TaxTMI 
TaxTMI 
2025 (8) TMI 1116
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....nt assessee took up the contention that it had only recovered an amount of Rs.44,63,740/- from its subsidiary, representing the guarantee commission paid to Axis Bank, which provided the guarantee. However, the TPO by his order made reference to the bank guarantee rates for the financial year 2017-18 from five different banks and the average of the same - 2.56% - was adopted for computing the Arms Length Price (ALP) and thereby arrived at the ALP at Rs.3,93,38,672/- and after deducting the fee charged as noticed above at Rs.44,63,740/- arrived at the short fall on account of corporate guarantee at Rs.3,48,74,932/-. Similarly, an amount of Rs.78,297/- was also found to be the interest to be charged on trade receivables, which was required to be added even though the appellant had contended that it had not charged any interest on belated receivables. On the basis of the order issued as above by the TPO, since the provisions of Section 144C of the Act was applicable, the draft order thereunder was issued by the National Faceless Assessment Centre (NFAC). Apart from the afore two amounts, the draft order also made reference to the provisions of Section 14A of the Act seeking to disallo....
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....hat it has provided the corporate guarantee to Axis Bank, and the said bank provided a guarantee on behalf of the AE, as noticed earlier. There cannot be any comparison with the commission charged by the bank while issuing the bank guarantee, while arriving at the ALP with reference to the corporate guarantee provided by the appellant- assessee. It is on that basis that the appellant-assessee had relied on the Safe Harbour Rules (SHR), as per which the corporate guarantee commission was prescribed only at 1%. True, the Tribunal has found that the appellant-assessee had not opted for the SHR. However, the Tribunal ought to have taken cue from the afore while proceeding to uphold the fixing of the rate with reference to the fee being charged by five different banks. We also notice the judgment of the Bombay High Court in Commissioner of Income Tax v. Everest Kento Cylinders Ltd. [(2015) 378 ITR 57], wherein the Court considered a transfer pricing adjustment on guarantee commission on almost similar circumstances. The assessee in that case had also provided a corporate guarantee, with respect to a loan availed by AE, charging a commission at the rate of 0.5%. The TPO found the guarant....
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....tue of the provisions of Section 92B of the Act, as amended by the Finance Act, 2002, even "deferred payment or receivables" have been roped in. In such circumstances, we find no reason to interfere with the findings of the Tribunal on the afore aspect. 8. The third issue arising for consideration is with reference to the disallowance carried out under the provisions of Section 14A of the Act. Section 14A, true, provides for the disallowance of expenditure incurred by an assessee in relation to income, which does not form part of its total income. Therefore, in a situation where an assessee expends any amount for earning tax-free income in the form of funds obtained from loans, etc., the assessee becomes disentitled for claiming a deduction on income/expenditure paid for earning the tax-free income. Therefore, ultimately, it is only in a situation where the department is in a position to show that borrowed funds were used for earning income, the application of Section 14A of the Act arises. In the case at hand, the appellant-assessee has specifically claimed before the authorities under the statute that it had more than sufficient funds with it - in excess of Rs.1,110 Crores, as....
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....xpenditure claimed by the assessee." As already noticed, provisions of Section 14A of the Act provide for the disallowance of expenditure under the circumstances prescribed therein. It is only in a situation where the provisions of Section 14A of the Act gets attracted, the question of applying the provision under Rule 8D of the Rules arises. 11. In this connection, we notice the judgment of the Apex Court in South Indian Bank (supra) wherein the Apex Court with reference to the provision of Section 14A of the Act, has laid down the following principles:- "27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under section 14A of Income Tax Act for investments made in tax free bonds/securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees." With reference to the above, we notice the contention raised by the assessee with specific reference to....