TaxTMI 
TaxTMI 
2019 (6) TMI 38
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.... long distance (NLD) and internet service provider (IS) licence from the Department of Telecommunications. It commenced its commercial operations on 7th April, 2007. It has entered into service agreements with its customers in India for provision of end-to-end telecom activity services to such customers for transmission of data from source locations in India to destination locations within/outside India. It filed its return of income on 11th November, 2012 declaring an income of Rs. 156.65 crore. The Assessing Officer referred the matter to the TPO u/s 92CA of the Act for determination of the Arm's Length Price (ALP) of the international transaction entered into by the assessee. The TPO, vide order dated 28th January, 2016, recommended an addition of Rs. 19.30 crores being the ALP of the international transaction entered into by the assessee on account of intra group services. The Assessing Officer passed the draft assessment order on 17th February, 2016, determining the total income of the assessee at Rs. 2,32,09,25,823/- wherein the Assessing Officer, apart from making the addition of Rs. 19.30 crore, made various other additions. The DRP issued certain directions, vide its order....
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....ed in contending that the services received are duplicative and stewardship in nature, ignoring the documentation and evidences submitted by the Appellant; which contradicts his own contention that the services have actually not been received. 1.6 The Ld. AO/TPO/DRP has erred in arbitrarily challenging the veracity of the contractual service agreement disregarding the actual conduct of the Appellant in the availing of intra-group services from AEs basis the elaborate documentary evidences submitted as part of assessment proceedings. 1.7. Without prejudice to the above, the Hon'ble DRP grossly erred in alleging that payment made by the Appellant for intra-group services is not wholly and exclusively incurred for the purposes of business and directing the Ld. AO to alternatively disallow such expenditure under section 37(1) of the Act, without providing any opportunity of being heard to the Appellant. 2. Disallowance of circuit accruals 2.1. On the facts, in circumstances of the case and in law, the Ld. AO/DRP erred in making a disallowance of Rs. 40,02,308 on account of circuit accruals created towards bandwidth and last mile services availed ....
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.... of the case and in law, where any disallowance is made in respect of the aforesaid accruals for the year under consideration, deduction in respect of the disallowed amount should be allowed in the subsequent year(s) in which such accruals were reversed or utilised. Therefore, any disallowance on account of year-end accrual is unjustified. 4. Disallowance on account of service tax payable 4.1 On the facts, in circumstances of the case and in law, the Hon'ble DRP/Ld. AO grossly erred in disallowing service tax payable of Rs. 80, 72,791 as on March 31, 2012 without appreciating that the appellant has not debited the service tax to the Profit/Loss Account, accordingly no disallowance of the same can be made. 4.2 Without prejudice to the above, on the facts, in circumstances of the case and in law, the Ld.AO/Hon'ble DRP erred in disallowing service tax payable without appreciating that the evidences with respect to payment of deposit of service tax to the government account were furnished by the appellant company. 4.3 On the facts, in circumstances of the case and in law, the Ld. AO/Hon'ble DRP erred in not allowing the claim of service tax ....
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....ts, in the circumstances of the case and in law, the Ld. AO/Hon'ble DRP in making disallowance under section 40(a)(ia) read with Section 194I of the Act account of non-deduction of tax at source on lease line expenses of Rs. 6,50,79,639 incurred by appellant. 8. Disallowance of amount of 20,74,814 on account of short deduction of tax at source 8.1. On the facts, in the circumstances of the case and in law, the Ld. AO/Hon'ble DRP erred in disallowing an amount of Rs. 20,74,814 under section 40(a) of the Act on account of non-deduction of fax at specified rate @ 10%. 8.2. On the facts, in the circumstances of the case and in law, the Ld. AO/Hon'ble DRP grossly erred in not appreciating that the appellant deducted tax @ 2% instead of 10% which is short deduction of tax at source and that section 4o(a)(ia) of the Act is applicable only to cases involving non-deduction of tax at source and not on short- deduction. 9. Disallowance of foreign exchange loss 9.1. On the facts, in the circumstances of the case and in law, the Ld. AO grossly erred in making disallowance of Rs. 4,80,06,052 on account of foreign exchange loss arising on revenue accou....
