BILAKHIA HOLDINGS PVT. LTD.,,VAPI vs. THE JT.CIT.,VAPI RANGE,, VAPI

1. The above captioned four appeals by the Assessee are directed against the separate orders of learned Commissioner of Income tax(Appeals)-Valsad (in short “the CIT (A)”) dated 26.11.2012, 27.03.2015, 27.03.2015 and 08.02.2016 pertaining to assessment years 2008-09, 2009-10, 2010-11 and 2011-12 respectively which in turn has arisen from the assessment orders passed under section 143(3) read with section 144C of Income Tax Act, 1961 (in short ‘the Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 2 of 66 Act’) by the Joint Commissioner of Income-Tax- Range Vapi/Assistant Commissioner of Income Tax, Circle -Vapi (in short “the AO”).

The above captioned four appeals of the assessee were heard together hence, consolidated order is being passed for the sake of brevity and convenience.

Being, aggrieved the assessee filed this appeal before the Tribunal. At the outset, the learned Counsel for the assessee submitted that the assessee company relied on the decision of Honourable Supreme Court in the case of the Apollo Tyres v. CIT, 255 ITR 273 (SC). However, it was submitted that the issue is repetitive and decided by the Co-ordinate Bench of this tribunal against the assessee company in I.T.A.No’s.1505 & 1557/Ahd/2012 for A.Y. 2007- 08 dated 08.02.2016.

The decision in the case of Veekaylal (Bom)-249 ITR 597 relied upon by the AO is no longer good law in view of the later decisions of the Bombay High Court in the case of Commissioner of Income-tax Vs. Adbhut Trading Co. P. Ltd. [2011] 338 ITR 94 (Bom) and Commissioner of Income-tax Vs. Akshay Textiles Trading and Agencies P. Ltd [2008] 304 ITR 401 (Bom) which have held that in view of the decision of Apollo Tyres Vs. CIT (2555 ITR 273).” Since in revenue’s appeal we have held that shares received by the assessee-company were not gifts in the hands of assessee-company, the argument advanced on behalf of the assessee-company that shares received as gift do not constitute investment and hence gain on sale of these shares were not required to be routed through profit and loss account falls flat ( case laws in support of this argument are therefore not applicable to the facts of this case), the assessee was not justified in crediting the sale proceeds of the shares directly to capital reserve account without routing through profit and loss account. We are therefore of the considered opinion that AO has rightly taken these credits for the purpose of adjustment to book profit u/s. 115JB of the Act. The order passed by Ld. CIT(A) confirming the action of AO is hereby upheld. Ground No. 5 & 6 of assessee’s appeal are also dismissed.

In the result, assessee’s appeal is dismissed. Respectfully following the decision of the co-ordinate bench in assessee’s own case and going through the facts of the case of assessee before us are similar to the issue dealt by the co-ordinate bench in the decision referred above, we are of the view that ld. Assessing Officer has rightly added the long term capital gain from sale of shares to the book profits u/s 115JB of the Act and accordingly, we dismiss the ground of assessee.”

Briefly stated facts of the case are that the assessee has been created an investment company promoted by Bilakhia Group. The assessee credited a Special Purpose Vehicle (SPV) known as M-3 Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 9 of 66 Holdings (Singapore) Pte Ltd [M3]”. The assessee company was holding 46.2% shares in a Printing Ink Manufacturing company known as Sterling + Hostag. M3 is the subsidiary company which wholly owned by the credit and its transactions with the assessee company are under audit. As per 3CEB Audit Report, the assessee had international transactions with the assessee enterprises of which details are given as under ….

The transaction in the case of assessee is a quasi-equity in substance based on the transactions considered which has been characterized by the TPO as pure loan simplicitor as given by a financial institution. The quasi-equity as explained in the decision of Cadila Healthcare Limited [2017] 80 taxmann.com 24 (Ahmedabad- Trib.), wherein it was held that where assessee-company advanced loan to its AE with option to convert same into equity at par, since real consideration for granting loan was not interest simplicitor on amount advanced but opportunity to own capital on favourable terms, it was to be regarded as quasi capital transaction which could not be compared with simple loan transaction for purpose of determining ALP. The ld. counsel further has also drawn out attention, Para 10 to 14 of the said decisions in support of his contentions.

