TaxTMI 
TaxTMI 
2025 (5) TMI 685
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.... Panel -1 (Ld. DRP') is bad in law, unlawful and unjust. 2. On the facts and circumstances of the case & in law, the final assessment order under section 143(3) r.w.s. 144C(13) r.w.s 144B of the Act dated July 19,2024 and Ld. DRP's directions under section 144C(5) of the Act dated June 30, 2024 are barred by limitation provided under section 153 of the Act and hence, deserves to be held as void-ab-initio, bad in law and time-barred. 3. On the facts and circumstances of the case and in law, the Ld. AO has erred in determining the total income of the Appellant at INR 37,56,31,055 as against the income of INR 14,03,06,300 offered to tax by the Appellant in its return of income, thereby making additions/disallowances of INR 23,53,24,755 in the final assessment order. Corporate Grounds Disallowance of Bad debts written off during the year 4. On the facts and circumstances of the case and in law, the Ld. AO /Ld. DRP has grossly erred in disregarding the submissions made by the Appellant and in concluding that conditions mentioned under section 36(1)(vii) of the Act have not been met for claiming the amount of bad debts as allowable ded....
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....pellant as the tested party; 6.2. conducting a fresh economic analysis for the international transaction pertaining to provision of support services without demonstrating deficiency/insufficiency in the approach followed by the Appellant and holding that the transaction is not compliant with the arm's length principles; 6.3. rejecting/ modifying the filters applied by the Appellant in spite of the fact that application of such filters is appropriate for conducting a search to determine the companies comparable to the Appellant; 6.4. rejecting the comparable viz. Pratisaad Communications Private Limited accepted by the Appellant in the TP documentation by applying incorrect filters and on invalid grounds; 6.5. selecting alleged comparable companies which are functionally dissimilar and contrary to the characterization of the Appellant on an arbitrary basis; 6.6. not correctly calculating the margins of the final comparables and thus not considering the correct margins as per the Annual Reports; 6.7. classifying "Other Income" which is in relation to "liabilities no longer required written back" as a part of non-operating inco....
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....that why the said debt was not reduced during the year 2019-20 which is the year for giving effect to the said transaction as per letter dated 03.09.2018. The AO observed that two conditions for claiming the same as bad debt was not fulfilled in this case. The assessee also failed to furnish as to what was relevant financial year in which the said amount representing the sales made/services offered to the said party. After analyzing the information contained in ledger account of the company, Gionee India Pvt. Ltd. by observing certain defects in maintaining of account, the AO proceeded to disallow the same. 4. Aggrieved assessee filed objections before the ld. DRP and before ld. DRP, assessee made a detailed submissions and submitted that the assessee provided services to Gionee India Pvt. Ltd. in FY 2017-18 and considering the amount of Rs. 1,98,42,767/- (base amount of invoice being Rs. 1,68,15,904/- and GST being Rs. 30,26,863/-) was receivable against the rendition of services and submitted a copy of the invoices as additional evidences. Based on this, issue was remanded to the AO and AO submitted in his remand report that it is pertinent to mention that no documentary evide....
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....ails of bad debts (Refer page no. 57 of P.B. Volume I), wherein the Appellant explained that out of the total opening balance of INR 1,98,42,767, Gionee has agreed to provide a full and final settlement amount of INR 62,78,088. In addition to this, an amount of INR 16,81,591 was reduced from the recoverable amount being the amount recovered in form of TDS(deducted and deposited by Gionee in FY 2017-18). This resulted into a net amount of INR 1,18,83,088 (INR 1,98,42,767 less 62,78,088 less 16,81,591) being written off as actual bad debts. 12) With referenced to the first condition of Section 36(1)(vii) of the Act, on perusal of the ledger account submitted by the Appellant Company (Refer page no. 58 of P.B. Volume I), it is clearly evident that the amount recoverable from Gionee had become bad and irrecoverable and was written off as bad debts in FY 2019-20 (AY 2020-21). The Company had claimed the deduction of bad debts expenditure (being irrecoverable in nature) amounting to INR 1,18,83,088 in AY 2020-21. 13) With reference to the second condition of the aforesaid provision [section 36(1)(vii)], it is to be noted that the Appellant provided services to Gionee in....
