TMI Blog2019 (9) TMI 1702X X X X Extracts X X X X X X X X Extracts X X X X ..... orities have acted as per law in invoking the impugned disallowance in relation to assessee's exempt income amounting to Rs.7.7 crores.More so when the assesses has not discharged prima facie onus even to justify its suo-motu lump sum disallowance of Rs.2 lakhs only. The impugned disallowance is accordingly confirmed in principle. Alternate contention that both the lower authorities have erred in not excluding the average investment made in growth oriented debt funds and fixed maturity plan funds - We find that this is more a computation exercise wherein investment made in relation to taxable income has to be excluded for the purpose of computing disallowance in question. We thus direct the Assessing Officer to frame consequential computation as per law. TP Adjustment - Financial Guarantee given by the appellant on behalf to its Associate Enterprise (A.E) - HELD THAT:- We find that recent Co-ordinate Bench in M/s Suzlon Energy Ltd.- [ 2017 (4) TMI 1406 - ITAT AHMEDABAD] wherein as holds that such a guarantee does not amount to an international transaction under section 92BTPO had himself taken financial guarantees given by various institutions as the relevant bench m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a distributor and a return based on sales which incentives MUK to generate more revenue appears to be appropriate. Decided against revenue. Disallowance on account of Human Resource Management function - HELD THAT:- As decided in assessee own case [ 2012 (5) TMI 206 - ITAT AHMEDABAD] A. V. 2006-07 facts and figures have revealed that following the said business strategy the business growth as a whole was much higher than the impugned compensation amount. This allegation is also to be ruled out that those very employees were otherwise regular employees of the assessee-company and they have been absorbed after their return for the period for which they were sent abroad and worked offshore with AEs. It is true that such employees are the regular group of experts but they have been paid by AEs when worked on-site abroad, which means the burden of salary for the offshore period was in fact borne by AEs, otherwise to maintain bunch of trained employees the MIL had to incur the expenditure on salary. Therefore, there was an argument of counter claims and in support reliance was placed on Boston Scientific International VV [ 2010 (4) TMI 876 - ITAT MUMBAI] . For these reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Year 2010-11 respectively. Since all the appeals relates to the same assessee and the issues are identical, these matters are heard analogously and are being disposed of by this common order. ITA No.1188Ahd/2015 for A.Y. 2009-10: 2. Ground No.1 : By the First ground the assessee has challenged the order passed by the ''Ld.CIT (A)'' in confirming the disallowance of Rs.29,46,466/- made by the Ld. DCIT (OSD)-1 circle -4, Ahmedabad, u/s.14A of the Income tax Act 1961 r.w.r. 8D (2)(iii) of the Income Tax Rules. 3. The assessee engaged in the business of software services and related business filed its return of income on 25.09.2009 declaring total income of Rs. 2,25,64,810/- for A.Y 2009-10 which was processed u/s.143(1) of the Act. During the course of scrutiny proceeding it was found that the assessee company has earned dividend income from Mutual Fund amounting Rs. 3,64,42,819/- which has been claimed as exempt income. The explanation in this regard was called for, in response of which the assessee submitted his defense. The issue was ultimately finalized by the Assessing Officer by making disallowance to the tune of Rs. 41,96,477/-. In appeal wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary paid to 2 persons for the purpose of section 14A. However, it is noted that no such claim was made before the AO regarding basis of calculation of disallowance. The appellant has now claimed that it has disallowed 10% salary of two employees who were partly involved in administrative and other matters relating to investment in mutual funds, appears to be an afterthought as the amount which was disallowed by the appellant in the return of income was 4,03,501/-, whereas as per the working now given it comes to Rs. 4,03,500/-. Further, the appellant has also not given the designation of these two persons who have been claimed to be involved in the work of investment. Therefore, the disallowance made by the appellant itself is not reliable and not on any scientific basis. It is also to be noted that even if the claim of the appellant accepted the involvement of other senior functionaries of the finance department, as well as, the director who looks after the investment and other finance functions also must have been there, tor which no disallowance of salary has been considered by the appellant. Further, the provisions of income tax Act clearly provides a basis of working out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India. Similarly, the income from growth oriented fund such as FMP and Debt funds are not exempt, as there is no STT payable on these transactions and, accordingly, it gives short term or long term capital gain which is taxable. Accordingly, the submission of the appellant is accepted and the AO is directed to calculate the disallowance by applying the third limb of rule 8D after excluding the investment in foreign subsidiaries and also the investment in Debt Funds. The appellant has submitted that out of the total average value of investment cf 193.57 crores, the investment in foreign companies were 101.57 crores and the average investment in growth oriented liquid/debt mutual funds was Rs. 25.00 crores. The AO, is accordingly, directed to reduce these values from the average investment calculated by it, after verifying the details, and calculate the disallowance made under section 1 4 A read with rule 8D. The ground of appeal is partly allowed. 4. At the time of hearing of the instant appeal the learned Sr. Counsel appearing for the assessee submitted before us that the case is squarely covered in the judgment passed by the Ld. Tribunal in ITA Nos.2879 and 2986/Ahd/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant that major administrative work was performed by mutual fund distributors and they are paid brokerage by the mutual funds. Further, the advisory services in respect of purchase/sale of mutual funds were also provided by mutual fund distributors for which no payment was made. The decision in respect of investment is taken only by Chief Financial Officer of the appellant and no other person was involved. No specific staff or any other arrangement was required to manage the investment portfolio of mutual funds. It is accordingly been requested by the appellant that the disallowance made by the AO should be deleted. After examining all the facts and the law related to the issue it is noted that the fact that appellant has earned dividend income of Rs. 7.71 Crores and it has claimed exemption from tax on this income is undisputed. The disallowance made by the AO pertains to the administrative expenditure only and no disallowance out of interest has been made as there was no borrowing cost during the year which would have been allocated for this purpose. The appellant has itself made a disallowance of Rs.2 Lakhs on account of section 14A relating to exempt income. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot sustainable. We find no reason to accept assessee's instant argument. It is seen that the lower authorities dealt with interest expenditure and that too on proportionate basis in the said case than direct one whereas the issue before us is that of administrative expenditure disallowance. We observe in this facts that the impugned administrative expenses disallowance is not alike former two limbs since falling in different head as well as the fact that it has to be based on computation formula only. There is no dispute that we are dealing with assessment year 2008-09 i.e. starting point of application of Rule 8D of IT Rules. The assessee admittedly has not challenged the relevant computation @ 5% given in the above statutory computation formula. We conclude in these facts that both the lower authorities have acted as per law in invoking the impugned disallowance in relation to assessee's exempt income amounting to Rs.7.7 crores.More so when the assesses has not discharged prima facie onus even to justify its suomotulump sum disallowance of Rs.2 lakhs only. The impugned disallowance is accordingly confirmed in principle. 14. Mr. Soparkar at this stage raises an alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to appreciate that no cost is incurred by the appellant in the provision of these performance guarantees and the said performance guarantees cannot be equated with financial guarantee as the case made out by the assessee. However at the time of hearing of the instant appeal the Ld. Sr. Counsel appearing for the assessee fairly submitted that the issue is covered by the judgment passed in assessee s own case in ITA Nos.2879 2985/Ahd/2014 for A.Y 2008-09; copy whereof has been handed over to us. Further that the assessee has challenged the order passed by the Ld.CIT(A) in enhancing the adjustment made in relation to the Performance Guarantee given by the appellant to the customers of the Associate Enterprise ( AE ). Mainly following aspect has not been appreciated by the Ld.CIT(A) which has been pointed out by the assessee in the order passed by Ld.CIT(A). i. The service liability risk is borne by the Appellant as the services are either provided by its delivery centre in India(Offshore) or branch in UK (onsite); and ii. The said performance guarantee is in the nature of shareholder activity and quasi equity in nature. b. Without prejudice to the above, the CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO it has also made an addition to the income by holding that the appellant had assumed performance risk and credit risk in respect of the sales made by MUK. It has been held by the AO that since MUK does not have any financial backup or credit standing it has to rely on the comfort letter issued by Mastek India while entering into the performance guarantees and other related commitments made with the parties to sales contract with it. The AO has accordingly adopted an estimate of 2% if the gross sales as guarantee fee for the guarantees and comfort letters given by the appellant company and accordingly the cost of such guarantee have been worked out at Rs.10.87 Crores which the appellant was entitled to receive merely on the issue of providing guarantee to the AE. It has been held by the AO that since an addition of Rs.26.07 Crores has already been suggested no further adjustment was recommended by the TPO. During, the course of appellate proceedings, the appellant has submitted that the service liability risk was borne by the appellant and the performance guarantee given to the customer with respect to the performance of software services was not on behalf of the AE. It ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Central Bank of India in certain cases. The appellant on the other hand has submitted that the performance guarantee was provided to ensure quality and timely services whereas financial guarantee was provided to make available loans or cash credit facility to the beneficiary of the guarantee. The appellant had given performance guarantee and not the financial Guaranty. The approach of the TPO to equate performance guarantee with the financial Guaranty was not justified. It has been submitted and claimed by the appellant that there was a fundamental difference between performance guarantee and the financial Guaranty. In case of financial Guaranty the AE obtains loan or cash credit facility and the benefit accruing to the AE is in the form of reduced interest rate or favourable terms of loan, whereas no such benefit accrues to the AE in case of performance guarantee. It has accordingly been submitted by the appellant that the methodology considered by the TPO was not justified. It has been pointed out by the appellant that it has not incurred any expenses while providing the performance guarantee and historically no customer has invoked the performance guarantee given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the TPO to that extent is justified. The submission of the appellant that no opportunity has been given is also not justified at this stage as the comments given by the AO has been given to the appellant and it has offered its comment on all the aspects stated by the TPO in the report. Therefore, the contention of the appellant is rejected. The other contention which has been taken by the appellant is that performance guarantee and financial Guaranty are entirely different products and therefore, it would not be appropriate to adopt the rates given for financial Guaranty for evaluating the performance guarantee. The contention of the appellant is justified. The criteria for giving the performance guarantee for a particular product would be entirely different than that of the financial Guaranty for a particular loan or credit. The performance guarantee would depend on the technical expertise and the skills of the company and the historical performance data of the product which is being sold by the distributor. It has been observed that the performance guarantee is worked out by evaluating the historical data of similar claims made in the past and the value of the produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain percentage is to be attributed to the performance guarantee, it can only be attributed to the sales made by the appellant company through MUK on which the performance guarantee was given by the appellant. The objection and argument of the appellant is justified as this can only be applied to those sales made through MUK on which to performance guarantee has been given by the appellant. Accordingly, the sales made through MUK on which the performance guarantee was given by the appellant should only be considered for applying the above rate. The appellant has submitted that it has given performance guarantee on the sales of Rs.260.35 Crores made through MUK. The AO is directed to verify this figure and apply the above rate accordingly. The addition made by the AO, on without prejudice basis, is accordingly upheld to that extent. The ground of appeal is partly allowed. 12. Both the parties vehemently reiterate their respective facts during the course of hearing. We find that recent Co-ordinate Bench in M/s Suzlon Energy Ltd.