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TMI Blog2018 (11) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... , direct the Assessing Officer to delete the addition Disallowance u/s 43B - disallowance on account of statutory liabilities payable - Held that:- AO has not properly appreciated the accounting entries in their due perspective. The marginal heading of section 43B clearly states that certain deductions to be allowed on actual payment. This means that if the assessee has claimed deductions, the same can be disallowed u/s 43B of the Act. However, in the case in hand, the assessee has not claimed any deduction as the input service tax and the output service tax have never been routed through the P&L Account. However, in the interest of justice and fair play, we restore this issue to the files of the Assessing Officer. The assessee is directed to explain the entries and the Assessing Officer is directed to verify the same. Disallowance of year end accruals - Held that:- Following the law laid down by the Hon'ble Apex Court in Rotork Controls India (P) Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA) we are of the considered view that when the taxpayer has worked out the liability by using a substantial degree of estimation by proving 95% of the invoices on the basis of historical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary of AT T Communication Services International Inc., USA which started its commercial operations during assessment year 2007-08 and its business operations can be divided into the following three broad categories:- i) Provision of market research, administrative support and liaison services; ii) Provision of network outsourcing services - solutions business; and iii) Provision of network support services - network monitoring and support. 4. During the relevant assessment year, the appellant undertook the following international transactions with its associated enterprises (AEs):- Sr. No. Particulars of transaction Amount (in Rs Cr) Result 1 Provision of market research, administrative support and liaison services ( MRA ) 91.29 Considered to be at Arm s Length by TPO 2. Provision of Network Support Services ( NSS ) 24.55 Considered to be at Arm s Length by TPO 3. Reimbursement of expenses to AEs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action, it would be deemed to be covering all the elements and consequences of the sale/service. 9. We further find that the assessee has not charged any interest from non-AEs even where the same is due for a period of approximately 119 days to over 1700 days and the average credit period extended to unrelated party customers works out to be 955 days. 10. It is pertinent to mention here that a similar adjustment was made in assessment year 2009-10 and the DRP deleted the same by observing that the interest foregone by the assessee on outstanding receivables from non-AEs is higher than the interest foregone from AEs. 11. For the sake of completeness of the adjudication, we find that the working capital adjustment subsumed in main international transaction has been accepted by the TPO inasmuch as working capital adjusted in operating margin of the comparable companies was taken by the TPO at 6.38% whereas appellant s margin was 16.78% in respect of Provision of network support services. The appellant s margin is 16.60% whereas arm s length margin accepted by the TPO was 7.01%. Once the working capital adjustment has been accepted, then, we do not find any merit in making f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the books of account in respect of output service tax and now service tax. It is the say of the counsel that the output service tax payable which is collected from and on behalf of customers to be deposited to the government account is shown as current liability in the balance sheet. Similarly, the input service tax credit which is levied by the vendors is recorded as a current asset under the head Loans and advances. The counsel vehemently stated that neither of the two is charged to Profit Loss Account. Therefore, there is no question of any disallowance u/s 43B of the Act. It is the say of the counsel that entries have not been properly appreciated by the Assessing Officer and, therefore, the Assessing Officer may be directed to verify the entries and decide the issue afresh. Per contra , the ld. DR could not add anything to what the Assessing Officer has done. 16. We have carefully considered the orders of the authorities below qua the issue. It appears that the Assessing Officer has not properly appreciated the accounting entries in their due perspective. The marginal heading of section 43B clearly states that certain deductions to be allowed on actual payment. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erlying facts in the issue, we find that the coordinate bench in the assessee s own case in assessment year 2010-11 has decided this issue in favour of the assessee. The coordinate Bench in ITA No.1016/Del/2015 has held as under:- 25. When undisputedly no mistake has beenpointed out by the Assessing Officer inthe calculation nor it is the case of the AO that the taxpayer had not paid certain bills and the taxpayer is following mercantile system of accounting and the expenses are having element of estimation as well as scientific basis, keeping in view the past trend, the expenses are required to be allowed in the year of creation itself, particularly, when the Revenue authorities has allowed the entire claim of expenditure in the subsequent years. 26. So, following the law laid down by the Hon'ble Apex Court in Rotork Controls India (P) Ltd. (supra) and the decision rendered by the coordinate Bench of the Tribunal in AGNSI in ITA No.1059/Del/2015 for AY 2010-11, we are of the considered view that when the taxpayer has worked out the liability by using a substantial degree of estimation by proving 95% of the invoices on the basis of historical trend, no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails of payment made and evidencing the payments thereof to dispute the genuineness of the expenses and the fact that the taxpayer as well as AGNSI are profit making entities and there was no tax incentives for the purpose to deflate the revenues earned by the taxpayer, the Revenue has based its decision on commercial consideration. Moreover, in case of both the resident parties, terms and conditions of the arrangement cannot be questioned by the Revenue unless specifically provided under the Act. In case of a contract by both the parties who are admittedly resident Indian entities, they make the law for themselves which cannot be interfered unless contract is unlawful or specially barred by the law of the land. Moreover by such a decision of not charging mark up by the taxpayer on support services charges billed to AGNSI, no loss of tax has been caused to Revenue. So, the findings of the TPO/DRP that the taxpayer is not only to cut charges but mark up also is not sustainable in the eyes of law. So, we order to delete the addition on account of not charging of mark up on support services charges billed to AGNSI. 25. Respectfully following the findings of the coordinate Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for and on behalf of AWPS. It is the say of the counsel that the seconded employees were not working in India to facilitate the business of AWPS, therefore, the payment made to the employees seconded by AWPS can only be classified as salary on which tax has been deducted at source u/s 192 of the Act and section 195 is not at all applicable on the facts of the case. Per contra , the DR, supporting the assessment order, stated that no employer-employee relationship has been brought on record between the assessee and the seconded employees and, therefore, provisions of section 195 are applicable and not section 192. The DR requested for upholding the findings of the Assessing Officer. 30. We have given a thoughtful consideration to the orders of the authorities below. It would be appropriate to reproduce the related statutory provision set out in section 195(1): Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al purposes. ITA No.1653/Del/2016 (A.Y. 2011-12) 34. Ground No.1 relates to the addition on account of mark up not charged on support services. 35. An identical issue was considered by us in ITA No.354/Del/2017 (supra) vide ground No.4 of the appeal. For our detailed discussion therein, this ground is allowed. Ground No.2 relates to the addition on account of year-end accruals. A similar issue was considered by us in ITA No.354 (supra) vide ground No.3 of the appeal. For our detailed discussion therein this ground is allowed. 36. Ground No.3 relates to the disallowance on account of statutory liabilities. A similar issue has been considered by us in ITA 354 (supra) vide ground No.2 of the appeal wherein we have restored the issue with certain directions to the files of the Assessing Officer. For similar reasons, we restore this issue to the files of the Assessing Officer to be decided accordingly. This ground is allowed for statistical purposes. 37. Ground No.4 relates to the transfer pricing adjustment of ₹ 1,10,99,474/-. 38. Before us, the counsel stated that this addition has been deleted by the Assessing Officer vide order dated 08.08.2016 framed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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