TMI Blog2019 (6) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the facts, material evidences, etc., held that the assessee satisfies the need benefit and rendition test. The Tribunal also upheld the TNMM to be the most appropriate method. In absence of any distinguishable features brought before us by the Revenue, we hold that the addition made by the Assessing Officer/TPO and upheld by the DRP is not sustainable. Disallowance of circuit accruals - non-submission of supporting documents - liability incurred/crystalised and estimated expense based on the orders placed for various circuits - HELD THAT:- It is the submission of the ld. counsel for the assessee that the assessee follows mercantile system of accounting and accrues circuit charges on scientific basis. It is also his submission that as per the accounting standards notified u/s 145(2) of the Act, the assessee is required to make provision for circuit accruals for the subject financial year. It is also his submission that the assessee has provided evidence to the extent of almost 98% of the expenses represented by year end circuit accruals for utilization/reversal of circuit accruals made in subsequent year and no adverse finding has been given by the Assessing Officer/DRP. We fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g heard to the assessee. Disallowance of support service expenditure - paid to its group company - HELD THAT:- The decision was totally based on commercial considerations. By transferring the cost from ACSI to appellant no added tax advantage is being availed by appellant. We are also of the view that commercial expediency of a particular expenditure incurred by a businessman should be examined from the perspective of the business person and no third party, including the tax authorities, is entitled to question the commercial reasoning/justification of the expenditure so incurred. Since the assessee had not submitted the requisite details before the Assessing Officer, therefore, we restore this issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to submit the details and decide the issue in the light of the decision of the Tribunal [ 2017 (9) TMI 1257 - ITAT DELHI] as reproduced above. Disallowance of annual revenue share based licence fee - maintenance and usage of the telecom licence payable to the Department of Telecom - HELD THAT:- Tribunal in assessee s own case [ 2017 (9) TMI 1153 - ITAT DELHI] has held that the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had suo motu disallowed a portion of loss as capital in nature and balance claimed as revenue loss - genuineness of the loss - additional evidences - HELD THAT:- It is the submission of the ld. counsel for the assessee that the additional evidences filed now will substantiate the genuineness of the loss. Considering the totality of the facts of the case and in the interest of justice, we admit the additional evidences filed before the Bench at the time of hearing and restore the issue to the file of the Assessing Officer with a direction to go through the same and decide the issue as per fact and law after giving due opportunity of being heard to the assessee. Non-grant of credit for TDS - HELD THAT:- We remit this issue to the file of the Assessing Officer with a direction to grant proper credit of TDS after giving an opportunity of being heard to the assessee. - ITA Nos.5535/Del/2016 & 7115/Del/2017 - - - Dated:- 27-5-2019 - Shri R.K. Panda, Accountant Member And Smt. Beena A. Pillai, Judicial Member For the Assessee : Shri Kanchan Kaushal, Advocate For the Revenue : Shri H.K. Choudhary, CIT, DR ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer Pricing Grounds On the facts, in the circumstances of the case and in law: 1.1 The Ld. Transfer Pricing Officer ( TPO )/ Assessing Officer ( AO )/ Hon ble Dispute Resolution Panel ( DRP ) erred in making an upward adjustment of INR 19,30,10,578 under section 92CA of the Act to the total income of the Appellant in respect of intragroup services availed by the Appellant from its Associated Enterprises ( AEs ). 1.2 The Ld. AO/ TPO/ DRP erred, on facts and circumstances of the case and in law, in rejecting the combined transaction approach of benchmarking adopted by the Appellant in its TP documentation (i.e. aggregating availing of intra-group services with provision of network support services) and proceeding to determine the arm s length price of international transaction pertaining to availing of intragroup services from its AEs on a standalone basis by rejecting Transactional Net Margin Method ( TNMM ) as the most appropriate method. 1.3 The Ld. AO/ TPO/ DRP erred, on facts and circumstances of the case and in law, in arbitrarily rejecting TNMM and selecting Comparable Uncontrolled Price ( CUP ) method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting and accrues circuit charges on scientific basis. 