TaxTMI 
TaxTMI 
2021 (11) TMI 873
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....on 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. disregarding the favourable adjudication/ findings of the Hon'ble Income- tax Appellate Tribunal ("ITAT") in Appellant's own case for AY 2008-09, AY 2009-10, AY 2010-11, AY 2011-12, AY 2012-13, AY 2013-iig AY 2014-15 and AY 2015-16 wherein the Hon'ble ITAT has concluded the 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 documentation; 1.4. disregarding the elaborate documentary evidence submitted as part of as....
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.... reliance on past year orders passed by the DRP; 2.4. arbitrarily rejecting the supplementary analysis using CUP method to benchmark the payment of royalty transaction submitted by the Appellant without giving any cogent reasons; 2.5. 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. 2.6. 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; and 2.7. erroneously computing arm's length price as average of the royalty rates of six comparable agreements instead of applying the range concept as prescribed under Rule 10CA of the Income-tax Rules, 1962. 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 5,18,23,315 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 re....
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....xpenditure incurred by the Appellant ignoring that the accruals were based on a reasonable basis. 4.2. On the facts, in circumstances of the case and in law, the Ld. AO/ DRP failed to appreciate that as per the accounting standards notified 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 99.88% for utilization/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 not allowing deduction of year-end accruals of INR 1,40,82,744 disallowed in the preceding assessment year (i.e. AY 2015-16) without appreciating that non-deduction of such amount would result in double disallowance of the same amount in AY 2015-16 as well as in AY 2016-17, which is untenable in law. 4.5. Without prejudice to the above, on the facts, in circumstances of the case and in law, where any disall....
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....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(s) 2010-11, AY 2012-13, AY 2013-14, AY 2014-15 and AY 2015-16. 7. Disallowance of Lease line charges on account of non-deduction 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 8,55,380 under section 4o(a)(ia) of the Act on account of non-deduction of tax at source under section 194I of the Act on lease line expenses of INR 28,51,268 incurred by Appellant. 7.2. Without prejudice to above, on the facts, in circumstance of the case and in law, the Ld. AO erred in disallowing the entire expense of INR 28,51,268 instead of 30% thereof i.e. INR 8,55,380 in the computation sheet. 7.3 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 to AY 2015-16. 8. Short-grant of credit for taxes deducted at source 8.1. On the facts, in the circumstances of the c....
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....Year 2008- 09, vide order dated 18.09.2017; • ITA No.1059/Del/2015 relating to Assessment Year 2010- 11, vide order dated 18.09.2017 • ITA No.292/Del/2016 relating to Assessment Year 2011-12, vide order dated 18.09.2017 • ITA No.5535/Del/2016 and 7115/Del/2017 relating to Assessment Years 2012-13 and 2013-14, vide order dated 27.05.2019 5. The issue of intra group services, availed by the assessee has been benchmarked by the TNMM which has been found to be acceptable by the Tribunal for the earlier year 2014-15 and 2015-16. Since, the facts are identical, we hereby allow the claim of the assessee. Issue of Royalty: 6. During the year, the assessee paid royalty to AE of Rs. 31,08,90,758/- @ 4% on net sales of Rs. 777.22 Crores. The ALP of the royalty determined @1.73% resulted in Rs. 13,44,60,253/- thus adjusting an amount of Rs. 17,64,30,505/-. The ld. DRP confirmed the adjustment made by the TPO on the grounds that the similar issue in the case of the assessee for assessment years 2012-13 to 2015-16 has been continuously upheld. 7. Before us, the ld. AR argued that the royalty determined in the earlier year by the revenue was 3.76....
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....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 rebut his findings and also did not consider the comparables picked up by the assessee. The second grievance of the assessee is before us that the DRP acknowledged that the facts were similar to the earlier years, placed reliance on the orders of the earlier years and upheld the addition. 14. On this issue, the first aspect is whether benefit test is to be applied or not, while benchmarking the payment of royalty. We ....
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....d the claim of the assessee in entirely. Disallowance of year-end Accruals: 11. The assessee was following systematic method of accounting from year to year and was creating year end accruals towards normal business expenditure and was debiting the expenditure when paid or reversed in the subsequent years. The said details were furnished before the authorities below and the AR for the assessee has also referred to them before us. The Tribunal in Assessment Year 2014-15 relying on the orders of the Tribunal in the case of the assessee in earlier years had allowed the claim of the assessee. Following the same parity of reasoning, we hold that the said expenditure is duly allowable in the hands of the assessee. Support Service Expenditure: 12. The assessee had incurred the said expenditure of support services on account of services availed from the group company in different fields of operation, which was necessary and imperative for carrying on its business. No mark up was charged on the said services provided by the AE. The availment of the support services from the AE was through support services agreement. While deciding the said issue, the Tribunal has remitted the sa....
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....er telecom operators u/s 194J of the Act. The claim of the assessee was that the lease line services were standard automatic services which were availed by any telecom service provider for the transmission of data and was not under any exclusive arrangement. The Assessing Officer was of the view that the tax on such expenditure was to be withheld u/s 194I of the Act. We find that similar issue of non-deduction of tax on lease line expenses arose before the Tribunal in ITA No.6385/Del/2019 for Assessment Year 2015-16 and for assessment year 2014-15 also. 17. The Tribunal for 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 35AB....
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....ion 10(4) of the old Act and Section 40(a)(ii) of the new Act. 2. The view of the ITO is not correct. Clause 40(a)(ii) of the IT Bill, 1961 as introduced in the Parliament stood as under: "(a) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains." When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided." 25. The similar issue of allowability of cess u/s 37 has been examined by the Co-ordinate Bench of ITAT in ITA No. 685/Cal./2014 wherein the amount of the cess paid has been held to be an allowable deduction. 26. Further, we find that the Hon'ble High Court of Judicature for Rajasthan at Jaipur in ITA No. 52/2018 in the case of Chambal Fertilizers and Chemical....
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....of the Act. 30. Further, we are guided by the judgment of the Constitutional bench which was also referred in the case of Dewan Chand Builders & Contractors Vs. Union of India & Others in Civil Appeal No. 1830 of 2008 dated 18.11.2011. 31. The Constitution Bench of this Court in Hingir Rampur Coal Co. Ltd. Vs. State of Orissa2 was faced with the challenge to the constitutional validity of the Orissa Mining Areas Development Fund Act, 1952, levying Cess on the petitioner's colliery. The Bench explained different features of a `tax', a `fee' and `cess' in the following passage: "The neat and terse definition of Tax which has been given by Latham, C.J., in Matthews v. Chicory Marketing Board (1938) 60 C.L.R. 263 is often cited as a classic on this subject. "A Tax", said Latham, C.J., "is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered". In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a Fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public autho....
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...., it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession." 34. From the above, we find that Education Cess is not of the nature described in sections 30 to 36, Education Cess is not in the nature of capital expenditure, Education Cess is not personal expense of the Assessee, it is mandatory for it to pay Education Cess and for the purpose of computation of Education Cess, the Income 'Tax' is taken as the criteria for computational purpose. Thus, the expense of Education Cess is mandatory expenses to be paid but does not fall under capital expense and personal expenditure and hence may be allowed as deduction. 35. We have also gone through the various judgments of judicial authorities pan India wherein the fresh claim of the assessee is considered and the deduction u/s 37 of Education Cess has been allowed. The Hon'ble High Court of Bombay held that the appellate authorities may confirm, red....