TaxTMI 
TaxTMI 
2024 (1) TMI 991
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.... decision of Ld DRP with regard to deduction claimed u/s 80IA of the Act. 3. The assessee has raised many grounds, while the revenue assails the decision of Ld DRP with regard to allowing deduction u/s 80IA of the Act. We notice that the first issue raised by the assessee in Ground no.1 & 2 relates to the disallowance made u/s 80IA of the Act. Hence the appeal of the revenue and the above said grounds are adjudicated together. With the adjudication of these grounds, the appeal of the revenue would get disposed of and the ground nos. 1 & 2 of the assessee will also be addressed. 3.1 The case of the revenue is that the assessee had commenced the business of providing telecommunications prior to 01-04-1995, i.e., in AY 1995-96. It is pertinent to note that the benefit of deduction u/s 80IA will be available only if assessee has started providing telecommunication services after 01-04-1995. The contention of the revenue is that the assessee is not eligible for deduction u/s 80IA of the Act, since the telecommunication business has been started by the assessee prior to 1.4.1995. Since the Ld DRP had held that the assessee has started providing telecommunication services after 01-0....
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....ng telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005." 12. The Department in order to prove that the assessee started providing telecommunication services which includes radio paging services and cellular telephone services inter-alia placed reliance on following documents: (i) Form No.10CCB furnished by the assessee for AYs 2005-06 & 2006-07; (ii) Return of income of assessee for A.Y. 1995-96 and 1996-97; (iii)Information extracted from Web portal of Max Telecom (predecessor of the assessee); (iv)Licence agreement dated 29/11/1994; (v) Telecom Commission report; (vi) Additional evidences filed by the Department viz. communication between the assessee and Principal General Manager, Department of Telecommunication (in short ' the DoT'), invoices, etc. 13. On the other hand, the assessee in order to substantiate that the assessee started providing telecommunication services after 01/4/1995 inter-alia placed relian....
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....alised only after developing the requisite software for that area. There is no evidence provided by the assessee company on record to show that necessary equipments and the required software was installed by the assessee on31/03/1995. It is pertinent to note that even the pilot services for cellular telephone and the paging services were started 2 to 4 months after the closure of the previous year under consideration. This means that the required equipments and software were installed by the assessee only after 2 to 3 months of the closure of the previous year in question." [Emphasized by us] The assessee filed appeal against the aforesaid assessment order before the CIT(A), however, the said appeal was withdrawn by the assessee. No revision proceedings were carried out by the Department for the Assessment Year 1995-96. Thus, the aforesaid assessment order attained finality. In the assessment order for 1996-97 dated 09/01/1999 passed u/s. 143(3) of the Act, the Assessing Officer in para 3 recorded, "The assessee's business has commenced in the financial year pertaining to current asstt. year. The cellular services had started on 16/11/1995 and paging services i....
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....o paging services is concerned the assessee received Interface/Service approval Certificate for the seven cities (Telecom District) in the month of April/May 1995. The date-wise details of the same are tabulated herein below: Date Telecom District 31/03/1995 Chandigarh 20/04/1995 Ludhiana 28/04/1995 Pune 01/05/1995 Bangalore 09/05/1995 Secunderabad 22/05/1995 Vadodara 24/05/1995 Ahmadabad/Gandhinagar After Interface/Service approval Certificate, radio frequency for paging services were assigned to the assessee by WPC Wing on 24/04/1995 for Chandigarh Telecom District. Similarly, for other Telecom Districts mentioned above the WPC Wing allotted frequency for radio paging service in the month of April/May 1995. Radio paging services could be provided only after assignment of radio frequency by the DoT, government of India. From the documents on record it is evident that the assessee started providing radio paging service after 01/04/1995. 16. In the case of ACIT vs Vodafone Essar Gujarat Ltd. (supra), the assessee had entered into agreement on 11-1-1996.In the State of Gujarat, the assessee started telecommunication se....
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....nder the provisions of the Act) in assessment proceedings for later AYs. 17. Non mentioning of date of commencement or mentioning of wrong date in Form No.10CCB by the Auditors of the assessee can be an error of reporting. We find that in Auditor's Report for the Financial Year ending on 31st March , 1995 (relevant to AY 1995-96), the Auditors have reported: "No Profit and Loss Account has been prepared for the year ending 31st March, 1995 since the Company has not commenced commercial service." The subsequent certification by the Auditor's dated 28/11/2013 rectifying the date of commencement in Form 10CCB for AY 2006-07 is in consonance with the Auditor's Report for FY 1994-95. De-hors the fact that the date of commencement in Form 10CCB for assessment year 2005-06 was not mentioned or wrong date of commencement is mentioned in Form 10CCB for in assessment year 2006-07, the Department cannot turn blind eye to the findings given in the assessment order for assessment year 1995-96 and 1996-97, wherein it was held that the assessee had not commenced the business till 31/03/1995 and it was thereafter only that the assessee started or starts providin....
