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TMI Blog2011 (12) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices. For assessment year 2007-08, the assessee had filed its return of income on Oct. 30, 2007 declaring total income of Rs. 427,72,07,814/-. Subsequently, a revised return was filed on Sept. 30, 2009, declaring total income of Rs. 441,91,76,049/-. In the assessment order, based on the directions of the DRP, the following disallowances/adjustments were made by the revenue out of the claims made in the return of income, in addition to disallowance of claims made in the course of assessment proceedings. S. No. Particulars Amount in Rs. 1. Disallowance of claim u/s. 80IA 179,70,52,324 2. Disallowance of depreciation on FLAG Cable System 2,54,46,971 3. Restricting depreciation on GDS system 4,72,06,936 4. Disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason that the Assessee company has commenced its telecom operations w.e.f. 1986, whereas the deduction under section 80IA is available to the new independent undertakings established or commending operations on or after 01/04/1995. Alternatively, he held that in case of Internet and NLD undertaking, though the same has commenced providing services after 1/4/1995, it is merely an extension of the existing telecommunication business which was commenced in 1986. It is the principle submission of the assessee that an undertaking of a company is separate from the company. The fact that the company might have been carrying on business activity since 1986 cannot be a bar to eligibility of an undertaking which has been set up to carry on similar o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecom operators without considering the fact that on these pass through costs the assesses company does not provide any value added services so as to qualify for applying a mark up. It was submitted that the TPO erred in not considering that neither the assessee nor any other international telecommunication operator across the globe charges any mark up to its customers for the amount they have to pay to the operators in the other end for terminating the traffic. This pricing mechanism is guided by the International Telecommunication Union ("ITU") regulations at the global level to which Government of India is also a signatory. In case the assesses proposes to deviate from this pricing guidance it would be in contradiction to the ITU regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, it may not be appropriate to determine arm's length pricing as a mark-up on the cost of the services but rather on the costs of the agency function itself, or alternatively, depending on the type of comparable data being used, the mark-up on the cost of services should be lower than would be appropriate for the performance of the services themselves. For example, an associated enterprise may incur the costs of renting advertising space on behalf of group members, costs that the group members would have incurred directly had they been independent. In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. In fact, in the Special Bench decision referred to by the AO for denying deduction u/s. 80 IA of the Act, there was dissenting view expressed by one of the Members of the Bench and the issue was decided by him in favour of the assessee. The assessee is now in appeal before the Hon'ble High Court against the decision of the Special Bench. As far as transfer pricing adjustment made by the AO is concerned, we are of the view that on the issue whether mark-up can be applied on pass through cost, there is a decision of the by the Delhi Bench of the Tribunal in favour of the Assessee, which has been referred to by the ld. counsel for the assessee. The OECD guidelines also seem to support the plea of the assessee. It was submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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