2024 (1) TMI 991 - AT - Income Tax

Deduction u/s 80IA - main claim of the assessee is that it has started claiming deduction u/s 80IA of the Act from AY 2005-06 onwards. Hence it is eligible for 100% deduction for AYs 2005-06 to 2009-10 and 30% deduction thereafter - AO had rejected the claim for deduction u/s 80IA of the Act on other miscellaneous income - HELD THAT - We notice that both the issues are covered by the decision rendered by co-ordinate bench in assessee s own case in AY 2008-09 2023 (5) TMI 576 - ITAT MUMBAI held that the assessee started telecommunication services after 01/04/1995 and hence, the assessee is eligible to claim deduction u/s 80IA(4) of the Act. Deduction in respect of interest income, miscellaneous income, cell site sharing revenue and net foreign exchange gain - As for assessment year 2005-06 2022 (12) TMI 28 - ITAT MUMBAI , the Tribunal has accepted assessee s claim of deduction u/s 80IA of the Act on other incomes, viz., interest income and miscellaneous income. Disallowance of depreciation claimed on Asset restoration cost obligation - HELD THAT - In the earlier years, this issue has been restored back to the file of AO by the Tribunal for examining the assessee s method of determining provision, since it was not examined by the AO. Following the order so passed by co-ordinate bench in the earlier years, we restore this issue to the file of AO with similar directions. Disallowance made u/s 14A - AR submitted that the assessee did not earn any exempt income during this year and also in earlier years - HELD THAT - Since the assessee did not earn any exempt income, the question of making disallowance u/s 14A of the Act will not arise as per the decision rendered by co-ordinate benches in the earlier years. The decision of Tribunal also gets support from the decision rendered in the case of IL FS Energy Development Company Ltd 2017 (8) TMI 732 - DELHI HIGH COURT Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 14A of the Act. Disallowance of interest relatable to interest free loans given to subsidiaries - HELD THAT - We notice that an identical disallowance made in AY 2006-07 2023 (5) TMI 508 - ITAT MUMBAI has been deleted by the Tribunal as relying on S.A Builders Ltd. case 2006 (12) TMI 82 - SUPREME COURT as held that once it is established that interest free loans has been advanced to sister concerns on account of commercial expediency, the interest paid on such loans by assessee cannot be disallowed. In so far as the objection of Revenue regarding advancement of loans to a loss making group concern, we hold that it is the assessee who has the exclusive right to take a call regarding advancing of loans to the group concern, the Assessing Officer cannot sit in the arm chair of the assessee and decide to whom loan is to be extended or at what rate of interest loan is to be extended. Once the assessee has been able to establish commercial expediency for extending the loan, which in our considered view the assessee has been successful in the present case, the interest expenditure cannot be disallowed. Thus we set aside the order passed by Ld CIT(A) and direct the AO to delete this disallowance. Disallowance of interest on Capital Work in Progress - A disallowed a part of interest expenditure relatable to Capital work in progress on the reasoning that the proviso to sec.36(1)(iii) requires disallowance of interest expenses incurred on borrowed capital used to acquire fixed assets - HELD THAT - We notice that an identical disallowance was made in AY 2006-07 and 2007-08 2023 (5) TMI 508 - ITAT MUMBAI respectively) and the said disallowance was deleted as recognized the fact that the new assets have only improved the quality of service and there is no expansion of area of operation. Accordingly, it has accepted the contentions of the assessee that the proviso to sec.36(1)(iii) will not apply to the facts of the present case. It was submitted that there is no change in facts in the current year. We also notice that the above said decision was followed in the assessee s own case in AY 2008-09 also. Accordingly, following the decision rendered in the earlier years, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance. Disallowance of expenses incurred in connection with raising loans - HELD THAT - We notice that an identical expenses incurred on raising loans were disallowed in AY 2006-07 and 2007- 08 and the co-ordinate bench has deleted the disallowance by following the decision rendered by Hon ble Supreme Court in the case of India Cements Ltd 1965 (12) TMI 22 - SUPREME COURT - Thus we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance. Disallowance of roaming charges u/s 40(a)(ia) of the Act for non-deduction of tax at source - HELD THAT - As decided in own case 2022 (10) TMI 826 - ITAT MUMBAI in AY 2008-09 held that the payment of roaming charges does not fall under the ambit of TDS provision either u/s. 194C or 194J of the Act, hence, addition made u/s. 40(a)(ia) of the Act was deleted. Disallowance of discount extended on pre-paid cards/recharge vouchers u/s 40(a)(ia) for non-deduction of tax at source - HELD THAT - As brought to our notice that an identical issue was examined by the co-ordinate bench 2023 (2) TMI 1250 - ITAT MUMBAI relating to AY 2009-10 in the case of M/s Vodafone Idea Ltd (As successor to Spice Communications Ltd) and the Tribunal has held that the TDS is not deductible from the discount paid on prepaid cards. Thus we hold that the assessee is not liable to deduct tax at source from the discount paid on prepaid sim card/recharge vouchers. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 40(a)(ia). TP adjustment on the payment made for technology support services - A.R submitted that the AO took the view that the assessee did not furnish any evidence to justify that the services have been rendered and also did not furnish the details of allocation keys - whether the TPO can determine the ALP of international transactions as NIL? - HELD THAT - As decided in M/S. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. 2014 (5) TMI 897 - DELHI HIGH COURT TPO is required to determine the ALP of international transactions under any of the methods prescribed under the Income tax Rules, i.e., the TPO is not correct in determining the ALP at Nil without establishing that a third party would not have paid any money under similar circumstances. The TPO is not empowered to disallow the expenses. Admittedly, in the instant case, the TPO did not examine the ALP of the impugned international transactions under any one of the methods prescribed under the Income tax Rules. Hence, he was not justified in determining the ALP of the impugned international transactions as NIL. We notice that the Ld DRP confirmed the same without proper reasoning. We notice that the Hon ble Delhi High Court in the above said case has restored the matter of determination of ALP of transactions to the file of AO/TPO. Accordingly, we set aside the order passed by Ld CIT(A) with regard to the determination of ALP of technology support charges to the file of AO/TPO with the direction to determine the ALP of both the transactions under any one of the methods prescribed under the Rules. The assessee is also directed to furnish all the information and explanations in support of the claim that the payments are at arms length. TP adjustment - reimbursement of salary and related costs on deputation of personnel to India - HELD THAT - We notice that an identical issue was examined by the co-ordinate bench in the assessee s own case in 2008-09 2023 (5) TMI 576 - ITAT MUMBAI and the matter was restored to the file of AO/TPO as held once it has been accepted that the five employees were seconded to India by overseas AEs, the relocation of those employees to India is a consequential step. There would be cost attached to relocation of such employees. The said cost has either to be borne by the AE or the assessee. This fact can be determined from the terms and conditions of secondment of employees. In case relocation costs/travel costs are borne by the assessee, the same deserves to be allowed if they are reimbursed on cost to cost or are paid directly to the seconded employees. Taking into consideration entire facts, we deem it appropriate to restore this issue back to the file of Assessing officer for re-examination. The assessee is directed to furnish relevant documents to substantiate that the costs disallowed by the DRP were in fact cost paid by the assessee towards relocation/travel of the seconded employees.