2.3. On the facts, in circumstances of the case and in law, the Ld. AO/DRP failed to appreciate that as per the accounting standards notified under section 145(2) of the Act, the appellant was required to make provision for circuit accruals for the subject financial year. 2.4 On the facts, in circumstances of the case and in law, the Ld. AO/Hon ble DRP erred in not appreciating that the appellant produced evidences to the extent of 99% for utilisation/reversal of circuit accruals made in subsequent years and no adverse finding has been given by the Ld. AO/Hon ble DRP on the same. 2.5 Without prejudice to the above, on the facts, in circumstances of the case and in law, where any disallowance is made in respect of the aforesaid accruals for the year under consideration, deduction in respect of the disallowed amount should be allowed in the subsequent year(s) in which such accruals were reversed or utilised. Therefore, any disallowance on account of circuit accrual is not tenable. 3. Disallowance of year-end accruals 3.1. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Expenditure 5.1. On the facts, in circumstances of the case and in law, the Ld. AO/ Hon ble DRP erred in disallowing the legitimate business expenditure being in the nature of support service expenses of ₹ 11,87,48,765 paid to AT T Communication Services India Private Limited ( ACSI ). 5.2 On the facts, in circumstances of the case and in law, the Ld. AO/Hon ble DRP erred in not taking cognizance of the submissions made by appellant and the documentary and circumstantial evidence/ proof produced by the appellant, which duly substantiates that support services were rendered by ACSI to the appellant company. 5.3 On the facts, in circumstances of the case and in law, the Hon ble DRP erred in ignoring that the aforesaid disallowance on account of support service expenditure has been directed to be deleted by the Hon ble DRP for assessment years 2008-09, 2009-10, 2010-11. 6. Disallowance of annual revenue share based license fee 6.1 On the facts, in the circumstances of the case and in law, the Ld. AO/ Hon ble DRP erred in disallowing an amount of ₹ 27,42,18,112 (being disallowance of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange loss arising on revenue account. 9.2. On the facts, in the circumstances of the case and in law, the Ld.AO/Hon ble DRP grossly erred in observing that the foreign exchange loss arises from External Commercial Borrowing (ECB) for procurement of capital goods without appreciating that during the year under consideration, no ECB facility was availed for capital goods. 10. Non-grant of credit for taxes deducted at source 10.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in not granting appropriate credit of taxes deducted at source as allowable to the Appellant for the year under consideration. 11. Lew of interest under section 234B and 234C of the Act 11.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in incorrectly charging interest under section 234B and 234C of the Act. 12. Initiation of penalty proceedings 12.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 271(i)(c) of the Act against the Appellant on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation - Document diagnostics, troubleshooting efforts in the ticket - Manage ticket queue b) Problem determination (PD)/Triage - CPE verification - Diagnostics and troubleshooting - Problem determination - Assemble appropriate team to address ticket - Review asset history. 6. He submitted that during the impugned assessment year out of the many services for which the assessee has entered into agreement, only one service, namely global customer service centre was availed. Further, the nature of service availed in the present years are exactly similar to the services availed of in the earlier years including the immediately preceding year. He submitted that along with the similarities in the nature of services availed of by the assessee from its AEs, the manner and the process of computation of charges also remained the same as in earlier years. He submitted that GCSC cost has been allocated to India on the basis of India related fault tickets as percentage of total fault tickets for Asia Pacific region. During the relevant period 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kong and Singapore and is engaged in maintenance and fixing repairs or outages for customers of AGNSI as well as other AT T group companies in Asia Pacific region. During FY 2009-10, the GCSC team processed over 26,600 tickets for AGNSI The list of the tickets processed along with nature of problem resolved bas been submitted as evidence India related fault tickets as percentage of total fault tickets for Asia Pacific 2012-13 GCSC The GCSC team is based in Hong Kong and Singapore and is engaged in maintenance and fixing repairs or outages for customers of AGNSI as well as other AT T group companies in Asia Pacific region. During FY 2011-12, the GCSC team processed over 39,000 tickets for AGNSI The list of the tickets processed along with nature of problem resolved bas been submitted as evidence India related fault tickets as percentage of total fault tickets for Asia Pacific 8. He accordingly submitted that the issue stands squarely cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... businessperson. We agree with the argument of the assessee that if the network related problems prevent the customers from using its services, the assessee is bound to suffer reputational damage and potential loss to business. Addressing the customer's problems promptly and by a specialized