3F INDUSTRIES LIMITED,TADEPALLIGUDEM vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, , ELURU
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal is filed by the assessee against the final assessment order of the Ld. Assessing Officer [AO] passed U/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 [the Act] for the AY 2014-15.
2 2. Brief facts of the case are that the assessee-company is
engaged in the business of manufacture and trading of edible oils
and agro-based products, filed its return of income on
30/11/2014 for the AY 2014-15. Thereafter, the assessee filed
the revised return on 25/11/2015 admitting a total income of Rs.
9,06,97,982/-. The return was initially processed U/s. 143(1) of
the Act. Subsequently, the case was selected for scrutiny under
CASS and a notice U/s. 143(2) was issued to the assessee and in
response the assessee’s Authorized Representatives appeared
from time to time and furnished the details as called for by the
Ld. AO. During the assessment proceedings, on examining the
details furnished by the assessee-company, the Ld. AO noted that
the assessee-company has entered into various transactions
during the AY 2014-15 with its Associated Enterprises being the
subsidiary companies situated outside India. Accordingly, as per
the provisions of section 92E, the assessee-company was
requested to furnish the details of international transaction in
Form No. 3CEB. On receiving the report from the assessee in
Form No.3CEB, the same was forwarded to the Joint
Commissioner of Income Tax (Transfer Pricing), Hyderabad for
computation of Arm’s Length Price [ALP] of the transactions
entered into by the assessee with its Associated Enterprises [AEs]
3 outside India. The Ld. TPO in his report made U/s. 92CA(3) of the
Act observed that during the year, the assessee has provided
Corporate Guarantee on behalf of 3F Singapore and 3F Ghana.
The Ld. TPO also observed that the assessee has reported the
same in Form 3CEB as “shareholder activity” by using other
method. Before the Ld. TPO it is the submission of the assessee
that the corporate guarantee given by them is different from
letter of credit usually given by banks and it more in the nature
of personal guarantees given by the promoters of the companies
in India for the loan taken by the AE companies from banks
outside India. It was also submitted that on account of this
corporate guarantee, neither the assessee’s AEs gained any direct
financial benefit nor any expense was absorbed by the assessee
(parent company) on behalf of its AEs and requested to drop the
TP adjustment in this regard. After considering the submissions
of the assessee as well as on perusal of the information obtained
from State Bank of India U/s. 133(6) on rates charged for
corporate guarantee, the Ld. TPO proceeded to make the TP
adjustment u/s. 92CA of the Act on corporate guarantee charges
@ 1.60% on Rs. 61,10,82,000/- which worked out to Rs.
97,77,312/-. On appeal, the Ld. Dispute Resolution Panel [DRP]
upheld the decision of the Ld. TPO while making the TP
adjustment. Thus, the Ld. AO giving effect to the directions of the
Ld. DRP determined the ALP of corporate guarantee outstanding
@ Rs. 97,77,312/- and added the same to the income returned by
the assessee-company and passed the final assessment order on
31/7/2018 u/s 143(3) r.w.s 144C(13) of the Act. Aggrieved by
the final assessment order of the Ld. AO, the assessee is in
appeal before us.
The assessee has raised the following grounds of appeal:
“Based on the facts and circumstances of the case and in law, the Ld. AO / TPO and the Hon’ble DRP erred in:
TRANSFER PRICING MATTER:
Notional Guarantee fee on shareholders guarantee
a. Making adjustment on the shareholders corporate guarantee is not covered under the loans availed by the AE, without appreciating the fact that the guarantee was provided for the benefit of the 3F Group. b. Not appreciating that the shareholder corporate guarantee is not covered under definition of international transaction u/s. 92B of the Act. c. Without prejudice to the above ground, not undertaking an objective analysis for determining the ALP on the shareholders corporate guarantee. d. Further, without prejudice to the above ground, not making adjustment for the differences in the comparable transactions selected vis-à-vis corporate guarantee provided by the company. e. Without prejudice to the above, not considering the bank guarantee commission rate charged by the bank to the appellant as a benchmark.
OTHER GROUNDS
5 2. Levy of interest U/s. 234B of the act of INR 6,71,027/-. 3. Levy of interest U/s. 234C of the Act of INR 1,45,673/. 4. Initiating penalty proceedings U/s. 271(1)(c) of the Act.”
In the grounds of appeal, though the assessee has raised
four grounds, but the main issues involved are:
(i) Whether the corporate guarantee given by the assessee-
company to its AEs for the loan taken by the AEs can be
considered as an international transaction as per the
provisions of section 92B of the Act or not?
(ii) Whether the upward TP adjustment made by the Ld. TPO
and confirmed by the Ld. DRP in the corporate guarantee
commission on the gross guarantee given to AEs is
justifiable or not?
