 of the Industrial Policy provides for incentive on transpiration of raw material as well as finished products. It is also claimed by the assessee that similar incentives are also provided under the industrial policy of Himachal Pradesh. It is the claim of the assessee that the transportation and power subsidy provided under the Industrial Policy of Assam and Himachal Pradesh are actually the reimbursement of actual cost incurred by the assessee, therefore, it is an operational subsidy which goes to reduce the cost of manufacture resulting in enhancement of the profit of the assessee. It is the contention of the assessee that as the power and transport subsidy granted to the

ITA No. 1899/M/2015 A.Y.2010-11 assessee has a direct nexus to the earning of profit it is a part of the business income, hence, eligible for deduction under section 80IC. It is noticed, in case of CIT v/s Meghalaya Steels Ltd. (supra), the Hon'ble Guwahati High Court while examining assessee’s claim of deduction under section 80IB / 80IC, analysed the industrial policy of the year 1971 of the Assam Government and found that the transportation and power subsidy given by the Government under the scheme is towards actual reimbursement of cost incurred by the industry in respect of power and transportation. 13. The Hon'ble Guwahat High Court after taking into consideration the principle laid down by the Hon'ble Supreme Court in Liberty India Ltd. (supra) and a host OF other decisions, opined that if the subsidy is non– operational in nature, there will be no entitlement of deduction. But, if the subsidy is operational, the assessee would be entitled to claim deduction under section 80IC / 80IB of the Act. The Hon'ble Guwahati High Court after considering the industrial policy of the Government of India dated 23 rd July 1971 and the transport subsidy scheme framed for the States in the North Eastern Region, found that as per the scheme, transportation of raw material as well as finished goods was promised to be made available to the industrial units concerned in a manner which would directly Affect the cost of production inasmuch as transportation subsidy on the raw materials was not meant to cover all the raw materials but only that part or portion of raw material which were actually required and used by an industrial unit in its manufacturing program approved by the Government concerned and similar transportation subsidy on the finished goods to help in reduction of costs of manufacturing of industrial unit concerned inasmuch as subsidy on transportation of finished goods was to be given on finished goods actually produced by the industrial unit in accordance with the manufacturing program approved by the Government concerned. The Court observed, when the transport subsidy so received both on the transportation of raw material as well as finished goods goes to reduce the cost of production of industrial undertaking, resultant effect of such a reduction on the cost of production will obviously help in generating profit. Therefore, it was observed by the Court, there is a direct nexus between the transport subsidy and the profit earned by the industrial undertaking unit and such a direct nexus cannot but to be termed as first degree nexus between the two namely transport subsidy on the one hand and resultant profit and gains on the other. The Court observed, unless the Revenue succeeds in showing that the transport subsidy has no bearing on the cost of production of industrial undertaking, the claim for deduction under section 80IC cannot be denied. The Hon'ble High Court referring to the decision of the Hon'ble Supreme Court in Jai Bhagwan Oil and Flower Mills v/s Union of India, [2009] 14 SCC 63, observed, the transport subsidy as per industrial

