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TMI Blog2024 (11) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... justments proposed by the Deputy Commissioner of Income Tax, Circle 8(1)(2), Mumbai ('AO') in the draft assessment order, and the learned AO has accordingly erred in passing the assessment under section 143(3) read with section 144C of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Disallowance under section 14A of the Act 1.1. On the facts and circumstances of the case and in law, the learned DRP/AO has erred in invoking the provisions of section 14A of the Act and thereby, has erred in making a disallowance of INR 4,42,12,40,500 under section 14A of the Act. 1.2. On the facts and in the circumstances of the case and in law, the learned DRP/AO has grossly erred in making disallowance under section 14A of the Act, when an amount of INR 488.1 crores as management support services has already been recovered from the subsidiaries of the Appellants and as the same is already offered to tax, any disallowance under section 14A of the Act results in double disallowance. 1.3. Without prejudice to ground 1.1 and 1.2 above, on the facts and in circumstances of the case and in law, the learned AO has erred in making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjustments aggregating to INR 38,23,33,655 made by the Joint Commissioner of Income Tax, Transfer Pricing 4(1), Mumbai ('the learned TPO learned AO under section 92CA of the Act. 4.2 On the facts and circumstances of the case and in law, the directions passed by the learned DRP are bad in law to the extent the same are prejudicial to the Appellant. 5. TP adjustment amounting to INR 31,13,67,878 on account of brand royalty payment made for grant of right to use of 'Vodafone' trademark and trade name 5.1. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in determining the arm's length price (ALP) of royalty payment made to associated enterprise (AE') for grant of right to use 'Vodafone' trademark and trade name at Nil price. While doing so, the learned TPO/AO/DRP have violated the principle of consistency. 5.2. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred determining the ALP of royalty payment made to AE for grant of right to use 'Vodafone' trademark and trade name at Nil price by holding that all the development, enhancement, maintenance protection and exploitation ('DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the Assessment Year 2013-14 on 29/11/2013 declaring total income of INR 7,20,37,88,924/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm's Length Price (ALP) of the international transactions. The TPO, vide order, dated 17/10/2016, passed under Section 92CA(3) of the Act proposed, inter alia, the following transfer pricing adjustments: SNo. Additions/Disallowances Amount (INR) 1 On account of payment of royalty for brand name and mark 31,13,67,878/- 2 On account of payment for GMAC costs, PwC consulting charges and People Survey charges 70,965,777/- Total 38,23,33,655/- 3.1. On 29/12/2016, the Assessing Officer passed Draft Assessment Order under Section 143(3) read with Section 144C(1) of the Act incorporating the above transfer pricing adjustment. In addition the Assessing Officer also proposed other additions/disallowances as per the provisions of the Act. 3.2. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no fresh investments were made by the Appellant. Further, no finance cost has been incurred in relation to investments made in the prior years. The investments in the prior years were sourced from shares swap, issue of shares by way of rights issue and internal cash accruals. Further, during the relevant previous year the Appellant had earned exempt dividend income of INR 404.98 Crores from Indus Towers Limited. However, no expenditure was incurred in relation to earning the said dividend income. It was further contended the management/administrative expenses incurred by the Appellant during the relevant previous year were recovered by the Appellant from its subsidiaries, and in relation to the same income of INR 488.1 Crores was offered to tax as management support services income under the head other income. Therefore, no disallowance under Section 14A of the Act was warranted. On a without prejudice basis, it was also contended by the Appellant that even in a case where investments were made from common pool of funds it was to be presumed that the investments were made from Appellant's own funds. It was also contended that even while applying provisions contained in Rule 8D of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod prescribed in Rule 8D of the IT Rules. Therefore, the action of the Assessing Officer in making disallowance under Section 14A of the Act by invoking the computation mechanism provided in Rule 8D of the IT Rules cannot be found fault with. Thus, the Learned Departmental Representative supported the disallowance made by the Assessing Officer under Section 14A of the Act. 4.6. We have considered the rival submissions and perused the material on record. 4.7. It is admitted position that the Appellant has earned exempt dividend income of INR 404.98 Crores from investments made in 'Indus Towers Limited' during the relevant previous year. It is also admitted position that no investments were made by the Appellant during the relevant previous year. Further, it has not been disputed by the Revenue that total investments of INR 7,122.51 Cores were made by the Appellant in prior years either by share swap arrangement, or by issuance of shares by way of rights issue or by way of internal cash approvals. On perusal of paragraph 5.2.25 of the Assessment Order we find that the investments made by the Appellant as on 01/04/2012 and 31/03/2013 stood at INR 7,122.60 Crores and INR 7,122.40 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act as per the decision of Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd (supra). 