TaxTMI 
TaxTMI 
2018 (4) TMI 33
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....lhi ('DCIT) in the draft assessment order dated March 24,2014 and the Assistant Commissioner of Income Tax, Circle 3(2), New Delhi ('learned AO') has therefore, erred in making additions/ disallowances in the final assessment order dated January 29, 2015 passed under section 143(3) read with section 144C of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No.1 - Disallowance of advance written off 1.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing a deduction for Rs. 4,590,000, being security deposit forfeited by the vendor on account of termination of contract between the vendor and the Appellant for taking new office space on lease. 2. Ground No.2 - Addition on account of non-charging of mark-up on support service charges billed to AT&T Global Network Services India Private Limited ('AGNSI') 2.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in making an addition of Rs. 18,414,784 on account of non-charging of mark-up on support service charg....
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....the Indian TP documentation requirements. 4.4 The learned TPOI AOI DRP have erred in rejecting certain comparable companies selected by the Appellant by applying inappropriate comparability criteria such as : a. Turnover less than INR 5 crore; b. Diminishing revenue; and c. Different accounting year. 4.5 The learned TPO AO DRP have erred in erroneously rejecting certain companies selected by the Appellant and adding certain companies to the final set of comparables on an ad-hoc basis, thereby resorting to cherry picking of comparables for determination of ALP. 4.6 The learned TPO/ AO/ DRP have erred in selecting certain companies (which are earning supernormal profits) as comparable to the Appellant. 4.7 The learned TPO/ AO/ DRP have erred in not considering gains / losses arising out of foreign exchange fluctuations while computing the operating margins of the Appellant as well as comparable companies. 4.8 The learned TPO/ AO/ DRP have erred in not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies. 4.9 Th....
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....hree segments viz., (i) market research, administrative support & liaison services; (ii) network outsourcing services; and (iii) network support services. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprises (AE) as under :- S.No. International Transaction Method Amount in INR 1 Provision of Market Research, Administrative & Liaison Services (MSA) TNMM 53,04,45,952 2 Provision of Network Outsourcing Services (NOS) TNMM 14,29,966 3 Provision of Network Support Services TNMM 56,33,79,984 4 Reimbursement of expenses TNMM 15,05,70,738 Total 124,58,26,640 3. The taxpayer in order to benchmark its international transactions in its TP study applied Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) by using multiple year data of comparable companies found all its international transactions at arm's length. 4. However, the ld. TPO considered international transactions entered into by the taxpayer with its AE qua provisions of services under network outsourcing support services at arm's length and international transaction qua reimbursement of AE at ar....
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.... [IT Appeal No.199 (Delhi)/2012, dated 28-06-2013. The coordinate Bench of the Tribunal by relying upon the decision rendered by the Hon'ble Delhi High Court in case of CIT v. Khaitan Chemicals & Fertilizers Ltd. [2010] 326 ITR 114 held the loss of security deposit as a business loss in the revenue field u/s 37(1) of the Act. For facility of reference, operative part of the order rendered by the coordinate Bench of the Tribunal in Fab India Overseas (P.) Ltd. (supra) is reproduced as under :- "18. On this factual matrix the issue before us is "whether the loss of security deposit in question is a business loss in the revenue field." In our considered opinion the above loss is a business loss for the reason that the assessee has taken on lease many premises spread over many parts of the country, and this act of taking this show room on lease is in the normal course of business. In fact 84 show rooms are taken on lease at various places. Six months rent was given as security deposit. This was given in the course of business. The transaction is intimately connected with the business of the assessee. The Assessing Officer has not disputed the genuineness of the claim. The CIT(A) h....
