TELECOM NETWORK SOLUTIONS PRIVATE LIMITED,DELHI vs. ACIT, CIRCLE-25(1), DELHI

PER MADHUMITA ROY, JM:

The instant appeal filed by the assessee is directed against the

order dated 25.11.2025 passed by the Ld. Commissioner of Income

Tax Appeals ADDL/JCIT(A), Thane, under Section 250 of the Income

Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the

2ITA No. 9137/Del/2025 Telecom Network Solutions (P) Ltd.

Order dated 15.03.2024 passed by CPC Bangalore, under Section 154

of the Act for Assessment Year 2017-18.

products and services in the telecommunication sector filed its original

return of on 07.11.2017 for A.Y 2017-18 inter alia claiming foreign tax

credit of Rs. 43,25,706/- case whereof was selected for limited

scrutiny under Section 143(3) of the Act on the issues of “Double

Taxation Relief under Section 90/9 of the Act”. The assessee, during

the course of scrutiny proceeding explained the contract with Huawei

Technologies Nepal Co. Private Limited which had deducted TDS @

5%and against which foreign tax credit was claimed.

certain documents to verify the claim made by the assessee under

Section 90/91 of the Act to this effect that what was the rate of

conversion of currency considered in the matter, what was the date

considered for conversion, reconciliation of amount claimed to have

been deducted under Section 90/91 of the Act and the amount

claimed as TDS required and further that an affidavit stating under

oath that the certificate under Section 90/91 of the Act produced is

true and genuine in response whereto the assessee duly submitted the

details.

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90/91Aof the Act was sought for by the Ld. AO which was duly filed

before theLd. AO. Thereafter,the Ld. AO on detailed questioning and

upon perusal of the documents furnished by the assessee accepted

the returned income filed by the assessee by and under its order dated

28.09.2019 appearing at page 91 to 92 of the paper book filed before

us. In fact all the details as stated hereinabove are part of the paper

book filed before us by the assessee.

under Section 154 of the Act to the assesseeon the pretext of the

entire receipts of Nepal having been considered as taxable in India

which is according to the Ld AR refutable on perusal of the amount of

“tax payable on such income under formal provision in India”

submitted in column 7 of Form No. 67 as INR 45,80,913/-. Admittedly

this show cause was issued after anelapse of four years from the date

of passing of orders by the Ld. AO on 28.09.2019 under Section 143(3)

of the Act. The show cause issued by the Ld. AO is reproduced herein

below:

“Sir/Madam/Ms, Subject: Proceedings under section 154 - Notice Whereas the assessment order was passed under section 143(3) of the IT Act on 28.09.2019 in the case of Telecom Network Solutions Private Limited for the A.Y. 2017-18, at returned income which is required to be rectified as there is

4ITA No. 9137/Del/2025 Telecom Network Solutions (P) Ltd.

a mistake apparent from the record within the meaning of Section 154 of the Income Tax Act, 1961. PARTICULARS OF MISTAKE(S) PROPOSED TO BE RECTIFIED:- 2. On perusal of ITR filed by the assessee it is seen that the assessee has claimed relief u/s 90/91 of the Act of Rs. 43,25,706/- against total foreign receipts of Rs. 8,65,14,112/- from Nepal. Furthermore, on perusal of details filed by the assessee during assessment proceedings, it is seen that the assessee has worked out allowable claim u/s 90/91 with reference to receipts (and not income) from Nepal. This approach is incorrect because as per the clause - "Avoidance of Double Taxation" of Article 23 of DTAA with Nepal, allowable relief u/s 90 needs to be worked out with reference to "income" and not "receipts". Here, it is also pertinent to note that deduction u/s 90/91 cannot exceed the part of income tax which is attributable to the income which may be taxed in other country. From the above, it is clear that the assessee has to claim credit of foreign tax with reference to income earned from Nepal and not the total receipts from that country. In other words, foreign tax credit cannot exceed the tax payable in India on income earned from foreign countries. So, the assessee had towork out net profit earned from foreign countries and only tax credit equal to the tax payable on such net profit can be given. The assessee has not submitted these calculations. The assessee has shown net profit of Rs. 14,32,19,316/- against total receipts of Rs. 1,80,10,48,992/- which comes to net profit rate of 7.95%. Accordingly, net profit rate of 7.95% should be applied to the foreign receipts and allowable credit u/s 90/91 should be worked out as under: Foreign Nettaxable Tax plus Foreign TDS Excess Receipts from profit in surcharge allowed credit Nepal India 7.95% payable in allowed u/s90/91 on foreign India on receipts such profit 8,65,14,112/- 68,77,872/- 23,80,293/- 43,25,706/- 19,45,413/-

From the above, it is seen that the assessee would have earned a net profit of Rs. 68,77,872/- from foreign countries

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and has set off foreign tax credit against the net profit earned from Indian operations which is not permissible under Income tax Act. The mistake has resulted in excess credit of foreign tax u/s 90/91 amounting to Rs. 19,45,413/-R 3. The above mistake is apparent from record and comes under the purview of section 154 of the I.T. Act, 1961. The same is proposed to be rectified u/s 154 of the I.T. Act. 4. If you wish to be heard, you are requested to submit your reply/documents so as to reach the undersigned on or before 15/03/2024. 5. It may be noted that if no reply is received from your end by 15/03/2024, rectification u/s 154 of the Income Tax Act, 1961 will be carried out by the Department.”

made out before us by the assessee that the allowability of this

deduction is a complex issue requiring detailed examination

andmoreso, the same has already been accepted by the Ld. AO after

perusal and proper consideration of the relevant records and due

application of mind which was incorrectly treated as rectification

without mentioning “ mistake apparent from the record”; the same is

nothing but change of opinion by the Assessing Officer and unless

there is an mistake apparent from record the provision of Section 154

of the Act cannot be applied and therefore, the order initiating the

rectification proceeding under Section 154 of the Act by the Ld. AO is

liable to be quashed. Relevant to mention that the Ld. AO finally on

18.03.2024 passed the order under Section 154 of the Act whereby

and whereunderthe excess credit of foreign tax allowed under Section

6ITA No. 9137/Del/2025 Telecom Network Solutions (P) Ltd.

90 amounting to Rs. 19,45,413/-stood disallowed and total tax relief under Section 90 has been restricted to Rs. 23,80,293/- which was

further confirmed by the First Appellate Authority. Hence the instant

appeal before us.

Section 154 read with 143(3) of the Act dated 18.03.2024 is

reproduced herein below:-

“ORDER U/S 154/143(3) OF THE INCOME TAX ACT, 1961 The return of income was filed by the assessee company Telecom Network Solutions Private Limited on 07.11.2017 declaring income of Rs. 15,60,31,570/-. The case was selected for scrutiny & assessment order u/s 143(3) of the Income Tax Act was passed on 16.12.2019 at returned income.

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countries and only tax credit equal to the tax payable on such net profit can be given. The assessee has not submitted these calculations. The assessee has shown net profit of Rs. 14,32,19,316/- against total receipts of Rs. 1,80,10,48,992/- which comes to net profit rate of 7.95%. Accordingly, net profit rate of 7.95% should be applied to the foreign receipts and allowable credit u/s 90/91 should be worked out as under: Foreign Net Taxable Tax plus Foreign TDS Excess Receipts profit in India @ surcharge allowed credit 7.95% on foreign payable in allowed receipts India on u/s 90/91 such profit 8,65,14,112/- 68,77,872/- 23,80,293/- 43,25,706/- 19,45,413/-

From the above, it is seen that the assessee would have earned a net profit of Rs. 68,77,872/-from foreign countries and has set off foreign tax credit against the net profit earned from Indian operations which is not permissible under Income tax Act. The mistake has resulted in excess credit of foreign tax u/s 90/91 amounting to Rs. 19,45,413/-.

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anything about the cost incurred by assessee company in performing the work mentioned in the invoices. Thus, the profit margins made by assessee company from these works cannot be computed. Assessee is trying to claim the tax relief u/s 90/91 only on the basis of the receipts (and not income) from Nepal.

However, as per the clause - "Avoidance of Double Taxation" - of Article 23 of DTAA with Nepal, allowable relief u/s 90 needs to be worked out with reference to "income" and not "receipts". Here, it is also pertinent to note that deduction u/s 90/91 cannot exceed the part of income tax which is attributable to the income which may be taxed in other country. For example, the relevant portion of the DTAAs with Nepal is reproduced as under:

ARTICLE 23 METHODS FOR ELIMINATION OF DOUBLE TAXATION "1. The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement. Where income is subject to tax in both Contracting States, relief from double taxation shall be given in accordance with the following paragraphs of this Article.

In India:

(a) Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Nepal, India shall allow as a deduction from the tax on the income of that resident, an amount equal to the tax paid in Nepal.

Such deduction shall not, however, exceed that portion of the tax as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in Nepal.

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(b) Where in accordance with any provision of the Agreement income derived by a resident of India is exempt from tax in India may nevertheless, in calculating theamount of tax on the remaining income of such resident, take into account the exempted income.

In view of the above remarks, it is clear that the mistake pointed out in the notice dated 08.03.2024 u/s 154 regarding the excess foreign credit allowed still persists. Therefore, the submission filed by assessee is not found tenable and thus rejected.

observed as follows:

“5.1.3 After perusal of the assessment order, the written submissions of the appellant, and the material on record, it is seen that the Assessing Officer (AO) has correctly disallowed the excess foreign tax credit (FTC) of Rs. 19,45,413/- claimed by the appellant u/s 90/91 of the Act. The appellant's claim was based on total receipts from Nepal amounting to Rs. 8,65,14,112/-, rather than the net taxable income attributable to such receipts. This approach is inconsistent with the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and Nepal, specifically Article 23, which mandates that the FTC be computed with reference to income and not receipts. The DTAA stipulates that the credit shall not exceed that portion of the tax computed before the deduction which is attributable to the income that may be taxed in Nepal. The appellant's contention that the net profit margins on export sales to Nepal are higher than those on domestic sales in India was supported by sample invoices. However, these invoices reflected only revenue figures without detailing theassociated costs, rendering them insufficient to substantiate the claimed net profit. The appellant's failure to provide comprehensive cost data undermines the validity of

10 ITA No. 9137/Del/2025 Telecom Network Solutions (P) Ltd.

the claimed FTC. Furthermore, the appellant's attempt to apply the FTC against net profits from Indian operations, rather than profits earned from Nepal, contravenes the statutory provisions. The Income Tax Act and the DTAA require that the FTC be computed based on net income earned from foreign operations, not on global net profits. The appellant's methodology of applying the FTC against Indian profits is therefore impermissible. In light of the above, the appellate authority concurs with the AO's findings and upholds the disallowance of the excess FTC of Rs. 19,45,413/-. The total tax relief under Sections 90/91 is accordingly restricted to Rs. 23,80,293/-, as computed by the AO. The appellant's submissions do not provide sufficient grounds to overturn the AO's decision. Therefore, the appeal on these grounds is hereby dismissed.”

before us that making this addition warrants for calling out of new

records outside the assessment record which is not permissible under

the provision of Section 154 of the Act for rectification of any error

apparent on the face of the order passed by Ld. AO. The Ld. DR relied

upon the order passed by the authorities.

in the matter of Asian Art Printers (P.) Ltd. Vs. IAC, reported at 38 TTJ

371 passed by the Coordinate Bench wherein the ITO made enquiries

about the expenditure in question and upon considering the

explanation rendered by the assessee didn’t find the expenditure or

any portion thereof as disallowable. It appears that the Ld. AO actually

applied his mind and the facts and circumstances of the matter and

11 ITA No. 9137/Del/2025 Telecom Network Solutions (P) Ltd.

allowed the expenditure. In any case he has to be deemed to have

allowed the expenditure and therefore, could not revise his opinion

and initiate action under Section 154 of the Act. The ITO’s action in

taking recourse under Section 154 of the Act is based on mere change

of opinion and did not confer any jurisdiction on him to act under the

provision of Section 154 of the Act as further held by the Bench.

Supreme Court in the case of T.S. Balaram, Income tax officer

reported in [1971] 82 ITR 50 (SC), as relied by the Ld AR wherein it

has been held that a mistake apparent on the record must be an

obvious patent mistake and not something which can be established

by a longdrawn process of listening on points on which there may

conceivably by two opinions. The judgement passed by the Hon’ble

Supreme Court in the case of Keshri Metal Private Limited, reported in

(1999)104 taxmann 360 (SC)as relied upon by the Ld AR is also

considered by us wherein it has been held that it was not in error in

coming to the conclusion that there was no occasion for rectification.

Under the provision of Section 154 of the Act, there has to be a

mistake apparent from the record. In other words, a look at the record

must show that there has been an error and that the error may be

rectified.

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initiated under Section 143(3) of the Act duly considered the reply

given by the assessee on the issues as already discussed above and

then only upon application of mind accepted the returned income filed

by the assessee on 28.09.2019. Further that the show cause issued

after a prolonged period of four years that too not mentioning the

definite mistake apparent on the face of the record which sought to be

rectified and further that the order dated 18.03.2024 under section

154 of the Act is not found to be rectification an error apparent on the

face of the records rather it has considered further calculation which

was not submitted by the assessee as per his opinion.

that it shows any apparent errors from the record. Reference to

documents outside the record and the law is impermissible when

applying the provision of section 154 of the Act.

passed under section 154 of the Act cannot be said to be an

rectification of an error apparent on the record particularly when upon

due application of mind on the reply given by the assessee along with

the documents as sought for the order of assessment was passed by

the Assessing Officer accepting the returned income filed by the

assessee. TheLd.AO in our considered opinion has over exercised its

13 ITA No. 9137/Del/2025 Telecom Network Solutions (P) Ltd.

power provided under Section 154 of the Act and therefore, the same

is liable to be quashed. Ordered accordingly.

Order pronounced in the open court on 21 /09/2026.

Sd/- Sd/-

(KRINWANT SAHAY) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 21/09/2026

R. Naheed, Sr PS