TaxTMI 
TaxTMI 
2022 (8) TMI 1343
X X X X Extracts X X X X
X X X X Extracts X X X X
....m other source (Grounds 22 to 22.2) 5. Disallowance of additional foreign tax credit (Grounds 23 to 23.2) 6. Disallowance of TDS credit (Grounds 24 to 24.2) 7. Interest u/s. 234B (Grounds 25 to 25.2) 8. Non-grant of interest u/s. 244A (Grounds 26 to 26.2) 9. Penalty proceedings (Grounds 27 to 27.1) 3. The assessee has raised additional by way of ground No.28 with regard to deduction in respect of unclaimed Foreign Tax Credit (FTC). The ld AR submitted that the issue of claiming deduction for taxes paid outside India in respect of which no credit is claimed in India was not raised before the AO and the DRP. However, it has come to the knowledge that tax credit can be claimed as a deduction and various judicial precedents have allowed such a claim. The facts are already on record and no fresh enquiry is required. Therefore, admission of additional evidence was prayed for by the ld AR. The ld DR opposed the admission of additional ground. Keeping into consideration the entire conspectus of the facts and circumstances of the case and the additional ground raised before us we are convinced that its adjudication does not require any fresh i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome of Rs.9,61,58,280. The case was selected for scrutiny and the notice was served on the assessee. On a reference made by the AO, the TPO passed an order dated 31.10.2017 under Section 92CA of the Act determining a TP adjustment of Rs. 104,95,80,620/-. Initially, a draft assessment order dated 27.12.2017 came to be passed by the AO in which, inter alia, the aforesaid TP adjustment was incorporated. The AO also proposed to (i) make a disallowance of depreciation; (ii) make a disallowance under Section 14A of the Act and (iii) recompute the deduction claimed under Section 10AA of the Act. 6. Aggrieved, the Assessee filed its objections before the DRP which vide its directions dated 28.09.2018, rejected the Assessee's objections to a large extent while granting marginal relief. Pursuant to the directions of the DRP, the AO passed the final assessment order dated 28.11.2018 in which the TP adjustment was reduced to Rs. 95,04,68,087/-. The disallowance of depreciation and disallowance under Section 14A of the Act came to be sustained. 7. Aggrieved by the final assessment order, the Assessee filed the appeal before this Hon'ble Tribunal. Transfer Pricing adjustment - Ground No....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arking the transactions are as under:- Sl. No. Name of the AE Nature of the services rendered Margin Database used Filters applied Mean margin of the comparables selected 1. OnMobile Singapore Pte. Ltd. Sales and marketing activity. 7% (page 2044 PB) OSIRIS Companies incorporated in FarEast, Central Asia, OCEANIA and ASEAN-selected; Data available for the period 2012, 2013 or 2014- selected; Companies in the nature of advertising agencies, consulting services, public relations and the like- selected; Companies with direct or total shareholding in subsidiaries >50.01% and for which only unconsolidated accounts are available-rejected; Companies reporting turnover and profit for at least 2 out of 3 years under consideration- selected; Companies reporting negative net worth-rejected; Non-comparable companies-rejected. 9.81% (of 12 companies) 2. OnMobile Global for Telecomm unication Services Technical support services. 7% (page 2049 PB) AMADEUS Companies with direct or total shareholding in subsidiaries >50.01% and for which only unconsolidated accounts are available- rejected; Data available for the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with the 11 AEs i.e. subsidiaries of the assessee were analysed by the TPO for their arm's length nature. The TPO proceeded under basis that the assessee is a SWD services provider to all its AEs. Under this understanding that the MVA services rendered by the assessee to third parties is in fact SWD services rendered by the AEs, the TPO proceeded to bench mark the transactions. The TPO also made an incorrect understanding that the assessee has rendered services to the AEs whereas the fact is that the AEs have rendered services to the assessee. The TPO therefore rejected the independent bench marking done by the assessee with each of its AEs on the ground that the same leads to inconsistency in arm's length price determination as different arm's length price has been determined for the same transaction. On classifying the entire international transactions entered into by the assessee as SWD services rendered to AEs, and by treating the transaction with Voxmobili as the base for further analysis, the TPO proceeded to determine the arm's length price. The TPO while recomputing the arm's length price proceeded to take the entire revenue and cost of the assessee without restricting it t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e services and not vice versa as understood by the TPO. One of the services rendered by the AEs is collection