team (which may be an AE) should satisfy the benefit test, as the assessee received an economic benefit to maintain its business operation. Therefore in this regard we are of the view that assessee has substantiated that these services are required by it for its business sustainability. The only allegation which TPO / DRP made was that the assessee has not been able to substantiate need test by way of appropriate documentation and held that the assessee should have availed these services from an independent third party in India rather than from its AE. After going through the fact and submissions placed on record we are of the view that the assessee has satisfied the need/benefit test for availing these services from its AE. Regarding the rendition of the services by the AE, the appellant submitted before the TPO, the copy of inter-company agreements, tickets processed by G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge and experience in order to provide seamless services to customers. It has inherent risks and advantages that can be effectively harnessed only through sharing of resources and efficiencies that are inbuilt in-scale. Accordingly, availability of support in terms of strategy, data usage and administration is essential and indispensable for the assessee in order to achieve cost efficiency and normal functioning of its business operations. For this reason, the assessee is availing such essential services from its AEs. For this purpose, the assessee had entered into an agreement with its AE. These functions or services, if not availed from the AEs, would have to be undertaken by the assessee itself. However, due to very nature of network connectivity services and in order to achieve better economies of scale and synergies, these functions are centralized within the AE of the assessee which renders such services. It is, therefore, clear that such services confer a benefit on the assessee. While examining the arm's length nature of the impugned international transaction, the learned TPO has applied cost-benefits test and attempted to map the benefits received against payment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court must question the commercial wisdom of the assessee or replace its own assessment of the commercial viability of the transaction. The judicial precedents also stipulate that the duty of the Ld. TPO is restricted to determine the ALP of the international transaction and that he cannot replace his views with the views of the assessee. Respectfully following the binding precedent cited above we are of the view that benefit test for determination of Arms length Price is to be viewed from the perspective of the assessee and businessman and not from the perspective of revenue. In this case appellant has demonstrated the benefit which it is expected to derive from the various services rendered by its AE and ld. TPO has erred in replacing with its own judgment of the benefit derived by the assessee, we reject this approach. 52. However for determination of arms Length pricing, the assessee has adopted TNMM as the most appropriate method. The TPO has rejected TNMM as the most appropriate method and applied the CUP method. For this TPO has not given any reasoning. In fact, TPO and DRP has not brought out any data on record for bench marking of intra group transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing grounds raised by the assessee are accordingly allowed. 13. Ground of appeal No.2 relates to disallowance of circuit accruals. 14. Facts of the case, in brief are that the assessee, during the impugned assessment year incurred circuit charges aggregating to ₹ 192.52 crores i.e., ₹ 82.62 crores towards infrastructure cost and ₹ 107.89 crores towards last mile charges towards services provided by other telecom operators. Out of the above amount of ₹ 37.55 crore towards the year end accrual the Assessing Officer disallowed an amount of ₹ 40,02,308/- on account of non-submission of supporting documents which has been upheld by the DRP. 15. It is the submission of the ld. counsel for the assessee that as part of the month end accounting process, the assessee accrues expenses incurred up till the end of a particular month based on the liability incurred/crystalised and estimated expense based on the orders placed for various circuits. Such accruals include expenses incurred in relation to the services rendered during the relevant financial year, estimated on a reasonable and scientific basis for which bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer made a disallowance of ₹ 40,02,308/- on account of circuit accruals credited towards band width and last mile services availed by the assessee on the ground that the assessee did not file the requisite supporting documents. It is the submission of the ld. counsel for the assessee that the assessee follows mercantile system of accounting and accrues circuit charges on scientific basis. It is also his submission that as per the accounting standards notified u/s 145(2) of the Act, the assessee is required to make provision for circuit accruals for the subject financial year. It is also his submission that the assessee has provided evidence to the extent of almost 98% of the