Credit Agricole Corporate and Investment Bank Vs ACIT (International Taxation) (ITAT Mumbai)
Transfer Pricing Cannot Rest on Guesswork: Nil ALP and Arbitrary Profit Attribution Set Aside
The Controversy
The Mumbai Tribunal examined several corporate tax and transfer pricing adjustments concerning the Indian branches of Credit Agricole Corporate and Investment Bank, a French banking company. The disputes covered head office expenses, inter-office interest, marketing remuneration, guarantee commission, treaty rates and TDS credit.
The Tribunal granted relief on certain issues and restored others for verification or fresh benchmarking. Its central message was that transfer pricing adjustments require a prescribed method and examination of the actual functions, risks and supporting evidence. Subjective views about the necessity of expenditure cannot substitute for that exercise.
Head Office Allocations Cannot Be Valued at Nil Mechanically
The Transfer Pricing Officer determined the arm’s length price of allocated head office expenses at Nil, resulting in adjustments of ₹20,72,79,838 for AY 2021-22 and ₹16,61,25,262 for AY 2022-23.
The bank explained that its head office performed centralised functions and allocated actual costs among branches without a mark-up. It furnished allocation policies, invoices, cost-centre details, allocation keys, auditor certification and correspondence demonstrating services.
The Tribunal held that, once the allocation transaction was accepted to exist, its arm’s length price had to be determined through a method recognised under section 92C. It could not be reduced to Nil merely because the TPO considered the expenditure unnecessary or perceived no benefit.
However, the Tribunal did not accept the entire allocation unconditionally. It restored the matter for verification of the cost pool, allocation keys and exclusion of shareholder, stewardship or duplicative costs. It also directed that the same expenditure must not suffer a duplicated adjustment or disallowance, considering amounts already restricted under section 44C.
Entire Derivative Spread Cannot Belong to the Marketing Branch
The TPO attributed 100% of the commercial mark-up or initial dealer spread on derivative transactions to the Indian branch.
Following earlier orders in the bank’s own case, the Tribunal noted that the Indian branch performed marketing functions, whereas the overseas offices bore the trading risks. The TPO had neither justified attributing the entire spread to India nor determined the arm’s length price through a prescribed method.
Accordingly, adjustments of ₹11,50,544 for AY 2021-22 and ₹1,16,484 for AY 2022-23 were deleted. The Revenue had demonstrated no material change in the functional profile warranting departure from the earlier decisions.
ECB Marketing Remuneration: Apply the Settled Computation
For marketing and support services relating to external commercial borrowings, the Tribunal followed the methodology adopted in earlier years.
It directed the TPO to apply 20% to fees and other charges, excluding interest, and give credit for the overall remuneration already offered by the bank. No adjustment would survive if the remuneration already offered equalled or exceeded the amount determined under that methodology.
The matter was restored for this limited computation. The order therefore does not prescribe a universal 20% remuneration for all ECB support arrangements.
Guarantee Commission Requires Fresh Benchmarking
The Indian branch reissued guarantees backed by counter-guarantees from overseas offices. It contended that its role was administrative and that it bore no substantive credit or default risk.
The Tribunal restored the issue for fresh benchmarking, directing consideration of the bank’s evidence and Chartered Accountant’s certificate. Any internal comparable uncontrolled price had to be examined with reference to functions, assets, risks, transaction volume and risk differences.
Thus, the adjustment was not finally deleted on merits; its sustainability remained subject to a proper comparability exercise.
Direct Expenses and Inter-Office Interest
Following earlier decisions, the Tribunal directed allowance under section 37(1) of direct expenses concerning credit risk assistance, EDP assistance and information systems, subject to verification of invoices and allocation to the Indian branch. These expenses were not to be restricted merely by invoking section 44C.
It also deleted additions relating to interest paid by the Indian branch to its head office or overseas branches. The earlier ruling had considered the Finance Act, 2015 amendment to section 9(1)(v), but held that the more beneficial India–France treaty provisions prevented independent taxation of that inter-office interest in the overseas offices’ hands.
Treaty Ceiling, Refund Interest and Procedural Grounds
The Tribunal held that surcharge and health and education cess cannot increase tax beyond the applicable treaty ceiling. It also directed taxation of section 244A refund interest at the applicable treaty rate.
ECB interest taxation and TDS credit were restored for verification, with directions to avoid double taxation.
For AY 2022-23, the notice challenge failed because the date pleaded differed from the assessment records. The limitation objection was also rejected, the final order having followed the DRP directions within the section 144C(13) period. The challenge to mere initiation of penalty was treated as premature.
Author’s Comments
A Nil ALP requires analysis, not an assertion that the taxpayer needed no service. Equally, documentation of a cost allocation does not dispense with verification of its components or benchmarking.
