TMI Blog2016 (11) TMI 1544X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction. Meaning thereby that there is no impact on its taxable income. The Revenue’s grounds nowhere rebut this factual position. Section 14A r.w. Rule 8D disallowance - seeks to revive addition made in the impugned draft assessment and deleted in DRP’s proceedings - Held that:- The assessee has not earned any exempt income in the impugned assessment year, thus the above statutory provision is not exigible in absence of any exempt income in the relevant previous year. See CIT vs. Corrtech Energy Pvt. Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT] Section 80IA deduction on account of sharing of passive infrastructure and Cell sites - Held that:- PCIT vs. BSNL [2016 (8) TMI 270 - DELHI HIGH COURT ] upholding this tribunal’s Delhi bench’s order concluding that the above ‘derived from’ criteria does not apply in case of an undertaking providing telecommunication services in view of the fact that Section 80IA(2A) starts with a non obstante clause treating the same as a separate species. His further case is that this tribunal’s order in assessee’s case for A.Y. 2006-07 also adjudicates the very issue in its favour. The Revenue fails to controvert both these legal developments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer, and in case the sales is accounted for at the face value, to that extent, the tax withholding liability is to be sustained. Addition on account of receipt of prepaid services crystallized in the impugned assessment year - Held that:- ACIT vs. Shyam Telelinks Ltd. [2012 (7) TMI 955 - ITAT DELHI] upholds the said assessee’s identical contention on the principle of recognition of income of accrual basis pertaining to sale of prepaid SIM cards. Remits the issue back to the Assessing Officer for factual verification to prevent revenue leakage. Direct the Assessing Officer to verify as to whether the assessee has declared the revenue in respect of the expired prepaid cards or not in the succeeding assessment year. This Revenue’s ground is thus partly accepted for statistical purposes. Royalty disallowance paid to the wireless planning commission - Held that:- The impugned payments are in the nature of revenue expenditure only. Addition made u/s.36(1)(iii) on account of capitalization of expenses relating to capital work in progress - Held that:- There is no distinction u/s.36(1)(iii) between interest incurred on capital borrowed for revenue or capital purposes prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts SIM cards for sale in ordinary course of business. It had issued significant quantities of SIM cards to customers for providing connection without charging any separate sale price during the year. It claimed the said SIM cards value at Rs. nil till the same were activated at customers end. The assessee stressed the point that its SIM cards in question were not in the nature of an independent product to be sold in open market. It followed cost or market price; whichever is lower formula to justify nil price in question in tune with not only Section 211(3A) r.w.s. 211(3C) of the Companies Act but also asserted to have prepared its books as per AS-2. 4. The case file indicates that the Assessing Officer rejected all these pleas. He observed in draft assessment that the assessee has itself valued 15,68,545 SIM cards carrying opening stock of ₹ 29million as against closing stock of 21,74,521 SIM cards at Rs.nil. He alleged the assessee to have adopted deviation in valuation of its SIM cards in this manner not sustainable under the provisions of the Act. All this led to the impugned addition of ₹ 4,02,03,570/- proposed in the above draft assessment order. 5. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that it .had rightly valued its SIM cards at Nil value, being their market value. Further, auditors have also not disputed valuation of SIM cards in the financial statements. Even otherwise, assessee is entitled to deduction under section 80IA of the Act in past and current years and hence, there is no impact on taxable income. In the light of above, objections of the assessee against the proposed upward adjustment are allowed. Therefore, we hereby direct the AO to delete the proposed addition of ₹ 4,02,03,570. As this ground is allowed on merits, we have not adjudicated alternative ground raised by the assessee. 6. We have heard rival contentions. It is clear by now that the instant issue arises between the parties qua closing stock valuation of assessee s SIM cards as on 31.03.2009. Its case as narrated in preceding paragraphs is that these SIM cards nowhere carried an independent value not being in the nature of an independent saleable product. It successfully proved before the DRP to have changed its practice from that of separately charging for SIM cards in earlier assessment years to not asking the customers in question for making separate payment thereof in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000-01 thereby allowing the impugned deduction @ 100% of the profits of the relevant previous year. Shri Soparkar states herein as well that this tribunal s order in A.Y. 2006-07 (supra) adjudicates the very issue in assessee s favour. The same goes unrebutted at the Revenue s end. We accordingly decline this ground as well. 10. The Revenue s next substantive ground (3C) assails correctness of the DRP s directions to the assessing authority to allow Section 80IA deduction amounting to ₹ 94.7 million and ₹ 138.90 millions on account of sharing of passive infrastructure and Cell sites; respectively. The Assessing Officer s main reason for disallowing the corresponding claim was that neither the assessee is engaged in the business of leasing of assets nor sharing of cell sites. He held that the above incomes could not be treated to have been derived from an eligible undertaking u/s.80IA in other words. Shri Soparkar places on record hon ble Delhi high court s decision in a batch of cases ITA Nos.476-490/2016 PCIT vs. BSNL decided on 01.08.2016 upholding this tribunal s Delhi bench s order concluding that the above derived from criteria does not apply in case of an und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debts in earlier years and now these figures are sought to be included in Section 80IA deduction claim. 13. We come to DRP s findings now. Ld. Panel negates this double deduction reason after holding that assessee s bad debts claim in earlier assessment years would have reduced its eligible deduction therein. It further places reliance on the above Radha Madhav s case law (supra) to accept assessee s contentions leaving behind the Revenue aggrieved. 14. Heard both sides. There is hardly any quarrel that the assessee claimed these sums as bad debts (revenue receipts) in earlier assessment years. The same stood allowed. It thereafter received back these sums in the impugned assessment year in the nature of business income u/s.41(1) of the Act. A coordinate bench of the tribunal (supra) concludes in these facts that such an instance does not amount to double deduction claim. The Revenue fails to indicate any exception in facts of the instant case. We accordingly reject the instant substantive ground as well. 15. The Revenue s next substantive ground no.4 pleads that the DRP has erred in deleting disallowance of ₹ 66lacs made on account of miscellaneous expenditure wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered under provisions of section 28 of the Act. Hence, amount irrecoverable from BSNL being written off by the assessee in AY 2009-10 will constitute a business loss and as it has occurred in AY 2009-10, it is allowable as a deduction under provisions of section 28 of the Act in AY 2009-10. Even otherwise, assessee is entitled to deduction under section 80IA of the Act in past and current years and hence, there is no impact on taxable income. In light of the above, the objection raised by assessee is allowed and the AO is directed to delete the proposed addition of ₹ 66,00,000. As this ground is allowed in favour of the assessee, without prejudice ground has not been adjudicated. 18. Heard both sides. We have narrated in preceding paragraphs about assessee s payment made to BSNL for very much a business purpose which was forfeited thereby resulted in the impugned write off as business loss u/s.28 of the Act in the impugned assessment year. Even the Assessing Officer is fair enough in not disputing the above facts. Page 200 of the paper book reveals that the assessee wrote off the same in the impugned assessment year only. The only substantive objection raised in course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponse to our query except page 71 of the assessment order. Meaning thereby that there is only an inference that the assessee must have paid for the impugned roaming charges involving human intervention component. This case file reveals that this tribunal s Kolkata bench in ITA No.1864/Kol/2012 Vodafone East Ltd. (assessee s sister concern) vs. ACIT decided on 15.09.2015 examines all fine points in case of identical roaming charges in cellular telephony parlance to conclude that the same are not liable for TDS deduction as follows: 4.10. We have heard the rival submissions and perused the materials available on record. It would be pertinent to note here that roaming services are provided by other telecom operators by using their existing telecom network/ infrastructure and no incremental investment is required to put up any additional network /infrastructure for provision of such roaming services. The aforesaid fact lends further support to the contention that roaming services are standard automated services, which are provided by other telecom operators to subscribers of VEL using the same network/infrastructure as is used by such operators for provision of telecommunication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence of human intervention for the roaming services and accordingly the ACIT, Circle 51(1), New Delhi had recorded statement from Shri Tanay Krishna on 29.9.2010. The Learned AR has also filed prayer for receipt of additional evidence in terms of Rule 29 of ITAT Rules on 20.7.2015 containing the statements recorded from Shri Tanay Krishna on 29.9.2010 in the case of Vodafone Essar Mobile Services Ltd cross examination by Vodafone Essar Mobile Services Ltd on 29.9.2010. This application under Rule 29 contains a prayer with reasons that these documents could not be filed before the lower authorities and that these documents are very crucial for the disposal of the case under appeal as the examination of the technical experts had taken place post the proceedings before the Assessing Officer and as per the directions of the Hon'ble Supreme Court, these statements were recorded in the case of the group company of the assessee. However, it is seen that the statement of Shri Tanay Krishna on 29.9.2010 have been relied upon by the Learned CIT(Appeals) vide page 29 of his order but the cross examination of Shri Tanay Krishna is not in records of the lower authorities. We find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Software by