Case Law Details

Case Name : Sami – Sabinsa Group Ltd. Vs DCIT (ITAT Bangalore)
Appeal Number : IT(TP)A No. 652/Bang/2017
Date of Judgement/Order : 04/04/2022
Related Assessment Year : 2012-13

Sami – Sabinsa Group Ltd. Vs DCIT (ITAT Bangalore)

Facts- The assessee is an Indian multinational company engaged in the export of standardized herbal extracts, fine chemicals, specialty chemicals, cosmeceuticals, phytonutrients and probiotics. The assessee has modern state-of -the art manufacturing facilities in and around Bengaluru and Hyderabad. In this appeal, the first issue that has to be adjudicated is with regard to the determination of Arm’s Length Price in respect of international transaction of sale of herbal products by the assessee to its Associated Enterprise (AE), as required under section 92 of the Act.

The assessee filed TP analysis justifying the price it received for sale of its products to its AE as at arm’s length. The assessee chose Cost Plus Method (CPM) as the most appropriate method (MAM) for determining the ALP. The assessee had chosen 3 comparable companies The gross margins after adjustment towards depreciation was compared with the gross margins after depreication of the comparable companies and it was claimed by the assessee that the international transaction has been carried out at ALP.

The AO made a reference to the Transfer Pricing Officer (TPO) under section 92CA of the Act for determination of ALP. The TPO rejected the RPM as the most appropriate method and chose Transaction Net Margin Method (TNMM) as the most appropriate method.

The assessee filed objections before the DRP in respect of the determination of ALP by the TPO which was incorporated in the Draft Order of Assessment by the AO. The DRP gave certain directions which resulted in the addition made to the total income on account of determination of ALP at much lesser sum than what was determined by the TPO. Still aggrieved, the assessee is in appeal before the Tribunal.

Conclusion- The ALP of the corporate guarantee has to be determined as it falls within the scope and ambit of an international transaction after the retrospective amendment to section 92B and 0.5% corporate guarantee is held to be appropriate.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This is an appeal by the assessee against the final Order of Assessment dated 31.03.2016 passed by the DCIT, Circle – 6(1)(1), Bengaluru, under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter called the ‘the Act’), in relation to Assessment Year 2011-14.

2. The grounds of appeal raised by the assessee are as follows:

1. The Learned AO has grievously erred in not understanding the business of your appellant and has instead stated in the Assessment order that your appellant had undertaken international transactions with AEs in windmill parts like electrical panel and generators and therefore took approval from the Pr. CIT-6 for referring the case to the TPO. It is prayed that since the very basis for reference to the TPO itself is wrong, the TP proceedings should be quashed.

2. The Hon’ble DRP has erred in law and on facts in upholding the order of the TPO wherein Transaction Net Margin Method was selected as the most appropriate method for determining arm’s length price for transactions relating to export of goods to associated enterprises and rejecting Cost Plus Method adopted by the appellant.

3. The learned DRP has erred in law and on facts in holding that the transfer pricing adjustment is applicable to sales made to Non-AE’s also and not excluding the same while computing the quantum of TP adjustment.

4. The learned Dispute Resolution Panel [the `DRP’] and Transfer Pricing Officer [the ‘TPO’J erred in law and on facts in rejecting all three comparable companies selected by your appellant i.e., Synthite Industries Limited, Infrag Limited and Surya Herbal Limited.

5. The Hon’ble DRP has erred in law and on facts in upholding the order of TPO in selecting Amrutanjan Healthcare Limited as a comparable company to your appellant’s business though it is functionally dissimilar.

6. The learned DRP has erred in law and on facts in upholding the order of the TPO in selecting AVT Natural Products Limited and Shilpa Medicare Limited as comparable companies to your appellant’s business functions though they fail TPO’s filter of Rs.200 crores for Upper turnover and are functionally dissimilar to your appellant.

7. The learned DRP has erred in upholding the order of the TPO that no risk adjustment was to be given effect while computing the TP adjustment although your appellant does not carry out the function of marketing and consequently, does not earn profits attributable to that function and the consequent risk.

a) The learned DRP has erred in upholding the order of the TPO in law and on facts, holding that corporate guarantee given to third party for raising fund by Associated Enterprises in the normal course of business is an international transaction within the meaning of Section 92B of the Income Tax Act, 1961.