The section 44C relief needs particular care. The order follows earlier decisions on direct expenses; the American Express Bank order discussed earlier applies the Supreme Court’s statutory-definition test. Exclusive attribution to India should therefore not be treated as sufficient, by itself, to exclude expenditure from section 44C.
The appeals were partly allowed for statistical purposes, with several material questions remaining for fresh examination.
Cases Discussed
- ACIT (International Taxation) & Ors. v. Shelf Drilling Ron Tappmeyer Ltd. & Ors. (Supreme Court), 2025 INSC 946 — Cited on the unresolved section 144C and section 153 limitation dispute.
- DCIT (International Taxation) v. Marubeni Corporation (ITAT Mumbai), (2022) 139 taxmann.com 458 — Relied upon regarding treaty tax ceilings and additional surcharge and cess.
- Sunil V. Motiani v. ITO (International Taxation) (ITAT Kolkata) — Cited concerning treaty ceilings; citation not specified in the order.
- DIC Asia Pacific Pte. Ltd. v. ADIT (International Taxation) (ITAT Kolkata), (2012) 22 taxmann.com 310 — Cited regarding surcharge and cess above the treaty rate.
- Credit Agricole Corporate and Investment Bank v. ACIT (International Taxation), earlier consolidated Mumbai ITAT order for AYs 2010-11 to 2019-20, dated 20/03/2025 — Followed on head-office expenses, derivative marketing, ECB support, guarantees and interest.
- Credit Agricole Corporate and Investment Bank, Bombay High Court decision concerning AY 1997-98 — Followed for the applicable treaty rate on section 244A refund interest; case number and date not supplied in the order.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT MUMBAI
The present appeals are filed by the assessee against the final assessment orders passed by the Ld. Assessing Officer u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (‘the Act’) for Assessment Years 2021-22 and 2022-23, pursuant to the directions issued by the Ld. Dispute Resolution Panel (‘Ld. DRP’). Since common and recurring issues arise in both the appeals, they were heard together and are being disposed of by way of this common order.
2. The assessee has raised the following grounds of appeal for Assessment Year 2021-22:
1. The DCIT erred in holding that the direct expenses of INR 20,08,51,523 towards Head Office System Implementation charges (amounting to INR 16,91,09,302) and Information System Asia Pacific charges (amounting to INR 3,17,42,221) incurred by the Head Office (‘HO’) / overseas branches (‘OB’), are deductible in accordance with the provisions of section 44C of the Act and not under section 37(1) of the Act.
2. The DCIT erred in holding that the direct expenses of INR 5,71,53,416 towards credit risk assistance (amounting to INR 4,23,52,041) and EDP assistance (amounting to INR 1,48,01,375) provided by the HO to the India branch are deductible in accordance with the provisions of section 44C of the Act and not under section 37(1) of the Act.
3. The DCIT erred in holding that interest payment of INR 11,43,28,282 by the India branch to the HO is taxable in accordance with the provisions of Article 12 of the India – France Double Tax Avoidance Agreement (‘India – France DTAA’).
4. The DCIT/Transfer Pricing Officer (‘TPO’) with respect to the international transaction pertaining to receipt of remuneration for marketing of derivatives from its Associated Enterprises (‘AE’), erred in attributing 100% of commercial mark-up / initial dealer spread to the Appellant in lieu of its marketing function thereby not attributing anything to the AE absent a scientific process / basis to arrive at the profit split, making an upward adjustment of INR 11,50,544.
5. The DCIT/TPO with respect to the international transaction pertaining to receipt of remuneration for rendering marketing support services in connection with External Commercial Borrowings (‘ECBs’) received from its AE, failed to appreciate the functions undertaken by the AE in the overall value chain and arriving at an ad hoc / unscientific basis of determining the adjustment at the profit-sharing ratio of 50:50, making an upward adjustment of INR 37,52,690.
6. The DCIT/TPO erred in making an adjustment of INR 20,00,86,230 towards the commission received by the appellant from its AEs for re-issuance of bank guarantees. In holding so, the DCIT erred in disregarding the facts of the case that the functions performed by the appellant in re-issuance of guarantee on behalf of the AEs’ clients are merely administrative in nature and the appellant does not undertake any risks with respect to such transactions.
Without prejudice to above, the DCIT erred in computing the arm’s length adjustment using simple average method instead of using weighted average method as prescribed under rule 10CA of the Income-tax Rules, 1962 (‘Rules’).
7. The DCIT/TPO with respect to the international transaction relating to allocation of Head Office (‘HO’) and other expenses to the Assessee by its AE, without appreciating the documentary evidence filed, commercial rationale / expediency of the said transaction, erred in considering the ALP as ‘nil’ on an ad hoc basis, without conducting proper economic analysis and absent a scientific process to adopt the prescribed method as provided under section 92C of the Act, proposing an upward adjustment of INR 20,72,79,838.
