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2021 (11) TMI 873 - AT - Income TaxTP adjustment with respect to receipt of Intra-Group Services - TPO was of the view that the assessee had not received any benefit from such services and hence, the Arm's Length Price of the alleged services were held to be NIL, on application of Comparable Uncontrolled Price ( CUP ) method - HELD THAT - The issue of intra group services, availed by the assessee has been benchmarked by the TNMM which has been found to be acceptable by the Tribunal for the earlier year 2014-15 and 2015-16. Since, the facts are identical, we hereby allow the claim of the assessee. ALP of the royalty determined @1.73% - We have gone through the history of the case and found that the issue has been limited back to the file of the AO to carry out comparability analysis with direction to provide an opportunity to the assessee with benchmarking analysis adopted and the comparables applied so. For the sake of ready reference, the order of the Co-ordinate Bench of ITAT in the case of the assessee for the earlier year 2019 (10) TMI 1477 - ITAT DELHI Since, the factual and legal position remains unaltered except the quantum involved, we hereby referred the matter to the TPO to examine the issue afresh after affording due opportunity to the assessee. Circuit Accruals - The assessee is estimating the expenses to be incurred on account of circuit accruals. The said accounting is through an automated system, which is used by the assessee as an operational tool and such method is followed by all the connected companies of the group worldwide. The assessee claimed the said expenditure as business expenditure. Further, the assessee also following recognized method wherein the actual expenditure incurred against the accrual/provisions for the year is accounted for in the subsequent year. This approach adopted by the assessee in recognizing the provision of circuit accruals was not accepted by the Assessing Officer/ DRP on the ground that similar disallowance was made in the earlier years. We find that the Tribunal has consistently from Assessment Years 2009-10 to 2014-15 allowed the claim of the assessee in entirely. Disallowance of year-end Accruals - The assessee was following systematic method of accounting from year to year and was creating year end accruals towards normal business expenditure and was debiting the expenditure when paid or reversed in the subsequent years. The said details were furnished before the authorities below and the AR for the assessee has also referred to them before us. The Tribunal in Assessment Year 2014-15 relying on the orders of the Tribunal in the case of the assessee in earlier years had allowed the claim of the assessee. Following the same parity of reasoning, we hold that the said expenditure is duly allowable in the hands of the assessee. Support Service Expenditure - The assessee had incurred the said expenditure of support services on account of services availed from the group company in different fields of operation, which was necessary and imperative for carrying on its business. No mark up was charged on the said services provided by the AE. The availment of the support services from the AE was through support services agreement. While deciding the said issue, the Tribunal has remitted the same to the file of Assessing Officer with the direction to consider the evidences filed by the assessee of availment of support services from its AE. The AR for the assessee pointed out that all these evidences were duly filed before the authorities below. However, following the same parity and reasoning as in Assessment Year 2015-16, we remit the issue back to the Assessing Officer to carry out the necessary verification exercise and decide the issue in accordance with our direction in the earlier years. Share based License Fee - We find that the issue stand squarely covered by the order of the Hon ble High Court in the case of CIT vs Bharti Hexacom Limited 2013 (12) TMI 1115 - DELHI HIGH COURT wherein held that the Revenue share based license fee was an allowable revenue expenditure u/s 37(1) of the Act. Similar proposition is also being laid down by the Tribunal in assessee s own case in Assessment Year 2015-16. Since, the matter is repetitive in nature and in the absence of any change in the factual and legal propositions, we hereby direct that the addition made, be deleted. TDS on Lease Line Charges - TDS u/s 194I OR 194J - assessee had withheld tax on lease line charges paid to other telecom operators u/s 194J of the Act. The claim of the assessee was that the lease line services were standard automatic services which were availed by any telecom service provider for the transmission of data and was not under any exclusive arrangement - HELD THAT -.As relying on Tribunal for Assessment Year 2014-15 2019 (8) TMI 552 - ITAT DELHI we hold that there was no requirement to deduct tax at source u/s 194I of the Act. Taxability on Education Cess - allowability of cess u/s 37 - HELD THAT - As keeping in view the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66 ITJ(19), the orders of Co-ordinate Benches of ITAT and judicial pronouncements of the Hon ble High Court of Bombay and Hon ble High Court of Rajasthan, we hereby hold that the assessee is eligible to claim the deduction of the Education Cess as per the provisions of Section 37 of the Income Tax Act.
