TMI Blog2023 (1) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... gally correct. In the case of CIT v. Phoenix Mecano (India) Pvt. Ltd.[ 2017 (6) TMI 1240 - BOMBAY HIGH COURT] had held that the determination of ALP ought to be restricted to the transaction with the AEs. The Special Leave Petition preferred by the Revenue [ 2018 (7) TMI 798 - SC ORDER] against Hon ble Mumbai High Court judgment was dismissed by the Hon ble Supreme Court (supra). The Bangalore Bench of the Tribunal in IKA India (P.) Ltd.[ 2018 (10) TMI 49 - ITAT BANGALORE] has also held that the transfer pricing adjustment should be only restricted to the AE related transaction of the assessee. The Tribunal in the said case, followed its earlier order in assessee s own case for assessment year 2012-2013. In the light of the aforesaid reasoning and the judicial pronouncements, cited supra, we direct the TPO to compute the TP adjustment restricting the same to the transaction with the AEs. Exclusion of certain companies from the comparable list - Exclusion of Smart Card IT Solutions Limited to AO / TPO to apply the test of functionality consistently. Sark Synertek Limited - We find that the assessee had considered comparables like BLG Electronics, Circuit Systems a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance. Disallowance u/s 40(a)(ia) with regard to rebate given to the customers - HELD THAT:- Tribunal in assessee s own case for assessment year 2010-2011 [ 2023 (3) TMI 809 - ITAT BANGALORE ] had considered an identical issue and restored the same to the files of the A.O. The Tribunal directed the A.O. to consider various clauses of the distribution agreement entered by the assessee with its distributors and to determine whether the payments made is a rebate / discount on a principal to principal basis or whether it is a principal to agent basis. Thus in view of the above order of the Tribunal in assessee s own case (supra), we restore the issue raised. Addition of deferred revenue expenses - HELD THAT:- We find an identical issue was considered by the Tribunal in assessee s own case for assessment year 2010-2011 [ 2023 (3) TMI 809 - ITAT BANGALORE ] on perusal of the sample warranty agreements and following the Co-ordinate Bench order in the case of Schneider Electric IT Business India Pvt. Ltd. v. JCIT, LTU [ 2019 (4) TMI 1770 - ITAT BANGALOR ] deleted the addition on account of deferred revenue expenses - Thus addition deleted. TDS u/s 194H - Disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unpaid Central Sales Tax (Rajasthan) as per the provisions of section 43B and same was reflected under clause 21(1)(B)(b) to Form No.3CD - HELD THAT:- We find on identical issue the Tribunal in the case of Smt.Husna Parveen [ 2022 (8) TMI 1219 - ITAT VARANASI ] by following the judgment of Chowringhee Sales Bureau (P.) Ltd. [ 1972 (10) TMI 4 - SUPREME COURT ] had decided the issue against the assessee. Short credit of TDS - AR submitted that despite the directions of the DRP, the A.O. failed to verify the latest Form No.26AS and allow TDS credit - HELD THAT:- The issue raised is restored to the files of the A.O. The A.O. is directed to examine the issue afresh as per the directions of the DRP and grant due tax credit as per law. It is ordered accordingly. - IT(TP)A No.2835/Bang/2017 - - - Dated:- 20-1-2023 - Shri George George K, JM And Ms.Padmavathy S, AM For the Appellant : Sri.T.Suryanarayana, Advocate For the Respondent : Sri.Praveen Karanth, CIT-DR ORDER PER GEORGE GEORGE K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 30.11.2017 passed u/s 143(3) r.w.s. 144C of the I.T.Act. The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Transfer Pricing Adjustments 435,47,59,369 (ii) Disallowance u/s 40(a)(ia) for short deduction of tax 4,18,320 (iii) Disallowance of rebate and volume discount incurred and stock and sell (SNS) model of distribution 52,42,23,354 (iv) Deferred revenue / unearned revenue classified under liabilities 100,30,45,893 (v) Disallowance of claim u/s 40(a)(a) / 40(a)(ia) (51830340 +163279058) 21,51,09,398 (vi) Capital expenditure 2,67,16,286 (vii) Less : Depreciation on Capital Expenditure for A.Y. 2009-10 86,88,273 (viii) Less : Depreciation on Capital Expenditure for A.Y. 2012-13 38,26,423 (ix) Interest on delayed payments of TDS 26,349 (x) Central Sales-tax Rajasthan 2,006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pletely ignoring the Appellant's submission that the transfer pricing adjustment, if any, should be made only to the international transactions with associated enterprises i.e. INR 160,511,692 on net basis. The Ld. DRP further erred in confirming the same Without prejudices to the generality of the foregoing, the Ld. AO j Ld. TPO and the Ld. DRP grossly erred in not granting an appropriate adjustment on account of under-utilisation of the Appellant's capacity in respect its manufacturing segment for the relevant year. The Ld. AO / Ld. TPO erred in rejecting the Appellant's basis of computing the capacity adjustment for its manufacturing segment. The Ld. DRP erred in confirming the same. The Ld. AO/ Ld. TPO erred to appreciate that it is a settled law that adjustments on account of idle capacity have to be made while doing the comparability analysis and that reasonably accurate adjustments are required to be made on factors that could materially affect the amount of net profit margin. The Ld. DRP erred in confirming the same. The Ld. AO and Ld. TPO should have appropriately considered collating information in the absence of data available in publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtently erred in determining the arm's length price of INR 141.37 Cr and made an excess transfer pricing adjustment of INR 8 Cr on account of arithmetical inaccuracy. 4. Erroneous data used by the TPO The Ld. AO and Ld. TPO has erred in law and the Ld. DRP further erred in confirming use of data, which was not contemporaneous and which was not available in the public domain at the time of conducting the transfer pricing study by the Appellant. The Ld. DRP, the Ld. AO and Ld. TPO erred in law and on facts in disregarding the application of multiple-year data while computing the margins of comparable companies. 5.Non-allowance of appropriate adjustment to the comparable companies by the Ld. DRP and AO/ TPO The Ld. AO and Ld. TPO erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in (i) accounting practices, (ii) marketing expenditure, (iii) research and development expenditure, (iv) working capital, (iv) risk profile and (v) capacity adjustment to account between the Appellant and the comparable companies. 