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2024 (11) TMI 1092 - AT - Income TaxAddition u/s 14A invoking provisions contained in Rule 8D - AO noted that the Appellant has earned exempt dividend income - HELD THAT - Where the interest-free owned funds available with the assessee are more than the investments made in the tax-free securities, the presumption would be that investments in tax-free securities have been made out of interest-free own funds and proportionate disallowance of interest u/s 14A of the Act was not warranted on the ground that separate accounts were not maintained by assessee for making investments and for other expenditure incurred for earning tax-free income. In the present case, the Revenue has failed to bring any material on record to rebut the aforesaid presumption which is in the favour of the Appellant given the facts and circumstances of the present case. Accordingly, we accept the contention of the Appellant that no disallowance under Rule 8D(2)(ii) of the IT Rules was warranted in the present case and therefore, addition of INR 406.51 Crores made by the Assessing Officer by disallowing proportionate interest cost is deleted. Disallowance made u/Rule 8D(2)(iii) of the IT Rules - We find that Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investments Pvt. Ltd 2017 (6) TMI 1124 - ITAT DELHI has held that for computing the disallowance under Rule 8D(2)(iii) of the IT Rules only the investments yielding exempt income are to be taken into consideration. Accordingly, we direct the Assessing Officer to recompute the disallowance under Rule 8D(2)(iii) of the IT Rules read with Section 14A of the Act. Adjustment in respect of addition/disallowance u/s 14A to the Book Profits computed u/s 115JB - We find that no such adjustment was proposed in the Draft Assessment Order. The directions received from DRP on 21/09/2017 also do not contain any directions to the AO to make any adjustment to Book Profits computed in terms of Section 115JB of the Act. Accordingly, the adjustment made by the AO in respect of addition/disallowance u/s 14A of the Act to the Book Profits computed under Section 115JB of the Act in the Final Assessment Order is deleted. TDS u/s 194H - Disallowance of discount extended to Pre-paid Distributors u/s 40(a)(ia) - discount extended represented the difference between the Maximum Retail Price (MRP) of the talk-time pre-paid connections; and the price at which these were transferred to the Pre-paid Distributors - AO treated the arrangement between the Appellant and Pre-paid Distributors as a Principal to Agent arrangement instead of Principal to Principal arrangement as claimed by Appellant on the basis of certain clauses of the agreement pertaining to exclusivity, right to inspect, etc. - HELD THAT - We find that identical issue has been decided by the Mumbai Bench of the Tribunal in the case of the Appellant for the Assessment Year 2009-10 2024 (1) TMI 991 - ITAT MUMBAI Concluded that tax was not required to be withheld u/s 194H of the Act from the upfront discount offered to Pre-paid Distributors, and consequently, no disallowance could be made under Section 40(a)(ia) of the Act for failure to deduct tax at source. Thus disallowance made u/s 40(a)(ia) of the Act in respect of discount extended to Pre-paid Distributors is deleted. Disallowance of depreciation on 3G Spectrum - Since the right to use 3G spectrum did not itself entitle a company to provide telecom services for which a telecom license was required, the Appellant treated such right as an 'Intangible Asset' for the purpose of Section 32 of the Act and accordingly, tax depreciation per the prescribed rate was claimed on such capitalized cost - HELD THAT - For the Assessment Year 2011-12 2024 (5) TMI 1490 - ITAT MUMBAI the depreciation in respect of spectrum charges as claimed by the Appellant was allowed by the Assessing Officer. Subsequently, order of revision was passed under Section 263 of the Act on the ground that depreciation in respect of the 3G spectrum charges was incorrectly allowed to the Appellant by the Assessing Officer and that the Appellant could only be allowed the benefit of amortization. In appeal preferred against the aforesaid order passed under Section 263 of the Act for the Assessment Year 2011-12, the Mumbai Bench of the Tribunal concluded that depreciation in respect of 3G spectrum charges was correctly allowed by the Assessing Officer vide. Vodafone India Ltd. Vs. Principal Commissioner of Income Tax-8 2020 (8) TMI 954 - ITAT MUMBAI Thus, we direct the AO to allow depreciation in respect of the 3G spectrum charges capitalize by the Appellant under Section 32(1)(ii) of the Act. TP Adjustment made in respect of the payment of brand royalty for obtaining the right to use of Vodafone trademark and trade name - HELD THAT - we note that during the course of hearing the Appellant had filed a fresh benchmarking study as per the directions of the Tribunal. The Revenue has again objected to the selection of comparables by the Appellant. Further, it was also contended on behalf of the Appellant that the corroborative benchmarking using Transaction Net Margin Method has also not been considered either by the TPO or DRP. Given the aforesaid factual matrix and keeping in view the fact that for the Assessment Years 2011-12 and 2012-13 the issue of benchmarking of the royalty transaction has been remanded back to the file of the TPO/AO we deem it appropriate to remand this issue back to the file of TPO / AO with the directions to decide the issue of transfer pricing adjustment in relation to international transaction of royalty payment afresh after granting the Appellant reasonable opportunity of being heard. Appellant is directed to file before