9911796707
TMI Blog2021 (1) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act was issued on 23rd Sep, 2011. The assessee company is engaged in the business of manufacturing and trading of alloy steel castings. After taking into consideration the submission of the assessee, the Assessing Officer has framed assessment u/s. 143(3) r.w.s. 144C of the act vide order dated 23rd Feb, 2012 whereas various additions were made. Assessee has not filed any objection against draft assessment order before the dispute resolution panel. Being aggrieved with the additions made by the Assessing Officer, the assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee. The various additions wherein reliefs have been granted by the ld. CIT(A) or sustained by the ld. CIT(A) , the revenue and assessee have contested in the instant appeal. The facts and nature of issues are discussed while adjudicating the grounds of appeal as under:- ITA No. 1766/Ahd/2012 A.Y. 2008-09 filed by revenue Ground No. 1(Deleting addition of Rs. 18,39,75,000/- in respect of income from investment in free zone entity in Ajman Free Zone Alternatively the said amount would have been added to income of assessee under the provision of transfer pricin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bruary,2010 issued by Executive Director of Revenue and Budget, i.e., Ministry of Finance of UAE (enclosed as Annexure B). * A Certificate issued by A/man Free Zone Authority (enclosed as Annexure C) dated 15 July 2009 confirming that Vega UAE is a registered company, a body corporate incorporated in the Free Zone of Ajrnan (UAE) under the law laid down by the Amiri Decree No, (2) of 1996 on amending the Arniri Decree No. (3) of 1988. In view of the above above, we submit that Vega UAE is an independent company and it is managed and controlled out of the UAE. Further, we also submit that Vega UAE is a company for the purposes of Section 2(17) of the Act. * Vega UAE has independent operations and separate Board of Directors. * Vega UAE is a 'Company'/ 'Body Corporate' incorporated in UAE and cannot be treated as proprietary concern of the Assessee. * Vega is a Tax Res/dent of UAE under the India-UAE Tax Treaty. * It is submitted that the management and control of Vega UAE being located in UAE, no part of its income can be brought to tax in India as Vega UAE is a separate company and cannot be said to be wholly controlled and managed in India, * Vega UAE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aces reliance on the following: The decision of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) wherein the Supreme Court held that the Tax Residence Certificate issued by the Government of other Contracting State would be a conclusive proof of residential status of the company. CBDT Circular No. 789, dated 13 April 2000, where it has been clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the Double Tax A voidance Convention accordingly. The Assessee submits that the principle laid down by this Circular also stands extended to cases under any other treaty including for Vega UAE." The assessee has explained that Vega UAE was a body corporate under the law Ajman and was not a proprietary concern of the assessee company, therefore, the income of Vega Industries Middle East FZE should not be added in the total income of the assessee company. The Assessing Officer has not agreed with the submission of the assessee by making reference to assessment order passed for assessment year 2006-07. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incorporated by or under the laws of a country outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 {] I of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company : Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April 197], or on or after that date) as may be specified in the declaration ] 10. As per these provisions of Section 2(I7J, for other than an Indian company, a company means any body corporate incorporated by or under the laws of a country outside India and Vega UAE is definitely not an Indian company. Now, we have of examine as of whether if can be said that Vega UAE is a body corporate incorporated by and under the law of a country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the only situation where the owner will be treated as personally responsible is regarding omission of some specified information that the entity is a free zone establishment (FZE) and it will be pursuant to Amiri Decree No.(3) of 1988 as amended. In our considered opinion, this is a situation where it specifies that corporate veil may be lifted. This may differ from country to country and in India also, in some situations, corporate veil can be lifted and, therefore, because of this restriction alone, it cannot be said that Vega UAF is not a separate legal entity. 12. the main objection of the A.O. is that since the assessee is the only shareholder and holding 100% shares of Vega UAF, it is not a valid company because as per Indian Companies Act and as per UAE CCL, two shareholders are required. The argument of the revenue is this that as per CL of UAE, two shareholders are required and as per Article 151 of the Constitution of UAE, the provisions of constitution shall have precedence over the constitution of Emirates which are the members of the federation but the contention of ld. counsel for the assessee is that an exception has been carved out in Article 149 of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent corporate body, the profit of Vega UAE cannot be taxed in the hands of appellant. Respectfully following the decision of jurisdictional tribunal in the appellant's own case in the immediate preceding year on the identical facts, it is held that Vega UAE is a separate company and accordingly profit of Vega UAE cannot be added to the income of the appellant. As a result of this, addition made by the assessing officer is deleted." 5. During the course of appellate proceedings before us, the ld. counsel has brought to our notice that ld. CIT(A) has granted relief to the assessee after following the decision of ITAT Ahmedabad on identical issue based on similar facts in the case of the assessee for assessment year 2006-07 vide ITA No. 580/Ahd/2011. The ld. Departmental Representative was fair enough not to controvert this undisputed facts and findings that the issue is covered in favour of the assessee by the aforesaid decision of Hon'ble ITAT Ahmedabad adjudicated for assessment year 2006-07 in the case of the assessee itself. With the assistance of ld. representatives, we have gone through the decision of ld. Co-ordinate Bench of the ITAT as referred supra by the ld. coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isk as well as credit risk and therefore, we hold that Vega UAE is not a marketing service provider in the facts of the present case but if is a distributor of the assessee company. Once it is accepted that Vega UAE is a distributor, ALP has to be determined on the basis of profit on sale of goods by the assessee company as compared to the comparable companies. The assessee has demonstrated that the arithmetic mean of 3 years weight age average NOPM of 12 comparable companies was 7.92% as against NOPM of 18.89% of the assessee for the present year. Later on the assessee has also furnished the revised arithmetic mean of NOPM of the comparable companies on the basis of current year data only and it was 7.04% whereas mean of 3 years weight age average NOPM of 12 comparable companies was 7.92% as against NOPM of 18.89% of the assessee for the present year. Later on, the assessee has also furnished the revised arithmetic mean of NOPM of the comparable cases on the basis of current year data only and it was 7.04% as against 7.92% on the basis of 3 year weight age average. The assessee has also furnished one alternative working on the basis of net operating profit margin of Vega UAB, Vega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e global distributor. Appellant executed distributorship agreement with Vega ME and also adopted associated risks as earlier years. There was no dilution of its activities during the year as compared to earlier years. Accordingly, the findings of ITAT in assessment year 2006-07 that Vega UAE was distributor to the appellant completely apply to this year. Respectfully