AIA Engineering Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 1757/AHD/2012

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9051 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-04-2020
• Assessment Year: 2008-2009
• Appeal Filed On: 08-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PARIMALSINH PARMAR; T P HEMANI SR
• Keywords: Capital asset; Gift; Business income; Depreciation; Transfer pricing; Business expenditure; Residential status; International transaction; Additional depreciation; Earning of tax free income; Retrospective amendment; Question of law; Revised return; Rule 8D; Set aside
• Section: 143(3); 92D; 92B; 234B; 14A; 115JB; 195; 144C; 143(2); 207; 64; 43; 48; 73; 72; 13; 119; 22; 92CA; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (VIRTUAL COURT) BEFORE: SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEM BER SL. NO. ITA NO. APPELLANT RESPONDENT A.Y. 1 1766/AHD/2012 DY. CIT, CIRCLE-1, AHD AIA ENGINEERING LTD. AHD 2008-09 2 2342/AHD/2015 DY. CIT, CIRCLE-1(1)(1), AHD AIA ENGINEERING LTD. AHD 2009-10 3 2343/AHD/2015 DY. CIT, CIRCLE-1(1)(1), AHD AIA ENGINEERING LTD. AHD 2010-11 4 1112/AHD/2017 DY. CIT, CIRCLE-1(1)(1), AHD AIA ENGINEERING LTD. AHD 2011-12 5 1835/AHD/2017 DY. CIT, CIRCLE-1(1)(1), AHD AIA ENGINEERING LTD. AHD 2012-13 6 2805/AHD/2017 DY. CIT, CIRCLE-1(1)(1), AHD AIA ENGINEERING LTD. AHD 2013-14 7 1757/AHD/2012 AIA ENGINEERING LTD. AHD THE ADDITIONAL CIT, RANGE-1, AHD 2008-09 8 2224/AHD/2015 AIA ENGINEERING LTD. AHD DY. CIT, CIRCLE-1, AHD 2009-10 9 2225/AHD/2015 AIA ENGINEERING LTD. AHD DY. CIT, CIRCLE-1(1)(1), AHD 2010-11 10 1028/AHD/2017 AIA ENGINEERING LTD. AHD DY. CIT, CIRCLE-1(1)(1), AHD 2011-12 11 1850/AHD/2017 AIA ENGINEERING LTD. AHD DY. CIT, CIRCLE-1(1)(1), AHD 2012-13 12 2726/AHD/2017 AIA ENGINEERING LTD. AHD DY. CIT, CIRCLE-1(1)(1), AHD 2013-14 I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 2 REVENUE BY: SHRI VINOD TANWANI, SR. D.R. ASSESSEE BY: SHRI T.P. HEMANI, SR. A.R. & SHRI PARIMAL SI NH PARMAR, A.R. DATE OF HEARING : 09-10-2020 DATE OF PRONOUNCEMENT : 04-01-202 1 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THESE TWELVE APPEALS FILED SIX BY REVENUE AND SIX BY ASSESSEE FOR A.Y. 2008-09 TO 2013-14, ARISE FROM ORDER OF THE CI T(A), AHMEDABAD, IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 144C & 143( 3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE FACT IN BRIEF IS THAT RETURN OF INCOME DECLA RING TOTAL INCOME OF RS. 1,10,44,39,360/- WAS FILED ON 20 TH SEP, 2008. SUBSEQUENTLY, THE ASSESSEE HAS FILED REVISED RETURN OF INCOME ON 19 TH FEB, 2009 DECLARING TOTAL INCOME OF RS. 1,10,44,39,360/-. THE CASE WAS SUBJECT TO SCRU TINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 23 RD SEP, 2011. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF ALLOY STEEL CASTINGS. AFTER TAKING INTO CONSIDERATION TH E SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER HAS FRAMED ASSESSME NT U/S. 143(3) R.W.S. 144C OF THE ACT VIDE ORDER DATED 23 RD FEB, 2012 WHEREAS VARIOUS ADDITIONS WERE MADE. ASSESSEE HAS NOT FILED ANY OBJECTION AG AINST DRAFT ASSESSMENT ORDER BEFORE THE DISPUTE RESOLUTION PANEL. BEING AG GRIEVED WITH THE ADDITIONS MADE BY THE ASSESSING OFFICER, THE ASSESSEE HAS FIL ED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS PARTLY ALLOWED THE APPE AL OF THE ASSESSEE. THE VARIOUS ADDITIONS WHEREIN RELIEFS HAVE BEEN GRANTED BY THE LD. CIT(A) OR I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 3 SUSTAINED BY THE LD. CIT(A) , THE REVENUE AND ASSES SEE HAVE CONTESTED IN THE INSTANT APPEAL. THE FACTS AND NATURE OF ISSUES ARE DISCUSSED WHILE ADJUDICATING THE GROUNDS OF APPEAL AS UNDER:- ITA NO. 1766/AHD/2012 A.Y. 2008-09 FILED BY REVENU E GROUND NO. 1(DELETING ADDITION OF RS. 18,39,75,000/ - IN RESPECT OF INCOME FROM INVESTMENT IN FREE ZONE ENTITY IN AJMAN FREE ZONE ALTERNATIVELY THE SAID AMOUNT WOULD HAVE BEEN ADDED TO INCOME OF ASSESSEE UNDER THE PROVISION OF TRANSFER PRICING) 3. DURING THE COURSE OF ASSESSMENT ON PERUSAL OF T HE ACCOUNTS OF THE ASSESSEE COMPANY, THE ASSESSING OFFICER NOTICED THA T THE ASSESSEE HAS MADE OUTWARD INVESTMENT IN VEGA INDUSTRIES (MIDDLE EAST) FZE, IN THE AJMAN FREE ZONE EMIRATES OF AJMAN THAT ASSESSEE HAS EARNE D INCOME FROM THE SAID ESTABLISHMENT TO THE AMOUNT OF RS. 18,39,75,000/- A ND THE SAME HAS NOT BEEN SHOWN AS INCOME OF THE ASSESSEE COMPANY IN ITS BOOK S OF ACCOUNT. THE ASSESSING OFFICER FURTHER STATED THAT SIMILAR ISSUE WAS INVOLVED IN A.Y. 2006-07 AND 2007-08 WHEREIN IT WAS HELD THAT VEGA I NDUSTRIES MIDDLE EAST WAS TREATED AS PROPRIETARY CONCERN OF THE ASSESSEE WHICH CARRIED OUT BUSINESS FROM AJMAN FREE ZONE AND THE WHOLE OF THE INCOME EA RNED BY VEGA INDUSTRIES (MIDDLE EAST) FZE WAS HELD TO BE TAXABLE IN INDIA. THE DRAFT ASSESSMENT FOR ASSESSMENT YEAR 2006-07 WAS CHALLENG ED BY THE ASSESSEE BEFORE THE DISPUTE RESOLUTION PANEL AND THE DRP HAS UPHELD THE FINDINGS OF THE ASSESSING OFFICER. IN THE LIGHT OF THE ABOVE F ACTS, THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO EXPLAIN WHY NOT THE INCOM E OF THE VEGA INDUSTRIES MIDDLE EAST FZE SHOULD BE ADDED TO THE INCOME OF TH E ASSESSEE COMPANY IN THE SAME MANNER AS WAS DONE IN ASSESSMENT YEAR 2006 -07 AND 2007-08. THE ASSESSEE EXPLAINED THAT VEGA INDUSTRIES UAE WAS AN INDEPENDENT CORPORATE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 4 BODY. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS SUBMITTED THE SUPPORTING DOCUMENTS I.E. A COPY OF MEMORANDUM OF I NCORPORATION OF VEGA, UAE, TAX RESIDENT CERTIFICATE OF VEGA INDUSTRIES UA E, A CERTIFICATE ISSUED BY AJMAN FREE ZONE ETC. THE RELEVANT PART OF THE REP LY OF THE ASSESSEE IS REPRODUCED AS UNDER:- WITH REGARD TO THE PROPOSED ADDITION OF THE INCOME OF VEGA INDUSTRIES (MIDDLE EAST) FZE (VEGA-UAE) TO THE TOTAL INCOME OF THE COMPANY, PLEASE NOTE THAT THIS MATTER PERTAINING TO A. Y. 2006-07 HAS BEEN HEARD BY ITA T IN OUR CASE OF A. Y. 2006-07 ON 3-11-2011 AND WE ARE OF THE VIEW THAT THE MATTER WILL BE DECIDED IN OUR FAVOUR AND THE I TAT ORDER WILL BE RECEIVED BY US BEFORE 31-12-2011. IN VIEW OF THIS, YOU ARE REQUESTED NOT TO MAKE ANY ADDITION ON ACCOU NT OF THIS GROUND. FURTHER PLEASE NOTE THAT VEGA UAE IS AN INDEPENDENT BODY CORPORATE. IN SUPPORT OF THIS CONTENT/ON, WE ATTACH HEREWITH THE FALLOWINGS: A COPY OF THE MEMORANDUM OF INCORPORATION OF V EGA UAE DATED 22 APRIL 2002 (ENCLOSED AS ANNEXURE A ). THE TAX RESIDENCE CERTIFICATE OF VEGA UAE DAT ED 3RD FEBRUARY,2010 ISSUED BY EXECUTIVE DIRECTOR O F REVENUE AND BUDGET, I.E., MINISTRY OF FINANCE OF UAE (ENCLOSED AS ANNEXURE B). A CERTIFICATE ISSUED BY A/MAN FREE ZONE AUTHOR ITY (ENCLOSED AS ANNEXURE C) DATED 15 JULY 2009 CON FIRMING THAT VEGA UAE IS A REGISTERED COMPANY, A BODY CORPORATE INCOR PORATED IN THE FREE ZONE OF AJRNAN (UAE) UNDER THE LAW LAID DOWN BY THE AMIRI DECREE NO, (2) OF 1996 ON AMENDING THE ARNIRI DECREE NO. (3) OF 1988. IN VIEW OF THE ABOVE ABOVE, WE SUBMIT THAT VEGA UAE IS AN INDEPENDENT COMPANY AND IT IS MANAGED AND CO NTROLLED OUT OF THE UAE. FURTHER, WE ALSO SUBMIT THAT VEGA UAE IS A COMPANY FOR THE PURPOSES OF SECTION 2(17) OF THE A CT. VEGA UAE HAS INDEPENDENT OPERATIONS AND SEPAR ATE BOARD OF DIRECTORS. VEGA UAE IS A 'COMPANY'/ 'BODY CORPORATE' INC ORPORATED IN UAE AND CANNOT BE TREATED AS PROPRIETA RY CONCERN OF THE ASSESSEE. VEGA IS A TAX RES/DENT OF UAE UNDER THE INDIA -UAE TAX TREATY. IT IS SUBMITTED THAT THE MANAGEMENT AND CONTRO L OF VEGA UAE BEING LOCATED IN UAE, NO PART OF ITS INCOME CAN BE BROUGHT TO TAX IN INDIA AS VEGA UAE IS A SEPARATE C OMPANY AND CANNOT BE SAID TO BE WHOLLY CONTROLLED A ND MANAGED IN INDIA, VEGA UAE IS A BODY CORPORATE UNDER SECTION 2( 17) OF THE INCOME-TAX ACT 1961. WE SUBMIT THAT IN THE PRECEDING ASSESSMENT YE ARS 2006-07 AND 2007-08 THE CIRCULAR NO. 8(26)/2(7) / 63-PR DATED 13 MARCH 1963 UNDER THE COMPANIES ACT 1956 AND THE PRO VISIONS OF SECTION 2(17) OF THE ACT HAS BEEN INCORR ECTLY INTERPRETED TO CONCLUDE THAT VEGA UAE CANNOT BE RECOGNIZED AS ' BODY CORPORATE' DUE TO NON-SATISFACTION OF (A) PERP ETUAL SUCCESSION; (B) A LEGAL ENTITY APART FROM MEMBERS CONSTITUTING IT. WITH RESPECT TO EACH OF THESE POINTS, THE COMPA NY'S SUBMISSIONS ARE AS UNDER: SECTION 2(17) OF THE ACT DEFINES A COMPANY TO INCLUDE - 'ANY BODY CORPORATE INCORPORATED BY OR U NDER THE LAWS OF A COUNTRY OUTSIDE INDIA'. IT IS THUS CLEAR THAT THIS SECTION MAKE NO REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, 1956 AND THE NEED TO HAVE AT/EAST TWO SHAREHOLDERS TO BE TRE ATED AS BODY CORPORATE. WHAT IS RELEVANT HERE ARE T HE LAWS OF THE COUNTRY OUTSIDE INDIA AND NOT WHAT IS PREVALENT IN INDIA. IT IS SUBMITTED THAT PERPETUAL SUCCESSION IN T HE CONTEXT OF INDIAN COMPANY LAW MEANS THAT AN INCO RPORATED ENTITY NEVER DIES EXCEPT WHEN IT IS WOUND UP AS PER LAW. THE COM PANY, BEING A SEPARATE LEGAL PERSON IS UNAFFECTED B Y DEATH OR DEPARTURE OF ANY SHAREHOLDER OR MEMBER AND REMAINS THE SAME ENTITY, DESPITE A TOTAL CHANGE IN THE MEMB ERSHIP. EVEN UNDER THE INDIAN COMPANY LAW, A COMPANY'S LIFE CAN BE DETERMINED BY THE TERMS OF ITS MEMORANDUM OF ASS OCIATION. IT IS SUBMITTED THAT IT WILL BE A GROSS ERROR IN APPLYING THE CRITERIA UNDER THE COMPANIES ACT, 1 956 TO VEGA UAE WITHOUT APPRECIATING THE FACT THAT ONLY LAWS OF UAE I.E. TH E AMIRI DECREES ISSUED BY EM/RATES OF AJMAN IS APPL ICABLE IN THIS CASE. FURTHER, PLEASE NOTE THAT VEGA UAE IS A BODY CORPOR ATE UNDER THE LAWS OF AJMAN IN ACCORDANCE WITH THE CONSTITUTION OF UAE AND THUS, THERE IS NO NEED TO CARRY OUT TEST BE YOND THIS POINT AND MORE SO KEEPING IN MIND THE PRO POSITION THAT INDIAN TAX OFFICERS VERY RESPECTFULLY ARE NOT EXPECTED TO BE EXPERTS IN CONSTITUTIONAL, LEGAL AND COMPANY LAW MATTERS OF ANY COUNTRY OUTSIDE INDIA, INCLUDING THE UAE. BASED ON THE ABOVE, THE COMPANY SUBMITS THAT VEGA U AE IS AN INDEPENDENT BODY CORPORATE BEING MANAGED F ROM UAE AND NOT A PROPRIETARY CONCERN OF AI A. THEREFORE, THE I NCOME OF VEGA INDUSTRIES (MIDDLE EAST) FZE SHOULD N OT BE ADDED IN THE TOTAL INCOME OF THE COMPANY, THE COMPANY ALSO PLACES RELIANCE ON THE FOLLOWING: THE DECISION OF UNION OF INDIA V. AZADI BACHAO ANDO LAN [2003] 263 ITR 706 (SC) WHEREIN THE SUPREME COU RT HELD THAT THE TAX RESIDENCE CERTIFICATE ISSUED BY THE GOVERNM ENT OF OTHER CONTRACTING STATE WOULD BE A CONCLUSIV E PROOF OF RESIDENTIAL STATUS OF THE COMPANY. CBDT CIRCULAR NO. 789, DATED 13 APRIL 2000, WHERE I T HAS BEEN CLARIFIED THAT WHEREVER A CERTIFICATE OF RESIDENCE IS ISSUED BY THE MAURITIAN AUTHORITIES, SUCH CERTIFICATE WILL CONSTITUTE SUFFICIENT EVIDENCE FOR ACCEPTING THE S TATUS OF RESIDENCE AS WELL AS BENEFICIAL OWNERSHIP FOR APPLYING THE DOUBL E TAX A VOIDANCE CONVENTION ACCORDINGLY. THE ASSESS EE SUBMITS THAT THE PRINCIPLE LAID DOWN BY THIS CIRCULAR ALSO STAND S EXTENDED TO CASES UNDER ANY OTHER TREATY INCLUDIN G FOR VEGA UAE. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 5 THE ASSESSEE HAS EXPLAINED THAT VEGA UAE WAS A BODY CORPORATE UNDER THE LAW AJMAN AND WAS NOT A PROPRIETARY CONCERN OF THE ASSESSEE COMPANY, THEREFORE, THE INCOME OF VEGA INDUSTRIES MIDDLE EAS T FZE SHOULD NOT BE ADDED IN THE TOTAL INCOME OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS NOT AGREED WITH THE SUBMISSION OF THE ASSESSEE BY MAKING REFERENCE TO ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2006-07 . THE ASSESSING OFFICER ALSO STATED THAT A REFERENCE U/S. 92CA OF T HE ACT FOR THE COMPUTATION AT ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL T RANSACTION WAS MADE TO THE TRANSFER PRICING OFFICE-1AHMEDABAD ON 14-07-2009. THE TRANSFER PRICING OFFICER VIDE ORDER U/S. 92CA(3) OF THE ACT DATED 26 TH OCTOBER, 2009 HAS MADE UPWARD ADJUSTMENT OF RS. 17,64,60,761/- ON ACCOUNT OF SALE PRICE TO VEGA INDUSTRIES MIDDLE EAST FZE FOR WHICH NO SEPARATE AD DITION WAS MADE AS ASSESSING OFFICER WAS OF THE VIEW THAT VEGA INDUSTR IES (MIDDLE EAST) FZE WAS THE PROPRIETARY CONCERN OF THE ASSESSEE CARRYIN G OUT BUSINESS FROM AJMAN FREE ZONE AND THE WHOLE OF THE INCOME INCLUDI NG RS. 17,64,60,761/- ON ACCOUNT OF UPWARD ADJUSTMENT ON SALE PRICE TO VE GA INDUSTRIES (MIDDLE EAST) FZE TO BE TAXED IN INDIA. THE ASSESSING OFF ICER TREATED THE VEGA INDUSTRIES (MIDDLE EAST) AS PROPRIETARY CONCERN OF THE ASSESSEE AND THE ENTIRE PROFIT EARNED BY IT AMOUNTING TO RS. 18,39,75,000/- WAS TREATED TO BE TAXABLE IN INDIA IN THE HANDS OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE ASSESSI NG OFFICER. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS AS U NDER:- 2.3 1 HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER MADE THE IDENTICAL ADDITION IN AS SESSMENT YEAR 2006-07 WHICH WAS CONFIRMED BY DRP AGAINST WHICH APPELLANT PREFERRED APPEAL IN ITA T. ITAT AHMEDABAD BY ORDER DATED 23RD OF I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 6 JANUARY 2012 IN ITA NUMBER 580/AHD/2011 DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. THE DECISION OF ITAT ON THIS ISSUE IS GIVEN IN PARA-9 T O 14 OF THE SAID ORDER WHICH IS QUOTED BELOW- '9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FI ND THAT THE OBJECTION OF THE A.O. IS THIS THAT VEGA UAE IS NOT A LEGALLY INDEPENDENT ENTITY A ND 'IT IS A SOLE PROPRIETORSHIP CONCERN OF THE ASSESSEE AND THIS VIEW OF THE A.O. IS BASED ON THIS PREMISE THAT THE ASSESSEE IS A SOLE SHAREHOLDER HAVING 100% SHARES HOLDING IN THI S ENTITY AND THEREFORE, THIS ENTITY IS NOT A COMPANY AND AN INDEPENDENT ENTITY. IN THIS REGARD, WE FEEL THAT THE PROVISIONS OF SECTION 2(17) OF INCOME TAX ACT ORE VERY MUCH RELEV ANT AND THE SAME ARE REPRODUCED BELOW: '[(17) 'COMPANY' MEANS (I) ANY INDIAN COMPANY, OR (II) ANY BODY CORPORATE INCORPORATED BY OR UNDER TH E LAWS OF A COUNTRY OUTSIDE INDIA, OR (III) ANY INSTITUTION, ASSOCIATION OR BODY WHICH IS OR WAS ASSESSABLE OR WAS ASSESSED AS A COMPANY FOR ANY ASSESSMENT YEAR UNDER THE INDIAN IN COME-TAX ACT, 1922 {] I OF 1922), OR WHICH IS OR WAS ASSESSABLE OR WAS ASSESSED UNDER TH IS ACT AS A COMPANY FOR ANY ASSESSMENT YEAR COMMENCING ON OR BEFORE THE 1ST DAY OF APRIL, 1970, OR (IV) ANY INSTITUTION, ASSOCIATION OR BODY, WHETHE R INCORPORATED OR NOT AND WHETHER INDIAN OR NON-INDIAN, WHICH IS DECLARED BY GENERAL OR SPECIAL ORDER OF THE BOARD TO BE A COMPANY : PROVIDED THAT SUCH INSTITUTION, ASSOCIATION OR BODY SHALL BE DEEMED TO BE A COMPANY ONLY FOR SUCH ASSESSMENT YEAR OR ASSESSMENT YEARS (WHETH ER COMMENCING BEFORE THE 1ST DAY OF APRIL 197], OR ON OR AFTER THAT DATE) AS MAY BE SPE CIFIED IN THE DECLARATION ] 10. AS PER THESE PROVISIONS OF SECTION 2(I7J, FOR O THER THAN AN INDIAN COMPANY, A COMPANY MEANS ANY BODY CORPORATE INCORPORATED BY OR UNDER THE LAW S OF A COUNTRY OUTSIDE INDIA AND VEGA UAE IS DEFINITELY NOT AN INDIAN COMPANY. NOW, WE HAVE OF E XAMINE AS OF WHETHER IF CAN BE SAID THAT VEGA UAE IS A BODY CORPORATE INCORPORATED BY AND UNDER T HE LAW OF A COUNTRY OUTSIDE INDIA. THE CERTIFICATE OF FORMATION OF VEGA UAE ISSUED BY A/MA N FREE ZONE AUTHORITY WHICH IS AVAILABLE ON PAGE 677 OF THE PAPER BOOK - III. THE CONTENTS OF T HIS CERTIFICATE ARE REPRODUCED BELOW: 'AJMAN FREE ZONE 28 M JANUARY, 2004 AFZA/408/2004/REGISTERED CO./DG/AS CERTIFICATE OF FORMATION WE, THE GOVERNMENT OF A/MAN FREE ZONE AUTHORITY CER TIFY THAT M/S. VEGA INDUSTRIES (MIDDLE EAST) IS A REGISTERED COMPANY WITHIN THE FR EE TRADE ZONE OF A/MAN, UNDER THE LICENSE NO. 1165 WHICH ISSUED ON 22/4/2003. THE ABOVE MENTIONED COMPANY IS FORMED UNDER OUR SEA L OF A/MAN FREE ZONE' 11. AS PER THE MEMORANDUM OF INCORPORATION OF VEGA UAF WHICH IS AVAILABLE ON PAGE 5-10 OF THE PAPER BOOK, WE FIND THAT AS PER THIS, IT HAS BEEN S TATED THAT A FREE ZONE ESTABLISHMENT (FZE) IS DULY INCORPORATED ON 22.04.2002 IN ACCORDANCE WITH AMIRI DECREE NO.(3) OF 1988 IN RESPECT OF ESTABLISHMENT OF FREE ZONE IN EMIRATES OF A/MAN AS AMENDED, ITS ENFORCEMENT REGULATIONS AND ACCORDING TO VARIOUS TERMS AND CONDITIONS SPECIFIED IN THIS CERTIFICATE. IN THE SAID CERTIFICATE, DETAIL OF FOUNDER/OWNER HAS BEEN GIVEN AND AS PER T HIS, THE ASSESSEE COMPANY IS THE OWNER OF THIS ENTITY. IN ARTICLE (1) OF THIS CERTIFICATE OF INCOR PORATION, IT WAS CERTIFIED THAT THIS IS A FZE WITH LIMITED LIABILITY WITH CORPORATE ENTITY AND INDEPEN DENT AND SEPARATE FINANCIAL LIABILITY FOR THOSE OF ITS OWNER BUT AT ARTICLE (2), IT HAS BEEN STATED TH AT THE OWNER WILL BE PERSONALLY RESPONSIBLE FOR ANY OMISSION OF SUCH INFORMATION I.E. MENTIONING OF FZE ALONG WITH THE NAME OF THAT ENTITY ON ALL BUSINESS DOCUMENTATION, CONTRACTS, ADVERTISEMENT AN D INVOICES AND THAT IT WILL BE PURSUANT TO AMIRI DECREE NO. (3) OF 1988 AS AMENDED AND IF THER E IS ANY OMISSION ON THIS ACCOUNT, THE OWNER SHALL BE PERSONALTY RESPONSIBLE FOR ANY OMISSION OF SUCH INFORMATION. ON THE BASIS OF THIS ARTICLE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 7 {1} OF THE MEMORANDUM OF INCORPORATION, IT IS THE A LLEGATION OF THE A.O. THAT THIS ENTITY HAS NO SEPARATE LEGAL STATUS BECAUSE THE OWNER IS PERSONAL LY RESPONSIBLE FOR ANY OMISSION OF SUCH INFORMATION. IN THIS REGARD, WE DO NOT FIND ANY FOR CE IN THIS CONTENTION OF THE A.O. BECAUSE AS PER ARTICLE (1) OF THE SAID MEMORANDUM OF INCORPORATION , IT HAS BEEN STATED THAT THIS ENTITY IS ESTABLISHED WITH CORPORATE ENTITY AND INDEPENDENT A ND SEPARATE FINANCIAL LIABILITY FROM THOSE OF ITS OWNER IN ACCORDANCE WITH THIS MEMORANDUM OF INCORPO RATION AND THE ONLY SITUATION WHERE THE OWNER WILL BE TREATED AS PERSONALLY RESPONSIBLE IS REGARDING OMISSION OF SOME SPECIFIED INFORMATION THAT THE ENTITY IS A FREE ZONE ESTABLIS HMENT (FZE) AND IT WILL BE PURSUANT TO AMIRI DECREE NO.(3) OF 1988 AS AMENDED. IN OUR CONSIDERED OPINION, THIS IS A SITUATION WHERE IT SPECIFIES THAT CORPORATE VEIL MAY BE LIFTED. THIS MAY DIFFER FROM COUNTRY TO COUNTRY AND IN INDIA ALSO, IN SOME SITUATIONS, CORPORATE VEIL CAN BE LIFTED AND, THEREFORE, BECAUSE OF THIS RESTRICTION ALONE, IT CANNOT BE SAID THAT VEGA UAF IS NOT A SEPARATE LEGA L ENTITY. 12. THE MAIN OBJECTION OF THE A.O. IS THAT SINCE TH E ASSESSEE IS THE ONLY SHAREHOLDER AND HOLDING 100% SHARES OF VEGA UAF, IT IS NOT A VALID CO MPANY BECAUSE AS PER INDIAN COMPANIES ACT AND AS PER UAE CCL, TWO SHAREHOLDERS ARE REQUIRED. THE ARGUMENT OF THE REVENUE IS THIS THAT AS PER CL OF UAE, TWO SHAREHOLDERS ARE REQUIRED AND AS PER ARTICLE 151 OF THE CONSTITUTION OF UAE, THE PROVISIONS OF CONSTITUTION SHALL HAVE PRECEDENC E OVER THE CONSTITUTION OF EMIRATES WHICH ARE THE MEMBERS OF THE FEDERATION BUT THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE IS THAT AN EXCEPTION HAS BEEN CARVED OUT IN ARTICLE 149 OF THE SAID CONSTITUTION WHICH IS AVAILABLE ON PAGE 715 OF THE PAPER BOOK-TIL AND THE SAME IS REPRODUCE D BELOW: 'ARTICLE 149- IN EXCEPTION TO THE PROVISIONS OF ART ICLE 121 OF THIS CONSTITUTION, THE EMIRATES MAY ISSUE THE LEGISLATION NECESSARY TO REG ULATE THE MATTES INDICATED IN THE SAID ARTICLE, WITHOUT PREJUDICE TO THE PROVISIONS OF ART ICLE 151 OF THIS CONSTITUTION.' 13. FROM THE ABOVE ARTICLE, IT IS SEEN THAT WITH REGARD TO THE PROVISIONS OF ARTICLE 121 OF THIS CONSTITUTION WHICH INCLUDES 'COMPANY', THE EMIRATES CAN ISSUE LEGISLATION NECESSARY TO REGULATE THE MATTER INDICATED IN THE SAID ARTICLE I.E. ARTICLE 1 21 WITHOUT PREJUDICE TO THE PROVISIONS OF ARTICLE 151 OF THIS CONSTITUTION. HENCE, FOR THE REGULATION OF A COMPANY, THE EMIRATES CON HAVE THEIR OWN LEGISLATION AND FOR THIS. ARTICLE 151 IS NOT APPLIC ABLE AND, THEREFORE, IT HAS TO BE ACCEPTED THAT AMIRI DECREE ISSUED BY EMIRATES OF A/MAN IS NOT IN CONFLICT WITH THE CONSTITUTION OF UAE AND, THEREFORE, IT IS VALID. 14. AS PER THIS AMIRI DECREE NO.(2) OF 1996 PROMULG ATED BY HIS HIGHNESS THE RULER OF EMIRATES OF -A/MAN, FREE ZONE ESTABLISHMENT (FIE) CAN BE ESTABL ISHED WITH LIMITED LIABILITY AND SHALL HAVE THE BODY CORPORATE CAPACITY AND IT SHALL BELONG EITHER TO ONE NATURAL PERSON OR ONE JUDICIAL PERSON. IT GOES TO SHOW THAT VEGA UAE IS DULY INCORPORATED AS A BODY CORPORATE UNDER THE LAW OF A COUNTRY OUTSIDE INDIA WHICH IS A REQUIREMENT OF SECTION 2(1 7] OF THE INCOME TAX ACT, 1961 AND, THEREFORE. VEGA UAE HAS TO BE ACCEPTED AS A COMPANY WITHIN THE DEFINITION OF SECTION 2(17) OF THE INCOME TAX ACT, 1961. ONCE IT IS ACCEPTED, THE ADDITION MA DE BY THE A.O BY HOLDING THAT VEGA UAE IS A SOLE PROPRIETORSHIP CONCERN OF THE ASSESSEE COMPANY IS NOT SUSTAINABLE AND HENCE, THE ADDITION MADE BY THE A.O. IS TO BE DELETED. WE HOLD ACCORDIN GLY. GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. REGARDING VARIOUS OTHER CONTENTIONS RAISED BY BOTH SIDES, WE WOULD LIKE TO OBSERVE THAT THE SAME ARE NOT RELEVANT IN VIEW OF OUR ABOVE DECISION.' FROM THE AFORESAID DECISION OF JURISDICTIONAL ITAT IN THE APPELLANT'S OWN CASE ON THE SAME ISSUE, IT IS CLEAR THAT VEGA ME IS HELD TO BE AN INDEPENDENT ENTITY AND NOT A PROPRIETORSHIP CONCERN OF THE APPELLANT. ITAT HAS MET WITH ALL THE ARGUMENTS OF THE ASSESSING OFFICER AND THEREFORE THE SAME ARE NOT REPEATED HERE. SINCE HIG HEST FACT-FINDING AUTHORITY HAS HELD THAT VEGA UAE IS AN INDEPENDENT CORPORATE BODY, THE PROFIT OF VEGA UAE CANNOT BE TAXED IN THE HANDS OF APPELLANT. RESPECTFULLY FOLLOWING THE DECISION OF J URISDICTIONAL TRIBUNAL IN THE APPELLANT'S OWN CASE IN THE IMMEDIATE PRECEDING YEAR ON THE IDENTICAL FA CTS, IT IS HELD THAT VEGA UAE IS A SEPARATE COMPANY AND ACCORDINGLY PROFIT OF VEGA UAE CANNOT B E ADDED TO THE INCOME OF THE APPELLANT. AS A RESULT OF THIS, ADDITION MADE BY THE ASSESSING OF FICER IS DELETED. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 8 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E US, THE LD. COUNSEL HAS BROUGHT TO OUR NOTICE THAT LD. CIT(A) HAS GRANT ED RELIEF TO THE ASSESSEE AFTER FOLLOWING THE DECISION OF ITAT AHMEDABAD ON I DENTICAL ISSUE BASED ON SIMILAR FACTS IN THE CASE OF THE ASSESSEE FOR ASSES SMENT YEAR 2006-07 VIDE ITA NO. 580/AHD/2011. THE LD. DEPARTMENTAL REPRESE NTATIVE WAS FAIR ENOUGH NOT TO CONTROVERT THIS UNDISPUTED FACTS AND FINDINGS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF HONBLE ITAT AHMEDABAD ADJUDICATED FOR ASSESSMENT YEAR 2006-07 I N THE CASE OF THE ASSESSEE ITSELF. WITH THE ASSISTANCE OF LD. REPRE SENTATIVES, WE HAVE GONE THROUGH THE DECISION OF LD. CO-ORDINATE BENCH OF TH E ITAT AS REFERRED SUPRA BY THE LD. COUNSEL AND NOTICED THAT THE SAME ISSUE HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE AS PER FINDING OF THE ITAT E LABORATED IN THE DECISION OF LD. CIT(A) INCORPORATED AS ABOVE IN THIS ORDER F OLLOWING THE DECISION OF THE CO-ORDINATE BENCH FOR THE A.Y. 2006-07 IN THE C ASE OF THE ASSESSEE ITSELF WHEREIN IT IS HELD THAT VEGA UAE WAS AN INDEPENDENT CORPORATE BODY, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DECI SION OF LD. CIT(A). ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE I S DISMISSED. WE ALSO DO NOT FIND ANY MERIT IN THE ALTERNATIVE CONTENTION OF THE REVENUE FOR ADDING UNDER THE TP ADJUSTMENT FOLLOWING THE DECISION OF T HE CO-ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF FOR A.Y . 