Vivimed Labs Limited, Hyd, Hyderabad V. DCIT, Circle-17(2), Hyd, Hyderabad

ITA 404/HYD/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2481 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Wholly owned subsidiary; Bad and doubtful debts
• Section: 143(3); 92B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 404/HYD/2015 ASSESSMENT YEAR: 2010-11 VIVIMED LABS LTD., HYDERABAD. PAN - AAACL 5827B VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 17(2), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 479/HYD/2015 ASSESSMENT YEAR: 2010-11 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 17(2), HYDERABAD. VS. VIVIMED LABS LTD., HYDERABAD. PAN - AAACL 5827B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHANA RAO REVENUE BY : SMT. U. MINICHANDRAN DATE OF HEARING 12-04-2017 DATE OF PRONOUNCEMENT 02-06-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER PASSED U/S 143(3) R.W.S. 92CA(3) R.W.S.144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) DATED 27/02/2015 RELATIN G TO AY 2010-11. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED ITS ORIGINAL RETURN OF INCOME FOR THE AY 2010-11 ON 24/ 09/2010 U/S 139(1) OF THE ACT, DECLARING TOTAL INCOME OF RS. 10,30,93, 600/- AFTER CLAIMING DEDUCTION OF RS. 4,65,41,901/- U/S 80IC IN RESPECT OF ITS UNIT LOCATED IN HARIDWAR. ASSESSEE IS ENGAGED IN THE BUSINESS OF R&D 2 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. MANUFACTURING OF SPECIALIZED CHEMICALS & PHARMACEUT ICALS. AO MADE A REFERENCE U/S 92CA TO THE TPO FOR DETERMINING ARM S LENGTH PRICE. ACCORDINGLY, THE TPO HAS PASSED THE ORDER U/S 92CA( 3) OF THE ACT, DATED 30/12/2013 DETERMINING THE ALP ADJUSTMENT AT RS. 4,28,75,506/- WHICH INCLUDE THE ADJUSTMENTS ON ACCO UNT OF INTEREST RECEIVED ON ADVANCE GIVEN, CORPORATE GUARANTEE FEE RECEIVABLE AND INVESTMENT IN SUBSIDIARY. THE AO PASSED THE DRAFT A SSESSMENT ORDER U/S 143(3) R.W.S. 92CA(3) OF THE ACT, DATED 30/03/2 014 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 14,67,04,07 2/- BY MAKING THE FOLLOWING ADDITIONS TO THE RETURNED INCOME AS FOLLO WS: A) ADJUSTMENT U/S 92CA IN RESPECT OF INTERNATIONAL TRANSACTIONS RELATING TO INTEREST RECEIVED ON ADVANCES GIVEN. RS. 1,61,69,956/- B) ADJUSTMENT U/S 92CA IN RESPECT OF INTERNATIONAL TRANSACTIONS RELATING TO CORPORATE GUARANTEE FEE RECEIVABLE RS. 1,69,10,000/- C) ADJUSTMENT U/S 92CA IN RESPECT OF INVESTMENT IN SUBSIDIARY COMPANIES. RS. 97,95,550/- D) DISALLOWANCE OF BAD DEBTS WRITTEN OFF RS. 7,34, 963/-. RS. 4,36,10,469. 3. AGGRIEVED BY THE ORDER OF THE AO/TPO, THE ASSESS EE RAISED OBJECTIONS BEFORE THE DRP. 4. AS REGARDS ADJUSTMENT U/S 92CA IN RESPECT OF INT ERNATIONAL TRANSACTIONS RELATING TO INTEREST RECEIVED ON ADVAN CES GIVEN, THE FACTS ARE THAT AS PER THE RPT DISCLOSURE CONTAINED IN THE ANNUAL REPORT, TPO HAS SEEN THAT THE TAXPAYER HAS A BALANCE OF RS . 