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..... He submitted that during the relevant year, out of the many services for which it had entered into agreements, only one service, namely, global customers service centre (GCSC) was availed. He submitted that AGNS provided network activity service to customers of its AEs. For rendering the aforementioned services, the AGNS availed support service in the nature of global customers support centre from its AEs. The key functions performed by GCSC is primarily divided into two parts i.e., a) Ticket handling which includes the following services:- - Review ticket status - Customer handling verification - Check action real time - Manual CON notification - Detection and management of major incidents - Creating a case ticket - Creating and linking GenChild tickets with Master ticket - Stopping the clock on a ticket - Updating next check time - Document all ticket related communication - Document diagnostics, troubleshooting efforts in the ticket - Manage ticket queue b) Problem determination (PD)/Triage - CPE verification - Diagnostics and troubles....
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....ervices availed are not in the nature of shareholders services, benefit test has been satisfied and substantial material evidences have been placed on record. He submitted that following the orders of the Tribunal, the Tribunal in assessee's own case for assessment year 2010- 11 and 2011-12 has also deleted similar addition. The ld. counsel for the assessee filed the following chart to substantiate the similarity of information/documents between assessment year 2009-10 and 2012-13:- Assessment year Name of Intragroup Services Nature of service Evidence(s) submitted Basis of Allocation 2009-10 GCSC The GCSC team is based in Hong Kong and Singapore and is engaged in maintenance and fixing repairs or outages for customers of AGNSI as well as other AT&T group companies in Asia Pacific region. During FY 2009-10, the GCSC team processed over 26,600 tickets for AGNSI The list of the tickets processed along with nature of problem resolved bas been submitted as evidence India related fault tickets as percentage of total fault tickets for Asia Pacific 2012-13 GCSC The GCSC team is based in Hong Kong and Singapore and is engaged in maintenance and fixing....
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.... and the kind of industry the assessee operates in, the assessee has justified that such services are required. It is not the case of the ld TPO that assessee is having this services therefore they are duplicative in nature or are in nature of shareholders' services. It is pertinent to note that requirement of the services should be judged from the viewpoint of the appellant as a businessperson. We agree with the argument of the assessee that if the network related problems prevent the customers from using its services, the assessee is bound to suffer reputational damage and potential loss to business. Addressing the customer's problems promptly and by a specialized team (which may be an AE) should satisfy the benefit test, as the assessee received an economic benefit to maintain its business operation. Therefore in this regard we are of the view that assessee has substantiated that these services are required by it for its business sustainability. The only allegation which TPO / DRP made was that the assessee has not been able to substantiate need test by way of appropriate documentation and held that the assessee should have availed these services from an independent thir....
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....sinessman receiving services from an unrelated provider. Respectfully the following the decision of the coordinate the bench we are of the view that the assessee has justified the receipt of the services and satisfied the rendition test. Regarding the benefit test, the assessee submitted that owing to the nature of industry it operates in it requires specialized knowledge and experience in order to provide seamless services to customers. It has inherent risks and advantages that can be effectively harnessed only through sharing of resources and efficiencies that are inbuilt in-scale. Accordingly, availability of support in terms of strategy, data usage and administration is essential and indispensable for the assessee in order to achieve cost efficiency and normal functioning of its business operations. For this reason, the assessee is availing such essential services from its AEs. For this purpose, the assessee had entered into an agreement with its AE. These functions or services, if not availed from the AEs, would have to be undertaken by the assessee itself. However, due to very nature of network connectivity services and in order to achieve better economies of scale and synerg....
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....Communication Pvt. Ltd. (ITA No.306/2011) d. Commissioner of Income Tax vs. Cushman and Wakefield (India) P. Ltd. (269 CTR 16) (Del.) 51. The above decisions unanimously holds that in reaching the conclusion that whether an independent entity would have paid for such services neither the revenue nor the court must question the commercial wisdom of the assessee or replace its own assessment of the commercial viability of the transaction. The judicial precedents also stipulate that the duty of the Ld. TPO is restricted to determine the ALP of the international transaction and that he cannot replace his views with the views of the assessee. Respectfully following the binding precedent cited above we are of the view that benefit test for determination of Arms length Price is to be viewed from the perspective of the assessee and businessman and not from the perspective of revenue. In this case appellant has demonstrated the benefit which it is expected to derive from the various services rendered by its AE and ld. TPO has erred in replacing with its own judgment of the benefit derived by the assessee, we reject this approach. 52. However for determination of a....
