The Tax Publishers2020 TaxPub(DT) 1784 (Mum-Trib)

INCOME TAX ACT, 1961

Section 92B

There is a fundamental between guarantee and Letter of Comfort. Guarantee is legally enforceable; however, Letter of Comfort is not Letter of Comfort merely indicates assurance that assessee would comply term of financial transaction without guaranteeing performance in the event of default by AE. Issuance of Letter of Comfort had no bearing on profit, income/loss as assessee did not incur any cost or expenditure for issuing such Letter of Comfort and, therefore, it did not constitute international transaction under section 92B.

Transfer pricing - International transaction - Issuance of Letter of Comfort to Bankers of AE -

Assessee issued letter of Comfort to bankers of AE abroad. AO treated said transaction as equivalent to corporate gurantee and accordingly, made reference to TPO for determination of ALP.Held: There is a fundamental between guarantee and Letter of Comfort. Guarantee is legally enforceable; however, Letter of Comfort is not Letter of Comfort merely indicates assurance that assesse would comply term of financial transaction without guaranteeing performance in the event of default by AE. Issuance of letter of Comfort had no bearing on profit, income/loss as assessee did not incur any cost or expenditure for issuing such letter of Comfort and, therefore, it did not constitute international transaction under section 92B.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 37(1)

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