The Lubrizol Corporation Vs ACIT (ITAT Mumbai)
DRP Relief Missed in Final Order: Rectification Saves Assessment, but Lubrizol Wins on PE and Reimbursements
Four disputes in one appeal
In The Lubrizol Corporation v. ACIT, the Mumbai ITAT dealt with four issues arising from the assessment of a US company for assessment year 2017–18. The Assessing Officer had failed to give effect to part of the Dispute Resolution Panel’s directions in the final order, but later corrected that error under Section 154. The Tribunal upheld the rectification. On the substantive issues, however, it deleted the addition for profits attributed to an alleged permanent establishment (PE) in India and the addition for expense reimbursements. It sent the corporate guarantee commission issue back for proper benchmarking.
The result was therefore a partly allowed appeal: the company lost its challenge to the validity of the final assessment order, succeeded on two additions, and obtained a fresh examination of the transfer pricing adjustment.
The assessment and the DRP directions
Lubrizol Corporation, a US tax resident, had transactions with its Indian associated enterprises. The draft assessment order proposed ₹10,15,85,650 as profits attributable to an alleged Indian PE and treated ₹4,74,63,757 received as expense reimbursements as taxable fees for technical or included services. The Transfer Pricing Officer also proposed a corporate guarantee adjustment using a 1% commission rate.
The DRP gave Lubrizol partial relief. It reduced the amount treated as taxable reimbursement by ₹25,63,164 and lowered the corporate guarantee rate from 1% to 0.5%. It upheld the other findings.
Although the Assessing Officer reproduced the DRP’s directions in the final assessment order, he repeated the figures from the draft order instead of implementing those two changes. Lubrizol applied for rectification, and the Assessing Officer passed a Section 154 order on 5 September 2023 giving effect to the DRP’s relief.
Can Section 154 cure the final order?
Lubrizol argued that Section 144C required the final assessment order to conform to the binding DRP directions. Since the order did not do so when issued, the company submitted that it was void and could not be repaired later through Section 154. In its view, allowing rectification would effectively extend the time available for passing a valid final order.
The Tribunal accepted the statutory obligation to follow the DRP, but distinguished the facts before it. The Assessing Officer had included the complete DRP directions in the final order. His failure occurred while carrying their numerical changes into the computation. The mismatch was therefore patent and apparent from the record. The rectification was also made within Section 154’s prescribed time limit.
The ITAT held that neither Section 144C nor Section 154 barred correction of such an obvious error. It distinguished cases involving a conscious failure to implement DRP directions, where Section 154 could not be used simply to overcome the assessment deadline. Lubrizol’s additional ground challenging the final order on this basis was dismissed.
Indian subsidiary did not become a PE
The Assessing Officer had treated Lubrizol’s Indian subsidiary, Lubrizol India Private Limited, as its PE and attributed profit equal to 5% of sales made in India. This produced the ₹10.15 crore addition.
The Tribunal noted that this was a recurring issue. In Lubrizol’s own cases for several earlier assessment years, coordinate benches had rejected the Department’s claim that the Indian subsidiary constituted its PE. The DRP had acknowledged those decisions but retained the addition because the Department was contesting the issue before the Bombay High Court.
Finding no relevant change in the facts, the ITAT followed the earlier decisions. It held that Lubrizol had no PE in India in the form of its subsidiary, so no part of its business profits could be attributed to such a PE. It directed deletion of ₹10,15,85,650.
Reimbursements were neither profit nor FIS
Lubrizol maintained that the sums received from its Indian associated enterprises were back-to-back reimbursements, without any mark-up. Third-party providers had invoiced Lubrizol, which then recovered equal amounts from the Indian entities. Notably, the Assessing Officer’s own remand report described Lubrizol as an intermediary between the service providers and the Indian concern.
On that evidence, the Tribunal found no profit element in the reimbursements. It also held that the Department had not established that the services met the “make available” condition under Article 12(4)(b) of the India–US tax treaty. There was no finding that the Indian recipient could independently apply technical knowledge, skill or know-how received through the services. The ITAT therefore directed deletion of the reimbursement addition, which had already been partly reduced by the DRP.