hardware testing - Stand alone testing (b) Interconnect testing - it is done to test if it is compatible with other hardware/software. This testing employs technically qualified professionals and tested as per the agreed plan between services provider and vendor. Question 5: In your expert opinion, does the system work automatically when network system of one cellular operator gets connected with the network system of other cellular operator? Ans. 5: When a calls get connected by one operator to other, per se it is an automatic connection, but there can be instances when there is a problem in the call connect which may require resolution through human intervention. Question 6: Hence there is no 100% automatic operation of this network. Can you explain what kind of human intervention is required? Ans. 6: Yes as I said earlier it can't be 100% fully automated. There are several circumstances under which human intervention would be required. I would briefly tell you about each of such circumstances (a) There could be a case where there is failure in physical hardware. (b) There could be a problem due to software bug. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, i.e., carriage of calls from one network to another, or are primarily for fault detection and removal. Please refer to answer to Question 4 of this cross examination. Q.11. What is the extent of human involvement in provision of interconnect services. i.e., carriage of calls originating on network of one operator and termination the network of the other operator? We have answered in question no 5. Q.12. In answer to Question 21 of your Statement, you have stated that in cellular networks the level of human intervention is much higher and of sophisticated technical level. In this regard, do you agree that cellular networks are based on sophisticated technology and work on an automated mode? The human intervention as referred by you for network operations is limited to network monitoring and maintenance and fault repair, rectification, enhancement, configuration, and set-up? We agree that the telecom networks are automated networks and do not require human intervention for carriage of calls. However, as stated in Question 4 of this cross examination, human intervention is required at the inter-connect set-up stage [including configuration, installat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not amount to renting up equipment or its charge or rent . The Hon'ble Supreme Court has also shown us some direction in this behalf. While interpreting the expression rent , the applicability of section 194-1 must be gathered from whether the wheeling and transmission charges draw its colour from the basic meaning of the expression rent . It is seen from the decision of the Supreme Court in Singapore Airlines (supra) that the meaning of rent must be understood in the context in which they are used. In the present set of facts, it is not possible to equate the wheeling and transmission charges payable MSETCL with rent. On facts it is seen that the MERC order dated June 27, 2006, deals with MSEDCL's contentions, apropos the methodology proposed by MERC. The transmission charges contemplated by MERC includes the cross-subsidisation of transmission charges across licensees when found to be uneconomical and uncompetitive. It is further observed that MERC has considered pooling of transmission charges during bulk power transmission from one licensee to another licensee. It is after considering all these aspects that a composite charge method for any such transmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch service is rendered by the MSETCL to MSEDCL. MSETCL is obliged to maintain the system by value of operation of law under the Electricity Act. The MSEDCL accesses the State transmission utility and distributes electricity passing through the State transmission utility. Our views stand fortified by the very fact that the Revenue itself is confused and unsure as to the nature of the charge. The focus of the Revenue is only the requirement of deduction of tax whether under section 194-1 or section 194]. This approach is erroneous. The Revenue contends that the wheeling and transmission charges could be rent or fees for technical services but, in our view it is neither. Wheeling charges represent the charge for permitting use of the State transmission utility by persons other than the distribution licence. The transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to the licensees and consumers. In view of the above discussion, we are of the view that the wheeling and transmission charges are neither rent nor fees for technical services. Keeping the said interpretation into effect, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th other bulk power beneficiaries - namely M P State Electricity Board, Gujarat Electricity Board, Maharashtra State Electricity Board, Electricity Department - Government of Goa, Administration of Daman Diu, and Electricity Department - Administration ofDadra and Nagar Haveli, has entered into a 'Bulk Power Transmission Agreement' with PGCIL. The preamble of this agreement, inter alia, notes that the PGCIL is desirous to transmit energy from the Central Sector Power Station(s) to the Bulk Power Beneficiaries and that the said Bulk Power Beneficiaries are desirous of receiving the same through POWERGRID transmission system on mutually agreed terms and conditions . This agreement provides that POWERGRID shall operate and maintain the transmission system belonging to it in the Western Region as per agreed guidelines and the