TaxTMI 
TaxTMI 
2017 (12) TMI 1745
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....O/TPO in making transfer pricing adjustment on account of guarantee fees despite the finding given by himself that the Appellant was justified in not charging any guarantee fees since guarantee provided by the Appellant was in the capacity of parent company and out of commercial expediency of the Appellant. 3. The Id. CIT(A) has erred in law and on the facts in confirming 0.75% as guarantee fees and accordingly erred in sustaining the transfer pricing adjustment of Rs. 3,82,00,000/- out of total adjustment of Rs. 42,84,19,175/- made by the Id. AO/TPO on account of guarantee provided to Associated Enterprise. 4. The Id. CIT(A) has erred in law and on the facts in confirming the action of Id AO/TPO in making transfer pricing adjustment on account of guarantee fees, despite the finding given by himself that the Appellant was justified in not charging any guarantee fees since it was joint and counter guarantee provided by the Appellant in the capacity of parent company and out of commercial expediency of the Appellant. 5. Both the lower authorities have passed the orders without properly appreciating the facts and that they further erred in grossly ignoring v....
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.... for acquisition of a German company by the name of RE Power Systems AG. The first transaction was for the loan of Rs. 4,660.89 crores, for acquisition of RE Power Systems AG, and the second transaction was for acquisition, by SE Drive Tecknik GmbH, of balance stake in RE Power Systems AG. The assessee had not charged any fees for issuance of these corporate guarantees. The stand of the assessee was that these guarantees were given in the stewardship capacity and hence need not be benchmarked. It was also submitted that these are cross guarantees by the group entities in a manner that each of the entity stood a guarantee for each other in circulating as well as reciprocating manner. The assessee further clarified that standing as a guarantor for the subsidiary does not result in any provision for services which can be treated as an international transaction. It was based on these, and several other, arguments that the assessee contended that the transaction of giving corporate guarantees cannot be treated as an international transaction. Without prejudice to this stand, it was further submitted that ICICI Bank has given a guarantee to the group in consideration of guarantee commiss....
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....nds of the assessee under the transfer pricing provisions of Chapter X, the assessee argued that the said "loans" were in fact "quasi-equity" and made out of commercial expediency. It was also argued that notional income could not be assessed to tax, HELD rejecting both arguments: (i) The argument that the loans were in reality not loans but were quasicapital cannot be accepted because the agreements show them to be loans and there is no special feature in the contract to treat them otherwise. There is also no reason why the loans were not contributed as capital if they were actually meant to be a capital contribution; (ii) The argument that the loans were given on interest-free terms out of commercial expediency is not acceptable because this was not a case of an ordinary business transaction but was on international transaction between associated enterprises. One had to see whether the transaction was at arm's length under the transfer pricing provisions; Once the loan taken by the AEs on the strength of the guarantee are not treated quasi equity, the act of providing a service to the AE by offering corporate guarantee also does not form....
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....ovided guarantee to the buyers on a counter guarantee by the assessee company/group. Hence in effect, the transaction is in the form of guarantee given on the strength of underlying Suzlon guarantee. Since this is not a comparable transaction to the availing of loan facilities, the CUP is rejected. As discussed in detail in the earlier para on the issue of providing guarantee in respect of working capital loans availed by the AEs, a 2% guarantee amount is a reasonable and correct appreciation of risk undertaken by the assessee for which it needs to be compensated at this level. 7.6.9 Without prejudice to the discussion at 7.6.8, the guarantee documents refers to guarantee fee of 0.75% for the first 12 months, 1% for the next 24 months and 1.25% for the subsequent period. The agreement is a part of the overall facility agreement meaning thereby that this transaction between SE Drive Technik and ICICI Bank has also been guaranteed by the assessee company (along with the other four companies to the transaction) as a principal guarantor. Inspite of an underlying guarantee, the bank has charged a fee of 1% (since the period is over 12 months). It has also charged a fronting fee....
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....scribing the corporates (group companies) who are party to the agreement, the assessee has been described as "the company and an Original Guarantor). The other companies are described as "the borrower and guarantor" Hence, implication of this categorisation puts a higher onus on the assessee than the other members, (ii) At para 27, under 'Indemnities and Break costs', the agreement states that "The Company must, as an independent obligation, indemnify each Finance Party against any loss or liability which that Finance Party incurs..........". As per the definition, the company means Suzlon Energy Ltd or the assessee company. (iii) At para 27.2, under 'Other indemnities', the agreement states, 'The company's liability in each case includes any loss or expense on account of funds borrowed, contracted for or utilized to fund any amount payable under any Finance Document or any credit.' (iv) The assessee or The Company has been given various powers in the agreement and is liable for various expenses related to loan. The Company may introduce or exclude guarantors from the agreement at its discretion. &nbs....
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....e all other companies have huge borrowings with which their financial condition render them risk prone. Since all these companies are also borrowers in the agreement, it is clear that they can not substantiate guarantee taken on behalf of others. Under these circumstances, the assessee's computation showing only 14% guarantee in the hands of the assessee company is clearly unfounded and the 50% level arrived at by this office is more than a generous estimate of the risk being undertaken by the assessee company. The computation of risk and the quantum of guarantee computed by the assessee is rejected as impractical, based on wrong presumptions and based on wrong year data. 7.7.3 The claim for available cash in the hands of the related companies. As discussed in the above para, except SE Drive Technik, none of the companies have any financial standing to account for and hence can hardly be factored in while computing guarantee risks. However, the assessee has submitted following details and has claimed that the cash available in the hands of these companies should be accounted for while computing the risk level and also while computing the amount on which guarantee fee w....
