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Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of a taxpayer held that the corporate guarantee issued by the taxpayer for the benefit of its associated enterprise (AE), which neither involves any costs nor has any bearing on profits, income, losses or assets of the taxpayer, does not constitute an ‘international transaction’ within the meaning thereof under section 92B of the Income Tax Act, 1961 (the Act). Based thereon, the Tribunal deleted the adjustment made by the Transfer Pricing Officer (TPO) on account of the issuance of corporate guarantee.
On another noteworthy transfer pricing issue, the Tribunal rejected the adjustment of notional interest made by the TPO by re-characterising the share application money advanced by the taxpayer to its AE as an interest-free loan. The Tribunal held that it is not open to the tax authorities to re-characterise the transaction unless it is found to be a sham or bogus transaction.