2017 (9) TMI 1153 - AT - Income Tax

Disallowance of interest incurred on External Commercial Borrowings (ECBs) - Held that - Since there is no change in facts in this year from the facts in preceding year accordingly, the findings given therein para no 18 of that order where the claim of the assessee is allowed . hence for this year too we direct the ld AO to disallow the above disallowance. Hence, ground no 1 of the appeal is allowed. Disallowance of circuit accruals - Held that - Since there is no change in facts in this year from the facts in preceding year where in this claim is allowed and ld AO was directed to delete the disallowance. We also direct similarly for this ground in this year also as there is no change in the facts and circumstances of the case. Accordingly, the findings given above shall apply to this ground as well. Disallowance of year-end accruals - Held that - Since creation of the year end accruals does not result accrual of income to an identified vendor, the same cannot trigger a withholding tax liability on the part of the appellant. However as the ld AO has disallowed the above amount as the assessee has not produced the relevant basis of making the above provision the issue needs to be set aside to the file of the ld AO with a direction to the assessee to produce the basis of above provisionsing before the ld AO , who may verify the same and if found in accordance with the above finding and if pertaining to the impugned assessment year allow the claim of the assessee. Disallowance of annual revenue shares based license fee - Held that - We agree with the contention of the assessee that the expense incurred towards revenue share based license fee for maintenance and usage of telecom license payable to Department of Telecom is a recurring fee paid by the license holder on periodic basis towards maintenance and use of the license and the benefit of the same does not extend beyond the close of the year. Further, it is also relevant to note here benefit of the revenue share based license fees paid during one financial year cannot be extended to the subsequent financial year, for which license fee is to be paid separately upon the adjusted gross revenues of such subsequent year. Therefore, payment of the aforesaid annual fee cannot be said to confer any right of an enduring nature upon appellant. It is also important to note that in the immediately succeeding year on same facts, the DRP has allowed the claim of the licence fees on revenue basis u/s 37(1) of the Act. Transfer Pricing Matters - non-charging of interest (on overdue receivables) from AEs as well as Non- AEs - main crux of assessee s submission is that the transfer pricing officer could not have re-characterized the over-due receivables as loan - Held that - We disagree with the views of the assessee that outstanding receivables is not an international transaction. According to us the explanation (i) (c) covers this transactions. However as assessee has raised contention that assessee as a policy, is not charging any interest either from AE or non AE, then notional interest should not be included on the outstanding dues from the AEs and further the claim of the assessee that no interest is charged on outstanding receivables from unrelated parties even in the cases where the payment is not received for more than 6 months, these issues needs to be examined by the ld TPO afresh , therefore we set aside this issues to the file of the ld TPO for fresh examination with a direction to the assessee to support its contentions with the documents and workings . Accordingly this ground of appeal is allowed with above direction.

Issues Involved:
1. Disallowance of interest incurred on External Commercial Borrowings (ECBs)
2. Disallowance of circuit accruals
3. Disallowance of year-end accruals
4. Disallowance of annual revenue shares based license fee
5. Disallowance of unexplained investment
6. Transfer Pricing Matters
7. Levy of interest under section 234B and 234D of the Act
8. Withdrawal of interest under section 244A of the Act
9. Initiation of penalty proceedings
10. Support Service Expenditure (Revenue's appeal)

Detailed Analysis:

1. Disallowance of Interest Incurred on External Commercial Borrowings (ECBs):
The assessee appealed against the disallowance of ?80,62,508 towards interest expenditure incurred on ECBs. The tribunal noted that this issue had already been decided in favor of the assessee for the previous assessment year (AY 2009-10) and directed the AO to disallow the above disallowance for the current year as well. Consequently, this ground of appeal was allowed.

2. Disallowance of Circuit Accruals:
The AO/DRP disallowed ?3,217,258 on account of year-end accruals for bandwidth and last mile services due to the lack of supporting documents. The tribunal referred to the decision for AY 2009-10, where the claim was allowed, and directed the AO to delete the disallowance for the current year as well. Hence, this ground of appeal was allowed.

3. Disallowance of Year-End Accruals:
The AO disallowed ?2,368,651 for salary accrual and SIP accrual due to the non-submission of supporting documents. The tribunal, referencing the principles laid down by the Supreme Court in the cases of Rotork Controls India (P) Ltd and Bharat Earth Movers, allowed the claim of provision on an accrual basis. The tribunal directed the AO to verify the basis of provisioning and, if found in accordance with the findings, allow the claim. Thus, this ground of appeal was allowed.

4. Disallowance of Annual Revenue Shares Based License Fee:
The AO disallowed ?23,10,71,248 by treating the annual license fee as a capital expenditure to be amortized under section 35ABB. The tribunal, referencing the Delhi High Court's decision in CIT vs. Bharti Hexacom Limited, concluded that the revenue share-based license fee is a recurring fee and should be allowed as a revenue expenditure under section 37(1). Hence, this ground of appeal was allowed.

5. Disallowance of Unexplained Investment:
The assessee did not press this ground of appeal, and it was dismissed.

6. Transfer Pricing Matters:
The TPO/AO determined the arm's length price of intra-group services and royalty payments to be Nil. The tribunal referenced the decision for AY 2009-10, where similar issues were remanded to the AO for fresh examination. The tribunal directed the AO to re-examine the issues with specific directions, thus partly allowing the appeal on these grounds.

7. Levy of Interest Under Section 234B and 234D of the Act:
As these grounds were consequential in nature, no arguments were advanced, and the tribunal found no interference necessary.

8. Withdrawal of Interest Under Section 244A of the Act:
Similar to the previous ground, this was also consequential, and no interference was called for.

9. Initiation of Penalty Proceedings:
This ground of appeal was also consequential, and no arguments were advanced.

10. Support Service Expenditure (Revenue's Appeal):
The revenue appealed against the deletion of ?11,91,12,445 disallowed on account of support service expenditure. The tribunal referenced the decision for AY 2009-10, where the revenue's appeal on similar grounds was dismissed. Consequently, the tribunal dismissed the revenue's appeal for the current year as well.

Conclusion:
The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The tribunal's decisions were largely based on precedents set in the previous assessment year (AY 2009-10), emphasizing the importance of consistency in judicial decisions.

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