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....obile telephone services only. It is evident from the documents on record that radio paging services were started in May /June 1995 and the cellular telephone services were started in November 1995. Thus, both telecommunication services started after 01/04/1995. Undisputedly, the assessee was not maintaining separate books of account for two different segment of telecommunication services. Separate books of account for the two segments is not a mandatory condition for claiming deduction u/s. 80IA of the Act. Our aforesaid view is supported by the decision rendered by the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Micro Instruments Co.(supra). Therefore, the claim of the assessee u/s. 80IA of the Act cannot be declined on the ground that the assessee was not maintaining separate books of account for two different segment of telecommunication services. The Revenue in support of its submissions has placed reliance on the decision in the case of Arisudana Spinning Mills vs. CIT (supra). We find that the ratio laid down in the aforesaid decision would not apply in the instant case. The need to maintain separate books of account in the said case was ne....
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....at the telecommunication services have been started by the assessee after 01/04/1995. Following the same we reject the appeal filed by the revenue. 4. The Ld DRP, after giving a finding that the assessee has started providing telecommunication services after 1.4.1995, has denied the deduction on various reasons. Hence the assessee has raised ground no.1 and 2 before us. The main claim of the assessee is that it has started claiming deduction u/s 80IA of the Act from AY 2005-06 onwards. Hence it is eligible for 100% deduction for AYs 2005-06 to 2009-10 and 30% deduction thereafter. We noticed earlier that the co-ordinate bench has accepted that the assessee has started claiming deduction u/s 80IA from 2005-06 onwards, meaning thereby, the assessee should be eligible for deduction @ 100%, since the year under consideration would fall within the eligible period for making claim. Further, the AO had rejected the claim for deduction u/s 80IA of the Act on other miscellaneous income. We notice that both the issues are covered by the decision rendered by co-ordinate bench in assessee's own case in AY 2008-09 in ITA No.6718/mum/2012 dated 08th May, 2023. The relevant observations made b....
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.... the AO u/s 14A of the Act. Since the assessee did not earn any exempt income, the question of making disallowance u/s 14A of the Act will not arise as per the decision rendered by co-ordinate benches in the earlier years. The decision of Tribunal also gets support from the decision rendered by Hon'ble Delhi High Court in the case of IL & FS Energy Development Company Ltd (2017 SCC online Del 9893). Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 14A of the Act. 7. The next issue urged in Ground no.5 relates to disallowance of interest relatable to interest free loans given to subsidiaries. We notice that an identical disallowance made in AY 2006-07 (ITA No.216/Chandi/2011 dated 16-03-2023 dated 16-03-2023) has been deleted by the Tribunal. Following the said order, another co-ordinate bench deleted identical disallowance made in AY 2008-09. The decision rendered in AY 2006-07 is extracted below:- "ITA NO.216/CHANDI/2011(A.Y.2006-07) ITA NO.1173/CHANDI/2011(A.Y.2007-08) 19. Both sides heard, orders of authorities below examined. The Assessing Officer has disallowed interest fre....
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.... the company provided the said funds are sufficient to meet the investments. Thus, in the facts of the case and the decisions discussed above, we find merit in ground No.5 of the appeal. The disallowance of interest expenditure on loans given to subsidiaries is directed to be deleted. The assessee succeeds on ground No.5 of the appeal." 7.1 The Ld A.R submitted that all the subsidiaries are in same line of business, i.e., they are providing cellular services in different circles in India. Further the loans have been given out of commercial expediency. The Ld D.R did not object to this factual aspect. We notice that the co-ordinate bench has followed the decision rendered by Hon'ble Supreme Court in the case of SA Builders Ltd (288 ITR 1), wherein it is held that once it is established that interest free loans has been advanced to a sister concern on account of commercial expediency, the interest paid on loans taken by the assessee cannot be disallowed. Since the facts are being identical, following the decision rendered by the co-ordinate benches, we set aside the order passed by Ld CIT(A) and direct the AO to delete this disallowance. 7.2 We notice that the co-ordinate bench....
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....geographical area, where telecommunication services are rendered. The assessee is providing telecommunication services in Mumbai Telecom Circle and even after acquiring new assets the geographical area of operation remain confined to Mumbai Telecom Circle. The ld. Counsel for the assessee in support of his submissions placed reliance on the following decisions: (i) DCIT vs. Core Healthcare Ltd., 252 ITR 61 (Guj). (ii) ITW Signode India Ltd. vs. DCIT, 110 TTJ 170 (Hyd-Trb) In respect of ECBs the ld. Counsel for the assessee submits that ECB was raised by the assessee for the purpose of acquiring fixed assets for supporting and smooth running of existing business. The ECB loan was received on 10/03/2006 and the same was not utilized up to end of the Financial Year 2006 i.e. 31/03/2006. The interest cost on the ECB has not been capitalized during the impugned assessment year, nor depreciation has been claimed thereon. The ld. Counsel for the assessee finally submitted that as long as borrowings are for the purpose of business, it is not relevant as to whether they are in the nature of capital or revenue. The proviso to section 36(1)(iii) is not attracted as ....
