TaxTMI 
TaxTMI 
2019 (9) TMI 1702
X X X X Extracts X X X X
X X X X Extracts X X X X
....als)-4, Ahmedabad u/s.143 r.w.s 144C of the Income Tax Act, 1961 arising out of the order dated 14.03.2014 passed by the JCIT, Range-4, Ahmedabad for the Assessment Year 2010-11 respectively. Since all the appeals relates to the same assessee and the issues are identical, these matters are heard analogously and are being disposed of by this common order. ITA No.1188Ahd/2015 for A.Y. 2009-10: 2. Ground No.1 : By the First ground the assessee has challenged the order passed by the ''Ld.CIT (A)'' in confirming the disallowance of Rs.29,46,466/- made by the Ld. DCIT (OSD)-1 circle -4, Ahmedabad, u/s.14A of the Income tax Act 1961 r.w.r. 8D (2)(iii) of the Income Tax Rules. 3. The assessee engaged in the business of software services and related business filed its return of income on 25.09.2009 declaring total income of Rs. 2,25,64,810/- for A.Y 2009-10 which was processed u/s.143(1) of the Act. During the course of scrutiny proceeding it was found that the assessee company has earned dividend income from Mutual Fund amounting Rs. 3,64,42,819/- which has been claimed as exempt income. The explanation in this regard was called for, in response of which the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt has not followed any scientific basis for making the disallowance. The appellant has submitted during the course of appellate proceedings that it has disallowed 10% of the salary paid to 2 persons for the purpose of section 14A. However, it is noted that no such claim was made before the AO regarding basis of calculation of disallowance. The appellant has now claimed that it has disallowed 10% salary of two employees who were partly involved in administrative and other matters relating to investment in mutual funds, appears to be an afterthought as the amount which was disallowed by the appellant in the return of income was 4,03,501/-, whereas as per the working now given it comes to Rs. 4,03,500/-. Further, the appellant has also not given the designation of these two persons who have been claimed to be involved in the work of investment. Therefore, the disallowance made by the appellant itself is not reliable and not on any scientific basis. It is also to be noted that even if the claim of the appellant accepted the involvement of other senior functionaries of the finance department, as well as, the director who looks after the investment and other finance functions also must ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for the purpose of calculating the disallowance, as these investment does not yield any exempt income, is acceptable. The income of foreign subsidiaries in the form of dividend is taxable in India. Similarly, the income from growth oriented fund such as FMP and Debt funds are not exempt, as there is no STT payable on these transactions and, accordingly, it gives short term or long term capital gain which is taxable. Accordingly, the submission of the appellant is accepted and the AO is directed to calculate the disallowance by applying the third limb of rule 8D after excluding the investment in foreign subsidiaries and also the investment in Debt Funds. The appellant has submitted that out of the total average value of investment cf 193.57 crores, the investment in foreign companies were 101.57 crores and the average investment in growth oriented liquid/debt mutual funds was Rs. 25.00 crores. The AO, is accordingly, directed to reduce these values from the average investment calculated by it, after verifying the details, and calculate the disallowance made under section 1 4 A read with rule 8D. The ground of appeal is partly allowed." 4. At the time of hearing of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conservative basis, tentatively allocated certain indirect expenses and offered disallowance of Rs.2 Lakhs under section 14A of the Act being expenditure incurred to earn exempt income. It has been submitted by the appellant that major administrative work was performed by mutual fund distributors and they are paid brokerage by the mutual funds. Further, the advisory services in respect of purchase/sale of mutual funds were also provided by mutual fund distributors for which no payment was made. The decision in respect of investment is taken only by Chief Financial Officer of the appellant and no other person was involved. No specific staff or any other arrangement was required to manage the investment portfolio of mutual funds. It is accordingly been requested by the appellant that the disallowance made by the AO should be deleted. After examining all the facts and the law related to the issue it is noted that the fact that appellant has earned dividend income of Rs. 7.71 Crores and it has claimed exemption from tax on this income is undisputed. The disallowance made by the AO pertains to the administrative expenditure only and no disallowance out of interest has been made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt expenditure in its profit & loss account. He quotes Hon'ble Delhi High Court's decision in CIT vs. Taikishah Engineering India Limited (2015) 370 ITR 338 (Delhi) that the impugned disallowance in absence of such satisfaction is not sustainable. We find no reason to accept assessee's instant argument. It is seen that the lower authorities dealt with interest expenditure and that too on proportionate basis in the said case than direct one whereas the issue before us is that of administrative expenditure disallowance. We observe in this facts that the impugned administrative expenses disallowance is not alike former two limbs since falling in different head as well as the fact that it has to be based on computation formula only. There is no dispute that we are dealing with assessment year 2008-09 i.e. starting point of application of Rule 8D of IT Rules. The assessee admittedly has not challenged the relevant computation @ 5% given in the above statutory computation formula. We conclude in these facts that both the lower authorities have acted as per law in invoking the impugned disallowance in relation to assessee's exempt income amounting to Rs.7.7 crores.More so ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant as the services are either provided by its delivery centre in India (off shore) or branch in U.K (onsite) and further that said performance guarantee is in the nature of shareholder activity. The ''Ld.CIT (A)'' has also failed to appreciate that no cost is incurred by the appellant in the provision of these performance guarantees and the said performance guarantees cannot be equated with financial guarantee as the case made out by the assessee. However at the time of hearing of the instant appeal the Ld. Sr. Counsel appearing for the assessee fairly submitted that the issue is covered by the judgment passed in assessee's own case in ITA Nos.2879 & 2985/Ahd/2014 for A.Y 2008-09; copy whereof has been handed over to us. Further that the assessee has challenged the order passed by the Ld.CIT(A) in enhancing the adjustment made in relation to the Performance Guarantee given by the appellant to the customers of the Associate Enterprise (''AE"). Mainly following aspect has not been appreciated by the Ld.CIT(A) which has been pointed out by the assessee in the order passed by Ld.CIT(A). i. The service liability risk is borne by the Appellant as the service....