8. Without prejudice to the above, the DCIT/TPO erred in not following Hon’ble Income Tax Appellate Tribunal (‘ITAT’) order for earlier years, thereby violating the principle of consistency and res-judicata with respect to the international transaction relating to services rendered towards marketing of derivative products by the Assessee to its AE as well as erred in not following the approach adopted by the Learned TPO in earlier years with respect to the international transaction of remuneration for rendering marketing support services in connection with ECBs received from its AEs.
9. Without prejudice to the above, the DCIT/TPO erred in not appreciating that the Appellant has suo-motu disallowed the head office expenditure of INR 20,72,79,838 and the transfer pricing adjustment has led to double disallowance which is ultra vires to the provisions of the Act.
10. The DCIT erred in holding that the interest of INR 1,34,92,91,330 arising to HO/ OB on ECB advanced to Indian borrowers is chargeable to tax under Article 12 of the India – France DTAA when a portion thereof has already been attributed to the Indian permanent establishment.
11. The DCIT erred in holding that the interest of INR 21,13,76,218 arising to HO/ OB on ECB advanced to Indian borrowers is chargeable to tax under section 194LC of the Act when a portion thereof has already been attributed to the Indian permanent establishment.
12. Without prejudice to 8 and 9 above, the DCIT ought to have granted credit for taxes withheld on interest on ECB advance as appearing in the Form 26AS of the Appellant.
13. The DCIT ought to have taxed the interest received by the Appellant under section 244A of the Act of INR 97,82,695 at the rate as prescribed in Article 12 of the India – France DTAA.
14. The DCIT erred in computing interest under section 234A of the Act at INR 6,21,56,940.
15. The DCIT erred in computing interest under section 234B of the Act at INR 66,81,87,105.
16. The DCIT erred in computing interest under section 234C of the Act at INR 35,85,729.
17. The DCIT erred in initiating proceedings for levy of penalty under section 274 read with section 270A of the Act.
The appellant craves leave to add to, amend, alter, vary, omit, or substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as it may be advised.
2.1. The assessee has raised the following grounds of appeal for Assessment Year 2022-23:
1. Ground No. 1 – Validity of notice issued under section 143(2) of the Act
On the facts and circumstances of the case and in law, the learned AO erred in issuing the notice dated 23 June 2024 under section 143(2) of the Act in contrary to the Central Board of Direct Taxes instruction F.No.225/157/2017/ITA-II dated 23 June 2017. The Appellant submits that the said notice is invalid, and assessment framed pursuant thereto is bad in law and liable to be quashed.
2. Ground No. 2 – Assessment barred by limitation.
Without prejudice to above, on the facts and circumstances of the case and in law, the learned AO erred in passing the final assessment order dated 8 January 2026, passed under Section 143(3) read with Section 144C(13) of the Act, beyond the time limit as prescribed under section 153 of the Act. The Appellant submits that the final assessment order being barred by limitation is without jurisdiction and void ab initio and hence, the same is liable to be quashed.
3. Ground No. 3 – Disallowance of Credit risk assistance and EDP assistance expenses incurred by Head Office (‘HO’) / Overseas Branches (‘OB’) for the Indian Branches.
On the facts and circumstances of the case and in law, the learned AO erred in holding that the expenses aggregating to INR 6,70,66,164, comprising of Credit Risk assistance charges and EDP assistance charges amounting to INR 2,99,49,967 and INR 3,71,16,197 respectively, incurred by the HO / OB for the Indian Branches are deductible in accordance with the provisions of section 44C of the Act and not under section 37(1) of the Act.
4. Ground No. 4 – Disallowance of International Standard of Information System (‘ISIS’) and Information System Asia Pacific (‘ISAP’) expenses incurred by the HO / OB for the Indian Branches.
On the facts and circumstances of the case and in law, the learned AO erred in holding that the expenses aggregating to INR 17,36,58,764, comprising of ISIS charges and ISAP charges amounting to INR 14,16,07,999 and INR 3,20,50,765 respectively, incurred by the HO / OB for the Indian Branches are deductible in accordance with the provisions of section 44C of the Act and not under section 37(1) of the Act.
5. Ground No. 5 – Taxability of interest paid by Indian Branches in the hands of HO / OB in India.
On the facts and circumstances of the case and in law, the learned AO erred in holding that the interest payment of INR 9,62,40,725 by the India Branch to the HO / OB is taxable as income in the hands of HO / OB in accordance with the provisions of Article 12 of the India-France Double Tax Avoidance Agreement (‘DTAA’ or ‘the Tax Treaty’).
6. Ground No. 6 – The transfer pricing adjustments made by the learned DRP /AO/ Transfer Pricing Officer (‘TPO’) is bad in law, illegal and unsustainable and therefore ought to be deleted.
