TaxTMI 
TaxTMI 
2022 (6) TMI 660
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.... Adjustment pertaining to Corporate Guarantee 2. The Learned AO/Learned TPO/Hon'ble DRP erred in not appreciating the fact that the issuance of corporate guarantee is not an international transaction as per section 92B of the Act. 3. The Learned TPO/Learned AO/Hon'ble DRP has erred in not considering the fact that corporate guarantee provided to its AE has been given in the capacity as parent company and with the purpose of furthering its own business interest. 4. The Learned TPO/Learned AO/Hon'ble DRP has erred in assuming that a concrete benefit is accrued to the Associated Enterprise ("AE") without considering the fact that the provision of guarantee by the Appellant is a shareholding activity. 5. The Learned TPO/Learned AO/Hon'ble DRP has erred in not considering the fact that the promoters of the Appellant have also provided personal guarantee for the line of credit sanctioned by State Bank of India, California to the AE, thereby evidencing the fact that the corporate guarantee by the Appellant and personal guarantee provide by the promoters is to further the business interests of the Appellant. 6. The Learned TPO/L....
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....pellant had not earned any exempt income during the previous year and hence no disallowance shall be made under section 14A of the Act as held by various judicial rulings including the Hon'ble Supreme Court. 14. The Learned AO/Hon'ble DRP failed to appreciate that the Appellant had not incurred any expenditure towards earning any exempt income and hence section 14A read with Rule 8D cannot be invoked. 15. The Learned AO/Hon'ble DRP erred in invoking the provisions of section 14A read with Rule 8D without establishing a direct and proximate connection between the expenses incurred and the exempt income earned by the Appellant. 16. The Learned AO/Hon'ble DRP ought to have appreciated that the Appellant had sufficient own funds and had not made the investments from the borrowings. 17. The learned AO/Hon'ble DRP has erred in considering the interest on specific borrowing of while computing disallowance under Rule 8D. 18. Notwithstanding the above, the Learned AO/DRP failed to follow the similar directions of the Hon'ble DRP given in AY 2015-16 to exclude foreign investments while computing the section 14A disallowance....
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....such guarantee and which the assessee did not charge to the AE. The same was determined at 2% of the loan amount which resulted in the determination of ALP of the guarantee transaction at Rs. 53,06,632/- which sum was added to the total income of the assessee. The action of the AO against which the assessee filed objections before the DRP was confirmed by the DRP. The AO passed the final order of assessment incorporating the directions of the DRP against which the assessee has raised ground Nos. 2 to 7 before the Tribunal. 4. As far as the question whether the transaction of providing bank guarantee would amount to an international transaction or not, the law by now is well settled and this Tribunal in the case of United Spirits Ltd., in IT(TP)A No. 2701/Bang/2017, order dated 05.04.2022, held that providing bank guarantee was an international transaction. The Bench, however, took the view that charging of guarantee commission at 0.5% in the value of the corporate guarantee would be an appropriate addition. The following were the relevant observations of the Tribunal in this regard: "8.6.1 The Bombay High Court in CIT v Everest Kento Cylinders Ltd. [2015] 378 ITR 57 dis....
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....eafter, the TPO applied 6 months libor rate in March 2015 of 0.485% and arrived at the bench marking rate of interest @ 4.985% and arrived at a sum of Rs. 56,39,729/- as the addition on account of determination of ALP of the international transaction. 8. The assessee filed objections before the DRP against the draft order of assessment of the AO which incorporated the order of the TPO. The DRP confirmed the order of the AO with regard to the question whether the impugned transaction would amount to an international transaction or not. On the quantum of addition, the DRP substituted SBI short term deposit interest rates instead of the libor rate of interest and thereby the addition made by the AO stood enhanced. 9. Aggrieved by the order of the AO incorporating the directions of the TPO, assessee has raised ground Nos. 8 to 11 before the Tribunal. At the time of hearing, it was agreed by the parties that identical issue had come up for consideration in assessee's own case in Assessment Year 2015-16, in IT(TP)A No. 2639/Bang/2019, the Tribunal in its order dated 16.11.2021 remanded the issue to the AO/TPO for fresh consideration. The following were the relevant observations....
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....sessment Year 2015-16. Accepting the prayer of the parties, the issue is set aside to the TPO/AO for consideration afresh on the lines indicated by the Tribunal in the order passed for Assessment Year 2015-16 in assessee's own case. 11. As far as ground Nos. 12 to 18 raised by the assessee is concerned, the issue is with regard to the quantum of disallowance that should be made under section 14A of the Act. As far as this issue is concerned, it has been the submission of the learned Counsel for the assessee that it did not earn any exempt income during the relevant previous year and therefore there can be no disallowance under section 14A of the Act. In this regard, he relied on the decision of the Tribunal in assessee's own case in Assessment Year 2015-16 (supra) wherein the Tribunal held that in the absence of any exempt income, no disallowance under section 14A of the Act can be made. However, on perusal of the order of the Revenue authorities as well as ground No. 18 raised by the assessee, it appears that the assessee earned dividend income and there is no specific ground in the grounds of appeal on this issue that the assessee did not earn any exempt income. In the....
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....m business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40[ia] of the Act would qualify for deduction under section 80IB of the Act. This view was taken by the courts in the following cases: [a] Income-tax Officer-Ward 5[1] vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court [b] Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, 2015, Bombay High Court [ii] If deduction under section 40A of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act." 7. Applying the same analogy, it can be held that if deduction u/s. 40[a][ia] of the Act is not allowed, the same would have been to be added to the profits of the undertaking on which the Assessee would be entitled for deduction u/s. 10A of the Act. This view is fortified by the decision of Bombay High Court in the case of 'Commissioner of Income Tax v. Gem Plus Jewellery India Ltd.,' [2011] 330 ITR 175 [Bom], wherein it is held thus: "13. By reason ....