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TMI Blog2022 (9) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... dit of TDS. 3. The assessee is a company registered under the Companies Act 1956, and is engaged in the business of rendering software development and related services to its AEs. Symphony Teleca Corp. USA. is the ultimate holding company of the assessee. 4. 4. During the previous year relevant to the assessment year 2015-16, the assessee filed the return of income on 27.11.2015 declaring a total income of Rs.162,92,31,690 under the normal provisions of the Act and book profits of Rs.191,53,33, 857 under the MAT provisions u/s. 115JB. The case was selected for scrutiny and notice u/s. 143(2) was duly served on the assessee. Since the assessee had international transactions with its Associated Enterprises (AE), a reference was made to the Transfer Pricing Officer [TPO]. The TPO concluded that the assessment u/s. 92CA by making an adjustment of Rs.3,73,72,659 with respect to the interest on delayed receivables. The AO passed a draft assessment order incorporating the TP adjustment and further made disallowance towards depreciation on networking equipments and disallowance u/s. 14A. The assessee raised its objections before the DRP. The DRP gave a marginal relief by reducing the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. (supra) wherein it was held as under:- "35. The only other issue that remains for adjudication is ground No.15 with regard to re-characterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee's own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:- "23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capital subsumes sundry creditors and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "international transaction" shall include- . . . . . (c) capital financing, including any type of longterm or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;. . . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. 23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that: "There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had submitted the invoice wise details before the AO. In respect of the services rendered by the Assessee to its AE, it raises invoices, under which the AE is granted 90 days' time to make payment. During the course of hearing the ld.AR brought to our attention that the TPO in assessee's own case for the assessment year 2014-15 has allowed the credit period of 90 days and prayed that the same may be allowed for the year under considered. 11. Since the TPO has not done a separate bench marking for the interest on delayed receivables, we remit the issue back to the TPO for fresh consideration. The TPO is directed to consider the payables by the assessee to AEs and also the fact that TPO in the AY 2014-15 has given a credit period of 90 days while computing the interest on receivables. Needless to say that the assessee may be given reasonable opportunity of being heard. Depreciation on networking equipment 12. In this regard, it was submitted that the networking equipment broadly comprises of servers, routers, server hard disk and other network accessories. These form an essential part of computer and function as an input processor, storage and output devices, and cannot operate in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld tax free income ought to be considered for the purpose of computing the disallowance under Rule 8D(2)(iii). In this regard, he relied on the decision of the ITAT Delhi Bench in the case of ACIT v. Vireet Investment (P.) Ltd., [2017] 82 taxmann.com 415 (Del Trib.)(SB) wherein it was held as under:- "11. We have considered the submissions of both the parties and have perused the record of the case. The basic issue for consideration is that the investment, which did not yield any exempt income, should enter or not enter into the computation under Rule 8D, while arriving at the average value of investment, income from which does not or shall not form part of the total income. 11.1 In the present case, our decision is restricted only to the extent of interpretation of language employed in Rule 8(2)(iii). The submission of ld. counsel for the assessee is that this issue is now covered by the decision of the Hon'ble Delhi High Court in the case of CIT v. Hofcin India (P.) Ltd. (supra), wherein it has been held that if no dividend income was earned, section 14A could not be invoked. The Hon'ble Delhi High Court has referred to the decisions, which we have noted earlier i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Prasad Moody (supra). 11.5 In the case of Rajendra Prasad Moody (supra), the facts were that the assessees were brothers and each of them had borrowed. moneys for the purposes of making investment in shares of certain companies. During the relevant assessment year they paid interest on the moneys borrowed but did not receive any dividend on the shares purchased with these moneys. Both of them made a claim for deduction of the amount of interest paid on borrowed moneys but this claim was negated by the ITO and on appeal by the AAC on the ground that during the relevant assessment year the shares did not yield any dividend and, therefore, interest paid on the borrowed moneys could not be regarded as expenditure laid out or expended wholly and exclusively for the purposes of making or earning income chargeable under the head 'income from other sources', so as to be allowable as a permissible deduction u/s 57(iii). The Tribunal. however, on further appeal, disagreed with the view taken by the taxing authorities and upheld the claim of each of the two assessees for deduction u/s 57(iii). 11.6 In the backdrop of these facts the Tribunal's order was upheld by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve and miscellaneous expenditure written off amounting to Rs. 8.75 Crores. For the Assessment Year 2008-09, the assessee had filed return declaring loss of Rs. 6.60 Crores approximately. The assessee had declared revenue receipts in the form of foreign currency fluctuation difference gain of Rs. 12,46,595/-. It had claimed expenses amounting to Rs. 7.02 Crores as personal expenses, operating and other expenses, depreciation and financial expenses. 11.9 In both the assessment orders, the Assessing Officer held that the respondent-assessee had not commenced business activities as they had not undertaken any manufacturing activity or made downstream investments. It was observed that the respondent-assessee, after receiving approval of Foreign Investment Promotion Soard (FIPS) dated 20.12.2000 acquired shares capital of Ambuja Cement India Ltd. This, the Assessing Officer felt, was not sufficient to indicate or hold that the respondent-assessee had started their business. He, accordingly, disallowed the entire expenditure of Rs. 8.75 Crores for the Assessment Year 2007-08 and Rs. 7.02 Crores for the Assessment Year 2008-09. 11.10 Ld. CIT(A) did not agree with the findings of Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A." 11.13 Thus, Hon'ble Delhi High Court primarily decided the issue regarding applicability of section 14A even if no dividend income was earned. The Hon'ble High court in paras 14 to 16 of its decision observed as under: '14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl, ITA No. 970/2008, decided on 02.04.2014, made reference to two ' earlier decisions of the same Court in CIT v. Hero Cycles Limited, [2010] 323 ITR 518 and CIT vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A).' 11.14 Now the position of law as stands is that the decision of Hon'ble Jurisdiction High Court is directly on the point in dispute whereas the decision of Hon'ble Supreme court in the case of Rajendra Prasad Moody (supra) has been rendered in the context of section 57(iii), the applicability of which has been ruled out by Hon'ble Delhi High Court in the case of Cheminvest (supra). 11.15 Under Article 227 of the Constitution of India, the courts function under the supervisory jurisdiction of Hon'ble High Court. The decisions rendered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working; otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer," (ii) CIT v. Sunil Kumar (1995) 212 ITR 238 (Raj.), it was observed as under: "The point which has been raised could have been considered to be debatable because other High Courts have taken a different view. But since the view taken by this court is binding on the Tribunal and other authorities under the Act in this State, it could not be considered to be a debatable point in view of the decision of this court in the case of CIT v. M.L., Sanghi [1988] 170 ITR 670." (iii) Indian Tube Company Ltd. v. CIT & others (1993) 203 ITR 54 (Col.) , it was observed as under: "In the impugned order, respondent No.1 has rejected the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income during the year but if income would have been yielded it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the computation of average value of investments for the purposes of Rule 8D(2)(iii). The assessee's contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and cannot be accepted. 11.18 In view of above discussion, the matter is restored back to the file of AO for recomputing the disallowance u/s 14A in terms of above observations. Thus, revenue's appeal is dismissed and assessee's cross-objection, on the issue in question, stand allowed for statistical purposes, in terms indicated above." 20. In the instant case, the AO has considered the entire investments for the purpose of arriving at the average investments, which is not in conformity with the ratio laid down by the decision of the Delhi Special Bench (supra). Respectfully following this decision of the Special Bench, we remit the issue back to the AO to recompute the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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