9911796707
TMI Blog2024 (5) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2023 (5) TMI 576 - ITAT MUMBAI ] and 2009-2010 [ 2023 (2) TMI 1250 - ITAT MUMBAI ] Tribunal had deleted disallowance under Section 14A of the Act as the Assessee did not earn any exempt income during the corresponding previous years. Disallowance made by the AO u/s 14A of the Act is deleted - Decided in favour of assessee. Disallowance of interest expenses u/s 36(1)(iii) - HELD THAT:- It emerges that in identical facts and circumstances, vide common order for the Assessment Year 2006-07 [ 2023 (5) TMI 508 - ITAT MUMBAI ], the Tribunal had decided identical issue in the favour of the Assessee and allowed deduction for interest on borrowed funds use for purchase of assets and capital work in progress. Addition deleted. Disallowance of roaming charges made u/s 40(a)(ia) - HELD THAT:- Tribunal in the case of the Assessee for the preceding Assessment Year 2009-10, which in-turn followed the decision of the Tribunal in the case of the Assessee for the Assessment Year 2006-07 and 2007-08, the disallowance made u/s 40(a)(ia) of the Act in respect of roaming charges is deleted. Disallowance of discount extended to pre-paid distributors u/s 40(a)(ia) deleted. Disallowance of deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directed to place before TPO/AO such agreements/documents on which the Assessee wishes to place reliance in support of its contentions. TP adjustment in respect of the technology support charges - HELD THAT:- We set aside the transfer pricing addition made in respect of technology support charges with the directions to the AO/TPO to determine the ALP of the relevant transactions as per law and make transfer pricing adjustment, if any. Assessee is directed to furnish all the information and explanations in support of the claim that the payments are at arm s length. The TPO/Assessing Officer would consider the same and adjudicate the issue after granting the Assessee reasonable opportunity of being heard. TP adjustment pertaining to reimbursement of expenses - HELD THAT:- Assessee is granted another opportunity to substantiate its claim that the were incurred in relation to the employees deputed with the Assessee and that the same, having being recovered on cost to cost basis from the Assessee, were at arm s length.Assessee is directed to furnish relevant documents/details to substantiate its claim. AO/TPO shall grant reasonable opportunity of hearing to the Assessee and shall deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal in relation to the following issues: (a) Ground No. 1 to 1.2: Disallowance of INR 357,23,70,000/- under section 14A of the Act (b) Ground No. 2 to 2.2: Disallowance of INR 19,35,01,258/- being interest on Capital Work-in- Progress under Section 36(1)(iii) of the Act. (c) Ground No. 3 to 3.7: Disallowance of INR 30,95,03,786/- in respect of roaming charges under Section 40(a)(ia) of the Act (d) Ground No. 4 to 4.5: Disallowance of INR 47,17,99,596/- in respect of discount extended to pre-paid distributors under Section 40(a)(ia) of the Act (e) Ground No. 5 to 5.5: Disallowance of deduction under Section 80IA of the Act (f) Ground No. 6 to 6.3: Disallowance of deduction under Section 80-IA of the Act in respect of Other Income (g) Ground No. 7 to 7.2: General grounds on Transfer Pricing Adjustment (h) Ground No. 7.3 to 7.8: Transfer Pricing Adjustment of INR 22,01,14,350/- pertaining to Advertisement, Marketing and Promotion expenditure (i) Ground No. 7.9 to 7.10: Transfer Pricing Adjustment of INR 7,97,68,155/- pertaining to Brand Royalty payment made to Vodafone Ireland Marketing Limited for obtaining the right to use of Vodafone trademark and trade name (j) Ground No. 7.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2. The Assessee filed objections before the DRP against the Draft Assessment Order, dated 31/03/2015. On 22/12/2015, the DRP disposed off the objections granting partial relief to the Assessee. As per the directions of the DRP, the Assessing Officer passed the Final Assessment Order, dated 28/01/2016, under Section 143(3) read with Section 144C(13) of the Act, assessing total income of the Assessee at INR 478,20,94,710/- computed as under: Particulars Amount (INR) Amount (INR) Income under the head business or profession (as per revised computation) (-) 185,73,18,001 Disallowance under Section 14A 357,23,70,000 Disallowance of Interest on Capital Work-In- Progress 19,35,01,258 Disallowance under Section 40(a)(ia) for non deduction of TDS on Roaming Charges on Discount extended to prepaid distributors 244,72,76,991 Penalty payment DoT disallowed under Section 37(1) 2,05,35,800 TP Adjustment 36,38,25,151 Total Disallowances 659,75,09,200 Taxable income under the head business or profession 4,19,03,514 474,01,91,199 Income from Other Sources (as per revised computation) Interest on fixed deposit 4,19,03,514 Total income 478,20,94,713/- Total income (as per Normal Provisions) 478,20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted disallowance under Section 14A of the Act as the Assessee did not earn any exempt income during the corresponding previous years. 