2006-07 VIDE ITA 580/AHD/2011 AS ELABORATED BY THE LD. CIT(A) IN HIS FINDING. THE RELEVANT PART OF THE DECISION OF THE LD. CIT(A) IS REPRODUC ED AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE; TPO' S ORDER AND APPELLANT'S WRITTEN SUBMISSION. TPO MADE THE SIMILAR ADJUSTMENTS IN ASSESSMENT YEAR 200 6-07 WHICH WAS CONFIRMED BY DRP AGAINST WHICH APPELLANT PREFERRED APPEAL IN ITAT. ITAT AHME DABAD BY ORDER DATED 23RD OF JANUARY 2012 IN ITA NUMBER 580/AHD/2011 DECIDED THE ISSUE IN FAV OUR OF THE APPELLANT. THE DECISION OF ITAT ON THIS ISSUE IS GIVEN IN PARA-21 OF THE SAID ORDER WHICH IS QUOTED BELOW- '2I.WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND TH AT THIS IS ONE OF THE OBJECTIONS OF THE REVENUE THAT VEGA UAE IS NOT A DISTRIBUTOR BUT MARKET SERVI CE PROVIDER AND MERELY ON THIS BASIS, THE JP I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 9 ANALYSIS CONDUCTED BY THE ASSESSEE HAD BEEN REJECTE D BY THE TPO. HE HAS ADOPTED THE TRANSFER PRICING ADJUSTMENT ON THE BASIS OF OPERATING COST/O PERATING PROFIT PERCENTAGE OF VEGA UAE, VEGA UK AND VEGA US. REGARDING THIS ASPECT THAT AS TO WH ETHER VEGA UIAE IS A DISTRIBUTOR OR SIMPLY MARKETING SERVICE PROVIDER, WE FIND THAT THE OBJECT ION OF THE REVENUE ON THIS ASPECT IS NOT SUSTAINABLE IN VIEW OF THE FACTS OF THE PRESENT CAS E BECAUSE WE FIND THAT THE ASSESSEE COMPANY HAS EXECUTED PROPER DISTRIBUTOR AGREEMENT WITH VEGA UAE AND IT HAS BEEN ADHERED TO ALSO AND SINCE THE OBJECTION OF THE REVENUE THAT VEGA UAE IS NOT B EARING ANY INVENTORY AND CREDIT RISK, WE FIND THAT AS PER THE FACTS OF THE PRESENT CASE, BOTH THE SE OBJECTIONS ARE NOT CORRECT AND VEGA UAE IS CARRYING BOTH THE INVENTORY RISK AS WELL AS CREDIT RISK AND THEREFORE, WE HOLD THAT VEGA UAE IS NOT A MARKETING SERVICE PROVIDER IN THE FACTS OF THE PR ESENT CASE BUT IF IS A DISTRIBUTOR OF THE ASSESSEE COMPANY. ONCE IT IS ACCEPTED THAT VEGA UAE IS A DIS TRIBUTOR, ALP HAS TO BE DETERMINED ON THE BASIS OF PROFIT ON SALE OF GOODS BY THE ASSESSEE CO MPANY AS COMPARED TO THE COMPARABLE COMPANIES. THE ASSESSEE HAS DEMONSTRATED THAT THE A RITHMETIC MEAN OF 3 YEARS WEIGHT AGE AVERAGE NOPM OF 12 COMPARABLE COMPANIES WAS 7.92% AS AGAINS T NOPM OF 18.89% OF THE ASSESSEE FOR THE PRESENT YEAR. LATER ON THE ASSESSEE HAS ALSO FU RNISHED THE REVISED ARITHMETIC MEAN OF NOPM OF THE COMPARABLE COMPANIES ON THE BASIS OF CURRENT YE AR DATA ONLY AND IT WAS 7.04% WHEREAS MEAN OF 3 YEARS WEIGHT AGE AVERAGE NOPM OF 12 COMPARABLE COMPANIES WAS 7.92% AS AGAINST NOPM OF 18.89% OF THE ASSESSEE FOR THE PRESENT YEAR. LAT ER ON, THE ASSESSEE HAS ALSO FURNISHED THE REVISED ARITHMETIC MEAN OF NOPM OF THE COMPARABLE C ASES ON THE BASIS OF CURRENT YEAR DATA ONLY AND IT WAS 7.04% AS AGAINST 7.92% ON THE BASIS OF 3 YEAR WEIGHT AGE AVERAGE. THE ASSESSEE HAS ALSO FURNISHED ONE ALTERNATIVE WORKING ON THE BASIS OF NET OPERATING PROFIT MARGIN OF VEGA UAB, VEGA UK AND VEGA US AND ARITHMETIC MEAN OF COMPARAB LE COMPANIES. THE ARITHMETIC MEAN OF COMPARABLE COMPANIES IS HIGHER IN RESPECT OF ALL TH E THREE VEGA ENTITIES AND HENCE, ON BOTH THESE BASIS, NO TP ADJUSTMENT IS CALLED FOR. TP ADJUSTMEN T HAD BEEN PROPOSED BY THE TPO AND CONFIRMED BY DRP ON THE BASIS OF OPERATING COST/OPE RATING PROFIT MARGIN OF VEGA UAE, VEGA UK AND VEGA US. THE SAME FOR VEGA US WAS CONSIDERED AS BASE AND DIFFERENCE OF VEGA UAE WAS PROPOSED AS TP ADJUSTMENT BY THE TPO BUT WHILE DOIN G SO, IF HAS TO BE KEPT IN MIND THAT OPERATING COST/OPERATING PROFIT MARGIN DEPENDS ON LEVEL OF OP ERATING EXPENSES INCURRED BY THE RESPECTIVE VEGA ENTITIES AND ALSO THE MAKING OF BUSINESS EARNI NG BY THE RESPECTIVE VEGA ENTITIES. WE FIND THAT PERCENTAGE OF EMPLOYEE COST TO TOTAL TURNOVER OF VE GA US IS HIGHEST I.E. 6.5% AND IF IS LOWEST FOR VEGA UAE I.E.1.3%. SIMILARLY, PERCENTAGE OF ADMINIS TRATIVE EXPENSES TO TURNOVER IS HIGHEST FOR VEGA US AND VEGA UK 4.9% AND IF IS ONLY 2% FOR VE GA UAE. IF THE OPERATING COST IS HIGHER IN VEGA US, IF CANNOT BE SAID THAT THE PROFIT MARGIN O F OTHER VEGA ENTITIES I.E. VEGA UK AND VEGA UAE SHOULD BE AT PAR WITH THE PROFIT MARGIN OF VEGA US AND HENCE, TP ADJUSTMENT PROPOSED BY TPO AND CONFIRMED BY DRP ON THE BASIS OF OPERATING COST/OPERATING PROFIT OF VEGA US IS NOT SUSTAINABLE. VARIOUS ALLEGATIONS RAISED BY THE TPO FOR NOT ACCEPTING THE TP ANALYSIS CARRIED OUT BY THE ASSESSEE ARE NOT FOUND TO BE VALID AND HENCE , WE HOLD THAT NO TP ADJUSTMENT IS CALLED FOR IN RESPECT OF VEGA UAF. THE SAME IS DELETED. HENCE, GR OUND NO.2 OF THE ASSESSEE IS ALLOWED.' FROM THE ABOVE, IT IS CLEAR THAT HONORABLE 1TAT HAS TREATED VEGA UAE (MIDDLE EAST) AS FULL-FLEDGED DISTRIBUTOR OF THE APPELLANT AS AGAINST MARKETING SERVICE PROVI DER TREATED BY TPO. ALL THE ARGUMENTS OF TPO WERE CONSIDERED AND IT WAS HEL D THAT VEGA MIDDLE EAST WAS PERFORMING ALL THE FUNCTIONS OF A DISTRIBUTOR. IT WAS HELD TO BE TAKING INVENTORY RISK, CREDIT RIS K AND OTHER RISKS ASSOCIATED WITH THE BUSINESS. VEGA ME (MIDDLE EAST) HAS NOW BECOME GLOBAL DISTRIBUTOR WITH VEGA US AND VEGA UK BECOMING ITS SUB-DISTRIBUT ORS. THIS ENTITY WAS FOUND TO BE PERFORMING ALL THE ROLES OF A DISTRIBUTOR OF DEVELOPING MARKET ING STRATEGY, LOGISTIC HANDLING, INVENTORY MANAGEMENT, WORKING CAPITAL MANAGEMENT ETC. THE VEG A ME REMAINED FULL SCALE DISTRIBUTOR EVEN UNDER THE NEW DISTRIBUTION MODEL IN WHICH IT WAS MA DE GLOBAL DISTRIBUTOR. APPELLANT EXECUTED DISTRIBUTORSHIP AGREEMENT WITH VEGA ME AND ALSO ADO PTED ASSOCIATED RISKS AS EARLIER YEARS. THERE WAS NO DILUTION OF ITS ACTIVITIES DURING THE YEAR A S COMPARED TO EARLIER YEARS. ACCORDINGLY, THE FINDINGS OF ITAT IN ASSESSMENT YEAR 2006-07 THAT VE GA UAE WAS DISTRIBUTOR TO THE APPELLANT COMPLETELY APPLY TO THIS YEAR. RESPECTFULLY FOLLOWING THE ORDER OF JURISDICTIONAL ITAT IN APPELLANT'S OWN CASE IN ASSESSMENT YEAR 2006-07, IT IS HELD THAT VEGA ME WAS A FULL-FLEDGED DISTRIBUTOR TO THE APPELLANT AND NOT MARKETING SERV ICE PROVIDER DURING THE YEAR. ONCE IF IS HELD THAT THE AE IS A DISTRIBUTOR, THE ALP HAS IS TO BE DETERMINED ON THE BASIS OF PROFIT ON SALE OF GOODS I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 10 RATHER THAN OPERATING MARGIN TO VALUE ADDED EXPENSE S. LIKE EARLIER YEARS, THIS YEAR ALSO APPELLANT HAD MARGIN OF 20.3% AS AGAINST AVERAGE MARGIN OF CO MPARABLE COMPANIES OF 12.63%. THEREFORE THE PROFIT MARGIN OF THE APPELLANT IS MUCH HIGHER T HAN THE AVERAGE OPERATING MARGIN OF COMPARABLE COMPANIES. IN VIEW OF THIS, NO TP ADJUSTMENT CAN BE MADE THIS YEAR ALSO. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH AS SUPRA WE DO NOT FIND ANY ERROR IN THE DECISION OF LD. CIT(A) THEREF ORE ALTERNATIVE CONTENTION OF THE REVENUE ALSO STANDS DISMISSED. GROUND NO. 2 (RESTRICTING DISALLOWANCE U/S. 35D TO RS. 3,92,316/- INSTEAD OF RS. 11,09,684/-) OF REVENUE AND GROUND NO. 2 ( DISALLOWANCE OF RS. 3,92,331 U/S. 35D OF THE ACT.) OF ASSESSEE 6. DURING THE COURSE OF ASSESSMENT, THE ASSESSING O FFICER NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 35D TO THE AMOU NT OF RS. 1,44,01,071/-. ON QUERY THE ASSESSEE EXPLAINED THAT IT HAS INCURRE D EXPENSES IN CONNECTION WITH THE ISSUE OF PUBLIC SUBSCRIPTION OF SHARES AND UNDER THE PROVISION OF SECTION 35D AN AMOUNT OF EQUAL TO 1/5 OF SAID EXPEN DITURE WILL BE ALLOWED AS BUSINESS EXPENDITURE FOR EACH OF THE FIVE SUCCESSIV E PREVIOUS YEARS. AFTER VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER STATED THAT THE EXPENSES ALLOWABLE U/S. 35D(2) FOR A COMPA NY ARE AS UNDER:- WHERE THE ASSESSEE IS A COMPANY, ALSO EXPENDITURE (I) BY WAY OF LEGAL CHARGES FOR DRAFTING THE MEM ORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY; (II) ON PRINTING OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION; (III) BY WAY OF FEES FOR REGISTERING THE COMPANY UN DER THE PROVISIONS OF THE COMPANIES ACT, 1956 (1 OF 1956); (IV) IN CONNECTION WITH THE ISSUE, FOR P UBLIC SUBSCRIPTION, OF SHARES IN OR DEBENT URES OF THE COMPANY, BEING UNDERWRITING COMMISSION, BROKERA GE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS; AFTER REFERRING THE AFORESAID PROVISION, THE ASSESS ING OFFICER HAS STATED THAT ONLY SPECIFIC EXPENDITURE INCURRED IN CONNECTION WI TH ISSUE OF SHARES FOR I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 11 PUBLIC SUBSCRIPTION ARE ALLOWABLE. THEREFORE, ON V ERIFICATION, THE ASSESSING OFFICER STATED THAT ASSESSEE HAS DEBITED NUMBER OF EXPENSES UNDER THIS HEAD WHICH ARE NOT COVERED BY SECTION 35D(2) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER STATED THAT IN THE CASE OF THE AS SESSEE COMPANY THE EXPENSES WHICH ARE NOT COVERED BY SECTION 35(2) ARE AS UNDER:- TRAVELLING AND HOTEL EXPENSES 97323848 (STAFF + ENAM + SPI CAP + AMARCHAND) OTHER EXPENSES (GIFT VOUCHERS TO PRESS REPORTERS ET C.) 41000.00 SEBI FILING FEES OF DRAFT R.H.P. 250000 00 BSE FOR PROCESSING FEE TO GET THEIR APPROVAL TO USE - 62600 USE USAGE OF ELECTRONIC FACILITY & SOFTWARE OF THE 783500 INITIAL LISTING FEES 20000 ANNUAL LISTING FEES 30000 896100.00 NSE USE USAGE OF ELECTRONIC FACILITY & SOFTWARE OF THE 870125 INITIAL LISTING FEES 7000 ANNUAL LISTING FEES 28500 905625.00 SANJAY MAJMUDAR 8 ASSOCIATES PROFESSIONAL FEES - 500000 AIR FARE - MUM - A'BAD - 2965 HOTEL CHARGES & LOCAL CONV. EXPENSES 19326 5222 91.00 RIA FINTELLIGENCE 22000.00 INTIME SPECTRUM REGISTRY LTD. 816144.50 NATIONAL SECURITIES DEPOSITORS LTD. 401953.00 CENTRAL DEPOSITORS SERVICES (INDIA) LTD. 220070. 00 TALATI & TALATI - CERTIFICATE IN CONNECTION WITH PR OSPECTUS FILED WITH SEBI 500000.00 TOTAL ... 5548421.50 REFERRING THE PROVISIONS OF SECTION, THE ASSESSING OFFICER OBSERVED THAT ONLY SPECIFIC EXPENDITURE INCURRED IN CONNECTION WITH IS SUE OF SHARES FOR PUBLIC SUBSCRIPTION ARE ALLOWABLE. ACCORDINGLY, OUT OF THE TOTAL EXPENDITURE ON WHICH THE ASSESSEE HAS MADE CLAIM U/S. 35D OF THE A CT, THE ASSESSING OFFICER HAS REDUCED THE AFORESAID AMOUNT OF RS. 55, 48,421/- AND CONSEQUENTLY 1/5 SUCH EXPENSES TO THE AMOUNT OF RS . 11,09,684/- WAS DISALLOWED OUT OF THE CLAIM PERTAINING TO THE YEAR UNDER CONSIDERATION. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 12 7. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT (A). THE CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE REL EVANT PART OF THE FINDINGS OF THE LD. CIT(A) IS AS UNDER:- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER TREATED PART OF THE PUBLIC ISSUE EXPENSES AS NOT ELIGIBLE UNDER SECTION 35D AND DISALLOWED 20% OF SUCH INELIGIBLE EXPENSES. APPELLA NT SUBMITTED THAT 20% OF THE PUBLIC ISSUE EXPENSES NOT IN EXCESS OF 5% OF TOTAL COST OF PROJE CT ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 35D [2). SINCE APPELLANT INCURRED PUBLIC ISSUE EXPENSES OF RS 7,55,92,199 AND CLAIMED 20% OF RS 7,20, 05,356 [5% OF COST OF PROJECT). SINCE PUBLIC ISSUE EXPENSES CLAIMED BY THE APPELLANT EXCEEDED 5% OF THE COST OF PROJECT, THE ELIGIBLE AM OUNT WAS RESTRICTED TO RS 7,20,05,356 ON WHICH APPELLANT CLAIMED 20% DEDUCTION. AFTER NOT CONSIDER ING EXPENSES TO THE EXTENT OF RS 55,48,422, ASSESSING OFFICER WORKED OUT ELIGIBLE PUBLIC ISSUE EXPENSES OF RS 7,00,43,777. THIS AMOUNT IS LESS THAN 5 % OF COST OF PROJECT AND THEREFORE THE SAME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 35D. SINCE APPELLANT CLAIMED DEDUCTION ONLY ON 20% OF RS 7,20,05,356 AND IT IS NOW HELD TO BE ELIGIBLE FOR DEDUCTION ON 7,00,43,777 THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER WILL BE EFFECTIVE ONLY IN RESPECT OF THE DIFFERENCE BETWEEN THESE TWO FIGURES AND NOT THE AMOUNT OF EXPENSES CONSIDERED TO BE NOT ELIGIBLE. ACCORDINGLY THE 20% OF DISALLOWED PUBLIC ISSUE EXPE NSES NOT ELIGIBLE WILL BE RS 3,92,316 WHICH SHOULD HAVE BEEN DISALLOWED BY THE AO. AS AGAINST THIS, ASSESSING OFFICER STRAIGHTAWAY DISALLOWED 20% OF TH E EXPENSES TREATED BY HIM AS NOT ELIGIBLE WHICH IS NOT CORRECT. ACCORDINGLY ASSESSING OFFICER IS DIRECTED TO RESTRI CT THE DISALLOWANCE UNDER SECTION 35D TO RS 3,92,316 AS AGAINST RS 11,09,684. APPELLANT DID NOT PRESS GROUND AGAINST AO'S ORDER T REATING SOME OF THE PUBLIC ISSUE EXPENSES AS NOT ELIGIBLE FOR DEDUCTION HENCE THE ASSESSING OFFI CER'S ORDER TREATING RS 55,48,422 AS NOT ELIGIBLE FOR DEDUCTION IS CONFIRMED. 8. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS CONTENDED IN ITS SUBMISSION BEFORE THE LD. CIT( A) THAT ACCORDING TO SECTION 35D(3), IF THE AGGREGATE AMOUNT OF THE ELIG IBLE PUBLIC ISSUE EXPENDITURE IS IN EXCESS OF 5% OF THE TOTAL COST OF PROJECT, THE SAID EXPENSES TO BE IGNORED. THEREFORE THE ASSESSEE SUBMITTED B EFORE THE LD. CIT(A) THAT DISALLOWANCE U/S. 35D SHOULD BE REDUCED TO RS. 3,92 ,316/- AS AGAINST RS. 11,09,684/- AFTER GOING THROUGH THE FINDINGS OF LD . CIT(A) WE CONSIDER THAT ASSESSING OFFICER HAS INCORRECTLY COMPUTED THE DISA LLOWANCE U/S. 35D. IT IS NOTICED THAT ASSESSEE HAS CLAIMED PUBLIC ISSUE EXPE NSES ON THE BASIS OF 5% OF THE COST OF THE PROJECT TO THE AMOUNT OF RS. 7,20,0 5,356/- AS AGAINST PUBLIC ISSUE EXPENSES OF RS. 7,55,92,199/-. THE ASSESSING OFFICER HAS WORKED OUT ELIGIBLE PUBLIC EXPENSES TO THE TOTAL AMOUNT OF RS. 7,00,43,777/- AFTER I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 13 REDUCING THE INELIGIBLE EXPENSES OF RS. 55,48,422/- OUT OF TOTAL PUBLIC ISSUE EXPENSES OF RS. 7,55,92,199/-. IN THE LIGHT OF THE ABOVE FACTS AND FINDINGS, WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE LD. CIT(A) HOLDING THAT DIFFERENCE OF RS. 7,20,05,356/- AND RS. 7,00,43,777 /- IS TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE AS AGAINST DISALLOWANCE OF RS. 55,48,421/- MADE BY THE ASSESSING OFFICER. THEREFORE, WE CONSIDER T HAT LD. CIT(A) IS JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO THE EXTENT OF R S. 3,92,316/- AS AGAINST DISALLOWANCE OF RS. 11,09,684/- MADE BY THE ASSESSI NG OFFICER. IN VIEW OF THE ABOVE FACTS AND FINDINGS OF THE LD. LD. CIT(A), WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE ASSESSEE. ACC ORDINGLY, THIS APPEAL OF REVENUE AND ASSESSEE STANDS DISMISSED. GROUND NO. 3 (DELETING DISALLOWANCE OF RS. 6,51,81, 105/- TOWARDS BURNING LOSS) 9. DURING ASSESSMENT ON VERIFICATION OF PRODUCTION ALONG WITH PURCHASES AND CLOSING STOCK, THE ASSESSING OFFICER NOTICED TH AT ASSESSEE HAS SHOWN LOSS OF 3019 MT OF RAW MATERIALS IN THE MANUFACTURING PR OCESS. THE ASSESSING OFFICER WAS OF THE VIEW THAT MATERIALS CANNOT BE DE STROYED IN THE PROCESS OF MANUFACTURING AND MATERIAL CHANGES ONLY THE FORM. ON QUERY, THE ASSESSEE EXPLAINED THAT THE MANUFACTURING PROCESS OF THE COM PANY WAS A MULTI PROCESS, COMPRISING OF MELTING, MOULDING, KNOCK OFF , FETTLING, MACHINING, FISHING ETC. AND AT EACH STAGE THERE WAS A LOSS OF WEIGHT IN THE CASTINGS. THE DETAILED SUBMISSION OF THE ASSESSEE HAS BEEN REPROD UCED AT PAGE NO. 16 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE STATING THAT ANY LEAKED MATERIAL AL WAYS PUT TO RECYCLE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AVERAGE BURNING LOSSES IN MELTING I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 14 SCRAP WAS GENERALLY AROUND 2%. THE ASSESSING OFFIC ER CONSIDERED THAT BURNING LOSSES CLAIMED WAS MUCH MORE THAN THE AVERA GE BURNING LOSS REPORTED BY THE INDUSTRY THEREFORE RESTRICTED THE L OSS OF RAW MATERIAL IN THE MELTING PROCESS OF SCRAPE TO 2% AND THE REMAINING C LAIM OF MELTING LOSS TO THE AMOUNT OF RS. 6,51,81,105/- WAS ADDED TO THE TO TAL INCOME OF THE ASSESSEE. 10. THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) . THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE DETAILED D ISCUSSION MADE BY THE LD. CIT(A) IN HIS ORDER IS AS UNDER:- 5.3 HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSM ENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER TREATED APPELLANT'S BURNING LOSS EXCESS AND MADE THE ADDITION ON ACCOUNT OF THIS. THE REASONS FOR SUCH ADDITION ARE- BURNING LOSS AS PER INTERNET DATA FOR MELTING IS 2% AND EXCISE DEPARTMENT IN SOME ASSESSMENTS CONSIDERED BURNING L OSS AT 2%. APPELLANT SUBMITTED THAT BURNING LOSS SUFFERED BY IT VARIED FROM 2.5% TO 8.19% IN NI NE YEARS INCLUDING THIS YEAR WHICH SHOWS THAT BURNING LOSS IS DIFFERENT EACH YEAR DEPENDING ON TH E PRODUCT AND INPUT MIX. APPELLANT ALSO SUBMITTED THAT IT INVOLVED SEVERAL PROCESSES IN MAN UFACTURING AND THEREFORE 2% BURNING LOSS WHICH IS IN MELTING ALONE, WILL BE MUCH HIGHER IF L OSSES IN ALL MANUFACTURING PROCESSES ARE CONSIDERED. APPELLANT FURTHER SUBMITTED THAT EXCISE DEPARTMENT EXAMINED ITS RECORDS AND DID NOT DISPUTE ITS BURNING LOSS IN ANY OF THE YEAR THEREFO RE THERE IS NO BASIS OF 2% BURNING LOSS MENTIONED BY THE ASSESSING OFFICER AS PER EXCISE DEPARTMENT. APPELLANT REFERRED INPUT OUTPUT NORMS MENTIONED IN EXPORT IMPORT POLICY OF GOVERNMENT OF INDIA AS PER WHICH FOR 1200 METRIC TON INPUT, EXPECTED OUTPUT IS 1000 METRIC TONS IN METAL FOUNDR Y INDUSTRY. AS PER THIS EVEN 16% LOSS OF METAL IS ACCEPTABLE. APPELLANT ALSO SUBMITTED COPIES OF A SSESSMENT ORDER, FIRST APPEAL ORDER AND ITAT'S ORDER FOR ASSESSMENT YEAR 2002-03 AND 2004-05 IN TH E CASE OF ITS ERSTWHILE SUBSIDIARY COMPANY RECLAMATION WELDING PVT LTD [NOW MERGED WITH THE AP PELLANT COMPANY AND NOW APPELLANT'S DIVISION). THIS COMPANY WAS DOING THE JOB WORK OF A PPELLANT DURING THESE PERIODS AND CLAIMED BURNING LOSS IN EXCESS OF 10%. ASSESSING OFFICER AL LOWED BURNING LOSS UP TO 5% AND DISALLOWED THE BALANCE. IN APPEAL, CIT (A) ALLOWED THE BURNING LOS S COMPLETELY. ITAT SET ASIDE THE ISSUE TO THE FILE OF AO WITH THE DIRECTION TO ALLOW BURNING LOSS AFTER CONSIDERING HISTORICAL DATA AND OTHER INFORMATIONS RECEIVED. AFTER CONSIDERING THE SAME, ASSESSING OFFICER ALLOWED COMPLETE BURNING LOSS IN EXCESS OF 10% CLAIMED BY THIS COMPANY. CONS IDERING THIS, APPELLANT CLAIMED THAT THIS ISSUE IS COVERED IN ITS FAVOUR BY THE ORDER OF ITAT IN IT S OWN CASE SINCE THE SAID COMPANY IS NOW MERGED WITH THE APPELLANT. IT IS NOT IN DISPUTE THAT THE BURNING LOSS CLAIMED BY THE APPELLANT IN VARIOUS YEARS VARIED FROM 2.5% TO 8.19% WHICH WAS ALWAYS ACCEPTED PY THE ASSESSING OFFICER. THE PRODUCTS OF THE APPELLANT ARE EXCISABLE AND THEREFORE UNDER THE SUP ERVISION OF EXCISE AUTHORITIES. EXCISE AUTHORITIES HAVE NOT FOUND APPELLANT'S BURNING LOSS EXCESSIVE IN ANY OT THE YEAR. ASSESSING OFFICER DID NOT FIND ANY DEFECT IN THE BOOKS OF ACC OUNTS WHICH ARE AUDITED. THERE IS NO ALLEGATION OF UNACCOUNTED PURCHASE OR SALE. THE ADDITION IS SIMPLY BASED ON SOME INTERNET DATA (SOURCE NOT MENTIONED BY THE AO) THAT MELTING PROCE SS INVOLVED 2% BURNING LOSS. THE MANUFACTURING PROCESSES OF THE APPELLANT INVOLVED S EVERAL STAGES AFTER MELTING OF SCRAP WHERE THERE IS LOSS OF METAL AND THEREFORE CONSIDERING THE BURNING LOSS OF ONE PROCESS IS NOT JUSTIFIED. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 15 EVEN IF ASSESSING OFFICER'S ARGUMENT IS ACCEPTED, T HE BURNING LOSS/METAL LOSS IN ALL PROCESSES OF MANUFACTURING WILL BE MUCH MORE THAN 2%. FURTHER, E XPORT IMPORT POLICY ALLOWED 16% MORE INPUT IN FOUNDRY INDUSTRIES IN THEIR INPUT-OUTPUT RATIO. EVEN IN THE CASE OF APPELLANT'S SUBSIDIARY COMPANY (NOW PART OF THE APPELLANT ITSELF) BURNING LOSS IN EXCESS OF EVEN 10% WAS HELD TO BE ALLOWABLE. THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN RESPECT OF BURNING LOSS IN EXCESS OF 5% WHICH WAS SET ASIDE BY ITAT WITH SPECIFIC DIR ECTIONS. AFTER CONSIDERING THE SAME, NO DISALLOWANCE ON ACCOUNT OF BURNING LOSS WAS MADE. S INCE THIS DECISION IS IN RESPECT OF APPELLANT'S SUBSIDIARY DOING THE JOB WORK OF APPELLANT ONLY, TH IS IS DIRECTLY APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. THIS ENTITY IS NOW PART OF THE AP PELLANT COMPANY AND THEREFORE THESE DECISIONS CANNOT BE IGNORED. THE CERTIFICATE FROM CENTRE FOR FOUNDRY EDUCATION AND RESEARCH SUBMITTED BEFORE ITAT CLEARLY MENTIONED THAT BURNING LOSS IS FROM 10 TO 14%. CONSIDERING ALL THESE FACTS AND ABSENCE OF ANY EVIDENCE TO PROVE CLAIM OF BURNI NG OF WRONG, I FIND BURNING LOSS CLAIMED BY THE APPELLANT REASONABLE AND WITHIN INDUSTRY NORMS. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 11. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHOWN BURNING LOSS OF 3019 MT WORKED OUT TO 5.78%. THE LD. CIT(A) IN HIS FINDING HAS ELABORATED THAT THE BURNING LOSS CLAIME D BY THE ASSESSEE IN VARIOUS YEARS WAS VARIED BETWEEN 2.5% TO 8.19% AND THE SAME WAS ACCEPTED BY THE DEPARTMENT AND THE PRODUCT OF THE ASSESSEE I S SUBJECT TO EXCISE DUTY AND THE EXCISE DEPARTMENT HAS NOT DISPUTED THE BURN ING LOSS OF THE ASSESSEE IN ANY OF THE YEAR. EVEN IN THE CASE OF RECLAMATIO N WELDING LTD A SUBSIDIARY CONCERN OF THE ASSESSEE NOW MERGED WITH THE ASSESSEE COMPANY, THE CO-ORDINATE BENCH OF THE ITAT ON SIMILAR FACTS HAS CONSIDERED THAT BURNING LOSS IN EXCESS OF EVEN 10% IS ALLOWABLE AND THE ASSESSING OFFICER WHILE PASSING ORDER U/S. 143(3) R.W.S. 254 OF THE A CT IN THE CASE RECLAMATION WEILDING LTD. ACCEPTED THE BURNING LOSS IN EXCESS O F 10%. THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE BURNING LO SS @ 2% IN A GENERAL MANNER IS NOT JUSTIFIED. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CI T(A). THEREFORE, THE APPEAL OF THE REVENUE ON THIS ISSUE IS DISMISSED. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 16 GROUND NO. 4 (DELETING THE ADDITION OF RS. 1,73,93, 300/- U/S. 115JB) 12. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER HAS MADE ADJUSTMENT ON ACCOUNT OF PRODUCT WARRANTY EXPENSES TREATING THE SAME AS UNASCERTAINED LIABILITIES. THE ASSESSING OFFICER H AS ASKED THE ASSESSEE TO EXPLAIN WHY THE PRODUCT WARRANTY EXPENSES OF RS. 1, 73,93,300/- SHOULD NOT BE ADDED FOR THE CALCULATION OF BOOK PROFIT U/S. 11 5JB OF THE ACT. THE ASSESSEE EXPLAINED THAT THERE WAS NO PROVISION WITH RESPECT TO ADDITION OF WARRANTY EXPENSES AS WELL AS EXPENSES DISALLOWABLE U/S. 14A OF THE ACT. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND HE WAS OF THE VIEW THAT THESE EXPENSES WERE PROVIDED O N ESTIMATION BASIS AND THE SAME WERE OF THE NATURE OF UNASCERTAINED LIABIL ITY. THEREFORE, THE ASSESSING OFFICER HAS ADDED THESE EXPENSES TO THE B OOK PROFIT UNDER SECTION 115JB OF THE ACT. 13. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CI T(A). THE LD. CIT(A) HAS DELETED THE IMPUGNED ADDITION. THE RELEVANT PA RT OF THE FINDING OF LD. CIT(A) IS AS UNDER:- 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER MADE ADJUSTMENTS ON A CCOUNT OF WARRANTY EXPENSES AND EXPENSES RELATING TO EXEMPT INCOME UNDER SECTION 11 5JB. ASSESSMENT IS MADE BY AO ON TOTAL INCOME UNDER THE NORMAL PROVISIONS OF IT A CT THEREFORE THIS GROUND IS ONLY ACADEMIC WITHOUT HAVING ANY TAX IMPACT. AS REGARDS WARRANTY EXPENSES, APPELLANT SUBMITTED THAT THESE ARE ACTUAL EXPENSES AND NOT ME RE PROVISION OF UNASCERTAINED LIABILITY. ASSESSING OFFICER HAS ACCEPTED THE WARRA NTY EXPENSES IN REGULAR ASSESSMENT AND NO ADDITION HAS BEEN MADE TO THE TOTAL INCOME. THIS CLEARLY SHOWS THAT THE CLAIM WAS NOT IN RESPECT OF UNASCERTAINED LIABILITY. THE DECI SION OF HONOURABLE SUPREME COURT RELIED UPON BY THE APPELLANT ALLOWED WARRANTY EXPENSES EVE N ON ESTIMATE BASIS, SINCE APPELLANT CLAIMED WARRANTY EXPENSES ON THE BASIS OF ACTUAL CLAIMS AS MENTIONED IN ITS SUBMISSION, THERE IS NO QUESTION OF MAKING ADJUSTME NT OF THIS AMOUNT TO THE BOOK PROFIT. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED NOT TO A DD WARRANTY EXPENSES TO BOOK PROFIT UNDER SECTION 1 1 5 JB. AS REGARDS ADDITION TO BOOK PROFIT IN RESPECT OF EX PENSES RELATING TO EXEMPT INCOME UNDER SECTION 10, ASSESSING OFFICER DISALLOW ED THE EXPENSES UNDER SECTION 14A WHICH WAS ADDED TO THE BOOK PROFIT. IF IS CLEARLY M ENTIONED UNDER SECTION 115 JB THAT EXPENSES RELATING TO EXEMPT INCOME UNDER SECTION 10 , 11, 12 ARE TO BE ADDED TO THE BOOK PROFIT. SINCE APPELLANT INCURRED EXPENSES RELATING TO EXEMPT INCOME I.E. DIVIDENDS, THE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 17 SAID EXPENSES ARE TO BE INCLUDED IN BOOK PROFIT. TH E ESTIMATION OF SUCH EXPENSES IS AS PER RULE 8D. EVEN WITHOUT APPLYING THIS RULE, THE E XPENSES RELATING TO EXEMPT INCOME HAS TO BE ADDED TO THE BOOK PROFIT. THEREFORE I CONFIRM THE ASSESSING OFFICER'S ACTION OF INCLUDING EXPENSES RELATING TO EXEMPT INCOME TO THE BOOK PROFIT UNDER SECTION 115 JB. 14. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. THE ASSESSEE HAS INCURRED ACTUAL WARRANTY EXPENSES OF R S.1,73,93,300/- AS AGAINST WHICH PROVISION FOR WARRANTIES OF RS. 20 LA CS WAS CREATED DURING THE YEAR UNDER CONSIDERATION AND NET AMOUNT DEBITED TO P & L ACCOUNT WAS RS. 1,41,46,908/-. THE HONBLE SUPREME COURT IN THE CA SE OF ROTARK CONTROLS INDIA (P) LTD. VS. CIT (2009) 314 ITR 62 HELD THAT PROVISION OF WARRANTY IS AN ALLOWABLE EXPENDITURE IN THE YEAR OF PROVISION. THE LD. CIT(A) HAS ALSO CONSIDERED THE RELIANCE MADE BY THE ASSESSEE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. HIMALAYA MACHINERY P. LTD. (2011) 11 TAXMANN.COM 284 (GUJ) THAT WHEN ACTUAL EX PENDITURE IS MORE THAN PROVISION MADE BY AN ASSESSEE IT CAN BE CONCLU DED THAT PROVISION MADE BY ASSESSEE IS CAPABLE OF BEING ESTIMATED WITH REAS ONABLE CERTAINTY. IN THE LIGHT OF THE ABOVE FACTS, WE DO NOT FIND ANY INFIRM ITY IN THE DECISION OF LD. CIT(A) HOLDING THAT ASSESSEE HAS CLAIMED WARRANTY E XPENSES ON THE BASIS OF ACTUAL CLAIM AND THE SAME IS NOT REQUIRED TO BE ADD ED U/S. 115JB OF THE ACT. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 1757/AHD/2012 A.Y. 2008-09 FILED BY ASSESSE E GROUND NO. 1 (DISALLOWANCE OF RS. 62,41,258/- U/S. 14A OF THE ACT) 15. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 9,70,22, 344/- CLAIMED AS EXEMPT FROM INCOME TAX. THE ASSESSING OFFICER FURTHER NO TICED THAT ASSESSEE HAS MADE INVESTMENT TO THE AMOUNT FOR RS. 1,16,01,24,00 0/- AS ON 31 ST MARCH, I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 18 2008 AND THE VALUE OF THE INVESTMENT AS ON 31 ST MARCH, 2007 WAS RS. 164,32,79,863/. ON PERUSAL OF THE MATERIAL ON RECO RD, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD MADE SUBSTANTIAL INVESTM ENT OUT OF WHICH IT HAD EARNED SUBSTANTIAL INCOME CLAIMED AS EXEMPT FROM TA X. THE EXEMPT INCOME WAS CONSTITUTED 11% OF THE TOTAL PROFIT EARNED BY T HE ASSESSEE COMPANY HOWEVER THE ASSESSEE HAS NOT DISALLOWED ANY AMOUNT ACCORDING TO THE PROVISION OF SECTION 14A OF THE ACT. ON QUERY THE ASSESSEE SUBMITTED THAT DURING THE YEAR THE ASSESSEE COMPANY HAS NOT UTILIZ ED ANY BORROWED MONEY FOR THE PURPOSE OF INVESTMENT AND THE INVESTMENT HA D BEEN MADE OUT OF ITS OWN FUND. IT IS ALSO SUBMITTED THAT ASSESSEE COMPA NY HAS NOT INCURRED ANY DIRECT EXPENDITURE TO EARN THE EXEMPT INCOME AND ST ATED THAT SECTION 14A R.W.R. 8D WAS NOT APPLICABLE IN RESPECT OF INVESTME NT MADE OUT OF ITS OWN FUND. THE ASSESSEE HAS FURTHER SUBMITTED THAT TO A VOID LITIGATION IT HAS CALCULATED DISALLOWANCE OF RS. 9,32,489/- U/S. 14A R.W.R. 8D OF THE IT ACT. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSI ON OF THE ASSESSEE STATING THAT ASSESSEE HAS NOT DISALLOWED ANY AMOUNT AS REQUIRED UNDER THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. THE ASSESSING OFFICER ALSO STATED THAT RETURN ON INVESTMENTS WAS NOT AUTO MATIC AND IT INVOLVES TIME, ENERGY AND RESOURCES IN TERMS OF FINANCE, ADMINISTR ATION, DECISION MAKING AND MANAGING ACTIVITIES INVOLVING BUYING AND SELLIN G OF THE INVESTMENT AND INVESTMENT OF THE DIVIDENDS. IN THE LIGHT OF THE AB OVE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER STATED THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND DISALL OWANCE OF EXPENDITURE WAS WORKED OUT AS PER RULE 8D OF I.T. RULE. ACCORDINGL Y, AN AMOUNT OF RS. 71,73,745/- U/S. 14A R.W.R. 8D OF THE I. T ACT WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 19 16. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE . THE RELEVANT PART OF THE ORDER OF LD. CIT(A) IS AS UNDER:- 3.3 I HAVE CONSIDERED THE (ACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER MADE DISALLOWANCE OF EXPENSE RELATING TO EXEMPT INCOME. SUCH DISALLOWANCE WAS CONSIDERED NECESSARY SI NCE APPELLANT DID NOT DISALLOW ANY PART OF COMMON INTEREST AND OTHER EXPENSES TREATING THE SAM E AS RELATING TO INVESTMENT RESULTING IN EXEMPT INCOME. NOW RULE 8D IS HELD TO BE APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008-09 BY BOMBAY HIGH COURT, THE DISALLOWANCE OF EXPENSES REL ATING TO EXEMPT INCOME ARE TO BE MADE BY THE METHOD PRESCRIBED IN THE SAID RULE, IT IS NOT IN DISPUTE THAT APPELLANT MADE INVESTMENT OF RS 13,857 LACS WHICH CARS ONLY RESULT IN EXEMPT INCOME IN THE FORM OF DIVIDEND. APPELLANT PAID INTEREST OF RS 8.49 LACS ON BORROWED FUNDS USED FOR BUSINESS PURPOSES AS WELL AS MAKING INVESTMENTS. APPELLANT INCURRED OTHER ADMINISTRATIV E EXPENSES, PART OF WHICH MAY RELATE TO INVESTMENT ONLY RESULTING IN EXEMPT INCOME. SIMILA RLY PAYMENT OF INTEREST WILL ALSO PARTLY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME THEREFORE DIS ALLOWANCE UNDER SECTION 14 A ON ACCOUNT OF INTEREST AND OTHER EXPENSES ARE NECESSARY. THE DECI SIONS RELIED UPON BY THE APPELLANT ARE PRIOR TO ASSESSMENT YEAR 2008-09 WHEN THE RULE 80 WAS NOT AP PLICABLE. ACCORDINGLY, THESE DECISIONS ARE NOT APPLICABLE TO THIS ASSESSMENT YEAR WHEN THE DIS ALLOWANCE IS TO BE MADE AS PER THE FORMULA GIVEN IN RULE 8D. COMING TO THE METHOD OF COMPUTATION TO DISALLOWANCE UNDER SECTION 14 A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABLE TO EXEMPT INC OME AS PER RULE SD WHICH IS MANDATORY FROM ASSESSMENT YEAR 2008-09. FOR INTEREST, PROPO RTIONATE EXPENSE IS DISALLOWABLE WHEREAS FOR OTHER EXPENSES .5% OF AVERAGE INVESTMENT VALUE IS DISALLOWABLE. CONSIDERING THE FACT THAT APPELLANT CLAIMED HUGE ADMINISTRATIVE AND OTHER EXPENSES, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER @.5% OF INVE STMENT RESULTING IN EXEMPT INCOME IS AS PER THE FORMULA GIVEN IN RULE 8D WHICH IS MANDATOR Y FOR MAKING DISALLOWANCE. IN VIEW OF THIS THE ADDITION @ .5% OF INVESTMENT RESULTING IN EXEMPT IN COME MADE BY THE ASSESSING OFFICER IS CONFIRMED. AS REGARDS INTEREST, APPELLANT HAS BORROWED FUNDS O N WHICH INTEREST WAS PAID. WHILE MAKING INVESTMENTS, BOTH BORROWED FUNDS AS WELL AS OWN FUNDS WERE USED HENCE ONE CANNOT SAY THE: BORROWED FUNDS WERE USED ONLY FOR BUSINESS PUR POSE AND OWNED CAPITAL WAS ONLY USED FOR INVESTMENT. ADMITTEDLY NO SEPARATE ACCOUNT: ARE MAI NTAINED FOR BUSINESS AND INVESTMENT ACTIVITIES THEREFORE APPELLANT'S CLAIM IS NOT JUSTIFIED THAT B ORROWED FUNDS WERE NOT USED IN MAKING INVESTMENT THEREFORE IN THE ABSENCE OF CLEAR CUT DETAILS OF UT ILIZATION OF FUNDS, THE FORMULA GIVEN IN RULE 8D WHICH IS MANDATORY THIS YEAR IS TO BE APPLIED. THER EFORE DECISION RELIED UPON BY THE APPELLANT IS NOT APPLICABLE TO THIS YEAR WHEN RULE 8D IS MANDATO RY. SINCE ASSESSING OFFICER WORKED OUT INTEREST DISALLOWANCE AS PER RULE 8D, THE INTEREST DISALLO WANCE IS CONFIRMED. 17. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE US, THE LD. COUNSEL CONTENDED THAT ASSESSING OFFICER HAS NOT RECORDED S PECIFIC SATISFACTION AS TO WHY THE DISALLOWANCE OF RS. 9,32,487/- COMPUTED BY THE ASSESSEE U/S. 14A WAS NOT CORRECT. THE LD. COUNSEL ALSO SUBMITTED T HAT ASSESSING OFFICER AND LD. CIT(A) HAS FAILED TO APPRECIATE THAT ASSESSEE H AS SUBSTANTIAL INTEREST FREE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 20 FUND FOR MAKING INVESTMENT. THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS:- > CIT VS. TORRENT POWER LTD. - 363 ITR 474 (GUJ.) > CIT VS. SUZLON ENERGY LTD. - 354 ITR 630 (GUJ) > CIT VS. GUJARAT POWER CORPORATION LTD. - 352 ITR 583 (GUJ) > CIT VS. HITACHI HOME & LIFE SOLUTIO NS (I). LTD. - (2014) 41 TAXMANN.COM 540 (GUJ) > CIT VS. RELIANCE UTILITIES & POWER LTD. - 313 I TR 340 (BOM) > MUNJAL SALES CORPORATION VS. CIT - 298 ITR 298 ( SC) THE LD. COUNSEL ALSO SUBMITTED THAT ASSESSEE WAS HA VING SUBSTANTIAL INTEREST FREE FUNDS THAN THE INVESTMENT. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LOWER AUT HORITIES AND CONTENDED THAT ASSESSING OFFICER HAS MADE DISSATISFACTION ON THE ACTION OF THE ASSESSEE OF NOT MAKING DISALLOWANCE ACCORDING TO PROVISION O F SECTION 14A OF THE ACT. 18. HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS MADE DETAILED SUBMISSION DATED 18 TH FEB, 2013 EXPLAINING THAT IT HAS NOT USED ANY BORROWED FUND FOR THE PURPOSE OF INVESTMENT AND ALS O SUBMITTED THAT ASSESSING OFFICER SHOULD DETERMINE THE EXPENDITURE IN ACCORDANCE WITH THE PRESCRIBED FORMULA ONLY IF HE IS SATISFIED THAT THE METHOD ADOPTED BY THE ASSESSEE IS INCORRECT. THE DETAILS OF SUCH INTERES T FREE FUNDS AND INVESTMENTS AS GIVEN IN THE SUBMISSION OF THE ASSESSEE ARE AS F OLLOWS:- PARTICULARS POSITION AS AT 31.03.08 (RS. IN LAC) POSITION AS AT 31.03.07 (RS. IN LAC) REFERENCE (A) SHAREHOLDER'S FUND 52513.38 42562.02 PGS.36-128 @ 80OFPB-I I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 21 (B) INVESTMENTS 11601.24 16432.79 PG. 10 OFASST. ORDER RATIO (IN TIMES) 4.53 TIMES 2.59 TIMES AFTER TAKING INTO CONSIDERATION, THE AFORESAID FACT S AND AVAILABILITY OF INTEREST FREE FUND AND FINDING OF THE VARIOUS JUDICIAL PRONO UNCEMENTS AS CITED BY THE LD. COUNSEL, WE CONSIDER THAT NO DISALLOWANCE SHOUL D BE MADE OUT INTEREST INCOME AS ASSESSEE HAS HAVING SUBSTANTIAL INTEREST FREE FUND. THE ASSESSEE HAS GIVEN THE DETAIL OF CALCULATION V IDE WHICH IT HAS BIFURCATED THE EXPENDITURE IN THREE CATEGORIES. (I) EXPENSES DIRECTLY RELATED TO MANUFACTURING AND SALES. (II) EXPENSES DEEMED TO RELATABLE TO EXEMPT INCOME . (III) EXPENSES DIRECTLY RELATED TO EXEMPT INCOME. ACCORDINGLY AS PER THE DETAILED SUBMISSION OF THE A SSESSEE PRODUCED AT PAGE NO. 12 OF THE ASSESSMENT ORDER , THE ASSESSEE HAS S UO MOTO COMPUTED THE DISALLOWANCE RELATED TO EXEMPT INCOME TO THE AMOUNT OF RS. 9,32,487/-. HOWEVER, WITHOUT CONTRADICTING THE COMPUTATION MADE BY THE ASSESSEE WITH ANY SPECIFIC FINDING THE ASSESSING OFFICER HAS SIMP LY STATED THAT WORKING PROVIDED BY THE ASSESSEE WAS ARBITRARY AND WAS VOID OF ANY MERIT. THE ASSESSING OFFICER HAS MADE GENERAL OBSERVATION STAT ING THAT INVESTMENT WAS NOT AUTOMATIC AND INVOLVES TIME, ENERGY, AND RESOUR CES ETC. STATING THE AFORESAID DISSATISFACTION, THE ASSESSING OFFICER HA S COMPUTED THE DISALLOWANCE AS PER RULE 8D TO THE AMOUNT OF RS. 71 ,73,745/-. IN THIS REGARD WE HAVE GONE THROUGH THE PROVISION OF SUB-SECTION 2 OF SECTION 14A WHEREIN IT IS PROVIDED THAT DISALLOWANCE SHALL BE DETERMINE D IN ACCORDANCE WITH SUCH I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 22 METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFI CER, HAVING REGARDS TO THE ACCOUNT OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE RELA TED TO EXEMPT INCOME. HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVE STMENT LTD. VS. CIT (2011) TAXMAN.COM 390/203 TAXMAN 364/[2012] 347 REG ARDING RECORDING OF SATISFACTION PRIOR TO INVOKING SECTION 14A HELD THA T BEFORE INVOKING 14A, THE ASSESSING OFFICER HAS TO RECORD HIS SATISFACTION, H AVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, THAT CLAIM MADE BY THE AS SESSEE OF AN EXPENDITURE INCURRED IN EARNING EXEMPT INCOME, OR A CLAIM THAT NO EXPENDITURE IS INCURRED BY HIM IN EARNING EXEMPT INCOME IS NOT COR RECT. IT HAS BEEN PROVIDED IN THE PROVISIONS THAT ASSESSING OFFICER H AS TO RECORD A SATISFACTION HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE. I T MEANS THAT THE ASSESSING OFFICER HAS TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND ARRIVED AT A FINDING THAT CLAIM MADE BY THE ASSESSEE ABOUT EXPENDITURE I NCURRED IN RELATION TO EXEMPT INCOME IS NOT CORRECT. THERE HAS TO BE A RE FERENCE TO FACT SITUATION OR ANY CREDIBLE REASONING OR MATERIAL BY THE ASSESSING OFFICER AND SATISFACTION HAS TO BE ARRIVED AT HAVING REGARD TO ACCOUNTS OF A SSESSEE. FURTHER, IN THE CASE OF THE ASSESSEE ITSELF, THE C-ORDINATE BENCH O F THE ITAT VIDE AIA ENGINEERING VS. ADDITIONAL CIT (2012) 18 TAXMAN.COM 307/50 SOT 134 (AHD) HELD THAT ASSESSING OFFICER HAS TO DEMONSTRAT E THE REASON AS TO WHY HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. ANY ERROR IN COMPUTATION MADE BY THE ASSESSEE HAS TO BE RECOR DED OR ELSE THE ASSESSING OFFICER IS NOT JUSTIFIED IN CONCLUDING AN D MAKING FRESH COMPUTATION OF DISALLOWANCE U/S. 14A. IN THE PAPER BOOK, THE ASSESSEE HAS PLACED THE SUBMISSION AT PAGE NO. 242 MADE TO THE A SSESSING OFFICER FOR ASSESSMENT YEAR 2008-09 ON 8 TH NOV, 2011 STATING THAT DURING THE YEAR THE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 23 ASSESSEE COMPANY HAD EARNED DIVIDEND OF RS. 9,70,22 ,344/- AS PER DETAILED BELOW:- (A) DIVIDEND FROM WELCAST STEELS LTD. RS. 9,13,76 2/- (B) DIVIDEND FROM MUTUAL FUNDS RS. 9.61,08,582/- TOTAL RS. 9,70,22,344/- IN THE AFORESAID SUBMISSION, THE ASSESSEE COMPANY H AS SPECIFICALLY BROUGHT TO THE KNOWLEDGE OF THE ASSESSING OFFICER THAT TH E EXEMPT INCOME WAS EARNED IN THE FORM OF DIVIDEND ON THE AFORESAID INV ESTMENT WHICH WAS MADE THROUGH IPO FUNDS AND TO EARN THIS DIVIDEND INCOME NO DIRECT EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY. IT WAS ALSO BROUGHT TO THE NOTICE OF THE ASSESSEE THAT TO INVOKE RULE 8D, THE ASSESSING OFFICER HAS TO RECORD HIS SATISFACTION AFTER ESTABLISHING THE NEXUS OF THE EX PENDITURE WITH THE EXEMPT INCOME. THEN AGAIN IN ITS SUBMISSION DATED 24 TH AUGUST, 2011 PLACED AT PAGE NO. 302 OF THE PAPER BOOK, THE ASSESSEE HAS AG AIN BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER THAT ASSESSEE COMPANY HAS NOT INCURRED ANY DIRECT EXPENDITURE TO EARN THE EXEMPT INCOME AND HIGHLIGHT ED THE NATURE OF INVESTMENT MADE BY THE ASSESSEE COMPANY. THE ASSE SSEE HAS ALSO SUBMITTED ITS COPY OF ANNUAL REPORTS PLACED AT PAGE NO. 36 TO 128 OF THE PAPER BOOK, FOR PERUSAL OF THE ASSESSING OFFICER WHEREIN AS PER PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS SHOWN GROSS SALE FOR FINANCIAL YEA R 2007-08 TO THE AMOUNT OF RS. 77,137.59 LACS. THE ASSESSEE HAS ALSO GIVEN DETAILS OF ALL THE EXPENDITURE IN ITS ANNUAL ACCOUNT. FROM THE PERUS AL OF THE ANNUAL ACCOUNT, IT IS CLEAR THAT THE MAIN ACTIVITY OF THE ASSESSEE COMPANY WAS MANUFACTURING AND TRADING OF ALLOY STEEL CASTING. IN THE ANNUAL ACCOUNT, THE ASSESSEE HAS I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 24 ENCLOSED ALL THE SCHEDULE PERTAINING TO INCOME AND EXPENDITURE ALONG WITH THE ACCOUNTING NOTES. IT IS REFLECTED FROM THE ANN UAL ACCOUNT AND SCHEDULE OF THE ASSESSEE THAT ITS MAJOR EXPENSES ARE INCURRED F OR ITS MAIN BUSINESS OPERATION IN TRADING OF ALLOY STEEL CASTING. LOOKI NG TO THE ABOVE FACTS AND CIRCUMSTANCES, IT IS NOTICED THAT ASSESSING OFFICER HAS NOT SPECIFICALLY CONSIDERED THE NATURE OF EXPENSES REFLECTED IN THE ANNUAL ACCOUNTS OF THE ASSESSEE BEFORE INVOKING THE PROVISION OF RULE 8D I N COMPUTING THE DISALLOWANCE FOR EARNING EXEMPT INCOME. IN THE LI GHT OF THE ABOVE FACTS AND FINDING GIVEN IN THE JUDICIAL PRONOUNCEMENT AS REFE RRED SUPRA IN THIS ORDER, WE CONSIDER THAT ASSESSING OFFICER IS NOT JUSTIFIED IN COMPUTING THE DISALLOWANCE WITHOUT RECORDING SPECIFIC SATISFACTIO N AND EXAMINATION OF THE DETAILED ACCOUNT OF THE ASSESSEE COMPANY. IN VIEW OF THE FACTS AND FINDING AND CONSIDERING THE NATURE OF THE INVESTMENT AND TH E MAIN ACTIVITIES CARRIED OUT BY THE ASSESSEE COMPANY, WE CONSIDER THAT IT WO ULD BE APPROPRIATE TO RESTRICT THE DISALLOWANCE OF ADMINISTRATIVE EXPENDI TURE TOWARDS EARNING EXEMPT INCOME TO THE AMOUNT OF RS. 15 LACS. SINCE THE ASSESSEE HAS ITSELF MADE DISALLOWANCE TO THE EXTENT OF RS. 9,32,487/-, THEREFORE, WE RESTRICT THE ADMINISTRATIVE EXPENDITURE DISALLOWANCE TO THE EXTE NT OF RS. 5,67,513/- (15,00,000- 9,32,487). ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. GROUND NO. 3( ADDITION OF RS. 71,73,745/- OF THE AM OUNT OF DISALLOWANCE U/S. 14A FOR THE PURPOSE OF COMPUTATION OF BOOK PRO FIT U/S. 115JB OF THE ACT.) 19. WITHOUT REPEATING THE FACTS AS ALREADY ELABORAT ED WHILE ADJUDICATING THE GROUND NO. 1 OF APPEAL OF REVENUE IN THIS ORDER VIDE 1766/AHD/2012, WE CONSIDER THAT THIS ISSUE HAS BEEN ADJUDICATED BY TH E SPECIAL BENCH OF THE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 25 ITAT DELHI IN THE CASE OF THE VINIT INVESTMENT 165 ITD 27 (DELHI) (SB) WHEREIN IT IS HELD THAT DISALLOWANCE U/S. 14A IS NO T TO BE CONSIDERED FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. THEREF ORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 2342/AHD/2015 A.Y. 2009-10 FILED BY REVENU E GROUND NO. 1 (DELETING ADDITION OF RS. 35,06,67,309 /- BEING INCOME OF VEGA INDUSTRIES LTD.) & 20. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 1 VIDE ITA NO. 1766/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMILAR A S IN ITA NO. 2342/AHD/2017 ASSESSMENT YEAR 2009-10 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 1766 /AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED. GROUND NO. 2 (DELETING THE DISALLOWANCE OF EXCESS C LAIM OF DEPRECIATION OF RS. 2,27,644/- 21. DURING THE COURSE OF ASSESSMENT THE ASSES SING OFFICER NOTICED THAT ASSESSEE HAS SHOWN ADDITION OF RS. 86,65,518/- IN M OTOR VEHICLES OUT OF WHICH VEHICLE AMOUNTING TO RS. 13,00,823/- WERE PUR CHASED AND PUT TO USE AFTER FIRST JANUARY, 2009 BUT BEFORE 31 ST MARCH, 2009. ON VERIFICATION OF DEPRECIATION CHART, THE ASSESSING OFFICER FOUND THA T ASSESSEE HAS CLAIMED DEPRECIATION ON A CAR PURCHASED DURING THE YEAR @ 5 0%. AFTER VERIFICATION OF THE DETAIL SUBMITTED BY THE ASSESSEE, THE ASSESS ING OFFICER WAS OF THE VIEW THAT THE VEHICLE ON WHICH HIGHER RATE OF DEPRE CIATION CLAIMED WAS NOT REGISTERED AS COMMERCIAL VEHICLE BY THE RTO. THERE FORE, THE ASSESSING I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 26 OFFICER HAS REJECTED THE CLAIM OF ASSESSEE OF HIGHE R DEPRECIATION @ 50% AND ALLOWED THE DEPRECIATION AT NORMAL RATE OF 15%. TH EREFORE, EXCESS CLAIM OF DEPRECIATION OF RS. 2,27,644/- WAS DISALLOWED AND A DDED TO THE TOTAL INCOME OF THE ASSESSEE. 22. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED APPEAL OF THE ASSESSEE. 23. HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER HAS NO T ALLOWED THE CLAIM OF THE ASSESSEE OF HIGHER DEPRECIATION @ 50% STATING T HAT VEHICLE WAS NOT REGISTERED BY THE RTO AS COMMERCIAL VEHICLE. THE LD . CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE AFTER FOLLOWING THE DECIS ION OF CO-ORDINATE BENCH OF THE ITAT IN THE CASE OF DILIP S. CHANDMANI VS. A CIT IN ITA NO. 7307/AHD/2003. WE HAVE ALSO PERUSED THE DECISION O F THE CO-ORDINATE BENCH IN THE CASE OF SHREE BALAJI PRODUCT VS. ITO V IDE ITA NO. 2737/AHD/2013 DATED 12.08.2016 WHEREIN AFTER FOLLOW ING THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF DALEEP S. CHANDNAN I, THE SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE HOLDING THAT THER E IS NO SUCH CONDITION THAT VEHICLE WOULD QUALIFY AS COMMERCIAL VEHICLE WHEN LI CENSED TO BE USED AS PUBLIC TRANSPORT. CONSIDERING THE AFORESAID FACTS AND FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCHES IN AFORESAID CITED DECIS IONS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A), THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 27 GROUND NO. 3 (DELETING THE ADDITION OF RS. 28,36,47 ,565/- ON ACCOUNT OF UPWARD REVISION ON ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION) 24. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS SUBMITTED THAT SIMILAR ISSUE WAS ADJUDICATED BY THE ITAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 AND THE SA ME HAS BEEN FOLLOWED BY THE LD. CIT(A) IN ASSESSMENT YEAR 2007-08 AND 2008- 09 FOR ADJUDICATING THE ISSUE IN FAVOUR OF THE ASSESSEE. LD. DEPARTMENTAL REPRESENTATIVE WAS FAIR ENOUGH NOT TO CONTROVERT THESE UNDISPUTED FACTS THA T IDENTICAL ISSUE ON SIMILAR FACT HAS BEEN DECIDED IN FAVOUR OF THE ASSE SSEE IN EARLIER ASSESSMENT YEAR AS REFERRED ABOVE. THE LD. CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AFTER FOLLOWING THE DECISION OF ITAT PERTA INING TO THE ASSESSMENT YEAR 2006-07 AS REFERRED ABOVE. THE RELEVANT PART O F THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER:- GROUND NO. 6 WITH SUB GROUNDS 6.1 TO 6.3, GROUND NO. 7 TO 10 ARE INTERLINKED AGAINST THE UPWARD REVISION OF ARMS LENGTH PRICE MADE BY TPO IN RESPECT OF VARIOUS INTERNATIONAL TRANSACTION. AS DISCUSSED ABOVE WHILE DISPOSING GROUND NO. 1 THA T A.O. AFTER FOLLOWING THE STATUTORY PROCEDURE OF REFERRING THE APPELLANT'S DETAIL OF INTERNATIONA L TRANSACTION TO TPO WHO VIDE DT. 29/01/2013 U/S. 92CA(3) OF THE ACT MADE UPWARD ADJUSTMENT OF RS. 2 87992817(283647565+4345252), BUT SINCE THE A.O. HAS TREATED VEGA ME AS APPELLANT'S PROPRI ETARY CONCERN MADE NO SEPARATE ADDITION OF SUCH UPWARD REVISION. AS I HAVE ALREADY HELD THAT V EGA ME IS A SEPARATE ENTITY THEREFORE SUCH ADDITIONS ARE REQUIRED TO BE ADJUDICATED. THE A.O. IN THE IMPUGNED ORDER MENTIONED ABOUT THE AMOUNT WITH A NOTE THAT IN THE EVENTUALITY OF TREATING VEGA ME AND VEGA UK AS SEPA RATE ENTITY THEN SUCH UPWARD REVISION ARE REQUIRED TO BE MADE. IT IS THEREFORE, FOR 'THE FA CTS AND REASONS OF SUCH UPWARD REVISION, THE TPO ORDER DT. 29/01/2013 U/S. 92CA(3) OF THE ACT HAS TO BE CONSIDERED. THE TPO IN THAT ORDER AFTER CONSIDERING APPELLANT'S BUSINES S, DETAILS OF INTERNATIONAL TRANSACTIONS AS P ER AUDIT REPORT IN FROM 3CEB AND TRANSFER PRICING STUD Y REPORT DT. 09/4/2012 WHERE APPELLANT USED 'CUP' TO BENCH MARK PURCHASE OF RAW MATERIAL FROM V EGA US BROUGHT OUT THE DEFECTS IN THE TP STUDY CONDUCTED BY APPELLANT AND SHOW CAUSE THE APP ELLANT (PARA 5.10 IN TP ORDER) THE. TPO AFTER CONSIDERING APPELLANT REPLY DT. 28/01/2013 (P ARA 6 IN TP ORDER) REJECTED THE DETAILED EXPLANATION OFFERED BY APPELLANT AND CONDUCTED A FRESH FAR ANALYSIS (PARA 7 IN TP ORDER) AND HELD THAT 'SUCH FUNCTIONAL ANALYSIS AS WELL AS PERU SAL OF THE AGREEMENT BETWEEN VEGA ME AND AIA APPOINTING VEGA AS GLOBAL DISTRIBUTOR CLEARLY ESTAB LISHES THAT VEGA ME IS A MARKETING SUPPORT OFFICE OF THE ASSESSEE COMPANY WHICH ALSO OFFERS BA SIC TECHNICAL SUPPORT TO THE CUSTOMERS OF AIA ENGINEERING LTD. FOR THIS FUNCTION, THE REASONABLE AND ARM'S LENGTH REMUNERATION WOULD HAVE BEEN TO GIVE VEGA A MARKUP ON THE COSTS INCURRED BY IT. HOWEVER, AS PER THE AGREEMENT BETWEEN VEGA AND AIA, WHILE THE SALE PRICE OF AIA HAS BEEN PEGGED TO A FIXED LEVEL, VEGA HAS BEEN ALLOWED TO CHARGE A NEGOTIATED PRICE FROM THE ULTIMAT E CUSTOMERS THUS EFFECTIVELY TRANSFERRING THE ENTREPRENEURIAL REWARDS TO VEGA WHILE THE ENTREPREN EURIAL ROLE IS PLAYED BY AIA. THE TPO FURTHER CONSIDERED FUNCTIONAL CHARACTERIZATION OF VEGA ME I .E. BRAND VEGA, VEGA AS REALLOCATION OF I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 28 EXPORT OFFICE OF APPELLANT, CONTRIBUTION IN LEAD GE NERATION AND ORDER FOLLOWED-UP, RISING EXPORT AND FALL EXPORT RELATED TRAVEL OF APPELLANT'S PERSO NAL, DISTRIBUTION AGREEMENT ETC. AS CONTENDED BY APPELLANT IN TP PROCEEDINGS. THE A.O. ALSO CONSIDER ED VEGA AS TESTED PARTY AND HELD THAT ' THE FUNCTIONAL PROFILE OF VEGA ME REVEALS THAT IT IS NO MORE THAN A MARKETING SUPPORT OFFICE OF THE ASSESSES COMPANY DEPUTED TO PERFORM ADDITIONAL FUNC TIONS RELATED TO RENDERING OF PRIMARY TECHNICAL SERVICES IN ADDITION TO HANDLING BOOKING OF SALES ORDERS ETC.' THE TPO THEN FOUND COMPARABLE AND DETERMINED THE ARMS LENGTH PRICE ON THE BASIS OF BERRY RATIO OF 1.42 AND MADE UPWARD ADJUSTMENT OF RS. 283647565/-(PARA 10.1 AND 10.2 OF THE TP ORDER). THE APPELLANT CONTENDED IN APPEAL THAT THIS ISSUE I S COVERED BY THE ORDER OF HON'BLE ITAT IN THE CASE OF APPELLANT FOR A.Y. 06-07 WHICH HAS B EEN FOLLOWED BY MY PREDECESSOR IN APPELLANT'S APPEAL ORDER FOR A.Y. 07-08, A.Y. 08-09. THE APPELL ANT'S OBJECTION ARE ALREADY DISCUSSED AT ABOVE AT PARA 46. ' I AM INCLINED WITH APPELLANT THAT ON SIMILAR ISSUE WITH SIMILAR CONTENTION HON'BLE ITAT IN THE CASE OF APPELLANT FOR A.Y. 06-07, WHERE SUCH UP WARD REVISION WAS UPHELD BY DISPUTE RESOLUTION PANEL SET ASIDE SUCH ADDITION AND HELD I N FAVOUR OF APPELLANT. SUCH ORDER WAS FOLLOWED BY MY PREDECESSOR IN THE CASE OF APPELLANT FOR A.Y. 08-09 VIDE ORDER DT. 08/06/2012 AS FOLLOWS: 'I HAVE CONSIDERED THE FACTS OF THE CASE; TPO'S ORD ER AND APPELLANT'S WRITTEN SUBMISSION. TPO MADE THE SIMILAR ADJUSTMENTS IN ASSESSMENT YEAR 2006-07 WHICH WAS CONFIRMED BY DRP AGAINST WHICH APPELLANT PREFERRED APPEAL IN ITAT. I TAT AHMEDABAD BY ORDER DATED 23RD OF JANUARY 2012 IN ITA NUMBER 580/AHD/20T1 DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. THE DECISION OF ITAT ON THIS ISSUE IS GIVEN IN PARA-21 OF THE SAID ORDER WHICH IS QUOTED BELOW- 21.WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FI ND THAT THIS IS ONE OF THE REJECTIONS OF THE REVENUE THAT VEGA UAE IS NOT A DISTRIBUTOR BUT MARK ET SERVICE PROVIDER AND MERELY ON THIS BASIS, THE TP ANALYSIS CONDUCTED BY THE ASSESSEE HAD BEEN REJECTED BY THE TPO. HE HAS ADOPTED THE TRANSFER PRICING ADJUSTMENT ON THE BASIS OF OPERATI NG COST/OPERATING PROFIT PERCENTAGE OF VEGA UAE, VEGA UK AND EGA US. REGARDING THIS ASPECT THAT AS TO WHETHER VEGA UIAE IS A DISTRIBUTOR OR SIMPLY MARKETING SERVICE PROVIDER, WE FIND THAT THE OBJECTION OF THE REVENUE ON THIS ASPECT IS NOT SUSTAINABLE IN VIEW OF THE FACTS OF THE PRESENT CASE BECAUSE WE FIND THAT THE ASSESSEE COMPANY HAS EXECUTED PROPER DISTRIBUTOR AGREEMENT WITH VEGA JAE AND IF HAS BEEN ADHERED TO ALSO AND SINCE THE OBJECTION OF THE REVENUE THAT VEGA UAE IS NOT BEARING ANY INVENTORY AND CREDIT RISK, WE FIND THAT AS PER THE FACTS OF THE PRESENT CASE, BOT H THESE OBJECTIONS ARE NOT CORRECT AND VEGA UAE IS CARRYING BOTH THE INVENTORY RISK AS WELL AS CRED IT RISK AND THEREFORE, WE HOLD THAT VEGA UAE IS NOT A MARKETING SERVICE PROVIDER IN THE FACTS OF TH E PRESENT CASE BUT IT IS A DISTRIBUTOR OF THE ASSESSEE COMPANY. ONCE IT IS ACCEPTED THAT VEGA UAE IS A DISTRIBUTOR, ALP HAS TO BE DETERMINED ON THE BASIS OF PROFIT ON SALE OF GOODS BY THE ASSESSEE COMPANY AS COMPARED TO THE COMPARABLE COMPANIES. THE ASSESSEE HAS DEMONSTRAT ED THAT THE ARITHMETIC MEAN OF 3 YEARS WEIGHT AGE AVERAGE NOPM OF 12 COMPARABLE COMPANIES WAS 7.92% AS AGAINST NOPM OF 18.89% OF THE ASSESSEE FOR THE PRESENT YEAR. LATER ON THE ASSESSEE HAS ALSO FURNISHED THE REVISED ARITHMETIC MEAN OF NOPM OF THE COMPARABLE C OMPANIES ON THE BASIS OF CURRENT YEAR DATA ONLY AND IF WAS 7.04% WHEREAS MEAN OF 3 YEARS WEIGH T AGE AVERAGE NOPM OF 12 COMPARABLE COMPANIES WAS 7.92% AS AGAINST NOPM OF 18.89 % OF THE ASSESSEE FOR THE PRESENT YEAR. LATER ON, THE ASSESSEE HAS ALSO FURNISHED THE REVIS ED ARITHMETIC MEAN OF NOPM OF THE COMPARABLE CASES ON THE BASIS OF CURRENT YEAR DAT A ONLY AND IT WAS 7.04% AS AGAINST 7.92% ON THE BASIS OF 3 YEAR WEIGHT AGE AVERAGE. THE ASSESSE E HAS ALSO FURNISHED ONE ALTERNATIVE WORKING ON THE BASIS OF NET OPERATING PROFIT MARGIN OF VEGA UAE, VEGA UK AND VEGA US AND ARITHMETIC MEAN OF COMPARABLE COMPANIES. THE ARITHMETIC MEA N OF COMPARABLE COMPANIES IS HIGHER IN RESPECT OF ALL THE THREE VEGA ENTITIES AND HENCE, O N BOTH THESE BASIS, NO TP ADJUSTMENT IS CALLED FOR. TP ADJUSTMENT HAD BEEN PROPOSED BY THE TPO A ND CONFIRMED BY DRP ON THE BASIS OF OPERATING COST /OPERA TING PROFIT MARGIN OF VEG A UAE, VEGA UK AND VEGA US. THE SAME FOR VEGA US WAS CONSIDERED AS BASE AND DI FFERENCE OF VEGA UAE WAS PROPOSED AS TP ADJUSTMENT BY THE TPO BUT WHILE DOING SO, IF HAS TO BE KEPT IN MIND THAT OPERATING COST/OPERATING PROFIT MARGIN DEPENDS ON LEVEL OF OPERATING EXPENSE S INCURRED BY THE RESPECTIVE ' VEGA' ENTITIES AND ALSO 'THE' MAKING OF BUSINESS EARNING BY- THE R ESPECTIVE-VEGA ENTITIES. WE FIND THAT I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 29 PERCENTAGE OF EMPLOYEE COST TO FATAL TURNOVER OF VE GA US IS HIGHEST I.E. 6.5% AND IF IS LOWEST FOR VEGA UAE I.E. 1.3%. SIMILARLY, PERCENTAGE OF A DMINISTRATIVE EXPENSES, TO TURNOVER IS HIGHEST FOR VEGA US AND VEGA UK @ 4.9% AND IT IS ONLY 2% FO R VEGA UAE. IF THE OPERATING COST IS HIGHER IN VEGA US, IT CANNOT BE SAID THAT THE PROFI T MARGIN OF OTHER VEGA ENTITIES I.E. VEGA UK AND VEGA UAE SHOULD BE OF PAR WITH THE PROFIT MARG IN OF VEGA US AND HENCE, TP ADJUSTMENT PROPOSED BY TPO AND CONFIRMED BY DRP ON THE BASIS O F OPERATING COST/OPERATING PROFIT OF VEGA US IS NOT SUSTAINABLE. VARIOUS ALLEGATIONS RAISED BY THE TPO-FOR-NOT-ACCEPTING THE TP ANALYSIS CARRIED OUT BY THE ASSESSEE ARE NOT FOUND TO BE VAL ID AND , HENCE, WE HOLD THAT NO TP ADJUSTMENT IS CALLED FOR IN RESPECT OF VEGA (JAE. THE SAME IS DEL ETED. HENCE, GROUND NO.2 OF THE ASSESSEE IS ALLOWED.' FROM THE ABOVE, IT IS CLEAR THAT HONORABLE ITAT HAS TREATED VEGA UAE (MIDDLE EAST) AS FULL-FLEDGED-DISTRIBUTOR OF THE APPELLANT AS AGAINS T MARKETING SERVICE PROVIDER TREATED BY TPO. ALL THE ARGUMENTS OF TPO WERE CONSIDERED AND IT WAS HEL D THAT VEGA MIDDLE EAST WAS PERFORMING ALL THE FUNCTIONS OF A DISTRIBUTOR. IT WAS HELD TO BE T AKING INVENTORY RISK, CREDIT RISK AND OTHER RISKS ASSOCIATED WITH THE BUSINESS. VEGA ME (MIDDLE EAST) HAS NOW BECOME GLOBAL DISTRIBUTOR WITH VEGA US AND VEGA UK BECOMING ITS SUB-DISTRIBUTORS. THIS ENTITY WAS FOUND TO BE PERFORMING ALL THE ROLES OF A DISTRIBUTOR OF DEVELOPING MARKETING STRATEGY, LOGISTIC HANDLING, INVENTORY MANAGEMENT, WORKING CAPITAL MANAGEMENT ETC. THE VEG A ME REMAINED FULL SCALE DISTRIBUTOR EVEN UNDER THE NEW DISTRIBUTION MODEL IN WHICH IT WAS MA DE GLOBAL DISTRIBUTOR. APPELLANT EXECUTED DISTRIBUTORSHIP AGREEMENT WITH VEGA ME AND ALSO ADO PTED ASSOCIATED RISKS AS EARLIER YEARS. THERE WAS NO DILUTION OF ITS ACTIVITIES DURING THE YEAR A S COMPARED TO EARLIER YEARS. ACCORDINGLY, THE FINDINGS OF ITAT IN ASSESSMENT YEAR 2006-07 THAT VE GA UAE WAS DISTRIBUTOR TO THE APPELLANT COMPLETELY APPLY TO THIS YEAR. RESPECTFULLY FOLLOWI NG THE ORDER OF JURISDICTIONAL ITAT IN APPELLANT'S OWN CASE IN ASSESSMENT YEAR 2006-07, IT IS HELD THA T VEGA ME WAS A FULL-FLEDGED DISTRIBUTOR TO THE APPELLANT AND NOT MARKETING SERVICE PROVIDER DURING THE YEAR. ONCE IT IS HELD THAT THE AE IS A DISTRIBUTOR, THE ALP HAS IS TO BE DETERMINED ON THE BASIS OF PROFIT ON SALE OF GOODS RATHER THAN OPERATING MARGIN TO VALUE ADDED EXPENSES. LIKE EARL IER YEARS, THIS YEAR ALSO APPELLANT HAD MARGIN OF 20.3% AS AGAINST AVERAGE MARGIN OF COMPARABLE CO MPANIES OF 12.63%. THEREFORE THE PROFIT MARGIN OF THE APPELLANT IS MUCH HIGHER THAN THE AVE RAGE 'OPERATING MARGIN OF COMPARABLE COMPANIES'. IN VIEW OF THIS, NO TP ADJUSTMENT CAN B E MADE THIS YEAR ALSO. ON SIMILAR ISSUE AND IDENTICAL FACTS THE CO -ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT Y EAR 2006-07 HAS SET ASIDE SUCH UPWARD REVISION AND THE ISSUE WAS ADJUDICATED IN FAVOUR OF THE ASSESSEE. FOLLOWING THE DECISION OF THE CO-ORDINAT E BENCH OF THE ITAT FOR A.Y. 2006-07 AS ELABORATED SUPRA IN THE FINDINGS OF THE LD. CIT(A), THE APPEAL, OF THE REVENUE IS DISMISSED. GROUND NO. 3 OF ASSESSEE VIDE ITA NO. 2224/AHD/2015 & GROUND NO. 4 OF REVENUE VIDE ITA NO. 2342/AHD/2015 PARTLY DELETI NG CORPORATE GUARANTEE FOR ASSESSMENT YEAR 2009-10) I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 30 25. DURING THE COURSE OF ASSESSMENT THE ASSESS ING OFFICER STATED THAT A REFERENCE U/S. 92CA OF THE ACT FOR COMPUTATION OF A RMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION WAS MADE TO T HE TPO AND AFTER FOLLOWING THE ORDER OF TPO AN UPWARD ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION WITH VEGA UAE, FZE OF RS. 43,45,252/- O N ACCOUNT OF CORPORATE GUARANTEE WAS MADE. 26. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD . CIT(A). THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AS UN DER:- (F) GROUND NO.11 IS AGAINST THE UPWARD REVISION OF INTERNATIONAL TRANSACTION RELATED TO GUARANTEE ISSUED BY APPELLANT TOWARDS PERFORMANC E BOND AND BIDS WHICH WERE HELD BY TPO IN THE NATURE OF SERVICE RENDERED TO ASSOCIATED ENTERP RISES (AES).-THE APPELLANT OBJECTED FOR ADOPTION OF RATE AT 2,956% ALSO. THE TPO IN ITS ORD ER DT. 29/01/2013 DISCUSSED THIS ISSUE AT PARA 11 OF THAT ORDER. THE TPO CONSIDERED THAT APPELLANT ADMITTED FOR GIVING CORPORATE : GUARANTEE ON BEHALF OF VEGA ME AND -VEGA UK I.E. ITS AES AND RE COVERED A FEES OF RS. 235201/- AS INDICATED IN FORM NO. 3CEB. IT WAS FURTHER-OBSERVED THAT NO TP ANALYSIS-OF SUCH TRANSACTION CARRIED OUT. IT WAS ALSO OBSERVED THAT FEES @ 0.5% FOR ISSUANCE OF SUCH GUARANTEE WER E CHARGED FROM VEGA UK BUT NO SUCH FESS WAS RECOVERED BY VEGA ME, THE TPO EXAMINED APPELLAN T'S EXPLANATION THAT SUCH GUARANTEE HAD NOT BEEN GIVEN FOR PERFORMANCE BONDS AND BIDS SO TH E SAME ARE NOT QUALIFY AS GUARANTEE BUT TREATED AS A CORPORATE FUNCTION. THE A.O. OBSERVED THAT A PERFORMANCE GUARANTEE CARRIES A POTENTIAL FINANCIAL LIABILITY, WHICH IN THE CASE OF FAILURE OF THE BENEFICIARY, HAS TO BE MET BY THE GUARANTOR AND AFFECTS THE ASSETS OF THE GUARANTOR. THE TPO FOLLOWED THE RATIO OF US TAX COURT IN THE CASE OF CONTAINER CORPORATION FOR TREATING PROV IDING OF GUARANTEE AS SERVICE. THE TPO FOR THE BENCH MARKING ANALYZED THE BOND DATA IN US MARKET A ND FOUND THAT THE DIFFERENCE IN COUPON RATE (YIELD OR INTEREST RATE) IN RESPECT OF AA RATED BON D AND BB RATED BOND COMES TO 2.706% POINT. THIS WAS FURTHER INCREASED 25 BASIS POINT FOR THE C URRENCY RISK TO ARRIVE AT 2.956%. THE TPO COMPUTED UPWARD REVISION AS FOLLOWS: VEGA ME VEGA UK TOTAL GUARANTEE CHARGED 20,00,000 10,00,000 30,00,000 CONVERSION AT CLOSING RATE OF 51.76 103520000 51760000 155280000 GUARANTEE AT 2. 965% 3069368 1534684 4604052 LESS 0.5% IN CASE OF VEGA UK 258800 NET GUARANTEE FEE PAYABLE 3069368 1275884 4345252 I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 31 THE APPELLANT IN APPEAL REITERATED ITS CONTENTION A S THAT WERE THERE BEFORE THE TPO. I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE OBSER VATIONS OF THE TPO AND THE CONTENTIONS OF THE LD. A.R. THE TRANSACTION REPRES ENTING THE ADVANCEMENT OF LOAN IS COVERED BY THE DEFINITION OF 'INTERNATIONAL TRANSACTION WHICH NEEDS TO BE BENCHMARKED. SIMILARLY PROVIDING GUARANTEE IS ALSO COVERED BY THE DEFINITION OF 'INT ERNATIONAL TRANSACTION'. AFTER THE ACT WAS RETROSPECTIVELY AMENDED W.E.F. 01 -04-2002 BY THE FINANCE ACT 2012, THERE IS NO AMBIGUITY THAT PROVIDING GUARANTEE TO AN ASSOCIATED ENTERPRISE IS AN INTERNATIONAL TRANSACTION WHICH NEEDS TO BE BENCHMARKED. THE FOLLOWING EXPLAN ATION WAS INSERTED BY THE FA, 2012: 'EXPLANATION- FOR THE REMOVAL OF DOUBTS, IT IS HERE BY CLARIFIED THAT -(I) THE EXPRESSION 'INTERNATIONAL TRANSACTION SHALL INCLUDE (A)................................................ .. ................................................... ..... (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF L ONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE , PURCHASE OR SALE OF MARKETABLE SECU RITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DETERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT AR ISING DURING THE COURSE OF BUSINESS; ...................................... ...................................... THUS THE EXPLANATION, INSERTED VIDE THE RETROSPECTI VE AMENDMENT, MAKES IT AMPLY CLEAR THAT THE TRANSACTION OF GUARANTEE WAS ALREADY INCLUDED IN TH E DEFINITION OF 'INTERNATIONAL TRANSACTION' AND THE SAME HAS NOW BEEN CLARIFIED THROUGH THE RETROSP ECTIVE AMENDMENT. THEREFORE THE CONTENTIONS OF THE APPELLANT THAT PROVIDING CORPORATE GUARANTEE TO AES IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION HAS TO FAIL. THIS VIEW IS SUPPORTED BY THE DECISION MUMBAI TRIBUNAL IN THE CASE OF EVEREST KANTO CYLINDER [34 TAXMAN.COM 19 MUMBAI ITA T], THE TPO WAS JUSTIFIED IN BENCHMARKING THE AES AND RECOVERED A FEES OF RS. 23 5201/- AS INDICATED IN FORM NO. 3CEB. IT WAS FURTHER OBSERVED THAT NO TP ANALYSIS OF SUCH TR ANSACTION CARRIED OUT. IT WAS ALSO OBSERVED THAT FEES @ 0.5% FOR ISSUANCE OF SUCH GUARANTEE WERE CHA RGED FROM VEGA UK BUT NO SUCH FESS WAS RECOVERED BY VEGA ME. THE TPO EXAMINED APPELLANT'S EXPLANATION THAT SUCH GUARANTEE HAD NOT BEEN GIVEN FOR PERFORMANCE BONDS AND BIDS SO THE SA ME ARE NOT QUALIFY AS GUARANTEE BUT TREATED AS A CORPORATE FUNCTION. THE A.O. OBSERVED THAT A P ERFORMANCE GUARANTEE CARRIES A POTENTIAL FINANCIAL LIABILITY, WHICH IN THE CASE OF FAILURE O F THE BENEFICIARY, HAS TO BE MET BY THE GUARANTOR AND AFFECTS THE ASSETS OF THE GUARANTOR. THE TPO FO LLOWED THE RATIO OF US TAX COURT IN THE CASE OF CONTAINER CORPORATION FOR TREATING PROVIDING OF GUA RANTEE AS SERVICE. THE TPO FOR THE BENCH MARKING ANALYZED THE BOND DATA IN US MARKET AND FOU ND THAT THE DIFFERENCE IN COUPON RATE (YIELD OR INTEREST RATE) IN RESPECT OF AA RATED BOND AND B B RATED BOND COMES TO 2.706% POINT. THIS WAS FURTHER INCREASED 25 BASIS POINT FOR THE CURRENCY R ISK TO ARRIVE AT 2.956%. THE TPO COMPUTED UPWARD REVISION AS FOLLOWS: VEGA ME VEGA UK TOTAL GUARANTEE CHARGED 20,00,000 10,00,000 30,00,000 CONVERSION AT CLOSING RATE OF 51.76 103520000 51760000 155280000 GUARANTEE AT 2.965% 3069368 134684 4604052 I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 32 LESS 0.5% IN CASE OF VEGA UK 258800 NET GUARANTEE FEE PAYABLE 3069368 1275884 4345252 THE APPELLANT IN APPEAL REITERATED ITS CONTENTION A S THAT WERE THERE BEFORE THE TPO. I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE OBSER VATIONS OF THE TPO AND THE CONTENTIONS OF THE LD. A.R. THE TRANSACTION REPRES ENTING THE ADVANCEMENT OF LOAN IS COVERED BY DEFINITION OF 'INTERNATIONAL TRANSACTION W HICH NEEDS TO BE BENCHMARKED. SIMILARL Y PROVIDING GUARANTEE IS ALSO COVERED BY THE DEFINITI ON OF 'INTERNATIONAL TRANSACTION'. AFTER THE ACT WAS RETROSPECTIVELY AMENDED W.E.F. 01-04-2002 BY TH E FINANCE ACT 2012, THERE IS NO AMBIGUITY THAT PROVIDING GUARANTEE TO AN ASSOCIATED ENTERPRIS E IS AN INTERNATIONAL TRANSACTION WHICH NEEDS TO BE BENCHMARKED. THE FOLLOWING EXPLANATION WAS IN SERTED BY THE F.A., 2012: 'EXPLANATION- FOR THE REMOVAL OF DOUBTS, IT IS HERE BY CLARIFIED THAT -(I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE (A).................................. ...................................... (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG- TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE PURCHASE OR SALE OF MARKETABLE SECURIT IES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS; .............................. ................................ THUS THE EXPLANATION, INSERTED VIDE THE RETROSPECT IVE AMENDMENT, MAKES IT AMPLY CLEAR THAT THE TRANSACTION OF GUARANTEE WAS ALREADY INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTION' AND THE SAME HAS NOW BE EN CLARIFIED THROUGH THE RETROSPECTIVE AMENDMENT. THEREFORE THE CONTENTI ONS OF THE APPELLANT THAT PROVIDING CORPORATE GUARANTEE TO AES IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION HAS TO FAIL. THIS VIEW IS SUPPORTED BY THE DECISION IN MUMBAI TR IBUNAL IN THE CASE OF EVEREST KANTO CYLINDER [34 TAXMAN.COM 19 MUMBAI ITAT]. THE TP O WAS JUSTIFIED-IN BENCHMARKING THE TRANSACTIONS. THE DELHI TRI BUNAL JUDGEMENT [RELIED ON BY THE A.R]-.IN THE CASE OF BHARTI AIRTEL LTD. IS NOT APPL ICABLE TO THE INSTANT CASE, AS THE APPELLANT IS NOT ABLE TO PROVE THAT IT HAS NOT INCURRED ANY COST FOR THE GUARANTEE PROVIDED[AS WAS DONE IN THE CASE OF BHARTI AIRTEL L TD.], THE NEXT ISSUE FOR THE CONSIDERATION IS REGARDING T HE QUANTUM OF UPWARD ADJUSTMENT TO BE MADE. IN THIS CONNECTION, IT IS SE EN THAT THE TPO ADOPTED THE RATE AT 2.956% ON THE TOTAL AMOUNT OF THE GUARANTEE PROVIDE D BY THE APPELLANT OF RS. 15.53 CRORES. IN THE CASE OF EVEREST KANTO CYLINDER, MUMB AI TRIBUNAL HELD AS UNDER: 'WE HAVE ALREADY COME TO THE CONCLUSION IN THE FORE GOING PARAS THAT THE RATE OF 3% BY TAKING EXTERNAL COMPARABLE BY THE TPO, CANNOT BE SUSTAINED IN FACTS OF THE PRESENT CASE. WE ALSO FIND THAT IN AN INDEPENDE NT TRANSACTION, THE ASSESSEE HAS PAID 0.6% GUARANTEE COMMISSION TO ICICI BANK IN DIA FOR ITS CREDIT ARRANGEMENT. THIS COULD BE A VERY GOOD PARAMETER AND A COMPARABLE FOR TAKING IT AS INTERNAL CUP AND COMPARING THE-SAME WI TH THE TRANSACTION WITH THE AE, THE' CHARGING OF 0.5% GUARANTEE COMMISSION FROM THE AE IS QUITE NEAR TO 0.6%, WHERE THE ASSESSEE HAS PAID INDEPENDENTLY TO THE ICICI BANK AND CHARGING OF GUARANTEE COMMISSION AT THE RATE OF 0.5 % FROM ITS AE CAN BE SAID TO BE AT ARMS LENGTH.' IN THE INSTANT CASE THE APPELLANT HAS FURNISHED DOC UMENTARY EVIDENCE TO SHOW THAT IT HAD OBTAINED GUARANTEE FROM SBI IN CONNECTI ON WITH THE APPELLANT'S OPERATING CONTRACT WITH KARNATAKA POWER CORPORATION AT A GUAR ANTEE FEE OF 0.25%. GOING BY THE ABOVE MENTIONED DECISION OF THE MUMBAI TRIBUNAL, SI MILAR RATE OF 0.25% CAN BE ADOPTED FOR THE PURPOSES OF BENCHMARKING IN THE INSTANT CAS E. HOWEVER, IT IS SEEN THAT THERE DIFFERENT RATES OF CHARGING SUCH FEES WHICH VARIES FROM TRANSACTION TO TRANSACTION. SINCE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 33 THE APPELLANT HAS CHARGED 0,5% FEES FROM VEGA' UK W HICH GIVES GOOD COMPARABLE FOR BENCH MARKING, IN ACCORDANCE WITH THE SAFE-HARBOUR RULES 10TB TO 10TD, APPLICABLE FROM A.Y. 2013-14, THE RATES SPECIFIED ARE 1.75% AN D 2%, THESE RULES ALSO OF HELP IN ARRIVING BENCH MARKING @ 1% IN THE INSTANT CASE. AC CORDINGLY, THE UPWARD ADJUSTMENT IS BEING TAKEN AT 1% OF TOTAL GUARANTEE PROVIDED BY TH E APPELLANT OF RS. 15.53 CRORES. THE QUANTUM OF ADJUSTMENT WORKS OUT TO RS. 1552800/-. C ONSIDERING THAT APPELLANT HAD ALREADY CHARGED FEES OF RS. 258800 FROM VEGA UK IT IS THEREFORE ONLY THE BALANCE AMOUNT OF RS. 1294000 (1552800-258800) IS JUSTIFIED AS UPWARD REVISION. THE ADJUSTMENT MADE BY THE AO [ON THE BASIS OF THE ORDER OF THE TP O] IS RESTRICTED TO THE SAID AMOUNT OF RS. 1294000/-. BALANCE ADJUSTMENT IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 27. DURING THE COURSE OF APPELLATE PROCEEDINGS BEF ORE US THE LD. DEPARTMENTAL REPRESENTATIVE HAS REFERRED THE WRITTE N SUBMISSION MADE BY THE JCIT(TPO) BRIEFLY STATING THAT ASSESSEE HAS GIV EN CORPORATE GUARANTEE OF USD 2 MILLION ON BEHALF OF VEGA ME AND USD 1 MILLIO N ON BEHALF OF VEGA UK. THE GUARANTEE ARE IN THE NATURE OF BONDS AND GUARANTEE FACILITY FOR ISSUING BONDS PAYMENT GUARANTEE PERFORMANCE BONDS E TC. IT IS FURTHER STATED THAT ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO A COMPANY ON BEHALF OF ITS ASSOCIATE ENTERPRISE. IT IS FURTHER STATED THAT NO FEES HAS BEEN CHARGED TO THE VEGA ME, A FEES OF 0.5% HAS BEEN CHARGED FROM VEGA U.K. AND FOR BOTH THESE TRANSACTIONS NO RATIONAL HAS BEEN PROVIDED EI THER IN FORM NO. 3CEB OR IN THE TP STUDY EXCEPT MERELY STATING THAT THE TRAN SACTION IS AT ARMS LENGTH. IT IS FURTHER SUBMITTED THAT THE CLAIM OF THE ASSES SEE THAT BENCHMARKING ON SUCH GUARANTEE AT NIL HAS BEEN ACCEPTED BY THE DEPA RTMENT IN THE EARLIER YEARS FOUND NOT TO BE TENABLE AS PERUSAL OF THESE G UARANTEES REVEAL THAT THESE GUARANTEES PUT STRAIN ON THE ASSETS OF THE ASSESSEE COMPANY BY SHIFTING PERFORMANCE RISK OF VEGA ENTITIES OF THE ASSESSEE C OMPANY. IT IS FURTHER SUBMITTED THAT ONE WAY OF BENCHMARKING THE SERVICE RENDERED BY THE ASSESSEE COMPANY WOULD BE TO FIND OUT THE DIFFERENC E IN RISK SPREAD BETWEEN HIGH RATED AND MEDIUM RATED CORPORATE BONDS BEING T REATED FREELY IN THE U.S. MARKET. THE COUPON RATE REPRESENTS YIELD OF VARIOU S BONDS AND THE RATE IS I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 34 DIRECTLY PROPORTIONATE TO THE RATING GIVEN TO THE B OND. HIGHER THE RISK OF DEFAULT BY THE ISSUING COMPANY ON THIS BOND HIGHER THE COUPON RATE. DETAILS OF THESE BONDS ARE AVAILABLE ON THE WEB. ON ANALYS IS OF OVER 1100 BOND DATA FROM WHERE THE BONDS ISSUED DURING THE F.Y. 2008-0 9 WERE SEGREGATED IT IS SEEN THAT THE DIFFERENCE IN COUPON RATE ( YIELD OR INTEREST RATE) IN RESPECT OF AA RATED BOND AND BB RATED BOND COMES TO 2.706% POI NTS. BY TAKING GUARANTEE FOR PAYMENTS ON BEHALF OF ITS ASSOCIATE E NTERPRISE, THE ASSESSEE HAS INCURRED SIGNIFICANT CURRENT YEAR RISK AS EVIDENT B Y GENERAL DEPRECIATION OF RUPEES AGAINST DOLLAR. ACCORDINGLY, 2.956% WAS FOU ND TO BE REASONABLE SPREAD WHICH THE ASSESSEE SHOULD HAVE CHARGED AS BE NEFIT GRANTED TO THE ASSOCIATE ENTERPRISE. ACCORDINGLY, THE ASSESSING O FFICER HAS MADE UPWARD ADJUSTMENT OF RS. 43,45,252/- AS GIVEN BELOW:- VEGA ME VEGA UK TOTAL GUARANTEES CHARGED 20,00,000 10,00,000 30,00,000 CONVERSION AT CLOSING DOLLAR RATE OF 51.76 103520000 51760000 155280000 GUARANTEE AT 2.965% 3069368 1534684 4604052 LESS 0.5% IN CASE OF VEGA UK 258800 NET GUARANTEE FEE PAYABLE 3069368 1275884 4345252 ON THE OTHER HAND, THE LD. COUNSEL HAS SUBMITTED TH AT ISSUE OF CORPORATE GUARANTEE BY ASSESSEE ON BEHALF OF ITS SUBSIDIARY C OMPANY WAS IN THE NATURE OF QUASHI CAPITAL OR SHAREHOLDER ACTIVITY AND NOT I N THE NATURE OF PROVISION OF I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 35 SERVICE, THEREFORE, THE SAID TRANSACTION WAS TO BE EXCLUDED FROM THE SCOPE OF INTERNATIONAL TRANSACTION U/S. 92B OF THE ACT. THE LD. COUNSEL HAS PLACED RELIANCE ON THE DECISION OF ITAT AHMEDABAD IN THE C ASE OF MICRO LINK LTD. VS. ACIT (2015) 63 TAXMAN.COM 353 (AHMEDABAD TRI). 28. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS GIVEN CORPORATE GUARANTEE OF USD 2 MILLION ON B EHALF OF VEGA ME AND USD 1 MILLION ON BEHALF OF VEGA U.K. GUARANTEES W ERE IN THE NATURE OF BONDS AND GUARANTEE FACILITATES FOR ISSUING BIDS, P AYMENT GUARANTEES, PERFORMANCE BONDS ETC. AS PER THE FORM 3CEB SUBMIT TED BY THE ASSESSEE A FEE OF RS. 2,53,201 HAS BEEN CHARGED FROM VEGA U.K. THE ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO A BANK ON BEHALF O F ITS ASSOCIATE ENTERPRISE DURING THE YEAR. THE ASSESSEE HAD ISSUED CORPORATE GUARANTEES TO BANKS ON BEHALF OF ITS AE VEGA ME AND VEGA U.K.. THE ASSESS EE HAS CHARGED COMMISSION TO VEGA U.K. @ 0.5% FOR ISSUE OF SUCH GU ARANTEE. HOWEVER, NO FEE HAS BEEN CHARGED FROM VEGA ME. THE ASSESSEE HA S CLAIMED THAT SINCE THE GUARANTEE HAS BEEN GIVEN FOR PERFORMANCE BONDS AND BIDS SO THE SAME ARE NOT QUALIFIED AS GUARANTEE BUT TREATED AS CORPO RATE FUNCTION, HENCE NO FEES IS CHARGEABLE. THE ASSESSEE HAS STATED THAT T HE PROVISION OF GUARANTEE WAS A CORPORATE FUNCTION. THE ASSESSING OFFICER WA S OF THE VIEW THAT PERFORMANCE GUARANTEE CARRY A POTENTIAL FINANCIAL L IABILITY WHICH IN CASE OF FAILURE OF THE BENEFICIARY IS TO BE MET WITH THE GU ARANTOR. THE ASSESSING OFFICER WAS OF THE VIEW THAT SERVICES HAVE BEEN REN DERED BY THE ASSESSEE COMPANY TO ITS ASSOCIATE ENTERPRISES IN THE FORM OF PROVISION OF THE GUARANTEE AND THESE SERVICES NEED TO BE BENCH MARKED. IT IS ALSO STATED THAT OECD GUIDELINES AS WELL AS CASES DECIDED BY THE US AND C ANADA TAX COURT HELD I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 36 THAT GUARANTEE WAS A SERVICE RENDERED AND THE GUARA NTOR WAS JUSTIFIED IN CHARGING A SUITABLE GUARANTEE FOR SUCH SERVICES. T HEREFORE, THE ASSESSING OFFICER HAS MADE BENCH MARKING AS PER THE REPORT OF THE TPO AS STATED SUPRA ON THE BASIS OF COUPON RATE YIELD ON VARIOUS BONDS IN U.S. MARKET STATING THAT HIGHER THE RISK OF DEFAULT BY THE ISSUING COMPANY O N THE BOND HIGHER THE COUPON RATE. THE ASSESSING OFFICER HAS TAKEN RATE OF 2.956% AS A REASONABLE FEE FOR THE GUARANTEE GIVEN BY THE ASSESSEE AND MAD E UPWARD ADJUSTMENT OF RS. 43,45,252/-. HOWEVER, THE LD. CIT(A) HAS RESTR ICTED THE UPWARD ADJUSTMENT AT 1% ON TOTAL GUARANTEE PROVIDED BY THE ASSESSEE HOLDING THAT DIFFERENT RATE OF CHARGING SUCH FEES VARIES FROM TR ANSACTION TO TRANSACTION. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE U S, THE LD. COUNSEL HAS SUBMITTED THAT ISSUANCE OF CORPORATE GUARANTEE BY A SSESSEE ON BEHALF OF ITS SUBSIDIARY COMPANY WAS IN THE NATURE OF QUASI CAPIT AL OR SHARE HOLDERS ACTIVITIES AND NOT IN THE NATURE OF PROVISION OF SE RVICES. THEREFORE, THE SAID TRANSACTION IS TO BE EXCLUDED FROM THE SCOPE OF INT ERNATIONAL TRANSACTION U/S. 92B OF THE ACT. THE LD. COUNSEL HAS ALSO BROUGHT T O OUR NOTICE THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF THE ITAT IN FAVOUR OF THE ASSESSEE IN THE CASE OF MICRO INK LTD. VS. A CIT (2015) 63 TAXMAN.COM 353 (AHD-TRIB). THE DETAILED FINDING OF THE CO-ORDINATE BENCH IN THE CASE OF MICRO INK LTD. SUPRA ARE REPRODUCED AS UNDER:- 20. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LE GAL POSITION. 21. IT IS ONLY ELEMENTARY THAT THE DETERMINATION OF ARM'S LENGTH PRICE, UNDER THE SCHEME OF THE INTERNATIONAL TRANSFER PRICING SET OUT IN THE INCOME TAX ACT , 1961, CAN ONLY BE DONE IN RESPECT OF AN 'INTERNATIONAL TRANSACTION'. SECTION 92(1) PROVIDES THAT, '(A)NY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE'. IN ORDER TO ATTRACT THE ARM'S LENGTH PRICE ADJUSTMENT, THEREFOR E, A TRANSACTION HAS TO BE AN 'INTERNATIONAL TRANSACTION' FIRST. THE EXPRESSION 'INTERNATIONAL T RANSACTION' IS A DEFINED EXPRESSION. SECTION 92 B DEFINES THE EXPRESSION 'INTERNATIONAL TRANSACTION' AS FOLLOWS: I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 37 92 B - MEANING OF INTERNATIONAL TRANSACTION (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, 'INTERNATIONAL TRANS ACTION'' MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISE S, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR IN TANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTH ER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTER PRISES AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCI ATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY CO ST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WIT H 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 O THER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTIO N ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE. EXPLANATION*: - FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT -- (*INSERTED BY THE FINANCE ACT 2012, THOUGH WITH RETROSPECTIVE EFFECT FROM 1ST AP RIL 2002) (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHAL L INCLUDE -- (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF T ANGIBLE 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 I NTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISION OF USE OF RIGHTS REGA RDING LAND USE, COPYRIGHTS, PATENTS, TRADEMARKS, LICENCES, FRANCHISES, CUSTOMER LIST, MA RKETING CHANNEL, BRAND, COMMERCIAL SECRET, KNOW -HOW, INDUSTRIAL PROPERTY RIGHT, EXTER IOR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE; (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT -TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURI TIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF M ARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SER VICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SE RVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR REOR GANISATION, ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED ENTERPRISE, IRRESPECT IVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE S AT THE TIME OF THE TRANSACTION OR AT ANY FUTURE DATE; (II) THE EXPRESSION 'INTANGIBLE PROPERTY' SHALL INC LUDE -- (A) MARKETING RELATED INTANGIBLE ASSETS, SUCH AS, T RADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS; (B) TECHNOLOGY RELATED INTANGIBLE ASSETS, SUCH AS, PROCESS PATENTS, PATENT APPLICATIONS, TECHNICAL DOCUMENTATION SUCH AS LABORATORY NOTEBOOK S, TECHNICAL KNOW -HOW; (C) ARTISTIC RELATED INTANGIBLE ASSETS, SUCH AS, LI TERARY WORKS AND COPYRIGHTS, MUSICAL COMPOSITIONS, COPYRIGHTS, MAPS , ENGRAVINGS; I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 38 (D) DATA PROCESSING RELATED INTANGIBLE ASSETS, SUCH AS, PROPRIETARY COMPUTER SOFTWARE, SOFTWARE COPYRIGHTS, AUTOMATED DATABASES, AND INTEG RATED CIRCUIT MASKS AND MASTERS; (E) ENGINEERING RELATED INTANGIBLE ASSETS, SUCH AS, INDUSTRIAL DESIGN , PRODUCT PATENTS, TRADE SECRETS, ENGINEERING DRAWING AND SCHEMATICS, BLUEPRINTS, PROPRIETARY DOCUMENTATION; (F) CUSTOMER RELATED INTANGIBLE ASSETS, SUCH AS, CU STOMER LISTS, CUSTOMER CONTRACTS, CUSTOMER RELATIONSHIP, OPEN PURCHASE ORDERS; (G) CONTRACT RELATED INTANGIBLE ASSETS, SUCH AS, FA VOURABLE SUPPLIER, CONTRACTS, LICENCE AGREEMENTS, FRANCHISE AGREEMENTS, NON -COMPETE AGRE EMENTS; (H) HUMAN CAPITAL RELATED INTANGIBLE ASSETS, SUCH A S, TRAINED AND ORGANISED WORK FORCE, EMPLOYMENT AGREEMENTS, UNION CONTRACTS; (I) LOCATION RELATED INTANGIBLE ASSETS, SUCH AS, LE ASEHOLD INTEREST, MINERAL EXPLOITATION RIGHTS, EASEMENTS, AIR RIGHTS, WATER RIGHTS; (J) GOODWILL RELATED INTANGIBLE ASSETS, SUCH AS, IN STITUTIONAL GOODWILL, PROFESSIONAL PRACTICE GOODWILL, PERSONAL GOODWILL OF PROFESSIONA L, CELEBRITY GOODWILL, GENERAL BUSINESS GOING CONCERN VALUE; (K) METHODS, PROGRAMMES, SYSTEMS, PROCEDURES, CAMPA IGNS, SURVEYS, STUDIES, FORECASTS, ESTIMATES, CUSTOMER LISTS, OR TECHNICAL DATA; (L) ANY OTHER SIMILAR ITEM THAT DERIVES ITS VALUE F ROM ITS INTELLECTUAL CONTENT RATHER THAN ITS PHYSICAL ATTRIBUTES.'. 22. AS ANALYZED BY A COORDINATE BENCH, IN THE CASE OF BHARTI AIRTEL (SUPRA) AND SPEAKING THROUGH ONE US, THE LEGAL POSITION WITH RESPECT TO THE ABOV E DEFINITION IS AS FOLLOWS: 25. AN ANALYSIS OF THIS DEFINITION OF 'INTERNATIONA L TRANSACTION' UNDER SECTION 92 B, AS IT STOOD AT THE RELEVANT POINT OF TIME, AND ITS BREAK UP 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 O F THE FOLLOWING TYPES: IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBL E OR INTANGIBLE PROPERTY, IN THE NATURE OF PROVISION OF SERVICES, IN THE NATURE OF LENDING OR BORROWING MONEY, OR IN THE NATURE OF ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFI TS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AN INTERNATIONAL TRANSACTION SHALL INCL UDE SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTER PRISES 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 P ROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES. SECTION 92B (2), COVERING A DEEMING FICTION, PROVIDES THAT EVE N A TRANSACTION WITH NON AE IN A SITUATION IN WHICH SUCH A TRANSACTION IS DE FA CTO CONTROLLED BY PRIOR AGREEMENT WITH AE OR BY THE TERMS AGREED WITH THE AE. 26. LET US NOW DEAL WITH THE EXPLANATION, INSERTED WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002 I.E. RIGHT FROM THE TIME OF THE INCEPTION OF T RANSFER PRICING LEGISLATION IN INDIA, WHICH WAS BROUGHT ON THE STATUTE VIDE FINANCE ACT , 2012. 27. THIS EXPLANATION STATES THAT IT IS MERELY CLARI FICATORY IN NATURE INASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROCEED ON THE BASIS THAT IT DOES NOT I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 39 ALTER THE BASIC CHARACTER OF DEFINITION OF 'INTERNA TIONAL TRANSACTION' UNDER SECTION 92 B. CLEARLY, THEREFORE, THIS EXPLANATION IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISIONS, AND IN HARMONY WITH THE SCHEME OF THE PROVISIONS, U NDER SECTION 92 B. UNDER THIS EXPLANATION, FIVE CATEGORIES OF TRANSACTIONS HAVE B EEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. 