Appeal details
Counselvise Citation
[2021] 107 COUNSELVISE.COM (IT) 5065 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-09-2021
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB-A
Assessment Year
2017-2018
Appeal Filed On
03-11-2020
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 595/HYD/2020 2016-17 NCC LIMITED, HYDERABAD [PAN: AAACN7335C] ASST.COMMISSIONER OF INCOME TAX, CIRCLE-16(1), HYDERABAD 596/HYD/2020 2017-18 FOR ASSESSEE : SHRI C.S.SUBRAMANYAM, AR FOR REVENUE : SMT. S.PRAVEENA & SHRI A.VENKATA RAO, DRS DATE OF HEARING : 17-08-2021 DATE OF PRONOUNCEMENT : 27-09-2021 O R D E R PER S.S.GODARA, J.M. : THESE TWO ASSESSEES APPEALS FOR AYS.2016-17 AND 20 17- 18 ARISE AGAINST THE CIT(A)-4, HYDERABADS ORDER(S) DATED 21-09-2020 AND 04-09-2020 IN APPEAL NOS.10823 & 107 10 / 19-20 / DCIT,CIR-16(1) / CIT(A)-4 / HYD / 20-21, IN VOLVING PROCEEDINGS U/S.143(3) R.W.S.144C(3) & 143(3) (FOR AY.2017- 18) OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]; RESPECTIVELY. HEARD BOTH THE PARTIES. CASE FILES PERUSED. 2. THE ASSESSEES FIRST AND FOREMOST SUBSTANTIVE GROUN D IN FORMER YEAR 2016-17S APPEAL ITA NO.595/HYD/2020 ITA NOS. 595 & 596/HYD/2020 :- 2 -: CHALLENGES CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION MAKING ARMS LENGTH PRICE (ALP) ADJUSTMENT OF RS.29,68,60,000/- REPRESENTING CORPORATE GUARANTEE ADJUSTMENT INVOLVING ITS OVERSEAS ASSOCIATED ENTERPRISES (AES). IT TRANSPIRES DURING THE COURSE OF HEARING THAT THE VERY ISSUE HAD ARISEN IN ASSESSEES CASES ITA NOS.1719/HYD/201 6, 435/HYD/2018 & 2154/HYD/2018 FOR PRECEDING ASSESSME NT YEARS I.E. AYS. 2012-13, 2013-14 & 2014-15 WHEREIN THE CO- ORDINATE BENCH HAS UPHELD AN IDENTICAL ADJUSTMENT VIDE FOLLOWING DETAILED DISCUSSION: 5. WE FIND NO MERIT IN THE ASSESSEES FOREGOING CO NTENTIONS. THERE IS NO DISPUTE THAT THIS TRIBUNALS VARIOUS EARLIER CO-ORD INATE BENCH DECISIONS (2015) 63 TAXMANN.COM 353 (AHD-TRIB), MICRO INK LTD VS. ACIT, BHARTI AIRTEL LTD., VS. ADDL.CIT, (2014) 63 SOT 113 (DELHI) AND (2017) 86 TAXMANN.COM 254 (HYD) BARTRONICS INDIA LTD, VS. DCIT HAD INDEED HELD A CORPORATE GUARANTEE TO BE PURELY A SHAREHOLDER ACTIVITY THAN FORMING AN INTERNATIONAL TRANSACTION U/S.92B OF THE ACT. THIS LEGAL PROPOSITION IS NO MORE RES INTEGRA IN VIEW OF THE P CIT VS. M/S.REDINGTON (INDIA) LIMITED, TCA NOS.590 & 591 OF 2019, DT.10-12-2020 ( MADRAS) TAKING NOTE OF NOT ONLY THE FOREGOING LEGISLATIVE POSITIONS (SUPRA) BU T ALSO HOLDING THAT THE SAME CARRIED RETROSPECTIVE EFFECT AS WELL. THEIR LORDSHI PS DETAILED DISCUSSION TO THIS EFFECT READS AS UNDER: 67.THE NEXT ISSUE IS WITH REGARD TO THE CORPORATE GUARANTEE AND BANK GUARANTEE. 68.FROM THE ANNUAL REPORT OF THE ASSESSEE, IT WAS S EEN THAT THE ASSESSEE HAD ISSUED GUARANTEES ON BEHALF OF ITS SUB SIDIARIES TO THE TUNE OF RS.464.36 CRORES AND ON BEHALF OF OTHERS, T O THE TUNE OF RS.3.42 CRORES. THE ASSESSEE WAS CALLED TO EXPLAIN THE SAME. THE ASSESSEE STATED THAT THEY HAD NOT ISSUED ANY FRESH GUARANTEE DURING THE ASSESSMENT YEAR 2009-10 AND THE GUARANTEE IS OU TSTANDING, IS PURELY ON ACCOUNT OF THE CURRENCY TRANSITION ADJUST MENT ON RESTATEMENT OF GUARANTEES