2019 (8) TMI 988 - AT - Income Tax

Appeal partially allowed by Tribunal, issues remitted for re-examination. Penalty proceedings dismissed as premature.

AT& T Communication Services India Pvt Ltd Versus DCIT, Circle-2 (1), New Delhi

AT& T Communication Services India Pvt Ltd Versus DCIT, Circle-2 (1), New Delhi - TMI Issues Involved:1. Time Limitation for Assessment2. Ad-hoc Disallowance of Expenses (MSA)3. Addition for Foreign Exchange Loss on Expatriate Salaries4. Disallowance of Prior Period Expenses5. Addition for Non-Charging of Mark-Up on Support Services6. Disallowance of Year-End Accruals (Excess Provisioning and TDS)7. Non-Grant of Full Credit for TDS8. Levy of Interest under Section 234B9. Initiation of Penalty Proceedings under Section 271(1)(c)Detailed Analysis:1. Time Limitation for Assessment:The assessee contended that the assessment order was framed after the expiry of the time limit as provided in Section 153(1) of the Income Tax Act. However, this ground was not pressed at the time of the hearing and was dismissed.2. Ad-hoc Disallowance of Expenses (MSA):The assessee challenged the ad-hoc addition of Rs. 15.14 crores by the AO, who held that 50% of the costs incurred under the Managed Network Services (MNS) business segment should have been billed to AT&T USA under the MSA with a 12% mark-up. The assessee argued that the costs were correctly allocated and supported by invoices and ledgers. The Tribunal found that the assessee failed to substantiate 68% of non-salary costs and 83% of salary costs. The issue was remitted back to the AO for re-examination with directions to the assessee to substantiate the cost base.3. Addition for Foreign Exchange Loss on Expatriate Salaries:The AO added Rs. 2.10 crores for non-recoupment of foreign exchange loss on salaries of expatriate employees, arguing it should have been billed to AT&T US with a 12% mark-up. The assessee contended that the MSA did not require recoupment of such losses. The Tribunal upheld the AO's addition, noting that the MSA did not exclude foreign exchange losses from the cost base.4. Disallowance of Prior Period Expenses:This ground was not pressed at the time of the hearing and was dismissed.5. Addition for Non-Charging of Mark-Up on Support Services:The AO added Rs. 1.39 crores for non-charging of a mark-up on support service charges billed to AGNSI. The assessee argued that the agreement with AGNSI did not require a mark-up. The Tribunal noted that similar issues in previous years were decided in favor of the assessee and followed the same, allowing the ground.6. Disallowance of Year-End Accruals (Excess Provisioning and TDS):The AO disallowed Rs. 10.18 crores for excess provisioning, non-submission of supporting documents, and non-deduction of TDS. The assessee provided substantial evidence of payment/reversal of year-end accruals and argued that TDS was not applicable on year-end accruals. The Tribunal found that the issue was covered in favor of the assessee by previous Tribunal decisions and allowed the ground.7. Non-Grant of Full Credit for TDS:The assessee claimed a TDS credit of Rs. 4,19,02,254, but the AO granted only Rs. 3,55,05,064. The Tribunal directed the AO to verify and grant the correct TDS credit as claimed by the assessee, allowing the ground.8. Levy of Interest under Section 234B:The levy of interest under Section 234B was found to be consequential and was dismissed.9. Initiation of Penalty Proceedings under Section 271(1)(c):The initiation of penalty proceedings was deemed premature and was dismissed.Conclusion:The appeal was partly allowed, with the Tribunal remitting certain issues back to the AO for re-examination and allowing others based on previous Tribunal decisions.