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....ompanies are exposed to part of the loan amount, it is the assessee company which will be called upon to bear the risk. Hence, the action of the assessee company in benchmarking only 14% of the risk to itself is gross error and without any justification. The agreement clearly lays down the principal onus of repayment on the assessee company. Under the circumstances, even by most conservative approximation, not more than 50% of the risk can be said to be attributed to and shared by the other parties to the agreement. The remaining 50% risk will be shared by the assessee company. The total reasonable guarantee fee has been arrived at 2% in the earlier discussion on the issue. The other parties to the agreement have availed of the loans / facilities granted by the agreement. The assessee has not utilized any of such facilities but is merely a guarantor. Hence, it should have charged guarantee fee at 1% of the amount of facility utilized by the other group companies. 7.7.6 Quantification of guarantee fee share in the transaction relating to providing guarantee on guarantee offered by ICICI Bank: As discussed at para 7.6.7, 7.6.8 and 7.6.9, the rate adopted by ICICI Bank cannot....
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....0. Accordingly, the Assessing Officer made the ALP adjustment so proposed by the Transfer Pricing Officer. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without complete success. Learned CIT(A) partly upheld the impugned ALP adjustment. While doing so, he observed as follows: I have gone through the justifications of the Appellant for not charging guarantee fees. It was submitted that Suzlon Rotor Corporation, USA, a rotor blade manufacturing company at USA had availed working capital loan and term loan from Bank of Baroda, New York, by mortgaging its fixed assets viz, factory building, plant & machinery and hypothecation of stock. It was further submitted that the Suzlon Rotor Corporation, USA is a supplier of Blades which is a key component of windmills. The said SRC caters to most of the supply needs in USA. Without SRC, the appellant would have to import the blades from India which would have increased the logistic costs and ultimately the competitive edge in terms of pricing would have been lost. Thus looking to the critical business relationship the Appellant Company had with the SRC it was also commercially beneficial to it to support the sa....
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.... of the Appellant for not charging guarantee fees has force and action of TPO in adopting guarantee fees @ 2% without taking into consideration any comparable instances is not fully justified. However, while dealing with the submission and observation with regard to second upward adjustments on account of guarantee fees, I find that the ICICI Bank Ltd. has charged guarantee fees @ 0.75% for providing a guarantee to one of the AEs i.e SE Drive Technik GmbH. Though appellant stated that no guarantee fees was required to be charged, I am of the opinion that this instance can certainty be taken as an external CUP as this represents the rate of guarantee fees charged by the bank to one of the AEs while providing guarantee. Hence, I modify the addition by adopting 0.75% as guarantee fees as against the 2.00% charged by the TPO, and accordingly, the addition to the extent of Rs. 76,11,000/- (i.e 0.75% of 101.48 Crores) is sustained and the balance amount of Rs. 1,26,85,000/- is hereby directed to be deleted. Now I deal with the second issue which need to be decided i.e. upward adjustment of Rs. 47,83,93,500/- as guarantee fees on account of joint-guarantee provided to the lenders....
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....nt that on account of strategic investment in "R E Power Systems AG", the Appellant has become the market leader in the wind turbine generator with the presence and control over significant global markets, and accordingly the action of Appellant in not charging guarantee fees is justified particularly when a joint and counter guarantee has been provided in the capacity of parent company and out of commercial expediency of the Appellant. I find that the net worth and net asset of all the borrowers has been considered while going through this transaction to ensure that the loan was least risky loan, which also explains the action of the Appellant for not charging guarantee fees. Vide para 9.39 of the written submission, the Appellant submitted that total outstanding borrowings were at Rs. 6402.79 Crores (Rs. 4660.89 Crores + Rs. 1741.90 Crores), whereas, the total Net Worth of the all the group companies / guarantors were at Rs. 20,663.32 Crores. (PI. refer pg. no.259 of P/B). This details would show that the group companies / guarantors had capital base in form of Equity of 20553.32 Crores. Against the said equity base the banks have funded 1he required borrowings, outstand....
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....re guess work. Further as already mentioned earlier that the guarantee fees as charged by the ICICI Bank Ltd @ 0.75% to one of the AEs under the impugned Credit Agreement is the best comparable instance to be treated as benchmark, and therefore, I direct the assessing officer to apply rate of 0.75% as guarantee fees as against 2.00% applied by AO on recommendation of TPO. Now the next question for my adjudication is the allocation of the guarantee fees amongst the Appellant and three other AEs, as the guarantee provided was in the nature of joint and counter-guaranfee. The TPO has attributed 50% share of risk to the Appellant and the balance 50% is attributed to other three AEs all together. Once again, the TPO has not given any cogent reasons to justify his action in attributing 50% of guarantee fees to the Appellant and balance 50% to other three ABs all together. Therefore, this action of TPO is not justified and hereby rejected. Now I must decide as to whether the allocation made is justified or not. My attention is drawn to working given on Pg. No.258-260 of P/B. Going through the said working, it is seen that the Appellant has adopted benchmark rate of 0.75% as guara....
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....rate and detailed submissions made by learned Departmental Representative, we may begin by pointing out that this issue has been dealt with in detail by decision of a coordinate bench in the case of Micro Ink vs ACIT [(2016) 176 TTJ 8 (Ahd)] wherein the coordinate bench has, inter alia, observed as follows: 21. It is only elementary that the determination of arm's length price, under the scheme of the international transfer pricing set out in the Income-tax Act, 1961, can only be done in respect of an 'international transaction'. Section 92(1) provides that, "(a)ny income arising from an international transaction shall be computed having regard to the arm's length price". In order to attract the arm's length price adjustment, therefore, a transaction has to be an 'international transaction' first. The expression 'international transaction' is a defined expression. Section 92B defines the expression 'international transaction' as follows: '92B - Meaning of international transaction (1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction'' means a transa....
