TaxTMI 
TaxTMI 
2021 (3) TMI 48
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....013-14 on the identical grounds except difference in the amount of adjustments/additions/ disallowances and except one additional ground nos.2.6 to 2.6.5 for benchmarking of "Project Management Services" in Assessment Year 2012-13 value of which has been taken at Nil, inter alia that :- "1. General 1.1. That on the facts and. in the circumstances of the case and in law, the Ld. AO erred in passing the impugned assessment order dated October 03, 2017 pursuant to the directions of the Hon'ble Dispute Resolution Panel (Hon'ble DRP) thereby computing the total income of the appellant at Rs. 1,380,032,000 as against returned loss of Rs. 62,390,267; and 1.2. That the assessment order passed by the Ld. AO pursuant to the directions of Hon'ble DRP is based on surmises and conjectures, and, without considering the facts and arguments submitted by the appellant during the course of assessment proceedings. 2. Transfer Pricing 2.1. That on facts and circumstances of the case and in law, the Ld. AO) Transfer Pricing Officer (,Ld. TPO')/ 'Hon'ble DRP' has erred in making transfer pricing adjustments to the extent of Rs. 394....
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....39;Other Method' in determining the arm's length price for receipt of Technical Services. 2.5.5. The Ld. TPO / Hon'ble DRP has erred in law and on facts by not sharing the relevant material / information relied upon to apply the 'Other Method' as most appropriate method for benchmarking the transaction of receipt of Technical Services. 2.5.6. The Ld. AO / TPO has erred in law and on facts by not appreciating the fact that the subject transaction has been benchmarked using Comparable Uncontrolled Price ('CUP') method; 2.6. That on the facts and circumstances of the case and in law, the Ld. AO/Ld.TPO/Hon'ble DRP has erred in making an adjustment of Rs. 355,413,945 in respect of international transaction pertaining to availing of Project Management Services from its AE alleging that the same to be not at arm's length. In doing so : 2.6.1. The Ld. AO / Ld. TPO / Hon'ble DRP has erred in law and on facts, by determining the arm's length payment for availing Project Management Services as 'Nil' and no acknowledging the fact that the services were actually received by the Appellant. 2.6.2. The Ld. AO / Ld. TPO / Hon'ble DRP ....
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....the facts and in law in confirming disallowance towards provision for customer claims of Rs. 1,010,856,249 without appreciating that the amount provided by the Appellant is in relation to actual delays/defaults occurred as per the terms of the contract entered between the Appellant and its customers and thus, is an ascertained liability; 4.2 The Hon'ble DRP erred on the facts and in law in holding that such provision is an unliquidated damages made unilaterally on estimated basis and has not been computed on scientific basis, thereby completely ignoring the complete details furnished by the appellant providing details of customers, basis of calculation, period of delay, workings, copy of agreements, ; 4.3 Without prejudice to above, the Ld. AO and the Hon'ble DRP erred on the facts and in law in making disallowance of the provision under section 40(a)(ia) of the Act by holding that the provision for customer claims is compensation in the form of interest paid to customers and tax should have been deducted under section 194A of the Act; 5. Addition on account of advances written off - Rs. 8,533,563 5.1 The Ld. AO and the Hon'ble DRP er....
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....India. The taxpayer also provided business support services to its Associated Enterprises (AEs). 5. During the year under consideration, the taxpayer entered into international transactions with its AEs as under :- S. No. Description of the transactions Amount (Rs.) Paid/Payable Amount (Rs.) Received/Receivable 1 Provision of business support services - 2,085,914,472.00 2 Import of telecommunication equipments 483,717,622.00 - 3 Purchase of fixed assets 267,802,270.00 - 4 Purchase of spare parts 205,640,341 5 Availing of technical services 39,138,666 - 6 Reimbursement of expenses - 80,886,384.00 7 Recovery of Operational loss - 529,610,988 8 Return of goods and spares parts - 70,417,186 9 Availing of Project Management Services 355,413,945 - 6. The taxpayer challenged the benchmarking of two international transactions mentioned at Sl.Nos.5 & 9 qua availing of technical services and availing of project management services by AO/DRP/TPO by filing present appeals. Ld. TPO declining the contentions raised by the taxpayer proceeded to benchmark the transac....