4.9. As regards the adjustment in respect of addition/disallowance under Section 14A of the Act to the Book Profits computed under Section 115JB of the Act in the Final Assessment Order is concerned, we find that no such adjustment was proposed in the Draft Assessment Order. The directions received from DRP on 21/09/2017 also do not contain any directions to the Assessing Officer to make any adjustment to Book Profits computed in terms of Section 115JB of the Act. Accordingly, the adjustment made by the Assessing Officer in respect of addition/disallowance under Section 14A of the Act to the Book Profits computed under Section 115JB of the Act in the Final Assessment Order is deleted. 4.10. In terms of paragraph 4.7 to 4.9, Ground Nos. 1, 1.1 and 1.2 are partly allowed, while Ground No.1.3 is allowed. Ground No. 2 to 2.2. 5. Ground No. 2 to 2.2 raised by the Assessee is directed against the disallowance of discount extended to Pre-paid Distributors under Section 40(a)(ia) of the Act. 5.1. During the relevant previous year, discount amounting to INR 54,85,13,184/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid on prepaid cards. The relevant observations are extracted below:- "3.30. In view of the above observations, we hold that the decision rendered by us in assessee's own case for A.Y.2008-09 in ITA No.2285/Mum/2014 dated 12/10/2022 would be squarely applicable to the facts of the assessee's case before us for the year under consideration also. The relevant operative portion of the said order of this Tribunal is reproduced hereunder:- "2.8.2. We find that in the case before the Co-ordinate Bench of Pune Tribunal in the case of Idea Cellular Limited vs DCIT (TDS ) in ITA Nos. 1041, 1042, 1953 -1955/Pun/2013 and ITA Nos. 1867 19 M/s. Vodafone India Ltd. 1870 /Pun/2014 dated 04/01/2017, the lower authorities had held that relationship between assessee and its distributors was Principal and Agent. It was only the Pune Tribunal which after examining the distributors agreement came to the conclusion that the relationship is that of Principal to Principal. In fact Pune Tribunal also examined the very same agreement which is the subject matter of agreement before us in the instant case before us, as it is not in dispute that all the distributors agreements are standard agreements acros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not liable to deduct the TDS under Section 194H. The Tribunal noted that there was no decision of this Court on this issue on that date. 6. Learned counsel for the parties have tendered the copy of the order passed in Income Tax Appeal No. 702 of 2017 subsequently in the case of Pr. Commissioner of Income Tax-8 vs. M/s. Reliance Communications Infrastructure Ltd., where same issue arose for the consideration of this Court. The Division Bench of this Court while holding against the Appellant - Revenue observed thus :- "3. Having heard the learned Counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The Tribunal, as noted, besides holding that the Commissioner's order setting aside the order passed under Section 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the payment was not for commission or brokerage." 7. In view of the finding of fact rendered by the Tribunal which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the identical issue. The question no.1 raised before the Hon'ble Rajasthan High Court is as under:- 1. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that whether the assessee is liable to deduct TDS u/s. 194-H of IT Act, as the relation between assessee and distributor is that of Principal to Agent? 2.8.4.1. We find that the Hon'ble Rajasthan High Court after considering the plethora of judgements on the impugned issue of various High Courts (which includes the three High Court decisions of Kerala, Delhi and Calcutta relied upon by the ld. DR before us herein) had rendered its decision as under:- Idea Cellular 58. As the agreement is produced, issues are answered in favour of assessee in the departmental appeals. 59. Even the contention which has been raised by the counsel for the assessee that the final tax is paid by the Distributor and not by the agent, the revenue is not at loss in any form. ........................... 61. In view of the above discussion, all the appeals of assessee's are allowed and those of Department are dismissed. 2.8.5. We further find that the Hon'ble Rajasthan High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue before the Hon'ble Supreme Court. This argument of the revenue, in our considered opinion, cannot be a deterrent for this Tribunal to follow those High Court orders. We find that the similarly worded distribution agreement had been subject matter of adjudication and examination by the Hon'ble Rajasthan High Court and Hon'ble Jurisdictional High Court wherein the Hon'ble High Courts had taken a categorical view that the relationship between assessee and distributor is only that of Principal to Principal. Hence this finding cannot be disturbed by this tribunal by respectfully following the judicial hierarchy. Infact no contrary materials on facts were even brought on record by the revenue before us to disturb the findings of Hon'ble High Courts. Hence we have no hesitation in holding that the relationship between assessee and distributor is only that of Principal to Principal and not that of Principal to Agent and accordingly there is no obligation for the assessee to deduct tax at source in terms of section 194H of the Act. 2.8.8. In view of the aforesaid observations and findings given thereon, we do not deem it fit to adjudicate other arguments advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Pre-paid Distributors is deleted. Ground No. 4 raised by the Assessee is allowed. Ground No. 3 to 3.3. 6. Ground No. 3 to 3.3 raised by the Appellant pertains to disallowance of depreciation on 3G Spectrum. 