Case Law Details
Tata International Ltd. Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that there is a fundamental gap between guarantee and Letter of Comfort. Guarantee is a legally enforceable; however, Letter of Comfort is not. Thus, issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost and hence it does not constitute international transaction under section 92B of the Act
Facts- Appellant alleges the transfer pricing adjustment made with respect to the Letter of Comfort issued by the Appellant. As per TPO, the transaction of providing Letter of Comfort would fall within the ambit of the term ‘international transaction’ u/s. 92B of the Act. The Letter of Comfort given by the Appellant is held to be guarantee. On the basis of information received from various banks, the TPO held that the fees receivable by the Appellant from its AEs for providing the Letter of Comfort ought to be 3% of the total funding facility covered by the Letters of Comfort.
Further, the appellant contested the transfer pricing adjustments in respect of interest of Rs. 20, 70,633/- on delayed realisation of sales proceeds from its AEs. Appellant charged interest @ 6% on the realisation of sale proceeds from its AEs for the entire credit period extended to the AEs of 150/180 days. TPO held that interest chargeable by the Appellant on the outstanding balances should be at par with the Prime Lending Rate (‘PLR’) in India which according to him was 12.25% prevalent in the month of March 2008.
Conclusion- Held that by issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost. The issuance of Letter of Comfort by assessee have no bearing on the profit, income or loss as the assessee did not incur any cost or expenditure for issuing such Letter of Comfort and it does not constitute international transaction under section 92B of the Act. There is a fundamental gap between guarantee and Letter of Comfort. Guarantee is a legally enforceable; however, Letter of Comfort is not.
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