4.6. In view of the above, the disallowance of INR 357,23,70,000/- made by the Assessing Officer under Section 14A of the Act is deleted Ground Number No. 1 raised by the Assessee is allowed. Ground No. 2 5. Ground No. 2 raised by the Assessee pertains to disallowance of interest expenses of INR 19,35,01,258/- 5.1. During the assessment proceedings, the Assessing Officer noted that in the relevant previous year the Assessee had substantially expanded its existing business which was evident from the significant capital work-in-progress. Since the capital work in progress was not put to use, no deduction could be allowed for the interest on borrowed funds used for capital work in progress. Further, there was substantial addition to the fixed assets base of the Assessee. However, according to the Assessing Officer, as per the provisions of Section 36(1)(iii) of the Act, interest paid on capital borrowed for acquisition of assets for extension of business was not allowed as a deduction. Accordingly, the Assessing Officer proposed disallowance on an ad-h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest Rs.1,63,96,415/- on Capital Work-in- Progress and disallowance of interest Rs.38,70,010/- on ECB. The ld. Counsel for the assessee submits that the assessee has acquired fixed assets from the borrowed capital during the year relevant to the assessment year under appeal. The assets were acquired not for the purpose of 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 exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, expression extension is used where the business of the assessee has grown in geographical terms. It is an undisputed fact that even after having acquired new assets, the area of operation of the assessee has not extended. The assessee was providing telecommunication services in Mumbai Telecom Circle and even after substantial investment in new assets, the area of operation remain confined to Mumbai Telecom Circle. The investment in assets / Plant Machinery/ Network equipment by the assessee have improved the quality of services, this may have resulted in increase of the subscriber base to some extent. Increase in volume of subscriber base within the same territory of operation cannot be termed as extension of business. Therefore, we do not find merit in the observations of the Assessing Officer that the interest u/s. 36(1)(iii) of the Act has to be disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The relevant extract of the aforesaid decision of the Tribunal reads as under: 10. The next issue urged in Ground no.8 relates to disallowance of roaming charges u/s 40(a)(ia) of the Act for non- deduction of tax at source. We notice that an identical disallowance made in AY 2006-07 and 2007-08 u/s 40(a)(ia) of the Act. The co-ordinate bench has deleted the disallowance with the following observations:- 27. In ground No.9 of appeal, the assessee has assailed disallowance of roaming cost u/s. 40(a)(ia). The ld. Counsel for the assessee submits that during the year under consideration the assessee incurred expenses on roaming charges. Payments are made to other telecom operators to enable subscribers of the assessee to make or receive calls originating/ terminating on other telephone networks. Roaming service is in the nature of automated services and no human intervention for switch over to the network of other telecom operators while in roaming is warranted. The Assessing Officer made disallowance u/s. 40(a)(ia) of the Act on the pretext that the provisions of section 194C and/ or section 194J of the Act are attracted on payments made to other telecom operators. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id distributors'). According to the Assessee. The pre-paid distributors were appointed on Principal to Principal basis. The discount extended represents the difference between the Maximum Retain Price (MRP) of the talk- time and pre-paid connections and the price at which these are transferred to the pre-paid distributors. No payment or credit was made by the Assessee to its pre-paid distributors. In fact, it was the pre-paid distributors who make a payment to the Assessee for transferring pre-paid talk time and connections and accordingly the discount extended was not income earned by the distributors. 