9911796707
TMI Blog2024 (5) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... , passed under Section 144C(13) read with Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act'] for the Assessment Year 2011-12, as per directions issued by Dispute Resolution Panel-2, Mumbai [hereinafter referred to as 'the DRP'] under Section 144C(5) of the Act. 2.1. In ITA No. 884/Mum/2016, the Assessee has raised grounds of appeal in relation to the following issues: (a) Ground No. 1 to 1.2: Disallowance of INR 357,23,70,000/- under section 14A of the Act (b) Ground No. 2 to 2.2: Disallowance of INR 19,35,01,258/- being interest on Capital Work-in- Progress under Section 36(1)(iii) of the Act. (c) Ground No. 3 to 3.7: Disallowance of INR 30,95,03,786/- in respect of roaming charges under Section 40(a)(ia) of the Act (d) Ground No. 4 to 4.5: Disallowance of INR 47,17,99,596/- in respect of discount extended to pre-paid distributors under Section 40(a)(ia) of the Act (e) Ground No. 5 to 5.5: Disallowance of deduction under Section 80IA of the Act (f) Ground No. 6 to 6.3: Disallowance of deduction under Section 80-IA of the Act in respect of 'Other Income' (g) Ground No. 7 to 7.2: General grounds on Transfer Pricing Adjustment (h) Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under recovery of salary expenses from AE 93,12,637/- 5 Excessive AMP expenditure 22,01,14,350/- Total 36,38,25,151/- 3.1. On 31/03/2015, the Assessing Officer passed Draft Assessment Order under Section 143(3) read with Section 144C(1) of the Act incorporating the above transfer pricing adjustment. In addition the Assessing Officer also proposed other additions/disallowances as per the provisions of the Act. 3.2. The Assessee filed objections before the DRP against the Draft Assessment Order, dated 31/03/2015. On 22/12/2015, the DRP disposed off the objections granting partial relief to the Assessee. As per the directions of the DRP, the Assessing Officer passed the Final Assessment Order, dated 28/01/2016, under Section 143(3) read with Section 144C(13) of the Act, assessing total income of the Assessee at INR 478,20,94,710/- computed as under: Particulars Amount (INR) Amount (INR) Income under the head business or profession (as per revised computation) (-) 185,73,18,001 Disallowance under Section 14A 357,23,70,000 Disallowance of Interest on Capital Work-In- Progress 19,35,01,258 Disallowance under Section 40(a)(ia) for non de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act was not warranted. We find merit in the aforesaid contention of the Assessee. In the absence of any exempt income arising in the relevant previous year, no occasion to make any disallowance under Section 14A of the Act can arise [Principal Commissioner of Income-tax Vs. Red Chillies Entertainment Pvt. Ltd.: [2020] 116 taxmann.com 770 (Bombay)[20-08-2019]. 4.5. In the case of the Assessee, for the Assessment Year 2008-09 [ITA No. 6718/Mum/2012, dated 08/05/2023] and 2009-2010 [ITA No. 3425/Mum/2014, dated 24/02/2023] the Tribunal had deleted disallowance under Section 14A of the Act as the Assessee did not earn any exempt income during the corresponding previous years. 4.6. In view of the above, the disallowance of INR 357,23,70,000/- made by the Assessing Officer under Section 14A of the Act is deleted Ground Number No. 1 raised by the Assessee is allowed. Ground No. 2 5. Ground No. 2 raised by the Assessee pertains to disallowance of interest expenses of INR 19,35,01,258/- 5.1. During the assessment proceedings, the Assessing Officer noted that in the relevant previous year the Assessee had substantially expanded its existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the rival submissions and perused the material on record. It emerges that in identical facts and circumstances, vide common order dated 16/03/2023 passed in appeals for the Assessment Year 2006-07 [ITA No 216/CHANDI/2011] & 2007-08 [ITA No. 1173/Mum/2011], the Tribunal had decided identical issue in the favour of the Assessee and allowed deduction for interest on borrowed funds use for purchase of assets and capital work in progress. The relevant extract of the aforesaid decision of the Tribunal reads as under: "20. In ground No.6 & 7 of appeal the assessee has assailed disallowance of interest Rs.1,63,96,415/- on Capital Work-in- Progress and disallowance of interest Rs.38,70,010/- on ECB. The ld. Counsel for the assessee submits that the assessee has acquired fixed assets from the borrowed capital during the year relevant to the assessment year under appeal. The assets were acquired not for the purpose of extension of its existing business but to provide better quality of services to the customers. The Assessing Officer while disallowing interest on capital work-in- progress and interest on ECB has erred in holding that the assessee has extended its existing bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss has not been utilized for the purpose of business during the year under consideration, hence, interest expenses on capital workin- progress is not allowable as deduction. 