2023 (3) TMI 809 - AT - Income Tax

TP Adjustment - Adjustment determined in respect of warranty cost - Assessee provides telephonic support services for standard problems to the customers who purchase the products sold by DGBV in India - HELD THAT - We notice that the coordinate bench of the Tribunal in assessee s own case 2022 (3) TMI 1511 - ITAT BANGALORE for has considered the issue of adjustment towards warranty cost assessee is directed to demonstrate to the TPO that the above reimbursement has either been reduced from the costs or accounted for separately. In absence of such demonstration, the TPO can take the above to be a part of the warranty costs debited to the P L account and effect suitable adjustment. 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 afresh. It is ordered accordingly. This ground is allowed for statistical purposes. Accrual of income - Addition of deferred revenue - amount received towards warranty is not refundable even when the customer cancels the warranty agreement - main ground on which the DRP confirmed the order of AO is that the amount received towards warranty is not refundable even when the customer cancels the warranty agreement - HELD THAT - We are of the view that 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. Miscellaneous expenses - AO disallowed expenditure for want of evidence - DRP confirmed the disallowance - HELD THAT - We notice that the reason for disallowance of the expenditure by the lower authorities is that the assessee has failed to produce any evidence supporting the claim. The assessee has now submitted the additional evidence substantiating the claim of the expenditure which goes the root of the issue. For a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record. We also notice that the DRP has not considered the evidences submitted by the assessee before the DRP. Therefore we remit this issue to the AO for verification of the evidence afresh and decision in accordance with law, after giving a reasonable opportunity of being heard to the assessee. Advances written off - AO rejected the claim of the assessee on that ground that deposit with sales tax department and service tax receivable cannot be written off as these are due from Government - HELD THAT - These are losses incurred in the normal course of business and cannot be termed as debts written off. Service tax amount as submitted that the amount in the year under consideration is claimed basis the actual write off against the reversal of the provisions. The fact that provisions when created during the assessment year 2008-09 and 2009-10 are disallowed in the computation is substantiated by the computation statement relating to these years which were submitted as part of paper book. Given this the amount claimed as deduction on actual write off if disallowed will result in double disallowance provided the provisions are reversed and credited to the P L account of the year under consideration. This fact needs to examined based on evidences submitted in order to decide on the allowability of the advances write off. We therefore remit this issue back to the AO to verify the claim of the assessee factually based on evidences and allow the claim accordingly after giving an opportunity of being heard to the assessee. Provision for warranty and warranty expenses - Assessee had created a provision towards its obligation to provide warranty services, which it claimed as a deduction - AO disallowed the entire provision for warranty on the ground that it is not scientific and also disallowed expenses towards utilization of warranty on the ground that no evidence was submitted in support of such warranty expenses - HELD THAT - We notice that the method of creation of warranty provision has not undergone change and is consistent with what is described in order. Respectfully following the decision of the coordinate bench in assessee s own case for AY 2009-10 2022 (3) TMI 1511 - ITAT BANGALORE we direct the AO to allow the provision made towards warranty. TDS u/s 194H - Disallowance u/s 40(a)(ia) of rebates given to customers - HELD THAT - The assessee is distributing the products under two models i.e. Sales through distributors who act as agents and gets compensated on a commission basis. The second model is where the products are sold to the distributor and the distributer get a rebate in the products purchased based on the business volume. When the relationship between the assessee and the distributor is on a principal to principal basis, the rebate /volume discount given by the assessee on the price of products sold to distributer cannot be characterized as commission in order to attract section 194H of the Act thereby there is no liability to deduct tax at source. In agreements with distributors require examination to verify the claim of the assessee. We therefore 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 based on the ratio laid down in Bharti Airtel Ltd 2014 (12) TMI 642 - KARNATAKA HIGH COURT after giving reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Disallowance of future lease rentals - HELD THAT - During the course of hearing the ld AR submitted the details of lease rentals (principal and interest) for the year under consideration along with scheme of entries in the books of accounts pertaining to lease rentals. On perusal of the details it is noticed that the said amount relates to principal portion of the lease rentals, that relate to future years from FY 2010-11 onwards. Respectfully following the ratio laid down by the coordinate bench of the Tribunal in assessee s own case 2022 (3) TMI 1511 - ITAT BANGALORE that the entire lease rental income does not accrue in the first year as the same ought to be taxed as and when they accrue over the lease period we hold that the amount does not accrue to the assessee in the year under consideration and therefore delete the addition made by the AO in this regard. This ground is allowed in favour of the assessee. Deduction of provision disallowed under section 40(a)(ia) in AY 2009-10 reversed in the current AY - HELD THAT - The deduction as per the AR is done based on the fact that the provisions which are already disallowed in the previous assessment year is reversed and to avoid double disallowance the same is claimed as deduction in the computation. This fact has not been properly presented before the lower authorities. The lower authorities have to examine whether the year-end provision made on 31st March 2009 is fully reversed on 1st April 2009 and the expenses against which the provision was created is debited to the profit and loss account on payment after deducting TDS. This verification need to be carried out based on the journal entries and ledger copies produced by the assessee for the year under consideration which are submitted now in the form of additional evidence. If the accounting practice of the assessee to reverse the expenses on the 1st day of April of the year under consideration is substantiated by the evidences submitted by the assessee whereby it is demonstrated that there is no doubt allowance expenditure then the assessee would be entitled to claim the amount disallowed in the previous assessment year as otherwise