7.2. In the Draft Assessment Order, dated 31/03/2015, the Assessing Officer proposed disallowance under Section 40(a)(ia) of the Act on the upfront discount extended to the pre-paid distributors by terming the arrangement as 'Principal to Agent instead of 'Principal to Principal' basis certain clauses in the agreement on exclusivity right to inspect and treated upfront discount given to distributor as commission liable for withholding under Section 194H of the Act. 7.3. The objections filed by the Assessee on this issue were rejected by the DRP. Accordingly the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in dispute that all the distributors agreements are standard agreements across India. We also find that the Pune Tribunal relied on para 62 of the decision of Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd vs DCIT reported in 372 ITR 33 (Kar). We find that the Pune Tribunal had taken note of the fact that Hon'ble Karnataka High Court in 372 ITR 33 had distinguished 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 challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed do not give any rise to substantial question of law. The Appeal is disposed of. (emphasis supplied by us) 2.8.2.1. It is also pertinent to note that the Distribution Agreement of Maharashtra Circle was subject matter of examination and adjudication by the Pune Tribunal wherein the Pune Tribunal had recorded a finding of fact that the relationship between assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r we find that the Hon'ble Jurisdictional High Court in the case of CIT(TDS) Pune vs Vodafone Cellular Ltd (assessee's own case) in Income Tax Appeal Nos. 1152 , 1274, 1995, of 2017 Income Tax Appeal Nos. 571, 1266 of 2018 dated 27/01/2020 had also taken an identical view in respect of identical 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is left open. 3.31. In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that the sale 23 M/s. Vodafone India Ltd. of prepaid sim cards/recharge vouchers by the assessee to distributors cannot be treated as commission/discount to attract 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. (Emphasis Supplied) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible undertaking as per Section 80IA(4) of the Act. Further, in assessment and appellate order for Assessment Year 1995-96 1996-97, it has been concluded that the Assessee was set up in Financial Year ('FY') 1995-96 i.e. Assessment Year 1996-97 and its plea that it had set-up its business in Financial Year 1994-95 was rejected. 8.3. However, the Assessing Officer was not convinced. The Assessing Officer relied upon assessment order for Assessment Year 2005-06 to conclude that the Assessee had commenced providing telecommunication services prior to 01/04/1995 and denied deduction claimed under Section 80IA of the Act in the Draft Assessment Order, dated 31/03/2015. The DRP agreeing with the Assessing Officer declined to grant any directions and therefore, in the benefit of Section 80IA of the Act was not granted to the Assessee in the Final Assessment Order, dated 28/01/2016. Being aggrieved, the Assessee has carried the issue in appeal before the Tribunal. 8.4. We have considered the rival submissions and perused the material on record. 8.5. We note that identical issue had come up for consideration before the Mumbai Bench of the Tribunal in the case of the Assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t day of April, 1995, but on or before the 31st day of March, 2005. 12.-13 xx xx 14. Hutchison Max Telecom Pvt. Ltd. (predecessor of the assessee) was incorporated on 21/02/1992 with the main object of providing radio paging services and cellular telephone services in India. Initially, the assessee claimed that the business of assessee commenced in Financial Year 1994-95 i.e. the period relevant to the Assessment Year 1995-96. The assessee in the return of income for Assessment Year 1995-96 claimed interest expenditure and depreciation, accordingly. The Assessing Officer 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 Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03/1995 Chandigarh 20/04/1995 Ludhiana 28/04/1995 Pune 01/05/1995 Bangalore 09/05/1995 Secunderabad 22/05/1995 Vadodara 24/05/1995 Ahmadabad/Gandhinagar After Interface/Service approval Certificate, radio frequency for paging services were assigned to the assessee by WPC Wing on 24/04/1995 for Chandigarh Telecom District. Similarly, for other Telecom Districts mentioned above the WPC Wing allotted frequency for radio paging service in the month of April/May 1995. Radio paging services could be provided only after assignment of radio frequency by the DoT, government of India. From the documents on record it is evident that the assessee started providing radio paging service after 01/04/1995. 