TaxTMI 
TaxTMI 
2016 (11) TMI 1544
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.... on 31.03.2009. 3. This assessee is a company providing cellular mobile telephonic services in Gujarat state. It declared SIM cards stock as on 31.03.2009 at nil value. The Assessing Officer sought to know reasons thereof. The assessee filed reply dated 05.02.2013 stating to have held its SIM cards for sale in ordinary course of business. It had issued significant quantities of SIM cards to customers for providing connection without charging any separate sale price during the year. It claimed the said SIM cards' value at Rs. nil till the same were activated at customers' end. The assessee stressed the point that its SIM cards in question were not in the nature of an independent product to be sold in open market. It followed cost or market price; whichever is lower formula to justify nil price in question in tune with not only Section 211(3A) r.w.s. 211(3C) of the Companies Act but also asserted to have prepared its books as per AS-2. 4. The case file indicates that the Assessing Officer rejected all these pleas. He observed in draft assessment that the assessee has itself valued 15,68,545 SIM cards carrying opening stock of Rs. 29million as against closing stock of 21,74,521 SIM ....
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.... value of a product may be there in beginning of the year but may reduce to NIL by the year end. Thus, in absence of any reliable evidence by the AO, as per the decision of Hon'ble Gujarat High Court in the case of Voltamp Transformers, we accept assessee's contention that it .had rightly valued its SIM cards at Nil value, being their market value. Further, auditors have also not disputed valuation of SIM cards in the financial statements. Even otherwise, assessee is entitled to deduction under section 80IA of the Act in past and current years and hence, there is no impact on taxable income. In the light of above, objections of the assessee against the proposed upward adjustment are allowed. Therefore, we hereby direct the AO to delete the proposed addition of Rs. 4,02,03,570. As this ground is allowed on merits, we have not adjudicated alternative ground raised by the assessee." 6. We have heard rival contentions. It is clear by now that the instant issue arises between the parties qua closing stock valuation of assessee's SIM cards as on 31.03.2009. Its case as narrated in preceding paragraphs is that these SIM cards nowhere carried an independent value not being in the....
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....ption thereto in the impugned assessment year. This substantive ground accordingly fails. 9. The Revenue's next substantive ground (3b) avers that the Panel has erred in directing the Assessing Officer to apply Section 80IA's amended provision from A.Y.2000-01 thereby allowing the impugned deduction @ 100% of the profits of the relevant previous year. Shri Soparkar states herein as well that this tribunal's order in A.Y. 2006-07 (supra) adjudicates the very issue in assessee's favour. The same goes unrebutted at the Revenue's end. We accordingly decline this ground as well. 10. The Revenue's next substantive ground (3C) assails correctness of the DRP's directions to the assessing authority to allow Section 80IA deduction amounting to Rs. 94.7 million and Rs. 138.90 millions on account of sharing of passive infrastructure and Cell sites; respectively. The Assessing Officer's main reason for disallowing the corresponding claim was that neither the assessee is engaged in the business of leasing of assets nor sharing of cell sites. He held that the above incomes could not be treated to have been derived from an eligible undertaking u/s.80IA in other words. Shri Soparkar places on rec....
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....se ITA No.1935/Ahd/2007 holding identical profits u/s.41(1) as to has been derived from the eligible undertaking. The Assessing Officer opined that such a course of action would amount to double deduction as the very sum stood accepted as bad debts in earlier years and now these figures are sought to be included in Section 80IA deduction claim. 13. We come to DRP's findings now. Ld. Panel negates this double deduction reason after holding that assessee's bad debts claim in earlier assessment years would have reduced its eligible deduction therein. It further places reliance on the above Radha Madhav's case law (supra) to accept assessee's contentions leaving behind the Revenue aggrieved. 14. Heard both sides. There is hardly any quarrel that the assessee claimed these sums as bad debts (revenue receipts) in earlier assessment years. The same stood allowed. It thereafter received back these sums in the impugned assessment year in the nature of business income u/s.41(1) of the Act. A coordinate bench of the tribunal (supra) concludes in these facts that such an instance does not amount to double deduction claim. The Revenue fails to indicate any exception in facts of the instant ca....
