Issuance Of Letters Of Comfort/Support Will Construe As International Transaction U/s 92B: Mumbai ITAT

Under the assessee's support services and intragroup services segment, the Bench excluded two companies, namely, Axis Integrated Systems Ltd, and Inmacs Management Services Ltd citing functional dissimilarity and unavailability of complete data relating to nature of services being available in the public domain.

Separately, the Bench comprising Prashant Maharishi (Accountant Member) and Sandeep Singh Karhail (Judicial Member) held that letters of comfort issued by the assessee would be an international transaction u/s 92B of the Income tax Act.

The Bench noted that assessee issued similar letters of credit, as were considered in the preceding AY and has also declared the letters of comfort/support issued to the banks on behalf of some of its subsidiaries as its contingent liability in Note-25 of the Notes to Financial Statements.

The Bench relied on coordinate bench ruling in assessee's own case for AY 2012-13 wherein similar view was upheld, and therefore upheld the arm's length rate of the letter of comfort at 0.04%.

Lastly, the Bench confirmed deletion of addition made on account of waiver of royalty received from two subsidiaries, holding that when only 1% royalty is payable by overseas subsidiaries, the AO has no authority to make an addition of balance 2% royalty waived by the parties, which is nothing but a notional income considered taxable by the AO in assessee's hands.

Accordingly, due to lack of complete data being available in the public domain, the ITAT excluded the company selected by the Revenue from the final list of comparable.

Counsel for Tax Payer: Madhur Agrawal

Counsel for Department: Vachashpati Tripathi

Case Title: Asian Paints Ltd

Case Number: ITA No 5363/Mum/2017

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