Addition on Transfer Pricing of Corporate Guarantee Fee without Proper Verification of Account: ITAT Directs Re-adjudication [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) directed the assessing officer to re-adjudicate the addition made on transfer pricing of corporate guarantee fee without proper verification of account. 

KEC International Limited, the appellant assessee was a leading Engineering, Procurement, and Construction (EPC) company and engaged in laying of power transmission lines, providing telecommunication infrastructure and tower testing services. The assessee had project offices in India as well as outside India to execute the erection or installation portion of Transmission Line Projects. 

The assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the addition made by the assessing officer on transfer pricing of the guarantee fee. 

Pravin Shekhar, the counsel for the assessee contended that the assessee gave a corporate guarantee to another company to secure credit terms and no default was made in repayment, there was no credit risk of losses borne by the assessee. 

It was also submitted that the corporate guarantee was granted to work capital, export project cash flow deficit financing, etc. in discharge of shareholder obligation. 

Vijay Mehta, the counsel for the revenue strongly supported the decisions made by the lower authorities and contended that the addition made by the assessing officer on transfer pricing of the corporate guarantee fee was as per the law. 

The bench observed that the assessee had not carried out any comparability analysis and had adopted the rate of 0.6% offered by the bank to the assessee and the benchmark of the corporate guarantee fee in case of 3 corporate guarantees where recovery of guarantee fee had been made by the assessee. 

The two-member bench comprising B.R. Baskaran (Accountant ) and Rahul Chaudhary (Judicial) directed the transfer pricing officer to recomputed the transfer pricing adjustment by taking a rate of 0.6% as arm’s length rate for corporate guarantee fee for all corporate guarantee given by the assessee while allowing the appeal filed by the assessee. 

To Read the full text of the Order CLICK HERE

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