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TMI Blog2021 (8) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... t three case files suggest that the assessees have raised twin identical substantive grounds raised seeking to reverse the learned lower authorities' action making corporate guarantee's Arm's Length Price (ALP) adjustment of Rs. 6,46,01,780/-, Rs. 1,58,06,313/- and Rs. 2,11,55,200/- u/s.92CA(2) of the Act; followed by Section 14A r.w. Rule 8D disallowance(s) of Rs. 1,06,42,020/-, Rs. 7,58,750/- and Rs. 7,70,000/-; respectively. We therefore propose to dispose-of all the three instant appeals together for the sake of convenience and brevity. 3. Learned counsel's first and foremost argument raises a legal question as to whether a corporate guarantee forms an international transaction or not being a shareholder activity as per Micro Inc Ltd. Vs. ACIT (2015) 63 taxmann.com 353 (Ahd), Bharti Airtel Ltd Vs. ACIT (2014) 63 SOT 113 (Delhi) and ACIT Vs. Imami Ltd., ITA No.1958/Kol/2017, dt. 03-04-2019. And also that such a transaction involves no benchmarking as held in DCIT Vs. Dishman Pharmaceuticals and Chemicals Ltd. [103 taxmann.com 271] (Ahd), M/s.Ucal Fuel Systems Ltd., Vs. ACIT, ITA No.725/Mds/2015 and Aaradhana Realities Ltd., Vs. ACIT, ITA No.1942/M/2015 as well. All these legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantees were extended, where Associated Enterprises of the assessee and the transactions were largely influenced by related parties, the Associated Enterprises benefited and consequently, the income would accrue only to such non-resident and to that extent, shifting of tax base from the country is bound to happen in such transaction and the assessee should have been remunerated appropriately. The Corporate Guarantee was to the tune of Rs. 5574.13 lakhs and Bank Guarantee to the tune of Rs. 40862.34 lakhs. Further, the TPO observed that there is no time period for expiry of the guarantee. Consequently, it will demand more commission charges than the commission charged by the Banks. That apart, the assessee had taken maximum risk in providing Bank Guarantee to their subsidiaries and the entire credit risk is owned by the assessee, the Indian Company and it has to be reimbursed at maximum percentage of fees. Further, the TPO noted as to the manner in which the Bank's charge commission on guarantees extended and observed that the Bank will insist upon cash deposits / guarantee deposits / asset mortgage etc., to extend guarantees on behalf of their clients. Further, it was pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide Assessment Order dated 17.01.2014. The Tribunal held that the TP addition made against the Corporate and Bank Guarantee is not sustainable in law. This conclusion is by observing that the assessee has provided Corporate and Bank Guarantees for the overall interest of its business. It referred to the decision of the Delhi Tribunal in the case of Bharti Airtel Ltd., wherein it is held that Corporate Guarantee does not involve any cost to the assessee and therefore, it is not an international transaction even under the definition of the said term as amended by the Finance Act, 2012. The Tribunal is a final authority to render findings on fact. The Tribunal failed to give any reason as to how the decision in Bharti Airtel Limited would apply to the assessee's case. Furthermore, there was no record placed before the Tribunal by the assessee that they have not incurred any cost for providing Bank Guarantee. As observed earlier, the TPO has compared the nature of documentation executed by the assessee in favour of his Associated Enterprise to come to the factual conclusion that it is a financial service. This finding of fact has not been interfered by the DRP, but the DRP was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etrospective in its effect such that it will also cover within its ambit guarantees issued prior to the introduction of the explanation by Finance Act 2012. 71.We find from the grounds of appeal filed by the assessee before the Tribunal, no ground was raised as regards the argument that the explanation added by Finance Act 2012, is to be construed as prospective in its application. Furthermore, the Tribunal has also not recorded in its order, more particularly, from Paragraph 92 that the assessee had argued on the issue regarding prospectivity / retrospectivity. Further, the assessee has not challenged the validity of the Explanation nor its applicability with retrospective effect. That apart, even before the DRP, such contention was not raised. The Hon'ble Supreme Court in Gold Coin Health Food Private Limited, while deciding the issue whether an amendment was clarificatory or substantive in nature or whether it will have retrospective effect held as follows: 14. The presumption against retrospective operation is not applicable to declaratory statutes In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein it was held that when an amendment is brought into force from a particular date, no retrospective operation thereof can be contemplated prior thereto. The explanation in Section 92B specifically has been given retrospective effect and it is clarificatory in nature and for the purpose of removal of doubts. This issue was considered by this Court in the case of Sudexo Food Solutions India Private Ltd. 75.The concept of Bank Guarantees and Corporate Guarantees was explained in the decision of the Hyderabad Tribunal in the case of Prolifies Corporation Limited. In the said case, the Revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of Section 92B does not enlarge the scope of the term international transaction to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 5. Next comes the latter identical issue of Section 14A r.w. Rule 8D disallowance. It emerges at the outset that the latter assessee, M/s.Rain Cements Ltd. has not derived any exempt income so far as its appeal ITA No.2020/Hyd/2017 is concerned. We thus quote the following case law : i. CIT Vs. Chettinad Logistics Pvt. Ltd., [80 taxmann.com 221] (Madras); ii. CIT Vs. Corrtech Energy Pvt. Ltd., [223 Taxman 130] (Guj); iii. Cheminvest Ltd., Vs. CIT (2015) [378 ITR 33] (Del) Their lordships hold 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts prima facie followed by the non-utilization of interest bearing funds as per law. We order accordingly. The former assessee's appeal ITA No. 1950/Hyd/2017 raising these twin issues is partly allowed in foregoing terms. 8. We are now left with the latter assessee's appeal ITA No.1471/Hyd/2018 raising the second substantive ground of Section 14A Rule 8D disallowance of Rs. 7,70,000/- qua its exempt income of Rs. 30,69,895/-. Although the assessee has claimed to have sufficient non-interest bearing funds and not having incurred any direct or indirect expenditure for deriving the above stated exempt income, no such details to this effect form part of records before us. There is further no rebuttal to the fact that the impugned disallowance is much less than the exempt income itself as per hon'ble Delhi high court's decision in Joint Investments Pvt. Ltd. Vs. CIT 372 ITR 694 (Delhi). We therefore deem it appropriate in these peculiar facts and circumstances to affirm the impugned disallowance. The latter assessee fails in its second substantive grievance. This last appeal ITA No. 1471/Hyd/2018 is partly allowed in above terms. 9. These twin assessees' appeals are partly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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