Corporate guarantee to AE is an international transaction ineligible for Section 80-IAB deduction.

By | October 14, 2026
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Corporate guarantee to AE is an international transaction ineligible for Section 80-IAB deduction.

Issue

  1. Corporate Guarantee as International Transaction: Whether providing an irrevocable and unconditional corporate guarantee to an Associated Enterprise (AE) constitutes an “international transaction” requiring determination of the Arm’s Length Price (ALP).
  2. Eligibility for Section 80-IAB Deduction: Whether a corporate guarantee fee (or TP adjustment in respect thereof) is eligible for tax deduction under Section 80-IAB as profits and gains derived from the business of developing a Special Economic Zone (SEZ).
  3. Appropriateness of Guarantee Fee Rate: Whether applying a benchmark corporate guarantee fee rate of 0.5% per annum to determine the ALP is justified when the assessee provides no factual or methodological basis for its internal pricing.

Facts

  • The assessee, a private limited company engaged in the development, leasing, and maintenance of commercial real estate and related interiors in an SEZ, filed its return of income for Assessment Year 2022–23 claiming deduction under Section 80-IAB.
  • During the relevant year, the assessee provided an irrevocable and unconditional corporate guarantee of ₹271.90 crores along with a security trustee in favor of its Associated Enterprise (AE), EOP REIT, to back its debenture borrowings.
  • The corporate guarantee enhanced the creditworthiness of the AE, enabling it to secure loans at lower interest rates.
  • The assessee reported the transaction in Form 3CEB as a specified domestic transaction and recognized a nominal corporate guarantee fee of ₹0.50 lakh in its books of account without providing any calculation or applying any prescribed Transfer Pricing method.
  • The Transfer Pricing Officer (TPO) held the corporate guarantee to be an international transaction under Section 92B.
  • The TPO determined the ALP using a benchmark rate of 0.5% per annum for the period of 102 days, computing the total guarantee fee at ₹37.99 lakhs, and proposed a net TP adjustment of ₹37.49 lakhs after giving credit for the ₹0.50 lakh recorded by the assessee.
  • The TPO/AO further held that the corporate guarantee fee income/adjustment was not eligible for deduction under Section 80-IAB.

Decision

  • International Transaction: In favor of Revenue. The provision of an irrevocable and unconditional corporate guarantee to an AE increases its creditworthiness and constitutes an international transaction under Section 92B requiring ALP determination.
  • Ineligibility for Section 80-IAB Deduction: In favor of Revenue. Section 80-IAB deduction is restricted strictly to profits and gains derived from the activity of developing an SEZ. Providing corporate guarantees is not part of the SEZ development business activity; hence, deduction under Section 80-IAB cannot be claimed against corporate guarantee fee income.
  • Appropriateness of 0.5% Per Annum Guarantee Fee: In favor of Revenue. In the absence of any prescribed method or detailed calculation submitted by the assessee to support its nominal fee of ₹0.50 lakh, the TPO was fully justified in applying a 0.5% per annum fee rate to compute the ALP and make the net TP adjustment of ₹37.49 lakhs.