OUTSTANDING AT THE CLOSIN G RATES PREVAILING ON 31ST MARCH 2009 FOR DISCLOSURE IN FINANCIAL STAT EMENT IN COMPLIANCE WITH THE ACCOUNTING STANDARDS. FURTHER, THE ASSESSEE STATED THAT THE OUTSTANDING GUARANTEE ISSUED BY THE ASSESSEE AS ON 31.03.2009 REPRESENTS GUARANTEE ISSUED ON BEHALF OF THE OVERSEAS SUBSIDIARIES IN EARLIER YEARS. FURTHER, THEY STATED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE RELEVANT AS SESSMENT YEARS, THE TPO MADE ADDITION TO THE CORPORATE GUARANTEE IS SUED DURING THOSE YEARS BY ADOPTING THE BENCH MARK RATE BASED O N THE AVAILABLE ITA NOS. 595 & 596/HYD/2020 :- 3 -: INTERNAL COMPARABLE UNCONTROLLED PRICE CHARGED BY T HE BANK AT 0.85%. THE ASSESSEE ALSO ISSUED CORPORATE GUARANTEE IN FAV OUR OF M/S.PARAMPARA WEDDING CADS AND M/S. BASKAR DIGITAL PRESS. THE TPO AFTER TAKING NOTE OF THE AMENDED SECTION 92B, W HICH WAS INTRODUCED WITH RETROSPECTIVE EFFECT FROM 01.04.200 2, EXAMINED THE FACTUAL ASPECT AND POINTED OUT THAT THOUGH THE ASSE SSEE STATED THAT THEY HAVE NOT ISSUED ANY FRESH GUARANTEE DURING THE ASSESSMENT YEAR 2009-10, THE GUARANTEES WERE LIVE AND WERE NOT CLOSED AS ON 31.03.2009 AND THE LIABILITY CONTINUED ON THE ASSES SEE AS ON 31.03.2009. NOTING THAT PROVIDING SUCH GUARANTEE IS ONE OF THE FINANCIAL SERVICE RENDERED BY THE ASSESSEE FOR WHIC H IT HAS TO BE REMUNERATED APPROPRIATELY AND THAT CONCERNED PARTIE S IN WHOSE FAVOUR THESE GUARANTEES WERE EXTENDED, WHERE ASSOCI ATED ENTERPRISES OF THE ASSESSEE AND THE TRANSACTIONS WE RE LARGELY INFLUENCED BY RELATED PARTIES, THE ASSOCIATED ENTER PRISES BENEFITED AND CONSEQUENTLY, THE INCOME WOULD ACCRUE ONLY TO S UCH NON-RESIDENT AND TO THAT EXTENT, SHIFTING OF TAX BASE FROM THE C OUNTRY IS BOUND TO HAPPEN IN SUCH TRANSACTION AND THE ASSESSEE SHOULD HAVE BEEN REMUNERATED APPROPRIATELY. THE CORPORATE GUARANTEE WAS TO THE TUNE OF RS.5574.13 LAKHS AND BANK GUARANTEE TO THE TUNE OF RS.40862.34 LAKHS. FURTHER, THE TPO OBSERVED THAT THERE IS NO T IME PERIOD FOR EXPIRY OF THE GUARANTEE. CONSEQUENTLY, IT WILL DEMA ND MORE COMMISSION CHARGES THAN THE COMMISSION CHARGED BY T HE BANKS. THAT APART, THE ASSESSEE HAD TAKEN MAXIMUM RISK IN PROVI DING BANK GUARANTEE TO THEIR SUBSIDIARIES AND THE ENTIRE CRED IT RISK IS OWNED BY THE ASSESSEE, THE INDIAN COMPANY AND IT HAS TO BE R EIMBURSED AT MAXIMUM PERCENTAGE OF FEES. FURTHER, THE TPO NOTED AS TO THE MANNER IN WHICH THE BANK'S CHARGE COMMISSION ON GUA RANTEES EXTENDED AND OBSERVED THAT THE BANK WILL INSIST UPO N CASH DEPOSITS / GUARANTEE DEPOSITS / ASSET MORTGAGE ETC., TO EXTEND GUARANTEES ON BEHALF OF THEIR CLIENTS. FURTHER, IT WAS POINTED OU T THAT IF A SITUATION ARISES THAT THE BANK GUARANTEE HAS TO BE INVOKED, W HEN THE ASSOCIATE ENTERPRISE IS NOT IN GOOD FINANCIAL POSIT ION, OBVIOUSLY, THE ASSESSEE IS AT RISK AND THEY CLAIM THAT THERE IS NO RISK IN PROVIDING GUARANTEES CANNOT BE ACCEPTED. THE TPO DREW A COMPA RISON BETWEEN THE GUARANTEES ISSUED BY THE BANK AND GUARANTEES IS SUED BY THE ASSESSEE ON BEHALF OF THE ASSOCIATED ENTERPRISE TO THE BANK. IT HAS BEEN RECORDED THAT THE ASSOCIATED ENTERPRISES OF TH E ASSESSEE HAVE NOT PROVIDED ANY SECURITY TO THE