12.528 CRORES AGAINST VIVIMED HOLDING LTD., HONG KONG. THE TPO NO TICED THAT AS PER THE LEDGER EXTRACT ON INTEREST RECEIVED BY ASSE SSEE, OPENING BALANCE WAS RS. 11,56,18,453/- AND THE CLOSING BALA NCE INCLUSIVE OF INTEREST OF RS. 94,27,950 IS RS. 12,52,80,067. THE WORKING OF INTEREST WAS SHOWN AS UNDER: 6% ON USD 1,500,000 (1 USD = RS. 44.895) RS. 40,40 ,550 6% ON USD 2,000,000 (1 USD = RS. 44,895) RS. 53,87 ,400 3 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. RS. 94,27,950 =========== 4.1 BEFORE THE DRP, THE ASSESSEE SUBMITTED AS UNDER : 5.1.1 THE ASSESSEE HAS GIVEN CERTAIN ADVANCES TO V IVIMED, HONG KONG, THE OUTSTANDING BALANCE AS ON 31.03.2010 IS RS.12,52,80,067/-. THE ASSESSEE HAS RECEIVED INTERE ST OF RS.94,27,950/- WHICH IS 6% ON THE OUTSTANDING BALAN CE. THE INTEREST RATE WAS DETERMINED BY THE ASSESSEE ON THE COMPARISON OF THE RATES CHARGED IN CONFORMITY WITH THE GUIDELI NES PRESCRIBED BY THE RBI ISSUED UNDER FEMA, 1999 FOR EXTERNAL BOR ROWINGS WHICH COULD BE RELIED UPON FOR APPLICATION OF COMPA RABLE UNCONTROLLED PRICE (CUP) FOR CONFIRMING THE ARM'S L ENGTH NATURE OF INTEREST RECEIVED. HENCE, IT WOULD BE REASONABLE TO CONCLUDE THAT THE ASSESSEE'S INTERNATIONAL TRANSACTION IN RE LATION TO RECIPIENT OF INTEREST IS CONSISTENT WITH THE ARMS L ENGTH STANDARD AS MANDATED BY THE INDIAN TRANSFER PRICING REGULATI ONS. SINCE THE INTERNATIONAL TRANSACTION ENTERED BETWEEN THE AE IS IN FOREIGN CURRENCY, THE DOMESTIC PRIME LENDING RATE W OULD HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEIN G UBOR HAS TO BE CONSIDERED AND ACCORDINGLY, WE CONSIDERED THE SA ME FOR THE PURPOSE OF DETERMINING INTEREST RATE WHICH IS IN CO NFORMITY WITH THE GUIDELINES PRESCRIBED BY THE RBI ISSUED UNDER F EMA, 1999 FOR EXTERNAL BORROWINGS. THEREFORE, COMPARABLE UNCO NTROLLED PRICE ('CUP') METHOD WAS CONSIDERED SUITABLE FOR TH E PURPOSE OF ANALYSIS OF INTERNATIONAL TRANSACTION WITH RESPECT TO RECEIPT OF INTEREST FROM VIVIMED LABS UK. 7.0 IN RESPECT OF TRANSFER PRICING ADJUSTMENT OF RS .63,49,175/- U/S. 92CA OF THE IT ACT, 1961 IN RESPECT OF TRANSAC TION RELATING TO INTEREST ON ADVANCES GIVEN TO AE, VIVIMED USA, INC, THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSI DERATION THE ASSESSEE HAS GIVEN ADVANCES OF RS. 5,18,30,000 TO V IVIMED, HONG KONG DURING THE COURSE OF BUSINESS OPERATIONS FOR ADMINISTRATIVE CONVENIENCE AND THE SAME IS BEING DI SCLOSED IN TP DOCUMENT. 4.