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d made an upward adjustment of Rs.26.07 Crores on account of payment for services rendered by its UK AE, MUK, holding that the appellant did not carry out the risk adjustment while working out the arm's length price in the TP study report. Without prejudice to the adjustment made by the AO it has also made an addition to the income by holding that the appellant had assumed performance risk and credit risk in respect of the sales made by MUK. It has been held by the AO that since MUK does not have any financial backup or credit standing it has to rely on the comfort letter issued by Mastek India while entering into the performance guarantees and other related commitments made with the parties to sales contract with it. The AO has accordingly adopted an estimate of 2% if the gross sales as guarantee fee for the guarantees and comfort letters given by the appellant company and accordingly the cost of such guarantee have been worked out at Rs.10.87 Crores which the appellant was entitled to receive merely on the issue of providing guarantee to the AE. It has been held by the AO that since an addition of Rs.26.07 Crores has already been suggested no further adjustment was recommende....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by him that the rating of the appellant company was AA and accordingly the credit risk was taken by him on a conservative basis at 2% as the issue was related to performance guarantee. The TPO has also tried to justify the rate of 2% on the basis of details of performance guarantee commission charged by the Central Bank of India in certain cases. The appellant on the other hand has submitted that the performance guarantee was provided to ensure quality and timely services whereas financial guarantee was provided to make available loans or cash credit facility to the beneficiary of the guarantee. The appellant had given performance guarantee and not the financial Guaranty. The approach of the TPO to equate performance guarantee with the financial Guaranty was not justified. It has been submitted and claimed by the appellant that there was a fundamental difference between performance guarantee and the financial Guaranty. In case of financial Guaranty the AE obtains loan or cash credit facility and the benefit accruing to the AE is in the form of reduced interest rate or favourable terms of loan, whereas no such benefit accrues to the AE in case of performance guarantee. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iven by the appellant. In case there was no performance guarantee the commission would have been less as the sale price would be less without the guarantee. Therefore, I am of the considered opinion that some upward adjustment on account of the performance guarantee given by the appellant is required to be made and the action of the TPO to that extent is justified. The submission of the appellant that no opportunity has been given is also not justified at this stage as the comments given by the AO has been given to the appellant and it has offered its comment on all the aspects stated by the TPO in the report. Therefore, the contention of the appellant is rejected. The other contention which has been taken by the appellant is that performance guarantee and financial Guaranty are entirely different products and therefore, it would not be appropriate to adopt the rates given for financial Guaranty for evaluating the performance guarantee. The contention of the appellant is justified. The criteria for giving the performance guarantee for a particular product would be entirely different than that of the financial Guaranty for a particular loan or credit. The performan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ances, it would be appropriate if the upward adjustment on account of performance guarantee is pegged at 2% of the sale consideration retained by the MUK. Since the MUK is retaining 5.67% of the sale consideration the amount would come to 2% of 5,67% i.e. 0.11% (rounded off) of the sales. The appellant has objected that even if certain percentage is to be attributed to the performance guarantee, it can only be attributed to the sales made by the appellant company through MUK on which the performance guarantee was given by the appellant. The objection and argument of the appellant is justified as this can only be applied to those sales made through MUK on which to performance guarantee has been given by the appellant. Accordingly, the sales made through MUK on which the performance guarantee was given by the appellant should only be considered for applying the above rate. The appellant has submitted that it has given performance guarantee on the sales of Rs.260.35 Crores made through MUK. The AO is directed to verify this figure and apply the above rate accordingly. The addition made by the AO, on without prejudice basis, is accordingly upheld to that extent. The g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chase, 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 and shall include a 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. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. Explanation :- For the removal of doubts, it is hereby clarified that - (inserted by the Finance Act 2012, though with retrospective effect from 1st April 2002) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (f) customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; (g) contract related intangible assets, such as, favourable supplier, contracts, licence agreements, franchise agreements, non-compete agreements; (h) human capital related intangible assets, such as, trained and organised workforce, employment agreements, union contracts; (i) location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights; (j) goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value; (k) methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data; (l) any other similar item that derives its value from its intellectual content rather than its physical attributes.' 22. As analyzed by a coordinate bench, in the case of Bharti Airtel Ltd. (supra) and speaking through one us, the legal position with respect t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anation to Section 92B, are transactions with regard to purchase, sale, transfer, lease or use of tangible and intangible properties. These transactions were anyway covered by 2 (a) above which covered transactions 'in the nature of purchase, sale or lease of tangible or intangible property'. The only additional expression in the clarification is 'use' as also illustrative and inclusive descriptions of 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 by 2(b) and 3 above 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 Section 92B which are not covered by any of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom this bank. 31. In this light now, let us revert to the provisions of clause (c) of Explanation to Section 92B which provides that the expression 'international transaction' shall include "capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business". In view of the discussions above, the scope of these transactions, as could be covered under Explanation to Section 92B read with Section 92B(1), is restricted to such capital financing transactions, including inter alia any guarantee, deferred payment or receivable or any other debt during the course of business, as will have "a bearing on the profits, income, losses or assets or such enterprise". This precondition about impact on profits, income, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....osses or assets has to be on real basis, even if in present or in future, and not on contingent or hypothetical basis, and there has to be some material on record to indicate, even if not to establish it to hilt, that an intraAE international transaction has some impact on profits, income, losses or assets. Clearly, these conditions are not satisfied on the facts of this case.' 23. Learned Departmental Representative submits that this decision is no longer good law in the light of Everest Kanto Cylinders Ltd. decision (supra) and Vodafone India Services (P.) Ltd. decision (supra) by Hon'ble Bombay High Court. 