TaxTMI 
TaxTMI 
2024 (11) TMI 1092
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....come Tax Act, 1961 ("Act), partly confirming the adjustments proposed by the Deputy Commissioner of Income Tax, Circle 8(1)(2), Mumbai ('AO') in the draft assessment order, and the learned AO has accordingly erred in passing the assessment under section 143(3) read with section 144C of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Disallowance under section 14A of the Act 1.1. On the facts and circumstances of the case and in law, the learned DRP/AO has erred in invoking the provisions of section 14A of the Act and thereby, has erred in making a disallowance of INR 4,42,12,40,500 under section 14A of the Act. 1.2. On the facts and in the circumstances of the case and in law, the learned DRP/AO has grossly erred in making disallowance under section 14A of the Act, when an amount of INR 488.1 crores as management support services has already been recovered from the subsidiaries of the Appellants and as the same is already offered to tax, any disallowance under section 14A of the Act results in double disallowance. 1.3. Without prejudice to ground 1.1 and 1.2 above, on the facts a....
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....P") adjustment-General Grounds 4.1. On the facts and circumstances of the case and in law, the learned DRP has erred in confirming the adjustments aggregating to INR 38,23,33,655 made by the Joint Commissioner of Income Tax, Transfer Pricing 4(1), Mumbai ('the learned TPO learned AO under section 92CA of the Act. 4.2 On the facts and circumstances of the case and in law, the directions passed by the learned DRP are bad in law to the extent the same are prejudicial to the Appellant. 5. TP adjustment amounting to INR 31,13,67,878 on account of brand royalty payment made for grant of right to use of 'Vodafone' trademark and trade name 5.1. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in determining the arm's length price (ALP) of royalty payment made to associated enterprise (AE') for grant of right to use 'Vodafone' trademark and trade name at Nil price. While doing so, the learned TPO/AO/DRP have violated the principle of consistency. 5.2. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred determining the ALP of royalty payment made to AE....
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....der section 271(1)(c) of the Act against the Appellant." 3. The relevant facts, in brief, are that Appellant is a company engaged, inter alia, in providing cellular telecommunication services. The Appellant filed its return of income for the Assessment Year 2013-14 on 29/11/2013 declaring total income of INR 7,20,37,88,924/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm's Length Price (ALP) of the international transactions. The TPO, vide order, dated 17/10/2016, passed under Section 92CA(3) of the Act proposed, inter alia, the following transfer pricing adjustments: SNo. Additions/Disallowances Amount (INR) 1 On account of payment of royalty for brand name and mark 31,13,67,878/- 2 On account of payment for GMAC costs, PwC consulting charges and People Survey charges 70,965,777/- Total 38,23,33,655/- 3.1. On 29/12/2016, the Assessing Officer....
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....uring the assessment proceedings, the Assessing Officer noted that the Appellant has earned exempt dividend income of INR 404.98 Crores. Therefore, the Appellant was asked to explain why disallowance should not be made under Section 14A of the Act read with Rule 8D of the IT Rules. In response, it was submitted by the Appellant that during the relevant previous year no fresh investments were made by the Appellant. Further, no finance cost has been incurred in relation to investments made in the prior years. The investments in the prior years were sourced from shares swap, issue of shares by way of rights issue and internal cash accruals. Further, during the relevant previous year the Appellant had earned exempt dividend income of INR 404.98 Crores from Indus Towers Limited. However, no expenditure was incurred in relation to earning the said dividend income. It was further contended the management/administrative expenses incurred by the Appellant during the relevant previous year were recovered by the Appellant from its subsidiaries, and in relation to the same income of INR 488.1 Crores was offered to tax as management support services income under the head other income. Therefore....
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....Crores without deployment of resources. The provisions of Section 14A(2) of the Act provided that once the Assessing Officer was not satisfied with the claim of the Assessee and expenditure incurred on income which does not form part of total income has been debited to the Profit and Loss Account, the amount of disallowance to be made was to be computed in accordance with method prescribed in Rule 8D of the IT Rules. Therefore, the action of the Assessing Officer in making disallowance under Section 14A of the Act by invoking the computation mechanism provided in Rule 8D of the IT Rules cannot be found fault with. Thus, the Learned Departmental Representative supported the disallowance made by the Assessing Officer under Section 14A of the Act. 4.6. We have considered the rival submissions and perused the material on record. 4.7. It is admitted position that the Appellant has earned exempt dividend income of INR 404.98 Crores from investments made in 'Indus Towers Limited' during the relevant previous year. It is also admitted position that no investments were made by the Appellant during the relevant previous year. Further, it has not been disputed by the Revenue that total ....
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....ACIT Vs. Vireet Investments Pvt. Ltd. (2017) 82 taxmann.com 415 (Delhi Trib.) (SB) has held that for computing the disallowance under Rule 8D(2)(iii) of the IT Rules only the investments yielding exempt income are to be taken into consideration. Accordingly, we direct the Assessing Officer to recompute the disallowance under Rule 8D(2)(iii) of the IT Rules read with Section 14A of the Act as per the decision of Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd (supra). 4.9. As regards the adjustment in respect of addition/disallowance under Section 14A of the Act to the Book Profits computed under Section 115JB of the Act in the Final Assessment Order is concerned, we find that no such adjustment was proposed in the Draft Assessment Order. The directions received from DRP on 21/09/2017 also do not contain any directions to the Assessing Officer to make any adjustment to Book Profits computed in terms of Section 115JB of the Act. Accordingly, the adjustment made by the Assessing Officer in respect of addition/disallowance under Section 14A of the Act to the Book Profits computed under Section 115JB of the Act in the Final Assessment Order is deleted. 4.1....
