M/S IRUNWAY INDIA PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(1)(1), BANGALORE

The assesee is engaged in the business of providing technology, consulting and litigation support services with focus on intellectual property domain, especially patent, to companies, law firms and other technology investment and licensing firms. The assessee provides technology related analysis, comments and information in the following three key areas:

The assessee filed its return of income for AY 2015-16 on 27 November 2015 declaring a total income of Rs. 52,289,620 under the normal provisions of the Income Tax Act, 1961 (Act). The AO passed the assessment order dated 26 December 2017 u/s 143(3) of the Act making the following additions to the total income declared in the return of income by the assessee: (i) Outsourcing charges of Rs. 71,110,315 payable to iRunway Inc 'were treated as 'fees for technical services' r FTS1 and disallowed u/s 40(a)(i) of the Act by alleging that the Assessee had not deducted tax u/s 195 of the Act; (ii) Sales commission of Rs. 4,505,685 payable to Neeraj Gupta was treated as FTS and disallowed u/s 40(aXi) of the Act by alleging that the Assessee had not deducted tax u/s 195 of the Act; and (iii) Provision of Rs. 1,170,000 created towards professional charges was disallowed u/s 37 and u/s 40(a)(ia) of the Act. On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Hence, this appeal by the Assessee before the Tribunal.

The first issue that requires consideration in this appeal is as to whether the Revenue authorities were justified in disallowing a sum of Rs.7,11,10,315/- being outsourcing charges paid by the assessee to its 100% subsidiary M/s. IRunway Incorporation, USA, for non-deduction of tax at source and by invoking the provisions of section 40(a)(ia) of the Act. During FY 2014-15, the assessee entered into contracts with its customers located in the U.S.A. Portion of the services that it agreed to provide to its customers was outsourced to its 100% subsidiary, iRunway Inc., US. For this purpose, the assessee entered into a Services Agreement dated 1 April 2012 with iRunway Inc. for availing itself of certain services. The conceptualization and scope of work to be performed by iRunway Inc. was determined by the assessee. Further, the assessee took the overall responsibility for the deliverables, it being the primary contractor for rendering services to its client. In connection with the services availed by the assessee from iRunway Inc during the financial year relevant to AY 2015-16, the assessee incurred outsourcing charges of Rs. 71,110,315.

The assessee did not deduct taxes u/s 195 of the Act on such outsourcing charges on the basis that the same did not constitute 'sum chargeable to tax' in India. Under the provisions of Sec.40(a)(ia) of the Act, where tax is deductible at source on a payment under Chapter XVII B of the Act and where tax has not been so deducted at source, then the sum so paid by an assessee without deduction of tax at source, will not be allowed as an expenditure while computing income from business.

The AO called upon the assessee to show-cause as to why outsourcing charges should not be disallowed u/s 40(a)(i) of the Act for alleged non-deduction of tax at source. The assessee took a stand that the said charges did not qualify as 'Fees for Technical Services' (FTS) under the Act as well as 'Fees for Included Services' [FIS] under the India-US Tax Treaty, and therefore did not constitute 'sum chargeable to tax' in India for it to be subjected to TDS. The assessee provided the following documents: a) The service agreement executed by iRunway Inc. and the assessee along with the list of services which was included in section A of the said service agreement; b) Copy of invoices raised by iRunway Inc. on the assessee towards sub-contracting fee; c) Brief write-up on the relevant legal framework in the US for governing patent litigation; and d) Sample contract entered into by the assessee with one of its US customers and documents/ e-mails exchanged between iRunway Inc and the assessee w.r.t. such contract.

The AO however held that the outsourcing charges as taxable as Fees for Technical Services (FTS) under the Act and as Fees for Included Services (FIS) under the India-US Tax Treaty and since the assessee had not deducted tax at source u/s 195 of the Act, the expenditure was disallowed u/s 40(a)(i) of the Act.