following the order of jurisdictional ITAT in appellant's own case in assessment year 2006-07, it is held that Vega ME was a full-fledged distributor to the appellant and not marketing service provider during the year. Once if is held that the AE is a distributor, the ALP has is to be determined on the basis of profit on sale of goods rather than operating margin to value added expenses. Like earlier years, this year also appellant had margin of 20.3% as against average margin of comparable companies of 12.63%. Therefore the profit margin of the appellant is much higher than the average operating margin of comparable companies. In view of this, no TP adjustment can be made this year also." Following the decision of the Co-ordinate Bench as supra we do not find any error in the decision of ld. CIT(A) therefore alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Initial Listing Fees 20000 Annual Listing Fees 30000 896100.00 NSE Use Usage of Electronic Facility & Software of the 870125 Initial Listing Fees 7000 Annual Listing Fees 28500 905625.00 Sanjay Majmudar 8 Associates Professional Fees - 500000 Air Fare - Mum - A'bad - 2965 Hotel charges & Local Conv. Expenses - 19326 522291.00 Ria Fintelligence 22000.00 Intime Spectrum Registry Ltd. 816144.50 National Securities Depositors Ltd. 401953.00 Central Depositors Services (India) Ltd. 220070.00 Talati & Talati - Certificate in connection with prospectus filed with SEBI 500000.00 Total ... 5548421.50 Referring the provisions of section, the Assessing Officer observed that only specific expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessing officer's order treating RS 55,48,422 as not eligible for deduction is confirmed." 8. Heard both the sides and perused the material on record. The assessee has contended in its submission before the ld. CIT(A) that according to section 35D(3), if the aggregate amount of the eligible public issue expenditure is in excess of 5% of the total cost of project, the said expenses to be ignored. Therefore the assessee submitted before the ld. CIT(A) that disallowance u/s. 35D should be reduced to Rs. 3,92,316/- as against Rs. 11,09,684/- After going through the findings of ld. CIT(A) we consider that Assessing Officer has incorrectly computed the disallowance u/s. 35D. It is noticed that assessee has claimed public issue expenses on the basis of 5% of the cost of the project to the amount of Rs. 7,20,05,356/- as against public issue expenses of Rs. 7,55,92,199/-. The Assessing Officer has worked out eligible public expenses to the total amount of Rs. 7,00,43,777/- after reducing the ineligible expenses of Rs. 55,48,422/- out of total public issue expenses of Rs. 7,55,92,199/-. In the light of the above facts and findings, we do not find any error in the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta for melting is 2% and Excise Department in some assessments considered burning loss at 2%. Appellant submitted that burning loss suffered by it varied from 2.5% to 8.19% in nine years including this year which shows that burning loss is different each year depending on the product and input mix. Appellant also submitted that it involved several processes in manufacturing and therefore 2% burning loss which is in melting alone, will be much higher if losses in all manufacturing processes are considered. Appellant further submitted that Excise Department examined its records and did not dispute its burning loss in any of the year therefore there is no basis of 2% burning loss mentioned by the assessing officer as per Excise Department. Appellant referred input output norms mentioned in export import policy of government of India as per which for 1200 metric ton input, expected output is 1000 metric tons in metal foundry industry. As per this even 16% loss of metal is acceptable. Appellant also submitted copies of assessment order, first appeal order and ITAT's order for assessment year 2002-03 and 2004-05 in the case of its erstwhile subsidiary company Reclamation Welding Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity is now part of the appellant company and therefore these decisions cannot be ignored. The certificate from Centre for Foundry Education and Research submitted before ITAT clearly mentioned that burning loss is from 10 to 14%. Considering all these facts and absence of any evidence to prove claim of burning of wrong, I find burning loss claimed by the appellant reasonable and within industry norms. Accordingly, the addition made by the assessing officer is deleted." 11. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer noticed that assessee has shown burning loss of 3019 MT worked out to 5.78%. The ld. CIT(A) in his finding has elaborated that the burning loss claimed by the assessee in various years was varied between 2.5% to 8.19% and the same was accepted by the department and the product of the assessee is subject to excise duty and the excise department has not disputed the burning loss of the assessee in any of the year. Even in the case of Reclamation Welding Ltd a subsidiary concern of the assessee now merged with the assessee company, the Co-ordinate Bench of the ITAT on similar facts has considered that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since appellant claimed warranty expenses on the basis of actual claims as mentioned in its submission, there is no question of making adjustment of this amount to the book profit. Accordingly, assessing officer is directed not to add warranty expenses to book profit under section 1 1 5 JB. As regards addition to book profit in respect of expenses relating to exempt income under section 10, assessing officer disallowed the expenses under section 14A which was added to the book profit. If is clearly mentioned under section 115 JB that expenses relating to exempt income under section 10, 11, 12 are to be added to the book profit. Since appellant incurred expenses relating to exempt income i.e. dividends, the said expenses are to be included in book profit. The estimation of such expenses is as per rule 8D. Even without applying this rule, the expenses relating to exempt income has to be added to the book profit. Therefore I confirm the assessing officer's action of including expenses relating to exempt income to the book profit under section 115 JB." 14. Heard both the sides and perused the material on record. The assessee has incurred actual warranty expenses of Rs. 1,73,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculated disallowance of Rs. 9,32,489/- u/s. 14A r.w.r. 8D of the IT act. The Assessing Officer has not accepted the submission of the assessee stating that assessee has not disallowed any amount as required under the provisions of section 14A of the Income Tax Act. The Assessing Officer also stated that return on investments was not automatic and it involves time, energy and resources in terms of finance, administration, decision making and managing activities involving buying and selling of the investment and investment of the dividends. In the light of the above facts and circumstances, the Assessing Officer stated that he was not satisfied with the correctness of the claim of the assessee and disallowance of expenditure was worked out as per rule 8D of I.T. Rule. Accordingly, an amount of Rs. 71,73,745/- u/s. 14A r.w.r. 8D of the I. T Act was added to the total income of the assessee. 16. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee . The relevant part of the order of ld. CIT(A) is as under:- "3.3 I have considered The (acts of the case; assessment order and appellant's written submission. Assessing offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties therefore appellant's claim is not justified that borrowed funds were not used in making investment therefore in the absence of clear cut details of utilization of funds, the formula given in rule 8D which is mandatory this year is to be applied. Therefore decision relied upon by the appellant is not applicable to this year when rule 8D is mandatory. Since assessing officer worked out interest disallowance as per rule 8D, the interest disallowance is confirmed." 