28. THE FIRST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNATIONAL TRANSACTIONS' BY THE V IRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92 B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY 2 (A) ABOVE WHICH COVERED 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 INC LUSIVE DESCRIPTIONS OF TANGIBLE AND INTANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, M ARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE AN YWAY COVERED BY 2(B) AND 3 ABOVE IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR A RRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORT IONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNE CTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SU CH ENTERPRISES '. THAT LEAVES US WITH TWO CLAUSES IN THE EXPLANATION TO SECT ION 92 B WHI CH ARE NOT COVERED BY ANY OF THE THREE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEG MENTS COVERED BY SECTION 92 B, NAMELY BORROWING OR LENDING MONEY. 29. THE REMAINING TWO ITEMS IN THE EXPLANATION TO SECTION 92 B ARE SET OUT IN CLAUSE (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 AS SETS OF SUCH ENTERPRISES'. 30. IT IS, THEREFORE, ESSENTIAL THAT IN ORDER TO BE COVERED BY CLAUSE (C) AND (E) OF EXPLANATION TO SECTION 92 B, THE TRANSACTIONS SHOULD BE SUCH AS TO HAVE BEAT ING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRI SE. IN OTHER WORDS, IN A SITUATION IN WHICH A TRANSACTION HAS NO BEARING ON PROFITS, INCO MES, LOSSES OR ASSETS OF SUCH ENTERPRISE, THE TRANSACTION WILL BE OUTSIDE THE AMB IT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. THIS ASPECT OF THE MATTER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALING WITH RESTRUCTURING AND REORGANI ZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUCH AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. RESTRUCTURI NG OR REORGANIZATION) HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE AT THE TIME OF TRANSACTION OR ON A FUTURE DATE'. WHAT IS IMPLICIT IN THIS STATUTORY PROVISION IS THAT WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NON , THE MERE FACT T HAT IMPACT IS NOT IMMEDIATE, BUT ON A FUTURE DATE, WOULD NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNATIONAL TRANSACTION'. 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 'CO NTINGENT' 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 PL ACE 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 DEUTSCHE BANK DID NOT EVEN HAVE ANY SUCH IMPLICATION BECAUSE NO BORROWINGS WERE RESORTE D TO BY THE SUBSIDIARY FROM THIS BANK. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 40 31. IN THIS LIGHT NOW, LET US REVERT TO THE PROVISI ONS OF CLAUSE (C) OF EXPLANATION TO SECTION 92B WHICH PROVIDES THAT THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE 'CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG -TERM OR SHOR T- TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIE S OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT AR ISING DURING THE COURSE OF BUSINESS'. IN VIEW OF THE DISCUSSIONS ABOVE, THE SCOPE OF THES E TRANSACTIONS, AS COULD BE COVERED UNDER EXPLANATION TO SECTION 92 B READ WITH SECTION 92B(1) , IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING INTER ALIA ANY GU ARANTEE, DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF B USINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR SUCH ENTERPRIS E'. THIS PRE-CONDITION ABOUT IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES IS A PRE-CONDITION EMBEDDED IN SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECED ENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT T HE BEARING ON PROFITS, INCOME, LOSSES OR ASSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. T HE 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 I TEM 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 PRECEDEN T WITH REGARD TO THE 'BEARING ON PROFIT, INCOME, LOSSES OR ASSETS' SET OUT IN SECTION I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 92B(1) MAY NOT BE FULFILLED. FOR EXAMPLE, A N ENTERPRISE MAY EXTEND GUARANTEES FOR PERFORMANCE OF FINANCIAL OBLIGATIONS BY ITS ASS OCIATED ENTERPRISES. THESE GUARANTEES DONOT COST ANYTHING TO THE ENTERPRISE ISSUING THE G UARANTEES AND YET THEY PROVIDE CERTAIN COMFORT LEVELS TO THE PARTIES DOING DEALINGS WITH T HE ASSOCIATED ENTERPRISE. THESE GUARANTEES THUS DONOT HAVE ANY IMPACT ON INCOME, PR OFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETIC AL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. ONE MAY HAVE ALSO HAVE A SITUATION IN WHICH THERE IS A RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS AND YE T THESE RECEIVABLES MAY NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, F OR EXAMPLE, WHEN THESE RECEIVABLES ARE OUT OF COST FREE FUNDS AND THESE DEBIT BALANCES DON OT COS T ANYTHING TO THE PERSON ALLOWING SUCH USE OF FUNDS. THE SITUATIONS CAN BE E NDLESS, BUT THE COMMON THREAD IS THAT WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOC IATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURS E OF ITS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARI NG ON ITS PROFITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT. 33. IN ANY EVENT, THE ONUS IS ON THE REVENUE AUTHOR ITIES TO DEMONSTRATE THAT THE TRANSACTION IS OF SUCH A NATURE AS TO HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' OF THE ENTERPRISE, AND THERE WAS NOT EVEN AN EFFORT TO DISCHARGE THIS ONUS. SUCH AN IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS HAS TO BE ON REAL BASIS, EVEN IF IN PRESENT OR IN FUTURE, AND NOT ON CONTINGENT OR HYPOTHETICAL BASIS, AND TH ERE HAS TO BE SOME MATERIAL ON RECORD TO INDICATE, EVEN IF NOT TO ESTABLISH IT TO HILT, T HAT AN INTRA AE INTERNATIONAL TRANSACTION HAS SOME IMPACT ON PROFITS, INCOME, LOSSES OR ASSET S. CLEARLY, THESE CONDITIONS ARE NOT SATISFIED ON THE FACTS OF THIS CASE. 23. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THA T THIS DECISION IS NO LONGER GOOD LAW IN THE LIGHT OF EVEREST KANTO DECISION (SUPRA) AND VODAFON E INDIA SERVICES DECISION (SUPRA) BY HON'BLE BOMBAY HIGH COURT. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 41 24. AS FOR HON'BLE HIGH COURT'S JUDGMENT IN THE CAS E OF EVEREST KANTO (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 LIMITED VS DCIT [(2012) 34TAXMAN.COM 19 ( MUM)], TO THE EFFECT THAT 'HOWEVER, IN THIS CASE, THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTE E COMMISSION FROM ITS AE AND, THEREFORE, IT IS NOT A CASE OF NOT CHARGING ANY KIND OF COMMISSION F ROM ITS AE'. THE TRIBUNAL DID NOTE, IN THE IMMEDIATELY FOLLOWING SENTENCE IN PARAGRAPH 23 ITSE LF, THAT 'THE ONLY POINT TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT'. THE VERY FAC T 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 TRIBU NAL. AGGRIEVED BY THE RELIEF SO GIVEN BY THE TRIBUNAL, THE MATTER WAS CARRIED IN FURTHER APPEAL, BY THE COMMISSIONER, BEFORE THE HON'BLE BOMBAY HIGH COURT WHICH EVENTUALLY UPHELD THE RELIE F GRANTED BY THE TRIBUNAL. THE APPEAL BEFORE THE HON'BLE HIGH COURT WAS BY THE COMMISSIONER, AND NOT BY THE ASSESSEE, AND, THEREFORE, THE GRIEVANCE AGAINST THE ISSUANCE OF CORPORATE GUARANT EE BEING HELD TO BE AN INTERNATIONAL TRANSACTION COULD NOT HAVE COME UP FOR CONSIDERATIO N. OF COURSE, THE ASSESSEE HAD NO OCCASION TO CHALLENGE THE STAND OF THE TRIBUNAL ON THIS ASPECT SINCE THE ADDITION, ON MERITS, WAS DELETED ANYWAY MAKING REVENUE'S SUCCESS IN THIS RESPECT HOL LOW AND OF NO DAMAGE TO THE INTERESTS OF THE ASSESSEE. IT WAS IN THIS BACKDROP THAT THE ACTION O F THE TRIBUNAL WAS UPHELD IN GRANTING RELIEF TO THE ASSESSEE ON MERITS. IT IS DIFFICULT TO UNDERSTA ND AS TO HOW THIS DECISION IS TAKEN AS SUPPORTING THE PROPOSITION THAT THE ISSUANCE OF CORPORATE GUAR ANTEE, EVEN IN A CASE IN WHICH NEITHER ANY GUARANTEE COMMISSION IS CHARGED NOR ANY COSTS ARE I NCURRED, IS AN INTERNATIONAL TRANSACTION. IN ANY CASE, THERE IS NOTHING IN THE OPERATIVE PORTION WHICH EVEN REMOTELY SUGGESTS THAT THEIR LORDSHIPS HAD ANY OCCASION TO ADDRESS THEMSELVES TO THE QUESTION AS TO WHETHER THE ISSUANCE OF CORPORATE GUARANTEE AMOUNTS TO INTERNATIONAL TRANSA CTION. THE OPERATIVE PORTION OF THE JUDGMENT IS REPRODUCED BELOW FOR READY REFERENCE: ............IN THE MATTER OF GUARANTEE COMMISSION, THE ADJUSTMENT MADE BY THE TPO WERE BASED ON INSTANCES RESTRICTED TO THE COMMERCIAL BAN KS PROVIDING GUARANTEES AND DID NOT CONTEMPLATE THE ISSUE OF A CORPORATE GUARANTEE. NO DOUBT THESE ARE CONTRACTS OF GUARANTEE, HOWEVER, WHEN THEY ARE COMMERCIAL BANKS THAT ISSUE BANK GUARANTEES WHICH ARE TREATED AS THE BLOOD OF COMMERCE BEING EASILY E NCASHABLE IN THE EVENT OF DEFAULT, AND IF THE BANK GUARANTEE HAD TO BE OBTAINED FROM COMME RCIAL BANKS, THE HIGHER COMMISSION COULD HAVE BEEN JUSTIFIED. IN THE PRESENT CASE, IT IS ASSESSEE COMPANY THAT IS ISSUING CORPORATE GUARANTEE TO THE EFFECT THAT IF THE SUBSI DIARY AE DOES NOT REPAY LOAN AVAILED OF IT FROM ICICI, THEN IN SUCH EVENT, THE ASSESSEE WOU LD MAKE GOOD THE AMOUNT AND REPAY THE LOAN. THE CONSIDERATIONS WHICH APPLIED FOR ISSU ANCE OF A CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE A ND ACCORDINGLY WE ARE OF THE VIEW THAT COMMISSION CHARGED CANNOT BE CALLED IN QUESTION, IN THE MANNER TPO HAS DONE. IN OUR VIEW THE COMPARISON IS NOT AS BETWEEN LIKE TRANSACT IONS BUT THE COMPARISONS ARE BETWEEN GUARANTEES ISSUED BY THE COMMERCIAL BANKS AS AGAINS T A CORPORATE GUARANTEE ISSUED BY HOLDING COMPANY FOR THE BENEFIT OF ITS AE, A SUBSID IARY 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'BL E BOMBAY HIGH COURT, ANY SUPPORT TO THE PROPOSITION THAT ISSUANCE OF CORPORATE GUARANTEES I S INHERENTLY WITHIN THE AMBIT OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS H AVE ANY 'BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES'. REVENUE, THEREFORE, DOES NOT DERIVE ANY HELP FROM THE SAID DECISION. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 42 26. COMING TO HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (SUPRA), WHICH HAS BEEN RELIED UPON BY THE LEARNED DEPARTMENTAL RE PRESENTATIVE, WE FIND THAT THE OPERATIVE PORTION OF THIS JUDGMENT, SO FAR AS RELEVANT TO THI S 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 WHIC H WERE THE SUBJECT MATTER BEFORE THE SUPREME COURT IS NOT RELEVANT FOR THE PURPOSE OF TH IS WRIT PETITION. BUT, WHETHER IT IS RELEVANT OR NOT FOR THE PURPOSE OF THE ASSESSMENT P ROCEEDINGS IN RESPECT OF THE PETITIONER WHICH ARE THE SUBJECT MATTER OF THIS WRIT PETITION, IS RELEVANT. THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CANNOT BE BRUSHED ASIDE. 214. SECTION 2(47) , AS AMENDED, EVEN ON A CURSORY GLANCE RAISES VARIO US ISSUES. IT IS NECESSARY TO NOTE FOUR PRELIMINARY ASPECTS OF EXPLA NATION 2 TO SECTION 2(47) . FIRSTLY, AS THE OPENING WORDS, 'FOR THE REMOVAL OF DOUBTS IT IS HEREBY CLARIFIED THAT ......', INDICATE IT IS A CLARIFICATORY AMENDMENT. SECONDLY, IT IS AN IN CLUSIVE DEFINITION AS IS EVIDENT FROM THE WORDS ' 'TRANSFER' INCLUDES.....'. THIRDLY, THE AMENDMENT IS WITH RETR OSPECTIVE EFFECT FROM 1ST APRIL, 1962. FOURTHLY, THE FINANCE ACT 2012 WHICH INTRODUCED, INTER-ALIA, THE AMENDMENT TO SECTION 2(47) AND SECTION 92CA(2B) IS A VALIDATING ACT IN VIEW OF SECTION 119 THEREOF. 215. EXPLANATION 2 TO SECTION 247 BROADLY HAS FOUR ELEMENTS. DISPOSAL OR PARTING WITH OR CREATING ANY INTEREST I N AN ASSET. THE ASSET OR ANY INTEREST IN THE ASSET. THE DISPOSING OF OR PARTING WITH THE ASSET OR CREAT ING ANY INTEREST THEREIN MAY BE: (A) DIRECT OR INDIRECT. (B) ABSOLUTE OR CONDITIONAL. (C) VOLUNTARY OR INVOLUNTARILY. (D) BY AMENDMENT OR OTHERWISE. (IV) A NON-OBSTANTE PROVISION REGARDING THE NATURE OF A TRANSFER. IF AN ACT, ARRANGEMENT, TRANSACTION ETC. CONSTITUTES A TRANSFER AS DEFINED IN THE SECTION IT WOULD BE SO NOTWITHSTANDING THE TRANSFER OF RIGHTS HAVING BEEN CATEGORISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SH ARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. 216. TWO ASPECTS OF A TRANSFER ARE CLARIFIED - THE ASSET ITSELF AND THE MANNER IN WHICH IT IS DEALT WITH. THE ASSET IS NO LONGER RESTRICTED TO TH E ASSET PER SE OR A RIGHT THEREIN, BUT ALSO EXTENDS TO 'ANY INTEREST THEREIN'. PRIOR TO THE AME NDMENT, THE WORDS 'ANY INTEREST THEREIN' WERE ABSENT. FURTHER, THE NATURE OF THE DI SPOSAL IS ALSO EXPANDED. IT NOW INCLUDES THE CREATION OF ANY INTEREST IN ANY ASSET. MOREOVER, THE DISPOSAL OF OR CREATION OF ANY INTEREST IN THE ASSET MAY BE DIRECT OR INDIRECT , ABSOLUTE OR CONDITIONAL, VOLUNTARY OR INVOLUNTARY. IT MAY BE BY WAY OF AN AGREEMENT OR OT HERWISE. FURTHER, THE CONCLUDING WORDS CONSTITUTE A NON-OBSTANTE PROVISION. IT PROVI DES THAT THE TRANSFER CONTEMPLATED THEREIN WOULD BE NOTWITHSTANDING THAT IT HAS BEEN C HARACTERISED AS BEING EFFECTED OR I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 43 DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SH ARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. IT WOULD BE EVIDENT, THEREFORE, THAT A LOT MORE MUS T NOW BE SEEN AND CONSIDERED THAN BEFORE WHILE ARRIVING AT A CONCLUSION WHETHER THE T ERMS AND CONDITIONS OF THE FRAMEWORK AGREEMENT CONSTITUTED A TRANSFER OR ASSIGNMENT OF T HE CALL OPTIONS BY ONE PARTY TO ANOTHER. 217. AT THE COST OF REPETITION, WE ARE NOT CONCERNE D 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 CONST RUCTION 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 'TRANSFE R' PRIOR TO THE AMENDMENT. IN THE PRESENT ASSESSMENT PROCEEDINGS, IT IS THE AMENDED D EFINITION WHICH WOULD HAVE TO BE CONSIDERED. 218. WE DO NOT FIND IT EITHER NECESSARY OR PROPER T O INDICATE THE APPLICATION OF SECTION 2(47) AS AMENDED TO THE PRESENT PROCEEDINGS. THE APPLICA TION WOULD DEPEND UPON THE FACTS ON RECORD OR THOSE MAY BE PERMITTED TO BE BRO UGHT ON RECORD. 219. THERE IS ANOTHER ASPECT. THE PETITIONER MAY WE LL CONTEND THAT THE AMENDED DEFINITION MAKES NO DIFFERENCE IT BEING CLARIFICATO RY IN NATURE. THE PROVISIONS THEREOF MUST, THEREFORE, BE DEEMED ALWAYS TO HAVE BEEN IN E XISTENCE. WE WILL PRESUME THAT IT WOULD BE OPEN TO THE PETITIONER TO CONTEND, THEREFO RE, THAT THE JUDGMENT OF THE SUPREME COURT WOULD REMAIN ENTIRELY UNAFFECTED FOR THE SUPR EME COURT MUST BE DEEMED TO HAVE CONSIDERED THE TERM AS PER ITS TRUE AMBIT, AS ALWAY S INTENDED BY THE PARLIAMENT. ON THE OTHER HAND, IT MAY BE EQUALLY OPEN TO THE REVENUE T O CONTEND THAT CERTAIN INGREDIENTS OF A TRANSFER WERE NOT CONSIDERED BY THE REVENUE ITSELF IN THE PROCEEDINGS RELATING TO VODAFONE'S CASE ON ACCOUNT OF THE REVENUE ITSELF NO T HAVING APPRECIATED OR REALIZED THE ACTUAL AMBIT OF THE TERM 'TRANSFER' WHICH ARE NOW C LARIFIED BY THE AMENDMENT. EVEN ASSUMING THAT THE REVENUE CANNOT RE-OPEN THE VODAFO NE CASE, IT CANNOT BE BARRED FROM RELYING UPON THE TRUE AMBIT OF THE TERM 'TRANSFER' IN FUTURE CASES, INCLUDING THE PROCEEDINGS IN RESPECT OF THE PETITIONER. THUS, EVE N ASSUMING THAT THE JUDGMENT OF THE SUPREME COURT REMAINS UNAFFECTED BY THE CLARIFICATO RY AMENDMENT, THE REVENUE WOULD BE ENTITLED HEREAFTER IN OTHER CASES, AT LEAST, TO APP RECIATE, ANALYZE AND CONSTRUE THE TRANSACTIONS RELATING TO CALL OPTIONS, INCLUDING TH E FRAMEWORK AGREEMENTS IN A PROPER PERSPECTIVE WHICH IT MAY NOT HAVE DONE EARLIER. 220. THESE ARE IMPORTANT ISSUES. THERE IS NO JUSTIF ICATION 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 EXTRA-ORDINARY JURISDICTION UNDER ARTICLE 226 (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 27. REVENUE'S EMPHASIS IS ON THE LAST TWO SENTENCES IN PARAGRAPH NO 213 WHICH STATE THAT 'THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED . IT CANNOT BE BRUSHED ASIDE' BUT IN DOING SO WHAT IT OVERLOOKS IS THE SUBSEQUENT OBSERVATIONS HI GHLIGHTED ABOVE WHICH RECOGNIZE THE FACT THAT MERELY BECAUSE A SUBSEQUENT EXPLANATION IS INTRODUC ED BY THE LEGISLATURE, IT IS NOT AN OPEN AND SHUT CASE AGAINST THE ASSESSEE OR THE REVENUE, AND THAT ALL THESE OBSERVATIONS ARE IN THE CONTEXT THAT I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006- 07 '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 EXTRA-ORDINARY JURISDICTION UNDER ARTICLE 226'. WHEN THEIR LORDSHIPS HAVE MADE IT CLEAR THAT THEY WOULD NOT LIKE TO BYPASS I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 44 THE CHANNELS UNDER THE INCOME TAX ACT AND PROCEED TO DECIDE THESE ISSUES IN WRIT JURISDI CTION UNDER ARTICLE 226 , THERE CANNOT OBVIOUSLY BE ANY QUESTION OF THEIR L ORDSHIPS DECIDING THE MATTER ONE WAY OR THE OTHER. ANY OBSERVATIONS MADE BY THEI R LORDSHIPS, WHILE DECLINING TO DECIDE THE MATTER IN WRIT JURISDICTION, CANNOT BE TREATED AS D ECISIVE OF THE ISSUE ON MERITS. WHILE IT IS TRUE TH AT HON'BLE BOMBAY HIGH COURT HAS OBSERVED THAT THE EFF ECT OF AMENDMENT WILL HAVE TO BE CONSIDERED, HON'BLE BOMBAY HIGH COURT HAS ALSO OBSERVED THAT EV EN AFTER TAKING INTO ACCOUNT THE AMENDMENTS, THE LEGAL IMPLICATIONS OF THIS AMENDMEN T IS STILL AN OPEN ISSUE WHICH WILL HAVE TO BE ADJUDICATED IN THE LIGHT OF PLEADINGS OF THE PARTIE S. EVEN IN THESE OBSERVATIONS, WHICH DONOT ANYWAY DECIDE ANYTHING ON MERITS, EFFECT OF A RETRO SPECTIVE AMENDMENT WAS NOT IN THE CONTEXT OF THE PRECISE ISSUE BEFORE US, OR ON THE SCOPE OF THE INTERNATIONAL TRANSACTION, BUT IN RESPECT OF CONNOTATIONS OF 'TRANSFER'. AS LEARNED COUNSEL RIGH TLY CONTENDS, IN THE LIGHT OF HON'BLE BOMBAY HIGH COURT'S JUDGMENT IN THE CASE OF SUDHIR JAYANTI LAL MULJI (SUPRA) 'RATIO OF A DECISION ALONE IS BINDING, BECAUSE A CASE IS ONLY AN AUTHORITY FOR WH AT IT ACTUALLY DECIDES AND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERVATIONS WHICH FIND PLACE THER EIN'. IN VIEW OF THESE DISCUSSIONS, THE RELIANCE PLACED ON VODAFONE INDIA SERVICES (SUPRA) IS ALSO E QUALLY MISPLACED AND DEVOID OF LEGALLY SUSTAINABLE MERITS. IN ANY CASE, AS IS NOTED BY HON 'BLE SUPREME COURT IN THE CASE OF CIT VS SUN ENGINEERING WORKS PVT LTD (1992) 198 ITR 297 (SC)], 'IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OUT A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT, DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE 'LAW' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIO NS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THI S COURT' THEIR LORDSHIPS FURTHER NOTED THAT 'A DECISION OF THIS COURT TAKES ITS COLOUR FROM THE QU ESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYING THE DECISION TO A LATE R CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECIS ION OF THIS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGMENT, DIVORCED FROM THE CONT EXT OF THE QUESTIONS UNDER CONSIDERATION BY THIS COURT, TO SUPPORT THEIR REASONING' IT WAS ALSO RECALLED THAT IN MADHAV RAO JIVAJI RAO SCINDIA BAHADUR VS. UNION OF INDIA (1971) 3 SCR 9 : AIR 1971 SC 530, HON'BLE SUPREME COURT HAD CAUTIONED THAT 'IT IS NOT PROPER TO REGARD A WORD, CLAUSE OR A SENTENCE OCCURRING IN A JUDGMENT OF THE SUPREME COURT, DIVORCED FROM ITS CONTEXT, AS CO NTAINING A FULL EXPOSITION OF THE LAW ON A QUESTION WHEN THE QUESTION DID NOT EVEN FALL TO BE ANSWERED IN THAT JUDGMENT.' THAT PRECISELY, HOWEVER, HAS BEEN THE APPROACH OF THE REVENUE AUTHO RITIES IN PLACING RELIANCE ON VODAFONE INDIA SERVICES (SUPRA) DECISION. WE REJECT THIS APPROACH. 28. FOR THE REASONS SET OUT ABOVE, LEARNED DEPARTME NTAL REPRESENTATIVE'S RELIANCE ON HON'BLE BOMBAY HIGH COURT'S JUDGMENTS IN THE CASES OF EVERE ST KANTO (SUPRA) AND VODAFONE INDIA SERVICES (SUPRA) IS WHOLLY MISPLACED AND DEVOID OF ANY MERITS. AS FOR CO-ORDINATE 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 SEE N EARLIER, THAT WAS A CASE IN WHICH THEIR LORDSHIPS WERE IN SEISIN OF A SITUATION IN WHICH GU ARANTEE COMMISSION WAS ACTUALLY CHARGED BY THE ASSESSEE. THAT IS NOT THE CASE BEFORE US. THE C OORDINATE BENCH DECISIONS DEALING WITH THE SITUATIONS IN WHICH THE GUARANTEE COMMISSION WAS AC TUALLY CHARGED, AND AS SUCH THERE WAS INDEED A BEARING ON THE PROFITS OF THE ASSESSEE, CLEARLY D ONOT APPLY ON THIS CASE. WE, THEREFORE, REJECT THE RELIANCE ON THESE DECISIONS AS DEVOID OF LEGALLY SU STAINABLE 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 REFE RENCE 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 GUAR ANTEE (I.E. GUARANTOR) WOULD, IN PRINCIPLE, AT LEAST NEED TO COVER THE COST THAT IT INCURS WITH RE SPECT TO PROVIDING THE GUARANTEE' AND THAT 'THESE COSTS MAY INCLUDE ADMINISTRATIVE EXPENSES AS WELL A S THE COSTS OF MAINTAINING AN APPROPRIATE LEVEL OF CASH EQUIVALENTS, CAPITAL, SUBSIDIARY CREDIT LIN ES OR MORE EXPENSIVE EXTERNAL FUNDING CONDITIONS ON OTHER DEBT FINANCE'. THE DRP HAD ALSO NOTED THAT 'IN ADDITION, THE GUARANTOR WOULD WANT TO RECEIVE APPROPRIATE COMPENSATION FOR THE RISK IT IN CURS' AND CONCLUDED THAT 'FOLLOWING THE ABOVE DISCUSSIONS, AN ARM'S LENGTH GUARANTEE FEES IS TYPI CALLY REQUIRED TO BE DETERMINED BY ESTABLISHING I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 45 A RANGE OF FEES THAT THE GUARANTOR WOULD, AT LEAST, WANT TO RECEIVE AND THE FEES THAT THE GUARANTEED GROUP COMPANY WOULD BE WILLING TO PAY DEPENDING ON THE PREVAILING CONDITIONS WITHIN FINANCIAL MARKETS IN PRACTICE'. 30. HOWEVER, WHILE DEALING WITH THIS ASPECT OF THE MATTER, IT IS NECESSARY TO BEAR IN MIND THE FACT THAT THIS JUDICIAL PRECEDENT, WHATEVER BE ITS WORTH IN THE HIERARCHY OF BINDING JUDICIAL PRECEDENTS IN INDIA, DOES NOT EVEN DEAL WITH THE FUNDAMENTAL Q UESTION AS TO WHETHER ISSUANCE OF A CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AT ALL- W HICH IS WHAT WE ARE CONCERNED WITH AT PRESENT. THIS TCC DECISION DEALT WITH A SITUATION IN WHICH T HE ASSESSEE WAS DENIED, IN COMPUTATION OF ITS BUSINESS INCOME, TAX DEDUCTION FOR PAYMENT OF GUARA NTEE FEES ON THE GROUND THAT THERE WAS NO EFFECTIVE BENEFIT TO THE ASSESSEE, IN OBTAINING THE SAID GUARANTEE. AGGRIEVED BY DENIAL OF DEDUCTION, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CA NADIAN TAX COURT, AND THE PLEA OF THE ASSESSEE WAS EVENTUALLY UPHELD. IT IS ALSO INTERESTING TO NO TE THAT AS A SEQUEL TO THIS TAX COURT OF CANADA DECISION, THE TRANSFER PRICING LEGISLATION WAS AMEN DED, TO BRING GREATER CLARITY ON THE ISSUE AND AS A MEASURE OF ABUNDANT CAUTION, AND SECTION 247 (7.1), GRANTING SPECIFIC EXEMPTION TO GUARANTEE FEES, WAS INTRODUCED. THIS AMENDMENT IS AS FOLLOWS: (7.1) SUBSECTION (2) DOES NOT APPLY TO ADJUST AN AM OUNT OF CONSIDERATION PAID, PAYABLE OR ACCRUING TO A CORPORATION RESIDENT IN CANADA (IN TH IS SUBSECTION REFERRED TO AS THE 'PARENT') IN A TAXATION YEAR OF THE PARENT FOR THE PROVISION OF A GUARANTEE TO A PERSON OR PARTNERSHIP (IN THIS SUBSECTION REFERRED TO AS THE 'LENDER') FOR THE REPAYMENT, IN WHOLE OR IN PART, OF A PARTICULAR AMOUNT OWING TO THE LENDER BY A NON-RESIDENT PERSON, IF (A) THE NON-RESIDENT PERSON IS A CONTROLLED FOREIGN AFFILIA TE OF THE 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 PARTICULA R AMOUNT WOULD BE AN AMOUNT OWING DESCRIBED IN PARAGRAPH 17(8)(A) OR (B) IF IT WERE O WED TO THE PARENT. (HTTP://WWW.FIN.GC.CA/DRLEG-APL/ITA-LRIR-DEC12-L-EN G.PDF) 31. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT, UNDER THE CANADIAN LAW, THE DEFINITION OF 'INTERNATIONAL TRANSACTION', UNLIKE AN EXHAUSTIVE D EFINITION UNDER SECTION 92B OF THE INDIAN INCOME TAX ACT, 1961, IS A VERY BRIEF BUT INCLUSIVE AND BR OAD DEFINITION TO THE EFFECT THAT ''TRANSACTION' INCLUDES A SERIES OF TRANSACTIONS, AN ARRANGEMENT O R AN EVENT' [SEE SECTION 247(1) OF THE CANADIAN INCOME TAX ACT, 1985; HTTP://LAWS-LOIS.JUS TICE.GC.CA/ENG/ACTS/I-3.3/PAGE-419.HTML#H- 156] COUPLED WITH THE LEGAL POSITION THAT ARM'S LEN GTH ADJUSTMENT TO THE PRICES OF SUCH TRANSACTION COME INTO PLAY 'WHERE A TAXPAYER OR A PARTNERSHIP A ND A NON-RESIDENT PERSON WITH WHOM THE TAXPAYER OR THE PARTNERSHIP, OR A MEMBER OF THE PAR TNERSHIP, DOES NOT DEAL AT ARM'S LENGTH' [SEE SECTION 247(2) IBID]. WHEN ONE TAKES INTO ACCOUNT THESE VARIATION S IN THE STATUTORY PROVISIONS, IT WILL BECOME VERY OBVIOUS THAT THE PR OVISIONS OF THE INDIAN INCOME TAX ACT , 1961 AND THE CANADIAN INCOME TAX ACT, 1985 ARE SO RADICALLY DIFFERENT THAT JUST BECAUSE A PARTICULAR TRANSACTION IS TO BE EXAMINED ON ARM'S LENGTH PRINC IPLE IN CANADA CANNOT BE A REASON ENOUGH TO HOLD THAT IT MUST MEET THE SAME IN INDIA AS WELL. W HILE THE CANADIAN TRANSFER PRICING LEGISLATION, AS INDEED THE TRANSFER PRICING LEGISLATION IN MANY OTHER JURISDICTIONS, DOES NOT PUT ANY FETTERS ON THE NATURE OF TRANSACTIONS BETWEEN THE AES, SO AS T O BE COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENT, AND, THEREFORE, COVERS ALL TRANSACTIONS BETWEEN THE RELATED ENTERPRISES, INDIAN TRANSFER PRICING LEGISLATION COVERS ONLY SUCH TRANSACTIONS A S ARE 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SE RVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES'. OUR TRANSFER PRICING PROVISIONS, PERHAPS BEING IN T HE QUEST OF COMPREHENSIVE COVERAGE, HAVE ENDED UP IN A LIMITED SCOPE OF THE TRANSACTIONS BEI NG COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENTS FOR TRANSFER PRICING. IN ANY EVENT, AS EMPHASIZED EARLIER AS WELL, THE DECISION WAS IN THE CONTEXT OF THE DEDUCTION, AND, POST THIS DECISI ON, A SPECIFIC AMENDMENT WAS INTRODUCED IN THE CANADIAN TRANSFER PRICING LAW TO CLARIFY THE POSITI ON THAT ALL CORPORATE GUARANTEES ISSUED BY THE ASSESSEE, IN SUPPORT OF ITS SUBSIDIARIES, ARE NOT N ECESSARILY INTERNATIONAL TRANSACTIONS. REVENUE, THEREFORE, DOES NOT DERIVE ANY ADVANTAGE FROM THE T AX COURT OF CANADA'S DECISION IN THE CASE OF I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 46 GE CAPITAL CANADA. THERE ARE MANY MORE ASPECTS WHIC H MAKE THIS DECISION WHOLLY IRRELEVANT IN THE PRESENT CONTEXT BUT SUFFICE TO SAY THAT RELEVAN T LEGAL PROVISIONS AND CONTEXT BEING RADICALLY DIFFERENT, THE RELIANCE OF THIS DECISION MUST BE RE JECTED FOR THIS SHORT REASON ALONE. 