Guarantee commission requires benchmarking
The company had also provided a corporate guarantee for an Indian associated enterprise. The TPO adopted a 1% commission and the DRP reduced it to 0.5%. Lubrizol argued that both figures were estimates that ignored the benchmarking in its transfer pricing study.
The Tribunal agreed that the study had not been evaluated. Following the Bombay High Court’s approach in PCIT v. Laqshya Media Pvt. Ltd., it held that a fixed rate could not be applied without examining the relevant facts. It restored this issue for fresh adjudication. If Lubrizol’s benchmarking is found acceptable, no further adjustment is required.
Author’s comments
The Section 154 finding turns on a narrow but important factual distinction. Here, the final order recorded the DRP’s directions correctly but failed to carry two changes into the calculation. The Tribunal treated that as an obvious computational mistake. Its ruling should not be taken to permit an Assessing Officer to deliberately disregard binding DRP directions and use rectification later to gain more time.
The PE ruling rests on consistency with findings in Lubrizol’s own earlier years, in the absence of changed facts. The reimbursement ruling is equally evidence driven: the matching invoices, lack of mark-up and the Assessing Officer’s own description of Lubrizol as an intermediary supported the conclusion that the receipts contained no profit. The treaty’s “make available” requirement provided a further reason against taxing them as fees for included services.
For the corporate guarantee, the message is that 0.5% is not an automatic safe rate. The transaction’s arm’s length price must be determined from the facts and a proper evaluation of the taxpayer’s benchmarking.
Cases Discussed/Relied Upon
1. I.A.R. System Aktibolag vs. DCIT, ITA No. 598 & 1850/Mum/2022 — Distinguished while considering failure to implement DRP directions and applicability of Section 154.
2. Olympus Medical Systems Pvt. Ltd. Vs. ACIT, ITA No. 162/Del/2021 & 873/Del/2021 — Relied upon by the assessee on non-conformity with DRP directions.
3. Flextronics Technologies (India) Pvt. Ltd. vs. ACIT — Considered/distinguished on failure to implement DRP directions.
4. PCIT vs. Flextronics Technologies India Pvt. Ltd. (2023) 148 taxmann.com 123 (Karnataka HC) — Cited by the assessee regarding mandatory conformity with DRP directions.
5. Oxbow Energy Solutions LLC Vs DCIT, ITA No. 574/Del/2021 — Distinguished; concerned an assessment order passed in violation of DRP directions.
6. Global One India P. Ltd. vs. DCIT, ITA No. 1980/Del/2014 — Distinguished because the Assessing Officer consciously proceeded without implementing the DRP directions.
7. Basware Corporation India vs. DCIT, ITA No. 1289/Chd/2019 and ITA No. 123/Chd/2017 — Distinguished on facts concerning conscious failure to implement DRP directions.
8. Symbol Technologies India Pvt. Ltd. vs. DCIT, IT(TP)A No. 626/Bang/2026 — Cited by the assessee in support of the challenge to the final assessment order.
9. PCIT vs. Laqshya Media Private Limited, ITA No. 1011/2018, Bombay High Court, judgment dated 23.01.2025 — Followed for the proposition that no straight-jacket formula can be applied for determining the ALP of a corporate guarantee without examining the relevant facts.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Captioned appeal has been filed by the assessee challenging the final assessment order dated 28.2.2022 passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 [in short, “the Act”], pertaining to Assessment Year 2017-18, in pursuance of the directions of learned Dispute Resolution Panel (DRP).
2. In addition to the main ground, the assessee has raised certain additional grounds, one amongst them being Ground No. 20, reading as under:
“Ground No. 20:
On the facts and in the circumstances of the case and in law, the final assessment order dated 28 April 2022 passed by the Learned Assessing Officer (‘Ld. AO’) is bad in law as it is not passed in conformity with the directions issued by the Hon’ble Dispute Resolution Panel (‘Hon’ble DRP’), as per the provisions of section 144C(10) r.w.s. 144C(13) of the Income-tax Act, 1961 (‘Act’) and hence liable to be quashed.
