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Income Tax Appellate Tribunal, DELHI BENCH ‘I’ : NEW DELHI
ASSESSEE BY : Ms. Aditi Gupta, Advocate REVENUE BY : Shri Jitender Kumar, CIT DR Date of Hearing : 07.06.2023 Date of Order : 09.06.2023
ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This appeal filed by the assessee is directed against the order of Assessing Officer passed pursuant to the directions of the Dispute Resolution Panel (DRP) for the assessment year 2016-17. 2. The grounds of appeal taken by the assessee read as under :-
“1. (a) That the learned Assessing Officer NeAC, pursuant to the directions of Hon'ble DRP, has erred on facts and in law in making an upward transfer pricing adjustment of Rs.35,90,013 by computing the arm's length price of corporate guarantee fees & Standby Letter of Credit (SBLC) fees, extended by the Appellant to the bankers of the Associate Enterprises, @
(b) That in this connection, the learned Assessing Officer NeAC, pursuant to the directions of Hon'ble DRP, has erred both on facts and in law by considering the bank guarantee rates for the purpose of computing the arm's length pricing without giving credence to the fact bank guarantee rates cannot be compared with corporate guarantee rates.
(c) That further in this connection, the authorities below have erred on facts and in law in not considering the comparables provided by the appellant to justify the rate of 0.6% charged by the appellant.
3. That on the basis of facts and circumstances of the case and as per law, the appellant be allowed deduction of Education Cess and Secondary & Higher Education Cess amounting to Rs. 63,66,968 during the year under consideration as tile same is not a disallowable expenditure as per section 40(a)(ii) of the Act and which has been so held by Hon'ble Bombay High Court in the case of Sesa Goa Ltd. V. JCIT [2020] 117 taxmann.com 96 as well as by various other Courts.”
Apropos Ground No.1 : the assessee, Sona BLW Precision Forgings Limited, is engaged in the business of manufacturing of precision forged bevel gears, differential case assemblies and synchronizer rings for automotive industry. On the impugned issued, the TPO noted that as per the assessee’s annual report, the assessee had given corporate guarantee of INR 75,78,00,000 to ICICI Bank for giving credit facility to Sona Autocomp Germany for which an amount of INR 33,37,200 was charged by the assessee as fee received from the said AE at the rate of 0.6% determined as ALP. The TPO noted that the assessee had also granted corporate guarantee in the form of SBLC to ICICI Bank amounting to INR 36,478 had been received by the assessee from the AE.
During the assessment proceedings, the TPO obtained information u/s 133(6) of the Act regarding rates charged by banks during the FY 2015- 16 for provision of guarantee as under-
Name of bank Minimum Maximum Average rate ICICI Bank 0.50% 2.50% 1.275% SBI 0.30% 2.10% 1.200% Average 1.238% 3.1 The TPO accordingly proposed an adjustment of Rs. 80,74,053/- (i.e. Rs.60,44,364/- on account of Corporate Guarantee Fees & Rs. 20,29,689/- on account of SBLC Fees) under CUP by charging the said corporate guarantee fees and SBLC charges @1.238% by taking average of Indian bank guarantee rates as above as against 0.6% charged by the assessee.
Assessee filed objections before the DRP. DRP, after some discussions, held as under :-
“ It is well settled that LIBOR being an internationally recognized rate is the appropriate benchmark interest rate which conforms to the arm's length standard under the CUP Method for benchmarking foreign currency loans. The LIBOR rate is therefore the appropriate uncontrolled comparable to be applied to the assessee's transactions for the relevant period. In cases where the invoices are raised in foreign currency, the applicable rate will be LIBOR plus, in line with judgment of the Hon'ble Delhi High Court in the case of M/s Cotton Naturals. The AO is directed to verify the assessee's claim of the said loans being in foreign currency from the relevant agreements, in which case ./2021 the applicable LIBOR rate of interest should be taken based on credit rating, purpose and term of loan etc., which are specific to the terms of the loan I payment with the AE and to re- compute the adjustment accordingly. The TPO shall verify the claim of the assessee that the AE concerned was Sona Holding B.V. Netherland as per the audited financials and not Sana BLW Germany and Sona BLW USA as taken in the draft order This Ground is disposed off as above.”
Ld. Counsel of the assessee pleaded that on identical issued, this Tribunal in & 3134/Del./2017 vide order dated 18.11.2021 for AYs 2011-12 & 2012-13 gave the following directions :-
“16. As far as issue of benchmarking is concerned, we find that Assessing Officer has applied the rate of 2.02% which has been restricted by the CIT(A) to 1% of the loans availed. However, we are of the opinion that, the transaction has to be benchmarked applying most appropriate method as per the provisions of the Act. The adjustment made by the Assessing Officer taking average rate of guarantee commission by the banks cannot be held as a comparable uncontrolled price. The Learned AO or the TPO has to compare the transaction of the assessee with actual transaction happened during relevant period in circumstances comparable to the assessee, as per the strict requirement of CUP method. In the circumstances, we feel it appropriate to restore the issue of benchmarking of the international transaction of guarantee fee/commission to the file of the Ld. AO/TPO for deciding afresh after providing adequate opportunity of being heard to the assessee. The ground of the appeal of the assessee, are accordingly allowed for statistical purposes.” Ld. Counsel for the assessee pleaded that the matter may be set aside to the AO/TPO in accordance with the above said order.
Per contra, ld. DR for the Revenue did not have any objection to this proposition. ./2021 7. Accordingly, in the interest of justice, we remit the issue to the AO to consider the issue afresh in the light of the aforesaid observations of the Tribunal. Needless to add, assessee should be granted an opportunity of being heard. 8. Apropos Ground No.2 i.e. issue of deduction of education cess and secondary & higher education cess : On this issue, ld. Counsel of the assessee submitted that she will not be pressing the same. Accordingly, this issue is dismissed as not pressed. 9. In the result, this appeal filed by the assessee is partly allowed as above for statistical purposes. Order pronounced in the open court on this 9th day of June, 2023.