Bank of Baroda's Specific Condition Invalidates TP Adjustment on Corporate Guarantee Commission: ITAT [Read Order]
Noting that the non-charging of the commission was pursuant to the conditions stipulated by the sanctioning Bank, the tribunal directed to delete TP adjustment.
The Pune Bench of the Income Tax Appellate Tribunal (ITAT) directed the deletion of a Transfer Pricing (TP) adjustment of ₹21,46,000 proposed by the Transfer Pricing Officer (TPO) on account of corporate guarantee commission and ruling that the non-charging of the commission was due to a specific condition imposed by Bank of Baroda.
Precision Camshafts Limited (assessee), a listed company, had assessment for the Assessment Year (AY) 2021-22 selected for scrutiny, leading to a referral to the TPO.
The international transaction under dispute was the Corporate Guarantee provided by the assessee to its 100% subsidiary, PCL International Holdings BV Netherlands (AE). The assessee had a 'NIL' corporate guarantee commission.
The TPO, not satisfied with the benchmarking, determined that the corporate guarantee was an International Transaction that needed to be benchmarked. The TPO finally rejected the assessee's contention that no charge for corporate guarantee was warranted.
The TPO proposed an adjustment of ₹21,46,000, calculating the Arm's Length Price (ALP) of the corporate guarantee fees at 0.5% of the guarantee amount. The TPO relied on the decision of the Hon'ble Bombay High Court in the case of M/s. Everest Kanto Cylinder Ltd. vs. CIT to adopt this 0.5% rate.
The TPO used the "such other method" as the Most Appropriate Method (MAM) to benchmark the transaction. Aggrieved by the final Assessment Order, which upheld the TPO's adjustment, the assessee filed an appeal before the ITAT.
The assessee argued that the corporate guarantee agreement between the assessee and Bank of Baroda (BOB), London, restricted the assessee from charging any guarantee commission to its subsidiary.
The assessee argued that clause 5.1 of the guarantee deed stated that the Guarantor hereby declares and agrees that it has not received and shall not receive any security or commission from the Borrower for giving this Guarantee.
The two-member bench comprising Rama Kanta Panda (Vice President) and Vinay Bhamore (Judicial Member) noted that the non-charging of the commission was pursuant to the conditions stipulated by the sanctioning Bank.
The tribunal observed that since the Bank of Baroda is an independent entity, the assessee was correct in not charging any Guarantee Commission.
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The Tribunal followed its own binding precedent in the assessee's own case for the earlier Assessment Year (AY 2020-21), which had relied on the ITAT Mumbai decision in B.G. Shirke Construction Technology P. Ltd., Vs. DCIT.
The Tribunal also distinguished the facts of the Everest Kanto Cylinders Ltd. case which was relied upon by the TPO, noted that in that case, there was no such condition imposed by ICICI Bank, whereas the Bank of Baroda in the assessee's case had specifically imposed the condition.
The Tribunal directed the AO/TPO to delete the addition of ₹21,46,000 by following its earlier order and other binding precedents. The appeal of the assessee was partly allowed.
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