ASSESSEE. IN THE A GREEMENT / CONTRACT BETWEEN THE ASSOCIATED ENTERPRISES AND THE ASSESSEE, NO CONDITION HAS BEEN IMPOSED ON THE ASSOCIATED ENTERP RISES TO PAY THE AMOUNT TO THE ASSESSEE AND EVEN IN SOME AGREEMENTS IF IT IS MENTIONED, IN THE EVENT OF THE ASSOCIATED ENTERPRIS ES FINANCIALLY BECOMING WEAK, THE RISK UNDERTAKEN BY THE ASSESSEE BECOMES GREATER. FURTHER, INVOKING A GUARANTEE PROVIDED TO AN ASSOCIATED ENTERPRISE IS VERY DIFFICULT AS IT DEPENDS ON THE F INANCIAL CONDITION OF THE ASSOCIATED ENTERPRISE AND THE LAW GOVERNING SUC H TRANSACTIONS IN ITA NOS. 595 & 596/HYD/2020 :- 4 -: THAT COUNTRY AND THE ASSESSEE IS BOUND BY THE PROVI SIONS OF FEMA AND RBI GUIDELINES. THEREFORE, THE TPO CONCLUDED TH AT THE BANK COMMISSION CHARGES CANNOT BE COMPARED FOR THE COMMI SSION CHARGES THAT HAS BEEN PAYABLE TO THE ASSESSEE BY THE ASSOCI ATED ENTERPRISES AND IT IS A CLEAR FINANCIAL SERVICES RENDERED BY TH E ASSESSEE TO THEIR ASSOCIATED ENTERPRISE, WHICH HAS TO BE COMPENSATED BY PROPER COMMISSION CHARGES. ACCORDINGLY, THE TPO HELD 2% SH ALL BE CHARGED AS COMMISSION AND PROPOSED AN UPWARD ADJUSTMENT TO THE INCOME OF THE ASSESSEE TO THE TUNE OF RS.817.25 LAKHS. IN RES PECT OF THE GUARANTEES GIVEN TO UNRELATED PARTIES, THE TPO HELD THAT 2% SHOULD BE CHARGED AS GUARANTEE COMMISSION AND PROPOSED AN UPWARD ADJUSTMENT OF RS.111.48 LAKHS TO THE INCOME OF THE ASSESSEE. THE DRP AFTER HEARING THE ASSESSEE, HELD THAT THE TPO H AS NOT GIVEN COGENT REASONS FOR TAKING A DIFFERENT STAND THAN TH E STAND TAKEN BY THE DEPARTMENT IN THE EARLIER YEARS AS THE SAME GUA RANTEE IS CONTINUING DURING THE YEAR UNDER CONSIDERATION AND THEREFORE, THERE CANNOT BE A DIFFERENT BENCH MARKING FROM THAT OF TH E PREVIOUS YEAR. ACCORDINGLY, THE DRP DIRECTED THE TPO TO ADOPT THE SAME RATE OF GUARANTEE COMMISSION AS WAS ADOPTED BY THE TPO IN T HE PRECEDING YEAR. 69.THE DIRECTIONS ISSUED BY THE DRP WERE GIVEN EFFE CT TO BY THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 17.01 .2014. THE TRIBUNAL HELD THAT THE TP ADDITION MADE AGAINST THE CORPORATE AND BANK GUARANTEE IS NOT SUSTAINABLE IN LAW. THIS CONC LUSION IS BY OBSERVING THAT THE ASSESSEE HAS PROVIDED CORPORATE AND BANK GUARANTEES FOR THE OVERALL INTEREST OF ITS BUSINESS . IT REFERRED TO THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF BHART I AIRTEL LTD., WHEREIN IT IS HELD THAT CORPORATE GUARANTEE DOES NOT INVOLV E ANY COST TO THE ASSESSEE AND THEREFORE, IT IS NOT AN INTERNATIONAL TRANSACTION EVEN UNDER THE DEFINITION OF THE SAID TERM AS AMENDED BY THE FINANCE ACT, 2012. THE TRIBUNAL IS A FINAL AUTHORITY TO RENDER F INDINGS ON FACT. THE TRIBUNAL FAILED TO GIVE ANY REASON AS TO HOW THE DE CISION IN BHARTI AIRTEL LIMITED WOULD APPLY TO THE ASSESSEE'S CASE. FURTHERMORE, THERE WAS NO RECORD PLACED BEFORE THE TRIBUNAL BY THE ASS ESSEE THAT THEY HAVE NOT INCURRED ANY COST FOR PROVIDING BANK GUARA NTEE. AS OBSERVED EARLIER, THE TPO HAS COMPARED THE NATURE O F DOCUMENTATION EXECUTED BY THE ASSESSEE IN FAVOUR OF HIS ASSOCIATE D ENTERPRISE TO COME TO THE FACTUAL CONCLUSION THAT IT IS A FINANCI AL SERVICE. THIS FINDING OF FACT HAS NOT BEEN INTERFERED BY THE