-vs-ACIT (2017) 188 TTJ 278 (Ahd. Trib.) holds that such a guarantee does not amount to an international transaction under section 92B of the Act as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. Explanation :- For the removal of doubts, it is hereby clarified that (inserted by the Finance Act 2012, though with retrospective effect from 1st April 2002) (i) the expression international transaction shall include (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral exploitation rights, easements, air rights, water rights; (j) goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value; (k) methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data; (l) any other similar item that derives its value from its intellectual content rather than its physical attributes.' 22. As analyzed by a coordinate bench, in the case of Bharti Airtel Ltd. (supra) and speaking through one us, the legal position with respect to the above definition is as follows: '25. An analysis of this definition of 'international transaction' under Section 92B, as it stood at the relevant point of time, and its breakup in plain words, shows the following: An international transaction can be between two or more AEs, at least one of which 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service which are anyway covered by 2(b) and 3 above 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 anyone or more of such enterprises . That leaves us with two clauses in the Explanation to Section 92B which are not covered by any of the three categories discussed above or by other specific segments covered by Section 92B, namely borrowing or lending money. 29. The remaining two items in the Explanation to Section 92B are set out in clauses (c) and (e) thereto, dealing with (a) capital financing and (b) business restructuring or reorganization. These items can only be covered in the residual clause of definition 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 ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 precondition about impact on profits, income, losses or assets of such enterprises is a precondition 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. The contents of the Explanation fortifies, rather than mitigates, the significance of expression 'having a bearing on profits, income, losses or assets' appearing in Section 92B(1). 32. There can be number of situations in which an item may fall within the description set out in clause (c) of Explanation to Section 92B, and yet it may not constitute an international transaction as the condition precedent with regard to the 'bearing on profit, income, losses or assets' set out in Section 92B(1) may not be fulfilled. For example, an enterprise may extend guarantees for performance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As for Hon'ble High Court's judgment in the case of Everest Kanto Cylinders Ltd. (supra), it is necessary to appreciate the fact the assessee was charging a .5% commission on issuance of corporate guarantees, on behalf of the AEs, and it could not, therefore, be said that the transaction will have no impact on profits, incomes, losses or assets of such enterprise . This aspect of the matter is clear from an observations in the related Tribunal order, which is reported as Everest Kanto Cylinders Ltd (supra), to the effect that However, in this case, the assessee has itself charged 0.5% guarantee commission from its AE and, therefore, it is not a case of not charging any kind of commission from its AE . The Tribunal did note, in the immediately following sentence in paragraph 23 itself, that the only point to be seen in this case is whether the same is at ALP or not . The very fact of charging this guarantee commission 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 Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substantial question of law and it is dismissed. 25. We are unable to see, in the judgment of Hon'ble Bombay High Court, any support to the proposition that issuance of corporate guarantees is inherently within the ambit of definition of 'international transaction' under section 92B irrespective of whether or not such transactions have any bearing on profits, incomes, losses, or assets of such enterprises . Revenue, therefore, does not derive any help from the said decision. 26. Coming to Hon'ble Bombay High Court in the case of Vodafone India Services (P.) Ltd. (supra), which has been relied upon by the learned Departmental Representative, 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-obstante provision. It provides that the transfer contemplated therein would be notwithstanding that it has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. It would be evident, therefore, that a lot more must now be seen and considered than before while arriving at a conclusion whether the terms and conditions of the Framework agreement constituted a transfer or assignment of the call options by one party to another. 217. At the cost of repetition, we are not concerned here with whether the amendment is valid or not. One of the issues, however, that does arise is whether the amendment, albeit clarificatory, would make a difference in the construction of the provisions of the Framework agreements themselves, to wit as regards the construction of the clauses thereof without the aid of any other material for interpreting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in the context that there is no justification for withdrawing the proceedings from the channel provided by the Income-tax Act, bypassing the Tribunal and considering all these questions in exercise of the High Court's extraordinary jurisdiction under Article 226 . When Their Lordships have made it clear that they would not like to bypass the channels under the Income-tax Act and proceed to decide these issues in writ jurisdiction under article 226, there cannot obviously be any question of Their Lordships deciding the matter one way or the other. Any observations made by Their Lordships, while declining to decide the matter in writ jurisdiction, cannot be treated as decisive of the issue on merits. While it is true that Hon'ble Bombay High Court has observed that the effect of amendment will have to be considered, Hon'ble Bombay High Court has also observed 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 do not anyway decide anything on merits, effect of a retrospective amendment was not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Services (supra) is wholly misplaced and devoid of any merits. As for coordinate bench decision in the case of Hindalco Industries (supra), all it does is to follow the Everest Kanto decision by Hon'ble Bombay High Court, but then, as we have seen earlier, that was a case in which Their Lordships were in seisin of a situation in which guarantee commission was actually charged by the assessee. That is not the case before us. The coordinate bench decisions dealing with the situations in which the guarantee commission was actually charged, and as such there was indeed a bearing on the profits of the assessee, clearly donot apply on this case. We, therefore, reject the reliance on these decisions as devoid of legally sustainable merits. 