The TPO has fixed a guarantee commission rate I dispute AND imputed interest on the delay as a secondary adjustment. Can the secondary adjustment stand while the underlying rate is still being fought over?
The ITAT Mumbai deleted it. On 14 February 2025, for assessment year 2020-21, the Tribunal remitted the corporate guarantee adjustment itself to the Assessing Officer and Transfer Pricing Officer for fresh adjudication in the light of the OECD's February 2020 report on the transfer pricing of financial transactions, holding that the Transfer Pricing Officer's use of external bank guarantee rates with a discount was "not in accordance with the transfer pricing principles". In the very next paragraph it dealt with the secondary adjustment separately and allowed the ground, noting "that as per rule 10CB computation of interest commences from the due date of filing the return of income" and that for the year under consideration that due date was 15 February 2021, and concluding that it did "not find any basis for making the secondary adjustment for the year under consideration". The appeal was partly allowed for statistical purposes.
Decided by the ITAT (Shri Omkareshwar Chidara, Accountant Member and Smt. Beena Pillai, Judicial Member) on 2025-02-14, reported as I.T.A. No. 4840/Mum/2024, Income Tax Appellate Tribunal, Mumbai; assessment year 2020-21; order pronounced 14 February 2025. It bears on section 92CE, section 92B, section 92C, section 92CA, section 133(6), section Rule 10B, section Rule 10CB, section 139(1), section 144C, section 92CA(1) of the Income Tax Act 1961, in Assessment & Scrutiny and Appeals matters.
The practical value is the sequencing. A secondary adjustment is a creature of a primary adjustment: the officer cannot run the two in parallel and collect imputed interest on a guarantee fee whose arm's length rate has not yet been lawfully determined. Here the Tribunal was doing two things in successive paragraphs — sending the primary adjustment back for a proper OECD-based analysis, and deleting the secondary adjustment outright rather than remitting it with the primary. That is the order a practitioner should ask for: remit the primary, delete the secondary. The order is also a useful marker on the Rule 10CB clock, because it identifies the starting point in a suo motu case as the s.139(1) due date and takes the actual extended due date for assessment year 2020-21 — 15 February 2021 — rather than the ordinary one. The limits must be stated plainly. This is a Tribunal order, the operative sentence in paragraph 10 is grammatically broken in the original, and the ground was decided in a single short paragraph with no elaborated reasoning; it should be cited for the outcome and for the Rule 10CB starting point, not as a considered exposition of s.92CE. On the substantive guarantee question the Tribunal expressly agreed with the Departmental Representative that extending a corporate guarantee to an associated enterprise is a transaction that has to be benchmarked, so the order is not authority that corporate guarantees are outside transfer pricing.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2020-21 the assessee, an Indian manufacturer of oleochemicals, soap and soap noodles, had given a guarantee to a bank for a loan taken by its wholly owned subsidiary PT VVF Indonesia under an agreement dated 24 August 2014, the loan being secured by the borrower's own assets with the lending bank additionally requiring a parent guarantee. No guarantee commission was recognised in the books for the year, but the assessee made a voluntary adjustment in its return of income computing an arm's length corporate guarantee fee at 0.5 per cent. The Transfer Pricing Officer rejected that and determined the arm's length price at 1.3 per cent, being an average bank rate reduced by a 0.5 per cent discount, on data obtained from various banks under s.133(6). He also made a secondary adjustment by imputing interest on the guarantee commission for the delay. The assessee contended that it incurred no cost in giving the guarantee, that a corporate guarantee is a contingent liability that does not affect profits, income, losses or assets, and that in assessment year 2018-19 the Assessing Officer had itself accepted a 0.5 per cent corporate guarantee adjustment in the assessee's own case; it relied on the Bombay High Court in Everest Kento Cylinders and on Glenmark Pharmaceuticals for the proposition that a bank rate cannot be used to benchmark a corporate guarantee fee. The Departmental Representative relied on the Explanation to s.92B and on the Kolkata Special Bench decision in Instrumentarium Corporation Ltd to support the 1.3 per cent rate. Other grounds in the appeal concerned the aggregation of transactions and the choice of the most appropriate method, the selection of a foreign associated enterprise as tested party, notional interest on outstanding receivables, and the set-off of brought forward unabsorbed depreciation. The secondary adjustment in dispute was Rs 16,95,145: at paragraph 2.6 the order records that "The Ld.TPO also made secondary adjustment on account of corporate guarantee based on the period of the delay of payment of 1133 days by charging interest at the rate of 5.06% using 6 months LIBOR up to 30th September of the relevant financial year under consideration."
The appeal was partly allowed for statistical purposes. On the corporate guarantee the Tribunal agreed that extending a corporate guarantee to an associated enterprise is a transaction that must be benchmarked under the transfer pricing rules, but held that the Transfer Pricing Officer's adoption of an external comparable uncontrolled price drawn from bank guarantee rates with a discount was not in accordance with transfer pricing principles, and remitted the issue to the Assessing Officer and Transfer Pricing Officer for fresh adjudication in the light of the OECD's report of 11 February 2020 on the transfer pricing of financial transactions, allowing grounds 3 to 3.7 partly for statistical purposes (paragraphs 9.5 to 9.8). On the secondary adjustment the Tribunal held at paragraph 10 that under rule 10CB the computation of interest commences from the due date of filing the return of income, that for the year under consideration that due date was 15 February 2021, and that it did not find any basis for making the secondary adjustment for the year under consideration; ground 4 was accordingly allowed.
On the guarantee fee the Tribunal reasoned that the issuance of a corporate guarantee is distinct and separate from a bank guarantee, following the Bombay High Court in Everest Kento Cylinders, which had affirmed a guarantee adjustment of 0.5 per cent, and that in a number of judgments rates ranging from 0.2 to 0.5 per cent had been found acceptable; it then held that neither the assessee nor the authorities below had undertaken the analysis of the financial transaction contemplated by the OECD commentary, and that the accurate delineation of a financial transaction requires examination of the contractual terms, the functions performed, assets used and risks assumed, the characteristics of the financial instrument, the economic circumstances of the parties and the market and the business strategies pursued, so the matter had to go back for that analysis to be done (paragraphs 9.5 to 9.8). On the secondary adjustment the Tribunal's reasoning is confined to a single paragraph and turns on rule 10CB: it identified the starting point for the computation of interest as the due date of filing the return of income, recorded that the due date for the year was 15 February 2021, and concluded that there was no basis for making the secondary adjustment for the year under consideration (paragraph 10).
In respect of secondary adjustment by the Ld.AO on the corporate guarantee we note that as per rule 10CB computation of interest commences from the due date of filing the return of income.
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Handle my notice → Ask a CA on WhatsAppThe ITAT Mumbai deleted it. On 14 February 2025, for assessment year 2020-21, the Tribunal remitted the corporate guarantee adjustment itself to the Assessing Officer and Transfer Pricing Officer for fresh adjudication in the light of the OECD's February 2020 report on the transfer pricing of financial transactions, holding that the Transfer Pricing Officer's use of external bank guarantee rates with a discount was "not in accordance with the transfer pricing principles". In the very next paragraph it dealt with the secondary adjustment separately and allowed the ground, noting "that as per rule 10CB computation of interest commences from the due date of filing the return of income" and that for the year under consideration that due date was 15 February 2021, and concluding that it did "not find any basis for making the secondary adjustment for the year under consideration". The appeal was partly allowed for statistical purposes. This was decided by the ITAT (Shri Omkareshwar Chidara, Accountant Member and Smt. Beena Pillai, Judicial Member) and bears on section 92CE, section 92B, section 92C, section 92CA, section 133(6), section Rule 10B, section Rule 10CB, section 139(1), section 144C, section 92CA(1) of the Income Tax Act 1961. It is reported as I.T.A. No. 4840/Mum/2024, Income Tax Appellate Tribunal, Mumbai; assessment year 2020-21; order pronounced 14 February 2025. The practical value is the sequencing. A secondary adjustment is a creature of a primary adjustment: the officer cannot run the two in parallel and collect imputed interest on a guarantee fee whose arm's length rate has not yet been lawfully determined. Here the Tribunal was doing two things in successive paragraphs — sending the primary adjustment back for a proper OECD-based analysis, and deleting the secondary adjustment outright rather than remitting it with the primary. That is the order a practitioner should ask for: remit the primary, delete the secondary. The order is also a useful marker on the Rule 10CB clock, because it identifies the starting point in a suo motu case as the s.139(1) due date and takes the actual extended due date for assessment year 2020-21 — 15 February 2021 — rather than the ordinary one. The limits must be stated plainly. This is a Tribunal order, the operative sentence in paragraph 10 is grammatically broken in the original, and the ground was decided in a single short paragraph with no elaborated reasoning; it should be cited for the outcome and for the Rule 10CB starting point, not as a considered exposition of s.92CE. On the substantive guarantee question the Tribunal expressly agreed with the Departmental Representative that extending a corporate guarantee to an associated enterprise is a transaction that has to be benchmarked, so the order is not authority that corporate guarantees are outside transfer pricing. If it applies to you, the first step is this: Attack the primary adjustment and the secondary adjustment as separate grounds, and ask in terms for the primary to be remitted and the secondary to be deleted rather than remitted with it.
