Rain Cements Limited (Formerly known as Rain CII Carbon India Limited ), Hyderabad V. Dy. Commissioner of Income Tax , Circle-3(1), Hyderabad

ITA 1471/Hyd/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7080 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 07-06-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 05-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Proportionate interest; Retrospective amendment; TDS; Rule 8D
• Section: 92B; 14A; 113; 13; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 1950/HYD/17 2013-14 RAIN INDUSTRIES LIMITED, (FORMERLY KNOWN AS RAIN COMMODITIES LIMITED) HYDERABAD [PAN: AABCP2276K] DY.COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD 2020/HYD/17 2013-14 RAIN CEMENTS LIMITED, [FORMERLY KNOWN AS RAIN CII CARBON (INDIA) LIMITED] HYDERABAD [PAN: AABCR8858F] 1471/HYD/18 2014-15 FOR ASSESSEE : SHRI NISHANT THAKKAR, AR FOR REVENUE : S HRI ROHIT MUJUMDAR , DR DATE OF HEARING : 07 - 0 6 - 20 2 1 DATE OF PRONOUNCEMENT : 24 - 08 - 2021 O R D E R PER S.S.GODARA, J.M. : THE INSTANT BATCH OF THREE CASES PERTAINS TO TWO ASSESSEESS GROUP CONCERNS M/S.RAIN INDUSTRIES LIMIT ED AND M/S.RAIN CEMENTS LIMITED. THESE THREE APPEALS FOR AYS .2013- 14 & 2014-15; SERIATIM-WISE, ARISE AGAINST THE DCIT, C IRCLE- 3(1), ASSESSMENTS DT.20-10-2017; 27-10-2017 AND 14-05 -2018 FRAMED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANEL (DRP)- 1, BENGALURUS DIRECTIONS DT.06-09-2017 AND 28-03-201 8 IN F.NOS.298, 299 & 41/DRP-1/BNG/2016-17 & 2017-18, INVOLVING PROCEEDINGS U/S.143(3) R.W.S.144C(13) OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]; RESPECTIVELY. ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 2 -: HEARD BOTH THE ASSESSEES AS WELL AS THE DEPARTMENT. CASE FILES PERUSED. 2. A COMBINED PERUSAL OF ALL THESE INSTANT THREE CASE FILES SUGGEST THAT THE ASSESSEES HAVE RAISED TWIN IDENTICAL SUBSTANTIVE GROUNDS RAISED SEEKING TO REVERSE THE LEAR NED LOWER AUTHORITIES ACTION MAKING CORPORATE GUARANTEES ARMS LENGTH PRICE (ALP) ADJUSTMENT OF RS.6,46,01,780/-, RS.1,58,06,313/- AND RS.2,11,55,200/- U/S.92CA(2) O F THE ACT; FOLLOWED BY SECTION 14A R.W. RULE 8D DISALLOWANC E(S) OF RS.1,06,42,020/-, RS.7,58,750/- AND RS.7,70,000/-; RESPECTIVELY. WE THEREFORE PROPOSE TO DISPOSE-OF A LL THE THREE INSTANT APPEALS TOGETHER FOR THE SAKE OF CONVENIENCE AN D BREVITY. 3. LEARNED COUNSELS FIRST AND FOREMOST ARGUMENT RAISE S A LEGAL QUESTION AS TO WHETHER A CORPORATE GUARANTEE FOR MS AN INTERNATIONAL TRANSACTION OR NOT BEING A SHAREHOLDER AC TIVITY AS PER MICRO INC LTD. VS. ACIT (2015) 63 TAXMANN.COM 353 (AHD), BHARTI AIRTEL LTD VS. ACIT (2014) 63 SOT 113 (DELHI) A ND ACIT VS. IMAMI LTD., ITA NO.1958/KOL/2017, DT. 03-04-2019. AND ALSO THAT SUCH A TRANSACTION INVOLVES NO BENCHMARKING AS HELD IN DCIT VS. DISHMAN PHARMACEUTICALS AND CHEMICALS L TD. [103 TAXMANN.COM 271] (AHD), M/S.UCAL FUEL SYSTEMS LTD ., VS. ACIT, ITA NO.725/MDS/2015 AND AARADHANA REALITIE S LTD., VS. ACIT, ITA NO.1942/M/2015 AS WELL. ALL THESE LEGAL ARGUMENTS FAIL TO CONVINCE US AS PER HON'BLE MADRAS H IGH COURTS RECENT DECISION IN PR.CIT VS. M/S.REDIGNTON (I NDIA) 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 ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 3 -: ALSO INCLUDES A CORPORATE GUARANTEE. WE THUS HOLD THAT TH E TRIBUNALS ALL FOREGOING ORDERS (SUPRA) MUST MAKE WAY FOR HIGHER WISDOM AND DECLINE THE ASSESSEES FIRST AND FO REMOST LEGAL PLEA. WE FURTHER DEEM IT APPROPRIATE TO REPRODUC E 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 SUB SIDIARIES TO THE TUNE OF RS.464.36 CRORES AND ON BEHALF OF OTHERS, T O THE TUNE OF RS.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 OU TSTANDING, IS PURELY ON ACCOUNT OF THE CURRENCY TRANSITION ADJUST MENT ON RESTATEMENT OF GUARANTEES OUTSTANDING AT THE CLOSIN G RATES PREVAILING ON 31ST MARCH 2009 FOR DISCLOSURE IN FINANCIAL STAT EMENT IN COMPLIANCE WITH THE ACCOUNTING STANDARDS. FURTHER, THE ASSESSEE STATED THAT THE OUTSTANDING GUARANTEE ISSUED BY THE ASSESSEE AS ON 31.03.2009 REPRESENTS GUARANTEE ISSUED ON BEHALF OF THE OVERSEAS SUBSIDIARIES IN EARLIER YEARS. FURTHER, THEY STATED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE RELEVANT AS SESSMENT YEARS, THE TPO MADE ADDITION TO THE CORPORATE GUARANTEE IS SUED DURING THOSE YEARS BY ADOPTING THE BENCH MARK RATE BASED O N THE AVAILABLE INTERNAL COMPARABLE UNCONTROLLED PRICE CHARGED BY T HE BANK AT 0.85%. THE ASSESSEE ALSO ISSUED CORPORATE GUARANTEE IN FAV OUR OF M/S.PARAMPARA WEDDING CADS AND M/S. BASKAR DIGITAL PRESS. THE TPO AFTER TAKING NOTE OF THE AMENDED SECTION 92B, W HICH WAS INTRODUCED WITH RETROSPECTIVE EFFECT FROM 01.04.200 2, EXAMINED THE FACTUAL ASPECT AND POINTED OUT THAT THOUGH THE ASSE SSEE STATED THAT THEY HAVE NOT ISSUED ANY FRESH GUARANTEE DURING THE ASSESSMENT YEAR 2009-10, THE GUARANTEES WERE LIVE AND WERE NOT CLOSED AS ON 31.03.2009 AND THE LIABILITY CONTINUED ON THE ASSES SEE AS ON 31.03.2009. NOTING THAT PROVIDING SUCH GUARANTEE IS ONE OF THE FINANCIAL SERVICE RENDERED BY THE ASSESSEE FOR WHIC H IT HAS TO BE REMUNERATED APPROPRIATELY AND THAT CONCERNED PARTIE S IN WHOSE FAVOUR THESE GUARANTEES WERE EXTENDED, WHERE ASSOCI ATED ENTERPRISES OF THE ASSESSEE AND THE TRANSACTIONS WE RE LARGELY INFLUENCED BY RELATED PARTIES, THE ASSOCIATED ENTER PRISES BENEFITED AND CONSEQUENTLY, THE INCOME WOULD ACCRUE ONLY TO S UCH NON-RESIDENT AND TO THAT EXTENT, SHIFTING OF TAX BASE FROM THE C OUNTRY IS BOUND TO HAPPEN IN SUCH TRANSACTION AND THE ASSESSEE SHOULD HAVE BEEN REMUNERATED APPROPRIATELY. THE CORPORATE GUARANTEE WAS TO THE TUNE OF RS.5574.13 LAKHS AND BANK GUARANTEE TO THE TUNE OF RS.40862.34 LAKHS. FURTHER, THE TPO OBSERVED THAT THERE IS NO T IME PERIOD FOR EXPIRY OF THE GUARANTEE. CONSEQUENTLY, IT WILL DEMA ND MORE ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 4 -: COMMISSION CHARGES THAN THE COMMISSION CHARGED BY T HE BANKS. THAT APART, THE ASSESSEE HAD TAKEN MAXIMUM RISK IN PROVI DING BANK GUARANTEE TO THEIR SUBSIDIARIES AND THE ENTIRE CRED IT RISK IS OWNED BY THE ASSESSEE, THE INDIAN COMPANY AND IT HAS TO BE R EIMBURSED AT MAXIMUM PERCENTAGE OF FEES. FURTHER, THE TPO NOTED AS TO THE MANNER IN WHICH THE BANK'S CHARGE COMMISSION ON GUA RANTEES EXTENDED AND OBSERVED THAT THE BANK WILL INSIST UPO N CASH DEPOSITS / GUARANTEE DEPOSITS / ASSET MORTGAGE ETC., TO EXTEND GUARANTEES ON BEHALF OF THEIR CLIENTS. FURTHER, IT WAS POINTED OU T THAT IF A SITUATION ARISES THAT THE BANK GUARANTEE HAS TO BE INVOKED, W HEN THE ASSOCIATE ENTERPRISE IS NOT IN GOOD FINANCIAL POSIT ION, OBVIOUSLY, THE ASSESSEE IS AT RISK AND THEY CLAIM THAT THERE IS NO RISK IN PROVIDING GUARANTEES CANNOT BE ACCEPTED. THE TPO DREW A COMPA RISON BETWEEN THE GUARANTEES ISSUED BY THE BANK AND GUARANTEES IS SUED BY THE ASSESSEE ON BEHALF OF THE ASSOCIATED ENTERPRISE TO THE BANK. IT HAS BEEN RECORDED THAT THE ASSOCIATED ENTERPRISES OF TH E ASSESSEE HAVE NOT PROVIDED ANY SECURITY TO THE ASSESSEE. IN THE A GREEMENT / CONTRACT BETWEEN THE ASSOCIATED ENTERPRISES AND THE ASSESSEE, NO CONDITION HAS BEEN IMPOSED ON THE ASSOCIATED ENTERP RISES TO PAY THE AMOUNT TO THE ASSESSEE AND EVEN IN SOME AGREEMENTS IF IT IS MENTIONED, IN THE EVENT OF THE ASSOCIATED ENTERPRIS ES 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 F INANCIAL CONDITION OF THE ASSOCIATED ENTERPRISE AND THE LAW GOVERNING SUC H TRANSACTIONS IN THAT COUNTRY AND THE ASSESSEE IS BOUND BY THE PROVI SIONS OF FEMA AND RBI GUIDELINES. THEREFORE, THE TPO CONCLUDED TH AT THE BANK COMMISSION CHARGES CANNOT BE COMPARED FOR THE COMMI SSION CHARGES THAT HAS BEEN PAYABLE TO THE ASSESSEE BY THE ASSOCI ATED ENTERPRISES AND IT IS A CLEAR FINANCIAL SERVICES RENDERED BY TH E ASSESSEE TO THEIR ASSOCIATED ENTERPRISE, WHICH HAS TO BE COMPENSATED BY PROPER COMMISSION CHARGES. ACCORDINGLY, THE TPO HELD 2% SH ALL BE CHARGED AS COMMISSION AND PROPOSED AN UPWARD ADJUSTMENT TO THE INCOME OF THE ASSESSEE TO THE TUNE OF RS.817.25 LAKHS. IN RES PECT OF THE GUARANTEES GIVEN TO UNRELATED PARTIES, THE TPO HELD THAT 2% SHOULD BE CHARGED AS GUARANTEE COMMISSION AND PROPOSED AN UPWARD ADJUSTMENT OF RS.111.48 LAKHS TO THE INCOME OF THE ASSESSEE. THE DRP AFTER HEARING THE ASSESSEE, HELD THAT THE TPO H AS NOT GIVEN COGENT REASONS FOR TAKING A DIFFERENT STAND THAN TH E STAND TAKEN BY THE DEPARTMENT IN THE EARLIER YEARS AS THE SAME GUA RANTEE IS CONTINUING DURING THE YEAR UNDER CONSIDERATION AND THEREFORE, THERE CANNOT BE A DIFFERENT BENCH MARKING FROM THAT OF TH E PREVIOUS YEAR. ACCORDINGLY, THE DRP DIRECTED THE TPO TO ADOPT THE SAME RATE OF GUARANTEE COMMISSION AS WAS ADOPTED BY THE TPO IN T HE PRECEDING YEAR. ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 5 -: 69.THE DIRECTIONS ISSUED BY THE DRP WERE GIVEN EFFE CT TO BY THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 17.01 .2014. THE TRIBUNAL HELD THAT THE TP ADDITION MADE AGAINST THE CORPORATE AND BANK GUARANTEE IS NOT SUSTAINABLE IN LAW. THIS CONC LUSION IS BY OBSERVING THAT THE ASSESSEE HAS PROVIDED CORPORATE AND BANK GUARANTEES FOR THE OVERALL INTEREST OF ITS BUSINESS . IT REFERRED TO THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF BHART I AIRTEL LTD., WHEREIN IT IS HELD THAT CORPORATE GUARANTEE DOES NOT INVOLV E ANY COST TO THE ASSESSEE AND THEREFORE, IT IS NOT AN INTERNATIONAL TRANSACTION EVEN UNDER THE DEFINITION OF THE SAID TERM