The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
3. Since the issue raised in his ground is a purely legal and jurisdictional issue, without requiring investigation into fresh facts, we are inclined to admit the ground for adjudication. The relevant facts for deciding the ground are, the assessee is a non-resident corporate entity and is a tax resident of United States of America (USA). As stated by the Assessing Officer, the assessee is engaged in manufacturing of high-performance chemicals for use in transportation and industrial lubricants. Besides, the assessee carries out research and development, testing, production of intermediates into finished products for sale and distribution. For the assessment year under dispute, the assessee filed its return of income on 30.11.2017, declaring total income of Rs.36,12,27,580/-. The return of income so filed by the assessee was picked up for scrutiny. Since, in the year under consideration, the assessee had entered into international transactions with its Indian Associated Enterprises (AE), a reference was made to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Act. Based on the order passed by the TPO making variations in the Arm’s Length Price (ALP), of some transactions with the AE and his own assessment in respect of other issues/transactions, the Assessing Officer ultimately framed a draft assessment order on 15.6.2021. While framing the draft assessment order, in addition to the TP adjustment of Rs.1,67,00,000/- suggested by the TPO on account of the transaction relating to corporate guarantees, the Assessing Officer made couple of other additions as under:
i. Business profit attributable to Permanent Establishment (PE), in India, Rs. 10,15,85,650/-
ii. Reimbursement of expenses by the Indian AE treated as Fees for Technical Services (FTS)/Fees for Included Services (FIS) Rs.4,74,63,757/-.
4. Against the draft assessment order so framed, the assessee raised objections before learned DRP.
5. While dealing with the objections of the assessee, learned DRP granted partial relief to the assessee, firstly, by reducing an amount of Rs.25,63,164/- from the total reimbursement amount of Rs.4,74,63,757/- treated as FTS/FIS. Secondly, as against the determination of guarantee commission at 1%, learned DRP reduced it to 0.5%. Barring couple of modifications noted above, learned DRP confirmed the decision of Assessing Officer with regard to the existence of PE in India, attribution of profit to PE, as also the nature and character of reimbursement of expenses as FTS/FIS. While implementing the directions of learned DRP in terms of sub-section (13) of section 144C of the Act, though the Assessing Officer incorporated the entire directions in the body of the assessment order, however, he failed to give effect to the modifications made by learned DRP to the draft assessment order and merely repeated the additions proposed in the draft assessment order. After receipt of the final assessment order, the assessee, vide letter dated 25.5.2022, requested the Assessing Officer to rectify the mistake in the assessment order as per section 154 of the Act. Taking note of the application filed by the assessee, the Assessing Officer, on 05.09.2023, passed a rectification order under section 154 of the Act, rectifying the mistake in the final assessment order by implementing the directions of learned DRP in respect of the quantum of reimbursement of expenses and the rate at which the ALP of guarantee commission has to be determined.
6. Before us, learned counsel appearing for the assessee submitted that in terms of section 144C(13) of the Act, the Assessing Officer has to pass the final assessment order in conformity with the directions of learned DRP. He submitted, it is a fact on record that in the final assessment order, the Assessing Officer has failed to implement the directions of learned DRP in its entirety. Therefore, the final assessment order is in complete violation of section 144C(13) of the Act. Hence, void ab initio. He submitted, the subsequent rectification order passed under section 154 of the Act cannot make good the jurisdictional error committed by the Assessing Officer and validate the final assessment order. He submitted, as per section 144C(13) of the Act, the Assessing Officer has to pass the final assessment order within 30 days from receipt of the directions of learned DRP. He submitted, if the Assessing Officer is directed to improve the final assessment order by taking recourse to section 154 of the Act, it will tantamount to extending the period of limitation under section 144C(13), which is impermissible. In support of such contention, learned counsel relied upon the following decisions:
i. I.A.R. System Aktibolag vs. DCIT, ITA No. 598 & 1850/Mum/2022.
ii. Olympus Medical Systems Pvt. Ltd. Vs. ACIT ITA No. 162/Del/2021 & 873/Del/2021 (Delhi Trib)
iii. Flextronics Technologies (India) Pvt. Ltd. vs. ACIT, ITA No.162/Del/2017 (Bangalore Trib).