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....guishable features brought before us by the Revenue, we hold that the addition made by the Assessing Officer/TPO and upheld by the DRP is not sustainable. We accordingly set aside the order of the Assessing Officer/TPO and direct them to delete the addition. The transfer pricing grounds raised by the assessee are accordingly allowed. 13. Ground of appeal No.2 relates to disallowance of circuit accruals. 14. Facts of the case, in brief are that the assessee, during the impugned assessment year incurred circuit charges aggregating to Rs. 192.52 crores i.e., Rs. 82.62 crores towards infrastructure cost and Rs. 107.89 crores towards last mile charges towards services provided by other telecom operators. Out of the above amount of Rs. 37.55 crore towards the year end accrual the Assessing Officer disallowed an amount of Rs. 40,02,308/- on account of non-submission of supporting documents which has been upheld by the DRP. 15. It is the submission of the ld. counsel for the assessee that as part of the month end accounting process, the assessee accrues expenses incurred up till the end of a particular month based on the liability incurred/crystalised and estimated expense based o....
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....d upheld by the DRP should be sustained. 17. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find the Assessing Officer made a disallowance of Rs. 40,02,308/- on account of circuit accruals credited towards band width and last mile services availed by the assessee on the ground that the assessee did not file the requisite supporting documents. It is the submission of the ld. counsel for the assessee that the assessee follows mercantile system of accounting and accrues circuit charges on scientific basis. It is also his submission that as per the accounting standards notified u/s 145(2) of the Act, the assessee is required to make provision for circuit accruals for the subject financial year. It is also his submission that the assessee has provided evidence to the extent of almost 98% of the expenses represented by year end circuit accruals for utilization/reversal of circuit accruals made in subsequent year and no adverse finding has been given by the Assessing Officer/DRP. We find merit in the arguments advanced by the ld. counsel for the assessee. We find identical issue had come up before the Tribunal in assess....
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....ists in inventory for vendor; * Invoice date is after circuit activation date; * Service period is before circuit cease date; * Invoice tariff code matches order tariff code * Invoice cost is not varying more than USD 100 vis-à-vis the expected cost * Invoice number is unique for vendor The invoices for which validation is completed with no discrepancies or for which the discrepancies identified, the same are logged / resolved via dispute management process, are approved for payment. The assessee also explained the logic used by GAIM to calculate the Circuit Accrual for both active and ceased circuits taking into account the activation date and the cease date i.e. no accruals will be posted prior to the activation date or after the cease date. For the current and prior period GAIM will look at each tariff code for each circuit to determine if there is any invoice cost and circuit accruals are booked accordingly. Prior year expenses are tracked each month and matched against the prior year accrual balance brought forward manually. Accordingly, only the current year accrual balances are booked in the profit and loss account....
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....ice, we hold that the Assessing Officer is not justified in making addition on account of circuit accruals. We, therefore, direct the Assessing Officer to delete the addition. The ground raised by the assessee on this issue is accordingly allowed. 19. Ground No.3 relates to disallowance of year end accruals. 20. The facts of the case, in brief are that the assessee has made year end provisions on outstanding as on 31.03.2012, the details of which are as under:- Particulars Accrual as on 31.03.2012 Accrual control account 27.81 crores IPA accruals 0.32 crores Total 28.13 crores 21. Out of the accrual control account, the assessee submitted evidences amounting to Rs. 26.74 crore on various dates regarding reversal entries and utilization entries which were allowed by the Assessing Officer in the final assessment order. However, the Assessing Officer disallowed year end accruals of Rs. 1.39 crore (accrual control account and IPA accrual). 22. Aggrieved with such order of the Assessing Officer/TPO/DRP, the assessee is in appeal. 23. The ld. counsel for the assessee submitted that the assessee follows mercantile system of accounting and accor....
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....sed by the Revenue should be dismissed. 24. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find the Assessing Officer in the instant case, disallowed an amount of Rs. 1.39 crores on account of non-submission of supporting documents relating to the year ending provisions of outstandings. It is the submission of the ld. counsel for the assessee that when the assessee follows mercantile system of accounting and accounts all its expenses pertaining to the year in accordance with the matching principle and was able to substantiate with evidence to the satisfaction of the Assessing Officer in case of more than 95% of the expenses represented by year end accruals, therefore, no disallowance is called for. We find identical issue had come up before the Tribunal in assessee's own case for assessment year 2010-11. We find the Tribunal vide ITA No.1059/Del/2015, order dated 18th September, 2017, has discussed the issue and deleted the addition by observing as under:- "16. We have carefully considered the rival contentions and also perused the facts of the case. The assessee has explained the basis of creating the p....