8. b)Without prejudice to above, the learned DRP has erred in upholding the order of the TPO in law and on facts in making an addition of Rs.88,89,439/- to the total income on account of commission on corporate guarantee given to Associated Enterprises at 3.00%, despite the fact that the matter has been settled by Hon’ble ITAT, Bangalore Bench in the assessee’s own case for AY 2009-10 at 0.5% of corporate guarantee amount.

9. For these and other grounds that may be adduced during the course of the proceedings, the order of the TPO to the extent upheld by the DRP be ordered to be modified to the extent appealed against.

3. The assessee is an Indian multinational company engaged in the export of standardized herbal extracts, fine chemicals, specialty chemicals, cosmeceuticals, phytonutrients and probiotics. The assessee has modern state-of -the art manufacturing facilities in and around Bengaluru (Kunigal, Nelamangala and Dobaspet) and Hyderabad. In this appeal, the first issue that has to be adjudicated is with regard to the determination of Arm’s Length Price (ALP) in respect of international transaction of sale of herbal products by the assessee to its Associated Enterprise (AE), as required under section 92 of the Act.

4. The profit margin of the assessee was as follows:

Profit and loss Re-conciliation of the Taxpayer for the Asst Year 2012-13

Particulars Amount Amount
Total Operating Income 1,693,291,307
Less: Other Income 37,469,207
Operating Income 1,655,822,100
Total Operating Cost 1,602,391,454
Less: Finance Cost 76,948,328
Donation 30,000
Provision for Doubtful debts 589,550
Provision for Doubtful advances 9,076,110
Operating Cost 1,515,747,466
Operating Profit 140,074,634
OP/OC 9.24%
OP/OR 8.46%

5. The assessee filed TP analysis justifying the price it received for sale of its products to its AE as at arm’s length. The assessee chose Cost Plus Method (CPM) as the most appropriate method (MAM) for determining the ALP. The assessee had chosen 3 comparable companies viz., Synthite Industrial Ltd., Surya Herbal Ltd., and Indfrag Ltd. The gross margins after adjustment towards depreciation was compared with the gross margins after depreication of the comparable companies and it was claimed by the assessee that the international transaction has been carried out at Arm’s Length Price (ALP).

6. The AO made a reference to the Transfer Pricing Officer (TPO) under section 92CA of the Act for determination of ALP. The TPO rejected the RPM as the most appropriate method and chose Transaction Net Margin Method (TNMM) as the most appropriate method. The TPO chose the following companies as the comparable companies:

Sl. No
Co. Name
Sales/ Operating Income
Net Sales
Turnover Sales – Manuf-acturing
Sales – Trading
Sales – Export
Operating Profit
Gross Profit
OC
OP/OC
OP/OR
1
Amrutanjan Healt
140.38
135
140.17
o
1.64
24.84
21.74
110.12
0.23
0.18
2
Indo
Amines
230.33
216.7
0
0
0
14.76
10.28
201.95
0.07
0.07
3
Rubamin
180.49
167.6
137.08
0
36.29
-11.95
18.67
179.58
-0.07
-0.07
4
AVT
Natural
Prod
218.25
218.2
0
0
213.37
84.59
78.38
133.6
0.63
0.39
Shilpa Medicare
285.03
279.8
276.7
0
227.92
64.7
62.73
215.06
0.3
0.23
Average
23%
16%

7. The TPO determined the ALP of the international transaction as follows:

“Computation of Arm’s Length Price:

The arithmetic mean of the Profit Level Indicators is taken as the Arm’s Length margin. Based on this, the Arm’s Length Price of the International Transactions is computed as under:

Arm’s Length mean margin

23% on cost

Operating Cost

Rs. 151,57,47,466/-
Arm’s Length Margin 23%
Arm’s Length Cost (ALP) @ 123% of operating cost (including the cost involved in the International Transactions) Rs. 186,43,69,383/-
Revenue as per books Rs. 165,58,22,100/-
Difference being adjustment u/s 92CA Rs. 20,85,47,283 /-

The above excess of Rs.20,85,47,283/- is being treated as an adjustment to the price charged by the Taxpayer in its International Transactions.”

8. The assessee filed objections before the DRP in respect of the determination of ALP by the TPO which was incorporated in the Draft Order of Assessment by the AO. The DRP gave certain directions which resulted in the addition made to the total income on account of determination of ALP at much lesser sum than what was determined by the TPO. Still aggrieved, the assessee is in appeal before the Tribunal.