32. AS WE TAKE NOTE OF THE ABOVE LEGAL POSITION IN CANADA, IT IS APPROPRIATE TO TAKE NOTE OF THE CONCEPT OF 'SHAREHOLDER ACTIVITIES' IN THE CONTEXT OF CORPORATE GUARANTEES WHICH PROVIDES CONCEPTUAL JUSTIFICATION FOR EXCLUSION OF CORPORATE GUARANTEES, UNDER CERTAIN CONDITIONS, FROM THE SCOPE OF TRANSFER PRICING ADJUSTMENTS. TAKING NOTE OF THESE PROPOSED AMENDMENTS, 'TRANSFER PRICING AND INTRA GROUP FINANCING - BY BAKKER & LEV VY, IBFD PUBLICATION (ISBN- 978-90-8722- 153-9)' OBSERVES THAT 'PROPOSED SUB SECTION 247 (7.1) OF THE ITA PROVIDES THAT THE TRANSFER PRICING RULES WILL NOT APPLY TO GUARANTEES PROVIDED BY CANA DIAN 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 WHA T COULD BE CONCEPTUAL SUPPORT FOR SUCH AN EXCLUSION, WE FIND INTERESTING REFERENCES IN A DISC USSION PAPER ISSUED BY THE AUSTRALIAN TAX OFFICER IN JUNE 2008 AND TITLED AS 'INTRA-GROUP FIN ANCE 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 CONCER NED 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 BORRO W THE FUNDS IT NEEDS ON A STAND- ALONE BASIS IS UNLIKELY TO BE IN A POSITION TO OBTA IN A GUARANTEE FROM AN INDEPENDENT PARTY TO SUPPORT THE BORROWINGS IT NEEDS. WHERE SUC H A GUARANTEE IS GIVEN IT COMPENSATES FOR THE INADEQUACIES IN THE FINANCIAL POSITION OF T HE BORROWER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS' F UNDS. ..... 103. IT WOULD NOT BE EXPECTED THAT A COMPANY PAY FO R THE ACQUISITION OF THE EQUITY IT NEEDS FOR ITS FORMATION AND CONTINUED VIABILITY. EQUITY I S GENERALLY SUPPLIED BY THE SHAREHOLDERS AT THEIR OWN COST AND RISK. 104. ACCORDINGLY TO THE EXTENT THAT A GUARANTEE SUB STITUTES FOR THE INVESTMENT OF THE EQUITY NEEDED TO ALLOW A SUBSIDIARY TO BE SELF-SUFFICIENT AND RAISE THE DEBT FUNDING IT NEEDS, THE COSTS OF THE GUARANTEE (AND THE ASSOCIATED RISK) SH OULD REMAIN WITH THE PARENT COMPANY PROVIDING THE GUARANTEE. 33. ON A CONCEPTUAL NOTE, THUS, THERE IS A VALID SC HOOL OF THOUGHT THAT THE CORPORATE GUARANTEES CAN INDEED BE A MODE OF OWNERSHIP CONTRIBUTION, PAR TICULARLY WHEN, AS IS OFTEN THE CASE, 'WHERE SUCH A GUARANTEE IS GIVEN IT COMPENSATES FOR THE IN ADEQUACIES IN THE FINANCIAL POSITION OF THE BORROWER; SPECIFICALLY, THE FACT THAT THE SUBSIDIAR Y DOES NOT HAVE ENOUGH SHAREHOLDERS' FUNDS'. THERE CAN BE NUMBER OF REASONS, INCLUDING REGULATOR Y ISSUES AND MARKET CONDITIONS IN THE RELATED JURISDICTIONS, IN WHICH SUCH A CONTRIBUTION, BY WAY OF A GUARANTEE, WOULD JUSTIFY TO BE A MORE APPROPRIATE AND PREFERRED MODE OF CONTRIBUTION VIS- A-VIS EQUITY CONTRIBUTION. IT IS SIGNIFICANT, IN THIS CONTEXT, THAT THE CASE OF THE ASSESSEE HAS ALL ALONG BEEN, AS NOTED IN THE ASSESSMENT ORDER ITSELF, THAT 'SAID GUARANTEES WERE IN THE FORM OF C ORPORATE GUARANTEES/ QUASI CAPITAL AND NOT IN THE NATURE OF ANY SERVICES'. IN OTHER WORDS, THESE GUAR ANTEES WERE SPECIFICALLY STATED TO BE IN THE NATURE OF SHAREHOLDER ACTIVITIES. THE ASSESSEE'S CL AIM OF THE GUARANTEES BEING IN THE NATURE OF QUASI CAPITAL, AND THUS BEING IN THE NATURE OF A SH AREHOLDER'S ACTIVITY, IS NOT REJECTED EITHER. THE CONCEPT OF ISSUANCE OF CORPORATE GUARANTEES AS A SH AREHOLDER ACTIVITY IS NOT ALIEN TO THE TRANSFER PRICING LITERATURE IN GENERAL. ON THE CONTRARY, IT IS RECOGNIZED IN INTERNATIONAL TRANSFER PRICING LITERATURE AS ALSO IN THE OFFICIAL DOCUMENTATION AN D LEGISLATION OF SEVERAL TRANSFER PRICING JURISDICTIONS. THE 'OECD TRANSFER PRICING GUIDELINE S FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' ITSELF RECOGNIZES THE DISTINCTION BETWEEN A SHAREHOLDER ACTIVITY AND A PROVISION FOR SERVICES, WHEN, CONTRASTING THE SHAREHOLDER ACT IVITY WITH BROADER TERM 'STEWARDSHIP ACTIVITY' I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 47 AND THUS HIGHLIGHTING NARROW SCOPE OF SHAREHOLDER A CTIVITY, 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 P ROVIDED BY A COORDINATING CENTRE'. IT PROCEEDED TO ADD, IN THE IMMEDIATELY FOLLOWING SENT ENCE AT PAGE 207 OF 2010 GUIDELINES, THAT 'THESE LATTER TYPE OF NON-SHAREHOLDER ACTIVITIES CO ULD INCLUDE DETAILED PLANNING SERVICES FOR PARTICULAR OPERATIONS, MANAGEMENT OR TECHNICAL ADVICE (TROUBLE SHOOTING) OR IN SOME CASES ASSISTANCE IN DAY TO DAY MANAGEMENT'. THE SHAREHOLD ER ACTIVITIES ARE THUS SEEN AS CONCEPTUALLY DISTINCT FROM THE PROVISION OF SERVICES. THE ISSUAN CE 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 JUD ICIAL FORUMS, INCLUDING, MOST NOTABLY BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CI T VS VISAKHAPATNAM PORT TRUST [(1983) 144 ITR 146 (AP)]. THEIR LORDSHIPS ALSO REFERRED TO LOR D RADCLIFFE'S OBSERVATIONS IN OSTIME VS. AUSTRALIAN MUTUAL PROVIDENT SOCIETY [(1960) 39 ITR 210 (HL)], WHICH HAS DESCRIBED THE LANGUAGE EMPLOYED IN THE MODELS DEVELOPED BY THE OECD AS THE 'INTERNATIONAL TAX LANGUAGE'. THE WORK DONE BY OECD IN THE FIELD OF TRANSFER PRICING IS NO LESS SIGNIFICANT. NO MATTER WHICH PART OF THE WORLD WE LIVE IN, AND IRRESPECTIVE OF WHETHER OR NO T THAT TAX JURISDICTION IS AN OECD MEMBER JURISDICTION, THE IMMENSE CONTRIBUTION OF THE OECD, IN THE FIELD OF THE TRANSFER PRICING AS WELL, IS ADMIRED AND RESPECTED. HOWEVER, THE RELEVANCE OF TH IS WORK, SO FAR AS INTERPRETATION TO TRANSFER PRICING LEGISLATION IS CONCERNED, MUST REMAIN CONFI NED TO THE AREAS WHICH HAVE REMAINED INTACT FROM LEGISLATIVE OR JUDICIAL GUIDANCE. THERE IS NO SCOPE FOR PARALLEL OR CONFLICTING GUIDANCE BY SUCH FORUMS. LEGISLATION IS AN EXCLUSIVE DOMAIN OF THE SOVEREIGN, AND, THEREFORE, AS LONG AS AN AREA IS ADEQUATELY COVERED BY THE WORK OF LEGISLATI ON, THINGS LIKE GUIDANCE OF THE OECD, OR FOR THAT PURPOSE ANY OTHER MULTILATERAL FORUM, ARE NOT DECISIVE. WHILE WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT WHEN THE DOMESTIC TRANSFER PRICING REG ULATIONS DO NOT PROVIDE ANY GUIDELINES, IT MAY HAVE TO BE DECIDED HAVING REGARD TO INTERNATIONAL B EST PRACTICES, WE DONOT QUITE AGREE WITH IT INASMUCH AS, IN OUR CONSIDERED VIEW, REVENUE CANNOT SEEK TO WIDEN THE NET OF TRANSFER PRICING LEGISLATION BY TAKING REFUGE OF THE BEST PRACTICES RECOGNIZED BY THE OECD WORK. 35. WHILE DEALING WITH 'SPECIAL CONSIDERATION FOR I NTRA GROUP SERVICES', THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AN D TAX ADMINISTRATIONS' HAS NOTED THAT THERE ARE TWO FUNDAMENTAL ISSUES WITH RESPECT TO THE INTR A GROUP SERVICES- FIRST, WHETHER INTRA GROUP SERVICES HAVE INDEED BEEN PROVIDED, AND, SECOND- IF THE ANSWER TO THE FIRST QUESTION IS IN POSITIVE, THAT CHARGE TO THESE SERVICES SHOULD BE AT AN ARM'S LENGTH PRICE. DEALING WITH THE FIRST QUESTION, WHICH IS RELEVANT FOR THE PRESENT PURPOSES, THESE G UIDELINES (2010 VERSION) STATE AS FOLLOWS: 7.6 UNDER THE ARM'S LENGTH PRINCIPLE, THE QUESTION WHETHER AN INTRA-GROUP SERVICE HAS BEEN RENDERED WHEN AN ACTIVITY IS PERFORMED FOR ONE OR MORE 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 TH E ACTIVITY IF PERFORMED FOR IT BY AN INDEPENDENT ENTERPRISE OR WOULD HAVE PERFORMED THE ACTIVITY IN-HOUSE FOR ITSELF. IF THE ACTIVITY IS NOT ONE FOR WHICH THE INDEPENDENT ENTER PRISE 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 DEPE NDS ON THE ACTUAL FACTS AND CIRCUMSTANCES, AND IT IS NOT POSSIBLE IN THE ABSTRA CT 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 THE GROUP. IN SUCH A CASE, IT IS I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 48 RELATIVELY STRAIGHTFORWARD TO DETERMINE WHETHER A S ERVICE HAS BEEN PROVIDED. ORDINARILY AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANC ES WOULD HAVE SATISFIED THE IDENTIFIED NEED EITHER BY PERFORMING THE ACTIVITY I N-HOUSE OR BY HAVING THE ACTIVITY PERFORMED BY A THIRD PARTY. THUS, IN SUCH A CASE, A N INTRA-GROUP SERVICE ORDINARILY WOULD BE FOUND TO EXIST. FOR EXAMPLE, AN INTRA-GROUP SERV ICE WOULD NORMALLY BE FOUND WHERE AN ASSOCIATED ENTERPRISE REPAIRS EQUIPMENT USED IN MAN UFACTURING BY ANOTHER MEMBER OF THE MNE GROUP. 7.9 A MORE COMPLEX ANALYSIS IS NECESSARY WHERE AN A SSOCIATED ENTERPRISE UNDERTAKES ACTIVITIES THAT RELATE TO MORE THAN ONE MEMBER OF T HE GROUP OR TO THE GROUP AS A WHOLE. IN A NARROW RANGE OF SUCH CASES, AN INTRA-GROUP ACTIVI TY MAY BE PERFORMED RELATING TO GROUP MEMBERS EVEN THOUGH THOSE GROUP MEMBERS DO NO T NEED THE ACTIVITY (AND WOULD NOT BE WILLING TO PAY FOR IT WERE THEY INDEPENDENT ENTERPRISES). SUCH AN ACTIVITY WOULD BE ONE THAT A GROUP MEMBER (USUALLY THE PARENT COMPANY OR A REGIONAL HOLDING COMPANY) PERFORMS SOLELY BECAUSE OF ITS OWNERSHIP INTEREST I N ONE OR MORE OTHER GROUP MEMBERS, I.E. IN ITS CAPACITY AS SHAREHOLDER. THIS TYPE OF A CTIVITY WOULD NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPANIES. IT MAY BE REFERRED TO AS A 'SH AREHOLDER ACTIVITY', DISTINGUISHABLE FROM THE BROADER TERM 'STEWARDSHIP ACTIVITY' USED I N THE 1979 REPORT. STEWARDSHIP ACTIVITIES COVERED A RANGE OF ACTIVITIES BY A SHARE HOLDER THAT MAY INCLUDE THE PROVISION OF SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVIC ES THAT WOULD BE PROVIDED BY A COORDINATING CENTRE. THESE LATTER TYPES OF NON-SHAR EHOLDER ACTIVITIES COULD INCLUDE DETAILED PLANNING SERVICES FOR PARTICULAR OPERATION S, EMERGENCY MANAGEMENT OR TECHNICAL ADVICE (TROUBLE SHOOTING), OR IN SOME CASES ASSISTA NCE IN DAY-TO-DAY MANAGEMENT. 7.10 THE FOLLOWING EXAMPLES (WHICH WERE DESCRIBED I N THE 1984 REPORT) WILL CONSTITUTE SHAREHOLDER ACTIVITIES, UNDER THE STANDARD SET FORT H IN PARAGRAPH 7.6: A) COSTS OF ACTIVITIES RELATING TO THE JURIDICAL ST RUCTURE OF THE PARENT COMPANY ITSELF, SUCH AS MEETINGS OF SHAREHOLDERS OF THE PARENT, ISSUING OF SHARES IN THE PARENT COMPANY AND COSTS OF THE SUPERVISORY BOARD; B) COSTS RELATING TO REPORTING REQUIREMENTS OF THE PARENT COMPANY INCLUDING THE CONSOLIDATION OF REPORTS; C) COSTS OF RAISING FUNDS FOR THE ACQUISITION OF IT S PARTICIPATIONS. IN CONTRAST, IF FOR EXAMPLE A PARENT COMPANY RAISES FUNDS ON BEHALF OF ANOTHER GROUP MEMBER WHICH USES THEM TO ACQUIRE A NEW COMPANY, TH E PARENT COMPANY WOULD GENERALLY BE REGARDED AS PROVIDING A SERVICE TO THE GROUP MEM BER. THE 1984 REPORT ALSO MENTIONED 'COSTS OF MANAGERIAL AND CONTROL (MONITOR ING) ACTIVITIES RELATED TO THE MANAGEMENT AND PROTECTION OF THE INVESTMENT AS SUCH IN PARTICIPATIONS'. WHETHER THESE ACTIVITIES FALL WITHIN THE DEFINITION OF SHAREHOLDE R ACTIVITIES AS DEFINED IN THESE GUIDELINES WOULD BE DETERMINED ACCORDING TO WHETHER UNDER COMP ARABLE FACTS AND CIRCUMSTANCES THE ACTIVITY IS ONE THAT AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR OR TO PERFORM FOR ITSELF. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 36. WE HAVE NOTICED THAT THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' SPECIFICALLY RECOGNIZES TH AT AN ACTIVITY IN THE NATURE OF SHAREHOLDER ACTIVITY, WHICH IS SOLELY BECAUSE OF OWNERSHIP INTE REST IN ONE OR MORE OF THE GROUP MEMBERS, I.E. IN THE CAPACITY AS SHAREHOLDER 'WOULD NOT JUSTIFY A CH ARGE TO THE RECIPIENT COMPANIES'. IT IS THUS CLEAR THAT A SHAREHOLDER ACTIVITY, IN ISSUANCE OF C ORPORATE GUARANTEES, IS TAKEN OUT OF AMBIT OF THE GROUP SERVICES. CLEARLY, THEREFORE, AS LONG AS A GU ARANTEE IS ON ACCOUNT OF, WHAT CAN BE TERMED AS 'SHAREHOLDER'S ACTIVITIES', EVEN ON THE FIRST PR INCIPLES, IT IS OUTSIDE THE AMBIT OF TRANSFER PRICI NG ADJUSTMENT IN RESPECT OF ARM'S LENGTH PRICE. IT IS ESSENTIAL TO APPRECIATE, AT THIS STAGE, THE DISTINCTION IN A SERVICE AND A BENEFIT. ONE MAY BE BENEFITED EVEN WHEN NO SERVICES ARE RENDERED, AND, THEREFORE, IN MANY A SITUATION IT'S A 'BENEFIT TEST' WHICH IS CRUCIAL FOR TRANSFER PRICING LEGISLATION, SUCH AS IN US REGULATIONS 1.482- 9(1)( 3)(I) WHICH DEFINES 'BENEFIT', FORM A US TRANSFER PRICING PERSPECTIVE, AS 'AN ACTIVITY IS CONSIDERED TO BE PROVIDE A BENEFIT TO THE RECIPIENT IF THE ACTIVITY DIRECTLY RESULTS IN A REASONABLY IDENTIFIA BLE INCREMENT OF ECONOMIC OR COMMERCIAL VALUE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 49 THAT ENHANCES THE RECIPIENT'S COMMERCIAL POSITION, OR THAT MAY BE REASONABLY ANTICIPATED TO DO SO'. THE EXPRESSION 'ACTIVITY', IN TURN IS DEFINED, AS 'INCLUDING THE PERFORMANCE OF FUNCTIONS; THE ASSUMPTION OF RISKS; THE USE BY A RENDERED OF TANGI BLE OR INTANGIBLE PROPERTY OR OTHER RESOURCES CAPABILITIES OR KNOWLEDGE (INCLUDING KNOWLEDGE OF A ND ABILITY TO TAKE ADVANTAGE OF A PARTICULARLY ADVANTAGEOUS SITUATION OR CIRCUMSTANCES); AND MAKIN G AVAILABLE TO THE RECIPIENT ANY PROPERTY OR OTHER RESOURCES OF THE RENDERED' [REGULATION 1.482- 9(1)(2)]. THE ISSUANCE OF GUARANTEES IS NOT WITHIN THE AMBIT OF TRANSFER PRICING IN UNITED STAT ES BECAUSE IT IS A SERVICE BUT BECAUSE IT IS COVERED BY THE SPECIFIC DEFINITION DISCUSSED ABOVE. AS A MATTER OF FACT, DAVID S MILLER, IN A PAPER TITLED 'FEDERAL INCOME TAX CONSEQUENCES OF GUARANTE ES; A COMPREHENSIVE FRAMEWORK FOR ANALYSIS' PUBLISHED IN THE 'THE AMERICAN LAWYER VOL . 48, NO. 1 (FALL 1994), PP. 103-165 (HTTP://WWW.JSTOR.ORG/STABLE/20771688), HAS STATED THAT A GUARANTEE IS NOT A SERVICE. THE FOLLOWING OBSERVATIONS, AT PAGES 114, ARE IMPORTANT: THE POSITION THAT GUARANTEES ARE SERVICES HAS BEEN DISCREDITED BY THE COURTS WITH GOOD REASON38. GUARANTEE FEES DO NOT REPRESENT PAYMENTS FOR SERVICES ANY MORE THAN PAYMENTS WITH RESPECT TO OTHER FINANCIAL INSTRUMENT S CONSTITUTE PAYMENT FOR SERVICES39. A GUARANTOR DOES NOT ARRANGE FINANCING FOR THE DEBTOR , BUT MERELY EXECUTES A FINANCIAL INSTRUMENT IN ITS FAVOUR. SEE. E.G., CENTEL COMMUNICATIONS CO. V. COMMISSIONER , 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 CHARAC TERIZATION OF GUARANTEE I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 FEES AS PAYMEN T FOR SERVICES UNDER SECTION 482 IS INCONSISTENT WITH ITS TREATMENT OF GUARANTEE FEES U NDER OTHER PROVISIONS. SEE P.L.R. 9410008 (DEC. 13, 1993). BUT 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 D OES 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 E XPRESS REFERENCE TO THE BENEFIT TEST, OR TO THE CONCEPT OF BENEFIT ATTACHED TO THE ACTIVITY, IN REL EVANT DEFINITION CLAUSE OF 'INTERNATIONAL TRANSACTION' UNDER THE DOMESTIC TRANSFER PRICING LE GISLATION. AS WE TAKE NOTE OF THESE THINGS, IT IS ALSO ESSENTIAL TO TAKE NOTE OF THE LEGAL POSITION, IN INDIA, IN THIS REGARD. NO MATTER HOW DESIRABLE I S IT TO READ SUCH A TEST IN THE DEFINITION OF THE INT ERNATIONAL TRANSACTION' UNDER OUR DOMESTIC TRANSFER PRICING LEGISLATION, AS IS THE SETTLED LEGAL POSITI ON, IT IS NOT OPEN TO US TO INFER THE SAME. HON'BLE SUPREME COURT, IN THE CASE OF TARULATA SHYAM VS CIT [(1977) 108 ITR 351 (SC)], TOOK NOTE OF THE SITUATION BEFORE THEIR LORDSHIPS IN THESE WORDS: 'W E HAVE GIVEN ANXIOUS THOUGHTS TO THE PERSUASIVE ARGUMENTS OF MR SHARMA. HIS ARGUMENTS, I F ACCEPTED, WILL CERTAINLY SOFTEN THE RIGOUR OF THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CONFORMITY WITH LOGIC AND EQUITY'. HOWEVER, THEIR LORDSHIPS DECLINED TO DO SO ON THE GROUND THA T 'THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE THE WORDS WHICH ARE NOT THERE. SUCH IMPORTA TION WOULD BE NOT TO CONSTRUE BUT TO AMEND THE STATUE'. THEIR LORDSHIPS NOTED THAT 'EVEN IF THERE BE CASUS OMISSUS, THE DEFECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETAT ION'. THE BENEFIT TEST, WHICH IS SET OUT IN THE OECD GUIDANCE AND WHICH FINDS ITS PLACE IN THE INTE RNATIONAL BEST PRACTICES, DOES NOT FIND ITS PLACE IN THE MAIN DEFINITION OF INTERNATIONAL TRANS ACTION, EVEN THOUGH THERE IS A REFERENCE TO THE EXPRESSION 'BENEFIT' IN THE CONTEXT OF COST OR EXPE NSE SHARING ARRANGEMENTS BUT THAT IS A DIFFERENT ASPECT OF THE MATTER ALTOGETHER. IN THE ABSENCE OF BENEFIT TEST BEING MENTIONED IN THE DEFINITION FOR THE PRESENT PURPOSES, WE CANNOT INFER THE SAME. 38. ONE MORE THING WHICH IS CLEARLY DISCERNABLE FRO M THE ABOVE DISCUSSIONS IS THAT THE TESTS RECOGNIZED BY THESE GUIDELINES ARE INTERWOVEN TWIN TESTS OF BENEFIT AND ARM'S LENGTH. BENEFIT TEST IMPLIES THE RECIPIENT GROUP MEMBER SHOULD GET 'ECON OMIC OR COMMERCIAL VALUE TO ENHANCE ITS I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 50 COMMERCIAL POSITION'. THE BENEFIT TEST IS INTERLINK ED WITH THE AN ARM'S LENGTH TEST IN THE SENSE THAT IT SEEKS AN ANSWER TO THE QUESTION WHETHER UNDER A SIMILAR SITUATION AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY CON CERNED, OR WOULD HAVE PERFORMED THE ACTIVITY IN-HOUSE FOR ITSELF. SO FAR AS THE BENEFIT TEST IS CONCERNED, AS WE HAVE NOTED EARLIER, IT IS ALIEN TO THE DEFINITION OF INTERNATIONAL TRANSACTION' UNDER THE INDIAN TRANSFER PRICING LEGISLATION. SO FAR AS ARM'S LENGTH TEST IS CONCERNED, IT PRESUPPOSES THAT SUCH A TRANSACTION IS POSSIBLE IN ARM'S LENGTH SITUATION. HOWEVER, IN A SITUATION IN WHICH THE SUB SIDIARY 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 O F 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 G UARANTEES ON BEHALF OF ITS CLIENTS WITH THE CONSIDERATION FOR WHICH THE CORPORATES ISSUE GUARAN TEES FOR THEIR SUBSIDIARIES, IS ILL CONCEIVED BECAUSE WHILE BANKS SEEK TO BE COMPENSATED, EVEN FO R THE SECURED GUARANTEES, FOR THE FINANCIAL RISK OF LIQUIDATING THE UNDERLYING SECURITIES AND M EETING 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 E NTIRELY ENTREPRENEURIAL IN THE SENSE THAT IT SEEKS TO MAXIMIZE PROFITABILITY THROUGH AND BY THE SUBSID IARIES. IT IS INHERENTLY IMPOSSIBLE TO DECIDE ARM'S LENGTH PRICE OF A TRANSACTION WHICH CANNOT TA KE PLACE IN ARM'S LENGTH SITUATION. THE MOTIVATION OR TRIGGER FOR ISSUANCE OF SUCH GUARANTE ES IS NOT THE KIND FOR CONSIDERATION FOR WHICH A BANKER, FOR EXAMPLE, ISSUE THE GUARANTEES, BUT IT I S MAXIMIZATION OF GAINS FOR THE RECIPIENT ENTITY AND THUS THE MNE GROUP AS A WHOLE. IN GENERAL, THUS , THE CONSIDERATION FOR ISSUANCE OF CORPORATE GUARANTEES ARE OF A DIFFERENT CHARACTER ALTOGETHER. 40. AT THIS STAGE, IT WOULD APPROPRIATE TO ANALYZE THE BUSINESS MODEL OF BANK GUARANTEES, WITH WHICH CORPORATE GUARANTEES ARE SOMETIMES COMPARED, IN THE CONTEXT OF BENCHMARKING THE ARM'S LENGTH PRICE OF CORPORATE GUARANTEES. A BANK GUARAN TEE IS A SURETY THAT THAT THE BANK, OR THE FINANCIAL INSTITUTION ISSUING THE GUARANTEE, WILL P AY OFF THE DEBTS AND LIABILITIES INCURRED BY AN INDIVIDUAL OR A BUSINESS ENTITY IN CASE THEY ARE UN ABLE TO DO SO. BY PROVIDING A GUARANTEE, A BANK OFFERS TO HONOR RELATED PAYMENT TO THE CREDITORS UP ON RECEIVING A REQUEST. THIS REQUIRES THAT BANK HAS TO BE VERY SURE OF THE BUSINESS OR INDIVIDUAL T O WHOM THE BANK GUARANTEE IS BEING ISSUED. SO, BANKS RUN RISK ASSESSMENTS TO ENSURE THAT THE GUARA NTEED SUM CAN BE RETRIEVED BACK FROM THE BUSINESS. THIS MAY REQUIRE THE BUSINESS TO FURNISH A SECURITY IN THE SHAPE OF CASH OR CAPITAL ASSETS. ANY ENTITY THAT CAN PASS THE RISK ASSESSMENT AND PR OVIDE SECURITY MAY OBTAIN A BANK GUARANTEE. THE CONSIDERATION FOR THE ISSUANCE OF BANK GUARANTE E, SO FAR AS A BANKER IS CONCERNED, IS THIS. WHEN THE CLIENT IS NOT ABLE TO HONOUR THE FINANCIAL COMMITMENTS AND WHEN CLIENT IS NOT ABLE TO MEET HIS FINANCIAL COMMITMENTS AND THE BANK IS CALL ED UPON TO MAKE THE PAYMENTS, THE BANK WILL SEEK A COMPENSATION FOR THE ACTION OF ISSUING THE B ANK GUARANTEE, AND FOR THE RISK IT RUNS INHERENT IN THE PROCESS OF MAKING THE PAYMENT FIRST AND REAL IZING IT FROM THE UNDERLYING SECURITY AND THE CLIENT. EVEN WHEN SUCH GUARANTEES ARE BACKED BY ONE HUNDRED PERCENT DEPOSITS, THE BANK CHARGES A GUARANTEE FEES. IN A SITUATION IN WHICH THERE IS NO UNDERLYING ASSETS WHICH CAN BE REALIZED BY THE BANK OR THERE ARE NO DEPOSITS WITH THE BANK WHICH C AN BE APPROPRIATED FOR PAYMENT OF GUARANTEE OBLIGATIONS, THE BANKS WILL RARELY, IF AT ALL, ISSU E THE GUARANTEES. OF COURSE, WHEN A CLIENT IS SO WE LL PLACED IN HIS CREDIT RATING THAT BANKS CAN ISSUE HI M CLEAN AND UNSECURED GUARANTEES, HE GETS NO FURTHER ECONOMIC VALUE BY A CORPORATE GUARANTEE EIT HER. LET US NOW COMPARE THIS KIND OF A GUARANTEE WITH A CORPORATE GUARANTEE. THE GUARANTEE S ARE ISSUED WITHOUT ANY SECURITY OR UNDERLYING ASSETS. WHEN THESE GUARANTEES ARE INVOKE D, THERE IS NO OCCASION FOR THE GUARANTOR TO SEEK RECOURSE TO ANY ASSETS OF THE GUARANTEED ENTIT Y FOR RECOVERING PAYMENT OF DEFAULTED GUARANTEES. THE GUARANTEES ARE NOT BASED ON THE CRE DIT ASSESSMENT OF THE ENTITY, IN RESPECT OF WHICH THE GUARANTEES ARE ISSUED, BUT ARE BASED ON T HE BUSINESS NEEDS OF THE ENTITY IN QUESTION. EVEN IN A SITUATION IN I.T.A. NO.: 2873/AHD/10 ASSE SSMENT YEAR: 2006-07 WHICH THE GROUP ENTITY IS SURE THAT THE BENEFICIARY OF GUARANTEE HAS NO FINAN CIAL MEANS TO REIMBURSE IT FOR THE DEFAULTED GUARANTEE AMOUNTS, WHEN INVOKED, THE GROUP ENTITY W ILL ISSUE THE GUARANTEE NEVERTHELESS BECAUSE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 51 THESE ARE COMPULSIONS OF HIS GROUP SYNERGY RATHER T HAN 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 SIMILARITIES, IN THIS RESPECT, MAY BE PRESENT, BUT THESE ARE MORE OF AN EXCEPTION THAN THE RULE. IN GENERAL, THEREFORE, BANK GUARANTEES ARE NOT COMPARABLE WITH CORPORATE GUARANTEES. 41. AS EVIDENT FROM THE OECD OBSERVATION TO THE EFF ECT 'IN CONTRAST, IF FOR EXAMPLE A PARENT COMPANY RAISES FUNDS ON BEHALF OF ANOTHER GROUP MEM BER WHICH USES THEM TO ACQUIRE A NEW COMPANY, THE PARENT COMPANY WOULD GENERALLY BE REGA RDED AS PROVIDING A SERVICE TO THE GROUP MEMBER', IT IS ALSO TO BE CLEAR THAT WHEN THE CORPO RATE GUARANTEES ARE ISSUED FOR THE PURPOSE OF SUBSIDIARIES RAISING FUNDS FOR ACQUISITIONS BY SUCH SUBSIDIARIES, THESE GUARANTEES WILL BE DEEMED TO BE SERVICES TO THE SUBSIDIARIES, AND, AS A COROL LARY THERETO, WHEN CORPORATE GUARANTEES ARE ISSUED FOR THE SUBSIDIARIES TO RAISE FUNDS FOR THEI R OWN NEEDS, THE CORPORATE GUARANTEES ARE TO BE TREATED AS SHAREHOLDER ACTIVITY. THE USE OF BORROWE D FUNDS FOR OWN USE IS A REASONABLE PRESUMPTION AS IT IS A MATTER OF COURSE RATHER THAN EXCEPTION. THERE HAS TO BE SOMETHING ON RECORD TO INDICATE OR SUGGEST THAT THE FUNDS RAISED BY THE SUBSIDIARY, WITH THE HELP OF THE GUARANTEE GIVEN BY THE ASSESSEE, ARE NOT FOR ITS OWN BUSINESS PURPO SES. AS A PLAIN LOOK AT THE DETAILS OF CORPORATE GUARANTEES WOULD SHOW, THESE GUARANTEES WERE ISSUED TO VARIOUS BANKS IN RESPECT OF THE CREDIT FACILITIES AVAILED BY THE SUBSIDIARIES FROM THESE B ANKS. THE GUARANTEES WERE PRIMA FACIE IN THE NATURE OF SHAREHOLDER ACTIVITY AS IT WAS TO PROVIDE , OR COMPENSATE FOR LACK OF, CORE STRENGTH FOR RAISING THE FINANCES FROM BANKS. NO MATERIAL, INDIC ATING TO THE CONTRARY, IS BROUGHT ON RECORD IN THIS CASE. GOING BY THE OECD GUIDANCE ALSO, IT IS N OT REALLY POSSIBLE TO HOLD THAT THE CORPORATE GUARANTEES I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 ISSUED BY THE ASSESSEE WERE IN THE NATURE OF 'PROVISION FOR SERVICE' AND NOT A SHAREHO LDER ACTIVITY WHICH ARE MUTUALLY EXCLUSIVE IN NATURE. IN THE LIGHT OF THESE DISCUSSIONS, WE ARE O F THE CONSIDERED VIEW, AND ARE FULLY SUPPORTED BY THE OECD GUIDANCE IN THIS, THAT THE ISSUANCE OF COR PORATE GUARANTEES, IN THE NATURE OF QUASI CAPITAL OR SHAREHOLDER ACTIVITY- AS IS THE UNCONTRO VERTED POSITION ON THE FACTS OF THIS CASE, DOES NOT AMOUNT TO A SERVICE IN WHICH RESPECT OF WHICH ARM'S LENGTH ADJUSTMENT CAN BE DONE. 42. AS OBSERVED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS EKL APPLIANCES LTD [(2012) 345 ITR 241 (DEL)], A RE-CHARACTERIZATION OF A TRAN SACTION IS INDEED PERMISSIBLE, INTER ALIA, IN A SITUATION '(I) WHERE THE ECONOMIC SUBSTANCE OF A TR ANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE S AME 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 N O INDEPENDENT ENTERPRISE WOULD ISSUE A GUARANTEE WITHOUT AN UNDERLYING SECURITY AS HAS BEE N DONE BY THE ASSESSEE. WE MAY, IN THIS REGARD, REFER TO THE OBSERVATIONS MADE BY HON'BLE H IGH COURT, SPEAKING THROUGH HON'BLE JUSTICE EASWAR (AS HE THEN WAS), AS FOLLOWS: 16. THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ('OECD', AND TAX ADMINISTRATIONS. THESE GUIDELINES GIVE AN INTRODUCT ION TO THE ARM'S LENGTH PRICE PRINCIPLE AND EXPLAINS ARTICLE 9 OF THE OECD MODEL TAX CONVENTION. THIS ARTICLE PRO VIDES THAT WHEN CONDITIONS ARE MADE OR IMPOSED BETWEEN TWO ASS OCIATED ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATIONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEPENDENT ENTERPRISES THEN ANY PROFIT WHICH WOULD , BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ONE OF THE ENTERPRISES, BUT, BY REASON O F THOSE CONDITIONS, IF NOT SO ACCRUED, MAY BE INCLUDED IN THE PROFITS OF THAT ENTERPRISE A ND TAXED ACCORDINGLY. BY SEEKING TO ADJUST THE PROFITS IN THE ABOVE MANNER, THE ARM'S L ENGTH PRINCIPLE OF PRICING FOLLOWS THE APPROACH OF TREATING THE MEMBERS OF A MULTI-NATIONA L ENTERPRISE GROUP AS OPERATING AS SEPARATE ENTITIES RATHER THAN AS INSEPARABLE PARTS OF A SINGLE UNIFIED BUSINESS. AFTER REFERRING TO ARTICLE 9 OF THE MODEL CONVENTION AND STATING THE ARM'S LENG TH PRINCIPLE, THE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 52 GUIDELINES PROVIDE FOR 'RECOGNITION OF THE ACTUAL T RANSACTIONS UNDERTAKEN' IN PARAGRAPHS I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 1. 