We have heard the rival submissions and perused the relevant material available on record. We find that the assessee is an investment company and was holding 46.2% shares in a Printing Ink Company known as Sterling + Hostag and for that purpose created a wholly owned subsidiary in Singapore as a Special Purpose Vehicle (SPV) known as M3 Holdings (Singapore) Pvt. Ltd (M3). The BHPL has invested in equity, preference shares and loan in the subsidiary AE, which in turn invested in Sterling + Hostage a printing ink manufacturing company in Europe. Once the investments are sold, it has to wind up and bring back entire proceeds to India and pay all Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 27 of 66 applicable taxes as if any other resident company is required to do, if it has directly invested from India. As per the terms of the investment as applicable to the SPV under FEMA as well in the year 2012-13 (07.09.2012) the said Singapore AE has been winded up and all the capital remitted from India and investment/gains on disposal of investments has been completely brought back to India during year 2012-13 and 2013-14 and paid tax at the rate of 15% in India as per laws on the dividend received. During the year, the BHPL has redeemed preference shares and brought back of Rs.174.90 Cr. In order to redeem the aforementioned preference shares in the AE, and considering the fact that the AE do not have any income or extra funds in its hand, the redemption has been achieved by the assessee company i.e. BHPL and the AE by arranging a loan from Standard Chartered Bank Mauritius to the tune of 35 Million Euro through Standard Chartered Bank Mauritius. This is discernible from the letter dated 30.10.2007 of Standard Chartered Bank Mauritius addressed to M3 Holdings (Singapore) Pte Ltd. that the purpose of financing is that the company will redeem preference capital subscribed by Bilakhia Holding Pvt. Ltd., India. The Standard Chartered Bank, Ahmedabad gave guarantee to Standard Chartered Bank, Mauritius. BHPL has given Corporate Guarantee to Standard Chartered Bank Ahmedabad. BHPL has paid Guarantee charges of Rs.1,78,86,359/-. BHPL also Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 28 of 66 extended a loan of Rs.28.125 Cr to the AE during the year towards day to day expenses and for achieving the above redemption. From the aforesaid foreign loan and quasi-equity contribution from BHPL, the AE redeemed the preference shares held by BHPL and also recovered a sum of Rs.3,22,19,944/- which is much more than the guarantee charges paid to the bank. In view of these facts, we are of the view that the AE has been created as SPV only to hold shares in company sterling + Hostage Europe and not authorized to carry any other activity. This view is further supported by the letter dated 02.11.2006 placed at Paper Book Page No.18, wherein the proposal submitted by the assessee vide letter dated 07.07.2006 (Placed at Paper Book Page No. 15 to 17] was approved wherein in it is clearly mentioned that M3 Holdings (Singapore) Pte Ltd. is a SPV formed to hold investment and do not propose to engage in any other activity being SPV. Once the above shares are sold as and when decided by BHPL, it has to wind up itself, and bring back the proceeds to India and BHPL has to pay taxes. The perusal of annual accounts for A.Y. 2012-13 [placed at Paper Book Page No. 54 to 82 and particularly Paper Book Page No. 78 note 35 appended therein would show that the assessee company has resolved to wind up of M3 Holdings (Singapore) Pte Ltd. as per applicable laws of Singapore and accordingly, received dividend of Rs.1,27,25,34,505 during A.Y.2012- Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 29 of 66 13 and Rs.4,01,73,520/- in A.Y.2013-14 which has been duly reflected in annual accounts placed at Paper Book Page No. 55 (and Chart filed with written submissions filed by the counsel). Therefore, we are in agreement with the assessee that as per OECD guidelines, the substances over form has to be considered. The transaction in the case of assessee is therefore, be considered as a quasi-equity in substance, as against the transactions considered and characterized by the TPO as pure loan simplicitor as given by a financial institution. The finding recorded by the AO, that the AE of the assessee company was engaged in the financial services activities in Singapore is not found to be correct as it is clearly borne out from the letter of disbursement of loan and purpose as setout the terms of loan as discussed herein above. The term of quasi-equity was explained by the Co-ordinate Bench of Ahmedabad in the decision of Cadila Healthcare Limited [2017] 80 taxmann.com 24 (Ahmedabad-Trib.), wherein, it was held that where assessee-company advanced loan to its AE within option to convert same into equity at par, since real consideration for granting loan was not interest simplicitor on amount advanced but opportunity to own capital on favourable terms, it was to be regarded as quasi capital transaction which could not be compared with simple loan transaction for purpose of determining Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 30 of 66 ALP. The Co-ordinate Bench of Tribunal in Para 10 to 14 of the said decision observed as under: “10. There is no dispute that the transactions in question are not of the transactions of lending money to the associated enterprises. The amount/advanced to the AEs are attached with the obligation of the AEs to sue share capital, in case the assessee exercise option for the same, on certain conditions, which are admittedly more favourable, and at an agreed price, which is admittedly much lower, vis-a-vis the conditions and prices which independent enterprise would normally agree to accept. The lending is thus in the nature of quasi capital in the sense that substantive reward, or true consideration, for such a loan transaction is not interest simplicitor on amount advanced but opportunity to own capital on certain favourable terms. Contrast this reward of owning the capital in the borrower entity with interest simplicitor, which is typically defined as "the reward of parting with liquidity for a specified period" (Prof Keynes) or as "a payment made by the borrower of capital by virtue of its productivity as a reward for his capitalist's abstinences" (Prof Wicksell). However, in the case of transactions like the one before us, there is something much more valuable which is given as a reward to the lender and that valuable thing is the right to own capital on certain favourable terms. Therefore, the true reward as we have noted earlier, is the opportunity and privilege to own capital of the borrower on certain favourable terms. It is for this reason, that the transactions before us belong to a different genus than the act of simply giving the money to the ^borrower and fall in the category of 'quasi capital'.

As for. the connotations of 'quasi capital', in the context of determination of arm’'s -length price under transfer pricing regulations, we may refer to the observations made by a coordinate bench of this Tribunal- speaking through one of us (i.e. the" Accountant Member), in the case of Soma Textile & Industries Ltd. v. Asst.ClT [2015] 154 ITD 745/59 taxmann.com 152 (Ahd.), as follows: '5 ........ The question, however, arises as to what are the connotations of expression 'quasi capital in the context of the transfer pricing legislation.

Hon'ble Delhi High Court, in the case Chryscapital Investment Advisors India Ltd. v. ACIT [(2015) 56 taxmann.com 417 (Delhi)], has begun by quoting the thought provoking words of Justice Felix Frankfurter to the effect that "A phrase begins life as a literarily expression; its felicity leads to its lazy repetition; and repetition soon establishes it as a legal formula, undiscriminatingly used to express different and sometimes contradictory ideas". The reference so made to the words of Justice Frankfurter was in the context of the concept of "super profits" but it is equally valid in the context of concept of "quasi capitals" also. As in the case of the super profits, to quote the words of Their Lordships, "many decisions of different benches of the ITAT indicate a rote repetition (in the words of Felix Frankfurter J, quoted in the beginning of this judgment a "lazy repetition")

It is only elementary that when it comes to comparing the borrowing transaction between the associated enterprises, under the Comparable Uncontrolled Price (i.e. CUP) method, what is to be compared is a materially similar transaction, and the adjustments are to be made for the significant variations between the actual transaction with the A E and the transaction it is being compared with. Under Rule 10B(l)(a), as a first step, the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified, and then such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the o pen market. Usually loan transactions are benchmarked on the basis of interest rate applicable on the loan transactions simplictor which, under the transfer pricing regulations, cannot be compared with a transaction which is something materially different than a loan simplictor, for example, a non- refundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi capital, are treated differently than the normal loan transactions.