24. As for Hon'ble High Court's judgment in the case of Everest Kanto Cylinders Ltd. (supra), it is necessary to appreciate the fact the assessee was charging a .5% commission on issuance of corporate guarantees, on behalf of the AEs, and it could not, therefore, be said that the transaction will have no impact on "profits, incomes, losses or assets of such enterprise". This aspect of the matter is clear from an observations in the related Tribunal order, which is reported as Everest Kanto Cylinders Ltd (supra), to the effect that "However, in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substantial question of law and it is dismissed." 25. We are unable to see, in the judgment of Hon'ble Bombay High Court, any support to the proposition that issuance of corporate guarantees is inherently within the ambit of definition of 'internat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f a share or shares of a company registered or incorporated outside India. 216. Two aspects of a transfer are clarified - the asset itself and the manner in which it is dealt with. The asset is no longer restricted to the asset per se or a right therein, but also extends to "any interest therein". Prior to the amendment, the words "any interest therein" were absent. Further, the nature of the disposal is also expanded. It now includes the creation of any interest in any asset. Moreover, the disposal of or creation of any interest in the asset may be direct or indirect, absolute or conditional, voluntary or involuntary. It may be by way of an agreement or otherwise. Further, the concluding words constitute a non-obstante provision. It provides that the transfer contemplated therein would be notwithstanding that it has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. It would be evident, therefore, that a lot more must now be seen and considered than before while arriving at a conclusion whether the terms and conditions of the Framework agreement constitute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ortant issues. There is no justification for withdrawing the proceedings from the channel provided by the Income-tax Act, bypassing the Tribunal and considering all these questions in exercise of the High Court's extraordinary jurisdiction under Article 226.' (Emphasis supplied) 27. Revenue's emphasis is on the last two sentences in paragraph No 213 which state that "The effect of the amendment would have to be considered. It cannot be brushed aside" but in doing so what it overlooks is the subsequent observations highlighted above which recognize the fact that merely because a subsequent Explanation is introduced by the legislature, it is not an open and shut case against the assessee or the revenue, and that all these observations are in the context that "there is no justification for withdrawing the proceedings from the channel provided by the Income-tax Act, bypassing the Tribunal and considering all these questions in exercise of the High Court's extraordinary jurisdiction under Article 226". When Their Lordships have made it clear that they would not like to bypass the channels under the Income-tax Act and proceed to decide these issues in writ jurisd....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also recalled that in Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India AIR 1971 SC 530, Hon'ble Supreme Court had cautioned that "It is not proper to regard a word, clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment." That precisely, however, has been the approach of the revenue authorities in placing reliance on Vodafone India Services (P.) Ltd. (supra) decision. We reject this approach. 28. For the reasons set out above, learned Departmental Representative's reliance on Hon'ble Bombay High Court's judgments in the cases of Everest Kanto (supra) and Vodafone India Services (supra) is wholly misplaced and devoid of any merits. As for coordinate bench decision in the case of Hindalco Industries (supra), all it does is to follow the Everest Kanto decision by Hon'ble Bombay High Court, but then, as we have seen earlier, that was a case in which Their Lordships were in seisin of a situation in which guarantee commission was actually charged by the assessee. That is not the case before....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tax Court of Canada decision, the transfer pricing legislation was amended, to bring greater clarity on the issue and as a measure of abundant caution, and section 247 (7.1), granting specific exemption to guarantee fees, was introduced. This amendment is as follows: (7.1) Sub-section (2) does not apply to adjust an amount of consideration paid, payable or accruing to a corporation resident in Canada (in this sub-section referred to as the "parent") in a taxation year of the parent for the provision of a guarantee to a person or partnership (in this sub-section referred to as the "lender") for the repayment, in whole or in part, of a particular amount owing to the lender by a non-resident person, if (a) the non-resident person is a controlled foreign affiliate of the parent for the purposes of section 17 throughout the period in the year during which the particular amount is owing; and (b) it is established that the particular amount would be an amount owing described in paragraph 17(8)(a) or (b) if it were owed to the parent. (http://www.fin.gc.ca/drleg-apl/ita-lrir-dec12-l-eng.pdf) 31. It is also important to bear in mind the fact that, under the Canadi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ge from the Tax Court of Canada's decision in the case of GE Capital Canada. There are many more aspects which make this decision wholly irrelevant in the present context but suffice to say that relevant legal provisions and context being radically different, the reliance of this decision must be rejected for this short reason alone. 32. As we take note of the above legal position in Canada, it is appropriate to take note of the concept of 'shareholder activities' in the context of corporate guarantees which provides conceptual justification for exclusion of corporate guarantees, under certain conditions, from the scope of transfer pricing adjustments. Taking note of these proposed amendments, 'Transfer Pricing and Intra Group Financing - by Bakker &Levvy, IBFD publication (ISBN- 978-90-8722-153-9)' observes that "Proposed subsection 247(7.1) of the ITA provides that the transfer pricing rules will not apply to guarantees provided by Canadian parent corporations in respect of certain financial commitments of their Canadian controlled foreign affiliates to support the active business operations of those affiliates". As to what could be conceptual support....