TaxTMI 
TaxTMI 
2024 (1) TMI 991
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....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 01-04-1995, the revenue has filed this appeal. 3.2 W....
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....e, 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 reliance on following documents: (i) Assessment order for Assessment Year 1995-96 and 1996-97; (ii) Letter of approval and letter of clearance issued by DoT Governme....
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....ent 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 in 7 cities were also started in May/June 1995." The Assessing Officer in assessment order for Assessment Year 1996-97 in para -3.1 of the order further observed, "The issue regarding setting up of business has already been decided in the case of assessee company ....
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..../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 services on 24-01-1997 i.e. in assessment year 1997-98. The assessee claimed deduction u/s. 80IA (4) of the Act in assessment year 2006-07. The Assessing Officer held that for the purpose of claiming deduction u/s.80IA(4) of the Act, assessment year 1996-97 was the initial year as the agreement was executed in the period re....
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....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 providing telecommunication services. The Department after a decade cannot overlook the findings of the Assessing Officer which were not disturbed by invoking the provisions of section 263 or 148 of the Act or any other provisions of the Act that provide remedy to the Department to correct the alleged wrong findings of the Assessing Officer. Now, the Department ca....
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....ommunication 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 necessitated because of the nature of business of the assessee therein. The assessee therein had claimed the benefit of deduction u/s. 80IA of the Act in respect of manufacturing activity and trading activity. In the instant case, the assessee is providing telecommunication services. No manufacturing or trading activity was carried out by the assessee except for sale of Pagers. Be that....
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....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 by the Tribunal are extracted below:- "Para 7. Ground No.2 & 3 - Disallowance of deduction u/s 80IA of the Act and disallowance of deduction u/s 80IA of the Act on 'Other incomes': The co-ordinate Bench while deciding the appeal of assessee for assessment year 2005-06 in ITA No. 5598/Mum/2017 vide order dated 28/11/2022 has held that the assessee started telecommunication services after 01/04/1995 and hence, the....
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.... 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 free loans advanced to the sister concerns. The primary contention of the assessee is that loans have been advanced to sister concerns out of commercial expediency. It is an undisputed fact that the loans has been advanced by the assessee to the group concerns who were in the same business and are providing cellular services in different telecom circles in India. The stand of the assessee before the authorities below for providing interest free loans to subsidiaries ....
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....t 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 has also considered the fact of own funds available with the assessee in the earlier years. However, in the year under consideration, the funds position was not brought to our notice and hence we are not considering the same. 8. The next issue urged in Ground no.6 relates to disallowance of interest on Capital Work in Progress. The assessing officer disallowed a part of interest expenditure relatable to Capital work in progress on the reasoning that the proviso to sec.36(1....
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....spect 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 it is not a case of extension of existing business. 21. Per contra, the ld. Departmental Representative vehemently defending the assessment order submitted that the assessee had acquired loans and raised ECBs for expansion of business. With the acquisition of new assets, the subscriber base of the assessee has increased, the increase in subscriber base is also an extension of business. Therefore, proviso to section 36(1)(iii) of the Act is attracted. The ld. Departmental Representative referred to the ....
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....uipment 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(1)(iii) will not apply to the facts of the present case. It was submitted that there is no change in facts in the current year. We also notice that the above said decision was 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. 9. The next issue urged in ground no.7 relates to disallowance of expenses incurred in connection with raising loans. We notice that a....
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.... 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 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. 10. The next issue urged in Ground no.8 relates to disallowance of roaming charges u/s 40(a)(ia) of the Act for non-deduction of tax at source. We notice that an identical disallowance made in AY 2006-07 and 2007-08 u/s 40(a)(ia) of the Act. The co-ordinate bench has deleted the disallowance with the following observations:- "27. In ground No.9 of appeal, the a....