36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 ARE IMPORTANT AND ARE RELEVANT TO OUR PURPOSE. THES E PARAGRAPHS ARE RE-PRODUCED BELOW: - '1.36 A TAX ADMINISTRATION'S EXAMINATION OF A CONTR OLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANSACTION ACTUALLY UNDERTAKEN BY THE ASSOCIATED ENTERPRISES AS IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY TH E TAXPAYER INSOFAR AS THESE ARE CONSISTENT WITH THE METHODS DESCRIBED IN CHAPTERS I I AND III. IN OTHER THAN EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. RESTRUCTURING OF LEGIT IMATE BUSINESS TRANSACTIONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COU LD BE COMPOUNDED BY DOUBLE TAXATION CREATED WHERE THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEWS AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCE S IN WHICH IT MAY, EXCEPTIONALLY, BE BOTH APPROPRIATE AND LEGITIMATE FOR A TAX ADMINISTR ATION TO CONSIDER DISREGARDING THE STRUCTURE ADOPTED BY A TAXPAYER IN ENTERING INTO A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTANCE ARISES WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DISREGARD THE PARTIES' CHARACTERIZATION OF THE TRANSACTION AND RE- CHARACTERISE IT IN ACCORDANCE W ITH ITS SUBSTANCE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN INVESTMENT IN AN ASSOCIATE D ENTERPRISE IN THE FORM OF INTEREST- BEARING DEBT WHEN, AT ARM'S LENGTH, HAVING REGARD T O THE ECONOMIC CIRCUMSTANCES OF THE BORROWING COMPANY, THE INVESTMENT WOULD NOT BE EXPE CTED TO BE STRUCTURED IN THIS WAY. IN THIS CASE IT MIGHT BE APPROPRIATE FOR A TAX ADMINIS TRATION 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 ARRA NGEMENTS 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 ADMINISTRATIO N FROM DETERMINING AN APPROPRIATE TRANSFER PRICE. AN EXAMPLE OF THIS CIRCUMSTANCE WOU LD BE A SALE UNDER A LONG-TERM CONTRACT, FOR A LUMP SUM PAYMENT, OF UNLIMITED ENTI TLEMENT TO THE INTELLECTUAL PROPERTY RIGHTS ARISING AS A RESULT OF FUTURE RESEARCH FOR T HE 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, I T WOULD NEVERTHELESS BE APPROPRIATE FOR A TAX ADMINISTRATION TO CONFORM THE TERMS OF TH AT TRANSFER IN THEIR ENTIRETY (AND NOT SIMPLY BY REFERENCE TO PRICING) TO THOSE THAT MIGHT REASONABLY HAVE BEEN EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJECT OF A TRANSACT ION INVOLVING INDEPENDENT ENTERPRISES. THUS, IN THE CASE DESCRIBED ABOVE IT MIGHT BE APPRO PRIATE FOR THE TAX ADMINISTRATION, FOR I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 EX AMPLE, TO ADJUST THE CONDITIONS OF THE AGREEMENT IN A COMMERCIALLY RATIONAL MANNER AS A CONTINUING RESEARCH AGREEMENT. 1.38 IN BOTH SETS OF CIRCUMSTANCES DESCRIBED ABOVE, THE CHARACTER OF THE TRANSACTION MAY DERIVE FROM THE RELATIONSHIP BETWEEN THE PARTIES RA THER THAN BE DETERMINED BY NORMAL COMMERCIAL CONDITIONS AS MAY HAVE BEEN STRUCTURED B Y THE TAXPAYER TO AVOID OR MINIMIZE TAX. IN SUCH CASES, THE TOTALITY OF ITS TERMSWOULD BE THE RESULT OF A CONDITION THAT WOULD NOT HAVE BEEN MADE IF THE PARTIES HAD BEEN ENGAGED IN ARM'S LENGTH DEALINGS. ARTICLE 9 WOULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO RE FLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAINED HAD THE TRANSACTION BEEN STRUCTURED I N ACCORDANCE WITH THE ECONOMIC AND COMMERCIAL REALITY OF PARTIES DEALING AT ARM'S LENG TH.' 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LI ES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION S HOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR TH EM AND THE EXAMINATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANS ACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPR ISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES DISCOURAGE RE-STRUCTURING OF LEGITIM ATE BUSINESS TRANSACTIONS. THE REASON I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 53 FOR CHARACTERISATION OF SUCH RE-STRUCTURING AS AN A RBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXATION IF THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS TO H OW THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESA ID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION D IFFERS 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 F ROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIAL LY RATIONAL MANNER. 43. IT IS THUS CLEAR THAT EVEN IF WE ACCEPT THE CON TENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT ISSUANCE OF A CORPORATE GUARANT EE AMOUNTS TO A 'PROVISION FOR SERVICE', SUCH A SERVICE NEEDS TO BE RE-CHARACTERIZED TO BRING IT IN TUNE WITH COMMERCIAL REALITY AS 'ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEI R 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. W ITHOUT UNDERLYING ASSET, TO ASSESSEE'S SUBSIDIARIES WHEN THE BANKS ARE NOT WILLING TO EXTE ND THOSE SUBSIDIARIES LOANS ON THE SAME TERMS AS WITHOUT A GUARANTEE. SUCH A GUARANTEE TRANSACTIO N 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 T O BE BENCHMARKED AND, FOR THAT PURPOSE, IT IS IN THE SERVICE CATEGORY BUT THAT OCCASION COMES ONLY W HEN 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 CON NOTATIONS, AS WE HAVE SEEN EARLIER, DOES NOT COVER ISSUANCE OF CORPORATE GUARANTEES, EVEN THOUGH ONCE A CORPORATE GUARANTEE IS COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION', IT IS BEN CHMARKED IN THE SERVICE SEGMENT. IN VIEW OF THE ABOVE DISCUSSIONS, OECD GUIDELINES, AS A MATTER OF FACT, STRENGTHEN THE CLAIM OF THE ASSESSEE THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WER E IN THE NATURE OF QUASI CAPITAL OR SHAREHOLDER ACTIVITY AND, FOR THIS REASON ALONE, THE ISSUANCE O F THESE GUARANTEES SHOULD BE EXCLUDED FROM THE SCOPE OF SERVICES AND THUS FROM THE SCOPE OF 'INTER NATIONAL TRANSACTIONS' UNDER SECTION 92B . OF COURSE, ONCE A TRANSACTION IS HELD TO BE COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION, WHETHER IN THE NATURE OF THE SHAREHOLDER ACTIVITY O R QUASI CAPITAL OR NOT, ALP DETERMINATION MUST DEPEND ON WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE CHARGED FOR SUCH A TRANSACTION. IN THIS LIGHT OF THESE DISCUSSIONS, WE HOLD THAT THE ISSUANCE OF CORPORATE GUARANTEES IN QUESTION WAS NOT IN THE NATURE OF 'PROVISION FOR SERVICES' AND THESE CORPOR ATE GUARANTEES WERE REQUIRED TO BE TREATED AS SHAREHOLDER PARTICIPATION IN THE SUBSIDIARIES. 44. AS FOR THE WORDS 'PROVISION FOR SERVICES' APPEA RING IN SECTION 92 B, AND CONNOTATIONS THEREOF, OUR HUMBLE UNDERSTANDING IS THAT THIS EXPRESSION, I N ITS NATURAL CONNOTATIONS, IS RESTRICTED TO SERVICES RENDERED AND IT DOES NOT EXTEND TO THE BEN EFITS OF ACTIVITIES PER SE. WHETHER WE LOOK AT THE EXAMPLES GIVEN IN THE OECD MATERIAL OR EVEN IN EXPL ANATION TO SECTION 92 B, THE THRUST IS ON THE SERVICES LIKE MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, A GENCY, AND SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE OR COORDINATION SERVICES. AS A M ATTER OF FACT, EVEN IN THE EXPLANATION TO SECTION 92 B- WHICH WE WILL DEAL WITH A LITTLE LATER, GUARANT EES HAVE BEEN GROUPED IN ITEM 'C' DEALING WITH CAPITAL FINANCING, RATHER THAN IN ITEM 'D' WHICH I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 SPECIFICALLY DEALS WITH 'PROVISION FO R SERVICES'. WHEN THE LEGISLATURE ITSELF DOES NOT GROUP 'GUARANTEES' IN THE 'PROVISION FOR SERVICES' AND INCLUDES IT IN THE 'CAPITAL FINANCING', IT IS REASONABLE TO PROCEED ON THE BASIS THAT ISSUANCE OF GUARANTEES IS NOT TO BE TREATED AS WITHIN THE SCOPE OF NORMAL CONNOTATIONS OF EXPRESSION 'PROVISI ON FOR SERVICES'. OF COURSE, THE GLOBAL BEST PRACTICES SEEM TO BE THAT 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 & LEV VY' (IBID) NOTES THAT 'THE IRS HAS ISSUED A NON BINDING FIELD SERVICE ADVICE (FSA 1995 WL 19182 36, 1 MAY 1995) STATING THAT, IN CERTAIN CIRCUMSTANCES (EMPHASIS, BY UNDERLING, SUPPLIED BY US), A GUARANTEE MAY BE TREATED AS A SERVICE'. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 54 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 AR E INCLUDED IN THE INTERNATIONAL TRANSACTIONS, THESE GUARANTEES ARE INCLUDED IN SERVICE SEGMENT IN CONTRADISTINCTION WITH OTHER HEADS UNDER WHICH INTERNATIONAL TRANSACTIONS ARE GROUPED, THE G UARANTEES SHOULD BE TREATED AS SERVICES, AND, FOR THAT REASON, INCLUDED IN THE DEFINITION OF INTE RNATIONAL TRANSACTIONS. THAT IS, IN OUR CONSIDERED VIEW, PURELY FALLACIOUS LOGIC. IN OUR CONSIDERED VI EW, UNDER SECTION 92 B, CORPORATE GUARANTEES CAN BE COVERED ONLY UNDER THE RESIDUARY HEAD I.E. ' ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS E'. IT IS FOR THIS REASON THAT SECTION 92 B, IN A WAY, EXPANDS THE SCOPE OF INTERNATIONAL TRANSACTION IN THE SENSE THAT EVEN WHEN GUARANTEES ARE ISSUED AS A SHAREHOLDER ACTIVITY BUT COSTS ARE INCU RRED FOR THE SAME OR, AS A MEASURE OF ABUNDANT CAUTION, RECOVERIES ARE MADE FOR THIS NON CHARGEABL E ACTIVITY, THESE GUARANTEES WILL FALL IN THE RESIDUARY CLAUSE OF DEFINITION OF INTERNATIONAL TRA NSACTIONS UNDER SECTION 92B . AS FOR THE LEARNED DEPARTMENTAL REPRESENTATIVE'S ARGUMENT THAT 'WHETHE R THE SERVICE HAS CAUSED ANY EXTRA COST TO THE ASSESSEE SHOULD NOT BE THE DECIDING FACTOR TO D ETERMINE WHETHER IT IS AN INTERNATIONAL AND THEN GIVES AN EXAMPLE OF BRAND ROYALTY TO MAKE HIS POINT . WHAT, IN THE PROCESS, HE OVERLOOKS IS THAT IS THAT SECTION 92B(1) SPECIFICALLY COVERS I.T.A. NO.: 2873/AHD/10 ASSESS MENT YEAR: 2006-07 SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE EXPR ESSION 'BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES' IS RELEVANT ONLY FOR RE SIDUARY CLAUSE I.E. ANY OTHER SERVICES NOT SPECIFICALLY COVERED BY SECTION 92 B. IT WAS ALSO CONTENDED THAT, WHILE RENDERING BHA RTI AIRTEL DECISION, THE DELHI TRIBUNAL DID GO OVERBOARD IN DE CIDING SOMETHING WHICH WAS NOT EVEN RAISED BEFORE US. IN THE WRITTEN SUBMISSION, IT WAS STATED THAT 'HON'BLE DELHI ITAT WAS NOT REQUESTED BY THE CONTESTING PARTIES TO DECIDE THE ISSUE AS TO WH ETHER THE PROVISION OF GUARANTEE WAS A SERVICE OR NOT'. THAT'S NOT FACTUALLY CORRECT. WE ARE UNABLE T O SEE ANY MERITS IN LEARNED DEPARTMENTAL REPRESENTATIVE'S CONTENTION, PARTICULARLY AS DECISI ON CATEGORICALLY NOTED THAT NOT ONLY BEFORE THE TRIBUNAL, BUT THIS ISSUE WAS ALSO RAISED BEFORE THE DRP- AS EVIDENT FROM THE TEXT OF DRP DECISION. WE NOW TAKE UP THE ISSUE WITH RESPECT TO SPECIFIC M ENTION OF THE WORDS IN EXPLANATION TO SECTION 92B WHICH STATES THAT 'FOR THE REMOVAL OF DOUBTS, IT I S HEREBY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE........ ( C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT -TERM BORROWING, LENDING OR GUARANTEE , PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT O R RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS.' THERE IS NO DISPUTE THAT T HIS EXPLANATION 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 BAS IC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92 B. ACCORDINGLY, THIS EXPLANATION IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISIONS, AND IN HARMONY WITH THE SCHEME OF THE PROVISIONS, UNDER SECTION 92 B. UNDER THIS EXPLANATION, FIVE CATEGORIES OF TRANSACTIONS H AVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. THE FIR ST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNAT IONAL TRANSACTIONS' BY THE VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92 B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY TRANSACTIONS 'IN THE NATURE OF PURCHASE, SALE OR LE ASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIONS OF I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 TA NGIBLE AND INTANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE ANYWAY COVERED IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT O R ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORT IONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WI TH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES '. THAT LEAVES US WITH TWO CLAUSES IN THE EXPLANATION TO SECT ION 92 B WHICH ARE NOT COVERED BY ANY OF THE THREE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVERED BY SECTION 92 B, NAMELY BORROWING OR LENDING MONEY. THE REMAINING TWO ITEMS IN THE EXPLANATION TO SECTION 92 B ARE SET OUT IN CLAUSE (C) AND (E) THERETO, I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 55 DEALING WITH (A) CAPITAL FINANCING AND (B) BUSINESS RESTRUCTURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE OF DEFIN ITION 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'. IT IS, THEREFORE, ESSE NTIAL THAT IN ORDER TO BE COVERED BY CLAUSE (C) AND (E) OF EXPLANATION TO SECTION 92 B, THE TRANSACTIONS SHOULD BE SUCH AS TO HAVE BEAT ING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE. IN OT HER WORDS, IN A SITUATION IN WHICH A TRANSACTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSET S OF SUCH ENTERPRISE, THE TRANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRAN SACTION'. THIS ASPECT OF THE MATTER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALIN G WITH RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUCH AN IMPACT COUL D BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. R ESTRUCTURING OR REORGANIZATION) HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE AT THE TIME OF TRANSACTION OR ON A FUTURE DATE'. WHAT IS IMPLICIT IN THIS STATUTORY PROVISION IS THA T WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NON , THE MERE FACT THAT IMPACT IS NOT IMMEDIATE, BUT ON A FUTURE DATE, WOULD NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNAT IONAL TRANSACTION'. 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 I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 'CONTINGE NT' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS BUT ON 'FUTURE' IMPACT ON PROFIT, INCOME, LO SSES OR ASSETS OF THE ENTERPRISE. THE IMPORTANT DISTINCTION BETWEEN THESE TWO CATEGORIES IS THAT WH ILE LATTER IS A CERTAINTY, AND ONLY ITS CRYSTALLIZATION MAY TAKE PLACE ON A FUTURE DATE, TH ERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE CASE BEFORE US, IT IS AN UNDISPUTED POSITION THAT C ORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO THE VARIOUS BANKS AND CRYSTALLIZATION OF LIABILITY UNDE R THESE GUARANTEES, THOUGH A POSSIBILITY, IS NOT A CERTAINTY. IN VIEW OF THE DISCUSSIONS ABOVE, THE SC OPE OF THE CAPITAL FINANCING TRANSACTIONS, AS COULD BE COVERED UNDER EXPLANATION TO SECTION 92 B READ WITH SECTION 92B(1) , IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING INTER ALI A ANY GUARANTEE, DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR SUCH ENTERPRISE'. THIS PRE-COND ITION ABOUT IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES IS A PRE-CONDITION EMBED DED IN SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROFITS, INCOME, LOSSES OR ASSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. THESE GUARANTEES DO NOT HAVE ANY IMPACT ON INCOME, PROFIT S, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DE FAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SI TUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABO VE, EXCLUDED. WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN A SSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, A ND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT. 45. BEFORE WE PART WITH THIS ISSUE, THERE ARE A COU PLE OF THINGS THAT WE WOULD LIKE TO BRIEFLY DEAL WITH. 46. THE FIRST ISSUE IS THIS. WE FIND THAT IN THE CA SE OF FOUR SOFT LTD VS DCIT [(2011) 142 TTJ 358 (HYD)], A CO-ORDINATE BENCH HAD, VIDE ORDER DATED 9 TH SEPTEMBER 2011, OBSERVED AS FOLLOWS: 'WE FIND THAT THE TP LEGISLATION PROVIDES FOR COMPU TATION OF INCOME FROM INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. THE CORPORATE GUARANTEE PROVIDED BY TH E ASSESSEE COMPANY DOES NOT FALL WITHIN THE DEFINITIO N OF INTERNATIONAL TRANSACTION. THE TP LEGISLATION DOES NOT STIPULATE ANY GUIDELINES IN RE SPECT TO GUARANTEE TRANSACTIONS. IN THE ABSENCE OF ANY CHARGING PROVISION, THE LOWER AUTHOR ITIES ARE NOT CORRECT IN BRINGING AFORESAID TRANSACTION IN THE TP STUDY. IN OUR CONSI DERED VIEW, THE CORPORATE GUARANTEE IS VERY MUCH INCIDENTAL TO THE BUSINESS OF THE ASSESSE E AND HENCE, THE SAME CANNOT BE COMPARED TO A BANK GUARANTEE TRANSACTION OF THE BAN K OR FINANCIAL INSTITUTION.' I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 56 47. HOWEVER, WITHIN LESS THAN FOUR MONTHS OF THIS D ECISION HAVING BEEN RENDERED, THE FINANCE ACT 2012 CAME UP WITH AN EXPLANATION TO SECTION 92B STATING THAT 'FOR THE REMOVAL OF DOUBTS', AS WE HAVE NOTED EARLIER IN THIS DECISION, 'CLARIFIED' THAT INTERNATIONAL TRANSACTIONS INCLUDE, INTER ALIA, CAPITAL FINANCING BY WAY OF GUARANTEE. THIS L EGISLATIVE CLARIFICATION DID INDEED GO WELL BEYOND WHAT A COORDINATE BENCH OF THIS TRIBUNAL HEL D 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 92 B DID INDEED ENLARGE THE SCOPE OF DEFINITION OF 'I NTERNATIONAL 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 CAN NOT OBVIOUSLY BE ANY OCCASION TO DEVIATE FROM THE DECIS ION THAT THE COORDINATE BENCH TOOK IN FOUR SOFT CASE (SUPRA), BUT IF THE SCOPE OF THE PROVISION WAS INDEED ENLARGED, AS IS OUR OPINION, THE QUESTION THAT REALLY NEEDS TO BE ADDRESSED WHETHER, GIVEN TH E 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, W E ARE NOT INCLINED TO BE DRAWN INTO THAT CONTROVERSY EITHER. ON THE ISSUE OF IMPLEMENTING TH E AMENDMENT IN TRANSFER PRICING LAW WITH RETROSPECTIVE EFFECT, IN THE CASE OF BHARTI AIRTEL (SUPRA), A COORDINATE BENCH HAD OBSERVED AS FOLLOWS: 34. THERE IS ONE MORE ASPECT OF THE MATTER. THE EXP LANATION TO SECTION 92 B HAS BEEN BROUGHT ON THE STATUTE BY THE FINANCE ACT 2012. IF ONE IS TO PROCEED ON THE BASIS THAT THE PROVISIONS OF EXPLANATION TO SECTION 92 B ENLARGES THE SCOPE OF SECTION 92 B ITSELF, EVEN AS IT IS MODESTLY DESCRIBE D AS 'CLARIFICATORY' IN NATURE, IT IS AN ISSUE TO BE EXAMINED WHETHER AN ENHANCEMENT OF SCOPE OF THIS ANTI AVOIDA NCE PROVISION CAN BE IMPLEMENTED WITH RETROSPECTIVE EFFECT. UNDOUBTEDLY, THE SCOPE O F A CHARGING PROVISION CAN BE ENLARGED WITH RETROSPECTIVE EFFECT, BUT AN ANTI-AVOIDANCE ME ASURE, THAT THE TRANSFER PRICING LEGISLATION INHERENTLY IS, IS NOT PRIMARILY A SOURC E OF REVENUE AS IT MAINLY SEEKS COMPLIANT BEHAVIOUR FROM THE ASSESSEE VIS--VIS CERTAIN NORMS , AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NORMS ARE BEING INTRODUCED. HOWEVER, AS WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON MERI TS AND EVEN AFTER TAKING INTO ACCOUNT THE AMENDMENTS BROUGHT ABOUT BY FINANCE ACT 2012, WE NEED NOT DEAL WITH THIS ASPECT OF THE MATTER IN GREATER DETAIL 48. IN THE PRESENT CASE, WE HAVE HELD THAT THE ISSU ANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVITIES- AS WAS THE UNCONTROVERTE D CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED IN THE 'PROVISION FOR SERVICES' UNDER T HE DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92 B OF THE ACT. WE HAVE ALSO HELD, TAKING NOTE OF THE INSERTION OF EXPLANATION TO SECTION 92B OF THE ACT, THAT THE ISSUANCE OF CORPORATE GUARANT EES IS COVERED BY THE RESIDUARY CLAUSE OF THE DEFINITION UNDER SECTION 92 B OF THE ACT BUT SINCE SUCH ISSUANCE OF CORPORATE GUARANTEES, ON THE FACTS OF THE PRESENT CASE, DID NOT HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS', IT DID NOT CONSTITUTE AN INTERNATIONAL TRANSACTION, UNDER SECTION 92B , IN RESPECT OF WHICH AN ARM'S LENGTH PRICE ADJUSTMENT CAN BE MADE. IN THIS VIEW OF THE M ATTER, AND FOR BOTH THESE INDEPENDENT REASONS, WE HAVE TO DELETE THE IMPUGNED ALP ADJUSTMENT. THE QUESTION, WHICH WAS RAISED IN BHARTI AIRTEL'S CASE (SUPRA) BUT LEFT UNANSWERED AS THE ASSESSEE HA D SUCCEEDED ON MERITS, REAMINS UNANSWERED HERE AS WELL. HOWEVER, WE MAY ADD THAT IN THE CASE OF KRISHNASWAMY S PD VS UNION OF INDIA [(2006) 281 ITR 305 (SC)], WHEREIN THEIR LORDSHIPS HAD, INTER ALIA, OBSERVED THAT 'THE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERF ORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL AP HORISMS, 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 I.T.A. NO.: 2873/AHD/10 ASSESSMENT YEAR: 2006-07 COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF CHANNEL GUIDE INDIA LTD VS ACIT [(2012) 139 ITD 49 (MUM)], HELD THAT EVEN THOUGH TH E 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 I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 57 BY THE ASSESSEE, WITH RETROSPECTIVE EFFECT. ALL THI S ONLY SHOWS THAT EVEN WHEN LAW IS SPECIFICALLY STATED TO HAVE EFFECT FROM A PARTICULAR DATE, ITS B EING 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 AR DATE SPECIFIED BY THE LEGISLATURE, THE JUDICIAL FORUMS, INCLUDING THIS TRIBUNAL, AT TIMES READ IT A S BEING EFFECT FROM A DATE MUCH EARLIER THAN THAT TOO. ONE SUCH CASE, FOR EXAMPLE, IS CIT VS ANSAL LA NDMARK TOWNSHIP PVT LTD [(2015) 377 ITR 635 (DELHI)] WHEREIN HON'BLE DELHI HIGH COURT CONFI RMED THE ACTION OF THE TRIBUNAL IN HOLDING THAT THE PROVISION, THOUGH STATED TO BE EFFECTIVE F ROM 1ST APRIL 2013 MUST BE HELD TO BE EFFECTIVE FROM 1 ST APRIL 2005. WHETHER SUCH AN EXERCISE CAN BE DONE IN THE PRESENT CASE IS, OF COURSE, SOMETHING TO BE EXAMINED AND OUR OBSERVATIONS SHOUL D NOT BE CONSTRUED AS AN EXPRESSION ON MERITS OF THAT ASPECT OF MATTER. GIVEN THE FACT THA T THE ASSESSEE HAS SUCCEEDED ON MERITS IN THIS CASE, IT WOULD NOT REALLY BE NECESSARY TO DEAL WITH THAT ASPECT OF THE MATTER. 49. THE SECOND ISSUE IS THIS. WE MUST DEAL WITH THE QUESTION WHETHER IN THIS CASE THE MATTER SHOULD HAVE BEEN REFERRED TO A LARGER BENCH. THE PARTIES B EFORE US WERE OPPOSED TO THE MATTER BEING SENT FOR CONSIDERATION BY THE SPECIAL BENCH, AND AT LEAS T ONE OF THE REASONS FOR WHICH THE GRIEVANCE OF THE ASSESSEE IS UPHELD, I.E. GUARANTEES BEING IN TH E NATURE OF SHAREHOLDER ACTIVITY AND EXCLUDIBLE FROM THE SCOPE OF SERVICES FOR THAT REASON ALONE, I S AN AREA WHICH HAD COME UP FOR CONSIDERATION FOR THE FIRST TIME. IN EFFECT, THEREFORE, THERE WAS NO CONFLICT ON THIS ISSUE OF AND THE OTHER ISSUES, GIVEN DECISION ON THE SAID ISSUE, WERE WHOLLY ACADE MIC. IT CANNOT BE OPEN TO REFER THE ACADEMIC QUESTIONS TO THE SPECIAL BENCH. NO DOUBT, SOME DECI SIONS OF THE COORDINATE BENCHES WHICH HAVE REACHED THE DIFFERENT CONCLUSIONS. THERE IS, HOWEVE R, NO CONFLICT IN THE REASONING. FOUR SOFT DECISION (SUPRA) HAD DECIDED THE I.T.A. NO.: 2873/A HD/10 ASSESSMENT YEAR: 2006-07 ISSUE IN FAVOUR OF THE ASSESSEE BUT THAT WAS WITH RESPECT TO THE LAW PRIOR TO INSERTION TO EXPLANATION TO SECTION 92B . AS FOR THE POST AMENDMENT LAW AND THE IMPACT OF A MENDMENT IN THE DEFINITION OF 'INTERNATIONAL TRANSACTION', THE MATTER WAS AGAIN D ECIDED IN FAVOUR OF THE ASSESSEE BY BHARTI AIRTEL DECISION (SUPRA) ON THE PECULIAR FACTS OF THAT CASE . THE DECISIONS LIKE EVEREST KENTO (SUPRA) AND ADITYA BIRLA MINACS WORLDWIDE (SUPRA) WERE DECISION S IN WHICH THE ASSESSEE HAD CHARGED THE FEES AND, FOR THAT REASON, SUCH CASES ARE COMPLETELY DIS TINGUISHABLE AS DISCUSSED ABOVE. IN PROLIFIC'S CASE (SUPRA), AS INDEED IN ANY OTHER CASE SO FAR, I T WAS CASE NOT THE CASE OF THE ASSESSEE THAT CORPORATE GUARANTEES ARE QUASI CAPITAL, OR SHAREHOL DER 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. THE REFORE, 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'S CASE (SUPRA), AN EARLIER CONSIDERED DECI SION 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 VIE W OF THE DECISION A COORDINATE BENCH, IN THE CASE OF JKT FABRICS VS DCIT [(2005) 4 SOT 84 (MUM)] AND FOLLOWING THE FULL BENCH DECISION OF HON'BLE AP HIGH COURT IN THE CASE OF CIT VS BR CONS TRUCTIONS [(1993) 202 ITR 222 (AP)], A DECISION DISREGARDING AN EARLIER BINDING PRECEDENT ON THE ISSUE IS PER INCURIUM. SUCH DECISIONS CANNOT BE BASIS FOR SENDING THE MATTERS TO SPECIAL BENCH SINCE OCCASION FOR REFERENCE TO SPECIAL BENCH ARISES WHEN BINDING AND CONFLICTING JUDICIAL PRECEDENTS FROM COORDINATE BENCHES COME UP FOR CONSIDERATION. THAT WAS NOT THE CASE HERE. ALL THESE FACTORS TAKEN TOGETHER, IN OUR CONSIDERED VIEW, IT WAS NOT POSSIBLE IN THIS CASE TO REFER THE MATTER FOR CONSTITUTION OF A SPECIAL BENCH. IN ANY CASE, WHATEVER WE DECIDE IS, AND SHALL ALWAYS REMAI N, SUBJECT TO THE JUDICIAL SCRUTINY BY HON'BLE COURTS ABOVE AND OUR ENDEAVOR IS TO FACILITATE AND EXPEDITE, WITHIN OUR INHERENT LIMITATIONS, THAT PROCESS OF SUCH A JUDICIAL SCRUTINY, IF AND WHEN OC CASION COMES, BY ANALYZING THE ISSUES IN A COMPREHENSIVE AND HOLISTIC MANNER. 