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s noted in the assessment order itself, that "said guarantees were in the form of corporate guarantees/ quasi-capital and not in the nature of any services". In other words, these guarantees were specifically stated to be in the nature of shareholder activities. The assessee's claim of the guarantees being in the nature of quasi-capital, and thus being in the nature of a shareholder's activity, is not rejected either. The concept of issuance of corporate guarantees as a shareholder activity is not alien to the transfer pricing literature in general. On the contrary, it is recognized in international transfer pricing literature as also in the official documentation and legislation of several transfer pricing jurisdictions. The 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' itself recognizes the distinction between a shareholder activity and a provision for services, when, contrasting the shareholder activity with broader term "stewardship activity" and thus highlighting narrow scope of shareholder activity, it states that "Stewardship activities covered a range of activities by a shareholder that may include provision for ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pricing legislation by taking refuge of the best practices recognized by the OECD work. 35. While dealing with "special consideration for intra-group services", the 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' has noted that there are two fundamental issues with respect to the intra-group services- first, whether intra-group services have indeed been provided, and, second- if the answer to the first question is in positive, that charge to these services should be at an arm's length price. Dealing with the first question, which is relevant for the present purposes, these Guidelines (2010 version) state as follows: '7.6 Under the arm's length principle, the question whether an intragroup service has been rendered when an activity is performed for one or more group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance its commercial position. This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oup members, for example services that would be provided by a coordinating centre. These latter types of nonshareholder activities could include detailed planning services for particular operations, emergency management or technical advice (trouble shooting), or in some cases assistance in day-to-day management. 7.10 The following examples (which were described in the 1984 Report) will constitute shareholder activities, under the standard set forth in paragraph 7.6: (a) Costs of activities relating to the juridical structure of the parent company itself, such as meetings of shareholders of the parent, issuing of shares in the parent company and costs of the supervisory board; (b) Costs relating to reporting requirements of the parent company including the consolidation of reports; (c) Costs of raising funds for the acquisition of its participations. 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. The 1984 Report also mentioned "costs of managerial and control (mon....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... States because it is a service but because it is covered by the specific definition discussed above. As a matter of fact, David S Miller, in a paper titled 'Federal Income Tax Consequences of Guarantees; A Comprehensive Framework for Analysis' published in the 'The American Lawyer Vol. 48, No. 1 (Fall 1994), pp. 103-165 (http://www.jstor.org/stable/20771688), has stated that a guarantee is not a service. The following observations, at pages 114, are important: The position that guarantees are services has been discredited by the courts with good reason 38. Guarantee fees do not represent payments for services any more than payments with respect to other financial instruments constitute payment for services39. A guarantor does not arrange financing for the debtor, but merely executes a financial instrument in its favour. 38See. e.g., Centel Communications Co. v. Commissioner, 92 T.C. 612, 632 (1989), aff d, 920 F2d 1335 (7th Cir. 1990); Bank of Am. v. United States, 680 F.2d 142, 150 (Cl. Ct. 1982). The Service's current position on the characterization of guarantee fees as payment for services under section 482 is inconsistent with its treatment o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... being mentioned in the definition for the present purposes, we cannot infer the same. 38. One more thing which is clearly discernible from the above discussions is that the tests recognized by these guidelines are interwoven twin tests of benefit and arm's length. Benefit test implies the recipient group member should get "economic or commercial value to enhance its commercial position". The benefit test is interlinked with the an arm's length test in the sense that it seeks an answer to the question whether under a similar situation an independent enterprise would have been willing to pay for the activity concerned, or would have performed the activity in-house for itself. So far as the benefit test is concerned, as we have noted earlier, it is alien to the definition of international transaction' under the Indian transfer pricing legislation. So far as arm's length test is concerned, it presupposes that such a transaction is possible in arm's length situation. However, in a situation in which the subsidiary does not have adequate financial standing of its own and is inadequately capitalized, none will guarantee financial obligations of such a subsidi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. When the client is not able to honour the financial commitments and when client is not able to meet his financial commitments and the bank is called upon to make the payments, the bank will seek a compensation for the action of issuing the bank guarantee, and for the risk it runs inherent in the process of making the payment first and realizing it from the underlying security and the client. Even when such guarantees are backed by one hundred per cent deposits, the bank charges a guarantee fees. In a situation in which there is no underlying assets which can be realized by the bank or there are no deposits with the bank which can be appropriated for payment of guarantee obligations, the banks will rarely, if at all, issue the guarantees. Of course, when a client is so well placed in his credit rating that banks can issue him clean and unsecured guarantees, he gets no further economic value by a corporate guarantee either. Let us now compare this kind of a guarantee with a corporate guarantee. The guarantees are issued without any security or underlying assets. When these guarantees are invoked, there is no occasion for the guarantor to seek recourse to any assets of the guarante....