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....Method (MAM) which has been rejected by the TPO/DRP who have applied the benefit test and determined the arm's length value of technical services and project management services at nil, which is now under challenge before the Tribunal. 13. Undisputedly, the Revenue has been accepting the arm's length value of the international transactions qua receipt of technical services and project management services since AY 2004-05 onwards and has not drawn any adverse inference therein. It is also not in dispute that there is no change in the business model/ function performed and risk assumed qua the transaction in question by the taxpayer during the years under consideration. 14. Ld. TPO in order to benchmark international transactions qua intra-group services availed from AEs in respect of technical services for AYs 2012-13 & 2013-14 and benchmarking of project management services for AY 2012-13 considered both the transactions jointly and proceeded to conclude that the taxpayer has not established "cost benefit" analysis for availing the services in respect of ex-pats vis-à-vis independent employees. At the same time, as is evident from page 11 of the TP order under the h....
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....ernational transactions as under :- "The facts of the international transaction are as follows : Huawei India had entered into a contract with a third party in Nepal for rendering specialized Network Services. However, Huawei India approached Huawei China for assistance since Huawei China already had working relationships in Nepal. Huawei China was already dealing with third party customers in Nepal and therefore, it had the relationship with third party sub-contractors in Nepal for rendering services to its customers. Thus, Huawei China assisted Huawei India by delivering services to the customer through the subcontractors. To conclude, Huawei India sub-contracted the assignment to Huawei China and Huawei China ensured that the services were delivered through the sub-contractors in Nepal." 20. However, findings of the ld. TPO given in para 10.6.3 go to prove that the contentions raised by the taxpayer has not been taken into account rather issue has been decided on the basis of surmises that no independent entity would pay for such services without any cost benefit analysis and that the taxpayer has not furnished any evidence as to the cost benefit an....
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.... So, following the decisions rendered by the Hon'ble High Court and coordinate Bench of the Tribunal, as discussed in the preceding paras, we are of the considered view that it is beyond the jurisdiction of ld. TPO to determine the benchmarking of technical services and project management services by applying the "benefit test" and "commercial expediency test" rather his jurisdiction is limited to determine the ALP of transactions with the standpoint of a businessman and not by sitting on the chair of the businessman. Moreover, in the instant case, assessee has brought on record plethora of evidence for availing of the technical services and payment made for technical services received on the basis of USD 1600 per man-month on actual time spent by the relevant personnel, copy of technical services agreement between the taxpayer and the Huawei, China and also brought on record invoices filed on sample basis for availing technical services, but all these documents have not been examined by the TPO/DRP rather benchmarked the technical services/project management services availed of by the taxpayer from its AE at nil by mechanically dealing with the issue by applying the benefit tes....
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....can also not be presumed that all these expenses are only for the benefit of business of the taxpayer. 28. Bare perusal of the findings returned by the ld. DRP goes to prove that disallowances of advertisement expenses have been made on the basis of guesswork/ad hoc basis merely on the basis of assumptions and presumptions as ld. DRP itself recorded the finding that, "However it can also not be presumed that all these expenses are only for the benefit of business of the taxpayer". So, disallowance made by the AO and confirmed by the ld. DRP is not sustainable. 29. The taxpayer has categorically brought on record the bifurcation of the advertisement expenses at page 221 & 204 of the paper book for AYs 2012-13 & 2013-14 respectively. It is the settled principle of law that to examine the question whether an expenditure was wholly and exclusively incurred for the purpose of business, reasonableness of the same has to be examined from the standpoint of the businessman and not of the Revenue Department. Even otherwise, ad hoc disallowance of expenditure on account of incidental third party benefit is not permissible. 30. Hon'ble Supreme Court in case of SA Builders Ltd. vs. CIT....