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....research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; (ii) the expression "intangible property" shall include - (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical knowhow; (c) artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps , engravings; (d) data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters; (e) engineering related inta....
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....n connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. Section 92B (2), covering a deeming fiction, provides that even a transaction with non-AE in a situation in which such a transaction is de facto controlled by prior agreement with AE or by the terms agreed with the AE. 26. Let us now deal with the Explanation, inserted with retrospective effect from 1st April 2002 i.e. right from the time of the inception of transfer pricing legislation in India, which was brought on the statute vide Finance Act, 2012. 27. This Explanation states that it is merely clarificatory in nature inasmuch as it is 'for the removal of doubts', and, therefore, one has to proceed on the basis that it does not alter the basic character of definition of 'international transaction' under Section 92B. Clearly, therefore, this Explanation is to be read in conjunction with the main provisions, and in harmony with the scheme of the provisions, under Section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transac....
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....al transaction'. This aspect of the matter is further highlighted in clause (e) of the Explanation dealing with restructuring and reorganization, wherein it is acknowledged that such an impact could be immediate or in future as evident from the words "irrespective of the fact that it (i.e. restructuring or reorganization) has bearing on the profit, income, losses or assets of such enterprise at the time of transaction or on a future date". What is implicit in this statutory provision is that while impact on " profit, income, losses or assets" is sine qua non, the mere fact that impact is not immediate, but on a future date, would not take the transaction outside the ambit of 'international transaction'. It is also important to bear in mind that, as it appears on a plain reading of the provision, this exclusion clause is not for "contingent" impact on profit, income, losses or assets but on "future" impact on profit, income, losses or assets of the enterprise. The important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former case. In the case b....
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.... situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. One may also have a situation in which there is a receivable or any other debt during the course of business and yet these receivables may not have any bearing on its profits, income, losses or assets, for example, when these receivables are out of cost free funds and these debit balances do not cost anything to the person allowing such use of funds. The situations can be endless, but the common thread is that when an assessee extends an assistance to the associated enterprise, which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B (1) of the Act. 33. In any event, the onus is on the revenue authorities to demonstrate that ....
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.... for consideration. Of course, the assessee had no occasion to challenge the stand of the Tribunal on this aspect since the addition, on merits, was deleted anyway making revenue's success in this respect hollow and of no damage to the interests of the assessee. It was in this backdrop that the action of the Tribunal was upheld in granting relief to the assessee on merits. It is difficult to understand as to how this decision is taken as supporting the proposition that the issuance of corporate guarantee, even in a case in which neither any guarantee commission is charged nor any costs are incurred, is an international transaction. In any case, there is nothing in the operative portion which even remotely suggests that Their Lordships had any occasion to address themselves to the question as to whether the issuance of corporate guarantee amounts to international transaction. The operative portion of the judgment is reproduced below for ready reference: "............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 Guarante....
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....ave to be considered. It cannot be brushed aside. 214. Section 2(47), as amended, even on a cursory glance raises various issues. It is necessary to note four preliminary aspects of Explanation 2 to section 2(47). Firstly, as the opening words, For the removal of doubts it is hereby clarified that ......", indicate it is a clarificatory amendment. Secondly, it is an inclusive definition as is evident from the words "transfer" includes ". Thirdly, the amendment is with retrospective effect from 1st April, 1962. Fourthly, the Finance Act 2012 which introduced, inter alia, the amendment to section 2(47) and section 92CA(2B) is a validating act in view of section 119 thereof. 215. Explanation 2 to section 247 broadly has four elements. Disposal or parting with or creating any interest in an asset. The asset or any interest in the asset. The disposing of or parting with the asset or creating any interest therein may be: (a) Direct or indirect. (b) Absolute or conditional. (c) Voluntary or involuntary. (d) By amendment or otherwise. (iv) A non-obstante provision regarding the nature of a transfer. If an act, arran....
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..... The petitioner may well contend that the amended definition makes no difference it being clarificatory in nature. The provisions thereof must, therefore, be deemed always to have been in existence. We will presume that it would be open to the petitioner to contend, therefore, that the judgment of the Supreme Court would remain entirely unaffected for the Supreme Court must be deemed to have considered the term as per its true ambit, as always intended by the Parliament. On the other hand, it may be equally open to the Revenue to contend that certain ingredients of a transfer were not considered by the Revenue itself in the proceedings relating to Vodafone's case on account of the Revenue itself not having appreciated or realized the actual ambit of the term "transfer" which are now clarified by the amendment. Even assuming that the Revenue cannot re-open the Vodafone case, it cannot be barred from relying upon the true ambit of the term "transfer" in future cases, including the proceedings in respect of the petitioner. Thus, even assuming that the judgment of the Supreme Court remains unaffected by the clarificatory amendment, the Revenue would be entitled hereafter in other ....
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....ay High Court's judgment in the case of Sudhir Jayantilal Mulji (supra) "ratio of a decision alone is binding, because a case is only an authority for what it actually decides and not what may come to follow from some observations which find place therein". In view of these discussions, the reliance placed on Vodafone India Services (P.) Ltd. (supra) is also equally misplaced and devoid of legally sustainable merits. In any case, as is noted by Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297/64 Taxman 442 (SC), "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court" Their Lordships further noted that "A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true p....
