Zee Entertainment Enterprises Ltd provided corporate guarantees to its Associated Enterprises (AEs) for loans obtained from third parties. The TPO determined the Arm's Length Price (ALP) of the corporate guarantee commission at 3%, resulting in a TP adjustment
Assessee’s Contentions | Revenue’s Contentions | Court’s Judgment |
|---|---|---|
Corporate guarantees are different from bank guarantees and therefore a lower arm’s length commission of 0.5% is justified based on judicial precedents. | The TPO adopted 3% commission and argued that ITAT wrongly relied on Everest Kanto without considering differences in country, currency, credit rating and risk profile of the AEs. | Bombay HC held that the issue is squarely covered by Everest Kanto Cylinders Ltd., which recognized that corporate guarantees cannot be equated with bank guarantees and accepted 0.5% as an appropriate commission rate. |
ITAT correctly followed binding jurisdictional precedent while restricting the adjustment. | Guarantee commission should vary based on facts and risk factors; hence a uniform 0.5% rate should not be applied. | Since the issue was already settled by the Bombay HC in Everest Kanto, no substantial question of law arose. Revenue’s TP grounds were dismissed. |
Ruling Summary
The Tribunal held that HMRC's information notice was unjustified, as the parent company's financial statements were irrelevant to the method-selection dispute where a one-sided transfer pricing method with the domestic taxpayer as the tested party was applied.
Finding the request disproportionate and akin to a fishing expedition and noting that the documents were not within the taxpayer's possession or control, the Tribunal allowed the appeal and quashed the information notice.
