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TMI Blog2025 (5) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... and unjust. 2. On the facts and circumstances of the case & in law, the final assessment order under section 143(3) r.w.s. 144C(13) r.w.s 144B of the Act dated July 19,2024 and Ld. DRP's directions under section 144C(5) of the Act dated June 30, 2024 are barred by limitation provided under section 153 of the Act and hence, deserves to be held as void-ab-initio, bad in law and time-barred. 3. On the facts and circumstances of the case and in law, the Ld. AO has erred in determining the total income of the Appellant at INR 37,56,31,055 as against the income of INR 14,03,06,300 offered to tax by the Appellant in its return of income, thereby making additions/disallowances of INR 23,53,24,755 in the final assessment order. Corporate Grounds Disallowance of Bad debts written off during the year 4. On the facts and circumstances of the case and in law, the Ld. AO /Ld. DRP has grossly erred in disregarding the submissions made by the Appellant and in concluding that conditions mentioned under section 36(1)(vii) of the Act have not been met for claiming the amount of bad debts as allowable deduction. Disallowance of Data field costs incurred during the year 5. That on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services without demonstrating deficiency/insufficiency in the approach followed by the Appellant and holding that the transaction is not compliant with the arm's length principles; 6.3. rejecting/ modifying the filters applied by the Appellant in spite of the fact that application of such filters is appropriate for conducting a search to determine the companies comparable to the Appellant; 6.4. rejecting the comparable viz. Pratisaad Communications Private Limited accepted by the Appellant in the TP documentation by applying incorrect filters and on invalid grounds; 6.5. selecting alleged comparable companies which are functionally dissimilar and contrary to the characterization of the Appellant on an arbitrary basis; 6.6. not correctly calculating the margins of the final comparables and thus not considering the correct margins as per the Annual Reports; 6.7. classifying "Other Income" which is in relation to "liabilities no longer required written back" as a part of non-operating income while computing the Profit Level Indicator ('PLI') of the Appellant. Consequential Grounds 7. On the facts and circumstances of the case and in law, the Ld. AO has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as bad debt was not fulfilled in this case. The assessee also failed to furnish as to what was relevant financial year in which the said amount representing the sales made/services offered to the said party. After analyzing the information contained in ledger account of the company, Gionee India Pvt. Ltd. by observing certain defects in maintaining of account, the AO proceeded to disallow the same. 4. Aggrieved assessee filed objections before the ld. DRP and before ld. DRP, assessee made a detailed submissions and submitted that the assessee provided services to Gionee India Pvt. Ltd. in FY 2017-18 and considering the amount of Rs. 1,98,42,767/- (base amount of invoice being Rs. 1,68,15,904/- and GST being Rs. 30,26,863/-) was receivable against the rendition of services and submitted a copy of the invoices as additional evidences. Based on this, issue was remanded to the AO and AO submitted in his remand report that it is pertinent to mention that no documentary evidences relating to any actual efforts made by the assessee for recovery of said bad debts were submitted by the assessee. There is no document to prove that the said debts are actually recoverable and there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INR 16,81,591 was reduced from the recoverable amount being the amount recovered in form of TDS(deducted and deposited by Gionee in FY 2017-18). This resulted into a net amount of INR 1,18,83,088 (INR 1,98,42,767 less 62,78,088 less 16,81,591) being written off as actual bad debts. 12) With referenced to the first condition of Section 36(1)(vii) of the Act, on perusal of the ledger account submitted by the Appellant Company (Refer page no. 58 of P.B. Volume I), it is clearly evident that the amount recoverable from Gionee had become bad and irrecoverable and was written off as bad debts in FY 2019-20 (AY 2020-21). The Company had claimed the deduction of bad debts expenditure (being irrecoverable in nature) amounting to INR 1,18,83,088 in AY 2020-21. 13) With reference to the second condition of the aforesaid provision [section 36(1)(vii)], it is to be noted that the Appellant provided services to Gionee in FY 2017-18 and consideration amounting to INR 1,98,42,767 (Base amount of invoice being INR 1,68,15,904 and goods and service tax being INR 30,26,863) was receivable against rendition of said service. The said amount has been duly included in the sales/revenue credited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain on the recoverability of the agreed amount of INR 62,78,088. The applicable provisions of section 36(1)(vii) read with section 36(2) of the Act do not anywhere mention about the debt being made in the particular financial year / subject year. The Ld. AO is not justified to question the commercial rationale / acumen of the Appellant. 18) The decision to write off the irrecoverable amount during the captioned AY 2020-21, was a strategic business decision made by the Appellant. This action was undertaken following careful commercial judgment and evaluation of the financial circumstances surrounding the irrecoverable amount. The Appellant exercised its discretion in determining that the amount in question was unlikely to be recovered and, therefore, deemed it prudent to reflect this in the financial accounts for the specified period. This decision aligns with standard business practices, where entities routinely assess the recoverability of receivables and make informed decisions to write off amounts that are deemed uncollectible, ensuring the financial statements accurately represent the entity's financial position. Reliance is placed on the ruling in case of AWB India Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current assessment year. Accordingly, we are inclined to allow the claim of the assessee and ground no.4 is allowed. 8. With regard to Grounds No. 5, 5.1 & 5.2, the relevant facts are, the AO observed that out of total amount of Rs. 21,00,43,129/- claimed under the 'Data Field Costs', an amount of Rs. 4,33,56,115/- was paid to the company, M/s. Nielsen India Pvt. Ltd. and the payment was duly reflected in the ledger account placed on record. He observed that the assessee is subsidiary company of GFK Asia Pte Limited, the holding company with 50.1% shareholding and other shareholders in the company Nielsen India Pvt. Ltd. with 49.9% shareholding. It is observed that the assessee has paid an amount of Rs. 4,33,56,115/- to the difference as mentioned above. The AO related this transaction with deemed dividend u/s 2(22)(e) of the Act and he is of the view that any payment made by a private limited company to a shareholder covered under this clause, be it that advance or loan or any other payment. Therefore, the provisions are duly attracted in this case and payment of above said amount made by the assessee as data field costs during the year and the company, M/s. Neilsen India Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Neilsen India to the Appellant. Hence, provisions of Section 2(22)(e) of the Act are not applicable in the instant case. 25) Further, the relevant extract from CBDT circular 19/2017 dated 12 June 2017 (Refer page no. 6 to 7 of CLC) states that- "In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions, would not fall within the ambit of the word 'advance' in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon" 26) In the aforesaid circular, the CBDT has also quoted the ruling of Hon'ble Punjab and Haryana High Court in the case of CIT vs Amrik Singh {[NJRS] 2015-LL-0429-5, ITA No. 347 of 2013} wherein the Court has held that "Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act". 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 228 Taxman 295 (All) - ACIT v. Sunil Chopra (2 ITR 469) (Delhi bench of the Tribunal) - Kiran Bansal v. ACIT (2011) (10 ITR 180) (Delhi bench of the tribunal) - Ravindra R. Fotedar v. Asstt. CIT (2017) 167 ITD 100 (Mum.-Trib.) 32) Accordingly, the said addition made on account of deemed dividend is bad in law and ought to be deleted." 13. On the other hand, ld. DR of the Revenue relied on the orders of lower authorities. 14. Considered the rival submissions and material available on record. We observed that assessee is dealing in the field of retail store data for mobile events, consumable electronics home appliances, personal computers and imaging in this line of business and assessee has incurred certain expenditure representing data of field cost. While verifying the abovesaid data field cost, AO observed that assessee has dealt with its related concern, Neilsen India Pvt. Ltd. and utilized their services and paid the amount of Rs. 4,33,56,115/-. It is also evident from the Balance Sheet submitted before us at page 19 of the paper book wherein assessee has disclosed the information of related party transaction. This transaction being conducted regularly considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rism business. The Assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. The financial transactions cannot in any circumstances be treated as loans or advances received by the Assessee from these two concerns. 6. Consequently, the Tribunal was right in coming to the conclusion that the provisions of Section 2(22)(e) of the Act are not applicable." 15. With regard to Grounds No. 5.3 & 5.4, the relevant facts are, during assessment proceedings, AO observed that the assessee has incurred huge data field costs during the year under consideration. A show-cause notice was issued to the assessee to explain the transactions in which expenditure was claimed on account of collection of data executed through second companies representing certain specific categories. In this regard, assessee has submitted and placed on record copies of certain agreements as field work service agreement. On verification of the same in one of the agreements executed with Elixir Softech Private Limited, he observed that there was no mention of specific date wherein the date column was l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head which is super scribed as market research fees which further means that it is a kind of research in the field which is the source of revenue in the case and seen from this angle, [then what is the distinction between the fees/revenue and expenses. Moreover, assessee has not furnished the ledger accounts of the parties and the modus operandi of the business operations with-reference to the services solicited from the suppliers vis-a-vis the role of the retailers whereas it was a specific query raised during the proceedings. Thus, keeping in view, the facts and circumstances of the case amount of Rs. 15,04,75,422/- is being added back to the taxable income, Along with penalty proceedings are initiated u/s 270A for under-reporting of income." 17. Aggrieved assessee is in appeal before us and at the time of hearing, ld. AR of the assessee submitted as under :- "35) The Ld. AO has considered data field cost amounting to INR 15,04,75,422 (being an expenditure directly related to the business of the Appellant Company) as non-business expenses without considering the factual and legal submissions made by the Appellant. The Appellant Company submitted all the relevant details and do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of their products in the market etc. 39) Considering the afore-mentioned nature of Appellant Company's business, Data field cost includes the following components to ensure the sustainable data collection: - Cost of auditors who visit retail outlets to collect the data - Cost of incentives to retailers for sharing their data with Appellant Company - Cost of travel for running field manual visits to retailers etc. - Universe studies conducted to count the entire universe of covered channels in India. - Third party co-operation agreements for special projects and studies related to additional information to be gathered from the market for MI studies. 40) With regard the manner of raising invoices (as already explained in previous submissions before Ld. AO/ Ld. DRP), in the agreement entered with various entities, based on historical and statistical data, the Appellant Company agrees on the number of towns and shops to be covered by a particular vendor on an estimated basis considering the technical expertise and reach of each vendor, the number covered may differ and can be more or less than number agreed in the agreement. Further, a per shop rate is agreed as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported in the report filed under section 92E of the Act. Further, the transactions with Basarsoft Bilgi Teknolojileri A.S. are duly reflecting in the ledger account of data field cost. For instance, Invoice No. 400003043 raised by Basarsoft Bilgi Teknolojileri A.S.is duly appearing in the ledger account (Refer page no. 60 of P.B. Volume I, copy of corresponding invoice attached at page no. 230 of P.B. Volume I). Therefore, it is evident that the Ld. AO has completely overlooked the details in the ledger account. 44) Further, the Ld. AO's has alleged that the Company has receipts under the heads "Market Research Fee and Business Support Fee" and the same is in conflict with expenditure incurred by it. In this regard, the Appellant humbly submits that the Appellant has primarily generated the income in the form of market research fee from retail store audit. The nexus between revenue earned by the Appellant (disclosed as 'Market Research Fee') and the data field cost expenditure has been explained in the foregoing paragraphs (para 37 and 38). 45) Based on above, data field costs is a direct business expenditure incurred by the Appellant Company for providing services. 