16. In the case of ACIT vs Vodafone Essar Gujarat Ltd.(supra), the assessee had entered into agreement on 11- 1-1996. In the State of Gujarat, the assessee started telecommunication services on 24-01-1997 i.e. in assessment year 1997-98. The assessee claimed deduction u/s. 80IA (4) of the Act in assessment year 2006-07. The Assessing Officer held that for the purpose of claiming deduction u/s.80IA(4) of the Act, assessment year 1996-97 was the initial year as the agreement was executed in the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant to AY 1995-96), the Auditors have reported: No Profit and Loss Account has been prepared for the year ending 31st March, 1995 since the Company has not commenced commercial service. The subsequent certification by the Auditor‟s dated 28/11/2013 rectifying the date of commencement in Form 10CCB for AY 2006-07 is in consonance with the Auditor‟s Report for FY 1994-95. De-hors the fact that the date of commencement in Form 10CCB for assessment year 2005-06 was not mentioned or wrong date of commencement is mentioned in Form 10CCB for in assessment year 2006-07, the Department cannot turn blind eye to the findings given in the assessment order for assessment year 1995-96 and 1996- 97, wherein it was held that the assessee had not commenced the business till 31/03/1995 and it was thereafter only that the assessee started or starts providing telecommunication services. The Department after a decade cannot overlook the findings of the Assessing Officer which were not disturbed by invoking the provisions of section 263 or 148 of the Act or any other provisions of the Act that provide remedy to the Department to correct the alleged wrong findings of the Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent segment of telecommunication services. Separate books of account for the two segments is not a mandatory condition for claiming deduction u/s. 80IA of the Act. Our aforesaid view is supported by the decision rendered by the Hon‟ble Punjab and Haryana High Court in the case of CIT vs. Micro Instruments Co.(supra). Therefore, the claim of the assessee u/s. 80IA of the Act cannot be declined on the ground that the assessee was not maintaining separate books of accountfor two different segment of telecommunication services. The Revenue in support of its submissions has placed reliance on the decision in the case of Arisudana Spinning Mills vs. CIT (supra). We find that the ratio laid down in the aforesaid decision would not apply in the instant case. The need to maintain separate books of account in the said case was necessitated because of the nature of business of the assessee therein. The assessee therein had claimed the benefit of deduction u/s. 80IA of the Act in respect of manufacturing activity and trading activity. In the instant case, the assessee is providing telecommunication services. No manufacturing or trading activity was carried out by the assessee except for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 6 raised by the Assessee is directed against the Disallowance of deduction under section 80IA of the Act on 'Other Income'. 9.1. During the relevant previous year, the Assessee had earned 'Other Income' aggregating to INR 8,56,40,90,000/- consisting of the following (a) Interest Income amounting to INR 4,52,31,00,000 million (b) Management services form subsidiaries amounting to INR 3,52,71,00,000/- (c) Cellsite sharing revenue amounting to INR 59,00,000/- (d) Export incentives amounting to INR 3,08,400,000/- (e) Miscellaneous income amounting to INR 19,42,90,000/- (f) Liabilities/provisions written back of INR 53,00,000/- 9.2. The Assessee claimed deduction under Section 80IA(1) read with Section 80IA(2A) of the Act in respect of Other Income contending that the said Other Income had direct nexus with the telecommunication business of the Assessee. However, the Assessing Officer, following the assessment order for Assessment Year 2005-06, concluded that Other Income was not eligible for deduction under Section 80IA of the Act since section 80IA(1) of the Act used the phrase 'derived' and such other income has no direct nexus with eligible busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had earned interest income of Rs.6.09 crores and miscellaneous income of Rs.4.98 cores. The assessee claimed deduction u/s. 80IA of the Act in respect of the aforesaid income. The same was disallowed by the Assessing Officer and the CIT(A). The ld.Counsel for the assessee submitted that Delhi Bench of the Tribunal in the case of Bharat Sanchar Nigam Ltd.