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.... 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 observations, we hold that the decision rendered by us in assessee's own case for A.Y.2008-09 in ITA No.2285/Mum/2014 dated 12/10/2022 would be squarely applicable to the facts of the assessee's case before us for the year under consideration also. The relevant operative portion of the said order of this Tribunal is reproduced hereunder:- "2.8.2. We find that in the case before the Co-ordinate Bench of Pune Tribunal in the case of Idea Cellular Limited vs DCIT (TDS) in ITA Nos. 1041, 1042, 1953 -1955/Pun/2013 and ITA Nos. 1867 - 1870 /Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its dis....
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....wed 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 case of Pr. Commissioner of Income Tax-8 vs. M/s. Reliance Communications Infrastructure Ltd., where same issue arose for the consideration of this Court. The Division Bench of this Court while holding against the Appellant - Revenue observed thus :- "3. Having heard the learned Counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The Tribunal, as noted, besides holding that the Commissioner's order setting aside the order passed under Section 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on pri....
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....vant 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 u/s. 194-H of IT Act, as the relation between assessee and distributor is that of Principal to Agent? 2.8.4.1. We find that the Hon'ble Rajasthan High Court after considering the plethora of judgements on the impugned issue of various High Courts (which includes the three High Court decisions of Kerala, Delhi and Calcutta relied upon by the ld. DR before us herein) had rendered its decision as under:- Idea Cellular 58. As the agreement is produced, issues are answered in favour of assessee in the departmental appeals. 59. Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form. .......................
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....mitted 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 similarly worded distribution agreement had been subject matter of adjudication and examination by the Hon'ble Rajasthan High Court and Hon'ble Jurisdictional High Court wherein the Hon'ble High Courts had taken a categorical view that the relationship between assessee and distributor is only that of Principal to Principal. Hence this finding cannot be disturbed by this tribunal by respectfully following the judicial hierarchy. Infact no contrary materials on facts were even brought on record by the revenue before us to disturb the findings of Hon'ble High Courts. Hence we have no hesitation in holding that the relationship between assessee and distributor is only that of Principal to Principal and not that of Principal to Agent and accordingly there is no obligation for the asse....
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....PO 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 which is based on number of employees. The Ld A.R submitted that the TPO has not examined these details. He submitted that the TPO can make adjustment by applying any of the methods prescribed u/s 92C(1) of the Act and in support of the said proposition, he placed reliance on certain case laws, which inter alia, includes the decision rendered by Hon'ble Bombay High Court in the case of CIT vs. Lever India Exports Ltd (2017)(292 CTR 393) and CIT vs. Kodak India Pvt Ltd (2017)(288 CTR 46)(Bom). 12.3 We heard rival contentions and perused the record. We noticed earlier that the TPO has determined the ALP of both the international transactions as NIL, i.e., the TPO did not determine the ALP under any of the prescribed methods. The question as to whether the TPO can determine the ALP of international transactions as NIL ....
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..... 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. When evaluating the arm's length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. Similarly, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the s....
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....acts. 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 the authority of the TPO. Whilst the report of the TPO in this case ultimately noted that the ALP was 'nil', since a comparable entity would pay 'nil' amount for these services, this Court noted that remarks concerning, and the final decision relating to, benefit arising from these services are properly reserved for the AO. 36. In this case, the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee - activities for which, according to the assessee's claim - interaction with IBM's regional off....
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....irmed 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 Ld CIT(A) with regard to the determination of ALP of technology support charges to the file of AO/TPO with the direction to determine the ALP of both the transactions under any one of the methods prescribed under the Rules. The assessee is also directed to furnish all the information and explanations in support of the claim that the payments are at arms length. 13. The next issue urged by the assessee in ground no.10.3 relates to the transfer pricing adjustment made in respect of reimbursement of salary and related costs on deputation of personnel to India. 13.1 The assessee had claimed reimbursement of salary and other related costs incurred on employees seconded by Associated Enterprises. The TPO determined ALP of the same at NIL. The Ld DRP allowed in part. We notice that an identical issue was examined by the co-ordinate bench in the assessee's own case in 2008-09 in ITA Nol6718/....