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....not an expenditure. Hence, as the said amount is not an expenditure, it cannot qualify as a prior period expenditure as contended by the AO. Further, as far as claiming deduction of business loss is concerned, the same is covered under provisions of section 28 of the Act. Hence, amount irrecoverable from BSNL being written off by the assessee in AY 2009-10 will constitute a business loss and as it has occurred in AY 2009-10, it is allowable as a deduction under provisions of section 28 of the Act in AY 2009-10. Even otherwise, assessee is entitled to deduction under section 80IA of the Act in past and current years and hence, there is no impact on taxable income. In light of the above, the objection raised by assessee is allowed and the AO is directed to delete the proposed addition of Rs. 66,00,000. As this ground is allowed in favour of the assessee, without prejudice ground has not been adjudicated." 18. Heard both sides. We have narrated in preceding paragraphs about assessee's payment made to BSNL for very much a business purpose which was forfeited thereby resulted in the impugned write off as business loss u/s.28 of the Act in the impugned assessment year. Even the Assessi....
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....We put up a specific query to Revenue as to whether there is any direct evidence pinpointing human intervention element in assessee's roaming facilities availed from its payees. No material is quoted in response to our query except page 71 of the assessment order. Meaning thereby that there is only an inference that the assessee must have paid for the impugned roaming charges involving human intervention component. This case file reveals that this tribunal's Kolkata bench in ITA No.1864/Kol/2012 Vodafone East Ltd. (assessee's sister concern) vs. ACIT decided on 15.09.2015 examines all fine points in case of identical roaming charges in cellular telephony parlance to conclude that the same are not liable for TDS deduction as follows: "4.10. We have heard the rival submissions and perused the materials available on record. It would be pertinent to note here that roaming services are provided by other telecom operators by using their existing telecom network/ infrastructure and no incremental investment is required to put up any additional network /infrastructure for provision of such roaming services. The aforesaid fact lends further support to the contention that roaming services a....
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.... Court in the case of CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC), the TDS officer has been directed to obtain technical evidence from the experts in the telecom field with regard to the fact of existence of human intervention for the roaming services and accordingly the ACIT, Circle 51(1), New Delhi had recorded statement from Shri Tanay Krishna on 29.9.2010. The Learned AR has also filed prayer for receipt of additional evidence in terms of Rule 29 of ITAT Rules on 20.7.2015 containing the statements recorded from Shri Tanay Krishna on 29.9.2010 in the case of Vodafone Essar Mobile Services Ltd & cross examination by Vodafone Essar Mobile Services Ltd on 29.9.2010. This application under Rule 29 contains a prayer with reasons that these documents could not be filed before the lower authorities and that these documents are very crucial for the disposal of the case under appeal as the examination of the technical experts had taken place post the proceedings before the Assessing Officer and as per the directions of the Hon'ble Supreme Court, these statements were recorded in the case of the group company of the assessee. However, it is seen that the statement of Shri Tanay Kr....
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....hnically competent person. vi) Testing - it is exhaustive testing. The calls are tested on various modes (terminating, loading etc) on network portion. (a) Software by hardware testing - Stand alone testing (b) Interconnect testing - it is done to test if it is compatible with other hardware/software. This testing employs technically qualified professionals and tested as per the agreed plan between services provider and vendor. Question 5: In your expert opinion, does the system work automatically when network system of one cellular operator gets connected with the network system of other cellular operator? Ans. 5: When a calls get connected by one operator to other, per se it is an automatic connection, but there can be instances when there is a problem in the call connect which may require resolution through human intervention. Question 6: Hence there is no 100% automatic operation of this network. Can you explain what kind of human intervention is required? Ans. 6: Yes as I said earlier it can't be 100% fully automated. There are several circumstances under which human intervention would be required. I would briefly tell you about each of such circumstan....