The expression 'quasi capital', in our humble understanding, is relevant from the point of view of highlighting that a quasi capital loan or advance is not a routine loan transaction simplilcitor. The substantive reward for such a loan transaction is not interest but opportunity to own capital. "As a corollary to this position, in the cases of quasi capital loans or advances, the comparison of the quasi capital loans is not with the commercial borrowings but with the loans or advances which are given in the same or similar situations. In all the decisions of the coordinate benches, wherein references have been made to the advances being in the nature of'quasi capital', these cases referred to the situations in which (a) advances were made as capital could not subscribed to due to regulatory issues and the Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 32 of 66 advancing of loans was only for the period till the same could be converted into equity, and (b) advances were made for subscribing to the capital but the issuance of shares was delayed, even if not inordinately. Clearly, the advances in such circumstances were materially different than the loan transactions simplicitor and that is what was decisive so far as determination of the arm's length price of such transactions was concerned. The reward for time value of money in" these cases was opportunity to subscribe to the capital, unlike in a normal loan transaction where reward is interest, which is measured as a percentage of the money loaned or advanced.’ 12. It is thus quite clear that the considerations for extending a loan simplictor are materially distinct and different from extending a loan which is given in consideration for, or mainly in consideration for, option to convert the same into capital on certain terms which are favourable vis-a- vis the terms available, or, to put it more realistically, hypothetically available, to an independent enterprise. On a conceptual note, the entire purpose of the exercise of determination of arm's length price is to neutralize the impact of intra AE relationship in a transaction, the right comparable for such a transaction of quasi capital is a similar transaction of lending money on the same term i.e. with an option to convert the loan into capital on materially similar terms. However, what the authorities below have held, and wrongly held for that reason, is that a quasi capital transaction like one before us can be compared with a simple loan transaction where sole motivation and consideration for the lender is the interest on such loans. In the case before us, the consideration for having given the loan is, as we have noted earlier, opportunity and privilege of owning capital of the borrower on certain favourable terms. If at all the comparison of this transaction was to be done with other loan transaction, the comparison should have been done with other loans giving rise to similar privilege and opportunity to the lender. The very foundation of impugned ALP adjustment is thus devoid of legally sustainable basis.

We have noted that, as noted by the TPO, it is wholly immaterial as to whether or not the assessee, by the virtue of this transaction, is entitled to subscribe to capital of the AE on certain concessional terms, because, in any case, the AE is a wholly owned subsidiary of the assessee and none else can subscribe to the AE's capital. What has been overlooked, however, in this process of reasoning is that the very concept of arm’s length price is based on the assumption of hypothetical independence between AEs. Essentially, what is, therefore, required is visualization of a hypothetical situation in which AEs are independent of each other, and, as such, impact of intra AE association on pricing of transaction is neutralized. Once we do so, as is the compulsion of hypothesis involved in arm’s length price, the fact that normally a parent company has a right to subscribe to the capital of the subsidiary at such price as suits the assessee is required to be ignored. An arm’s length price is hypothetical price at which independent enterprises would have entered the transaction, and, as such the impact of intra AE association cannot have any role to play in determination of arm’s length price. The stand so taken by the TPO, which has met the approval of the DRP as well, does not, therefore, meet our approval.

As regards the stand of the authorities below that Irish subsidiary has shown huge profits and high operational profits @ 93%, and this fact shows that the assessee should have charged interest on commercial rates, we are unable to even understand, much less approve, this line of reasoning. It is incomprehensible as to what role profits earned from the funds raised can have in determining arm's length consideration of raising the funds, unless profit sharing is implicit in the consideration for raising the funds itself- which is neither the normal commercial practice nor the case before us. The cost of raising funds is determined much before the returns from funds so raised is even known. To hold that cost of funds raised should have been higher because the returns from funds employed by the enterprise is higher is putting cart before the horse. In the commercial world, interest does not represent any participation of profits, and it does not vary because of the profits made by the borrower from monies so raised. In any event, while determining arm's length price of a transaction, it is immaterial as to what 'benefit* an AE subsequently derives from such a transaction. What is to be determined is the consideration of a transaction in a hypothetical situation, in which AEs are independent of each other, and not the benefit that AEs derive from such transactions. It is not even the case of the authorities below that in the event of hypothetically dealing with an independent enterprise, no independent enterprise would not have given him an interest free loans even if there was an option, coupled with such a deal, to subscribe to the capital of the AE on the terms as offered Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 34 of 66 by the AE to the assessee. Unless that happens, there is not even a prima facie case made out for an ALP adjustment.”

We have also noted that, in any event, whenever the assessee's right to exercise the option of converting the loan into equity comes to an end, the assessee is entitled to interest on the commercial rates. It is not even the case of the authorities below that the interest so charged by the assessee, in a situation in which the right to exercise the option has come to an end, is not an arm's length price. Keeping in mind all these factors, as also entirety of the case, we deem it fit and proper to delete the arms length price adjustment of Rs. 5,00,35,270 in respect of interest which, according to the revenue authorities, should have charged on the optionally convertible loan granted to the AE’s.