29. Let us now deal with the reliance placed by the revenue authorities on GE Capital's case by the Tax Court of Canada. In the DRP'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent for the purposes of section 17 throughout the period in the year during which the particular amount is owing; and (b) it is established that the particular amount would be an amount owing described in paragraph 17(8)(a) or (b) if it were owed to the parent. (http://www.fin.gc.ca/drleg-apl/ita-lrir-dec12-l-eng.pdf) 31. It is also important to bear in mind the fact that, under the Canadian law, the definition of 'international transaction', unlike an exhaustive definition under section 92B of the Indian Income-tax Act, 1961, is a very brief but inclusive and broad definition to the effect that 'transaction' includes a series of transactions, an arrangement or an event [See Section 247(1) of the Canadian Income-tax Act, 1985; http://lawslois.justice.gc.ca/eng/acts/I-3.3/page-419.html#h-156] coupled with the legal position that arm's length adjustment 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 statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (ISBN- 978-90-8722-153-9)' observes that Proposed subsection 247(7.1) of the ITA provides that the transfer pricing rules will not apply to guarantees provided by Canadian parent corporations in respect of certain financial commitments of their Canadian controlled foreign affiliates to support the active business operations of those affiliates . As to what could be conceptual support for such an exclusion, we find interesting references in a discussion paper issued by the Australian Tax Officer in June 2008 and titled as Intra-group finance guarantees and loans (http://www.transferpricing.com/pdf/Australia_Thin%20Capitalisation.pdf). The fact that this discussion paper did not travel beyond the stage of the discussion paper is not really relevant for the present purposes because all that we are concerned with right now is understanding the conceptual basis on which, 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 stand-alone basis is unlikely to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations' itself recognizes the distinction between a shareholder activity and a provision for services, when, contrasting the shareholder activity with broader term stewardship activity and thus highlighting narrow scope of shareholder activity, it states that Stewardship activities covered a range of activities by a shareholder that may include provision for services to other group members, for example services that would be provided by a coordinating centre . It proceeded to add, in the immediately following sentence at page 207 of 2010 Guidelines, that These latter type of nonshareholder activities could include detailed planning services for particular operations, management or technical advice (trouble shooting) or in some cases assistance in day-to-day management . The shareholder activities are thus seen as conceptually distinct from the provision of services. The 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance its commercial position. This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity inhouse for itself. If the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the arm's length principle. 7.7 The analysis described above quite clearly depends on the actual facts and circumstances, and it is not possible in the abstract to set forth categorically the activities that do or do not constitute the rendering of intra-group services. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pations. 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. The 1984 Report also mentioned costs of managerial and control (monitoring) activities related to the management and protection of the investment as such in participations . Whether these activities fall within the definition of shareholder activities as defined in these Guidelines would be determined according to whether under comparable facts and circumstances the activity is one that an independent enterprise would have been willing to pay for or to perform for itself.' (Emphasis supplied) 36. We have noticed that the 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' specifically recognizes that 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 T.C. 612, 632 (1989), aff d, 920 F2d 1335 (7th Cir. 1990); Bank of Am. v. United States, 680 F.2d 142, 150 (Cl. Ct. 1982). The Service's current position on the characterization of guarantee fees as payment for services under section 482 is inconsistent with its treatment of guarantee fees under other provisions. See P.L.R. 9410008 (Dec. 13, 1993). 39But cf Federal Nat'l Mortgage Ass'n v. Commissioner, 100 T.C. 541, 579 (1993) (Fannie Mae provided services by buying mortgages). 37. We are in agreement with these views. There can thus be activities which benefit the group entities but these activities need not necessarily be 'provision for services'. The fact that the OECD considers such activities in the services segment does not alter the character of the activities. While the group entity is thus indeed benefited 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that such a transaction is possible in arm's length situation. However, in a situation in which the subsidiary does not have adequate financial standing of its own and is inadequately capitalized, none will guarantee financial obligations of such a subsidiary. 39. The issuance of financial guarantee in favour of an entity, which does not have adequate strength of its own to meet such obligations, will rarely be done. The very comparison, between the consideration for which banks issue financial guarantees on behalf of its clients with the consideration for which the corporates issue guarantees for their subsidiaries, is ill-conceived because while banks seek to be compensated, even for the secured guarantees, for the financial risk of liquidating the underlying securities and meeting the financial commitments under the guarantee, the guarantees 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compare this kind of a guarantee with a corporate guarantee. The guarantees are issued without any security or underlying assets. When these guarantees are invoked, there is no occasion for the guarantor to seek recourse to any assets of the guaranteed entity for recovering payment of defaulted guarantees. The guarantees are not based on the credit assessment of the entity, in respect of which the guarantees are issued, but are based on the business needs of the entity in question. Even in a situation in which the group entity is sure that the beneficiary of guarantee has no financial means to reimburse it for the defaulted guarantee amounts, when invoked, the group entity will issue the guarantee nevertheless because these are compulsions of his group synergy rather than the assurance that his future 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 sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i), a re-characterization of a transaction is indeed permissible, inter alia, in a situation (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner . The case of a corporate guarantee clearly falls in the second category as no independent enterprise would issue a guarantee without an underlying security as has been done by the assessee. We may, in this regard, refer to the observations made