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TMI Blog2015 (5) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. No substantial question of law - decided against revenue - Income Tax Appeal No. 1165 of 2013 - - - Dated:- 8-5-2015 - S. C. Dharmadhikari And A. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived dividend of ₹ 31,91,330/- and claimed exemption under section 10(33) of the I.T.Act. The assessee was informed that as per Rule 8D of the Income Tax Rule, 2008, the total interest under section 14A was disallowable. The amount of interest paid on Wealth Tax amounting to ₹ 8,313/- was disallowed. The depreciation claim by the assessee on account of foreign exchange variations loss was ₹ 22,71,802/-. The assessing officer disallowed this amount of foreign exchange loss. With specific reference to investments the assessee contended it made investments out of surplus funds available during financial year 2005-06 from an initial public offering. As far as transfer pricing adjustment was concerned when the Transfer Pricing Officer (TPO) passed an order under section 26A dated 28.10.2000 wherein he concluded the amount of guarantee commission received by the assessee from Associated Enterprise was downscaled on Arm's length price by an amount of ₹ 28,50,353/-. The total income was thus assessed at ₹ 28,50,353/- after adjustments and penalty proceedings under section 271(1)(c) were initiated. 4. The TPO in his order dated 28.10.2010 observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and made adjustment of ₹ 28,50,353/- since the amount of ₹ 6,48,650/- (equivalent to 0.5%) had already been provided for. 5. In appeal before the CIT (Appeals) the Commissioner found that in view of the decision of this Court in Godrej and Boyce Manufacturing Co. Ltd. the Assessing Officer was duty bound to work disallowance in terms of section 14A of the reasonable basis and found that the conclusion of Assessing Officer and making disallowance of ₹ 20,27,896/- was reasonably correct and therefore, this ground of assessee was dismissed and the order of the Assessing Offcer was upheld. On the second issue, namely, making of addition of ₹ 28,50,353/- under section 92CA the Commissioner (Appeals) after detail consideration of the order of the TPO came to the conclusion that bank rate and guarantee of the relevant period was 6% whereas PLR was 10.5% which shows that the return for bearing received was 4.5%. He therefore found that return of 3% arrived at by TOP is justified and the challenge on this ground of the appellant was also rejected. 6. Against the dismissal of the appeal, the assessee approached the Income Tax Appellate Tribunal questioning rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law are substantial questions of law and therefore ought to considered and the appeal be admitted. 8. Mr.Pardiwalla appearing on behalf of the assessee pointed out that the first issue of disallowing interest under section 14A of the I.T. Act, the order of the tribunal was prefectly justified and the disallowance of ₹ 1 lakh is also justified in view of the fact that the adjustment to the extent of ₹ 4,47,649/- that was offered before the Assessing Officer was not based on the original return at all. He pointed out that the original return did not contain any such concession and adhoc figure was something that the assessee submitted during the course of assessment. The admission was thus not a part of the return filed and which was before the Assessing Officer and the Assessee could not be bound by it. He therefore submitted that the qualification made by the Tribunal was appropriate considering the facts of the case. He further submitted that a sum of ₹ 11.09 crores which was invested was sourced from funds raised by way of Initial public offering (IPO) to extent of ₹ 90 crores. It was found to have been made out of funds raised by IPO and order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be bound by it. The Tribunal as the second fact finding authority had gone into factual aspects in great detail and therefore having interpreted the law as it stood on the relevant date the order passed cannot be faulted. In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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