ITA No. 1899/M/2015 A.Y.2010-11 policy was aimed to reduce the cost of production of industrial undertaking, therefore, there was a first degree nexus between the transport subsidy and cost of production. When cost is reduced, it naturally helps in earning of profit. Therefore, such profits have to be treated as profit and gains derived from the industrial undertaking. 14. As far as power subsidy is concerned, the High Court referring to the industrial policy of the year 1997, as extended by the Industrial Policy of Assam 2003, noticed that it provides for power subsidy to be given to eligible industrial units for a period of five years from the date of commercial production. It was further noticed, the power subsidy is available in the form of reimbursement of fully paid power bills with certain ceilings. The Court observed, reimbursement of fully paid power bills will obviously reduce the cost of production of an industrial undertaking contributing thereby to the profit and gains derived by the industrial undertaking and augmenting the income of the industrial undertaking. Therefore, there is a direct and first degree nexus between the industrial activities of the undertaking on the one hand and the subsidy in the form of power subsidy on the other. The Court while coming to such conclusion referred to the decision of the Hon'ble Supreme Court in CIT v/s Rajaram Maize Products, [2001] 251 ITR 457 (SC) and observed, power subsidy is meant to enable a person meet a certain percentage of expenditure on power and is, therefore, revenue in nature. Further, it was observed, though, the subsidy is revenue in nature fact remains it not only helps in growth on industrial undertaking but also helps an industrial undertaking to earn profit and make gains. Such a subsidy though revenue in nature and taxable accordingly, is nonetheless covered by the provisions embodied in section 80IB/80IC. The High Court referring to Explanation–10 to section 43(1) held, if any portion of costs of asset is made by any subsidy grant or reimbursement, then such a subsidy grant or reimbursement would go on to reduce the costs of such asset and depreciation to the assessee will be allowed on the reduced costs. Similarly, the subsidy such as transport subsidy or power subsidy when goes on to reduce the cost of transportation of goods whether raw material or finished goods, then it will result in profit, hence, the assessee would be entitled to deduction under section 80IB/80IC. The Court, while examining the ratio laid down by the Hon'ble Supreme Court in Liberty India Ltd. (supra) observed, the issue raised before the Hon'ble Supreme Court was not relating to subsidy but the issue was whether profit from duty entitlement pass book scheme would be said to be profit derived from the industrial undertaking. The Court observed, while answering the question framed, the Hon'ble Supreme Court pointed out that DEPB is an incentive given under the duty exemption remission scheme and essentially is an export incentive, hence, not related to business operation of industrial undertaking per se for its manufacturing or production. According to the

ITA No. 1899/M/2015 A.Y.2010-11 Hon'ble Supreme Court DEPB’s entitlement arise when the undertaking goes on to export after manufacturing or production and is restricted to its export product. Therefore, according to the Hon'ble Supreme Court, the position is if there is no export there is no DEPB entitlement, hence, its relation to the manufacturing / production is neither proximate nor direct. The High Court after analyzing the ratio laid down in the case of Liberty India (supra), ultimately concluded that the DEPB and duty drawback are not provided by the Government as a means to reduce the cost of production of the industrial undertaking. Therefore, the ratio laid down would not apply to the power and transport subsidy which directly reduces the cost of production. The Court observed, the DEPB considered by the Hon'ble Supreme Court in Liberty India Ltd. (supra) is a case of non–operational subsidy as much as it does not relate to production, whereas the transport and power subsidy provided under the industrial policy are operational in nature, inasmuch as, they are related to production of industrial undertaking. Thus, it was held by the Court that the income received on account of power and transport subsidy would form part of the profit derived from the industrial undertaking, hence, eligible for deduction under section 80IC. 15. Though, it may be a fact that the Hon'ble Himachal Pradesh High Court in the decisions referred to by the learned Departmental Representative has taken a contrary view in respect of transport and power subsidy but on a careful analysis of these decisions, it is found that the Hon'ble High Court while coming to its conclusion has relied upon the decision of the Hon'ble Calcutta High Court in Andaman Timber Ltd. (supra) and the decision of Hon'ble Supreme Court in Liberty India Ltd. (supra). It is observed, in the case of Meghalaya Steels Ltd. (supra), the Hon'ble Guwahati High Court analysing the ratio laid down by the Hon'ble Supreme Court in Liberty India Ltd. (supra) has held that it will not apply to subsidy which is operational in nature. As far as the decision of the Hon'ble Calcutta High Court in Andaman Timber Ltd. (supra), it must be noted that the very same High Court, subsequently, in the case of Cement Manufacturing Co. Ltd. (supra) preferred to follow the decision of Hon'ble Guwahati High Court in Meghalaya Steels Ltd. (supra) rather than its own decision in Andaman Timber Ltd. (supra). On the reasoning that in case of Andaman Timber, the Court did not differentiate between operational and capital subsidy. 16. Thus, on a conspectus of the decisions referred to above, in principle we hold that if a particular subsidy goes to reduce the cost of manufacture actually incurred by the assessee, it is in the nature of operational subsidy as it enhances the profit derived by the assessee from manufacturing of goods. In other words, subsidy is directly related to profit derived from manufacturing activities. Hence, subsidy being part of profit derived from industrial undertaking would be eligible for deduction under section 80IC. Having held so, it is necessary to examine