6. Variation of 3% from the arithmetic mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would not be returned to the Appellant. The Hon'ble DRP and learned AO has erred in stating that there is a service component in the course of buying and selling of goods for which commission/ rebate is provided. The Hon'ble DRP and learned AO has erred in stating that the case laws relied by the Appellant are distinguishable from the facts of the present case. 3 Disallowance of Deferred revenue - Rs. 100,30,45,893 The Hon'ble DRP and the learned AO has erred in disallowing deferred revenue by placing reliance on the assessment order for AY 2009-10 and AY 2010-11. The Hon'ble DRP and learned AO ought to have appreciated that out of the revenue from contract for services extending beyond the current financial year, only the proportionate revenue pertaining to the current year can be assessed to tax. The portion of revenue in relation to the services to be provided in future, the income would accrue only during such period and not in current financial year. The Hon'ble DRP .and learned AO has erred in not accepting the matching concept of accounting enunciated by the Generally Accepted Accounting Principles. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts in the computation of income of AY 2012-13 and the same was consequently claimed as a deduction in the computation of income of AY 2013-14 on reversal basis. The Hon'ble DRP and learned AO has erred in disallowing the expenses without appreciating the fact that the same had already suffered tax in AY 2012-13 and disallowing the same again in AY 2013-14 would amount to double taxation of such provision of expenses. 5. Disallowance of fixtures and stores interiors expenses - Rs. 26,716,286 The Hon'ble DRP and learned AO has erred in disallowing an amount of Rs. 26,716,286 in the nature of fixture and stores interiors expenses stating that the expenses are capital in nature. The Hon'ble DRP and learned AO ought to have appreciated the fact that the expenditure is incurred by the Appellant for maintaining uniformity in the franchisee stores and the Appellant neither owns nor derives any enduring benefit on such expenditure incurred. Thus, the said expenditure is revenue-in-nature and deductible under section 37(1) of the Act. The Hon'ble DRP and learned AO has erred in stating that the investment is one time and the life tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,585. 9. Levy of interest under section 234B of the Act - Rs.504,357,205 The learned AO has erred in levying interest under section 234B of the Act amounting to Rs. 504,357,205. The Appellant craves leave to add, alter, rescind and modify the grounds provided herein above or produce further documents, facts and evidence before or during the course of hearing of this appeal. For the above and any other grounds, which may be raised at the time of hearing, it is prayed that necessary relief may be provided. We shall adjudicate the above grounds as under: I Transfer Pricing (Manufacturing Segment) [Ground I(2)] 6. During the relevant assessment year, the assessee had performed some manufacturing activities, rendered technical and support services to the AEs, etc. The assessee in its TP study, treated the ALP of the aforesaid international transaction undertaken by the assessee with its AEs at arm s length. On a reference by the A.O. to the TPO, the TPO determined TP adjustment aggregating to Rs.453,42,62,785. One of the adjustments was with regard to the manufacturing segment amounting to Rs.307,69,14,132. The method adopted by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.36 Arithmetic Mean 4.79 Computation of arm s length price by the TPO and the adjustment made: Taxpayers operating revenue Rs.5434,19,06,540 Taxpayers operating cost Rs.5481,58,43,349 Taxpayers operating profit Rs.(-) 47,39,36,809 OP/OR -0.87% Arm s length OP/OR 4.79% Arm s length OP Rs.260,29,77,323 Arm s length cost Rs.5173,89,29,217 Adjustment u/s 92CA Rs.307,69,14,132 7. Aggrieved by the adjustment made, the assessee filed objection before the DRP. The DRP rejected the assessee s contention seeking restriction of adjustment to the value of international transaction. The assessee s contention seeking grant of adjustment towards under-utilized capacity was also rejected by the DRP. The DRP directed the TPO to verify if certain companies feature in the search matrix and include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment, if any, can be made to the operating cost of the comparable companies. The TPO has stated that under-utilization of capacity is due to general trend in the industry, which is also affecting the comparable. The TPO has stated that the assessee was incorporated in the year 2003 and it is not the initial stage of operations. The adjustment is also rejected on the ground that the assessee has assumed 100% capacity utilization of the comparables. Further the TPO has stated that while calculating the adjustment of under-utilization of capacity, the assessee has considered all costs and there is no analysis of fixed cost, variable cost and semi variable cost. The DRP confirmed the findings of the TPO and also observed that the assessee, without prejudice, reduced its claim of adjustment from Rs.242.47 crore to Rs.138.84 crore. 9.3.1 From the submissions filed before the lower authorities, it is observed that the assessee has given details of under-utilization of capacity from assessment year 2011- 2012 onwards and all the years have under-utilization of capacity. The assessee was incorporated in the year 2003. From the details available in the record, it is not clear if the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee only for the reason that the data about comparable companies is not available. Requiring the assessee to produce such a data which is not available in public domain would tantamount to requiring the Appellant to perform an impossible task. The only way to get the data in the current case, would be where the TPO collates the same from the comparable companies by exercising his powers under section 133(6) of the Act. 9.3.4 We agree with the above observations that if the assessee has under-utilization capacity during the subject assessment year and it will be factually and legally eligible for an adjustment for the same. However, in the instant