expenses represented by year end circuit accruals for utilization/reversal of circuit accruals made in subsequent year and no adverse finding has been given by the Assessing Officer/DRP. We find merit in the arguments advanced by the ld. counsel for the assessee. We find identical issue had come up before the Tribunal in assessee s own case for assessment year 2009-10. We find the Tribunal has discussed the issue at para 34 and 35 of the order and held that the circuit accruals are credited o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uit cease date; Invoice tariff code matches order tariff code Invoice cost is not varying more than USD 100 vis- -vis the expected cost Invoice number is unique for vendor The invoices for which validation is completed with no discrepancies or for which the discrepancies identified, the same are logged / resolved via dispute management process, are approved for payment. The assessee also explained the logic used by GAIM to calculate the Circuit Accrual for both active and ceased circuits taking into account the activation date and the cease date i.e. no accruals will be posted prior to the activation date or after the cease date. For the current and prior period GAIM will look at each tariff code for each circuit to determine if there is any invoice cost and circuit accruals are booked accordingly. Prior year expenses are tracked each month and matched against the prior year accrual balance brought forward manually. Accordingly, only the current year accrual balances are booked in the profit and loss account. 35. We find that the process explained is entirely automated process which captures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f circuit accruals. We, therefore, direct the Assessing Officer to delete the addition. The ground raised by the assessee on this issue is accordingly allowed. 19. Ground No.3 relates to disallowance of year end accruals. 20. The facts of the case, in brief are that the assessee has made year end provisions on outstanding as on 31.03.2012, the details of which are as under:- Particulars Accrual as on 31.03.2012 Accrual control account 27.81 crores IPA accruals 0.32 crores Total 28.13 crores 21. Out of the accrual control account, the assessee submitted evidences amounting to ₹ 26.74 crore on various dates regarding reversal entries and utilization entries which were allowed by the Assessing Officer in the final assessment order. However, the Assessing Officer disallowed year end accruals of ₹ 1.39 crore (accrual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.1 The ld. DR, on the other hand, submitted that when the assessee is unable to substantiate with documentary evidence to the satisfaction of the Assessing Officer regarding the justification for the accruals, the addition made by the Assessing Officer and sustained by the DRP should be upheld and the ground raised by the Revenue should be dismissed. 24. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find the Assessing Officer in the instant case, disallowed an amount of ₹ 1.39 crores on account of non-submission of supporting documents relating to the year ending provisions of outstandings. It is the submission of the ld. counsel for the assessee that when the assessee follows mercantile system of accounting and accounts all its expenses pertaining to the year in accordance with the matching principle and was able to substantiate with evidence to the satisfaction of the Assessing Officer in case of more than 95% of the expenses represented by year end accruals, therefore, no disallowance is called for. We find identical issue had come up before the Tribunal in assessee s own c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment/reversal of service tax payable in subsequent years amounting to ₹ 1,16,42,030/-. After verification of the details, the Assessing Officer allowed an amount of ₹ 93,13,979/- out of ₹ 1,73,86,770/- and made addition of ₹ 80,72,791/- on account of non-submission of supporting documents to substantiate the payment of the same u/s 43B of the IT Act. We find identical issued had come up before the Tribunal in the case of the sister concern of the assessee, namely ACSI. We find the Tribunal vide ITA No.354/Del/2017, order dated 31st October, 2018, has restored the issue to the file of the Assessing Officer with certain directions. The relevant observations of the Tribunal at para 16 of the order read as under:- 16. We have carefully considered the orders of the authorities below qua the issue. It appears that the Assessing Officer has not properly appreciated the accounting entries in their due perspective. The marginal heading of section 43B clearly states that certain deductions to be allowed on actual payment. This means that if the assessee has claimed deductions, the same can be disallowed u/s 43B of the Act. However, in the case in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payments made and the bank statements evidencing the payment thereof have been furnished by the assessee to prove the genuineness of the expenses. We find that no evidence has been brought on record by the Department to dispute the said claim. Rather, the Department's claim is merely based on suspicion as also noted