TMI Blog2021 (11) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... AT DELHI] Since, the factual and legal position remains unaltered except the quantum involved, we hereby referred the matter to the TPO to examine the issue afresh after affording due opportunity to the assessee. Circuit Accruals - The assessee is estimating the expenses to be incurred on account of circuit accruals. The said accounting is through an automated system, which is used by the assessee as an operational tool and such method is followed by all the connected companies of the group worldwide. The assessee claimed the said expenditure as business expenditure. Further, the assessee also following recognized method wherein the actual expenditure incurred against the accrual/provisions for the year is accounted for in the subsequent year. This approach adopted by the assessee in recognizing the provision of circuit accruals was not accepted by the Assessing Officer/ DRP on the ground that similar disallowance was made in the earlier years. We find that the Tribunal has consistently from Assessment Years 2009-10 to 2014-15 allowed the claim of the assessee in entirely. Disallowance of year-end Accruals - The assessee was following systematic method of accounting f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices which were availed by any telecom service provider for the transmission of data and was not under any exclusive arrangement - HELD THAT:-.As relying on Tribunal for Assessment Year 2014-15 [ 2019 (8) TMI 552 - ITAT DELHI] we hold that there was no requirement to deduct tax at source u/s 194I of the Act. Taxability on Education Cess - allowability of cess u/s 37 - HELD THAT:- As keeping in view the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66 ITJ(19), the orders of Co-ordinate Benches of ITAT and judicial pronouncements of the Hon ble High Court of Bombay and Hon ble High Court of Rajasthan, we hereby hold that the assessee is eligible to claim the deduction of the Education Cess as per the provisions of Section 37 of the Income Tax Act. - ITA No. 489/Del/2021 And SA No. 75/Del/2021 - - - Dated:- 24-8-2021 - Sh. Amit Shukla, Judicial Member And Dr. B. R. R. Kumar, Accountant Member For the Assessee : Sh. Ravi Sharma, Adv. And Sh. Rishabh Malhotra, AR For the Revenue : Sh. Surenderpal, CIT DR And Ms. Shashi Kajle, Sr. DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdship in nature, ignoring the documentation and evidences submitted by the Appellant which contradicts his own contention that the services have actually not been received; 1.6. 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. 2. TP adjustment with respect to payment of royalty On the facts and circumstances of the case, in law, the Ld. AO/ Ld. TPO (in pursuant to the directions of the DRP), erred in enhancing the income of the Appellant by INR 17,64,30,505 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: 2.1. 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 support services) and proceeding to determine the arm s length price of international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciating that the Appellant produced evidences to the extent of more than 94.89% for utilization/reversal made in subsequent years and no adverse finding has been given by Ld. AO/ DRP on the same. 3.5. On the facts, in circumstances of the case and in law, the Ld. AO/ DRP erred in ignoring the claim of reversals of circuit accruals of INR 4,70,15,658 made in the subsequent years, submitted before the Ld. AO/ DRP. 3.6. On the facts, in circumstances of the case and in law, the Ld. AO/ DRP erred in not allowing deduction of circuit accruals of INR 10,95,20,722 disallowed in the preceding assessment year (i.e. AY 2015-16) without appreciating that non-deduction of such amount would result in double disallowance of the same amount in AY 2015-16 as well as in AY 2016-17, which is untenable in law. 3.7. 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 utilized. 3.8. On the facts, in circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the Ld. AO/ DRP erred in disallowing the legitimate business expenditure being in the nature of support service expenses of INR 8,75,98,575 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/ 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 substantiate 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 Ld. AO/ DRP erred in ignoring that the aforesaid disallowance on account of support service expenditure has been deleted by the Hon ble ITAT for AYs 2008-09, 2009-10, 2010-11 and 2011-12. 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/ DRP erred in disallowing an amount of INR 40,17,70,517 under the head license fees debited to Profit Loss Account by holding that annual license fee is not allowable as a revenue expenditure and it should be amortized under section 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an allowable expense and ought to have been allowed by the Ld. AO while computing the total income of the Appellant. 3. The assessee is engaged in the business of providing Tele communication services under International Long Distance (ILD), National Long Distance (NLD) and Internet Service Provider (ISP) Licenses. The assessee had entered into various international transactions with its Associated Enterprises (AEs). The Assessing Officer made reference u/s 92CA(1) of the Act to the Transfer Pricing Officer (TPO) to determine the Arm s Length Price ( ALP ) of the international transactions undertaken by the assessee. The TPO first determined the Arm s Length Price of the intra group services availed by the assessee. The TPO was of the view that the assessee had not received any benefit from such services and hence, the Arm's Length Price of the alleged services were held to be NIL, on application of Comparable Uncontrolled Price ( CUP ) method. The Assessing Officer was directed to make an upward adjustment of ₹ 35,31,86,900/-. Intra Group Services: 4. The assessee is providing seamless services to its customers was availing services from its AE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity to the assessee with benchmarking analysis adopted and the comparables applied so. For the sake of ready reference, the order of the Co-ordinate Bench of ITAT in ITA No. 6385/Del/2019 vide order dated 22.10.2019 in the case of the assessee for the earlier year is reproduced as under: 13.................in this appeal against the transfer pricing adjustment of payment of royalty. The assessee had entered into providing long distance telecommunication services pursuant to the International Long Distance ( ILD ), National Long Distance ( NLD ) and Internet Service Provider ( ISP ) licenses granted by the Department of Telecommunication ( DOT ). The assessee had entered into service mark license agreement with AT T Intellectual Property II L.P., pursuant to which it was granted the right to use licensed marks i.e. AT T brand in marketing material. The consideration for usage between both the parties was agreed @ 4 % of net sales. During the year under consideration, the assessee had paid ₹ 29.13 crores as royalty to its AE. The assessee was granted non-exclusive, nontransferable and non-licensable royalty bearing license and right to use the licensed marks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the agreement and the same adheres to arms length price or not. Following the same parity and reasoning, we hold that the benefit tax could not be applied in the hands of the assessee. However, we remit the issue back to the file of Assessing Officer/TPO to carry out the comparability analysis with direction to confront the assessee with benchmarking analysis adopted and the comparables applied and also to look into the comparables selected by the assessee and decide the issue in accordance with law, after allowing a reasonable opportunity of hearing to the assessee. 9. Since, the factual and legal position remains unaltered except the quantum involved, we hereby referred the matter to the TPO to examine the issue afresh after affording due opportunity to the assessee. Circuit Accruals: 10. The assessee was following consistent method of accounting wherein on a scientific basis. The assessee is estimating the expenses to be incurred on account of circuit accruals. The said accounting is through an automated system, which is used by the assessee as an operational tool and such method is followed by all the connected companies of the group worldwide. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch an amount of ₹ 5,85,71,971/- was allowed to be amortized by the TPO and the rest of ₹ 58,57,19,710/- has been disallowed and added back to the total income of the assessee. The assessee for its operations in India had acquired the telecom licences from Financial Year 2006-07 as per the agreement with Department of Telecom. One time entry fee of ₹ 5 crore was paid by the assessee in Financial Year 2006-07 which was capitalized and is being amortized under the provision of section 35BB of the Act. 14. The assessee was granted telecom license for initial term of 20 years upon the payment of one time entry fee. However, the license holder as per the Rules of DoT is also required to pay recurring fee on periodic basis towards use of the telecom services, which during the year under consideration were ₹ 64.44 crores. The assessee claimed the said expenditure to be its revenue expenditure. However, the Assessing Officer applied the provisions of section 35BB of the Act and amortized the expenditure over the remaining life of the licence resulting in disallowance of ₹ 58.57 crores. 15. We find that the issue stand squarely covered by the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4I of the Act. Road Tax and Value added Tax: (Not in grounds before the DRP) Education Cess: 19. The ld. AR relying on the judgment of Hon ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. Vs JCIT in ITA No. 52/2018 dated 31.07.2018 wherein the same issue has been decided in favour of the assessee and particularly held that education cess is an allowable expenditure. 20. Further, he argued that in the case of ITC Vs ACIT in ITA No. 685/Kol/2014 dated 27.11.2018 wherein it was held that the education cess is an allowable expenditure. 21. The ld. AR has also relied in the case of Peerless General Finance Investment Co. Ltd. Vs DCIT in ITA No.937 938/Kol/2018 dated 24.03.2019 wherein it was held that education cess is not tax and is an allowable expenditure. 22. The ld. DR argued that it is not the appropriate forum to raise the issue at this juncture. Since, there is no dispute between the assessee and the Assessing Authorities, a non-dispute cannot be adjudicated. He argued that the education cess is a part of the Income Tax and is a charge on the assessee. Hence, it cannot be treated as expense eligible for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation 1, the amount of income-tax shall include- (i)any tax on distributed profits under section 115O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. 28. Thus, wherever the legislature wanted to include this term specifically in the statue it has done so under the Act. The term 'tax' has been defined in section 2(43) of the Act to include only Income-tax, Super Tax and Fringe Benefit Tax (FBT). Provision of the section 2(43) is as given below: tax in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of Fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied. 32. We also find that the proceeds from collection of Education Cess are not credited to Consolidated Fund but to a non-lapsable Fund for elementary education- Prarambhik Shiksha Kosh . Since the proceeds from collection of Education Cess are kept separate for a specified purpose, applying the principles in the aforesaid decision of Apex Court in the case of M/s Dewan Chand Builders (supra), it can be said that the same is not in the nature of tax. Hence, it is allowable as deduction. 33. Further, Provisions of Section 37 are perused which are as under: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT in ITA No. 685/Kol/2014 DCIT Vs The Peerless General Finance Investment Co. Ltd. in ITA No. 1469/Kol/2019. ACIT Vs ITC Infotech in ITA No. 220/Kol/2017 Reckitt Benckiser India Pvt. Ltd. Vs DCIT (2020) 117 taxmann.com 519 (Kol.) Crystal Crop. Protection Pvt. Ltd. Vs JCIT in ITA No. 1539/Del/2016 Midland Credit Management India Vs ACIT in ITA No. 3892/Del/2017 Voltas Ltd. Vs ACIT in ITA No. 6612/Mum/2018 Sesa Goa Ltd. Vs JCIT (2020) 117 taxmann.com 96 (Bom.) Chambal Fertilisers and Chemicals Vs JCIT in ITA No. 52 of 2018 (Raj. HC) 36. Hence, keeping in view the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66 ITJ(19), the orders of Co-ordinate Benches of ITAT and judicial pronouncements of the Hon ble High Court of Bombay and Hon ble High Court of Rajasthan, we hereby hold that the assessee is eligible to claim the deduction of the Education Cess as per the provisions of Section 37 of the Income Tax Act. 37. Owing to the disposal of the appeal the assessee, the Stay Application No. 75/Del/2021 is dismissed as infructuous. 38. In the result, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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