ITA No. 1899/M/2015 A.Y.2010-11 the facts of the present case. As could be seen, the Assessing Officer while disallowing assessee’s claim of deduction under section 80IC has not made any discussion about the nature of subsidy granted to the assessee, whether operational or non– operational. As it appears, the Assessing Officer has not at all examined the relevant industrial policy and subsidy schemes under which the assessee was granted transport and power subsidy. Similarly, though, before the first appellate authority, as per the learned Commissioner (Appeals)’s own version, the assessee did produce the industrial policy of the concerned State Governments but, he has not at all examined such industrial policies to find out the true nature of subsidy granted under the respective subsidy schemes. Therefore, in our view, for coming to a definite conclusion as far as nature of subsidy is concerned, the relevant subsidy schemes have to be examined to find out whether such subsidy are for reimbursement of actual costs incurred by the assessee towards transport and power. As the Departmental Authorities have not examined the nature of subsidy with reference to the relevant industrial policy resolution and subsidy schemes, we are inclined to restore the matter back to the file of the Assessing Officer for deciding afresh keeping in view the ratio laid down in the decisions referred to above as well as the observations made by us. As far as the issue of particular assessment year in which the subsidy deemed to have accrued, we may observe, the Assessing Officer did not raise this issue in course of assessment proceedings. It is only the learned Commissioner (Appeals) who has raised this issue. However, there is nothing in the order of the learned Commissioner (Appeals) to suggest that assessee was given opportunity to explain its stand on the issue. Be that as it may, whether the subsidy has accrued as income in the impugned assessment year has to be decided on the basis of the fact when it was approved / accepted by the concerned authorities. Only when the concerned Government authorities verify the quantum and approve, the subsidy crystallizes as income. The decisions relied upon by the learned Authorised Representative support this view. The Assessing Officer is directed to verify this aspect also. It must be mentioned the Assessing Officer not only should give adequate opportunity of being heard to the assessee but must pass a well reasoned order after considering the submissions of the assessee as well as judicial pronouncements relied upon. Accordingly, ground no.1, raised by the assessee is allowed for statistical purposes. 17. In ground no.2, assessee has challenged the decision of the Departmental Authorities in treating the remission of deferred sales tax loan liability as income of the assessee. 18. Brief facts are, in the course of assessment proceedings, the assessee vide letter dated 25th November 2011 submitted, it had

ITA No. 1899/M/2015 A.Y.2010-11 availed sales tax loan under the Madhya Pradesh conversion of Amount of Deferred Tax Into Loan Liability Scheme 1989, under which the aggregate loan liability was payable after a period of ten years from the date of deferment. During the year under consideration, company pre– paid the sales tax loans and availed remission of loan liability amounting to ` 1,49,074. It was submitted, the said amount was reflected as other income under Schedule–10, though, it should have been reduced while computing the total income. Therefore, the assessee claimed that the remission of liability of ` 1,49,074, should be reduced from the total income. The Assessing Officer, however, did not accept the claim of the assessee. The Assessing Officer observed, as per section 41(1) of the Act, any remission and cessation of the liability shall be deemed to be the profit of business, hence, chargeable to tax. He further observed, as the assessee has not made the claim by way of revised return of income even otherwise also assessee’s claim is not acceptable. Being aggrieved with such decision of the Assessing Officer, assessee challenged the same in appeal before the learned Commissioner (Appeals). 19. The learned Commissioner (Appeals), though, accepted assessee’s contention that there is no cessation or remission of liability under section 41(1), however, he held that the gain derived by the assessee on premature repayment would be taxable under section 28(iv) of the Act.” 6. Since the issue is fully covered by the decision of Hon’ble ITAT in the assessee’s own case for the A.Y. 2009-10 in ITA. No.1299/M/2013, therefore, in the said circumstances, the issue is hereby restored before the AO to decide the matter of controversy on the similar direction has given by Hon’ble ITAT above in ITA. No.1299/M/2013 dated 20.04.2016. Accordingly, this issue is decided in favour of the assessee against the revenue for the statistical purposes.