proceeds from the customers to the assessee which is accounted under the 'Telecom Value Added services rendered' and the same is considered by the TPO as collection done towards SWD services. Further it is also noticed that out of the 12 transactions selected by the TPO for analysis, 11 transactions pertain to services rendered by the AEs to the Assessee and only one transaction pertains to services rendered by the Assessee to its AE. The TPO / DRP failed to appreciate the above business model of the Assessee and proceeded to treat the Assessee as a software development services provider to all of its AEs. The TPO has considered the MVAS as SWD services on the premise that the same is rendered using a software platform which has been developed by the Assessee which in our view is not correct. 18. As regards the transaction with Voxmobili, it is evident from the TP study that the said transaction is an independent transaction which is completely different from the transactions with the other AEs. The Assessee provides routine software development services for Voxmobili in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s contrary to the facts of the case. 22. In view of the above discussion, it is clear that the TPO/DRP has not appreciated the facts of business model of the assessee properly and proceeded to make the entire TP adjustment on an incorrect premise. We therefore remit the issue back to the TPO for a denovo consideration afresh basis the correct understanding of the business model of the assessee and test the arm's length price accordingly after giving reasonable opportunity of being heard to the assessee. The assessee is directed to cooperate in the proceedings before the TPO and submit all the relevant details. This ground is allowed for statistical purposes. 23. Since the issue of TP adjustment is remitted back to the TPO for de novo consideration, the rest of the grounds with respect to TP adjustment have become academic not warranting any specific adjudication. Disallowance of depreciation - Grounds 20 to 20.4 24. During the year under consideration, the assessee has claimed depreciation @ 60% towards the addition made to the block of assets "Computers". These additions included items like NMS CG/TX cards, switches, etc. The AO following the earlier years orders, allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmed in conjunction with the computer and servers. The MRBs are boards which are connected to computer servers which assist in receiving calls and would function only when attached to the computer. The MRBs increase the working capacity of the computers to the extent the computers receive calls and convert them into digital form. The MRBs work in conjunction with and as a part of the computer servers and cannot, in any way, be called as 'telecom equipment'. We also find that the facts of this issue in the case on hand, is similar to the facts of the case Datacraft India Ltd. (supra) wherein the Special Bench of the Mumbai Tribunal of this order held as under : '31. Now we have to consider whether a 'router' can be considered as "computer hardware" or a "computer component". Computer hardware refers to the physical parts of a computer and related devices. Internal hardware devices include motherboards, hard drives, and RAM. External hardware devices include monitors, keyboards, mouse, printers, and scanners. The internal hardware parts of a computer are often referred to as 'components', while external hardware devices are usually called 'per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat router and switches can be classified as a computer Hardware when they are used along with a computer and when their functions are integrated with a 'computer' In other words, when a device is used as part of the computer in its functions, then it would be termed as a computer. 32. Now we will advert to the decisions relied on by the rival parties. We have set out above the cases decided by various Benches of the Tribunal in favour of the assessee. The lead order is in the case of Samiran Majumdar (supra) which has been followed, directly or indirectly, in most of the subsequent cases. We will take up this case for discussion, in which the question was whether printer and scanner could be allowed a higher rate of depreciation as applicable to computers. The Bench noticed that the printer and scanner cannot be used without computer. It was on this appreciation of the factual position that the printer and scanners were held to be part of computer qualifying for depreciation at the rate applicable to computer. In the opposition the orders taking view in favour of the Revenue are led by the case of router mania Technologies (supra). In this case it was observed tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to depreciation at the rate of 60%.' 