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2019 (10) TMI 1477 - AT - Income TaxTP adjustment in respect of receipt of Intra Group Services - HELD THAT - Tribunal while deciding the issue of Intra Group services availed by the assessee had held that Transactional Net Margin Method was the most appropriate method to be applied for benchmarking the said services and had deleted the adjustment made in the hands of the assessee. The findings of the Tribunal in Assessment Year 2014-15 with regard to the aforesaid issue of the Tribunal. We are referring to the aforesaid findings of the Tribunal but for the sake of brevity, are not reproducing the same. The facts of the present case are identical to the facts in the earlier years and following the same parity and reasoning, we allow the claim of the assessee. Transfer pricing adjustment of payment of royalty - whether benefit test is to be applied or not, while benchmarking the payment of royalty? - HELD THAT - The relevant findings of the Tribunal in this regard are reproduced in the order of the Tribunal relating to Assessment Year 2014-15 which are being referred, but not being reproduced for the sake of brevity. The Tribunal further noted that though the benefit test could not be applied to determine the Arm's Length Price of International Transaction but the matter was restored back to the Assessing Officer/TPO to examine as to whether the payment was based on the agreement and the same adheres to arms length price or not. Following the same parity and reasoning, we hold that the benefit tax could not be applied in the hands of the assessee. However, we remit the issue back to the file of Assessing Officer/TPO to carry out the comparability analysis with direction to confront the assessee with benchmarking analysis adopted and the comparables applied and also to look into the comparables selected by the assessee and decide the issue in accordance with law, after allowing a reasonable opportunity of hearing to the assessee. Disallowance made on account of Circuit Accruals - HELD THAT - Assessee following recognized method wherein the actual expenditure incurred against the accrual/provisions for the year is accounted for in the subsequent year. This approach adopted by the assessee in recognizing the provision of circuit accruals was not accepted by the Assessing Officer/ DRP on the ground that similar disallowance was made in the earlier years. We find that the Tribunal has consistently from Assessment Years 2009-10 to 2014-15 allowed the claim of the assessee in entirely. The relevant findings of the Tribunal in the Assessment Year 2014-15 which are being referred but not being reproduced for the sake of brevity. The assessee has also furnished evidence of the services provided in the subsequent year against the aforesaid accruals and in view thereof, we find no merit in the orders of the authorities below in making aforesaid disallowance in the hands of the assessee. Accrual are other than circuit accruals - HELD THAT - The assessee was following systematic method of accounting from year to year and was creating year end accruals towards normal business expenditure and was debiting the expenditure when paid or reversed in the subsequent years. The said details were furnished before the authorities below and the AR for the assessee has also referred to them before us. The Tribunal in Assessment Year 2014-15 relying on the orders of the Tribunal in the case of the assessee in earlier years had allowed the claim of the assessee vide paras of its order. Following the same parity of reasoning, we hold that the said expenditure is duly allowable in the hands of the assessee. Disallowance of support service expenses - HELD THAT - The availment of the support services from the AE was through support services agreement. The assessee claims that the allocation of cost of ₹ 10.22 crores is to be allowed in its hands. In this regard, we find that the issue has also been decided by the Tribunal in assessee s own case in earlier years and the Tribunal in Assessment Year 2014-15 had decided the said issue. While deciding the said issue, the Tribunal has remitted the same to the file of Assessing Officer with the direction to consider the evidences filed by the assessee of availment of support services from its AE. The AR for the assessee pointed out that all these evidences were duly filed before the authorities below. Following the same parity and reasoning as in Assessment Year 2014-15, we remit the issue back to the Assessing Officer to carry out the necessary verification exercise and decide the issue in accordance with our direction in the earlier years. We are relying on the findings of the Tribunal order vide page 16 to 18 and the same are not reproduced for the sake of brevity. Disallowance of annual revenue share based license fee - HELD THAT - Hon ble High Court in the case of CIT vs Bharti Hexacom Limited 2013 (12) TMI 1115 - DELHI HIGH COURT wherein held that the Revenue share based license fee was an allowable revenue expenditure u/s 37(1) of the Act. Similar proposition is also being laid down by the Tribunal in assessee s own case in Assessment Year 2014-15 under which are being referred but not being reproduced for the sake of brevity. Since the issue stands covered by the Jurisdictional High Court, we find no merit in the disallowance made in the hands of the assessee on this account. Hence, we direct the Assessing Officer to allow the claim of the assessee. TDS u/s 194I - Non -deduction of tax on lease line expenses - HELD THAT - We hold that there was no requirement to deduct tax at source u/s 194I of the Act. Non-granting complete credit of taxes deducted at source - HELD THAT - As assessee pointed out that even an application u/s 154 of the Act was pending before the Assessing Officer in this regard. We direct the Assessing Officer to allow credit of TDS in the hands of the assessee as per the available data. Thus, Ground No.8 raised by the assessee is allowed.