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....ensive external funding conditions on other debt finance". The DRP had also noted that "in addition, the guarantor would want to receive appropriate compensation for the risk it incurs" and concluded that "following the above discussions, an arm's length guarantee fees is typically required to be determined by establishing a range of fees that the guarantor would, at least, want to receive and the fees that the guaranteed group company would be willing to pay depending on the prevailing conditions within financial markets in practice". 30. However, while dealing with this aspect of the matter, it is necessary to bear in mind the fact that this judicial precedent, whatever be its worth in the hierarchy of binding judicial precedents in India, does not even deal with the fundamental question as to whether issuance of a corporate guarantee is an international transaction at all- which is what we are concerned with at present. This TCC decision dealt with a situation in which the assessee was denied, in computation of its business income, tax deduction for payment of guarantee fees on the ground that there was no effective benefit to the assessee, in obtaining the said gua....
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....cause a particular transaction is to be examined on arm's length principle in Canada cannot be a reason enough to hold that it must meet the same in India as well. While the Canadian transfer pricing legislation, as indeed the transfer pricing legislation in many other jurisdictions, does not put any fetters on the nature of transactions between the AEs, so as to be covered by the arm's length price adjustment, and, therefore, covers all transactions between the related enterprises, Indian transfer pricing legislation covers only such transactions as are "in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises". Our transfer pricing provisions, perhaps being in the quest of comprehensive coverage, have ended up in a limited scope of the transactions being covered by the arm's length price adjustments for transfer pricing. In any event, as emphasized earlier as well, the decision was in the context of the deduction, and, post this decision, a specific amendment was introduced in the Canadian t....
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....uacies in the financial position of the borrower; specifically, the fact that the subsidiary does not have enough shareholders' funds. ..... 103. It would not be expected that a company pay for the acquisition of the equity it needs for its formation and continued viability. Equity is generally supplied by the shareholders at their own cost and risk. 104. Accordingly to the extent that a guarantee substitutes for the investment of the equity needed to allow a subsidiary to be self-sufficient and raise the debt funding it needs, the costs of the guarantee (and the associated risk) should remain with the parent company providing the guarantee." 33. On a conceptual note, thus, there is a valid school of thought that the corporate guarantees can indeed be a mode of ownership contribution, particularly when, as is often the case, "where such a guarantee is given it compensates for the inadequacies in the financial position of the borrower; specifically, the fact that the subsidiary does not have enough shareholders' funds". There can be number of reasons, including regulatory issues and market conditions in the related jurisdictions, in which such a co....
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....xman 72 (AP). Their Lordships also referred to Lord Radcliffe's observations in Ostime v. Australian Mutual Provident Society [1960] 39 ITR 210 (HL), which has described the language employed in the models developed by the OECD as the "international tax language". The work done by OECD in the field of transfer pricing is no less significant. No matter which part of the world we live in, and irrespective of whether or not that tax jurisdiction is an OECD member jurisdiction, the immense contribution of the OECD, in the field of the transfer pricing as well, is admired and respected. However, the relevance of this work, so far as interpretation to transfer pricing legislation is concerned, must remain confined to the areas which have remained intact from legislative or judicial guidance. There is no scope for parallel or conflicting guidance by such forums. Legislation is an exclusive domain of the sovereign, and, therefore, as long as an area is adequately covered by the work of legislation, things like guidance of the OECD, or for that purpose any other multilateral forum, are not decisive. While we are alive to the school of thought that when the domestic transfer pricing regu....
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....inarily an independent enterprise in comparable circumstances would have satisfied the identified need either by performing the activity in-house or by having the activity performed by a third party. Thus, in such a case, an intra-group service ordinarily would be found to exist. For example, an intra-group service would normally be found where an associated enterprise repairs equipment used in manufacturing by another member of the MNE group. 7.9 A more complex analysis is necessary where an associated enterprise undertakes activities that relate to more than one member of the group or to the group as a whole. In a narrow range of such cases, an intra-group activity may be performed relating to group members even though those group members do not need the activity (and would not be willing to pay for it were they independent enterprises). Such an activity would be one that a group member (usually the parent company or a regional holding company) performs solely because of its ownership interest in one or more other group members, i.e. in its capacity as shareholder. This type of activity would not justify a charge to the recipient companies. It may be referred to as a "sh....
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.... therefore, as long as a guarantee is on account of, what can be termed as 'shareholder's activities', even on the first principles, it is outside the ambit of transfer pricing adjustment in respect of arm's length price. It is essential to appreciate, at this stage, the distinction in a service and a benefit. One may be benefited even when no services are rendered, and, therefore, in many a situation it's a 'benefit test' which is crucial for transfer pricing legislation, such as in US Regulations 1.482-9(1)(3)(i) which defines 'benefit', form a US Transfer Pricing perspective, as "an activity is considered to be provided a benefit to the recipient if the activity directly results in a reasonably identifiable increment of economic or commercial value that enhances the recipient's commercial position, or that may be reasonably anticipated to do so". The expression "activity", in turn is defined, as "including the performance of functions; the assumption of risks; the use by a rendered of tangible or intangible property or other resources capabilities or knowledge (including knowledge of and ability to take advantage of a particularly advantag....
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....f the legal position, in India, in this regard. No matter how desirable is it to read such a test in the definition of the international transaction' under our domestic transfer pricing legislation, as is the settled legal position, it is not open to us to infer the same. Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC) , took note of the situation before Their Lordships in these words: "We have given anxious thoughts to the persuasive arguments of Mr Sharma. His arguments, if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity". However, Their Lordships declined to do so on the ground that "There is no scope for importing into the statute the words which are not there. Such importation would be not to construe but to amend the statute". Their Lordships noted that "Even if there be casus omissus, the defect can be remedied only by legislation and not by judicial interpretation". The benefit test, which is set out in the OECD Guidance and which finds its place in the international best practices, does not find its place in the main definition of internatio....
