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TMI Blog2024 (1) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... laneous 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... g assessee's claim by the Assessing Officer is that the assessee started providing telecommunication service in the Financial Year 1994-95 i.e. prior to 01/04/1995. As per the provisions of section 80IA the undertaking is eligible for benefit of deduction u/s. 80IA(4)(ii), if the undertaking started or starts providing telecommunication service on or after 1st day of April 1995. According to the Assessing Officer since, the assessee has started providing telecommunication services prior to 01/04/1995 the assessee is not eligible for claiming deduction u/s. 80IA of the Act. The assessee claimed deduction u/s. 80IA of the Act for the first time in AY 2005-06. 9. Two issues have emerged from the submissions and the grounds of appeal raised by the Department: (i) Whether the assessee started providing telecommunication services before 01/04/1995 or thereafter; and (ii) Whether the assessee is eligible to claim deduction u/s. 80IA(4)(ii) of the Act . 10. The primary reason for rejecting assesses claim of deduction u/s. 80 IA(4)(ii) of the Act by the Department is that the assessee started providing telecommunication services prior to 01/04/1995. Whereas, the claim of assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r issued a questionnaire dated 16/12/1997 making specific enquiries regarding the details of commencement of paging and cellular services and details of machinery, equipment and installation required for operating paging and cellular services. The Assessing Officer after making detailed enquiries came to conclusion that cellular services were started by the assessee on 16/11/1995. Even pilot services prior to commencement of commercial services were started on 27/07/1995 and radio paging services commenced during the period May 1995 to June 1995. The Assessing Officer in assessment order dated 09/03/1998 for Assessment Year 1995-96 categorically held that the assessee's business was not set up by 31/03/1995. The relevant extracts from the assessment order for 1995-96 are reproduced herein below: "6. After taking into account all the facts relevant to the issues and the submissions made by the assessee, it is held that the assessee's business was not set up in 1992. It is also held that the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995. The reasons for holding so are discusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Channels for GSM Cellular Network in Mumbai was assigned to the assessee. Our attention was also drawn to the letter dated 13/10/1995 at page 116 of the Paper Book-1, whereby Ministry of Communications (WPC Wing) accorded permission for launching cellular mobile telephone services at Mumbai subject to final clearance from Director (VAS-I), DoT. The said clearance was accorded to the assessee by Director (VSA-I) vide letter dated 20/10/1995 (at page 117 of Paper Book-1). Although, the licence agreement was executed between the assessee and DoT in November, 1994 the assessee could not have started cellular mobile telephone services till the time radio frequency was assigned and all clearances prior to commencement of cellular mobile telephone services are obtained by the assessee. A perusal of the said agreement (Condition -20) clearly mentioned that a separate licence shall be required from the WPC Wing of Ministry of Communication which will permit utilisation of appropriate radio frequency spectrum for establishment and operation of cellular mobile telephone services. Thus, without allocation of radio frequency the assessee could not have commenced cellular mobile telephone servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal while deciding the controversy in assessment year 2006- 07 held that, "whether or not" the assessee started providing telecommunication services in any year has to be decided in the assessment proceedings for that year in the light of the relevant facts and circumstances of that assessment year alone. The Tribunal further held that without reopening the assessment proceedings for AY 1996-97, the findings recorded in the assessment year 1996-97 cannot be reconsidered in the subsequent assessment years. To support this view the Tribunal placed reliance on the decision of Hon'ble Apex Court in the case of New Jehangir Vakil Mills Co. Ltd. vs. CIT, 49 ITR 137. The aforesaid decision of the Tribunal was upheld by the Hon'ble Gujarat High Court in Tax Appeal No.1339 of 2010(supra). Similarly, in the instant case the Revenue is trying to reconsider the concluded findings of the assessment order for assessment year 1995-96 and 1996-97 in assessment year 2005-06. This is impermissible in the scheme of Act. The Revenue by placing reliance on defective certifications and information derived from web portal of the assessee is trying to revisit the facts settled in assessment year 1995-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... start of telecommunication services. It is the commencement of telecommunication services which is material for the purpose of section 80IA(4)(ii) of the Act. The business may commence with the purchase of pagers but telecommunication services would only start after assignment of radio frequency and various other technical/interface approvals from the DoT. The Revenue has placed reliance on the decision in the case of CIT vs. ESPN Software India Pvt. Ltd.