Summary

Issues Involved:
1. Deduction under Section 80IA of the Act.
2. Disallowance of depreciation on "Asset restoration cost."
3. Disallowance under Section 14A of the Act.
4. Disallowance of interest on interest-free loans to subsidiaries.
5. Disallowance of interest on Capital Work in Progress.
6. Disallowance of expenses incurred in raising loans.
7. Disallowance of roaming charges under Section 40(a)(ia) of the Act.
8. Disallowance of discount on pre-paid cards/recharge vouchers under Section 40(a)(ia).
9. Transfer pricing adjustment on payment for technology support services.
10. Transfer pricing adjustment on reimbursement of salary and related costs for deputed personnel.

Summary:

1. Deduction under Section 80IA of the Act:
The Tribunal addressed the appeal concerning the disallowance of deduction under Section 80IA. The revenue contended that the assessee started providing telecommunication services before 01-04-1995, making them ineligible for the deduction. However, the Tribunal, referencing a detailed order from AY 2005-06, held that the assessee commenced services after 01-04-1995 and thus qualified for the deduction. The Tribunal also addressed the issue of miscellaneous income and allowed the deduction based on prior decisions.

2. Disallowance of depreciation on "Asset restoration cost":
The Tribunal restored the issue back to the AO for re-examination, following the precedent set in earlier years where the AO was directed to examine the assessee's method of determining the provision.

3. Disallowance under Section 14A of the Act:
The Tribunal noted that the assessee did not earn any exempt income during the year, aligning with decisions from earlier years and the Delhi High Court ruling in IL & FS Energy Development Company Ltd. Consequently, the disallowance under Section 14A was deleted.

4. Disallowance of interest on interest-free loans to subsidiaries:
The Tribunal followed the Supreme Court's decision in S.A. Builders Ltd. and prior Tribunal decisions, concluding that the loans were advanced out of commercial expediency. The disallowance was deleted as the loans were given for business purposes and the assessee had sufficient own funds.

5. Disallowance of interest on Capital Work in Progress:
The Tribunal found that the new assets acquired improved service quality without expanding the business area, thus not triggering the proviso to Section 36(1)(iii). The disallowance was deleted, following earlier decisions.

6. Disallowance of expenses incurred in raising loans:
The Tribunal cited the Supreme Court's decision in India Cements Ltd., holding that expenses for raising loans are revenue in nature and thus allowable under Section 37(1). The disallowance was deleted.

7. Disallowance of roaming charges under Section 40(a)(ia) of the Act:
The Tribunal, referencing a similar case, held that roaming charges do not fall under TDS provisions of Section 194C or 194J. The disallowance under Section 40(a)(ia) was deleted.

8. Disallowance of discount on pre-paid cards/recharge vouchers under Section 40(a)(ia):
Following the Tribunal's decision in a similar case, it was held that the discount on prepaid sim cards/recharge vouchers does not attract TDS under Section 194H. The disallowance was deleted.

9. Transfer pricing adjustment on payment for technology support services:
The Tribunal noted that the TPO did not determine the ALP under any prescribed method. Citing the Delhi High Court's decision in CIT vs. Cushman and Wakefield, the Tribunal remanded the issue back to the AO/TPO for proper determination of ALP.

10. Transfer pricing adjustment on reimbursement of salary and related costs for deputed personnel:
The Tribunal restored the issue back to the AO/TPO for re-examination, directing the assessee to substantiate the costs with relevant documents, following the Tribunal's decision in the assessee's own case for AY 2008-09.

Conclusion:
The Tribunal allowed the assessee's appeal on multiple grounds, following precedents and legal principles, while dismissing the revenue's appeal. The order was pronounced on 8.11.2023.