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....n. The motivation or trigger for issuance of such guarantees is not the kind for consideration for which a banker, for example, issue the guarantees, but it is maximization of gains for the recipient entity and thus the MNE group as a whole. In general, thus, the consideration for issuance of corporate guarantees are of a different character altogether. 40. At this stage, it would appropriate to analyze the business model of bank guarantees, with which corporate guarantees are sometimes compared, in the context of benchmarking the arm's length price of corporate guarantees. A bank guarantee is a surety that that the bank, or the financial institution issuing the guarantee, will pay off the debts and liabilities incurred by an individual or a business entity in case they are unable to do so. By providing a guarantee, a bank offers to honour related payment to the creditors upon receiving a request. This requires that bank has to be very sure of the business or individual to whom the bank guarantee is being issued. So, banks run risk assessments to ensure that the guaranteed sum can be retrieved back from the business. This may require the business to furnish a security ....
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....ect, may be present, but these are more of an exception than the rule. In general, therefore, bank guarantees are not comparable with corporate guarantees. 41. As evident from the OECD observation to the effect "In contrast, if for example a parent company raises funds on behalf of another group member which uses them to acquire a new company, the parent company would generally be regarded as providing a service to the group member", it is also to be clear that when the corporate guarantees are issued for the purpose of subsidiaries raising funds for acquisitions by such subsidiaries, these guarantees will be deemed to be services to the subsidiaries, and, as a corollary thereto, when corporate guarantees are issued for the subsidiaries to raise funds for their own needs, the corporate guarantees are to be treated as shareholder activity. The use of borrowed funds for own use is a reasonable presumption as it is a matter of course rather than exception. There has to be something on record to indicate or suggest that the funds raised by the subsidiary, with the help of the guarantee given by the assessee, are not for its own business purposes. As a plain look at the details....
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....prises in their commercial or financial relations which differ from those which would be made between independent enterprises then any profit which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, if not so accrued, may be included in the profits of that enterprise and taxed accordingly. By seeking to adjust the profits in the above manner, the arm's length principle of pricing follows the approach of treating the members of a multi-national enterprise group as operating as separate entities rather than as inseparable parts of a single unified business. After referring to article 9 of the model convention and stating the arm's length principle, the guidelines provide for "recognition of the actual transactions undertaken" in paragraphs 1.36 to 1.41. Paragraphs 1.36 to 1.38 are important and are relevant to our purpose. These paragraphs are reproduced below:- "1.36 A tax administration's examination of a controlled transaction ordinarily should be based on the transaction actually undertaken by the associated enterprises as it has been structured by them, using the methods applied by the taxpayer insofa....
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....entirety (and not simply by reference to pricing) to those that might reasonably have been expected had the transfer of property been the subject of a transaction involving independent enterprises. Thus, in the case described above it might be appropriate for the tax administration, for example, to adjust the conditions of the agreement in a commercially rational manner as a continuing research agreement. 1.38 In both sets of circumstances described above, the character of the transaction may derive from the relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the taxpayer to avoid or minimize tax. In such cases, the totality of its terms would be the result of a condition that would not have been made if the parties had been engaged in arm's length dealings. Article 9 would thus allow an adjustment of conditions to reflect those which the parties would have attained had the transaction been structured in accordance with the economic and commercial reality of parties dealing at arm's length." 17. The significance of the aforesaid guidelines lies in the fact that they recognise that....
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....not cover issuance of corporate guarantees, even though once a corporate guarantee is covered by the definition of international transaction', it is benchmarked in the service segment. In view of the above discussions, OECD Guidelines, as a matter of fact, strengthen the claim of the assessee that the corporate guarantees issued by the assessee were in the nature of quasi-capital or shareholder activity and, for this reason alone, the issuance of these guarantees should be excluded from the scope of services and thus from the scope of 'international transactions' under section 92B. Of course, once a transaction is held to be covered by the definition of international transaction, whether in the nature of the shareholder activity or quasicapital or not, ALP determination must depend on what an independent enterprise would have charged for such a transaction. In this light of these discussions, we hold that the issuance of corporate guarantees in question was not in the nature of 'provision for services' and these corporate guarantees were required to be treated as shareholder participation in the subsidiaries. 44. As for the words 'provision for serv....
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....ely fallacious logic. In our considered view, under Section 92B, corporate guarantees can be covered only under the residuary head i.e. "any other transaction having a bearing on the profits, income, losses or assets of such enterprise". It is for this reason that Section 92B, in a way, expands the scope of international transaction in the sense that even when guarantees are issued as a shareholder activity but costs are incurred for the same or, as a measure of abundant caution, recoveries are made for this non-chargeable activity, these guarantees will fall in the residuary clause of definition of international transactions under section 92B. As for the learned Departmental Representative's argument that "whether the service has caused any extra cost to the assessee should not be the deciding factor to determine whether it is an international and then gives an example of brand royalty to make his point. What, in the process, he overlooks is that Section 92B(1) specifically covers sale or lease of tangible or intangible property". The expression "bearing on the profits, income, losses or assets of such enterprises" is relevant only for residuary clause i.e. any other services ....
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.... tangible and intangible assets. Similarly, clause (d) deals with the " provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service" which are anyway covered in "provision for services" and "mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises ". That leaves us with two clauses in the Explanation to Sect ion 92B which are not covered by any of the three categories discussed above or by other specific segments covered by Section 92B, namely borrowing or lending money. The remaining two items in the Explanation to Section 92B are set out in clause (c) and (e) thereto, dealing with (a) capital financing and (b) business restructuring or reorganization. These items can only be covered in the residual clause of definition in international transactions, as in Section 92B (1), whi....
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....ome, losses or assets of such enterprises is a precondition embedded in Section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) of the Explanation which provides that the bearing on profits, income, losses or assets could be immediate or on a future date. These guarantees do not have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. When an assessee extends an assistance to the associated enterprise, which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B (1) of the Act. 45. Before we part with this issue, there are a couple of things that we wou....