6.1. During the Financial Year 2010-11 the Appellant had paid charges for allotment of right to commercially utilize the 3G spectrum allotted to it for a period of 20 years in the telecom circle of Mumbai. Since the right to use 3G spectrum did not itself entitle a company to provide telecom services for which a telecom license was required, the Appellant treated such right as an 'Intangible Asset' for the purpose of Section 32 of the Act and accordingly, tax depreciation per the prescribed rate was claimed on such capitalized cost. According to the Appellant, the allowability of depreciation of such right was examined by the Assessing Officer in the assessment proceedings for Assessment Year 2011-12, [i.e year of acquisition of right to use spectrum] and after due examination, tax depreciation as claimed by the Appellant was allowed. However, for the Assessment Year 2013-14, while passing the Draft Assessment Order, dated 29/12/2016, the Assessing Officer disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly allowed by the Assessing Officer [vide order dated 28/08/2020, passed in ITA No. 3327/Mum/2018 Vodafone India Ltd. Vs. Principal Commissioner of Income Tax-8] holding as under: "29. Accordingly, we can safely conclude that on the merits of the issue, the Mumbai Bench of the ITAT in the case of Idea Cellular Ltd. (ITA No. 360/Mum/2016) has already held that the provisions of section 35ABB are not applicable on the cost of acquisition of the 3G Spectrum and no specific arguments have been made on the said decision of the ITAT on the merits of the issue by the Revenue. 30. This decision has also been followed by the ITAT in the case of Tata Teleservices Maharashtra Ltd.(ITA No. 3567/Mum/2016 and 4392/M/2017). 31. With regard to reliance of the ld. DR on the decision of Hon'ble Supreme Court in the case of Britania Industries Ltd.(278 ITR 546), we observe that the question before the Supreme Court in the said case was whether expenses towards rent, repairs, depreciation and maintenance of a building used as a guest house, was to be governed by the provisions of section 30 to 36 of the Act or whether the specific provisions of section 37(4) r.w.s. 37(3) and 37 (5) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs to stand on and is thus liable to be quashed. Refer paras 13 to 16 of the order (page no 19 to 25 of the order). b. On merits of allowability of depreciation claimed on 3G spectrum fees: The Hon'ble Tribunal observed that the telecom license and spectrum are independent of each other and 3G spectrum fee merely provides a right to use a particular frequency/spectrum while providing telecommunication services. The assessee has rightly claimed depreciation under section 32 of the Act and the provisions of section 35ABB of the Act are clearly not applicable. Refer paras 17 to 20 of the order (page no 25 to 30 of the order). It was further highlight that the Jurisdictional Tribunal in the case of Tata Teleservices Maharashtra Limited (ITA 3567/Mum/2016 and 4392/Mum/2017), for AYs 2011-12 and 2012-13, has followed the decision of Idea Cellular (supra) and directed the AO to allow the depreciation claim under section 32(1)(ii) of the Act in respect of the amount paid to DOT for purchase of 3G spectrum and quashed the order passed u/s 263 of the Act by the learned CIT." (Emphasis Supplied) 6.6. Reliance was placed on the above decision of the Tribunal while deciding identical issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant had paid to its AE in the earlier years. TPO noted that the Appellant had adopted CUP Method for benchmarking royalty transactions which according to the TPO was not the Most Appropriate Method. The TPO also rejected all the comparables selected by the Appellant on account of significant differences in the functions, geography and level of operations. The TPO observed that the Appellant was performing Development, Enhancement, Maintenance, Protection and Exploitation functions (for short 'DEMPE functions') for the brand in India and was bearing the related costs and risks. No compensation was received by the Appellant for the aforesaid DEMPE functions either presently or at the time of termination of agreement. In view of the aforesaid, the TPO concluded that no independent third party would pay royalty for the use of trade name and trademark and therefore, the TPO arrived at ALP of 'Nil' for the transaction under consideration. 8.2. The objections filed by the Appellant on this issue did not yield favourable results as the DRP declined to give any direction and therefore, in the Final Assessment Order, dated 26/10/2017, transfer pricing adjustment of INR 31,13,67,878/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the royalty payment made by the Appellant to its AE are at arm's length while the TPO is directed to examine the same afresh for determining the ALP and consequent transfer pricing adjustment, if any, as per law. All the rights and contentions of both the sides are left open. In terms of aforesaid, Ground No. 5 to 5.5 raised by the Appellant are allowed for statistical purposes. Ground No.6 and 6.1 9. Ground No. 6 to 6.1 raised by the Appellant pertains to transfer pricing adjustment pertaining to reimbursement of expenses. 9.1. During the relevant previous year, the AEs of the Appellant incurred certain expenses relating to salary and other related costs of the employees who were seconded to the Appellant and who worked under the supervision, management and control of the Appellant. Subsequently the Appellant reimbursed these expenses incurred by its AEs on cost to cost basis. Out of the aforesaid expenses, the TPO determined the payments pertaining to GMAC Costs, PWC Consulting and people survey cost aggregating to INR 7,09,65,777/- as 'Nil'. Therefore, the ALP of international transaction pertaining to reimbursement of salary and related cost of the personnel on deputatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate 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 issue to the file of AO/TPO with similar directions." 9.3. The above decision, was relied upon by the Tribunal while restoring identical issue back to the file of TPO/ Assessing Officer with directions in appeal preferred by the Appellant for the Assessment Year 2011-12 (ITA No.884/Mum/2016) and Assessment Year 2012-13 (ITA No.2834/Mum/2017) vide common order, dated 17/05/2024. 9.4. In view of the above, we deem it appropriate to grant to the Appellant another opportunity to substantiate its claim that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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