9. Learned Counsel for the assessee brought to our notice that consequent to rectification order passed, the OP/OC collected by the TPO at 23% as per the order under section 92CA of the Act was reduced to 18.48% in a rectification order dated 17.12.2018. By the very same order, the margins earned by the assessee was computed at 9.68% OP/OC.

10. We shall now deal with each of the grounds raised by the assessee. As far as ground No.1 is concerned, it is the grievance of the assessee that the description of the assessee’s business has been wrongly given. This may not have a very major impact and therefore no specific adjudication is required except to say that windmill parts and herbal products are poles apart. As far as ground No.2 concerned, at the time of hearing, learned Counsel submitted that identical issue considered by the Tribunal in assessee’s own case in Assessment Year 2008-09 in IT(TP)A No.1197/Bang/2012 in the Tribunal by its order dated 08.05.2015 held that TNMM is the most appropriate method in the case of the assessee for determination of ALP. This order of the Tribunal was also followed by the Tribunal in Assessment Year 2009-10 in IT(TP)A No.61/Bang/2014 order dated 23.11.2016. We therefore dismiss ground No.2 raised by the assessee.

11. As far as ground No.4 raised by the assessee is concerned, the factual details are that the assessee had transactions with AE as well non-AE. The profit analysis of AE and non-AE segments are as follows:

Particulars

As Per TPO (Rs.) Actuals – AE
transactions
(Rs.)
Actuals
Non AE
transactions
(Rs.)
Total (Rs.)
Operating Revenue (OR) 1,66,24,14,824 1,48,53,58,693 17,70,56,132 1,66,24,14,825
Total Costs 1,60,23,91,453 1,34,66,66,351 16,90,81,114
Less: Non- operating costs to be excluded
Donations 30,000
Provision for doubtful debts 5,89,550
Provision for doubtful advances 90,76,110
Finance Expenses 7,69,48,328
Operating Cost (OC) 1,51,57,47,465 1,34,66,66,351 16,90,81,114 1,51,57,47,465
Operating Profit (OP = OR-OC) 14,66,67,359 13,86,92,342 79,75,018 14,66,67,359
OP/OC on TNMM 9.68% 10.30% 4.72% 9.68%

It is the contention of the assessee that the TP adjustment should be restricted only to AE transactions and the non-AE transactions should be excluded.

12. On this aspect, this Tribunal in assessee’s own case for Assessment Year 2008-09 (supra) held that the adjustment should be restricted to only AE transactions. The following were the relevant observations of the Tribunal:

“25.      ……Similarly its claim that TP adjustment has to be confined to the international transaction with AE is also justified in view of the decision of the coordinate bench in the case of Kirloskar Toyota Textiles Machinery Ltd. V. ACIT [IT(TP)A No.1401/Bang/2010, dt 14.11.2014].”

Following the aforesaid decision of the Tribunal, we direct that the TP adjustments should be done only with AE transaction.

ALP determinable for international transaction of Corporate Guarantee

13. As far as ground No.4 is concerned, we find that out of 3 comparable companies chosen by the TPO in its TP study, the TPO rejected Synthetic Industries Ltd., alone but did not adjudicate on the comparability of Infrag Ltd., and Surya Herbal Ltd. Before the DRP, a specific plea was raised by the assessee regarding non-adjudication on comparability of these 2 comparable companies by the TPO. But the DRP has not given any specific direction in this regard. We are therefore of the view that it would be just and appropriate to remit the issue regarding comparability of the aforesaid 2 companies Indfrag Ltd., and Surya Herbal Ltd., for consideration denovo.

14. As far as ground No.6 is concerned, the assessee seeks exclusion of AVT Natural Products Ltd., and Shilpa Medicare Ltd., as comparable companies. In this regard, we find that the TPO in selecting comparables has applied a filter of companies with turnover range of one Crore to 200 Crores for choosing comparable companies. The admitted position is that the turnover of both the aforesaid companies are more than 200 Crores which would be evident from the chart of comparables chosen by the TPO given in the earlier part of this order. This Tribunal has been consistently applying the turnover filter for the purpose of choosing comparable companies.

15. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the Assessee and in favour of the Revenue, respectively. The ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt.Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon’ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CIT Vs. Pentair Water India Pvt.Ltd., Tax Appeal No.18 of 2015 dated 16.9.2015 wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the Assessee laid down in the case of Pentair Water (supra) should be adopted. The following were the conclusions of the Tribunal in the case of Dell International (supra):

“41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No.1231/Bang/2010, relying on Dun and Bradstreet’s analysis, held grouping of companies having turnover of Rs. 1 crore to Rs.200 crores as comparable with each other was held to be proper. The following relevant observations were brought to our notice:-

“9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study.”

42. The Assessee’s turnover was around Rs.110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs.200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon’ble High Courts of Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs.200 crores from the list of comparable companies is held to correct and such action does not call for any interference.”

16. The Tribunal in the case of Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Bangalore-Tribunal), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations:

17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon’ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon’ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon’ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon’ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee.

17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon’ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon’ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra).

17. In view of the above, the aforesaid two companies are directed to be excluded from the turnover filter.

18. As far as ground No.7 is concerned, though risk adjustment is required to be given but the quantification of the same has not been done by the assessee. In such circumstances, we are of the view that the pela of the assessee as raised in ground 7 cannot be accepted.

19. The TPO is directed to compute the ALP in the Herbal products sales segment as per the directions contained above, after affording assessee opportunity of being heard.

20. As far as ground No.8 is concerned, the issue is with regard to the determination of ALP in respect of providing guarantee by the assessee to its AE, Sabinsa Corporation, Piscutaway, New Jersey. Though the assessee has sought to rise an issue that providing guarantee is not an international transaction but at the time of hearing, it was fairly conceded that provision of corporate guarantee is in the nature of international transaction and arm’s length has to be determined in respect of the same. The AO adopted 3% as the commission that the assessee should have charged and the guarantee provided to the AE and this is based on the commission charged by financial institution in provision of guarantee as follows:

“14. Calculation of Guarantee Commission:

Corporate Guarantee amount

Rs. 29,63,14,659/-
Commission on Corporate Guarantee @ 3% Rs. 88,89,439
ALP of Corporate guarantee compensation / commission @ 3% Rs. 88,89,439

The amount of Rs. 88,89,439/- is the adjustment u/s 92CA of the Income Tax Act, 1961 in respect of the International transaction for financial /corporate guarantee fee.”

21. The DRP confirmed the order of the TPO. At the time of hearing, it was brought to our notice that in assessee’s own case for Assessment Year 2011-12, this Tribunal directed that the percentage of guarantee commission should be 0.5%. Our attention was drawn to the decision of the Tribunal for Assessment Year 2009-10 in IT(TP)A No.61/Bang/2014, order dated 23.11.2016, in which the Tribunal held as follows:

“We have heard the learned A.R. as well as learned D.R. and considered the relevant material on record. The assessee has furnished corporate guarantee of Rs.40,50,89,250 to bankers on behalf of the AEs. Since the assessee has not charged any fees or commission for providing the corporate guarantee the TPO/A.O. has determined the arm’s length fees at 3% and made the adjustment on account of commission for guarantee. It is pertinent to note that this Tribunal in a series of decisions has taken a consistent view that providing corporate guarantee falls in the ambit of international transactions as per section 926(1) of the Act. The co-ordinate bench of this Tribunal of Hyderabad Bench vide order dt.28.3.2014 in the case of Four Soft Pvt. Ltd. Vs. DCIT in ITA No.1903/Hyd/2011 has taken a view that the guarantee fees for providing corporate guarantee should not be more than 0.5% in paras 24 to 26 as under :

“24. It is noted by the TPO/A.O., during the F.Y. 2005-06 the assessee has provided bank guarantees on behalf of its Overseas subsidiary, Foursoft BV, Netherlands for an amount of Rs.69,81,16,000/- which is continuing for the year under consideration also. The TPO/A.O. following the order passed for A.Y. 2006-07 treated the commission changed by ICICI Bank at 3.75% arms length price for the corporate guarantee provided by the assessee to its AE worked out the TP adjustment of Rs.2,61,79,350/-. The DRP also rejected assessee’s objection on the issue.

25. We have heard the parties and perused the material on record. The sum and substance of the submissions made by the I earned AR is, the corporate guarantee provided by the assessee cannot be equated to bank guarantee and resultantly the commission rate for bank guarantee cannot be applied to the corporate guarantee. It was submitted that the corporate guarantee is nothing but an additional guarantee provided by the parent company and it does not involve any cost or risk to the shareholders. It was submitted that since the corporate guarantee was given keeping in view paramount business interest of the parent company it has to be allowed as business expenditure. It is the further submissions of the learned AR that the retrospective amendment effected to section 92B of the Act, by Finance Act, 2012 by insertion of Explanation (i)(c) to section 92B also has not enlarged the scope of the international transaction’ to include the corporate guarantee in the nature provided by the assessee. The learned AR further contended that the issue is covered in favour of the assessee by virtue of the order passed by the Tribunal in assessee’s own case for AY 2006-07 (supra).