Thus, applying the ratio of above decision, it would emerge that the consideration for extending the loan simplicitor is materially distinct and different from extending a loan which is given in consideration for or mainly in consideration for, option to convert the same into capital on certain terms which are favourable vis-à-vis the terms available or to put it more realistically, hypothetically available, to an independent enterprise. Therefore, quasi capital loan or advance are not routine transaction of loan simplicitor. The substantive reward for such a loan transaction is not loan but opportunity to own capital. In the case of the assessee, the loan transaction is therefore, quasi-capital and substantive reward as interest thereon is opportunity to redeem its preferential shares capital and bring back the same into India. We also note that the TPO has not considered Rule 10A(d) according to transaction which includes number of closely linked transactions. Hence, the nature of transaction as carried out by BHPL as per its objective effected a Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 35 of 66 redemption of preference shares held by it to bring back its money to India which will increase its asset base and income into India. In order to redeem the preference shares, the AE do not have any funds and the BHPL has extended the loan of Rs.22.125 Crores and carried out all necessary activities to a facilitated redemption of preference shares. This is a closely linked integrated transaction under Rule 10A(d) i.e. functioning his shareholder’s function and as well as the loan extended for form shall be considered also a quasi-equity capital for the purpose of determining ALP.

The ld. counsel relied in the case of Bartronics India Ltd v. DCIT (2017) 86 taxmann.com 254 (Hyderabad - Trib.). “15. As regards ground No. 3 regarding addition of Rs. 1,22,27,058/- in respect of corporate guarantee provided to AE, ld. AR submitted that the corporate guarantee given to AE does not fall within the scope of international transaction u/s 92B. He submitted that the corporate guarantee is provided to AE for commercial and business expediency and the assessee has not incurred any cost for providing such guarantee. 15.1 Without prejudice to the above, ld. AR submitted that the Corporate Guarantee was brought under section 92B under Finance Act, 2012 w.e.f. AY 2013-14. It is not applicable to the current AY. For this proposition, he relied on the following cases: 17 /Hyd/2017 Bartronics India Ltd., Hyd.. 1. Dr. Reddy’s Laboratories, ITA No. 294/Hyd/2014 & ITA No. 458/Hyd/2015. 2. Siro Clinpharm Pvt. Ltd. Vs. DCIT, ITA No. 2876/Mum/2014 3. Bharati Airtel Ltd. Vs. ACIT, ITA No. 5816/Del/2012 4. Asian Paints Ltd. Vs. ACIT, ITA No. 7801/Mum/2010 5. Lanco Infratech Ltd. Vs. DCIT, ITA No. 450/hyd/2016 16. Ld. DR, on the other hand, submitted that even though the amended section is introduced in Finance Act, 2012, but, it is introduced with retrospective effect from 01/04/2002. Accordingly, he supported the findings of revenue authorities. 17. Considered the rival submissions and perused the material facts on record as well as various case laws submitted by the assessee. Assessee Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 36 of 66 has provided corporate guarantee to its AE in the current AY without charging any fees for the same. The term ‘guarantee’ was inserted in the definition of international transaction by inserting an explanation in the Finance Act, 2012 with retrospective effect from 01/04/2002. There is no dispute that the corporate guarantee is an international transaction and different assessees are adopting different methods of treatment. Some assessees charges nominal rate to the AEs, whereas other assessees are treating this as shareholder service. Here, the assessee has objected to include this transaction as international transaction for the reason that the Finance Act, 2012, which has inserted an explanation, which will be applicable prospectively from AY 2013-14 and the corporate guarantee transaction will not be applicable to the current AY. The same view was upheld by the coordinate bench in the case of Dr. Reddy Laboratories and other benches of Tribunal. The findings given by the coordinate bench in the case of Dr. Reddy Laboratories (supra) are extracted below: 29. We have carefully considered the rival submissions and perused the record. The ITAT, Delhi Bench in the case of 18 /Hyd/2017 Bartronics India Ltd., Hyd.. Bharati Airtel Ltd. (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma Pvt. Ltd., Vs. DCIT (order dated 31 st March, 2016). The bench observed that transfer pricing is a legislation seeking the tax-payers to organise their affairs in a manner compliant with the norms setout. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility.. Analysing further the Bench observed that though Explanation to Section 92B is stated to be c1arificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analysed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd., (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect.” Respectfully following the above decision, we reject the treatment of corporate guarantee as international transaction and consequently, ALP adjustment is not warranted on this aspect. Accordingly, the ground raised

CIT Vs. EKL Appliances Ltd., ITA No. 1068/2011 2. M/s Vijay Electricals Ltd., Vs. Additional CIT, ITA No. 842/Hyd/2012, order dated 31/05/2013.

GSS Infotech Ltd. Vs. ACIT, Hyd. ITA No. 497/Hyd/2015 4. KAR Therapeutics & Estates Pvt. Ltd., Vs. DCIT, ITA No. 86/Hyd/2016.

Topsgrup Electronics Systems Ltd. Vs. ITO, 67 Taxmann.com 310 (Mum.) 6. Mylan Laboratories Ltd. Vs. ACIT, [2015] 63 Taxmann.com 179 (Hyd.) 19. Ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that this transaction is recorded in the books of account as loan and not as investment. He referred to page 203 of paper book to submit that it is classified as loans & advances. He further submitted that the claim of the assessee is only an after thought. Considered the rival submissions and perused the material facts on record. Assessee has transferred funds to its AE as investment and the same was classified in the balance sheet as’ loans and advances. However, it is only a classification of accounting entry in the books, but, what is relevant and important is whether such transfer of funds were duly treated as investment and accordingly shares were allotted in the subsequent AY. Assessee has submitted share allotment certificate as evidence. Since the transfer of funds were duly accounted by the AE and there is no restriction on the part of the AE to allot shares in the same AY of receipt of funds, as long as the shares allotted, it gives true nature of the transaction. In the given case, even there is no outstanding balance in the books of assessee as loans and advances, the same transaction was duly justified by receiving allotted shares in the subsequent AY. In our considered view, there is no element of profit in the above transaction. Moreover charging of interest is depending upon the contractual obligations between the parties. In the given case, 20 ITA No. 259 /Hyd/2017 Bartronics India Ltd., Hyd.. assessee has transferred funds with an intention to make investment, it cannot be treated as international transaction as held by various courts, particularly, in the case of KAR Therapeutics & Estates Pvt. Ltd. (supra) wherein the coordinate bench has held as under: “ 9. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities. There is no dispute that the assessee had remitted $ 3387182 towards investment in share capital. The shares were allotted to the extent of $ 2654797 in the same AY. The subsidiary company has treated the balance remittance as interest free unsecured loan and repayable on demand in their financial statement. In the next AY, the subsidiary company has allotted the shares on 15/03/2012. Now, can these transactions be treated as international transaction, which qualifies for ALP adjustment. In our considered view, the amount $ 732.385 is towards investment in share capital of the subsidiary outside India and the transactions are not in the nature of international transaction referred to section 92-B of the IT Act and transfer pricing provisions are not applicable as there is no income as well as there is no mutual agreement between the companies for such payment of interest. Moreover, the subsidiary company also disclosed as ‘interest free.

