TVS Supply Chain Solutions Ltd. Vs DCIT (ITAT Chennai)
Corporate Guarantee TP Adjustment Upheld Because It Is a Separate International Transaction; Bad Debt Deduction Allowed Because Actual Write-Off Is Sufficient After Section 36 Amendment: ITAT
The ITAT Chennai disposed of cross appeals filed by the assessee and the Revenue against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017-18. The assessee challenged the transfer pricing adjustment relating to a corporate guarantee issued to its Singapore associated enterprise (AE), while the Revenue contested the deletion of disallowances relating to bad debts and the principal component of EMI paid on leased assets.
The assessee, engaged in supply chain and logistics services, had provided a corporate guarantee to its Singapore AE without charging any fee, contending that it constituted a shareholder activity. The Transfer Pricing Officer (TPO) held that the corporate guarantee provided an implicit benefit by enhancing the AE’s creditworthiness, constituted a separate international transaction, and therefore required benchmarking. The TPO determined the arm’s length guarantee commission at 1%, resulting in an adjustment of ₹1.28 crore. The CIT(A) upheld the adjustment, relying on the Madras High Court’s decision in Redington India Ltd., which held that corporate guarantees involve inherent risk and must be compensated. The CIT(A) also noted that the assessee had itself charged a 1% corporate guarantee fee to its AEs in the USA and the UK, providing an internal comparable uncontrolled price (CUP). The Tribunal agreed that issuance of a corporate guarantee is a separate international transaction and cannot be regarded as shareholder activity. Finding no infirmity in the CIT(A)’s reasoning, it upheld the transfer pricing adjustment at 1% and dismissed the assessee’s appeal.