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....ect arrangements. Please confirm whether such services are required for provision of inter-connect services, i.e., carriage of calls from one network to another, or are primarily for fault detection and removal. Please refer to answer to Question 4 of this cross examination. Q.11. What is the extent of human involvement in provision of interconnect services. i.e., carriage of calls originating on network of one operator and termination the network of the other operator? We have answered in question no 5. Q.12. In answer to Question 21 of your Statement, you have stated that in cellular networks the level of human intervention is much higher and of sophisticated technical level. In this regard, do you agree that cellular networks are based on sophisticated technology and work on an automated mode? The human intervention as referred by you for network operations is limited to network monitoring and maintenance and fault repair, rectification, enhancement, configuration, and set-up? We agree that the telecom networks are automated networks and do not require human intervention for carriage of calls. However, as stated in Question 4 of this cross examination, human inter....
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....nd carrying power through transmission lines and transmission system would not amount to renting up equipment or its charge or rent". The Hon'ble Supreme Court has also shown us some direction in this behalf. While interpreting the expression "rent", the applicability of section 194-1 must be gathered from whether the wheeling and transmission charges draw its colour from the basic meaning of the expression "rent". It is seen from the decision of the Supreme Court in Singapore Airlines (supra) that the meaning of "rent" must be understood in the context in which they are used. In the present set of facts, it is not possible to equate the wheeling and transmission charges payable MSETCL with rent. On facts it is seen that the MERC order dated June 27, 2006, deals with MSEDCL's contentions, apropos the methodology proposed by MERC. The transmission charges contemplated by MERC includes the cross-subsidisation of transmission charges across licensees when found to be uneconomical and uncompetitive. It is further observed that MERC has considered pooling of transmission charges during bulk power transmission from one licensee to another licensee. It is after considering all ....
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....dence, maintenance and repairs to the system. However, no such service is rendered by the MSETCL to MSEDCL. MSETCL is obliged to maintain the system by value of operation of law under the Electricity Act. The MSEDCL accesses the State transmission utility and distributes electricity passing through the State transmission utility. Our views stand fortified by the very fact that the Revenue itself is confused and unsure as to the nature of the charge. The focus of the Revenue is only the requirement of deduction of tax whether under section 194-1 or section 194]. This approach is erroneous. The Revenue contends that the wheeling and transmission charges could be rent or fees for technical services but, in our view it is neither. Wheeling charges represent the charge for permitting use of the State transmission utility by persons other than the distribution licence. The transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to the licensees and consumers. In view of the above discussion, we are of the view that the wheeling and transmission charges are neither rent nor fees for technic....
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....se obligations that the assessee, along with other bulk power beneficiaries - namely M P State Electricity Board, Gujarat Electricity Board, Maharashtra State Electricity Board, Electricity Department - Government of Goa, Administration of Daman & Diu, and Electricity Department - Administration ofDadra and Nagar Haveli, has entered into a 'Bulk Power Transmission Agreement' with PGCIL. The preamble of this agreement, inter alia, notes that the PGCIL "is desirous to transmit energy from the Central Sector Power Station(s) to the Bulk Power Beneficiaries and that the said Bulk Power Beneficiaries are desirous of receiving the same through POWERGRID transmission system on mutually agreed terms and conditions". This agreement provides that "POWERGRID shall operate and maintain the transmission system belonging to it in the Western Region as per agreed guidelines and the directives of the Western Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the Bulk Power Beneficiaries of the Region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage to any ....
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....t of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of- (a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred eighty thousand rupees]: Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this se....
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....ission lines continue to be not only under control and possession of the PGCIL in legal terms, but, what is more important, these transmission lines are effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. On these facts, in our humble understanding, the assessee has made the payments for transmission of electricity in which transmission lines have been used rather than for the use of transmission lines per se. The payments could be said to have been made for "the use of transmission lines" in a case in which the object of consideration for which payments are made was the use of transmission lines simplictor. and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased bv the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the assessee has n....