Before CIT(A), it was submitted that section 195 of the Act casts an obligation on an Indian company that is liable to make payment of a sum chargeable to income-tax in India to a non-resident to withhold tax at source at the applicable rates in force. A foreign company is liable to income-tax in India, inter alia, on income that is deemed to accrue or arise in India. The assessee submitted that outsourcing charges paid to iRunway

For the above purpose, the assessee has entered into a Services Agreement dated 1 April 2012 with iRunway Inc. for availing itself of certain services as included in section A of the Agreement. In summary, the services availed by the assessee included the following: a) Technology analysis for litigation [e.g., source code review, technical document review and analysis, accused system experimentation, and research; b) Patent Patent portfolio analysis; c) Technology research & due diligence; d) Consulting services and assistance in anticipation and in support of litigation; and e) Developing evidentiary support for affirmative infringement contentions.

The assessee explained that in the US, the patent litigation matters are governed under the Export Administration Regulations issued by the Bureau of Industry and Security, US Department of Commerce. As per the applicable law. a) A Party to any patent dispute is allowed to access confidential information including documents, testimony, or information

The assessee provided Sample contract between the assesee and its customers and the manner of rendering services. a) The assesee entered into an Agreement for Services [AFS] with McKool Smith, a law firm, on 11 August 2014.. As per the AFS, the Assessee was required to provide consulting services to McKool Smith in relation to complaint for patent infringement to be filed by BMC Software [i.e., a client of McKool Smith] against Service Now, Inc. [i.e., the client of Cooley LLP, a law firm in California]. Pursuant to the AFS, the Assessee was required to provide various services w.r.t. patent litigation, inter alia, including patent review, patent infringement analysis, source code review, technical document review and analysis, accused system experimentation, etc. b) In the BMC matter, since the accused products were software products, the Assessee was required to review the source code of the accused products to prove infringement under the `Discovery' process. c) Accordingly, BMC Software and Service Now obtained a Protective Order dated 20 February 2015 from the US District Court. As can be seen from Page 25 [section 14] of the Protective Order issued by the US District Court: i) The source code produced in Discovery process by BMC Software was to be made available for inspection, in electronic form at the Dallas, Texas, or Houston, Texas office of its outside counsel McKool Smith PC, or any other location mutually agreed to by the Parties; and ii) Any source code that is produced by Service Now Inc. was to be made available for inspection at the Palo Alto, California office of its outside counsel, Cooley LLP or any other location mutually agreed to by the Parties. Given the legal restrictions in the US

There are two exclusions contained in sub-clause (b) of Section 9(1)(vii) of the Act from the taxability of FTS in India, viz., Exclusion 1 - FTS paid by a resident in respect of services utilised for the purposes of a a) business or profession carried on by such resident outside India; and

Without prejudice to the assesee's contention above, even assuming while denying that outsourcing services are taxable u/s 9(1)(vii) of the Act, the assessee submitted that such charges ought not to be taxable as FIS in India under the India-US Tax Treaty. The assessee pointed out that Section 90(2) of the Act provides that the Act shall prevail over the provisions of the relevant Tax Treaty, wherever the provisions of the Act are more beneficial to the tax payer. As a corollary, the provisions of the relevant Tax Treaty shall prevail over the corresponding provisions of the domestic law to the extent they are more beneficial to the taxpayer. The assessee pointed out that as per Article 12 of the India-US Tax Treaty, technical services are construed as lee for included services' only if such services:  are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or  make available technical knowledge, experience, skill, know- how, or processes or consist of the development and transfer of a technical plan or technical design.