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....before the Tribunal in the case of the sister concern of the assessee, namely ACSI. We find the Tribunal vide ITA No.354/Del/2017, order dated 31st October, 2018, has restored the issue to the file of the Assessing Officer with certain directions. The relevant observations of the Tribunal at para 16 of the order read as under:- "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 the Assessing Officer is directed to verify the same and decide the issue as per the provisions of the law. Grou....
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....e parties to deflate the revenues earned by appellant. The decision was totally based on commercial considerations. By transferring the cost from ACSI to appellant no added tax advantage is being availed by appellant. We are also of the view that commercial expediency of a particular expenditure incurred by a businessman should be examined from the perspective of the business person and no third party, including the tax authorities, is entitled to question the commercial reasoning/justification of the expenditure so incurred. Reliance in this regard is placed on the following judicial precedents furnished by the assessee: i. CIT v. Panipat Woollen & General Mills Co Ltd (103 ITR 66) (SC) ii. CIT v. Sales Magnesite (P) Ltd [1995) 214 ITR 1 iii. Binodiram Balchand vs. Commissioner of Income Tax (48 1TR 548) iv. Calcutta Landing and Shipping Co Ltd vs. CIT (65 ITR 1) (Cal High Court) v. CIT Vs B Dalmia Cement Ltd (254 ITR 377) 76. Respectfully following the principles laid down in the aforesaid judicial precedents, we find that where the appellant has actually incurred the aforesaid support services cost and no ev....
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....to operate telecommunication services. Thus, if the expenditure is not for obtaining or acquiring any right and also it is not in the nature of a capital expenditure, section 35ABB of the Act is not applicable. Referring to the decision of the Delhi High Court in the case of CIT vs. Bharti Hexacom Limited (supra) he submitted that the Hon'ble High Court in the said decision has unequivocally and categorically held that the licence fee paid under the revenue share regime is clearly a tax deductible expenditure and has to be allowed u/s 37(1) of the Act. Referring to the decision of the Delhi Bench of the Tribunal in the case of Hutchison Essar Telecom vs. JCIT vide ITA Nos.1751 & 1752/MDS/2004, he submitted that the Tribunal has approved the treatment of subscriber based licence fee as an allowable expenditure under section 37 of the Act. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Bharti Airtel Ltd. vs. ACIT vide ITA No.398/Mum/2006, order dated 25th June, 2010, he submitted that the Tribunal in the said decision has held that the deduction for annual licence fee paid to the Department of Telecommunications should be allowed u/s 37(1) of the ....
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....his issue is not squarely covered by the decision of the jurisdictional High Court.It is also important to note that in the immediately succeeding year on same facts, the DRP has allowed the claim of the licence fees on revenue basis u/s 37(1) of the Act. In view of the above facts and respectfully following the decision of the Hon'ble jurisdictional High Court we allow the claim of the assessee. In the result the ground No. 4 of the appeal is allowed." 36. Merely because the Revenue has filed SLP against the order of the Delhi High Court, the same cannot, in our opinion, be a ground to take a contrary view than the view taken by the Hon'ble High Court unless and until the same is reversed or stayed by the Hon'ble Apex Court. Therefore, respectfully following the decision of the Tribunal in assessee's own case for assessment year 2010-11, the disallowance made by the Assessing Officer on account of annual revenue share based licence fee is deleted. The ground raised by the assessee is accordingly allowed. 37. Ground No.7 relates to the lease line charges on account of non-deduction of tax at source. 38. Facts of the case, in brief are that the assessee, during ....