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....ed by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO.[1990] 77 STC 182 (AP). Illustration (i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire. The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer ? The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons: (i) The lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (Hi) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carrier may unload the consignment en....
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....ectricity Board, we are of the view that ld. Commissioner of Income Tax (appeals) has appreciated the controversy in right prospective and no interference is called for. Therefore, ITA No. 3526,3528,3629,3530 are dismissed. The various decisions cited supra have held that there will be no TDS on transmission charges and the same analogy would apply with equal force in the case of transmission charges in telecom industry. 4.17. From the aforesaid statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT vs Bharti Cellular Ltd ( 330 ITR 239) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation / setting up / repairing / servicing / maintenance / capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be construed as technical services. It is common knowledge that when one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically witho....
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....' as defined in section 194C and hence the provisions of section 194C are not applicable to the impugned issue. 4.19. Let us now get into the applicability of provisions of section 1941 of the Act to the facts of the impugned issue. The term 'rent' is defined in section 1941 as below:- "For the purposes of this section, "rent" means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings whether or not any or all of the above are owned by the payee." The real test to be considered is whether it is possible to say that it is the assessee who has used the equipment and has paid the roaming charges to the other service provider with whom it has entered into a national roaming agreement. We hold that it is not possible to say so because if at all anyone can be said to have used the equipment it can only be the subscriber of the ass....
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....er with the telephone connection. In view of the above, we hold that the payment of roaming charges by the asesssee to other service provider cannot be considered as rent within the meaning of section 1941 of the Act. 4.20. Accordingly, we hold that the payment of roaming charges of Rs. 55,41,01,320/- does not fall under the ambit of TDS provisions either u/s 194C / 1941 or 194J of the Act and hence we have no hesitation in directing the Learned Assessing Officer to delete the addition made u/s 40(a)(ia) on this account." 22. We follow the above precedent in absence of any distinction on facts being pointed out at Revenue's behest. The assessee's corresponding ground in its appeal succeeds whereas Revenue's ground no.5 fails. 23. This leaves us with the latter issue as to whether the assessee is liable to deduct TDS upon discount coupons offered to prepaid distributors as disallowed u/s.40(a)(ia) of the Act. Case record reveals that a co-ordinate bench in M/s. Vodafone Essar Gujarat Ltd. (assessee's sister concern) vs. ACIT ITA No.386/Ahd/2011 decided on 07.07.2015 adjudicates the very issue against the Revenue as under: "7. We find that what is sold by the assessee is a....
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.... accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of Rs. 20/-, that Rs. 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit 86 earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and all of them have to share Rs. 20/- which is allowed as discount by the assessee to the distributor. There is no relationship between the assess....
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....dafone, it is necessary to look into the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at Rs. 100/- in their books of accounts and showing the discount of Rs. 20/- to the dealer. Only if they are showing Rs. 80/- as the sale price and not reflecting in their accounts a credit of Rs. 20/- to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable." 10. As we take note of the views so expressed by Hon'ble Karnataka High Court, we may also note that this issue has been decided against the assessee by, amongst others, Hon'ble Kerala High Court, in the case of Vodafone Essar Cellular Ltd vs. ACIT [(2010) 332 ITR 255 (Ker)]. The same approach has been adopted by some various other Hon'ble non jurisdictional High Courts....
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....imate subscribers and the distributor is only the middleman arranging customers or subscribers for the assessee. The terms of distribution agreement clearly indicate that it is for the distributor to enroll the subscribers with proper identification and documentation which responsibility is entrusted by the assessee on the distributors under the agreement. It is pertinent to note that besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. Even though the assessee has contended that the relationship between the assessee and the distributors is principal to principal basis, we are unable to accept this contention because the role of the distributors as explained above is that of a middleman between the service provider namely, the assessee, and the consumers. The essence of a contract of agency is the agent's authority to commit the principal. In this case the distributors actually canvass business for the ....