The assessee pointed out that in the Memorandum of Understanding [`MoU'] to the India-US Tax Treaty, technical services have been stated to mean services requiring expertise in a technology and consultancy services have been stated to mean advisory services. Also, the MoU

Further, the assessee also submitted that, owing to legal restrictions in the US for accessing protected material, iRunway Inc. did not have any occasion/ opportunity to 'make available' any technical knowledge to the assessee. Moreover, mere rendition of an output by iRunway Inc. based on

The CIT(A) however did not agree with the aforesaid submissions made by the assessee. He held that the services rendered were in the nature of technical services within the meaning of Sec.9(1)(vii) of the Act and are taxable in India even though the services were not rendered in India. Thereafter the CIT(A) went into the question whether the services rendered by iRunway Inc., USA made available technical knowledge skill to the assessee so as to satisfy the requirements of Article 12(4)(b) of the Indo-US treaty. The CIT(A) analyzed the terms of the Agreement between the assessee and iRunway Inc., USA and found that Schedule A of the Agreement provided that iRunway Inc. was to provide services to the assessee which included Patent infringement analysis, invalidity searches, Patent litigation analysis and support Patent pre-litigation analysis and support, reverse engineering and analysis, product testing, source code review and analysis, product testing, source code review and analysis,

On the argument of the assessee that the source of income of the assessee was from customers in USA (Outside India) and therefore the exclusion clause in Sec.9(1)(vii) (b) would operate to render the income not to have accrued or arisen in India, the CIT(A) held that the assessee carries on business in India notwithstanding that his clients are from USA. Merely because customers of the assessee are outside India that cannot be the basis to say that the source of income is in USA. The CIT(A) therefore rejected this argument of the assessee also.

Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. Learned Counsel for the assessee reiterated submissions that was made before the Revenue authorities. He placed reliance on the decision of the Hon’ble Delhi High Court in the case of DIT Vs. Lufthansa Cargo India Ltd., (2015) 60 taxmann.com 187 (Delhi) in which the Hon’ble Delhi High Court took the view that second part of exclusion contemplated vide section 9(1)(viii)(b) of the Act would be attracted. That was the case in which the assessee was an Indian resident who was engaged in wet leasing of aircrafts to foreign companies, on international routes. The assessee entered into an overhaul agreement with German Co., to carry out maintenance repairs was to be excluded since the source of income of the assessee was outside India and the maintenance charges were paid for the purpose of earning income from a source outside India. The Hon’ble Delhi High Court held that the Tribunal held that the overwhelming or predominant nature of the assessee's activity was to wet-lease the aircraft to, a foreign company. The operations were abroad, and the expenses towards maintenance and repairs payments were for the purpose of earning abroad. In these circumstances, the Tribunal's factual findings that the source of income of the assessee was outside India cannot be faulted. On the question whether the services in question made available in technical knowledge skill to the assessee, learned Counsel for the assessee placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. De Beers India Minerals (P) Ltd., (2012) 21 taxmann.com 214 (Kar.) wherein the Hon’ble Karnataka High Court held that in terms of article 12 of India- Netherlands DTAA, in a case, if along with technical services rendered. service provider also makes available technology which they can use in

The learned DR firstly submitted that there is no dispute that the nature of services is in the nature of technical services. He submitted that under Article 12(4)(b) of the Double Taxation Avoidance Agreement

We have given a very careful consideration to the rival submissions. We shall first take up for consideration argument of the assessee that the sum paid by the assessee to iRunway Inc., USA cannot be brought to tax in India even assuming that the nature of the payment was FTS within the meaning of the Act because under the Indo US Treaty, FTS is taxable in India only when the recipient of the payment ‘makes available’ technical

The case of the assessee is that in terms of Article 12(4)(b) of the Indo US treaty, only rendering of technical or consultancy services as ‘make available’ technical knowledge, experience, skill or know-how etc can be taxed in India in the hands of iRunway Inc. In other words, in order to attract the taxability of an income under Article 12(4)(b), not only the payment should be in consideration for rendering of technical or consultancy services, but in addition to the payment being consideration for rendering of technical services., the services so rendered should also be such that ‘make available’ technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. These worlds are ‘which make available’. The meaning of the expression make available were considered by the Tribunal in the case of Raymond Ltd. Vs. DCIT (2003) 80 TTJ (Mum) 120. The Tribunal after elaborate analysis of all the related aspects observed that :-

