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2023 (8) TMI 714 - AT - Income TaxTP Adjustment - downward adjustment towards management fees paid to AE - HELD THAT - This issue needs to go back to the file of the AO/TPO for the impugned assessment year also. In so far as the arguments of the CIT-DR in light of decision of M/s. Lite-On Mobile India Pvt. Ltd 2021 (11) TMI 678 - ITAT CHENNAI we find that although co-ordinate Bench of the Tribunal has taken a different view, but in assessee s own case, this issue has been remitted back to the file of the lower authorities with specific directions, we prefer to follow the decision of the co-ordinate Bench in the assessee s own case for earlier assessment years and set aside the issue to the file of the AO/TPO for the impugned year also with similar directions to re-examine the issue of management fees paid to AE in light of various averments made by the assessee. Thus, we set aside the issue to the AO/TPO and direct the AO/TPO to re-examine the claim of the assessee in accordance with law. Accrual of income - Addition towards billing in excess of Revenue - HELD THAT - When the assessee rises bills, the customer has also claimed the expenditure based on the invoices raised by the assessee. So, on one side, the customer claims the expenditure for the works executed by the assessee and the other side, the assessee does not recognize the income and shown it in current liabilities. This leads to clear anomaly in reporting income and expenditure. Assessee contents that part of the Revenue reported in future years, but the contention of the assessee cannot be accepted for the simple reason that when the assessee is following mercantile system of accounting, Revenue should be recognized as and when income accrues and arises to the assessee, irrespective of the fact that the assessee has received the income or not. In this case, the assessee has already raised invoices to its customers on the basis of percentage completion method and in our considered view, the moment assessee rises invoices, income accrues to the assessee. Therefore, the assessee needs to recognize Revenue when it has risen invoices. However, the assessee is postponing recognition of Revenue, even though, it has completed certain percentage of work and rise bills to the clients for the reasons best known to the assessee. There is no error in the reasons given by the AO/DRP to make additions towards billing in excess of Revenue, and thus, we are inclined to uphold the findings of the DRP and reject the ground taken by the assessee. Refund of excess DDT paid over and above the DTAA rate - HELD THAT - This issue has been decided against the assessee in the case of Total Oil India Pvt. Ltd 2023 (4) TMI 988 - ITAT MUMBAI (SB) where it has been held that non-resident shareholders cannot take advantage of the lower tax prescribed in DTAA over taxation of dividend where dividend tax is applicable. Therefore, we reject the additional grounds of appeal filed by the assessee. Deduction of cess paid in computing business income - HELD THAT - We find that the Hon ble Supreme Court in the case of JCIT v. Chambal Fertilizers Chemicals Ltd 2022 (12) TMI 1098 - SC ORDER had considered the issue and held that education cess claimed by the assessee would not be allowed as expenditure u/s. 37 r.w.s.40(a)(ii) of the Act. Therefore, we reject the additional grounds of appeal filed by the assessee on this issue. Procedural irregularity and breach of time limit for completion of proceedings - TP order passed which is beyond the timeline for completion of proceedings u/s 92CA(3A) - HELD THAT - As per provisions of Sec. 92CA of the Act, the TPO should pass their order at least 60 days prior to the last date, the period of limitation referred to in sec. 153 of the Act, for making assessment aspects. The assessment year involved in the present case is AY 2016-17. The extended time limit for completion of assessment in the given case is 31.12.2019. The period of 60 days prior thereto would run till 01.11.2019 and any date prior thereto would come to 31st October or before. If an order was passed on 01.11.2019, then same would be barred by limitation and this legal principle is supported by the decision of Hon ble jurisdictional High Court of Madras in the case of M/s. Pfizer Healthcare India Pvt. Ltd. Ors 2021 (2) TMI 1152 - MADRAS HIGH COURT . In this case, the TPO has passed their order on 01.11.2019 and assessment year involved is AY 2016-17. In our considered view, the case is squarely covered by the decision of ITAT Chennai Benches in the case of M/s. Verizon Data Verizon Data Services India Pvt. Ltd 2023 (3) TMI 190 - ITAT CHENNAI Thus, we quashed order passed by the TPO and consequent draft assessment order passed by the AO, directions issued by the DRP and final assessment order passed by the AO.
Issues Involved:
1. Downward adjustment towards management fees paid to AE. 2. Addition towards billing in excess of revenue. 3. Refund of excess Dividend Distribution Tax (DDT) paid over and above the DTAA rate. 4. Deduction of cess paid in computing business income. 5. Procedural irregularity and breach of time limit for completion of proceedings. Summary: 1. Downward Adjustment towards Management Fees Paid to AE: The first issue involves the downward adjustment of Rs. 3,78,78,968/- towards management fees paid to AE. The Tribunal found that the issue is covered in favor of the assessee by the ITAT's decision in the assessee's own case for earlier assessment years. The Tribunal remitted the issue back to the AO/TPO to re-examine the management fees paid to AE in light of various evidences filed by the assessee, following the TNMM method adopted by the assessee. 2. Addition towards Billing in Excess of Revenue: The second issue concerns an addition of Rs. 52,31,62,000/- on account of billing in excess of revenue. The AO added this amount to the total income, arguing that the assessee follows mercantile system of accounting and income accrues when bills are raised. The Tribunal upheld the AO/DRP's decision, stating that revenue should be recognized as and when income accrues and arises to the assessee, irrespective of receipt. 3. Refund of Excess DDT Paid over and above the DTAA Rate: The assessee sought a refund of excess DDT paid over the DTAA rate. The Tribunal rejected this ground, following the ITAT Special Bench decision in the case of Total Oil India Pvt. Ltd., which held that non-resident shareholders cannot take advantage of the lower tax rate prescribed in DTAA where DDT is applicable. 4. Deduction of Cess Paid in Computing Business Income: The assessee claimed deduction of cess paid in computing business income. The Tribunal rejected this ground, following the Supreme Court's decision in JCIT v. Chambal Fertilizers & Chemicals Ltd., which held that cess on income tax paid is not deductible while computing income from business. 5. Procedural Irregularity and Breach of Time Limit for Completion of Proceedings: For AY 2016-17, the assessee argued that the TPO's order dated 01.11.2019 was beyond the timeline prescribed under section 153(1) & (4) of the Act, rendering the draft assessment order, DRP directions, and final assessment order null and void. The Tribunal agreed, following the ITAT Chennai decision in M/s. Verizon Data Services India Pvt. Ltd., and quashed the TPO's order, draft assessment order, DRP directions, and final assessment order. Conclusion: The appeal for AY 2015-16 was partly allowed for statistical purposes, and the appeal for AY 2016-17 was allowed. The Tribunal's order was pronounced on May 10, 2023, in Chennai.
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