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....4H is not possible also does not apply because it was the duty of the assessee to deduct tax at source at the time of passing on the discount benefit to the distributors and the assessee could have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors to remit the same in terms of Section 194H of the Act." 11. There is no, and there cannot be any, dispute about the fundamental legal position that in the hierarchical judicial system, that we have in our country, lower tiers of judicial hierarchy has to respectfully follow the views expressed by the higher tiers of judicial hierarchy. In the case of ACIT Vs Dunlop India Limited [(1985) 154 ITR 172 (SC)], Hon'ble Supreme Court has observed, quoting the House of Lords, as follows: We desire to add and as was said in Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that "in the hierarchical system of Courts" which exists in our country, "it is necessary for lower tier", including the High Court, "to accept loyally the decisions of the higher tiers". "It is inevitable in a hierarchical system of Courts that t....
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....radesh High Court had upheld the validity of s. 140A(3). He drew our attention to the judgment of the Andhra Pradesh High Court in Kashiram vs. ITO (1977) 107 ITR 825 (AP). From the report, it appears that the said judgment was delivered on 10th Dec., 1975. Therefore, the Tribunal was not right in proceeding on the basis that only the Madras High Court judgment was in the field and, therefore, it was open to it to proceed on the basis that s. 140A(3) was non-existent. He also submitted that for that reason, the Tribunal was not right in following the judgment of the Bombay High Court in Godavaridevi's case (supra). 4. In our opinion, the legal position is correctly stated by the Punjab & Haryana High Court in CIT vs. Ved Prakash (1989) 77 CTR (P&H) 116 : (1989) 178 ITR 332 (P&H) when it observed that "unless and until the Supreme Court or the High Court of the State in question, under Art. 226 of the Constitution, declares a provision of the Act to be ultra vires, it must be taken to be constitutionally valid and treated as such". 5. In our opinion, the Tribunal of another State would be justified in proceeding on the basis that the provision has ceased to exist becaus....
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....it of guidance from Hon'ble jurisdictional High Court. 17. In our humble understanding of the legal position and of the propriety, it will be wholly inappropriate for us to choose views of one of the High Courts based on our perceptions about reasonableness of the respective viewpoints, as such an exercise will de facto amount to sitting in judgment over the views of the Hon'ble High Courts- something diametrically opposed to the very basic principles of hierarchical judicial system. Of course, when the matter travels to Hon'ble jurisdictional High Court, Their Lordships, being unfettered by the views of a nonjurisdictional High Court, can take such a call on merits. That exercise, as we understand, should not be carried out by us. 18. The choice of which of Hon'ble High Court to follow must, therefore, be made on some objective criterion. We have to, with our highest respect of all the Hon'ble High Courts, adopt an objective criterion for deciding as to which of the Hon'ble High Court should be followed by us. We find guidance from the judgment of Hon'ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. [(1972) 88 ITR 192 (SC)]. Hon&....
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....ion has no application. The rule of resolving ambiguity in favour of the assessee does not also apply where the interpretation in favour of assessee will have to treat the provisions unconstitutional, as held in the matter of State of M.P. vs. Dadabhoy's New Chirmiry Ponri Hill Colliery Co. Ltd. AIR 1972 (SC) 614. That is what Hon'ble jurisdictional High Court has also held in the case of Shah Electrical Corporation (supra). None of these exceptions, however, admittedly apply to the situation that we are dealing with at present. 20. There can be no dispute on the proposition that irrespective of whether or not the judgments of Hon'ble non jurisdictional High Courts are binding on us, these judgments deserve utmost respect which implies that, at the minimum, these judgments are to be considered reasonable interpretations of the related legal and factual situation. Viewed thus, when there is a reasonable interpretation of a legal and factual situation, which is favourable to the assessee, such an interpretation is to be adopted by us. In other words, Hon'ble non jurisdictional High Court's judgment in favour of the assessee, in the light of this legal principle....