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tivity as it was to provide, or compensate for lack of, core strength for raising the finances from banks. No material, indicating to the contrary, is brought on record in this case. Going by the OECD Guidance also, it is not really possible to hold that the corporate guarantees issued by the assessee were in the nature of 'provision for service' and not a shareholder activity which are mutually exclusive in nature. In the light of these discussions, we are of the considered view, and are fully supported by the OECD Guidance in this, that the issuance of corporate guarantees, in the nature of quasi-capital or shareholder activity- as is the uncontroverted position on the facts of this case, does not amount to a service in which respect of which arm's length adjustment can be done. 42. As observed by Hon'ble Delhi High Court in the case of CIT v. EKL Appliances Ltd. [2012] 345 ITR 241/209 Taxman 200/24 taxmann.com 199 (Delhi), a re-characterization of a transaction is indeed permissible, inter alia, in a situation "(i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cturing of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured. 1.37 However, there are two particular circumstances in which it may, exceptionally, be both appropriate and legitimate for a tax administration to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties' characterization of the transaction and recharacterise it in accordance with its substance. An example of this circumstance would be an investment in an associated enterprise in the form of interest-bearing debt when, at arm's length, having regard to the economic circumstances of the borrowing company, the investment would not be expected to be structured in this way. In this case it might be appropriate for a tax administration to characterize the investment in accordance with its economic substance ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re-structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner.' 43. It is thus clear that even if we accept the contention of the learned Departmental Representative that issuance of a corporate guarantee amounts to a 'provision for service', such a service needs to be recharacterized to bring it in tune with commercial reality as "arrangements made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hether we look at the examples given in the OECD material or even in Explanation to Section 92B, the thrust is on the services like market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, and scientific research, legal or accounting service or coordination services. As a matter of fact, even in the Explanation to Section 92B- which we will deal with a little later, guarantees have been grouped in item 'c' dealing with capital financing, rather than in item 'd' which specifically deals with 'provision for services'. When the legislature itself does not group 'guarantees' in the 'provision for services' and includes it in the 'capital financing', it is reasonable to proceed on the basis that issuance of guarantees is not to be treated as within the scope of normal connotations of expression 'provision for services'. Of course, the global best practices seem to be that guarantees are sometimes included in 'services' but that is because of the extended definition of 'international transaction' in most of the tax jurisdictions. Such a wide ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s stated that "Hon'ble Delhi ITAT was not requested by the contesting parties to decide the issue as to whether the provision of guarantee was a service or not". That's not factually correct. We are unable to see any merits in learned Departmental Representative's contention, particularly as decision categorically noted that not only before the Tribunal, but this issue was also raised before the DRP- as evident from the text of DRP decision. We now take up the issue with respect to specific mention of the words in Explanation to Section 92B which states that "For the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include........ (c) capital financing, including any type of long -term or short -term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business." There is no dispute that 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s should be such as to have bearing on profits, incomes, losses or assets of such enterprise. In other words, in a situation in which a transaction has no bearing on profits, incomes, losses or assets of such enterprise, the transaction will be outside the ambit of expression 'international 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "We find that the TP legislation provides for computation of income from international transaction as per Section 92B of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. The TP legislation does not stipulate any guidelines in respect to guarantee transactions. In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. In our considered view, the corporate guarantee is very much incidental to the business of the assessee and hence, the same cannot be compared to a bank guarantee transaction of the Bank or financial institution." 47. However, within less than four months of this decision having been rendered, the Finance Act 2012 came up with an Explanation to Section 92B stating that "for the removal of doubts", as we have noted earlier in this decision, "clarified" that international transactions include, inter alia, capital financing by way of guarantee. This legislative clarification did indeed go well beyond what a coordinate bench of this Tribunal held to be the legal position and we are bound by the esteemed v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r activities- as was the uncontroverted claim of the assessee, and, as such, could not be included in the 'provision for services' under the definition of 'international transaction' under section 92B of the Act. We have also held, taking note of the insertion of Explanation to Section 92B of the Act, that the issuance of corporate guarantees is covered by the residuary clause of the definition under section 92B of the Act but since such issuance of corporate guarantees, on the facts of the present case, did not have "bearing on profits, income, losses or assets", it did not constitute an international transaction, under section 92B, in respect of which an arm's length price adjustment can be made. In this view of the matter, and for both these independent reasons, we have to delete the impugned ALP adjustment. The question, which was raised in Bharti Airtel's case (supra) but left unanswered as the assessee had succeeded on merits, reamins unanswered here as well. However, we may add that in the case of Krishnaswamy SPD v. Union of India [2006] 281 ITR 305/151 Taxman 286 (SC), wherein Their Lordships had, inter alia, observed that "the law does not compel a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....first time. In effect, therefore, there was no conflict on this issue of and the other issues, given decision on the said issue, were wholly academic. It cannot be open to refer the academic questions to the special bench. No doubt, some decisions of the coordinate benches which have reached the different conclusions. There is, however, no conflict in the reasoning. Four Soft Ltd. decision (supra) had decided the issue in favour of the assessee but that was with respect to the law prior to insertion to Explanation to Section 92B. As for the postamendment law and the impact of amendment in the definition of 'international transaction', the matter was again decided in favour of the assessee by Bharti Airtel Ltd. decision (supra) on the peculiar facts of that case. The decisions like Everest Kento Cylinders Ltd. (supra) and Aditya Birla Minacs Worldwide (supra) were decisions in which the assessee had charged the fees and, for that reason, such cases are completely distinguishable as discussed above. In Prolific' Corp Ltd. case (supra), as indeed in any other case so far, it was not the case of the assessee that corporate guarantees are quasi-capital, or shareholder activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the importance of a very comprehensive analysis, in the transfer pricing study, of the nature of corporate guarantees issued by the assessees, can never be overemphasized. The sweeping generalizations, vague statements and evasive approach in the transfer pricing study reports, which are quite common in most of the transfer pricing reports, cannot do good to a reasonable cause. When judicial calls on the complex transfer pricing issues are to be taken, utmost clarity in the legislative framework and a comprehensive analysis of relevant facts, in the transfer pricing documentation, are basic inputs. Unfortunately, both of these things leave a lot to be desired. We can only hope, and we do hope, that things will change for better. 7. We are in considered agreement with the views so expressed by the coordinate bench. Learned Departmental Representative's well researched arguments donot persuade us to deviate from the stand so taken by us. Let us deal with these arguments in little detail. 8. Learned Departmental Representative, in his written note, accepts that "the legislature brought in amendment (in Section 92B) by the Finance Act, 2012, after the decision of Fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e distinct from the present situation in which there is no impact on the profits or losses or assets or income of the assessee. In Advanta decision (supra), this aspect of the matter and the distinguishing feature has been discussed at considerable length. Learned Departmental Representative has then invited our attention to the fact a substantial question of law has been admitted by Hon'ble Delhi High Court in ITA No. 607/2014 against the order passed by the Tribunal in the case of Bharti Airtel (supra). While no doubt the matter is now pending before Hon'ble High Court for the judicial scrutiny by Their Lordships, that fact by itself does not reverse the stand taken by the Tribunal in the order so impugned. As regards the decision of Bharati Airtel being on its own peculiar facts, there can be no denial of this position but that does not mean that the so far as issues of general application are concerned, the stand of the Tribunal cannot hold good. Learned Departmental Representative then takes us through the Explanation to Section 92 B to explain its true scope and through Bharti Airtel decision as to how fallacious is its logic. Its emphasized that the impact of issuance of ban....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spect of the matter has been dealt with in paragraph 46 and 47 of this decision, which has been reproduced earlier in this order, at considerable length. It assumes even more significance in the light of a new judicial development that we will deal with in a short while now. In the present case, we are dealing with a situation in which the amendment was made with retrospective effect and it covered certain issues which were already subjected to a judicial interpretation in a particular manner. Learned Departmental Representative does not even dispute it. He is candid enough to place on record the fact, by way of a written note, that the one of the reasons of insertion of Explanation to Section 92 B was to nullify the Four Soft decision (supra). The judicial interpretation so given was certainly not the end of the road. The matter could have been carried in appeal before higher judicial forums. If the decision of a judicial body does not satisfy the tax administration, nothing prevents them from going to the higher judicial forum or from so amending the law, with prospective effect, that there is no ambiguity about the intent of legislature and it is conveyed in unambiguous words. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mendments made in Section 263 in the very first full budget of the present Government. 11. What has, however, been done in the case before us is to amend the law with retrospective effect. Of course, it happened much before the current awareness about the evils of retrospective taxation having been translated into action. 12. Dealing with such a situation, Hon'ble Delhi High Court has, in the case of DIT vs New Skies Satellite BV [TS-64- HC -DEL (2016)], observed as follows: 30. Undoubtedly, the legislature is competent to amend a provision that operates retrospectively or prospectively. Nonetheless, when disputes as to their applicability arise in court, it is the actual substance of the amendment that determines its ultimate operation and not the bare language in which such amendment is couched........ 36. A clarificatory amendment presumes the existence of a provision the language of which is obscure, ambiguous, may have made an obvious omission, or is capable of more than one meaning. In such case, a subsequent provision dealing with the same subject may throw light upon it. Yet, it is not every time that the legislature characterizes an amen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Even without the benefit of guidance of Their Lordships, the views articulated by a coordinate bench of this Tribunal, in the case of Bharti Airtel (supra) were of a somewhat similar opinion when it was observed that, "Undoubtedly, the scope of a charging provision can be enlarged with retrospective effect, but an anti-avoidance 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". We may add that right now we are only concerned with the question of retrospective amendment in the transfer pricing legislation, which has, as we will see, its own peculiarities and significant distinction with normal tax laws which simply impose tax on an income. 14. Legislature may describe an amendment as 'clarificatory' in nature, but a call will have to be taken by the judiciary whether it is indeed clarificatory or not. This determination, i.e. whether the amendment in indeed clarificatory or is the amendment to overcome a judicial precedent, assumes great ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, as is our considered view, there is no way it could be implemented for the period prior to this law coming on the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an impossibility. Reiterating this settled legal position, Hon'ble Supreme Court has, in the case of Krishnaswamy S Pd Vs Union of India [(2006) 281 ITR 305 (SC)], observed as follows: The other relevant maxim is, lex non cogitadimpossibilia-the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases. [See : U.P.S.R.T.C. vs. Imtiaz Hussain 2006 (1) SCC 380, Shaikh Salim Haji Abdul Khayumsab vs. Kumar &Ors. 2006 (1) SCC 46, Mohammod Gazi vs. State of M.P. &Ors. 2000 (4) SCC 342 and Gursharan Singh vs. New Delhi Municipal Committee 1996 (2) SCC 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the bench, speaking through one of us, was as follows: 8. With the benefit of this guidance from Hon'ble Delhi High Court, in view of legislative amendments made from time to time, which throw light on what was actually sought to be achieved by this legal provision, and in the light of the above analysis of the scheme of the law, we are of the considered view that section 40(a)(ia) cannot be seen as intended to be a penal provision to punish the lapses of non deduction of tax at source from payments for expenditure- particularly when the