(supra) and CIT vs. Saurashtra Cement and Chemical Industries Ltd.(supra) in support of the arguments that the business of the assessee commenced on the date of agreement or the date on which the assessee had traded in Pagers. There is no dispute in so far as the law laid down by the Hon'ble Court in the aforesaid decisions. However, the ratio laid down in the aforesaid decisions would not apply in the facts and circumstances of the present case. 19. One of the objection raised by the Department is that the assessee has not maintained separate books of account. The assessee had ventured into two different telecommunication services i.e. radio paging services and cellular mobile telephone services. The ld. Counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services if such undertaking is formed by splitting up or reconstruction of a business already in existence or by the transfer to a new business of old plant and machinery." The Circular (supra) further clarifies that the condition introduced by the Finance (No.2) Act, 2004 will not apply to undertakings which have started providing telecommunication services prior to 01-4-2004. Documents on record clearly show that the assessee started providing telecommunication services after 01/4/1995 but before 01/4/2004. Thus, even if the assessee's undertaking is formed after merger/reconstruction, still the assessee would be eligible for deduction u/s.80IA of the Act in the light of CBDT circular (supra). 21. In the light of our findings above, we see no infirmity in the order of CIT(A) in coming to the conclusion that the assessee had started telecommunication services after 01/04/1995 and the assessee is eligible for deduction u/s. 80IA(4) of the Act. The findings of the CIT(A) on this issue are confirmed and the appeal of Revenue is dismissed. Thus, both the issues emerging from the appeal of the Revenue are decided in favour of the assessee." 3.3 It can be noticed that the co-ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's appeal for assessment year 2005-06 in ITA No.5078/Mum/2017 dated 28/12/2022, the Tribunal has accepted assessee's claim of deduction u/s 80IA of the Act on other incomes, viz., interest income and miscellaneous income. Following the order of Co-ordinate Bench, ground no.3 of the appeal is allowed, protanto." 4.1 The facts, being identical in this year also, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 80IA of the Act. 5. The next issue raised in Ground No.3 relates to the disallowance of depreciation claimed on "Asset restoration cost" obligation. 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. 6. The next issue urged in Ground no.4 relates to the disallowance made u/s 14A of the Act. The Ld A.R submitted that the assessee did not earn any exempt income during this year and also in earlier years. Hence the Tribunal, in the earlier years, has delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 19.1 The assessee has further shown that to cover the interest free loans advanced to Vodafone South Limited and Vodafone Digilink Limited aggregating to Rs. 830 crores, the assessee has sufficient own funds to cover the investment. The Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited (supra) has held that, where the assessee is having mixed bag of interest free funds and interest bearing funds and the assessee has made investment out of such common pool of funds, the presumption would be that the investments are made out of interest free funds available with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extension of its existing business but to provide better quality of services to the customers. The Assessing Officer while disallowing interest on capital work-in-progress and interest on ECB has erred in holding that the assessee has extended its existing business, by making substantial addition to the fixed asset base of the company. The Assessing Officer on wrong appreciation of facts has erred in coming to the conclusion that interest paid on capital borrowed is for acquisition of assets for extension of business, hence, not allowable as deduction u/s. 36(1)(iii) of the Act. The ld. Counsel for the assessee asserted that the assessee has utilized borrowed funds for the purpose of carrying out its existing operations more efficiently. The expenditure on capital work-in-progress was for facilitating its existing operations and not in connection with extension of its existing operations. The investments in network assets is a continuous process to improve quality of services for its subscribers, hence, the assets acquired cannot be construed for extension of existing business operations. In telecommunication business the extension of business mean expansion beyond geographical are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative pointed that the Assessing Officer has categorically mentioned that ECB loans were not utilized by the assessee till 31/03/2006, hence, interest paid on such loans is not allowable u/s. 36(1)(iii) of the Act. The said loans have been diverted to subsidiaries for non-business consideration. Hence, the interest amounting to Rs. 38.70 lacs cannot be allowed as deduction to the assessee. 