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....ulated period of time in order that a payment can be said to be rent. Referring to the provisions of section 194I, he submitted that the above section clearly states that section 194I is applicable only when rent is paid on account of use of plant and machinery or use of land or building or furniture and fittings. The word 'use' employed in section 194I of the Act suggests that there should be a right to possession or custody of the equipment and enjoyment thereof over a stipulated period of time in order that a payment can be said to be rent. However, in the instant case, the payment is on account of leaseline expenses paid to other telecom operator which are purely automated. Therefore, the provisions of section 194I will not be applicable. He submitted that the leaseline charges were paid to the telecom service provider for faster connectivity service through dedicated leaseline. As such, the payment has been made for availing the facility of connectivity services from vendors required for transmission of data and is not for use of any asset involved in provision of such facility covered u/s 194I of the Act. He submitted that the assessee was neither in possession nor control....
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....Industries Ltd. in ITA no.1423/Mum/2015, order dated 3rd July, 2017, he submitted that the internet charges for broadband connection are not liable for deduction of any tax at source u/s 194J, 194C as well as 194I of the Act. Referring to the decision of the Karnataka High Court in the case of CIT (TDS) vs. Vodafone South Ltd. reported in 290 CTR 436, he submitted that the Hon'ble High Court in the said decision has held that the payment made by the assessee, a mobile service provider company, to another mobile service provider company for utilization of roaming mobile data and connectivity could not be termed as technical service and, therefore, no TDS was deductible. Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. Bharti Cellular Ltd. reported in 234 CTR 146, he drew the attention of the bench to the following head notes:- "Section 194J of the Income-tax Act, 1961 - Deduction of tax at source - Fees for technical/professional services - Assessee was a cellular service provider - It had an interconnect agreement with BSNL/MTNL under which it paid interconnect/access/port charges to BSNL/MTNL - Question that arose for consideration was....
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....of the order has decided the issue in favour of the assessee by observing as under:- "9. The Ld. Counsel for the assessee submitted that the A.O. disallowed payments made for lease lines, as the assessee has not deducted tax at source u/s 40(A)(i)(a). The A.O. disallowed the same by holding that lease lines were, technically speaking, equipment and payment for taking these lines on lease, is covered u/s 194-I and that the assessee himself has described the payment has been made towards lease lines. The Ld. Counsel relied on the decision of the Delhi high court in the case of Asia Satellite Tele Communication Co. 332 ITR 340(Del)C and submitted that the issue is covered in his favour. He relied on the decision of the Mumbai Tribunal in the case of "Vodafone S.R.Ltd." 135 TTJ 182 and submitted that such payments are not for the use of equipment and, therefore, not liable to TDS u/s 194-I. 9.1. On the additional ground of deduction u/s 80 IA(iv), he submitted that any disallowances made by the A.O. would go to increase the income and consequently the assessee would be eligible for deduction u/s 80 IA on such increased profits. He relied on the order in the case of "G....
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....the amount in question to Sify Ltd. towards use of internet/lease license charges. As could be seen, in a number of judicial precedents, some of which have been cited before us, it has been held that payment made towards broadband/lease line charges is not in the nature of royalty so as to attract the provisions of section 194J. Since, the services rendered are not in the nature of technical service as envisaged u/s. 194J, the ld. CIT(A) has attempted to rope in the payment u/s. 194I by referring to the definition of 'process' as provided under Explanation (6) to section 9(1)(vi). However, the said amendment was made by Finance Act, 2012 w.r.e.f. 01.6.1976. Thus, as per existing provision, when the assessee made the payment there was no liability to deduct tax at source by treating it as royalty. The amendment made with retrospective effect cannot fasten liability on the assessee. That being the case assessee cannot be treated as assessee in default. The decisions relied upon by the ld. AR support this view. As far as the observation of the ld. CIT(A) that the payment made otherwise is covered u/s. 194I, we must observe in case of Hero Moto Corp. Ltd. (supra)and Global Indi....
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.... 10. In the another decision of the Apex Court, in the case of Kotak Securities Limited, the matter was pertaining to the charges of the Stock Exchange and the Apex Court, ultimately, found that no TDS on such payment was deductible under Section 194J of the Act. But the learned Counsel for the appellants - Revenue attempted to contend that in paragraphs 7 and 8 of the above referred decision of the Apex Court, it has been observed that if a distinguishable and identifiable service is provided, then it can be said as a "technical services". Therefore, he submitted that in the present case, roaming services to be provided to a particular mobile subscriber by a mobile Company is a customize based service and therefore, distinguishable and separately identifiable and hence, it can be termed as "technical services". 11. In our view, the contention is not only misconceived, but is on non existent premise, because the subject matter of the present appeals is not roaming services provided by mobile service provider to its subscriber or customer, but the subject matter is utilization of the roaming facility by payment of roaming charges by one mobile service provider Com....
