The Income Tax Appellate Tribunal (ITAT), Mumbai Bench upheld the Arm’s Length Price (ALP) of corporate guarantee as determined 0.43% per annum and directed the AO to vacate the upward transfer pricing adjustment.
The assessee company, Greatship (India) Ltd. is engaged in the business of owning, operating and charter hiring of supply vessels, tugs, barges, rigs and all types of vessels related to offshore services and undertaking activities related to drilling including deep water drilling and shipping related activities had e-filed its return of income declaring a total income of Rs.102,21,04,981. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Section 143(2) of the Act.
Observing that the assessee during the year in question had entered into international transactions with its associated enterprises (AEs) exceeding the prescribed limit of Rs.15 crore, the AO, thus made a reference to the Transfer Pricing Officer (TPO) for determining the ALP of the said transactions. TPO vide his order passed under Sec. 92CA(3), made an upward adjustment of Rs.30,29,33,904/- which included adjustments on account of viz. corporate guarantee commission; interest on loan and sale of under construction vessel: Rs.62,23,256.
Objecting to the additions/disallowances as were proposed by the A.O vide his order passed under Section 144C(1) read with section 143(3), the assessee carried the matter before the DRP. Before the panel the assessee objected both to the transfer pricing adjustments as well as the additional disallowance that was proposed by the A.O. However, the DRP not finding favour with the contentions advanced by the assessee dismissed the respective objections as were raised before it.
The Departmental representative relied on the orders of the lower authorities. It was submitted that the AO or TPO had rightly taken the ALP of the guarantee fees at 2%. It was averred by the ld. D.R that as the provision of corporate guarantee was a business facility on the basis of which the AEs had raised loans from the banks thus the assessee company was to be compensated adequately.
It was submitted by the department that as observed by the TPO/DRP, as the credit rating of the AEs was lower than that of the assessee therefore the AE could raise funds from the market at a comparatively higher rate of interest. It was, thus, the lower authorities had rightly taken the ALP of the corporate guarantee provided by the assessee to the foreign banks in order to facilitate raising of the loans by its AEs at 2% p.a.
The coram of S. Rifaur Rahman and Ravish Sood found no reason to dislodge the ALP of corporate guarantee determined by the assessee at 0.43% p.a by adopting Internal CUP method.
The ITAT upheld the ALP of corporate guarantee as determined by the assessee at 0.43% p.a and direct the A.O/TPO to vacate the upward transfer pricing adjustment of Rs. 28,69,70,745/- made in the hands of the assessee.
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