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....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 19 M/s. Vodafone India Ltd. 1870 /Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its distrib....
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.... 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 20 M/s. Vodafone India Ltd. 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 holdi....
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....rther 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 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:- ....
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....dgement 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 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 j....
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....source. 5.7. The above decision of the Tribunal was followed by the Tribunal while deciding identical issue in favour of the Appellant in appeal preferred by the Appellant for the Assessment Year 2011-12 (ITA No.884/Mum/2016) and Assessment Year 2012-13 (ITA No.2834/Mum/2017) vide a common order, dated 17/05/2024. 5.8. Both the sides agree that there is no change in facts and circumstances, therefore, respectfully following the above decisions of the Tribunal in the case of the Appellant, the disallowance of INR 54,85,13,184/- made under Section 40(a)(ia) of the Act in respect of discount extended to Pre-paid Distributors is deleted. Ground No. 4 raised by the Assessee is allowed. Ground No. 3 to 3.3. 6. Ground No. 3 to 3.3 raised by the Appellant pertains to disallowance of depreciation on 3G Spectrum. 6.1. During the Financial Year 2010-11 the Appellant had paid charges for allotment of right to commercially utilize the 3G spectrum allotted to it for a period of 20 years in the telecom circle of Mumbai. Since the right to use 3G spectrum did not itself entitle a company to provide telecom services for which a telecom license was required, the Appellant treated such....
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....he Assessment Year 2011-12, the depreciation in respect of spectrum charges as claimed by the Appellant was allowed by the Assessing Officer. Subsequently, order of revision was passed under Section 263 of the Act on the ground that depreciation in respect of the 3G spectrum charges was incorrectly allowed to the Appellant by the Assessing Officer and that the Appellant could only be allowed the benefit of amortization. In appeal preferred against the aforesaid order passed under Section 263 of the Act for the Assessment Year 2011-12, the Mumbai Bench of the Tribunal concluded that depreciation in respect of 3G spectrum charges was correctly allowed by the Assessing Officer [vide order dated 28/08/2020, passed in ITA No. 3327/Mum/2018 Vodafone India Ltd. Vs. Principal Commissioner of Income Tax-8] holding as under: "29. Accordingly, we can safely conclude that on the merits of the issue, the Mumbai Bench of the ITAT in the case of Idea Cellular Ltd. (ITA No. 360/Mum/2016) has already held that the provisions of section 35ABB are not applicable on the cost of acquisition of the 3G Spectrum and no specific arguments have been made on the said decision of the ITAT on the meri....
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....unal 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 also quashed the revisionary proceedings initiated by the Revenue authorities. The key observations of the Hon'ble Tribunal are as under: a. On maintainability of revisionary proceedings under section 263 of the Act: The Hon'ble Tribunal categorically held that since the assessment order was passed after conducting a detailed enquiry and adopting one of the legally permissible view, the revisionary proceedings initiated on such issue has no legs to stand on and is thus liable to be quashed. Refer paras 13 to 16 of the order (page no 19 to 25 of the order). b. On merits of allowability of depreciation claimed on 3G spectrum fees: The Hon'ble Tribunal observed that the telecom license and spectrum are independent of each other and 3G spectrum fee merely provides a right to use a particular frequency/spectrum while providing telecommunication services. The assessee has rightly claimed depreciation under section 32 of the Act and the provisi....
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.... TPO was not convinced. The TPO noted that till Assessment Year 2012-13, the Appellant used to pay royalty to VSSL @ 0.70%. The Appellant also used to pay royalty to Rising Groups Limited (an Essar Group company) @ 0.35%. Hence, in the assessment proceedings the royalty payments to VSSL were benchmarked by the Transfer Pricing Officer at 0.35% for VSSL also till AY 2012-13. However, for the Assessment Year 2013-14, no royalty payment have been made to Rising Groups Limited because the agreement with Rising Groups Limited was valid only till June 2011. The Appellant has entered into a fresh agreement with VSSL and has provided comparable rates of royalty paid by the third parties which are more than what the Appellant had paid to its AE in the earlier years. TPO noted that the Appellant had adopted CUP Method for benchmarking royalty transactions which according to the TPO was not the Most Appropriate Method. The TPO also rejected all the comparables selected by the Appellant on account of significant differences in the functions, geography and level of operations. The TPO observed that the Appellant was performing Development, Enhancement, Maintenance, Protection and Exploitation f....
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....een considered either by the TPO or DRP. Given the aforesaid factual matrix and keeping in view the fact that for the Assessment Years 2011-12 and 2012-13 the issue of benchmarking of the royalty transaction has been remanded back to the file of the TPO/Assessing Officer, we deem it appropriate to remand this issue back to the file of TPO / Assessing Officer with the directions to decide the issue of transfer pricing adjustment in relation to international transaction of royalty payment afresh after granting the Appellant reasonable opportunity of being heard. The Appellant is directed to file before the TPO/Assessing Officer such documents/details/report as the Appellant may deem fit to support the contention that the royalty payment made by the Appellant to its AE are at arm's length while the TPO is directed to examine the same afresh for determining the ALP and consequent transfer pricing adjustment, if any, as per law. All the rights and contentions of both the sides are left open. In terms of aforesaid, Ground No. 5 to 5.5 raised by the Appellant are allowed for statistical purposes. Ground No.6 and 6.1 9. Ground No. 6 to 6.1 raised by the Appellant pertains to transfer....
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....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 the file of Assessing officer for re-examination. The assessee is directed to furnish relevant documents to substantiate that the costs disallowed by the DRP were in fact cost paid by the assessee towards relocation/travel of the seconded employees. The assessing officer shall decide this issue after affording reasonable opportunity of hearing/to make submissions to the assessee, in accordance with law. Ergo....