10.6.3 The above decision of the ITAT, Mumbai Special Bench in the case of Datacraft India Ltd. (supra) has been followed by the Delhi Tribunal in the case of Microsoft Corpn. India (P.) Ltd. (supra) wherein at para 16 of the order, it was held that : "16. ... it is clear that the above equipment primarily include the routers, switches, modems, etc. which are in the nature of input and output support devices which performs the functions including communication and control and, thus, they are computer hardware when they are used along with computer and when their functions are integrated with 'computer.' Such devices used as part of the computer in its functions and, thus, it can be termed as 'computer' only, therefore, eligible for depreciation @ 60%. Therefore, also we find no infirmity in the claim of the assessee of depreciation @ 60% of ITG networking equipments." 10.6-4 A similar view was adopted by a co-ordinate bench of this Tribunal in the case of NCR Corpn. (P.) Ltd. (supra) wherein at para 10 thereof it was held as under : "10. Having heard both the parties and having gone thro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the purposes of the claim of depreciation @ 60%. Accordingly, the grounds raised by the assessee at S.Nos.2 (a) & (b) are allowed." 27. Respectfully following the above decision of the Tribunal, we hold that depreciation is to be allowed @ 60% on the CG/TX cards and switches, etc. This ground is allowed in favour of assessee. Disallowance under Section 14A - Grounds 21 to 21.4 28. During the year under consideration, the assessee had earned a dividend income of Rs.2,04,09,795 which was claimed as exempt after disallowing a sum of Rs.1,96,199 as expenditure incurred in relation to exempt income. The AO invoked the provisions of section 14A r.w. Rule 8D(2) (i) & (ii) and disallowed a sum of Rs.17,18,651 towards expenditure incurred in earning exempt income. The DRP confirmed the disallowance on the ground that the assessee has not maintained separate accounts and the incurring of interest expenditure, especially other administrative and general expenses cannot be ruled out. 29. The ld. AR submitted that the AO ought to have recorded dissatisfaction as to the claim of the assessee having regard to its books of account. He submitted that the lower authorities proceeded on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] Rule 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A similar view has also been taken by the Hon'ble jurisdictional High Court in the case of Essilor India (P.) Ltd. v. Dy. CIT [IT Appeal No. 1001 of 2017, dated 28-12021]. Therefore the disallowance made under section 14A r.w.r 8D(2)(iii) is deleted. 35. With regard to disallowance made under Rule 8D(2)(ii) the ld AR submitted that the assessee is having sufficient amount of own funds and hence no disallowance towards interest expenditure is warranted. We notice that the as per the Financial Statements of the assessee as on 31.03.2014 (page 1153 of paper book Volume II), the Share Capital & Reserves and Surplus is at Rs. 778.975 crores and the balance under Investment is at Rs.35.611 crores. This substantiate the fact that the assessee is have enough own funds for making investments it is clear that the assessee has sufficient own funds which exceeds the investments. 36. The Hon'ble jurisdictional High Court in the case of CIT vs Microlabs Ltd., [2016] 383 ITR 490 (Kar) has held that - 40. We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paperboo....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., without prejudice to the Assessee's above grounds, if any of the additions are sustained and the assessed income is higher than the returned income, the Assessee would be eligible for additional foreign tax credit on the enhanced income. 41. After hearing both the parties, we direct the AO to consider this issue afresh and decide the same in accordance with law. Disallowance of TDS credit - Grounds 24 to 24.2 42. The ld. AR submitted that in the return of income, the Assessee had claimed TDS credit of Rs. 13,08,86,668/-. During the course of the assessment proceedings, the Assessee claimed additional credit of Rs. 24,37,979/- pursuant to additional certificates being received post filing of the return of income. The Assessee also submitted that it had inadvertently considered duplicate entries of TDS claim of Rs. 11,23,572/-. Accordingly, the Assessee requested the Assessing Officer to grant revised TDS credit of Rs. 13,22,01,075/-. However, the Assessing Officer did not consider the request made by the Assessee, without any reason, resulting in short grant of credit of Rs. 13,14,405/-. In this regard it is prayed that the Assessing Officer be directed to grant entire TD....