iv. PCIT vs. Flextronics Technologies India Pvt. Ltd. (2023) 148 taxmann.com 123 (Karnataka HC)
v. Oxbow Energy Solutions P. Ltd. vs DCIT, ITA 574/Del/2021
vi. Global One India P. Ltd. vs. DCIT ITA No. 1980/Del/2014.
vii. Basware Corporation India vs. DCIT ITA No. 1289/Chd/2019 and ITA No. 123/Chd/2017.
viii. Symbol Technologies India Pvt.Ltd. vs. DCIT IT(TP) A No. 626/Bang/2026.
7. Vehemently opposing the contentions of the assessee, the Departmental Representative submitted, the statute has not restricted the Assessing Officer from exercising power under section 154 of the Act to rectify mistake apparent on the face of record. Thus, he submitted, since the Assessing Officer has passed a rectification order rectifying the mistake apparent on the face of record, the final assessment order cannot be treated as invalid.
8. We have considered rival submissions in light of the judicial precedents cited before us and perused the material on record. Insofar as the factual aspect of the issue is concerned, there is no dispute between the parties that in the final assessment order, the Assessing Officer failed to implement certain directions of learned DRP. However, it is a fact that subsequently the Assessing Officer has passed an order under section 154 of the Act rectifying the mistake. In the aforesaid factual backdrop, the moot question arising for consideration is whether the Assessing Officer has the power to invoke the provisions of section 154 of the Act to rectify an apparent mistake in the final assessment order passed pursuant to the directions of learned DRP.
9. A reading of section 144C(13) of the Act as a whole and sub-sections (10) and (13) of section 144C, in particular, make it clear that the directions issued by DRP are binding on the Assessing Officer as he has to pass the final assessment order in conformity with such direction within one month from the end of the month in which the directions were received. However, on a careful reading of Section 144C as a whole, we have not found any bar or restriction imposed therein qua the applicability of Section 154 of the Act to the final assessment order. Similarly, on a reading Section 154 of the Act, we failed to locate any restriction/bar with regard to applicability of the provision to a final assessment order passed under Section 144C(13) of the Act. However, in our view, Section 154 of the Act can be invoked only in a situation where there is a rectifiable mistake apparent on the face of record. Meaning thereby, the mistake must be patent and obvious and does not require to be discovered or to be established through a process of debate/argument/reasoning. Further, sub-section 2 of Section 154 empowers the authority concerned to rectify a mistake apparent on the face of the record, either suo motu or on an application made by the assessee.
10. Keeping in view the statutory provisions referred to above, if we examine the specific facts arising in the present appeal, it is evident that in the final assessment order, the Assessing Officer has incorporated the entire directions of the learned DRP on the objections of the assessee. This fact establishes that the Assessing Officer was conscious of the directions issued by learned DRP. However, inadvertently, he has failed to give full effect to such directions while computing the income of the assessee. Thus, in our view, such inadvertent error committed by the Assessing Officer falls within the ambit of Section 154 of the Act, as there is a patent and obvious mistake in the final assessment order. In any case of the matter, the assessee itself has moved an application before the Assessing Officer seeking rectification under Section 154 of the Act. While considering the application of the assessee, the Assessing Officer, having realized the mistake, has passed a rectification order under Section 154 of the Act, rectifying the mistake committed by him while computing the income of the assessee. Thus, when there is no restriction or limitation imposed either under Section 144C or under Section 154 of the Act on the Assessing Officer to rectify a patent and obvious mistake appearing in the final assessment order, such restriction cannot be read into the statute. What is required to be examined is whether the conditions of Section 154 of the Act. The conditions firstly are, the mistake is apparent on the face of record and secondly rectification must be carried out before expiry of four years from the end of the financial year in which the order sought to be amended was passed.