directives of the Western Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the Bulk Power Beneficiaries of the Region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage to any equipment . In respect of these services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of- (a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred eighty thousand rupees]: Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation : For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The transmission lines continue to be not only under control and possession of the PGCIL in legal terms, but, what is more important, these transmission lines are effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. On these facts, in our humble understanding, the assessee has made the payments for transmission of electricity in which transmission lines have been used rather than for the use of transmission lines per se. The payments could be said to have been made for the use of transmission lines in a case in which the object of consideration for which payments are made was the use of transmission lines simplictor. and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased bv the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO.[1990] 77 STC 182 (AP). Illustration (i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire. The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer ? The answer is obviously in the negative, as there is no transfer of the use of the lorry for the following reasons: (i) The lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (Hi) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as in the case Chhattisgarh State Electricity Board, we are of the view that ld. Commissioner of Income Tax (appeals) has appreciated the controversy in right prospective and no interference is called for. Therefore, ITA No. 3526,3528,3629,3530 are dismissed. The various decisions cited supra have held that there will be no TDS on transmission charges and the same analogy would apply with equal force in the case of transmission charges in telecom industry. 4.17. From the aforesaid statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT vs Bharti Cellular Ltd ( 330 ITR 239) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation / setting up / repairing / servicing / maintenance / capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be construed as technical services. It is common knowledge that when one of the subscribers in the assessee's circle travels to the jurisdiction of another c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text of the impugned issue does not fall under the definition of 'work' as defined in section 194C and hence the provisions of section 194C are not applicable to the impugned issue. 4.19. Let us now get into the applicability of provisions of section 1941 of the Act to the facts of the impugned issue. The term 'rent' is defined in section 1941 as below:- For the purposes of this section, rent means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings whether or not any or all of the above are owned by the payee. The real test to be considered is whether it is possible to say that it is the assessee who has used the equipment and has paid the roaming charges to the other service provider with whom it has entered into a national roaming agreement. We hold that it is not possible to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him or her with the telephone connection. In view of the above, we hold that the payment of roaming charges by the asesssee to other service provider cannot be considered as rent within the meaning of section 1941 of the Act. 4.20. Accordingly, we hold that the payment of roaming charges of ₹ 55,41,01,320/- does not fall under the ambit of TDS provisions either u/s 194C / 1941 or 194J of the Act and hence we have no hesitation in directing the Learned Assessing Officer to delete the addition made u/s 40(a)(ia) on this account. 22. We follow the above precedent in absence of any distinction on facts being pointed out at Revenue s behest. The assessee s corresponding ground in its appeal succeeds whereas Revenue s ground no.5 fails. 23. This leaves us with the latter issue as to whether the assessee is liable to deduct TDS upon discount coupons offered to prepaid distributors as disallowed u/s.40(a)(ia) of the Act. Case record reveals that a co-ordinate bench in M/s. Vodafone Essar Gujarat Ltd. (assessee s sister concern) vs. ACIT ITA No.386/Ahd/2011 decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of time of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging to the distributor should be in the hands of the assessees. Then out of that income, the assessee has to deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributor. In this context it is pertinent to mention that the assessee sells SIM cards to the distributor and allows a discount of ₹ 20/-, that ₹ 20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit 86 earned by the distributor, sub-distributor and the retailer would be dependent on the agreement between them and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the collection of tax from him, with a possible contingency of refund at a later stage will not make the original levy valid. 64. In the case of Vodafone, it is necessary to look into the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at ₹ 100/- in their books of accounts and showing the discount of ₹ 20/- to the dealer. Only if they are showing ₹ 80/- as the sale price and not reflecting in their accounts a credit of ₹ 20/- to the distributor, then there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also. 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted to the facts of the case is unsustainable. 10. As we take note of the views so expressed by Hon'ble Karnataka High Court, we may also note that this issue has been decided against the assessee by, amongst others, Hon'ble Kerala High Court, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s involved as claimed by the assessee and the entire charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is only for rendering services to ultimate subscribers and the distributor is only the middleman arranging customers or subscribers for the assessee. The terms of distribution agreement clearly indicate that it is for the distributor to enroll the subscribers with proper identification and documentation which responsibility is entrusted by the assessee on the distributors under the agreement. It is pertinent to note that besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. Even though the assessee has contended that the relationship between the assessee and the distributors is principal to principal basis, we are unable to accept this contention because the role of the distributors as explained above is that of a middleman between the service provider namely, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 194H of the Act. The contention of the assessee that discount is not paid by the assessee to the distributor but is reduced from the price and so much so, deduction under Section 194H is not possible also does not apply because it was the duty of the assessee to deduct tax at source at the time of passing on the discount benefit to the distributors and the assessee could have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors to remit the same in terms of Section 194H of the Act. 11. There is no, and there cannot be any, dispute about the fundamental legal position that in the hierarchical judicial system, that we have in our country, lower tiers of judicial hierarchy has to respectfully follow the views expressed by the higher tiers of judicial hierarchy. In the case of ACIT Vs Dunlop India Limited [(1985) 154 ITR 172 (SC)], Hon'ble Supreme Court has observed, quoting the House of Lords, as follows: We desire to add and as was said in Cassell Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that in the hierarchical system of Courts which exists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text that Their Lordships have observed as follows: 3. What is contended by the learned advocate for the Revenue is that the Tribunal decided the appeal on 26th Oct., 1976. By that time, the Andhra Pradesh High Court had upheld the validity of s. 140A(3). He drew our attention to the judgment of the Andhra Pradesh High Court in Kashiram vs. ITO (1977) 107 ITR 825 (AP). From the report, it appears that the said judgment was delivered on 10th Dec., 1975. Therefore, the Tribunal was not right in proceeding on the basis that only the Madras High Court judgment was in the field and, therefore, it was open to it to proceed on the basis that s. 140A(3) was non-existent. He also submitted that for that reason, the Tribunal was not right in following the judgment of the Bombay High Court in Godavaridevi's case (supra). 4. In our opinion, the legal position is correctly stated by the Punjab Haryana High Court in CIT vs. Ved Prakash (1989) 77 CTR (P H) 116 : (1989) 178 ITR 332 (P H) when it observed that unless and until the Supreme Court or the High Court of the State in question, under Art. 226 of the Constitution, declares a provision of the Act to be ultra vire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve utmost respect and deference. 16. The difficulty, however, arises in the case in which Hon'ble non jurisdictional High Courts have expressed conflicting views and the subordinate courts and Tribunals do not have the benefit of guidance from Hon'ble jurisdictional High Court. 17. In our humble understanding of the legal position and of the propriety, it will be wholly inappropriate for us to choose views of one of the High Courts based on our perceptions about reasonableness of the respective viewpoints, as such an exercise will de facto amount to sitting in judgment over the views of the Hon'ble High Courts- something diametrically opposed to the very basic principles of hierarchical judicial system. Of course, when the matter travels to Hon'ble jurisdictional High Court, Their Lordships, being unfettered by the views of a nonjurisdictional High Court, can take such a call on merits. That exercise, as we understand, should not be carried out by us. 18. The choice of which of Hon'ble High Court to follow must, therefore, be made on some objective criterion. We have to, with our highest respect of all the Hon'ble High Courts, adopt an ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ception has been also reiterated by Hon'ble Supreme Court in the case of Oil Natural Gas Commission Vs CIT (Civil Appeal no. 730 of 2007, judgment dated 1st July 2015; reported in www.itatonline.org). However, in the present case, this exception has no application. The rule of resolving ambiguity in favour of the assessee does not also apply where the interpretation in favour of assessee will have to treat the provisions unconstitutional, as held in the matter of State of M.P. vs. Dadabhoy's New Chirmiry Ponri Hill Colliery Co. Ltd. AIR 1972 (SC) 614. That is what Hon'ble jurisdictional High Court has also held in the case of Shah Electrical Corporation (supra). None of these exceptions, however, admittedly apply to the situation that we are dealing with at present. 