The Bangalore Bench of Income Tax Appellate Tribunal has held that corporate guarantee falls within the scope and ambit of international transaction and Arm’s Length Price (ALP) applicable at 0.5%.
The assesseeM/s. Sami – Sabinsa Group Ltd., is an Indian multinational company engaged in the export of standardized herbal extracts, fine chemicals, specialty chemicals, cosmeceuticals, phytonutrients and probiotics. 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 PlusMethod (CPM) as the most appropriate method (MAM) for determining the ALP.The AO made a reference to the Transfer Pricing Officer (TPO) for determination of ALP. The TPO rejected the RPM as the most appropriate method and choose 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. 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, appellant is before ITAT is to the determine Arm’s Length Price (ALP) in respect of international transaction of sale of herbal products by the assessee to its Associated Enterprise (AE).
The appellant submitted that the corporate guarantee provided by the assesse 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 the corporate guarantee was given keeping in view paramount business interest of the parent company it has to be allowed as business expenditure.
The Tribunal has observed by giving reliance to its own decisions in appellants case during previous assessment year that 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. However, it appears that the TPO/A.O. has applied the rate 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 provided by a group company. In case of Glenmark Pharmaceuticals Vs. ACIT, the Mumbai Bench of the Tribunal after analyzing the facts in that case had held that 0.53% corporate guarantee rate in that case was appropriate”.
The Coram of Sri N. V. Vasudevan, Vice President and Sri B. R. Baskaran, Accountant Member has partly allowed the appeal and held that “we direct the AO to adopt 0.5% of the guarantee amount as the ALP. We hold and direct accordingly”.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.
