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2024 (5) TMI 1490
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....d against Final Assessment Order dated, 28/01/2016, passed under Section 144C(13) read with Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act'] for the Assessment Year 2011-12, as per directions issued by Dispute Resolution Panel-2, Mumbai [hereinafter referred to as 'the DRP'] under Section 144C(5) of the Act. 2.1. In ITA No. 884/Mum/2016, the Assessee has raised grounds of appeal in relation to the following issues: (a) Ground No. 1 to 1.2: Disallowance of INR 357,23,70,000/- under section 14A of the Act (b) Ground No. 2 to 2.2: Disallowance of INR 19,35,01,258/- being interest on Capital Work-in- Progress under Section 36(1)(iii) of the Act. (c) Ground No. 3 to 3.7: Disallowance of INR 30,95,03,786/- in respect of roaming charges under Section 40(a)(ia) of the Act (d) Ground No. 4 to 4.5: Disallowance of INR 47,17,99,596/- in respect of discount extended to pre-paid distributors under Section 40(a)(ia) of the Act (e) Ground No. 5 to 5.5: Disallowance of deduction under Section 80IA of the Act (f) Ground No. 6 to 6.3: Disallowance of deduction under Section 80-IA of the Act in respect of 'Other....
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....itions/Disallowances Amount (INR) 1 Payment of Royalty for brand name and mark 7,97,68,155/- 2 Technology support charges 1,31,43,772/- 3 People Survey charges 4,14,86,237/- 4 Under recovery of salary expenses from AE 93,12,637/- 5 Excessive AMP expenditure 22,01,14,350/- Total 36,38,25,151/- 3.1. On 31/03/2015, the Assessing Officer passed Draft Assessment Order under Section 143(3) read with Section 144C(1) of the Act incorporating the above transfer pricing adjustment. In addition the Assessing Officer also proposed other additions/disallowances as per the provisions of the Act. 3.2. The Assessee filed objections before the DRP against the Draft Assessment Order, dated 31/03/2015. On 22/12/2015, the DRP disposed off the objections granting partial relief to the Assessee. As per the directions of the DRP, the Assessing Officer passed the Final Assessment Order, dated 28/01/2016, under Section 143(3) read with Section 144C(13) of the Act, assessing total income of the Assessee at INR 478,20,94,710/- computed as under: Particulars Amount (INR) Amount (INR) Income under the head business or profession ....
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.... carried the issue in appeal before us. 4.4. We have heard the rival contentions and perused the material on record. It is admitted position that no exempt income earned by the Assessee during the relevant previous year. It has been contended by the Assesses that in absence of exempt income, disallowance under Section 14A of the Act was not warranted. We find merit in the aforesaid contention of the Assessee. In the absence of any exempt income arising in the relevant previous year, no occasion to make any disallowance under Section 14A of the Act can arise [Principal Commissioner of Income-tax Vs. Red Chillies Entertainment Pvt. Ltd.: [2020] 116 taxmann.com 770 (Bombay)[20-08-2019]. 4.5. In the case of the Assessee, for the Assessment Year 2008-09 [ITA No. 6718/Mum/2012, dated 08/05/2023] and 2009-2010 [ITA No. 3425/Mum/2014, dated 24/02/2023] the Tribunal had deleted disallowance under Section 14A of the Act as the Assessee did not earn any exempt income during the corresponding previous years. 4.6. In view of the above, the disallowance of INR 357,23,70,000/- made by the Assessing Officer under Section 14A of the Act is deleted Ground....
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....and agreeing with the Assessing Officer, declined to issue any directions. Accordingly the Assessing Officer passed the Final Assessment Order, dated 28/01/2016, making disallowance of 19,35,01,258/- under Section 36(1)(iii) of the Act. 5.3. Being aggrieved the Assessee has carried the issue in appeal before the Tribunal. 5.4. We have considered the rival submissions and perused the material on record. It emerges that in identical facts and circumstances, vide common order dated 16/03/2023 passed in appeals for the Assessment Year 2006-07 [ITA No 216/CHANDI/2011] & 2007-08 [ITA No. 1173/Mum/2011], the Tribunal had decided identical issue in the favour of the Assessee and allowed deduction for interest on borrowed funds use for purchase of assets and capital work in progress. The relevant extract of the aforesaid decision of the Tribunal reads as under: "20. In ground No.6 & 7 of appeal the assessee has assailed disallowance of interest Rs.1,63,96,415/- on Capital Work-in- Progress and disallowance of interest Rs.38,70,010/- on ECB. The ld. Counsel for the assessee submits that the assessee has acquired fixed assets from the borrowed capital during the year relevant t....