Key Takeaways

  • Corporate Guarantees Are Subject to Transfer Pricing: Issuing corporate guarantees to foreign or related AEs to enhance borrowing capacity or lower interest rates constitutes an international transaction that must be benchmarked at arm’s length.
  • Strict Nexus Required for Section 80-IAB: Profit-linked deductions under Section 80-IAB apply strictly to core income derived directly from SEZ development activities, excluding ancillary or financial receipts such as guarantee commissions.
  • 0.5% Standard Benchmark for Guarantee Fees: A 0.5% per annum corporate guarantee fee is a widely accepted arm’s length standard, particularly when taxpayers fail to benchmark their transactions using statutory valuation methods.
IN THE ITAT PUNE BENCH ‘C’
Qubix Business Park (P.) Ltd.
v.
Deputy Commissioner of Income-tax
Vinay Bhamore, Judicial Member
and Dr. Manish Borad, Accountant Member
IT APPEAL No. 2420 (PUN) OF 2025
[Assessment year 2022-23]
SEPTEMBER  16, 2026
Ajay Rotti for the Appellant. Smt. Sudha Gupta, CIT-DR for the Respondent.
ORDER
Dr. Manish Borad, Accountant Member.- The captioned appeal at the instance of assessee pertaining to A.Y. 2022-23 is directed against the order of Assessing Officer passed u/s.143(3) r.w.s.144C(13) r.w.s.144B of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).
2. Brief facts of the case are that the assessee is a Private limited company primarily engaged in the business of Development, Leasing and Maintenance of commercial Real Estate and related interiors. Return of income for A.Y. 2022-23 filed on 23.10.2023 declaring Nil income after claiming deduction u/s.80IAB(10) of the Act. Income u/s.115JB of the Act has been declared at Rs.26,88,16,708/-. Case selected for scrutiny through CASS for various reasons followed by validly serving notices u/s.143(2) and 142(1) of the Act. Ld. Assessing Officer on observing that assessee has entered into international transaction, referred the matter to the Transfer Pricing Officer who has subsequently passed order dated 09.01.2025 making upward adjustment of Rs.37,49,234/- in respect of Corporate Guarantee Fee. Ld. Transfer Pricing Officer (TPO) also observed that such Corporate Guarantee Fee is not eligible for deduction u/s.80IAB(10) of the Act. Based on the order passed by the ld. Transfer Pricing Officer, ld. Assessing Officer prepared a draft assessment order dated 24.03.2025 u/s.144C(1) of the Act making the addition for Transfer Pricing adjustment for Corporate Guarantee Fee at Rs.37,49,234/- and assessed the income at the same amount. Thereafter, assessee filed objections against the draft assessment order dated 24.03.2025 making multifold arguments to which ld. Dispute Resolution Panel did not find favour as it held that the transaction of Corporate Guarantee Fee is part of the International Transaction that there is no mention about the computation of Arm’s Length Price of the Corporate Guarantee Fee in the Transfer Pricing Study Report, that deduction u/s.80IAB(10) of the Act is not allowable on the Corporate Guarantee Fee and lastly affirmed the calculation of Corporate Guarantee Fee made by the ld. TPO. In compliance with the directions of the ld. Dispute Resolution Panel dated 15.07.2025 ld. Assessing Officer prepared the final assessment order dated 07.08.2025 passed u/s.143(3) r.w.s.144C(13) r.w.s.144B of the Act on account of addition for Transfer Pricing adjustment for Corporate Guarantee Fee at Rs.37,49,234/-. Now the assessee is in appeal before this Tribunal raising the following grounds of appeal :
“The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under:
1. Final assessment order and Transfer Pricing order are bad in law and are liable to be quashed
1.1. The final assessment order issued under section 143(3) read with sections 144C(13) and 1448 of the Income-tax Act, 1961 (‘the Act’) by the National Faceless Assessment Centre (‘NFAC’)/ Deputy Commissioner of Income Tax, Circle 8, Pune (‘Ld. AO’) pursuant to the directions of the Hon’ble Dispute Resolution Panel (Hon’ble DRP) is bad in law and liable to be quashed.
1.2. The Transfer Pricing Order under section under section 92CA(3) of the Act issued by the Assistant Commissioner of Income Tax, Transfer Pricing (ACIT/DCITTP) 2(1), Pune (‘Ld. TPO’) is bad in law and liable to be quashed.
2. Adjustment on account of Corporate Guarantee
2.1. The Hon’ble. DRP and the Ld. TPO have failed to appreciate that the subject transaction neither qualifies as an ‘international transaction under Section 928 of the Act, nor a ‘specified domestic transaction under Section 92BA of the Act, accordingly, no transfer pricing adjustment can be made.
