The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the order of the Commissioner of Income Tax (Appeals) which validated the Transfer Pricing ( TP ) report by holding that rejecting the TP analysis without giving any specific reason is invalid.
Shri Niraj Sheth appeared for the appellant and Shri Samuel Pitta appeared for the respondent.
M/s Macrotech Developers Limited, the respondent assessee is engaged in the business of real estate, construction and development. For the year under consideration, the assessee filed the return of income declaring total income of Rs.62,08,53,170/- and book profit under section 115JB of Rs.45,42,04,660/-.
Subsequently, the return was revised on 29/03/2018 declaring Nil income after setting off all brought forward losses of Rs.21,37,37,597/-. The case was selected for scrutiny under CASS and the notices were duly served on the assessee. The revised return is filed due to the merger of M/s Suryakripa Constructions Ltd with effect from 01.04.2015 vide order dated 24.04.2017 of the National Company Law Tribunal (NCLT).
The assessee had an Associated Enterprise (AE) in Mauritius – Lodha Developers (LDIL). LDIL had raised USD 200 million by way of issuance of 12% Senior Notes Due 2020( Bonds) listed in the Singapore Exchange to be used for the construction and development of real estate projects in the UK. The assessee submitted before the TPO that for the issue of bonds, the assessee along with a few other group companies had given corporate guarantees as shareholders / direct subsidiaries.
The TPO noticed that instead of the financial guarantee given by the assessee, no commission or guarantee fee was charged by the assessee to the AE. The assessee initially submitted that the guarantee is given as part of shareholder activity and, therefore, not within the purview of transfer pricing provisions. The assessee based on the benchmarking submitted that a margin of 0.35% is at ALP. The TPO rejected the benchmarking done by the assessee and proceeded to make a TP adjustment of Rs.4,14,84,664 by applying the guarantee commission rate of 1.25% i.e. USD 200 x Rs.66.33 x 1.25% x 365/1459.
On appeal, the CIT(A) held that rejecting the TP analysis without giving any specific reasons was not justified. The CIT(A) further held that the assessee has followed the ‘other method’ that is, interest saving approach and, therefore, there was no need to provide comparables. The CIT(A) also held that the assessee when submitted the TP report has discharged its onus. Accordingly, the CIT(A) directed the AO / TPO to accept the assessee’s TP report and compute the ALP towards guarantee commission @ 0.3523%.
A two-member bench comprising Shri Kuldip Singh (Judicial Member) and Ms Padmavathy S (Accountant Member) upheld the findings given by the CIT(A) and dismissed the appeal of the revenue regarding the TP adjustment.
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