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....roved quality of service. In terms of telecommunication business, expression extension is used where the business of the assessee has grown in geographical terms. It is an undisputed fact that even after having acquired new assets, the area of operation of the assessee has not extended. The assessee was providing telecommunication services in Mumbai Telecom Circle and even after substantial investment in new assets, the area of operation remain confined to Mumbai Telecom Circle. The investment in assets/Plant & Machinery/Network equipment by the assessee have improved the quality of services, this may have resulted in increase of the subscriber base to some extent. Increase in volume of subscriber base within the same territory of operation cannot be termed as extension of business. Therefore, we do not find merit in the observations of the Assessing Officer that the interest u/s. 36(1)(iii) of the Act has to be disallowed." We notice that the co-ordinate bench has recognized the fact that the new assets have only improved the quality of service and there is no expansion of area of operation. Accordingly, it has accepted the contentions of the assessee that the proviso to sec.36....
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....wed u/s. 37(1) of the Act. 26. We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee during the period relevant to assessment year under appeal has raised secured and unsecured loans. The Assessing Officer has disallowed expenditure on raising of loan for the reason that loan has been disbursed for capital expenditure and not for augmentation of the working capital and loan funds have been utilized for non-business considerations. While deciding the preceding grounds we have held that the loans have been utilized by the assessee for the purpose of business. The loans that have been advanced to the group concern are on account of business exigencies 26.1 The Hon'ble Apex Court in the case of India Cements Ltd. vs. CIT (supra) has held that expenditure on raising of loan is revenue in nature, hence, allowable. The nature of expenditure on raising of loan does not depend upon nature and purpose of loan. Hence, we have no hesitation in holding that the expenditure incurred for raising of the loan is allowable u/s.37(1) of the Act. The ground No.8 of the appeal is thus, allowed." The above said decision....
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....ce u/s.40(a)(ia) of the Act in the impugned order are similar to the case of Vodafone East Ltd.(supra). No distinction has been pointed by the Revenue in the present case. Thus, for parity of reasons, disallowance u/s. 40(a) (ia) of the Act is directed to be deleted. The assessee succeeds on ground No.9 of appeal." The above said decision has been followed in the assessee's own case in AY 2008-09 also. Accordingly, following the decision rendered in the earlier years, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance. 11. The next issue urged in Ground no.9 relates to disallowance of discount extended on pre-paid cards/recharge vouchers u/s 40(a)(ia) for non-deduction of tax at source. It was brought to our notice that an identical issue was examined by the co-ordinate bench in ITA No.3425/Mum/2014 relating to AY 2009-10 in the case of M/s Vodafone Idea Ltd (As successor to Spice Communications Ltd) and the Tribunal, vide its order dated 24-02- 2023, has held that the TDS is not deductible from the discount paid on prepaid cards. The relevant observations are extracted below:- "3.30. In view of the above observatio....
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.... is 2010-11. 4. The Appellant-Revenue has raised the following questions as a substantial questions of law :- "(a) Whether on the facts and circumstances of the case and in law, the Hon'ble 194H of the Income Tax Act ? (b) Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in setting aside the case to the Assessing Officer ?" 5. The Tribunal noted the observations of the Assessing Officer that the discount allowed to the distributors by the Respondent - assessee company is on account of principal to principal relationship and not that of principal to agent. The Tribunal followed the decision of the Karnataka High Court in the case of Bharati Airtel Ltd. vs. DCIT [372 ITR 33] and held that the sale of SIM cards/recharge coupons at discounted rate to the distributors was not commission and therefore not liable to deduct the TDS under Section 194H. The Tribunal noted that there was no decision of this Court on this issue on that date. 6. Learned counsel for the parties have tendered the copy of the order passed in Income Tax Appeal No. 702 of 2017 subsequently in the....
