TaxTMI 
TaxTMI 
2018 (11) TMI 130
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.... its commercial operations during assessment year 2007-08 and its business operations can be divided into the following three broad categories:- i) Provision of market research, administrative support and liaison services; ii) Provision of network outsourcing services - solutions business; and iii) Provision of network support services - network monitoring and support. 4. During the relevant assessment year, the appellant undertook the following international transactions with its associated enterprises (AEs):- Sr. No. Particulars of transaction Amount (in Rs Cr) Result 1 Provision of market research, administrative support and liaison services ('MRA') 91.29 Considered to be at Arm's Length by TPO 2. Provision of Network Support Services ('NSS') 24.55 Considered to be at Arm's Length by TPO 3. Reimbursement of expenses to AEs 4.17 Considered to be at Arm's Length by TPO 5. As can be seen from the chart, the aforementioned international transactions were held to be at arm's length. However, the TPO was of the firm belief that the outstanding receivables from associated enterprises are loan and, accordingly, proceeded by imputing notional interest on the ....
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.... here that a similar adjustment was made in assessment year 2009-10 and the DRP deleted the same by observing that the interest foregone by the assessee on outstanding receivables from non-AEs is higher than the interest foregone from AEs. 11. For the sake of completeness of the adjudication, we find that the working capital adjustment subsumed in main international transaction has been accepted by the TPO inasmuch as working capital adjusted in operating margin of the comparable companies was taken by the TPO at 6.38% whereas appellant's margin was 16.78% in respect of 'Provision of network support services.' The appellant's margin is 16.60% whereas arm's length margin accepted by the TPO was 7.01%. Once the working capital adjustment has been accepted, then, we do not find any merit in making further adjustment in respect of outstanding receivables. Our view is further fortified by the decision of the Hon'ble jurisdictional High Court of Delhi in the case of Kusum Healthcare Pvt. Ltd., in ITA No.765/2016. The relevant extract is reproduced below:- "11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY ca....
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....ounsel vehemently stated that neither of the two is charged to Profit & Loss Account. Therefore, there is no question of any disallowance u/s 43B of the Act. It is the say of the counsel that entries have not been properly appreciated by the Assessing Officer and, therefore, the Assessing Officer may be directed to verify the entries and decide the issue afresh. Per contra, the ld. DR could not add anything to what the Assessing Officer has done. 16. We have carefully considered the orders of the authorities below qua the issue. It appears that the Assessing Officer has not properly appreciated the accounting entries in their due perspective. The marginal heading of section 43B clearly states that certain deductions to be allowed on actual payment. This means that if the assessee has claimed deductions, the same can be disallowed u/s 43B of the Act. However, in the case in hand, the assessee has not claimed any deduction as the input service tax and the output service tax have never been routed through the P&L Account. However, in the interest of justice and fair play, we restore this issue to the files of the Assessing Officer. The assessee is directed to explain the entries and ....
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....llowed in the year of creation itself, particularly, when the Revenue authorities has allowed the entire claim of expenditure in the subsequent years. 26. So, following the law laid down by the Hon'ble Apex Court in Rotork Controls India (P) Ltd. (supra) and the decision rendered by the coordinate Bench of the Tribunal in AGNSI in ITA No.1059/Del/2015 for AY 2010-11, we are of the considered view that when the taxpayer has worked out the liability by using a substantial degree of estimation by proving 95% of the invoices on the basis of historical trend, no disallowance can be made. So, we order to delete this addition." 21. Respectfully following the findings of the coordinate Bench, we order for the deletion of the said addition. Ground No.3 is allowed. 22. Ground No.4 relates to the addition on account of non-charging of mark-up on support service charges billed to AGNSI amounting to Rs. 1.99 crore. During the course of scrutiny assessment proceedings, the assessee was asked to justify as to why additions made in the last year should not be made in this year also. The said query related to the transactions between a group company AGNSI and the ssessee. AGNSI commenced i....
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.... interfered unless contract is unlawful or specially barred by the law of the land. Moreover by such a decision of not charging mark up by the taxpayer on support services charges billed to AGNSI, no loss of tax has been caused to Revenue. So, the findings of the TPO/DRP that the taxpayer is not only to cut charges but mark up also 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." 25. Respectfully following the findings of the coordinate Bench, we direct the Assessing Officer to delete the impugned addition. Ground No.4 is allowed. Ground No.5 is not pressed and the same is dismissed as not pressed. 26. Ground No.6 relates to the addition on account of non-deduction of tax at source on reimbursement made to AT &T World Personnel Services Inc. (AWPS). 27. The underlying facts in this issue show that the assessee entered into master service agreement with AT&T USA for provision of market research, administrative support and liaison services and other support services. AWPS is a company incorporated in the US and is engaged in provision of manpower recruitment services. Dur....
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....olding the findings of the Assessing Officer. 30. We have given a thoughtful consideration to the orders of the authorities below. It would be appropriate to reproduce the related statutory provision set out in section 195(1): "Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account 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 rates in force." 31. It can be seen from the above that so long as a payment to non-resident entity is in the nature of payment consisting of income chargeable under the head 'Salaries', the assessee does not have any tax withholding applications u/s 195 of the Act. In our considered view, the nature of income embedded in related payments is relevant for deciding whether or not section 195 will come into play. We have also gone through the agreements exhibited at pages 5....