20. There can be no dispute on the proposition that irrespective of whether or not the judgments of Hon'ble non jurisdictional High Courts are binding on us, these judgments deserve utmost respect which implies that, at the minimum, these judgments are to be considered reasonable interpretations of the related legal and factual situation. Viewed thus, when there is a reasonable interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urable to the assessee, that decision cannot normally be preferred over a decision from another Hon'ble non jurisdictional High Court decision, of equal stature, in favour of the assessee. That is, as we understand, correct approach to the matter and that is the reason why we come to the same conclusion as the SMC did but for altogether different reasons. 23. We have also noted that material facts of the case and the terms of agreements with the distributors are the same as were before Hon'ble Karnataka High Court in the above case. A comparative chart of these clauses is as follows: Sl. No. Discosure in the Agreement as highlighted in the Hon ble Karnataka High Court s judgment relevant extracts Corresponding clause in the agreement of the assessee with its pre-paid distributors 1 The agreement stipulates that the distributors have to represent to the customers that the distributor's agreement with the customers/its dealers is on Principal-to-Principal basis and assesses is no way concerned or liable to the customers/dealers of the Distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges, assessments penalties whether statutory or otherwise levied by any authority in connection with the operation of distributor's office (Clause III(b) of Annexure III to agreement). 6 'After sale of products distributor/channel partner cannot return goods to the assessee for whatever reason'-Page 74. The assessee shall not be responsible for any post delivery defect in the service tickets. No request of refund of any money shall be entertained by the assessee in any circumstances (Clause e-Annexure I). 7 'Distributors are even prevented from making any representation to the retailers unless authorized by the assessee'. The distributor shall not make any promises or representations or give any warranties or guarantees in respect of the products (i.e. SIM cars and prepaid vouchers) (Clause 1e Annexure III). 24. In the light of the above discussions, and particularly as there is no dispute that the factual matrix of all the cases before the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has credited the sale proceeds at the transaction value (in contrast with the transaction being shown at face value and the difference between face value and the transaction value credited to the distributor), the tax deduction liability under section 194H does not arise. While learned counsel for the assessee has stated at the bar that the sale proceeds are credited at the transaction value, this aspect of the matter is to be verified by the Assessing Officer, and in case the sales is accounted for at the face value, to that extent, the tax withholding liability is to be sustained, Both the learned representatives are ad idem that neither the hon ble apex court nor jurisdictional high court have decided the issue till date. We thus draw support from above extracted tribunal s decision and direct the Assessing Officer to finalize similar factual verification in the very terms reproduced hereinabove. This issue succeeds in assessee s favour as indicated hereinabove. The Revenue s corresponding ground no.6 is thus declined. Shri Soparkar informs us at this stage that the assessee raises only the above two grounds in its appeal. We accordingly accept assessee s appeal ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s find no reason to adopt a different approach in the impugned assessment year. This substantive ground is also rejected. 27. The Revenue s next substantive ground pleads that the DRP has erred in law and on facts in deleting disallowance of ₹ 18,22,71,089/- made u/s.36(1)(iii) of the Act on account of capitalization of expenses relating to capital work in progress. We find that the DRP s directions under challenge elaborately discuss facts of the case along with Assessing Officer s findings and assessee s submissions as follows: 15. The eleventh ground of objection raised by the asseesee is that the AO has erred in making proportionate disallowance of interest expenses amounting to ₹ 18,22,71,089 claimed under section 36(1)(iii) of the Act, by placing reliance on Explanation 8 to section 43(1) of the Act. : 15.1 On this issue, in brief, the Assessing Officer has based his conclusion in the draft assessment order on the following contentions: * As per section 36(1)(iii) of the Act, interest paid on capital borrowed for acquisition of assets for extension of business is not allowed as a deduction. .Reliance was placed on Explanation 8 to Section 43(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said loans / advances were provided out of own funds and not out of borrowed funds. However, in the instant case, as no interest free loans / advances were given to group companies, the decisions relied by AO are not applicable. Decision 15.3 We have carefully considered the facts of the case and contentions of the AO as incorporated, in the draft assessment order. We have also gone through the various oral and written submission made by the assessee's representative. The assessee has incurred interest expenditure during the year in respect