ALP of Corporate Guarantee Not Comparable to Bank Guarantee Fee | ITAT

Case Details: Synthite Industries (P.) Ltd. v. Deputy Commissioner of Income-tax - [2025] 177 taxmann.com 730 (Kerala) 

Judiciary and Counsel Details

• A. Muhamed Mustaque & Harisankar V. Menon, JJ.
• Isaac Thomas, V. Abraham Markos, Alexander Joseph Markos, John Vithayathil & Sharad Joseph Kodanthara, Advs. for the Petitioner
• Jose Joseph, Standing Counsel for the Respondent

Facts of the Case

The assessee-company had guaranteed a loan taken by its Associated Enterprise (AE) from a bank. During the Transfer Pricing (TP) proceedings, the Transfer Pricing Officer (TPO) contended that the assessee had charged a lower guarantee commission. He adopted the average guarantee commission charged by five different banks for determining the Arm’s Length Price (ALP).
The assessee contended that it had offered a corporate guarantee, and there could not be any comparison between a corporate and a bank guarantee. However, the TPO did not accept the contention of the assessee and made additions to the income of the assessee.

The matter reached the Kerala High Court.

High Court Held

The High Court held that the TPO found that the guarantee provided in the case at hand can be ”compared to a bank guarantee” with reference to the findings in the order issued by the Dispute Resolution Panel (DRP). In other words, the average applied was with reference to the guarantee fee charged by the banks as against the ”bank guarantee” extended by the banks.

There was no dispute regarding the fact that, in the case at hand, the assessee had extended only a corporate guarantee. There cannot be any comparison between the commission charged by the bank when issuing the bank guarantee and the ALP, with reference to the corporate guarantee provided by the assessee.

Thus, it was categorically held that there cannot be any comparison between a corporate and a bank guarantee. The matter was remanded back to the Tribunal for reconsideration of the ALP issue.

List of Cases Reviewed

• CIT v. Everest Kento Cylinders Ltd. [2015] 58 taxmann.com 254/232 Taxman 307/378 ITR 57 (Bombay)[Para 6] Followed

List of Cases Referred to

• IT v. Everest Kento Cylinders Ltd. [2015] 58 taxmann.com 254/232 Taxman 307/378 ITR 57 (Bombay) (para 6)
• South Indian Bank Ltd. v. CIT [2021] 130 taxmann.com 178/283 Taxman 178/438 ITR 1 (SC) (para 8)
• CIT v. Reliance Industries Ltd. (2019) 410 ITR 0466 (para 8).