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....that controversy either. On the issue of implementing the amendment in transfer pricing law with retrospective effect, in the case of Bharti Airtel Ltd. (supra), a coordinate bench had observed as follows: "34. There is one more aspect of the matter. The Explanation to Section 92B has been brought on the statute by the Finance Act 2012. If one is to proceed on the basis that the provisions of Explanation to Section 92B enlarges the scope of Section 92B itself, even as it is modestly described as 'clarificatory' in nature, it is an issue to be examined whether an enhancement of scope of this anti avoidance provision can be implemented with retrospective effect. Undoubtedly, the scope of a charging provision can be enlarged with retrospective effect, but an antiavoidance measure, that the transfer pricing legislation inherently is, is not primarily a source of revenue as it mainly seeks compliant behaviour from the assessee vis-à-vis certain norms, and these norms cannot be given effect from a date earlier than the date norms are being introduced. However, as we have decided the issue in favour of the assessee on merits and even after taking into account....
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.... require that date to be tinkered with. When a proviso is introduced with effect from a particular date specified by the legislature, the judicial forums, including this Tribunal, at times read it as being effect from a date much earlier than that too. One such case, for example, is CIT v. Ansal Landmark Township (P.) Ltd. [2015] 377 ITR 635/234 Taxman 825/61 taxmann.com 45 (Delhi), wherein Hon'ble Delhi High Court confirmed the action of the Tribunal in holding that the provision, though stated to be effective from 1st April 2013 must be held to be effective from 1st April 2005. Whether such an exercise can be done in the present case is, of course, something to be examined and our observations should not be construed as an expression on merits of that aspect of matter. Given the fact that the assessee has succeeded on merits in this case, it would not really be necessary to deal with that aspect of the matter. 49. The second issue is this. We must deal with the question whether in this case the matter should have been referred to a larger bench. The parties before us were opposed to the matter being sent for consideration by the special bench, and at least one of the....
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....n earlier binding precedent on the issue is per incurium. Such decisions cannot be basis for sending the matters to special bench since occasion for reference to special bench arises when binding and conflicting judicial precedents from coordinate benches come up for consideration. That was not the case here. All these factors taken together, in our considered view, it was not possible in this case to refer the matter for constitution of a special bench. In any case, whatever we decide is, and shall always remain, subject to the judicial scrutiny by Hon'ble Courts above and our endeavour is to facilitate and expedite, within our inherent limitations, that process of such a judicial scrutiny, if and when occasion comes, by analyzing the issues in a comprehensive and holistic manner. 50. In the light of the detailed discussions above, and for the detailed reasons set out above, we uphold the grievance raised by the assessee. The impugned ALP adjustment of Rs. 2,23,62,603, thus stands deleted. As we do so, however, we must add that, in our considered view, the way forward, to avoid such issues being litigated and to ensure satisfactorily resolution of these disputes, must....
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....cer in a rather summary manner. It cannot be, by any stretch of logic, an authority on any legal question arising out of the law which, as per the Tribunal- wrongly though, was not even in existence. As for the Everest Kanto decision (supra), the issue was decided against the assessee as, to borrow the words of the coordinate bench, "Here in this case, it is undisputed that the assessee in its T.P. Study Report and also the TPO, have accepted that it is an international transaction and CUP is the most appropriate method for benchmarking the charging of guarantee fee", and, it was for this short reason that the matter was decided against the assessee. The co-ordinate bench had further observed "in this case, the assessee has itself charged 0.5% guarantee commission from its AE, therefore, it is not a case of not charging of any kind of commission from its AE. The only point which has to be seen in this case is whether the same is at ALP or not". Learned Departmental Representative has invited our attention to a decision of the Bangalore benches, in the case of Advanta India Limited Vs ACIT [(2015) TII-294-ITAT-BAN], which is in favour of the assessee. While learned Departmental Repr....
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....irtel decision is incorrect, it is not for us to examine that aspect of the matter. Now that the matter is before Hon'ble High Court, and the matter is already under hearing, there is no point in going into these fine points, which may at best be errors of judgment rather than a glaring error rendering the decision to be per incurium, at this stage. In any case, there is a subtle difference in 'impact on' and 'influence on'. The issuance of a corporate guarantee may have an influence on the profits, incomes, losses and assets of an entity, in whose favour the guarantee is issued, but it has no impact on the same as long as it is issued without a consideration. To treat this phrase as implying a benefit test, will, in our considered view, stretching the things too far. We are, therefore, not swayed by the arguments, though extremely well researched and thought provoking, of the learned Departmental Representative- particularly at this stage. He has raised a number of other arguments as well but as those arguments are already dealt with in the case of Micro Ink decision reproduced above, we see no need to again deal with the same. 9. In the Micro Ink decision (supra), we had....
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....amendment to Section 263 by the Finance Act, 1961. In many judicial precedents, [such as in the case of CIT Vs Sunbeam Auto Limited (332 ITR 167) wherein it was held that "Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open"], it was reiterated that it was only the lack, not the adequacy, of inquiry which could confer jurisdiction under section 263 on the Commissioner. By inserting Explanation 2 to Section 263(1), which inter alia provided that powers under section 263 could also be invoked in the cases where "the order is passed without making inquiries or verification which should have been made", all ratio of all these decisions was nullified. That, however, is done with prospective effect, i.e. with effect from 1st June 2015. As a matter of fact, it is a laudable policy of the present tax administration to st....
