By Geeta Jani | Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
9 DCIT vs. Sikka Ports & Terminals Ltd.
[2022] 140 taxmann.com 211 (Mumbai - Trib.)
ITA No: 2022/2139/Mum/2021
A.Ys.: 2013-14; Date of order: 30th May, 2022
Transfer Pricing method – Yield spread method is most appropriate method to benchmark corporate guarantee
FACTSAseessee had provided corporate guarantees to third parties for undertaking contractual and other obligations of its AE. For benchmarking, it adopted yield spread approach
2. Based on a quote obtained from the Royal Bank of Scotland, 70 bps was computed as the yield spread, which was divided equally between the assessee and AE. Accordingly, the assessee adopted 0.35% as ALP.
The TPO obtained quotes from HDFC Bank and SBI. The quotes provided by the banks were for all types of guarantees. The TPO averaged the quotes and adopted 1.5% as ALP. On appeal, CIT(A) rejected TPO’s approach. Instead, CIT(A) placed reliance on the Bombay High Court
3 decision, which accepted 0.5% as ALP. Thus, partial relief was granted.
Being aggrieved, the assessee and revenue appealed to ITAT.
HELDInterest rate differential (i.e., interest with or without corporate guarantee) at the end of the relevant financial year and not on the date of entering into the transaction should be the reasonable basis to determine ALP.
Quotations obtained from HDFC Bank and SBI are for the bank guarantees
simpliciter and not