2.2. The Hon’ble. DRP and the Ld. TPO have erred in concluding that issue of corporate guarantee qualifies as an international transaction, even though such corporate guarantee does not have a bearing on the profits, income, losses or assets of the Appellant.
2.3. The Hon’ble. DRP and the Ld. TPO have erred in making an adjustment which has resulted in increasing the profits of the Assessee and corresponding deduction under Section 80-IAB of the Act, thereby violating the scope of section 80-IA(10) of the Act.
2.4. The Hon’ble DRP and the Ld. TPO have erred in law and on facts in not considering that the guarantee extended by Qubix to Embassy Office Parks REIT is a shareholder activity and the Company’s expectation from providing the said guarantee was not that of a guarantor to earn guarantee fees.
2.5. The Hon’ble DRP and the Ld. TPO have erred in law and on facts in not appreciating that the corporate guarantee is a conditional debt contingent in nature, which may happen or may not happen depending upon the contingency of default by the principaldebtor.
2.6. The Hon’ble DRP and the Ld. TPO have erred in law and on facts in making an adjustment towards corporate guarantee fee without conducting a proper benchmarking analysis as required under section 92C of the Act and the relevant Rules, and by arbitrarily applying a rate of 0.5% per annum based on judicial precedents.
3. Short grant of credit of Taxes Deducted at Source
The NFAC/Ld. AO have erred in law and on facts in not granting the full TDS credit as appearing in Form 26AS.
4. Erroneous computation of interest under section 244A of the Act
The NFAC/Ld. AO have erred in law and on facts not grating interest on refund under section 244A of the Act.
5. Initiation of penalty proceedings under section 274 read with 270A of the Act
The NFAC / Ld. AO have erred in initiating penalty proceedings under section 274 read with 270A of the Act.
6. Relief
6.1. The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto.
6.2. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.”
3. Ld. Counsel for the assessee made submissions referring to the paper book running into Pages 1 to A186 and Pages 1 to D63. He however fairly admitted that the issue is no longer res integra that Corporate Guarantee given to Associated Enterprise is also part of the International Transaction and subject to calculation of Arm’s Length Price He also submitted that Corporate Guarantee Fee extended by the assessee to Embassy Officer Parks REIT is a shareholder activity and the company’s expectation from providing the said Guarantee was not that of a Guarantor to earn Guarantee Fee. He also submitted that the Corporate Guarantee is a conditional debit contingent in nature, which may happen or may not happen depending upon the contingency of default by the principal debtor. He also submitted that ld. DRP has affirmed the finding of ld. TPO applying Corporate Guarantee at 0.5% per annum without conducting proper benchmarking analysis as required u/s.92C of the Act. So far as the issue relating to short grant of TDS, prayer made for setting aside the issue to the file of ld. Jurisdictional Assessing Officer for necessary verification.
4. On the other hand, ld. Departmental Representative supported the order of ld. Dispute Resolution Panel.
5. We have heard the rival contentions and perused the record placed before us. We observe that during the year under consideration the assessee company along with IDBI Trusteeship Services Limited (the Security Trustee) entered into a Corporate Guarantee Agreement dated 20.12.2021 with EOP REIT which has borrowed certain amount by way of issue and allotment of rupee denominated, listed, rated, secured, redeemable, transferable non-convertible debentures on private placement basis. In lieu of the above, assessee is carrying on this obligation of EOP REIT by providing irrevocable and unconditional Guarantee amounting to Rs.271.90 crore to the Security Trustee that if the debt that is due is not paid by the issuer, i.e. EOP REIT, then the assessee shall unconditionally pay such amount as if it was the principal obligator. We note that the assessee has itself mentioned transaction of providing Corporate Guarantee as a Specified domestic Transaction in its Form No.3CEB.
6. During the course of hearing itself, ld. Counsel for the assessee fairly accepted that in view of the amendment brought in by the Explanation to section 92B of the Act effective from 01.01.2002 and plethora of judicial pronouncements consistently holding that giving/taking Corporate Guarantee to/from Associated Enterprise is part of the International Transactions. Explanation clause (c) inserted to section 92B effective from 01.01.2002 provides that “capital financing including any type of long term or short term borrowing, lending or guarantee, purchase and sale of marketable securities or any type of advance, payment or deferred payment or receivable or any other debt arising during the course of business”. Thus, capital financing includes word Guarantee and therefore since the Corporate Guarantee transaction with Associated Enterprise is an International Transaction, therefore, the Arms Length Price is to be calculated for such transaction.