On these issues, at the outset, the Ld. AR submitted and
pleaded that the corporate guarantee given by the assessee-
company to its AEs is not an international transaction as the
assessee has not charged the AE. The Ld. AR relied on the
following decisions:
a. DCIT, Circle-1(1), Guntur vs. CCL Products (India) Ltd, ITA No.348/Viz/2018 (2014-15)
6 b. DCIT Circle-1(1), Guntur vs. CCL Products (India) Ltd, ITA No.191/Viz/2018 (2013-14) c. Britannia Industries Ltd vs. DCIT, Circle-7(1), Kolkata (AY 2013-14), ITA No. 2235/Kol/2017 d. ACIT, Circle-6(2), Kolkata Vs. M/s. Emami Limited (AY 2013-14) ITA No. 1958/Kol/2017 e. Rain Industries Ltd vs. DCIT, Circle-3(1), Hyderabad (AY 2012-13), ITA Nos. 1728 & 1729/Hyd/2016 f. DCIT, Chennai vs. M/s. Redington India Ltd (AY 2010-11) ITA No. 535 & 959/Mds/2015 g. Bharati Airtel Limited vs. Additional CIT, Range-2, New Delhi (AY 2008-09), ITA No. 5816/Del/2012. h. Micro Ink Limited vs. Addl. CIT (AY 2006-07), ITA No. 2873/Ahd/10.
The Ld. AR placed heavy reliance in the ratio laid down in
DCIT, Central Circle-1(1), Guntur vs. M/s. CCL Projects (India)
Pvt Ltd in ITA No.348/Viz/2018 (AY: 2014-15). The Ld. AR
submitted that in the case of M/s. CCL Projects (India) Pvt Ltd
(supra), the Coordinate Bench of the Tribunal held that the
provision of corporate guarantee on behalf of the AE without
incurring any cost would not constitute international transaction
within the meaning of section 92B of the Act. The Ld. AR further
submitted that the above view was also held in the case of Dr.
Reddy’s Laboratories Limited vs. Addl. CIT reported in 81
taxmann.com 398. The Ld. AR further submitted that for bank
guarantee facility provided by Axis Bank the rate adopted was
0.4% and in case if the Bench decides to treat the corporate
guarantee as an international transaction in the alternative the
7 rate of 0.4% shall be considered. The Ld. AR further submitted
that as per the OECD guidelines corporate guarantee is not an
international transaction and it is only a shareholders obligation.
The Ld. AR further submitted that merely relying on the
information obtained U/s. 133(6) of the Act which was not shared
with the assessee, the Ld. TPO erred in determining the rate of
1.60% guarantee commission given to AEs.
Per contra, the Ld. DR relied on the orders of the Ld. TPO
and the Ld. DRP.
We have heard the rival submissions and perused he
material available on record and the orders of the Ld. Revenue
Authorities. It is observed from the order of the Ld. TPO that the
Ld. TPO has obtained a rate of fees charged by State Bank of
India on the issuance of financial guarantees given for the
computation of ALP and the tested party with respect to the
guarantees given to the AEs. The Ld. TPO has thus concluded
that the median of the ALP works out to 1.60% on the corporate
guarantee given to AEs. In the case of CIT vs. Redington India
Ltd [2021] 430 ITR 298, Hon’ble Madras High Court held that
corporate guarantee given to the AE is covered by the
retrospective amendment made by the Finance Act, 2012. In the
8 case of CIT vs. Everest Kanto Ltd reported in 378 ITR 57 the
Hon’ble Bombay High Court held that the corporate guarantee
commission is an international transaction and should be
charged @ 50% on the corporate guarantee amount given to the
AEs. In the case of M/s. Devi Sea Foods Limited vs. DCIT,
Circle-3(1), Visakhapatnam in ITA No. 75/Viz/2022 (AY; 2017-
18), dated 09/09/2022 this Bench of the Tribunal has held that
the corporate guarantee given to the AE is an international
transaction and shall be chargeable @ 0.50% on the amount of
corporate guarantee given to the AEs. In view of the above
discussions and by respectfully following the ratio laid down in
various judicial pronouncements as discussed above, we are of
the considered view that the corporate guarantee commission is
an international transaction and should be charged @ 0.50% on
the corporate guarantee amount given to the AEs. We therefore
partly allowed the grounds raised by the assessee.
Grounds No. 2, 3 & 4 raised by the assessee are
consequential in nature and therefore need no separate
adjudication.
In the result, appeal of the assessee is partly allowed.
9 Pronounced in the open Court on the 16th February,2023.
Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER Dated :16.02.2023 OKK - SPS
आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee–3F Industries Limited, P.B. No. 15, Tanuku 1. Road, Tadepalligudem, West Godavari District, Andhra Pradesh- 534101. राज�व/The Revenue –The Assistant Commissioner of Income Tax, 2. Circle-1, KKS Towers, RR Pet, Eluru, Andhra Pradesh-534002. 3. The Principal Commissioner of Income Tax, (ii) Dispute Resolution Panel-1, Bengaluru. आयकरआयु�त (अपील)/ The Commissioner of Income Tax 4. (ii) Deputy Commissioner of Income Tax (Transfer Pricing Officer)-2, Hyderabad. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ DR,ITAT, 5. Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