(BSNL) reported as 156 ITD 847 (Del-Trib) has held that deduction for telecommunication services is allowable in respect of profits of eligible business and not restricted to profits derived from eligible business as mentioned in section 80IA of the Act. Thus, the provisions of sub-section (2A) of Section 80IA of the Act are much wider in scope as compared to the provisions of section 80IA(1) of the Act. The deduction in computing total income of an undertaking providing telecommunication services shall be in accordance with the provisions of subsection (2A) of section 80IA of the Act. The ld. Counsel for the assessee further submits that the decision rendered by Tribunal in the case of BSNL (supra) was upheld by the Hon‟ble Delhi High Court in the case of PCIT vs. BSNL reported as 388 ITR 371. The ld. Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n consecutive years is also not an issue under debate and even otherwise we find that the above provision in the said extent is clear and unambiguous. 13.3. What we may take note of is that on reading of only this sub-section in isolation what emanates clearly is that the deduction is applicable to any undertaking or an enterprise from any business referred to in sub-section (4) of section 80-IA which the legislature describes as eligible business . The said sub-section sets out in unequivocal terms that the deduction is available to the gross total income of such undertaking/enterprise which includes profits and gains derived from such business. The meaning and limits of first degree nexus of the said phrase is wellunderstood by the tax payer, the tax collector and the Legislature. The said subsection also sets out the period and extent of deduction available as hundred percent for ten years. The Co-ordinate Bench further held that: 13.10. Thus the dispute of bringing sub-section (1) into play for a tax payer falling in sub-section (2A) of section 80-IA to our minds cannot arise. According to the assessee sub-section (2A) does not put the restriction contemplated in sub-section (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the profits so contemplated were to be derived from . The requirements of the first degree nexus of the profits from the eligible business has not been brought into play The Tribunal finally concluded that in terms of non- obstinate clause used in section 80IA(2A), deduction for telecommunication services is available in respect of profits of eligible business and is not restricted to profits derived from eligible business as mentioned in section 80IA(1) of the Act. The aforesaid findings of the Tribunal were affirmed by the Hon‟ble Delhi High Court. We further observe that the DRP in directions dated 21/09/2017 for assessment year 2013-14 has observed that no SLP has been filed against the decision of Hon‟ble Delhi High Court by the Revenue and allowed assessee‟s claim of deduction u/s. 80IA of the Act in respect of other incomes. Respectfully following the decision of Hon‟ble Delhi High Court in the case of BSNL(supra), we direct the Assessing Officer to allow the benefit of deduction u/s. 80IA of the Act in respect of interest Income as well as miscellaneous income. Ground No.2 of the assessee‟s appeal is thus allowed. 9.5. In view of the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, the TPO was not convinced. The TPO observed that the bright line concept could be applied in the case of the Assessee to determine the excessive marketing spend over and above the comparables which were not promoting any brand. Following the decision of the Special Bench of the Tribunal in the case of the L.G. Electronics India Private Limited (SB): (2013) 140 ITD 41/29 taxmann.com 300 (Delhi)(SB)/[2013] 140 ITD 41/29 taxmann.com 300 (Delhi), the Assessing Officer concluded that the transfer pricing adjustment could be made for the AMP marketing intangibles. The TPO selected 6 comparable companies and analysed the ratio of AMP/Sales (%) for the Assessment Year 2011-12. Taking the arithmetic mean of AMP/Sales ratios of the aforesaid 6 comparables at 5.44%, the TPO computed excess AMP Expenses over Bright Line at INR 20,16,34,544/- [6.20% less 5.44%]; and proposed transfer pricing adjustment of the INR 22,01,14,350/- after adding a mark up of 9.17% of the same vide order dated, 21/01/2015 passed under Section 92CA(3) of the Act which was incorporated by the Assessing Officer in the Draft Assessment Order, dated 31/03/2015. 