TaxTMI 
TaxTMI 
2025 (10) TMI 1379
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....e action of Ld. AO as under: "It is noted that, there is no definition or meaning set out for the phrase "value of investment" in the said Rule BD and therefore it is to be understood in the context of the relevant facts and other provisions of law. The appellant had brought to my notice that, the language used in Rule 8D(2) as it earlier stood in 2008 was materially amended by the Income-tax (Fourteenth Amendment) Rules, 2016. It is observed that earlier, the language used in Rule AD required that the value of investments as appearing in the balance sheet was to be considered for the purposes of disallowance. By virtue of the amendment in 2016, the phrase as appearing in the balance sheet was omitted and that only the average value of investment was to be considered for the purposes of Rule BD. Accordingly, from 2016 and onwards, the value of investment as appearing in the balance sheet was no longer of any consequence. Meaning thereby, the investments which were recorded at its fair value in the balance sheet was not of relevance and that, the 'value of investment alone was to be considered. Having taken note of this amendment, the appellant submits that, the "value ....
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....es of the case and in law and without prejudice to the above, the lower authorities grossly erred in simply following the appellate order passed by the Hon'ble ITAT, Kolkata in assessee's own case for AY 2013-14 without appreciating that the facts involved in the relevant year were distinguishable and that unlike AY 2013-14, in the relevant year, the assessee is able to demonstrate on facts the ALP fees of corporate guarantee(s) following the interest savings approach. 2. Disallowance u/s 14A read with Rule BD- Rs. 5,00,03,015/- [Tax Effect: Rs. 1,74,73,054/-] 2.1 For that on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was unjustified on facts and in law in rejecting the appellant's plea that, the disallowance in terms of Rule 8D(2)(ii) ought to be computed with reference to the original cost of investments as opposed to the fair value of investments reflected in the Balance Sheet prepared in accordance with IndAS standards. 2.2 For that on the facts and in the circumstances of the case and in law, the notional gain credited upon revaluation of investments on Marked-to-Market ('MTM') basis at the ....
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....e accounts as per the Ind-AS accounting standards. Thus, due to this legal requirement the value of investments had been taken at market price following the specific mandate of Ind-AS-113. It was argued that, on the other hand, as per ICDS-I (specifically mandated under the Income Tax Act,1961) such notional gains or losses were to be ignored for the purposes of computing total income. The Ld. AR relied on the CBDT Circular No. 10/2017, dated 23.03.2017, and read out question 8 from this Circular in support of his arguments. The Ld. AR stated that the assessee had adopted the value of disallowance as per his Balance Sheet figures worked out on the basis of Ind-AS 113, due to an oversight. However, this oversight was sought to be corrected through substitution of these figures with those denoting the acquisition cost of such investments. The Ld. AR assailed the action of Ld. CIT(A) is not directing the Ld. AO to compute the disallowance accordingly. 3.2 The Ld. DR, on the other hand, stated that CG was assessed @ 1% on the basis of findings and directions of ITAT in assessee's own case and that is what should be followed here also. Regarding the disallowance u/s 14A of the Act, t....
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....is that clause (c) of the Explanation supports the case of the assessee inasmuch as the Explanation makes it clear that giving of a Corporate Guarantee is not a service. Without prejudice to the said contention, it is submitted that only Corporate Guarantee is given by the assessee, which are in the nature of lending are covered under clause (c) of Explanation 1 to section 92B. Further, it is submitted that the nature of transactions covered by clause (e) specifically include even those transactions which may not have a 'bearing on the profit, income, losses or assets of such enterprises at the time of transaction' are covered if they have such a bearing 'at any future date'. It is argued that the language used in the Explanation makes it clear that in so far as the transactions that fall within the main part of section 92B are concerned, such transactions must have a bearing on profit, income, losses or assets of an assessee in the year in which the transaction is effected. In the assessee's case, the Corporate Guarantees represent a contingent liability and lay dormant and have no bearing on the current year's profits, income or losses of an assessee and C....
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....ee therein. The Tribunal held that in case of default, Guarantor has to fulfil the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that his position indicates that provision of guarantee always involves risk and there is a service provided to the Associate enterprise in increasing its creditworthiness in obtaining loans in the market, be from financial institutions or from others. There may not be immediate charge on profit & loss account, but inherent risk cannot be ruled out in providing guarantees. U1 and adjustment are to be made on guarantee commissions on such guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise. The case of Redington (India) Ltd. (supra) leaves no room for doubt that the amendment in question is retrospective, as clearly mentioned in the statute itself, and would thus apply to the present case. Accordingly, it is required to respectfully differ from ....
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....the above mentioned cases, the CG commission is restricted to 0.5% as against 3% worked out by the ld. AO/TPO. The appellant gets consequential relief." 4.1 Considering the totality of facts and circumstances of this case, we are considerably persuaded by the assessee's arguments that the interest savings method enables us to arrive at a fair estimation of CG since it is a matter of record that Citi Bank and SCB admittedly charge 1.25% and 1.5% extra interest in the absence of a CG. Thus, this extra interest deserves to be apportioned equally between the assessee and the AE on the transactions with these two banks at 0.625% and 0.75% respectively, as against 1% value adopted in the impugned order. 5. Regarding the issue of disallowance u/s 14A of the Act, it is worth considering that as a corporate entity, the assessee is legally bound as per the Companies Act, 2013 to follow Ind-AS in preparing its accounts. IndAS-109, read with Ind-AS-113 clearly direct that investments have to be valued at a fair or market valuation, which was done by the assessee. Incidentally, suo moto disallowance was made on that basis only. However, subsequently the assessee filed a revised computatio....