7. We further observe that issuing of Corporate Guarantee with entities increase the issuer’s risk profile even though there is no explicit cost for such international transaction. Provisions of Guarantee always involve risk and there is service provided to Associate Enterprise increasing its creditworthiness in obtaining loans from the market or through any other financial institutions or other by way of giving Corporate Guarantee. The creditworthiness of the Associate Enterprise is increased by obtaining a loan from the marker or through any other financial institution at a lower interest rate as compared to the rate on stand alone basis without a Guarantee. In view of the above, we find that ld. DRP has rightly affirmed the action of the ld. TPO estimating the Corporate Guarantee Fee on the alleged transaction at Rs.37,49,234/- is in the nature of Corporate Guarantee given by the assessee for the loan taken by Embassy EOP-REIT. Accordingly, Ground Nos. 2.1, 2.2 and 2.4 raised by the assessee are hereby dismissed.
8. As regards Ground No.2.3 as to whether the assessee is eligible to claim deduction u/s.80-IAB of the Act for the profits increased on account of alleged Corporate Guarantee Fee we find that the deduction claimed by the assessee is with regard to profits and gains by an undertaking enterprise engaged in the development of Special Economic Zone. So the income earned from carrying out the activity of development of Special Economic Zone is only eligible for the deduction u/s.80-IAB of the Act. However, providing of Corporate Guarantee Fee is not part of the business activity relating to development of Special Economic Zone and therefore the benefit cannot extend on the Corporate Guarantee Fee and therefore the assessee cannot claim deduction u/s.80-IAB of the Act for the alleged Corporate Guarantee Fee but still considering the risk involved the assessee ought to have charged the Corporate Guarantee Fee. Ground No.2.3 raised by the assessee is dismissed.
9. So far as Ground Nos. 2.5 and 2.6 are concerned, the same are against the quantum of the alleged addition and application of 0.5% rate for calculating the Corporate Guarantee. We note that the assessee has not applied any method for calculating the Corporate Guarantee Fee as there is no mention about the same in the Transfer Pricing Study Report. We note that as per Rule 10AB, the determination of Arms Length Price in relation to the international transaction shall be the price which has been charged or would have been charged or paid for the same or similar uncontrolled transaction with or between non associated enterprises under similar circumstances. Considering all the facts ld. Transfer Pricing Officer has referred to the judicial precedents including that of judgment of Hon’ble Bombay High Court in the case of CIT v. Everest Kento Cylinders Ltd.  (Bombay)/ Income Tax Appeal No.1165/2013 dated 08.05.2015 and has calculated the Corporate Guarantee Fee at 0.5% for 102 days for the year and has calculated Rs.37,99,234/-. We also take note that the assesee has also disclosed the Corporate Guarantee Fee of Rs.50,000/- received from Embassy EOP REIT and the deduction for the same has been given. Remaining amount of Rs.37,49,234/- has been added to the income of the assessee. We also take note that the Corporate Guarantee Fee mentioned in the books of account is just a general figure and there is no calculation attached to arrive at the said figure of Rs.50,000/-. Therefore, we fail to find any infirmity in the finding of ld. DRP confirming the calculation made by the ld. Transfer Pricing Officer applying 0.5% rate per annum as Corporate Guarantee Fee. No interference is called for in the finding of ld. DRP. Thus, Ground Nos. 2.5 and 2.6 raised by the assessee are dismissed.
10. Ground No.3 raised by the assessee is against the short grant of TDS as appearing in Form No.26AS. Considering the request made by ld. Counsel for the assessee, we restore the issue to the file of ld. Jurisdictional Assessing Officer for necessary verification and grant the credit of TDS if eligible to the assessee as appearing in Form No.26AS. Ground No.3 raised by the assessee is allowed for statistical purposes.
11. Ground No.1 and 6 raised by the assessee are general in nature and Ground Nos. 4 and 5 raised by the assessee are consequential in nature which need no adjudication.
12. In the result, the appeal of the assessee is partly allowed for statistical purposes.