TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1927
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.... 2. Corporate Guarantee as an international transactions On the facts and in the circumstances of the case and in law, while erred in arriving at arm's length price of corporate guarantee provided by the Appellant, the Ld. AO/Ld. TPO has erred in the following - ignored the fact that the corporate guarantee provided to subsidiary is in the nature of shareholders activity and does not fall within the ambit of definition of international transaction as defined under Section 928 of the Act disregarding the fact that the provision of corporate guarantee to the subsidiary was intended to facilitate an acquisition of two companies in the European jurisdiction by the Appellant. and consequently the guarantee was in the nature of shareholder services and thus a separate charge is not warranted, not appreciating the fact that the Appellant has entered a corporate guarantee agreement signed with bank wherein it was agreed with the bank that the Appellant will not charge a corporate guarantee commission from its subsidiary company against provision of corporate guarantee The corporate guarantee provided by the Appellant does not involve any cost to the App....
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....roviso of Section 92 (3) of the Act. B. Corporate tax ground 5. On the facts and circumstances of the case and in law, the Ld.AO has erred and has failed to appreciate that the disallowance under section 14A cannot exceed the exempt income earned by the Assessee. 6. On the facts and circumstances of the case and in law, the Ld.AO has erred by enhancing the disallowance u/s 14A by Rs. 46,40,245 ignoring the fact that the Assessee had already disallowed Rs. 450,000 in the return of income against the exempt income earned of Rs. 570,807. 7. On the facts and circumstances of the case and in law, the Ld. AO has erred and has failed to appreciate that the Explanation to Section 14A inserted by an amendment made by the Finance Act, 2022 is applicable prospectively wef. April 1, 2022 i.e. from AY 2022-23 and is not relevant for the year under consideration 8. On the facts and circumstances of the case and in law, the Ld. AO has erred in applying the provisions as contained in the Explanation to Section 14A inserted by the Finance Act 2022 and thereby considered investments from which the Assessee has not earned any exempt income during....
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.... be disallowance u/s 14A more than the exempt income earned. Assessee had already made disallowance u/s. 14A to the extent of exempt income earned. Submission of ld. DR : 3. Ld.DR for the Revenue relied on the order of DRP, AO and TPO. Findings & Analysis : 4. We have heard both the parties and perused the material placed before us. 4.1 As per the assessment order, Precision Camshafts Limited(PCL) is a listed company having its office at Solapur. PCL is engaged in manufacturing of Camshafts for Railways and Auto Industry. During the proceedings before the Transfer Pricing Officer, the Assessee submitted that Assessee had not charged any Guarantee Commission on the Corporate Guarantee given to the bank on behalf of AE- PCL Netherland. The Transfer Pricing Order at Paragraph-6 has reiterated the reasons given by the Assessee which are reproduced here as under : Quote "Assessee has cited 4 reasons for not charging commission on corporate guarantee provided : 1. Restriction by banker for charging any guarantee commission 2. Operating structure of PCL NL 3. Corporate guarantee given in capacity of a shareholder 4. Possible erosion....
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....e addition. 4.6 In the Transfer Pricing Order the TPO has relied on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Everest Kanto Cylinders Ltd., in ITA no 1165 of 2013. We have studied the order of the Hon'ble Bombay High Court and it is distinguishable on facts. The relevant paragraphs of Hon'ble Bombay High Court's order are reproduced here as under : Quote, "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 Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and 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 applie....
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....p;1117/PUN/2023 has dealt with these issues. The relevant paragraph 7 and 8 of the ITAT order are reproduced here as under : "7. Proceeding further, it is noted from the impugned order that the assessee earned exempt income of Rs. 40,750/- against which disallowance u/s. 14A read with Rule 8D has been made at Rs. 17,52,712/-. The Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90 CCH 081-Del-HC. 8. It is seen that an amendment has been carried out to section 14A by the Finance Act, 2022 providing that the disallowance u/s 14A would be called for notwithstanding no receipt of exempt income during the year. The Hon'ble Delhi High Court in Pr.CIT Vs. Era Infrastructure (India) Ltd. (2022) 448 ITR 674 (Delhi) has held such amendment to be prospective. In that view of the matter, the case pertaining to the A.Y. 2017-18 under consideration, the assessee having earned tax free dividend of Rs. 40,750/-, wil....