AS AMENDED BY THE FINANCE ACT, 2012. THE TRIBUNAL IS A FINAL AUTHORITY TO RENDER F INDINGS ON FACT. THE TRIBUNAL FAILED TO GIVE ANY REASON AS TO HOW THE DE CISION IN BHARTI AIRTEL LIMITED WOULD APPLY TO THE ASSESSEE'S CASE. FURTHERMORE, THERE WAS NO RECORD PLACED BEFORE THE TRIBUNAL BY THE ASS ESSEE THAT THEY HAVE NOT INCURRED ANY COST FOR PROVIDING BANK GUARA NTEE. AS OBSERVED EARLIER, THE TPO HAS COMPARED THE NATURE O F DOCUMENTATION EXECUTED BY THE ASSESSEE IN FAVOUR OF HIS ASSOCIATE D ENTERPRISE TO COME TO THE FACTUAL CONCLUSION THAT IT IS A FINANCI AL 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 I N THE PREVIOUS ASSESSMENT YEAR SHOULD BE EXTENDED FOR THE ASSESSME NT YEAR UNDER CONSIDERATION ALSO AND THERE IS NO REASON GIVEN BY THE TPO FOR TAKING A DIVERGENT VIEW. THE FINDING THAT THE VERY SAME TR ANSACTION FOR THE PREVIOUS ASSESSMENT YEAR WAS SUBJECT MATTER OF TP A DJUSTMENT, HAS NOT BEEN DISPUTED BY THE TRIBUNAL RATHER NOT EVEN D EALT WITH BY THE TRIBUNAL. THEREFORE, THE FINDING RENDERED BY THE TR IBUNAL IS UTTERLY PERVERSE. 70.THE ARGUMENT OF THE LEARNED SENIOR COUNSEL APPEA RING FOR THE ASSESSEE IS THAT PRIOR TO THE AMENDMENT BROUGHT ABO UT IN SECTION 92B BY FINANCE ACT 2012, THE TRIBUNAL HAD DECIDED THAT FURNISHING OF A GUARANTEE BY AN ASSESSEE WAS NOT AN INTERNATIONAL T RANSACTION AS IT DID NOT FALL WITHIN ANY OF THE LIMBS OF SECTION 92B . IT IS SUBMITTED THAT TO GET OVER THE JUDICIAL PRONOUNCEMENT, THE EXPLANA TION WAS INSERTED. THE ARGUMENT IS THAT CLAUSE (C) OF THE EXPLANATION SUPPORTS THE CASE OF THE ASSESSEE INASMUCH AS THE EXPLANATION MAKES I T CLEAR THAT GIVING OF A CORPORATE GUARANTEE IS NOT A SERVICE. W ITHOUT PREJUDICE TO THE SAID CONTENTION, IT IS SUBMITTED THAT ONLY CORP ORATE GUARANTEE IS GIVEN BY THE ASSESSEE, WHICH ARE IN THE NATURE OF L ENDING ARE COVERED UNDER CLAUSE (C) OF EXPLANATION 1 TO SECTION 92B. F URTHER, IT IS SUBMITTED THAT THE NATURE OF TRANSACTIONS COVERED B Y CLAUSE (E) SPECIFICALLY INCLUDE EVEN THOSE TRANSACTIONS WHICH MAY NOT HAVE A BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF TRANSACTION ARE COVERED IF THEY HAVE SU CH A BEARING AT ANY FUTURE DATE. IT IS ARGUED THAT THE LANGUAGE USED IN THE EXPLANATION MAKES IT CLEAR THAT IN SO FAR AS THE TRANSACTIONS T HAT FALL WITHIN THE MAIN PART OF SECTION 92B ARE CONCERNED, SUCH TRANSA CTIONS MUST HAVE ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 6 -: A BEARING ON PROFIT, INCOME, LOSSES OR ASSETS OF AN ASSESSEE IN THE YEAR IN WHICH THE TRANSACTION IS EFFECTED. IN THE A SSESSEE'S CASE, THE CORPORATE GUARANTEES REPRESENT A CONTINGENT LIABILI TY AND LAY DORMANT AND HAVE NO BEARING ON THE CURRENT YEAR'S P ROFITS, INCOME OR LOSSES OF AN ASSESSEE AND CORPORATE GUARANTEE ARE N OT COVERED WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION. IT IS SUBMITTED THAT APPLYING DOCTRINE OF FAIRNESS AS EXPLAINED BY THE H ON'BLE SUPREME COURT OF INDIA IN THE CASE VATIKA TOWNSHIP PRIVATE LIMITED, THE EXPLANATION OUGHT TO BE READ AS PROSPECTIVE IN ITS APPLICATION AND RETROSPECTIVE IN ITS EFFECT SUCH THAT IT WILL ALSO COVER WITHIN ITS AMBIT GUARANTEES ISSUED PRIOR TO THE INTRODUCTION OF THE EXPLANATION BY FINANCE ACT 2012. 71.WE FIND FROM THE GROUNDS OF APPEAL FILED BY THE ASSESSEE BEFORE THE TRIBUNAL, NO GROUND WAS RAISED AS REGARDS THE A RGUMENT THAT THE EXPLANATION ADDED BY FINANCE ACT 2012, IS TO BE CON STRUED AS PROSPECTIVE IN ITS APPLICATION. FURTHERMORE, THE TR IBUNAL HAS ALSO NOT RECORDED IN ITS ORDER, MORE PARTICULARLY, FROM PARA GRAPH 92 THAT THE ASSESSEE HAD ARGUED ON THE ISSUE REGARDING PROSPECT IVITY / RETROSPECTIVITY. FURTHER, THE ASSESSEE HAS NOT CHAL LENGED THE VALIDITY OF THE EXPLANATION NOR ITS APPLICABILITY WITH RETRO SPECTIVE EFFECT. THAT APART, EVEN BEFORE THE DRP, SUCH CONTENTION WAS NOT RAISED. THE HON'BLE SUPREME COURT IN GOLD COIN HEALTH FOOD PRIV ATE LIMITED, WHILE DECIDING THE ISSUE WHETHER AN AMENDMENT WAS C LARIFICATORY OR SUBSTANTIVE IN NATURE OR WHETHER IT WILL HAVE RETRO SPECTIVE EFFECT HELD AS FOLLOWS: 14. THE PRESUMPTION AGAINST RETROSPECTIVE OPERATION IS NOT APPLICABLE TO DECLARATORY STATUTES IN DETERMINING, THEREFORE, THE 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 O BJECT UNLESS CONSTRUED RETROSPECTIVELY. AN EXPLANATORY ACT IS GENERALLY PA SSED TO SUPPLY AN OBVIOUS OMISSION OR TO CLEAR UP DOUBTS AS TO THE ME ANING OF THE PREVIOUS ACT. IT IS WELL SETTLED THAT IF A STATUTE IS CURATI VE OR MERELY DECLARATORY OF THE PREVIOUS LAW RETROSPECTIVE OPERATION IS GENERAL LY INTENDED .AN AMENDING ACT MAY BE PURELY DECLARATORY TO CLEAR A M EANING 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 AN D RATHER THERE IS PRESUMPTION AGAINST RETROSPECTIVITY, ACCORDING TO C RAIES (STATUTE LAW, 7TH EDN.), IT IS OPEN FOR THE LEGISLATURE TO ENACT LAWS HAVING RETROSPECTIVE OPERATION. THIS CAN BE ACHIEVED BY EXPRESS ENACTMEN T OR BY NECESSARY IMPLICATION FROM THE LANGUAGE EMPLOYED. IF IT IS A NECESSARY IMPLICATION FROM THE LANGUAGE EMPLOYED THAT THE LEGISLATURE INT ENDED A PARTICULAR SECTION TO HAVE A RETROSPECTIVE OPERATION, THE COUR TS WILL GIVE IT SUCH AN OPERATION. IN THE ABSENCE OF A RETROSPECTIVE OPERAT ION HAVING BEEN EXPRESSLY GIVEN, THE COURTS MAY BE CALLED UPON TO C ONSTRUE THE PROVISIONS ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 7 -: AND ANSWER THE QUESTION WHETHER THE LEGISLATURE HAD SUFFICIENTLY EXPRESSED THAT INTENTION GIVING THE STATUTE RETROSP ECTIVITY. FOUR FACTORS ARE SUGGESTED AS RELEVANT: (I) GENERAL SCOPE AND PURVIE W OF THE STATUTE; (II) THE REMEDY SOUGHT TO BE APPLIED; (III) THE FORMER STATE OF THE LAW; AND (IV) WHAT IT WAS THE LEGISLATURE CONTEMPLATED. (P. 388) THE R ULE AGAINST RETROSPECTIVITY DOES NOT EXTEND TO PROTECT FROM THE EFFECT OF A REPEAL, A PRIVILEGE WHICH DID NOT AMOUNT TO ACCRUED RIGHT. (P . 392) 72.A NEW ENACTMENT OR AN AMENDMENT MEANT TO EXPLAIN THE EARLIER ACT HAS TO BE CONSIDERED RETROSPECTIVE. THE EXPLANA TION INSERTED IN SECTION 92B BY FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 COMMENCES WITH THE SENTENCE FOR THE REMO VAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT 73.AN AMENDMENT MADE WITH THE OBJECT OF REMOVAL OF DOUBTS AND TO CLARIFY, UNDOUBTEDLY HAS TO BE READ TO BE RETROSPEC TIVE AND COURTS ARE BOUND TO GIVE EFFECT TO SUCH RETROSPECTIVE LEGISLAT ION. 74.THE LEARNED SENIOR STANDING COUNSEL FOR THE REVE NUE REFERRED TO THE DECISION IN CO-OPERATIVE COMPANY LIMITED VS. CO MMISSIONER OF TRADE TAX IN CIVIL NO.2124 OF 2007 DATED 24.04.2007 , WHEREIN IT WAS HELD THAT WHEN AN AMENDMENT IS BROUGHT INTO FORCE F ROM A PARTICULAR DATE, NO RETROSPECTIVE OPERATION THEREOF CAN BE CON TEMPLATED PRIOR THERETO. THE EXPLANATION IN SECTION 92B SPECIFICALL Y HAS BEEN GIVEN RETROSPECTIVE EFFECT AND IT IS CLARIFICATORY IN NAT URE AND FOR THE PURPOSE OF REMOVAL OF DOUBTS. THIS ISSUE WAS CONSIDERED BY THIS COURT IN THE CASE OF SUDEXO FOOD SOLUTIONS INDIA PRIVATE LTD. 75.THE CONCEPT OF BANK GUARANTEES AND CORPORATE GUA RANTEES WAS EXPLAINED IN THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF PROLIFIES CORPORATION LIMITED. IN THE SAID CASE, TH E REVENUE CONTENDED THAT THE TRANSACTION OF PROVIDING CORPORATE GUARANT EE IS COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION AFTER R ETROSPECTIVE AMENDMENT MADE BY FINANCE ACT, 2012. THE ASSESSEE A RGUED THAT THE CORPORATE GUARANTEE IS AN ADDITIONAL GUARANTEE, PROVIDED BY THE PARENT COMPANY. IT DOES NOT INVOLVE ANY COST OF RIS K TO THE SHAREHOLDERS. FURTHER, THE RETROSPECTIVE AMENDMENT OF SECTION 92B DOES NOT ENLARGE THE SCOPE OF THE TERM INTERNATIONA L TRANSACTION TO INCLUDE THE CORPORATE GUARANTEE IN THE NATURE PROVI DED BY THE ASSESSEE THEREIN. THE TRIBUNAL HELD THAT IN CASE OF DEFAULT, GUARANTOR HAS TO FULFILL THE LIABILITY AND THEREFORE, THERE I S ALWAYS AN INHERENT RISK IN PROVIDING GUARANTEES AND THAT MAY BE A REAS ON THAT FINANCE PROVIDER INSIST ON NON-CHARGING ANY COMMISSION FROM ASSOCIATED ENTERPRISE AS A COMMERCIAL PRINCIPLE. FURTHER, IT H AS BEEN OBSERVED THAT THIS POSITION INDICATES THAT PROVISION OF GUAR ANTEE ALWAYS INVOLVES RISK AND THERE IS A SERVICE PROVIDED TO TH E ASSOCIATE ENTERPRISE IN INCREASING ITS CREDITWORTHINESS IN OB TAINING LOANS IN THE MARKET, BE FROM FINANCIAL INSTITUTIONS OR FROM OTHE RS. THERE MAY NOT BE IMMEDIATE CHARGE ON P & L ACCOUNT, BUT INHERENT RISK CANNOT BE ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 8 -: RULED OUT IN PROVIDING GUARANTEES. ULTIMATELY, THE TRIBUNAL UPHELD THE ADJUSTMENTS MADE ON GUARANTEE COMMISSIONS BOTH ON T HE GUARANTEES PROVIDED BY THE BANK DIRECTLY AND ALSO ON THE GUARA NTEE PROVIDED TO THE ERSTWHILE SHAREHOLDERS FOR ASSURING THE PAYMENT OF ASSOCIATE ENTERPRISE. 76.IN THE LIGHT OF THE ABOVE DECISIONS, WE HOLD THA T THE TRIBUNAL COMMITTED AN ERROR IN DELETING THE ADDITIONS MADE A GAINST CORPORATE AND BANK GUARANTEE AND RESTORE THE ORDER PASSED BY THE DRP. 4. NEXT COMES EQUALLY IMPORTANT ASPECT OF QUANTIFICATIO N OF THE IMPUGNED CORPORATE GUARANTEE ADJUSTMENT. IT TRANSPIRE S DURING THE COURSE OF HEARING THAT THIS TRIBUNALS CO-ORD INATE BENCH IN FORMER ASSESSEE M/S. RAIN INDUSTRIES LTDS A PPEAL(S) FOR AY.2008-09 AND 2009-10 ITA NOS157/HYD/2014 AND 83/HYD/2014 DT.04-12-2015 AND 28-09-2016, RESPECTIVEL Y, HAS DIRECTED THE LEARNED LOWER AUTHORITIES TO ADOPT 0.5 3 COMMISSION RATE AS AGAINST THAT IN ISSUE @ BETWEEN 1.30 % TO 2.10% IN TPOS ORDER(S) DT.31-10-2016. WE THUS ADOPT JUDICIAL CONSISTENCY AND DIRECT THE TPO TO ADOPT 0.53% RATE IN BOTH THESE ASSESSEES CASES IN ALL THESE RESPECTIVE ASSESS MENT YEARS. 4.1. THERE IS YET ANOTHER EQUALLY IMPORTANT LAST ASPECT REGARDING QUANTIFICATION OF THE CORPORATE GUARANTEE AD JUSTMENT ITSELF IN ALL THESE THREE ASSESSMENT YEARS. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE TPO HEREIN HAD HIMSELF MAD E IT CLEAR THAT IN CASE OF GUARANTEES COVERING MORE THAN ON E FINANCIAL YEAR THE FEE IS CHARGED BY THE BANKS AT THE B EGINNING OF THE FINANCIAL YEAR ON THE OUTSTANDING AMOUNT. AS AGA INST THIS, THE REVENUE FAILS TO DISPUTE THAT CASE LAW BS. LTD ., VS. ACIT [94 TAXMANN.COM 346] (HYD), MANUGRAPH INDIA LTD., VS. DCIT (ITA NO.4761/MUM/2013) AND ACG ASSOCIATED CAPSU LES PVT. LTD. VS. CIT (2012) [343 ITR 89] (SC) HOLD THAT SUCH A ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 9 -: CORPORATE GUARANTEE ADJUSTMENT COULD ONLY BE MADE TO THE EXTENT OF ACTUALLY UTILIZED AMOUNT DURING THE YEAR THAN TH AT OF THE FULL VALUE OF THE GUARANTEE ITSELF. WE ADOPT THE VE RY REASONING HEREIN AS WELL AND DIRECTING THE TPO TO RE-C OMPUTE THE IMPUGNED ADJUSTMENT AFTER TAKING INTO CONSIDERATION ON LY THE ACTUALLY UTILISED AMOUNT OF THE CORRESPONDING CORP ORATE GUARANTEES IN THESE THREE CASES. THE ASSESSEES IDE NTICAL FIRST AND FOREMOST GROUND IN ALL THESE THREE APPEALS IS PARTL Y ACCEPTED IN FOREGOING TERMS. 5. NEXT COMES THE LATTER IDENTICAL ISSUE OF SECTION 14A R.W. RULE 8D DISALLOWANCE. IT EMERGES AT THE OUTSET THAT THE L ATTER ASSESSEE, M/S.RAIN CEMENTS LTD. HAS NOT DERIVED ANY EX EMPT INCOME SO FAR AS ITS APPEAL ITA NO.2020/HYD/2017 IS CONCERNED. WE THUS QUOTE THE FOLLOWING CASE LAW : I. CIT VS. CHETTINAD LOGISTICS PVT. LTD., [80 TAXMANN.COM 221] (MADRAS); II. CIT VS. CORRTECH ENERGY PVT. LTD., [223 TAXMAN 130] (GUJ); III. CHEMINVEST LTD., VS. CIT (2015) [378 ITR 33] (DEL) THEIR LORDSHIPS HOLD THAT SECTION 14A READ WITH RULE 8 D APPLIES ONLY IN RELATION TO AN ASSESSEES EXEMPT INCOM E THAN HAVING ANY INDEPENDENT EXIGIBILITY. IT IS AN ADMITTED F ACT 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 P RECISE REASON ALONE. ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 10 -: THIS SECOND ASSESSEES FORMER APPEAL ITA NO.2020/HYD/2017 RAISING THESE TWIN ISSUES ONLY IS P ARTLY 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 FA IRLY IN FORMER ASSESSEES APPEAL THAT ALTHOUGH IT HAS DERIVED E XEMPT INCOME THEREBY MAKING CORRESPONDING INVESTMENTS IN ITS SISTER CONCERN I.E., M/S.RAIN COMMODITIES, USA, BOTH THE LOW ER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT HAVI NG RECORDED ANY SATISFACTION CONTEMPLATED U/S.14A(II) QUA ITS BOOKS OF ACCOUNTS THAT NO SUCH EXPENDITURE HAD BEEN IN CURRED 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 41 8] (DEL) THAT SUCH A SATISFACTION IS VERY MUCH MANDATORY BEFORE DISALLOWANCE COMPUTATION MECHANISM ENVISAGED UNDER R ULE 8D OF THE RULES COMES INTO PLAY. LEARNED COUNSEL FURTH ER EMPHASISED THAT THE ASSESSING OFFICER HAD NOT MADE AN Y SUCH DISALLOWANCES UPTO AY.2011-12 IN FORMER ASSESSEE, M /S.RAIN INDUSTRIES CASES AS WELL. HE LASTLY STATED THAT THE ASS ESSEE HAD MADE THE IMPUGNED INVESTMENTS FROM THE NON-INTEREST BEA RING FUNDS ONLY. AND MORE SO IN VIEW OF THE FACT THAT NO DISALLOWANCE HAS BEEN MADE REGARDING DIRECT AND PROPORTIONATE INTEREST EXPENDITURE UNDER RULE 8D2(I) AN D (II) OF THE INCOME TAX RULES. ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 11 -: 6.1. THE REVENUE HAS DRAWN STRONG SUPPORT FROM THE LEA RNED LOWER AUTHORITIES ACTION INVOKING THE IMPUGNED DISALL OWANCE. 7. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL PLEADINGS AGAINST AND IN SUPPORT OF THE IMPUGNED SECT ION 14A R.W. RULE 8D DISALLOWANCE. IT IS NOT IN DISPUTE THAT THE IMPUGNED INVESTMENTS HAVE BEEN MADE IN GROUP CONCERNS/SUBSIDIARIES ONLY WHICH HAVE YIELDED EXEMP T INCOME TO THE ASSESSEE. THE FACT ALSO REMAINS THAT THE ASSESSIN G OFFICER HAS NOT RECORDED ANY SATISFACTION QUA THE ASSESSEES BOOKS TO THIS EFFECT. FACED WITH THIS SITUATION, WE DEEM IT APPROPRIATE TO RESTORE THE INSTANT CASE BACK TO THE ASSESSI NG OFFICER FOR HIS AFRESH ADJUDICATION THEREOF KEEPING IN MIND THE ASSESSEES FUND POSITION IN ITS BOOKS OF ACCOUNTS PRIMA FACIE FOLLOWED BY THE NON-UTILIZATION OF INTEREST BEARING F UNDS AS PER LAW. WE ORDER ACCORDINGLY. THE FORMER ASSESSEES A PPEAL ITA NO. 1950/HYD/2017 RAISING THESE TWIN ISSUES IS PARTLY ALLOWED IN FOREGOING TERMS. 8. WE ARE NOW LEFT WITH THE LATTER ASSESSEES APPEAL IT A NO.1471/HYD/2018 RAISING THE SECOND SUBSTANTIVE GROUN D OF SECTION 14A RULE 8D DISALLOWANCE OF RS.7,70,000/- QUA ITS EXEMPT INCOME OF RS.30,69,895/-. ALTHOUGH THE ASSESSE E HAS CLAIMED TO HAVE SUFFICIENT NON-INTEREST BEARING FUNDS A ND NOT HAVING INCURRED ANY DIRECT OR INDIRECT EXPENDITURE FO R DERIVING THE ABOVE STATED EXEMPT INCOME, NO SUCH DETAILS TO THIS E FFECT FORM PART OF RECORDS BEFORE US. THERE IS FURTHER NO REBUTTAL TO THE FACT THAT THE IMPUGNED DISALLOWANCE IS MUCH LESS THA N THE EXEMPT INCOME ITSELF AS PER HON'BLE DELHI HIGH COURTS DECISION IN JOINT INVESTMENTS PVT. LTD. VS. CIT 372 ITR 694 (DELH I). WE ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 12 -: THEREFORE DEEM IT APPROPRIATE IN THESE PECULIAR FACTS A ND CIRCUMSTANCES TO AFFIRM THE IMPUGNED DISALLOWANCE. TH E LATTER ASSESSEE FAILS IN ITS SECOND SUBSTANTIVE GRIEVANCE. TH IS LAST APPEAL ITA NO. 1471/HYD/2018 IS PARTLY ALLOWED IN AB OVE TERMS. 9. THESE TWIN ASSESSEES APPEALS ARE PARTLY ALLOWED IN ABOVE TERMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE R ESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 24-08-2021 TNMM ITA NOS.1950 & 2020/HYD/2017 & 1471/HYD/2018 :- 13 -: COPY TO : 1.RAIN INDUSTRIES LIMITED, (FORMERLY KNOWN AS RAIN COMMODITIES LTD), RAIN CENTER 34, SRINAGAR COLONY, HYDERABAD. 2.RAIN CEMENTS LIMITED, [FORMERLY KNOWN AS RAIN CII CARBON (INDIA) LTD], RAIN CENTER 34, SRINAGAR COLON Y, HYDERABAD. 3.THE DY.COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD. 4.DISPUTE RESOLUTION PANEL (DRP), BENGALURU. 5.DIRECTOR OF INCOME TAX (IT & TP), HYDERABAD. 6.ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICIN G), HYDERABAD. 7.D.R. ITAT, HYDERABAD. 8.GUARD FILE.