by Hon'ble High Court, speaking through Hon'ble Justice Easwar (as he then was), as follows: '16. The Organization for Economic Co-operation and Development ('OECD', for short) has laid down transfer pricing guidelines for Multi-National Enterprises 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowing company, the investment would not be expected to be structured in this way. In this case it might be appropriate for a tax administration to characterize the investment in accordance with its economic substance with the result that the loan may be treated as a subscription of capital. The second circumstance arises where, while the form and substance of the transaction are the same, the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner and the actual structure practically impedes the tax administration from determining an appropriate transfer price. An example of this circumstance would be a sale under a long-term contract, for a lump sum payment, of unlimited entitlement to 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 entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive that issuance of a corporate guarantee amounts to a 'provision for service', such a service needs to be recharacterized to bring it in tune with commercial reality as arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner . No bank would be willing to issue a clean guarantee, i.e. without underlying asset, to assessee's subsidiaries when the banks are not willing to extend those subsidiaries loans on the same terms as without a guarantee. Such a guarantee transaction can only be, and is, motivated by the shareholder, or ownership considerations. No doubt, under the OECD Guidance on the issue, an explicit support, such as corporate 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 guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at guarantees are sometimes included in 'services' but that is because of the extended definition of 'international transaction' in most of the tax jurisdictions. Such a wide definition of services, which can be subject to arm's length price adjustment, apart, Transfer Pricing and Intra-Group Financing by Bakker Levvy (ibid) notes that the IRS has issued a nonbinding Field Service Advice (FSA 1995 WL 1918236, 1 May 1995) stating that, in certain circumstances (emphasis supplied), a guarantee may be treated as a service . If the natural connotations of a 'service' were to cover issuance of guarantee in general, there could not have been an occasion to give such hedged advice. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n states that it is merely clarificatory in nature inasmuch as it is 'for the removal of doubts', and, therefore, one has to proceed on the basis that it does not alter the basic character of definition of 'international transaction' under Section 92B. Accordingly, this Explanation is to be read in conjunction with the main provisions, and in harmony with the scheme of the provisions, under Section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. The first two categories of transactions, which are stated to be included in the scope of expression 'international transactions' by virtue of clause (a) and (b) of Explanation to Section 92B, 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 tangible and intangible assets. Similarly, clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. It is also important to bear in mind that, as it appears on a plain reading of the provision, this exclusion clause is not for contingent impact on profit, income, losses or assets but on future impact on profit, income, losses or assets of the enterprise. The important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former case. In the case before us, it is an undisputed position that corporate guarantees 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 92B 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 precondition about impact on profits, income, losses or assets of such enterprises is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This legislative clarification did indeed go well beyond what a coordinate bench of this Tribunal held to be the legal position and we are bound by the esteemed views of the coordinate bench. We are, therefore, of the opinion that the Explanation to Section 92B did indeed enlarge the scope of definition of 'international transaction' under section 92B, and it did so with retrospective effect. If, for argument sake, it is assumed that the insertion of Explanation to Section 92B did not enlarge the scope of definition, there cannot obviously be any occasion to deviate from the decision that the coordinate bench took in Four Soft Ltd. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPD v. Union of India [2006] 281 ITR 305/151 Taxman 286 (SC), wherein Their Lordships had, inter alia, observed that the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases. It was for this reason that a coordinate bench of this Tribunal, in the case of Channel Guide India Ltd. v. Asstt. CIT [2012] 139 ITB 49/25 taxmann.com 25 (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 particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as indeed in any other case so far, it was not the case of the assessee that corporate guarantees are quasi-capital, or shareholder activity, in nature, and, for that reason, excludible from chargeable services, even if these are held to be services in nature. That plea has been specifically accepted in the present case. Therefore, the question whether issuance of corporate guarantee per se in general constitutes a 'international transaction' under section 92B would have been somewhat academic question on the facts of this case. In any event, in Prolific' Corp Ltd. 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 v. Dy. CIT [2005] 4 SOT 84 (Mum.) and following the Full bench decision of Hon'ble AP High Court in the case of CIT v. BR Constructions [1993] 202 ITR 222/[1994] 73 Taxman 473 (AP), a decision disregarding an earlier binding precedent on the issue is per incurium. Such decisions cannot be basis for sending th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , accepts that the legislature brought in amendment (in Section 92B) by the Finance Act, 2012, after the decision of Four Soft Ltd dated 14/09/2011 . He points out that the decision of the Tribunal, in the case of Bharti Airtel (supra), is per incurium because there were two decisions of this Tribunal, in the case of Everest Kanto Cylinders Ltd Vs DCIT [(2012) 34 taxmann.com 9 (Mum)] and Mahindra Mahindra Ltd Vs DCIT [2012- TII-70-ITAT-Mum], which were not considered by the Bharti Airtel decision. Our attention is also invited to the rectification petition filed by the Assessing Officer, which is said to be pending for disposal before the Tribunal. We donot find merits in this plea. Mahindra Mahindra decision (supra) was passed on 6th June 2012, though at a point of time when Finance Act 2012 had just come into force i.e. post 28th May 2012, without even being aware whether or not the Finance Act 2012 was passed as it gave certain directions depending upon the exact amendment by the said Finance Act. The matter was remitted to the file of the Assessing Officer in a rather summary manner. It cannot be, by any stretch of logic, an authority