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE DRP GAVE DIRECTIONS AS UNDER: 1. CONSIDERING THE FACT THAT ASSESSEE ALREADY CHARG ED INTEREST AT 6%ON THE ADVANCES GIVEN TO ITS AE, VIVIMED HOLDI NG LTD., HONG KONG, WE DIRECT THE TPO TO ADOPT LIBOR PLUS 20 0 BASIS POINTS FOR COMPUTING THE INTEREST ON LOANS/ADVANCES GIVEN TO ITS AE AND ACCORDINGLY MAKE THE ADJUSTMENT IN EXCESS OF THE INTEREST ALREADY CHARGED TO AE I.E. RS. 94,27,950/- IN THE CURRENT YEAR. 4 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. 2. ON SIMILAR LINES IN RESPECT OF THE LOANS/ADVANCE S GIVEN TO VIVIMED LABS USA INC AND CONSIDERING THE FACT THAT ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE ADVANCES/LOANS GIVEN TO ITS AE, WE DIRECT THE TPO TO ADOPT LIBOR PLUS 200 BASIS POINTS FOR COMPUTING THE INTEREST ON LOANS/ADVANCES GIVEN TO I TS AE AND ACCORDINGLY MAKE THE ADJUSTMENT. 5. ADJUSTMENT U/S 92CA IN RESPECT OF INTERNATIONAL TRANSACTIONS RELATING TO CORPORATE GUARANTEE FEE RECEIVABLE, THE DRP HELD AS FOLLOWS: 9. THE PANEL HAS GONE THROUGH THE SUBMISSIONS OF AS SESSEE, THE ORDER OF THE TPO AND THE FACTS OF THE CASE. THIS PA NEL IS OF THE VIEW THAT THE CORPORATE GUARANTEE EXTENDED BY THE A SSESSEE COMPANY TO ITS AE CLEARLY FALLS UNDER THE DEFINITIO N OF INTERNATIONAL TRANSACTION BY VIRTUE OF THE AMENDMEN T TO THE RELEVANT PROVISIONS OF THE LAW. THE ISSUE OF CORPOR ATE GUARANTEE FALLING UNDER THE DEFINITION OF INTERNATIONAL TRANS ACTION IS WELL SETTLED AND WE DECLINE TO INTERFERE IN THIS REGARD. HOWEVER, THE TPO COMPUTED CORPORATE GUARANTEE FEE @2% FOR A LOAN OF RS.76.05 CRORES TO VIVIMED HOLDINGS LTD., HONG KONG AMOUNTING TO RS.1.52 CRORES AND THE GUARANTEE FEE @2.70% FOR A LOAN OF RS.6.351 CRORES TO VIVIMED LABS EUROPE LTD AMOUNTIN G TO RS.0.171 CRORES WHICH WE FEEL IS NOT CORRECT AND IT BEING INTERNATIONAL TRANSACTION, THE PROPER GUARANTEE RAT E AS HELD IN THE CASE OF MIS NIMBUS COMMUNICATIONS LTD. (TS-167-ITAT -2013 (MUM)-TP) WOULD BE 0.5%. ACCORDINGLY, WE DIRECT THE TPO TO RECOMPUTE THE FEE TO BE CHARGED ON CORPORATE GUARAN TEE FOR LOAN OF RS. 76.05 CORES AND LOAN OF RS. 6.651 CRORES AT 0.5%. 6. ADJUSTMENT U/S 92CA IN RESPECT OF INVESTMENT IN SUBSIDIARY IT IS OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE EQUITY INVESTMENT OF RS. 98,00,000/- IN VIVIME D LABS IN USA INC WHICH IS WHOLLY OWNED SUBSIDIARY COMPANY (AE). THIS INVESTMENT WAS MADE TOWARDS DEVELOPMENT OF SOFTWARE PRODUCT AN D NEW TECHNOLOGY PRODUCTS. THE ASSESSEE RELIED ON CIRCULA R NO. 14, DATED 22/11/2011 AND SUBMITTED THAT SECTION 92B(1) IS APP LICABLE ONLY WHEN INCOME IS CHARGEABLE AND NOT FOR CAPITAL INVESTMENT . HE ALSO RELIED ON THE FOLLOWING CASE LAWS: 1. VODAFONE INDIA SERVICES (P) LTD., VS. UNION OF I NDIA [2014] 50 TAXMANN.COM 300 (BOMBAY) 5 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. 