case, same is not demonstrated except stating the installed capacity and utilization level. For the aforesaid reasoning, we reject the plea of the assessee as regards the adjustment of under-utilization capacity. It is ordered accordingly. Restriction of adjustment to the value of international transaction: 10. It is submitted that the TPO while determining the adjustment, took into consideration the revenue and the cost of the assessee at entity level without restricting to the value of the international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d compute the ALP only in respect of the international transaction. No adjustment can be made in respect of transaction entered into with non-AEs. Therefore, the action of the TPO to make TP adjustment at entity level instead of restricting it to international transaction is not legally correct. The Hon ble Bombay High Court in the case of CIT v. Phoenix Mecano (India) Pvt. Ltd. (supra) had held that the determination of ALP ought to be restricted to the transaction with the AEs. The Special Leave Petition preferred by the Revenue against Hon ble Mumbai High Court judgment was dismissed by the Hon ble Supreme Court (supra). The Bangalore Bench of the Tribunal in IKA India (P.) Ltd. v. DCIT( (supra) has also held that the transfer pricing adjustment should be only restricted to the AE related transaction of the assessee. The Tribunal in the said case, followed its earlier order in assessee s own case for assessment year 2012-2013 in ITA No.2129/Bang/2017 (order dated 17.09.2018). In the light of the aforesaid reasoning and the judicial pronouncements, cited supra, we direct the TPO to compute the TP adjustment restricting the same to the transaction with the AEs. It is ordered accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services. It is stated that the segmental details as regards these diverse services are unavailable, and therefore, the company cannot be selected as a comparable. 12.1 The learned DR supported the order of the TPO and the DRP. 12.2 We have heard rival submissions and perused the material on record. The annual report of the above company is placed on record from pages 186 to 223 of the index of Annual Report. On perusal of the financials of the said company, we find Sark Synertek Limited is engaged in the manufacture of printed circuit boards, trading of switchgear and rendering of services. Prima facie, the functions cannot be compared with that of the assessee. However, we find that the assessee had considered comparables like BLG Electronics, Circuit Systems and Fine Line Circuits Limited, which are also primarily engaged in the business of manufacture of printed circuit boards and the assessee has not objected to these companies to be taken as comparables, as they have low profits. As mentioned earlier, the test of functionality should be applied consistently to all the company by the TPO and assessee. There cannot be cherry picking by both the assessee as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lems to the customers who purchase the products sold by Dell Global B.V. (DGBV) in India. It is submitted that the technical support services include services in relation to products sold by DGBV which are under warranty period. It is stated that in relation to warranty services, the cost of third party service provider and spares are borne by the assessee, and recovered from DGBV. It is submitted that the warranty obligation as regards the sales made by the AEs directly in India is wholly on the AEs and the assessee only provides co-ordination and support services as regards the same, for which it is compensated on cost plus 5%. It is stated that the co-ordination and support services includes call centre support, cost for third party services for assistance to customers of the AEs, etc. The cost of spares and parts to be replaced under the warranty are borne by the AEs. 14.1 The TPO made an adjustment on the basis that the assessee had not made any recovery towards warranty services and the out of pocket warranty charges paid to third parties. The DRP had issued certain directions, however, in the impugned final assessment order, the adjustment made under the segment was retai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only as a medium, the TPO is not correct in charging a markup on this amount. Hence, the objection relating to markup on the warranty cost is upheld. The TPO cannot charge a markup on warranty amount as such services are not rendered by the assessee to its AE. 8.7.1 In the light of the above directions of the DRP, which we are in consonance with the TPO, is directed to reexamine the issue raised in ground 10 afresh. It is ordered accordingly. 8.7.2 Hence, ground 10 is allowed for statistical purposes. 14.5 In the light of the above said order of the Tribunal, in assessee s own case, which is identical to the facts of the year under consideration, we restore ground 3 (TP segment) to the files of the AO / TPO. It is ordered accordingly. CORPORATE TAX ISSUE Disallowance u/s 40(a)(ia) of the I.T.Act for short deduction of tax [Ground II(1)] 15. The brief facts in relation to the above ground are as follows: For the assessment year under consideration, the assessee had deducted tax at source on certain payments made to GT Enterprises u/s 194J of the I.T.Act. There was a short deduction of tax to the extent of Rs.4,18,320. The A.O. disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal and agent and not principal to principal basis. Therefore, the A.O. concluded that the assessee was obliged to deduct tax at source u/s 194H of the I.T.Act and since no tax was deducted at source, the said amount was disallowed u/s 40(a)(ia) of the I.T.Act. The DRP rejected the objections of the assessee and upheld the view taken by the A.O. 16.1 The learned AR reiterated the submissions that a sum of Rs.52.42 crore represents rebate payment to distributors on which the provisions of TDS are not applicable. The learned AR took us through the agreement to drive home the point that the transaction of the assessee with its distributors is in relation to rebate / discount on principalto- principal basis and hence the provisions of section 194H of the I.T.Act is not applicable. It was submitted that on identical facts, the Tribunal in assessee s own case for assessment year 2010-2011 (supra) had allowed the issue in favour of the assessee. It was further submitted that the issue of deductibility of tax at source on commission and rebate was picked up for scrutiny during the assessment proceedings for assessment year 2015-2016 and upon considering the submissions filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the time prescribed in the agreement irrespective of whether the same is sold by him or not. Further, upon achieving certain predetermined targets as set out by the Assessee, the distributors are eligible for rebate / volume discount at a predetermined rate. Therefore the nature of relationship between the Assessee and the distributors is that of a principal-to-principal and therefore there is no tax is liable to be deducted at source. This is evident from a reading of the agreement at page 2063 of Volume 5. 55. The ld AR drew our attention to the various clauses of the agreement to substantiate that the transaction of the Assessee with its distributors in relation to rebate / discount is on principal-to-principal basis and hence the provisions of 194H are not applicable. Further the ld. AR relied on the following case laws in this regard - Harihar Cotton Pressing Factory v. CIT (Reported in [1960] 39 ITR 594 (Bombay) - Ahmedabad Stamp Vendors Association v. UOI (Reported in [2002] 124 Taxman 628 (Gujarat)) - CIT v. Ahmedabad Stamp Vendors Association (Reported in [2012] 25 taxmann.com 201 (SC - Bharti Airtel Ltd. v. DCIT (Reported in [2014] 52 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with distributors require examination to verify the claim of the assessee. We therefore remit this issue to the AO for verification of the agreements which the assessee has entered into with the distributors in relation to discount/rebate transactions and decide the allowability based on the ratio laid down by the Hon ble High Court after giving reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 16.4 In view of the above order of the Tribunal in assessee s own case for assessment year 2010-2011 (supra), we restore the issue raised in ground II(2) to the files of the A.O. The A.O. shall follow the directions of the Tribunal given for the assessment year 2010-2011. It is ordered accordingly. Addition of deferred revenue [Ground II(3)] 17. The brief facts in relation to the above ground are as follows: The assessee is engaged in the business of sale of computer hardware. It offers warranty services to its customers on a contractual basis. The assessee provided services for a defined period and for a agreed consideration. It is submitted that the entire sale price for the warranty is invoiced to customers along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces which could involve outflow of resources like goods(spares) and services are yet to occur and hence, in line with the generally accepted accounting principles, revenue is recognized on a straight-line basis over the period of contract. Any portion of consideration for which invoices have been raised but, some portion of the contract period pertains to subsequent year would be classified under other liabilities and the same would be recognized as revenue in the year in which obligation to provide the services arise. To illustrate, say the Company sells a laptop in December 2011 along with warranty for two years. In such a case, proportionate revenue towards warranty services for four months would be accounted in FY 2011-12 and the balance would be carried forward to the next two years and offered to tax based on time proportion. Thus, though the full consideration for providing the service is agreed and received during the FY 11-12, the obligation to service the customer arises over a period of time in FY 11-12 (4 months), 12-13 (12 months) and 13- 14 (8 months). Thus, the contracts which are extending beyond the current financial year, the consideration towards such contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paras 28-35 where the assessee s ground of appeal was allowed, accepting the above contentions and the addition deleted. 17.4 The learned DR supported the order of the AO / TPO. 17.5 We have heard rival submissions and perused the material on record. We find an identical issue was considered by the Tribunal in assessee s own case for assessment year 2010-2011. The Tribunal on perusal of the sample warranty agreements and following the Co-ordinate Bench order in the case of Schneider Electric IT Business India Pvt. Ltd. v. JCIT, LTU in ITA Nos.299/Bang/2014 and 218/Bang/2014 (order dated 30.04.2019), deleted the addition on account of deferred revenue expenses. The relevant finding of the Tribunal in this regard reads as follows:- 31. We heard the rival submissions and perused the materials on record. The main ground on which the DRP confirmed the order of AO is that the amount received towards warranty is not refundable even when the customer cancels the warranty agreement. The relevant extract from the DRP order reads as under Having heard the assessee we find that the assessee has stated that the amount so received on account of installation services and up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If Dell cancels this Service, Dell will send Customer written notice of cancellation at the address indicated on Customer's invoice. The notice will include the reason for cancellation and the effective date of cancellation, which will be not less than me 0-01 days from the date Dell sends notice of cancellation to Customer, unless state law requires other cancellation provisions that may not by varied by agreement. IF DELL CANCELS THIS SERVICE PURSUANT TO THIS PARAGRAPH, CUSTOMER SHALL NOT BE ENTITLED TO ANY REFUND OF FEES PAID OR DUE TO DELL. 33. The assessee recognizes that portion of consideration for which invoices have been raised pertaining to the year under consideration and the balance portion of the contract period that pertains to subsequent year is classified under other liabilities . The revenue thus deferred is recognized in the year in which obligation to provide the services arise. In Assessee s case, as the obligation to provide the warranty services which could involve outflow of resources like goods(spares) and services are yet to occur and hence it is submitted that in line with the generally accepted accounting principles, the revenue is reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting followed by the Assessee where income that accrues or arises to an Assessee has to be regarded as income. 92. The learned counsel for the Assessee in his rejoinder submitted that the decision of the Tribunal rendered in the case of Optum Health Technology (India) (P.) Ltd. (supra) is clearly distinguishable because in that case not only was the revenue received but also services were rendered and still the Assessee chose to defer revenue recognition and it was in those circumstances, the Tribunal held that deferring revenue was not proper and had to be regarded as income of the relevant year. 93. We have given a very careful consideration to the rival submissions. Similar issue had arisen for consideration in the case of Punjab Tractors Co-op. Multipurpose Society Ltd. (supra) before the Hon'ble Punjab Haryana High Court. In that case the facts were that the assessee was engaged in the purchase and sale of tractors, motor cycles, etc., and doing their repairing. It had received advances from the buyers of tractors to cover their service charges for a period of one year after the expiry of initial warranty period. It had shown same on the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account. If no income has resulted, it cannot be said that income accrued merely on the ground that the assessee has been following the mercantile system of accounting. The Hon'ble Court accordingly upheld the stand of the Assessee. Holding that the Assessee did not become owner of the money received unless the services are rendered and was not entitled to appropriate the same till service was rendered in lieu of which the same was received in advance. 94. The Hon'ble Madras High Court in the case of Coral Electronics (P.) Ltd. (supra) also dealt with similar case. The assessee is a private limited company carrying on business in television sets. In the previous year ending 31st March, 1983, and 31st March, 1988 corresponding to the assessment years 1983-84 and 1988-89, respectively, the assessee had collected service charges, which were bifurcated into two items, one as pertaining to year and another pertaining to the subsequent assessment year and, therefore, excluded from consideration in determining the total income of year. The Assessing Officer treated it as income and taxed the same. The Tribunal has held that it is not taxable income. On a ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue but postponed recognition based on the bills raised on the clients for services performed. Though there are observations in the order of the Tribunal that postponement of recognition of income is not possible on the basis of AS- 9 of ICAI when income accrues or arises under the mercantile system of accounting, those observations have to be confined as decision on the facts of that case. In the light of the decision of the Hon'ble High Courts of Punjab Haryana and the Hon'ble Madras High Court, we are of the view that the claim made by the Assessee deserves to be accepted. Accordingly the addition made by the AO and confirmed by the DRP is directed to be deleted. Gr.No.19 is accordingly allowed. 35. In the light of the decision of the coordinate bench of the Tribunal and considering the facts of the case as discussed above, we are of the view that claim of the assessee deserves to be accepted and the addition made by the AO as confirmed by the DRP is hereby deleted. This ground accordingly is allowed in favour of the assessee. 17.6 Respectfully following the Co-ordinate Bench order of the Tribunal in assessee s own case, the addition made by the AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of expenses disallowed of Rs. 158,25,21,633/-, the assessee while providing complete break up, has provided evidence of TDS done/ TDS not applicable for substantial sum of Rs. 153,06,91,293/-. However, for certain expenses as listed below, considering the volume of transactions, the assessee had not submitted the details of TDS in respect of some of the following, as indicated: Particulars of Payment Amount disallowed u/s 40(a)(ia) (INR) Evidence for TDS given (INR) Difference (INR) Freight 31,56,15,532/- 39,75,65,546/- (1,63,31,923/-) Contract Others 9,82,81,937/- Advertisement 16,46,61,955/- 37,06,35,583/- (3,42,48,397/-)* Repairs Maintenance 2,32,67,228/- Staff Welfare 1,17,75,882/- Travelling and Conveyance 58,30,101/- Legal and Professional 9,57,01,235/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as follows:- 66. During the AY 2009-10, the Assessee had suo motu made a disallowance of Rs. 22,05,17,807/-, being provision created towards various items, on which taxes were not deducted at source. In the AY 2010- 11 under consideration, the Assessee reversed the same in its accounts and claimed the expenditure on actual basis on which taxes were deducted at source. Since the aforesaid amount of Rs.22,05,17,807/- had already been offered to tax in the previous AY, the Assessee claimed the deduction of the same in the computation of income for AY 2010-11. During the course of hearing the AO called on the assessee to furnish the details of tax deducted at source on the amount claimed as deduction. Since the assessee was able to furnish evidences of tax deducted at source to the extent of Rs. 16,69,09,884/- out of Rs. 22,05,17,807/-, the AO made a disallowance of Rs.5,09,07,923/- for want of evidence, on the ground that under Section 40(a)(ia) of the Act deduction of the amount was allowable only if tax was deducted at source. 67. Before us, the ld. AR submitted that the impugned deduction is claimed not on the basis of subsequent tax deduction, but on the basis that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 (B) C=(A-B) Reversal entries made out of the amounts mentioned in (A) (D) Balance (C-D) 1. Advertising 7,26,35,204 7,15,90,630 10,44,574 6,80,93,152 2. Repairs and maintenance 2,70,56,573 -- 2,70,56,573 2,66,24,360 4,32,213 3. Freight Charges 11,66,34,963 11,48,59,720 17,75,243 -- 17,75,243 4. Audit Fees 41,91,067 48,66,723 (6,75,656) 41,91,070 -- 22,05,17,807 19,13,17,073 2,92,00,734 9,89,08,582 22,07,456 72. According to the ld AR the accounting practice of the assessee is to make the provision for expenses 31st March of the financial year and revers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for the year under consideration which are submitted now in the form of additional evidence. If the accounting practice of the assessee to reverse the expenses on the 1st day of April of the year under consideration is substantiated by the evidences submitted by the assessee whereby it is demonstrated that there is no doubt allowance expenditure then the assessee would be entitled to claim the amount disallowed in the previous assessment year as otherwise it would amount to double disallowance. We therefore remit the issue back to the AO to verify the ledger and general entries of the assessee for the year under consideration and allow the expenditure in accordance with law. The assessee may be given a reasonable opportunity of being heard in this matter. The appeal is allowed in favour of the assessee for the statistical purposes. 18.5 In line with the directions of the Tribunal in assessee s own case, which is identical to the issue raised for the relevant assessment year, we restore the matter to the files of the A.O. to re-examine the issue afresh. It is ordered accordingly. Disallowance of fixtures and stores interiors expenses [Ground II(5)] 19. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross all franchisee stores. Hence, it was brayed that the same may be allowed as revenue expenditure. The learned AR submitted that the issue in question is squarely covered by the order of the Tribunal in assessee s own case for assessment year 2012-2013 in IT(TP)A No.2834/Bang/2017 (order dated 11.11.2022), wherein the Tribunal held that the said expenditure incurred is revenue in nature. 19.4 The learned DR, on the other hand, supported the orders of the AO / DRP. 19.5 We have heard rival submissions and perused the material on record. We find an identical issue was considered by the Tribunal in assessee s own case for assessment year 2012-2013 (supra). The Tribunal had followed the Bangalore Bench order of the Tribunal in the case of M/s.Nike India Private Limited v. DCIT in IT(TP)A No.202/Bang/2021 (order dated 26.07.2022). The Tribunal after considering the franchisee agreement entered by the assessee with its franchisees held that the expenditure incurred is in the nature of revenue and the same is to be allowed as a deduction. The relevant finding of the Tribunal in assessee s own case for assessment year 2012-2013 (supra), reads as follows:- 36. For the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .com 470 (Karnataka)] at para 10; v. DCIT v. Jubilant Foodworks Ltd. [Reported in [2022] 137 taxmann.com 345 (Delhi-Trib.) at para 11. 41. The ld. DR relied on the orders of lower authorities. 42. We have considered the rival submissions and perused the material on record. We notice that the coordinate bench of the Tribunal in the case of M/s. NIKE India Pvt.Ltd vs DCIT (IT(TP)A No.202/Bang/2021 dated 26.07.2022) has considered a similar issue and held that 32. In so far as the aforesaid grounds of appeal are concerned, the material facts are that the assessee claimed deduction of a sum of Rs.14,45,55,444/- as revenue expenditure. These expenses were incurred by the assessee for furnishing the retail showrooms where the assessee s products are sold by the retailers i.e., franchisees. On perusal of the ledger of these expenses, the AO found that expenses include furniture for the stores, designs of the stores, etc. The AO on perusal of the agreement between the assessee and one of the franchisees viz., Pioneer Sports Company, New Delhi, found that all cots of refurbishment of the shop including and not limited to the cost of any new hardware and software so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure for interior and exterior works for carrying on the business as per 'brand' specifications. In such a situation, it cannot be said that the assessee is deriving an enduring benefit nor can it be said that any capital asset has been created in favour of the assessee. The quantum of expenditure cannot determine the nature of the expenditure. Therefore, respectfully following the decisions relied upon by the learned counsel for the assessee we hold that this expenditure is revenue in nature. This ground of appeal is accordingly allowed. 34. Learned DR placed reliance on the order of the AO and also made a reference on the decision of the ITAT, Delhi Bench, in the case of Carrier Airconditioning and Refrigeration Ltd., in ITA No.5244/Delhi/2015, order dated 13.07.2018. 35. We have given a careful consideration to the rival submissions. The decision rendered by the ITAT Delhi in the case of Carrier Air-conditioning (supra) was a case of renovation to a leased premises and the finding was that it was a complete replacement of the existing premises. In this case we are concerned with refurbishing a show room to make it attractive for customers to visit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h provides the customers an environment where these products are sold in Dell exclusive stores. In view of these discussion and respectfully following the decision of the coordinate bench of the Tribunal in the case of Nike India (supra) we hold the expenses incurred by the assessee towards fixture and stores interiors expenses is an allowable expenses and the claim made by the assessee is directed to be accepted. This ground is allowed in favour of the assessee. 19.6 In view of the above order of the Tribunal, which is identical to the facts of the instant case, we direct the A.O. to allow the said expenditure as a revenue expenditure. It is ordered accordingly. 19.7 In the result, ground II(5) is allowed. Disallowance of interest on delayed payment of TDS [Ground II(6)] 20. For the relevant assessment year, the assessee had paid interest of Rs.26,349 u/s 201(1A) of the I.T.Act and claimed the same as an allowable expenditure u/s 37 of the I.T.Act. The A.O. disallowed the interest holding the same has no connection with the business carried on by the assessee. 20.1 The DRP rejected the contentions / objections of the assessee and upheld the disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. Further liability for interest which had been incurred by the assessee therein was regarded as compensatory in nature and allowable as business expenditure. 16. The ratio of those cases is not applicable here. Income- tax is not allowable as business expenditure. The amount deducted as tax is not an item of expenditure. The amount not deducted and remitted has the character of tax and has to be remitted to the State and cannot be utilised by the assessee for its own business. The Supreme Court in the case of Bharat Commerce and Industries [1998] 230 ITR 733, rejected the argument advanced by the assessee that retention of money payable to the State as tax or income-tax would augment the capital of the assessee and the expenditure incurred, namely, interest paid for the period of such retention would assume character of business expenditure. The court held that an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as income-tax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure . (emphasis supplied) 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 taxmann.com 2 (Varanasi-Trib.) by following the judgment of the Hon ble Apex Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT reported in (1997) 87 ITR 542 (SC) had decided the issue against the assessee. The relevant finding of the Tribunal reads as follows:- 6. I have considered the submissions of the assessee made before the authorities below as well as the submissions of the learned Sr. DR. There is no dispute that the assessee has not paid the GST within the time limit as prescribed under section 43B and shown in the Balance-Sheet as outstanding. This fact is also evident from the Audit report in Form No. 3CB, balance-sheet as on 31-3- 2019 wherein this amount of Rs. 22,21,501/- is shown as outstanding being GST payable. The Auditor has also reported this amount in para 26 in respect of the sum which is referred under section 43B. Even otherwise, the assessee has not disputed this fact that it has not paid the GST. The only contention of the assessee is that it has not debited this amount in the profit and loss account but directly taken to the balance-sheet. This modus operandi of the assessee is not acceptable as the GST is part and partial of the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity was not routed through profit and loss account, ie was not debited in profit and loss account, therefore it should not be disallowed as it was never claimed as an allowable expenditure. In this regard, the assessee has explained the manner in which GST collected by him from the customers, which is finally required to be credited/paid to the Central Govt, is accounted for. The assessee has submitted that assessee is maintaining a separate GST account in his ledger book without debiting the amount of the said GST in profit and loss account. As and when the assessee makes any sale of the goods to the customers, the sale amount and GST amount is credited in the ledger account as sales account and GST account respectively. Subsequently, the sale amount net of GST is credited to P L A/c, while the GST component of the sale, as collected from the customers, is directly taken to balance sheet on the liability side, without first crediting to P L A/c. Similarly, as and when the said GST collected from the customers is deposited to Govt A/c, the outstanding GST liability existing in the balance sheet is reduced by that amount, but the P L A/c remains unaffected as no debit entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not paid the service tax as required under the provisions of section. 43B, which is also very much covered u/s 43B of the I. T. Act. The provisions of section 438 of the Act is very clear and it states that any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force . Therefore, even the service tax is liability which covers u/s 43B of the Act and non-payment of the same within the stipulated time as specified u/s 43B of the Act attracts disallowance. Now the question is that when the assessee has not claimed it as expenditure in the profit and loss account, could it be disallowed u/s 43B of the Act. This was considered by the 1- Hon'ble Apex Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 871 TR 542 (SC), in which it was held that the sales tax collected by the assessee is revenue receipt even if it is shown by the assessee under non-revenue head and such treatment by the assessee is not decisive. Further, in the case of M/s. Jain Christopher v. DCIT in ITA No. 855/Bang/2012- order dated 12-4- 2013., it was held as under: 7.2 During the course of assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it becomes clear that the rigour of this provision would be attracted only in a case where an item is allowable as deduction but because of the failure to make payment such deduction will not be allowed. It can be argued that in the case of ST also the assessee does not claim deduction since it has been held that non-payment of Sales-tax would attract provisions of section 43B, but that is being done on the basis of the principles laid down by the Hon'ble Supreme Court in the case of Chowranghee Sales Bureau Ltd. v. CIT 110 ITR 385 that Sales-tax is part of the trading receipt. Further, section 145A clearly provides that for the purpose of determining income under the head profits and gains of business or profession, the amount of purchase and sales i.e. turnover would include any tax, duty cess or fee. Therefore, the rigour of section 43B may be applicable in the case of Sales-tax or Excise Duty but the same cannot be said to be the position in case of Service-tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Govt. and paid to the Govt. accordingly. Therefore, a service provider is merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Govt. account in the subsequent year. Therefore, we find there is no merit in the contention raised on behalf of the assessee and this issue is decided against the assessee. It is ordered accordingly. 4.1 Further, in the case of M/s. Hemkunt Infratech (P.) Ltd. v. DCIT [ITA No. 6683/De1/2017 - order dated 23-3-2018, the Delhi Benches of the Tribunal held as under: 6. After hearing both the sides and perusing the entire material available on record, we observe that there is a credit balance of Rs. 1,16,09,924/- at the end of the year towards expenses payable. The assessee submitted that it is service tax liability, which arose due to crediting the service tax received from the service recipients. The assessee has challenged before us, the disallowance of Rs. 85,26,467/- disallowed u/s. 43B of the Act. We observe that the assessee has recorded his turnover after deducting the service tax received and the service tax has been credited separately. In section 145, of the Act for determining the income chargeable under the head profits and gains of business or profession or income from other sources, the same is to be computed in accordance with either cash or mercan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the place of its location and condition, as on the valuation date. In other words, where any expenditure is actually paid or incurred by the assessee by way of any tax, duties, cess or fees, by whatever name called, then adjustment is to be made both in the valuation of purchase and