TMI Blog2022 (8) TMI 1343X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made to the block of assets Computers - AO following the earlier years orders, allowed depreciation only @ 15% treating the additions as part of telecom equipment as they relate to functioning of mobile phones - HELD THAT:- Tribunal in assessee s own case for AY 2008-09 which is confirmed by the jurisdictional High Court [ 2014 (9) TMI 45 - ITAT BANGALORE ] we hold that depreciation is to be allowed @ 60% on the CG/TX cards and switches, etc. This ground is allowed in favour of assessee. Disallowance u/s 14A r.w.r. 8D - Necessity of receording satisfaction - assessee has not maintained separate accounts and the incurring of interest expenditure, especially other administrative and general expenses cannot be ruled out - HELD THAT:- The purpose of application of section 14 r.w.r 8D(2)(iii) the AO has to record reasons as to why he is not satisfied with the correctness of the claim of expenditure by the assessee. We notice that the AO though, under the head reasons for applying Rule 8D has made a detailed analysis of the provisions of section 14A has not brought anything on record to factually state that the computation of disallowance made by the assessee - AO has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the extent of allowability. This issue is raised as additional ground before the Tribunal and the issue is not factually verified by the lower authorities. We therefore remit this issue back to the AO. The AO is directed to verify the amount of foreign tax credit paid that is attributable to the income accruing / arising in India and allow the same accordingly in the light of the decision of the Hon ble Bombay High Court in the case of Reliance Infrastructure Ltd (supra) after giving reasonable opportunity of being heard. This ground is allowed in favour of the assessee for statistical purposes Disallowance u/s 14A - Suo moto addition made by assessee - HELD THAT:- AO has not recorded any specific reason for the suo motu disallowance made by the assessee not being sufficient and did not bring anything to the contrary on record. Hence placing reliance on the decision of Maxopp Investment Ltd [ 2018 (3) TMI 805 - SUPREME COURT ] and decision of Essilor India (P.) Ltd [ 2022 (2) TMI 286 - KARNATAKA HIGH COURT ] we hold that the disallowance made under section 14A r.w.r 8D(2)(iii) stands deleted. - IT(TP)A Nos. 139 & 2560/Bang/2019 - - - Dated:- 10-8-2022 - SHRI GEORGE G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded services ( MVAS ) to telecommunication operators in India and abroad. The services include ring back tones ( RBT ), contests, jokes, cricket alerts etc., which enable subscribers to personalize their mobile phones and thereby enhance user experience. The Assessee enters into contracts with telecom operators in India and abroad, for providing services to customers of telecom operators. Once the contract is signed, the Assessee establishes subsidiaries (Associated enterprises AEs) in the respective countries for furtherance of its business. While the contract is entered into by the Assessee, the subsidiaries perform routine functions such as installation of equipment, routine and low level technical support and collections from the customers for the Assessee. The subsidiaries operate on a cost plus model for the services rendered. The subsidiaries retain a return on cost for the services provided and transfer the rest of the proceeds to the Assessee. The amount received from the subsidiaries is shown under the head Telecom Value Added Services rendered . Since the subsidiaries of the Assessee were the least complex entities to the transaction, the Assessee benchmarked the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ground 4 which is raised pertaining this contention is adjudicated by remanding the issue back to the TPO for de novo consideration, then rest of the grounds would become academic. We therefore first proceed to adjudicate Ground No.4 which reads as under:- 4.The learned AO/TPO/DRP erred in not understanding the business model of the Appellant and determining an adjustment to the transfer price. 9. During the AY 2014-15, the Assessee inter alia entered into the following international transactions with its subsidiaries (AEs) for rendering the MVAS to its customers:- Receipts Name of the AE Value Income from telecom value added services OnMobile Singapore Pte. Ltd. Rs. 9,69,42,126/- OnMobile Global for Telecommunication Services Rs. 18,99,78,334/- OnMobile De Venezuela C A Rs. 4,16,33,902/- Vox Mobili S.A ( Voxmobili ) Rs. 5,50,61,766/- OnMobile Brasil Sistemas de Valor Agregado Para Comunicacoes Moveis Ltda Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Non-comparable companies-rejected. 9.81% (of 12 companies) 2. OnMobile Global for Telecomm unication Services Technical support services. 7% (page 2049 PB) AMADEUS Companies with direct or total shareholding in subsidiaries 50.01% and for which only unconsolidated accounts are available- rejected; Data available for the period 2011, 2012 and 2013- selected; Companies reporting minimum turnover of EUR 5 million for the latest available year and the two preceding yearsselected; Companies reporting consistent operating lossesrejected; Companies in the nature of software publishing, computer programming, consultancy and related activities, data processing and related activities, activities of call centre, etc.,selected; Companies having average intangible asset 10% of total assets- rejected; Non comparable companies- rejected. 7.60% (of 26 companies) 3. OnMobile Brasil Sistemas de Valor Agregado Para Comunicac oes Moveis Ltda Technical support services. 17% (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices provider to all its AEs. Under this understanding that the MVA services rendered by the assessee to third parties is in fact SWD services rendered by the AEs, the TPO proceeded to bench mark the transactions. The TPO also made an incorrect understanding that the assessee has rendered services to the AEs whereas the fact is that the AEs have rendered services to the assessee. The TPO therefore rejected the independent bench marking done by the assessee with each of its AEs on the ground that the same leads to inconsistency in arm s length price determination as different arm s length price has been determined for the same transaction. On classifying the entire international transactions entered into by the assessee as SWD services rendered to AEs, and by treating the transaction with Voxmobili as the base for further analysis, the TPO proceeded to determine the arm s length price. The TPO while recomputing the arm s length price proceeded to take the entire revenue and cost of the assessee without restricting it to the international transaction. The TPO applied new filters to arrive at fresh comparables and made a TP adjustment of Rs.104,95,80,620. The assessee raised objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counted under the Telecom Value Added services rendered and the same is considered by the TPO as collection done towards SWD services. Further it is also noticed that out of the 12 transactions selected by the TPO for analysis, 11 transactions pertain to services rendered by the AEs to the Assessee and only one transaction pertains to services rendered by the Assessee to its AE. The TPO / DRP failed to appreciate the above business model of the Assessee and proceeded to treat the Assessee as a software development services provider to all of its AEs. The TPO has considered the MVAS as SWD services on the premise that the same is rendered using a software platform which has been developed by the Assessee which in our view is not correct. 18. As regards the transaction with Voxmobili, it is evident from the TP study that the said transaction is an independent transaction which is completely different from the transactions with the other AEs. The Assessee provides routine software development services for Voxmobili in which is charged with a mark up of 14% on costs(page No. 2021 of the paper book). Therefore in our considered view the said transaction cannot be considered as a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and proceeded to make the entire TP adjustment on an incorrect premise. We therefore remit the issue back to the TPO for a denovo consideration afresh basis the correct understanding of the business model of the assessee and test the arm s length price accordingly after giving reasonable opportunity of being heard to the assessee. The assessee is directed to cooperate in the proceedings before the TPO and submit all the relevant details. This ground is allowed for statistical purposes. 23. Since the issue of TP adjustment is remitted back to the TPO for de novo consideration, the rest of the grounds with respect to TP adjustment have become academic not warranting any specific adjudication. Disallowance of depreciation - Grounds 20 to 20.4 24. During the year under consideration, the assessee has claimed depreciation @ 60% towards the addition made to the block of assets Computers . These additions included items like NMS CG/TX cards, switches, etc. The AO following the earlier years orders, allowed depreciation only @ 15% treating the additions as part of telecom equipment as they relate to functioning of mobile phones. The DRP confirmed the disallowance. 25. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The MRBs increase the working capacity of the computers to the extent the computers receive calls and convert them into digital form. The MRBs work in conjunction with and as a part of the computer servers and cannot, in any way, be called as 'telecom equipment'. We also find that the facts of this issue in the case on hand, is similar to the facts of the case Datacraft India Ltd. (supra) wherein the Special Bench of the Mumbai Tribunal of this order held as under : '31. Now we have to consider whether a 'router' can be considered as computer hardware or a computer component . Computer hardware refers to the physical parts of a computer and related devices. Internal hardware devices include motherboards, hard drives, and RAM. External hardware devices include monitors, keyboards, mouse, printers, and scanners. The internal hardware parts of a computer are often referred to as 'components', while external hardware devices are usually called 'peripherals'. Together, they all fall under the category of computer hardware. 'Software', on the other hand, consist of the programs and applications that run on computers. Because software ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputer in its functions, then it would be termed as a computer. 