The learned AO erred in making the reference to the TPO, without recording his satisfaction of the conditions stipulated under section 92C(3) of the Act. The conditions stipulated in section 92C(3) of the Act are mandatory and the AO is expected to record his satisfaction in that respect before making the reference to the TPO.
On the facts and in the circumstances of the case and in law, the learned AO/ TPO erred and the Hon’ble DRP further erred in upholding/ confirming the action of the learned AO/ TPO in issuing notices requiring the Appellant to show cause as to why the last year’s adjustments should not be made in the current year thereby failing to appreciate that the principle of res judicata is not applicable to the assessment proceedings.
The learned TPO has also failed to record any of the conditions laid down in section 92C(3) of the Act had been satisfied.
On the facts and in the circumstances of the case, the learned DRP/ AO/ TPO ought to have appreciated the fact that the AE is not situated in a low tax / no tax jurisdiction and that the transfer pricing adjustment cannot be made without arriving at the finding that the intention of the Appellant was to evade tax and shift profits outside of India.
7. Ground No. 7 – Erred in not placing reliance on earlier the Hon’ble Income Tax Appellate Tribunal (‘ITAT’) orders.
On the facts and in the circumstances of the case, the learned DRP/ AO/ TPO erred in not considering the decisions of the ITAT passed in favor of the Appellant for earlier years (AY 2010-11 to AY 2019-20), pronounced on 10th March 2025 on the same issue under consideration.
8. Ground No. 8 – Transfer Pricing adjustment in relation to marketing of Derivatives
The learned DRP/ AO/ TPO erred in making TP adjustment of INR 11,50,544 (amount of prior year i.e. AY 2021-22) instead of INR 1,16,484 due to error/mistake apparent from records pertaining to the adjustment in marketing of derivative.
On the facts and circumstances the learned DRP/ AO/ TPO with respect to the international transaction pertaining to receipt of remuneration for marketing of derivates from its Associated Enterprises (‘AE’), erred in attributing 100% of commercial mark-up / initial dealer spread to the Appellant in lieu of its marketing function thereby not attributing anything to the AE in absence of a scientific process / basis to arrive at the profit split, making an upward adjustment of INR 1,16,484.
The learned DRP/ AO/ TPO grossly erred in making an upward adjustment based on an unrealistic and ad-hoc basis to arrive at the profit split which are in complete violation of the various legal principles.
9. Ground No. 9 – Transfer Pricing adjustment in relation to marketing of External Commercial Borrowings (‘ECB’).
The learned DRP/ AO/ TPO erred in making TP adjustment of INR 37,52,690 (amount of prior year i.e. AY 2021-22) instead of INR 25,81,713 due to error/mistake apparent from records pertaining to the adjustment in marketing of ECBs.
On the facts and circumstances the learned DRP/ AO/ TPO with respect to the international transaction pertaining to receipt of remuneration for rendering marketing support services in connection with ECBs received from its AE, failed to appreciate the functions undertaken by the AE in the overall value chain and arriving at an ad hoc / unscientific basis of determining the adjustment at the profit-sharing ratio of 50:50, making an upward adjustment of INR 25,81,713.
10. Ground No. 10 – Transfer Pricing adjustment in relation to guarantee commission
On the facts and circumstances the learned DRP/ AO/ TPO erred in making an adjustment of INR 90,06,926 towards the commission received by the appellant from its AEs for re-issuance of bank guarantees. In holding so, the learned DRP/ AO/ TPO erred in disregarding the facts of the case that the functions performed by the appellant in re-issuance of guarantee on behalf of the AEs’ clients are merely administrative in nature and the appellant does not undertake any risks with respect to such transactions.
Without prejudice to above, the learned DRP/ AO/ TPO erred in computing the arm’s length adjustment using simple average method instead of using weighted average method as prescribed under rule 10CA of the Income-tax Rules, 1962 (‘Rules’).
The learned DRP/ AO/ TPO erred in rejecting corroborative benchmarking analysis conducted by the Appellant adopting TNMM method, methodical search process and selecting functionally similar comparable companies, without providing cogent reasoning.
11. Ground No. 11 – Adjustment in relation to Allocation of HO Expenses.
On the facts and circumstances the learned DRP/ TPO with respect to the international transaction relating to allocation of HO and other expenses to the Appellant by its AE, without appreciating the documentary evidence filed, commercial rationale / expediency of the said transaction, erred in considering the ALP as ‘nil’ on an ad hoc basis, without conducting proper economic analysis and absent a scientific process to adopt the prescribed method as provided under section 92C of the Act, proposing an upward adjustment of INR 16,61,25,262.
The learned DRP/ TPO erred in determining the ALP of the international transaction of relating to allocation of Head Office without appreciating the fact that as per provisions of the Act, the learned TPO’s role is merely to determine the arm’s length nature of the transaction referred to him by the learned AO.