11. In the facts of the present appeal, as discussed earlier, the mistake rectified by the Assessing Officer is patent and obvious and falls within the category of mistake apparent on the face of record. Further, the rectification order has been passed within the prescribed period of limitation under Section 154(7) of the Act. Therefore, the conditions of Section 154 of the Act stand complied. Having held so, for the sake of completeness, we propose to deal with the judicial precedents cited before us by learned counsel for the assessee. In the decisions at serial nos. i to v appearing in paragraph 6 of the order, the proposition laid down is that the final assessment order passed in violation of directions of learned DRP is null and void. There cannot be any quarrel with such proposition in view of the specific mandate of Section 144C(13) of the Act. However, in these decisions, the Bench did not the occasion to deal with the authority of the Assessing Officer in invoking the provisions of Section 154 of the Act to rectify the mistake apparent in the final assessment order. Hence, these decisions would be of no help to the assessee. Even, the decisions in case of Global One India Private Limited vs. DCIT and Basware Corporation India versus DCIT (supra), would be of no help to the assessee, as they are factually distinguishable. As discussed by the Bench in these decisions, though the Assessing Officer was fairly conscious of the specific directions of the DRP, since the TPO had not given effect to the directions of learned DRP, the Assessing Officer proceeded to pass the assessment order to avoid limitation. Thus, the Assessing Officer consciously and deliberately failed to implement the directions of learned DRP, which does not fall in the category of mistake apparent on the face of record as to enable the Assessing Officer to exercise power under Section 154 of the Act. Hence, the Coordinate Benches rightly held that Section 154 of the Act was invoked only for the purpose of extending the limitation. However, the factual position being completely different in the present appeal, the said decision will not apply.
12. Insofar as the case of Flextronics Technologies (India) Private Limited versus ACIT (supra) is concerned, there is a lack of clarity with regard to the factual position. It appears that in course of argument before the Bench, the Departmental Representative merely made a submission that, for failure to implement the direction of the DRP section 154 of the Act can be invoked. Whereas, in the facts of the present appeal not only the assessee made an application seeking rectification under Section 154 of the Act, but the Assessing Officer passed an order rectifying the mistake within the prescribed period of limitation under Section 154 of the Act. Therefore, even this decision would not come to the rescue of the assessee. Thus, in the ultimate analysis, we do not find merit in the ground raised. Accordingly, this ground is dismissed.
13. In Ground Nos. 1, 2 and 3, the assessee has raised the issue of existence or otherwise of PE in India and attribution of profit to the PE.
14. Briefly, the facts relating to this issue are that the assessee has a subsidiary in India by the name of Lubrizol India Private Limited (LIPL). The Assessing Officer observed that the Indian subsidiary was not only manufacturing the products developed by the assessee but was also involved in marketing the products manufactured by the assessee. Therefore, he called upon the assessee to explain why LIPL should not be treated as assessee’s PE in India and why profit should not be attributed to the said PE. From the details available on record, the Assessing Officer noticed that during the year under consideration, the assessee had affected sales to Indian subsidiary amounting to Rs.16,307.48 lakhs. Whereas, sales to other customers in India was the tune of Rs.4,009.65 lakhs. Referring to Article 5(1), 5(2) and 5(4) of India-US Double Taxation Avoidance Agreement (DTAA), the Assessing Officer, ultimately, concluded that LIPL is PE of the assessee in India. Hence, part of the business profit accruing to the assessee is attributed to the PE.
15. Having held so, he proceeded to compute the profit attributable to the PE at 5% of the total sales made in India, including both the Indian subsidiary and others. In the process, he added an amount of Rs.10,15,85,650/- to the income of the assessee. The additions so proposed in the draft assessment order was upheld by learned DRP while disposing of the objections of the assessee.
16. Before us, learned counsel appearing for the assessee submitted that the issue is squarely covered in favour of the assessee by the decisions of the ITAT in earlier assessment years, being Assessment Years 2004-05, 2005-06, 2006-07, 2008-09 and 2009-10.
17. Learned Departmental Representative (DR), though accepted that in earlier assessment years the issue was decided in favour of the assessee, however, he submitted, the Department has gone in further appeal before the Hon’ble High Court.
