DCIT(CC)-8(3), MUMBAI vs. SHAPOORJI PALLONJI AND COMPANY PRIVATE LIMITED, MUMBAI

1 The learned Commissioner of Income-tax (Appeals)-58 erred, both in law and on the facts and in the circumstances of the case, in sustaining an upward adjustment to the extent of Rs. 76,21,361/- towards non-recovery of guarantee commission from Associated Enterprises ('AEs) in relation to issuance of performance guarantee and financial guarantee considering the same as International transaction.

2 The learned Commissioner of Income-tax (Appeals)-58 erred, both in law and on the facts and in the circumstances of the case, in not appreciating the fact that the issuance of performance guarantee and financial guarantee is an integral part of the construction/real estate industry in which the appellant operates and that the issuance of performance guarantee and financial guarantee is merely shareholder activity (i.e. stewardship activity) and is outside the scope of section 92 of the Income-tax Act, 1961.

3 The learned Commissioner of Income-tax (Appeals)-58 erred in disregarding the detailed submission of the appellant and judicial precedents to reject the contention that performance and financial guarantee are not covered under the definition of International Transaction as provided under section 92B of the Act.

4 The learned Commissioner of Income-tax (Appeals)-58 erred in not appreciating the fact that issuance of performance guarantee and financial guarantee, does not involve any cost to the appellant, nor does it have any bearing on profits, income, loss or assets of the appellant company, and therefore cannot be considered as an international transaction.

5 The learned Commissioner of Income-tax (Appeals)-58 erred in not appreciating the fact that issuance of financial guarantee provided by the appellant company to its AEs enables. them to secure credit in their respective overseas juri iction and to comply with the laws, in those juri iction and that in absence of such locally sourced funding, the appellant would have to support its AE's business operations by providing funds through equity or otherwise. Accordingly, the learned Commissioner of Income-tax (Appeals) ought to have appreciated that the transaction of issuance of financial guarantee provided by the appellant company to its AEs can be said to be one of quasi- equity or shareholder activity, and it is in best interest of both AEs and the appellant to provide such financial guarantee.

6 The learned Commissioner of Income-tax (appeals)-58 erred in disregarding the Safe Harbour rules issued by CBDT which states that performance guarantee is not equivalent to corporate guarantee.

The appellant prays that the adjustment made in respect of non- recovery of commission from AEs on issue of performance guarantee and financial guarantee be deleted. 3 Additional Ground of Appeal filed on 05/05/2025

The learned Commissioner of Income-tax (Appeals)-58 erred in not passing the final assessment order dated 07 February 2017 within the time limit prescribed under provision of Section 153 of the Act which provides the outer time limit for passing the final assessment order and hence, the assessment proceeding is time barred and liable to be quashed. Additional supplementary ground of appeal filed on 18/09/2025

The learned Commissioner of Income-tax (Appeals)-58 erred in not allowing deduction under Section 35DD of the Act amounting to Rs.12,79,23,980/- during the year under consideration without appreciating the fact that year under consideration was the last year i.e. 5th year of claiming deduction under Section 35DD of the Act. 4. without prejudice to the above, the entire amount of stamp duty expenses amounting to Rs. 12,79,23,980/- should be allowed as deduction under Section 43B of the Act in the year under consideration since it is the year of payment of stamp duty. 5. without prejudice to the above, the first year for deduction under Section 35DD of the Act should be considered as AY 2011-12 (i.e. year in which scheme was sanctioned by Hon'ble High Court), thus the last year would be AY 2015-16 and therefore, the Assessee may please be allowed 3/5 deduction in the year under consideration (i.e. Rs. 7,67,54,388/-) and 1/5th in subsequent years i.e. AY 2014-15 and AY 2015-16 ie. Rs. 2.55,84,796/- each year) and Lo AO may be directed accordingly; 6. without prejudice to the above, the Assessee may please be allowed 1/3rd of the said stamp duty expenses as deduction under Section 35DD of the Act (ie. Rs.4,26,41,327/- in each year) from year under consideration and subsequent years ie. AY 2014-15 and AY 2015-16 and Ld. AO may be directed accordingly; 7. without prejudice to the above, the Assessee may please be allowed 1/5th of the said stamp duty expenses as deduction under Section 35DD of the Act (Le. Rs. 2,55,84,796/- in each year) from AY 2011-12 (ie. year in which scheme was sanctioned by Hon'ble High Court) till AY 2015-16 and L.d. AO may be directed to allow the same in the aforesaid years ie. AY 2011-12 to AY 2015-16:

Whether on the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in deleting the disallowance of the claim for deduction under Section 35DD of the Income Tax Act, pertaining to expenses incurred for payment of stamp duty on immovable property which are capital in nature?

Whether on the facts and circumstances of the case the Ld CIT(A) was correct in deleting the adjustment to Rs. 4,47,73,850/-made on account of Letter of Comfort (LoC) issued by assessee to the Banks for the credit facilities being availed by its AEs from those Banks?

Whether on the facts and circumstances of the case decision of Ld. CIT(A) in holding that Letter of Comfort (LoC) does not constitute an agreement or contract was correct?

Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in holding that LoC can't be treated as equivalent to guarantees merely because they are not enforceable notwithstanding various consequences attached with it in case of failure to honour it?

Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in not appreciating the fact that the said transaction is covered u/s 92B of the Income Tax Act and thus Arm's Length Price was supposed to be calculated for the said transaction which was not done by the assessee?

Whether on the facts and circumstances of the case the Id. CIT(A) was correct in not appreciating the fact that by providing these letters of comfort to the banks by the assessee, the AEs have been benefitted in terms of obtaining credit facilities from Banks on better terms and thus they ought to have paid commission to the assessee for the same which was not done?

Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is correct in relying on the decision in the case of Everest Kanto Cylinders Ltd., without appreciating certain important facts having bearing on the benchmarking such as; (i) The quotation obtained by the Everest Kanto Cylinders Ltd., India (EKC India) war in respect of transaction of a guarantee obtained by the Indian entity having strong financials and asset base and not in respect of Everest Kanto Dubai- the foreign entity with weaker financial strength and thereby impacting the comparability in view of difference in credit rating of entries which admittedly form basis of guarantee rates/quotations (ii) Not appreciating the fact that the EKC ruling is for A.Y. 2007-08, ignored the fact that entity obtaining loan in foreign juri iction for which EKC India stood as guarantor had lower credit rating. (iii) That the starting point for benchmarking in the case of EKC was obtaining of bank guarantee quote by the EKC India, which was used for benchmarking corporate guarantee and therefore, it was not appropriate to hold that bank guarantee and corporate guarantee are different. (iv) The decision in the case of Everest Kanto Cylinders Ltd., cannot be standard for every assessee as benchmarking for different assessee's is a factual exercise dependent upon number of factors including credit rating, financial strength, country of AE, attendant risks, etc.

Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in restricting commission of Rs. 5,67,32,905/- for corporate guarantee and performance guarantee @0.5% while relying on Everest Kanto decision without discussing & appreciating facts brought on record by ΤΡΟ. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.