17. During the course of appellate proceedings before us, the ld. counsel contended that Assessing Officer has not recorded specific satisfaction as to why the disallowance of Rs. 9,32,487/- computed by the assessee u/s. 14A was not correct. The ld. counsel also submitted that Assessing Officer and ld. CIT(A) has failed to appreciate that assessee has substantial interest free fund for making investment. The ld. counsel has also placed reliance on the following decisions:- > CIT vs. Torrent Power Ltd. - 363 ITR 474 (Guj.) > CIT vs. Suzlon Energy Ltd. - 354 ITR 630 (Guj) > CIT vs. Gujarat Power Corporation Ltd. - 352 ITR 583 (Guj) > CIT vs. Hitachi Home & Life Solutions (I). Ltd. - (2014) 41 taxmann.com 540 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral observation stating that investment was not automatic and involves time, energy, and resources etc. stating the aforesaid dissatisfaction, the Assessing Officer has computed the disallowance as per rule 8D to the amount of Rs. 71,73,745/-. In this regard we have gone through the provision of sub-section 2 of section 14A wherein it is provided that disallowance shall be determined in accordance with such method as may be prescribed, if the Assessing Officer, having regards to the account of the assessee, is not satisfied with the correctness of the claim made by the assessee in respect of expenditure related to exempt income. Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT (2011) taxman.com 390/203 taxman 364/[2012] 347 regarding recording of satisfaction prior to invoking section 14A held that before invoking 14A, the Assessing Officer has to record his satisfaction, having regard to the accounts of the assessee, that claim made by the assessee of an expenditure incurred in earning exempt income, or a claim that no expenditure is incurred by him in earning exempt income is not correct. It has been provided in the provisions that Assessing Officer has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has shown gross sale for financial year 2007-08 to the amount of Rs. 77,137.59 lacs. The assessee has also given details of all the expenditure in its annual account. From the perusal of the annual account, it is clear that the main activity of the assessee company was manufacturing and trading of alloy Steel Casting. In the annual account, the assessee has enclosed all the schedule pertaining to income and expenditure along with the accounting notes. It is reflected from the annual account and schedule of the assessee that its major expenses are incurred for its main business operation in trading of alloy steel casting. Looking to the above facts and circumstances, it is noticed that Assessing Officer has not specifically considered the nature of expenses reflected in the annual accounts of the assessee before invoking the provision of rule 8D in computing the disallowance for earning exempt income. In the light of the above facts and finding given in the judicial pronouncement as referred supra in this order, we consider that Assessing Officer is not justified in computing the disallowance without recording specific satisfaction and examination of the detailed account of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicle by the RTO. Therefore, the Assessing Officer has rejected the claim of assessee of higher depreciation @ 50% and allowed the depreciation at normal rate of 15%. Therefore, excess claim of depreciation of Rs. 2,27,644/- was disallowed and added to the total income of the assessee. 22. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed appeal of the assessee. 23. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer has not allowed the claim of the assessee of higher depreciation @ 50% stating that vehicle was not registered by the RTO as commercial vehicle. The ld. CIT(A) has allowed the claim of the assessee after following the decision of Co-ordinate Bench of the ITAT in the case of Dilip S. Chandmani vs. ACIT in ITA No. 7307/Ahd/2003. We have also perused the decision of the Co-ordinate Bench in the case of Shree Balaji Product vs. ITO vide ITA No. 2737/Ahd/2013 dated 12.08.2016 wherein after following the decision of the Co-ordinate Bench in the case of Daleep S. Chandnani, the similar issue was decided in favour of the assessee holding that there is no such condition that vehi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transactions as per audit report in From 3CEB and transfer pricing study report dt. 09/4/2012 where appellant used "CUP" to bench mark purchase of raw material from VEGA US brought out the defects in the TP study conducted by appellant and show cause the appellant (para 5.10 in TP order) The. TPO after considering appellant reply dt. 28/01/2013 (para 6 in TP order) rejected the detailed explanation offered by appellant and conducted a fresh FAR analysis (para 7 in TP order) and held that "such functional analysis as well as perusal of the agreement between Vega ME and AIA appointing Vega as Global Distributor clearly establishes that Vega ME is a marketing support office of the assessee company which also offers basic technical support to the customers of AIA Engineering Ltd. For this function, the reasonable and arm's length remuneration would have been to give Vega a markup on the costs incurred by it. However, as per the agreement between Vega and AIA, while the sale price of AIA has been pegged to a fixed level, Vega has been allowed to charge a negotiated price from the ultimate customers thus effectively transferring the entrepreneurial rewards to Vega while the entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer pricing adjustment on the basis of operating cost/operating profit percentage of Vega UAE, Vega UK and ega US. Regarding this aspect that as to whether Vega UIAE is a distributor or simply marketing service provider, we find that the objection of the revenue on this aspect is not sustainable in view of the facts of the present case because we find that the assessee company has executed proper distributor agreement with Vega JAE and if has been adhered to also and since the objection of the revenue that Vega UAE is not bearing any inventory and credit risk, we find that as per the facts of the present case, both these objections are not correct and Vega UAE is carrying both the inventory risk as well as credit risk and therefore, we hold that Vega UAE is not a marketing service provider in the facts of the present case but it is a distributor of the assessee company. Once it is accepted that Vega UAE is a distributor, ALP has to be determined on the basis of profit on sale of goods by the assessee company as compared to the comparable companies. The assessee has demonstrated that the arithmetic mean of 3 years weight age average NOPM of 12 comparable companies was 7.92% a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Middle East) as full-fledged-distributor of the appellant as against marketing service provider treated by TPO. All the arguments of TPO were considered and it was held that Vega Middle East was performing all the functions of a distributor. It was held to be taking inventory risk, credit risk and other risks associated with the business. Vega ME (Middle East) has now become global distributor with Vega US and Vega UK becoming its sub-distributors. This entity was found to be performing all the roles of a distributor of developing marketing strategy, logistic handling, inventory management, working capital management etc. The Vega ME remained full scale distributor even under the new distribution model in which it was made global distributor. Appellant executed distributorship agreement with Vega ME and also adopted associated risks as earlier years. There was no dilution of its activities during the year as compared to earlier years. Accordingly, the findings of ITAT in assessment year 2006-07 that Vega UAE was distributor to the appellant completely apply to this year. Respectfully following the order of jurisdictional ITAT in appellant's own case in assessment year 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of such guarantee were charged from VEGA UK but no such fess was recovered by VEGA ME, The TPO examined appellant's explanation that such guarantee had not been given for performance bonds and bids so the same are not qualify as guarantee but treated as a corporate function. The A.O. observed that a performance guarantee carries a potential financial liability, which in the case of failure of the beneficiary, has to be met by the guarantor and affects the assets of the guarantor. The TPO followed the ratio of US Tax Court in the case of Container Corporation for treating providing of guarantee as service. The TPO for the bench marking analyzed the bond data in US market and found that the difference in coupon rate (Yield or interest rate) in respect of AA rated bond and BB rated bond comes to 2.706% point. This was further increased 25 basis point for the currency risk to arrive at 2.956%. The TPO computed upward revision as follows: Vega ME Vega UK Total Guarantee charged 20,00,000 10,00,000 30,00,000 Conversion at closing rate of 51.76 103520000 51760000 155280000 Guarantee at 2. 965% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven for performance bonds and bids so the same are not qualify as guarantee but treated as a corporate function. The A.O. observed that a performance guarantee carries a potential financial liability, which in the case of failure of the beneficiary, has to be met by the guarantor and affects the assets of the guarantor. The TPO followed the ratio of US Tax Court in the case of Container Corporation for treating providing of guarantee as service. The TPO for the bench marking analyzed the bond data in US market and found that the difference in coupon rate (Yield or interest rate) in respect of AA rated bond and BB rated bond comes to 2.706% point. This was further increased 25 basis point for the currency risk to arrive at 2.956%. The TPO computed upward revision as follows: Vega ME Vega UK Total Guarantee charged 20,00,000 10,00,000 30,00,000 Conversion at closing rate of 51.76 103520000 51760000 155280000 Guarantee at 2.965% 3069368 1^34684 4604052 Less 0.5% in case of Vega UK 258800 Net guarantee fee payable 3069368 1275884 4345252 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest Kanto Cylinder, Mumbai Tribunal held as under: "We have already come to the conclusion in the foregoing paras that the rate of 3% by taking external comparable by the TPO, cannot be sustained in facts of the present case. We also find that in an independent transaction, the assessee has paid 0.6% guarantee commission to ICICI Bank India for its credit arrangement. This could * be a very good parameter and a comparable for taking it as internal CUP and comparing the-same with the transaction with the AE, The" charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the ICICI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length." In the instant case the appellant has furnished documentary evidence to show that it had obtained guarantee from SBI in connection with the appellant's operating contract with Karnataka Power Corporation at a guarantee fee of 0.25%. Going by the above mentioned decision of the Mumbai Tribunal, similar rate of 0.25% can be adopted for the purposes of benchmarking in the instant case. However, it is seen that there different rates of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds and the rate is directly proportionate to the rating given to the bond. Higher the risk of default by the issuing company on this bond higher the coupon rate. Details of these bonds are available on the web. On analysis of over 1100 bond data from where the bonds issued during the F.Y. 2008-09 were segregated it is seen that the difference in coupon rate ( yield or interest rate) in respect of AA rated bond and BB rated bond comes to 2.706% points. By taking guarantee for payments on behalf of its associate enterprise, the assessee has incurred significant current year risk as evident by general depreciation of rupees against dollar. Accordingly, 2.956% was found to be reasonable spread which the assessee should have charged as benefit granted to the associate enterprise. Accordingly, the Assessing Officer has made upward adjustment of Rs. 43,45,252/- as given below:- Vega ME Vega UK Total Guarantees charged 20,00,000 10,00,000 30,00,000 Conversion at closing dollar rate of 51.76 103520000 51760000 155280000 Guarantee at 2.965% 3069368 1534684 4604052 Less 0.5% in case of Vega UK 258800 Net guarantee fee payable 3069368 1275884 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bond higher the coupon rate. The Assessing Officer has taken rate of 2.956% as a reasonable fee for the guarantee given by the assessee and made upward adjustment of Rs. 43,45,252/-. However, the ld. CIT(A) has restricted the upward adjustment at 1% on total guarantee provided by the assessee holding that different rate of charging such fees varies from transaction to transaction. During the course of appellate proceedings before us, the ld. counsel has submitted that issuance of corporate guarantee by assessee on behalf of its subsidiary company was in the nature of quasi capital or share holders' activities and not in the nature of provision of services. Therefore, the said transaction is to be excluded from the scope of international transaction u/s. 92B of the Act. The ld. counsel has also brought to our notice that identical issue has been adjudicated by the Co-ordinate Bench of the ITAT in favour of the assessee in the case of Micro Ink Ltd. vs. ACIT (2015) 63 taxman.com 353 (Ahd-Trib). The detailed finding of the Co-ordinate Bench in the case of Micro Ink Ltd. supra are reproduced as under:- "20. We have heard the rival contentions, perused the material on record and dul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know -how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (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; (d) 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; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich should be a non-resident. An international transaction can be a transaction of the following types: in the nature of purchase, sale or lease of tangible or intangible property, in the nature of provision of services, in the nature of lending or borrowing money, or in the nature of any other transaction having a bearing on the profits, income, losses or assets of such enterprises An international transaction shall include 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 any one or more of such enterprises. Section 92B (2), covering a deeming fiction, provides that even a transaction with non AE in a situation in which such a transaction is de facto controlled by prior agreement with AE or by the terms agreed with the AE. 26. Let us now deal with the Explanation, inserted with retrospective effect from 1st April 2002 i.e. right from the time of the inception of transfer pricing legislation in India, which was brought on the statute vide Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in international transactions, as in Section 92B(1), which covers "any other transaction having a bearing on profits, incomes, losses, or assets of such enterprises". 30. It is, therefore, essential that in order to be covered by clause (c) and (e) of Explanation to Section 92 B, the transactions should be such as to have beating 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction as the condition precedent with regard to the 'bearing on profit, income, losses or assets' set out in Section I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 92B(1) may not be fulfilled. For example, an enterprise may extend guarantees for performance of financial obligations by its associated enterprises. These guarantees donot cost anything to the enterprise issuing the guarantees and yet they provide certain comfort levels to the parties doing dealings with the associated enterprise. These guarantees thus donot have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. One may have also have a situation in which there is a receivable or any other debt during the course of business and yet these receivables may not have any bearing on its profits, income, losses or assets, for example, when these receivables are out of cost free funds and these debit balances donot cos t anything to the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission brings the issuance of corporate guarantees to the net of transfer pricing. Nevertheless, the ALP adjustment made by the TPO was deleted by the Tribunal. Aggrieved by the relief so given by the Tribunal, the matter was carried in further appeal, by the Commissioner, before the Hon'ble Bombay High Court which eventually upheld the relief granted by the Tribunal. The