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Before dealing with the rival contentions, it would be useful to reproduce the statutory provision arising for our consideration to decide this issue. "Definitions 2. In this Act, unless the context otherwise requires, - (1) to (42)** ** ** 43. "tax" in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date [and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under Section 115WA] "Amounts not deductible 40. Notwithstanding anything to the contrary in Section 30 to the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". (a) In the case of any assessee - (i), (ia), (ib), (ic)** ** ** (ii) Any sum paid on account of any rate or tax levied on the profits or gai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 1985-86 had not noticed the decision of this Court in S. Inder Singh Gill (supra) on a Reference. Therefore, it is rendered per incuriam. (j) This Court in S. Inder Singh Gill (supra) was required to answer the question whether for the purpose of computing total world income of the assessee as defined in Section 2(15) of the I. T. Act, the income accruing in Uganda has to be reduced by the tax paid to the Uganda Government in respect of such income? The Court while answering the question in the negative observed that it is not aware of any commercial principle/practice which lays down that the tax paid by one on one's income is allowed as a deduction in determining the income for the purposes of taxation. (k) It is axiomatic that income tax is a charge on the profits/ income. The payment of income tax is not a payment made/incurred to earn profits and gains of business. Therefore, it cannot be allowed an as expenditure to determine the profits of the business. Taxes such as Excise Duty, Customs Duty, Octroi etc., are incurred for the purpose of doing business and earning profits and/or gains from business or profession. Therefore, such expenditure is allowab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the word 'tax' in Section 2(43) of the Act. To be covered by Section 40(a)(ii) of the Act, it has to be payable under the Act. We are conscious of the fact that Section 2 of the Act, while defining the various terms used in the Act, qualifies it by preceding the definition with the word "In this Act, unless the context otherwise requires" the meaning of the word 'tax' as found in Section 2(43) of the Act would apply wherever it occurs in the Act. It is not even urged by the Revenue that the context of Section 40(a)(ii) of the Act would require it to mean tax paid anywhere in the world and not only tax payable/ paid under the Act. (n) However, to the extent tax is paid abroad, the Explanation to Section 40(a)(ii) of the Act provides/clarifies that whenever an Assessee is otherwise entitled to the benefit of double income tax relief under Sections 90 or 91 of the Act, then the tax paid abroad would be governed by Section 40(a)(ii) of the Act. The occasion to insert the Explanation to Section 40(a)(ii) of the Act arose as Assessee was claiming to be entitled to obtain necessary credit to the extent of the tax paid abroad under Sections 90 or 91 of the Act and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which has arisen/accrued in India has to be considered in the nature of expenditure incurred or arisen to earn income and not hit by the provisions of Section 40(a)(ii) of the Act. (q) The Explanation to Section 40(a)(ii) of the Act was inserted into the Act by Finance Act, 2006. However, the use of the words "for removal of doubts" it is hereby declared "...." in the Explanation inserted in Section 40(a)(ii) of the Act, makes it clear that it is declaratory in nature and would have retrospective effect. This is not even disputed by the Revenue before us as the issue of the nature of such declaratory statutes stands considered by the decision of the Supreme Court in CIT v. Vatika Township (P) Ltd. [2014] 367 ITR 466/227 Taxman 121/49 taxmann.com 249 and CIT v. Gold Coin Health Foods (P.) Ltd. [2008] 304 ITR 308/172 Taxman 386 (SC). (r) In the above facts and circumstances, question (iii)(a) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee. Question (iii)(b) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee. 49. The Hon'ble Bombay High Court in the case of Reliance Infra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n u/s.32 of the Act 52. This issue is adjudicated in Paragraph 27 of this order and is squarely applicable to the year under consideration also since there is no change to the facts from assessment year 2014-15. Therefore this ground is allowed in favour of the assessee. Disallowance made u/s. 14A of the Act 53. For the year under consideration the AO has disallowed a sum of Rs.81,174 u/s.14A r.w.r. 8D(2)(ii) and Rs.26,84,933 u/s.14A r.w.r. 8D(2)(iii). With regard to disallowance under rule 8D(2)(ii), we notice that the own funds of the assessee in reserves and surplus is more than the amount of investment and Therefore, by placing reliance on the judgment of the jurisdictional High Court in the case of Microlabs Ltd.(supra) and the judgment of the Hon'ble Apex Court in the case of Reliance Industries Ltd. (supra) we hold that disallowance u/s 14A r.w. Rule 8D(2)(ii) is not warranted in the facts of the instant given case. It is ordered accordingly. 54. With regard to disallowance under rule 8D(2)(ii) we notice that in that in computation the assessee has made a disallowance as extracted below:- 55. We also notice that the similar to assessment year 2014-15, the ....