The issue for consideration of the Tribunal was as under:
Whether Letter of Comfort issued by the assessee-company to its Associate Enterprise (‘AE’) could be deemed as international transaction under transfer pricing provisions?
The Tribunal held as under:
1) Letter of Comfort was nothing but a guarantee given by the assessee-company to its AE so as to enable the AE to avail of loan facility. By giving such loan, the assessee exposed itself to the risk of repaying the loan availed by the AE.
2) However, in Redington (India) Ltd. v. Asstt. CIT  69 taxmann.com 351 (Chennai), the Tribunal held that such a guarantee or Letter of Comfort did not involve any cost to the assessee, therefore, it was outside the ambit of international transaction.
3) Thus, following such verdict of Redington (supra) it could be concluded that Letter of Comfort given to AE could not be deemed as international transaction and there would not be any need to make any adjustment in respect of Letter of Comfort. Accordingly, the orders of the lower authorities were to be set aside. - TVS Logistics Services Ltd. v. DY. CIT  72 taxmann.com 89 (Chennai - Trib.)