12.2. The Assessee filed objection before the DRP again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 7.4 to 7.8 are dismissed as being infructuous. Ground No. 7.9 and 7.10 13. Ground No. 7.9 to 7.10 raised by the Assessee pertains to transfer pricing adjustment of INR 7,97,68,155/-made in respect of the payment of brand royalty for obtaining the right to use of Vodafone trademark and trade name. 13.1. During the relevant previous year, the Assessee has made the following royalty payments to its AES (a) INR 15,95,36,310/- to Vodafone Ireland Marketing Limited (VIML) [@0.70% of net revenue] for grant of right to use Vodafone trademark and trade name; and (b) INR 8,61,80,955/- to Rising Groups Limited (RGL) (@0.35% of net revenue) for grant of right to use Essar trademark and trade name. The Assessee contended that as per Comparable Uncontrolled Price Method (for short CUP Method ) the payments of royalties was at arm s length since on analysis of the comparables, the Assessee found that the mean of the royalty payments being made under comparable third-party arrangements was 2.69% which was more than the rate of royalty payments by the Assessee. However, the TPO was not convinced. The TPO rejected the CUP Method used by the Assessee to determine the ALP of royalty payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of being heard. The Assessee is directed to place before TPO/Assessing Officer such agreements/documents on which the Assessee wishes to place reliance in support of its contentions. In terms of aforesaid, Ground No. 7.9 and 7.10 raised by the Assessee are allowed for statistical purposes. Ground No. 7.11 to 7.13 14. Ground No. 7.11 to 7.13 raised by the Assessee pertains to transfer pricing adjustment of INR 1,31,43,772/- made in respect of the technology support charges. 14.1. During the relevant previous year, the Assessee made payments to its AE for technology support services of INR 1,31,43,772/- in relation to the cost incurred for maintenance and up-gradation of IT platform maintained by Vodafone Group on which Vodafone Intranet portal is hosted. The Assessee aggregated the aforesaid services and determined the ALP of the subject transaction using Transaction Net Margin Method (TNMM) as the most appropriate method with Operating Profit (OP)/Operating Revenue (OR) as the Profit Level Indicator (PLI). According to the Assessee, the operating margin of 9.39% earned by the Assessee were higher than the operating margins of the Indian companies engaged in similar mobile telecom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p for consideration before the Mumbai Bench of the Tribunal in the case of the Assessee in appeal(s) pertaining to Assessment Year 2009-10 [ITA No. 1121 1885/MUM/2014, dated 08/11/2023]. The Co-ordinate Bench of the Tribunal set aside the issue back to the file of TPO/Assessing Officer holding as under: 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 Enterprises as technology support charges for using VISTA system, which is an IT intranet portal used by its employees. The Ld 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. Accordingly, the Transfer Pricing Officer (TPO) determined the Arms Length Price as NIL without applying any of the methods prescribed u/s 92C(1) of the Act. The Ld A.R submitted that the Ld DRP confirmed the order of TPO without giving any reason. 12.2 The Ld A.R submitted that the assessee, vide its submissions da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 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 doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of Assessee's decision to take benefit of expertise of Dresser Rand US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer 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. In the case on hand, the Transfer Pricing Officer has determined the arm's length price at nil keeping in view the factual position as to whether in a comparable case, similar payments would have been made or not in terms of the agreements. This is a case where the assessee has not determined the arm's length price. The burden is initially on the assessee to determine the arm's length price. Thus, the argument of the assessee that the Transfer Pricing Officer has exceeded his jurisdiction by disallowing certain expenditure, is against the facts. The Transfer Pricing Officer has not disallowed any expenditure. Only the arm's length price wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a consideration of the ALP vis- -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 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. 