it would amount to double disallowance. We therefore remit the issue back to the AO to verify the ledger and general entries of the assessee for the year under consideration and allow the expenditure in accordance with law. The assessee may be given a reasonable opportunity of being heard in this matter. The appeal is allowed in favour of the assessee for the statistical purposes. Disallowance of expenditure repairs and maintenance - HELD THAT - We notice that the assessee has submitted details pertaining to the amount disallowed by the AO and that the lower authorities have not examined the same. We therefore remit this issue to the AO with a direction to verify the evidence submitted in the form of agreements with Comsoft and the journal entries by the assessee and decide afresh in accordance with law. Short credit of TDS - AR submitted that in the final assessment order, the AO has given credit of TDS less as against reflected in Form 26AS - HELD THAT - After hearing the rival submissions we are remitting the issue back to the AO with a direction to examine the relevant evidences and give appropriate TDS credit accordingly. Levy of interest u/s.234A - HELD THAT - The levy of interest u/s.234A is towards the failure on the part of the assessee to furnish the return of income under sub-section (1) or sub-section (4) of section 139, or in response to a notice under subsection (1) of section 142, or is not furnished at all. In the given case we notice that the assessee has furnished the return of income on 15.10.2010 which is before the due date for furnishing the return of u/s.139(1) for the year under consideration. Therefore we are of the considered view that the levy of interest u/s.234A does not arise. The levy of interest by the AO in this regard is deleted. Additions made on account of suppression of income of sale of goods and services as under - Credit notes not considered - HELD THAT - The refund/credit for sales tax discharged cannot be claimed on credit notes raised beyond a period of 6 months from the date of sale for VAT purposes and hence there would not be a reduction in the taxable turnover as per the VAT return. However, the sales tax law per se do not restrict raising credit note after six months from the date of sale. The contention of the AO, that the credit notes pertaining to the sales made in earlier years cannot be claimed as deduction against the sales made during FY 2009-10 is not tenable. Hence we see no reason to interfere with the decision of the DRP that the Assessee s contentions cannot be brushed aside basis VAT and sales tax returns, and the value of goods returned by customers ought to be reduced from the value of sales irrespective of the date of the original sale. Standard warranty replacement - Considering the nature of transaction as explained and the evidenced supported by the assessee before the lower authorities we are of the view that the DRP has rightly directed deletion of the proposed addition based on the evidences filed. Goods in transit - We are of the view that the Assessee has not claimed the corresponding cost related to the GIT which has not been recorded as sales in the current year and therefore the we uphold the decision of the DRP in deleting the additions made in this regard. Internal consumption as per sales register - The taxable turnover disclosed in the VAT return towards such internal consumption should be reduced to reconcile the same with the revenue as per financials. In support of the contention, the assessee submitted details of such consumption along with invoice wise listing was furnished before the AO . Considering these facts we hold that the DRP was right in directing deletion of the adjustment. Scrap sales considered for sales tax return - Assessee in the financials credits the scrap sales to cost of materials used and discharges the VAT on the same, the turnover disclosed in the VAT return is reduced shown as part of the reconciliation - As submitted that once the scrap sales are credited to the cost of material used, no further addition is warranted - DRP has accepted the submission of the assessee and we are therefore of the considered view that rightly directed deletion of the addition on this count. Counter Veiling Duty part of turnover for VAT - While the duties/taxes are included in the turnover for the purposes of the other laws, they are not revenue to the Assessee. Therefore, we uphold the decision of the DRP in accepting the contention that same are not to be considered as revenue in the financials. Export turnover not part of sales tax return - We notice that the invoice-wise listing for the same were produced before the DRP and the DRP after the perusal of the above supporting evidences has deleted the addition made in this regard. We therefore see no reason to interfere with the decision of DRP. Disallowance of VAT refund claimed as deduction - As submitted that the amount of VAT refund cannot be considered as sales turnover and thus an adjustment was made in the reconciliation between taxable turnover as per VAT returns and sales turnover as per financial books - HELD THAT - Considering the facts explained above we are of the view that the DRP is correct in deleting the addition made in this regard. Miscellaneous expenses addition - As issue has already been taken up by us in the assessee s appeal and remitted to the AO for fresh consideration. This issue is accordingly allowed for statistical purposes. Addition u/s. 69C - unexplained expenditure - HELD THAT - We notice that the assessee has submitted the party wise breakup of the expenses and has submitted that the difference in the amount as per breakup and the amount as per profit and loss account is due to the amounts being debited to other line items in the profit and loss account or subsequent reversal. The submission that the entire amount is debited to the Profit and Loss account and accounted in the regular books of accounts, the same cannot be disallowed under Section 69C has merits as the source for the said expenditure is automatically explained. In our considered view the DRP has rightly considered the submissions and deleted the additions and we see no reason to interfere with the same. Disallowance of foreign exchange loss - HELD THAT - As decided in assessee own case 2022 (3) TMI 1511 - ITAT BANGALORE AO completely ignored the detailed workings on forex loss. Having mentioned in the order that sample invoice copies were submitted, the AO erred in contending that no evidences were provided by the assessee. The DRP rightly appreciated that evidences demonstrating foreign exchange loss had been submitted and that the same cannot be said to be contingent liability. Disallowance of other liabilities - HELD THAT - We notice that the assessee has produced the details relating major portion of the expenses to prove the genuineness of the expenditure. Considering the turnover of the assessee , the volume of transaction, the global presence of the assessee and the fact that substantial portion of the liabilities already evidenced, we are of the considered view that the other liabilities cannot be termed as bogus and therefore see no reason to interfere with the decision of the DRP.

