TaxTMI 
TaxTMI 
2022 (9) TMI 286
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.....2017 / assessment order passed u/s.143(3) r.w.s144C(13) 92CA(4) all dated 27.09.2012 / 21.02.2014 / 30.01.2015/ 06.02.2015 in pursuant to the directions of the learned DRP, Chennai dated 31.08.2012 / 20.12.2013/ 12.12.2014 u/s.144C(5) r.w.s 144C(8) of the Act and relevant to the assessment years 2008-09 to 2011-12. Since, facts are identical and issues are common, for the sake of convenience, the appeals & cross objection filed by the assessee and the Revenue were heard together and are being disposed off, by this consolidated order. 2. Brief facts of the case are that the assessee is a venture capital infrastructure company with aim of promoting strategic tie ups in emerging sectors such as telecom, shipping, reality, renewable energy, media and others both in India and abroad. The assessee creates sector specific special purpose vehicles (SPV) and invests in capital intensive projects, generally having long gestation period with a view to harness value to its investment. The assessee has filed its return of income for the assessment year 2008-09 to 2011-12 u/s.139(1) of the Income Tax Act, 1961. The assessments have been completed u/s.143(3) r.w.s 144C(13) 92CA(4) of the Act ....
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....he Assessing Officer does not record satisfaction as required under sub-section (2) of section 14A of the Income Tax Act, 1961, having regard to books of account of the assessee that disallowances made towards expenses relatable to exempt income is not commensurate with exempt income earned for the relevant assessment year. The learned A.R for the assessee further referring to plethora of precedents, including decision of the Hon'ble Madras High Court in the case of M/s. Marg Ltd. Vs.CIT (2020) 120 taxmann.com 84 and also decision of the Hon'ble Supreme Court in the case of M/s. Maxopp Investment Ltd. Vs.CIT (2018) 91 taxmann.com 154 (SC) submitted that the Assessing Officer cannot mechanically apply Rule 8D and compute disallowance u/s.14A, because as per the provisions of section 14A(2) of the Act, the Assessing Officer is required to record satisfaction having regard to books of account of the assessee and expenditure incurred to ascertain whether any expenditure has been incurred to earn exempt income or not and in absence of such satisfaction, A.O. cannot apply Rule 8D and compute disallowance u/s.14A of the Income Tax Act, 1961. The learned A.R for the assessee further ma....
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.... High Court has considered very same issue in light of amendment to provisions to section 14A by the Finance Act, 2021 and held that amendment is prospective in nature and does not operate retrospectively for earlier assessment years and thus, as per present settled position of law, disallowances u/s.14A cannot exceed exempt income earned for the relevant assessment year. 6. We have heard both the parties, perused material available on record and gone through orders of the authorities below. As regards first argument of the learned counsel for the assessee on the issue of satisfaction as required to be recorded u/s.14A(2) of the Income Tax Act, 1961, we find that the Assessing Officer has recorded satisfaction having regard to books of account of the assessee and relevant expenditure incurred for the period when compared to exempt income earned by the assessee that disallowances computed u/s.14A of the Act is not correct and thus, in our considered view, said findings of the Assessing Officer constitute satisfaction as required u/s.14A of the Act. Further, the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC) had very clearly held th....
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....m & substance of ratios laid down by various High Courts are that disallowance of expenditure u/s.14A of the Act cannot exceed exempt income earned for relevant assessment year. In this case, the assessee has earned exempt income of Rs.1,95,75,000/- for the assessment year 2008-09, whereas, the Assessing Officer had disallowed expenditure u/s.14A of the Act at Rs.75,07,26,240/-, which is in excess of exempt income earned for the relevant assessment year. Therefore, we are of the considered view that disallowance computed by the Assessing Officer cannot exceed exempt income earned for the relevant assessment year and thus, by respectfully following decision of the Hon'ble Madras High Court in the case of Marg Ltd. Vs.CIT (supra), we direct the Assessing Officer to restrict disallowances u/s.14A r.w.Rule 8D of the I.T. Rules, 1962, to the extent of exempt income earned for the relevant assessment years 2008- 09 to 2010-11. 9. In the result, appeals filed by the assessee for the assessment years 2008-09 to 2010-11 are partly allowed. ITA No.1074/Chny/2014, C.O. No.52/Chny/2014 & ITA Nos. 687 & 706/Chny/2015: 10. In these appeals filed by the assessee as well as Revenue, only ....
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....7,668/- and delete balance amount of disallowances made u/s.14A of the Income Tax Act, 1961. 13. The next issue that came up for our consideration from ground no.3 to 3.4 of the Revenue appeal is transfer pricing adjustment made on account of corporate guarantee extended by the assessee to its AE amounting to Rs.6,19,73,178/-. The Assessing Officer has made TP adjustment of Rs.6,19,73,178/- on corporate guarantee extended by the assessee to its AE by imputing guarantee commission @ 2.39% on total guarantee extended by the assessee to its AE. 14. The learned A.R. for the assessee submitted that this issue is squarely covered by the decision of the ITAT., Chennai in the case of M/s. Indian Public School Pvt. Ltd. Vs DCIT in IT(TP)A.No.34/Chny/2018 dated 15.06.2022, where the Tribunal by following decision of the Hon'ble Bombay High Court in the case of CIT Vs Everest Kento Cylinders Ltd. (2015) 58 taxmann.com 254 (Bom) held that corporate guarantee is international transaction, however, when it comes to benchmarking, guarantee commission charged by commercial banks cannot be applied. The Tribunal further held that 0.5% commission is reasonable rate for benchmarking corporate gu....
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...., it is clear that lending or borrowing of money between two or more enterprises also comes under the definition of international transaction. Therefore, when the assessee has provided guarantee on behalf of its AE for availing loan facility, it definitely bearing on the profits or loss of the assessee and thus, it falls within the definition of international transaction and thus, providing corporate guarantee is an international transaction, which needs to be bench marked to determine ALP of such transaction. Therefore, the TPO has rightly held that providing corporate guarantee is an international transaction and hence, we reject the arguments of the Counsel for the assessee. 8. As regards imputing rate of commission on guarantee. It is a well settled principle of law by the decision of various courts, including the decision of the Hon'ble Bombay High Court in the case of CIT v. Everest Kento Cylinders Ltd. (supra), wherein, It has been clearly held that no Comparison can be made between the guarantee issued by commercial banks as against corporate guarantee issued by holding company for benefit of its AE, a subsidiary company for computing ALP of guarantee commissio....