TaxTMI 
TaxTMI 
2026 (3) TMI 1656
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....esolution Panel ('Hon'ble DRP') (hereinafter collectively referred as the Revenue'), is contrary to the facts and circumstances of the case, based on surmises and conjectures, against law and principles of natural justice and thus erroneous and unsustainable. Proportionate disallowance of deduction claimed under section 80IA of the Income-tax Act, 1961 ('the Act') 2. Based on the facts and circumstances of the case and in law, the Revenue has erred in proportionately disallowing the deduction claimed by the Appellant under section 80IA of the Act to the extent of IN 10,121,551. 3. The Revenue failed to appreciate that the Appellant started rendering Telecommunication Services before the sunset date 31 March 2005 after fulfilling all the other conditions prescribed in section 80IA of the Act and after obtaining National Long Distance ('NLD?)/ International Long Distance ("ILD') licenses, continued to render Telecommunication Services from the existing undertaking itself in a more efficient and secure manner. The Hon'ble Tribunal in the Appellant's own case for AYs 2010-11, 2011-12, 2013-14 and 2015-16 has deleted the....
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....The Revenue erred in law in applying the definition of 'Royalty' in section 9(1)(vi) of the Act as amended vide the Finance Act, 2012 in interpreting the definition of Royalty' contained in Article 12 of the Tax Treaty. 10. Without prejudice to the above, the Revenue failed to appreciate that an amendment to the provisions of section 9(1)(vi) of the Act with retrospective effect cannot give rise to withholding tax obligations for transactions concluded prior to such amendments as affirmed by this Hon'ble Tribunal, various Hon'ble High Courts and the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 125 taxmann.com 42 (SC). Disallowance under section 40(a)(ia) of the Act on non-deduction of tax on office running and maintenance expenses 11. The Revenue has erred in disallowing an ad-hoc amount of INR 242,300 on alleged non-deduction of taxes under Section 194C of the Act in complete disregard of the fact that the expenditure had already been disallowed suo moto by the Appellant while filing its return of income. Transfer Pricing Grounds 12. On facts and in law, t....
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.... 21. That in view of the aforementioned errors, the Revenue has erred in computing the interest leviable under section 234B and 234D of the Act amounting to INR 38,92,47,320 and INR 1,87,98,779 respectively. 2. At the time of hearing, the Ld. Authorised Representative (AR) submitted that the assessee has raised 18 grounds of appeal. Ground No. 1 is general in nature and Grounds No. 2 to 6 relate to the issue of deduction under section 80IA of the Act, which, according to him, is covered in favour of the assessee. Grounds No. 7 to 10 relate to disallowance under section 40(a)(i) of the Act, Ground No. 11 relates to non-deduction of tax, and Grounds No. 12 to 18 relate to transfer pricing issues based on engineering analysis, which, according to him, are also covered in favour of the assessee. Grounds No. 19 to 21 are consequential in nature. Accordingly, Ground No. 1 is dismissed. Coming to Grounds No. 2 to 6, the relevant facts are that during the assessment proceedings, the Assessing Officer observed from Form No. 10CCB dated 12.11.2012, duly certified by a Chartered Accountant, that the assessee had claimed deduction under section 80IA of the Act for the first time in....
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.... the rendering of services under the NLD/ILD licences amounted to an expansion of the existing ISP undertaking, which had commenced providing telecommunication services prior to the sunset date of 31st March 2005, and accordingly was eligible for deduction under section 80IA of the Act, or whether it amounted to setting up of a separate, new and independent undertaking after the sunset date of 31st March 2005. When the assessee was asked to explain the same, it submitted detailed submissions vide letter dated 24.12.2015. After considering the submissions, the Assessing Officer rejected the same and observed as under: "The assessee in its submissions dated 24 December 2015 has itself admitted that deduction u/s 80IA of the Act only requires that the assessee should commence providing eligible telecommunications services prior to April 1, 2005. And in the present case even if we assume that ISP services and ND/ILD services are the same, then the NLD/ILD services which the assessee is claiming as eligible telecommunications services have not commenced before April 1, 2005 which is an admitted fact. Alternatively, even if it is presumed that the ISP services and NLD/ILD servic....
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....ished industrial undertaking." (v) The Allahabad High Court in the case of CIT vs. Adarsh Cold Storage 280 ITR 58 (Allahabad) has held that the real test to determine whether an undertaking constitutes a new undertaking or an extension of the existing undertaking is to determine whether the undertaking is capable of functioning independently or requires functioning of the old undertaking too. (vi) In the instant case the services under NLD/ILD license are separate distinguishable on the basis that it requires a separate telecom license and it operates on a different intelligent network. And NLD / ILD services can be carried independently even if SP services are not carried in future. (vii) Based on the above law, judgment and nature of services involved, it is held that the assessee company providing NLD / ILD license constitutes an independent undertaking and accordingly, the profits earned from NLD and ILD services are not eligible for deduction u/s 80IA of the Act. (viii). Section 80IA applies to - (i) Any enterprises carrying.... (ii) any undertaking which has started or starts providing telecommunication services, whether b....
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....her services income of Rs. 1,58,87,48,702/- should not be excluded while computing the deduction under section 80IA of the Act. In response, the assessee submitted detailed submissions vide letter dated 24.12.2015. In the said submissions, the assessee stated that pursuant to the Service Agreement dated 14.12.2007 entered into with MFS Globenet Inc. and the Novation Agreement dated 01.02.2008 executed in favour of MCI Communications Services Inc., USA (MCICS), the assessee provides telecommunication services to customers outside India through MCICS, as the assessee does not have the requisite approvals and infrastructure to provide such services outside India. It was further submitted that the assessee provides telecommunication services to the customers of MCICS within the territorial limits of India, wherever required. Accordingly, it was contended that the other services income received from MCICS also pertained to telecommunication services provided by the assessee to MCICS, enabling MCICS to render end-to-end telecommunication services to its customers, and therefore such income was eligible for deduction under section 80IA of the Act. The Assessing Officer, after considering ....
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....as stipulated under the provisions of section 80IA of the Act. Accordingly the assessee claimed the deduction u/s. 80IA for the first time in A.Y.2007-08. The claim was allowed by the AO. 6. In January 2008, the assessee also obtained NLD and ILD licenses from the DoT and continued to provide telecommunication services with enhanced quality. The assessee claimed deduction under section 80IA of the Act on profits derived from telecommunication services including the services rendered pursuant to these licenses for the assessment years under consideration. 7. The AO was of the opinion that the services provided pursuant to ILD/ NLD license constitute a new and independent undertaking and since the license was received in 2008, according to the AO the assessee has not complied with the condition requiring that the telecommunication services should commence prior to 1, April 2005. Since the assessee did not provide any segmental income expenditure for NLD and ILD services, proportionate disallowance is made on the basis of revenue. 8. The proportionate disallowance for the year under consideration is as under :- Proportionate disallowance of Section ....
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....ces to the Foreign Telecom Operators (FTOs) within India as and when they require. In consideration to the services received from FTO the assessee has made payments to the FTOs. The assessee separately received payments from the FTOs for the telecommunication services provided by it within India. 18. The AO disallowed the payments so made u/s. 40(a)(i) of the IT Act, 1961 for non-withholding of taxes. 19. When the matter was agitated before the CIT(A) it was strongly contended that no such withholding of taxes was required in terms of the provisions of section 195 of the Act since the subject payments were not chargeable to tax in India under the provisions of the Act and India-US Double Taxation Avoidance Agreement ('DTAA')." 9. Since the factual matrix and the arguments in the present year are identical to those considered by the Coordinate Bench in the assessee's own case, respectfully following the aforesaid decision, we direct the Assessing Officer to delete the proportionate disallowance made under section 80IA of the Act. Accordingly, Grounds No. 2 to 6 raised by the assessee are allowed. 10. With regard to Grounds No. 7 to 10 relating to disallowance....
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....r section 40(a)(i) of the Act. 14. Aggrieved by the above order, the assessee raised objections before the Dispute Resolution Panel (DRP). However, after considering the submissions of the assessee, the Ld. DRP rejected the objections. Consequently, the final assessment order was passed. 15. Aggrieved by the same, the assessee is in appeal before us. 16. At the time of hearing, the Ld. AR submitted that the issue under consideration is fully covered in favour of the assessee. He drew our attention to the decision of the Hon'ble Delhi High Court in the assessee's own case, wherein the detailed findings of the Delhi Bench of the Tribunal in ITA No. 2235/Del/2019 were upheld. He further drew our attention to the relevant findings of the Tribunal, placed on record at pages 1 to 16 of the paper book. 17. On the other hand, ld. DR relied on the findings of the lower authorities. 18. Considered the rival submissions and perused the material available on record. We observe that an identical issue was considered by the Coordinate Bench of the Tribunal, wherein it was held as under: "14. After considering the relevant findings given in the impugned order as well as th....
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....een upheld by the Hon'ble Delhi High Court in the assessee's own case, we hold that the disallowance made under section 40(a)(i) of the Act is not sustainable. 20. In the result, grounds raised by the assessee are allowed. 21. With regard to Ground No. 11, the Ld. AR submitted that the Assessing Officer disallowed an amount of Rs. 2,42,300/- on an ad hoc basis alleging non-deduction of tax under section 194C of the Act. In this regard, he submitted that the said expenditure had already been disallowed by the assessee suo motu in its computation of income. Therefore, he contended that the same amount could not be disallowed again. 22. On the other hand, ld. DR submitted that the issue may be remitted back to AO. 23. Considered the rival submissions and perused the material available on record. We observe that the assessee has already disallowed the aforesaid amount under section 40(a)(ia) of the Act suo motu, and it was submitted before us that the Assessing Officer has made the disallowance once again. In the interest of justice, we deem it appropriate to restore this issue to the file of the Assessing Officer for verification of the assessee's claim and found proper sa....
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....ect rejection of the Limited Risk Model (LRM) and incorrect re-characterization the Appellant as a full risk service provider without appreciating the facts of the case ■ The Group operates in the form of a Hub and Spoke model, which is used in the context of multilocation service provisioning businesses with the 'Hub' being the primary face to the business customers and extensions called 'Spokes' are leveraged to provide the services, distributed across multiple locations. In a wider role, the Hub is expected to take on management responsibilities including those of capabilities development, customer procurement and relationship management, uniform standards of delivery, etc. On the other hand, a Spoke is administered as a delivery centre that can be scaled up or down depending upon business requirements. ■ In the Verizon system, Verizon US serves as the sole entrepreneur which carry out functions such as: - Global telecommunications strategy formulation; - Investment in technology and R&D; - Network procurement and management across the globe; - "Verizon" brand development and management; etc ■ The o....
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.... The Verizon telecommunications business worldwide is highly interconnected and functions as an integrated global organization in order to serve multinational customers that have telecommunications needs in multiple countries; Provides seamless management, operational and support services to the Group companies across the globe; Leverages the experience of the Verizon US in the operation and reduce any redundancy and cost for such services; and Direct Cost of services provided by Verizon US to various OpCos. is not easily identifiable as Verizon US is providing these services to all its support arm's. the Group implemented the LRM structure to adequately compensate the entities across the globe (including VCIPL) at arm's length, for the intra-group supply of telecommunications services. ■ In view of the above, though VCIPL derives its revenue from third party customers, the AE of the Appellant ensure that it earns an arm's-length return for its business operations in India. This is ensured by following the below mentioned remuneration model to compensate VCIPL for its overall business operation in India. The Appellant earns the high....
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.... margin equal to 11 % return on sale or cost plus 14% is made good by the AE); ■ However, in a situation of excess profits, when it comes to ensuring that VCIPL retains a routine return the higher of margin equal to 11% return on sales or of cost plus 14% and the remaining/ non-routine business profits are given back to the entrepreneur, the TPO held it to be unacceptable. 13. In this regard, it is the considered view of the undersigned that a contractual transfer and re-assignment of risks cannot be allowed to justify the model on which, you are operating. Considering your functions, risks and assets, it may be fair for your AE to step in and true up your accounts through upward transfer pricing adjustments so that your transactions with your AE are held to be at arm's length, but your AE cannot cap the upside of your profits by arranging the pricing of its services and your services rendered to each other,| through a contractual arrangement where your upside profits are necessarily capped at a pre-decided mutually agreed level even if the same may be what your comparables might be earning. (refer page 19 of TPO order) ■ Hence, the moment ....
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....mpact on the price, remuneration to the LRD remains steady, whereas it is the Entrepreneur who absorbs the risks and rewards in the supply chain. LRM is followed uniformly across the globe ■ It is also pertinent to note that the LRM has not only been adopted by Verizon Group in India but across the globe, wherein the OpCos are remunerated in a similar manner and the same has been acceptable in their respective tax jurisdictions. Most of the nations where Verizon has a presence follow international guidance such as OECD Guidelines etc. The TPO has also acknowledged the importance of international guidance in his order. Thus, there is no reason why LRM should not be applied and accepted in the Indian context. ■ In view of the above« the Appellant humbly submits that under the LRM, the Appellant is getting remunerated at arm's length in accordance with its functions and risks and consequent characterization. ■ regard to TPO's remark that the Appellant has contractually transferred its functions and risks, the Appellant would like to submit that it is the actual conduct of the Appellant and its group companies which has been f....
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....aid years ■ the Appellant adopted the LRM business model consistently for the past assessment years Le. AY 2008-09 to AY 2010-11. The way in which the Appellant provides services to its third party customers as well as its AEs and the manner in which it is compensated has not undergone any changes in the current year, vis-à-vis the aforesaid past years ■ It is also important to note that FY 2010-11 happens to be a year with similar result as FY 2011-12 (i.e., the LRM has resulted into a payout of non-routine profits of the business back to the entrepreneur after awarding routine business profits to VCIPL and there was no adverse inference drawn by the TPO's predecessor after thoroughly analyzing the entire facts and circumstances of the case ■ The Hon'ble Supreme Court n Radhaswami Satsang vs. CIT (193 ITR 321) has clearly laid down that where a fundamental aspect permeating through the different assessment years have been found as a fact one way or the other, and the parties have allowed the position to be sustained by not challenging the order, it is no! allowed to change (he position in any subsequent year Ground of Ap....
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....tion. The TPO has thus violated the mandatory provision of Section 92C of the Act read with Rule 10AB of the Rules. ■ The Appellant submits that by only mentioning 'other method', it does not satisfy the conditions laid down in Section 92C of the Act, read with Rule 10AB. The TPO ought to have brought on record a comparable uncontrolled transaction. ■ The entire purpose of transfer pricing is to compare the international transactions of the appellant with third party uncontrolled transactions, the TPO without bring on record any uncontrolled transaction has determined the arm's length price of the International transaction on an Adhoc basis ■ In this regard, the Appellant submits that the Hon'ble Bombay High Court in the case of Johnson & Johnson Ltd. [Income Tax Appeal No. 1030 OF 2014] has held that the TPO cannot determine the ALP without bringing on record any comparable uncontrolled transaction as per section 92C of the Act. The relevant extract of the decision is as follows: "(d) We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is....
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.... rely on the Hon'ble Delhi Tribunal decision of SABIC India Pvt Ltd. (Income Tax Appeal No. 454 OF 2021), further accepted by the Hon'ble High Court (ITA 514/2024 & CM APPL. 59663/2024) vide order dated 14.10.2024, wherein it was held as follows: "33. The Guidelines rightly observe that the Rule 10AB of the Rules does not describe any methodology but provides flexibility to determine the price in complex transactions where third party comparable prices/transactions may not exist. The said method would be most appropriate in cases where the other methods are found to be inapposite on account of difficulties in obtaining comparable data on account of uniqueness of the transactions, which are to be benchmarked. The relevant extract of the said guidelines is reproduced below.... " (Emphasis supplied) ■ Further, the Appellant would like to rely on the Hon'ble Ahmedabad Tribunal decision of Ineos Styrolution India Ltd (Income Tax Appeal No. 58 OF 2022) wherein it was held as follows: In the present case, the Ld. TPO without searching for similar uncontrolled transaction between non associated enterprises, straightaway treated the value of the internati....
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....t is merely an assumption of the TPO that no third party would have agreed to pay for these services, which clearly lacks the validity of the application of the Other method by the TPO. On one hand the TPO admits that the Appellant has actually received the services but on the other hand, by making the underlying TP adjustment, the TPO has treated the cost of receipt of services at NIL. Going by this logic, the TPO agrees that the Appellant has rightly availed the services but is not ready to accept that the services come for a price. ■ In view of the above, the approach of the TPO to benchmark the international transactions of the Appellant and to make the TP adjustment lacked valid and sufficient reasoning including the following: Although the TPO admits that to apply the Other method, the controlled transaction should be compared with an uncontrolled third party transaction however, the TPO has failed to bring on record any such transaction basis which he has formed his opinion that the Appellant has shifted its profits; The TPO acknowledges that the pricing in this case cannot be determined on any scientific principle and therefore, in the absen....
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....he various transactions are evaluated independently, the net final result remains the same. The assessee has adopted TNMM for determining the ALP for the various transactions and the assessee had contended that its net operating margin is much higher than the comparable companies. This fact has not been disputed by the TPO since he himself has accepted that more than 95% of the exports and imports are at ALP as per the TNMM method. Accordingly, even if the various international transactions are evaluated separately, the final result remains the same. The assessee has adopted TNMM wherein the net operating margin of the assessee is compared with the net operating margin of the comparables. Once the net margin of the assessee is higher, it means that all the international transactions entered into by the assessee with its AEs are at ALP." (Emphasis supplied)" 28. The Ld. AR further submitted a reconciliation of the tested margin with the audited financial statements is as under:- 29. The Ld. AR also submitted the Limited Risk Model (LRM) computation chart in support of his contentions as under:- 30. On the other hand, the Ld. DR submitted that the assessee's claim of oper....
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....e operating expenses, * The value of the functions performed in the controlled transaction (taking account of assets used and risks assumed) is not materially affected by the value of the products distributed, i.e. it is not proportional to sales, and * The taxpayer does not perform, in the controlled transactions, any other significant function (eg. manufacturing function) that should be emunerated using another method or financial indicator. 2.108. A situation where Berry ratios can prove useful is for intermediary activities where a taxpayer purchases goods from an associated enterprise and on-sells them to other associated enterprises. In such cases, the resale price method may not be applicable given the absence of uncontrolled sales, and a cost plus method that would provide for a mark-up on the cost of goods sold might not be applicable either where the cost of goods sold consists in controlled purchases. By contrast, operating expenses in the case of an intermediary may be reasonably independent from transfer pricing formulation, unless they are materially affected by controlled transaction costs such as head office charges, rental fees or royalti....
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.... companies provide assistance in providing telecommunication services, as required by the assessee. He further drew our attention to page 7 of the TPO's order, wherein the TPO discussed the compensation mechanism under the LRM structure. It was observed that under the LRM structure, the assessee's third-party sales and value-added costs are considered, and either 11% of sales or 14% of value-added expenses (i.e., expenses excluding line costs and certain other costs) is computed, whichever is higher, and treated as the target profit. The Ld. DR further drew our attention to the detailed discussion by the TPO analysing the functions performed by the assessee and its Associated Enterprise (AE) in the USA. He referred to the chart in the TPO's order showing that the assessee was involved in sales and marketing, global customer relationship management, contracting with third-party customers, network operations and management, provision of telecommunication services, and customer premises equipment (CPE) procurement and installation. He further drew our attention to the risk allocation between the parties, as discussed by the TPO, and submitted that the assessee bears significant contra....
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....icing assessments because we will be able to show that you are at margins comparable to the others in India, while I shall take away from you whatever your upside profits have through the pricing of our services to each other." The above is actually the essence of the LRM structure. It is notable that the list of same set of services fetch different price in different years. In all the years where LRM adjustments are leading to shifting of assessee's profits to the AE, the price of availing services exceeds that of rendering the said services. It is further notable that it is not demonstrable by the assessee that the quantum or nature of the services that it provided or received from its AE differed in any way from year to year to justify the increase of payments for the availing of such services where LRM adjustments are leading to capping of the upside profits." 33. With regard to other method, he brought to our notice page 33 of the TPO order and brought to our notice detailed observations of the ld. TPO as under:- The three international transactions which have been the subject matter of this order are once again reproduced below: S. No Description of the ....
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....nsactions of provision and receipt of business services per se and treat the net effect of the two i.e. the LRM adjustment as the international transaction. It is notable that the same qualifies as an International Transaction as per S 92B of the Income Tax Act which reads as follows: 92B. (1) For the purposes of this section and sections 92, 92C 92D and 92E International transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money or any borer transaction having a bearing on the profits, income, losses or assets of such enterprises; and shall include a mutual agreement or arrangement between wo or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises: Having duly rejected the TNMM of the assessee as the most appropriate method in the order and noting that TNMM cannot be used to ....
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....d the action of the TPO. In rejoinder, the Ld. AR once again drew our attention to the Limited Risk Model (LRM) computation and explained the same. He drew our attention to page 24 of the paper book, wherein the telecom service charges were recorded as the main line item. He further drew our attention to page 36 of the paper book, wherein the details of services rendered were listed. With regard to the reliance placed by the Ld. DR on the decision of Sumitomo Corporation India Pvt. Ltd. vs. CIT (supra), the Ld. AR submitted that the Ld. DR had relied only on paragraph 45 of the judgment. He submitted that, in order to appreciate the true ratio of the decision, paragraphs 35 to 47 of the judgment need to be read together. He contended that the said decision is distinguishable on facts. 35. Considered the rival submissions and perused the material available on record. We observe that the TPO has rejected the benchmarking analysis adopted by the assessee on the basis of TNMM adopted as the most appropriate method considering the Limited Risk Method. We further observe that the application of the "Other Method" by the TPO is based on the observation that the assessee had earned posi....
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....omers), providing only on the basis of value addition, since the customers are based outside India and all the services are initiated outside India and the assessee provides telecommunication services to them by delivering the services initiated outside India(completing the loop). 38. On the other hand, the assessee needs support services from its HoldCo and other OpCos to complete the services initiated in India. From the above it is important to understand that in the telecommunication services provided by all the parties, who completes the communication loop initiated by each party. From the agreement we observed that all the parties in the group have agreed to provide the same in harmonious manner. They have also agreed for compensation on the basis of LRM method. Since that actual work of marketing and other related services are provided outside India and assessee only delivers to the respective customers. It only requires expenses which are termed in the technical terms, value added expenses. The issue raised by both the parties, whether the Berry Ratio can be applied in the telecommunication services as discussed above. 39. We observed that under the OECD Guidelines, t....
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....such supporting documentation as they may reasonably request) as is reasonably necessary for the Telecommunications Services Fees, for such calendar month, to be calculated by GT Accounting on behalf of Globenet and Opco. 3.3 3.3.1 The Telecommunications Services Fees for the first month (or part thereof) falling after the Effective Date and thereafter for each month in each year shall be calculated by GP Accounting on behalf of Globenet and Opco based upon the actual financial results of the relevant Verizon Group companies for the relevant period and year to date (if available) or upon the most current available data of the relevant Verizon Group companies for the relevant period (to the extent that actual financial results are not available). 3.3.2 To the extent actual financial results are not used to calculate the Telecommunications Services Fees, such Telecommunications Services Fees will be re-calculated using actual financial results for the relevant period as soon as reasonably practicable after such results become available and (where the Telecommunications Services Fees calculated from such actual financial results are different than those invo....
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...., warehousing and distribution, administration, depreciation and amortization, and other expenses incurred by the OpCo as the Parties may agree from time to time. 4 Calculation of Telecommunications Services Fees 4.1. Calculation of the Telecommunications Services Fee Payable to OpCo 4.1.1 The monthly Telecommunications Services Fee payable to OpCo by Globenet (or the Globenet Amount as set forth in Clause 3.6.2 of the Agreement) shall equal the sum of the following amounts: (a) OpCo's Value Added Costs incurred for the month; (b) the Reimbursed Costs for the month; and (c) the Target OpCo Return for the month." 43. Further, they have also provided sample service invoice format payable to OpCos and Globenet (presently applicable to Verizon Holding Company) as under: 44. From the above calculation given in the agreement and the actual result as well as calculation submitted by the assessee are divergent and not matching the above sample method accepted between the parties. Particularly the minimum guaranteed return to the OpCos. In our view, the actuals should have been as under: Income from third parties Rs. 395.29 crores Income from AE....
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....es provided by the assessee to 3rd parties is Rs. 393.75 crores during the year 2012 and in 2011 the same was Rs. 299.58 crores (after adjusting the services provided to the other AEs or to HoldCo) and the charges recovered by HoldCo at Rs. 242.37 crores and 177.14 crores for 2012 and 2011 respectively. The resultant percentage are 0.616% and 0.592% against the services provided to 3rd parties. It is not clear how the same are calculated by the GTP accounting, which is the common accounting body to settle the service charges between the OpCos and HoldCo. We do not intend to go into details on this aspect as the TPO has not looked into this aspect. TPO should have bench marked separately for services provided and received. At the same time, the compensation mechanism is accepted by the parties as per the service agreement, the same are applicable globally, the same should be accepted and compared if there is any similar comparables. It is industry specific and also harmonious working of global entities. 47. Keep that as it is, we observed that the TPO adopted a simplistic approach of adopting the net service charges charged for service provided and received. In our view, it is no....
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....ing the weighted average margin of tested party at 13.47% while comparing the achieved result as computed by them on the basis of targeted profit considering the 14% margin on the value added expenses instead of margin on the net sales. The promised targeted margin was 11% on sales. After considering the business model of the assessee, they have devised a formula on the basis of services structured within group. At the same time, we observed that 14% on VAE and 11% on net sales are not same and gives completely different results, as discussed in the paragraph no.45 above. In our view, the targeted margin offered to the OpCos are growth oriented and further we observed that the LRM method was adopted by the assessee/group consistently and it was accepted by the TPO in all the previous years, where the LRM was effective in the assessee's own case and there being no change in the facts and circumstances, why the same should not be accepted in the year under consideration. As held in the case of Radhaswami Satsang (supra), where a fundamental aspect permeating through the different assessment years have been found as a fact one way or other, and the parties have allowed the position to....
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.... telecommunication services; secondly, undertaking must have started rendering the telecommunication services on or after Ist April, 1995 but before 31st March, 2005 and lastly undertaking is not formed by splitting up or reconstruction of business already in existence or form of a transfer to a new business or a machinery or plant previously used for any purpose. The assessee was in the business of transmission of data or provision of internet services which it qualified for deduction within the ambit and scope of Section 801A(iv). After obtaining ISP license in May, 2002 it has been carrying on such services and reporting the revenue from the provision of telecommunication services. The main issue here is, if the assessee has got a license in January, 2008 under NLD / ILD license from DOT whereby it has enhanced its existing services in a much secured form, then whether it tantamount to setting up new undertaking. Now in our opinion both the authorities erred in equating a license obtained under the DoT regulations with the concept of undertaking in terms of Section 801A, which is an independent of the license regime or any other regulation of the Dot. The only requirement for th....
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....o. Verizon US OpCo. VCIPL Support companies such as VCIPL, administered as a delivery centre that can be scaled up or down depending upon business requirements Spokes OoCa Document 3 Typical Network Structure in the Telecommunications Industry C1 C3 India Half circuit C2 US Half circuit C4 VCIPL Network Verizon US Network Document 4 Functions performed by VCIPL and Verizon US Functions Verizon US VCIPL Global telecommunication strategy formulation 'Verizon' brand development and management × Investment in technology and products/ solutions development × Sales and marketing Global customer relationship development and management V. Research & Development x Planning and resource allocation × Contracting with third party customers Network operations and management Telecommunication services 1 CPE procurement and installation × × V. 1 Routine functions Limited functions x Insignificant functions Document 5 Risks allocation between VCIPL and Verizon US Risks Verizon US VCIPL Market Risk > × Contract Risk Price Erosion Risk x Low Cos....