Tega Industries Ltd Vs DCIT (ITAT Kolkata)
In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has provided partial relief to Tega Industries Ltd., modifying a significant transfer pricing adjustment related to corporate guarantee commission. The Tribunal affirmed that corporate guarantees extended to Associated Enterprises (AEs) indeed fall under the ambit of “international transactions” but capped the arm’s length guarantee fee at 0.5%, aligning with a string of judicial precedents.
Tega Industries Ltd., a company specializing in wear-resistant lining components for the mining and mineral industries, had filed its return of income for the Assessment Year 2021-22, which was subsequently selected for scrutiny due to “Transfer Pricing Risk Parameters.” The case was referred to the Transfer Pricing Officer (TPO), who proposed an Arm’s Length Price (ALP) adjustment of 竄ｹ 24,79,701/- concerning the corporate guarantee issued by Tega Industries on behalf of its AE, Tega Industries Chile SpA. This adjustment was upheld by the Dispute Resolution Panel (DRP), leading to the final assessment order incorporating this addition to the company’s income.
The Core Dispute: Is Corporate Guarantee an ‘International Transaction’?
Tega Industries challenged the adjustment before the ITAT, raising two primary contentions. Firstly, the company argued that the issuance of a corporate guarantee on behalf of an AE does not constitute an “international transaction” as per Section 92B of the Income Tax Act. They posited that such guarantees are typically shareholder functions, not warranting a separate charge or service fee.