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....against clarificatory amendments laying down new principles of law extend to situations where law had been judicially interpreted and the legislature seeks to overcome it by declaring that the law in question was never meant to have the import given to it by the Court? The general position of the courts in this regard is where the purpose of a special interpretive statute is to correct a judicial interpretation of a prior law, which the legislature considers inaccurate, the effect is prospective. Any other result would make the legislature a court of last resort. United States v. Gilmore 8 Wall [(75 US) 330, 19L Ed 396 (1869)] [223 F2d 668 (8th Cir 1955)] Peony Park v. O'Malley . It does not mean that the legislature does not have the power to override judicial decisions which in its opinion it deems as incorrect, however to respect the separation of legal powers and to avoid making a legislature a court of last resort, the amendments can be made prospective only [Ref County of Sacramento v State (134 Cal App 3d 428) and In re Marriage of Davies (105 III App 3d 66)] (Emphasis, by underlining, supplied by us) 13. Quite clearly, in view of the law so laid down by Their Lo....
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....ant with the norms set out in such anti abuse legislation. An anti-abuse legislation does not trigger the levy of taxes; it only tells you what behavior is acceptable or what is not acceptable. What triggers levy of taxes is noncompliance with the manner in which the anti-abuse regulations require the taxpayers to conduct their affairs. In that sense, all anti abuse legislations seek a certain degree of compliance with the norms set out therein. It is, therefore, only elementary that amendments in the anti-abuse legislations can only be prospective. It does not make sense that someone tells you today as to how you should have behaved yesterday, and then goes on to levy a tax because you did not behave in that manner yesterday. 16. When this is put to the learned Departmental Representative that as to how the transfer pricing legislation can be expected to have a retrospective amendment, which is almost like telling people how they should have benchmarked their international transactions in past and thus expecting them to do the impossible, his stock reply is that the amendment only clarifies the law, it does not expand the law. 17. Well, if the 2012 amendment does....
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....ibunal can, while adjudicating on the appeals, tinker with the date, as set out in the statute, from which an amendment is effective. In our humble understanding, as a judicial forum, we are bound not only by the law as legislated by the legislature, but by the judge made law as well. We are a part of the judicial hierarchy in this system. We are bound by the law laid down by Hon'ble Courts above, and all that we are expected to do, and we do, is to decide the issues before us in accordance with the provisions of the statute, in accordance with the law laid down by Hon'ble Courts above and in the light of binding judicial precedents. When a binding judicial precedent requires us to deviate from the specific words of the provisions of the statute in a particular manner, we have to do so. There is no escape from this call of duty. Of course, whatever we do is, and shall always remain, subject to the approval by Hon'ble Courts above. 20. There are a number of decisions in which our so tinkering with the specific words in the statute have been upheld, as long as this has been so done in accordance with the judicial principles and guidance in the judge made law. In the case of ....
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....and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Sect....
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....n though the amendment is required to be read as prospective, the Tribunal cannot do so as it is a creature of the Income Tax Act itself. In our considered view, and for the detailed reasons set out above, at best the amendment in Section 92B, at least to the extent it dealt with the question of issuance of corporate guarantees, is effective from 1st April 2012. The assessment year before us being an assessment year prior to that date, the amended provisions of Section 92 B have no application in the matter. 23. For this reason also, the impugned ALP adjustment must stand deleted. We must, however, make it clear that what we have stated above, in the context of retrospective amendment, is specifically in the context of transfer pricing legislation which, as we have observed earlier, being an anti-abuse legislation, seeks a degree of compliant conduct by the taxpayers rather than being primarily a source of revenue. 24. We are in respectful agreement with the views so expressed by the coordinate bench. Having said that, we may add that while it is true that an appeal against the said order, on the same issue, is admitted by Hon'ble jurisdictional High Court but the....
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....t to the above observations, the appeal of the assessee is allowed. 10. We now move on to the appeal filed by the Assessing Officer. 11. In the first ground of appeal, the Assessing Officer has raised the following grievance :- "1). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs. 4,10,87,892/- made u/s.14A of the Act, r.w.r. 8D by directing to adopt 'net assets' amount to calculate the 'Average Total assets" to calculate the disallowance as per Rule 8D (2)(ii)." 12. Briefly stated, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noted that the assessee has earned a tax exempt dividend income of Rs. 11,29,11,303/-, and that the assessee was having certain investments from which the assessee has earned tax exempt income. It was in this backdrop and having rejected assessee's justification of the suo motu disallowance of Rs. 19,53,47,671/- under section 14A, the Assessing Officer disallowed Rs. 23,64,35,653/- by applying rule 6D r.w.s. 14A. The additional disallowance of Rs,4,10,87,892/- was thus made by the Assessing Off....
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....08-09 which stands reversed by the co-ordinate bench. While doing so, the co-ordinate bench has observed as follows :- "3. Briefly stated, the relevant material facts are like this. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed foreign exchange loss of Rs. 22,15,55,371. It was explained by the assessee that the assessee, with an export sale of Rs. 2,796 crores in the said year and raw material imports of Rs. 2,516.08 crores, was exposed to considerable foreign exchange fluctuation risk, and that the assessee, with a view to manage and control such risks, takes various steps such as use of derivatives, entering into foreign exchange contracts with bankers etc. It was also explained that in the case of forward contracts, the difference between the forward rate and the current rate, being premium or discount-as the case may be, is recognized as a revenue item over the life of the contact period, and any gains or losses on cancellation of such forward exchange contracts are also recognized on the same basis. It was then explained that as on the date of the closing of books, the assessee had some of these conta....