The learned DRP/ TPO erred in rejecting the detailed documentary evidence submitted by the Appellant during the course of proceedings, to substantiate the need-benefit-evidence test of the services availed, without providing cogent reasons.
The learned DRP/ TPO erred in holding that the Appellant is not able to discharge the onus of proving that the services have been availed, without acknowledging substantial information submitted by the Appellant. Further, the learned DRP has erred in summarily rejecting the contentions of the Appellant against the Remand Report provided by the learned TPO.
12. Ground No. 12 – Incorrect levy of surcharge and health and education cess on tax rate specified under the India-France DTAA.
On the facts and circumstances of the case and in law, the learned AO erred in levying surcharge and health and education cess on the tax computed at the rate of 10% on payments made to HO / OB towards interest, interest on ECB and Fees for technical services (‘FTS’) which are taxable in the hands of HO/ OB in India in accordance with the provision of Article 12 (Interest) and Article 13 (FTS) of India – France DTAA.
13. Ground No. 13 – Non-grant of tax deducted at source (‘TDS’) credit with respect to Interest Income
Without prejudice to the Ground No. 5 and on the facts and circumstances of the case and in law, the learned AO failed to grant credit for taxes withheld on interest paid by the India Branch, attributable to the HO / OB amounting to INR 96,24,074, as appearing in Form 26AS of the Appellant.
14. Ground No. 14 – Non-grant of TDS credit with respect to FTS
On the facts and circumstances of the case and in law, the learned AO erred in not granting credit of taxes withheld aggregating to INR 2,40,70,582, as appearing in Form 26AS of the Appellant, in respect of the payments made by the India Branch to the HO / OB towards credit risk assistance charges, EDP charges, ISIS charges and ISAP charges, which have been assessed as FTS in the hands of the HO / OB in India by the AO.
15. Ground No. 15 – Non-grant of TDS credit with respect to Interest on ECB
On the facts and circumstances of the case and in law, the learned AO erred in not granting credit of taxes withheld aggregating to INR 12,17,28,532, as appearing in Form 26AS of the Appellant in respect of Interest income on ECBs provided to various Indian entities.
16. Ground No. 16 – Levy of interest under section 234B of the Act
On the facts and circumstances of the case and in law, the learned AO erred in levying interest under section 234B of the Act of INR 19,94,87,100.
17. Ground No. 17 – Initiation of proceedings for levy of penalty under section 270(A) of the Act.
On the facts and circumstances of the case and in law, the learned AO erred in initiating proceedings for levy of penalty under section 274 read with section 270A of the Act.
The Appellant craves leave to supplement, rescind, amend, add and or otherwise alter/modify any or all the grounds of the appeal stated hereinabove, either before or at the time of hearing of this appeal, so as to enable the Hon’ble Income Tax Appellate Tribunal to decide this appeal according to law.
Brief facts of the case
3.1 The assessee is a France based banking company carrying on corporate and investment banking activities in India through its branches. The Indian branches constitute its Permanent Establishment in India. For Assessment Year 2021-22, the assessee filed its return of income on 14/03/2022 declaring total income of Rs.99,27,97,230/-. The case was selected for scrutiny and a reference was made to the Ld.TPO in respect of the international transactions entered into by the Indian branch. The Ld.TPO proposed adjustments, inter alia, in respect of marketing of derivatives, ECBs, back-to-back guarantees and allocation of Head Office expenses. The Ld.AO also made corporate tax additions/disallowances in respect of credit risk assistance, EDP assistance, HO System Implementation/ISIS and ISAP charges and interest paid by the Indian branch to HO/OB.
3.2. Pursuant to the directions of the Ld.DRP, the final assessment order dated 28/10/2024 was passed u/s. 143(3) r.w.s. 144C(13) of the Act.
5. For Assessment Year 2022-23, the assessee filed its return of income on 30/11/2022 declaring total income of Rs.1,59,06,95,250/-. The case was selected for scrutiny and was referred to the Ld. TPO.
5.1. The Ld.TPO passed order u/s. 92CA(3) dated 27/01/2025 proposing transfer pricing adjustments. The Ld.AO thereafter passed the draft assessment order dated 28/03/2025.
5.2. The assessee filed objections before the Ld. DRP, which issued directions dated 08/12/2025.
5.3. In conformity therewith, the Ld. AO passed the final assessment order dated 06/01/2026 u/s. 143(3) r.w.s. 144C(13) of the Act.
Aggrieved, by the final assessment order passed by the Ld.AO, the assessee is in appeal before this Tribunal.
6. Ground No.1 challenges the validity of notice issued u/s. 143(2). We have perused the assessment record placed before us. The assessment order as well as the directions of the Ld. DRP record that the notice u/s.143(2) was issued on 31/05/2023, whereas Ground No.1 refers to a notice dated 23/06/2024.
6.1. No material has been placed before us to reconcile this factual discrepancy or to demonstrate that the assessment was founded only on the latter notice.