Issues Involved:
1. TP adjustment with respect to receipt of Intra-Group Services 2. TP adjustment with respect to payment of royalty 3. Disallowance of circuit accruals 4. Disallowance of year-end accruals 5. Disallowance of support service expenditure 6. Disallowance of annual revenue share based license fee 7. Disallowance of lease line charges on account of non-deduction of tax at source 8. Short-grant of credit for taxes deducted at source 9. Allowability of road tax and value added tax on assets taken on lease 10. Allowability of education cess and higher and secondary education cess Detailed Analysis: 1. TP Adjustment with Respect to Receipt of Intra-Group Services: The assessee contested the enhancement of income by INR 17,67,56,395 due to the TPO's determination that the intra-group services did not satisfy the arm’s length principle. The Tribunal had previously ruled in favor of the assessee for similar issues in earlier years (AY 2008-09 to AY 2015-16). The Tribunal accepted the TNMM method used by the assessee for benchmarking and allowed the claim. 2. TP Adjustment with Respect to Payment of Royalty: The TPO adjusted the royalty payment by INR 17,64,30,505, reducing the royalty rate from 4% to 1.73%. The Tribunal remitted the issue back to the AO/TPO to conduct a comparability analysis, confront the assessee with the benchmarking analysis, and consider the comparables selected by the assessee, following the precedent set in earlier years. 3. Disallowance of Circuit Accruals: The AO/DRP disallowed INR 5,18,23,315 for circuit accruals, which the assessee claimed based on a consistent and scientific method. The Tribunal had allowed similar claims in earlier years (AY 2009-10 to AY 2014-15). The Tribunal upheld the assessee’s method and allowed the claim. 4. Disallowance of Year-End Accruals: The AO/DRP disallowed INR 62,972 for year-end accruals. The assessee followed a systematic method of accounting and provided evidence for the same. The Tribunal, relying on earlier decisions, allowed the claim, recognizing the accruals as legitimate business expenditures. 5. Disallowance of Support Service Expenditure: The AO/DRP disallowed INR 8,75,98,575 paid to ACSI for support services. The Tribunal remitted the matter to the AO to verify the evidence provided by the assessee and decide the issue in line with earlier years' directions. 6. Disallowance of Annual Revenue Share Based License Fee: The AO/DRP disallowed INR 40,17,70,517, treating it as capital expenditure. The Tribunal referenced the Delhi High Court’s decision in Bharti Hexacom Ltd., which treated such fees as revenue expenditure under section 37(1) of the Act, and directed the deletion of the addition. 7. Disallowance of Lease Line Charges on Account of Non-Deduction of Tax at Source: The AO/DRP disallowed INR 8,55,380 under section 40(a)(ia) for non-deduction of tax under section 194I. The Tribunal held that there was no requirement to deduct tax under section 194I, referencing similar decisions in earlier years. 8. Short-Grant of Credit for Taxes Deducted at Source: The AO erred in granting complete credit for taxes deducted at source. The Tribunal directed the AO to rectify the error and grant the correct credit. 9. Allowability of Road Tax and Value Added Tax on Assets Taken on Lease: The Tribunal did not specifically address this issue as it was not raised before the DRP. 10. Allowability of Education Cess and Higher and Secondary Education Cess: The Tribunal allowed the deduction of education cess, relying on the Rajasthan High Court’s decision in Chambal Fertilizers and Chemicals Ltd. and other judicial precedents, which held that education cess is not a tax and is an allowable expenditure under section 37. Conclusion: The Tribunal allowed the appeal of the assessee on most grounds, remitting certain issues back to the AO/TPO for further analysis and verification. The stay application was dismissed as infructuous.
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