TMI Blog2022 (9) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... aw by decisions of various courts, including Hon'ble High Court of Madras in the case of Marg Ltd. [ 2020 (10) TMI 102 - MADRAS HIGH COURT] has very clearly held that disallowance under section 14A w.r.Rule 8D can never exceed exempt income earned by the assessee during particular assessment year. In the case of Cheminvest [ 2015 (9) TMI 238 - DELHI HIGH COURT] had considered very similar issue and held that disallowance contemplated u/s.14A cannot swallow entire exempt income earned for the relevant assessment year. The sum 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. 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 - disallowance computed by AO cannot exceed exempt income earned for the relevant assessment year and thus, by respectfully following decision in the case of Marg Ltd. [ 2020 (10) TMI 102 - MADRAS HIGH COURT] we direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chny/2014 for A.Y.2009-10), ITA Nos. 706/Chny/2015 & 919/Chny/2018 - - - Dated:- 12-8-2022 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member For the Assessee : Mr. B.Ramakrishnan, FCA, Ms. Malvi, Mr.J.Sheth, ACA For the Revenue : Mr. M. Murali, CIT ORDER PER BENCH : This bunch of seven appeals and one cross objection filed by the assessee as well as Revenue are directed against separate, but identical orders passed by the learned Commissioner of Income Tax (Appeals)-15, Chennai dated 28.11.2017 / 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .14A of the Act r.w. Rule 8D of Income Tax Rules, 1962 for the assessment years 2008-09 to 2010-11. 3. The first issue that came up for our consideration from appeal filed by the assessee for the assessment years 2008-09 to 2010-11 is disallowance u/s.14A of the Income Tax Act, 1961 read with Rule 8D of I.T. Rules, 1962. The learned A.R for the assessee submitted that the DRP/CIT(A) erred in sustaining additions made by the Assessing Officer towards disallowance u/s.14A r.w.Rule 8D of the Income Tax Rules, 1962, without appreciating fact that the 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if no exempt income is earned for any of the financial years, disallowance contemplated u/s.14A should be computed in accordance with Rule 8D of Income Tax Rules, 1962, and thus, there is no question of restriction of disallowance of expenditure to the extent of exempt income earned for the relevant assessment year. 5. Per contra, the learned A.R for the assessee referring to recent decision of the Hon ble Delhi High Court in the case of PCIT Vs. M/s.Era Infrastructure (India) Ltd. in ITA No.204/2022 dated 20.07.2022 submitted that the Hon ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of law by decisions of various courts, including Hon'ble High Court of Madras in the case of Marg Ltd. Vs. CIT (supra), where the Hon ble High Court has very clearly held that disallowance under section 14A w.r.Rule 8D can never exceed exempt income earned by the assessee during particular assessment year. The Hon ble Delhi High Court in the case of Cheminvest Vs. DCIT 378 ITR 33 (Del) had considered very similar issue and held that disallowance contemplated u/s.14A cannot swallow entire exempt income earned for the relevant assessment year. The sum 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 respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been decided by us in ITA Nos.2108/Chny/2012, 1039/Chny/2014 687/Chny/2015 for the assessment years 2008-09 to 2010-11. The reasons given by us in preceding paragraph No.6 to 9 in ITA Nos.2108/Chny/2012, 1039/Chny/2014 687/Chny/2015 for the assessment years 2008-09 to 2010-11 shall mutatis mutandis shall apply to this appeal, as well. Therefore, for similar reasons, we direct the Assessing Officer to restrict disallowances made u/s.14A r.w. Rule 8D of the Income Tax Rules, 1962, to the extent of exempt income earned by the assessee amounting to Rs.6,02,87,668/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expand the definition of international transaction, as per which, 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 AEs 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 any one or more of such enterprise, is also an international transaction. From plain reading of definition, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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