In these circumstances, the challenge as raised in Ground No.1 cannot be accepted. Ground No.1 is accordingly dismissed.
7. Ground No.2 challenges the final assessment as barred by limitation u/s.153 read with section 144C. We note that the assessee relies on the line of authorities concerning the interplay between sections 144C and 153. This issue subsequently travelled to Hon’ble Supreme Court in ACIT (Intl. Tax) & Ors. v. Shelf Drilling Ron Tappmeyer Ltd. Etc., 2025 INSC 946, where a split verdict was rendered and the controversy was referred for authoritative resolution.
7.1. In the facts before us, the Ld. DRP issued directions on 08/12/2025 and the final order was passed on 06/01/2026, i.e., within the period prescribed in section 144C(13). In the absence of a binding majority decision of the Hon’ble Supreme Court holding otherwise and having regard to the facts of the present year, we are unable to accept the assessee’s plea that the final assessment order is barred by limitation.
Accordingly Ground No.2 raised by the assesse stands dismissed.
8. Ground Nos.1 and 2 for AY 2021-22 and Ground Nos.3 and 4 for AY 2022-23 relate to the allowability of expenses incurred by the HO/OB towards credit risk assistance, EDP assistance, HO System Implementation/ISIS and ISAP charges.
8.1. The Ld.AR submitted that these are direct expenses attributable to the Indian branch and are allowable u/s.37(1), and that the issue stands covered by the order of the Coordinate Bench in the assessee’s own case for AYs 2010-11 to 2019-20 dated 20/03/2025.
8.2. The Ld.DR relied upon the orders of the authorities below. We have perused the submissions advanced by both sides in light of the record placed before us.
9. We note that the Coordinate Bench in the assessee’s own case, while dealing with the identical issue, followed the orders for the earlier years and held that direct expenditure incurred by HO/OB on behalf of the Indian branch is allowable u/s.37(1) and is not to be restricted u/s.44C. The relevant finding, for ready reference, is reproduced in substance below:
‘The issue is recurring in nature. The Coordinate Bench, following the earlier orders in the assessee’s own case, allowed the direct expenditure incurred by the Head Office on behalf of the Indian branch u/s. 37(1). Where the supporting material required verification, the matter was directed to be verified by the Assessing Officer. The expenses being directly attributable to the Indian branch were not treated as general Head Office expenditure merely because they were incurred outside India.’
9.1. No distinguishing feature in facts or law has been brought to our notice for the years under consideration. Respectfully following the consistent view in the assessee’s own case, we direct the Ld. AO to allow the impugned direct expenses u/s. 37(1), subject to verification of the supporting invoices and allocation to the Indian branch, and not to restrict the same merely by invoking section 44C.
Accordingly, Ground Nos.1 and 2 for AY 2021-22 and Ground Nos.3 and 4 for AY 2022-23 are allowed for statistical purposes in the above terms.
10. Ground No.3 for AY 2021-22 and Ground No.5 for AY 2022-23 concern taxability of interest paid by the Indian branch to its HO/OB. The Coordinate Bench, after considering the amendment to section 9(1)(v) and Article 12(5) read with Article 7 of the India-France DTAA, held for AY 2016-17 onwards that although the interest is deemed to accrue in India under the Act, the treaty provisions are more beneficial and the interest paid by the Indian PE to the HO/OB cannot be brought to tax independently in the hands of HO/OB. The relevant concluding finding reads as under:
‘…even though the amendment by Finance Act, 2015 whereby Explanation to section 9(1)(v) was inserted is taken into account, the same would still not lead to taxation of the interest paid to the head office/overseas branches under the provisions of the DTAA… we direct the AO to delete the addition on account of interest income received by the head office/overseas branches.’
10.1. The facts being identical, respectfully following the aforesaid decision, we direct the Ld.AO to delete the additions made towards interest paid by the Indian branch to HO/OB.
Accordingly, Ground No.3 for AY 2021-22 and Ground No.5 for AY 2022-23 are allowed.
11. Ground No.4 for AY 2021-22 and Ground No.8 for AY 2022-23 relate to the adjustment on remuneration for marketing of derivative products. The Coordinate Bench in the assessee’s own case considered the identical adjustment based on attribution of the commercial mark-up/INPV and held that the method adopted by the Ld.TPO was not sustainable. The Bench noted that the Indian branch performed marketing functions whereas the trading risks were borne by HO/OB and that the Ld.TPO had not determined the ALP by following a prescribed method. The concluding finding was that attribution of 100% of the commercial mark-up to the Indian branch was not justified and the TP adjustment was deleted.
11.1. The Revenue has not demonstrated any material change in the functional profile or the governing arrangement for the years under consideration. Respectfully following the aforesaid order, the TP adjustments of Rs.11,50,544/- for AY 2021-22 and Rs.1,16,484/- for AY 2022-23 are directed to be deleted. Ground No.4 for AY 2021-22 and Ground No.8 for AY 2022-23 are allowed.