46) In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of agreements and sample of invoices. It is a fact on record that assessee is engaged in the business of retail store data of specific product categories. This is done through a representative panel of retail stores and they proceeded with collection of sample of retailers of whom sales information can be collected on regular interval. Based on the raw data collected from these entities, the assessee enters these datas into a system and then analysis the same by the assessee and utilized the same in creating reports for onward selling to various customers. The report generated by the assessee by using data provided by the auditors on field containing data, such as, top selling brands of a particular product, average prices on which products are sold, most demanded models/products, geographical needs, performance ratings of products etc. These informations/ reports were sold by the assessee to help their clients in formulating policies etc. In order to achieve that, assessee has to incur certain cost to ensure the sustainable data collection as under :- - Cost of auditors who visit retail outlets to collect the data - Cost of incentives to retailers for sharing their data w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited; (ii) Kestone Integrated Marketing Services Private Ltd.; (iii) Cheers Interactive (India) Private Ltd. (iv) Concept Software Services Private Ltd. (v) Enkon Pvt. Ltd. (vi) PR Pundit Public Relations Pvt. Ltd. (vii) Axience Consulting Private Ltd. (viii) Pressman Advertising Ltd. (ix) Adbur Pvt. Ltd. (x) Just Dial Ltd. and ALP was determined as under :- Particulars Amount (in INR) Operating Cost (A) 40,61,13,638 Arm's Length Margin (B)(%) 14.03% Arm's Length Price (C) (ALP)(A*114.03%) 46,30,91,381 Price Received (D) 43,34,81,247 Shortfall Being adjustment u/s 92CA(C-D) 2,96,10,134 24. Aggrieved with the above order, assessee is in appeal before us and at the time of hearing, ld. AR of the assessee raised the issue of rejecting comparables viz. Pratisaad Communication Private Limited on the basis of persistent loss filter. Ld. AR submitted that the above comparable was selected by the assessee as the same passes the filer as comparable company and in this regard, he submitted as under :- "The Appellant humbly submits that Pratisaad has earned an operating loss of INR 58.14 lacs and INR 7.32 lacs in FY 2017-18 and 2019-20 respectively. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then it shall not be excluded by applying the persistent loss filter. The relevant findings are given below :- "8. As far as inclusion of 3 companies which was argued before us by the ld. counsel for the assessee, the first company which the assessee seeks for inclusion is Sagarsoft (I) Ltd. This company was rejected by the TPO by applying the RPT filter which was not accepted by the DRP. The DRP directed the TPO to consider the comparability of this company afresh. The TPO while giving effect to the order of DRP, chose to reject this company as a comparable by pointing out that this company fails the persistent loss filter. It was the submission of the ld. counsel for the assessee that that in the light of decision of ITAT Pune Bench in the case of Yezaki (I) Pvt. Ltd., ITA No. 621/PUN/2014 AY 2009-10, order dated 11.17.2019, the persistent loss filter can be applied only if there is a loss in 3 successive assessment years and that if there is a profit in any one of the 3 past financial years, then that company cannot be excluded on the basis of persistent loss making filter. It was submitted that all other filters have been accepted by the TPO in the order giving effect and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. Accordingly, the Appellant praying that the sum of INR 25,43,072 being treated as operating income for computation of margin. Please refer Annexure 2 for other operating income and computation of operating margin. 31. On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities. 32. Considered the rival submissions and material available on record. We observed that assessee has written back liabilities pertaining to earlier years and the details are given in Annexure 2 before us which is already reproduced below for clarity :- 33. By relying on case laws, ld. AR submitted that the amount of Rs. 25,43,072/- being the liability no longer required written back and in the above decisions, aforesaid provisions being considered as operating in the year of creation and being considered to arrive at the operating margin of those years. After careful consideration, we observed from the Annexure 2 submitted before us clearly indicates that assessee has treated liabilities no longer required as other income of the assessee of Rs. 54,45,780/- and however, the same was allocated between AE and no- AE on the basis of revenue. Accordingly, assessee has allocat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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