No TP Adjustment If Providing Performance Guarantee or Corporate Guarantee Did Not Give Any Benefit to AE | ITAT

Case Details: Afcons Infrastructure Ltd. v. ACIT - [2023] 157 taxmann.com 32 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Amit Shukla, Judicial Member & Ms Padmavathy S., Accountant Member
  • J.D. Mistri, Nitesh Jodhi & Ninad Patade for the Appellant.
  • Abhishek Kumar Singh for the Respondent.

Facts of the Case

Assessee was in the business of construction of infrastructure projects – Assessee established an LLC, Afcons, in Dubai to secure a project in Dubai. Afcons was awarded the project, and part of it was subcontracted to assessee.

During the relevant assessment year, the assessee extended a guarantee to the bank for procuring credit facilities for Afcons. The Transfer Pricing Officer (TPO) held that the guarantee given by the assessee was an international transaction. Accordingly, TPO adjusted the arm’s length guarantee fee rate at 0.05 percent on the ground that it was in nature of intra-group services rendered by the assessee to its AE, and there would always be a cost of guarantee given by the assessee to its AE.

ITAT Held

The Mumbai Tribunal ruled that the assessee performed all functions, including subcontracting and executing contract work, utilizing its own infrastructure, manpower, management, technological support, and organizational support.

The assessee solely gained 99% profit from assuming all risks, as providing guarantees did not benefit the associated entity. The corporate guarantee offered by the assessee was exclusively for its own benefit, as the work performed and profits earned were entirely attributed to the assessee. Thus, it cannot be argued that the assessee provided any benefit to Afcons through the corporate guarantee.

Thus, no transfer pricing adjustment could be made on account of corporate guarantee.