Summary

Issues Involved:
1. Bifurcation of Marketing and Business Support Services Segment into ITES and MSS Segments
2. Adjustment Determined in Respect of Warranty Cost
3. Addition of Deferred Revenue
4. Miscellaneous Expenses
5. Advances Written Off
6. Provision for Warranty and Warranty Expenses
7. Disallowance under Section 40(a)(ia) of Rebates Given to Customers
8. Disallowance of Future Lease Rentals
9. Deduction of Provision Disallowed under Section 40(a)(ia) in AY 2009-10 Reversed in the Current AY
10. Disallowance of Expenditure - Repairs and Maintenance
11. Short Credit of TDS
12. Levy of Interest under Section 234A
13. Levy of Interest under Sections 234A, 234B & 234C
14. Suppression of Income of Sale of Goods and Services
15. Disallowance of Advances Written Off (Revenue's Appeal)
16. Addition under Section 69C
17. Disallowance of Foreign Exchange Loss
18. Disallowance of Other Liabilities

Detailed Analysis:

1. Bifurcation of Marketing and Business Support Services Segment into ITES and MSS Segments:
Facts:
- The Assessee provides business support services to Dell Global B.V. Singapore Branch.
- The TPO bifurcated the services into ITES and MSS segments.
- The DRP confirmed the TPO's order.

Decision:
- The Tribunal remitted the issue back to the AO/TPO for fresh consideration in light of the DRP's directions for AY 2013-2014.

2. Adjustment Determined in Respect of Warranty Cost:
Facts:
- The TPO made an adjustment based on the claim that the Assessee had not made any recovery towards warranty services.
- The Assessee contended that it had recovered the expenses with a mark-up of 5%.

