ITAT Ranchi Resolves Key Transfer Pricing and Deduction Disputes for Usha Martin: Rulings on Corporate Guarantee, Carbon Credits, and Section 80-IA

The Income Tax Appellate Tribunal (ITAT) has delivered a comprehensive ruling addressing multiple complex facets of corporate taxation, transfer pricing, and statutory deductions. In the matter of Usha Martin Limited Vs ACIT, the ITAT Ranchi bench adjudicated on several high-stakes issues pertaining to the Assessment Year 2008-09. The judgment, delivered in ITA No.272/RAN/2017, provides critical clarity on the arm's length pricing of corporate guarantees, the benchmarking of interest rates on foreign borrowings, the valuation of captive power for deductions under Section 80-IA, and the tax treatment of carbon credit receipts prior to statutory amendments.

This detailed analysis breaks down the tribunal's findings, the precedents relied upon, and the broader implications for corporate assessees navigating similar tax controversies under the Income-tax Act, 1961.

Procedural Background and Unpressed Grounds

The assessee, Usha Martin Limited, preferred an appeal against the appellate order passed by the CIT(A), Ranchi, dated 04.08.2017 in Appeal No. 468/Ran/Oth/11-12, which originally pertained to the Assessment Year 2008-09. During the course of the appellate proceedings before the ITAT, the authorized representative for the assessee opted not to press certain grounds of appeal. Specifically, Ground Nos. 3, 4.1, 4.2, 4.3, 5.1, and 5.2 were withdrawn and subsequently dismissed by the tribunal as not pressed. Ground No. 1 was acknowledged as general in nature, requiring no specific adjudication.

The core of the legal battle centered around Ground Nos. 2 through 8, which involved substantial questions of transfer pricing adjustments and the interpretation of capital versus revenue receipts.

Transfer Pricing Adjustments: Corporate Guarantee and Interest Rates

Benchmarking the Arm's Length Price of Corporate Guarantees

A primary point of contention (Ground Nos. 2 to 2.4) revolved around the international transactions undertaken by the assessee, specifically the provision of a corporate guarantee to its overseas entities. The Transfer Pricing Officer (TPO) had benchmarked the arm's length price (ALP) of this corporate guarantee at a rate of 4%, relying heavily on previous assessment orders. The CIT(A) had upheld this significant addition.

In its defense, the assessee drew the tribunal's attention to a coordinate bench decision in its own case for the preceding Assessment Year 2007-08 (ITA No. 68/Ran/2017 dated 12.06.2025). In that earlier ruling, the tribunal had extensively analyzed the judicial landscape surrounding corporate guarantees, placing reliance on the landmark rulings of the Bombay High Court in Everest Kanto Cylinder Ltd. vs. DCIT (reported as TS 200 HC 2015 and TS 960 HC 2018).

The jurisprudence established in Everest Kanto Cylinder Ltd. vs. DCIT dictates that a corporate guarantee is fundamentally different from a bank guarantee. While banks issue guarantees as a core business activity driven by profit margins and strict risk assessments, a parent company issues a corporate guarantee to facilitate the business operations of its subsidiary, often without an explicit profit motive. Consequently, equating the commission rates of bank guarantees with corporate guarantees is flawed. The High Court in that instance had determined that an ALP of 0.5% was appropriate for corporate guarantees.