50. IN THE LIGHT OF THE DETAILED DISCUSSIONS ABOVE, AND FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE RAISED BY THE ASSESSEE. THE IM PUGNED ALP ADJUSTMENT OF RS 2,23,62,603, THUS STANDS DELETED. AS WE DO SO, HOWEVER, WE MUST ADD THAT, IN OUR CONSIDERED VIEW, THE WAY FORWARD, TO AVOID SUCH ISSUES BEING LITIGATED AND T O ENSURE SATISFACTORILY RESOLUTION OF THESE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 58 DISPUTES, MUST INCLUDE A CLEAR AND UNAMBIGUOUS LEGI SLATIVE GUIDANCE ON THE TRANSFER PRICING IMPLICATIONS OF THE CORPORATE GUARANTEES AS ALSO ON THE METHODOLOGY OF DETERMINING ITS ALP, IF NECESSARY. OF COURSE, NO MATTER HOW GOOD IS THE LEG ISLATIVE FRAMEWORK, THE IMPORTANCE OF A VERY COMPREHENSIVE ANALYSIS, IN THE TRANSFER PRICING STU DY, OF THE NATURE OF CORPORATE GUARANTEES ISSUED BY THE ASSESSES, CAN NEVER BE OVEREMPHASIZED. THE S WEEPING GENERALIZATIONS, VAGUE STATEMENTS AND EVASIVE APPROACH IN THE TRANSFER PRICING STUDY REPORTS, WHICH ARE QUITE COMMON IN MOST OF THE TRANSFER PRICING REPORTS, CANNOT DO GOOD TO A REASO NABLE CAUSE. WHEN JUDICIAL CALLS ON THE COMPLEX TRANSFER PRICING ISSUES ARE TO BE TAKEN, UT MOST CLARITY IN THE LEGISLATIVE FRAMEWORK AND A COMPREHENSIVE ANALYSIS OF RELEVANT FACTS, IN THE TR ANSFER PRICING DOCUMENTATION, ARE BASIC INPUTS. UNFORTUNATELY, BOTH OF THESE THINGS LEAVE A LOT TO BE DESIRED. WE CAN ONLY HOPE, AND WE DO HOPE, THAT THINGS WILL CHANGE FOR BETTER. WITH THE ASSISTANCE OF LD. REPRESENTATIVES , WE HAVE GONE THROUGH THE DECISION OF CO-ORDINATE BENCH OF THE ITAT IN THE CA SE OF MICRO INK LTD. SUPRA HOLDING THAT THE ISSUE OF CORPORATE GUARANTEE WERE IN THE NATURE OF SHARE HOLDER ACTIVITY AND THE SAME COULD NOT BE INC LUDED IN THE PROVISION FOR SERVICES UNDER THE DEFINITION OF INTERNATIONAL TRAN SACTION U/S. 92B OF THE ACT. THE CO-ORDINATE BENCH HAS ALSO STATED THAT WHEN AN ASSESSEE EXTENDS ASSISTANCE TO AE WHICH DOES NOT COST ANYTHING TO TH E ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSE COULD NOT HAVE R EALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF NORMAL BUSINES S SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROF IT, INCOME, LOSES OR ASSET AND THEREFORE IT IS OUTSIDE THE AMBIT OF INTE RNATIONAL TRANSACTION U/S. 92B OF THE ACT. IT IS ALSO HELD THAT THESE GUARANT EE DO NOT HAVE ANY IMPACT ON PROFIT, LOSES OR ASSETS OF THE COMPANY. IT IS F URTHER HELD THAT THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAU LT TAKES PLACE AND THEREFORE THE ENTERPRISE MAY HAVE TO PAY THE GUARAN TEE AMOUNT BUT SUCH A SITUATION, EVEN IF THAT BE SO IS ONLY A HYPOTHETICA L SITUATION. RESPECTFULLY FOLLOWING THE DECISION OF TH E CO-ORDINATE BENCH AS SUPRA, THIS GROUND OF APPEAL OF THE REVENUE IS DISM ISSED AND PART OF ADDITION SUSTAINED BY THE LD. CIT(A) IS DELETED. ACCORDANTL Y, THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED AND THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 59 ITA NO. 2224/AHD/2015 A.Y. 2009-10 FILED BY ASSESSE E GROUND NO. 1 (DISALLOWANCE U/S. 14A) 29. THE SIMILAR ISSUE ON IDENTICAL FACTS WAS ADJ UDICATED FOR ASSESSMENT YEAR 2008-09. THEREFORE, APPLYING THE FINDINGS ON THE SIMILAR ISSUE ADJUDICATED VIDE ITA NO. 1757/AHD/2012 FOR A.Y. 200 8-09 AS SUPRA, WE RESTRICT THE DISALLOWANCE AS ADMINISTRATIVE EXPENSE S TO THE AMOUNT OF RS. 15 LACS. SINCE THE ASSESSEE ITSELF HAS MADE DISALLOWAN CE TO THE EXTENT OF RS. 8,82,827/-,THEREFORE, DISALLOWANCE IS RESTRICTED TO THE EXTENT OF RS. 6,17,173/- (RS. 15,00,000- 8,82,827/-). ACCORDINGLY, THIS GR OUND OF APPEAL IS PARTLY ALLOWED. GROUND NO. 2 (DISALLOWANCE U/S. 35D) 30. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 2 VIDE ITA NOS. 1757/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMI LAR AS IN ITA NO. 2224/AHD/2015 ASSESSMENT YEAR 2009-10 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 1757/AHD2014 AS SUPRA IN THIS ORDER, THIS GROUND O F APPEAL OF THE ASSESSEE STANDS DISMISSED. ITA NO. 2343/AHD/2015 A.Y. 2010-11 FILED BY REVENUE GROUND NO. 1 (DELETING THE ADDITION OF RS. 31,05,06 ,247/- BEING TAXABLE INCOME OF M/S. VEGA INDUSTRIES (MIDDLE EAST) FZE, U AE_ 31. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 1 VIDE ITA NO. 1766/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMILAR A S IN ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 THEREFORE AFTER I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 60 APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 1766 /AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED. GROUND NO. 2 DELETING THE DISALLOWANCE OF EXCESS CL AIM OF DEPRECIATION OF RS. 15,51,795/- ON VEHICLE U/S. 32 OF THE ACT) 32. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 2 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2009-10 ARE SIMILAR A S IN ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2342 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED. GROUND NO. 3 (UNUTILIZED CENVAT CREDIT OF RS. 16,61 ,993) 33. DURING THE COURSE OF ASSESSMENT, THE ASSESS ING OFFICER NOTICED THAT ASSESSEE HAS SHOWN UNUTILIZED CENVAT CREDIT AT THE END OF THE YEAR TO THE AMOUNT OF RS. 16,61,993/-. THE ASSESSING OFFICER F URTHER STATED THAT ASSESSEE HAS FOLLOWED EXCLUSIVE METHOD FOR ACCOUNTI NG OF CENVAT AS AGAINST INCLUSIVE METHOD REQUIRED U/S. 145A OF THE ACT. ON QUERY, THE ASSESSEE EXPLAINED THAT ASSESSEE COMPANY HAS BEEN C ONSTANTLY ACCOUNTING THE RAW MATERIAL AND OTHER INPUT PURCHASED AS PER N ET METHOD AND THERE WOULD NOT HAVE ANY IMPACT ON THE PROFIT OF THE COMP ANY. THE ASSESSING OFFICER HAD NOT ACCEPTED THE SUBMISSION OF THE ASSE SSEE AND STATED THAT UNUTILIZED CENVAT CREDIT HAD TO BE INCLUDED IN CLOS ING STOCK AND RAW MATERIAL THEREFORE UNUTILIZED CENVAT CREDIT OF RS. 16,61,993/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 61 34. THE ASSESSEE HAS PREFERRED APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER:- ( E) GROUND NO. 6 WITH SUB GROUNDS 6.1 TO 6.3 ARE AGA INST THE ADDITION OF UNUTILIZED CENVAT CREDIT OF CAPITAL ASSET AMOUNTING TO RS, 1661993/-. THE APPEL LANT IN GROUNDS RAISED OBJECTION THAT CENVAT CREDIT ON PURCHASE OF CAPITAL ASSET ARE NOT FORMING PART OF P & L ACCOUNT HENCE PROVISION OF SECTION 145A OF THE ACT ARE NOT APPLICABLE. THE A.O. IN THE IMPUGNED ORDER AFTER OBSERVING THE DETAIL OF UNUTILIZED CENVAT CRE DIT FROM CL. NO. 22(A) OF TAX AUDIT REPORT IN FORM 3CD SHOW CAUSE THE APPELLANT. THE APPELLANT BEFORE A.O. SUBMITTED THAT IT FOLLOWED EXCLUSIVE METHOD OF ACCO UNTING CONSISTENTLY FOR CENTRAL EXCISE AND MODVAT A ND SUBMITTED A RECONCILIATION {WAS GIVEN BY THE TAX AU DITOR IN TAX AUDIT REPORT ALSO) FOLLOWING THE INCLU SIVE METHOD TO REFLECT THAT IT IS TAX NEUTRAL. APPELLANT 'S CONTENTION BEFORE A.O. AND REJECTION OF SUCH EXP LANATION WITH REASONING OF ADDITION ARE ALREADY DISCUSSED AT PARA 4A(H) ABOVE. THE APPELLANT IN APPEAL PROCEEDI NGS CONTENDED THAT (DISCUSSED AT PARA 4C ABOVE). IN OUR CASE, THE CENVAT CREDIT IN QUEST ION OF RS. 16.62 LACS IS IN RELATION TO THE EXCISE DUTY PAID ON CAPITAL GOODS I.E. PLANT AND MACHINERY, AS PER THE DETAILS OF THE EXCISE MODVAT CREDIT GIVEN IN THE TA X AUDIT REPORT OF M/S TALATI AND TALATI, CHARTERED ACCOUNTA NTS, AHMEDABAD, VIDE STATEMENT NO. 6 FORMING PART O F THE FORM 3CD FOR THE RELEVANT ASSESSMENT YEAR 2010-11. A COPY OF THE RELEVANT STATEMENT NO. 6 OF THE TAX AUDIT REPORT IS APPENDED FOR YOUR READY REFERENCE. THUS, IT IS VERY CLEAR THAT THIS AMOUNT OF RS. 16.62 LAC S BEING THE DIFFERENCE BETWEEN THE MODVAT CREDIT AVAILED AN D UTILIZED DURING THE YEAR, (I.E. RS. 20569147 LESS RS. 18907154 = RS. 16,61,993) PERTAINS TO CAPITAL GOODS TO WHICH THE PROVISIONS OF SECTION 145A ARE CLEARL Y NOT APPLICABLE. THIS ASPECT IS ALSO EVIDENCED BY THE P LAIN READING OF SECTION 145A AND WE ALSO DRAW OUR INFERENCE FROM THE DECISION OF INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B MUMBAI . IN CASE OF M/S NAVDEEP CHEMICALS PVT. LTD VS. THE DEPUTY COMMISSIO NER OF INCOME TAX CIRCLE 2(2) OSD, MUMBAI, ITA NO. 3755/MUM/2011 A.Y. 2007-08. THE DETAILS SO SUBMITTED FROM TAX AUDIT REPORT AS ' STATEMENT NO. 6' IS AS FOLLOWS: DETAILS OF EXCISE MODVAT CREDIT A.Y. 2010-2011 CAPITAL GOODS RS. OFFERS RS. OPENING BALANCE OF EXCISE 273900 44843319 MODVATE CREDIT AVAILED DURING THE YEAR 20569147 275462556 MQDVATE CREDIT UTILISED DURING THE YEAR 18907154 281 93577 BALANCE REPRESE NTING OUTSTANDING AMOUNT AS AT THE END OF THE YEAR *935893 38374298 NOTE: 1) PURCHASE VALUED AT EXCLUSIVE OF MODVAT 2) BALANCE OF MODVAT CREDIT IS SHOWN IN BALANCE SH EET AS CURRENT -ASSETS UNDER HEADING OF LOANS & ADVANCES I AM INCLINED WITH CONTENTION OF APPELLANT ABOUT UN UTILIZED MODVAT CREDIT FOR CAPITAL GOODS OF RS. 1661993(1935893-273900) BECAUSE THE SAME IS FOUND C ORRECT AND DULY EVIDENCED BY TAX AUDITOR IN FORM 3CD. THE APPELLANT'S RELIANCE ON RATIO OF HON'BLE I TAT MUMBAI ORDER IN THE CASE OF NAVDEEP CHEMICAL PV T. LTD.(SUPRA) IS ALSO FOUND TO BE SQUARELY APPLICABLE TO APPELLANT'S FACTS SO FAR AS IT RELATE TO UNUTIL IZED I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 62 MODVAT ON CAPITAL GOODS AND NON APPLICABILITY OF SE CTION 145A OF THE ACT ON SUCH AMOUNT. THE A.O, IS THEREFORE DIRECTED TO DELETE ADDITION SO MADE OF RS . 1661993/-. FROM THE ABOVE TABLE IT IS EVIDENT THAT A0- WITHOUT APPRECIATING THE PROPER FACT, INVOKED THE PROVISION OF SECTION 145A OF THE ACT. THE A.O. HAS NOT CONSIDERED THE NEGATIVE AMOUNT OF MODVAT ON RAW MATERIAL UTILIZED BY APPELLANT FOR MANUFACTURING AS REFLECTED IN THIS 'STATEMENT NO. 6' UNDER THE HEAD 'OTHERS'. EVEN THE REASONING OF A.O. FOR REJECTION OF EXCLUSIVE METHOD ADOPTED BY APPELLANT WITH A RECONCILIATION OF TAX NEUTRAL EFFECT IN RESPECT OF INCLUSIVE METHOD IS NOT JUSTIFIED AS PER THE PROVIS ION AND LEGAL PREPOSITION. THE APPELLANT IN APPEAL PROCEEDINGS RE LIED ON MY ORDER DT. 09/01/2015 IN THE CASE OF APPE LLANT ITSELF FOR A.Y. 06-07, WHERE ON THIS ISSUE WITH SIM ILAR CONTENTION AND REASONING, SUCH ADDITIONS WERE DIRECTED TO BE DELETED. IT IS THEREFORE, FOLLOWING THE RATIO OF THIS ORDER, THE A.O. IS DIRECTED TO DELETE THE ADDITION SO MADE. IN CONCLUSION, APPELLANT GETS RELIEF OF RS. 16619 93/-. ALL THESE GROUNDS ARE TREATED AS ALLOWED. 35. HEARD BOTH THE SIDES AND PERUSED THE MATERIA L ON RECORD. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER ADDED U NUTILIZED CENVAT CREDIT OF RS. 16,61,993/- TO THE TOTAL INCOME OF TH E ASSESSEE STATING THAT AS PER SECTION 145A OF THE ACT THE ASSESSEE SHOULD HAV E FOLLOWED INCLUSIVE METHOD OF ACCOUNTING. THE LD. CIT(A) DELETED THE S AID ADDITION AND THE SIMILAR ADDITION WAS ALSO DELETED IN THE EARLIER AS SESSMENT YEAR IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07. THE ASSE SSEE HAS FOLLOWED EXCLUSIVE METHOD OF ACCOUNTING. THE LD. COUNSEL H AS ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF CIT VS. INDO NIPPON CHEMICAL LTD. 261 ITR 275 (SC), DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ACIT VS. NARMADA CHEMMATUR PET ROCHEMICAL 327 ITR 369 (GUJ) AND DECISION OF ITAT AHMEDABAD IN THE CAS E OF THE ASSESSEE ITSELF VIDE ITA NO. 1122/AHD/2015. WITH THE ASSISTANCE OF LD. AUTHORIZED REPRESENTATIVES, WE HAVE GONE THROUGH THE DECISION OF HONBLE ITAT AHMEDABAD IN THE CASE OF THE ASSESSEE ITSELF FOR AS SESSMENT YEAR 2006-07 VIDE ITA 1122/AHD/2015 DATED 26-09-2017 WHEREIN SIM ILAR ISSUE ON IDENTICAL FACT HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE. THE RELEVANT PART OF THE DECISION OF THE ITAT IS AS UNDER:- 3. AT THE TIME OF HEARING BEFORE US, LEARNED REPRE SENTATIVES FAIRLY AGREE THAT THE ABOVE GRIEVANCE IS COVERED, IN FAVOUR JF THE ASSESSEE, BY THE DECISION DATED 31 .08,2016 OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 63 CASE OF ITO VS. MAMATA BRAMPTON ENGG. PVT. LTD. IN ITA NO.2387/AHD/2013 FOR ASSESSMENT YEAR 2008-09 WHEREIN THE TRIBUNAL HAS, INTER ALIA, OBSERVED AS F OLLOWS:- '5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE IS SUE IN THE PRESENT CASE IS WITH RESPECT TO THE ADDI TION OF UNUTILISED CENVAT CREDIT TO THE CLOSING STOCK. WE F IND THAT THE ID.CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF ASSESSES HAS GIVEN A FINDING THAT ASSESSES IS FO LLOWING EXCLUSIVE METHOD OF ACCOUNTING WHEREBY THE EXCISE DUTY IS NOT INCLUDED IN THE VALUATION OF STOCK AND RAW-MATERIALS AS THE EXCISE DUTY PAID AND COLLECTED IS NOT MADE PART AND PARCEL OF THE PROFIT & LOSS A/C. HE H AS FURTHER GIVEN A FINDING THAT ASSESSES HAS COMPLI ED WITH THE PROVISIONS OF SECTION 145A OF THE ACT AND THE E FFECT OF INCLUDING EXCISE DUTY IN VALUATION OF DOSI NG STOCK DOES NOT AFFECT THE PROFIT AND IS REVENUE NEUTRAL. HE HAS FURTHER RELIED ON THE DECISION OF HON'BLE GU JARAT HIGH COURT IN THE CASE OF NARMADA CHEMATUR PETROCHE MICALS LTD.(SUPRA). BEFORE US. REVENUE HAS NEITHER CONTROVERTED THE FINDING OF ID.CIT(A) NOR HAS PLACE D ANY CONTRARY BINDING DECISION IN ITS SUPPORT. WE FURTHER FIND THAT THE HON'BLE APEX COURT IN THE CASE OFLNDO NIPPO CHEMICALS (2003) 261 ITR 375 HAS HELD THAT UNAVAILED MODVAT CREDIT CANNOT BE CONSTRUED AS INCO ME AND THERE IS NO LIABILITY TO PAY TAX ON SUCH UNAVAILED MODVAT CREDIT. IN VIEW OF THE AFORESAID F ACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSE D.' 4. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE M ATTER THAN THE VIEW SO TAKEN BY THE CO-ORDINATE BEN CH. RESPECTFULLY FOLLOWING (HE SAME, WE SEE NO REASONS TO INTERFERE IN THE CONCLUSIONS ARRIVED AT BY THE I D. CIT(A). ACCORDINGLY, WE CONFIRM THE ORDER OF THE LE ARNED CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. RESPECTFULLY FOLLOWING THE DECISION OF CO-OR DINATE BENCH AS REFERRED ABOVE, WE DO NOT FIND ANY MERIT IN THE APPEAL OF TH E REVENUE AND THE SAME IS DISMISSED. GROUND NO. 4 (CLAIM OF ADDITIONAL DEPRECIATION ON E LECTRIC INSTALLATION) 36. DURING THE COURSE OF ASSESSMENT, THE ASSES SING OFFICER NOTICED THAT ASSESSEE HAS SHOWN ADDITION OF RS. 10,49,811/- UNDE R THE HEAD ELECTRIC INSTALLATION CLAIMING DEPRECIATION @ 15% AND ADDITI ONAL DEPRECIATION @ 20%. ON QUERY, THE ASSESSEE EXPLAINED THAT ELECTR IC INSTALLATION WAS PART AND PARCEL OF THE PLANT AND MACHINERY INSTALLED DUR ING THE YEAR UNDER ASSESSMENT. THE ASSESSING OFFICER HAD NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE AND HE WAS OF THE VIEW THAT THE ELECTRIC F ITTINGS WAS NOT PLANT AND MACHINERY AND ENTITLED FOR DEPRECIATION @ 10%. CON SEQUENLTY, EXCESS DEPRECIATION OF RS. 67,707 AND ADDITIONAL DEPRECIAT ION OF RS. 2,70,826/- TOTALING TO RS. 3,38,533/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 64 37. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. 38. AFTER CONSIDERING THE MATERIAL ON RECORD, FA CTS AND FINDING OF LD. CIT(A) IT IS NOTICED THAT DURING THE YEAR UNDER CON SIDERATION THE ASSESSEE HAD INSTALLED NEW PLANT AND MACHINERY AND ALSO INCU RRED ELECTRIC INSTALLATION EXPENDITURE. SINCE THE ELECTRIC FITTING AND INSTAL LATION WAS PART AND PARCEL OF THE PLANT AND MACHINERY WITHOUT WHICH THE PLANT AND MACHINERY CANNOT BE OPERATED THEREFORE WE CONSIDER THAT DECISION OF LD. CIT(A) IS JUSTIFIED IN HOLDING THAT ELECTRIC INSTALLATION WAS PART AND PAR CEL OF PLANT AND MACHINERY AND THE SAME CANNOT BE CONSIDERED SEPARATELY. THE REFORE, WE DO NOT FIND ANY ERROR IN THE DECISION OF LD. CIT(A). ACCORDING LY, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 5 ( DELETING THE ADDITION OF RS. 25,22,5 0,297/- MADE ON ACCOUNT OF UPWARD REVISION OF ARMS LENGTH PRICE) 39. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 3 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2009-10 ARE SIMILAR A S IN ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2342 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED. GROUND NO. 6 (PARTLY DELETING T.P. ADJUSTMENT IN RE SPECT OF CORPORATE GUARANTEE) I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 65 40. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2009-10 ARE SIMIL AR AS IN ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2342/AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 2225/AHD/2015 FILED BY ASSESSEE A.Y. 2010-1 1 GROUND NO. 1 (DISALLOWANCE U/S. 14A) 41. THE SIMILAR ISSUE ON IDENTICAL FACTS WAS ADJU DICATED FOR ASSESSMENT YEAR 2008-09. THEREFORE, APPLYING THE FINDINGS ON THE SIMILAR ISSUE ADJUDICATED VIDE ITA NO. 1757/AHD/2012 FOR A.Y. 2008-09 AS SUPR A, WE RESTRICT THE DISALLOWANCE AS ADMINISTRATIVE EXPENSES TO THE AMOU NT OF RS. 15 LACS. SINCE THE ASSESSEE ITSELF HAS MADE DISALLOWANCE TO THE EX TENT OF RS. 9,94,147/- ,THEREFORE, DISALLOWANCE IS RESTRICTED TO THE EXTEN T OF RS. 5,05,853/- (RS. 15,00,000- 9,94,147/-). ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. GROUND NO. 2 (DISALLOWANCE U/S. 35D) 42. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 2 VIDE ITA NO. 1757/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMILAR A S IN ITA NO. 2225/AHD/2015 ASSESSMENT YEAR 2010-11 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 1757 /AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E ASSESSEE IS DISMISSED. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 66 GROUND NO. 3 (T.P. ADJUSTMENT IN RESPECT OF CORPORA TE GUARANTEE ) 43. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2009-10 ARE SIMILAR A S IN ITA NO. 2225/AHD/2015 ASSESSMENT YEAR 2010-11 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2342 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE ASSESSEE IS ALLOWED. ITA NO. 1112/AHD/2017 FILED BY REVENUE A.Y. 2011-12 GROUND NO. A (DELETING THE ADDITION OF RS. 34,11,1 9,295/- TREATING VEGA ME AS THE ASSESSEES PROPRIETARY CONCERN) 44. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL VIDE ITA NO. 1766/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMILAR A S IN ITA NO. 1112/AHD/2017 ASSESSMENT YEAR 2011-12 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 1766 /AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED. GROUND NO. B (DELETING DISALLOWANCE U/S. 14A OF ASS ESSEE VIDE ITA NO. 1028/AHD/2017 AND REVENUE VIDE ITA NO. 1112/AHD/201 7) 45. THE SIMILAR ISSUE ON IDENTICAL FACTS WAS ADJ UDICATED FOR ASSESSMENT YEAR 2008-09. THEREFORE, APPLYING THE FINDINGS ON THE SIMILAR ISSUE ADJUDICATED VIDE ITA NO. 1757/AHD/2012 FOR A.Y. 200 8-09 AS SUPRA, WE RESTRICT THE DISALLOWANCE AS ADMINISTRATIVE EXPENSE S TO THE AMOUNT OF RS. 15 LACS. SINCE THE ASSESSEE ITSELF MADE DISALLOWANCE T O THE EXTENT OF RS. I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 67 6,69,616/-,THEREFORE, DISALLOWANCE IS RESTRICTED TO THE EXTENT OF RS. 8,30,384/- (RS. 15,00,000- 6,69,616/-). ACCORDINGLY, THIS GRO UND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND GROUND OF APPEAL OF REVENUE FOR DELETING ADDITION OF RS. 61,159/- BY LD. CIT(A) IS DISMISSED . GROUND NO. C (DELETING DISALLOWANCE U/S. 35D) 46. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 2 VIDE ITA NO. 1766/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMIL AR AS IN ITA NO. 1112/AHD/2017 ASSESSMENT YEAR 2011-12 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 1112/AHD/2017 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. D (DELETING THE ADDITION OF RS. 7,75,898 /- MADE ON ACCOUNT OF DISALLOWANCE OF HIGHER DEPRECIATION CLAIM ON NEW COMMERCIAL VEHICLE) 47. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 2 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2009-10 ARE SIMILAR A S IN ITA NO. 1112/AHD/2017 ASSESSMENT YEAR 2011-12 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2342 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED. GROUND NO. E (DELETING THE ADDITION OF RS. 1,91,49, 551/- MADE U/S. 145A) 48. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 3 VIDE ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 ARE SIMIL AR AS IN I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 68 ITA NO. 1112/AHD/2017 ASSESSMENT YEAR 2011-12 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2343/AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. F ( DELETING THE ADDITION OF RS. 23,66,0 15/- MADE ON ACCOUNT OF DISALLOWANCE OF HIGHER DEPRECIATION CLAIM OF ELE CTRICAL FITTINGS 49. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 ARE SIMIL AR AS IN ITA NO. 1112/AHD/2017 ASSESSMENT YEAR 2011-12 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2343/AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED GROUND NO. G ( DELETING TP ADJUSTMENT OF RS. 15,31, 488/- MADE U/S. 92CA OF THE I.T. ACT IN RESPECT OF CORPORATE GUARAN TEE) 50. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2009-10 ARE SIMIL AR AS IN ITA NO. 1112/AHD/2017 ASSESSMENT YEAR 2011-12 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2342/AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED ITA NO. 1028/AHD/2017 A.Y. 2011-12 FILED BY ASSESSE E GROUND NO. 2 (DISALLOWANCE U/S. 35D OF THE ACT) I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 69 51. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 2 VIDE ITA NO. 1757/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMILAR A S IN ITA NO. 1028/AHD/2017 ASSESSMENT YEAR 2011-12 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 1757 /AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE ASSESSEE STANDS DISMISSED. GROUND NO. 3 (DEPRECIATION ON ELECTRICAL FITTINGS) 52. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2343/AHD/2012 ASSESSMENT YEAR 2010-11 ARE SIMILAR A S IN ITA NO. 1028/AHD/2015 ASSESSMENT YEAR 2011-12 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2343 /AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF TH E ASSESSEE IS STANDS DISMISSED. GROUND NO. 4 (ADDITION OF RS. 7,00,275/- ON ACCOUNT OF CORPORATE GUARANTEE CHARGES) 53. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF AP PEAL FOR ASSESSMENT YEAR 2009-10 ARE SIMILAR AS IN ITA NO. 1028/AHD/201 7 ASSESSMENT YEAR 2012-13 THEREFORE AFTER APPLYING TH E DECISION ADJUDICATED VIDE ASSESSMENT YEAR 2009-10 AS SUPRA I N THIS ORDER, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 1835/AHD/2017 A.Y. 2012-13 FILED BY REVENUE GROUND NO. 1 (DELETING THE ADDITION OF RS. 31,56,69 ,000/- BEING INCOME OF VEGA INDUSTRIES ME) I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 70 54. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 1 VIDE ITA NO. 1766/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMILAR A S IN ITA NO. 1835/AHD/2015 ASSESSMENT YEAR 2012-13 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 1766 /AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE IS DISMISSED. GROUND NO. 2 (DELETING DEPRECIATION OF RS. 1,41,65 3/- ON CAR) 55. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 2 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2010-11 ARE SIMILAR A S IN ITA NO. 1835/AHD/2015 ASSESSMENT YEAR 2012-13 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2342 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE IS DISMISSED. GROUND NO. 3 (DELETING DISALLOWANCE OF RS. 39,04,41 6/- ON ELECTRIC FITTINGS) 56. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 ARE SIMILAR A S IN ITA NO. 1835/AHD/2017 ASSESSMENT YEAR 2012-13 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2343 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE IS DISMISSED. GROUND NO. 4(DELETING T.P. ADJUSTMENT OF RS. 25,24, 995/- U/S. 92CA IN RESPECT OF CORPORATE GUARANTEE-) I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 71 57. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 4 VIDE ITA NO. 2342/AHD/2015 ASSESSMENT YEAR 2009-10 ARE SIMILAR A S IN ITA NO. 1835/AHD/2017 ASSESSMENT YEAR 2011-12 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2342 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED ITA NO. 1850/AHD/2017 A.Y. 2012-13 FILED BY ASSESSE E GROUND NO. 1 (DEPRECIATION ON ELECTRICAL FITTINGS) 58. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 ARE SIMIL AR AS IN ITA NO. 1850/AHD/2017 ASSESSMENT YEAR 2012-13 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 2343/AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF THE ASSESSEE STANDS DISMISSED. GROUND NO. 2 (ADDITION OF RS. 8,01,300/- ON ACCOUNT OF CORPORATE GUARANTEE) 59. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL FOR ASSESSMENT YEAR 2009-10 ARE SIMILAR AS IN ITA NO. 1850/AHD/201 7 ASSESSMENT YEAR 2012-13 THEREFORE AFTER APPLYING TH E DECISION ADJUDICATED VIDE ASSESSMENT YEAR 2009-10 AS SUPRA I N THIS ORDER, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 2805/AHD/2017 A.Y. 2013-14 FILED BY REVENUE GROUND NO. 1 (ADDITION OF RS. 46,19,59,000/- BEING INCOME OF VEGA INDUSTRIES, ME) I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 72 60. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 1 VIDE ITA NO.1766/AHD/2012 ASSESSMENT YEAR 2008-09 ARE SIMILA R AS IN ITA NO. 2805/AHD/2015 ASSESSMENT YEAR 2013-14 THERE FORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO . 1766/AHD/2012 AS SUPRA IN THIS ORDER, THIS GROUND O F APPEAL OF THE REVENUE STANDS DISMISSED. GROUND NO. 2 (DELETING THE ADDITION ON HIGHER DEPRE CIATION ON ELECTRIC INSTALLATION OF RS. 9,52,934/-) 61. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL NO. 4 VIDE ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 ARE SIMILAR A S IN ITA NO. 2805/AHD/2017 ASSESSMENT YEAR 2013-14 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2343 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE REVENUE STANDS DISMISSED. ITA NO. 2726/AHD/2017 A.Y. 2013-14 FILED BY ASSESSE E GROUND NO. 1 (DEPRECIATION ON ELECTRICAL FITTINGS) 62. AS THE FACTS AND ISSUE INVOLVED IN GROUND O F APPEAL NO. 4 VIDE ITA NO. 2343/AHD/2015 ASSESSMENT YEAR 2010-11 ARE SIMILAR A S IN ITA NO. 2726/AHD/2017 ASSESSMENT YEAR 2013-14 THEREFORE AFTER APPLYING THE DECISION ADJUDICATED VIDE ITA NO. 2343 /AHD/2015 AS SUPRA IN THIS ORDER, THIS GROUND OF APPEAL OF T HE ASSESSEE STANDS DISMISSED. GROUND NO. 2 (LEVY OF INTEREST U/S. 234B) I.T.A NOS. 1766, 1757/AHD/2012, 2342, 2343, 2224,22 25/AHD/2015, 1112,1835,2805,1028,1850 & 2726/AHD/20 17 PAGE NO DY. CIT VS. AIA ENGINEERING LTD. & AIA ENGINEERING LTD. VS. DCIT 73 63. LEVY OF INTEREST U/S. 234B IS MANDATORY ACCO RDING TO PROVISIONS OF LAW, THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE ST ANDS DISMISSED. 64. IN THE RESULT, ITA APPEALS 1766/AHD/12, 2342/ AHD/15, 2343/AHD/2015, 1112/AHD/2017 , 1835/AHD/2017 AND 2805/AHD/2017 FILED BY REVENUE ARE DISMISSED. ITA APPEALS 1757/AHD/2012, 2224/AHD/20 15, 2225/AHD/2015, 1028/AHD/2017, 1850/AHD/2017 AND 2726/AHD/2017 FILE D BY ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04-01-2021 SD/- SD/- (RAJPAL YADAV) (AMARJIT SINGH) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD : DATED 04/01/2021 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,