The Income Tax Appellate Tribunal (ITAT), Bangalore bench, while directing the department to review the matter of the assessee, M/s Inflow Technologies Private Limited in respect of a transaction made with CISCO, held that the corporate guarantee to an Associate Enterprise (AE) shall constitute an ‘international transaction’ for the purpose of computing Arm’s Length Price (ALP) under the Income Tax Act, 1961.
The Tribunal bench comprising Judicial Member George George K And Accountant Member Chandra Poojari was considering an appeal filed by M/s Inflow Technologies Private Limited against the order of the income tax department.
The assessee, as a part of share purchase agreementhad given a corporate guarantee to one of its group supplier CISCO for supplies made to its AE (Inflow Singapore)during the business structuring. According to the assessee, the transaction was done without an intention to get any remuneration for the same since these activities were in the nature of shareholders/stewardship activities, and was only incidental to the main activities of the assessee. However, DRP held that the corporate guarantee given by the assessee to its AEs was an international transaction and would fall within the definition of international transaction under section 92B of the Income Tax Act brought in by Finance Act, 2012.
The assessee submitted before the authorities that it had not costed anything to the assessee in making such an arrangement. It was also contended that the above corporate guarantee did not have any bearing on the profit, loss, income, assets of the assessee so as to call it as an international transaction as contemplated under section 92B(1) of the Income Tax Act.
Directing the Assessing Officer to re-consider the issue, the bench held that“The corporate guarantee is an international transaction and there is no doubt that the arm’s length price has to be computed with reference to the said transaction. However, in the instant case, it is the case of the assessee that amount of Rs.7,67,65,463 of the subsidiary is lying with the assessee on account of advance for which no interest was being charged by the subsidiary. This factual aspect has not been examined neither by the AO / TPO nor by the DRP. Hence, we are of the view that the matter needs to be examined afresh by the AO / TPO and we remit the issue to the files of the AO / TPO.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