DRP, BUT THE DRP WAS OF THE VIEW THAT THE SAME TREATMENT, WHICH WAS GIVEN I N THE PREVIOUS ASSESSMENT YEAR SHOULD BE EXTENDED FOR THE ASSESSME NT YEAR UNDER CONSIDERATION ALSO AND THERE IS NO REASON GIVEN BY THE TPO FOR TAKING A DIVERGENT VIEW. THE FINDING THAT THE VERY SAME TR ANSACTION FOR THE PREVIOUS ASSESSMENT YEAR WAS SUBJECT MATTER OF TP A DJUSTMENT, HAS NOT BEEN DISPUTED BY THE TRIBUNAL RATHER NOT EVEN D EALT WITH BY THE ITA NOS. 595 & 596/HYD/2020 :- 5 -: TRIBUNAL. THEREFORE, THE FINDING RENDERED BY THE TR IBUNAL IS UTTERLY PERVERSE. 70.THE ARGUMENT OF THE LEARNED SENIOR COUNSEL APPEA RING FOR THE ASSESSEE IS THAT PRIOR TO THE AMENDMENT BROUGHT ABO UT IN SECTION 92B BY FINANCE ACT 2012, THE TRIBUNAL HAD DECIDED THAT FURNISHING OF A GUARANTEE BY AN ASSESSEE WAS NOT AN INTERNATIONAL T RANSACTION AS IT DID NOT FALL WITHIN ANY OF THE LIMBS OF SECTION 92B . IT IS SUBMITTED THAT TO GET OVER THE JUDICIAL PRONOUNCEMENT, THE EXPLANA TION WAS INSERTED. THE ARGUMENT IS THAT CLAUSE (C) OF THE EXPLANATION SUPPORTS THE CASE OF THE ASSESSEE INASMUCH AS THE EXPLANATION MAKES I T CLEAR THAT GIVING OF A CORPORATE GUARANTEE IS NOT A SERVICE. W ITHOUT PREJUDICE TO THE SAID CONTENTION, IT IS SUBMITTED THAT ONLY CORP ORATE GUARANTEE IS GIVEN BY THE ASSESSEE, WHICH ARE IN THE NATURE OF L ENDING ARE COVERED UNDER CLAUSE (C) OF EXPLANATION 1 TO SECTION 92B. F URTHER, IT IS SUBMITTED THAT THE NATURE OF TRANSACTIONS COVERED B Y CLAUSE (E) SPECIFICALLY INCLUDE EVEN THOSE TRANSACTIONS WHICH MAY NOT HAVE A BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF TRANSACTION ARE COVERED IF THEY HAVE SU CH A BEARING AT ANY FUTURE DATE. IT IS ARGUED THAT THE LANGUAGE USED IN THE EXPLANATION MAKES IT CLEAR THAT IN SO FAR AS THE TRANSACTIONS T HAT FALL WITHIN THE MAIN PART OF SECTION 92B ARE CONCERNED, SUCH TRANSA CTIONS MUST HAVE A BEARING ON PROFIT, INCOME, LOSSES OR ASSETS OF AN ASSESSEE IN THE YEAR IN WHICH THE TRANSACTION IS EFFECTED. IN THE A SSESSEE'S CASE, THE CORPORATE GUARANTEES REPRESENT A CONTINGENT LIABILI TY AND LAY DORMANT AND HAVE NO BEARING ON THE CURRENT YEAR'S P ROFITS, INCOME OR LOSSES OF AN ASSESSEE AND CORPORATE GUARANTEE ARE N OT COVERED WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION. IT IS SUBMITTED THAT APPLYING DOCTRINE OF FAIRNESSAS EXPLAINED BY THE HO N'BLE SUPREME COURT OF INDIA IN THE CASE VATIKA TOWNSHIP PRIVATE LIMITED, THE EXPLANATION OUGHT TO BE READ AS PROSPECTIVE IN ITS APPLICATION AND RETROSPECTIVE IN ITS EFFECT SUCH THAT IT WILL ALSO COVER WITHIN ITS AMBIT GUARANTEES ISSUED PRIOR TO THE INTRODUCTION OF THE EXPLANATION BY FINANCE ACT 2012. 71.WE FIND FROM THE GROUNDS OF APPEAL FILED BY THE ASSESSEE BEFORE THE TRIBUNAL, NO GROUND WAS RAISED AS REGARDS THE A RGUMENT THAT THE EXPLANATION ADDED BY FINANCE ACT 2012, IS TO BE CON STRUED AS PROSPECTIVE IN ITS APPLICATION. FURTHERMORE, THE TR IBUNAL HAS ALSO NOT RECORDED IN ITS ORDER, MORE PARTICULARLY, FROM PARA GRAPH 92 THAT THE ASSESSEE HAD ARGUED ON THE ISSUE REGARDING PROSPECT IVITY / RETROSPECTIVITY. FURTHER, THE ASSESSEE HAS NOT CHAL LENGED THE VALIDITY OF THE EXPLANATION NOR ITS APPLICABILITY WITH