ITAT Mumbai Restricts Corporate Guarantee Commission to 0.50%, Restores Finished Goods Transfer Pricing Adjustment for Fresh Consideration — Gluhend India Private Limited vs DCIT

Background and Overview

The Mumbai Bench of the Income Tax Appellate Tribunal recently adjudicated a multi-issue appeal filed by Gluhend India Private Limited against the assessment order passed under Section 143(3) read with Section 144C(13) for Assessment Year 2022-23. The total transfer pricing adjustments challenged in the appeal aggregated to ₹74,11,20,996, comprising two distinct components: an adjustment of ₹72,80,996 on account of a corporate guarantee extended to the assessee's wholly owned US subsidiary, Sage International Inc., and a further adjustment of ₹73,38,40,000 relating to the sale of finished goods to the same associated enterprise. In addition to the transfer pricing disputes, the assessee contested the denial of a brought-forward long-term capital loss of ₹58,938 and unabsorbed depreciation of ₹5,90,18,372, both originating in Assessment Year 2021-22.

The Tribunal's ruling touches upon several significant legal questions — the validity of scrutiny notices that deviate from CBDT-prescribed formats, the appropriate arm's length rate for corporate guarantees, the reliability of Chartered Accountant-certified segmental accounts for applying internal TNMM, and the interplay between belated return filing and the right to carry forward losses and unabsorbed depreciation from an earlier year.

Procedural Background

Gluhend India Private Limited is engaged in the manufacture of sand/die-casted, investment cast, stamped and machined components from ferrous and non-ferrous metals, employing pressure die casting, sand casting and investment casting processes. For Assessment Year 2022-23, the assessee filed its return of income declaring Nil income. The case was selected for scrutiny through CASS, and given the existence of international transactions with an associated enterprise, the matter was referred to the Transfer Pricing Officer for determination of the Arm's Length Price under Section 92CA(3).

The Transfer Pricing Officer made aggregate adjustments of ₹74,11,20,996. The Assessing Officer also declined to permit carry forward of the long-term capital loss and unabsorbed depreciation from Assessment Year 2021-22. The assessee raised objections before the Dispute Resolution Panel — 1, Mumbai, which largely upheld the adjustments. The assessee thereafter preferred the present appeal before the Tribunal.

Issue 1 — Validity of Scrutiny Notice Under Section 143(2)

Assessee's Challenge

The assessee contended that the notice issued under Section 143(2) dated 2 June 2023 was not in conformity with the format prescribed by CBDT Instruction F.No. 225/157/2017/ITA-II dated 23 June 2017, and therefore the entire assessment proceedings were vitiated and liable to be quashed.

Tribunal's Ruling

The Tribunal noted that this precise question had been authoritatively settled by the Special Bench of the ITAT in M.D. Sons v. ITO — ITA No. 1413/Bang/2025, which was specifically constituted to decide whether non-compliance with the CBDT Instruction dated 23.06.2017 regarding the format of notices under Section 143(2) would render the consequential assessment invalid, notwithstanding Section 292B of the Income Tax Act, 1961.

The Special Bench held that:

  • Neither Section 143(2) nor the Income-tax Rules prescribe any statutory format for such a notice.
  • The essential statutory requirement is that the notice be issued within the prescribed time, informing the assessee that its return has been selected for scrutiny and requiring participation in assessment proceedings.
  • The expressions "Limited Scrutiny," "Complete Scrutiny," and "Manual Scrutiny" are purely administrative classifications and do not appear in Section 143(2).
  • Non-mention of the scrutiny category does not affect the Assessing Officer's jurisdiction.
  • While CBDT instructions bind departmental authorities, every deviation from such instructions does not automatically void the proceedings unless a statutory condition for assumption of jurisdiction is affected or actual prejudice is demonstrated.

Respectfully following M.D. Sons v. ITO (supra), the Tribunal dismissed Ground No. 3 raised by the assessee.

Issue 2 — Transfer Pricing Adjustment on Corporate Guarantee: ₹72,80,996

Facts and Background

The assessee had furnished a corporate guarantee in connection with borrowings by Sage International Inc. from external lenders. No actual guarantee commission was charged to or received from the AE. The amount of ₹72,80,996 represented a notional income recorded in the books solely to comply with accounting requirements under Ind-AS.

The Transfer Pricing Officer obtained external bank guarantee commission rates under Section 133(6) of the Income Tax Act, 1961, which ranged from 0.45% to 2.64%, with a median of 1.50%. The TPO then allowed an ad hoc downward adjustment of 0.50% to account for the difference between bank guarantees and corporate guarantees, arriving at an arm's length rate of 1%. The DRP upheld this rate and sustained the adjustment of ₹72,80,996 in full.

Assessee's Contentions

The assessee raised the following arguments: