TaxTMI 
TaxTMI 
2026 (10) TMI 175
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.... without prejudice to one another. 1) On the facts and circumstances of the case, and in law, the learned AO erred in : (a) rejecting the claim of the Appellant for deduction made under section 80-IA(4)(ii) of the Act, in respect of profits and gains derived by the Appellant from the operation of qualifying undertaking being National Long Distance services; (b) holding that the audit certificate in the prescribed Form 10CCB, issued by the firm of independent Chartered Accountants, not being the statutory auditor of the Appellant, was not in conformity with the requirement of section 80-IA(7) of the Act. 2) On the facts and circumstances of the case, and in law, the learned AO erred in : (a) not accepting the Appellant's claim that the Gateway Digital Switch System ("GDS") used by the Appellant constitutes 'Computer' within the meaning of entry III(5) of New Appendix - I (depreciation table) and thereby erred in restricting rate of admissible depreciation to 15% applicable to Plant and Machinery as against the Appellant's claim for depreciation @ 60% applicable to Computers; (b) rejecting the claim for differentia....
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....ommercial purposes at Bandra Kurla Complex (BKC) Mumbai during the Assessment Year 2007-08, having been disallowed therein holding the same as capital expenditure ; (c) in the alternative and without prejudice to (a) above, amortization of the said payment be granted equally over the period of lease of land i.e. over 74 years. (i.e. Rs. 1,54,24,452/- per annum) 8) Transfer pricing adjustment The Transfer Pricing Adjustment made by the Assessing Officer is bad in law, illegal and unsustainable on the basis of the following grounds, taken singly or cumulatively, and, therefore, its upholding by the Hon'ble Dispute Resolution Panel ought to be deleted. 8.1 a) The conditions stipulated in section 92C(3) of the Income Tax Act, 1961 ("Act") are mandatory and the Assessing Officer is expected to record his satisfaction in that respect before making the reference to the Transfer Pricing Officer ("TPO"). b) Further, the TPO has failed to prove that any of the conditions laid down in section 92C(3) of the Act had been satisfied, which made out a case for tax evasion. 8.2 On the facts and in the circumstances of the case, a Transfer Pr....
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.... are related to Appellant's core activity of providing international telecommunication services and thereby applying a mark-up on this cost; b. concluding that pass through costs are not driven by market forces but it is the Central Contracting Party ('CCP') i.e. Tata Communications (Netherlands) BV that contracts and decides the costs and their allocation between various associated enterprises. Further, the Appellant incurs pass through costs through CCP; c. making certain factually incorrect statement / observations; d. rejecting the value added drivers and allocation methodology applied by the Appellant under the residual profit split method without understanding the nuances considered by the Appellant whilst determining the allocation approach; e. concluding that relevant provisions of residual profit split method under Indian transfer pricing regulation only specify sharing of profits on the basis of relative contribution of the entities and thereby disallowing the attribution of residual loss to the Appellant; f. disregarding residual loss of Rs. 97,11,76,735/- despite of clear guidelines of OECD in this regard; ....
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....g TDS credit to the extent of Rs. 7,78,54,395/- nor has passed any speaking order to this effect. 11) Consequently, the Learned AO erred in computing interest u/s 234B in excess. 12) a) Consequentially, the Learned AO erred in computing interest u/s 234D in excess. b) The Learned AO erred in not computing interest u/s 234D in accordance with law. 13) As a consequence to the relief, if any, to be granted on the above Grounds, it is submitted that the learned AO be directed to compute interest on the refund due as per the provisions of section 244A of the Act and grant the same upto the date of issue of the refund cheque. The Appellant craves leave to add to, alter, amend and/ or withdraw all or any of the above Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." The revenue has raised the following grounds of appeal:- 2. Brief facts of the case are as under:- The assessee-company filed its original return of income on 09/11/2011, declaring total income of Rs. 2,09,95,14,568/-. Subsequently, the assessee filed a revised return of income elect....
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.... CUP 751,622 Belgium 461,402 CUP - Norway 1,109,566 CUP - South Africa 31,013,332 CUP - 2 Purchase of Assets USA - CUP -935,804 Canada - CUP -2,097,236 South Africa - CUP -72,565 Singapore -136,323 CUP - 3 Provision of undersea cable capacity Sri Lanka 2,15,303 CUP 2,15,303 4 International Telecommunication Services rendered Nepal 86,564,307 CUP 42,816,217 The Netherlands 1,999,790,257 Residual Profit Split Method 1,228,668,751 5 International Telecommunication Services availed Nepal -676,659,067 CUP -580,904,893 South Africa -40,788,833 CUP -28,169,542 6 International Telecommunication Services [related to in country services] availed The Netherlands -128,769,761 Cost Plus Method -65,368,262 7 Finance Outsourcing The Netherlands 275,786,334 TNMM 144,687,940 8 Technical support Service South Africa 120,929,1....
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..... 208,63,54,564/-. It was further noted that the assessee had also availed international telecommunication services amounting to Rs. 71,74,47,900/-. 2.2.2. During the course of the transfer pricing proceedings, the Ld.TPO identified two international transactions pertaining to rendering and availing of international telecommunication services with the AEs situated in Nepal and the Netherlands. Insofar as the transactions with the AE situated in Nepal were concerned, the assessee had rendered international telecommunication services amounting to Rs. 8,65,64,307/- and had availed international telecommunication services amounting to Rs. 67,66,59,067/-. The Ld.TPO noted that United Telecom Limited, Nepal, was a joint venture of the assessee. It was noted that the assessee rendered identical services to unrelated party in Nepal, namely Nepal Telecom. Accordingly, the assessee adopted Comparable Uncontrolled Price ('CUP') method as the most appropriate method for benchmarking the aforesaid international transactions. 2.2.3. The assessee submitted that, where a call originated in India and terminated in Nepal, the assessee was required to make payment for the services. By way of il....
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....gulatory approvals. It was submitted that the group entities offered global integrated services seamlessly to their customers by leveraging their global assets. The assessee further submitted that it possessed the requisite licence to provide international telecommunication services by using its own assets, besides leveraging the assets and personnel of the group entities. 2.2.6. The assessee submitted that, in order to enable the group entities to operate in a truly integrated manner and to appropriately remunerate each entity having regard to the assets employed, functions performed and risks assumed by it, the Residual Profit Split Method ('RPSM') was considered to be the most appropriate method. In its response, the assessee explained the functions performed and the assets employed by it in rendering international telecommunication services, as also the functions performed and assets employed by the respective group entities at various locations. 2.2.7. The Ld.TPO, after considering the submissions of the assessee, was of the view that the activities carried out by the assessee were in the nature of IT-enabled services ('ITES'). The Ld.TPO further observed that the compar....
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....the assessee furnished guarantees in respect of certain borrowings made by its overseas Associated Enterprises ("AEs") and had charged guarantee commission at the rate of 0.25% on such guarantees. In its transfer pricing study report, the assessee had adopted the Comparable Uncontrolled Price ("CUP") Method as the most appropriate method for benchmarking the said transaction, relying upon an offer obtained from ABN AMRO Bank. 2.3.1. The Ld.TPO noted that, at the time of providing such guarantees, assessee had enquired with ABN Amro Bank as to how much it was charged as guarantee commission if it were to guarantee such borrowings. 2.3.2. The Ld.TPO noted that, at the time of furnishing such guarantees, the assessee approached ABN AMRO Bank to ascertain the rate of guarantee commission that would have been charged by the bank for guaranteeing similar borrowings. The quotation obtained from ABN AMRO Bank was furnished before the Ld.TPO vide submission dated 11/12/2014. As per the said quotation, ABN AMRO Bank had indicated that the guarantee commission would be in the range of 22-25 basis points ("bps"). Based thereon, the assessee benchmarked the guarantee commission at 25 bps ....
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....assessee had charged interest thereon at six-month USD LIBOR plus a mark-up of 1.75%. 2.4.1. The Ld. TPO called upon the assessee to explain as to why the interest charged on such loans should not be benchmarked by adopting the cost of funds plus a mark-up of 3% towards the risk assumed. 2.4.2. In response thereto, the assessee, vide its submissions dated 02/12/2014 and 11/12/2014, submitted that various factors were required to be considered while benchmarking the transaction, including the currency in which the loan was denominated, the credit standing of the borrower, the tenure/maturity of the loan, the country in which the borrower was situated and the other terms and conditions governing the loan. 2.4.3. The assessee submitted that, after considering the aforesaid parameters, a set of nine comparable loan transactions was identified, which yielded an average rate of three-month USD LIBOR plus 1.46%. It was accordingly submitted that CUP constituted the most appropriate method for benchmarking the interest charged on the loans advanced to the AEs. Since the assessee had charged interest at six-month USD LIBOR plus a mark-up of 1.75%, it was contended that the interest....
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....lities extended by overseas branches of banks on behalf of such AEs. The details thereof, as noted by the Ld. TPO, are as under:- Sr. No. Date Bank Name of the AE Amt in USD Amt in INR in Cr. 1 5-Sep-08 HSBC TCIPL 10,000,000 44.60 2 10-Mar-10 DBS TC Netherlands 50,000,000 223.00 3 20-Feb-10 DBS TC Bermuda 50,000,000 223.00 4 15-Mar-10 RBS TC Bermuda 100,000,000 446.00 5 20-Jul-10 ICICI TC Netherlands 50,000,000 223.00 Total 260,000,000 1,159.60 2.5.3. It was submitted that the aforesaid facilities, in respect of which the letters of comfort were issued by the assessee to the respective banks, aggregated to USD 250 million, out of which the AEs had actually utilised facilities to the extent of USD 50 million only. 2.5.4. The Ld. TPO called upon the assessee to explain as to why guarantee commission should not be computed in respect of the aforesaid letters of comfort by applying the SBI rate along with an appropriate risk factor. 2.5.5. In response thereto, the assessee, vide its reply dated 24/12/2014, furnished sample copies of....
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....al adjustment Rs.556,01,08,392 3. Upon receipt of the transfer pricing order dated 27/01/2015, the Ld. AO passed the draft assessment order dated 11/03/2015, incorporating the transfer pricing adjustments proposed by the Ld. TPO and proposing further additions, as under:- Sr. No. Undertakings Amount 1. National Long Distance 104,43,25,209 Total 104,43,25,209 Aggrieved by the additions proposed in the draft assessment order, the assessee filed objections before the Ld. DRP. 4. The Ld. DRP, after considering the submissions advanced by the assessee, upheld the additions proposed in the draft assessment order. 4.1. Pursuant to the directions issued by the Ld. DRP, the Ld. AO passed the final assessment order dated 14/01/2016, making additions in the hands of the assessee aggregating to Rs. 639,45,69,590/-. Consequential adjustment to the book profit was also made u/s. 115JB of the Act. Aggrieved by the final assessment order passed by the Ld. AO, the assessee is in appeal before this Tribunal. 5. It is noted that the assessee, vide application dated 13/09/2021, sought substitution of original Ground Nos.6 and 7 and also raised Add....
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....monopoly rights up to the year 2004. For rendering ILD services, the assessee operated and maintained the requisite telecommunication infrastructure, including undersea cables substantially located outside India, subsequently, earth stations for satellite-based transmission, for connecting domestic telecommunication networks in India, belonging to various local telecommunication service providers such as MTNL and BSNL, with overseas telecommunication networks. 6.3. The Ld.Sr.Counsel submitted that, monopoly granted to the assessee in respect of international telecommunication services was prematurely terminated by the Government of India in the year 2002. He submitted that in consideration of such premature termination, the Government of India granted certain compensatory benefits to the assessee, which, inter alia, included a licence to provide NLD services within India. 6.4. The assessee submitted that, prior to the grant of aforesaid NLD licence, BSNL and MTNL were amongst the principal entities providing telecommunication services within India, whereas the assessee was licensed primarily for providing international telecommunication services. An extract of the agreement e....
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....ndent undertakings since they were not complete in themselves. On this basis, the Ld.AO held that the assessee was not entitled to deduction u/s. 80-IA in respect of such earth station undertakings. 6.9. The Ld.AO further observed that the Hon'ble Special Bench, while deciding the issue, held that the earth stations did not constitute independent undertakings. According to the Ld. AO, the wire, cable, exchange, earth station or satellite, independently, could not be regarded as separate undertakings for the purposes of deduction u/s. 80-IA. The Ld.AO also noted that a Miscellaneous Application being M.A. No.512/Mum/2008, arising out of the aforesaid Special Bench order, was filed before the Tribunal and the same was dismissed vide order dated 10/07/2009. 6.10. The Ld.AO further observed that the telecommunication operations of the assessee commenced in the year 1986 and, since the deduction u/s. 80-IA was available from 01/04/1985. The Ld.AO accordingly held that the facts and the claim involved in the year under consideration were similar to those examined by Hon'ble Special Bench in the assessee's own case for A.Y.1996-97. The Ld.AO thus denied the claim u/s. 80-IA by relyi....
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....:- 1. Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC); 2. Madras Machine Tools Manufacturers Ltd. v. CIT [1975] 98 ITR 119 (Mad.); 3. CIT v. Hemsons Industries [2001] 251 ITR 693 (AP); 4. Mahindra Sintered Products Ltd. - 43 Taxman 103 (Bom.) 5. P. Alikunju, M.A. Nazeer Cashew Industries v. CIT [1987] 166 ITR 804 (Ker.); 6. Sree Yellamma Cotton, Woollen and Silk Mills Co. Ltd. v. Official Liquidator AIR 1969 Mys 280 / [1970] 40 Comp Cas 466 (Mys.). 6.13. The Ld.Sr.Counsel submitted that it is a settled proposition that an undertaking is distinct from the company which owns it and that the deduction contemplated u/s. 80-IA is available with reference to the eligible undertaking and not to the assessee-company as a whole. In support of the proposition, relied on following decisions:- 1. CIT v. Yokogawa India Ltd. [2017] 391 ITR 274 (SC); 2. CIT v. Chanda Diesels [1995] 216 ITR 639 (Bom.); 3. Madras Machine Tools Manufacturers Ltd. v. CIT [1975] 98 ITR 119 (Mad.); 4. Premier Cotton Mills Ltd. v. CIT [2000] 243 ITR 434 (Mad.); 5. Ashok Motors Ltd. v. CIT [1961] 41 ITR....
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.... the diagrammatic representation of the NLD network reproduced herein above, the Ld.Sr.Counsel submitted that, the entire network is monitored through a dedicated Network Operating Centre ("NOC"), comprising qualified personnel, specialised equipment and requisite technology, operating on a 24x7 basis. He submitted that the assessee has dedicated fibre restoration team responsible for attending to and rectifying faults in the network, including cuts in optical fibre cables, patrolling of the network and carrying out preventive maintenance and related activities. 6.18. Referring to the audited financial statements of the assessee, the Ld.Sr.Counsel submitted that, separate details of the revenue and expenditure pertaining to the NLD undertaking were maintained and furnished along with Form No.10CCB. He further submitted that, details of licence fee payable for providing NLD services, as per the terms of the NLD licence and furnished to the Department of Telecommunications, Government of India, also demonstrated that substantial revenue was generated by the assessee from the NLD services, which business was not in existence prior to March 2002. The Ld.Sr.Counsel emphasised that th....
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....er service providers and constituted a separately identifiable service. According to him, the NLD undertaking represented a distinct and identifiable business activity and constituted a separate business segment of the assessee, independent of its pre-existing operations. He thus submitted that the basis on which the claim of deduction u/s. 80-IA had been rejected by the Ld.AO and upheld by the Ld.DRP was untenable, since the assessee had sufficiently demonstrated that the NLD unit constituted an independent and separately identifiable undertaking. In support of the aforesaid contention, the Ld.Sr.Counsel placed reliance on the following decisions:- 1. Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC); 2. CIT v. Orient Paper Mills Ltd. [1974] 94 ITR 73 (Cal.); 3. Indian Aluminium Co. Ltd. v. CIT [1977] 108 ITR 367 (SC); 4. CIT v. Gujarat Alkalies & Chemicals Ltd. [2012] 20 taxmann.com 764 (Guj.); 5. Mahindra Sintered Products Ltd. [43 Taxman 103]; and 6. Associated Cement Companies Ltd. [1 Taxman 256]. 6.22. The Ld.Sr.Counsel further submitted that the decision of Hon'ble Special Bench in the assessee's own ca....
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....ndependently provide services to other telecommunication service providers nor function as an independent profit centre. 6.25. He thus submitted that the issue that was there for consideration before Hon'ble Special Bench was, whether the earth stations commissioned by the assessee constituted "new undertakings" for the purposes of section 80-IA. Whereas the issue in the year under consideration is whether the independently established NLD undertaking is eligible for deduction u/s. 80-IA. The Ld.Sr.Counsel emphasised that ILD services involve transmission of traffic between India and foreign countries, whereas NLD services involve transmission of traffic within India. According to him, the two services/undertakings are materially distinct and separate. He submitted that the NLD undertaking does not represent a mere technological upgradation of the existing ILD services but constitutes an altogether new and separately identifiable telecommunication service. 6.26. The Ld.Sr.Counsel submitted that as per section 80-IA(2) of the Act, the deduction is allowable for any ten consecutive assessment years out of the prescribed period of fifteen years. A.Y. 2006-07 was stated to be the....
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.... that the report furnished in Form No.10CCB, duly certified by a Chartered Accountant, satisfied the requirement of section 80-IA(7) of the Act and could not be rejected merely because the certifying Chartered Accountant was not the statutory auditor of the assessee. 6.30. The Ld.Sr.Counsel referring to the decision of the Coordinate Bench of this Tribunal for A.Y. 1999-2000 in ITA No.1978/Mum/2024, order dated 22/10/2025, wherein a similar controversy relating to the eligibility of deduction u/s. 80-IA was considered in the context of an internet undertaking providing Electronic Data Interchange ("EDI") services since August 1995. The Ld.Sr.Counsel submitted that, while adjudicating the aforesaid issue, the Coordinate Bench examined, inter alia, whether EDI services could be equated with internet services and whether an internet undertaking comprising a combination of routers, switches and other equipment housed in a hall/room could constitute an eligible undertaking for the purposes of section 80-IA(4) of the Act. 6.31. It was further submitted that the Coordinate Bench analysed the relevant clause of section 80-IA governing telecommunication services for the purpose of det....
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....sessee does not provide the impugned services directly to the end consumer. He accordingly placed reliance upon the findings recorded by the Ld.AO and upheld by the DRP and prayed that the disallowance of deduction u/s. 80-IA be sustained. We have perused the submissions advanced by both sides in light of the record placed before us. 7. The controversy before us is whether, the NLD activity undertaken by the assessee pursuant to the NLD licence granted in February 2002 constitutes an "undertaking" within the meaning of section 80-IA(4)(ii) of the Act. The relevant provision applies to "any undertaking" which has started or starts providing telecommunication services within the period prescribed therein. 7.1. In this context, we find it necessary to keep in view the distinction between the assessee and the undertaking through which the eligible activity is carried on. An undertaking is not synonymous with the corporate entity which owns it. The fact that the same assessee may own and operate more than one undertaking, or may already be engaged in the same broad line of business, cannot by itself be determinative of the eligibility of a subsequently established undertaking. ....
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....hat is claimed to be an undertaking is the entire NLD activity carried on through its own identifiable network and infrastructure. 7.5. The material on record demonstrates that the NLD activity was not merely a technological modification of the assessee's existing ILD operations. The assessee obtained a separate licence from the Government of India for providing NLD services in February 2002, and prior thereto it was not permitted to provide such services. Pursuant thereto, a separate NLD network and infrastructure was established, including an extensive optical fibre network of more that 40000 Kms. and Points of Presence. The assessee has also maintained separate details of the revenue and expenditure pertaining to the NLD undertaking and furnished the same along with Form No.10CCB. 7.5.1. We also find it relevant to take note of the requirement contained in section 80-IA(7). The said provision requires the accounts of the undertaking claiming deduction to be audited by an "accountant" as defined in the Explanation to section 288, and requires the report of such audit in the prescribed form to be furnished. Rule 18BBB prescribes Form No. 10CCB for this purpose and specifical....
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....nce. 7.7. We also find force in the contention of the Ld.Sr.Counsel that the expression "any undertaking" in section 80-IA(4)(ii) cannot be construed narrowly so as to require physical isolation of the undertaking from every other activity or asset of the assessee. Such an interpretation would effectively make the eligibility dependent upon the organisational structure adopted by the assessee rather than upon the nature and identity of the eligible activity. The statutory provision does not stipulate that the undertaking must have a separate legal personality, nor does it prescribe that it must necessarily be housed in a separate building or geographically isolated from the other operations of the assessee. What is relevant is the existence of a distinct and identifiable undertaking carrying on specified telecommunication activity. 7.8. In the present case, the NLD undertaking satisfies this test. The NLD activity came into existence pursuant to the separate NLD licence; substantial fresh infrastructure was created for carrying on that activity; the NLD network, comprising the optical fibre network, POPs and Network Operating Centres, was separately identifiable; separate rev....
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....d is ultimately owned by, the assessee-company or that its network interfaces with other telecommunication systems cannot, by itself, disentitle it from the benefit of section 80-IA, subject of course to satisfaction of the other statutory conditions. PART - II 8. Ground No. 2 is in respect of restricting the depreciation to 15%, being the rate applicable to plant and machinery, as against the assessee's claim of depreciation at 60%, being the rate applicable to computers. 8.1. The assessee owns and uses certain sophisticated telecom equipment known as Gateway Digital Switch ("GDS") system. It is submitted that, up to F.Y. 1998-99, the GDS was classified by the assessee under the block of "Plant and Machinery" and depreciation thereon was claimed at 25%. According to the assessee, pursuant to the enactment of the Information Technology Act, 2000, wherein the expressions "computer" and "computer network" came to be statutorily defined, the nature, characteristics and functions of the GDS system were re-examined. On such examination, the assessee treated the GDS system as falling within the category of "Computers and Computer Peripherals" and, accordingly, claimed depreciati....
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....igital Switch ("GDS") system. It was submitted that the said system broadly consists of two main components, namely, (i) switching equipment used for switching telephone calls; and (ii) computer for controlling the switching equipment. The Ld.Sr.Counsel drew our attention to the diagram depicting the various components of the GDS system and the detailed written submissions placed on record in support of the assessee's contention which were also filed before the authorities below. The diagrams is as under:- 8.4.1. Before us, the Ld.Sr.Counsel submitted that the Gateway Digital Switch ("GDS") is essentially a sophisticated switching system comprising switching equipment and computer-based call-control equipment. It was submitted that the GDS sorts incoming telephone calls on the basis of the dialled code and routes them to the designated destination. The process is carried out electronically on a continuous basis and, apart from maintaining the carrier-wise volume of telecommunication traffic, the system stores and processes information and takes programmed decisions. It was thus contended that the GDS functions as a special-purpose computer. 8.4.2. The Ld.Sr.Counsel submitted ....
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....n it is held that, routers and switches, when used along with computers and when their functions are integrated with computers, were held to form part of the block of "computers" eligible for the higher rate of depreciation. The Ld.Sr.Counsel submitted that, its case stood on a stronger footing since the GDS itself performs computer functions, whereas routers and switches considered in the aforesaid decision were peripherals forming part of the computer system. 8.5. The Ld.Sr.Counsel placed reliance upon the order of the Coordinate Bench in the assessee's own case for A.Y. 2000-01, wherein, while considering the identical issue relating to depreciation on GDS, the Tribunal observed as under:- "13.3 Having considered the rival submissions as well as relevant material on record. We note that the issue of higher rate of depreciation on router and switches has been considered and decided by the Special Bench of this Tribunal in case of DCIT Vs. Datacraft India Ltd. (supra). The Special Bench has taken a view that definition of computer as given in the Information Technology Act, 2000, cannot be applied in the context of section 32 of the Income Tax Act. It was held in para ....
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....the Coordinate Bench in the earlier year stands satisfied and depreciation at 60% is allowable. 8.7. Per contra, the Ld. DR relied upon the findings of the Ld. AO as well as the directions issued by the DRP. The DRP rejected the assessee's contention by observing as under:- "Assessee has stated that Gateway Digital Switch (GDS) is a special purpose computer, pre programmed to receive input data in the form of electronic, magnetic and optical signals which are processed and the output is sent to the next leg of the communication process. But, as noted by the AO the GDS is a complex machine and it is not known for certain to what extent it has the characteristics of a computer. In the absence of any definition of computer in the Income tax Act, one has to go by the meaning in common language and it is difficult to accept a claim of the assessee that GDS is a computer and therefore it is entitled to depreciation at 60%. Therefore, the depreciation is restricted to 15%. As regards the alternate claim DRP is of the view that the alternate contention has not been accepted by the DRP in earlier years and therefore it is not accepted in this year also." We have peru....
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....e computer, they would constitute computer hardware and would fall within the computer block. The ratio of the said decision is that the classification for purposes of depreciation has to be considered having regard to the functional role of the equipment in the computer system, and not merely on the basis of its nomenclature or the fact that it performs a specialised function. 9.5. Applying the above principle to the facts before us, we find that the GDS satisfies the functional test laid down in Datacraft India Ltd. (supra). The material on record demonstrates that the GDS works through computer-controlled operations and performs processing, storage and logical functions in an integrated manner. Its switching function cannot, therefore, be viewed in isolation from the computer architecture and software with which it operates. The mere fact that the system is designed for the specialised purpose of routing and switching telecommunication traffic would not, by itself, take it outside the ambit of the computer block when, in actual operation, it performs its functions as an integral component of the computer system. 9.6. We also find that the technical opinion furnished by the....
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....ntitled to depreciation at the rate applicable to the computer block, i.e. 60%, as claimed. 9.10. While, for the reasons discussed hereinabove, we hold that the assessee is entitled to depreciation at the rate of 60% on the GDS, the consequential computation of depreciation for the year under consideration would require determination of the correct opening Written Down Value (WDV), having regard to the treatment accorded to depreciation in the intervening assessment years. Accordingly, we restore this limited aspect to the file of the Ld.AO for verification of the computation furnished by the assessee at pages 131 to 133 of the paper book, including the opening WDV, and for determining the correct WDV and consequential depreciation allowable for the year under consideration, in accordance with law. The Ld.AO shall give due effect to our finding that the GDS system is eligible for depreciation at the rate of 60%. Needless to say, the assessee shall be afforded reasonable opportunity of being heard before determining the consequential depreciation. Accordingly, Ground No. 2 raised by the assessee stands allowed in terms indicated hereinabove. 10. Ground No. 3 raised by the a....
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....m was made only in accordance with section 32 read with the block-of-assets mechanism under the Act. 11.5. The Ld.Sr.Counsel submitted that identical issue was decided in favour of the assessee by the Ld.CIT(A) for A.Y. 2005-06 vide order dated 11/03/2011. In the said order, the Ld.CIT(A), after considering the judicial precedents on the issue, recorded that there was no dispute that the Iridium assets formed part of the block of "Plant and Machinery" and had been used for the purposes of business in the earlier years. The suspension of use in subsequent years was attributable to technological obsolescence. The Ld.CIT(A), therefore, directed the Ld.AO to allow depreciation on the Iridium assets as part of the block of assets. The Ld.Sr.Counsel submitted that, the facts being identical, the same treatment ought to be followed for the year under consideration. 11.6 The Ld.Sr.Counsel submitted that the Ld.AO disallowed depreciation for the year under consideration on the premise that an asset would qualify for depreciation only when it was actually "put to use" during the relevant previous year. According to the Ld.Sr.Counsel, such approach was contrary to the scheme of deprecia....
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.... monetary realisation therefrom, the amount deductible from the block under section 43(6)(c)(B) would be nil. Consequently, no disallowance of depreciation could be made merely because the individual Iridium assets were not put to use during the year or had suffered impairment in their book value. 11.10. Per contra, the Ld. DR relied upon the orders passed by the authorities below. We have perused the submission advanced by both sides in light of recorda placed before us. 12. It is an undisputed facts are that the assessee acquired the Iridium technology and the associated plant and machinery in January 1999 for a consideration of Rs. 50 crores; depreciation thereon was allowed in the initial years up to A.Y. 2002-03; and the said assets continued to form part of the relevant block of assets under the head "Plant and Machinery" in the preceding years as well as in the year under consideration. The dispute essentially arises on account of the subsequent technological obsolescence of the Iridium system, the consequent impairment recognised in the books of account, and the fact that the individual assets were not actually used during the year under consideration. 12.1. We ....
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....t any amount became payable to the assessee on account of the alleged discard or obsolescence of the Iridium assets. Mere impairment recognised in the books does not constitute "moneys payable" within the meaning of the said provision. Consequently, such book impairment cannot, in the absence of a corresponding statutory adjustment, be reduced from the tax WDV of the block. 12.5. Equally, the recognition of impairment in the books cannot be treated as though the assessee had claimed a separate tax deduction in respect thereof. The assessee has admittedly added back the impairment loss of Rs. 21,82,55,077/- while computing its taxable income. Therefore, allowing depreciation with reference to the tax WDV of the block does not result in a double deduction. The accounting WDV and the tax WDV operate in different statutory fields and, in the absence of a provision requiring the book impairment to be adopted for tax purposes, the former cannot be imported into the computation under section 32. 12.6. We further note that the Ld.CIT(A), while adjudicating the identical issue in the assessee's own case for A.Y. 2005-06, had considered the fact that the Iridium assets formed part ....
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....assessee. The brief facts relating to this issue are that during the year under consideration, the assessee earned interest income of Rs. 56,42,284/- on short-term fixed deposits placed with banks. The assessee treated the said interest income as "Profits and gains from Business or Profession" in its return of income. The assessee submitted that the funds placed in the short-term deposits were business funds that was not required for immediate deployment in its core business. It was submitted that the funds were placed for a short duration and were intended to be utilised for business requirements. The management of such funds was undertaken by the assessee's Treasury Department as part of its regular business functions, which included banking, cash management, foreign exchange risk management and funding/borrowing activities. 13.1. The assessee further submitted that funds aggregating to approximately Rs. 92.63 crores were temporarily deployed in bank deposits during the year, while the assessee had contingent liabilities exceeding Rs. 1,000 crores, including liabilities relating to income-tax. It was therefore contended that the funds could not be regarded as surplus fu....
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.... management, foreign exchange risk management and funding/borrowing. The placement of funds in short-term deposits was therefore not an independent investment activity divorced from the assessee's business, but part of the systematic treasury and cash-management functions carried out in the ordinary course of business. 13.7. It was submitted that the assessee had consistently offered such interest income as business income up to assessment year 2002-03 and that there was no change in the facts or in the nature of the assessee's business in the year under consideration. Reliance was placed on the principle of consistency recognised by Hon'ble Supreme Court in Radhasoami Satsang v. CIT reported in 193 ITR 321. The Ld.Sr.Counsel also submitted that the mere fact that the funds were temporarily placed in fixed deposits could not determine the head of income. According to him, where business funds are temporarily parked in readily encashable deposits pending their deployment for business purposes, the interest arising therefrom retains its business character, particularly where the funds are not surplus or permanently withdrawn from the business. 13.8. Without prejudic....
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.... regular functions relating to banking, cash management, foreign exchange risk management and funding/borrowing. 14.1. In determining the character of the interest income, the immediate source of the income, namely, the fixed deposits, cannot be considered in isolation. It is necessary to examine the purpose and character of the funds which were placed in such deposits. Where funds are demonstrated to be business funds temporarily parked in short-term deposits pending their deployment for business purposes, the mere fact that interest is earned through a bank deposit would not, by itself, conclude the character of such income. 14.2. In the present case, the assessee has submitted that approximately Rs. 92.63 crores were placed in short-term deposits during the year, while it had substantial business-related liabilities and contingent liabilities exceeding Rs. 1,000 crores, including income-tax liabilities. These facts, when considered along with the short-term nature of the deposits and the explanation regarding their intended deployment, support the assessee's contention that the funds were not permanently surplus funds segregated from the business. The Revenue has not b....
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.... in fixed deposits and thereby yielded interest cannot, therefore, be determinative of the head under which the income is assessable. On the facts of the present case, we are satisfied that the deposits represented temporary deployment of business funds in the course of the assessee's treasury and cash-management operations and pending their requirement for business purposes. The interest income consequently bears a sufficient nexus with the assessee's business operations to be assessed under the head "Profits and gains of business or profession". 14.9. We accordingly direct the Ld.AO to assess the interest income under the head "Profits and gains of business or profession". Accordingly Ground no.5, raised by the assessee stands allowed. 15. Substituted Ground No. 6 is in respect of disallowance made by Ld.AO u/s 14A by invoking Rule 8D at Rs. 4,66,88,779/- not accepting the suo moto disallowance offered at Rs. 51,54,865/- in its return of income. At the outset, the Ld.Sr.Counsel submitted that the assessee suo moto disallowed um of Rs. 51,54,865/- u/s. 14A of the Act having regard to the expenditure considered attributable for the purpose. It was submitted that....
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....income not forming part of the total income. In the present case, the assessee itself, upon examination of its accounts, had identified expenditure attributable to such investments and voluntarily disallowed Rs. 51,54,865/- under section 14A. 16.2. Once the assessee, on the basis of its own examination of the accounts and the legal position applicable at the time of filing the return, had quantified and offered the aforesaid amount for disallowance under section 14A, the subsequent reliance upon judicial decisions rendered later cannot, in our view, automatically entitle the assessee to retract such disallowance. The assessee has not established before us that the expenditure so disallowed had no relation whatsoever with the investments in question or that the amount of Rs. 51,54,865/- was wrongly computed on facts. We therefore find no justification for directing deletion of the amount voluntarily disallowed by the assessee. 16.3. This, however, does not mean that the Ld.AO was justified in making a further disallowance under Rule 8D. The assessee having already disallowed Rs. 51,54,865/- in its return, any further disallowance necessarily had to be founded upon the statutor....
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..../- in connection therewith. Thus, the aggregate expenditure incurred by the assessee amounted to Rs. 114,14,09,426/-. 17.1. For A.Y. 2007-08, the assessee did not claim deduction of the aforesaid amount in the return of income, but reserved its right to make such claim by way of a specific note appended to the return. During the course of assessment proceedings for that year, the assessee contended that the payment constituted revenue expenditure. Without prejudice, it was also submitted that, in the event the expenditure was regarded as capital in nature, the same ought to be considered either for amortisation over the unexpired period of lease or for consequential depreciation. 17.2. The then Ld.AO, rejected ssessee's claim for A.Y. 2007-08, on the ground that the payment was a one-time payment connected with the land and was, therefore, capital in nature. The Ld.AO further took note of the accounting treatment accorded by the assessee in its books and also held that, in the absence of a revised return, a fresh claim could not be entertained during the course of assessment proceedings, placing reliance on the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. v. C....
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....of the paper book. It was further submitted that MMRDA, vide letter dated 25/05/2006, permitted re-earmarking of the portion of land originally meant for residential purposes for commercial use, which communication is placed at pages 292 to 293 of the paper book. Pursuant thereto, a modified deed was entered into between the assessee and MMRDA on 11/12/2006, a copy of which is placed at pages 294 to 303 of the paper book. 17.6. The Ld.Sr.Counsel also placed reliance on the decision of the Coordinate Bench in the assessee's own case for A.Y. 2001-02 in ITA No. 1107/Mum/2008, wherein, while considering the issue, this Tribunal observed and held as under:- "20. According to ground No. 7, the Id. CIT(A) erred in disallowing the claim of Rs. 55,64,52,500/- being the amount paid to use the land at Bandra Kurla Complex for 80 years, as a business expenditure. Alternatively says the assessee, the ld. CIT(A) ought to have allowed amortization of the total amount paid over 80 years. According to the assessee's second alternative contention, the depreciation on the amount paid to acquire the right to use the land for 80 years ought to have been allowed. The Id. CIT(A) confirme....
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....ions, the assessee became entitled for additional FSI and has further acquired/purchased the additional built up area for construction of additional area on the aforesaid plot. Thus the assessee has made payment to MMRD under Development Control for acquiring leasehold land and additional built up area. The decisions of the Tribunal in the case of M/s. National Exchange (supra) and Mukund Ltd (supra) have been well discussed by the Ld. CIT(A) is his order. The decision of the Hon'ble Jurisdictional High Court in the case of Khimline Pumps Ltd. (supra) squarely and directly apply on the facts of the case wherein the Hon ble Jurisdictional High Court has, held that payment leasehold land is a capital expenditure. Considering the entire facts in totality in the light of the judicial decisions vis-à-vis provisions of Sec. 194-1, definition of rent as provided under the said provision, we do not find any reason to tamper or interfere with the findings of the Ld. CIT(A) which we confirm." The facts remaining the similar, respectfully following "M/s Wadhwa & Associates" (supra), this grievance of the assessee is rejected. 22. The first alternative claim of amo....
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....he said decision specifically clarified that the restriction laid down therein is confined to the power of the assessing authority to entertain a claim otherwise than by way of a revised return and does not impinge upon the powers of the Tribunal u/s. 254 of the Act. 18.1. We further note that the Coordinate Bench of this Tribunal, in the assessee's own case, while considering an identical payment made to MMRDA, directed the expenditure to be capitalised and allowed depreciation thereon. Following the same principle, the payment of Rs. 114,14,09,426/- made by the assessee during the relevant year towards obtaining the commercial user rights is required to be considered as part of the relevant block of assets for the purpose of allowing depreciation. 18.2. Insofar as the contention of the Ld. DR that the assessee is, in effect, claiming depreciation on land is concerned, we note that the nature of an identical payment made to MMRDA has already been considered by the Coordinate Bench in the assessee's own case and depreciation thereon has been allowed. The payment under consideration is towards the rights acquired pursuant to the permission granted by MMRDA for change in user o....
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....ook, as well as the order of the Hon'ble Bombay High Court dated 22/01/2019, placed at pages 329 to 330 of the paper book in assessee's own case. The Ld.Sr.Counsel thus submitted that TDS credit cannot be denied merely because the same is not reflected in Form 26AS, where the assessee is otherwise able to substantiate deduction of tax by producing the relevant TDS certificates. 19.3. The Ld.DR relied upon the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of the records placed before us. 20. The entire dispute revolves around denial of TDS credit supported, inter alia, by physical certificates amounting to Rs. 4,87,05,943/-. It is a settled position that where the assessee establishes deduction of tax by producing the relevant TDS certificates, credit thereof cannot be denied merely for the reason that the corresponding amount is not reflected in Form 26AS. We also note that the Coordinate Bench, in the assessee's own case for the earlier years, had directed the Ld. AO to verify the relevant facts and grant due credit of TDS, which direction stood upheld by the Hon'ble Jurisdictional High Court, observing that the Tr....
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.... interest u/s. 234D accordingly. The said decision was subsequently challenged by the Revenue before the Hon'ble Jurisdictional High Court in Income Tax Appeal No. 1852 of 2016, which was dismissed vide order dated 06/03/2019, holding that no question of law arose. 22.2. The Ld. DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in light of the records placed before us. 23. It is noted that, the Coordinate Bench of this Tribunal, in the assessee's own case for A.Y. 2004-05, while considering an identical issue, observed and held as under:- "6. We have considered the submissions of the parties and perused the material available on record. It is observed that in case of Tata Power Co. Ltd., Department had filed an appeal being ITA no.6683/Mum./2011. It was submitted, the Tribunal, while deciding the issue vide order dated 6th March 2013, upheld the order of the learned Commissioner (Appeals) directing the Assessing Officer to exclude the interest element of refund earlier granted while computing interest on refund under section 244A. The aforesaid order of the Tribunal as rightly pointed out by the learned....
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....assessee for the assessment year 2001-02. Learned counsel for the assessee placed on record an order dated 21.1.2019 passed by this Court in Income Tax Appeal No. 1188 of 2016 in which the Revenue had challenged the Tribunal's judgment with respect to the said assessment year 2001-02 in which this question was not raised. It means the Revenue had accepted the verdict of the Tribunal in this respect." 23.1. Respectfully following the above, we direct the Ld.AO to compute the interest u/s 234D including the interest granted u/s 244A of the Act to the assessee. Accordingly, this Ground raised by the assessee stands allowed. 24. Ground No.13 raised by the assessee is in respect of non-grant of interest u/s. 244A of the Act up to the date of actual payment/receipt of refund. 24.1. The Ld.Sr.Counsel submitted that interest u/s. 244A is required to be granted up to the date on which the refund is actually paid to the assessee and cannot be restricted to the date on which the order determining the refund or the order giving effect is passed. In support of the contention, reliance was placed on the decision of the Coordinate Bench in Tata Sons Pvt. Ltd. v. DCIT, ITA No. 2362....
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....t on the refund, if any, becoming due to it pursuant to the appellate proceedings. 25.1. The assessee submitted that such interest ought to be computed and granted up to the date on which the refund is actually issued to the assessee. The Ld.Sr.Counsel submitted that the issue already stands decided in favour of the assessee by the order of the Ld.CIT(A) dated 22.08.2024 for A.Y.2011-12, wherein the Ld.CIT(A) held that interest under section 244A is required to be granted up to the date of actual grant of refund. It was submitted that the Revenue has not preferred any appeal against the said finding before the Tribunal and, therefore, the same has attained finality at the level of the Revenue. 25.2. Reliance was placed on the decision of Hon'ble Bombay High Court in Capgemini Technology Services India Ltd. reported in 181 taxmann.com 768 and the decision of Coordinate Bench of this Tribunal inassessee's own case in Tata Sons Pvt. Ltd. in ITA No.2362/Mum/2023, order dated 06.12.2023. We have perused the submissions advanced by both sides in light of records placed before us. 26. It is noted that the Ld.CIT(A), vide order dated 22.08.2024 for the very same assessment ....
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....said acquisition, the assessee acquired tangible fixed assets comprising, inter alia, furniture, fixtures, computers, servers, routers, multiplexers, Ethernet switches, fibre and CPEs, etc., which were capitalised at Rs. 87.95 lakhs. The balance consideration of Rs. 1,618.88 lakhs pertaining to intangible assets, including commercial and business rights acquired as part of the business undertaking, was debited under the head "Goodwill". 27.1. The assessee claimed depreciation of Rs. 10,15,735/- on the tangible assets in the return of income and, during the course of assessment proceedings, also claimed depreciation of Rs. 2,02,36,016/- on the intangible assets forming part of the amount recorded as goodwill. The Ld.AO rejected the claim, inter alia, on the ground that certain legal formalities relating to transfer of assets and contracts were pending, that depreciation on goodwill/intangible assets had not been claimed in the return of income and that the assessee had not established acquisition of goodwill or any other business or commercial right eligible for depreciation u/s. 32(1)(ii) of the Act. However, for assessment year 2007-08 to 2010-11 the Ld.AO allowed the same on t....
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....f the Tribunal are as under:- "7. For the present issue raised vide ground no.2 along with its sub-grounds, we note that goodwill per se is an intangible asset within the meaning of explanation 3 to section 32(1)(ii) and is thus eligible for depreciation. We draw our force from the decision of Hon'ble Supreme Court in the case of SMIFS Securities Ltd. [2012] 348 ITR 302 (SC) wherein it is held that excess consideration paid by it over the value of net assets acquired amounts to goodwill. Further, it was held that goodwill falls within the expression 'any other business or commercial right of a similar nature' and is therefore an asset under explanation 3 to section 32(1) and thus eligible for depreciation." "7.1. In the present case before us, it is an undisputed fact that assessee had acquired the business on a slump sale basis, wherein consideration was paid in excess of net assets value for acquiring the business concern which was recorded as goodwill. For the sixth proviso to section 32(1) referred by the authorities below, we note that it cannot be extended to negate the claim of depreciation on goodwill in the hands of the assessee as there did not appea....
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....judicial precedents, the assessee was entitled to depreciation on the goodwill recognised in its books of account. We have perused the submissions advanced by both sides in light of records placed before us. We find that the issue stands squarely covered by the decision of the Hon'ble Supreme Court in Smifs Securities Ltd. (supra), wherein the Hon'ble Court considered the scope of the expression "any other business or commercial rights of similar nature" occurring in section 32(1)(ii) and held that goodwill falls within the ambit of the said expression and is therefore an intangible asset eligible for depreciation under section 32 of the Act. The Hon'ble Supreme Court also accepted the principle that goodwill arising on amalgamation constitutes an asset within the meaning of section 32(1)(ii). In the present case, the Revenue has not brought any material on record to demonstrate that the goodwill claimed by the assessee is fundamentally different in character from the goodwill considered by the Hon'ble Supreme Court in Smifs Securities Ltd. (supra), or that the assessee's claim is otherwise outside the scope of section 32(1)(ii). Once the goodwill is re....
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.... that the rate of 0.25% charged by the assessee was supported by reliable external comparable evidence in the form of the quotation issued by ABN AMRO Bank. According to him, the quotation indicated a market rate of 20-25 basis points for financial guarantees and therefore constituted a direct external CUP. It was submitted that the TPO, instead of undertaking a proper comparability analysis, relied upon an SBI rate of 1.75% pertaining to bank guarantees and thereafter made an ad-hoc addition of 1.25% towards exchange-rate risk, country risk and AE risk. The Ld. Sr. Counsel submitted that there was no material on record demonstrating the basis for such additional 1.25%, nor was any recognised transfer pricing methodology applied for arriving at the rate of 3%. 30.3. The Ld. Sr. Counsel further submitted that the rate of 1.75% adopted by the DRP was equally ad-hoc. It was contended that the DRP neither undertook an independent benchmarking exercise nor dealt with the ABN AMRO quotation on its merits, but merely relied upon the rate adopted in the earlier year. He submitted that the rates relied upon by the Ld.TPO were not comparable having regard to the nature of the underlying t....
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....Y 2013-14 onwards and was not directly applicable to the year under consideration. It was urged that, if the Tribunal did not accept the rates of 0.20% or 0.35%, the APA rate of 0.401% could at least be considered as a corroborative indicator against the substantially higher rate adopted by the DRP. 30.8. The Ld.DR opposed the submissions of the assessee and supported the order of the Ld.TPO as modified by the DRP. With regard to the ABN AMRO quotation, the Ld.DR submitted that the document relied upon by the assessee was initially communicated through an email which expressly described the quotation as "indicative" and subject to internal approvals of the bank. According to the Ld.DR, such a communication could not be regarded as a firm or binding third-party quotation and, consequently, could not constitute a reliable CUP for determining the arm's length price. The Ld.DR therefore submitted that the quotation did not possess the requisite certainty and reliability and could not be preferred over the rate considered by the Ld.TPO/DRP. 30.9. In rejoinder, the Ld.Sr.Counsel submitted that the objection raised by the Ld.DR was based only on the initial email communication a....