12.5 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before the Tribunal challenging the transfer pricing addition of INR 4,14,86,237/-. 15.2. Having heard the rival submission and on perusal of the record we find that this is a recurring issue. Both the sides agreed that for the Assessment Year 2008-09 and 2009-10, in identical facts and circumstances, this issue was restored to the file of TPO/Assessing Officer with directions. The relevant extract of the decision of Mumbai Bench of the Tribunal in the case of the Assessee [ITA No. 1121 1885/MUM/2014, dated 08/11/2023] read as under: 13. The next issue urged by the assessee in ground no.10.3 relates to the transfer pricing adjustment made in respect of reimbursement of salary and related costs on deputation of personnel to India. 13.1 The assessee had claimed reimbursement of salary and other related costs incurred on employees seconded by Associated Enterprises. The TPO determined ALP of the same at NIL. The Ld DRP allowed in part. We notice that an identical issue was examined by the co-ordinate bench in the assessee‟s own case in 2008-09 in ITA No 6718/Mum/2012 dated 08-05- 2023 and the matter was restored to the file of AO/TPO with the following observations:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections issued by the Tribunal in the case of the Assessee for the Assessment Year 2008-09 in ITA No 6718/Mum/2012, dated 08/05/2023. In terms of the aforesaid, we restore this issue to the file of AO/TPO with similar directions. Ground No.7.14 raised by the Assessee in appeal is allowed for statistical purposes. Ground No. 8 16. Ground No. 8 raised by the Assessee pertains to levy of interest under Section 234D and 244A of the Act and the same is disposed off as being consequential in nature with the directions to the Assessing Officer to re-compute the same as per law. Ground No. 9 17. Ground No. 9 raised by the Assessee pertains incorrect computation of Book Profits under Section 115JB of the Act. In this regard we note that a rectification application, dated 14/09/2015, filed by the Assessee is pending adjudication. Since substantial time has lapsed since filing of the Application, the Assessing Officer is directed to take up the rectification application at the earliest. Ground No. 9 raised by the Assessee is allowed for statistical purposes. Ground No. 10 18. Ground No. 10 raised by the Assessee pertains non-grant of full credit of TDS as claimed by the Assessee. In this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder, dated 28/01/2016. 22.2. Now Revenue has preferred appeal on this issue challenging the directions issued by the DRP and claiming the penalty paid to DoT was not allowable as deduction under Section 37(1) of the Act read with Explanation thereto. 22.3. We have heard the rival submissions and perused the material on record. We note that while granting relief to the Assessee on this issue the DRP has observed as under: 6.1 On this issue the assessee company has relied on the judgment of Vodafone East Limited, which is a group concern of the assessee company, in ITA Nos. 1864/Kol/2012, 243/343/Kol/2014), wherein it has been held that the penalty paid to DOT is for the breach of contractual obligation and hence is allowed as a deduction under section 37 of the Act. Respectfully following, the judgment of Vodafone East Limited, referred supra, the AO is directed to delete the addition made on this issue. 22.4. The DRP has placed reliance on the decision of the Tribunal in the case of Vodafone East Limited Vs. ACIT [2016] 156 ITD 337 and DCIT Vs. Vodafone Digilink Ltd. [2018] 193 TTJ 150 (Delhi Trib) wherein in identical facts and circumstances disallowance made under Section of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2006-07 [ITA No 216/CHANDI/2011] 2007-08 [ITA No. 1173/Mum/2011, dated 16/03/2023], and keeping in view of our finding and adjudication in paragraph 5 to 5.5 above, the disallowance of interest of INR 14,78,19,997/- made by the Assessing Officer under Section 36(1)(iii) of the Act is deleted. Ground No. 2 to 2.2 raised by the Assessee are allowed. Ground No. 3 to 3.4 26. Ground No. 3 to 3.4 raised by the