appeal before the Hon'ble High Court was by the Commissioner, and not by the assessee, and, therefore, the grievance against the issuance of corporate guarantee being held to be an international transaction could not have come up for consideration. Of course, the assessee had no occasion to challenge the stand of the Tribunal on this aspect since the addition, on merits, was deleted anyway making revenue's success in this respect hollow and of no damage to the interests of the assessee. It was in this backdrop that the action of the Tribunal was upheld in granting relief to the assessee on merits. It is difficult to understand as to how this decision is taken as supporting the proposition that the issuance of corporate guarantee, even in a case in which neither any guarantee commission is charged nor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, we find that the operative portion of this judgment, so far as relevant to this discussion, is as follows: 213. The amendment to section 2(47) raises several important questions of fact and of law. Whether or not it affects the proceedings which were the subject matter before the Supreme Court is not relevant for the purpose of this Writ Petition. But, whether it is relevant or not for the purpose of the assessment proceedings in respect of the petitioner which are the subject matter of this Writ Petition, is relevant. The effect of the amendment would have to be considered. It cannot be brushed aside. 214. Section 2(47), as amended, even on a cursory glance raises various issues. It is necessary to note four preliminary aspects of Explanation 2 to section 2(47). Firstly, as the opening words, "For the removal of doubts it is hereby clarified that ......", indicate it is a clarificatory amendment. Secondly, it is an inclusive definition as is evident from the words " "transfer" includes.....". Thirdly, the amendment is with retrospective effect from 1st April, 1962. Fourthly, the Finance Act 2012 which introduced, inter-alia, the amendment to section 2(47) and section 92C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reting them. Vodafone's case obviously considered the ambit of the term "transfer" prior to the amendment. In the present assessment proceedings, it is the amended definition which would have to be considered. 218. We do not find it either necessary or proper to indicate the application of section 2(47) as amended to the present proceedings. The application would depend upon the facts on record or those may be permitted to be brought on record. 219. There is another aspect. The petitioner may well contend that the amended definition makes no difference it being clarificatory in nature. The provisions thereof must, therefore, be deemed always to have been in existence. We will presume that it would be open to the petitioner to contend, therefore, that the judgment of the Supreme Court would remain entirely unaffected for the Supreme Court must be deemed to have considered the term as per its true ambit, as always intended by the Parliament. On the other hand, it may be equally open to the Revenue to contend that certain ingredients of a transfer were not considered by the Revenue itself in the proceedings relating to Vodafone's case on account of the Revenue itself not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that even after taking into account the amendments, the legal implications of this amendment is still an open issue which will have to be adjudicated in the light of pleadings of the parties. Even in these observations, which donot anyway decide anything on merits, effect of a retrospective amendment was not in the context of the precise issue before us, or on the scope of the international transaction, but in respect of connotations of 'transfer'. As learned counsel rightly contends, in the light of Hon'ble Bombay High Court's judgment in the case of Sudhir Jayantilal Mulji (supra) "ratio of a decision alone is binding, because a case is only an authority for what it actually decides and not what may come to follow from some observations which find place therein". In view of these discussions, the reliance placed on Vodafone India Services (supra) is also equally misplaced and devoid of legally sustainable merits. In any case, as is noted by Hon'ble Supreme Court in the case of CIT Vs Sun Engineering Works Pvt Ltd (1992) 198 ITR 297 (SC)], "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s order, a reference is made to well known Canadian decision in the case of GE Capital Canada (supra). The said case, to quote the words of the DRP, "also shows that the group company issuing the guarantee (i.e. guarantor) would, in principle, at least need to cover the cost that it incurs with respect to providing the guarantee" and that "these costs may include administrative expenses as well as the costs of maintaining an appropriate level of cash equivalents, capital, subsidiary credit lines or more expensive external funding conditions on other debt finance". The DRP had also noted that "in addition, the guarantor would want to receive appropriate compensation for the risk it incurs" and concluded that "following the above discussions, an arm's length guarantee fees is typically required to be determined by establishing a range of fees that the guarantor would, at least, want to receive and the fees that the guaranteed group company would be willing to pay depending on the prevailing conditions within financial markets in practice". 30. However, while dealing with this aspect of the matter, it is necessary to bear in mind the fact that this judicial precedent, whatever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the prices of such transaction come into play "Where a taxpayer or a partnership and a non-resident person with whom the taxpayer or the partnership, or a member of the partnership, does not deal at arm's length" [See Section 247(2) ibid]. When one takes into account these variations in the statutory provisions, it will become very obvious that the provisions of the Indian Income Tax Act, 1961 and the Canadian Income Tax Act, 1985 are so radically different that just because a particular transaction is to be examined on arm's length principle in Canada cannot be a reason enough to hold that it must meet the same in India as well. While the Canadian transfer pricing legislation, as indeed the transfer pricing legislation in many other jurisdictions, does not put any fetters on the nature of transactions between the AEs, so as to be covered by the arm's length price adjustment, and, therefore, covers all transactions between the related enterprises, Indian transfer pricing legislation covers only such transactions as are "in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary to popular but apparently erroneous belief, the issuance of corporate guarantees can indeed be kept outside the ambit of services. The relevant extracts from this document are as follows: 102. An independent company that is unable to borrow the funds it needs on a standalone basis is unlikely to be in a position to obtain a guarantee from an independent party to support the borrowings it needs. Where such a guarantee is given it compensates for the inadequacies in the financial position of the borrower; specifically, the fact that the subsidiary does not have enough shareholders' funds. ..... 103. It would not be expected that a company pay for the acquisition of the equity it needs for its formation and continued viability. Equity is generally supplied by the shareholders at their own cost and risk. 104. Accordingly to the extent that a guarantee substitutes for the investment of the equity needed to allow a subsidiary to be self-sufficient and raise the debt funding it needs, the costs of the guarantee (and the associated risk) should remain with the parent company providing the guarantee. 33. On a conceptual note, thus, there is a valid school of thought tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuance of corporate guarantee, as long as it is in the nature of shareholder activity, can not, therefore, amount to a "provision for services". 