The findings given in the case of Perot Systems TSI v. DCIT [2010] 37 SOT 358 (Delhi-Trib) are distinguishable as in that case profits were shifted out of India to Bermuda, a Tax Heaven. Where in the instant case, the AE subsidiary is formed with the intention and the structure of the transaction is to bring back the capital and profits to India after payment of due taxes. Further, in that case the result of the transaction was that the income of the assessee in India would reduce while that of the AE would increase. That was also a classic case of violation of transfer pricing norms where profits are shifted to tax heavens or low tax regimes to bring down the aggregate tax incidence of a multi-national group, whereas in the present case, the transaction have resulted into increase in cash inflow into India and possibility of increase of tax base in India. Further, there is no finding of fact that the transactions have been undertaken for shifting of profits to a low tax jurisdiction as against the finding given in Perot System (supra). Therefore, on an analysis of transaction as a whole Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 41 of 66 and considering the observations and analysis by Hon’ble Tribunal Ahmedabad and Hyderabad in the decisions relied upon by the assessee, the transaction has to be considered as quasi-equity in nature. It was further contended that the TPO has not carried out any FAR analysis as in the case of assessee, the AE is just an extension of BHPL to hold investments and have not carried out any functions. The entire risks are borne by the assessee company only and the entire investments in Sterling + Hostag has been funded as equity capital, preference capital and loan only by BHPL as part of its shareholder function. The AE itself has not employed any assets. As per the contractual terms and law, the moment this investment is sold the entire proceeds of capital and profits are to be repatriated to India compulsorily and subject the same to taxation in India. Therefore, in this manner the entire risks are to be borne by and rewards accrue to BHPL only as a result of the investments made. As per Rule10B adjustment for contractual terms are to be considered while applying CUP method. In this case the AE is not authorised by law to undertake any functions or pursue any business. Once BHPL decides to sell investments held, the AE has to wind up and BHPL has to bring back the entire proceeds to India. Thus, the aforesaid FAR analysis as required under Rule 10B has not been carried out by the TPO/CIT(A) while rejecting the contention of BHPL that even though in form the Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 42 of 66 transaction is structured as a loan, in substance this is a quasi-equity capital. Thus, the aforesaid material differences and considerations for extending the loan to AE as compared to a loan simplicitor has not been considered by the TPO/CIT(A) as required by Rule 10B, which is more particularly analyzed by the Hon’ble Ahmedabad Tribunal in the case of Cadila Healthcare Limited in Para 11 & 12 of the judgement as reproduced above. The ld. counsel further without prejudice as an alternative argument that for the event in the transaction is not considered as quasi-equity in nature then there is no loss of Revenue to the Government of India hence Chapter X being anti-avoidance provisions are not applicable to the facts of the case. Had interest been paid on the amount brought back to India profits would have been lesser to that extent and taxes would have been paid to Government of India proportionately lesser to that extent. Hence, there is no loss of Revenue to the Government of India. Further, alternatively if transaction as quasi-equity is not accepted it shall be considered that there is no risk for BHPL in extending the interest free loan as observed by the CIT(A) in Para 9.3 at Page 19 of the Appeal Order. The CIT (A) observed that the transaction is as a loan simplicitor to an un-related party. Since the loan is consumed in a foreign country interest rate prevalent in that country shall be considered as ALP. In this case as per Rule 10B entire functions are Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 43 of 66 carried out by BHPL and the risks and rewards are also to be borne and enjoyed by BHPL, hence there should not be any risk premium chargeable to the loan as an adjustment. Therefore, reliance placed by the Learned Counsel ld. counsel has placed reliance on the following decision of Vibhav Gems Limited (2017) 88 taxmann.com 12 (Raj.)- SLP dismissed (2018) 99 taxmann.com 2 (SC) also supports his case. We have noted that, as noted by the TPO, it is wholly immaterial as to whether or not the assessee, by the virtue of this transaction, is entitled to subscribe to capital of the AE on certain concessional terms, because, in any case, the AE is a wholly owned subsidiary of the assessee and none else can subscribe to the AE's capital. What has been overlooked, however, in this process of reasoning is that the very concept of arm’s length price is based on the assumption of hypothetical independence between AEs. Essentially, what is, therefore, required is visualization of a hypothetical situation in which AEs are independent of each other, and, as such, impact of intra AE association on pricing of transaction is neutralized. Once we do so, as is the compulsion of hypothesis involved in arm’s length price, the fact that normally a parent company has a right to subscribe to the capital of the subsidiary at such price as suits the assessee is required to be ignored. An arm’s length price is hypothetical price at which independent enterprises Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 44 of 66 would have entered the transaction, and, as such the impact of intra AE association cannot have any role to play in determination of arm’s length price. The stand so taken by the TPO, which has met the approval of the DRP as well, does not, therefore, meet our approval. We have also noted that the assessee has given loan of Rs.30,84,40,000/- and brought back Rs.32,56,53,750/- as repayments. Similarly, investment in preferential shares were at Rs.1,71,68,40,000/- as against which the assessee has brought back by way of redemption of preference shares for an amount of Rs.1,74,90,59,944/-. Therefore, the transactions under consideration is in the nature of quasi capital. Hence, there was no requirement charge an arm's length price. Keeping in mind all these factors, as also entirety of the case, we deem it fit and proper to delete the arms length price adjustment of Rs.1,80,56,250 in respect of interest on loan to AE, which, according to the revenue authorities, should have charged on the loan granted to the AE’s to bring back preferential shares capital in India. Thus, Ground No. 4 of the appeal of the assessee is allowed.