21.1 xx xx 22. We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee has raised loans during the period relevant to the assessment year under appeal and has paid interest on said loans. The assessee has admittedly used borrowed funds for acquiring assets. The contention of the Revenue is that the assets acquired by the assessee are for expansion of the existing business, hence, proviso to section 36(1)(iii) of the Act gets attracted, consequently, interest paid on such borrowed capital is not allowable u/s. 36(1)(iii) of the Act. 23. Au Contraire, stand of the assessee is that purchase of asset in assessee‟s case does not lead to extension of business but has merely improved quality of service. In terms of telecommunication business, expression extension is used where the business of the assessee has grown in geographical terms. It is an undisputed fact that even after having acquired new assets, the area of operation of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer made disallowance of INR 30,95,03,786/- under Section 40(a)(ia) of the Act (as against the disallowance of INR 1,97,54,77,395/- proposed in the Draft Assessment Order) in respect of roaming charges. 6.3. Being aggrieved, the Assessee has carried the issue in appeal before the Tribunal. 6.4. We have considered the rival submissions and perused the material on record. 6.5. We note that in the identical facts and circumstances, the Tribunal has, vide order dated 08/11/2023 passed in appeals for the Assessment Year 2009-10 [ITA No 1121/Mum/2014,], decided this issue in the favour of the Assessee and deleted the disallowance of roaming charges under Section 40(a)(ia) of the Act. The relevant extract of the aforesaid decision of the Tribunal reads as under: "10. The next issue urged in Ground no.8 relates to disallowance of roaming charges u/s 40(a)(ia) of the Act for non- deduction of tax at source. We notice that an identical disallowance made in AY 2006-07 and 2007-08 u/s 40(a)(ia) of the Act. The co-ordinate bench has deleted the disallowance with the following observations:- "27. In ground No.9 of appeal, the assessee has assailed disallowance of roaming cost u/s. 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the Assessee for the preceding Assessment Year 2009- 10, which in-turn followed the decision of the Tribunal in the case of the Assessee for the Assessment Year 2006-07 and 2007-08, the disallowance of INR 30,95,03,786/- made under Section 40(a)(ia) of the Act in respect of roaming charges is deleted. Ground No. 3 raised by the Assessee is allowed. Ground No. 4 7. Ground No. 4 raised by the Assessee is directed against the disallowance of discount extended to pre-paid distributors under Section 40(a)(ia) of the Act. 7.1. During the relevant previous year, discount amounting to INR 47,17,99,596/- were extended by the Assessee to its distributors of pre-paid products ('pre-paid distributors'). According to the Assessee. The pre-paid distributors were appointed on Principal to Principal basis. The discount extended represents the difference between the Maximum Retain Price (MRP) of the talk- time and pre-paid connections and the price at which these are transferred to the pre-paid distributors. No payment or credit was made by the Assessee to its pre-paid distributors. In fact, it was the pre-paid distributors who make a payment to the Assessee for transferring pre-pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal is reproduced hereunder:- "2.8.2. We find that in the case before the Co-ordinate Bench of Pune Tribunal in the case of Idea Cellular Limited vs DCIT (TDS ) in ITA Nos. 1041, 1042, 1953 -1955/Pun/2013 and ITA Nos. 1867 19 M/s. Vodafone India Ltd. 1870 /Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its distributors was Principal and Agent. It was only the Pune Tribunal which after examining the distributors agreement came to the conclusion that the relationship is that of Principal to Principal. In fact Pune Tribunal also examined the very same agreement which is the subject matter of agreement before us in the instant case before us, as it is not in dispute that all the distributors agreements are standard agreements across India. We also find that the Pune Tribunal relied on para 62 of the decision of Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd vs DCIT reported in 372 ITR 33 (Kar). We find that the Pune Tribunal had taken note of the fact that Hon'ble Karnataka High Court in 372 ITR 33 had distinguished all the three High Court ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved thus :- "3. Having heard the learned Counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The Tribunal, as noted, besides holding that the Commissioner's order setting aside the order passed under Section 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the payment was not for commission or brokerage." 