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....at is the reason why we come to the same conclusion as the SMC did but for altogether different reasons. 23. We have also noted that material facts of the case and the terms of agreements with the distributors are the same as were before Hon'ble Karnataka High Court in the above case. A comparative chart of these clauses is as follows: Sl. No. Discosure in the Agreement as highlighted in the Hon'ble Karnataka High Court's judgment - relevant extracts Corresponding clause in the agreement of the assessee with its pre-paid distributors 1 The agreement stipulates that the distributors have to represent to the customers that the distributor's agreement with the customers/its dealers is on Principal-to-Principal basis and assesses is no way concerned or liable to the customers/dealers of the Distributor' -Page 68. Clause 17.2 specifically provides that the relationship created by the agreement is that of a buyer and seller and that the agreement is on a 'principal to principal' basis and neither party is, nor shall be deemed to be, an agent/partner of the other. It Is also provided that nothing in the Agreement shall be construed to render the distributo....
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.... even prevented from making any representation to the retailers unless authorized by the assessee'. The distributor shall not make any promises or representations or give any warranties or guarantees in respect of the products (i.e. SIM cars and prepaid vouchers) (Clause 1e Annexure III). 24. In the light of the above discussions, and particularly as there is no dispute that the factual matrix of all the cases before the Hon'ble non jurisdictional High Courts were materially the same as in this case, in conformity with the esteemed views of Hon'ble Karnataka High Court in Bharti Airtel's case (supra), and hold as follows: (a) On the facts of the case, and as is evident from a reading of the agreements before us, the assessee has sold, by way of prepaid vouchers, e-top ups and prepaid SIM cards, the 'right to service' on principal to principal basis to its distributors. As evident from the terms and conditions for sale, placed at page 136 of the paper-book, not only that the sale was final and the assessee was not responsible for any post-delivery defects in the services, it was specifically agreed that "no request of refund of any money ....
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....t from above extracted tribunal's decision and direct the Assessing Officer to finalize similar factual verification in the very terms reproduced hereinabove. This issue succeeds in assessee's favour as indicated hereinabove. The Revenue's corresponding ground no.6 is thus declined. Shri Soparkar informs us at this stage that the assessee raises only the above two grounds in its appeal. We accordingly accept assessee's appeal ITA No.944/Ahd/2014 raising these two substantive ground only in the terms indicated hereinabove. 24. The Revenue's next substantive ground no.7 pleads that the DRP has erred in law and on facts in deleting addition of Rs. 1,21,82,00,000/- made in the course of the impugned draft assessment on account of receipt of prepaid services crystallized in the impugned assessment year. The sole issue between the parties is about income arises from sale of prepaid cards. The Revenue treats the same to be a mere recharge taxable in the year of purchase. The assessee's stand as against this is that AS-9 mandates revenue recognition only when the corresponding services are actually rendered. We notice from the case file that a co-ordinate bench of this tribunal in (2013) ....
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.... on Explanation 8 to section 43(1) of the Act. : 15.1 On this issue, in brief, the Assessing Officer has based his conclusion in the draft assessment order on the following contentions: * As per section 36(1)(iii) of the Act, interest paid on capital borrowed for acquisition of assets for extension of business is not allowed as a deduction. .Reliance was placed on Explanation 8 to Section 43(1) of the Act; * The onus of the assesse who claimed any expenditure to prove that the said expenditure, including the expenditure claimed under section 36(1)(iii) of the Act was for business purposes. Reliance in this regard was placed on the following .judicial precedents: Malwa Cotton Spinning Mills vs ACIT (89 ITD 65) (ITAT - Chandigarh); Tirupati Trading Co. v. CIT [2000] (242 ITR 132) (Hon'ble Calcutta High Court); Iriveni Engineering Works Ltd. vs CIT (167 ITR 742) (Hon'ble Allahabad High Court); Sanghvi Swiss Refills P Ltd vs, ITO (85 ITD 59) (Mumbai ITAT); CIT vs. Orissa Cement Ltd. (258 ITR 365) (Delhi ITAT); CIT v. Motor General Finance Ltd [2002] (254 ITR 449) (Delhi ITAT) * The assesse could not prove by way of submitting fund flow statement th....