Ground No.5: States that on appreciation of facts and circumstances of the case ns law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 45 of 66 Assessing Officer / Learned Transfer Pricing Officer in making upward adjustment of Rs.1,78,86,359/- out of guarantee fee charges to the income of the appellant company on account of determining the arm’s length price of the international transactions. The action of the learned Commissioner of Income- tax (Appeals) is contrary to the facts and law and deserve to be deleted.

Facts apropos of this ground are that the assessee has guaranteed loan to the extent of Pound 35 million taken by M3 Holdings (Singapore) Pte Ltd. The loan has been granted to M3 Holdings (Singapore) Pte Ltd. on a concessional rate on account of back to back guarantee of over Rs. 212 crore given by the assessee company, being mutual fund holdings of the company. In addition to the guarantee / collateral security, the assessee has also incurred the entire bank charges levied by Standard Chartered Bank amounting to Rs.1,78,86,359/-. The assessee has claimed that M3 Holdings (Singapore) Pte Ltd. has redeemed its preferential shares to the extent of Rs. 1749.06 million (US$ 38 million). Since M3 Holdings (Singapore) Pte Ltd. is a SPV and has no liquid funds, it had to borrow from the above bank for repaying the preferential shares of BHPL. The assessee company relied upon the OECD guidelines at para 1.37 Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 46 of 66 and para 7.9 while submitting that in special circumstances, a loan can be treated a subscription to capital and also characterization of stewardship activities or shareholder activities undertaken by the parent companies. The assessee has further claimed that because of providing of guarantee, the AE has been able to raise funds through which it has been able to repatriate the redeemed preferential shares into the country resulting in overall at this assets base of the assessee company initiation country. The assessee company submitted that by letting the AE has raised funds in Singapore, effectively the cost of the funds have been shifted to Singapore while assets brought in the country would enable it to earn more from its investments. In support of his contention, the assessee company relied in the case of Four Soft Ltd. v. DCIT [I.T.A.No. 1495/HYD/2010) of Hyderabad Tribunal wherein it was held that corporate guarantee provided by the assessee does not fall within the definition of international transactions. However, the AO was of the view that the word “any provision of service” whether it fall within the routine course of business or not, or is includible as international transaction and hence, liable to be benchmarked. The AO further observed that OECD commentaries on this issue also acknowledge the corporate guarantee to be in the nature of ‘service’ as held by the US Tax Court in the case of Container Corporation v. Commissioner. The assessee Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 47 of 66 has explained that for the purpose of issue of a comfort letter to the SCB, Mauritius, the assesse company has incurred bank charges of Rs.1,78,86,359/-. The assessee has not charged this amount to its Singapore entity inspite of the fact that the entire amount has been incurred for the benefit of the AE. It was explained that assessee has paid one time bank charges of Rs.17,886,359/- to Standard Chartered Bank, Ahmedabad for upfront structuring fees for stand by letter of credit facility. Such bank charges are amortised over a period of loan tenure i.e. 5 years. Accordingly proportionate bank charges pertaining to the financial Year 2007-08 amounting to Rs.1,83,897/- was charged to profit & loss account during the year under consideration. However, such expenses incurred by Bilakhia Holdings Pvt. Ltd on arranging loan to M3 Holdings (Singapore) Pvt. Ltd and debited to Profit & Loss account has not been claimed in Return of Income as deduction under any head of income .The TPO observed that the basic claim of the assesse is that since the amount has not been reduced from the taxable income of the company while computing the income of the assesse company, no adverse view should be adopted in respect of the amount not charged from the AE. However, the AO has failed to appreciate that while determining the arm’s length value of a transaction, it is not relevant whether the amount has been reduced from its taxable income or not. That an Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 48 of 66 item of expenses has not been offered for taxation does not decide the arm's length value of this amount to be 'nil’. The important point to be ascertained is whether the amount has gone in to contribute towards the cost of the loan and that whether a non-related party would have charged this amount from the other party or not. If yes, the amount should have been recovered as cost from the AE. On both these counts, the arguments of the assesse company fail. As already stated above, as per the provisions of section 92, any cost incurred by the assessee company while providing any service or benefit to the assesse company needs to be recouped from the AE. Since the assessee has claimed that the guarantee has been given to the bank for issue of loan to the AE. The result of the loan taken by the AE is that the assessee has received redemption of the entire preferential shares 'which have been redeemed on account of the loan taken by the AE. Hence, by providing the comfort letter, the asset base of the assessee has been protected and effectively cost of funds have been shifted from the assessee to the AE. In addition, the funds of the assessee, having been invested earlier as preferential shares, have now been brought back into the country. Hence, while assessee has a bigger asset base resulting in higher income in India, the cost of funds will be borne by the AE. Without provision of the guarantee, there was no way to bring in the preferential shares issued earlier.