18. We have considered rival submissions and perused the materials on record. The issue arising for consideration is whether LIPL can be considered as a PE of the assessee in India in terms with Article 5 of the India-USA DTAA. On perusal of facts on record, we find that this is a legacy issue continuing from Assessment Years 2004-05 onwards. In fact, before the Assessing Officer, the assessee had made a submission that the issue has been decided in favour of the assessee by the ITAT in earlier assessment years. Even, DRP while acknowledging this fact in its directions, has stated that since the Department is contesting the issue before the Hon’ble Bombay High Court, to keep the issue alive, it has to follow its earlier directions on the issue. Thus, keeping in view the fact that under identical facts and circumstances, the Coordinate Bench, while deciding the issue in the case of the assessee in earlier assessment years, has negated Department’s stand regarding existence of PE in India in the form of LIPL, we deem it appropriate to reverse the decision of the Departmental authorities on this issue, while holding that there being no PE in India, no part of the business profits can be taxed in India. Hence, the Assessing Officer is directed to delete the addition of Rs.10,15,85,650/-.
19. In Ground Nos. 4 and 5 of the concise grounds, the assessee has contested the addition of Rs.4,74,63,757/-.
20. Briefly the facts relating to this issue are, in course of assessment proceedings, the Assessing Officer found that the assessee had received an amount of Rs.4,74,63,757/- from its AE in India towards reimbursement of expenses incurred on their behalf. Since the assessee had not offered such income to tax in India, the Assessing Officer issued a show-cause notice as to why the same should not be taxed as FTS in India. In response to the show-cause notice, the assessee submitted that the amount received represents full reimbursement of costs actually incurred by it on behalf of the AEs without any mark-up. The Assessing Officer, however, did not agree with the contention of the assessee. He observed that the assessee received royalty and FIS from the Indian AEs and had offered them to tax in India. He observed, the reimbursement of cost was nothing but remuneration received towards services rendered to the AEs. Hence, would fall within the ambit of FTS under Section 9(1)(vii) of the Act and FIS under Article 13(4) of the India-USA DTAA. Accordingly, he proposed the addition in the draft assessment order.
21. While deciding the issue, the DRP, while upholding the decision of the Assessing Officer substantially, granted partial relief of Rs.25,63,164/- representing reimbursement of expenses relating to travelling, visa, etc., paid to LIPL as against the erroneous conclusion by the Assessing Officer that assessee had received it.
22. Before us, learned counsel appearing for the assessee submitted that the amount received by the assessee is in the nature of simple and pure reimbursement of expenses, without any mark-up. Proceeding further, he submitted that the assessee has merely facilitated the provision of certain services by KPMG and some other parties to the Indian AEs. He submitted, the assessee merely acted as an intermediary. He submitted, KPMG raised invoices on the assessee and the assessee, in turn, raised invoices on the Indian AE. Thus, he submitted, transaction was on a back-to-back basis and whatever amount was paid by the assessee to KPMG was reimbursed by the Indian AE to the assessee. Hence, there is no profit element involved in the transaction and, hence, it cannot be treated as income of the assessee.
23. Without prejudice, learned counsel drew our attention to Article 12(4)(b) of the India-USA DTAA and submitted that the “make available” condition enshrined therein is not satisfied. Thus, he submitted, the amount in dispute cannot be treated as FTS/FIS.
24. The learned Departmental Representative (DR) strongly relied upon the observations of the Assessing Officer and learned DRP.
25. We have considered rival submissions and perused the materials on record. The reimbursement of cost received by the assessee was for the following services:
i. Remuneration of Director – Rs.13,28,684/-;
ii. Professional fees for sale of Baroda site – Rs. 1,18,44,120/-;
iii. Reimbursement of software licence expenses – Rs. 19,19,700/-;
iv. Conference Fees – Rs. 11,73,516/-;
v. Technologies fund reimbursement cost – Rs.16,51,92/-.