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.... in fact not denied by the Id. AO as per facts contained in assessment order. Condition No.2 Whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bonafide; As per facts on record, the appellant is following mercantile system of accounting from the beginning and there is no change in it. Condition No.3 Whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; Yes. In fact in the year under consideration itself, the Appellant has earned foreign exchange income of Rs. 27,95,89,730/- and incurred loss of Rs. 50,11,45,101/-, and accordingly, the same treatment has been given both to the income as well as the expenditure. The detailed information about each of such transaction contained in paper book has been examined. Condition No. 4 Whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains As per details on record, the Appellant has declared foreign exchange gain in the same year under appeal. The Appellant is consist....
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....vered by the decision of Supreme Court in the case of Woodward Governor India (P) Ltd. reported in 312 ITR 254, the ground of appeal is allowed." 4. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 6. It is one of the most fundamental principles of accounting that while all anticipated losses are taken into account in computing the profits and losses of business, even though such losses may not have crystallized, as long as these losses can be reasonably quantified. This approach can be contrasted with the anticipated profits being ignored, in the computation of profits and losses of an enterprise, unless the profits are actually realized. To that extent, there is a dichotomy in accounting approach but then this is what is the sound accounting policy and it has the sanction of law. As a matter of fact, it is this principle, as recognized by Hon'ble Supreme Court in the case of Chainrup Sampatram Vs CIT [(1953) 24 ITR 481 (SC)], which explains the val....
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....t be possible to ascertain the true and correct state of affairs. No gain or profit can arise until a balance is struck between the cost of acquisition and the proceeds of sale. The word "profit" implies a comparison between the state of business at two specific dates, usually separated by an interval of twelve months. Stock-in-trade is an asset. It is a trading asset. Therefore, the concept of profit and gains made by business during the year can only materialize when a comparison of the assets of the business at two different dates is taken into account. Sec. 145(1) enacts that for the purpose of s. 28 and s. 56 alone, income, profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. In this case, we are concerned with s. 28. Therefore, s. 145(1) is attracted to the facts of the present case. Under the mercantile system of accounting, what is due is brought into credit before it is actually received; it brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. (See judgment of this Court in the case of United Commercial Bank vs. CIT (1999) 156 CTR (SC) 380 : (1999) 240 I....
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....r that para, exchange differences arising on foreign currency transactions have to be recognized as income or as expense in the period in which they arise, except as stated in para 10 and para 11 which deals with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which topic falls under s. 43A of the 1961 Act. At this stage, we are concerned only with para 9 which deals with revenue items. Para 9 of AS-11 recognises exchange differences as income or expense. In cases where, e.g., the rate of dollar rises vis-a-vis the Indian rupee, there is an expense during that period. The important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis-a-vis monetary items denominated in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materials using closing rate of exchange. Any difference, loss or gain, arising on conversion of the said liability at the closing rate, should be recognized in the P&L account for the reporting period. 10. As stated above, on fa....
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....l, subject to the provisions of sub-s. (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-s. (1) or accounting standards as notified under sub-s. (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in s. 144." 13. As stated above, one of the main arguments advanced by the learned Addl. Solicitor General on behalf of the Department before us was that the word "expenditure" in s. 37(1) connotes "what is paid out" and that which has gone irretrievably. In this connection, heavy reliance was placed on the judgment of this Court in the case of Indian Molasses Company (supra). Relying on the said judgment, it was sought to be argued that the increase in liability at any point of time prior to the da....
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....of fact, the Assessing Officer has not even raised any issues with respect to the above. His case is confined to the loss being notional in nature and contrary to the CBDT guidelines. As for the CBDT instructions, it is only elementary that any instructions issued by the CBDT cannot bind the assessee even though the assessee is entitled to, and can legitimately ask for, any benefits granted to the assessee by such instructions or circulars. Nothing, therefore, turns on the CBDT instruction even if it is actually contrary to the claim of the assessee. 9. We have also noted that, as per the details filed by the assessee, the foreign exchange contracts have been entered into for genuinely restricting its bonafide risk exposure of the assessee in respect of its exports and imports transactions. These contracts cannot, therefore, be viewed on a standalone basis as speculative transactions. These transactions are integral part of the business transactions and any loss or gains arising from these transactions, for the detailed reasons set out above, are deductible in computation of profits and gains of business. 10. In view of the above discussions, we uphold the action ....
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....ferent assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year". 26. In view of these discussions, grievance raised by the Assessing Officer is not maintainable, and is dismissed as such. 27. Ground No.4.1 is thus dismissed. 28. Ground Nos. 4.2 & 4.3 have already been dismissed along with the grievances of the assessee in assessee's appeal. 29. In ground No.5, the Assessing Officer has raised the following grievance:- "5. The Ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts allowing the fresh claim of the Assessee in respect of Revenue expenditures of Rs. 5.06 crores for issue of debenture of LIC of India when such claim was never made by Assessee in its return of income in contradiction to the Apex Court decision in the case of Goetze (India) Ltd 157 Taxman 1." 30. As for this claim, we have noted that the Assessing Officer had rejected the claim for the short reason that, in the light of Hon'ble Supreme Court's judgment in the case of Goet....
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....lders Pvt. Ltd. [349 ITR 336 (Bom)] saying that the claim if made for first time before CIT(A), the admission of such claim for decision is within the powers bestowed on CIT(A). The claim was first made before AO hence Rule 46A to such claim is not applicable as AO is well aware about the facts being used for decision. In view of above cited decisions, I accept the fresh claim as made by the Appellant before me and give direction to the assessing officer to allow the claim as made by the Appellant as per law. The ground of appeal is accordingly allowed." 31. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 32. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. 33. We find that it is a well settled legal position that the bar on accepting a fresh claim in assessment proceedings, except by way of a revised return, is only on the Assessing Officer and not the appellate authorities. There is, thus, no infirmity in learned CIT(A)'s accepting the claim in principle and remitting the matter to the Assessing Office....