In light of the express provisions of section as reproduced above, the TPO observed that any cost incurred by the assesse in relation to the service/benefit for the AE should be charged to the AE. The assesse is wrong in submitting that since the ultimate benefit was for the assesse, this cost need not be recovered from the AE. The responsibility for redemption of the preferential shares was on the assessee company. It had benefited from the shares of the assesse company by investing the same in its ventures. Hence, any cost for its redemption was a cost logically to be borne by the AE. The assesse should have charged the entire amount of Rs.1,78,86,359/- to its AE M3 as the expenditure related to it. Accordingly, the income of the Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 50 of 66 assesse company was revised by making upwards to the extent of Rs.1,78,86,359/-.

Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee has submitted that the Guarantee given for bringing back funds into the country which will increase asset base and taxable income in India. This does not result in any shifting of profit abroad rather shifts the future profits into India. The TPO has relied on plain reading of Section 92(1) and 92(2) which is not applicable owing to facts that there is no mutual arrangements to provide any service and the guarantee has been provided to enable the AE to repatriate Rs.174.90 Crores by redeeming the preference shares issued to the AE by raising a loan from Standard Chartered Bank, Mauritius which has resulted in increase in asset base and taxable income of the assessee in India, hence, it is shareholder function, which does not amount to an international transaction. The AE had no funds available to redeem Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 54 of 66 preference shares. Redemption of preference shares was undertaken by the assessee to bring back the money to India which will increase the asset base and tax base in India. The guarantee was given and guarantee commission paid to facilitate granting of loan to the AE and achieve the goal of bringing back the moneys back to India. The guarantee fee paid to the foreign bank was incurred to achieve this objective which increases the asset base and tax base in India and not as a service to the AE. In-fact when the preference shares were redeemed the aforesaid expenses has been received back along with the principle amount and there is no loss to the assessee and no deduction has been claimed on account of such payments under any head of income by the assessee. The Corporate guarantee provided before 2012 is not an international transaction even after the amendment 2012. Corporate guarantee provided before 2012 is not an international transaction even after the amendment in 2012. Relied on the decision of Hyderabad Tribunal in the case of Bartronics India Ltd v. DCIT (2017) 86 taxmann.com 254 (Hyderabad-Trib.) in which it was held as under: “Considered the rival submissions and perused the material facts on record as well as various case laws submitted by the assessee. Assessee has provided corporate guarantee to its AE in the current AY without charging any fees for the same. The term ‘guarante’1 was inserted in the definition of international transaction by inserting an explanation in the Finance Act, 2012 with retrospective effect from 01/04/2002. There is no dispute that the corporate guarantee is an international transaction and different assessee are adopting different methods of treatment. Some assessee charges nominal rate to the AEs, whereas other assessee are Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 55 of 66 treating this as shareholder service. Here, the assessee has objected to include this transaction as international transaction for the reason that the Finance Act, 2012, which has inserted an explanation, which will be applicable prospectively from AY 2013-14 and the corporate guarantee transaction will not be applicable to the current AY. The same view was upheld by the coordinate bench in the case of Dr. Reddy Laboratories and other benches of Tribunal. The findings given by the coordinate bench in the case of Dr. Reddy Laboratories (supra) are extracted below: "29. We have carefully considered the rival submissions and perused the record. The ITAT, Delhi Bench in the case of Bharati Airtel Ltd. (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma Pvt. Ltd., v. DCIT (order dated 31st March, 2016). The bench observed that transfer pricing is a legislation seeking the tax-payers to organize their affairs in a manner compliant with the norms set- out. In short, it is an anti-abuse legislation which tells you as to what is the acceptable behavior but it does not trigger levy of tax in a retrospective manner because no party can be asked to do impossibility. Analyzing further the Bench observed that though Explanation to Section 92B is stated to be clarificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analyzed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect."

Per contra, the Ld. CIT (DR) submitted the argument of the counsel are misleading fact that Rs. 171.68 crores profit shown in year 2005 and brought back Rs. 174.90 crores. No such claim was made before TPO or CIT (A). The charge are incurred by the parent company in India and not recovered and only booking charge paid by the assessee. The Ld. CIT (DR) submitted that there is amendment in section 92B of the Act which is retrospective in nature, hence, same is applicable to the assessee. The Ld. CIT (DR) relied in the case of CIT v. Everest Kento Cylinders Ltd. [2015] 58 taxmann.com 254 (Bombay) in support of his contentions.

In rejoinder, the learned counsel for the assessee submitted that the amount of Rs. 174.90 crores has been recorded in the books of accounts and same forma part of assessment records,which is more Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 58 of 66 than Rs. 171.68 crores of corporate guarantee given by the assessee, hence, the assessee has recovered more Rs. 3.22 crores more as against the guarantee charges paid to bank, therefore, the contention of learned CIT(D.R.) is not correct. Further, the decision in the case of CIT v. Everest Kento Cylinders Ltd. [2015] 58 taxmann.com 254 (Bombay) is not applicable as the said decision rather supports the case of the assessee.