For assessment year 2020-21 the assessee, an Indian manufacturer of oleochemicals, soap and soap noodles, had given a guarantee to a bank for a loan taken by its wholly owned subsidiary PT VVF Indonesia under an agreement dated 24 August 2014, the loan being secured by the borrower's own assets with the lending bank additionally requiring a parent guarantee. No guarantee commission was recognised in the books for the year, but the assessee made a voluntary adjustment in its return of income computing an arm's length corporate guarantee fee at 0.5 per cent. The Transfer Pricing Officer rejected that and determined the arm's length price at 1.3 per cent, being an average bank rate reduced by a 0.5 per cent discount, on data obtained from various banks under s.133(6). He also made a secondary adjustment by imputing interest on the guarantee commission for the delay. The assessee contended that it incurred no cost in giving the guarantee, that a corporate guarantee is a contingent liability that does not affect profits, income, losses or assets, and that in assessment year 2018-19 the Assessing Officer had itself accepted a 0.5 per cent corporate guarantee adjustment in the assessee's own case; it relied on the Bombay High Court in Everest Kento Cylinders and on Glenmark Pharmaceuticals for the proposition that a bank rate cannot be used to benchmark a corporate guarantee fee. The Departmental Representative relied on the Explanation to s.92B and on the Kolkata Special Bench decision in Instrumentarium Corporation Ltd to support the 1.3 per cent rate. Other grounds in the appeal concerned the aggregation of transactions and the choice of the most appropriate method, the selection of a foreign associated enterprise as tested party, notional interest on outstanding receivables, and the set-off of brought forward unabsorbed depreciation. The secondary adjustment in dispute was Rs 16,95,145: at paragraph 2.6 the order records that "The Ld.TPO also made secondary adjustment on account of corporate guarantee based on the period of the delay of payment of 1133 days by charging interest at the rate of 5.06% using 6 months LIBOR up to 30th September of the relevant financial year under consideration." The matter was decided on 2025-02-14 by the ITAT (Shri Omkareshwar Chidara, Accountant Member and Smt. Beena Pillai, Judicial Member). On those facts the ITAT held as follows. The appeal was partly allowed for statistical purposes. On the corporate guarantee the Tribunal agreed that extending a corporate guarantee to an associated enterprise is a transaction that must be benchmarked under the transfer pricing rules, but held that the Transfer Pricing Officer's adoption of an external comparable uncontrolled price drawn from bank guarantee rates with a discount was not in accordance with transfer pricing principles, and remitted the issue to the Assessing Officer and Transfer Pricing Officer for fresh adjudication in the light of the OECD's report of 11 February 2020 on the transfer pricing of financial transactions, allowing grounds 3 to 3.7 partly for statistical purposes (paragraphs 9.5 to 9.8). On the secondary adjustment the Tribunal held at paragraph 10 that under rule 10CB the computation of interest commences from the due date of filing the return of income, that for the year under consideration that due date was 15 February 2021, and that it did not find any basis for making the secondary adjustment for the year under consideration; ground 4 was accordingly allowed.