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....ubstantial addition in the fixed assets of the assessee under the head „Plant and Machinery‟. This shows that there has been substantial expansion of the existing business by the assessee. The ld. Departmental Representative further pointed to the observations of the Assessing Officer in para 5.6 of the impugned order that capital work-in-progress has not been utilized for the purpose of business during the year under consideration, hence, interest expenses on capital workin- progress is not allowable as deduction. 21.1 xx xx 22. We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee has raised loans during the period relevant to the assessment year under appeal and has paid interest on said loans. The assessee has admittedly used borrowed funds for acquiring assets. The contention of the Revenue is that the assets acquired by the assessee are for expansion of the existing business, hence, proviso to section 36(1)(iii) of the Act gets attracted, consequently, interest paid on such borrowed capital is not allowable u/s. 36(1)(iii) of the Act. 23. Au Contraire, stand of the assessee i....
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....voking provisions contained in Section 40(a)(ia) of the Act in the Draft Assessment Order, dated 31/03/2015. 6.2. In the objections filed by the Assessee on this issue, the DRP granted partial relief and directed the Assessing Officer to follow the directions of DRP for the Assessment Year 2010-11. Accordingly, in the Final Assessment Order, dated 28/01/2016, the Assessing Officer made disallowance of INR 30,95,03,786/- under Section 40(a)(ia) of the Act (as against the disallowance of INR 1,97,54,77,395/- proposed in the Draft Assessment Order) in respect of roaming charges. 6.3. Being aggrieved, the Assessee has carried the issue in appeal before the Tribunal. 6.4. We have considered the rival submissions and perused the material on record. 6.5. We note that in the identical facts and circumstances, the Tribunal has, vide order dated 08/11/2023 passed in appeals for the Assessment Year 2009-10 [ITA No 1121/Mum/2014,], decided this issue in the favour of the Assessee and deleted the disallowance of roaming charges under Section 40(a)(ia) of the Act. The relevant extract of the aforesaid decision of the Tribunal reads as under: "10. The next issue urged in Grou....
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....s 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." 6.6. Respectfully following the above decision of the Tribunal in the case of the Assessee for the preceding Assessment Year 2009- 10, which in-turn followed the decision of the Tribunal in the case of the Assessee for the Assessment Year 2006-07 and 2007-08, the disallowance of INR 30,95,03,786/- made under Section 40(a)(ia) of the Act in respect of roaming charges is deleted. Ground No. 3 raised by the Assessee is allowed. Ground No. 4 7. Ground No. 4 raised by the Assessee is directed against the disallowance of discount extended to pre-paid distributors under Section 40(a)(ia) of the Act. 7.1. During the relevant previous year, discount amounting to INR 47,17,99,596/- were extended by the Assessee to its distributors of pre-paid products ('pre-paid distributors'). According to the Assessee. The pre-paid distributo....
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....eductible 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 19 M/s. Vodafone India Ltd. 1870 /Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its distributors was Principal and Agent. It was only the Pune Tribunal which after examining the distributors agreement came to the conclusion that the relationship is that of Principal to Principal. In fact Pune Tribunal also examined the very same agreement which is the subject matter of agreement before us....
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....refore 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 principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the payment was not for commission or brokerage." 7. In view of the finding of fact re....
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....s 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. ........................... 61. In view of the above discussion, all the appeals of assessees are allowed and those of D....
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....ictional 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 assessee to deduct tax at source in terms of section 194H of the Act. 2.8.8. ....