Decision:
- The Tribunal directed the TPO to re-examine the issue afresh.

3. Addition of Deferred Revenue:
Facts:
- The AO added deferred revenue of Rs. 124,88,69,986/- by holding that the income accrued in the current year.
- The DRP upheld the AO's decision.

Decision:
- The Tribunal deleted the addition, holding that the Assessee's method of recognizing revenue over the period of service was correct.

4. Miscellaneous Expenses:
Facts:
- The AO disallowed Rs. 15,99,17,645 for want of evidence.
- The DRP confirmed the disallowance.

Decision:
- The Tribunal admitted additional evidence and remitted the issue back to the AO for verification.

5. Advances Written Off:
Facts:
- The AO disallowed advances written off, including fixed deposits and service tax receivables.
- The DRP allowed the claim for receivables from Intel but confirmed disallowance for others.

Decision:
- The Tribunal remitted the issue back to the AO for verification of evidence.

6. Provision for Warranty and Warranty Expenses:
Facts:
- The AO disallowed the entire provision for warranty.
- The DRP directed the AO to allow actual expenditure incurred.

Decision:
- The Tribunal directed the AO to allow the provision made towards warranty, following the decision in the Assessee's own case for AY 2009-10.

7. Disallowance under Section 40(a)(ia) of Rebates Given to Customers:
Facts:
- The AO disallowed Rs. 20,37,71,038/- for non-deduction of tax at source.
- The Assessee contended that the rebates were not subject to TDS.

Decision:
- The Tribunal remitted the issue to the AO for verification of agreements with distributors.

8. Disallowance of Future Lease Rentals:
Facts:
- The AO added Rs. 7,58,53,797/- as future lease rentals.
- The DRP confirmed the disallowance.

Decision:
- The Tribunal deleted the addition, following the decision in the Assessee's own case for AY 2009-10.

9. Deduction of Provision Disallowed under Section 40(a)(ia) in AY 2009-10 Reversed in the Current AY:
Facts:
- The AO disallowed Rs. 5,09,07,923/- for want of evidence of TDS.

Decision:
- The Tribunal admitted additional evidence and remitted the issue back to the AO for verification.

10. Disallowance of Expenditure - Repairs and Maintenance:
Facts:
- The AO disallowed Rs. 25,68,87,844/- for want of evidence.
- The DRP directed the AO to allow Rs. 22,34,94,650/- after verification.

Decision:
- The Tribunal remitted the issue back to the AO for verification of evidence.

11. Short Credit of TDS:
Decision:
- The Tribunal remitted the issue back to the AO for verification.

12. Levy of Interest under Section 234A:
Decision:
- The Tribunal deleted the levy of interest as the return was filed before the due date.

13. Levy of Interest under Sections 234A, 234B & 234C:
Decision:
- The Tribunal held these grounds as consequential and did not warrant separate adjudication.

14. Suppression of Income of Sale of Goods and Services:
Facts:
- The AO made an addition of Rs. 319,62,03,391/- for discrepancies in sales tax and service tax returns.
- The DRP granted relief except for Rs. 124,88,69,986/- deferred revenue.

Decision:
- The Tribunal upheld the DRP's decision to delete the additions based on the reconciliation provided by the Assessee.

15. Disallowance of Advances Written Off (Revenue's Appeal):
Decision:
- The Tribunal dismissed the ground as it was already decided in favor of the Assessee in the Assessee's appeal.

16. Addition under Section 69C:
Facts:
- The AO added Rs. 15,56,565/- as unexplained expenditure.

Decision:
- The Tribunal upheld the DRP's decision to delete the addition.

17. Disallowance of Foreign Exchange Loss:
Facts:
- The AO disallowed Rs. 24,59,80,821/- for want of evidence.

Decision:
- The Tribunal dismissed the ground, following the decision in the Assessee's own case for AY 2009-10.

18. Disallowance of Other Liabilities:
Facts:
- The AO disallowed Rs. 41,05,56,400/- as bogus purchases.

Decision:
- The Tribunal upheld the DRP's decision to delete the addition.

Conclusion:
- The Assessee's appeal is partly allowed.
- The Revenue's appeal is partly allowed for statistical purposes.