32. Now we will advert to the decisions relied on by the rival parties. We have set out above the cases decided by various Benches of the Tribunal in favour of the assessee. The lead order is in the case of Samiran Majumdar (supra) which has been followed, directly or indirectly, in most of the subsequent cases. We will take up this case for discussion, in which the question was whether printer and scanner could be allowed a higher rate of depreciation as applicable to computers. The Bench noticed that the printer and scanner cannot be used without computer. It was on this appreciation of the factual position that the printer and scanners were held to be part of computer qualifying for depreciation at the rate applicable to computer. In the opposition the orders taking view in favour of the Revenue are led by the case of router mania Technologies (supra). In this case it was observed that the router is a device which links or connects the computers for the exchange of relevant data. In reaching the conclusion that router is not eligible for depreciation at the rate applicable to computer, the Bench noticed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) wherein at para 16 of the order, it was held that : 16. it is clear that the above equipment primarily include the routers, switches, modems, etc. which are in the nature of input and output support devices which performs the functions including communication and control and, thus, they are computer hardware when they are used along with computer and when their functions are integrated with 'computer.' Such devices used as part of the computer in its functions and, thus, it can be termed as 'computer' only, therefore, eligible for depreciation @ 60%. Therefore, also we find no infirmity in the claim of the assessee of depreciation @ 60% of ITG networking equipments. 10.6-4 A similar view was adopted by a co-ordinate bench of this Tribunal in the case of NCR Corpn. (P.) Ltd. (supra) wherein at para 10 thereof it was held as under : 10. Having heard both the parties and having gone through the material on record, we find that this issue is more or less covered by the decision of the Special Bench in the case of Datacraft India Ltd. (cited supra) wherein it has been held that as long as the functions of the computer are performed along with other funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, etc. This ground is allowed in favour of assessee. Disallowance under Section 14A - Grounds 21 to 21.4 28. During the year under consideration, the assessee had earned a dividend income of Rs.2,04,09,795 which was claimed as exempt after disallowing a sum of Rs.1,96,199 as expenditure incurred in relation to exempt income. The AO invoked the provisions of section 14A r.w. Rule 8D(2) (i) (ii) and disallowed a sum of Rs.17,18,651 towards expenditure incurred in earning exempt income. The DRP confirmed the disallowance on the ground that the assessee has not maintained separate accounts and the incurring of interest expenditure, especially other administrative and general expenses cannot be ruled out. 29. The ld. AR submitted that the AO ought to have recorded dissatisfaction as to the claim of the assessee having regard to its books of account. He submitted that the lower authorities proceeded on the misconceived basis that the assessee has not made any disallowance suo motu, which is factually incorrect. He drew our attention to the computation of suo motu disallowance made by the assessee at page 1373 of PB. Vol.II and submitted that in the absence of any findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] Rule 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to half per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance towards interest expenditure is warranted. We notice that the as per the Financial Statements of the assessee as on 31.03.2014 (page 1153 of paper book Volume II), the Share Capital Reserves and Surplus is at Rs. 778.975 crores and the balance under Investment is at Rs.35.611 crores. This substantiate the fact that the assessee is have enough own funds for making investments it is clear that the assessee has sufficient own funds which exceeds the investments. 36. The Hon'ble jurisdictional High Court in the case of CIT vs Microlabs Ltd., [2016] 383 ITR 490 (Kar) has held that - 40. We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paperbook and the same is enclosed as ANNEXUREIII to this order. It is clear from the said statement that the availability of profit, share capital and reserves surplus was much more than investments made by the assessee which could yield tax free income. 41. The Hon'ble Bombay High Court in Reliance Utilities Power Ltd. 313 ITR 340 (Bom) has held that where the interest free funds far exceed the value of inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2 42. The ld. AR submitted that in the return of income, the Assessee had claimed TDS credit of Rs. 13,08,86,668/-. During the course of the assessment proceedings, the Assessee claimed additional credit of Rs. 24,37,979/- pursuant to additional certificates being received post filing of the return of income. The Assessee also submitted that it had inadvertently considered duplicate entries of TDS claim of Rs. 11,23,572/-. Accordingly, the Assessee requested the Assessing Officer to grant revised TDS credit of Rs. 13,22,01,075/-. However, the Assessing Officer did not consider the request made by the Assessee, without any reason, resulting in short grant of credit of Rs. 13,14,405/-. In this regard it is prayed that the Assessing Officer be directed to grant entire TDS credit of Rs. 13,22,01,075/-. 43. After hearing both the parties, we direct the AO to consider the revised tax credit afresh and decide the same in accordance with law. 44. Ground Nos.25, 26 27 are consequential in nature. Deduction in respect of unclaimed Foreign Tax Credit (FTC) Ground No.28. 45. The assessee has raised additional reads as follows:- 25.1 The learned A.O. and Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under Section 115WA] Amounts not deductible 40. Notwithstanding anything to the contrary in Section 30 to the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession . (a) In the case of any assessee (i), (ia), (ib), (ic)** ** ** (ii) Any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits and gains. [Explanation 1. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under Section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2. - For the remova ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is not aware of any commercial principle/practice which lays down that the tax paid by one on one's income is allowed as a deduction in determining the income for the purposes of taxation. (k) It is axiomatic that income tax is a charge on the profits/ income. The payment of income tax is not a payment made/incurred to earn profits and gains of business. Therefore, it cannot be allowed an as expenditure to determine the profits of the business. Taxes such as Excise Duty, Customs Duty, Octroi etc., are incurred for the purpose of doing business and earning profits and/or gains from business or profession. Therefore, such expenditure is allowable as a deduction to determine the profits of the business. It is only after deducting all expenses incurred for the purpose of business from the total receipts that profits and/or gains of business/ profession are determined. It is this determined profits or gains of business/profession which are subject to tax as income tax under the Act. The main part of Section 40(a)(ii) of the Act does not allow deduction in computing the income i.e. profits and gains of business chargeable to tax to the extent, the tax is levied/ paid on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would require it to mean tax paid anywhere in the world and not only tax payable/ paid under the Act. (n) However, to the extent tax is paid abroad, the Explanation to Section 40(a)(ii) of the Act provides/clarifies that whenever an Assessee is otherwise entitled to the benefit of double income tax relief under Sections 90 or 91 of the Act, then the tax paid abroad would be governed by Section 40(a)(ii) of the Act. The occasion to insert the Explanation to Section 40(a)(ii) of the Act arose as Assessee was claiming to be entitled to obtain necessary credit to the extent of the tax paid abroad under Sections 90 or 91 of the Act and also claim the benefit of tax paid abroad as expenditure on account of not being covered by Section 40(a)(ii) of the Act. This is evident from the Explanatory notes to the Finance Act, 2006 as recorded in Circular No.14 of 2006 dated 28th December, 2006 issued by the CBDT. The above circular inter alia, records the fact that some of the assessee who are eligible for credit against the tax payable in India on the global income to the extent the tax has been paid outside India under Sections 90 or 91 of the Act, were also claiming deduction of the tax pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of the nature of such declaratory statutes stands considered by the decision of the Supreme Court in CIT v. Vatika Township (P) Ltd. [2014] 367 ITR 466/227 Taxman 121/49 taxmann.com 249 and CIT v. Gold Coin Health Foods (P.) Ltd. [2008] 304 ITR 308/172 Taxman 386 (SC). (r) In the above facts and circumstances, question (iii)(a) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee. Question (iii)(b) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee. 49. The Hon ble Bombay High Court in the case of Reliance Infrastructure Ltd (supra) has laid down the ratio that to the extent tax paid in foreign country on income which has arisen/accrued in India, has to be considered in the nature of expenditure incurred or arisen to earn income and is to be allowed as a deduction. In the given case it is submitted that out of the foreign taxes paid no credit was claimed to an extent of Rs.9,32,85,133/-. Of the said foreign tax paid how much is attributable to the income accrues / arises in India needs to be verified in order to arrive at the extent of allowability. This issue is raised as additional gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investment and Therefore, by placing reliance on the judgment of the jurisdictional High Court in the case of Microlabs Ltd.(supra) and the judgment of the Hon'ble Apex Court in the case of Reliance Industries Ltd. (supra) we hold that disallowance u/s 14A r.w. Rule 8D(2)(ii) is not warranted in the facts of the instant given case. It is ordered accordingly. 54. With regard to disallowance under rule 8D(2)(ii) we notice that in that in computation the assessee has made a disallowance as extracted below:- 55. We also notice that the similar to assessment year 2014-15, the AO has not recorded any specific reason for the suo motu disallowance made by the assessee not being sufficient and did not bring anything to the contrary on record. Hence placing reliance on the decision of the Hon'ble Apex Court in the case of Maxopp Investment Ltd (supra) and decision of the Hon'ble jurisdictional High Court in the case of Essilor India (P.) Ltd (supra) we hold that the disallowance made under section 14A r.w.r 8D(2)(iii) stands deleted. Disallowance of additional foreign tax credit 56. This issue considered in paragraphs 40 and 41 of this order. For the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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