2017 (9) TMI 1149 - AT - Income Tax

Disallowance towards interest expenditure incurred in relation to the ECBs invoking the proviso to section 36(1)(iii) - AO observed that the ECBs have been utilized for acquisition of capital assets which have not been put to use, and thus the interest incurred till the date such assets have been put to use should be disallowed - Held that - This ground of appeal has already been decided in AY 2009-10 and AY 2010-11 by orders of even date deleting the disallowance. Since there is no change in facts in this year from the facts in preceding years, accordingly, we direct the ld AO to delete the disallowance of interest. Hence, ground no 2 of appeal is allowed. Disallowance of year-end accruals - Held that - This ground of appeal has already been decided in AY 2010-11 where this disallowance is deleted and since there is no change in facts in this year from the facts in preceding year, we direct the ld AO to delete the disallowance accordingly. In the result ground no. 4 of the appeal of the assessee is allowed. Disallowance of Support Service expenditure - Held that - This ground of appeal has already been decided in AY 2009-10 and AY 2010-11 by orders of even date deleting the disallowance. Since there is no change in facts in this year we direct the ld AO to delete the disallowance accordingly for this year too. Transfer Pricing Adjustment - Held that - As relying on earlier AYs we set aside this ground to the file of the ld AO with direction to determine ALP of the transactions. Disallowance on account of statutory liabilities payable - non-furnishing of challans for TDS payable on salary and on account of service tax - Held that - In view of this matter, we allow assessee opportunity to the assessee to submit the evidences before the lower authorities for necessary verification within 15 days of the receipt of this order and Ld AO is directed to verify the same and decide the issue in accordance with law.

Issues Involved:
1. Disallowance of interest expense on External Commercial Borrowings (ECBs)
2. Disallowance of circuit accruals
3. Disallowance of year-end accruals
4. Disallowance of support service expenditure
5. Transfer pricing adjustment
6. Disallowance on account of statutory liabilities payable
7. Non-grant of credit for taxes deducted at source and advance tax
8. Levy of interest under sections 234B and 234C
9. Initiation of penalty proceedings

Detailed Analysis:

1. Disallowance of Interest Expense on External Commercial Borrowings (ECBs):
The assessee contested the disallowance of ?38,53,481 towards interest expenditure incurred on ECBs used for acquiring fixed assets. The AO invoked the proviso to section 36(1)(iii) of the Income Tax Act, 1961, arguing that the ECBs were utilized for capital assets not put to use. The tribunal noted that this issue had been resolved in favor of the assessee for AY 2009-10 and AY 2010-11, where similar disallowances were deleted. Thus, the tribunal directed the AO to delete the disallowance of interest for the current year as well.

2. Disallowance of Circuit Accruals:
The AO disallowed ?1.03 crores out of the total circuit charges of ?175.03 crores, due to the lack of supporting invoices for certain accruals. The tribunal observed that this issue had been decided in favor of the assessee for AY 2009-10 and AY 2010-11, where similar disallowances were deleted. Consequently, the tribunal directed the AO to delete the disallowance of circuit accruals for the current year.

3. Disallowance of Year-End Accruals:
The AO disallowed ?1.20 crores out of the total year-end accruals of ?14.02 crores due to non-submission of supporting documents. The tribunal noted that this issue was resolved in favor of the assessee for AY 2010-11, where similar disallowances were deleted. Therefore, the tribunal directed the AO to delete the disallowance of year-end accruals for the current year.

4. Disallowance of Support Service Expenditure:
The AO disallowed ?13,42,85,216 paid to AT&T Communication Services India Private Limited for support services, maintaining consistency with the department's stand in AY 2008-09. The tribunal observed that this issue had been resolved in favor of the assessee for AY 2009-10 and AY 2010-11, where similar disallowances were deleted. Consequently, the tribunal directed the AO to delete the disallowance for the current year.

5. Transfer Pricing Adjustment:
The AO/TPO determined the arm's length price (ALP) of certain international transactions to be Nil, resulting in an adjustment of ?21,57,89,704. The tribunal noted that this issue had been set aside to the AO for redetermination in AY 2009-10 and AY 2010-11. Therefore, the tribunal set aside this ground to the AO with similar directions for the current year.

6. Disallowance on Account of Statutory Liabilities Payable:
The AO disallowed ?23,626 for TDS payable on salary and ?66,090 for service tax payable due to non-furnishing of challans. The tribunal allowed the assessee an opportunity to submit the necessary evidence before the lower authorities for verification, directing the AO to verify the same and decide the issue in accordance with the law.

7. Non-Grant of Credit for Taxes Deducted at Source and Advance Tax:
The tribunal directed the AO to grant the claim of TDS and advance tax while giving effect to the tribunal's order, in accordance with section 244A if applicable.

8. Levy of Interest Under Sections 234B and 234C:
The tribunal noted that these grounds were consequential in nature and premature, requiring no interference at this stage.

9. Initiation of Penalty Proceedings:
The tribunal observed that this ground was also consequential in nature and premature, requiring no interference at this stage.

Conclusion:
The appeal was partly allowed, with directions to delete various disallowances and adjustments, and to provide opportunities for verification of certain claims. The tribunal's order was pronounced in the open court on 18/09/2017.

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