Tax Tribunal Rules Bank Guarantee Commission Comparability Essential Prior to Transfer Pricing Adjustments

The Mumbai bench of the Income Tax Appellate Tribunal has deleted transfer pricing adjustments and investment valuation loss disallowances concerning Rabobank. The judicial panel held that adjustments regarding bank guarantee rates cannot be sustained without establishing proper functional comparability between the transactions, while remanding tax deduction at source and computation claims back for factual verification.

This decision provides clarity on transfer pricing standards applied to financial guarantees, reinforcing the principle that comparable uncontrolled price methods require matching risk profiles and commercial terms. It prevents tax authorities from making arbitrary pricing adjustments without robust comparative analysis of financial services.

Taxpayers facing similar transfer pricing scrutiny on guarantee fees must review their benchmarking studies to ensure robust functional comparability. Finance teams should collate necessary documentation to support tax deduction at source verifications mandated by the tribunal's remand order.