AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1581
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....f income on 23.11.2017, declaring a total income of Rs. 1,32,81,87,980/- under normal provisions of the Act and a book profit of Rs. 1,12,46,32,841/- u/s. 115JB of the Act. The case was selected for scrutiny and notice u/s. 143(2) was served on the assessee. The case was referred to Transfer Pricing Officer (TPO) who made a TP adjustment of Rs. 68,55,27,641/. The NFAC made a draft assessment order in which besides the TP adjustments, the following additions/disallowances were made on the corporate tax front: - i) Difference between revenue reported in ITR and ST3 - Rs. 5,49,66,590/- ii) Telecommunication line expenses treated as capital in nature - Rs. 2,06,53,968/- iii) The foreign exchange loss - Rs. 13,14,30,000/- iv) Miscellaneous expenditure - Rs. 93,50,000/- 3. The assessee filed objections before the DRP against the draft assessment order. The DRP after considering the submissions of the assessee gave partial relief. The DRP deleted the TP adjustment and on the corporate tax, reduced/sustained the addition/disallowances as given below: - i) Difference between revenue reported in ITR and ST3 - ....
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....the objection raised by evidently misconstruing the objection against corporate tax adjustment as an objection related to transfer pricing adjustment. d) The Learned AO failed to consider the above ambiguity highlighted by the Assessee. iii. Disallowance of miscellaneous expenditure a. The Learned AO erred in adding entire miscellaneous expenditure without issuing any show-cause notice and without providing an opportunity of being heard, after the Assessee inadvertently missed to provide the break-up of expenditure during course of assessment. b. Subsequent to DRP directions, the Learned AO failed to provide the Assessee adequate time to furnish additional details sought by the AO. iv. Levy of interest under section 234D of the Act The learned AO has erred in levying interest under section 234D of the Act amounting to INR 8,44,222 which is consequential in nature. v. The assessee craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hea....
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....ing submissions before us i. That the vendorwise break-up of the expenditure along with invoices (pages 733 to 942 of PB) was submitted before the lower authorities. ii. That the AO in the assessment proceedings of AY 2018-19 have verified invoices pertaining the similar expenses and have accepted the same as revenue in nature. iii. That the nature of expenditure remain unaltered, as the assessee incurs the same expenditure year on year and therefore the expenditure is revenue in nature to be allowed as a deduction. iv. That the expenditure claimed by the Assessee as telecommunication line expense broadly pertain to invoices raised by the following vendors: a. Tata teleservices (Tata Docomo) - payment towards telephone line bills; b. Dishnet Wireless Limited (Aircel) - payment towards port charges; c. Verizon Communications India Private Limited - payment towards recurring private IP ethernet, internet, LAN charges etc. v. That the AO has misconstrued it to be Centrex wireline (EPABX system), even though the copy of sample invoices did not carry any such description on the invoices and despite providing explana....
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....ading to effective man hours. Hence, the telecommunication expenses enables the business operations to be carried out more efficiently. ix. That reliance is placed on the following judicial precedents: a. Assam Bengal Cement Co. Limited 27 ITR 34 (SC); b. Empire Jute Co Ltd vs CIT [1980] 124 ITR 1 (SC); c. Bombay Steam Navigation Co [1953] (P) Limited v CIT [1965] 56 ITR 52 (SC) 9. The learned D.R. supported the orders of the DRP and submitted that the assessee had claimed the telephone and internet charges separately. The learned D.R. also submitted that the DRP after perusal of the invoices has held that the expenditure to be capital in nature and therefore prayed that the same needs to be upheld. 10. We have perused the evidences submitted and have heard both the parties. The assessee is in the business of providing IT/ITES services to its group companies. The assessee is having operations in Bangalore & Mumbai. Given the number of employees employed in different locations, the argument that the assessee is incurring huge expenses towards interest and data circuit charges, has to be accepted. During the course of hearing the learned A.R.....
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....sal of few sample invoices we notice that the invoices of Tata Docomo charges are towards telephone lines the numbers of which is listed as an annexure to the bills raised. The Aircel invoices are raised towards port charges which is a fixed payment on a monthly basis. Similarly the invoices of Verizon has the description as 'internet recurring' charges. From the above, it is clear that the charges paid by the assessee are towards telephone lines, monthly port charges and recurring internet charges and hence we are of the considered view that the expenditure incurred by the assessee under the head 'telecommunication lines' is of revenue nature. We also notice that the AO in assessee's own case for AY 2018-19 has allowed the expenditure after verifying the sample invoices on the basis that the expenditure is 'recurring charges' and paid for a 'specified period'. The DPR/AO has in the order had stated that the assessee has claimed telephone and interest charges separately and stated it as reason for holding that the expenditure incurred as telecommunication lines is capital in nature. This in our view is not correct as the expenditure incurred under the head 'telecommunication lines'....
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....ailed to appreciate the fact that the whole of foreign exchange loss is revenue in nature (both monetary and non-monetary), which gets covered in section 43AA(2) of the Act, which is sufficient explanation for claiming the loss as a deduction. Reliance was placed on the decision of Hon'ble Apex Court in case of CIT vs. Woodward Governor India (P.) Ltd. [2009] 179 Taxman 326 (SC), wherein the Apex Court has provided various tests in determination of whether foreign exchange loss is a deductible expenditure. It was held that - a. "the 'loss' suffered by the assessee on account of the exchange difference as on the date of the balance sheet was an item of expenditure under section 37(1) b. Exchange differences arising on foreign currency transactions have to be recognized as income or as expense in the period in which they arise. The important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis-a-vis monetary items denominated in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materi....
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....AA and also the relevant clauses of ICDS VI Taxation of foreign exchange fluctuation 43AA. (1) Subject to the provisions of section 43A, any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss, as the case may be, and such gain or loss shall be computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145. (2) For the purposes of sub-section (1), gain or loss arising on account of the effects of change in foreign exchange rates shall be in respect of all foreign currency transactions, including those relating to- (i) monetary items and non-monetary items; (ii) translation of financial statements of foreign operations; (iii) forward exchange contracts; (iv) foreign currency translation reserves. ICDS VI - Effect of changes in foreign exchange rates Foreign currency monetary items are those items where there is the right/obligation to deliver a fixed/ determinable amount of currency units e.g. cash, receivable, payable. Foreign currency non-monetary items are items other than foreig....
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....DS which is to be recognized as a loss as per the provisions of section 43AA. It is also noticed here that the amount claimed is net loss after considering the forex gains arising in certain transactions and that the assessee has also submitted that the invoice-wise details of forex loss/gain at page 963 of PB. In view of the above discussion we hold that the forex loss claimed by the assessee is an allowable expenditure. This ground is allowed in favour of the assessee. Disallowance of unexplained expenses 19. During the year under consideration the assessee has claimed Rs. 93,50,000/- as 'other miscellaneous expenses'. The AO disallowed the expenditure on the ground that the assessee has not provided details of the nature of expenditure. Before the DRP the assessee submitted that the breakup of the 'other miscellaneous expenses' along with sample invoices substantiating the claim. The DRP issued directions to the AO to verify the details and allow the claim accordingly. The AO after verification allowed a sum of Rs. 76,75,267 based on invoices submitted. The AO disallowed a sum of Rs. 16,74,733/- as per details below, on the ground that the assessee did not p....