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....which convert losses into assessed profits, the Assessee should be granted benefit of deduction under Section 80IA of the Act since the Assessee is eligible to claim deduction at the rate of 30% in terms of Section 80IA of the Act for the Assessment Year 2011-12 (being the 7th year of claim of deduction). 8.2. The relevant facts in brief are that the Assessee was incorporated on 21/02/1992 and had bid for licenses for providing Cellular Mobile Telephony Services ('CMTS') and paging services in March, 1992. Thereafter, the Assessee was awarded the license to provide paging services in select cities (Ahmedabad, Bangalore, Pune, Baroda, Chandigarh, Hyderabad and Ludhiana) and CMTS in Mumbai telecom circle on 05/08/1994 and 29/11/1994, respectively. Given the nature of services and also the fact that these are provided in different service areas, the Assessee organized paging and cellular services as two separate undertakings/divisions. The Assessee commenced providing paging services in May, 1995 and cellular services in November, 1995 (i.e. in Financial Year 1995-96) after installation of the required telecom network infrastructure which was essential for provision of serv....
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....01/04/1995. As per the provisions of section 80IA the undertaking is eligible for benefit of deduction u/s. 80IA(4)(ii), if the undertaking started or starts providing telecommunication service on or after 1st day of April 1995. According to the Assessing Officer since, the assessee has started providing telecommunication services prior to 01/04/1995 the assessee is not eligible for claiming deduction u/s. 80IA of the Act. The assessee claimed deduction u/s. 80IA of the Act for the first time in AY 200506. 9. Two issues have emerged from the submissions and the grounds of appeal raised by the Department: (i) Whether the assessee started providing telecommunication services before 01/04/1995 or thereafter; and (ii) Whether the assessee is eligible to claim deduction u/s. 80IA(4)(ii) of the Act . 10. The primary reason for rejecting assesses claim of deduction u/s. 80 IA(4)(ii) of the Act by the Department is that the assessee started providing telecommunication services prior to 01/04/1995. Whereas, the claim of assessee is that the assessee started providing telecommunication services after 01/04/1995. 11. Before proceeding further to decide this is....
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....ee‟s paper book -1), whereby Radio Frequency Channels for GSM Cellular Network in Mumbai was assigned to the assessee. Our attention was also drawn to the letter dated 13/10/1995 at page 116 of the Paper Book-1, whereby Ministry of Communications (WPC Wing) accorded permission for launching cellular mobile telephone services at Mumbai subject to final clearance from Director (VAS-I), DoT. The said clearance was accorded to the assessee by Director (VSA-I) vide letter dated 20/10/1995 (at page 117 of Paper Book-1). Although, the licence agreement was executed between the assessee and DoT in November, 1994 the assessee could not have started cellular mobile telephone services till the time radio frequency was assigned and all clearances prior to commencement of cellular mobile telephone services are obtained by the assessee. A perusal of the said agreement (Condition -20) clearly mentioned that a separate licence shall be required from the WPC Wing of Ministry of Communication which will permit utilisation of appropriate radio frequency spectrum for establishment and operation of cellular mobile telephone services. Thus, without allocation of radio frequency the assessee ....
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....med AY 1997-98 to be the initial AY, whereas, the Revenue held that the AY 1996-97 was the initial AY. The Tribunal while deciding the controversy in assessment year 2006-07 held that, "whether or not" the assessee started providing telecommunication services in any year has to be decided in the assessment proceedings for that year in the light of the relevant facts and circumstances of that assessment year alone. The Tribunal further held that without reopening the assessment proceedings for AY 1996-97, the findings recorded in the assessment year 1996-97 cannot be reconsidered in the subsequent assessment years. To support this view the Tribunal placed reliance on the decision of Hon‟ble Apex Court in the case of New Jehangir Vakil Mills Co. Ltd. vs. CIT, 49 ITR 137. The aforesaid decision of the Tribunal was upheld by the Hon‟ble Gujarat High Court in Tax Appeal No.1339 of 2010(supra). Similarly, in the instant case the Revenue is trying to reconsider the concluded findings of the assessment order for assessment year 1995-96 and 1996-97 in assessment year 2005-06. This is impermissible in the scheme of Act. The Revenue by placing reliance on defective certif....
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....aking which started or stars providing telecommunication services ...................... on or after the 1st day of April 1995." The requirement of section is not commencement of business but the start of telecommunication services. It is the commencement of telecommunication services which is material for the purpose of section 80IA(4)(ii) of the Act. The business may commence with the purchase of pagers but telecommunication services would only start after assignment of radio frequency and various other technical/interface approvals from the DoT. The Revenue has placed reliance on the decision in the case of CIT vs. ESPN Software India Pvt. Ltd.(supra) and CIT vs. Saurashtra Cement and Chemical Industries Ltd.(supra) in support of the arguments that the business of the assessee commenced on the date of agreement or the date on which the assessee had traded in Pagers. There is no dispute in so far as the law laid down by the Hon‟ble Court in the aforesaid decisions. However, the ratio laid down in the aforesaid decisions would not apply in the facts and circumstances of the present case. 19. One of the objection raised by the Department is that the assessee has not ....
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....anced by the Revenue is contrary to the CBDT Circular No.5 of 2005 (supra). The aforesaid circular in an unambiguous terms explains that, "this deduction is inter alia available to an undertaking providing telecommunication services if such undertaking is formed by splitting up reconstruction of a business already in existence or by the transfer to a new business of old plant and machinery." The Circular (supra) further clarifies that the condition introduced by the Finance (No.2) Act, 2004 will not apply to undertakings which have started providing telecommunication services prior to 01-4-2004. Documents on record clearly show that the assessee started providing telecommunication services after 01/4/1995 but before 01/4/2004. Thus, even if the assessee‟s undertaking is formed after merger/reconstruction, still the assessee would be eligible for deduction u/s.80IA of the Act in the light of CBDT circular (supra). 21. In the light of our findings above, we see no infirmity in the order of CIT(A) in coming to the conclusion that the assessee had started telecommunication services after 01/04/1995 and the assessee is eligible for deduction u/s. 80IA(4) of the Act. The f....
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....deduction under Section 80IA of the Act in respect of Other Income. 9.4. Having heard the rival submission and on perusal of record, we find that in the case of the assessee in appeal for the Assessment Year 2005-06 [ITA No. 5598/Mum/2017] Co- ordinate Bench of the Tribunal has, vide order dated 28/11/2022, decided identical issue in favour of the Assessee. By following the judgment of the Hon'ble Delhi High Court in the case of PCIT vs. Bharat Sanchar Nigam Limited: 388 ITR 371 it was held by the Tribunal that as per Section 80IA(2A) of the Act what is available for claiming deduction is 'hundred per cent of the profits and gains of the eligible business'. The assessee was, therefore, eligible to claim deduction in respect of interest income and miscellaneous income in terms of Section 80IA(2A) of the Act which was much wider in scope than Section 80IA(1) of the Act. The relevant extract of the aforesaid decision of the Tribunal read as under: "24. Ground No.2 of the appeal reads as under: "2.Disallowance of deduction under section 80IA of the Act on 'Other Income' 2.1 On the facts and in the circumstances of the case and in law the le....
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.... decision of Hon‟ble Delhi High Court has been accepted by the Revenue as no SLP has been filed by the Revenue against aforesaid decision." 26. Per contra, the ld. Departmental Representative vehemently defended the findings of CIT(A) on this issue. 27. Both sides heard. The short issue for adjudication in the appeal by assessee is: Whether interest income and miscellaneous income earned by the assessee would be eligible for deduction u/s. 80IA of the Act? We find that similar issue had come up before the Tribunal in the case of BSNL vs. DCIT (Supra). The Tribunal after examining and comparing the provisions of section 80IA(1) and 80IA(2A) held as under: "13.2. On a reading of sub-section (1) of section 80-IA, we find that the legislature specifically uses the words meaning and import of which is plain and unambiguous in the context it is to be construed. Deduction under section 80- IA in terms of subsection (1) is available to "gross total income" of an assessee where "gross total income" is restricted to "profits and gains derived by........ from any business referred to in sub-section (4)". The deduction is available of an amount equal to hundred....
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....n (1) of section 80-IA is also fulfilled. On a careful reading of the above provisions, we find that the legislature has left no ambiguity in the wording of the sub-section (2A). Having started with the non-obstante clause in sub- section (2A) which over-rides the mandate of sub- section (1) and (2), the legislature is well aware that the phrase "derived from" has been used only in subsection (1). The meaning of the said terms is judicially well-accepted and understood and it is not the case of that Revenue that the legislature was not conscious of the said term. It is seen that the import of this term continues to exist for an assessee covered under subsection (2) of section 80-IA. The legislature has consciously retained it for enterprise/undertaking falling in sub-section (2) and the proviso thereto only keeping in mind the nature of the enterprises/undertakings contemplated under sub-section (2) the option of claiming deduction in any ten consecutive years is given to be claimed from the first fifteen years of beginning operation is given. 13.11. Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, whereve....
