Bosch Rexroth (India) Ltd Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that benefit demonstrated in form of reduced interest rate on account of guarantee, thus, payment of guarantee fee justifiable. Accordingly, TP adjustment on account of the guarantee fee payment to AE deleted.
Facts- The assessee has availed Rs.100 crores borrowing from its group company and interest charged thereon was at rate of 11%. For the said purpose, one of the AEs of the assessee acted as guarantor and charged guarantee fee at the rate of 0.75% per annum. During the impugned year, the assessee paid guarantee charges of Rs.52,91,667/-. TPO found that no services for guarantee had been rendered and no distinct benefit had accrued to the assessee in form of reduction in the interest rate on account of guarantee and the transaction sought to be propagated by the assessee as comparable adopting CUP method was not comparable. Accordingly, the transaction of the AE giving guarantee on behalf of the assessee company was benchmarked at NIL, as no service of any value was found rendered and upward adjustment to the extent of Rs.52,91,667/- was proposed to be made by the TPO. DRP confirmed the finding of TPO.
Conclusion- The assessee demonstrated that the effective borrowing cost, including the guarantee fee, was (11.75%) lower than the bank’s quoted interest rate (16%), thus justifying the economic rationale for the guarantee fee. The TPO did not present compelling evidence to establish that the guarantee fee was unwarranted. The benefits derived, as seen in lower interest rates and favorable operating margins, substantiate the transaction’s arm’s length nature.