26. In course of proceedings before learned DRP, the assessee had furnished certain additional evidences to establish its case that it had acted as an intermediary and that the amount received was purely reimbursement of cost without any mark-up. On the basis of evidence furnished by the assessee, a remand report was called from the Assessing Officer. On perusal of the said remand report, it is noticed that the Assessing Officer has clearly stated that the assessee was acting as an intermediary between the service provider and the Indian concern. Thus, it is a fact on record that the service provider has raised invoices on the assessee and the assessee, in turn, has raised invoices on the Indian AE for an equal amount. Therefore, there is no element of profit or mark-up involved in such back-to-back transactions. There being no profit element or mark-up on the reimbursement of costs, no income can be attributed to the assessee. Even otherwise also, neither the Assessing Officer nor learned DRP has established on record that, in the course of rendition of services, the service provider has made available any technical knowledge, skill, know-how, or process, or any technical plan or design to the Indian AE. As per Article 12(4)(b) of India-USA DTAA, to qualify as FIS, there must be making available of technical knowledge, know-how, skill, etc., by the service provider to the service recipient. In the facts of the present appeal, the Departmental authorities have failed to establish on record that the services provided by the assessee would fall within the ambit of technical or consultancy services. Even assuming that they fall within the ambit of such services, the issue is whether the “make available” condition has been satisfied. The test to determine whether the service provider has made available technical knowlwdge, knowhow, skill etc. is, the service receipient must be in a position to independent by apply the technical knowledge knowhow, skill etc. without the assistance of service provider. This fact has not been established by the Department. Thus, in absence of any conclusive finding, either with regard to the nature of services rendered or the satisfaction of the “make available” condition, the reimbursement of cost, without any profit element embedded therein, cannot be treated as FIS under Article 12(4)(b) of India-US DTAA. Accordingly, the Assessing Officer is directed to delete the addition.
27. In Ground No. 6 of the concise grounds, the assessee has contested the determination of ALP of corporate guarantee commission at 0.5%. As could be seen from the facts on record, the assessee had provided corporate guarantee to its Indian AE. While the TPO determined the ALP of the guarantee commission at 1%, learned DRP, following certain judicial precedents, reduced it to 0.5%.
28. We have considered rival submissions and perused the materials on record. It is the say of the assessee before us that in the TP study report, the assessee had undertaken appropriate benchmarking of the transaction relating to provision of corporate guarantee. He submitted, without properly evaluating the benchmarking of the assessee, the Assessing Officer and DRP have resorted to ad-hocism by applying the rate of guarantee commission at 1% and 0.5%, respectively. He submitted, ALP of corporate guarantee commission cannot be determined on purely estimated basis.
29. In this context, he drew our attention to judgment dated 23.01.2025, apart from in ITA Nos. 1011/2018, in the case of PCIT vs. Laqshya Media Private Limited of the Hon’ble Bombay High Court. Thus, he submitted, the issue may be restored back to the Assessing Officer to examine assessee’s benchmarking and decide the issue.
30. Learned DR relied upon the observations of the learned DRP.
31. Having considered rival submissions and perused the materials on record, we find that the assessee, in the TP study report, had benchmarked the transaction relating to provision of corporate guarantee to the AE. However, neither the TPO nor the DRP has evaluated the acceptability or otherwise of such benchmarking. Both the authorities have simply estimated the guarantee commission by relying upon certain judicial precedents. In the case of PCIT vs. Laqshya, (supra), the Hon’ble jurisdictional High Court has held that no straight jacket formula can be applied in determining the ALP of corporate guarantee without examining the relevant facts.
32. In view of aforesaid, we are inclined to restore the issue to the Assessing Officer for fresh adjudication after examining the benchmarking undertaken by the assessee. In case, the Assessing Officer is satisfied with the benchmarking of the assessee, then there would be no need for any further adjustment. Accordingly, issue is restored back.
33. The issue raised in Ground No. 7 does not survive, hence, this ground is dismissed.
34. Ground No. 8 being consequential and Ground No. 9 being premature at this stage are dismissed.
35. The assessee has raised one more additional ground vide letter dated 13.09.2023, being no.21 questioning the validity of the final assessment order on the ground of limitation. On the prayer of the assessee, ground is kept open.
36. In the result appeal is partly allowed.
Order pronounced in the open court on 25/09/2026.