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....ecting various explanations given by the assessee, the Assessing Officer made addition of Rs. 20,74,814/- and the DRP upheld the action of the Assessing Officer. Accordingly, the Assessing Officer, in the final order, made the addition of the same. 47. The ld. counsel for the assessee submitted that the provisions of section 40(a)(ia) of the Act can be applied only to a case involving non-deduction of tax at source and cannot be applied to cases involving mere short-deduction of tax at source. Referring to the decision of the Mumbai Bench of the Tribunal in the case of ACIT vs. Dish TV India Ltd. reported in 167 ITD 412, he submitted that the Tribunal in the said decision has held that where tax was deductible u/s 194J, but was actually deducted u/s 194C, such a short-deduction would not meet the requirements of section 40(a)(ia) as the assessee could not be held as defaulter when there was only shortfall in deduction of TDS. Referring to the following decisions, he submitted that no disallowance can be made in the hands of the assessee towards the expenses where taxes have been deducted at a lower rate than the rate applicable under the normal provisions:- i) DCIT vs. ....
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....ated 3rd December, 2014 taken a view by which the Hon'ble High Court dismissed the appeal of the Revenue against the order of the Tribunal by holding that where tax was deducted by the assessee, though under a bona fide wrong impression under wrong provisions, the provisions of Section 40(a)(ia) could not be invoked and if there was any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various tax deduction at source provisions, the assessee could be declared to be an assessee in default under section 201 but no disallowance could be made invoking the provisions of Section 40(a)(ia). The said decision of the Hon'ble Calcutta High Court has not been referred to before the Hon'ble Kerala High Court and the Kerala High Court, therefore, did not consider the decision of the Calcutta High Court. This Tribunal in the case of CIT vs. Shri Zubin J. Gandevia in ITA No. 3357/Mum/2014 vide order dated 1st February, 2016 had the occasion to consider the binding nature of both the decisions and ultimately under para 8 of its order held as under: - "8. Before us the Ld. Counsel has pointed out that there is a ....
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.... sec. 40(a)(ia) of the Act. In the present case on hand, the assessee has deducted TDS and deposited the same with the Central Govt. account as prescribed under the Act. The allegation of the A.O. is that the assessee failed to deduct TDS under appropriate provisions of the Act. Therefore, we are of the view that the provisions of sec. 40(a)(ia) of the Act is applicable, in case there is a failure on the part of the assessee to deduct TDS and remit the same to the government account. There is nothing in the said section to treat inter alia that the assessee is defaulter where there is shortfall in deduction of TDS. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under the various TDS provisions, the assessee can be declared to be an assessee in default under sec. 201 of the Act and no disallowance can be made by invoking the provisions of sec. 40(a)(ia) of the Act. Therefore, we do not find any error or infirmity in the CIT(A)'s order, hence, we inclined to uphold the order of the CIT(A) and reject the ground raised by the Revenue." 16. No contrary decision of this Tribunal or of the....
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....he mandatory Accounting Standard-11 (AS-11). As per the said provision, transactions denominated in foreign currency are recorded by AGNS at the exchange rate prevailing on the date of the transaction and are subsequently settled or translated at the exchange rates prevailing on the date of balance sheet. Any loss/gain arising on account of such settlement/translations are recognized in the profit and loss account for the relevant period. He submitted that any loss arising on revenue account transaction being revenue expenditure is claimed as a tax deductible expenses and conversely any loss on capital account transaction is disallowed while computing taxable income of the assessee. Referring to the following decisions, the ld. counsel submitted that foreign exchange fluctuation loss is an allowable business expenditure:- i) Woodward Governor India Private Limited, 312 ITR 254 (SC); ii) Tony Electronics Ltd., 375 ITR 431 (Del); and iii) Welspun Zucchi Textiles Ltd., 61 SOT 280 (Mumbai Tribunal). 53. He, however, filed certain additional evidences under Rule 29 of the Incometax (Appellate Tribunal) Rules, 1963 and requested the Bench to consider the add....