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....irways reported in 332 ITR 253 (Bom). Hence the reliance placed on the decision of Hon'ble Delhi High Court by the ld. DR does not advance the case of the revenue. In any case, the decisions of Hon'ble Delhi High Court, Hon'ble Kerala High Court and Hon'ble Calcutta High Court referred supra had been considered and distinguished by the Hon'ble Karnataka High Court referred supra. 2.8.4. We further find that the Hon'ble Rajasthan High Court in the case of Hindustan Coca Cola Beverages (P) Ltd vs CIT III Jaipur reported in 402 ITR 539 (Raj) which had rendered a comprehensive judgement on the impugned issue together with various other assesses including Idea Cellular Ltd (assessee herein). The relevant Income Tax Appeal Nos. 168/2015 , 169/2015 . 170/2015 and 171/2015 which were admitted by the Hon'ble Rajasthan High Court on 18/10/2016 relates to assessee herein for Rajasthan Circle in respect of the identical issue. The question no.1 raised before the Hon'ble Rajasthan High Court is as under:- 1. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that whether the assessee is liable to deduct TDS....
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....in the books of accounts are not determinative of tax liability of an assessee by placing reliance on various decisions of Hon'ble Apex Court. Those decisions still rule the field as they were not overruled by the latest Supreme Court decision relied upon supra by the ld. DR. It is trite law that though the decision of Hon'ble Apex Court would be binding as per Article 141 of the Constitution of India, still the judgement of the Hon'ble Supreme Court should be understood from the issue raised before it. In our considered opinion, this decision has got absolutely nothing to do with the applicability of provisions of section 194H of the Act. Hence we hold that the reliance placed by the ld. DR on the said decision is grossly misplaced. 2.8.7. The ld. DR before us vehemently submitted that the orders of Hon'ble Rajasthan High Courts and Hon'ble Jurisdictional High Courts and Hon'ble Karnataka High Court had not attained finality as they had been appealed by the revenue before the Hon'ble Supreme Court. This argument of the revenue, in our considered opinion, cannot be a deterrent for this Tribunal to follow those High Court orders. We find that the....
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.... 40(a)(ia) of the Act. 12. The next issue urged by the assessee in ground no.10.1 and 10.2 relates to the transfer pricing adjustment on the payment made for technology support services. 12.1 The Ld A.R submitted that the assessee has paid a sum of Rs. 7.84 crores to its Associated Enterprises as technology support charges for using VISTA system, which is an IT intranet portal used by its employees. The Ld A.R submitted that the AO took the view that the assessee did not furnish any evidence to justify that the services have been rendered and also did not furnish the details of allocation keys. Accordingly, the Transfer Pricing Officer (TPO) determined the Arms Length Price as NIL without applying any of the methods prescribed u/s 92C(1) of the Act. The Ld A.R submitted that the Ld DRP confirmed the order of TPO without giving any reason. 12.2 The Ld A.R submitted that the assessee, vide its submissions dated 8th January, 2013 filed with TPO, has provided the detailed nature of services rendered (IT intranet portal used by employees), benefits derived along with evidences of snap shots of VISTA IT platform used by its employees, the allocation key used for the said charges....
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.... an Assessee and what is not. An Assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question Assessee's wisdom in doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of Assessee's decision to take benefit of expertise of Dresser Rand US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an Assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service.....
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....g Officer that the payments made were commensurate to the volume and quality service and that such costs are comparable. When commensurate benefit against the payment of services is not derived, then the Transfer Pricing Officer is justified in making an adjustment under the arm's length price. 38. In the case on hand, the Transfer Pricing Officer has determined the arm's length price at "nil" keeping in view the factual position as to whether in a comparable case, similar payments would have been made or not in terms of the agreements. This is a case where the assessee has not determined the arm's length price. The burden is initially on the assessee to determine the arm's length price. Thus, the argument of the assessee that the Transfer Pricing Officer has exceeded his jurisdiction by disallowing certain expenditure, is against the facts. The Transfer Pricing Officer has not disallowed any expenditure. Only the arm's length price was determined. It was the Assessing Officer who computed the income by adopting the arm's length price decided by the Transfer Pricing Officer at "nil"." This is a slender yet crucial distinction that restricts....
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.... the file of the concerned AO, for an ALP assessment by the TPO, followed by the AO's assessment order in accordance with law." 12.4 A careful perusal of the above said decision rendered by Hon'ble Delhi High Court would show that the TPO is required to determine the ALP of international transactions under any of the methods prescribed under the Income tax Rules, i.e., the TPO is not correct in determining the ALP at Nil without establishing that a third party would not have paid any money under similar circumstances. The TPO is not empowered to disallow the expenses. 12.5 Admittedly, in the instant case, the TPO did not examine the ALP of the impugned international transactions under any one of the methods prescribed under the Income tax Rules. Hence, he was not justified in determining the ALP of the impugned international transactions as NIL. We notice that the Ld DRP confirmed the same without proper reasoning. We notice that the Hon'ble Delhi High Court in the above said case has restored the matter of determination of ALP of transactions to the file of AO/TPO. Accordingly, following the decision rendered by Hon'ble Delhi High Court, we set aside the order passed by ....