On the guarantee fee the Tribunal reasoned that the issuance of a corporate guarantee is distinct and separate from a bank guarantee, following the Bombay High Court in Everest Kento Cylinders, which had affirmed a guarantee adjustment of 0.5 per cent, and that in a number of judgments rates ranging from 0.2 to 0.5 per cent had been found acceptable; it then held that neither the assessee nor the authorities below had undertaken the analysis of the financial transaction contemplated by the OECD commentary, and that the accurate delineation of a financial transaction requires examination of the contractual terms, the functions performed, assets used and risks assumed, the characteristics of the financial instrument, the economic circumstances of the parties and the market and the business strategies pursued, so the matter had to go back for that analysis to be done (paragraphs 9.5 to 9.8). On the secondary adjustment the Tribunal's reasoning is confined to a single paragraph and turns on rule 10CB: it identified the starting point for the computation of interest as the due date of filing the return of income, recorded that the due date for the year was 15 February 2021, and concluded that there was no basis for making the secondary adjustment for the year under consideration (paragraph 10). In the words reproduced by the source cited on this page: "In respect of secondary adjustment by the Ld.AO on the corporate guarantee we note that as per rule 10CB computation of interest commences from the due date of filing the return of income." The decision followed or applied CIT v Everest Kento Cylinders Ltd [2015] 58 taxmann.com 254 (Bombay) — followed on the distinction between a corporate guarantee and a bank guarantee; OECD, Transfer Pricing Guidance on Financial Transactions, released 11 February 2020 — applied as the framework for the fresh adjudication directed.
It was decided by the ITAT on 2025-02-14 and is reported as I.T.A. No. 4840/Mum/2024, Income Tax Appellate Tribunal, Mumbai; assessment year 2020-21; order pronounced 14 February 2025. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 92CE, section 92B, section 92C, section 92CA, section 133(6), section Rule 10B, section Rule 10CB, section 139(1), section 144C, section 92CA(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was partly allowed for statistical purposes. On the corporate guarantee the Tribunal agreed that extending a corporate guarantee to an associated enterprise is a transaction that must be benchmarked under the transfer pricing rules, but held that the Transfer Pricing Officer's adoption of an external comparable uncontrolled price drawn from bank guarantee rates with a discount was not in accordance with transfer pricing principles, and remitted the issue to the Assessing Officer and Transfer Pricing Officer for fresh adjudication in the light of the OECD's report of 11 February 2020 on the transfer pricing of financial transactions, allowing grounds 3 to 3.7 partly for statistical purposes (paragraphs 9.5 to 9.8). On the secondary adjustment the Tribunal held at paragraph 10 that under rule 10CB the computation of interest commences from the due date of filing the return of income, that for the year under consideration that due date was 15 February 2021, and that it did not find any basis for making the secondary adjustment for the year under consideration; ground 4 was accordingly allowed. It arises in Assessment & Scrutiny and Appeals matters, on section 92CE, section 92B, section 92C, section 92CA, section 133(6), section Rule 10B, section Rule 10CB, section 139(1), section 144C, section 92CA(1) of the Income Tax Act 1961, and was decided by Shri Omkareshwar Chidara, Accountant Member and Smt. Beena Pillai, Judicial Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the primary adjustment is a guarantee fee, press the Everest Kento line that a corporate guarantee issued by a holding company is distinct from a bank guarantee, and require the officer to conduct the accurate-delineation analysis in the OECD's February 2020 report on financial transactions before any rate is fixed. Fix the Rule 10CB starting point on the facts of your own case, and use the ACTUAL due date under s.139(1) for the year, including any extension — the Tribunal here took 15 February 2021 for assessment year 2020-21. Do not read this order as deciding that guarantee commission is outside Chapter X. The Tribunal agreed that extending a corporate guarantee to an associated enterprise must be benchmarked; what it rejected was the method.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing, and a name-and-topic search returns only this order and an unrelated 2020 Mumbai order. No appeal to the Bombay High Court was traced and no Bench has taken up either limb - deletion of the secondary adjustment on a corporate guarantee, or the reading of rule 10CB that starts the clock from the return due date. The rule 10CB point in particular remains a single-Bench view. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THE OPERATIVE SENTENCE IS BROKEN IN THE ORIGINAL. Paragraph 10 reads, in full and exactly as printed: "In respect of secondary adjustment by the Ld.AO on the corporate guarantee we note that as per rule 10CB computation of interest commences from the due date of filing the return of income. It is noted that for the year under consideration due date was 15/02/2021. Since the specific mechanism for computation of said rule in the computation, any secondary adjustment cannot be levied in the primary adjustment to accordingly we do not find any basis for making the secondary adjustment for the year under consideration." The third sentence is ungrammatical as printed and I have not paraphrased it into sense; the `key_quote` is confined to the first sentence, which is clean and consecutive. I obtained paragraph 10 twice, on two separate fetches of two different URLs — the plain document URL and the print URL — and it came back in identical words both times, which is why I am willing to use it at all. The second fetch also produced the full run from paragraph 8 to the signature block, so the disposal was reached: "In the result appeal filed by the assessee stands partly allowed for statistical purposes." The Bench and date are taken from the signature block printed at the foot of the order — "(OMKARESHWAR CHIDARA) Accountant Member" and "(BEENA PILLAI) Judicial Member", dated 14/02/2025 — and the appeal number and assessment year from the running page headers "ITA 4840/Mum/2024 A.Y. 2020-21" printed throughout the order, not from the reporting site's auto-generated title line. The cause title as the reporting site prints it is "Vvf (India) Limited, Mumbai vs Income Tax Department National Faceless Assessment Centre (NFAC)"; I could not see the formal cause title on the face of the order itself and have recorded the parties in that form. The order runs to decimal-numbered paragraphs through at least 13.1; I did not establish a total paragraph count and have cited only paragraph numbers I saw printed. I have not checked whether the order has been appealed. THE ORDER NEVER MENTIONS s.92CE. I checked twice, differently — a whole-document read of https://indiankanoon.org/doc/83060289/ asking expressly whether the string "92CE" appears anywhere, and a fragment query on "secondary adjustment" — and it does not appear; the Tribunal reached the point through rule 10CB alone. The tag "92CE" in `sections` is therefore a practice tag for the provision the rule is made under, not a provision the Tribunal cited, and "139(1)" is likewise a practice tag, the order saying only "the due date of filing the return of income" without naming the sub-section. The provisions the order does cite are s.92CA(1), s.143(3) read with s.144C(13), s.143(2), s.142(1), s.115JB, s.92B, s.133(6) and rules 10A and 10B. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was partly allowed for statistical purposes. On the corporate guarantee the Tribunal agreed that extending a corporate guarantee to an associated enterprise is a transaction that must be benchmarked under the transfer pricing rules, but held that the Transfer Pricing Officer's adoption of an external comparable uncontrolled price drawn from bank guarantee rates with a discount was not in accordance with transfer pricing principles, and remitted the issue to the Assessing Officer and Transfer Pricing Officer for fresh adjudication in the light of the OECD's report of 11 February 2020 on the transfer pricing of financial transactions, allowing grounds 3 to 3.7 partly for statistical purposes (paragraphs 9.5 to 9.8). On the secondary adjustment the Tribunal held at paragraph 10 that under rule 10CB the computation of interest commences from the due date of filing the return of income, that for the year under consideration that due date was 15 February 2021, and that it did not find any basis for making the secondary adjustment for the year under consideration; ground 4 was accordingly allowed.
TaxSphere, “VVF (India) Limited v NFAC — the secondary adjustment on a corporate guarantee deleted in the same order that sent the guarantee fee itself back to the TPO, and Rule 10CB's interest clock identified as running from the s.139(1) due date”, https://taxnotice.vittsphere.com/caselaw/case/vvf-india-secondary-adjustment-on-a-corporate-guarantee-deleted-and-rule-10cb-s-clock-runs-from-the-return-due-date/ (validity last checked 2026-09-09)
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My primary adjustment stands and the money is still with my overseas associated enterprise. When exactly do my ninety days start, and at what rate is the deemed advance to be charged interest?
The TPO's order says I must now make a secondary adjustment. Which primary adjustments actually trigger s.92CE, and is there any threshold or year below which the section simply does not apply to me?
My associated enterprise will not send the money back. Can I simply pay tax on it and be done, and if I do, what do I give up?
The TPO has re-characterised a payment to my associated enterprise as an interest-free loan and imputed notional interest on it, calling it a consequential adjustment. My year is well before 2016 and the underlying adjustment was itself deleted. Can he do that?