of various ECB loans obtained for acquisition of capital assets. The assesse has acquired capital assets for its existing business and not for the purpose of extension of the business. Hence, proviso to section 36(1)(iii) of the Act cannot be invoked and deducibility of interest expenditure would be determined by section 36(1)(iii) of the Act. Further, as mentioned by the assessee, it has incurred interest, expenditure on ECBs used for acquisition of capital assets and hence, interest expenditure has also been incurred even after capital assets have been put to use. Thus, provisions of Explanation 8 to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not matter whether the capital is borrowed in order to acquire a revenue asset or a capital asset, because of that the section requires is that the assessee must borrow the capital for the purpose of his business. .... The above principles were subsequently followed by Hon'ble Supreme Court in the case of United Phosphorous Ltd. (299;lTR 9) and Vardhman Polytex Ltd v CIT (349 ITR 690). Hence, respectfully following the above judgments of Hon'ble, Supreme Court, we hold that interest expenditure incurred by the assessee on ECB used for acquisition of capital assets is eligible for deduction under section 36(1)(iii) of the Act. Accordingly, we direct the AO to delete the proposed addition of interest expenditure incurred by assessee. Hence, this ground of assessee is allowed. 28. Heard both sides. The Revenue strongly contends that the Assessing Officer had rightly invoked the impugned disallowance in the above draft assessment by quoting Section 43(1) explanation 8 of the Act. It however fails to dispute that hon ble apex court decision in Core Healthcare case (supra) categorically holds that the said explanation does not apply in case of 36(1)(iii) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst 0.275% declared by the assessee. He adopted similar course of action for the later payee regarding Vodafone brand. The same resulted in the impugned upward adjustment of ₹ 3,17,53,917/-. We notice from the above TPO s order that he went by assessee s related parties royalty agreement transactions in proposing the impugned adjustment. The Dispute Resolution Panel reverses the same leaving the Revenue aggrieved. 31. We have heard rival contentions. Suffice to say, since the transfer pricing officer in the instant case has proceeded to propose the impugned upward adjustment on the basis of related party transactions after adopting CUP method instead of TNMM hereinabove, we find that a co-ordinate bench of this tribunal in ACIT vs. Bilag Industries Pvt. Ltd. ITA No. 1441 1670/Ahd/2006 and 343/Ahd/2012 quotes a catena of case law to disagree with such an approach as follows: 28. We have heard both the sides. Learned representatives reiterate their respective pleadings in support of and against the impugned transfer pricing adjustment. There is hardly and dispute that the assessee agreed to supply Deltametrin and its intermediate chemical solutions to the above sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of section 92C(2) of the Act by using any of the six method as the most appropriate method as enumerated in clause (a) to (f); respectively in the given sequence in chapter 10 of the Act. The last clause (f) relevant for any other appropriate method hereinabove contains a specific rule 10AB. This is admittedly not germane to the issue before us. We find that only clause (a) to (e) hereinabove pertaining to 'CUP' and TNMM methods are relevant for the instant adjudication. We find it a fit case to repeat that the assessee had employed TNMM method for charging @ cost + 55% markup i.e. an indirect method for declaring its ALP. The TPO adopted its direct sale price @ 161.2 US $ per kg for making the impugned upward adjustment. We do not find a single observation even in his order rejecting assessee's TNMM method before adopting the agreement price in question under the CUP method. 31. We stay back on Rule 10B(1)(a) at this stage. It is evident that this clause prescribes CUP methods application to determine controlled price of an international transaction by the price charged or paid for property transfer or services provided in a comparable uncontro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeded to adopt CUP method(supra) again by ignoring the fundamental condition of applying the same. Same is the case with learned CIT(A) who has proceeded on revenue neutral implication without even taking into section 92(1) r.w.s. 92C and 92C(4) proviso along with rules discussed hereinabove at length. There is hardly any dispute that this chapter and the rules notified thereunder prescribe that an arms length price is not the price an assessee is charging or paying for being a party in the international transaction in question but it is the price i.e. to be paid or charged in such a comparable controlled transaction in comparison to a comparable un-controlled transaction. We repeat that the TPO has not kept in mind this fine distinction. We accordingly reverse his action on this sole legal principle. Needless to say, the CIT(A) has already deleted the impugned adjustment. We find no reason to interfere in the lower appellate order albeit on a different score as enumerated hereinabove. This Revenue's ground is declined accordingly. We have given out thoughtful consideration to rival contentions. Ld. Departmental Representative fails to pinpoint any exception in facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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