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.... adjustment with respect to receipt of Intra-Group Services That on the facts and circumstances of the case, and in law, the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in enhancing the income of the Appellant by INR 22,43,41,663/- holding that the international transaction pertaining to receipt of intra-group services do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'), and in doing so have grossly erred in: 1.1. rejecting the combined transaction approach of benchmarking adopted by the Appellant in its TP documentation (i.e. aggregating availing of intragroup services with provision of network support services) and proceeding to determine the arm's length price of international transaction pertaining to availing of intra-group services from its AEs on a standalone basis; 1.2. Arbitrarily rejecting TNMM and selecting Comparable Uncontrolled Price ('CUP') method as the most appropriate method to benchmark the international transaction pertaining to availing of intra-group services by the Appellant from its associated enterprises, without duly establishing suitability thereof; ....
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....g payment for royalty and passing the order in contrast with the recent judicial pronouncements in this regard; 1.9. arbitrarily rejecting the supplementary analysis using Comparable Uncontrolled Price ('CUP') method to benchmark the payment of royalty transaction submitted by the Appellant without giving any cogent reasons; 1.10. holding that as per the facts of the case of the Appellant, no independent party would have made a payment for royalty and thereby challenging the commercial expediency of the Appellant; and 1.11. Disregarding the judicial pronouncement/ finding of the Hon'ble ITAT in Appellant's own case for the assessment year 2009-10. 2. Disallowance of circuit accruals 2.1. On the facts, in circumstances of the case and in law, the Ld. AO/DRP erred in making a disallowance of Rs. 31,614 on account of circuit accruals created towards bandwidth and last mile services availed by the Appellant company, ignoring that the accruals were based on a reasonable and scientific basis. 2.2. On the facts, in circumstances of the case and in law, the Ld. AO failed to appreciate that the appellant follows mercantile system of acco....
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....to the above, on the facts, in circumstances of the case and in law, where any disallowance is made in respect of the aforesaid accruals for the year under consideration, deduction in respect of the disallowed amount should be allowed in the subsequent year(s) in which such accruals were reversed or utilised. Therefore, any disallowance on account of year-end accrual is unjustified. 4. Disallowance of Support Service Expenditure 4.1. On the facts, in circumstances of the case and in law, the Ld. AO/ Hon'ble DRP erred in disallowing the legitimate business expenditure being in the nature of support service expenses of Rs. 9,38,09,542 paid to AT&T Communication Services India Private Limited ('ACSI'). 4.2. On the facts, in circumstances of the case and in law, the Ld. AO/Hon'ble DRP erred in not taking cognizance of the submissions made by appellant and the documentary and circumstantial evidence/ proof produced by the appellant, which duly substantiates that support services were rendered by ACSI to the appellant company. 4.3. On the facts, in circumstances of the case and in law, the Hon'ble DRP erred in ignoring that the aforesaid disal....
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....axes deducted at source as allowable to the Appellant for the year under consideration. 9. Lew of interest under section 234B of the Act 9.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in incorrectly charging interest under section 234B of the Act. 10. Initiation of penalty proceedings 10.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 27i(i)(c) of the Act against the Appellant on account of the above adjustments made in the impugned final assessment order. All the above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case." 60. Ground of appeal No.1 to 1.06 relates to transfer pricing adjustment relating to intra group services. After hearing both the sides we find that the above grounds relating to intra group services are ide....
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.... royalty payments and Ld TPO has disregarded the transaction only on the benefit analysis and has also rejected the CUP benchmarking of the assessee , we are of the view that this issue needs to be set aside to the file of the ld TPO to determine the ALP of the royalty payments afresh after examining the method, comparability and then ALP afresh. Assessee is also directed to support its ALP determination afresh after submitting the detailed answer to all the questions raised by the ld TPO in para no 9 of his order except the benefit test. Hence this ground no 8 of the appeal is allowed with above directions." 60.1 Respectfully following the decision of the Tribunal, we hold that the TPO cannot apply benefit test and is only required to determine the ALP of the royalty payment. Accordingly, we restore the issue to the file of the TPO to determine the ALP of the Royalty payment in accordance with the law and after giving due opportunity of being heard to the assessee. We hold and direct accordingly. These grounds of appeal No.1.7 to 1.10 are allowed for statistical purposes. 61. Ground of appeal No.2 to 2.6 relates to disallowance of circuit accruals. After hearing bot....