on any legal question arising out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and through Bharti Airtel decision as to how fallacious is its logic. Its emphasized that the impact of issuance of bank guarantees, on the profits, income, losses or assets of such enterprises, is real and not contingent as held in Bharti s case. It is also emphasized, apparently to highlight the fact that it is not only the impact on entity issuing the guarantee but also beneficiary of the guarantee that matters in this context, that the word used in section 92 B is enterprises and not enterprise . It is thus contended that the impact on the profits, incomes, losses or assets of the entity issuing guarantee is important, but the impact on the profits, income, losses or assets of the entity, which is beneficiary of the guarantee, is also important. It is pointed out that Bharti Airtel decision has examined this aspect only from the point of view of the entity issuing the guarantee and that has also been decided wrongly. As for these issues being raised by the learned Departmental Representative, suffice to say that even if reasoning adopted by Bharti Airtel decision is incorrect, it is not for us to examine that aspect of the matter. Now that the matter is before Hon ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive effect, that there is no ambiguity about the intent of legislature and it is conveyed in unambiguous words. 10. Nullifying a judicial interpretation though legislative amendment, much as many of us may abhor it, is not too uncommon an occurrence. Of course, when legislature has to take an extreme measure to nullifying the impact of a judicial ruling in taxation, it is the time for, at least on a theoretical note, introspection for the draftsman as to what went so wrong that fundamental intent of law of law could not be conveyed by the words of the statute, or, perhaps for the judicial forums, as to what went so wrong that the interpretation was so off the mark vis- -vis fundamental principles of taxation or the sound policy considerations. However, amendment so made are generally prospective, and there is a sound conceptual foundation, as has been highlighted in the binding judicial precedents that we will deal with in a short while, for that approach. There is no dearth of examples on this aspect of the matter. Take for example, the amendment to Section 263 by the Finance Act, 1961. In many judicial precedents, [such as in the case of CIT Vs Sunbeam Auto Limited (332 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. Yet, it is not every time that the legislature characterizes an amendment as retrospective that the Court will give such effect to it. This is not in derogation of the express words of the law in question, (which as a matter of course must be the first to be given effect to), but because the law which was intended to be given retrospective effect to as a clarificatory amendment, is in its true nature one that expands the scope of the section it seeks to clarify, and resultantly introduces new principles, upon which liabilities might arise. Such amendments though framed as clarificatory, are in fact transformative substantive amendments, and incapable of being given retrospective effect. . 37. An important question, which arises in this context, is whether a clarificatory amendment remains true to its nature when it purports to annul, or has the undeniable effect of annulling, an interpretation given by the courts to the term sought to be clarified. In other words, does the rule against clarificatory amendments laying down new principles of law extend to situations where law had been judicially interpreted and the legislature seeks to overcome it by declaring that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al precedent, assumes great significance because when it is found that the purpose of such interpretive statute, or clarificatory amendment, is correct a judicial interpretation of prior law, which the legislature considers inaccurate, the effect is prospective and, as in this case, it deals with transfer pricing legislation which essentially seeks a degree of compliant behavior from the assessee vis- -vis certain norms- the norms the assessee should know at the time of entering into the transactions rather than at the time of scrutiny of his affairs at a much later stage. 15. It is very important to bear in mind the fact that right now we are dealing with amendment of a transfer pricing related provision which is in the nature of a SAAR (specific anti abuse rule), and that every anti abuse legislation, whether SAAR (specific anti abuse rule) or GAAR (general anti abuse rule), is a legislation seeking the taxpayers to organize their affairs in a manner compliant with the norms set out in such anti abuse legislation. An anti-abuse legislation does not trigger the levy of taxes; it only tells you what behavior is acceptable or what is not acceptable. What triggers levy of taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 18. It is for this reason that the Explanation to Section 92 B, though stated to be clarificatory and stated to be effective from 1st April 2002, has to be necessarily treated as effective from at best the assessment year 2013-14. In addition to this reason, in the light of Hon ble Delhi High Court s guidance in the case of New Skies Satellite BV (supra) also, the amendment in the definition of international transaction under Section 92B, to the extent it pertains to the issuance of corporate guarantee being outside the scope of international transaction , cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesaid guidance of Hon ble Delhi High Court, would not alter the situation, and it can only be treated as prospective in effect i.e. with effect from 1st April 2012 onwards. 19. As we deal with this question, it is also relevant to consider whether this Tribunal can, while adjudicating on the appeals, tinker with the date, as set out in the statute, from which an amendment is effective. In our humble understanding, as a judicial forum, we are bound not only by the law as legislated by the legislature, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly . Revenue, thus, does not derive any advantage from special bench decision in the case Bharti Shipyard (supra). 9. On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a fair, just and equitable interpretation of law- as is the guidance from Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile approving this approach, and upholding the decision of the Tribunal do read these provisions as effective from 1st April 2005, Hon ble Delhi High Court, in case of CIT Vs Ansal Landmark Townships Pvt Ltd [(2015) 377 ITR 635 (Del)], has observed as follows: 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in (Rajiv Kumar Agarwal v. ACIT). 22. When such are the views of Hon ble High Court, it is not open to us to proceed on the basis that even though the amendment is required to be read as prospective, the Tribunal cannot do so as it is a creature of the Income Tax Act itself. In our considered view, and for the detailed reasons set out above, at best the amendment in Section 92B, at least to the extent it dealt with the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s declined whereas assessee s second substantive ground is accepted Taking into consideration the ratio laid down by the Co-ordinate Bench in assessee s own case, we find no justification in making upward adjustment and thus, we delete the same. Assessee s appeal is thus allowed on both the grounds. The Revenue appeal No.1852/Ahd/2015 A.Y. 2009-10. 13. Ground No.1: The first ground of challenge relates to the deletion on disallowance of Rs. 41,96,477/- u/s.14A r.w.r 8D (2)(ii) of the Act which has also been considered and decided in favour of the assessee in assessee s case being ITA No. 1188/Ahd/2015 for A.Y. 2009-10; the same is applied herein mutatis mutandis and hence this ground of appeal is dismissed. 14. Ground No.2: The Second ground of Revenue has challenged the order passed by the ''Ld.CIT (A)'' in deleting 20% of recruitment and training expenses amounting Rs.82,18,912/-. During the course of assessment proceeding it was noticed that the assessee has claimed an amount of Rs.4,10,94,558/- as recruitment and training expenses against which complete details regarding expenses and the justification of its allowability were placed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiaries. It was further submitted that there was no direct linkage of recruitment and training expenses with the employees' deputation to subsidiaries. It was further submitted that as an integral part of its aforesaid business and course performing HRM function which includes recruitment of employees and career counseling. It was further submitted that HRM function was carried on only for the purpose of business of the company. Ld. A.R. further submitted that in the assessee's own case for the assessment year 2005-06, Ld. CIT(A) has deleted the disallowance made on account of recruitment and training expenses. After considering the submissions of the assessee, Ld. CIT(A) deleted the addition by holding as under: iii. 7.4 I have considered the facts and the submissions of the Ld A.R. carefully. I am of the considered view that in a situation where the requisite detail in respect of training of employees and the genuineness of the expenditure was very much before the AO and in respect of these two reasons, no disallowance was suggested, then it was unjustifiable on the part of the AO to say that a 20% recruitment and training expenses would be disallowed on mere presump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged. 19. It appears that the issue is squarely covered by the Hon ble Apex Court in the matter of CIT v/s. Yokogawa India Ltd. wherein it has been held that section 10A is a deduction section. However, the stage of the deduction would be while computing the gross total income of the eligible undertaking under chapter IV of the Act and not at the stage of computation of the total income under chapter VI : 3. The first ground is with regard to deduction u/s 10A:- During the course of assessment proceedings the A.O. observed that the assessee had foreign exchange gain of Rs. 1,16,62,641/- in Mahape unit and the gain of Rs. 18,49,487/- in Pune unit. He further noted that the assessee had not excluded the aforesaid gain from the profit of the business for claiming deduction u/s 10A. The A.O. was of the view that the profit of business for the purpose of Section 10A means profit derived from export business. Receipt like exchange gain are not derived form export business and therefore, are not eligible for deduction u/s 10A. He further noted that though the Tribunal in the assessee's own case for the assessment years 1999-2000 and 2000-01 has held that the exchange fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surplus from exchange rate fluctuations arising on account of exports and restatement of debtors and creditors. As such, the AO is directed to calculate/ascertain the nature of exchange gain and grant the deduction u/s 10A on the exchange rate fluctuations on arising on account of exports as has been held by the ITAT, Ahmedabad in the appellant's own case for AY 06-07 and prior years as the issue in this year is identical to AY 06-07 and earlier years. 4. Aggrieved by the aforesaid order of Ld. CIT(A), the Revenue is now in appeal before us. 5. Before us, Ld. D.R. relied on the order of the A.O. whereas the Ld. A.R. submitted that the facts of the case in the year under appeal are identical to that of the earlier year. He further submitted that Ld. CIT(A) has restored the matter for recalculation and to ascertain the exchange gain to the file of the A.O. for verification and allowing the same. He thus, supported the order of Ld. CIT(A). 6. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the issue in the present appeal is identical to that of earlier assessment year and the exchange fluctuation gain was held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught forth in the ITAT order for AY 06-07. Accordingly, my views are as under. The appellant has submitted the following to evidence the activities performed by MUK vis-a-vis the customers: Master Agreement between MUK and Mastek; detailed FAR analysis of MUK and India; details of employees of MUK, including their roles, designations and. qualifications; case studies demonstrating selling function performed by employees of MUK Another aspect which merits consideration is that the employees of sales team of MUK were incentivized to achieve increase in sales, by paying a percentage of sales achieved by them, over and above their fixed pay. The above evidences support the appellant's contentions that it has its own set of people in a position to negotiate and conclude contracts both in terms of the scope of work and the pricing of the same. Therefore, in my considerate view, the appellant, over and above marketing, carries out selling functions also and should therefore be characterized as a distributor. As MUK is held to be a distributor and not a marketing service provider, ft is prudent that the remuneration to be earned by MUK should be linked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld. CIT(A) for deleting disallowance made by the AO on account of Human Resource Management function. 24. At the very outset of the matter the Ld. Sr. Advocate appearing for the assessee submitted before us that the issue is squarely covered in favour of the assessee in assessee s own case for A.Ys 2006-07, 2007-08 and 2008-09; copy whereof has also been annexed to paper book filed before us. The Ld D.R failed to controvert such contentions made by the Ld. Sr. Advocate appearing for the assessee. 