25.1 The learned DR, on the other hand, submitted that by virtue of the amendment made to section 92B of the Act with retrospective effect from 01/04/2002, the corporate guarantee provided by the assessee is to be considered as an international transaction, and, therefore, the Assessing Officer was justified in determining arm’s length price of such transaction.

25.2 Having considered the submissions of the parties, we are unable to accept the contention of the learned AR that corporate guarantee of the nature provided by the assessee will not come within the meaning of international transaction in terms with section 92B of the Act. It is not disputed that section 92B of the Act has been amended by the Finance Act, 2012 with the insertion of Explanation I (c) with retrospective effect from 01/04/2002. Explanation (i)(c) to section 92B, reads as under:

“capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business.”

25.3 A reading of the aforesaid clause from the Explanation would make it clear that the corporate guarantee provided by the assessee comes within the scope and ambit of ‘international transaction’ as per the aforesaid clause. Therefore, the contention of the learned AR that the issue is covered in favour of the assessee by virtue of the order passed in assessee’s own case for AY 2006-07 no longer holds good since the order passed by the coordinate bench is prior to the amendment made to provision of section 92B of the Act. It will be pertinent to mention here that this issue was also considered by the ITAT bai Bench in case of Mahindra & Mahindra Vs. DCIT in ITA 97/Mum/2010, 54 SOT (UR) 146. The coordinate bench of this Tribunal while considering similar argument advanced on behalf of the assessee by placing reliance on the decision of the Four Soft Ltd.(supra), held as under:

“15.2 After hearing the rival submissions we feel that Assessing Officer will have to follow the decision of the ITAT Hyderabad or the amended provision of the Act in this regard. If the Finance Bill of 2012 is passed by the Parliament amending the provisions of section 92B, with effect from 1st April, 2002, he will have to ignore the decision of the ITAT Hydera bad. In case section 92B is not amended with retrospective effect, he should grant relief to the appellant.”

25.4 In the aforesaid view of the matter, we agree with the TPO/A.O. that ALP of the corporate guarantee has to be determined as it falls within the scope and ambit of an international transaction after the retrospective amendment to section 92B. However, it appears that the TPO/A.O. has applied the rat e of 3.75%, which is applicable to bank guarantee issued by the bank. As the corporate guarantee is not in the nature of bank guarantee, the rate applicable to bank guarantee provided by the bank cannot be applied to corporate guarantee which is provid ed by a group company. In case of Glenmark Pharmaceuticals Vs. ACIT in ITA No. 5031/Mum/2012, dated 13/11/2013, the Mumbai Bench of the Tribunal after analysing the facts in that case had held that 0.53% corporate guarantee rate in that case was appropriate. The ITAT Hyderabad Bench in case of Infotech Enterprises Ltd. in ITA No.115/Hyd/2011 and in ITA No. 2184/Hyd/2011, dated 16/01/2014 while considering identical issue of determining ALP of corporate guarantee provided by the assessee to its AE followed the ratio laid down in case of Glenmark Pharmaceuticals Vs. ACIT (supra) and remitted the issue back to the TPO to decide the quantum of corporate guarantee rate by following the method adopted in case of Glenmark Pharmaceuticals (supra).

26. Since the issue in the present case is identical to the issue decided by the ITAT, Hyderabad Bench in case of Infotech Enterprises (supra), following the same, we also remit this issue to the file of the TPO/A.O. to decide the quantum of corporate guarantee rates accordingly. If the assessee is able to bring on record any comparables with regard to corporate guarantee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue.

This ground is allowed for statistical purposes.”

Accordingly, we modify the impugned order and direct the Assessing Officer / TPO/A.O. to adopt the arm’s length commission of corporate guarantee at 0.5%.”

22. Following the aforesaid decision, we direct the AO to adopt 0.5% of the guarantee amount as the ALP. We hold and direct accordingly.

23. In the result, the appeal is partly allowed.

Pronounced in the open court on the date mentioned on the caption page.

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