12. Ground No.5 for AY 2021-22 and Ground No.9 for AY 2022-23 concern the TP adjustment in relation to marketing/support services for ECBs.
12.1. In the earlier order, the Coordinate Bench directed the Ld.TPO to apply 20% only on the fee and other charges, excluding interest, and further directed that no adjustment be made where the remuneration already offered by the assessee is higher than the amount so arrived at. For subsequent years, the same principle was continued, with a direction to consider the overall remuneration already received by the assessee.
12.2. Respectfully following the aforesaid decision, we restore this limited computation to the Ld.TPO with a direction to apply the same methodology and to first give credit for the remuneration already offered by the assessee. No adjustment shall survive if the amount already offered is equal to or higher than the arm’s length remuneration determined in accordance with the earlier order.
Accordingly, Ground No.5 for AY 2021-22 and Ground No.9 for AY 2022-23 are allowed for statistical purposes.
13. Ground No.6 for AY 2021-22 and Ground No.10 for AY 2022-23 concern commission on back-to-back guarantees. The assessee submitted that the Indian branch merely re-issues guarantees in favour of Indian beneficiaries on the strength of counter-guarantees furnished by HO/other overseas branches, and therefore bears no substantive credit/default risk. The Coordinate Bench in the earlier years restored the issue to the Ld.TPO for de novo benchmarking. The relevant direction was as under:
‘…we remit the issue back to the LD.TPO for a de novo benchmarking of the international transaction of back-to-back guarantee given by the OBs to the assessee. The TPO is directed to consider the certificate of the Chartered Accountant while determining the ALP of the impugned transaction. The assessee is directed to submit the relevant details as may be called for by the TPO and cooperate with the TP proceedings.’
13.1. The assessee has placed on record the RITA arrangement, internal/external guarantee data, invoices and the benchmarking material for the years under consideration. In view of the earlier order on the identical transaction, we restore the issue to the Ld.TPO for de novo benchmarking in the same terms. The Ld.TPO shall consider the material furnished by the assessee, including the Chartered Accountant’s certificate, and shall specifically examine comparability of any internal CUP with reference to FAR, volume and risk differences.
Accordingly, Ground No.6 for AY 2021-22 and Ground No.10 for AY 2022-23 are allowed for statistical purposes.
14. Ground No.7 read with Ground No.9 for AY 2021-22 and Ground No.11 for AY 2022-23 challenge determination of ALP of the HO allocation at Nil. The Ld.AR submitted that the HO performs centralized functions for its global operations and allocates the relevant portion of actual costs to international branches, including the Indian branch, under a documented group-wide allocation policy. It was submitted that the allocation is made without mark-up on the basis of objective keys; the methodology is supported by invoices, cost-centre details, allocation keys, auditor certification and extensive e-mail/case-study evidence demonstrating rendition and benefit. It was further submitted that the assessee has itself restricted the deduction of HO expenditure in accordance with section 44C and that a separate TP adjustment of the same amount results in duplication.
14.1. The Ld.DR supported the orders of the authorities below and submitted that the assessee had not satisfactorily established the need, rendition and benefit of the services and therefore the ALP was correctly determined at Nil.
We have perused the submissions advanced by both sides in light of the record placed before us.
14.2. The material placed before the lower authorities includes the HO allocation methodology, invoices, description of cost centres and services, allocation keys, auditor certification and contemporaneous correspondence/case studies. In our view, once an international transaction of allocation/recharge of common costs is accepted to exist, its ALP has to be determined by applying one of the methods recognised under section 92C read with the Rules. The ALP cannot be reduced to Nil merely on a subjective perception that the expenditure was unnecessary or that no benefit accrued, without first examining the evidence of rendition, the cost base, the allocation keys and the absence/presence of mark-up under an appropriate method.
14.3. At the same time, the factual verification of the cost pool, exclusion of shareholder/stewardship or duplicative costs, application of the allocation keys and the assessee’s plea regarding overlap with the amount already restricted/disallowed u/s.44C requires examination at the level of the Ld.TPO/Ld.AO. We therefore set aside the determination of ALP at Nil and restore the issue to the Ld.TPO for fresh determination after considering the documentary evidence filed by the assessee. The Ld.TPO shall adopt a prescribed method, shall not question the commercial expediency of the expenditure, and shall ensure that no duplicated adjustment/disallowance of the same cost is made. A reasonable opportunity of being heard shall be granted to the assessee.
Accordingly, Ground No.7 read with Ground No.9 for AY 2021-22 and Ground No.11 for AY 2022-23 are allowed for statistical purposes.