by the DRP while deleting the above disallowance. We also find that even otherwise, both ACSI and appellant are profit making entities and hence, there was no tax incentive for the parties to deflate the revenues earned by appellant. The decision was totally based on commercial considerations. By transferring the cost from ACSI to appellant no added tax advantage is being availed by appellant. We are also of the view that commercial expediency of a particular expenditure incurred by a businessman should be examined from the perspective of the business person and no third party, including the tax authorities, is entitled to question the commercial reasoning/justification of the expenditure so incurred. Reliance in this regard is placed on the following judicial precedents furnished by the assessee: i. CIT v. Pani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33.1 The ld. counsel for the assessee submitted that the annual revenue share based licence fee incurred by the assessee is a business expenditure allowable u/s 37(1) of the IT Act. Such expenditure has been incurred by the assessee towards maintenance and usage of the telecom licence and not for acquiring a right to operate telecommunication services and thus would not attract the provisions of section 35ABB of the Act. He submitted that the application of provisions of section 35ABB is grossly erroneous and liable to reversed since section 35ABB applies only when an assessee incurs a capital expenditure for obtaining/acquiring any right to operate telecommunication services. Thus, if the expenditure is not for obtaining or acquiring any right and also it is not in the nature of a capital expenditure, section 35ABB of the Act is not applicable. Referring to the decision of the Delhi High Court in the case of CIT vs. Bharti Hexacom Limited (supra) he submitted that the Hon'ble High Court in the said decision has unequivocally and categorically held that the licence fee paid under the revenue share regime is clearly a tax deductible expenditure and has to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond the close of the year. Further, it is also relevant to note here benefit of the revenue share based license fees paid during one financial year cannot be extended to the subsequent financial year, for which license fee is to be paid separately upon the adjusted gross revenues of such subsequent year. Therefore, payment of the aforesaid annual fee cannot be said to confer any right of an enduring nature upon appellant. We are convinced that the appellant's case is squarely covered by the decision of Hon'ble Delhi High Court in the case of CIT vs. Bharti Hexacom Limited [2014] 265 CTR 130 (Delhi) other case laws relied upon by the appellant as cited above. The Ld. DR could not controvert that how this issue is not squarely covered by the decision of the jurisdictional High Court.It is also important to note that in the immediately succeeding year on same facts, the DRP has allowed the claim of the licence fees on revenue basis u/s 37(1) of the Act. In view of the above facts and respectfully following the decision of the Hon'ble jurisdictional High Court we allow the claim of the assessee. In the result the ground No. 4 of the appeal is allowed. 36. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I of the Act which states that any person responsible for paying any income by way of rent is required to deduct tax for use of any machinery or plant or equipment. The ld.DRP upheld the action of the Assessing Officer and the Assessing Officer, in the final order, made the disallowance of ₹ 6,50,79,639/-. 39. The ld. counsel for the assessee submitted that the leaseline services are standard automated services which are availed by any telecom service provider for connectivity service. It is facility of network which commonly availed in telecom business and is as such not an exclusive rent arrangement whereby any asset is taken on lease for its specific use. There is no exclusive right of possession or custody of the equipment and enjoyment thereof over a stipulated period of time in order that a payment can be said to be rent. Referring to the provisions of section 194I, he submitted that the above section clearly states that section 194I is applicable only when rent is paid on account of use of plant and machinery or use of land or building or furniture and fittings. The word use employed in section 194I of the Act suggests that there should be a right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol or possessory rights over such facility, payment made towards use of standard facility cannot be categorized as use of assets. Accordingly, the tribunal held that the payments made towards use of standard facility, when the lessee is not having any domain or control or possessory rights over such facility cannot be categorized as use of assets for the purpose of the Act and, therefore, no tax is liable to be deducted at source. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Hero Motocorp vs. Addl. CIT reported in 156 TTJ 139 , he submitted that the Tribunal in the said decision has held that no tax is to be deducted at source for payment towards standard facility provided by MTNL/BSNL by way of leaseline. Referring to the Mumbai Bench of the Tribunal in the case of Alok Industries Ltd. in ITA no.1423/Mum/2015, order dated 3rd July, 2017, he submitted that the internet charges for broadband connection are not liable for deduction of any tax at source u/s 194J, 194C as well as 194I of the Act. Referring to the decision of the Karnataka High Court in the case of CIT (TDS) vs. Vodafone South Ltd. reported in 290 CTR 436, he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider for faster connectivity service through dedicated leaseline and, therefore, such payment has been made for availing the facility of connectivity services from vendors required for transmission of data and is not for use of any asset involved in provision of such facility covered u/s 194I of the IT Act. It is also the submission of the ld. counsel for the assessee that the assessee was neither in possession nor control of the equipments which were used for providing internet and communication facilities and, therefore, there was a clear absence of the element of leasing of equipments and, therefore, the provisions of section 194I cannot be applied. We find merit in the above argument of the ld. counsel. We find identical issue had come up before the coordinate Bench of the Tribunal in the case of Global One India (P) Ltd.(supra). We find the Tribunal at para 9 to 11 of the order has decided the issue in favour of the assessee by observing as under:- 9. The Ld. Counsel for the assessee submitted that the A.O. disallowed payments made for lease lines, as the assessee has not deducted tax at source u/s 40(A)(i)(a). The A.O. disallowed the same by holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Madras High Court, in the case of Skycell Communications Ltd. vs. DCIT, reported in 351 ITR 53 (Madras) have adjudicated the issue in favour of the assessee. Respectfully following the same, we hold that payments made towards use of standard facility, when the lessee is not having any domain or control or possessory rights over such facility, cannot be categorized as use of assets for the purpose of the Act. 11.1. Respectfully following the order of the Jurisdictional High Court on this issue, we allow this ground of appeal of the assessee. In the result ground no.5 for the A.Y. 2007-08 is allowed. 42.1 We find Mumbai Bench of the Tribunal in the case of Alok Industries Ltd. (supra) has also decided an identical issue in favour of the assessee by observing as under:- 16. We have considered the submissions of the parties and perused the materials on record. Undisputedly, the assessee has paid the amount in question to Sify Ltd. towards use of internet/lease license charges. As could be seen, in a number of judicial precedents, some of which have been cited before us, it has been held that payment made towards broa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration before this Court in the present appeals. 9. We may record that in the decision of the Apex Court in the case of Bharti Cellular Limited (supra) the Apex Court after having found that whether human intervention is required in utilizing roaming services by one telecom mobile service provider Company from another mobile service provider Company, is an aspect which may require further examination of the evidence and therefore, the matter was remanded back to the Assessing Officer. Further, in the impugned order of the Tribunal, after considering the above referred decision of Bharti Cellular Limited, the Tribunal has further not only considered the opinion, but found that as per the said opinion the roaming process between participating entities is fully automatic and does not require any human intervention. Therefore, we do not find that the aforesaid decision in the case of Bharti Cellular Limited, would be of any help to the appellants - Revenue. 10. In the another decision of the Apex Court, in the case of Kotak Securities Limited, the matter was pertaining to the charges of the Stock Exchange and the Apex Court, ultima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not find that any substantial question of law would arise for consideration. Hence, the appeals are dismissed. 44. The various other decisions relied on by the ld. counsel for the assessee also support its case. In view of the above discussion, we hold that the assessee is not liable for withholding tax u/s 194I of the Act on account of payment of leaseline charges to other telecom operators for provision of telecom connectivity services required for transmission of data. Accordingly the Assessing Officer is directed to delete the disallowance. The ground raised by the assessee on this issue is accordingly allowed. 45. Ground No.8 relates to short deduction of tax of ₹ 20,74,814/-. 46. Facts of the case, in brief, are that in the Tax Audit Report in Form No.3CD of clause 27 of Appendix IX, it has been pointed out that the tax payer had deducted tax @ 2% instead of 10% u/s 194J. The Assessing Officer, therefore, asked the assessee to explain as to why the provisions of section 40(a)(ia) should not be applied and disallowance be made. Rejecting various explanations given by the assessee, the Assessing Officer made additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be applicable in the case of an assessee where there is shortfall in deduction of TDS. The relevant observation of the Tribunal from para 15 onwards reads as under:- 15. We heard the rival submissions and gone through the orders of the tax authorities below. We noted that in both the cases the assessee was of the opinion that tax had to be deducted under section 194C @2% but the Revenue was of the view that tax has to be deducted under section 194J @10%. Therefore, the AO applied provisions of Section 40(a)(ia) and made the disallowance in respect of both the expenditures. Before us the learned D.R. relied on the decision of the Hon'ble Kerala High Court in the case of CIT vs. PVS Memorial Hospital Ltd. 60 taxmann.com 69 copy of which was placed before us in which it was held that deduction under a wrong provisions of the law will not save an assessee from section 40(a)(ia), i.e. where the tax was deductible under section 194J but was actually deducted under section 194C, such a deduction would not meet the requirements of section 40(a)(ia). We noted that prior to this decision the Hon'ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal 361 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame issue and ultimately under paras 10 11 of its order held as under: - 10. The Departmental Representative relied upon the Hon'ble Kerala High Court judgment in the case of M/s. P.V.S. Memorial Hospital Ltd. (supra) and argued that the provisions of section 40(a)(ia) is applicable even for short deduction of TDS. The Hon'ble Kerala High Court has upheld the disallowance of expenditure under sec. 40(a)(ia) of the Act, for short deduction of TDS. With due respect to the Hon'ble Kerala High Court, we prefer to follow the judgment referred by the Authorized Representative of the assessee in the case of S.K. Tekriwal (supra), for the reason that when there are two reasonable constructions are possible on similar issue i.e. one in favour of the assessee and another in favour of the Revenue, the decision in favour of the assessee should be followed as held by the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192. 11. Considering the facts and circumstances of the case and also applying the ratio of the Hon'ble Calcutta High Court judgment in the case of S.K. Tekriwal (supra), we are of the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51. Ground No.9 relates to the disallowance on account of foreign exchange loss of ₹ 4,80,06,052/-. 51.1 Facts of the case, in brief, are that the assessee debited an amount of ₹ 16,45,02,426/- in the Profit Loss Account on account of foreign exchange fluctuation loss under the head Other expenses under Note 26 and an amount of ₹ 6,70,59,477/- under the head Finance costs under Note 27 aggregating to ₹ 23,15,61,903/-. While computing the income, the assessee had suo motu disallowed an amount of ₹ 18,35,55,851/- out of the total foreign exchange loss treating the same as capital in nature and claimed the remaining loss amounting to ₹ 4,80,06,052/- as revenue in nature as a tax deductible expenses in the computation of income. The Assessing Officer asked the assessee to justify the claim of the same. Since the assessee failed to demonstrate the genuineness of the loss, the Assessing Officer disallowed the foreign exchange loss of ₹ 4,80,06,052/-. The DRP upheld the action of the Assessing Officer. The Assessing Officer, in the final order, accordingly made the disallowance of the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the final order, has disallowed the same. It is the submission of the ld. counsel for the assessee that the additional evidences filed now will substantiate the genuineness of the loss. Considering the totality of the facts of the case and in the interest of justice, we admit the additional evidences filed before the Bench at the time of hearing and restore the issue to the file of the Assessing Officer with a direction to go through the same and decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Ground of appeal No.9 of the assessee is accordingly allowed for statistical purposes. 56. Ground No.10 relates to non-grant of credit for TDS. After hearing both the sides, we remit this issue to the file of the Assessing Officer with a direction to grant proper credit of TDS after giving an opportunity of being heard to the assessee. This ground of the assessee is allowed for statistical purposes. 57. Ground No.11 of the assessee relates to levy of interest u/s 234B and 234C which, according to us, are mandatory and consequential in nature. Accordingly the ground is dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services have actually not been received; 1.5. arbitrarily challenging the veracity of the contractual service agreement disregarding the actual conduct of the Appellant in the availing of intra-group services from AEs basis the elaborate documentary evidences submitted as part of assessment proceedings; and 1.6. disregarding the judicial pronouncement/ finding of the Hon ble ITAT in Appellant s own case for assessment years 2009-10, 2010-11 and 2011-12 TP adjustment with respect to payment of royalty That on the facts and circumstances of the case, and in law, the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in enhancing the income of the Appellant by INR 23,60,77,026/- and holding that the international transaction pertaining to payment of royalty does not satisfy the arm s length principle envisaged under the Act and in doing so have grossly erred in: 1.7. rejecting the combined transaction approach of benchmarking adopted by the Appellant in its TP documentation (i.e. aggregating payment of royalty, availing of intra-group services with provision of network s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice to the above, on the facts, in circumstances of the case and in law, where any disallowance is made in respect of the aforesaid accruals for the year under consideration, deduction in respect of the disallowed amount should be allowed in the subsequent year(s) in which such accruals were reversed or utilised. 2.6. On the facts, in circumstances of the case and in law, the Hon ble DRP erred in ignoring that the aforesaid disallowance of circuit accruals has been deleted by the Hon ble ITAT in Appellant s own case for assessment years 2009-10, 2010-11, 2011-12. Therefore, any disallowance on account of circuit accrual is not tenable. 3. Disallowance of vear-end accruals 3.1. On the facts, in circumstances of the case and in law, the Ld. Assessing Officer /Hon ble DRP erred in making a disallowance of ₹ 93,76,358 on account of year-end accruals representing accruals created towards normal business expenditure incurred by the Appellant ignoring that the accruals were based on a reasonable and scientific basis. 3.2. On the facts, in circumstances of the case and in law, the Ld. AO/ Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence fees debited to Profit Loss Account by holding that annual license fee is not allowable as a revenue expenditure and it should be amortised under section 35ABB of the Act. 5.2. On the facts, in the circumstances of the case and in law, the Ld. AO/Hon ble DRP erred in not following the judgment of the Hon ble jurisdictional Delhi High Court in the case of Bharti Hexacom Ltd. [2014] 265 CTR 130 (Delhi) wherein it was held that annual revenue share based license fee paid by the telecom operators is revenue expenditure, allowable under section 37(1) of the Act and not a capital expenditure amortizable under section 35ABB of the Act. 5.3. On the facts, in the circumstances of the case and in law, the Hon ble DRP has erred in not following its own direction in the assessment year 2011- 12 wherein the adjustment was directed to be deleted. Further, the Hon ble DRP erred in ignoring that the aforesaid disallowance has been deleted by the Hon ble ITAT in Appellant s own case for assessment year 2010-11. 6. Disallowance of Lease line charges on account of non-deduction of tax at source 6.1. On the facts, in the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y. 2009-10 has observed as under:- 65. We therefore accept the plea of assessee and hold that the ld TPO is only duty bound to determine the ALP of the royalty payments. 66. With respect to analysis under CUP method by the ld TPO, we fully agree with him in rejecting internal CUP as it pertains to related party transactions which are between its fellow AEs. We also agree with him in rejecting external CUP data as the assessee has not submitted any data regarding similarity in terms and conditions of the royalty agreements. He also rightly held that even from the limited data submitted are for different industries/ geographical location /duration and amounts. No analysis of the royalty agreements between the various parties and the accompanying circumstances and conditions therein has been done by assessee. We also agree that even a minor difference in royalty agreement may have a significant effect on the royalty rates. 67. According to us the royalty payments needs to be tested on the basis of factum and quantum both aspects. It also needs to be looked at the functions to be performed by the parties for royalty payments. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 to 3.4 relates to disallowance of year end accruals.. After hearing both the sides we find that the above grounds are identical to Ground of appeal No. 3 to 3.4 in ITA No.5535/Del/2016. We have already decided the issue and the grounds raised by the assessee have been allowed. Following the similar reasonings, the above grounds by the assessee are allowed. 63. Ground of appeal No.4 to 4.3 relates to disallowance of support service expenditure. After hearing both the sides we find that the above grounds are identical to Ground of appeal No. 5 to 5.3 in ITA No.5535/Del/2016. We have already decided the issue and the matter has been restored to the file of the Assessing Officer/TPO with certain directions. Following similar reasonings, the above grounds are restored to the file of the Assessing Officer and accordingly allowed for statistical purposes. 64. Ground of appeal No.5 to 5.3 relates to disallowance of annual revenue share based licence fee. After hearing both the sides we find that the above grounds are identical to Ground of appeal No. 6 to 6.3 in ITA No.5535/Del/2016. We have already decided the issue and the grounds rais ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