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....nature because advertisements do not have long lasting effect and once the advertisements stop, the effect thereof on the general public and customer diminishes and vanished soon thereafter. Advertisements do not leave a long lasting and permanent effect in the sense that the product or service has to be repeatedly advertised. Even otherwise advertisement expense is a day to day expense incurred for running the business and improving sales. It is noticeable that every year, the respondent-Assessee has been incurring substantial expenditure on advertisements. The Assessing Officer, in the assessment order, had referred to the fact that similar additions were also made in the Assessment Year 2008-09. Keeping in view the nature and character of the respondent-Assessee's business, every year expenditure has to be incurred to make and keep public informed, aware and remain in limelight. This requires continuous and repeated publicity and advertisements to remain in public eye, to do business by attracting customers. It is an expenditure of trading nature. The aforesaid aspect has been highlighted by the Delhi High Court in CIT v. Salora International Ltd. [2009] 30....
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....e on ad hoc basis is not permissible in law, hence ordered to be deleted. Consequently, grounds no.3 to 3.4 of ITA No.7509/DEL/2017 & 7510/DEL/2017 for AYs 2012-13 & 2013-14 respectively are determined in favour of the taxpayer. GROUNDS NO.4 TO 4.3 OF ITA NO.7509/DEL/2017 (AY 2012-13) ITA NO.7510/DEL/2017 (AY 2013-14) 36. The taxpayer challenged disallowance/confirmation of Rs. 1,010,856,249/- & Rs. 128,611,894/- for Assessment Years 2012-13 & 2013-14 respectively on account of provision for customer claim on the ground that the amount provided by the taxpayer pertaining to actual delays/defaults occurred as per the terms of the contract entered between the taxpayer and its customers and as such is an "ascertained liability". The taxpayer has raised specific objections before the ld. DRP, available at paves 256-274 and 217-234 for AYs 2012-13 & 2013-14 respectively, and also brought on record evidence in the form of credit-memo in relation to liquidated damages and details of liquidated damages, chart showing trend and utilization of provision of customer claims from AYs 2010-11 to 2014-15 and extract of audited financials for AYs 2010-11 to 2016-17 to show the details ....
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....sophisticated goods and statistical data indicated that every year some of these were found defective; that valve actuator being a sophisticated item no customer was prepared to buy a valve actuator without a warranty. Therefore, the warranty became an integral part of the sale price; in other words, the warranty stood attached to the sale price of the product. In this case the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of the obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income-tax Act, 1961. The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the ....
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....axpayer pertaining to actual delays and defaults occurred in terms of the contract entered into between the taxpayer and its customers is to be considered as "ascertained liability". So, AO/DRP have erred in making disallowance on account of provision for customer claims. So, it is ordered to be deleted subject to verification of data brought on record by the taxpayer as discussed in the preceding paras. Consequently, grounds no.4 to 4.3 of ITA No.7509/DEL/2017 & 7510/DEL/2017 for Assessment Years 2012-13 & 2013-14 respectively are determined in favour of the taxpayer. GROUNDS NO.5 TO 5.3 OF ITA NO.7509/DEL/2017 (AY 2012-13) ITA NO.7510/DEL/2017 (AY 2013-14) 43. The taxpayer challenged the disallowance/confirmation of advances written off to the tune of Rs. 85,33,563/- & Rs. 61,60,172/- for AYs 2012-13 & 2013-14 by AO/DRP on the ground that without appreciating the fact that expenditure was incurred wholly and exclusively for the purpose of business. Ld. DRP confirmed this disallowance made by the AO on the ground that the companies generally held the salaries or allowances for such kind of settlements when the employees leave the companies and the company is under n....