sale of goods and also in the valuation of inventory to include the aforesaid amounts while determining the income chargeable under head profits and gains of business or .profession. The assessee has separately accounted for the service tax collected is also the indirect part of turnover because it is received along with turnover. The assessee has not shown any invoice raised by him before us as per service tax Rules, which is mandatory for the service provider to issue invoice to the service recipient. He has also not produced any evidence regarding payment received from service recipients as to how they have paid-separately or inclusive of service Tax. He has also not produced any evidence regarding whether the TDS has been remitted on payment after excluding the service tax. After going through the paper book filed by the assessee, we observe that the assessee has utilized service tax credit towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty paid on such capital goods in the same financial year. Explanation. For the removal of doubts, it is hereby clarified that an assessee shall be eligible if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in the manner specified in the said notification did not exceed rupees four hundred lakhs. (b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years. Illustration. A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker. (7) The CENVAT credit in respect of input service shall be allowed, on or after the day which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or, as the case may be, challan referred to in rule 9. 9. As per Rule 6(1) of the Service Tax Rules, 1994, in case of company, service tax is to be paid on a monthly basis by 5th of the following month (in case of epayment, by 6th of the month immediately following the respective month). However, the payment for the month of March is required to be made by 31st of March itself. As per rule 6(4) of the Service Tax Rules, 1994, the assessee can pay for provisional payment of service tax in case he is not able to correctly estimate the tax liability. In such a situation, he may request in writing to the jurisdictional Assistant/Dy. Commissioner for the same. 10. As per section 73A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 118 of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount] 12. We further observe that the point of taxation as per rule 3 of Point of Taxation Rules, 2011 is as under: RULE 3. Determination of point of taxation. (Notification No. 18/2011-ST dt. 1-3-2011 as amended). For the purposes of these rules, unless otherwise provided, point of taxation shall be, - (a) the time when the invoice for the service provided or agreed to be provided is issued: Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service. (b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the stipulated time, therefore, the Id. CIT(A) has rightly disallowed the same u/s. 43B of the IT Act. The case laws relied by the assessee are based on different footings as in all the decisions it was held that Service Tax was not at all payable because the service Tax was not received from the customer. The 'aw prevailing at that particular time was that Service Tax was to be paid to the L3overnrnent only when Service Tax is received from the service receiver to the service provider. Subsequently, there is change in the law which provides that Service Tax is to be deposited by the service provider even if service tax is not paid by the service receiver to the service provider. Therefore, in all those decisions it was held that service tax outstanding is hit by the provisions of section 43B of the Income-tax Act. 1961. Due to the change in the law now those decisions do not help to the assessee. Moreover, the assessee has filed the service tax returns belatedly, i.e., for April to June on 16-4-2015, for July to September and half yearly from October to March, 2013 on 8-7-2015. In view of all these facts, the Id. CIT(A) has rightly dealt with the issue in question by g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected by the assessee is revenue receipt even if it is shown by the assessee under non-revenue head and such treatment by the assessee is not decisive. Thereafter, Hon'ble ITAT relied upon the comprehensive judgement delivered by Hon'ble ITAT, Bangalore in the case of M/s. Jain Christopher v. DCIT in ITA No. 855/Bang/2012 - order dated 12-4-2013, where various previous judgments were considered and distinguished by Hon'ble ITAT, Bangalore. These were: (i) ACIT v. Real Image Media Technologies (P.) Ltd. (ITAT Chennai): (ii) CIT v. Noble and Hewitt India (P.) Ltd. (Del) (iii) DCIT v. Manish M Chheda 29 SOT 138 - Mumbai ITAT Thereafter, Hon'ble ITAT relied upon the judgement delivered by Hon'ble ITAT, Delhi in the case of M/s. Hemkunt Infratech (P.) Ltd. v. DCIT [ITA No. 6683/Del/2017 - order dated 23-3-2018. (iii) In the present case of the assessee, the issue is of GST . As held by Hon'ble Apex Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC), the sales tax collected by the assessee is revenue receipt even if it is shown by the assessee under non-revenue head and such treatment by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the AO. It is ordered accordingly. Short credit of TDS [Ground II(8)] 22. For the assessment year 2013-2014, the return of income was filed claiming an amount of Rs.44,01,64,909 as TDS credit. The A.O., however, while passing the draft assessment order, granted only credit of Rs.43,83,48,820. The DRP directed the A.O. to verify the latest Form No.26AS and allow TDS credit as per law. Since the credit was not granted in the final assessment order for the amount sought for, the assessee has raised this issue before the Tribunal. The learned AR submitted that despite the directions of the DRP, the A.O. failed to verify the latest Form No.26AS and allow TDS credit amounting to Rs.43,97,06,585. It is submitted that the assessee has filed rectification application for rectifying the short credit. 22.1 We have heard rival submissions and perused the material on record. The issue raised in Ground II(8) is restored to the files of the A.O. The A.O. is directed to examine the issue afresh as per the directions of the DRP and grant due tax credit as per law. It is ordered accordingly. 23 In the result, the appeal filed by the assessee is partly allowed. Order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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