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.... expenditure would be determined by section 36(1)(iii) of the Act. Further, as mentioned by the assessee, it has incurred interest, expenditure on ECBs used for acquisition of capital assets and hence, interest expenditure has also been incurred even after capital assets have been put to use. Thus, provisions of Explanation 8 to section 43(1) are also not applicable to the assesssee as per decisions of Hon'ble Supreme Court in the case of Core Health Care .is relied on by the assessee. In the said decision, Hon'ble Supreme Court held that interest expenditure incurred on borrowings used for acquisition of capital assets for the purposes of existing business and not for the purpose of expansion, would be allowable as a deduction under section 36(1)(iii) of the Act. Hence, interest expenditure incurred by the assessee which is not for the extension of existing business but for the purpose of normal business operations would be allowable under section 36(1)(iii) of the Act. Further, Hon'ble Supreme Court has after considering provisions of Explanation 8 to section 43(1) held that the said explanation is not relevant while determining deduction of interest expenditure un....
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....hat the Assessing Officer had rightly invoked the impugned disallowance in the above draft assessment by quoting Section 43(1) explanation 8 of the Act. It however fails to dispute that hon'ble apex court decision in Core Healthcare case (supra) categorically holds that the said explanation does not apply in case of 36(1)(iii) deduction. The assessee at this stage states to have incurred the impugned interest expenditure in respect of various external corporate borrowings obtained for acquisition of capital assets for continuing its existing telecom business only and not for extension thereof. Its further case is that the interest in question paid on borrowed funds for acquisition of a capital asset is allowable even for a period to dated of its being put to use. As per hon'ble apex court's decision hereinabove holding that there is no distinction u/s.36(1)(iii) between interest incurred on capital borrowed for revenue or capital purposes provided the same is used for business purposes irrespective of the result of use of such capital. We afforded ample rebuttal opportunity to Revenue. Ld. Departmental Representative fails to take us to any material in the case file so as to prove ....
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.... as follows: "28. We have heard both the sides. Learned representatives reiterate their respective pleadings in support of and against the impugned transfer pricing adjustment. There is hardly and dispute that the assessee agreed to supply Deltametrin and its intermediate chemical solutions to the above stated associate enterprise or its designee. This lis however is confined to arms length price determination of 18 tones supplied to the foreign entity. The assessee charges @ US $ 126.2 per kg by following cost + 55% markup. Its agreement quoted Deltametrin price to be @ 161.20 US $ per kg. The assessee also admitted the latter rate to be at arms length price as already indicated in page 292 of the paper book. This made the TPO to inter alia to reject assessee's other contentions for making impugned upward transfer pricing adjustment of Rs. 2,96,10,000/- subject matter of the instant litigation. 29. We deem it appropriate at this stage to deal with chapter X of the act containing transfer pricing provisions relating to avoidance of tax introduced by the Finance Act, 2001 w.e.f. 01-04-2002. The impugned assessment year before us is the first full fledged year of business th....
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....der the CUP method. 31. We stay back on Rule 10B(1)(a) at this stage. It is evident that this clause prescribes CUP methods application to determine controlled price of an international transaction by the price charged or paid for property transfer or services provided in a comparable uncontrolled transaction; or a number of transaction, as identified. The same forms a price charged or paid in relation to property or services as the basis of ALP transaction. We referred to the above stated rule 10A(a) to observe here that the expression 'comparable un-controlled transaction' signifies a transaction between enterprises other than associate ones; whether resident or non-resident. It has already come on record that the TPO in the instant case relied upon assessee's agreed price rate of US $ 161.20 per kg for Deltamethrin supply in order to make the impugned transfer pricing adjustment. We reply on above stated statutory provision in the act as well as rule to observe that the same is rather in the nature of a comparable controlled transaction between two associate enterprises negating the basic fundamental condition of CUP methods application. 32. We proceed further ....