2. ITAT HYDERABAD IN THE CASE OF PRITHVI INFORMATIO N SOLUTIONS LTD. VS. DCIT, ITA NO. 472/HYD/2014. 6.1 THE DRP FOLLOWING THE DECISION OF VODAFONE INDI A SERVICES PVT. LTD., (SUPRA), DIRECTED THE AO AND TPO TO FOLLOW TH E DECISION ON THE HONBLE HIGH COURT. 7. AS REGARDS THE ADDITION OF RS. 7,34,963/- U/S 14 A OF THE ACT, THE SUBMISSIONS OF THE ASSESSEE IS THAT NO DISALLOWANCE U/S 14A IS TO BE MADE AS THE INVESTMENT IS MADE OUT OF THE INTERNAL ACCRUALS OF THE COMPANY AND THE EQUITY RAISED BY THE COMPANY FOR WH ICH THE COMPANY HAS NOT INCURRED ANY COST TO RAISE THE FUND S. 7.1 THE DRP REJECTED THE GROUND BY HOLDING THAT IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF M/S GODREJ & BOYCE & MANUFACTURING CO. LTD., 234 CTR 1 RELIED UPON BY THE AO AND THE FACTS OF THE CASE, WE DECLINE TO INTERFERE ON THIS ISSUE. 8. ACCORDINGLY, THE DRP MADE AN ADJUSTMENT OF RS. 5 8,51,172/- U/S 92CA OF THE ACT, IN RELATION TO THE FOLLOWING I NTERNATIONAL TRANSACTIONS WITH AES: 1) INTEREST RECEIVED ON ADVANCES GIVEN TO AES RS. 17,31,122/- 2) CORPORATE GUARANTEE FEE RS. 41,20,050/-. 9. ACCORDINGLY, THE AO PASSED FINAL ASSESSMENT ORDE R AS PER THE DIRECTIONS OF DRP. 10. AGGRIEVED BY THE ORDER OF DRP, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. GROUND OF OBJECTION TOWARDS ADDITION OF RS. 17,3 1,122/- TOWARDS CHARGING INTEREST ON ADVANCES OF RS. 51.83 MILLION (GROUND NOS. 3 TO 8). 2. GROUNDS OF OBJECTION TOWARDS ADDITION OF RS. 41 ,20,050/- TOWARDS CHARGING CORPORATE GUARANTEE FEES ON CORPOR ATE GUARANTEE AMOUNT OF RS. 82.401 CRORES (GROUND NOS. 9 TO 18). 6 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. 3. GROUNDS OF OBJECTION TOWARDS ADDITION OF RS. 7,3 4,963/- IN RESPECT OF DISALLOWANCE U/S 14A OF THE ACT. (GROUND NOS. 19 TO 24.) 10.1 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1. THE ORDER OF HONOURABLE DRP IS ERRONEOUS BOTH IN LAW AND FACTS OF THE CASE. 2. WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE, THE HONOURABLE DRP IS CORRECT IN HOLDING THAT THE INTER EST RATE SHOULD BE TAKEN AT LIBOR +2% WHEN THERE IS NO RATIONALITY GIVEN BY THE DRP IN DECIDING SUCH A RATE. 3. WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE, THE HONOURABLE DRP IS CORRECT IN LAW IN HOLDING THAT TH E FEE CHARGEABLE ON CORPORATE GUARANTEE GIVEN TO ITS ASSO CIATE ENTERPRISE @ 0.5% ONLY, WHEN THE CORPORATE GUARANTE E GIVEN BY THE ASSESSEE HAS HELPED AE TO MOVE FROM ITS OWN CRE DIT RATING OF BBB - TO THAT OF A+. 11. AS REGARDS THE ALP ADDITION OF RS. 17,31,122/- IN RESPECT OF TRANSACTION RELATING TO INTEREST ON ADVANCE FOR INV ESTMENT, THE LD. AR SUBMITTED THAT CAPITAL ADVANCES TOWARDS INVESTMENT IN THE SUBSIDIARY COMPANIES IS NOT AN INTERNATIONAL TRANSACTIONS BECA USE INCOME IS NOT GENERATED. FOR THIS PROPOSITION, HE RELIED ON THE F OLLOWING CASE LAWS: 1. GSS INFOTECH LTD. VS. ACIT, HYD., 497/HYD/2015. 2. M/S VIJAY ELECTRICALS LTD. VS. ADDL. CIT, ITA NO . 842/HYD/2012, ORDER DATED 31/05/2013. 3. DANA CORPORATION RE, 321 ITR 178 (AAR) 4. DCIT (OSD), VS. CADILA HEALTHCARE LTD., 39 TAXMA NN.COM 51, (AHMD.) 5. AMIANTIT INTERNATIONAL HOLDING LTD., 322 ITR 678 (AAR). 12. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE ASSESSEE HAS GIVEN ADVANCES TO ITS A ES I.E. VIVIMED USA & HONG KONG. IT HAS CHARGED INTEREST IN THE CA SE OF VIVIMED HOLDINGS, HONG KONG BASED ON LIBOR BUT DID NOT CHAR GE ANY INTEREST 7 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. ON THE ADVANCES GIVEN TO USA. IT HAS SUBMITTED THAT IT IS CAPITAL ADVANCES AND WERE GIVEN FOR ADMINISTRATIVE CONVENIE NCE. LD. AR SUBMITTED THAT CAPITAL ADVANCES TOWARDS INVESTMENT IN SUBSIDIARY IS NOT AN INTERNATIONAL TRANSACTION. HE RELIED ON SOME CASE LAWS. WE FIND THAT THESE WERE ADVANCES GIVEN TO AES AND NOT FOR A NY CAPITAL INVESTMENT FOR WHICH THERE IS NO ALLOTMENT OF SHARE S. THESE ARE OUTSTANDING AS ADVANCES. ASSESSEE HAS ALSO NOT SUBM ITTED ANY COMPARATIVE STUDY ON INTEREST CHARGED ON THE ADVANC ES TO HONK KONG. THE COORDINATE BENCH IN THE CASE OF TRANSPORT CORPORATION OF INDIA LTD., IN ITA NO. 117/HYD/2016, VIDE ORDER DAT ED 21/09/2016, HELD AS FOLLOWS: 7. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. THE TRANSACTI ON UNDER CONSIDERATION IS INTERNATIONAL TRANSACTION AS THE A SSESSEE LENT MONEY TO ITS AES. THE ECONOMIC ACTIVITIES HAPPENING IN THE INTERNATIONAL MARKET IS IMPORTANT RATHER THAN ECONO MIC IMPACT IF THE LOAN IS ADVANCED IN INDIAN RUPEES. IT IS FACT T HAT THESE TRANSACTIONS ARE COMPARED WITH UNCONTROLLED ENVIRON MENT TO DETERMINE ALP. THE FACT THAT ADVANCE WAS LENT OUTSI DE INDIA THE INTEREST RATE PREVAILING IN THE INTERNATIONAL MARKE T IS RELEVANT. THE DRP/TPO ARGUES THAT THESE LOANS WERE ORIGINATED IN INDIAN CURRENCY AND RECORDED, AS SUCH, IN THE ASSESSEES B OOKS. HENCE, IT HAS TO BE ANALYSED IN THE INDIAN ALP IS NOT ACCE PTABLE. THE MONEY LENT OUTSIDE INDIA IS ALWAYS CONVERTED INTO F OREIGN CURRENCY AND ACCORDINGLY RECORDED. BUT, HOW THE AE HAD RECORDED. OBVIOUSLY NOT IN INDIAN CURRENCY. SINCE, ACTUAL UTILISATION OF THE FUNDS WERE OUTSIDE INDIA, OBVIOU SLY, THE ALP OF THIS KIND ALSO TO BE DETERMINED APPLYING THE INTERN ATIONAL MARKET CONDITION. HENCE, WE FOLLOW THE CONSISTENT VIEW OF THE VARIOUS TRIBUNALS, IN PARTICULAR, THE CASE OF PMP AUTO COM PONENTS (P) LTD. VS. DCIT [2014] 50 TAXMANN.COM 272 (MUM.) WHER EIN THE COORDINATE BENCH HAS HELD THAT THE ASSESSEE IS A TE STED PARTY AND ECONOMIC/COMMERCIAL AS WELL AS GEOGRAPHICAL CON DITION IN WHICH THE ASSESSEE IS DOING BUSINESS ARE RELEVANT T O BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. THEREFORE, WE DIRECT THE TPO TO ARRIVE AT THE ALP O F THESE TRANSACTIONS APPLYING LIBOR + 200 POINTS. ACCORDING LY THIS GROUND OF THE ASSESSEE IS ALLOWED. 13.1 SINCE THE ASSESSEE HAS NOT CARRIED/SUBMITTED A NY COMPARATIVE STUDY BEFORE FINALIZING THE LIBOR RATE, WE FIND IT APPROPRIATE TO FOLLOW 8 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. THE COORDINATE BENCH ORDER AND DIRECT THE AO TO FOL LOW THE DIRECTION OF DRP TO COMPUTE THE INTEREST RATE AT LIBOR + 200 POI NTS. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE AND REVENUE ARE DISMI SSED. 14. AS REGARDS THE ALP ADDITION IN RESPECT OF TRAN SACTION RELATING TO CORPORATE GUARANTEE OF RS. 41,20,050/-, THE LD. AR SUBMITTED THAT THE TRANSACTION RELATING TO THE CORPORATE GUARANTEE DO NOT FALL WITHIN THE SCOPE OF THE TERM INTERNATIONAL TRANSACTION. IT IS GIVEN OUT OF SHAREHOLDERS OBLIGATION FOR WHICH IT HAS NOT INCURR ED ANY COST. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING CASES: 1. RUSABH DIAMONDS VS. ACIT, IT APPEAL NOS. 2497, 2840 (MUM.) OF 2014. 2. MICRO INK LTD., ITA NO. 2873/AHD/10 3. BHARTI AIRTEL LTD. VS. ADDL. CIT, ITA NO. 5816/D EL/2012 4. REDINGTON (INDIA) LTD. VS. JCIT, ITA NO. 513/MDS /2014 5. VIDEOCON INDUSTRIES LTD. VS. ADDL. CIT, 55 TAXMANN.COM 263 (MUM) 6. M/S FOUR SOFT LTD., HYD. VS. THE DY. CIT, ITA NO . 1495/H/2010 7. SIRO CLINPHARM PVT. LTD. VS. DCIT, ITA NO. 1269/MUM/15 8. SIRO CLINPHARM PVT. LTD. VS. DCIT, ITA NO. 2618/MUM/14 15. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. 16. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IN THE CASE OF FOUR SOFT LTD. (SUPRA), T HE COORDINATE BENCH HAS HELD AS UNDER: 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE TP LEGISLATION PROVIDES FO R COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE COMPANY DOES NOT FALL WITH IN THE DEFINITION OF INTERNATIONAL TRANSACTION. THE TP LEGISLATION DOES NOT STIPULATE ANY GUIDELINES IN RESPECT TO GUARANTEE TRANSACTIONS. IN THE ABSENCE OF ANY CHARGING PROVIS ION, THE LOWER AUTHORITIES ARE NOT CORRECT IN BRINGING AFORESAID TRANSACTION IN THE TP STUDY. IN OUR CONSIDERED VIEW, THE CORPORATE GUARANTEE IS VERY MUCH INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND HENCE, THE SAME CANNOT BE COMPARED TO A BANK GUARANTEE TRA NSACTION OF THE BANK OR FINANCIAL 9 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. INSTITUTION. IN VIEW OF THIS MATTER, WE HOLD THAT N O TP ADJUSTMENT IS REQUIRED IN RESPECT OF CORPORATE GUARANTEE TRANSACTION DONE BY THE ASSESSE E COMPANY. HENCE, WE ANSWER THIS QUESTION IN FAVOUR OF THE ASSESSEE AND ALLOW THE GR OUNDS RAISED BY THE ASSESSEE ON THIS ISSUE. 16.1. HOWEVER, THE AMENDMENT TO SECTION 92B BY THE FINANCE ACT, 2012, THIS AMENDMENT CAN ONLY BE PROSPECTIVE AND NO T RETROSPECTIVE AS HELD IN THE CASE OF SIRO CLINPHARM PVT. LTD. IN ITA NO. 2618/MUM/2014. THIS PROVISION IS APPLICABLE FROM AY 2013-14 ONWARDS. HENCE, ADDITION OF CORPORATE GUARANTEE IN THIS AY IS DELETED. ACCORDINGLY, THE GROUND RAISED BY THE ASSE SSEE IS ALLOWED AND GROUND RAISED BY REVENUE IS DISMISSED. 17. AS REGARDS THE DISALLOWANCE OF RS. 7,34,936/- U /S 14A OF THE ACT, THE LD. AR SUBMITTED THAT SECTION 14A WILL NOT APPLY WHERE NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT AY. FOR THIS PROPOSITION HE RELIED ON THE FOLLOWING CASES: 1. PRATHISTA INDUSTRIES LTD., VS. DCIT, ITA NO. 13 02/H/15 2. CHEMINVEST LTD., [2015] 379 ITR 33 (DEL.) 3. CIT VS. HERO CYCLES LTD., 323 ITR 518 (P&H) 4. RELAXO FOOTWEARS LTD. VS. ADDL. CIT, [2012] 50 SOT 102 5. PRIYA EXHIBITORS (P) LTD. VS. ACIT [2012], 54 S OT 356 6. M/S VIVIMED LABS. LTD., ITA NO. 1882/HYD/14 7. M/S SUN TV NETWORKS VS. ACIT, ITA NO. 1340 & 13 41/MDS/15 8. MADHUCON INFRA LTD., VS. ACIT, ITA NO. 410/H/15 . 18. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. 19. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IN THE CASE OF PRATHISTA INDUSTRIES LTD. (SUPRA), THE COORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS UNDER : 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT SECTION 14A CLEARLY STIPULATES THAT THE E XPENDITURE INCURRED FOR EARNING OF ANY INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME ALONE CAN BE DISALLOWED. IN THE CASE BEFORE US, WHEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THERE CAN BE NO DISALLOW ANCE UNDER SECTION 14A OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD., REPORTED IN (2015) 378 ITR 33 (DEL.) HAS HELD THAT SECTION 14A WILL NOT APPLY WHERE NO EXEMPT INCOME IS RECEIVED OR RECEIVA BLE DURING THE 10 ITA NOS. 404 & 479 /HYD/2015 VIVIMED LABS LTD., HYD. RELEVANT ASSESSMENT YEAR. IN VIEW OF THE SAME, ASSE SSEES APPEAL ON THIS GROUND IS ALLOWED. 19.1 SINCE THE ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME DURING THE YEAR, RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE AO/TPO TO DELETE THE ADDITION MADE ON THIS COUNT. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 2 ND JUNE, 2017 KV COPY TO:- 1) M/S VIVIMED LABS LTD., C/O P. MURALI & CO., CAS , 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082. 2) DCIT, CIRCLE 17(2), HYD. 3) DRP, HYDERABAD 4. CIT, INTERNATIONAL TAXATION, INCOME TAX TOWERS, 10-2-3, AC GUARDS, HYDERABAD 500 004. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE