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2022 (11) TMI 1352 - AT - Income TaxTP adjustment - Adjustment determined by bifurcating the marketing and business support services segment into ITES segment and MSS segment - HELD THAT - For assessment year 2013-2014 when the DRP had held that services rendered by the assessee are in the nature of marketing and support services and since no appeal preferred by the Revenue to the ITAT the matter had attained finality. Therefore we are of the view that the entire TP issue raised under marketing support services segment needs to be examined afresh by the AO / TPO in the light of the DRP s directions for assessment year 2013-2014. Thus respectfully following the decision of the coordinate bench of the Tribunal we remit the issue back to the AO/TPO for fresh consideration in the light of the DRP s directions for assessment year 2013-2014. It is ordered accordingly. Adjustment determined in respect of warranty cost -TPO made an adjustment on the basis that the Assessee had not made any recovery towards the warranty services and the out of pocket warranty charges paid to third parties and the same was upheld by the DRP - AR submitted that the Assessee has in fact recovered the expenses incurred in respect of the warranty services with a mark up of 5%. Therefore no further adjustment is warranted - HELD THAT - We notice that the coordinate bench of the Tribunal in assessee s own case for the assessment year 2009-10 2022 (3) TMI 1511 - ITAT BANGALORE since the services related to warranty are being handled by a third party and the assessee is being used 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 - Respectfully following the above decision we direct the TPO to re-examine the issue raised in ground no.5 afresh. It is ordered accordingly. TDS u/s 194H - Disallowance u/s 40(a)(ia) of rebates given to customers - assessee submitted before the AO that taxes were not liable to be deducted at source on the rebate given to distributors - AO was of the view that the transaction was between principal and agent and not principal to principal basis and therefore the assessee was obliged to deduct tax at source u/s. 194H - HELD THAT - Respectfully following assessee s own case for AY 2010-11 2023 (3) TMI 809 - ITAT BANGALORE we 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 after giving reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Disallowance of deferred revenue - AO brought to tax the deferred revenue by holding that the Income-tax Act does not provide for the concept of deferred revenue - HELD THAT - As relying on assessee own case for AY 2010-11 2023 (3) TMI 809 - ITAT BANGALORE held that when the services are rendered in a particular year the revenue deferred to such year is recognized as revenue during such year (amortised) and offered to tax and therefore it is clear that the Assessee has been recognizing the revenue periodically on the basis of accrual and offered them to tax - 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. Disallowance of fixtures and stores interiors expenses - expenditure was claimed as being revenue in nature and deductible under Section 37(1) of the Act for the reason that the said expenditure was incurred for maintaining uniformity in the franchisee stores and the Assessee neither owns nor derives any enduring benefit on such expenditure - HELD THAT - We notice that the coordinate bench of the Tribunal in the case of M/s. NIKE India Pvt. Ltd. 2022 (7) TMI 1329 - ITAT BANGALORE has considered a similar issue wherein AO has erroneously held that there was no termination clause in the agreement of lease and that the lease is permanent. We find that the lease is for a period of 4 years only and the assessee was to pay for lease rental as well interest-free security deposit for the lease and also that the assessee is required to incur the expenditure for interior and exterior works for carrying on the business as per brand specifications - 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 we hold that this expenditure is revenue in nature. In assessee s case the expenses are incurred for the purpose of refurbishing the showroom which provides the customers an environment where these products are sold in Dell exclusive stores 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.
Issues Involved:
1. Transfer Pricing Adjustments 2. Adjustment in respect of Warranty Cost 3. Disallowance under Section 40(a)(ia) of rebates given to customers 4. Disallowance of Deferred Revenue 5. Disallowance of Fixtures and Stores Interiors Expenses 6. Levy of Interest under Sections 234B and 234C Detailed Analysis: 1. Transfer Pricing Adjustments - Bifurcation of Marketing and Business Support Services into ITES and MSS Segments: - The Assessee provides business support services to Dell Global B.V. Singapore Branch (DGBV) which includes telephonic support, marketing support, and logistic support services. - The TPO bifurcated these services into ITES and MSS segments, benchmarking them separately, based on the assertion that the services rendered were essentially dissemination of information using IT medium. - The Tribunal noted that merely because services are rendered using IT medium, they cannot be termed as ITES. This was supported by the Tribunal's decision in the Assessee's own case for AY 2009-10. - The Tribunal remitted the issue back to the AO/TPO for fresh consideration in light of the DRP's directions for AY 2013-14, where it was held that the services rendered are in the nature of marketing and support services. - Erroneous Adjustment of Rs. 98.80 Crores as Warranty Cost: - The Assessee provides telephonic support services for products sold by DGBV in India, including services under warranty. - The TPO made an adjustment on the basis that the Assessee had not made any recovery towards the warranty services. - The Tribunal directed the TPO to re-examine the issue afresh, following the Tribunal's decision in the Assessee's own case for AY 2009-10, where it was held that no mark-up is warranted as the services related to warranty are handled by third-party service providers. 2. Adjustment in respect of Warranty Cost - The Tribunal directed the TPO to re-examine the issue of adjustment towards warranty cost afresh, following the Tribunal's decision in the Assessee's own case for AY 2009-10. 3. Disallowance under Section 40(a)(ia) of rebates given to customers - The AO disallowed an amount of Rs. 40,72,04,283 as rebate given to distributors, asserting that it was subject to TDS under Section 194H. - The Tribunal noted that the relationship between the Assessee and the distributors was on a principal-to-principal basis, not attracting the provisions of Section 194H. - The Tribunal remitted the issue to the AO for verification of the agreements with the distributors and decide the allowability based on the ratio laid down by the Hon'ble High Court. 4. Disallowance of Deferred Revenue - The AO brought to tax the deferred revenue of Rs. 105,43,36,985, holding that the Income-tax Act does not provide for the concept of deferred revenue. - The Tribunal accepted the Assessee's contention that the revenue for warranty services is recognized on a straight-line basis over the period of the contract. - The Tribunal deleted the addition made by the AO, following the Tribunal's decision in the Assessee's own case for AY 2010-11. 5. Disallowance of Fixtures and Stores Interiors Expenses - The AO classified an expenditure of Rs. 4,25,15,813 towards fixture and stores interiors as capital in nature. - The Tribunal held that the expenses incurred for refurbishing the showroom to maintain uniform standards across franchisee stores are revenue in nature. - The Tribunal allowed the Assessee's claim, following the Tribunal's decision in the case of Nike India Pvt. Ltd. 6. Levy of Interest under Sections 234B and 234C - The Tribunal directed the AO to verify and compute the interest under Section 234C in accordance with the law, as the issue is consequential. Conclusion: - The appeal of the Assessee is partly allowed, and the revenue's appeal is allowed for statistical purposes. - The Tribunal remitted several issues back to the AO/TPO for fresh consideration and verification based on the Tribunal's previous decisions and directions.
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