22. We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee has raised loans during the period relevant to the assessment year under appeal and has paid interest on said loans. The assessee has admittedly used borrowed funds for acquiring assets. The contention of the Revenue is that the assets acquired by the assessee are for expansion of the existing business, hence, proviso to section 36(1)(iii) of the Act gets attracted, consequently, interest paid on such borrowed capital is not allowable u/s. 36(1)(iii) of the Act. 23. Au Contraire, stand of the assessee is that purchase of asset in assessee's case does not lead to extension of business but has merely improved quality of service. In terms of telecommunication business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business exigencies. The assessee has largely utilized borrowed funds for the strategic business requirement for conducting telecommunication operations in different Telecom Circles. The observations of the Assessing Officer that the loan funds have been utilized for non-business consideration are contrary to the facts on record. The assessee has utilized borrowed funds for conducting cellular phone operations in different Telecom Circles. 24.1 Without prejudice to the primary contension, the ld. Counsel for the assessee submits that it is a well settled principle of law that expenditure incurred for raising loan is revenue expenditure irrespective of the purpose or motive for which such loan is obtained. To support his contention, the ld. Counsel for the assessee placed reliance on the decision in the case of India Cements Ltd. vs. CIT, 60 ITR 52(SC). 25. The ld. Departmental Representative submits that the secured and unsecured loans raised have been utilized for non-business consideration. Hence, the expenses incurred to raise the loans have been rightly disallowed u/s. 37(1) of the Act. 26. We have heard the submissions made by rival sides and have examined the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operators. The ld. Counsel for the assessee submitted that the issue is squarely covered by the decision of Kolkata Bench of the Tribunal in the case of Vodafone East Ltd. vs. Addl. CIT, 156 ITD 337. 28. The ld. Departmental Representative vehemently placed reliance on the assessment order and the observations of DRP on the issue and prays for dismissing ground No.9 of the appeal. 29. We have heard the submissions made by rival sides and have examined the orders of authorities below. One of the issue before Kolkata Bench of Tribunal in the case of Vodafone East Ltd. vs. ACIT (supra) was with respect to deduction of tax at source in respect of roaming charges paid by the assessee to other telecom operators. The Co-ordinate Bench after analyzing the facts of the case and various decisions 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. We find that the facts and the reason for making disallowance u/s.40(a)(ia) of the Act in the impugned order are similar to the case of Vodafone East Ltd.(supra). No distinction has been pointed by the Revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinguished all the three High Court judgements (i.e. Kerala, Calcutta and Delhi) relied upon by the ld. DR hereinabove. Effectively Pune Tribunal adopted the decision of Hon'ble Karnataka High Court. The ld. DR relied on para 64 of decision of Hon'ble Karnataka High Court and argued that it is against assessee for the first 7 months since discount is separately shown in the books of the assessee as an expenditure. In our considered opinion, what is to be seen is the broader question raised before the Hon'ble Jurisdictional High Court in Income Tax Appeal No. 1129 of 2017 dated 13/01/2020 in assessee's own case against the order of Pune Tribunal. For the sake of convenience, the entire order is reproduced hereunder:- Heard learned counsel for the parties. 2. The Appellant-Revenue challenges the order dated 4 January 2017 passed by the Income Tax Appellate Tribunal in Income Tax Appeal No.1041, 1042 and 1953 to 1955/PUN/2013. 3. This Appeal pertains to the Assessment Year is 2010-11. 4. The Appellant-Revenue has raised the following questions as a substantial questions of law :- "(a) Whether on the facts and circumstances of the case and in law, the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and distributor is that of Principal to Principal. This Order has been approved by the Hon'ble Jurisdictional High Court. We find that the Hon'ble Jurisdictional High Court held that once Principal to Principal relationship is established, there could be no commission or discount and consequently no deduction of tax at source in terms of section 194 H of the Act is warranted. 2.8.3. With regard to reliance placed by the ld. DR vehemently on the decision of Hon'ble Delhi High Court in assessee's own case reported in 325 ITR 148 (Del) is concerned, we find that the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd (372 ITR 33) referred supra had after considering the decision of Hon'ble Delhi High Court referred supra and decided the issue in favour of the assessee. We find that the Hon'ble Karnataka High Court had also followed the decision of Hon'ble Jurisdictional High Court in the case of Qatar Airways reported in 332 ITR 253 (Bom). Hence the reliance placed on the decision of Hon'ble Delhi High Court by the ld. DR does not advance the case of the revenue. In any case, the decisions of Hon'ble Delhi High Court, Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical issue. 