Issues Involved:
1. Transfer Pricing Adjustment for Intra-Group Services 2. Transfer Pricing Adjustment for Payment of Royalty 3. Disallowance of Circuit Accruals 4. Disallowance of Year-End Accruals 5. Disallowance of Support Service Expenditure 6. Disallowance of Annual Revenue Share-Based License Fee 7. Disallowance of Lease Line Charges Due to Non-Deduction of Tax at Source 8. Short-Grant of Credit for Taxes Deducted at Source 9. Levy of Interest under Section 234B and 234C 10. Initiation of Penalty Proceedings Detailed Analysis: 1. Transfer Pricing Adjustment for Intra-Group Services: The Tribunal addressed the adjustment of ?17,83,93,654/- made by the Assessing Officer (AO) for intra-group services availed by the assessee. The AO, following the Transfer Pricing Officer (TPO), held that these services did not satisfy the arm's length principle and applied the Comparable Uncontrolled Price (CUP) method, determining the Arm's Length Price (ALP) as NIL. The Tribunal noted that similar issues in the assessee's earlier years (AY 2008-09 to AY 2014-15) were decided in favor of the assessee, where the Transactional Net Margin Method (TNMM) was deemed the most appropriate method. Consequently, the Tribunal allowed the assessee's claim, rejecting the adjustment. 2. Transfer Pricing Adjustment for Payment of Royalty: The Tribunal examined the adjustment of ?11,30,68,317/- for royalty payments. The TPO had rejected the TNMM applied by the assessee and used the CUP method, determining the ALP as NIL. The Tribunal reiterated its stance from earlier years that the benefit test could not be applied to determine the ALP of international transactions. However, it remitted the issue back to the AO/TPO for a fresh comparability analysis, directing them to share the benchmarking analysis with the assessee and consider the comparables selected by the assessee. 3. Disallowance of Circuit Accruals: The AO disallowed ?10,95,20,722/- for circuit accruals, claiming the assessee was shifting its tax liability. The Tribunal found that the assessee followed a consistent and scientific method of accounting for these accruals, which was accepted in earlier years (AY 2009-10 to AY 2014-15). The Tribunal allowed the assessee's claim, rejecting the disallowance. 4. Disallowance of Year-End Accruals: The AO disallowed ?1,00,82,744/- for year-end accruals, similar to the circuit accruals issue. The Tribunal noted that the assessee followed a systematic method of accounting for these accruals, which was accepted in earlier years. Following the same reasoning, the Tribunal allowed the assessee's claim. 5. Disallowance of Support Service Expenditure: The AO disallowed ?10,22,08,983/- for support service expenses paid to a group company. The Tribunal, referring to its earlier decisions, remitted the issue back to the AO for verification of the evidence provided by the assessee regarding the support services availed. 6. Disallowance of Annual Revenue Share-Based License Fee: The AO disallowed ?44,57,84,302/- for annual revenue share-based license fees, treating it as a capital expenditure. The Tribunal, following the jurisdictional Delhi High Court's decision in CIT vs. Bharti Hexacom Limited, held that such fees are revenue expenditure allowable under Section 37(1) of the Act. The Tribunal directed the AO to allow the claim. 7. Disallowance of Lease Line Charges Due to Non-Deduction of Tax at Source: The AO disallowed ?1,31,66,943/- for lease line charges, claiming the tax should have been deducted under Section 194I instead of 194J. The Tribunal, following its earlier decisions, held that there was no requirement to deduct tax under Section 194I and allowed the assessee's claim. 8. Short-Grant of Credit for Taxes Deducted at Source: The Tribunal directed the AO to grant complete credit for taxes deducted at source as per the available data, noting that an application under Section 154 was pending. 9. Levy of Interest under Section 234B and 234C: The Tribunal noted that the issue of interest under Sections 234B and 234C is consequential and dismissed the ground. 10. Initiation of Penalty Proceedings: The Tribunal dismissed the ground regarding the initiation of penalty proceedings under Section 274(1)(c) as premature. Conclusion: The appeal of the assessee was allowed, with directions for remand and verification on specific issues where necessary. The Tribunal consistently referred to its earlier decisions and the jurisdictional High Court's rulings to decide in favor of the assessee on most grounds.
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