Appeal Details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 6783 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 8 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-09-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
K
Assessment Year
2012-2013
Appeal Filed On
03-01-2018
Judgement Text
ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE HONBLE SHRI AMARJIT SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.17/MUM/2018 ( / ASSESSMENT YEAR: 2012-13) KEC INTERNATIONAL LTD. 463, CEAT MAHAL DR. ANNIE BESANT ROAD, WORLI MUMBAI-400 030. / VS. D CIT - 5(1)( 1 ) ROOM NO.568 AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ! ./ ./PAN/GIR NO. AACCK-5599-H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) & ./ I.T.A. NO.115/MUM/2018 ( / ASSESSMENT YEAR: 2012-13) DCIT - 5(1)(1) ROOM NO.568 AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. / VS. KEC INTERNATIONAL LTD. 463, CEAT MAHAL DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400 030. ! ./ ./PAN/GIR NO. AACCK-5599-H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : S/SHRI VIJAY MEHTA AND ANUJ KISNADWALA- LD. ARS REVENUE BY : S/SHRI AKHTAR HUSAIN ANSARI & SHRI MICHAEL JERALD- LD.SR.DRS / DATE OF HEARING : 04/09/2020 / DATE OF PRONOUNCEMENT : 14/09/2020 ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 2 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID CROSS-APPEALS FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIO NER OF INCOME-TAX (APPEALS)-56, MUMBAI, [IN SHORT REFERRED TO AS CIT (A)], APPEAL NO. CIT(A)-56/DCIT-5(1)(1)/2017-18/473 DATED 13/10/2017 ON CERTAIN GROUNDS OF APPEAL. ASSESSEES APPEAL ITA NO. 17/MUM/2018 2.1 FIRST, WE TAKE UP ASSESSEES APPEAL ITA NO.17/M UM/2018 WHEREIN THE GROUND READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT(A) ERRED IN MAKING AN UPWARD TRANSFER PRICING A DJUSTMENT UNDER SECTION 92CA OF THE INCOME TAX ACT, 1961 OF RS.2,45,43,617/- BY TREATING THE TRANSACTION OF BUSINESS ADVANCE AS LOANS GIVEN TO AE. THE APPELLAN T PRAYS THAT THE AFORESAID ACTION OF THE HON'BLE CIT(A) MAY PLEASE BE HELD AS BAD-IN-LAW AND BE DELETED. AS EVIDENT, THE SOLE SUBJECT MATTER OF ASSESSEES A PPEAL IS TRANSFER PRICING (TP) ADJUSTMENT OF RS.245.43 LACS AGAINST B USINESS ADVANCES GIVEN BY THE ASSESSEE TO ITS AE. 2.2 WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS ADVA NCED BY BOTH THE REPRESENTATIVES AND PERUSED RELEVANT MATERIAL ON RE CORD INCLUDING DOCUMENTS PLACED IN THE PAPER-BOOK . WE HAVE ALSO DELIBERATED ON VARIOUS JUDICIAL PRONOUNCEMENTS AS CITED BEFORE US DURING THE COURSE OF HEARING. OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. 2.3 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT COR PORATE ASSESSEE IS STATED TO BE ENGAGED IN THE BUSINESS OF DESIGNING, FABRICATION, GALVANIZING AND TESTING OF TRANSMISSION LINES & TEL ECOM TOWERS, SUPPLY ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 3 AND ERECTION OF SUB-STATION STRUCTURES AND OVERHEAD EQUIPMENT FOR RAILWAY ELECTRIFICATION AND MANAGING INFRASTRUCTURE SITES FOR TELECOMMUNICATION SERVICES. THE ASSESSMENT FOR YEAR CONSIDERATION WAS FRAMED U/S 143(3) R.W.S. 144C(3) ON 31/03/2016 WHER EIN THE INCOME WAS DETERMINED AT RS.251.41 CRORES AFTER CERTAIN ADDITI ONS / DISALLOWANCES / ADJUSTMENTS AS AGAINST RETURNED INCOME OF RS.185.05 CRORES E-FILED BY THE ASSESSEE ON 29/11/2012 WHICH WAS LATER ON REVIS ED TO RS.198.26 CRORES. HOWEVER, DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED REVISED COMPUTATION OF TOTAL INCOME REFLE CTING INCOME OF RS.229.71 CRORES. 2.4 SINCE THE ASSESSEE CARRIED OUT CERTAIN INTERNAT IONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE), A REFERENCE U /S 92 CA (1) WAS MADE TO LD. JOINT COMMISSIONER OF INCOME TAX (TRANS FER PRICING)-2(3), MUMBAI (IN SHORT TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THESE TRANSACTIONS. ONE OF SUCH TRANSACTION WAS ADV ANCES GIVEN BY THE ASSESSEE TO ONE OF ITS AE FOR RS.2069.94 LACS. THE ADVANCES WERE GIVEN TO AN AE NAMELY EJP KEC JOINT VENTURE, SOUTH AFRICA IN VARIOUS TRANCHES DURING THE YEAR, WHICH HAS BEEN TABULATED AT PARA 6.1 OF LD. TPOS ORDER. THE PERUSAL OF THE SAME WOULD SHOW THA T THE ADVANCES GIVEN IN EARLIER YEARS WERE RS.828.80 LACS WHEREAS FRESH ADVANCES GIVEN DURING THE YEAR WERE FOR RS.1903.83 LACS (AFT ER ADJUSTING FOREX FLUCTUATIONS OF RS.166.11 LACS), THUS AGGREGATING I N ALL TO RS.2732.63 LACS. THE CURRENCY OF LOAN WAS DENOMINATED IN US DO LLARS WITHOUT ANY SECURITY. ACCORDINGLY, THE ASSESSEE WAS ASKED TO PR OVIDE REQUISITE DETAILS AS TO BENCHMARKING OF THIS TRANSACTION. ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 4 2.5 THE ASSESSEE SUBMITTED THAT COMPARABLE UNCONTRO LLED PRICE (CUP) WAS SELECTED AS MOST APPROPRIATE METHOD (MAM) WITH AE BEING THE TESTED PARTY. THE ASSESSEE EXPLAINED THAT ITS AE HA D AVAILED A LOAN FACILITY FROM ICICI BANK UK @ 3 MONTHS LIBOR + 120 BPS. THIS TRANSACTION COULD BE USED AS INTERNAL CUP TO BENCHM ARK THE TRANSACTION. THE ADVANCES WERE STATED TO BE GIVEN OUT OF ASSESSE ES ACCUMULATED / UNDISTRIBUTED PROFITS AND IT WAS SUBMITTED THAT THE ASSESSEE DID NOT AVAIL ANY EXTERNAL COMMERCIAL BORROWINGS (ECB). SINCE THE TRANSACTION WAS STATED TO BE IN THE NATURE OF ADVANCES, NO INTEREST WAS CHARGED DURING THE YEAR. 2.6 THE ASSESSEE EXPLAINED THAT DURING YEAR UNDER C ONSIDERATION, THE JOINT VENTURE (JV) FACED CASH CRUNCH DUE TO HUGE OP ERATIONAL LOSSES IN THE PROJECT. IN SUPPORT, FINANCIALS OF THE JV WERE PLACED ON RECORD. IT WAS SUBMITTED THAT THE FUNDS WERE ADVANCED TO MEET THE DEFICIT IN CASH FLOW WHILE EXECUTING PROJECTS IN SOUTH AFRICA. THE ADVAN CEMENT WAS NOTHING BUT A MATTER OF COMMERCIAL PRUDENCE PRIMARILY TO PR OTECT THE BUSINESS INTEREST OF THE ASSESSEE IN PROJECTS OF JV. THIS WA S JUST A FULFILMENT OF THE OBLIGATION OF BEING A JV PARTNER AS ANY FINANCIAL I NCAPACITATION OF JV WOULD ADVERSELY AFFECT THE CONTINUATION OF THE PROJ ECT AND ULTIMATELY JEOPARDIZE THE INTEREST OF THE ASSESSEE. SINCE THE ADVANCES WERE PURELY IN THE NATURE OF BUSINESS ADVANCES TO FULFIL THE OB LIGATIONS OF THE ASSESSEE AS A JV PARTNER, THE ASSESSEE HAS NOT CHAR GED ANY INTEREST ON THE SAID ADVANCE. IT WAS ALSO SUBMITTED THAT RELATI ONSHIP ON ACCOUNT OF ADVANCING FUNDS COULD NOT BE CONSIDERED IN ISOLATIO N WITHOUT CONSIDERING CRUCIAL BUSINESS SCENARIOS AND EXPEDIENCY. ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 5 2.7 HOWEVER, THE AFORESAID SUBMISSIONS COULD NOT CO NVINCE LD. AO AND THEREFORE, INTERNAL CUP AS PROPOSED BY THE ASSE SSEE WAS REJECTED SINCE LOANS TAKEN BY THE ASSESSEE FROM BANK WERE SE CURED LOANS AND GUARANTEED BY THE ASSESSEE HIMSELF AND THEREFORE, T HE SAME COULD NOT CONSTITUTE AS INTERNAL CUP. 2.8 SINCE THE ASSESSEE DID NOT OFFER ANY SUO-MOTO T P ADJUSTMENT, THE PROVISIONS OF SEC. 92CA(3)(A) & (C) WERE INVOKED AN D LD. AO PROCEEDED TO BENCHMARK THE SAME AGAINST APPROPRIATE RATE. FIN ALLY, IT WAS HELD THAT THE INTEREST SHOULD BE CHARGED AT THE RATES APPLICA BLE FOR FIXED RATES LOAN. THE BENCHMARKING WAS TO BE DONE ON THE BASIS OF LIB OR PLUS SOME SPREAD. ADOPTING BLOOMBERG DATABASE, THE BENCHMARK RATES WERE HELD TO BE 15.36% FOR FY 2010-11 & 11.29% FOR FY 2011-12 . APPLYING THE SAID RATES TO OPENING ADVANCES AND FRESH ADVANCES, NET TP ADJUSTMENT THUS PROPOSED WORKED OUT TO BE RS.245.43 LACS, AS C OMPUTED IN PARA 6.1 OF THE ORDER. THE TP ADJUSTMENT, THUS PROPOSED, WAS INCORPORATED WHILE FRAMING ASSESSMENT ORDER. 3. BEFORE LD. CIT(A), THE ASSESSEE REITERATING THE SUBMISSIONS ASSERTED THAT THE ADVANCES GIVEN TO ITS AE WERE NOT IN THE NATURE OF LOAN AND HENCE, INTEREST WAS NOT CHARGED ON SUCH ADVANCE S. THE LD. TPO FAILED TO APPRECIATE THAT ASSESSEES ROLE IN THE TR ANSACTION AS AN ENTITY SUBSTANTIALLY INTERESTED IN THE JOINT VENTURE AND P ROCEEDED TO TREAT THE ASSESSEE MERELY A FUND PROVIDER. THE FUNDS WERE ADV ANCED AS A BUSINESS PARTNER SO AS TO SUSTAIN THE BUSINESS OF J OINT VENTURE AND WITH A VIEW TO PROTECT OWN INTEREST. THE ADVANCES WERE GIV EN TO RESOLVE THE PROBLEM OF CASH CRUNCH AND THE THEREFORE, THE ULTIM ATE BENEFICIARY WOULD BE ASSESSEE HIMSELF SINCE THE ASSESSEE WAS 50% PART NER IN THE JOINT ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 6 VENTURE. THEREFORE, THE CONCEPT OF LOAN COULD NOT B E APPLIED TO THE ASSESSEES CASE SINCE THE COST AND BENEFIT WOULD UL TIMATELY ACCRUE TO THE SAME PERSON. HOWEVER, NOT CONVINCED, THE ADJUST MENT WAS CONFIRMED, AGAINST WHICH THE ASSESSEE IS UNDER FURT HER APPEAL BEFORE US. THE LD. CIT(A) AGREED WITH ASSESSEES SUBMISSIONS T HAT THAT THE ALP OF THE LOANS WAS TO BE DETERMINED ON THE BASIS OF RATE OF INTEREST BEING CHARGED IN THE COUNTRY WHERE THE LOAN WAS RECEIVED /CONSUMED AND DIRECTED LD. AO TO RECOMPUTE THE ALP. 4. UPON CAREFUL CONSIDERATION, THE UNDISPUTED POSIT ION THAT EMERGES ARE THAT THE ADVANCES HAVE BEEN GIVEN BY THE ASSESS EE TO AN ENTITY IN WHICH IT HELD 50% SHARE. THE ASSESSEE HAS ENTERED I NTO A JOINT VENTURE (JV) AGREEMENT WITH AN ENTITY NAMELY EDISON JEHAMO POWER (PTY) LTD. (EJP) ON 25/11/2009 WITH RESPECT TO TRANSMISSION LI NE CONSTRUCTION PROJECT. THE ASSESSEES PROPORTIONATE SHARE IN THE JV WAS 50%. FROM THE FINANCIAL STATEMENTS OF JV ENTITY AS PLACED ON RECORD, IT IS QUITE DISCERNIBLE THAT THE ACCUMULATED LOSSES OF THAT ENT ITY, AT YEAR-END, STOOD AT 98.26 MILLION RANDS WHICH ARE SUBSTANTIALLY FUND ED OUT OF JOINT VENTURE PARTNERS ACCOUNT AMOUNTING TO 162.80 MILLION RANDS . THE ASSESSEES CONTRIBUTION IN THE JV ACCOUNT IS 41.12 MILLION RAN DS. THE JV INCURRED LOSSES OF 108.13 MILLION RANDS DURING THE YEAR, WHI CH HAS PRIMARILY TRIGGERED THE ASSESSEE TO MAKE THE STATED ADVANCES TO ITS JV. THESE ADVANCES HAVE BEEN CLASSIFIED UNDER THE HEAD JOINT VENTURE PARTNERS ACCOUNT. ALL THESE FACTS WOULD LEAD STRENGTH TO THE ARGUMENT OF LD. AR THAT THERE WAS PRE-EXISTING LIABILITY TO MAKE SUCH ADVANCES TO JV AND THE BUSINESS INTEREST OF THE ASSESSEE WOULD HAVE BEEN A DVERSELY IMPACTED BY NOT MAKING SUCH ADVANCES. THE ADVANCES WERE MORE IN THE NATURE OF ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 7 CAPITAL CONTRIBUTION AND BY ADVANCING THE SAME, THE ASSESSEE HAD PROTECTED ITS OWN BUSINESS INTEREST WHICH IS EVIDEN T FROM THE FINANCIAL STATEMENTS OF JV. THE ADVANCES WERE TOWARDS FULFILM ENT OF THE ASSESSEES OBLIGATION OF BEING A JV PARTNER AS ANY FINANCIAL INCAPACITATION OF JV WOULD ADVERSELY AFFECT THE CON TINUATION OF THE PROJECT AND ULTIMATELY JEOPARDIZE THE INTEREST OF THE ASSES SEE. THEREFORE, THE SAID ADVANCES COULD NOT BE PUT IN THE CATEGORY OF L OANS AS DONE BY THE LOWER AUTHORITIES. FURTHER, IT COULD NOT BE SAID TH AT JV ENTITY DERIVED / GAINED CERTAIN BENEFITS OUT OF SUCH ADVANCES BUT RA THER IT WAS THE ASSESSEE WHO WOULD ULTIMATELY GAIN BY CONTINUING WI TH THE PROJECTS AND TASTE THE FRUITS OF THE SUCCESS OF PROJECT. HENCE, NOT CONVINCED WITH IMPUGNED ADJUSTMENTS AS CONFIRMED BY FIRST APPELLAT E AUTHORITY, WE DIRECT LD. AO TO DELETE THE SAME. 5. THE ASSESSEES APPEAL STANDS ALLOWED IN TERMS OF OUR ORDER. REVENUES APPEAL ITA NO.115/MUM/2018 6.1 THE GROUNDS RAISED BY THE REVENUE READ AS UNDER : - PERFORMANCE GUARANTEE: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE GUARANTEE COMMISSION FOR PERFORMA NCE OF CONTRACT PROVIDED BY ASSESSEE TO CHADIAN COMPANY FOR WATER & ELECTRICITY (CCWE) ON BEHALF OF ITS AE KEC GLOBAL WAS AT ARM'S LENGTH WITHOUT APPRECIATING THE FACT THAT THE AE GET BENEFITED FROM GUARANTEE PROVIDED BY THE ASSESSEE, AE WAS A NEWLY FLOATED ENTITY AND THE CREDIT RATING OF THE AE WAS VERY LOW. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE COST RECOVERY WAS AT ARM'S LENGTH ITSELF AS THE ASSESSEE HAS RECOVERED 0.60% FROM ITS AE FOR PROVIDING GUARANTEE FOR PERFORMANCE OF CONTRACT TO CCWE, AND IGNORED THAT BENEFIT DERIVED AS A WHOLE B Y THE AE AND ALSO NOT APPRECIATED THE FACT THAT THIS SERVICE WILL BE AVAI LABLE TO ANY THIRD PARTY BY THE ASSESSEE. III. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE GUARANTEE FOR ADVANCE PAYMENT PRO VIDED BY ASSESSEE TO CHADIAN COMPANY FOR WATER & ELECTRICITY (CCWE) ON BEHALF OF ITS AE KEC GLOBAL WAS AT ARM'S LENGTH WITHOUT APPRECIATING THE FACT THE AE G ET BENEFITED FROM THE GUARANTEE ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 8 PROVIDED BY THE APPLICANT, THE AE WAS A NEWLY FLOAT ED ENTITY, AND THE CREDIT RATING OF THE AE WAS VERY LOW. IV. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE COST RECOVERY FOR PROVIDING GUARA NTEE FOR ADVANCE PAYMENT TO CCWE WAS AT ARM'S LENGTH ITSELF AS THE ASSESSEE HAS RECOVERED 0.60% FROM ITS AE, AND IGNORED THE BENEFIT DERIVED AS A WHOLE BY THE A E AND ALSO NOT APPRECIATED THE FACT THAT THIS SERVICE WILL NOT BE AVAILABLE TO ANY THIRD PARTY BY THE ASSESSEE. V. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE PERFORMANCE GUARANTEE PROVIDED TO THIRD PARTY I.E. BAHWAN ENGINEERING COMPANY LLC ON BEHALF OF ITS AE I.E. KE C GLOBAL FZ LLC WAS NOT AN INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT THE TRANSACTION WAS OF NATURE OF TRIPARTITE AGREEMENT AND THE AE GET BENEF ITED FROM THE PERFORMANCE GUARANTEE PROVIDED BY THE ASSESSEE, WHICH WAS A FAC ILITY PROVIDED BY THE ASSESSEE TO ITS AE. VI. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE PERFORMANCE GUARANTEE PROVIDED TO THIRD PARTY I.E. BAHWAN ENGINEERING COMPANY LLC ON BEHALF OF ITS AE I.E. KE C GLOBAL FZ LLC WAS NOT AN INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT THE TPO HAS DETERMINED THE BENEFITS OF THE AE AS ALP. VII. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE PERFORMANCE GUARANTEE PROVIDED TO THIRD PARTY I.E. BAHWAN ENGINEERING COMPANY LLC ON BEHALF OF ITS AE I.E. KE C GLOBAL FZ LLC WAS NOT AN INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT THE TERM 'GUARANTEE' CLEARLY MENTIONED IN EXPLANATION OF SECTION 92B(L)( C) OF IT ACT 1961 AS AN INTERNATIONAL TRANSACTION. VIII. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE GUARANTEE COMMISSION FOR PERFORMA NCE OF CONTRACT PROVIDED BY ASSESSEE TO THAT GUARANTEE COMMISSION FOR PERFORMAN CE OF CONTRACT PROVIDED BY ASSESSEE TO SNC LAVALIAN, CANADA ON BEHALF OF ITS A E SAE TOWERS HOLDING TOWERS USA WAS ARM LENGTH WITHOUT APPRECIATING THE FACT THAT THE AE GET BENEFITED FROM THE GUARANTEE PROVIDED BY THE ASSESSEE, AE WAS A NEWLY FLOATED ENTITY AND THE CREDIT RATING OF THE AE WAS VERY LOW. IX. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE COST RECOVERY WAS AT ARMS LENGTH ITSELF AS THE ASSESSEE HAS REVERED 0.60% FROM ITS AE FOR PROVIDING GUARANTEE F OR PERFORMANCE OF CONTRACT TO SNC LAVALIAN, CANADA AND IGNORED THE BENEFIT DERIVE D AS A WHOLE BY THE AE AND ALSO NOT APPRECIATED THE FACT THAT THIS SERVICE WIL L NOT BE AVAILABLE TO ANY THIRD PARTY BY THE ASSESSEE. CORPORATE GUARANTEE : X. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE CORPORATE GUARANTEE PROVIDING TO ICICI BANK ON BEHALF OF KEC USA LLC & TRANSMISSION LLC USA WAS NOT AN INTERN ATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT THE TRANSACTION WAS OF N ATURE OF GUARANTEE GIVEN AND THE AE GET BENEFITED FROM THE CORPORATE GUARANTEE PROV IDED BY THE ASSESSEE, WHICH WAS A FACILITY PROVIDED TO ITS AE. XI . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE CORPORATE GUARANTEE PROVIDED TO I CICI BANK ON BEHALF OF KEC USA ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 9 LLC & TRANSMISSION LLC USA WAS NOT AN INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT THE TPO HAS DETERMINED T HE BENEFITS OF THE AE AS ALP. XII. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT THE CORPORATE GUARANTEE PROVIDED TO I CICI BANK ON BEHALF OF ITS AE I.E. KEC USA LLC & TRANSMISSION LLC USA WAS NOT AN INTER NATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT THE TERM 'GUARAN TEE' CLEARLY MENTIONED IN EXPLANATION OF SECTION 92B(1)(C) OF THE IT ACT 1961 AS AN INTERNATIONAL TRANSACTION. XIII. MARK TO MARKET LOSS: 'ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN HOLDING THAT THE MARK TO MARKET LOSS ARISING ON THE FOREIGN EXCHANGE CONTRACTS WHICH WERE OUTSTANDING AS AT THE YEAR END IS AN ACCRUED LOSS AND NOT A NOTIONAL LOSS. XIV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN HOLDING THAT THE MARK TO MARKET LOSS ARISING ON THE FOREIGN EXCHANGE CONTRACTS WHICH WERE OUTSTANDING AS AT THE YEAR END, IS AN ACCRUED LOSS AND IS NOT CONTINGENT, UNASCERTAINED OR NOTIONAL IN NATURE AND HENCE, NO A DJUSTMENT COULD BE MADE TO THE BOOK PROFIT UNDER CLAUSE (C ) OF THE EXPLANATION (1 ) TO SECTION 115JB(2). AS EVIDENT, THE GROUNDS RAISED BY REVENUE ARE RELAT ED WITH ADDITION ARISING OUT OF TP ADJUSTMENT AGAINST PERFORMANCE GU ARANTEE AND CORPORATE GUARANTEE GIVEN BY THE ASSESSEE ON BEHALF OF ITS AE. IN GROUND NOS. (XIII) & (XIV), THE REVENUE HAS ASSAILE D THE ACTION OF LD.CIT(A) IN TREATING THE MARKET-TO-MARK (MTM) LOSS ES ON FOREX CONTRACTS TO BE AN ACCRUED LOSS. 6.2 THE LD. AR, AT THE OUTSET, SUBMITTED THAT SUBST ANTIAL ISSUES OF REVENUES APPEAL ARE COVERED IN ASSESSEES FAVOR BY THE EARLIER DECISION OF THIS TRIBUNAL FOR AY 2010-11, ITA NO.5611/MUM/20 15 ORDER DATED 10/07/2019 AND THEREFORE, THE SAME VIEW MAY BE TAKE N IN THIS YEAR. THE COPY OF THE SAME HAS BEEN PLACED ON RECORD. THE LD. DR COULD NOT CONTROVERT THE SAID POSITION BUT SUPPORTED THE ADJU STMENTS PROPOSED BY LD. TPO. 6.3 IN THE ABOVE BACKGROUND, DURING PROCEEDINGS BEF ORE LD. TPO, IT TRANSPIRED THAT THE ASSESSEE ADVANCED CERTAIN CORPO RATE AND PERFORMANCE GUARANTEE FOR ITS AE, THE DETAILS OF WH ICH ARE AS FOLLOWS: - ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 10 PERFORMANCE GUARANTEES: NAME OF BORROWER AE KEC GLOBAL FZ LLC RAS UL KHAIMAH KEC GLOBAL FZ LLC RAS UI KHAIMAH KEC GLOBAL FZ LLC RAS UL KHAIMAH SAE TOWER HOLDING LLC USA COUNTRY UAE UAE UAE USA BANK NAME AND COUNTRY BANK OF INDIA - INDIA BANK OF INDIA - INDIA N.A. ROYAL BANK OF SCOTLAND - INDIA WHETHER AMOUNT BORROWED BY AE FROM THIRD PARTY WITHOUT CORPORATE GUARANTEE NO NO NO YES AMOUNT GUARANTEED 6,81,60,907 13,63,21,814 223,96,50,902 3,46,52,829 LOAN AMOUNT AVAILED N.A. N.A. N.A. N.A. WHEN GUARANTEE GIVEN 2009 2009 2009 2010 NO OF DAYS DURING THE YEAR WHICH GUARANTEE WAS GIVEN 365 365 365 365 RATE RECOVERED 0.60% 0.60% - 0.60% PURPOSE TOWARDS PERFORMANCE OF CONTRACT TOWARDS ADVANCE PAYMENT MADE BY CUSTOMER TOWARDS PERFORMANCE OF CONTRACT TOWARDS PERFORMANCE OF CONTRACT CORPORATE GUARANTEES: NAME OF BORROWER AE KEC TRANSMISSION LLC USA KEC US LLC, USA COUNTRY USA USA BANK NAME AND COUNTRY ICICI BANK-UK ICICI BANK-UK WHETHER AMOUNT BORROWED BY AE FROM THIRD PARTY WITHOUT CORPORATE GUARANTEE NO NO AMOUNT GUARANTEED 323,67,76,046 215,78,50,697 LOAN AMOUNT AVAILED 323,67,76,046 215,78,50,697 WHEN GUARANTEE GIVEN 2010 2010 NO OF DAYS DURING THE YEAR WHICH GUARANTEE WAS GIVEN 365 365 RATE RECOVERED - - PURPOSE TOWARDS AVAILING A LOAN FROM BANK TOWARDS AVAILING A LOAN FROM BANK ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 11 IT IS EVIDENT THAT THE ASSESSEE HAS RECOVERED RATE OF 0.60% WITH RESPECT TO PERFORMANCE GUARANTEES IN 3 OUT OF 4 CASES WHERE AS NO RATE HAS BEEN RECOVERED AGAINST CORPORATE GUARANTEES. 6.4 THE ASSESSEE, IN ITS TP STUDY REPORT, JUSTIFIED THE RATES SO CHARGED AND SUBMITTED THAT THESE TRANSACTIONS WERE AT ARMS LENGTH PRICE. THE ASSESSEE ALSO SUBMITTED THAT GUARANTEE EXTENDED BY THE ASSESSEE WAS IN THE FORM OF SHAREHOLDERS OR STEWARDSHIP ACTIVITI ES. VARIOUS OTHER SUBMISSIONS WERE MADE BY THE ASSESSEE BEFORE LD. TP O TO JUSTIFY THE RATES RECOVERED. 6.5 HOWEVER, LD. TPO BENCHMARKED PERFORMANCE GUARAN TEES @1% AND CORPORATE GUARANTEES @2% AND PROPOSED AGGREGATE ADJUSTMENT OF RS.1312.45 LACS. THE LD.CIT(A) DIRECTED LD. AO TO A PPLY THE FIRST APPELLATE DECISION FOR AY 2011-12 AND PARTIALLY ALL OWED THE APPEAL. THE PERUSAL OF APPELLATE ORDER FOR AY 2011-12 DATED 28/ 07/2016, AS PLACED ON RECORD, WOULD REVEAL THAT LD. CIT(A) HAS PREFERR ED TO FOLLOW THE STAND TAKEN IN AY 2010-11. AGGRIEVED, THE ASSESSEE IS UND ER FURTHER APPEAL BEFORE US. 6.6 AT THE OUTSET, THE ADJUSTMENT, AS PROPOSED BY L D. TPO, COULD BE TABULATED IN THE FOLLOWING MANNER: - PERFORMANCE GUARANTEES: NAME OF BORROWER AE KEC GLOBAL FZ LLC RAS UL KHAIMAH KEC GLOBAL FZ LLC RAS UL KHAIMAH KEC GLOBAL FZ LLC RAS UL KHAIMAH SAE TOWER HOLDING LLC USA COUNTRY UAE UAE UAE USA BANK NAME AND COUNTRY BANK OF INDIA -INDIA BANK OF INDIA - INDIA N.A. ROYAL BANK OF SCOTLAND - INDIA WHETHER AMOUNT BORROWED BY AE FROM THIRD PARTY WITHOUT CORPORATE GUARANTEE NO NO NO YES ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 12 AMOUNT GUARANTEED 68160907 136321814 2239650902 34652829 LOAN AMOUNT AVAILED N.A. N.A. N.A. N.A. WHEN GUARANTEE GIVEN 2009 2009 2009 2010 NO OF DAYS DURING THE YEAR WHICH GUARANTEE WAS GIVEN 365 365 365 365 RATE RECOVERED 0.60% 0.60% - 0.60% PURPOSE TOWARDS PERFORMANCE OF CONTRACT TOWARDS ADVANCE PAYMENT MADE BY CUSTOMER TOWARDS PERFORMANCE OF CONTRACT TOWARDS PERFORMANCE OF CONTRACT GUARANTEE FEE CHARGED 408,965 817,931 207,917 ALP GUARANTEE FEE 1.00% 1.00% 1.00% 1.00% ALP GUARANTEE FEE (RS.) 681,609 1,363,218 22,396,509 346,528 ADJUSTMENT 272,644 545,287 22,396,509 138,611 CORPORATE GUARANTEES: NAME OF BORROWER AE KEC TRANSMISSION LLC USA KEC US LLC USA COUNTRY USA USA BANK NAME AND COUNTRY IC1CI BANK -UK ICICI BANK -UK WHETHER AMOUNT BORROWED BY AE FROM THIRD PARTY WITHOUT CORPORATE GUARANTEE NO NO AMOUNT GUARANTEED 3236776046 2157850697 LOAN AMOUNT AVAILED 3236776046 2157850697 WHEN GUARANTEE GIVEN 2010 2010 NO OF DAYS DURING THE YEAR WHICH GUARANTEE WAS GIVEN 365 365 RATE RECOVERED - - ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 13 PURPOSE TOWARDS AVAILING A LOAN FROM BANK TOWARDS AVAILING A LOAN FROM BANK GUARANTEE FEE CHARGED ALP GUARANTEE FEE 2.00% 2.00% ALP GUARANTEE FEE (RS.) 64,735,521 43,157,014 ADJUSTMENT 64,735,521 43,157,014 6.7 AS EVIDENT FROM THE IMPUGNED ORDER, LD. CIT(A) HAS DIRECTED LD. AO TO FOLLOW THE FIRST APPELLATE ORDER FOR AY 2011- 12 WHICH, IN TURN, RELIES UPON APPELLATE ORDER FOR AY 2010-11. WE FIND THAT R EVENUE WAS UNDER FURTHER APPEAL FOR AY 2010-11 BEFORE THIS TRIBUNAL VIDE ITA NO.5611/MUM/2015 ORDER DATED 10/07/2019, ASSAILING THE STAND OF LD. FIRST APPELLATE AUTHORITY IN PROVIDING THE RELIEF T O THE ASSESSEE, IN THIS REGARD. THE COPY OF THE ORDER HAS BEEN PLACED ON RE CORD WHEREIN WE FIND THAT THE REVENUES APPEAL WAS PARTLY ALLOWED BY THE CO-ORDINATE BENCH. IN THE ABOVE BACKGROUND, GROUND-WISE ADJUDICATION T O THE APPEAL WOULD BE AS FOLLOWS. 7.1 GROUND NOS. (I) & (II) ARE RELATED WITH ADJUSTM ENT ARISING OUT OF PERFORMANCE GUARANTEE OF RS.6.81 CRORES PROVIDED BY ASSESSEE TO AN ENTITY NAMELY CHADIAN COMPANY FOR WATER & ELECTRICI TY (CCWE) ON BEHALF OF ITS AE KEC GLOBAL, FZ LLC. IT TRANSPIRED THAT THE ASSESSEE GAVE A BANK GUARANTEE TO CCWE, A CUSTOMER OF ITS WH OLLY OWNED SUBSIDIARY COMPANY (KEC GLOBAL, FZ LLC) FOR PERFORM ANCE OF CONTRACT ENTERED INTO BETWEEN AE AND ITS CUSTOMER I.E. CCWE. THE BANK GUARANTEE WAS GIVEN BY BANK OF INDIA. THE BANK UTIL IZED THE GUARANTEE FACILITY SANCTIONED TO ASSESSEE WHILE SANCTIONING A FORESAID BANK ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 14 GUARANTEE TO ASSESSEES AE. THE ASSESSEE, BASED ON LETTER OBTAINED FROM THE BANK, CHARGED GUARANTEE COMMISSION OF 0.60 % FROM ITS SUBSIDIARY. THE LD. TPO ESTIMATED THE SAME @1%. WE FIND THAT THIS ISSUE IS CONTAINED IN PARAS 5.1 TO 8 OF THE CITED D ECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11. THE TRIBUNAL HA S CONCLUDED THAT INTERNAL CUP IN THE SHAPE OF COMMISSION CHARGED BY THE BANK, WOULD BE MOST DIRECT AND RELIABLE WAY TO APPLY ARMS LENGTH PRINCIPLE. FURTHER, WHEN THERE WAS ABSOLUTELY NO LOSS TO THE ASSESSEE A ND ENTIRE COST WAS RECOVERED FROM THE AE, NO FURTHER ADJUSTMENT WOULD BE REQUIRED. APPLYING THE SAID PRINCIPLE TO YEAR UNDER CONSIDERA TION, WE FIND THAT THE ASSESSEE HAS CHARGED COMMISSION IN ACCORDANCE WITH THE BANKS SANCTION LETTER AND THEREFORE, NO FURTHER ADJUSTMEN T, AS PROPOSED BY LD. TPO, WOULD BE JUSTIFIED. ACCORDINGLY, THESE GROUNDS STAND DISMISSED. 7.2 GROUND NOS. (III) & (IV) ARE RELATED WITH ADJUS TMENT ARISING OUT OF GUARANTEE FOR ADVANCE PAYMENT PROVIDED BY ASSESSEE TO CHADIAN COMPANY FOR WATER & ELECTRICITY (CCWE) ON BEHALF OF ITS AE KEC GLOBAL, FZ LLC FOR RS.13.63 CRORES. THE ASSESSEE HA S GIVEN A BANK GUARANTEE TO ITS WHOLLY OWNED SUBSIDIARY COMPANY (K EC GLOBAL, FZ LLC), TO GUARANTEE THE ADVANCE PAYMENTS BY ASSESSEE TO ITS AE TOWARDS A CONTRACT TO BE EXECUTED BY THE AE. THE BANK GUARA NTEE WAS GIVEN BY BANK OF INDIA. THE BANK UTILIZED THE GUARANTEE FACI LITY SANCTIONED TO ASSESSEE WHILE SANCTIONING BANK GUARANTEE TO ASSESS EES AE. THE BANK CHARGED A GUARANTEE COMMISSION OF 0.60% FROM ASSESS EE AND THE SAID RATE WAS RECOVERED FROM ITS AE. THE LD. TPO ESTIMAT ED THE SAME @1%. WE FIND THAT THIS ISSUE IS CONTAINED IN PARAS 8.1 T O 11 OF THE CITED DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11. THE ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 15 TRIBUNAL HAS CONCLUDED THAT THE RATE AS APPLICABLE TO PERFORMANCE GUARANTEE WOULD APPLY TO THIS GUARANTEE ALSO. FOLLO WING THE SAME PRINCIPLE, WE HOLD THAT THE RATE OF 0.60% AS ADOPTE D FOR PERFORMANCE GUARANTEE TO CCWE WOULD APPLY TO THIS GUARANTEE ALS O. SINCE, THE ASSESSEE HAS ALREADY CHARGED A RATE OF 0.60%, NO FU RTHER ADJUSTMENT WOULD BE REQUIRED. ACCORDINGLY, THESE GROUNDS STAND DISMISSED. 7.3 GROUND NOS. (V), (VI) & (VII) ARE RELATED WITH ADJUSTMENT ARISING OUT OF PERFORMANCE GUARANTEE OF RS.223.96 CRORES PROVID ED BY ASSESSEE TO A THIRD PARTY I.E. BAHWAN ENGINEERING COMPANY LLC ( BEC, AN OMAN BASED ENTITY), ON BEHALF OF ITS AE NAMELY KEC GLOBA L FZ LLC. THE TRANSACTION IS IN THE FORM OF INDEMNITY PROVIDED BY THE ASSESSEE TO BEC WITH A VIEW TO SECURE THE PERFORMANCE OF THE CONTRA CT ENTERED INTO BY BEC WITH ASSESSEES AE. THE ASSESSEE DID NOT CHARGE ANY COMMISSION BY SUBMITTING THAT THE ASSESSEE WAS ENTIRELY COMPEN SATED AND THEREFORE, NO FURTHER CHARGE WAS CALLED FOR. THE LD . TPO ESTIMATED THE SAME @1%. WE FIND THAT THIS ISSUE IS CONTAINED IN P ARAS 2 TO 5 OF THE CITED DECISION OF TRIBUNAL IN ASSESSEES OWN CASE F OR AY 2010-11. THE TRIBUNAL HAS CONCURRED WITH ASSESSEES SUBMISSIONS THAT THE CONTRACT WHICH WAS AWARDED TO ITS AE WOULD GET ASSIGNED IN A SSESSEES FAVOR WHEREIN THE ASSESSEE WOULD BE OBLIGATED TO EXECUTE THE CONTRACT ON ITS OWN BY USING ITS OWN INFRASTRUCTURE, WHICH WOULD IN TURN, RESULT IN ASSESSEE DERIVING THE ENTIRE CONTRACTUAL REVENUE AN D HUGE PROFITS THEREFROM. HENCE, THERE WOULD BE NO NEED TO MAKE AN Y ADJUSTMENT ON ARMS LENGTH PRINCIPLES. FACTS BEING PARI-MATERIA T HE SAME, RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE ASSESSEE WAS J USTIFIED IN NOT CHARGING ANY FEES AGAINST THE SAME. THESE GROUNDS S TAND DISMISSED. ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 16 7.4 GROUND NOS. (VIII) & (IX) ARE RELATED WITH ADJ USTMENT ARISING OUT OF PERFORMANCE GUARANTEE OF RS.3.46 CRORES PROVIDED BY THE ASSESSEE IN FAVOR OF AN ENTITY NAMELY SNC LAVALIN, CANADA (SNC) ON BEHALF OF ITS AE NAMELY SAE TOWERS LIMITED, USA (A SUBSIDIARY OF THE ASSESSEE). THE GUARANTEE WAS TOWARDS PERFORMANCE OF THE CONTRACT E NTERED INTO BETWEEN SNC AND ASSESSEES AE-SAE TOWERS LIMITED. T HE BANK UTILIZED THE GUARANTEE FACILITY SANCTIONED TO ASSES SEE WHILE GIVING THE SAID GUARANTEE AND CHARGED FEES OF 0.60%. THE COMPA NY, IN TURN, RECOVERED THE SAME FROM ITS AE. WE FIND THAT FACTS ARE PARI-MATERIA THE SAME AS CONTAINED IN GROUND NOS. (I) & (II) OF THE REVENUES APPEAL. FOLLOWING THE SAME PRINCIPLE, WE HOLD THAT THE FEES CHARGED BY THE ASSESSEE WAS AT ARMS LENGTH PRICE. THEREFORE, THE IMPUGNED ORDER WOULD NOT REQUIRE ANY INTERFERENCE ON OUR PART. THE SE GROUNDS STAND DISMISSED. 7.5 GROUND NOS. (X) TO (XII) ARISES OUT OF CORPORA TE GUARANTEES PROVIDED BY THE ASSESSEE ON BEHALF OF ITS 2 AES NAM ELY KEC TRANSMISSION LLC, USA AND KEC US LLC, USA. THE CORP ORATE GUARANTEES WERE GIVEN TO ICICI BANK, UK TO SECURE T HE FINANCES PROVIDED BY THE SAID BANK TO TWO OF ASSESSEES AES. THE SAID FINANCING WAS STATED TO BE UTILIZED FOR THE PURPOSE OF DOWNST REAM ACQUISITION OF THE BUSINESS OF SAE TOWERS LTD., USA. THE ASSESSEE SUBM ITTED THAT FOR THE AFORESAID PURPOSES, A SPECIAL PURPOSE VEHICLE (SPV) I.E. KE US LLC WAS FORMED TO FACILITATE KEC TO MAKE DOWNSTREAM ACQUISI TION OF BUSINESS IN USA. THE GUARANTEE WAS STATED TO BE WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF FACILITATING THE ASSESSEE AND HENCE, IT WAS NOT A CASE WHERE ANY SERVICES WERE RENDERED TO THE SPV IN ANY MANNER . RATHER SPV ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 17 PROVIDED SERVICES TO KEC BY WAY OF FACILITATING THE DOWNSTREAM ACQUISITION. THEREFORE, NO FEES WERE CHARGED AGAINS T THE SAME. ANOTHER PLEA RAISED WAS THAT THE ASSESSEE MERELY FULFILLED SHAREHOLDERS FUNCTIONS. TO PUT IT DIFFERENTLY, IF THE GUARANTEE WAS NOT GIVEN, KEC WOULD HAVE TO INFUSE EQUITY CAPITAL IN THE COMPANY WHICH WOULD NOT HAVE GIVEN RISE TO ANY TAXABLE EVENT. MERELY BECAUSE, KEC CHOS E TO PROVIDE A GUARANTEE INSTEAD OF INFUSING EQUITY CAPITAL INTO T HE SPV, THE TRANSACTIONS WOULD NOT GIVE RISE TO ANY TAXABLE EVE NT. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE APEX COU RT IN S.A. BUILDERS (238 ITR1) TO JUSTIFY NON-CHARGING OF FEES / COMMIS SION. 7.6 HOWEVER, LD. TPO, NOTICING THE AMENDMENT MADE B Y FINANCE ACT 2012 IN SEC.92B, CONCLUDED THAT INTERNATIONAL TRANS ACTIONS WOULD INCLUDE CAPITAL FINANCING BY WAY OF GUARANTEES WHICH WERE T O BE BENCHMARKED ON THE PRINCIPLE OF ARMS LENGTH PRICE (ALP). THE L D. TPO ALSO REACHED A CONCLUSION THAT THAT ON SIMPLE COMPARISON OF THE RISK BORNE IN CORPORATE GUARANTEE WOULD BE MORE THAN RISK BORNE I N BANK GUARANTEE SINCE THE RISK IN THE CASE OF DEFAULT WOULD NOT BE COVERED BY ANY ASSET OF THE ENTITY GUARANTEED. THE RATIO OF VARIOUS DECISIO NS RENDERED BY THE TRIBUNAL INCLUDING THE DECISION RENDERED IN EVEREST KANTO (ITA NO. 542/MUM/2012 23/11/2012) AND GLENMARK PHARMACEUTICA LS (ITA NO.5031/MUM/2012 13/11/2013) WAS CONSIDERED. THESE DECISIONS HAVE ALREADY BEEN TABULATED AND SUMMARIZED ON PAGE NOS. 19 TO 21 OF LD. TPOS ORDER. THE LD. TPO NOTICED THAT IN THE STATED DECISIONS, THE TRIBUNAL RELIED UPON INTERNAL CUP AND HELD THAT THE COMMISSION PAID BY INDIAN ASSESSEE TO THE LOCAL BANKS FOR ITS CREDIT A RRANGEMENT CONSTITUTES AN INTERNAL CUP FOR COMPARING THE TRANSACTIONS WITH ITS AE. HOWEVER, ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 18 THE SAID RATES AS PER INTERNAL CUP WERE TO BE ADJUS TED SINCE BY THE VERY NATURE, THE FOREIGN FINANCIAL TRANSACTIONS ARE RISK IER THAN DOMESTIC ONES BECAUSE OF THE DIFFICULTIES IN ENFORCING RECOVERY I N FOREIGN JURISDICTION. SINCE THE SPREAD ON LOANS DEPEND ON CREDIT RATINGS OF THE BORROWING PARTY, IT IS THE CREDIT RATING OF BORROWER AE WHICH WOULD BE RELEVANT AND NOT THE CREDIT RATING OF ASSESSEE EXTENDING THE GUA RANTEE TO FACILITATE THE BORROWING OF ITS AE. THE BANKS WOULD CHARGE LOWER F EES WHILE GIVING GUARANTEES FOR ENTITIES HAVING HIGH CREDIT RATINGS AND ON THE OTHER HAND, HIGH FEES WOULD BE CHARGED FOR ENTITIES HAVING LOW CREDIT RATINGS AND THAT TOO, IN A FOREIGN JURISDICTION. SINCE THE CREDIT RA TING OF THE ASSESSEE GUARANTOR WAS BETTER THAN THE RATING OF THE GUARANT EED, IT WAS NATURAL THAT RATE CHARGED BY THE BANK FROM THE GUARANTOR WO ULD BE DIFFERENT IN COMPARISON TO SITUATION WHERE THE GUARANTEE WAS PRO VIDED TO THE GUARANTEED. THEREFORE, THE FEES CHARGED BY THE BANK FROM THE HOLDING COMPANY COULD NOT CONSTITUTE INTERNAL CUP FOR CHARG ING THE RATE FROM AE WITHOUT PROPER ADJUSTMENT. SINCE THE RATES CHARGED BY THE BANKS TO INDIAN COMPANIES RANGED BETWEEN 1.10% TO 3% DEPENDI NG UPON VARIOUS FACTORS, THE ALP RATE WOULD BE BETWEEN 1.5% TO 3.5% . SINCE THE LOAN WAS TAKEN FOR BUSINESS PURPOSES, THE APPROPRIATE RA TE WOULD BE 2%. ACCORDINGLY, THE TRANSACTIONS WERE BENCHMARKED @2% AND ADJUSTMENTS WERE PROPOSED. THE TP ADJUSTMENTS, THUS PROPOSED, W ERE INCORPORATED IN THE ASSESSMENT ORDER. UPON FURTHER APPEAL, LD. C IT(A) DIRECTED LD. AO TO APPLY THE APPELLATE DECISION DATED 28/07/2016 FOR AY 2011-12. 7.7 THE PERUSAL OF APPELLATE ORDER FOR AY 2011-12, AS PLACED ON RECORD, WOULD SHOW THAT LD. CIT(A) OBSERVED THAT TH ERE WAS NO COST ELEMENT INVOLVED IN THE TRANSACTION OF ISSUANCE OF CORPORATE GUARANTEE. ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 19 THE ASSISTANCE PROVIDED BY THE ASSESSEE TO ITS AE W OULD NOT HAVE ANY BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF TH E ASSESSEE AND THEREFORE, THE TRANSACTION OF ISSUANCE OF GUARANTEE WOULD BE OUT OF AMBIT OF INTERNATIONAL TRANSACTIONS U/S 92B(1) OF THE ACT . SIMILAR VIEW HAS BEEN APPLIED IN THE YEAR UNDER CONSIDERATION. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 7.8 THE LD. DR SPECIFICALLY DREW OUR ATTENTION TO T HE AMENDMENT BROUGHT IN BY FINANCE ACT, 2012 W.E.F. 0/04/2002 IN EXPLANATION (I)(C) TO SEC. 92B, TO SUBMIT THAT THE CAPITAL FINANCING BY W AY OF GUARANTEES HAVE SPECIFICALLY BEEN INCLUDED WITHIN THE AMBIT OF INTE RNATIONAL TRANSACTIONS. 7.9 AU CONTRAIRE , LD. AR, BY WAY OF WRITTEN AS WELL AS ORAL SUBMISS IONS, PLEADED THAT THE TRANSACTIONS WOULD NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION AS DEFINED IN SEC. 92B SI NCE THE GUARANTEE WAS PROVIDED BY ASSESSEE TO ITS SUBSIDIARY AES SO THAT AES COULD AVAIL LOAN FOR THE PURPOSE OF ACQUIRING THE BUSINESS. IT WAS P LEADED THAT GUARANTEES ISSUED BY ASSESSEE WOULD HAVE NO BEARING ON PROFITS / LOSSES OF THE ASSESSEE SINCE THERE WAS NO COST INVOLVED AND NO GU ARANTEE COMMISSION HAS BEEN PAID BY THE ASSESSEE. THE AFORE SAID AMENDED EXPLANATION WOULD HAVE NO APPLICATION IN TERMS OF D ECISION OF DELHI TRIBUNAL IN BHARTI AIRTEL LTD. (43 TAXMANN.COM 150) WHEREIN IT HAS BEEN HELD THAT EVEN AFTER THE AMENDMENT TO EXPLANAT ION TO SEC.92B, CORPORATE GUARANTEE GIVEN FOR THE BENEFIT OF AE HAV ING NO COST TO THE ASSESSEE WOULD BE OUTSIDE THE AMBIT OF INTERNATIONA L TRANSACTIONS. ANOTHER PLEA RAISED BY LD.AR IS THAT THIS WAS SHARE HOLDERS ACTIVITIES AND HENCE NOT COVERED BY THE TERM INTERNATIONAL TRANSACTIONS AS DEFINED IN ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 20 EXPLANATION TO SEC.92B. RELIANCE HAS ALSO BEEN PLAC ED ON FOLLOWING DECISIONS: - (I) DCIT V/S MASTEK LTD. (ITA NO. 2879/AHD/2014 DAT ED 19/03/2018, AHD.TRIBUNAL) (II) SIRO CLINPHARM PVT. LTD. V/S DCIT (ITA NO. 261 8/MUM/2014 31/03/2016, MUMBAI TRIBUNAL) (III) MARICO LTD. V/S ACIT (ITA NO. 8858/MUM/2011 D ATED 18/05/2016, MUMBAI TRIBUNAL) (IV) DCIT V/S ROHIT FERRO TECH LTD. (ITA NOS. 262 & 263/KOL/2018 DATED 12/10/2018, KOLKATA TRIBUNAL) (V) DCT V/S EIH LTD. (89 TAXMANN.COM 417, KOLKATA T RIBUNAL) 7.10 UPON CAREFUL CONSIDERATION OF FACTUAL MATRIX, IT IS NOTED THAT THE ASSESSEE HAS PROVIDED UNCONDITIONAL, ABSOLUTE AND I RREVOCABLE CORPORATE GUARANTEE TO SECURE THE FINANCES ADVANCED BY ICICI BANK TO TWO OF ITS WHOLLY OWNED AES. THE GUARANTOR GUARANTE ES TO FINANCE PARTY THE PUNCTUAL PERFORMANCE BY THE BORROWER OF ALL THE SECURED OBLIGATION AND UNDERTAKE WITH FINANCE PARTY THAT WHENEVER EITH ER BORROWER DOES NOT PAY THE AMOUNT AS AND WHEN DUE UNDER OR IN CONNECTI ON WITH ANY FINANCE DOCUMENT, THE GUARANTOR WILL IMMEDIATELY ON DEMAND BY THE BANK, PAY THAT AMOUNT AS IT WAS THE PRINCIPAL OBLIG OR IN RESPECT OF THAT AMOUNT. THE AES WERE STATED TO BE SPECIAL PURPOSE V EHICLE WITH A VIEW TO ENABLE THE ASSESSEE IN DOWNSTREAM ACQUISITION OF THE BUSINESS OF AN ENTITY NAMELY SAE TOWERS LTD., USA. THE ASSESSEE HA S NOT CHARGED ANY FEES FROM ITS AES IN PROVIDING THE CORPORATE GU ARANTEE, INTER-ALIA, BY SUBMITTING THAT NO COST WAS INVOLVED AND THE STATED TRANSACTIONS WOULD HAVE NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSE TS OF THE ASSESSEE. HOWEVER, UPON PERUSAL OF TERMS OF CORPORATE GUARANT EE DEED EXECUTED BY THE ASSESSEE IN FAVOR OF THE BANK, AS PLACED ON RECORD, WE FIND THAT IN CASE OF PAYMENT DEFAULT, THE ASSESSEE WAS OBLIGATED TO PAY THE AMOUNT ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 21 DEMANDED BY THE BANK AS IF IT WAS THE PRINCIPLE OBL IGOR IN RESPECT OF THAT AMOUNT. THE LIABILITY OF THE ASSESSEE EXTENDED TO T HE GUARANTEED AMOUNT OF 110 MILLION US DOLLARS. IN THE EVENT OF DEFAULT, THE ASSESSEE AS A GUARANTOR, WAS LIABLE TO PAY WITHOUT DEMUR OR PROTE ST THE AMOUNT STATED IN THE DEMAND CERTIFICATE. THE ASSESSEE HAD INDEPEN DENT CONTRACTUAL OBLIGATION TO PAY THE GUARANTEED AMOUNT. FURTHER, I N CASE OF DEFAULT BY THE GUARANTOR, THE GUARANTOR WAS LIABLE TO PAY FURT HER INTEREST ALSO. THEREFORE, IT IS QUITE DISCERNIBLE THAT THE ASSESSE E HAD DEFINITE OBLIGATION UNDER THE CORPORATE GUARANTEE AND TO SAY THAT THAT THE SAME SHALL HAVE NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF THE ASSESSEE WOULD NOT BE A CORRECT PROPOSITION. EVEN AS PER ASSESSEE S OWN SUBMISSIONS, IF THE SAID GUARANTEE WAS NOT PROVIDED, THE ASSESSEE W OULD HAVE BEEN OBLIGATED TO INFUSE EQUITY CAPITAL IN ITS WHOLLY OW NED SPV AES WITH A VIEW TO ENABLE DOWNSTREAM ACQUISITION OF SAE TOWERS LTD. USA WHICH WOULD HAVE ENTAILED ASSESSEES RESOURCES. THIS IS F URTHER FORTIFIED BY THE FACT THAT FACT THAT GUARANTEES HAVE SPECIFICALLY BE EN BROUGHT WITHIN THE AMBIT OF TERM INTERNATIONAL TRANSACTIONS BY WAY OF AMENDMENT TO EXPLANATION (I)(C) TO SEC.92B BY FINANCE ACT, 2012 W.E.F. 01/04/2002. THEREFORE, THE ARGUMENTS THAT THE SAID TRANSACTIONS COULD NOT BE CONSIDERED TO BE INTERNATIONAL TRANSACTION DO NOT C ONVINCE US AND THEREFORE, WE HOLD THAT THE SAME WAS TO BE BENCHMAR KED ON ALP PRINCIPLES. THE AFORESAID REASONING / CONCLUSION WO ULD ALSO MAKE THE CITED CASE LAWS OF LD. AR INAPPLICABLE TO THE FACTS OF THE PRESENT CASE. 7.11 COMING TO THE BENCHMARKING RATE OF 2% AS ADOPT ED BY LD. TPO, THE SAME DO NOT CONVINCE US SINCE A PERTINENT FACT TO BE NOTED THAT BOTH THE AES WERE SUBSIDIARIES OF THE ASSESSEE WHICH WER E SPECIAL PURPOSE ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 22 VEHICLE TO ENABLE CERTAIN ACQUISITION ON BEHALF OF THE ASSESSEE AND THE ASSESSEE WOULD BE THE ULTIMATE BENEFICIARY OF SUCH ACQUISITION. THEREFORE, THE ASSESSEES RISK IN SUCH A CASE WOULD BE VERY LOW SINCE BOTH THE AES WERE ASSESSEES SUBSIDIARIES ONLY. THE REFORE, CONSIDERING THE FACT THAT IT WAS A CORPORATE GUARANTEE FOR WHIC H NO FEES WAS PAID BY THE ASSESSEE AND GOING BY THE RATIO OF THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN EVEREST KANTO CYLINDERS LTD. VS. DCIT [34 TAXMANN.COM 19] AS AFFIRMED BY HONBLE BOMBAY HIGH COURT ON 08/05/2015 [58 TAXMANN.COM 254], WE ESTIMATE THE TP ADJUSTMENTS AGAINST BOTH THESE TRANSACTIONS @0.20%. THE LD. TPO / LD. AO IS DIRECTED TO RECOMPUTE THE SAME IN TERMS OF OUR ABOV E ORDER. THE GROUNDS STAND PARTLY ALLOWED. 7.12 GROUND NOS. (XIII) & (XIV) ARE RELATED WITH MA RK-TO-MARKET LOSSES ARISING ON THE FOREIGN EXCHANGE CONTRACTS WHICH WER E OUTSTANDING AT THE YEAR-END. DURING ASSESSMENT PROCEEDINGS, IT TRANSPI RED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.1227.24 LACS ON AC COUNT OF EXCHANGE (GAIN) / LOSS (NET). AN AMOUNT OF RS.873.5 5 LACS REPRESENTED FOREIGN EXCHANGE LOSSES DUE TO MARKED-TO-MARKET (MT M) LOSSES. THE LD. AO OBSERVED THAT UNREALIZED FOREIGN EXCHANGE LOSS W AS NEITHER ACCRUED LOSS NOR ACTUAL LOSS AND THEREFORE, THE SAME COULD NOT BE ALLOWED AS DEDUCTION. SINCE THE PROVISION OF AY 2011-12 FOR RS .533.16 LACS WAS DISALLOWED IN THAT YEAR BUT REVERSED DURING THE YEA R UNDER CONSIDERATION, THE NET DISALLOWANCE WAS WORKED OUT TO BE RS.340.38 LACS AND ADDED TO THE INCOME UNDER NORMAL PROVISIONS AS WELL AS WHILE COMPUTING BOOK PROFITS U/S 115JB. ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 23 7.13 THE LD. CIT(A), RELYING UPON APPELLATE ORDER F OR AY 2011-12, DELETED THE ADDITION. THE DECISION FOR AY 2011-12 W AS BASED ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN WOODWARD GOVERNOR LTD. (312 ITR 254). ALSO, THE ISSUE WAS STATED TO BE COVERED IN ASSESSEES FAVOR BY THE DECISION OF TRIBUNAL IN ASS ESSEES OWN CASE FOR AY 2009-10. SIMILAR VIEW WAS TAKEN BY FIRST APPELLA TE AUTHORITY IN AY 2010-11. 7.14 AS EVIDENT FROM FACTUAL MATRIX ITSELF, THE ISS UE IS COVERED IN ASSESSEES FAVOR BY THE DECISION OF THIS TRIBUNAL F OR AY 2009-10. IN FACT, THE DECISION OF LEARNED FIRST APPELLATE AUTHORITY F OR AY 2010-11 WAS UNDER CHALLENGE BEFORE THIS TRIBUNAL BY THE REVENUE VIDE ITA NO. 5611/MUM/2015 ORDER DATED 10/07/2019 WHEREIN THE CO -ORDINATE BENCH FOLLOWED THE ORDER FOR AY 2009-10 AND HELD THAT MTM LOSSES ON HEDGING CONTRACTS WOULD BE ACCRUED LOSSES AND HENCE, AN ALL OWABLE EXPENDITURE. 7.15 FACTS BEING PARI-MATERIA THE SAME, WE SEE NO R EASON TO DEVIATE FROM THE EARLIER STAND OF TRIBUNAL IN ASSESSEES OW N CASE. RESPECTFULLY, FOLLOWING THE SAME, BOTH THESE GROUNDS STANDS DISMI SSED. ADDITIONAL GROUND OF APPEAL 8.1 DURING THE COURSE OF HEARING BEFORE US, LD. AR RAISED AN ADDITIONAL GROUND OF APPEAL WHICH READ AS UNDER: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A)OUGHT TO HAVE HELD THAT THE EDUCATION CESS AND HIGHER AND SECONDA RY EDUCATION CESS RS.204,08,473/- PAID BY THE ASSESSEE IS ALLOWABLE A S DEDUCTION WHILE COMPUTING BUSINESS INCOME OF THE ASSESSEE. THE LD. AR SOUGHT ADMISSION OF THE SAME BY US, INTER-ALIA, IN TERMS OF DECISION OF HONBLE APEX COURT IN NATIONAL THERMAL POWER ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 24 CORPORATION LTD. V/S CIT (229 ITR 383); JUTE CORPOR ATION OF INDIA LTD. V/S CIT (187 ITR 688) & THE DECISION OF HONBLE BOMBAY HIGH COURT IN AHMEDABAD ELECTRICITY CO. LTD. V/S CIT (199 ITR 35 1). THE LD. AR, POINTED OUT THAT THE ISSUE, ON MERITS, IS COVERED IN ASSESSEES FAVOR BY THE RECENT DECISION OF HONBLE BOMBAY HIGH COURT IN SESA GOA LIMITED V/S JCIT (117 TAXMANN.COM 96 DATED 28/02/2020). ON THE OTHER HAND, LD. DR OPPOSED THE ADMISSION OF ADDITIONAL GROUND AT THIS STAGE AND SUBMITTED THAT THE ISSUE WOULD RE QUIRE FACTUAL VERIFICATION WHICH HAS NOT BEEN DONE BY ANY OF THE LOWER AUTHORITIES. 8.2 UPON CAREFUL CONSIDERATION OF RATIO OF DECISION S AS CITED BEFORE US IN SUPPORT OF ADMISSION OF ADDITIONAL GROUND OF APP EAL, THE BENCH FORMED AN OPINION THAT THE ADDITIONAL GROUND WAS TO BE ADM ITTED PARTICULARLY WHEN THE ASSESSEE HAS, PRIMA FACIE , FAVORABLE VIEW ON MERITS FROM JURISDICTIONAL HIGH COURT. THEREFORE, WE ADMIT THE ADDITIONAL GROUND OF APPEAL AND DIRECT LD. AO TO BRING THE RELEVANT FACT S QUA THE SAME ON RECORD AND RE-ADJUDICATE THE SAME AFTER AFFORDING R EASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUND IS ADMITTED AND ALLOWED FOR STATISTICAL PURPOSES. CONCLUSION 9. THE ASSESSEES APPEAL STANDS ALLOWED TO THE EXTE NT INDICATED IN THE ORDER WHEREAS THE REVENUES APPEAL STANDS PARTL Y ALLOWED. ORDER PRONOUNCED ON 14TH SEPTEMBER, 2020. SD/- SD/- (AMARJIT SINGH) (M ANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ITA NOS.17 & 115/MUM/2018 KEC INTERNATIONAL LIMITED ASSESSMENT YEAR :2012-13 25 MUMBAI; DATED : 14/09/2020 SR.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ,-$. , . , / DR, ITAT, MUMBAI 6. -/01 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.