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....of settlement letter dated September 3, 2018 (Refer page no. 56 Volume I)falling in FY 2018-19 and not FY 2019-20. 17) In this regard, it is humbly submitted that it was a commercial business decision of the Appellant based on the commercial judgements to write off the irrecoverable amount in the captioned year i.e., AY 2020-21 so as to be certain on the recoverability of the agreed amount of INR 62,78,088. The applicable provisions of section 36(1)(vii) read with section 36(2) of the Act do not anywhere mention about the debt being made in the particular financial year / subject year. The Ld. AO is not justified to question the commercial rationale / acumen of the Appellant. 18) The decision to write off the irrecoverable amount during the captioned AY 2020-21, was a strategic business decision made by the Appellant. This action was undertaken following careful commercial judgment and evaluation of the financial circumstances surrounding the irrecoverable amount. The Appellant exercised its discretion in determining that the amount in question was unlikely to be recovered and, therefore, deemed it prudent to reflect this in the financial accounts for the specifie....
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....bovesaid amount has become bad debt and yes, no doubt, assessee should have claimed the same in AY 2019-20, however assessee has claimed as bad debt only in AY 2020-21. It does not change the character of the bad debt and considering the tax rate being same in both the FYs, it amounts to revenue neutral. Therefore, there is no bar in claiming the ascertained bad debt in the current assessment year. Accordingly, we are inclined to allow the claim of the assessee and ground no.4 is allowed. 8. With regard to Grounds No. 5, 5.1 & 5.2, the relevant facts are, the AO observed that out of total amount of Rs. 21,00,43,129/- claimed under the 'Data Field Costs', an amount of Rs. 4,33,56,115/- was paid to the company, M/s. Nielsen India Pvt. Ltd. and the payment was duly reflected in the ledger account placed on record. He observed that the assessee is subsidiary company of GFK Asia Pte Limited, the holding company with 50.1% shareholding and other shareholders in the company Nielsen India Pvt. Ltd. with 49.9% shareholding. It is observed that the assessee has paid an amount of Rs. 4,33,56,115/- to the difference as mentioned above. The AO related this transaction with deemed dividend u/....
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....d in the said Section. 24) However, it is pertinent to note that in the present scenario, the payment is not disbursed in the form of loans or advances; rather, it is remitted for services rendered by Nielsen India in the ordinary course of business. Also, the payments cannot be viewed as individual benefit of a shareholder since the payments were made against the services actually rendered by Neilsen India to the Appellant. Hence, provisions of Section 2(22)(e) of the Act are not applicable in the instant case. 25) Further, the relevant extract from CBDT circular 19/2017 dated 12 June 2017 (Refer page no. 6 to 7 of CLC) states that- "In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions, would not fall within the ambit of the word 'advance' in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon" 26) In the aforesaid circular, the CBDT has also quoted the ruling of Hon'ble Punjab and Haryana High Court in the case of CIT vs Am....
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....ay-to-day business activity, this cannot be treated as loans or as advances under section 2(22)(e) of the Act, which are: - CIT vs. Ambassador Travels P. Ltd. (2009) 318 ITR 376 (Del) (Refer page no. 8 to 9 of CLC) - CIT v. Raj Kumar (318 ITR 462) (High Court of Delhi) (Refer page no. 10 to 18 of CLC) - N.H. Securities Ltd. vs. DCIT reported in 11 SOT 302 - CIT vs. Nagindas M. Kapadia, 177 ITR 393 (Bom) - CIT vs. Atul Engineering Udyog [2015] 228 Taxman 295 (All) - ACIT v. Sunil Chopra (2 ITR 469) (Delhi bench of the Tribunal) - Kiran Bansal v. ACIT (2011) (10 ITR 180) (Delhi bench of the tribunal) - Ravindra R. Fotedar v. Asstt. CIT (2017) 167 ITD 100 (Mum.-Trib.) 32) Accordingly, the said addition made on account of deemed dividend is bad in law and ought to be deleted." 13. On the other hand, ld. DR of the Revenue relied on the orders of lower authorities. 14. Considered the rival submissions and material available on record. We observed that assessee is dealing in the field of retail store data for mobile events, consumable electronics home appliances, personal computers and imaging in this l....
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....ancial transactions. Under the circumstances, the Tribunal came to the conclusion that since these transactions did not represent loans or advances, the provisions of Section 2(22)(e) of the Act were not at all applicable. 5. We are of the view that the order passed by the Tribunal does not suffer from any error of law. It is quite clear that the Assessee was a travel agency and the above two concerns that it had dealings with, that is, M/s Holiday Resort Pvt. Ltd. and M/s Ambassador Tours (I) Pvt. Ltd. were also in the tourism business. The Assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. The financial transactions cannot in any circumstances be treated as loans or advances received by the Assessee from these two concerns. 6. Consequently, the Tribunal was right in coming to the conclusion that the provisions of Section 2(22)(e) of the Act are not applicable." 15. With regard to Grounds No. 5.3 & 5.4, the relevant facts are, during assessment proceedings, AO observed that the assessee has incurred huge data field costs during the y....
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....im of expenditure of Rs. 17,74,72,883/- on account of employee expenses and claim of expenditure of Rs. 40,49,86,424/- on account of service support fees and under the given circumstances, assessee was under legal obligation to establish as to the exact nature of the expenses under different segments like salaries, data filed cost and service support fees which constitute the three major heads under which the expenses have been claimed. There is a conflict between the receipts and expenses here which is seen from the very nomenclature of the revenue head which is super scribed as market research fees which further means that it is a kind of research in the field which is the source of revenue in the case and seen from this angle, [then what is the distinction between the fees/revenue and expenses. Moreover, assessee has not furnished the ledger accounts of the parties and the modus operandi of the business operations with-reference to the services solicited from the suppliers vis-a-vis the role of the retailers whereas it was a specific query raised during the proceedings. Thus, keeping in view, the facts and circumstances of the case amount of Rs. 15,04,75,422/- is being added bac....
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.... format which in turn is analyzed by the Appellant Company and is utilized in creating reports for onward selling to Appellant Company's customers. The reports generated by Appellant Company using data provided by the auditors on field contains data such as the top selling brands of a particular product (relevant to the business of the customer), average prices on which products are sold, most demanded model/product, geographical needs, performance ratings of products etc. These reports sold by the Appellant Company help the clients in formulating policies, understanding market trends, competitive position of their products in the market etc. 39) Considering the afore-mentioned nature of Appellant Company's business, Data field cost includes the following components to ensure the sustainable data collection: - Cost of auditors who visit retail outlets to collect the data - Cost of incentives to retailers for sharing their data with Appellant Company - Cost of travel for running field manual visits to retailers etc. - Universe studies conducted to count the entire universe of covered channels in India. - Third party co-operation ....
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....f INR 121 per outlet for the same number of outlets. The gross rate charged was INR 640 per outlet, sum total of INR 519 plus INR 121(Refer page no. 187 of P.B. Volume I). 43) Further, the Ld. AO has inadvertently stated that one of the parties i.e. Basarsoft Bilgi Teknolojileri A.S. is a foreign company but its name has not been mentioned in the list of companies given in the audit report under section 92E of the Act, and neither its name has been mentioned in the ledger account in respect of the Data Field Costs. In this regard, the Appellant respectfully submits that Basarsoft Bilgi Teknolojileri A.S is not a related party and accordingly was not required to be reported in the report filed under section 92E of the Act. Further, the transactions with Basarsoft Bilgi Teknolojileri A.S. are duly reflecting in the ledger account of data field cost. For instance, Invoice No. 400003043 raised by Basarsoft Bilgi Teknolojileri A.S.is duly appearing in the ledger account (Refer page no. 60 of P.B. Volume I, copy of corresponding invoice attached at page no. 230 of P.B. Volume I). Therefore, it is evident that the Ld. AO has completely overlooked the details in the ledger account....
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.... 18. On the other hand, ld. DR of the Revenue brought to our notice page 54 of the final assessment order and vehemently argued and brought to our notice findings of the AO and submitted that the assessee has not submitted the relevant information on justification of such huge expenditure claimed under the head 'data field costs' which is more than employee benefit expenses whereas the assessee is a service specific company where there is no purchase and sales of goods and all the revenue generation is from the offering of services in the specific field and he relied on the findings of the lower authorities. 19. Considered the rival submissions and material available on record. We observed that before tax authorities, assessee has submitted ledger copy of data field costs which is placed on record and also sample copy of agreements and sample of invoices. It is a fact on record that assessee is engaged in the business of retail store data of specific product categories. This is done through a representative panel of retail stores and they proceeded with collection of sample of retailers of whom sales information can be collected on regular interval. Based on the raw data collect....
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....nds raised by the assessee. 21. With regard to Ground No. 6, relevant facts are, in assessment proceedings. TPO rejected the economic analysis, functional profile of comparables and filters applied by the assessee in the TP documentation and proceeded to reject five comparables of the assessee and selected 13 new comparables proposed and adjustment of Rs. 5,30,02,280/- pertaining to provisions of support services. 22. Assessee filed objections before the ld. DRP against the draft assessment order and after considering the submissions of the assessee, finally ld. DRP excluded 8 comparables out of 13 comparables selected by the TPO and included 3 comparables selected by the assessee. 23. In order giving effect to the ld. DRP's order, 10 comparables were finalized to benchmark the ALP of the assessee as under :- (i) Cyber Media Research & Services Limited; (ii) Kestone Integrated Marketing Services Private Ltd.; (iii) Cheers Interactive (India) Private Ltd. (iv) Concept Software Services Private Ltd. (v) Enkon Pvt. Ltd. (vi) PR Pundit Public Relations Pvt. Ltd. (vii) Axience Consulting Private Ltd. (viii)....
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....ge 35 to 41 of CLC) 26. On the other hand, ld. DR of the Revenue relied on the findings of TPO that this comparable company has incurred continuous losses in FY 2017- 18 and 2019-20 respectively. This comparable was compared and it fails persistent loss filter. 27. Considered the rival submissions and material available on record. We observed that TPO and ld. DRP rejected the Pratisaad Communications Private Ltd. as comparable based on the filter of persistent loss by observing that it has incurred loss of Rs. 58.14 lakhs in FY 2017-18 and loss of Rs. 7.32 lakhs in FY 2019-20. However, we observed that in FY 2018-19, it registered profit of Rs. 51.15 lakhs. It is settled position of law that comparable company, which registers consistent loss for three consecutive years, has to be rejected on the basis of consistent loss. However, we observed that in the case of KBACE Technologies Ltd., ITAT, Bangalore has discussed the similar issue and held that in any of the three previous financial years, if it has made a profit then it shall not be excluded by applying the persistent loss filter. The relevant findings are given below :- "8. As far as inclusion of 3 companies whi....
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....lities no longer required to be written back as a part of non-operating income while computing the Profit Level Indicator (PLI) of the assessee, in this regard ld. AR of the assessee submitted as under :- "In this regard it is pertinent to mention that the liabilities written back belonging to earlier years were directly relatable to regular business operations of the Appellant. Reference is made to the following judicial pronouncements holding that liabilities written back should be considered as operating in nature: • Tetra Pak India Pvt. Ltd. [TS-573-HC-2023(BOM)-TP] (Refer page 139 to 146 of CLC) • Adobe Systems Software Ireland Ltd. [[2023]155 taxmann.com 101 (Delhi - Trib.)] (Refer page 147 to 161 of CLC) • Sony India (P) Ltd. [2008] 114 ITD 448 (Delhi)(Refer page 73 to 138 of CLC) The Appellant had added a sum of INR 25,43,072 being the "provisions no longer required written back". The aforesaid provisions being considered as operating in the year of creation and being considered to arrive at the operating margin of those years. Accordingly, the Appellant praying that the sum of INR 25,43,072 being treated as ....