TaxTMI 
TaxTMI 
2020 (2) TMI 1038
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....utual Agreement Procedure (MAP) before the Indian and the Finnish Competent Authorities (CA) on the following issues: (a) Disallowance under Section 40(a)(i) of the Act due to alleged failure to withhold tax on payments made to Nokia Corp towards: (i) Purchase of end user operating software (ii) Purchase of finished mobile phones (b) Transfer pricing adjustments on account of: (i) Contract R & D activities (ii) AMP expenditure (iii) Excessive software purchase price A resolution has been arrived between the Indian and Finnish CAs on abovementioned taxation issues raised before the Tribunal in the instant appeal. The said resolution under Article 24 of the India-Finland DTAA has also been accepted by the assessee vide letter dated 20.02.2018. As per Rule 44H of the Income Tax Rules, 1962 orders giving effect to the MAP resolution shall be passed by the Assessing Officer once all appeals are withdrawn by the appellant on the issues so resolved under MAP. Accordingly, the appellant herein i.e. assessee has withdrawn Ground Nos. 2 to 10 and Ground Nos. 15 and 18 in instant appeal for A.Y. 2010- 11. The Ori....
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.... its Associated Enterprises. 8. Without prejudice to the above, the Ld. TPO, Ld. AO and the Hon'ble DRP have erred in further enhancing the adjustment by Rs. 17,53,680 (i.e. from Rs. Rs. 97,65,63,440 to Rs. 97,83,17,120), by using State Bank of India's Prime Lending Rate as on 30th June of the relevant financial year (i.e. June 30, 2009) as interest rate, for making working capital adjustment. 9. The Ld. TPO, Ld. AO and the Ld. DRP have erred in disallowing a portion of the expense incurred by the Appellant amounting to INR 358,49,23,473 on purchase of software from Nokia Corp by treating it to be excessive under transfer pricing regulations. 10. Without prejudice to the above, the Ld. AO erred in further enhancing the adjustment proposed by the Ld. TPO by Rs. 21,07,29,467/-. 11. The Ld. AO and the Ld. DRP have erred making a disallowance of the trade offers amounting to INR 834,92,63,976 provided by the Appellant to its distributors (HCL Infosystems Ltd as well as other distributors) under Section 40(a)(ia) of the Act. 12. The Ld. AO and the Ld. DRP have erred in making a disallowance of Rs. 166,02,61,748 incurred by the Appellant on ac....
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....e full credit of pre-paid taxes. 21. The Ld. AO has erred in incorrectly computing the interest under Section 234B of the Act. 22. The Ld. AO has erred in levying interest under Section 234C of the Act. 23. The Ld. AO / TPO / DRP have erred in ignoring the judicial pronouncements relied upon by the Appellant. 24. The above grounds of appeals are independent and without prejudice to one another. 25. The Appellant craves leave to add / withdraw or amend any ground of appeal at the time of hearing. 3. Thus, the Revised Grounds of appeal on account of MAP settlement are as under:- ITA No. 5791/Del/2015 (Assessee's appeal) "Nokia India Private Limited (hereinafter referred to as 'Appellant') objects to the order passed under section 143(3) r.w.s. I44C (13) of the Income Tax Act, 1961 (hereinafter referred as 'the Act') dated .8 August 2015 (received on 29 August 2015) by the learned Deputy Commissioner of Income Tax (hereinafter referred as 'Ld. AO') pursuant to the directions of the Dispute Resolution Panel (hereinafter referred as 'Ld. DRP') for the assessment year 2010-11 on the following ground....
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....d. AO has erred in levying interest under Section 234C of the Act. 12. The Ld AO / TPO/ DRP have erred in ignoring the judicial pronouncement relied upon by the Appellant. 13. The above grounds of appeals are independent and without prejudice to one another." ITA No. 5845/Del/2015 (Revenue's appeal) 1. "Whether on the facts and circumstances of the ease, the Dispute Resolution Pane, (DRP) is legally justified in issuing directions to grant depreciation on the mobile ban sets valued a, Rs. 6,3,34,029/- ignoring provisions of section 32(1) of Income Tax Act, 1961 (the Act) and without considering a fact that ownership of these mobile handsets was transferred from the assessee to the dealers? 2. Whether on facts and circumstances of the case, the Dispute Resolution Panel (DRP) is legally justified in issuing directions to grant depreciation on the mobile handsets value at Rs. 51,33,96,664/- issued free of cost during warranty period to After Marketing Service Centre (AMSCs) without considering the fact that value of Rs. 51,33,96,664/- was debited in P&L account as revenue expenditure and the Assessing Officer (AO) had accepted the claim of the as....
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.... Length Price" u/s 92CA(3) of the Income Tax Act in respect of "international transactions" entered into by the assessee during the previous year 2009-10. The TPO passed an order dated 30.01.2014. The draft assessment order was passed u/s 143(3) r.w.s. 144C(1) on 22.10.2014, wherein the assessee's income was proposed to be assessed at Rs. 9787,82,85,371/- as against the returned income declared by the assessee at Rs. 694,99,29,995/-. Against the draft assessment order, the assessee filed objections before the Dispute Resolution Panel on 21.11.2015. The DRP issued directions u/s 144C(5) of the Act on 31.07.2015. Accordingly, the final assessment order dated 28.08.2015 was passed in accordance with the directions of the DRP. The Assessing Officer made following additions: Para Ref of the order Particulars Amount (in Rs.) Amount (in Rs.) Returned Income 694,99,29,995/- Add : Disallowance due to failure to deduct tax at source (TDS) on amounts credited or paid to Nokia Corporation u/s 40a(i) of the Act: 5 A) Payment for purchase of software 2943,61,91,870/- 6 ....