ISSUE NO. 2

ITA No. 1899/M/2015 A.Y.2010-11 outset, the Ld. Representative of the assessee has argued that this issue is also covered by the decision of Hon’ble ITAT in the assessee’s own case for the A.Y.2009-10 in ITA. No.1299/M/2013 dated 20.04.2016. The copy of order is on the file in which the relevant finding is hereby reproduced as under.:-

“39. We have considered the submissions of the parties in the light of the case laws relied upon and perused the material available on record. As could be seen from the assessment order as well as the order of the first appellate authority, assessee’s claim was not considered only for the reason that it was not made through a revised return of income. However, as held by the Hon'ble Supreme Court in Goetz India Ltd. (supra), restriction imposed therein for not entertaining a claim otherwise by way of revised return of income is only applicable to the Assessing Officer. That being the case, we restore the matter back to the file of the Assessing Officer for considering afresh in the light of the decision relied upon by the assessee. Ground no.10, is allowed for statistical purposes.” 8. Since the issue is fully covered by the decision of Hon’ble ITAT in the assessee’s own case for the A.Y. 2009-10 in ITA. No.1299/M/2013, therefore, in the said circumstances, the issue is hereby restored before the AO to decide the matter of controversy on the similar direction as given by Hon’ble ITAT above in ITA. No.1299/M/2013 dated 20.04.2016. Accordingly, this issue is decided in favour of the assessee against the revenue for the statistical purposes.

ISSUE NO.3

ITA No. 1899/M/2015 A.Y.2010-11 No.1299/M/2013. The relevant finding has been given in para no. 46 which is hereby reproduced as under.:-

“46. We have considered the submissions of the parties in the light of the relevant case laws cited before us and perused the material available on record. Undisputedly, the assessee has provided corporate guarantee to its overseas A.E. It is also not disputed that the assessee suo–motu bench marked the commission chargeable on such bank guarantee @ 0.25%. The issue before us is restricted to whether the arm's length price of corporate guarantee is to be fixed at 0.25% as claimed by the assessee or at 3% as held by the Department. In the aforesaid context, it is relevant to refer to the letter dated 3rd February 2008 of HSBC, a copy of which is placed at Page–59 to 64 of the paper book. On a perusal of the aforesaid letter of HSBC, it is evident that for financial guarantee, the commission charged by the bank is @ 0.50% per annum. It is further relevant to note, in case of Everest Kento Cylinders Ltd. (supra), the Hon'ble Jurisdictional High Court while accepting the commission rate of 0.5% on corporate guarantee provided by the assessee to its A.E. observed that corporate guarantee cannot be equated to bank guarantee. Following the aforesaid decision the Tribunal, Mumbai Bench, in Godrej Household Products Ltd., ITA no.7369/Mum./2010, dated 22nd November 2013, held the rate of guarantee commission of 0.5% as the arm's length price of the corporate guarantee provided by the assessee to its A.E. In the present case also, there is no dispute that the internal CUP by way of letter received from HSBC indicates that the commission charged for financial guarantee is 0.5%. Further, it is relevant to note that the Department in assessee’s own case has accepted the arm's length price of corporate guarantee @ 0.5% in the assessment year 2006–07 and 2007–08. Thus, on consideration of overall facts and circumstances in the light of judicial pronouncements referred to above, we are of the considered opinion that the arm's length price of the corporate guarantee should be fixed at 0.5%. The Assessing Officer / Transfer Pricing Officer is directed to make adjustment accordingly. Ground no.12, raised by the assessee is partly allowed.” 10. In view of the decision of the Hon’ble ITAT mentioned above. We decide this issue in favour of the revenue against the assessee.

