TaxTMI 
TaxTMI 
2019 (10) TMI 1477
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.... 17,83,93,654/- holding that the international transaction pertaining to receipt of intra-group services do not satisfy the arm's length principle envisaged under the Incometax Act, 1961 ('the Act'), and in doing so have grossly erred in: 1.1. disregarding the judicial pronouncement/ finding of the Hon'ble Income- tax Appellate Tribunal ('1TAT') in Appellant's own case for AY 2009-10, AY 2010-11, AY 2011-12, AY 2012-13, AY 2013-14 and AY 2014-15 wherein the Hon'ble ITAT has concluded the mentioned issue in favour of the Appellant. 1.2. rejecting the combined transaction approach of benchmarking adopted by the Appellant in its TP documentation (i.e. aggregating availing of intra-group 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; 1.3. arbitrarily applying Comparable Uncontrolled Price ('CUP') method as the most appropriate method as against Transactional Net Margin Method ('TNMM') applied by the Appellant in its Transfer Pricing documenta....
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....ng losses at the net level and that as per the facts of the case of the Appellant, no independent party would have made a payment for royalty; 2.4. disregarding the judicial pronouncement/ finding of the Hon'ble ITAT in Appellant's own case for the AY 2009-10, AY 2010- 11 and AY 2013-14 and merely placing reliance on past year orders passed by the DRP; 2.5. 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; 2.6. undertaking fresh benchmarking analysis using Royaltystat database and selecting agreements which are not comparable to the royalty payment made by the Appellant to its AEs. 2.7. not providing the detailed search process along with backup documentation such as accept-reject matrix to provide Appellant an opportunity to evaluate the appropriateness of the benchmarking analysis. 3. Disallowance of circuit accruals 3.1. On the facts, in circumstances of the case and in law, the Ld. AO/DRP erred in making a disallowance of INR 10,95,20,722 on account of....
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....under section 145(2) of the Act, the Appellant was required to make provision for all liabilities/expenses for the subject financial year. 4.3. On the facts, in circumstances of the case and in law, the Ld. AO/DRP erred in not appreciating that the Appellant produced evidences to the extent of more than 99.99% for utilisation/reversal made in subsequent years and no adverse finding has been given by Ld.AO/DRP on the same. 4.4. On the facts, in circumstances of the case and in law, the Ld. AO/DRP erred in ignoring the claim of reversals of year end accruals of INR 1,40,69,895 made in the subsequent years, submitted before the Ld. AO/DRP. 4.5. Without prejudice 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 utilized. 4.6. On the facts, in circumstances of the case and in law, the Ld.AO/DRP erred in ignoring that the aforesaid disallowance of yearend accruals has been deleted by the Hon'ble ITAT ....
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.... AY 2010-11, AY 2012-13, AY 2013-14 and AY 2014-15. 7. Disallowance of Lease line charges on account of nondeduction of tax at source 7.1. On the facts, in the circumstances of the case and in law, the Ld. AO/DRP erred in making disallowance of INR 1,31,66,943 under section 40(a)(ia) of the Act on account of non-deduction of tax at source under section 1941 of the Act cm lease line expenses of INR 4,38,89,811 incurred by Appellant. 7.2. On the facts, in the circumstances of the case and in law, the Ld. AO/DRP erred in ignoring that the aforesaid disallowance has been deleted by the Hon'ble ITAT in Appellant's own case for AY 2012-13, AY 2013-14 and AY 2014-15. 8. Short-grant of credit for taxes deducted at source 8.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in not granting complete credit of taxes deducted at source to the Appellant. 9. Levy of interest under section 234B and 234C 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 and 234C of the Act. 10. Initiation of penalty ....
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....d to make an upward adjustment of Rs. 17,83,93,654/-. With regard to the royalty payment made by the assessee to its AEs, wherein the plea of the assessee was that similar adjustment made in Assessment Year 2009-10 has been deleted by the Tribunal, the TPO noted that the assessee had benchmarked the transactions relating to payment of royalty under the Transactional Net Margin Method ("TNMM"), after aggregating the same with other transactions. The TPO was of the view that the same had to be benchmarked separately and could not be aggregated with other transactions. He further observed that CUP method as suggested by the assessee is not to be applied. He was of the view that royalty transaction was to be benchmarked by applying the benefit test which was internationally accepted method. In the final analysis, the TPO observed that the assessee had neither benchmarked the transaction properly by applying the most appropriate method nor it had furnished its requisite information; hence, the Arm's Length Price of the said transaction was taken at NIL by applying CUP. He then vide para 6.2 referred to Comparable License Agreements for technology of trade-market (bundled) IP and tak....