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....endered by the coordinate Bench of the Tribunal in Fab India Overseas (P.) Ltd. (supra) in an identical issue, the addition made by the AO of Rs. 45,90,000/- on account of advances and service tax written off is ordered to be deleted. GROUND NOS.2 & 2.1 10. The AO made addition of Rs. 1,84,14,784/- on account of non-charging of mark-up on support service charges billed to AT&T Global Network Services India Pvt. Ltd. (AGNSI), a group company of the taxpayer which has started its operation from AY 2008-09 on the ground that without any profit motive, no such services can be provided in a business set up. The AO noticed that the taxpayer has charged mark up of 8% from AGNSI in AY 2008- 09 and first three months of AY 2009-10 and thereafter unilaterally reversed the same on the plea that it was management decision and AO considered it an after-thought due to lack of complete documentation in this regard. The ld. DRP held the decision of AO to the extent that the AO should restrict the mark-up as finally determined by the TPO pursuant to the directions issued by this order on TP matters. 11. Challenging the impugned order passed by AO/DRP, the ld. AR for the taxpayer contended that t....
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....ntions and perused the facts of the case. The facts of the case as explained by the appellant are that, ACSI, a group company of appellant and an entity in operations for more than 10 years by then, was having developed support services functions. Accordingly, since such functions were already housed in ACSI, appellant entered into a support services agreement with ACSI for provision of the aforesaid support services to appellant. We have gone through the submission of the assessee and find that necessary evidences in the form of the support service agreement, invoices, the details of payments made and the bank statements evidencing the payment thereof have been furnished by the assessee to prove the genuineness of the expenses. We find that no evidence has been brought on record by the Department to dispute the said claim. Rather, the Department's claim is merely based on suspicion as also noted by the DRP while deleting the above disallowance. We also find that even otherwise, both ACSI and appellant are profit making entities and hence, there was no tax incentive for the parties to deflate the revenues earned by appellant. The decision was totally based on commercial conside....
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....o is not sustainable in the eyes of law. So, we order to delete the addition on account of not charging of mark up on support services charges billed to AGNSI. GROUND NOS.3 TO 3.3 17. AO disallowed an amount of Rs. 56,15,035/- and added back the same to the income of the taxpayer on the ground that the taxpayer does not have the basis of recording year end accrual. The ld. DRP approved the proposed addition on this account. 18. Undisputedly, the detail of year end accrual outstanding as on March 31, 2010 are as under :- Particulars Accruals as on March 31, 2010 Accrual Control Accunt 11,25,51,600 Salary payable 50,26,782 IPA Accruals 24,21,901 SIP Accruals 51,00,353 Internal LSP Liability 25,24,592 Total 12,76,25,228 19. It is also not in dispute that out of the aforesaid amount of Rs. 12.76 crores, invoices of Rs. 10.69 crores were submitted and accepted by the AO. It is also not in dispute that reversal entries of Rs. 1.50 crores were made in the succeeding years by giving benefit of the same to the taxpayer. It is also not in dispute that Rs. 5.02 crores for the disallowance made in the preceding assessment year has been allowed to the taxpayer against the abov....
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....he assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income-tax Act, 1961. The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation, and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not me, no provision can be recognized. The principle is that if the historical trend indicates that a large number of sophisticated goods w....
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....nt Order) 1 Telecommunications Consultants India Ltd. (Seg.) - - 10.73% 5.61% 2 Cades Digitech Pvt. Ltd. - - 8.80% 5.55% 3 Certification Engineers International Ltd. - - 78.63% 70.24% 4 Engineers India - - 62.94% 59.99% 5 HSCC (India) - - 18.32% 3.89% 6 IBI Chematur - - 52.66% 51.62% 7 Kirloskar Consultants Ltd. - - 15.64% 9.06% 8 Kitco Ltd. - - 14.01% 13.69% 9 Mahindra Consulting Engineers Ltd. - - 23.50% 23.37% 10 NTPC Electric Supply Co Ltd. - - 74.70% 71.27% 11 Rites Ltd. - - 50.05% 42.88% 12 TCE Consulting Engineers Ltd. - - 25.88% 24.33% Average 36.32% 31.79% 29. The ld. AR for the taxpayer in order to cut short his arguments contended that the taxpayer grievance is to the extent of excluding Government owned undertaking from the final set of comparables for benchmarking the international transactions qua ITA 20 No.1016/Del/2015 Network Support Services (NSS) and relied upon the decision rendered by the coordinate Bench of the Tribunal in Bechtel India Private Limited in ITA No.1478/Del/3025 (available on pages 46 & 47 of case law compendium-II) and decision rendered by Hon'....