ISSUE Nos. 4 to 7

ITA No. 1899/M/2015 A.Y.2010-11 11. At the very outset, the Ld. Representative of the assessee has argued that these issues have already been covered in favour of the assessee in view of the decision of Hon’ble ITAT in ITA. No.1299/M/2013 dated 20.04.2016 in which the arm’s length price of the corporate guarantee was fixed @ 0.5%. The copy of order is on the file in which the relevant finding has been given in para no.46 as under.:-

“46. We have considered the submissions of the parties in the light of the relevant case laws cited before us and perused the material available on record. Undisputedly, the assessee has provided corporate guarantee to its overseas A.E. It is also not disputed that the assessee suo–motu bench marked the commission chargeable on such bank guarantee @ 0.25%. The issue before us is restricted to whether the arm's length price of corporate guarantee is to be fixed at 0.25% as claimed by the assessee or at 3% as held by the Department. In the aforesaid context, it is relevant to refer to the letter dated 3rd February 2008 of HSBC, a copy of which is placed at Page–59 to 64 of the paper book. On a perusal of the aforesaid letter of HSBC, it is evident that for financial guarantee, the commission charged by the bank is @ 0.50% per annum. It is further relevant to note, in case of Everest Kento Cylinders Ltd. (supra), the Hon'ble Jurisdictional High Court while accepting the commission rate of 0.5% on corporate guarantee provided by the assessee to its A.E. observed that corporate guarantee cannot be equated to bank guarantee. Following the aforesaid decision the Tribunal, Mumbai Bench, in Godrej Household Products Ltd., ITA no.7369/Mum./2010, dated 22nd November 2013, held the rate of guarantee commission of 0.5% as the arm's length price of the corporate guarantee provided by the assessee to its A.E. In the present case also, there is no dispute that the internal CUP by way of letter received from HSBC indicates that the commission charged for financial guarantee is 0.5%. Further, it is relevant to note that the Department in assessee’s own case has accepted the arm's length price of corporate guarantee @ 0.5% in the assessment year 2006–07 and 2007–08. Thus, on consideration of overall facts and circumstances in the light of judicial pronouncements referred to above, we are of the considered opinion that the arm's length price of the corporate guarantee should be fixed at 0.5%. The Assessing Officer / Transfer Pricing Officer is directed to make adjustment accordingly. Ground no.12, raised by the assessee is partly allowed.”

ITA No. 1899/M/2015 A.Y.2010-11 12. Since the assessee is fully covered in favour of the assessee by the above said decision and the facts are not distinguishable at this stage. Therefore, in the said circumstances, the arm’s length price of corporate guarantee is hereby restricted to the extent of 0.5%. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE Nos. 8 to 12 13. At the very outset, the Ld. Representative of the assessee has argued that this issue is squarely covered by the decision of Bombay High Court in the case of Aurionpro Solutions Ltd. (ITA. No.1869 of 2014) (Bom High Court) and Marico Ltd. (ITA. No.9958/M/2011 & 8713/M/2011) (Mum), therefore, in the said circumstances, the claim of the assessee is liable to be allowed. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The factual position is this that the assessee company has given loan amounting to GBP 5,00,000/- to its AE namely Godrej Netherlands B.V. (GNBV) in the month of April, 2009 which was repaid in the month of November, 2009. Thereafter, the appellant company gave a loan amounting to Rs.5,00,000/- to Godrej Netherlands in the month of January, 2010 which has remained outstanding till 31.03.2010. The appellant company charges the interest amounting to Rs.7.79 lakhs on the said loan to GNBV @ 6 months LIBOR plus 100 bps i.e. 2069%. The AO contended that the yield of short term period corporate bonds is 11.86% which could be

ITA No. 1899/M/2015 A.Y.2010-11 considered as arm’s length rate of interest. Therefore, the TPO has considered the interest rate at 11.86% and make out adjustment of interest rate of 9.26% at INR of 3.11, 80,416/-. The contention of the assessee is that the interest rate prevailing in India is not liable to be considered in the present transaction. In fact, the rate of foreign country in which the loan was given is liable to be considered. In support of his contention, the assessee has placed reliance upon the decision of Bombay High Court in case of Tata Autocomp Systems Ltd. (supra) and the relevant finding is hereby reproduced as under: -