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....essee. All these adjustments/disallowances/additions were proposed in the draft assessment order and the DRP following its directions in the earlier years i.e. Assessment Years 2009-10, 2013-14 & 2014-15 had upheld the aforesaid additions. The Assessing Officer in the final assessment order disallowed the above said amounts and completed the assessment in the hands of the assesse against which the assessee is in appeal before us. 11. We have heard rival contentions and perused the material available on record. The first issue raised in the present appeal vide Ground Nos. 1 to 1.6 is against the transfer pricing adjustment in respect of receipt of Intra Group Services. The assessee for providing seamless services to its customers was availing services from its AE. As the services required specialized knowledge and experience in the field, the assessee had entered into services agreement in the earlier years in order to avail such Intra Group services. During the year under consideration, the assessee availed these services from Global Customers Services Center. Similar issues arose before the Tribunal and on similar facts, the adjustment made in the hands of the assessee was dele....
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....etwork which was used for obtaining customers contracts in India. The assessee in the TP study report while benchmarking the said transaction of payment of royalty had on aggregate basis, applied Transactional Net Margin Method, along with provision of network connectivity services. The margins of the assessee were at 54.08 % as against mean margins of the comparable companies at 7.70 %, hence the claim to be at arm's length. During the course of the TP proceedings, the assessee undertook an alternate analysis wherein a search using RoyaltyStat database to determine the contemporaneous industry rate of royalty for brand name/trade mark paid by other independent companies on similar products was carried out. The said document is placed at Page 934 of Paper Book Volume-II. The TPO rejected both the analysis of the assessee and applied Comparable Uncontrolled Price method only and undertook fresh search wherein he concluded that arms' length payment @ 2.48% of net sales and made an upward adjustment of Rs. 11.30 crores. The grievance of the assessee before us is that the TPO did not share the search process result and hence, did not allow an opportunity for hearing to the assessee to ....
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....zed method wherein the actual expenditure incurred against the accrual/provisions for the year is accounted for in the subsequent year. This approach adopted by the assessee in recognizing the provision of circuit accruals was not accepted by the Assessing Officer/ DRP on the ground that similar disallowance was made in the earlier years. We find that the Tribunal has consistently from Assessment Years 2009-10 to 2014-15 allowed the claim of the assessee in entirely. The relevant findings of the Tribunal in the Assessment Year 2014-15 are at pages 19-23 (part), which are being referred but not being reproduced for the sake of brevity. The assessee has also furnished evidence of the services provided in the subsequent year against the aforesaid accruals and in view thereof, we find no merit in the orders of the authorities below in making aforesaid disallowance in the hands of the assessee. Consequently, Ground Nos. 3 to 3.7 raised by the assessee in this appeal are thus, allowed. 16. Now, coming to the next issue raised vide Ground Nos. 4 to 4.6 which is similar to the Ground No.3 i.e. here the accrual are other than circuit accruals. The assessee was following systematic method....
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....vide page 16 to 18 and the same are not reproduced for the sake of brevity. Thus, Ground Nos. 5 to 5.3 raised by the assessee are allowed. 18. The next issue raised in Ground Nos. 6 to 6.3 is against the addition made on account of disallowance of annual revenue share based license fee of Rs. 44,57,84,302/-. The assessee during the year under consideration had incurred expenditure of Rs. 62.97 crores towards annual revenue share based license fee for maintenance and user of the telecom licence payable to the Department of Telecom. The assessee for its operations in India had acquired the telecom licences from Financial Year 2006-07 as per the agreement with Department of Telecom. One time entry fee of Rs. 5 crore was paid by the assessee in Financial Year 2006-07 which was capitalized and is being amotorized under the provision of section 35BB of the Act. The assessee was granted telecom license for initial term of 20 years upon the payment of one time entry fee. However, the license holder as per the Rules of DoT is also required to pay recurring fee on periodic basis towards use of the telecom services, which during the year under consideration were Rs. 62.97 crores. The asses....
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.... in earlier years in assessee's own case. The Tribunal in Assessment Year 2014-15 vide paras 22 to 24 at pages 29 to 35 has decided the issue and concluded by holding as under:- 24. ........................... ........................... "It is pertinent to note here that the annual revenue share based license fee incurred by the assessee is a business expenditure allowable u/s 37 of the Income Tax Act, 1961. This expenditure was incurred by the assessee company towards maintenance and usage of the telecom license, and not for acquiring a right to operate telecommunication services and thus would not attract the provisions of Section 35ABB of the Act. The assessee's case is squarely covered by the decision of Hon'ble Delhi High Court in the case of CIT vs. Bharti Hexacom Limited [2014] 265 CTR 130 (Delhi) other case laws relied upon by the appellant as cited above. The Ld. DR also could not controvert that how this issue is not squarely covered by the decision of the jurisdictional High Court. It is also important to note that in one of the preceding year on same facts, the DRP allowed the claim of the licence fees on revenue basis u/s 37(1) of the Ac....