2022 (11) TMI 1352 - AT - Income Tax

Appeal partially allowed with issues remitted for fresh consideration, emphasizing transfer pricing adjustments and disallowances.

M/s. Dell International Services India Private Limited, (for the merged entity Dell India Private Limited) Versus The Joint Commissioner of Income Tax, LTU, Bangalore And (Vice-Versa)

M/s. Dell International Services India Private Limited, (for the merged entity Dell India Private Limited) Versus The Joint Commissioner of Income Tax, ... Issues Involved:1. Transfer Pricing Adjustments2. Adjustment in respect of Warranty Cost3. Disallowance under Section 40(a)(ia) of rebates given to customers4. Disallowance of Deferred Revenue5. Disallowance of Fixtures and Stores Interiors Expenses6. Levy of Interest under Sections 234B and 234CDetailed Analysis:1. Transfer Pricing Adjustments- Bifurcation of Marketing and Business Support Services into ITES and MSS Segments: - The Assessee provides business support services to Dell Global B.V. Singapore Branch (DGBV) which includes telephonic support, marketing support, and logistic support services. - The TPO bifurcated these services into ITES and MSS segments, benchmarking them separately, based on the assertion that the services rendered were essentially dissemination of information using IT medium. - The Tribunal noted that merely because services are rendered using IT medium, they cannot be termed as ITES. This was supported by the Tribunal's decision in the Assessee's own case for AY 2009-10. - The Tribunal remitted the issue back to the AO/TPO for fresh consideration in light of the DRP's directions for AY 2013-14, where it was held that the services rendered are in the nature of marketing and support services.- Erroneous Adjustment of Rs. 98.80 Crores as Warranty Cost: - The Assessee provides telephonic support services for products sold by DGBV in India, including services under warranty. - The TPO made an adjustment on the basis that the Assessee had not made any recovery towards the warranty services. - The Tribunal directed the TPO to re-examine the issue afresh, following the Tribunal's decision in the Assessee's own case for AY 2009-10, where it was held that no mark-up is warranted as the services related to warranty are handled by third-party service providers.2. Adjustment in respect of Warranty Cost- The Tribunal directed the TPO to re-examine the issue of adjustment towards warranty cost afresh, following the Tribunal's decision in the Assessee's own case for AY 2009-10.3. Disallowance under Section 40(a)(ia) of rebates given to customers- The AO disallowed an amount of Rs. 40,72,04,283 as rebate given to distributors, asserting that it was subject to TDS under Section 194H.- The Tribunal noted that the relationship between the Assessee and the distributors was on a principal-to-principal basis, not attracting the provisions of Section 194H.- The Tribunal remitted the issue to the AO for verification of the agreements with the distributors and decide the allowability based on the ratio laid down by the Hon'ble High Court.4. Disallowance of Deferred Revenue- The AO brought to tax the deferred revenue of Rs. 105,43,36,985, holding that the Income-tax Act does not provide for the concept of deferred revenue.- The Tribunal accepted the Assessee's contention that the revenue for warranty services is recognized on a straight-line basis over the period of the contract.- The Tribunal deleted the addition made by the AO, following the Tribunal's decision in the Assessee's own case for AY 2010-11.5. Disallowance of Fixtures and Stores Interiors Expenses- The AO classified an expenditure of Rs. 4,25,15,813 towards fixture and stores interiors as capital in nature.- The Tribunal held that the expenses incurred for refurbishing the showroom to maintain uniform standards across franchisee stores are revenue in nature.- The Tribunal allowed the Assessee's claim, following the Tribunal's decision in the case of Nike India Pvt. Ltd.6. Levy of Interest under Sections 234B and 234C- The Tribunal directed the AO to verify and compute the interest under Section 234C in accordance with the law, as the issue is consequential.Conclusion:- The appeal of the Assessee is partly allowed, and the revenue's appeal is allowed for statistical purposes.- The Tribunal remitted several issues back to the AO/TPO for fresh consideration and verification based on the Tribunal's previous decisions and directions.