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.... a reason for applicability of withholding tax under Chapter-XVII-B of the Act on the underlying amount of trade offers, particularly where the Assessing Officer has not disputed the genuineness of the transaction. The Ld. AR relied upon the decision in case of Tupperware India (P.) Ltd. vs. CIT (1960) 39 ITR 594 (Bom.). The Ld. AR submitted that the trade scheme / offers were floated by assessee for Distributors under schemes to maximize sales in each territory and incentivize high-performing Distributors who achieve their monthly sales targets. Therefore, discount is given to the Distributors which have been referred by the Assessing Officer as a 'benefit'. The details of Trade offers were submitted at Pg. 199 to 203 of the Paper book Volume I by the Ld. AR. The Ld. AR further submitted that relationship between the assessee and HCL is that of principal to principal and not that of principal to agent. This fact is evident from Clause 2, 7, 8, 9, 14 and 19 of the "Agreement for the Supply of Cellular Mobile Phones" between HCL and the assessee. In the absence of a principal-agent relationship, such 'benefit' extended to the Distributors cannot partake the character of 'commissi....
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....n original sales made by the assessee. There is no provision in the agreement between HCL and the assessee for such discounts which was over and above the preagreed invoice price. The Ld. DR further submitted that HCL would be entitled to spe c i f ic incentives on meeting the "Monthly Target Value" as per the approved Scheme and the pay-out is dependent on the achievement of certain percentage of targets given by the assessee to HCL. Therefore, The Ld. DR submitted that relationship between the assessee and HCL is that of principal to principal or principal to agent is not relevant. Alternatively, The Ld. DR submitted that as payments for technical service liable for withholding under Section 194J of the Act, a combination of various services has been rendered by HCL for which no consideration was payable by the assessee. Services being provided by HCL are consultancy in nature and covered by the nature of technical services defined under Explanation 2 to Section 9(1)(vii) of the Act and thereby subject to withholding provisions under Section 194J of the Act. 8. We have heard both the parties and perused all the relevant material available on record. It can be seen from Clause ....
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....ia (P.) Ltd. (supra) Copies of party wise details of Trade Price Protection and confirmations received from distributors were submitted before the Assessing Officer vide submission dated 10.03.2014 and the same have been reproduced at Page 301-390 of the Paper book Volume 1 by the Ld. AR. For Example: * HCL Infosystems Ltd break-up is at Pg. 204 and the confirmation is at Page 308. * Eastern enterprise break-up is at Pg. 204 and the confirmation is at Page * G.R.SARDA & SONS break-up is at Pg. 204 and the confirmation is at Page 303. * Fusion Voice Solutions break-up is at Pg. 204 and the confirmation is at Page 302. * Fayam Enterprises break-up is at Pg. 204 and the confirmation is at Page 301. The Ld. AR further submitted that TPP is offered to distributors on handsets which have not been subject to trade offers/discounts. This is evidenced by specific clause in the Trade Schemes filed before the Assessing Officer vide submission dated 10.03.2014 trade scheme copies at Page 208- 299 of the Paper book Volume 1. Expenditure is allowable as revenue expenditure under Section 37(1) of the Act since it has been incurred wholly and excl....
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....Ground No. 3 is allowed. 12. As regards to Ground No. 4 relating to disallowance of 25% of provision for obsolescence of inventory, the Ld. AR submitted that these provision is in accordance with Global company policy and has been consistently followed. The Ld. AR submitted that in fact the provision made on the basis of scientific formula and past experience. "Excess stock = Stock in place - Requirement for next 90 days". The Ld. AR submitted that obsolete inventory is defined as inventory which has not been consumed for last 90 days and will not be required for next 90 days. The Ld. AR submitted that provision represents 100% of non-moving inventory of spare parts/accessories of handsets which has been phased out. The Ld. AR further submitted that as these accessories are plastic or metallic parts net realizable value is zero. The Ld. AR submitted that method followed is the amount of provision created in a year is debited to the P&L and actual obsolescence is charged to such provision. The Ld. AR submitted that excess provision if any is reversed and offered to tax in year of reversal. Further, the Ld. AR submitted that disallowance made by the Assessing Officer on account of....
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....as marketing employees interact with dealers and other service organizations such as AMSC's, etc.). Handsets were also issued to other employees for business use. Therefore, handsets were issued to AMSC's, Dealers and employees on free of cost basis entirely for the purpose of its business. This issue has been decided in favour of the assessee in AY 2003-04 by the ITAT on the ground that the said expenditure is wholly and exclusively for the purpose of business of the assessee. The decision has also been affirmed by the Hon'ble Delhi High Court. 16. The Ld. DR submitted that handsets of employees are capital assets as assessee will receive business benefits over a period of time. If ownership of the handsets is transferred to the employees, then same should be treated as perquisite eligible to withholding under section 192 of the Act. The Ld. DR submitted that handsets issued to After Marketing Service Centre's ('AMSC') cannot be claimed under marketing expenditure as they are warranty expense and can be claimed if documentary evidence of reconciliation is available. No evidence that handsets have been issued to ultimate customers. Handsets issued to dealers with intention to....