“3. The respondent – assessee is engaged in the business of manufacturing of plastic parts and rendering engineering services. The respondent - assessee had advanced an amount of Euro 26.25 lakhs to its wholly owned subsidiary in Germany. The respondent-assessee charged no interest on the above loan. However, during the course of examination of respondent – assessee's international transaction with its subsidiary company i.e. Associated Enterprises, Transfer Pricing Officer (TPO) determined the Arms Length Price (ALP) i.e. interest on the loan advanced by the respondent – assessee to its German subsidiary at 10.25%. This measure of rate of interest was on the basis of lending rate charged by the banks in India. The Assessing Officer passed a draft assessment order in line with the order of the TPO. 4. Being aggrieved, the respondent – assessee carried the draft assessment order to Dispute Resolution Panel (DRP) The DRP enhanced ALP i.e.the interest on the loan given by the respondent-assessee to its German Associate Enterprise to 12%. Consequent to the directions of DRP, the Assessing Officer by an assessment order dated 19.9.2011 charged interest of Rs.1.76 crores on the above account as a part of the respondent-assessee's income. 5. Being aggrieved, the respondent – assessee preferred an appeal to the Tribunal. The Tribunal by the impugned order held : (a) that the interest free loan extended by a company to its Associate Enterprise comes within the ambit of International Transaction and issue to be examined in such a case would be the ALP of such an International Transactions; and (b) With regard to quantum of addition on account of interest by ALP the

ITA No. 1899/M/2015 A.Y.2010-11 impugned order held that as the amounts were advanced to Associated Enterprises in Germany, the rate of interest is to be determined on EURIBOR rate of interest i.e. rates prevailing in Europe. Thus partly allowed the respondent – assessee's appeal by applying the decision of the Tribunal in the case of “VVF Ltd. Vs. DCIT, (ITA No.673/Mum/06)” and “DCIT Vs. Tech Mahindra Ltd. (46 SOT 141)” by holding that the loan advanced to an Associate Enterprise situated abroad, the rate of interest to be applied is the rate prevailing in the country where the loan has been consumed.” 6. Mr.Pardiwala, learned Senior Advocate for the respondent-assessee pointed out that although they have raised an issue of transaction not being international transaction, before the Tribunal, the respondent – assessee has in the facts of the present case chosen not to assail the order of the Tribunal on the above account. In view of the above, there is no occasion for us to express our opinion on the above issue. 7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of “VVF Ltd. Vs. DCIT” (supra) and “DCIT Vs. Tech Mahindra Ltd.”(supra) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr.Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in “VVF Ltd. Vs. DCIT” (supra) and “DCIT Vs. Tech Mahindra Ltd.”(supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in “VVF Ltd. Vs. DCIT” (supra) and “DCIT Vs. Tech Mahindra Ltd.”(supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in “VVF Ltd. Vs. DCIT” (supra) and “DCIT Vs. Tech Mahindra Ltd.”(supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed question of law.” 14. On appraisal of the above mentioned finding, we noticed that the Hon’ble High Court has confirmed the rate of interest applicable in the country where the loan has been consumed in the case Aurionpro Solutions Ltd. (ITA. No.1869 of 2014) (Bom). The Hon’ble High Court further, affirmed the applicable rate of interest in

ITA No. 1899/M/2015 A.Y.2010-11 the case where the assessee company had given the loan to its form AE. The in the case of Cotton Naturals (India) Pvt. Ltd. (supra) has also following the same principle, therefore, in the said circumstances, we set aside the finding of the CIT(A) and restore the issue before the AO to apply the rate of interest prevailing in the country where the loan has been given/consumed. Accordingly, this issue is decided in favour of the assessee against the revenue. 15. In the result, the appeal filed by the assessee is hereby ordered to be partly allowed. Order pronounced in the open court on 05/09/2019. Sd/- Sd/- (SHAMIM YAHYA) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 05/09/2019 Vijay/Sr. PS

ITA No. 1899/M/2015 A.Y.2010-11 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai