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TMI Blog2025 (2) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 1 to Section 115JB(2) of the Act can be computed on other reasonable basis. However, given the facts and circumstances of the present case, in order to put quietus to this issue, we deem it appropriate to direct the Assessing Officer to re-compute the said amount keeping in view the provisions of Clause (f) of Explanation 1 to Section 115JB(2) of the Act on a reasonable basis with the directions to restrict the same to the amount computed in terms of paragraph 4.6 above. The Assessing Officer is directed to grant to the Appellant a reasonable opportunity of being heard. TDS u/s 194H - Disallowance of discount extended to pre-paid distributors under section 40(a)(ia) - discount extended represented the difference between the Maximum Retail Price (MRP) of the talktime & pre-paid connections and the price at which these were transferred to the Pre-paid Distributors - DRP were of the view that the upfront discount given by the Appellant to the Pre-paid Distributor was in the nature of 'commission' liable to withholding of tax at source u/s 194H - HELD THAT:- Mumbai Bench of the Tribunal in case of the Assessee for the Assessment Year 2009-10 [2024 (1) TMI 991 - ITAT MUMBAI] wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing three assessment years, the benchmarking done by the Appellant using the CUP Method has been rejected by the TPO. The TPO rejected the comparables selected by the Appellant on account of significant differences in the functions, geography and level of operations. It has been submitted on behalf of the Appellant that the corroborative benchmarking using Transaction Net Margin Method (TNMM) had also not been considered by the Assessing Officer and the DRP. Given the aforesaid factual matrix and keeping in view the fact that for the three preceding Assessment Years 2011-12 to 2013- 14 the issue of benchmarking of the royalty transaction has been remanded back to the file of the TPO/Assessing Officer, we deem it appropriate to remand this issue back to the file of TPO/Assessing Officer with the directions to decide the issue of transfer pricing adjustment in relation to international transaction of royalty payment afresh. TP adjustment pertaining to reimbursement of expenses - HELD THAT:- We deem it appropriate to grant to the Appellant another opportunity to substantiate its claim that the INR.2,45,23,347/- were incurred in relation to the employees deputed with the Appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case and in law, the learned DRP/AO has grossly erred in making disallowance under section 14A of the Act despite the fact that management support charges amounting to INR 560.4 crores had already been recovered from the subsidiaries of the Appellant and already offered to tax. Each of the ground is referred to separately, which may kindly be considered independent of each other. 2 Disallowance of discount extended to pre-paid distributors under section 40(a)(ia) of the Act 2.1. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in making an addition u/s 40(a)(ia) of the Act on account of non-deduction of tax at source on the discount of INR 68, 19,45,415 extended to distributors of pre-paid services during the financial year relevant to the subject assessment year. 2.2. On the facts and in the circumstances of the case and in law, the learned DRP/AO has erred in not following latest order passed by Hon'ble Rajasthan and Karnataka High Court in the Appellant's own case [Hon'ble Rajasthan High Court decision in case of erstwhile Vodafone Digilink Limited and Hon'ble Kamataka decision in case of erst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned DRP/AO has erred in not amortizing such expense as done in the books of the accounts 5. Transfer Pricing ('TP') adjustment-General Grounds 5.1. On the facts and circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('learned DRP") has erred in confirming the adjustments aggregating to INR 39,27,36,605 made by the Additional Commissioner of Income Tax, Transfer Pricing 4(1), Mumbai ('the learned TPO" learned AO under section 92CA of the Act. 5.2. 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. 6. TP adjustment amounting to INR 35,97,56,258 on account of brand royalty payment made for grant of right to use of 'Vodafone' trademark and trade name 6.1. 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. 6.1.1. On the facts and circumstances of the case and in law, the learned TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment of centralised support services [Machine to machine ("M2M charges')] 8.1. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in determining the ALP of the international transaction pertaining to payment of centralized support services in the nature of M2M charges at Nil price. 8.1.1. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in not appreciating that availing of M2M services by the Appellant from its AE is covered under the advance pricing agreement (APA) negotiated by the Appellant with the Central Board of Direct Taxes ('CBDT'). 8.1.2. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in determining the ALP of payment for M2M services at Nil price without appreciating the nature of such services and without application of any method as prescribed under section 92C of the Act. 8.1.3. On the facts and circumstances of the case and in law, the learned TPO/AO/DRP have erred in determining the ALP of payment for M2M services at Nil price without considering the economic analysis undertaken by the Appellant for determining ALP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owances as per the provisions of the Act. 3.2. The Appellant filed objections before the DRP against the Draft Assessment Order, dated 28/12/2017. On 25/09/2018, the DRP disposed off the objections granting partial relief to the Appellant. As per the directions of the DRP, the Assessing Officer passed the Final Assessment Order, dated 30/11/2018, under Section 143(3) read with Section 92CA read with Section 144C(13) of the Act, assessing total income of the Appellant at INR. 256,40,48,850/- computed as under: Particular Amount (INR) Amount (INR) I Income under the head business or profession (as per computation) (-) 485,36,80,287/- Add: (i) TP Adjustment 39,27,36,605 (ii) Disallowance u/s 14A 362,23,34,000 (iii) Disallowance under Section 40(a)(ia) for non deduction of TDS on Discount extended to prepaid distributors 68,19,45,415 (iv) Disallowance of depreciation on spectrum fees 261,29,65,700 (v) On account of payment to IBM 14,66,83,051 (vi) Less: Allowance u/s.40(a)(ia) for amount paid u/s 201(1) as per the direction of DRP (-)15,00,00,000 730,66,64,771 Taxable I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to be taken into consideration. However, the Assessing Officer rejected the aforesaid contention of the Appellant and proceeded to compute disallowance at INR.3,62,23,34,000/- as per provisions contained in Rule 8D of the IT Rules. Thus, in the Draft Assessment Order, dated 28/12/2017, the Assessing Officer proposed disallowance of INR.3,62,23,34,000/- under Section 14A of the Act. 4.2. In the objections filed by the Appellant against the Draft Assessment Order, dated 28/12/2017, on this issue, the DRP agreed with the Assessing Officer and decline to issue any directions following the decision of DRP for the Assessment Year 2013-2014. Accordingly, the Assessing Officer passed the Final Assessment Order, dated 30/11/2018, making disallowance of INR INR.3,62,23,34,000/- under Section 14A of the Act read with Rule 8D(2)(ii)/(iii) of the IT Rules. In addition the Assessing Officer also concluded that addition made under Section 14A of the Act was also to be made to the 'Book Profits' (computed as per Section 115JB of the Act.) 4.3. Being aggrieved, the Appellant has carried the issue in appeal before this Tribunal. 4.4. We have considered the rival submissions and perused the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re more than the investments made in the tax free securities, the presumption would be that investments in tax free securities have been made out of interest-free own funds and proportionate disallowance of interest under Section 14A of the Act was not warranted on the ground that separate accounts were not maintained by assessee for making investments and for other expenditure incurred for earning tax-free income. In the present case, the Revenue has failed to bring any material on record to rebut the aforesaid presumption which is in the favour of the Appellant given the facts and circumstances of the present case. Accordingly, we accept the contention of the Appellant that no disallowance under Rule 8D(2)(ii) of the IT Rules was warranted in the present case and therefore, addition of INR 406.51 Crores made by the Assessing Officer by disallowing proportionate interest cost is deleted. 4.8 As regards disallowance of INR 35.61 Crores made by the Assessing Officer under Rule 8D(2)(iii) of the IT Rules is concerned, we find that Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investments Pvt. Ltd. (2017) 82 taxmann.com 415 (Delhi Trib.) (SB) has held that for computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Bench of the Tribunal has held that while computing 'Book Profits' under Section 115JB of the Act, amount to be added in terms of Clause (f) of Explanation 1 to Section 115JB(2) of the Act is to be computed without resorting to computation as contemplated under Section 14A read with Rule 8D. Thus, amount for the purpose of Clause (f) of Explanation 1 to Section 115JB(2) of the Act can be computed on other reasonable basis. However, given the facts and circumstances of the present case, in order to put quietus to this issue, we deem it appropriate to direct the Assessing Officer to re-compute the said amount keeping in view the provisions of Clause (f) of Explanation 1 to Section 115JB(2) of the Act on a reasonable basis with the directions to restrict the same to the amount computed in terms of paragraph 4.6 above. The Assessing Officer is directed to grant to the Appellant a reasonable opportunity of being heard. 4.8. In terms of above, Ground No. 1 to 1.2 raised by the Assessee are partly allowed. Ground No. 2 to 2.4. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r:- "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 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 Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 we have noted above, the same principle would apply in the present case. Therefore, the questions of law as proposed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 case of CIT (TDS) Jaipur vs Idea Cellular Ltd in Income Tax Appeal No. 90/2018 dated 12/04/2018 had taken an identical view on the identical set of facts. Further 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 identic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 by the ld. AR on the applicability of second proviso to section 40(a)(ia) read with section 201 of the Act, as it would become academic in nature. This aspect of the issue 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 of prepaid sim cards/recharge vouchers by the assessee to distributors cannot be treated as commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entitle a the Appellant 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 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 2014-15, while passing the Draft Assessment Order, dated 28/12/2017, the Assessing Officer disallowed the depreciation of INR 2,61,29,65,700/- claimed by the Appellant and allowed the Appellant to amortized the same under Section 35ABB of the Act. In the objections filed by the Appellant against the Draft Assessment Order on the above issue, the DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed u/s 263 of the Act by the learned CIT." (Emphasis Supplied) 6.4. Reliance was placed on the above decision of the Co-ordinate Bench of the Tribunal while deciding identical issue in favour of the Appellant in appeal for the Assessment Year 2011-2012 & 2012-2013 [ITA No.884/Mum/2016 & 2834/Mum/2017, common order dated 17/05/2024] and Assessment Year 2013-2014 [ITA No.6671/Mum/2017, dated 22/10/2024]. 6.5. Both the sides agree that there has been no change in facts and circumstances. Therefore, respectfully following the above decisions of the Tribunal, we delete the disallowance of INR.261,29,65,700/- and direct the Assessing Officer to allow depreciation in respect of the 3G spectrum charges capitalize by the Appellant under Section 32(1)(ii) of the Act. Thus, Ground No. 3 to 3.3 raised by the Appellant are allowed. Ground No. 4 to 4.2 7. Ground No. 4 to 4.2 raised by the Appellant are directed against the disallowance of deduction of INR.14,66,83,051/- claimed by the Assessee. 7.1. It has been stated that the Appellant had entered into a service agreement with IBM whereby IBM was under obligation to provide end-to-end information technology services and solutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the finding returned by the Assessing Officer and DRP that the expenditure incurred was for a period of five years and included prepaid expenditure for next 4 years was factually incorrect as the service charges were payable annually. 7.5. Per contra Learned Departmental Representative placed reliance upon the order passed by the Assessing Officer/DRP and highlighted the fact that the Appellant had failed to demonstrate before the DRP the exact nature of expenses with supporting evidences. 7.6. Having considered the rival submission and on perusal of material on record we find merit in the contention advanced on behalf of the Appellant that the claim of deduction made by the Appellant cannot be rejected merely on the ground that the expenditure under consideration was capitalized in the books of accounts of the Appellant. We find that the underlying agreement between the Appellant and IBM is not on record. Accordingly, we deem it appropriate to remand this issue back to the file of the Assessing Officer. The Appellant is directed to file the relevant agreement, invoices and other supporting documents before the Assessing Officer. The Assessing Officer is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 9.2. 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 30/11/2018, transfer pricing adjustment of INR 35,97,56,258/- was made by the Assessing Officer in respect of royalty payment. 9.3. The Appellant is now before this Tribunal challenging the above transfer pricing addition. 9.4. When the issue was taken up for hearing both the sides submitted that issue relating to the transfer pricing adjustment related to royalty payment made by the Appellant for the for the Assessment Year 2011-12 and 2012-2013 [ITA No.884/Mum/2016 & ITA No.2834/Mum/2017, dated 17/05/2024] and Assessment Year 2013- 14 [ITA No.6671/Mum/2017, dated 22/10/2024] had also come up for consideration before the Tribunal. For all the three assessment years, the Tribunal had remanded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Nil'. Since, the DRP declined to grant any relief in objections filed by the Appellant against the Draft Assessment Order proposing the aforesaid transfer pricing adjustment, the Final Assessment Order was passed making the transfer pricing addition of INR.2,45,23,347/-. Being aggrieved, the Appellant has carried the issue in appeal before this Tribunal. 10.2. 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 Appellant for the Assessment Year 2009-2010 [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 TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/Mum/2017, dated 22/10/2024]. 10.4. In view of the above, we deem it appropriate to grant to the Appellant another opportunity to substantiate its claim that the INR.2,45,23,347/- were incurred in relation to the employees deputed with the Appellant and that the same, having being recovered on cost to cost basis from the Appellant, was at arm's length. The Appellant is directed to furnish relevant documents/details to substantiate its claim. The TPO/Assessing Officer shall grant reasonable opportunity of hearing to the Appellant and shall decide the issue in accordance with law after taking into consideration the details/documents furnished by the Appellant and as per the directions issued by the Tribunal in the case of the Appellant 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 TPO/Assessing Officer with the aforesaid directions. Ground No.7 and 7.1 raised by the Appellant in appeal are allowed for statistical purposes. Ground No.8 and 8.1.4. 11. Ground No. 8 to 8.1.4 raised by the Appellant pertains to payment of centralized support services [Machines to Machine Charges]. In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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