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2021 (8) TMI 1210 - AT - Income TaxTP Adjustment - corporate guarantee forms an international transaction or not? - Retrospective amendment to Section 92B - HELD THAT - All the legal arguments fail to convince us as per Hon'ble Madras high court s recent decision in Pr.CIT Vs. M/s.Redignton (India) Limited, 2020 (12) TMI 516 - MADRAS HIGH COURT holds that Explanation to Section 92B inserted vide the Finance Act, 2012 with retrospective effect from 01-04-2002 also includes a corporate guarantee. We thus hold that the tribunal s all foregoing orders must make way for higher wisdom and decline the assessee s first and foremost legal plea. Quantification of the impugned corporate guarantee adjustment - As relying on own case 2016 (1) TMI 936 - ITAT HYDERABAD adopt judicial consistency and direct the TPO to adopt 0.53% rate in both these assessees cases in all these respective assessment years. Quantification of the corporate guarantee adjustment itself in all these three assessment years - There is no dispute between the parties that the TPO herein had himself made it clear that in case of guarantees covering more than one financial year the fee is charged by the banks at the beginning of the financial year on the outstanding amount . As against this, the Revenue fails to dispute that case law BS LTD. 2018 (4) TMI 1742 - ITAT HYDERABAD , MANUGRAPH INDIA LTD. 2015 (3) TMI 1103 - ITAT MUMBAI and M/S ACG ASSOCIATED CAPSULES PVT. LTD 2012 (2) TMI 101 - SUPREME COURT hold that such a corporate guarantee adjustment could only be made to the extent of actually utilized amount during the year than that of the full value of the guarantee itself. We adopt the very reasoning herein as well and directing the TPO to re-compute the impugned adjustment after taking into consideration only the actually utilised amount of the corresponding corporate guarantees in these three cases. The assessees identical first and foremost ground in all these three appeals is partly accepted in foregoing terms. Disallowance u/s 14A r.w.r. 8D - proof of sufficient non-interest bearing funds - HELD THAT - Section 14A read with Rule 8D applies only in relation to an assessee s exempt income than having any independent exigibility. It is an admitted fact that the assessee has not derived any exempt income in the relevant previous year. We therefore direct the Assessing Officer to delete the impugned disallowance for this precise reason alone.
Issues Involved:
1. Corporate Guarantee's Arm's Length Price (ALP) adjustment. 2. Section 14A read with Rule 8D disallowance. Detailed Analysis: 1. Corporate Guarantee's Arm's Length Price (ALP) Adjustment: The primary issue revolves around the determination of whether a corporate guarantee constitutes an international transaction. The assessees argued that corporate guarantees should not be considered international transactions, citing various precedents such as Micro Inc Ltd. Vs. ACIT and Bharti Airtel Ltd Vs. ACIT. However, the tribunal was not convinced by these arguments due to the Hon'ble Madras High Court's decision in Pr.CIT Vs. M/s. Redington (India) Limited, which clarified that the Explanation to Section 92B, inserted by the Finance Act, 2012 with retrospective effect from 01-04-2002, includes corporate guarantees as international transactions. Consequently, the tribunal upheld the lower authorities' decision to treat corporate guarantees as international transactions. Regarding the quantification of the corporate guarantee adjustment, the tribunal referred to its earlier decisions in the case of M/s. Rain Industries Ltd. for AY 2008-09 and 2009-10, directing the lower authorities to adopt a 0.53% commission rate instead of the higher rates between 1.30% to 2.10% used by the TPO. This consistent judicial approach was maintained for the current assessment years. Furthermore, the tribunal addressed the quantification of the corporate guarantee adjustment itself, emphasizing that such adjustments should be limited to the actually utilized amount during the year rather than the full value of the guarantee. This approach aligns with precedents like BS. Ltd. Vs. ACIT and ACG Associated Capsules Pvt. Ltd. Vs. CIT. The tribunal directed the TPO to re-compute the adjustment based on the actually utilized amount of the corporate guarantees. 2. Section 14A read with Rule 8D Disallowance: The second issue pertains to the disallowance under Section 14A read with Rule 8D. In the case of M/s. Rain Cements Ltd., the tribunal noted that the assessee had not derived any exempt income during the relevant year. Citing case laws such as CIT Vs. Chettinad Logistics Pvt. Ltd. and CIT Vs. Corrtech Energy Pvt. Ltd., the tribunal held that Section 14A read with Rule 8D applies only when there is exempt income. Consequently, the tribunal directed the Assessing Officer to delete the disallowance for this reason. For the other assessee, M/s. Rain Industries Ltd., the tribunal observed that although the assessee had derived exempt income, the lower authorities had not recorded any satisfaction as required under Section 14A(ii) regarding the assessee's books of accounts. The tribunal cited precedents like Hindustan Aeronautics Ltd. Vs. ACIT and emphasized the necessity of recording such satisfaction before invoking Rule 8D. The case was remanded back to the Assessing Officer for fresh adjudication, considering the assessee's fund position and non-utilization of interest-bearing funds. In another appeal, the tribunal noted that the assessee had claimed sufficient non-interest-bearing funds and no direct or indirect expenditure for deriving exempt income. However, as no details were provided, and the disallowance was less than the exempt income, the tribunal affirmed the disallowance, referencing the Delhi High Court's decision in Joint Investments Pvt. Ltd. Vs. CIT. Conclusion: The tribunal's judgment addresses the issues of corporate guarantee adjustments and Section 14A disallowances comprehensively, providing detailed reasoning and references to relevant case laws. The appeals were partly allowed, with specific directions for re-computation and fresh adjudication where necessary. The judgment emphasizes judicial consistency and adherence to legal precedents in determining the appropriate adjustments and disallowances.
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