2.8.6. The ld. DR before us placed heavy reliance on the decision of Hon'ble Supreme Court in the case of Union of India vs Association of Unified Telecom Service Providers of India and Others reported in (2020) 3 SCC 525 dated 24/10/2019 to drive home the point that the assessee had erred in accounting the discounted price of sales as its revenue when sim cards are sold to distributors. We have gone through the said decision and we find that the said decision was rendered in the context of determination of Annual Gross Revenue for the purpose of fixing the licence fee payable to Government by the telecom service providers. It further held that while reckoning the Gross Revenues, no deduction would be available such as discount, commission etc. First of all, we have already held that the assessee had not made any payment of discount to the distributors. In any case, we have already held that the entries in the books of accounts are not determinative of tax liability of an assessee by placing reliance on various decisions of Hon'ble Apex Court. Those decisions still rule the field as they were not overruled by the latest Supreme Court decision relied upon sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 194H of the Act and hence there cannot be any obligation on the part of the assessee to deduct tax at source thereon and consequentially there cannot be any disallowance u/s 40(a)(ia) of the Act. Accordingly, the Ground No. II raised by the assessee is allowed. The Ground No. I raised by the assessee is only supporting the Ground No. II for furnishing of additional evidences, the adjudication of which becomes academic in nature. Hence Ground No. I is also allowed." 11.1 Facts being identical, following the above said decision of the coordinate bench in the case of M/s Vodafone Idea Ltd (As successor to Spice Communications Ltd), 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) of the Act. 12. The next issue urged by the assessee in ground no.10.1 and 10.2 relates to the transfer pricing adjustment on the payment made for technology support services. 12.1 The Ld A.R submitted that the assessee has paid a sum of Rs. 7.84 crores to its Associated E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of ALP of the services received under cost contribution arrangement as 'NIL' is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were competent enough to do this work. For example, the Transfer Pricing Officer had pointed out that the assessee has qualified accounting staff which could have handled the audit work and in any case the assessee has paid audit fees to external firm. Similarly, the Transfer Pricing Officer was of the view that the assessee had management experts on its rolls, and, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an Assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an Assessee and what is not. An Assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question Assessee's wisdom in doin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AO under Section 37 in this case. Indeed, this is not to say that the TPO cannot - after a consideration of the facts - state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the TPO stating that the assessee did not benefit from these services, which amounts to disallowing expenditure. That decision is outside the authority of the TPO. This aspect was made clear by the ITAT in Delloite Consulting India Pvt. Ltd. v. Deputy Commissioner of Income Tax, [2012] 137 ITD 21 (Mum): "37. On the issue as to whether the Transfer Pricing Officer is empowered to determine the arm's length price at "nil", we find that the Bangalore Bench of the Tribunal in Gemplus India P. Ltd. 2010-TII-55-ITAT-BANGTP, held that the assessee has to establish before the Transfer Pricing Officer that the payments made were commensurate to the volume and quality service and that such costs are comparable. When commensurate benefit against the payment of services is not derived, then the Transfer Pricing Officer is justified in making an adjustment under the arm's length price. 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed outside India - albeit for ultimately sourcing them into the Indian market. The e-mails considered by the ITAT from Mr. Braganza and Mr. Choudhary so far as they deal with specific interaction with IBM by those persons, and relate it to benefits obtained by the assessee, provide a sufficient basis to hold that benefit accrued to the assessee. However, this determination remains unclear and inchoate. The devil here lies in the details. The details of the specific activities for which cost was incurred by both CWS and CWHK (for the activities of Mr. Braganza and Mr. Choudhary), and the attendant benefit to the assessee, have not been considered till date. This must be provided, in addition to a consideration of the ALP vis-à-vis the total cost claimed by these AEs. To this extent, for the consideration of ALP in respect of these transactions, the matter is remanded back to the file of the concerned AO, for an ALP assessment by the TPO, followed by the AO's assessment order in accordance with law." 12.4 A careful perusal of the above said decision rendered by Hon'ble Delhi High Court would show that the TPO is required to determine the ALP of international transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. The assessing officer shall decide this issue after affording reasonable opportunity of hearing/to make submissions to the assessee, in accordance with law. Ergo, ground no.13 of the appeal is allowed for statistical purpose." 13.2 The facts available in this year, being identical, following the decision rendered by the co-ordinate bench in the assessee's own case in AY 2008-09, we restore this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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