RETRO SPECTIVE EFFECT. THAT APART, EVEN BEFORE THE DRP, SUCH CONTENTION WAS NOT RAISED. THE HON'BLE SUPREME COURT IN GOLD COIN HEALTH FOOD PRIV ATE LIMITED, WHILE DECIDING THE ISSUE WHETHER AN AMENDMENT WAS C LARIFICATORY OR SUBSTANTIVE IN NATURE OR WHETHER IT WILL HAVE RETRO SPECTIVE EFFECT HELD AS FOLLOWS: ITA NOS. 595 & 596/HYD/2020 :- 6 -: 14. THE PRESUMPTION AGAINST RETROSPECTIVE OPERATION IS NOT APPLICABLE TO DECLARATORY STATUTES IN DETERMINING, THEREFORE, THE NATURE OF THE ACT, REGARD MUST BE HAD TO THE SUBSTANCE RATHER THA N TO THE FORM. IF A NEW ACT IS TO EXPLAIN AN EARLIER ACT, IT WOULD BE W ITHOUT OBJECT UNLESS CONSTRUED RETROSPECTIVELY. AN EXPLANATORY ACT IS GE NERALLY PASSED TO SUPPLY AN OBVIOUS OMISSION OR TO CLEAR UP DOUBTS AS TO THE MEANING OF THE PREVIOUS ACT. IT IS WELL SETTLED THAT IF A STAT UTE IS CURATIVE OR MERELY DECLARATORY OF THE PREVIOUS LAW RETROSPECTIV E OPERATION IS GENERALLY INTENDED .AN AMENDING ACT MAY BE PURELY DECLARATORY TO CLEAR A MEANING OF A PROVISION OF THE PRINCIPAL ACT WHICH WAS ALREADY IMPLICIT. A CLARIFICATORY AMENDMENT OF THIS NATURE WILL HAVE RETROSPECTIVE EFFECT (IBID., PP. 468-69). 15. THOUGH RETROSPECTIVITY IS NOT TO BE PRESUMED AN D RATHER THERE IS PRESUMPTION AGAINST RETROSPECTIVITY, ACCORDING TO C RAIES (STATUTE LAW, 7TH EDN.), IT IS OPEN FOR THE LEGISLATURE TO ENACT LAWS HAVING RETROSPECTIVE OPERATION. THIS CAN BE ACHIEVED BY EX PRESS ENACTMENT OR BY NECESSARY IMPLICATION FROM THE LANGUAGE EMPLO YED. IF IT IS A NECESSARY IMPLICATION FROM THE LANGUAGE EMPLOYED TH AT THE LEGISLATURE INTENDED A PARTICULAR SECTION TO HAVE A RETROSPECTIVE OPERATION, THE COURTS WILL GIVE IT SUCH AN OPERATIO N. IN THE ABSENCE OF A RETROSPECTIVE OPERATION HAVING BEEN EXPRESSLY GIVEN , THE COURTS MAY BE CALLED UPON TO CONSTRUE THE PROVISIONS AND ANSWE R THE QUESTION WHETHER THE LEGISLATURE HAD SUFFICIENTLY EXPRESSED THAT INTENTION GIVING THE STATUTE RETROSPECTIVITY. FOUR FACTORS AR E SUGGESTED AS RELEVANT: (I) GENERAL SCOPE AND PURVIEW OF THE STAT UTE; (II) THE REMEDY SOUGHT TO BE APPLIED; (III) THE FORMER STATE OF THE LAW; AND (IV) WHAT IT WAS THE LEGISLATURE CONTEMPLATED. (P. 388) THE RULE AGAINST RETROSPECTIVITY DOES NOT EXTEND TO PROTECT FROM THE EFFECT OF A REPEAL, A PRIVILEGE WHICH DID NOT AMOUNT TO ACCRUED RIGHT. (P . 392) 72.A NEW ENACTMENT OR AN AMENDMENT MEANT TO EXPLAIN THE EARLIER ACT HAS TO BE CONSIDERED RETROSPECTIVE. THE EXPLANA TION INSERTED IN SECTION 92B BY FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 COMMENCES WITH THE SENTENCE FOR THE REMO VAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT 73.AN AMENDMENT MADE WITH THE OBJECT OF REMOVAL OF DOUBTS AND TO CLARIFY, UNDOUBTEDLY HAS TO BE READ TO BE RETROSPEC TIVE AND COURTS ARE BOUND TO GIVE EFFECT TO SUCH RETROSPECTIVE LEGISLAT ION. 74.THE LEARNED SENIOR STANDING COUNSEL FOR THE REVE NUE REFERRED TO THE DECISION IN CO-OPERATIVE COMPANY LIMITED VS. CO MMISSIONER OF TRADE TAX IN CIVIL NO.2124 OF 2007 DATED 24.04.2007 , WHEREIN IT WAS HELD THAT WHEN AN AMENDMENT IS BROUGHT INTO FORCE F ROM A PARTICULAR DATE, NO RETROSPECTIVE OPERATION THEREOF CAN BE CON TEMPLATED PRIOR THERETO. THE EXPLANATION IN SECTION 92B SPECIFICALL Y HAS BEEN GIVEN RETROSPECTIVE EFFECT AND IT IS CLARIFICATORY IN NAT URE AND FOR THE PURPOSE ITA NOS. 595 & 596/HYD/2020 :- 7 -: OF REMOVAL OF DOUBTS. THIS ISSUE WAS CONSIDERED BY THIS COURT IN THE CASE OF SUDEXO FOOD SOLUTIONS INDIA PRIVATE LTD. 75.THE CONCEPT OF BANK GUARANTEES AND CORPORATE GUA RANTEES WAS EXPLAINED IN THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF PROLIFIES CORPORATION LIMITED. IN THE SAID CASE, TH E REVENUE CONTENDED THAT THE TRANSACTION OF PROVIDING CORPORATE GUARANT EE IS COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION AFTER R ETROSPECTIVE AMENDMENT MADE BY FINANCE ACT, 2012. THE ASSESSEE A RGUED THAT THE CORPORATE GUARANTEE IS AN ADDITIONAL GUARANTEE, PROVIDED BY THE PARENT COMPANY. IT DOES NOT INVOLVE ANY COST OF RIS K TO THE SHAREHOLDERS. FURTHER, THE RETROSPECTIVE AMENDMENT OF SECTION 92B DOES NOT ENLARGE THE SCOPE OF THE TERM INTERNATIONA L TRANSACTION TO INCLUDE THE CORPORATE GUARANTEE IN THE NATURE PROVI DED BY THE ASSESSEE THEREIN. THE TRIBUNAL HELD THAT IN CASE OF DEFAULT, GUARANTOR HAS TO FULFILL THE LIABILITY AND THEREFORE, THERE I S ALWAYS AN INHERENT RISK IN PROVIDING GUARANTEES AND THAT MAY BE A REAS ON THAT FINANCE PROVIDER INSIST ON NON-CHARGING ANY COMMISSION FROM ASSOCIATED ENTERPRISE AS A COMMERCIAL PRINCIPLE. FURTHER, IT H AS BEEN OBSERVED THAT THIS POSITION INDICATES THAT PROVISION OF GUAR ANTEE ALWAYS INVOLVES RISK AND THERE IS A SERVICE PROVIDED TO TH E ASSOCIATE ENTERPRISE IN INCREASING ITS CREDITWORTHINESS IN OB TAINING LOANS IN THE MARKET, BE FROM FINANCIAL INSTITUTIONS OR FROM OTHE RS. THERE MAY NOT BE IMMEDIATE CHARGE ON P & L ACCOUNT, BUT INHERENT RISK CANNOT BE RULED OUT IN PROVIDING GUARANTEES. ULTIMATELY, THE TRIBUNAL UPHELD THE ADJUSTMENTS MADE ON GUARANTEE COMMISSIONS BOTH ON T HE GUARANTEES PROVIDED BY THE BANK DIRECTLY AND ALSO ON THE GUARA NTEE PROVIDED TO THE ERSTWHILE SHAREHOLDERS FOR ASSURING THE PAYMENT OF ASSOCIATE ENTERPRISE. 76.IN THE LIGHT OF THE ABOVE DECISIONS, WE HOLD THA T THE TRIBUNAL COMMITTED AN ERROR IN DELETING THE ADDITIONS MADE A GAINST CORPORATE AND BANK GUARANTEE AND RESTORE THE ORDER PASSED BY THE DRP. 5.1. WE ADOPT THE FOREGOING DETAILED DISCUSSION MUT ATIS MUTANDIS AND HOLD THAT THE LEARNED LOWER AUTHORITIES HAVE RIGHTLY TRE ATED THE ASSESSEES CORPORATE GUARANTEE(S) IN ALL THE THREE IMPUGNED ASSESSMENT Y EARS AS AN INTERNATIONAL TRANSACTION FALLING U/S.92B OF THE ACT. WE THEREFORE DECLINE THE ASSESSEES MULTIFACETED S UBMISSION IN LIGHT OF ITS MAIN AS WELL AS ADDITIONAL GROUND TOUCHING UPON THE IMPUGNED ISSUE. 3. LEARNED COUNSEL FAILED TO PIN POINT ANY DISTINCTIO N ON ANY LEGAL AND FACTUAL ASPECT. WE THUS DECLINE ASSESSEE S INSTANT FIRST AND FOREMOST GRIEVANCE IN AY.2016-17S IT A NO.595/HYD/2020. ITA NOS. 595 & 596/HYD/2020 :- 8 -: 4. NEXT COMES THE ASSESSEES SECOND SUBSTANTIVE GRIEVA NCE IN AY.2016-17S AND FORMER SUBSTANTIVE GROUND IN AY.2 017-18 APPEAL CHALLENGES CORRECTNESS OF THE LOWER AUTHORITIES ACTION INVOKING SECTION 36(1)(VA) R.W.S.43B ESI/PF DISALLO WANCE OF RS.14,14,41,324/- AND RS.3,42,98,657/-; RESPECTIVELY . THERE DOES NOT APPEAR TO BE MUCH A DISPUTE ABOUT THE CLINCHIN G FACT THAT THE ASSESSEE HAD VERY MUCH DEPOSITED THE SAID EMPLO YEES CONTRIBUTION BEFORE THE DUE DATE OF FILING RETURN U/S.1 39(1) OF THE ACT. LEARNED LOWER AUTHORITIES CASE ON THE OTHER HA ND IS THAT THE IMPUGNED EMPLOYEES CONTRIBUTION IS COVERED U/S.36(1)(VA) OF THE ACT RATHER THAN SECTION 43B APPLIC ABLE IN CASE OF EMPLOYERS CONTRIBUTION. WE NOTICE IN THIS FACTUAL BACKDROP THAT THE LEGISLATURE HAS NOT ONLY INCORPORATED NECESSARY AMENDMENT IN SECTI ONS 36(1)(VA) AS WELL AS U/S. 43B VIDE FINANCE ACT, 202 1 TO THIS EFFECT BUT ALSO THE CBDT HAS ISSUED MEMORANDUM OF EXPLANATION THAT THE SAME APPLIES W.E.F. 01-04-2021 ON LY. IT IS FURTHER NOT AN ISSUE THAT THE FOREGOING LEGISLATIVE AMEND MENTS HAVE PROPOSED EMPLOYERS CONTRIBUTION/DISALLOWANCE U/ S.43B AS AGAINST EMPLOYEES CONTRIBUTION U/S.36(VA) OF THE AC T; RESPECTIVELY. HOWEVER, KEEPING IN MIND THE FACT THAT TH E SAME HAS BEEN CLARIFIED TO BE APPLICABLE ONLY WITH PROSPEC TIVE EFFECT FROM 01-04-2021 ONLY, WE HOLD THAT THE IMPUGNED DISALLOWANCE IS NOT SUSTAINABLE IN VIEW OF ALL THESE LATEST DEVELOPMENTS. THE IMPUGNED ESI/PF DISALLOWANCE IS D ELETED THEREFORE. ITA NOS. 595 & 596/HYD/2020 :- 9 -: 4.1. THE ASSESSEE SUCCEEDS ON THE INSTANT LATTER ISSUE I N THE CORRESPONDING SUBSTANTIVE GROUNDS RAISED IN BOTH THESE INSTANT APPEALS. 5. WE ARE NOW LEFT WITH THE ASSESSEES THIRD AND SECON D SUBSTANTIVE GROUNDS IN BOTH THESE ASSESSMENT YEARS SEE KING TO REVERSE SPONSORSHIP FEE(S) PAID DISALLOWANCE OF RS. 17,30,400/- EACH; RESPECTIVELY. THE CIT(A)S DETAILED DISCUSSION UPHOLDING THE IMPUGNED DISALLOWANCE READS AS UNDER: 6. GROUND NOS. 11 TO 13 ARE WITH REGARD TO DISALLO WANCE OF SPONSORSHIP FEES UNDER SECTION 37(1) OF THE ACT. TH E AO HAS STATED THE FOLLOWING ON THIS ISSUE IN THE ASSESSMENT ORDER , 'ASSESSEE HAS DEBITED AN AMOUNT OF RS 50 LAKHS TOWA RDS 'SPONSORSHIP FEES'. THE DETAILS HAVE BEEN CALLED FO R AND THE ASSESSEE SUBMITTED THAT AS PART OF BUSINESS DEVELOPMENT, THE COMPANY HAS PARTNERED WITH M/S THE NEW INDIAN EXPRESS GROUP FOR PROMOTION OF 'DEVI UTTAR PRADESH AWARDS' TO BE CONFERRED UPON 10 EXCEPTIONAL WOMEN WHO HAVE DISPLAYED DYNAMISM AND INNOVATION IN THEIR LINE OF WORK. THE EXPENDITURE INCURRED IS A CONTRIBUTION MADE BY THE ASSESSEE COMPANY FOR EMPOWERMENT OF WOMEN. THOUGH, IT IS A N OBLE CAUSE, BUT THIS CONTRIBUTION HAS NO RELATION TO THE BUSINESS A CTIVITY OF THE ASSESSEE COMPANY. THERE IS NO NEXUS BETWEEN THE CON TRIBUTION MADE AND THE INCOME GENERATED FOR THE BUSINESS OF THE AS SESSEE COMPANY. AS PER PROVISIONS OF SECTION 37 OF THE INCOME TAX A CT, '37(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE) LAID OUT OR E XPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS AND PROFESSION'. IN VIEW OF THE ABOVE, AS THE EXPENDITURE INCURRED I S NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE COMPANY, THE SAME IS DISALLOWED.' 6.1 DURING THE APPELLATE STAGE, THE APPELLANT COMPA NY HAS MADE THE FOLLOWING SUBMISSION ON THIS ISSUE. 'THE COMPANY CO-SPONSORED AN EVENT FOR IDENTIFYING AND AWARDING WOMEN FOR THEIR ACHIEVEMENTS IN THEIR LIFE. THE EVE NT WAS TITLED' DEVI AWARDS ' SPONSORED BY INDIAN EXPRESS IN PARTNERSHIP WITH THE STATE ITA NOS. 595 & 596/HYD/2020 :- 10 -: GOVT, OF UTTAR PRADESH. THESE AWARDS ARE AN YEARLY EVENT TO IDENTIFY EXCEPTIONAL WOMAN IN ALL THE FIELDS SUCH AS MEDICIN E, WOMAN'S RIGHTS, SINGING, LYRISTS ETC. NCC LTD OPERATES IN THE STATE OF UTTAR PRADESH THRO UGH A REGIONAL OFFICE WITH ABOVE 25 SITES EXECUTING PROJECTS OF GO VERNMENT AND SEMI- GOVERNMENT AGENCIES. THE STATE OF UTTAR PRADESH CON TRIBUTES APPROXIMATELY &.2000 CR TOWARDS THE REVENUE OF THE COMPANY. THE DETAILS OF THE PROJECTS ARE ENCLOSED THE COMPANY EMPLOYS NOT LESS THAN 200 WOMEN IN ITS ROLLS. ALL THE ABOVE FACTORS PARTICULARLY THE PRESENCE AND THE ACTIVITIES IN UTTAR PRADESH ARE TAKEN INTO CONSIDERATION TO SPONS OR THE EVENT. THE EXPENDITURE IS INTRINSICALLY LINKED TO THE BUSINESS OF THE COMPANY, HENCE, THE HON'BLE CIT IS REQUESTED TO DIRECT THE A SSESSING OFFICER TO DELETE THE ADDITION.' IT IS CLEAR FROM THE SUBMISSION MADE BY THE APPELLA NT'S AR THAT THE EXPENDITURE OF RS 50 LAKHS TOWARDS 'SPONSORSHIP FEE S' IS IN THE NATURE OF CHARITY AND ONLY AN APPLICATION OF PROFIT . IT IS MOST DEFINITELY NOT A BUSINESS EXPENDITURE INCURRED WHOLLY AND EXCL USIVELY INCURRED FOR PURPOSE OF BUSINESS, AS THE AO HAS CORRECTLY NO TED IN THE ASSESSMENT ORDER. THE APPELLANT HAS FAILED TO SHOW THAT THERE IS A DIRECT NEXUS BETWEEN THE EXPENDITURE MADE AND THE B USINESS INCOME GENERATED BY THE APPELLANT COMPANY. THEREFORE, IT I S HELD THAT THE AO HAS CORRECTLY MADE THIS DISALLOWANCE. THUS, THESE G ROUND OF APPEAL ARE DISMISSED. 6. WE FIND NO MERIT IN THE ASSESSEES INSTANT LAST SUBSTANTIVE GRIEVANCE. THIS IS FOR THE REASON THAT IT H AS FAILED TO PIN POINT EVEN A DISTINCT DIRECT NEXUS BETWEEN ITS D AY TO DAY BUSINESS ACTIVITY VIZ-A-VIZ THE IMPUGNED ALLEGED SP ONSORSHIP FEE PAID TO THE ELIGIBLE WOMEN FOR THEIR LIFE TIME ACHI EVEMENTS. THIS TRIBUNALS THIRD MEMBERS DECISION IN ITA NO.2157/MAS/2011, M/S.HYUNDAI MOTORS INDIA LTD. VS. DCIT, AFTER CONSIDERING THE HON'BLE APEX COURTS LANDMARK DECISION SASSOON J.DAVID AND COMPANY (P) LTD [118 IT R 26] (SC), HOLDS THAT ANY EXPENDITURE CLAIM RAISED U/S.37 OF THE ACT OUGHT TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PU RPOSE OF THE CONCERNED BUSINESS ONLY. WE THEREFORE FIND NO REA SON TO INTERFERE WITH THE IMPUGNED DISALLOWANCE MADE IN BO TH THE ITA NOS. 595 & 596/HYD/2020 :- 11 -: LOWER PROCEEDINGS. THE ASSESSEES CORRESPONDING GRO UNDS IN THESE INSTANT TWIN ASSESSMENT YEARS TO THIS EFFECT STAND DECLINED. ITS APPEALS ITA NOS.595/HYD/2020 AND 596/HYD/2020 ARE PARTLY ACCEPTED. THESE ASSESSEES TWIN APPEALS ARE PARTLY ALLOWED IN ABOVE TERMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE R ESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 27-09-2021 TNMM ITA NOS. 595 & 596/HYD/2020 :- 12 -: COPY TO : 1.NCC LIMITED, SURVEY NO.64, MADHAPUR, SHAIKPET, HYDERABAD. 2.THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE-16(1) , HYDERABAD. 3.CIT(APPEALS)-4, HYDERABAD. 4.PR.CIT-4, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.
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