recipients have taken into account income embedded in these payments, paid due taxes thereon and filed income tax returns in accordance with the law. As a corollary to this proposition, in our considered view, declining deduction in respect of expenditure relating to the payments of this nature cannot be treated as an "intended consequence" of Section 40(a)(ia). If it is not an intended consequence i.e. if it is an unintended consequence, even going by Bharti Shipyard decision (supra), "removing unintended consequences to make the provisions workable has to be treated as retrospective notwithstanding the fact that the amendment has be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessee's for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l High Court has to hold on the issue, and Hon'ble High Court, though in the case of another assessee i.e. Micro Ink (supra) is already seized of the matter. Respectfully following the views expressed by the coordinate bench, we hold that the assessee extending corporate guarantees to its AEs, particularly on the facts and in the circumstances of this case and when the assessee has done so in the course of its stewardship activities for its subsidiaries, does not constitute an international transaction, and, as such, no ALP adjustment can be made in respect of the same. Accordingly, entire ALP adjustment stands deleted. As for the quantum of this adjustment, which is mainly the subject matter of grievance raised in revenue's appeal, once the entire ALP adjustment stands deleted, that aspect of the matter is wholly academic and does not call for any adjudication by us." 8. It is sufficiently clear that the TPO had himself taken financial guarantees given by various institutions as the relevant bench mark for the performance guarantee adjustment in question. We hold in these facts and circumstances the above judicial precedent of the co-ordinate bench would squarely apply in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....35,447/-:- During the course of assessment proceedings, the A.O. noted that the assessee has incurred an amount of Rs. 4,06,67,236/- for recruitment and training expenses for its various units. He also noted that the assessee recruited the persons for twin purpose for its business and for its Associated Enterprises (AE's). He also noted that the assessee had seconded as many as 148 persons to AE's. He further noted that the persons were recruited and trained at company's expenses and at the time of secondment, it was not decided as to when the said persons will come back to the company. He accordingly concluded that the benefit out of recruitment and training of the persons are received by the company as well as AE's of the company outside India. In the absence of information as to how many persons were trained during the year, 20% of the recruitment and training expenses amounting to Rs. 81,33,447/- was disallowed by holding that it was not incurred for the business. Aggrieved by the order of the A.O., assessee carried the matter before Ld. CIT(A). Before Ld. CIT(A), the assessee inter alia submitted that none of the recruitment and training expenses were practical....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld. v. 12. We have considered the rival submissions and perused the material on record. We find that Ld. CIT(A) while deleting the addition has held that's the facts of the case of the year under appeal are identical to that of earlier year (assessment year 2005-06) and has followed the order of his predecessor. Further, he has also relied on the decision of Coordinate bench of the Tribunal in the assessee's own case for assessment year 2005-06 for deleting this addition. The finding of Ld. CIT(A) could not be controverted by the Ld. D.R. by bringing any contrary material on record. We, therefore, find no reason to interfere in the order of Ld. CIT(A). This ground of the revenue is also dismissed." Respectfully, relying upon the judgment passed by the Co-ordinate Bench, we find no infirmity in the order passed by the ''Ld. CIT(A)'' so as to warrant interference. Hence, we pass the order in affirmative i.e. in favour of the assessee and against the Revenue. 17. Thus Revenue appeal is found to be devoid of any merit and hence this ground of appeal is dismissed. 18. Ground No.3: The order passed by the ''Ld.CIT (A)'' in deleti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nge fluctuations are eligible for deduction u/s.80HHC. Therefore, considering the same analogy, the gains would also be eligible for deduction u/s.10A of the Act. In this regard the relevant extracts of the said decision of the Hon'ble ITAT Ahmedabad as referred to above are as under.- "Export bills are drawn in foreign currency and entries are made in the books in terms of Rupees on the basis of notional rate of exchange of foreign currency prevailing on the date of making of the sale bill. When the foreign bills are realized by tile foreign buyers, what the assessee receives is exactly the amount of foreign currency mentioned in the bill and the assessee's bankers credit the actual amount of such, foreign currency by converting the same into Indian Rupee at the rate prevailing on the date of conversion. In this process assessee receives some times more and some time less amount in India Rupee then the notional value of goods shown in the books at the time of exports. Thus, there is a direct nexus between amount realized on account of export sales and exchange rate difference whether treated by the assessee in the books as receives from export sales or from exchange rate f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....records and judgment passed by the Co-ordinate Bench. It appears that while dismissing this ground of appeal preferred by the Revenue the Ld. Tribunal observed as follows: "...13. The next ground is with respect to the addition of Rs. 26,02,07,754/- made by TPO u/s 92CA(3):- During the course of assessment proceedings, the A.O. noted that the assessee company had international transactions as defined in Section 92B of the Act with the associate enterprise. The associated transactions were made for software development and related services rendered for India to onsite software project execution etc. Reference was made to TPO who held that adjustment are required to be made with respect to international transactions by any amount paid towards software services, repair & maintenance services and adjustment on account of excess credit provided to AEs. The total adjustment of income as proposed by TPO was Rs. 26,02,07,754/-. Aggrieved by the aforesaid action of the A.O., the assessee carried the matter before Ld. CIT(A) who after considering detailed submissions of the assessee, deleted the addition by holding as under: "11:10 I have considered the facts and submission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r and a return based on sales which incentives MUK to generate more revenue appears to be appropriate. Accordingly, this ground no. 10 is fully allowed." 14. Ld. D.R. supported the order of the A.O. whereas the Ld. A.R. submitted that the facts are identical to that of the earlier year and supported the order of the Ld. CIT(A). 15. We have considered the rival submissions and perused the material on record. We find that Ld. CIT(A) while deleting the addition has held that the facts of the case of the year under appeal are identical to that of earlier year and has followed the order of his predecessor. Further, he has also relied on the decision of Hon'ble ITAT in the assessee's own case for assessment year 2006-07 for deleting this addition. The finding of Ld. CIT(A) could not be controverted by the Ld. D.R. by bringing any contrary material on record. We, therefore, find no reason to interfere in the order of Ld. CIT(A). Thus this ground of the Revenue is also dismissed." Since the issue has already been decided by the Ld. Tribunal, we do not find any reason to deviate from the stand taken by the Co-ordinate Bench and we do not find any infirmity in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as distributors of software development services to their respective customers. For enabling ABs to provide on-site services, the appellant seconds employees to them. Such secondment of employees for providing on-site services brings back more offshore work as well as skills and competencies. The appellant has further submitted that HRM function was not a separate service and it forms an integral pan of the software services and hence the same should not be regarded as separate international transaction. It has been pointed out by the appellant that during the FY 2007 - 08 no separate HRM services were provided by the appellant to the AEs, The expenses in relation to performing the HRM functions were entirely incurred in relation to the recruitment of the employees. The appellant has further pointed out that while making the functional analysis for International transactions related to the software services it has included the HRM functions as part of that analysis, it has done detailed analysis of the specific activity forming a subset of the main international transaction. It has therefore, been submitted by the appellant since it was a subset of the main international transacti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod of secondment and following the termination of requirement of the 'host' (the other absorbing unit) such persons "'return' to the 'seconder'. The benefit of such "arrangement is the continuity of the employment. The 'secondee' remains employed by the 'seconder' so that the statutory period of continuous employment remain unbroken, to qualifying for pension or other employment rights. The payment of fees or remuneration depends upon the 'secondment agreement' from party to party, but the primary liability is of the "seconder". Now the argument is that by such secondment of trained employees, in return, the assessee has substantially been benefited and because of the 'onsite' services provided by AEs, in the result, there was 'offshore' work was generated for the assessee. As far as the assessee is, concerned, its 'offshore' revenue has admittedly increased. A fundamental question has cropped up because of TPO's decision that whether the HRM function can be said to be "an integral part' of the overall software development services of the assessee? If we consider the overall scenario and the globaliz....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Form No.2CEB is concerned a clarification has been given that no international transaction of HRM services had actually been carried out with any of the AEs in respect of secondment of employees, hence there was no question about reporting the same in the said prescribed form. The expenses in relation to performing the HRM function are stated to be entirely incurred and borne by MIL Expenditure on training is also borne by MIL. Those were not recruited on the basis of any request of AEs. At the time of recruitment there was no surety given of their off-shore appointment immediately but they could be seconded at a later stage. Hence at first instance, none of the expense relate to the employees was meant for sending them to AEs. The purpose of recruitment at the first stage is their in-house absorption. No pan of the expenditure was on behalf of AE hence there was no transaction which could be alleged as international Transaction. We find this explanation a reasonable explanation because admittedly there was no International transaction with AEs for charging the HRM services but the TPO had made out a case that there ought to be some mark up and hence he has opined for an addition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntific International VV (210-TII-16-ITAT-MUMTP). For these reasons we also hold that the secondee-provider is not akin to recruitment service-provider or that "secondment" is different from "recruitment". Finally, we hold that there was no legal basis for the impugned upward adjustment and the same is hereby directed to be deleted. This ground is allowed. Since the facts of the present year are similar to the one decided by honourable (TAT, Ahmedabad, respectfully following the decision the upward adjustment made by the TPO/AO is directed to be deleted this year as well. The ground of appeal is accordingly allowed." 10. It has therefore come on record that the instant issue has not arisen for the first time between the parties. This is not the Revenue's case that the impugned assessment year involves any different facts or law vis-a-vis those in said preceding assessment years. We thus adopt judicial consistency to affirm the CIT(A)'s finding qua this last issue. Revenue's appeal no.2879/Ahd/2014 is dismissed." In view of the order passed by the Co-ordinate Bench in identical issue, we find no justification in interfering the the o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for Rs. 35825/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act. However, we note that in the recent judgment passed by the Special Bench of Hon'ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act, The relevant portion of the said order is reproduced hereinbelow: "In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made "without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962 " The ratio laid down by the Hon'ble Tribunal is squarely applicable to the facts of the case in hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act. Hence, addition is deleted. Assessee's appeal is, thus, allowed. 32. Ground no.3 : This ground of appeal preferred by the assessee i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned adjustment after excluding the above two comparable entities from the array of comparables. The Revenue fails in its instant substantive ground as well.' In view of the order passed by the Co-ordinate Bench, we find no justification in sustaining such upward adjustment of Rs. 1,75,40,109/-. This ground of appeal preferred by Revenue is, thus, dismissed. This ground of appeal is, thus, dismissed. 36. Ground No.5 : This ground of appeal preferred by the assessee is asking to the ground no.3 of appeal bearing ITA No. 1188/Ahd/2015 for A.Y. 2009-10 preferred by the assessee which has already been decided in favour of the assessee. Respectfully, relying upon the order passed by the Co-ordinate Bench in assessee's own case in ITA Nos. 2879 and 2985/Ahd/2014 for A.Y. 2008-09. Hence in the absence of any change circumstances the same shall apply Mutatis mutandis. ITA No. 513/Ahd/2016 for A.Y. 2010-11 37. Ground no.1: This ground of appeal preferred by the Revenue is asking to the ground no.4 preferred by the Revenue in ITA No.1852/Ahd/2015 for A.Y. 2009-10 which have already been decided in favour of the assessee hence, relying upon the order passed by the Co-ordinate Bench....