TMI Blog2021 (8) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... between the parties that the TPO herein had himself made it clear that in case of guarantees covering more than one financial year the fee is charged by the banks at the beginning of the financial year on the outstanding amount . As against this, the Revenue fails to dispute that case law BS LTD. [ 2018 (4) TMI 1742 - ITAT HYDERABAD] , MANUGRAPH INDIA LTD. [ 2015 (3) TMI 1103 - ITAT MUMBAI] and M/S ACG ASSOCIATED CAPSULES PVT. LTD[ 2012 (2) TMI 101 - SUPREME COURT] hold that such a corporate guarantee adjustment could only be made to the extent of actually utilized amount during the year than that of the full value of the guarantee itself. We adopt the very reasoning herein as well and directing the TPO to re-compute the impugned adjustment after taking into consideration only the actually utilised amount of the corresponding corporate guarantees in these three cases. The assessees identical first and foremost ground in all these three appeals is partly accepted in foregoing terms. Disallowance u/s 14A r.w.r. 8D - proof of sufficient non-interest bearing funds - HELD THAT:- Section 14A read with Rule 8D applies only in relation to an assessee s exempt income than having a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., Vs. ACIT, ITA No.1942/M/2015 as well. All these legal arguments fail to convince us as per Hon'ble Madras high court s recent decision in Pr.CIT Vs. M/s.Redignton (India) Limited, dt.10-12-2020 in Tax Case Appeal Nos.590 591 of 2019 holds that Explanation to Section 92B inserted vide the Finance Act, 2012 with retrospective effect from 01-04-2002 also includes a corporate guarantee. We thus hold that the tribunal s all foregoing orders (supra) must make way for higher wisdom and decline the assessee s first and foremost legal plea. We further deem it appropriate to reproduce their lordships detailed discussion: 68.From the Annual Report of the assessee, it was seen that the assessee had issued guarantees on behalf of its subsidiaries to the tune of ₹ 464.36 crores and on behalf of others, to the tune of ₹ 3.42 crores. The assessee was called to explain the same. The assessee stated that they had not issued any fresh guarantee during the Assessment Year 2009-10 and the guarantee is outstanding, is purely on account of the currency transition adjustment on restatement of guarantees outstanding at the closing rates prevailing on 31st March 2009 for disclosure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to extend guarantees on behalf of their clients. Further, it was pointed out that if a situation arises that the Bank Guarantee has to be invoked, when the Associate Enterprise is not in good financial position, obviously, the assessee is at risk and they claim that there is no risk in providing guarantees cannot be accepted. The TPO drew a comparison between the Guarantees issued by the Bank and Guarantees issued by the assessee on behalf of the Associated Enterprise to the Bank. It has been recorded that the Associated Enterprises of the assessee have not provided any security to the assessee. In the agreement / contract between the Associated Enterprises and the assessee, no condition has been imposed on the Associated Enterprises to pay the amount to the assessee and even in some agreements if it is mentioned, in the event of the Associated Enterprises financially becoming weak, the risk undertaken by the assessee becomes greater. Further, invoking a guarantee provided to an Associated Enterprise is very difficult as it depends on the financial condition of the Associated Enterprise and the law governing such transactions in that country and the assessee is bound by the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service. This finding of fact has not been interfered by the DRP, but the DRP was of the view that the same treatment, which was given in the previous Assessment Year should be extended for the Assessment Year under consideration also and there is no reason given by the TPO for taking a divergent view. The finding that the very same transaction for the previous Assessment Year was subject matter of TP adjustment, has not been disputed by the Tribunal rather not even dealt with by the Tribunal. Therefore, the finding rendered by the Tribunal is utterly perverse. 70.The argument of the learned Senior counsel appearing for the assessee is that prior to the amendment brought about in Section 92B by Finance Act 2012, the Tribunal had decided that furnishing of a guarantee by an assessee was not an international transaction as it did not fall within any of the limbs of Section 92B. It is submitted that to get over the judicial pronouncement, the explanation was inserted. The argument 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of the Act, regard must be had to the substance rather than to the form. If a new Act is to explain an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended .An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect (ibid., pp. 468-69). 15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill 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 this 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 P L account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, the Tribunal upheld the adjustments made on guarantee commissions both on the guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise. 76.In the light of the above decisions, we hold that the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and restore the order passed by the DRP . 4. Next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s exempt income than having any independent exigibility. It is an admitted fact that the assessee has not derived any exempt income in the relevant previous year. We therefore direct the Assessing Officer to delete the impugned disallowance for this precise reason alone. This second assessee s former appeal ITA No.2020/Hyd/2017 raising these twin issues only is partly accepted in above terms. 6. We revert back to assessees latter substantive ground in their remaining appeals ITA Nos.1950/Hyd/2017 and 1471/Hyd/2018. Learned counsel has submitted very fairly in former assessee s appeal that although it has derived exempt income thereby making corresponding investments in its sister concern i.e., M/s.Rain Commodities, USA, both the lower authorities have erred in law and on facts in not having recorded any satisfaction contemplated u/s.14A(ii) qua its books of accounts that no such expenditure had been incurred in the relevant previous year. He has quoted Hindustan Aeronautics Ltd. Vs. ACIT [125 taxmann.com 80] (Kar), CIT Vs. UP Electronic Corpn. Ltd. (397 ITR 113) (All) and CIT Vs. I.P.Support Services India (P) Ltd. [88 taxmann.com 418] (Del) that such a satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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