25. We have heard the parties, perused the relevant records including the order passed by the Co-ordinate Bench in assessee s own case particularly for A.Y.2008-09. While dealing with the own Revenue appeal Co-ordinate observed as follows: 9. This leaves us with Revenue s last substantive ground in challenging CIT(A) s order deleting upward adjustment of Rs. 81,79,272/- proposed by the Transfer Pricing Officer and accepted in assessment as pertaining to human resource management services. We find that the CIT(A) has followed this tribunal s order in assessee s case itself in preceding assessment year 2006-07 (supra) as under: I have carefully considered the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Vs. 2002-03, 2003-04, 2004-05 and 2006-07 and the same have been decided in favour of the appellant by ITAT Ahmedabad. The honourable ITAT has held that the appellant had made out a case that by arrangement for sending employees to AEs the appellant had a/so been benefited, it was held that that it was not appropriate to hold that HRM function should be taken as recruitment service. The relevant extracts of the findings given by the honourable ITAT for A. V. 2006-07 are reproduced here under:- 26. We have heard both the sides at length. We have perused the orders of the Revenue Authorities in the light of the voluminous compilation filed. It is true that the assessee is engaged in providing 'offshore' software development. The Associate Enterprises are also in the business of providing related services for software development 'onsite'. Facts have revealed that for enabling the AEs to provide 'onsite' service, the assessee has seconded its employees to those AEs. 26.1. To deal with this problem it is better to first examine the correct meaning of this notion i.e. Secondment and have found that a 'secondment' takes place when an employee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trepreneurs provide cushion to those employees if they have been sent abroad for an 'onsite' deployment. Whether it was justifiable on the part of the TPO, to hair-split these two activities? As far as our common understanding of the business model of this assessee is concerned, as also the prevailing business pattern all over the world is concerned, the deployment of Human Resources is inter-linked with the business activity of the assessee, then such HRM activity can be said to be the intricately linked activity with the main business activity of an entrepreneur. Reason being, in the present case, software development services cannot be performed independently or in isolation with the deployment of technical persons. In such business model, there is an established existence of AEs abroad. Those AEs generally demand for supply of technical employees/engineers so as to accomplish the software development project onsite'. Such facility is provided by the Head Office, i.e. MIL In return, MIL has also heaped the prize i.e. high revenue generation. By displaying different FAR, the TPO had made an attempt to distinguish the two activities. Nevertheless, the law prescribes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AEs, in return assessee has also been benefited. Employees, after returning, are with upgraded skills, better experience, update knowledge and with a better delivery skills. This is one part of the advantage and the other part of the advantage happened to be procurement of offshore business in high volume. We are therefore of the view that the comparability analysis as carried out by the TPO do not match with the facts of the case. It is not appropriate to hold that HRM function as carried out by this assessee is to be taken as recruitment services. We therefore hold that the assessee was not functioning as an external recruitment agency. At the cost of repetition, while arguing before us, the id. DR has supported the action of the TPO primarily on the ground that by the deployment of skilled engineers at the services of AEs, those AEs have been benefited, hence, in return, the assesses should have recovered some compensation on secondments. It is not a correct approach because one has to examine the business strategies and the business model of an Enterprise and if it is found that other benefits are much higher than the small amount of compensation, then naturally applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the TPO amounting to Rs. 24,818,778/- in respect of Corporate Guarantee given to MMUS. 27. As submitted by the Ld. Sr. Counsel appearing for the assessee that the issue is squarely covered in assessee s own case which has already been discussed herein above while deleting with the ground no.1 and 2 of assessee s appeal bearing ITA No. 1188/Ahd2015 A.Y 2009-10. 28. We find that this issue is relied upon considered by us in the ground no.1 and 2 of the appeal preferred by assessee. We do not wish to repeat the relevant portion of the judgment relied upon by us by the Co-ordinate Bench. Hence in view of the observation made thereon s already been reproduced hereinabove. We find no justification in sustaining upward adjustment made by the TPO amounting Rs. 24,818,778/- in respect of Corporate Guarantee given to MMUS. This ground of appeal preferred by Revenue is, thus, dismissed. ITA No.172/Ahd/2016 for A.Y. 2010-11 29. Ground no.1 : The assessee has challenge the confirmation of disallowance of Rs. 12,77,630/- u/s.14A r.w Rule 8D(2)(iii) of the Act which has already been decided by us in assessee s appeal bearing ITA No. 1852/Ahd/2015 for A.Y 2009-10 wherein w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any change circumstances the same shall apply Mutatis mutandis. 33. Ground no.4 : The assessee has challenge the order passed by the Ld.CIT(A) in rejecting the contention of the appellant and upholding action of the Transfer Pricing Officer in determining the arm s length price of the international transaction of provision of software services rendered by P C Division of the appellant to its AE at Rs. 21,99,76,167/- in respect of Rs. 20,24,36,058/- thereby leading to adjustment of Rs. 1,75,40,109/- 34. At the time of hearing of the instant appeal the Ld. Sr. Counsel appearing for the assessee submitted before us that the issue is already been decided in favour of the assessee by Co-ordinate Bench in Revenue s appeal bearing ITA Nos. 2879 2985/Ahd/2014 for A.Y. 2008-09; copy whereof has already been annexed to the paper book filed before us. However, the Ld. DR, failed to controvert such contention made by the ld.AR. 35. We have heard the rival contention made by the parties and perused the relevant material including the order passed by the Co-ordinate Bench on this issue while dealing particular aspect of the matter. The Co-ordinate Bench has pleased to observe as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of Human Resource Management Services of Rs. 72,31,740/- treating the same as international transaction, without properly appreciating the facts of the case and the material brought on record. 39. It appears that this ground of appeal is similar to that of ground No.5 of the appeal preferred by the Revenue in ITA No. 1852/Ahd/2015 for A.Y. 2009-10 which has already been decided in favour of the assessee, relying upon the judgment passed by the Co-ordinate Bench in assessee s own case for A.Y. 2008-09. In the absence of any change circumstances the ratio laid down thereon shall apply Mutatis Mutandis. Hence, this ground of appeal preferred by the Revenue is dismissed. 40. Ground no.3: In this ground Ld. CIT(A) has erred in law and on facts in relying the order passed by the CIT(A) for A.Y. 2009-10 in respect of the guarantee and credit risk assumed by the assessee, without properly appreciating the facts of the case and the material brought on record. 41. It appears that this ground of appeal is similar to that of ground preferred by the Revenue in ITA No.1852/Ahd/2015 for A.Y. 2009-10 as ground no.6 thereon which has already been decided in favour of the assessee relyi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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