34. Undoubtedly, pioneering work done by the OECD, in the field of international taxation, has been judicially recognized worldwide by various judicial forums, including, most notably by Hon'ble Andhra Pradesh High Court in the case of CIT VS Visakhapatnam Port Trust [(1983) 144 ITR 146 (AP)]. Their Lordships also referred to Lord Radcliffe's observations in Ostime vs. Australian Mutual Provident Society [(1960) 39 ITR 210 (HL)], which has described the language employed in the models developed by the OECD as the "international tax language". The work done by OECD in the field of transfer pricing is no less significant. No matter which part of the world we live in, and irrespective of whether or not that tax jurisdiction is an OECD member jurisdiction, the immense contribution of the OECD, in the field of the transfer pricing as well, is admired and respected. However, the relevance of this work, so far as interpretation to transfer pricing legislation is concerned, must remain confined to the areas which have remained intact f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices. However, some guidance may be given to elucidate how the analysis would be applied for some common types of activities undertaken in MNE groups. 7.8 Some intra-group services are performed by one member of an MNE group to meet an identified need of one or more specific members of the group. In such a case, it is relatively straightforward to determine whether a service has been provided. Ordinarily an independent enterprise in comparable circumstances would have satisfied the identified need either by performing the activity in-house or by having the activity performed by a third party. Thus, in such a case, an intra-group service ordinarily would be found to exist. For example, an intra-group service would normally be found where an associated enterprise repairs equipment used in manufacturing by another member of the MNE group. 7.9 A more complex analysis is necessary where an associated enterprise undertakes activities that relate to more than one member of the group or to the group as a whole. In a narrow range of such cases, an intra-group activity may be performed relating to group members even though those group members do not need the activity (and would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at an activity in the nature of shareholder activity, which is solely because of ownership interest in one or more of the group members, i.e. in the capacity as shareholder "would not justify a charge to the recipient companies". It is thus clear that a shareholder activity, in issuance of corporate guarantees, is taken out of ambit of the group services. Clearly, therefore, as long as a guarantee is on account of, what can be termed as 'shareholder's activities', even on the first principles, it is outside the ambit of transfer pricing adjustment in respect of arm's length price. It is essential to appreciate, at this stage, the distinction in a service and a benefit. One may be benefited even when no services are rendered, and, therefore, in many a situation it's a 'benefit test' which is crucial for transfer pricing legislation, such as in US Regulations 1.482- 9(1)(3)(i) which defines 'benefit', form a US Transfer Pricing perspective, as "an activity is considered to be provide a benefit to the recipient if the activity directly results in a reasonably identifiable increment of economic or commercial value that enhances the recipient's co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the shareholder activities, these activities do not necessarily constitute services. There is no such express reference to the benefit test, or to the concept of benefit attached to the activity, in relevant definition clause of 'international transaction' under the domestic transfer pricing legislation. As we take note of these things, it is also essential to take note of the legal position, in India, in this regard. No matter how desirable is it to read such a test in the definition of the international transaction' under our domestic transfer pricing legislation, as is the settled legal position, it is not open to us to infer the same. Hon'ble Supreme Court, in the case of Tarulata Shyam Vs CIT [(1977) 108 ITR 351 (SC)], took note of the situation before Their Lordships in these words: "We have given anxious thoughts to the persuasive arguments of Mr Sharma. His arguments, if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity". However, Their Lordships declined to do so on the ground that "There is no scope for importing into the statute the words which are not there. Such import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees issued by the corporates for their subsidiaries are rarely, if at all, backed by any underlying security and the risk is entirely entrepreneurial in the sense that it seeks to maximize profitability through and by the subsidiaries. It is inherently impossible to decide arm's length price of a transaction which cannot take place in arm's length situation. The motivation or trigger for issuance of such guarantees is not the kind for consideration for which a banker, for example, issue the guarantees, but it is maximization of gains for the recipient entity and thus the MNE group as a whole. In general, thus, the consideration for issuance of corporate guarantees are of a different character altogether. 40. At this stage, it would appropriate to analyze the business model of bank guarantees, with which corporate guarantees are sometimes compared, in the context of benchmarking the arm's length price of corporate guarantees. A bank guarantee is a surety that that the bank, or the financial institution issuing the guarantee, will pay off the debts and liabilities incurred by an individual or a business entity in case they are unable to do so. By providing a guarantee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture obligations will be met. We see no meeting ground in these two types of guarantees, so far their economic triggers and business considerations are concerned, and just because these instruments share a common surname, i.e. 'guarantee', these instruments cannot be said to be belong to the same economic genus. Of course, there can be situations in which there may be economic similarities, in this respect, may be present, but these are more of an exception than the rule. In general, therefore, bank guarantees are not comparable with corporate guarantees. 41. As evident from the OECD observation to the effect "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", it is also to be clear that when the corporate guarantees are issued for the purpose of subsidiaries raising funds for acquisitions by such subsidiaries, these guarantees will be deemed to be services to the subsidiaries, and, as a corollary thereto, when corporate guarantees are issued for the subsidiaries to raise funds for their own needs, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation for Economic Co-operation and Development ('OECD', and Tax Administrations. These guidelines give an introduction to the arm's length price principle and explains article 9 of the OECD Model Tax Convention. This article provides that when conditions are made or imposed between two associated enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises then any profit which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, if not so accrued, may be included in the profits of that enterprise and taxed accordingly. By seeking to adjust the profits in the above manner, the arm's length principle of pricing follows the approach of treating the members of a multi-national enterprise group as operating as separate entities rather than as inseparable parts of a single unified business. After referring to article 9 of the model convention and stating the arm's length principle, the guidelines provide for "recognition of the actual transactions undertaken" in paragraphs I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 1.36 to 1.41. Paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the intellectual property rights arising as a result of future research for the term of the contract (as previously indicated in paragraph 1.10). While in this case it may be proper to respect the transaction as a transfer of commercial property, it would nevertheless be appropriate for a tax administration to conform the terms of that transfer in their entirety (and not simply by reference to pricing) to those that might reasonably have been expected had the transfer of property been the subject of a transaction involving independent enterprises. Thus, in the case described above it might be appropriate for the tax administration, for I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 example, to adjust the conditions of the agreement in a commercially rational manner as a continuing research agreement. 