the TPO/AO such documents/details/report as the Appellant may deem fit to support the contention that the royalty payment made by the Appellant to its AE are at arm s length while the TPO is directed to examine the same afresh for determining the ALP and consequent transfer pricing adjustment, if any, as per law. TP adjustment pertaining to reimbursement of expenses - HELD THAT -We deem it appropriate to grant to the Appellant another opportunity to substantiate its claim that the INR 7,09,65,777/- were incurred in relation to the employees deputed with the Appellant and that the same, having being recovered on cost to cost basis from the Appellant, was at arm s length. The Appellant is directed to furnish relevant documents/details to substantiate its claim. TPO/AO shall grant reasonable opportunity of hearing to the Appellant and shall decide the issue in accordance with law after taking into consideration the details/documents furnished by the Appellant and as per the directions issued by the Tribunal in the case of the Appellant for the Assessment Year 2008-09 2023 (5) TMI 576 - ITAT MUMBAI . Non-grant of additional credit of TDS as claimed by the Appellant on the basis of TDS Certificates filed during the course of assessment proceedings - AO is directed to grant credit of tax deducted at source as per law after verifying the claim of additional TDS Credit made by the Appellant during the assessment proceedings. Thus, Ground raised by the Appellant are allowed for statistical purposes.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance of discount extended to pre-paid distributors under Section 40(a)(ia). 3. Disallowance of depreciation on 3G Spectrum. 4. Transfer Pricing adjustment - General Grounds. 5. Transfer Pricing adjustment on account of brand royalty payment. 6. Transfer Pricing adjustment on account of reimbursement expenses. 7. Levy of interest under Sections 234D and 244A. 8. Non-grant of full credit in respect of Tax Deducted at Source (TDS). 9. Initiation of Penalty Proceedings under Section 271(1)(c). Detailed Analysis: 1. Disallowance under Section 14A: - The Tribunal addressed the disallowance of INR 4,42,12,40,500/- made under Section 14A by the Assessing Officer, which was computed using Rule 8D of the Income Tax Rules. The appellant argued that no fresh investments were made during the relevant year and that the investments were funded through internal accruals, not borrowed funds. The Tribunal, referencing the Supreme Court's decision in South Indian Bank Ltd. Vs. CIT, held that where interest-free own funds exceed investments, it is presumed that investments are made from these funds. Thus, the disallowance of interest was deleted. The Tribunal also directed the AO to recompute disallowance under Rule 8D(2)(iii) considering only investments yielding exempt income. Additionally, the Tribunal deleted the adjustment made to Book Profits under Section 115JB, as it was not proposed in the Draft Assessment Order. 2. Disallowance of Discount to Pre-paid Distributors: - The Tribunal examined the disallowance under Section 40(a)(ia) for non-deduction of TDS on discounts extended to pre-paid distributors. The AO treated these discounts as commission, requiring TDS under Section 194H. However, the Tribunal, following its decision in the appellant's case for prior years, held that the relationship between the appellant and distributors was Principal to Principal, not Principal to Agent. Thus, no TDS was required, and the disallowance was deleted. 3. Disallowance of Depreciation on 3G Spectrum: - The Tribunal addressed the disallowance of depreciation on 3G Spectrum charges, which the AO treated as amortizable under Section 35ABB, not depreciable under Section 32. The Tribunal, referencing its earlier decisions, concluded that 3G spectrum is an intangible asset eligible for depreciation under Section 32(1)(ii), not Section 35ABB. Therefore, the Tribunal directed the AO to allow depreciation on 3G Spectrum charges. 4. Transfer Pricing Adjustment - General Grounds: - The Tribunal dismissed these grounds as being general in nature and not requiring separate adjudication. 5. Transfer Pricing Adjustment on Brand Royalty Payment: - The Tribunal examined the adjustment made for royalty payments to the AE for using the "Vodafone" trademark. The TPO had determined the ALP as Nil, arguing that the appellant performed all DEMPE functions without compensation. The Tribunal, noting similar issues in prior years, remanded the matter to the TPO/Assessing Officer for fresh determination, allowing the appellant to present supporting documents. 6. Transfer Pricing Adjustment on Reimbursement Expenses: - The Tribunal addressed the adjustment on reimbursement of expenses related to seconded employees. The TPO had determined the ALP as Nil for certain costs. The Tribunal, following prior decisions, remanded the issue to the TPO/Assessing Officer for re-examination, allowing the appellant to substantiate its claim with relevant documents. 7. Levy of Interest under Sections 234D and 244A: - The Tribunal disposed of these grounds as consequential, directing the AO to recompute interest as per law. 8. Non-grant of Full Credit in Respect of TDS: - The Tribunal directed the AO to verify and grant credit for additional TDS certificates filed by the appellant during assessment proceedings. 9. Initiation of Penalty Proceedings under Section 271(1)(c): - The Tribunal dismissed this ground as premature, as the initiation of penalty proceedings is not an appealable order. In conclusion, the appeal was partly allowed, with several issues remanded for further examination or adjustments directed as per the Tribunal's findings.
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