15. Ground No.8 for AY 2021-22 and Ground Nos.6 and 7 for AY 2022-23 are general/legal grounds concerning the validity of TP adjustments and non-following of earlier orders. In view of our specific adjudication of the individual TP issues hereinabove, these grounds do not call for separate adjudication and are treated as disposed of accordingly.
16. Ground Nos.10 and 11 for AY 2021-22 relate to taxation of interest arising to HO/OB on ECBs advanced to Indian borrowers, including the component brought to tax with reference to section 194LC.
16.1. It is submitted that this issue of taxability of interest on ECBs advanced by overseas branches to Indian borrowers is a recurring issue in the assessee’s own case and was carried forward from AY 2010-11 to AY 2019-20 in the common order dated 20/03/2025. The Coordinate Bench directed that the issue be decided consistently with the earlier years after taking into account the attribution already made to the Indian PE so that the same income is not taxed twice.
16.2. Respectfully following the earlier order, we restore Ground Nos.10 and 11 to the Ld. AO for applying the findings of the Coordinate Bench in the assessee’s own case for the immediately preceding years and for recomputing the taxable amount, if any, after giving due effect to the income already attributed to the Indian PE. The Ld. AO shall ensure that there is no double taxation of the same income. These grounds are allowed for statistical purposes.
Accordingly Ground Nos.10 and 11 stands allowed for statistical purposes.
17. Ground No.12 for AY 2022-23 challenges levy of surcharge and health and education cess over and above the tax rate prescribed under the India-France DTAA.
The Ld.AR submitted that where the income is taxed at the treaty rate, surcharge and cess, being in the nature of additional surcharge, cannot be levied over and above the maximum rate specified in the treaty. Reliance was placed on the decision of coordinate bench of this Tribunal in case of, DCIT (IT) v. Marubeni Corporation reported in (2022) 139 taxmann.com 458, on the decision of Hon’ble Kolkotta Tribunal in case of Sunil V. Motiani v. ITO (International Taxation) and DIC Asia Pacific Pte. Ltd. v. ADIT (IT) reported in (2012) 22 taxmann.com 310.
17.1. We find merit in the submission. Where the applicable Article of the India-France DTAA prescribes the maximum rate at which the relevant income may be taxed in India, the tax so computed cannot be increased by a separate levy of surcharge and cess beyond the treaty ceiling.
17.2. We therefore direct the Ld. AO to recompute the tax on the relevant interest/FTS income by applying the rate prescribed under the applicable Article of the DTAA without separately adding surcharge and health and education cess.
Accordingly, Ground No.12 raised by the assesse stands allowed.
18. Ground No.12 for AY 2021-22 and Ground Nos.13 to 15 for AY 2022-23 concern non-grant/short grant of TDS credit in respect of interest, FTS and ECB interest. In the assessee’s own case for earlier years, the Coordinate Bench has directed the Ld. AO to examine the claim on the basis of Form 26AS and supporting evidence and allow due credit in accordance with law.
18.1. Following the same, we direct the Ld. AO to verify the respective TDS credits from Form 26AS, certificates and other supporting material and grant credit in accordance with law. Consequential credit, if any, arising from the findings in this order shall also be granted.
Accordingly these grounds are allowed for statistical purposes.
19. Ground No.13 for AY 2021-22 relates to the rate of tax applicable to interest received u/s. 244A. The Coordinate Bench in the assessee’s own case, following the decision of Hon’ble Bombay High Court in the assessee’s own case for AY 1997-98, directed the Ld.AO to recompute the tax liability on interest received u/s. 244A by applying the rate under the India-France DTAA. The relevant conclusion reads as under:
‘Respectfully following the above decision of the Hon’ble High Court we direct the AO to recompute the tax liability on the interest received by the assessee under section 244A of the Act by applying the rate as per the DTAA between India and France.’
19.1. Respectfully following the aforesaid binding precedent in the assessee’s own case, the Ld.AO is directed to recompute the tax on interest of Rs.97,82,695/- received u/s.244A at the applicable treaty rate.
Accordingly, Ground No.13 for AY 2021-22 raised by the assessee stands allowed.
20. Ground Nos.14 to 16 for AY 2021-22 and Ground No.16 for AY 2022-23 concern levy/computation of interest u/s. 234A, 234B and 234C. Levy of interest is consequential and mandatory subject to the correct computation of assessed income and taxes. The Ld. AO is directed to recompute the same, if leviable, while giving effect to this order and, in respect of interest u/s. 234A, to verify the assessee’s claim regarding filing of the return within the prescribed due date.
Accordingly these grounds are allowed for statistical purposes.
21. Ground No.17 in both years challenges initiation of penalty proceedings u/s. 274 r.w.s. 270A. The challenge is premature at the stage of initiation and does not call for adjudication in the quantum appeal.
In the result, both the appeals filed by the assessee are partly allowed for statistical purposes.
Order pronounced in the open Court on 08/10/2026.