7. In view of the finding of fact rendered by the Tribunal which we have noted above, the same principle would apply in the present case. Therefore, the questions of law as proposed do not give any rise to substantial question of law. The Appeal is disposed of. (emphasis supplied by us) 2.8.2.1. It is also pertinent to note that the Distribution Agreement of Maharashtra Circle was subject matter of examination and adjudication by the Pune Tribunal wherein the Pune Tribunal had recorded a finding of fact that the relationship between assessee and distributor is that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich includes the three High Court decisions of Kerala, Delhi and Calcutta relied upon by the ld. DR before us herein) had rendered its decision as under:- Idea Cellular 58. As the agreement is produced, issues are answered in favour of assessee in the departmental appeals. 59. Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form. ........................... 61. In view of the above discussion, all the appeals of assessees are allowed and those of Department are dismissed. 2.8.5. We further find that the Hon'ble Rajasthan High Court in the case of CIT (TDS) Jaipur vs Idea Cellular Ltd in Income Tax Appeal No. 90/2018 dated 12/04/2018 had taken an identical view on the identical set of facts. Further we find that the Hon'ble Jurisdictional High Court in the case of CIT(TDS) Pune vs Vodafone Cellular Ltd (assessee's own case) in Income Tax Appeal Nos. 1152 , 1274, 1995, of 2017 & Income Tax Appeal Nos. 571, 1266 of 2018 dated 27/01/2020 had also taken an identical view in respect of identical issue. 2.8.6. The ld. DR before us placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal to Principal. Hence this finding cannot be disturbed by this tribunal by respectfully following the judicial hierarchy. Infact no contrary materials on facts were even brought on record by the revenue before us to disturb the findings of Hon'ble High Courts. Hence we have no hesitation in holding that the relationship between assessee and distributor is only that of Principal to Principal and not that of Principal to Agent and accordingly there is no obligation for the assessee to deduct tax at source in terms of section 194H of the Act. 2.8.8. In view of the aforesaid observations and findings given thereon, we do not deem it fit to adjudicate other arguments advanced by the ld. AR on the applicability of second proviso to section 40(a)(ia) read with section 201 of the Act, as it would become academic in nature. This aspect of the issue is left open." 3.31. In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that the sale 23 M/s. Vodafone India Ltd. of prepaid sim cards/recharge vouchers by the assessee to distributors cannot be treated as commission/discount to attract the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, Hyderabad and Ludhiana) and CMTS in Mumbai telecom circle on 05/08/1994 and 29/11/1994, respectively. Given the nature of services and also the fact that these are provided in different service areas, the Assessee organized paging and cellular services as two separate undertakings/divisions. The Assessee commenced providing paging services in May, 1995 and cellular services in November, 1995 (i.e. in Financial Year 1995-96) after installation of the required telecom network infrastructure which was essential for provision of services and after obtaining the necessary clearances/permits from the Department of Telecommunication ('DoT'). Besides various government approval/permits/letters on launch of telecommunication services, the Assessee was also granted approval vide letter dated 21/04/2006 under Section 10(23G), by CBDT stating that the Assessee was an eligible undertaking as per Section 80IA(4) of the Act. Further, in assessment and appellate order for Assessment Year 1995-96 & 1996-97, it has been concluded that the Assessee was set up in Financial Year ('FY') 1995-96 i.e. Assessment Year 1996-97 and its plea that it had set-up its business in Financial Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before 01/04/1995 or thereafter; and (ii) Whether the assessee is eligible to claim deduction u/s. 80IA(4)(ii) of the Act . 10. The primary reason for rejecting assesses claim of deduction u/s. 80 IA(4)(ii) of the Act by the Department is that the assessee started providing telecommunication services prior to 01/04/1995. Whereas, the claim of assessee is that the assessee started providing telecommunication services after 01/04/1995. 11. Before proceeding further to decide this issue, it would be imperative to refer to the provisions of section 80 IA(4)(ii) of the Act. The relevant extract of the same are reproduced herein below: Section 80IA(4)(ii) "(ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005." 12.-13 xx xx 14. Hutchison Max Telecom Pvt. Ltd. (predecessor of the assessee) was incorporated on 21/02/1992 with the main object of providing radio paging services and cellular telephone services in India. Initiall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior to commencement of cellular mobile telephone services are obtained by the assessee. A perusal of the said agreement (Condition -20) clearly mentioned that a separate licence shall be required from the WPC Wing of Ministry of Communication which will permit utilisation of appropriate radio frequency spectrum for establishment and operation of cellular mobile telephone services. Thus, without allocation of radio frequency the assessee could not have commenced cellular mobile telephone services. As is evident from permits/assignment letters from the DoT referred above it is evident that the said permissions/clearances were granted to the assessee after 01/04/1995. In so far as radio paging services is concerned the assessee received Interface/Service approval Certificate for the seven cities (Telecom District) in the month of April/May 1995. The date-wise details of the same are tabulated herein below: Date Telecom District 31/03/1995 Chandigarh 20/04/1995 Ludhiana 28/04/1995 Pune 01/05/1995 Bangalore 09/05/1995 Secunderabad 22/05/1995 Vadodara 24/05/1995 Ahmadabad/Gandhinagar After Interface/Service approval Certificate, radio frequency for paging services wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was upheld by the Hon‟ble Gujarat High Court in Tax Appeal No.1339 of 2010(supra). Similarly, in the instant case the Revenue is trying to reconsider the concluded findings of the assessment order for assessment year 1995-96 and 1996-97 in assessment year 2005-06. This is impermissible in the scheme of Act. The Revenue by placing reliance on defective certifications and information derived from web portal of the assessee is trying to revisit the facts settled in assessment year 1995-96 and in assessment year 1996-97. The Act does not permit to disturb the findings of closed assessment (except within the mechanism provided under the provisions of the Act) in assessment proceedings for later AYs. 17. Non mentioning of date of commencement or mentioning of wrong date in Form No.10CCB by the Auditors of the assessee can be an error of reporting. We find that in Auditor‟s Report for the Financial Year ending on 31st March , 1995 (relevant to AY 1995-96), the Auditors have reported: "No Profit and Loss Account has been prepared for the year ending 31st March, 1995 since the Company has not commenced commercial service." The subsequent certification by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had traded in Pagers. There is no dispute in so far as the law laid down by the Hon‟ble Court in the aforesaid decisions. However, the ratio laid down in the aforesaid decisions would not apply in the facts and circumstances of the present case. 19. One of the objection raised by the Department is that the assessee has not maintained separate books of account. The assessee had ventured into two different telecommunication services i.e. radio paging services and cellular mobile telephone services. The ld. Counsel for the assessee stated at Bar that the assessee has claimed deduction u/s. 80IA of the Act in respect of cellular mobile telephone servicesonly. It is evident from the documents on record that radio paging services were started in May/June 1995 and the cellular telephone services were started in November 1995. Thus, both telecommunication services started after 01/04/1995. Undisputedly, the assessee was not maintaining separate books of account for two different segment of telecommunication services. Separate books of account for the two segments is not a mandatory condition for claiming deduction u/s. 80IA of the Act. Our aforesaid view is supported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction u/s.80IA of the Act in the light of CBDT circular (supra). 21. In the light of our findings above, we see no infirmity in the order of CIT(A) in coming to the conclusion that the assessee had started telecommunication services after 01/04/1995 and the assessee is eligible for deduction u/s. 80IA(4) of the Act. The findings of the CIT(A) on this issue are confirmed and the appeal of Revenue is dismissed. Thus, both the issues emerging from the appeal of the Revenue are decided in favour of the assessee." (Emphasis Supplied) 8.6. Respectfully following the above decision of the Tribunal in the case of the Assessee, we hold that the Assessee is eligible for deduction under Section 80IA of the Act for the Assessment Year 2011-12 and therefore, the Assessing Officer is directed to allow the deduction under Section 80IA of the Act as claimed by the Assessee after verification of the computation as per law. In terms of the aforesaid, Ground No.5 raised by the Assessee is allowed. Ground No. 6 9. Ground No. 6 raised by the Assessee is directed against the Disallowance of deduction under section 80IA of the Act on 'Other Income'. 9.1. During the relevant previous year, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Tribunal read as under: "24. Ground No.2 of the appeal reads as under: "2.Disallowance of deduction under section 80IA of the Act on 'Other Income' 2.1 On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in upholding that deduction u/s 80IA of the Act can be allowed only on direct income derived from the specified activity, thereby ignoring the non obstante sub-section 2A of section 80IA which provides that to be eligible for deduction u/s 80IA of the Act, income arising should be business income of the eligible undertaking, i.e. telecom undertaking of the Appellant in the present case 2.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the order of the learned AO in excluding the following incomes while computing deduction u/s 80IA of the Act: (a) Interest income amounting to INR. 6,09,99,174; and (b) Miscellaneous income amounting to INR 4,98,14,610;" 25. The ld. Counsel for the assessee submits that the assessee had earned interest income of Rs.6.09 crores and miscellaneous income of Rs.4.98 cores. The assessee claimed deduction u/s. 80IA of the Act in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee where "gross total income" is restricted to "profits and gains derived by........ from any business referred to in sub-section (4)". The deduction is available of an amount equal to hundred percent of the profits and gains derived from such business for ten consecutive assessment years" subject to the provisions of the section. The meaning and intention of the legislature has been legally settled and well understood to mean that only those profits come under the ambit which can be said to be "derived from" such business. The intention of the legislature on a plain reading of the said sub-section is loud and clear. Reference to the decisions which establish a nexus of the first degree at this stage is refrained from as the position is well-settled legally and at this stage is not an issue for consideration in the present proceedings as both the parties agree that sub- section (1) of section 80-IA envisages only first degree nexus for the purposes of claiming deduction. The fact that deduction is available to hundred percent of the profits for a period of ten consecutive years is also not an issue under debate and even otherwise we find that the above provision in the said extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beginning operation is given. 13.11. Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, wherever it wanted to curtail the time line during which deduction can be claimed and also addressing the extent upto which it can be claimed has consciously carved out an exception to specified undertakings/enterprises whose needs and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise who fall under sub-section (2A) to claim 100% deduction of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub- section (2A) to meet the stringent requirements that the profits so contemplated were to be "derived from". The requirements of the first degree nexus of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure on Vodafone brands in India and thus, creating a valuable marketing intangible. TPO noticed that for the immediately preceding year also transfer pricing adjustment was made for AMP Expenditure. Therefore, a show cause notice, vide order sheet entry dated 22/12/2014, was issued to the Assessee to explain why the excess AMP Expenditure spend should not be treated as the cost incurred towards building the brand of Associated Enterprise (AE) in India; and why the same should not be held to be recoverable alongwith suitable mark-up for the marketing services provided by the Assessee to the AE as brand building exercise. In response, the Assessee filed reply letter dated 09/01/2015. The main contention of the Assessee were that (a) AMP Expenditure does not qualify as an international transaction; (b) AMP Expenditure is incurred for furthering its own business and for its own benefit; and (c) the purpose of AMP Expenditure was to distribute services through a network of dealers and distributors to retain existing customers and attract new customers and to increase the overall market share. However, the TPO was not convinced. The TPO observed that the bright line concept could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test. In absence of any written agreement, whether any arrangement existed or the Assessee along with its AE acted in concert would depend upon the facts and circumstances of each case. Where an assessee denies existence of international transaction in case of AMP Expenditure, as is the case in the present appeal, the onus would be on the Assessing Officer to bring out facts, circumstances, policy or conduct to support existence of an international transaction. In the present case, there is nothing on record to show or infer the existence of international transaction. We also note that in the subsequent assessment years (i.e. Assessment Year 2012-13, 2013-14 & 2014-15) no adverse inference was drawn and no transfer pricing adjustment has been made in relation to advertisement, marketing and promotion expenses incurred during the relevant previous years. In the aforesaid facts and circumstances the transfer pricing addition made by the Assessing Officer in respect AMP Expenditure of INR 22,01,14,350/- cannot be sustained and is, therefore, deleted. Ground No. 7.3 raised by the Assessee is allowed and Ground No. 7.4 to 7.8 are dismissed as being infructuous. Ground No. 7.9 and 7.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar to the agreement entered into between the Assessee and VIML for the grant of right to use 'Vodafone' trademark/ trade name. Therefore, the economic analysis undertaken by the Assessee suffers from ad- hocism and arbitrariness. 13.6. We do not find any infirmity in the factual findings returned by the TPO and Assessing Officer. However, at the same time we note that TPO has accepted RGL to be an AE of the Assessee. The transaction entered into by the Assessee with its AE (i.e. RGL) is a controlled transaction. Therefore, we find merit in the contention advanced by the Learned Senior Counsel that RGL cannot be used as comparable under CUP Method to benchmark the royalty paid to VIML. We note that the Assessee has now placed on record note giving reasons for differential payments of royalty to VIML and RGL. Keeping in view the overall facts and circumstances of the present case we remand this issue back to the file of TPO/Assessing Officer with the directions decide the issue of transfer pricing adjustment in relation to international transaction of royalty payments afresh after granting the Assessee reasonable opportunity of being heard. The Assessee is directed to place befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under various heads within the allocation of technology support charges paid. Further, the TPO observed that the Assessee did not even produce any primary evidence to show that the services are actually rendered by the AE were at arm's length. Therefore, the ALP of technology Support charges was taken as 'NIL' and transfer pricing addition was made for the entire payment on account of technology support expenses of INR 1,31,43,772/-. The aforesaid proposed transfer pricing addition was incorporated by the Assessing Officer in the Draft Assessment Order, dated 31/03/2015. 14.3. The objections filed by the Assessee on this issue did not yield favourable results as the DRP declined to give any direction and therefore, in the Final Assessment Order, dated 28/01/2016, transfer pricing adjustment of INR 1,31,43,772/- was made by the Assessing Officer. 14.4. Now the Assessee is in appeal before us on this issue. 14.5. We have considered the rival submissions and perused the material on record (including the chart of issues furnished by the Assessee) and orders passed by the authorities below. It emerges that identical issue had come up for consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KEFIELD (INDIA) PVT. LTD (367 ITR 730)(Delhi), wherein it was held as under:- "34. The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine ITA 475/2012 Page 25 whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the AO. This distinction was made clear by the ITAT in Dresser-Rand India Pvt. Ltd. v. Additional Commissioner of Income Tax, 2012 (13) ITR (Trib) 422: "8. We find that the basic reason of the Transfer Pricing Officer's determination of ALP of the services received under cost contribution arrangement as 'NIL' is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were competent enough to do this work. For example, the Transfer Pricing Officer had pointed out that the assessee has qualified accounting staff which could have handled the audit work and in any case the assessee has paid audit fees to external firm. Similarly, the Transfer Pricing Officer was of the view that the assessee had management experts on its rolls, and, therefore, global busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AE at all, and that since there is No. evidence of services having been rendered at all, the arm's length price of these services is 'nil'." 35. The TPO's Report is, subsequent to the Finance Act, 2007, binding on the AO. Thus, it becomes all the more important to clarify the extent of the TPO's authority in this case, which is to determining the ALP for international transactions referred to him or her by the AO, rather than determining whether such services exist or benefits have accrued. That exercise - of factual verification is retained by the AO under Section 37 in this case. Indeed, this is not to say that the TPO cannot - after a consideration of the facts - state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the TPO stating that the assessee did not benefit from these services, which amounts to disallowing expenditure. That decision is outside the authority of the TPO. This aspect was made clear by the ITAT in Delloite Consulting India Pvt. Ltd. v. Deputy Commissioner of Income Tax , [2012] 137 ITD 21 (Mum): "37. On the issue as to whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as necessary. These services cannot - as the ITAT correctly surmised - be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be second-guessed by the Revenue. 37. At this point, it is noteworthy that the circumstance that the assessee had market research facilities in India does not correspond to the performance of services abroad, especially in relation to client interaction services located outside India - albeit for ultimately sourcing them into the Indian market. The e-mails considered by the ITAT from Mr. Braganza and Mr. Choudhary so far as they deal with specific interaction with IBM by those persons, and relate it to benefits obtained by the assessee, provide a sufficient basis to hold that benefit accrued to the assessee. However, this determination remains unclear and inchoate. The devil here lies in the details. The details of the specific activities for which cost was incurred by both CWS and CWHK (for the activities of Mr. Braganza and Mr. Choudhary), and the attendant benefit to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanations in support of the claim that the payments are at arm's length. The TPO/Assessing Officer would consider the same and adjudicate the issue after granting the Assessee reasonable opportunity of being heard. Ground No. 7.11 to 7.13 raised by the Assessee are allowed for statistical purposes. Ground No. 7.14 15. Ground No. 7.14 raised by the Assessee pertains to transfer pricing adjustment pertaining to reimbursement of expenses. 15.1. During the relevant previous year, the AEs of the Assessee incurred certain expenses relating to salary and other related costs of the employees who were seconded to the Assessee and who worked under the supervision, management and control of the Assessee. Subsequently the Assessee reimbursed these expenses incurred by its AEs on cost to cost basis. Out of the aforesaid expenses, the TPO determined the payments pertaining to GMAC Costs, PWC Consulting and people survey cost aggregating to INR 4,14,86,237 as 'Nil'. Therefore, the ALP of international transaction pertaining to reimbursement of salary and related cost of the personnel on deputation with the Assessee was determined at INR 20,53,45,896/- as against INR 24,68,32,133/- claimed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation. The assessee is directed to furnish relevant documents to substantiate that the costs disallowed by the DRP were in fact cost paid by the assessee towards relocation/travel of the seconded employees. The assessing officer shall decide this issue after affording reasonable opportunity of hearing/to make submissions to the assessee, in accordance with law. Ergo, ground no.13 of the appeal is allowed for statistical purpose." 13.2 The facts available in this year, being identical, following the decision rendered by the co-ordinate bench in the assessee‟s own case in AY 2008-09, we restore this issue to the file of AO/TPO with similar directions." 15.3. In view of the above decision of the Tribunal, the Assessee is granted another opportunity to substantiate its claim that the INR 4,14,86,237/- were incurred in relation to the employees deputed with the Assessee and that the same, having being recovered on cost to cost basis from the Assessee, were at arm's length. The Assessee is directed to furnish relevant documents/details to substantiate its claim. The Assessing Officer/TPO shall grant reasonable opportunity of hearing to the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 40(a)(ia) of the Act are dismissed. Ground No. 3 22. Ground No. 3 raised by the Revenue pertain to disallowance of penalty paid to Department of Telecommunications ('DoT'). 22.1. During the relevant previous year, the Assessee paid INR 2,05,35,800/- to DoT as penalty for non-compliance of the various requirements prescribed by the DoT in connection with verification of subscribers. Since the aforesaid penalty has been levied on account of default committed in compliance with the terms of the license agreement entered into between the Assessee and DoT, it represents a contractual liability arising as a result of breach/non-compliance of the terms of the contract and not a statutory liability imposed under the provisions of any statutory enactment. Accordingly, the aforesaid penalty levied by DoT was not disallowed in the computation of income. In the Draft Assessment Order, dated 31/03/2015, the Assessing Officer proposed disallowance of the aforesaid penalty paid to DoT by invoking provisions of Section 37 of the Act. However, in the objections filed by the Assessee against the proposed disallowance, the DRP accepted the contention of the Assessee and directed the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee in appeal for the Assessment Year 2011-12 shall apply with the corresponding ground of appeal raised by the Assessee in appeal for the Assessment Year 2012-13. Accordingly, we proceed to take up the grounds raised in appeal for the Assessment Year 2012-13 in seriatim. Ground No. 1 to 1.1 24. Ground No. 1 to 1.1 raised by the Assessee are directed against the disallowance of INR 4,02,94,45,192/- under section 14A of the Act. The Assessee has not earned exempt income during the relevant previous year. The issue raised in grounds under consideration is identical to the issue raised in Ground No. 1 raised by the Assessee in appeal for the Assessment Year 2011- 12, in view of our findings and adjudication in paragraph 4 to 4.6 above, disallowance of INR 4,02,94,45,192/- made under Section 14A of the Act is deleted and Ground No. 1 & 1.1 raised by the Assessee is allowed. Ground No. 2 to 2.2. 