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.... is allowed. The Assessing Officer is directed to allow the benefit of deduction under Section 80IA of the Act in respect of Other Income aggregating to INR 8,56,40,90,000/- and re-compute deduction under Section 80IA of the Act after including Other Income. Accordingly, Ground No. 6 raised by the Assessee is allowed. Ground No. 7 10. Ground No. 7 raised by the Assessee pertains to transfer pricing adjustment. Ground No. 7.1 and 7.2 11. Ground No. 7.1 and 7.2 raised by the Assessee are general grounds relating to transfer pricing adjustment which do not require separate adjudication. Accordingly, Ground No. 7.1 and 7.2 are dismissed as being general in nature. Ground No. 7.3 to 7.8 12. Ground No. 7.3 to 7.8 raised by the Assessee pertain to transfer pricing adjustment of INR 22,01,14,350/- relating to Advertisement, Marketing and Promotion Expenditure (for short 'AMP Expenditure'). 12.1. During the assessment proceedings the Transfer Pricing Officer (TPO) noted that the Assessee was incurring very large amount of AMP Expenditure on Vodafone brands in India and thus, creating a valuable marketing intangible. TPO noticed that for the immediately preceding year....
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....01/2016, making transfer pricing addition of INR 22,01,14,350/- in respect of AMP Expenditure. 12.3. Being aggrieved, the Asseseee is now in appeal before us on this issue challenging the transfer pricing addition. 12.4. We have considered the rival submission and perused the material on record including the chart of issues filed by the Assessee. 12.5. We note that in the present case the TPO has arrived at a conclusion that there existed international transaction solely on the basis of the fact that the Assessee has incurred high AMP Expenditure at the rate of 6.2% of sales. While AMP Expenses may constitute an international transaction, the existence of an arrangement and consequently, an international transaction cannot be presumed on the basis of bright line test only. In the case of Maruti Suzuki India Limited Vs Commissioner of Income Tax: [2016] 381 ITR 117 (Delhi) it has been held by the Hon'ble Delhi High Court that the existence of AMP Expenditure, being an international transaction, will have to be established de hors the bright line test. In absence of any written agreement, whether any arrangement existed or the Assessee along with its AE acted in concert woul....
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....015. 13.2. The objections filed by the Assessee on this issue did not yield favourable results as the DRP declined to give any direction and therefore, in the Final Assessment Order, dated 28/01/2016, transfer pricing adjustment of INR 7,97,68,155/- was made by the Assessing Officer. 13.3. The Assessee is now before us in appeal challenging the above transfer pricing addition. 13.4. We have considered the rival submissions and perused of material on record (including the chart of issues furnished by the Assessee) and orders passed by the authorities below. 13.5. We find that the TPO has rejected the approach adopted by the Assessee on account of the following reasons: (a) According to the TPO, the Assessee did not explain as to why the different rates of royalty were paid for 'Essar' and 'Vodafone' trademarks and trade name and failed to submit any qualitative difference to justify higher payment to Vodafone over Essar, (b) The Assessee had not undertaken any FAR analysis to demonstrate that trademark agreements of the external CUP comparables were similar to the agreement entered into between the Assessee and VIML for the grant of right to use 'Vodafo....
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.... pricing adjustment. It was explained by the Assessee that the payments made by the Assessee for technology support services represents costs allocated by Vodafone Group Services Ltd in relation to VISTA support services. VISTA charges were in relation to the IT platform maintained by Vodafone group on which Vodafone Intranet portal was hosted, which had applications like HR, share-point etc. internally used by the employees across the group entities including those of the Assessee for communicating and sharing information. 14.2. However, the TPO rejected the aforesaid submission, inter alia, holding that the Assessee failed to satisfy the need-purpose- benefit test. The Assessee could not justify the charge based on cost benefit analysis and whether there was a need to incur such costs. Except for submitting description of services and invoices, which were not self-explanatory, the Assessee did not substantiate the cost incurred in connection with VISTA platform with documentary evidence. The Assessee also did not give the bifurcation of amount and nature of services rendered by the AE under various heads within the allocation of technology support charges paid. Further, the TP....
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.... 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 was examined by Hon‟ble Delhi High Court in the case of CIT vs. M/S. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD (367 ITR 730)(Delhi), wherein it w....
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....n 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 stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is No.....
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....e 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 offices in Singapore and the United States was necessa....
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.... 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." (Emphasis Supplied) 14.6. Facts and circumstances being identical, we do not find any reason to depart from the view taken by the Tribunal in the above decision. Accordingly, adopting the reasoning given by the Tribunal in the above decision we set aside the transfer pricing addition of INR 1,31,43,772/- made in respect of technology support charges with the directions to the AO/TPO to determine the ALP of the relevant transactions as per law and make transfer pricing adjustment, if any. The Assessee is directed to furnish all the inf....
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....e in 2008-09 in ITA No 6718/Mum/2012 dated 08-05- 2023 and the matter was restored to the file of AO/TPO with the following observations:- "18. In the instant case, the DRP in principle has accepted the fact that the payments were made towards reimbursement of salary and related cost of seconded employees on cost to cost basis and thus allowed substantial part of assessee‟s claim. However, Rs.3,63,31,007/- has been disallowed for the reason that the assessee has not been able to substantiate back to back payment of the said amount. Once it has been accepted that the five employees were seconded to India by overseas AEs, the relocation of those employees to India is a consequential step. There would be cost attached to relocation of such employees. The said cost has either to be borne by the AE or the assessee. This fact can be determined from the terms and conditions of secondment of employees. In case relocation costs/travel costs are borne by the assessee, the same deserves to be allowed if they are reimbursed on cost to cost or are paid directly to the seconded employees. Taking into consideration entire facts, we deem it appropriate to restore this issue back to ....
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..... Ground No. 9 raised by the Assessee is allowed for statistical purposes. Ground No. 10 18. Ground No. 10 raised by the Assessee pertains non-grant of full credit of TDS as claimed by the Assessee. In this regard we note that a rectification application, dated 14/09/2015, filed by the Assessee is pending adjudication. Since substantial time has lapsed since filing of the Application, the Assessing Officer is directed to take up the rectification application at the earliest and grant credit of tax deducted at source to the Assessee as per law. Ground No. 10 raised by the Assessee is allowed for statistical purposes. Ground No. 11 19. Ground No. 11 raised by the Assessee pertains to initiation of penalty proceedings under Section 271(1)(c)of the Act is dismissed as being premature. Appeal by Revenue : ITA No. 1919/Mum/2016 20. Now we would take up grounds raised in appeal preferred by the Revenue. Ground No. 1 & 2 21. Both the sides agreed that Ground No. 1 & 2 raised by the Revenue are connected to Ground No. 3 raised by the Assessee in appeal for the Assessment Year 2011-12. In view of our finding and adjudication in paragraph 6 to 6.6 above, Ground No.1 an....
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....has placed reliance on the decision of the Tribunal in the case of Vodafone East Limited Vs. ACIT [2016] 156 ITD 337 and DCIT Vs. Vodafone Digilink Ltd. [2018] 193 TTJ 150 (Delhi Trib) wherein in identical facts and circumstances disallowance made under Section of the Act of in respect of penalty paid to DoT was deleted by the Tribunal holding that penalty paid to DOT is for the breach of contractual obligation and hence is allowable as a deduction under section 37 of the Act read with Explanation thereto. Accordingly, we do not find any infirmity in the direction issued by the DRP and the consequent final Assessment Order dated 28/01/2016, passed by the Assessing Officer on this issue. Thus, Ground No. 3 raised by the Revenue is dismissed. Assessment Year 2012-13 Appeal by Assessee : ITA No. 2834/Mum/2017 23. We would now take up appeal for the Assessment Year 2012-13 preferred by the Assessee arising from the Final Assessment Order dated, 30/01/2017, passed under Section 143(3) read with Section 92CA read with Section 144C(13) of the Act as per directions issued by the DRP under Section 144C(5) of the Act. 23.1. During the hearing both the sides agreed that, there bei....
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....sment Year 2009-10 [ITA No. 1121 & 1885/Mum/2023, dated 08/11/2023] and keeping in view of our finding and adjudication in paragraph 7 to 7.7 above, the disallowance of INR 48,39,89,911/- under Section 40(a)(ia) of the Act in respect of disallowance of discount extended to pre-paid distributors is deleted. Ground No. 3 to 3.4 raised by the Assessee is allowed. Ground No. 4 to 4.3 27. Ground No. 4 to 4.3 raised by the Assessee is directed against the disallowance of deduction under section 80IA of the Act in respect of 'Other Income' aggregating to INR 1,082.22- Crores consisting of (a) Interest Income amounting to INR 669.65 Crores (b) Management services form subsidiaries amounting to 391.61 Crores (c) Miscellaneous income amounting to INR 20.9 Crores 27.1. Ground No. 4 to 4.3 raised by the Assessee in appeal for the Assessment Year 2012-13 are identical to Ground No. 6 raised by the Assessee in appeal for the Assessment Year 2011-12. 27.2. In view of the judgment of the Hon'ble Delhi High Court in the case of Bharat Sanchar Nigam Limited (supra) which was followed by the Tribunal in the case of the Assessee [Assessment Year 2005-06; ....
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....tment of telecom license & spectrum, the same shall override the general provisions of the section 32(1). The provisions of Section 35ABA introduced w.e.f 1.4.2017 were clarificatory in nature. A plain reading of the provisions of newly introduced section 35ABA, makes it clear that the intention of the legislature is to amortize the expenditure on license in an equal manner over the entire period to which it relates. While enacting Section 35ABA, it was not the intention of the legislature to provide depreciation under Section 32 of the Act till 31/03/2017 and amortize the expenditure after 01/04/2017, as has been suggested by the assesse company. Further, the DRP was of the view that the intangible asset (namely 3G license) was allotted to the Assessee for a fixed period of time and as per the accounting principles, the same should be written off during the said fixed period only. Thus, the AO was correct in disallowing depreciation and allowing amortization over the operational lifetime of the 3G license. As per the directions of the DRP the Assessing Officer passed Final Assessment Order, dated 28/01/2016, denying claim of depreciation and allowing amortization. 28.3. Being a....
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....32. We also observe that if the argument of the Revenue that payment for spectrum was covered by Section 35ABB is to be accepted, it would render the provisions of Section 35ABA to be otiose to say the least and this too highlights the fallacy of the said argument. To sum up, we observed that Section 35ABA of the Act is specific to expenditure for obtaining right to use spectrum and not Section 35ABB of the Act. Accordingly, the decision of the Mumbai Bench of the ITAT in the case of Idea Cellular Ltd. (ITA No. 360/Mum/2016) and also the decision of Tata Teleservices Ltd. (ITA No. 3567/Mum/2016 and 4392/Mum/2017) cannot be faulted with and the same has to be followed. 33. In view of the above, we hold that this issue is squarely covered in favour of the assesseeby the decision of the Jurisdictional Bench of the Tribunal in the case of Idea Cellular Limited (ITA No. 360/Mum/2016) dated December 6, 2017. In this context, we highlight that the Tribunal in identical fact pattern for the same assessment year has not only upheld claim of depreciation on the 3G spectrum fees under section 32(1)(ii) of the Act treating the right to use 3G spectrum as an intangible asset, but has a....
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....gly, Ground No. 7 and 8 are dismissed as being general in nature. Ground No. 9 & 10 31. Ground No. 9 & 10 raised by the Assessee pertains to transfer pricing adjustment of INR 9,36,75,998/- made in respect of the payment of brand royalty for obtaining the right to use of Vodafone trademark and trade name. Ground No. 9 & 10 raised by the Assessee in appeal for the Assessment Year 2012-13 are identical to Ground No. 7.9 to 7.10 of the Assessee's appeal for Assessment Year 2011-12. Therefore, in view of our findings and adjudication in paragraph 13 to 13.6 above, and keeping in view the overall facts and circumstances of the present case we remand this issue back to the file of TPO/Assessing Officer with the directions decide the issue of transfer pricing adjustment in relation to international transaction of royalty payments afresh after granting the Assessee reasonable opportunity of being heard. The Assessee is directed to place before TPO/Assessing Officer such agreements/documents on which the Assessee wishes to place reliance in support of its contentions. In terms of aforesaid, Ground No. 9 and 10 raised by the Assessee are allowed for statistical purposes. Ground No. ....