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....r cannot, by itself, operate as a statutory rule for the year under consideration, the same constitutes relevant and material evidence where the nature of the international transaction and the surrounding circumstances are substantially similar. In the present case, no material has been brought on record by the Revenue to demonstrate that the functional and economic circumstances relevant for determination of the guarantee commission in the year under consideration materially differed from those considered by the coordinate Bench for AY 2014-15. 31.2. We are therefore of the view that the rate accepted by the coordinate Bench in the assessee's own case for AY 2014-15 provides an appropriate basis for determination of the arm's length guarantee commission for the year under consideration. The principle of consistency also assumes relevance, particularly when the transaction under consideration is of the same nature and there is no demonstrated change in the underlying circumstances warranting adoption of a substantially different rate. 31.3. Respectfully following the view taken by the coordinate Bench in the assessee's own case for AY 2014-15, we direct that the g....
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....rate. The approach of the Ld.TPO in determining the arm's length rate by starting with the assessee's average cost of domestic borrowings in Indian currency at 8.73% and thereafter adding a further mark-up of 3% does not appropriately address the currency-specific nature of the transaction. 32.1. We further note that the assessee has placed on record its own foreign currency borrowings, which constitute an internal comparable, wherein the spread over LIBOR ranged between 48 basis points and 51 basis points. The assessee has also furnished an independent benchmarking analysis based on nine uncontrolled transactions, which resulted in an average spread of approximately 164 basis points over LIBOR. Against this background, the assessee had charged its AEs interest at LIBOR + 175 basis points. Thus, the rate charged by the assessee is supported not only by its own foreign currency borrowing transactions but also by the external benchmarking exercise placed on record. Significantly, the rate of LIBOR + 1.75% was also accepted by the Ld.TPO himself in the immediately succeeding assessment year, i.e. AY 2012-13, in respect of similar foreign currency loan transactions. No material has ....
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....PO. According to the assessee, even the rate so adopted was ad hoc and was not supported by any independent benchmarking exercise for the year under consideration. 33.4. The assessee also issued a Letter of Support ("LoS") to its AE. The AE, in turn, provided financial assistance to its subsidiaries to enable them to continue as a going concern. The assessee submitted that the LoS was issued solely on account of its ownership interest and was in the nature of shareholder support. It was specifically contended that the LoS did not involve any direct provision of funds by the assessee and did not constitute a guarantee or any other enforceable financial commitment. The document itself stated that it was not intended to constitute a legally binding document or agreement creating any obligation on the assessee. No fee was charged for issuance of the LoS. 33.5. The Ld.TPO, however, treated the LoS as an international transaction and proposed a fee at 1.5%. No specific comparable uncontrolled transaction or independent benchmarking analysis was stated to have been relied upon for determining the said rate. The assessee filed objections before the DRP. The DRP restricted the rate to....
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...., under the APA applicable to subsequent years, a rate of 0.20% had been agreed in respect of LoCs. While accepting that the APA was applicable from AY 2013-14 onwards, the assessee submitted that the rate could, at the least, provide relevant corroborative material if the Tribunal were to hold that the LoC was liable to be benchmarked. 33.10. With regard to the LoS, the Ld.Sr.Counsel submitted that the nature of the instrument was materially different from a guarantee or other financial commitment. The LoS was issued solely by reason of the assessee's ownership interest and constituted shareholder support. It was submitted that the LoS did not provide for any direct transfer of funds to the AE, nor did it create any legally enforceable obligation or liability upon the assessee. The document itself expressly stated that it was not intended to constitute a legally binding agreement. 33.11. On the contrary, Ld.DR supported the orders of the authorities below and submitted that the LoC and LoS had a bearing on the financial position of the assessee and therefore could not be regarded merely as shareholder activities. 33.12. With respect to the LoCs, the Ld.DR referred to ....
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....ot itself create any financial liability. Rather, it reflected the very basis on which the assessee had extended shareholder support. It was further submitted that the mere recognition of a contingent liability in financial statements, as relied upon by the Ld. DR, cannot by itself establish that the transaction is an international transaction under section 92B. 33.17. The Ld.Sr.Counsel also distinguished the decision relied upon by the Ld.DR in Asian Paints Ltd.(supra), submitting that the factual and contractual terms of the LoCs involved in the present case had to be independently examined. It was reiterated that the present LoCs expressly disclaimed the creation of any legally binding obligation, guarantee or indemnity. It was thus submitted that the assessee there was no basis for imputing a fee merely because the third-party banks had sought the LoCs as part of the overall financing arrangements of the AEs. 33.18. In relation to the LoS, the Ld. Sr. Counsel submitted that the APA rate of 0.20% relating to LoCs could not automatically be applied to LoS transactions. The assessee had not accepted, even under the APA, that a LoS was an international transaction requiring b....
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.... 0.20% under the APA. In contrast, the rate of 1.5% adopted by the Ld.TPO and the rate of 0.75% sustained by the DRP are not supported by any identifiable comparable or a reasoned benchmarking exercise. 34.3. The subsequent APA rate therefore provides a relevant benchmark and, at the very least, constitutes strong corroborative material for determining the arm's length consideration for the year under appeal. Considering the same in conjunction with the terms of the LoCs and the absence of any material brought on record by the Revenue to justify a substantially higher rate, we find no justification for sustaining the rate of 0.75% adopted by the DRP. 34.4. Accordingly, we direct the Ld.AO/TPO to determine the arm's length fee for the LoCs by adopting the rate of 0.20%, being the rate subsequently agreed under the APA. Credit shall, of course, be given for any fee, if already charged by the assessee. 34.5. As regards the LoS, the assessee has specifically contended that the APA rate of 0.20% was agreed in respect of LoCs and that the assessee had not accepted under the APA that a Letter of Support constituted a separate international transaction requiring benchmarking. We f....
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.... transactions provide a direct internal CUP for examining delayed receivables from the AEs. In the present case, the position of the assessee is stronger, since it has actually charged the AEs interest at LIBOR + 1.75% while charging no interest from non-AEs for comparable delays. We therefore hold that the rate charged by the assessee on the overdue receivables is at arm's length and direct deletion of the further adjustment sustained by the DRP. Accordingly, Ground No. 9.6 raised by the assessee stands allowed. Revenues appeal: 36. It is noted that the grounds raised by the revenue in its appeal pertains to the partial relief granted to the assessee by the DRP in respect of Guarantee Commission, Letter of Comfort and Letter of Support 36.1. In view of our findings recorded hereinabove while adjudicating Ground Nos. 9.2, 9.4 and 9.5 of the assessee's appeal, the additions in respect of the aforesaid transactions are required to be recomputed in accordance with the directions contained therein. Accordingly, the corresponding grounds raised by the Revenue stands partly allowed, in terms of our findings and directions given hereinabove. In the result, appeal filed b....