1.38 In both sets of circumstances described above, the character of the transaction may derive from the relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the taxpayer to avoid or minimize tax. In such cases, the totality of its termswould be the result of a condition that would not have been made if the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e guarantee, is to be benchmarked and, for that purpose, it is in the service category but that occasion comes only when it is covered by the scope of 'international transaction' under the transfer pricing legislation of respective jurisdiction. The expression 'provision for services' in its normal or legal connotations, as we have seen earlier, does not cover issuance of corporate guarantees, even though once a corporate guarantee is covered by the definition of international transaction', it is benchmarked in the service segment. In view of the above discussions, OECD Guidelines, as a matter of fact, strengthen the claim of the assessee that the corporate guarantees issued by the assessee were in the nature of quasi capital or shareholder activity and, for this reason alone, the issuance of these guarantees should be excluded from the scope of services and thus from the scope of 'international transactions' under section 92B. Of course, once a transaction is held to be covered by the definition of international transaction, whether in the nature of the shareholder activity or quasi capital or not, ALP determination must depend on what an independent en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This will be stretching the things too far to suggest that just because when guarantees are included in the international transactions, these guarantees are included in service segment in contradistinction with other heads under which international transactions are grouped, the guarantees should be treated as services, and, for that reason, included in the definition of international transactions. That is, in our considered view, purely fallacious logic. In our considered view, under Section 92 B, corporate guarantees can be covered only under the residuary head i.e. "any other transaction having a bearing on the profits, income, losses or assets of such enterprise". It is for this reason that Section 92 B, in a way, expands the scope of international transaction in the sense that even when guarantees are issued as a shareholder activity but costs are incurred for the same or, as a measure of abundant caution, recoveries are made for this non chargeable activity, these guarantees will fall in the residuary clause of definition of international transactions under section 92B. As for the learned Departmental Representative's argument that "whether the service has caused any extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in the scope of expression 'international transactions' by the virtue of clause (a) and (b) of Explanation to Section 92 B, are transactions with regard to purchase, sale, transfer, lease or use of tangible and intangible properties. These transactions were anyway covered by 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 I.T.A. No.: 2873/Ahd/10 Assessment year: 2006-07 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 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 any one or more o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rantees issued by the assessee to the various banks and crystallization of liability under these guarantees, though a possibility, is not a certainty. In view of the discussions above, the scope of the capital financing transactions, as could be covered under Explanation to Section 92 B 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 pre-condition about impact on profits, income, losses or assets of such enterprises is a pre-condition 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 a future date. These guarantees do not have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot obviously be any occasion to deviate from the decision that the coordinate bench took in Four Soft case (supra), but if the scope of the provision was indeed enlarged, as is our opinion, the question that really needs to be addressed whether, given the peculiar nature and purpose of transfer pricing provision, is it at all a workable idea to enlarge the scope of transfer pricing provisions with retrospective effect There can be little doubt about the legislative competence to amend tax laws with retrospective effect, and, in any case, we are not inclined to be drawn into that controversy either. On the issue of implementing the amendment in transfer pricing law with retrospective effect, in the case of Bharti Airtel (supra), a coordinate bench had observed as follows: 34. There is one more aspect of the matter. The Explanation to Section 92 B has been brought on the statute by the Finance Act 2012. If one is to proceed on the basis that the provisions of Explanation to Section 92 B enlarges the scope of Section 92 B itself, even as it is modestly describe d as 'clarificatory' in nature, it is an issue to be examined whether an enhancement of scope of this anti avoida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Channel Guide India Ltd Vs ACIT [(2012) 139 ITD 49 (Mum)], held that even though the assessee had not deducted the applicable tax at source under section 195, the disallowance could not be made under section 40(a)(i) since the taxability was under the provisions which were amended, post the payment having been made by the assessee, with retrospective effect. All this only shows that even when law is specifically stated to have effect from a particular date, its being implemented in a fair and reasonable manner, within the framework of judge made law, may require that date to be tinkered with. When a proviso is introduced with effect from a particular date specified by the legislature, the judicial forums, including this Tribunal, at times read it as being effect from a date much earlier than that too. One such case, for example, is CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 377 ITR 635 (Delhi)] wherein Hon'ble Delhi High Court confirmed the action of the Tribunal in holding that the provision, though stated to be effective from 1st April 2013 must be held to be effective from 1 st April 2005. Whether such an exercise can be done in the present case is, of cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In any event, in Prolific's case (supra), an earlier considered decision on the same issue by coordinate bench of equal strength was simply disregarded and that fact takes this decision out of the ambit of binding judicial precedents. We have also noted that in view of the decision a coordinate bench, in the case of JKT Fabrics Vs DCIT [(2005) 4 SOT 84 (Mum)] and following the Full bench decision of Hon'ble AP High Court in the case of CIT Vs BR Constructions [(1993) 202 ITR 222 (AP)], a decision disregarding an earlier binding precedent on the issue is per incurium. Such decisions cannot be basis for sending the matters to special bench since occasion for reference to special bench arises when binding and conflicting judicial precedents from coordinate benches come up for consideration. That was not the case here. All these factors taken together, in our considered view, it was not possible in this case to refer the matter for constitution of a special bench. In any case, whatever we decide is, and shall always remain, subject to the judicial scrutiny by Hon'ble Courts above and our endeavor is to facilitate and expedite, within our inherent limitations, that process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loses or assets of the company. It is further held that there can be a hypothetical situation in which a guarantee default takes place and therefore the enterprise may have to pay the guarantee amount but such a situation, even if that be so is only a hypothetical situation. Respectfully following the decision of the Co-ordinate Bench as supra, this ground of appeal of the Revenue is dismissed and part of addition sustained by the ld. CIT(A) is deleted. Accordantly, this ground of appeal of the Revenue is rejected and the ground of appeal of the assessee is allowed. ITA No. 2224/Ahd/2015 A.Y. 2009-10 filed by assessee Ground No. 1 (Disallowance u/s. 14A) 29. The similar issue on identical facts was adjudicated for assessment year 2008-09. Therefore, applying the findings on the similar issue adjudicated vide ITA No. 1757/Ahd/2012 for A.Y. 2008-09 as supra, we restrict the disallowance as administrative expenses to the amount of Rs. 15 lacs. Since the assessee itself has made disallowance to the extent of Rs. 8,82,827/-,therefore, disallowance is restricted to the extent of Rs. 6,17,173/- (Rs. 15,00,000- 8,82,827/-). Accordingly, this ground of appeal is partly allowed. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E) Ground no. 6 with sub Grounds 6.1 to 6.3 are against the addition of unutilized CENVAT credit of capital asset amounting to Rs, 1661993/-. The appellant in grounds raised objection that CENVAT credit on purchase of capital asset are not forming part of P & L account hence provision of section 145A of the Act are not applicable. The A.O. in the impugned order after observing the detail of unutilized CENVAT credit from cl. No. 22(a) of tax audit report in Form 3CD show cause the appellant. The appellant before A.O. submitted that it followed exclusive method of accounting consistently for Central Excise and MODVAT and submitted a reconciliation {was given by the tax auditor in tax audit report also) following the inclusive method to reflect that it is tax neutral. Appellant's contention before A.O. and rejection of such explanation with reasoning of addition are already discussed at para 4A(h) above. The appellant in appeal proceedings contended that (discussed at para 4C above). " In our case, the CENVAT credit in question of Rs. 16.62 lacs is in relation to the excise duty paid on capital goods i.e. plant and machinery, as per the details of the excise MODVAT credit given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asoning of A.O. for rejection of exclusive method adopted by appellant with a reconciliation of tax neutral effect in respect of inclusive method is not justified as per the provision and legal preposition. The appellant in appeal proceedings relied on my order dt. 09/01/2015 in the case of appellant itself for A.Y. 06-07, where on this issue with similar contention and reasoning, such additions were directed to be deleted. It is therefore, following the ratio of this order, the A.O. is directed to delete the addition so made. In conclusion, appellant gets relief of Rs. 1661993/-. All these grounds are treated as allowed." 35. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer added unutilized CENVAT credit of Rs. 16,61,993/- to the total income of the assessee stating that as per section 145A of the act the assessee should have followed inclusive method of accounting. The ld. CIT(A) deleted the said addition and the similar addition was also deleted in the earlier assessment year in the case of the assessee for assessment year 2006-07. The assessee has followed exclusive method of accounting. The ld. counsel has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid facts, we find no reason to interfere with the order of the ld.CIT(A). Thus, this ground of Revenue is dismissed.' 4. We see no reason to take any other view of the matter than the view so taken by the co-ordinate bench. Respectfully following (he same, we see no reasons to interfere in the conclusions arrived at by the Id. CIT(A). Accordingly, we confirm the order of the learned CIT(A) and dismiss the appeal of the Revenue." Respectfully following the decision of Co-ordinate Bench as referred above, we do not find any merit in the appeal of the revenue and the same is dismissed. Ground No. 4 (claim of additional depreciation on electric installation) 36. During the course of assessment, the Assessing Officer noticed that assessee has shown addition of Rs. 10,49,811/- under the head electric installation claiming depreciation @ 15% and additional depreciation @ 20%. On query, the assessee explained that electric installation was part and parcel of the plant and machinery installed during the year under assessment. The Assessing Officer had not accepted the submission of the assessee and he was of the view that the electric fittings was not plant and machinery and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to the extent of Rs. 5,05,853/- (Rs. 15,00,000- 9,94,147/-). Accordingly, this ground of appeal is partly allowed. Ground No. 2 (Disallowance u/s. 35D) 42. As the facts and issue involved in ground of appeal no. 2 vide ITA No. 1757/Ahd/2012 Assessment Year 2008-09 are similar as in ITA No. 2225/Ahd/2015 Assessment Year 2010-11 therefore after applying the decision adjudicated vide ITA No. 1757/Ahd/2012 as supra in this order, this ground of appeal of the assessee is dismissed. Ground No. 3 (T.P. adjustment in respect of corporate guarantee ) 43. As the facts and issue involved in ground of appeal no. 4 vide ITA No. 2342/Ahd/2015 Assessment Year 2009-10 are similar as in ITA No. 2225/Ahd/2015 Assessment Year 2010-11 therefore after applying the decision adjudicated vide ITA No. 2342/Ahd/2015 as supra in this order, this ground of appeal of the assessee is allowed. ITA No. 1112/Ahd/2017 filed by revenue A.Y. 2011-12 Ground No. A (Deleting the addition of Rs. 34,11,19,295/- treating Vega ME as the assessee's proprietary concern) 44. As the facts and issue involved in ground of appeal vide ITA No. 1766/Ahd/2012 Assessment Year 2008-09 are similar as in ITA No. 1112/Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal no. 4 vide ITA No. 2343/Ahd/2015 Assessment Year 2010-11 are similar as in ITA No. 1112/Ahd/2017 Assessment Year 2011-12 therefore after applying the decision adjudicated vide ITA No. 2343/Ahd/2015 as supra in this order, this ground of appeal of the revenue stands dismissed Ground No. G ( Deleting TP adjustment of Rs. 15,31,488/- made u/s. 92CA of the I.T. Act in respect of corporate guarantee) 50. As the facts and issue involved in ground of appeal no. 4 vide ITA No. 2342/Ahd/2015 Assessment Year 2009-10 are similar as in ITA No. 1112/Ahd/2017 Assessment Year 2011-12 therefore after applying the decision adjudicated vide ITA No. 2342/Ahd/2015 as supra in this order, this ground of appeal of the revenue stands dismissed ITA No. 1028/Ahd/2017 A.Y. 2011-12 filed by assessee Ground No. 2 (Disallowance u/s. 35D of the Act) 51. As the facts and issue involved in ground of appeal no. 2 vide ITA No. 1757/Ahd/2012 Assessment Year 2008-09 are similar as in ITA No. 1028/Ahd/2017 Assessment Year 2011-12 therefore after applying the decision adjudicated vide ITA No. 1757/Ahd/2012 as supra in this order, this ground of appeal of the assessee stands dismissed. Ground No. 3 (Depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra in this order, this ground of appeal of the revenue stands dismissed ITA No. 1850/Ahd/2017 A.Y. 2012-13 filed by assessee Ground No. 1 (Depreciation on electrical fittings) 58. As the facts and issue involved in ground of appeal no. 4 vide ITA No. 2343/Ahd/2015 Assessment Year 2010-11 are similar as in ITA No. 1850/Ahd/2017 Assessment Year 2012-13 therefore after applying the decision adjudicated vide ITA No. 2343/Ahd/2015 as supra in this order, this ground of appeal of the assessee stands dismissed. Ground No. 2 (Addition of Rs. 8,01,300/- on account of corporate guarantee) 59. As the facts and issue involved in ground of appeal for Assessment Year 2009-10 are similar as in ITA No. 1850/Ahd/2017 Assessment Year 2012-13 therefore after applying the decision adjudicated vide assessment year 2009-10 as supra in this order, this ground of appeal of the assessee is allowed. ITA No. 2805/Ahd/2017 A.Y. 2013-14 filed by revenue Ground No. 1 (Addition of Rs. 46,19,59,000/- being income of Vega Industries, ME) 60. As the facts and issue involved in ground of appeal no. 1 vide ITA No.1766/Ahd/2012 Assessment Year 2008-09 are similar as in ITA No. 2805/Ahd/2015 Assessment Year 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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