25. Ground No. 2 to 2.2 raised by the Assessee are directed against the disallowance of INR 14,78,19,997/- on interest on Capital work- in progress under Section 36(1)(iii) of the Act. Ground No. 2 to 2.2 raised by the Assessee in appeal for the Assessment Year 2012-13 are identical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is allowed, the Assessing Officer is directed to allow the benefit of deduction under Section 80IA of the Act in respect of Other Income aggregating to INR 1,082.22 Crores and re-compute deduction under Section 80IA of the Act after including Other Income. Ground No. 4 to 4.3 raised by the Assessee is allowed. Ground No. 5 28. Ground No. 5 raised by the Assessee pertains to disallowance of depreciation on 3G Spectrum. 28.1. During the relevant previous year the Assessee paid charges for allotment of right to commercially utilize the 3G spectrum allotted to it for a period of 20 years in the telecom circle of Mumbai. Since the right to use 3G spectrum did not itself entitle a company to provide telecom services for which a telecom license was required, the Assessee treated such right as an 'Intangible asset' under Section 32 of the Act and accordingly, tax depreciation per the prescribed rate was claimed on such capitalized cost. According to the Assessee the allowability of depreciation of such right was examined by the Assessing Officer in the assessment proceedings for Assessment Year 2011-12, [i.e year of acquisition of right to use spectrum] and after due exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration before Mumbai Bench of the Tribunal in the case of the Assessee for the Assessment Year 2011-12 [ITA No. 3327/Mum/2018, dated 28/08/2020]. In that case, after considering identical submissions/contentions, the Tribunal arrived at the conclusion that the Assessee was entitled to claim deprecation in respect of 3G spectrum charges. The relevant extract of the aforesaid decision read as under: "29. Accordingly, we can safely conclude that on the merits of the issue, the Mumbai Bench of the ITAT in the case of Idea Cellular Ltd. (ITA No. 360/Mum/2016) has already held that the provisions of section 35ABB are not applicable on the cost of acquisition of the 3G Spectrum and no specific arguments have been made on the said decision of the ITAT on the merits of the issue by the Revenue. 30. This decision has also been followed by the ITAT in the case of Tata Teleservices Maharashtra Ltd.(ITA No. 3567/Mum/2016 and 4392/M/2017). 31. With regard to reliance of the ld. DR on the decision of Hon‟ble Supreme Court in the case of Britania Industries Ltd.(278 ITR 546), we observe that the question before the Supreme Court in the said case was whether expenses towards rent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act: The Hon‟ble Tribunal categorically held that since the assessment order was passed after conducting a detailed enquiry and adopting one of the legally permissible view, the revisionary proceedings initiated on such issue has no legs to stand on and is thus liable to be quashed. Refer paras 13 to 16 of the order (page no 19 to 25 of the order). b. On merits of allowability of depreciation claimed on 3G spectrum fees: The Hon‟ble Tribunal observed that the telecom license and spectrum are independent of each other and 3G spectrum fee merely provides a right to use a particular frequency/spectrum while providing telecommunication services. The assessee has rightly claimed depreciation under section 32 of the Act and the provisions of section 35ABB of the Act are clearly not applicable. Refer paras 17 to 20 of the order (page no 25 to 30 of the order). It was further highlight that the Jurisdictional Tribunal in the case of Tata Teleservices Maharashtra Limited (ITA 3567/Mum/2016 and 4392/Mum/2017), for AYs 2011-12 and 2012-13, has followed the decision of Idea Cellular (supra) and directed the AO to allow the depreciation claim under section 32(1)(ii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical to Ground No. 7.14 of the Assessee's appeal for Assessment Year 2011-12. Therefore, in view of our findings and adjudication in paragraph 15 to 15.3 above, and in view of the above decision of the Tribunal [ITA No. 1121 & 1885/MUM/2014, dated 08/11/2023], the Assessee is granted another opportunity to substantiate its claim that the INR 11,23,53,754/- were incurred in relation to the employees deputed with the Assessee and that the same, having being recovered on cost to cost basis from the Assessee, are at arm's length. The Assessee is directed to furnish relevant documents to substantiate it claim. The Assessing Officer/TPO shall grant reasonable opportunity of hearing to the Assessee and shall decide the issue in accordance with law after taking into consideration the details/documents furnished by the Assessee and the directions issued by the Tribunal in the case of the Assessee for the Assessment Year 2008-09 in ITA No 6718/Mum/2012, dated 08/05/2023. In terms of the aforesaid, we restore this issue to the file of AO/TPO with similar directions. Ground No.11 raised by the Assessee in appeal is allowed for statistical purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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