We have heard the rival submissions and perused the relevant material on record. We find that the Guarantee has been given for bringing back funds into the country, which will increase asset base and taxable income in India. This does not result in any shifting of profit abroad rather shifts the future profits into India. The assessee has incurred expenditure of Rs.171.68 crores on account of bank guarantee given as against which the assessee has received an amount of Rs.174.90 crores as dividend income , hence, amount received is more by Rs.3.22 crores, hence, no upward adjustments on account of arm’s length price on corporate guarantee is required. This amount was received in the assessment year 2012-13 and assessment year 2013-14 and same has been duly reflected financial statement and balance sheet of the assessee in retrospective assessment years. As we have already held that this is a case of quasi- Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 59 of 66 capital investment and as loan simplicitor, and same loan has been given for redemption of preferential shares capital, hence, not a simplicitor loan. The TPO has relied on plain reading of Section 92(1) and 92(2) which is not applicable owing to the following reasons as there is no mutual arrangements to provide any service and the guarantee has been provided to enable the AE to repatriate Rs.174.90 Crores by redeeming the preference shares issued to the AE by raising a loan from Standard Chartered Bank Mauritius which has resulted in increase in asset base and taxable income of the assessee in India. This it is a shareholder function, hence, does not amount to an international transaction. The AE had no funds available to redeem preference shares. Redemption of preference shares was undertaken by the assessee to bring back the money to India which will increase the asset base and tax base in India. The guarantee was given and guarantee commission paid to facilitate granting of loan to the AE and achieve the goal of bringing back the moneys back to India. The guarantee fee paid to the foreign bank was incurred to achieve this objective which increases the asset base and tax base in India and not as a service to the AE. In-fact when the preference shares were redeemed the aforesaid expenses has been received back along with the principle amount and there is no loss to the assessee and no deduction has been claimed on account of such payments under any Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 60 of 66 head of income by the assessee. We are also of the view that the Corporate guarantee provided before 2012 is not an international transaction as per provisions of section 92(2) and even after the amendment in 2012 in section 92(2) of the Act. The Corporate guarantee provided before 2012 is not an international transaction even after the amendment in 2012. The learned counsel for the assessee has placed reliance on the decision of Hyderabad Tribunal in the case of Bartronics India Ltd v. DCIT (2017) 86 taxmann.com 254 (Hyderabad-Trib.) of which relevant part is reproduced as under: “17. Considered the rival submissions and perused the material facts on record as well as various case laws submitted by the assessee. Assessee has provided corporate guarantee to its AE in the current AY without charging any fees for the same. The term ‘guarante’1 was inserted in the definition of international transaction by inserting an explanation in the Finance Act, 2012 with retrospective effect from 01/04/2002. There is no dispute that the corporate guarantee is an international transaction and different assessee are adopting different methods of treatment. Some assessee charges nominal rate to the AEs, whereas other assessee are treating this as shareholder service. Here, the assessee has objected to include this transaction as international transaction for the reason that the Finance Act, 2012, which has inserted an explanation, which will be applicable prospectively from AY 2013-14 and the corporate guarantee transaction will not be applicable to the current AY. The same view was upheld by the coordinate bench in the case of Dr. Reddy Laboratories and other benches of Tribunal. The findings given by the coordinate bench in the case of Dr. Reddy Laboratories (supra) are extracted below: "29. We have carefully considered the rival submissions and perused the record. The ITAT, Delhi Bench in the case of Bharati Airtel Ltd. (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma Pvt. Ltd., v. DCIT (order dated 31st March, 2016). The bench observed that transfer pricing is a legislation seeking the tax- payers to organize their affairs in a manner compliant with the norms set- out. In short, it is an anti-abuse legislation which tells you as to what is the acceptable behavior but it does not trigger levy of tax in a retrospective manner because no party can be asked to do impossibility. Analyzing further the Bench observed that though Explanation to Section 92B is stated to be clarificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 61 of 66 observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analyzed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." Respectfully following the above decision, we reject the treatment of corporate guarantee as international transaction and consequently, ALP adjustment is not warranted on this aspect. Accordingly, the ground raised

Further it has also been held by Hon’ble Ahmedabad Tribunal in the case of Micro Ink Ltd. v. Addl. CIT (2016) 157 ITD 132/63 taxmann.com 352 (Ahd.), Para 47 & 48 at Page 113 & 114 of the Compilation of decisions and Cadila Healthcare Ltd reported in (2017)

In the result, the appeal of the assessee is allowed from A.Y. 2008-09.

Ground No. 3 & 4 are against the confirmation of upward adjustment of Rs.1,23,03,414/- out of total upward adjustment of Rs.1,94,15,214/- made by AO/TPO on account of interest on loan to AE’s while determining arm’s length price of international transactions.

We have heard the rival submissions and perused the relevant material on record. We find that both parties have agreed that the fact for this assessment year are identical as in assessment year 2008- 09 in assessee`s own case. Therefore, our findings as given in assessment year 2008-09 in Ground No. 4 above, would mutatis Bilakhia Holdings Pvt. Ltd. v. ACIT- Vapi/ I.T.A.No.507/Ahd/2013/AY08-09/A.Y. 08-09 I.T.A.No’s.1415 & 1416/Ahd/2015/A.Y. 09-10 & 10-11 AND I.T.A.No.795/Ahd/2016/A.Y. 11-12 Page 64 of 66 mutandis apply to this ground also. Accordingly, following the same these grounds of appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed for assessment year 2009-10.

Ground No. 3 & 4 are against the confirmation of upward adjustment of Rs.94,09,829/- out of total upward adjustment of Rs.1,55,78,150/- made by AO/TPO on account of interest on loan to AE’s while determining arm’s length price of international transactions.

We have heard the rival submissions and perused the relevant material on record. We find that both parties have agreed that the fact for this assessment year are identical as in assessment year 2008- 09 in assessee`s own case. Therefore, our findings as given in assessment year 2008-09 in Ground No. 4 above, would mutatis mutandis apply to this ground also. Accordingly, following the same these grounds of appeal of the assessee is allowed.

Ground No. 3 & 4 are against the confirmation of upward adjustment of Rs.63,06,706/- out of total upward adjustment of Rs.1,17,84,795/- made by AO/TPO on account of interest on loan to AE’s while determining arm’s length price of international transactions.

We have heard the rival submissions and perused the relevant material on record. We find that both parties have agreed that the fact for this assessment year are identical as in assessment year 2008- 09 in assessee`s own case. Therefore, our findings as given in assessment year 2008-09 in Ground No. 4 above, would mutatis mutandis apply to this ground also. Accordingly, following the same these grounds of appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed for assessment year 2011-12.

The order pronounced in the open Court on 04-02.2020.