Assessee are directed against the disallowance of INR 48,39,89,911/- under Section 40(a)(ia) of the Act in respect of disallowance of discount extended to pre- paid distributors under section 40(a)(ia) of the Act. Ground No. 3 to 3.4 raised by the Assessee in appeal for the Assessment Year 2012-13 are identical to Ground No. 4 raised by the Assessee in appeal for the Assessment Year 2011-12. Respectfully following the decision of the Tribunal in the case of the Assessee for the Assessment Year 2009-10 [ITA No. 1121 1885/Mum/2023, dated 08/11/2023] and keeping in view of our finding and adjudication in paragraph 7 to 7.7 above, the disallowance of INR 48,39,89,911/- under Section 40(a)(ia) of the Act in respect of disallowance of discount extended to pre-paid distributors is delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act on the basis of concluding as under: (a) Right to use the spectrum emanates from the license and is part and parcel of the license; (b) Since 2G and 3G spectrum are similar in nature then there is no basis for different tax treatment of the two spectrum; (c) In the case of a telecom license the specific provision, i.e. section 35ABB would apply and not the general provision of the commercial rights in the nature of license covered under section 32(1)(ii). 28.2. The DRP concurred with the findings of the Assessing Officer that the right to use spectrum flows from the telecom license and is part and parcel of the license. Further, the 2G and 3G spectrum being similar in nature, there can't be a differential tax treatment of the two. Since, the Act specific section viz. 35ABB/35ABA for the tax treatment of telecom license spectrum, the same shall override the general provisions of the section 32(1). The provisions of Section 35ABA introduced w.e.f 1.4.2017 were clarificatory in nature. A plain reading of the provisions of newly introduced section 35ABA, makes it clear that the intention of the legislature is to amortize the expenditure on license in an equal manner over the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act would be applicable. The Hon‟ble Supreme Court held that the specific provisions would be applicable. In the instant case, the provision of section 35ABB of the Act, which is sought to be applied by the Revenue, do not specifically cover allowability of payments for cost of acquisition of the 3G Spectrum and hence the decision of the Supreme Court cannot be made applicable in the instant case. In fact a specific section viz., 35ABA has been brought on the statute books subsequently, by the Finance Act, 2016 with effect from 01 April 2017 (i.e. AY 2017-2018) on the issue of allowability of cost of acquisition of the 3G Spectrum. This amendment too clearly indicates that the provisions of section 35ABB of the Act cannot be made applicable thereon. 32. We also observe that if the argument of the Revenue that payment for spectrum was covered by Section 35ABB is to be accepted, it would render the provisions of Section 35ABA to be otiose to say the least and this too highlights the fallacy of the said argument. To sum up, we observed that Section 35ABA of the Act is specific to expenditure for obtaining right to use spectrum and not Section 35ABB of the Act. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Assessment Year 2011-12 [ITA No. 3327/Mum/2018, dated 28/08/2020], we direct the Assessing Officer to allow depreciation upon the 3G spectrum charges capitalize by the Assessee under Section 32(1)(ii) of the Act. Ground No. 5 raised by the Assesee is allowed. Ground No. 6 29. Ground No. 6 raised by the Assessee pertains non-grant of full credit of TDS as claimed by the Assessee. The Assessing Officer is directed to grant credit of tax deducted at source as per law. Ground No. 6 raised by the Assessee is allowed for statistical purposes. Ground No. 7 8 30. Ground No. 7 and 8 raised by the Assessee are general grounds relating to transfer pricing adjustment which do not require separate adjudication. Accordingly, Ground No. 7 and 8 are dismissed as being general in nature. Ground No. 9 10 31. Ground No. 9 10 raised by the Assessee pertains to transfer pricing adjustment of INR 9,36,75,998/- made in respect of the payment of brand royalty for obtaining the right to use of Vodafone trademark and trade name. Ground No. 9 10 raised by the Assessee in appeal for the Assessment Year 2012-13 are identical to Ground No. 7.9 to 7.10 of the Assessee s appeal for Assessment Year 2011-12. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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