In the Raymond’s case (supra), the Tribunal also held that rendering of technical services cannot be equated with making available the technical services. In the case of CESC Ltd. Vs. DCIT (2003) 80 TTJ (Cal) (TM) 806: (2003) 87 ITD 653 (Cal)(TM) also the question regarding the scope of expression making available came up for the consideration of the Tribunal. In that case, the Tribunal was dealing with the scope of Article 13(4)(c) of the Indo-UK tax treaty which is admittedly in pari materia with Article 12(4) of the India-USA tax treaty with which we are presently concerned. The majority view was that in order to attract the provisions of the said article of the tax treaty, not only the services should be technical in nature but should be such as to result in making the technology available to person receiving the technical services in question. The Tribunal also referred to with

It is the allegation of the revenue that iRunway Inc. had made available to the assessee, the knowledge generated in the course of rendering technical and consultancy services on the basis that the employee of iRunway Inc. prepared a rebuttal memo which was reviewed by the employee of the assessee company to 'make use' of the same in the final deliverable given to the client. We are of the view that the AO has made incorrect interpretation of 'make use' to be equivalent to 'make available' of technical knowledge. The analysis provided in the memo prepared by the employee of iRunway Inc. was only made a part of the final deliverable. The same did not result in the employee of the assessee being enabled to be in a position to arrive at the analysis done by the employee of iRunway Inc. independently in the future, due to absence of the requisite knowledge. Therefore the revenue has incorrectly interpreted rendition of an output, i.e., analysis performed by iRunway Inc. based on technical knowledge as, it having made available technical knowledge itself, to the assessee. It is also the case of the revenue that as per the US court order, the confidential codes could be given to the counsel's support personnel which would be assessee's personnel in the instant case and doing so was making available technology, skill etc. We are of the view that the AO has incorrectly interpreted that the US Court’s Protective order provided access to confidential source code to counsel's support personnel which includes assessee's employees, although no reference to the access being granted to the assessee or its employees has

The next issue that arises for consideration is as to whether the Revenue authorities were justified in disallowing a sum of Rs.45,05,685/- being sales commission paid by the assessee to one Mr. Neeraj Gupta, a non-resident and tax-resident of USA, by invoking the provisions of section 40(a)(ia) of the Act and for non deduction of tax at source and the payments made to Mr. Neeraj Gupta. The facts as far as this addition is concerned are that the assessee had entered into an iRunway Sales Contractors Agreement' with Mr. Neeraj Gupta, wherein the assessee availed itself of certain sales consulting services. In consideration thereof, sales commission of 8% to 10% aggregating to Rs. 4,505,685 was payable by the assessee to Neeraj Gupta for FY 2014-15. This commission was arrived at on the basis of fixed percentage of sales. The AO called upon the assessee to show cause as to why sales commission paid to Mr. Neeraj Gupta should not be disallowed u/s 40(a)(i) of the Act for alleged non-deduction of tax at source. The assessee submitted its response vide letter dated 21 November 2017 as to why the said charges did not qualify as 'income' or `FTS' under the Act, and therefore did not constitute 'sum chargeable to tax' in India for it to be subjected to TDS. Along with the letter dated 21 November 2017, the assessee had also appended the following documents: a) A copy of the iRum;vay Sales Contractors Agreement' executed between Mr. Neeraj Gupta and the assessee ; and b) Details of sales commission recorded as payable by the assessee during FY 2014-15.

However, in the impugned order, disregarding the assessee's submission as above, the AO held that the services provided by Mr. Neeraj Gupta qualified as FTS under the Act and as FIS under the India-US Tax Treaty. By alleging that the assessee had not deducted tax at source u/s 195 of the Act, the AO the same u/s 40(a)(i) of the Act.

Before CIT(A) the assessee explained as to why sales commission paid to Mr. Neeraj Gupta is not taxable in India. The assessee pointed out that it entered into an agreement called iRunway Sales Contractor Agreement' with Mr. Neeraj Gupta wherein it availed itself of certain sales consulting services. As per the said agreement, Mr. Neeraj Gupta would: a) assist the assessee in acquiring new customers or acquire new business from existing customers of the assessee; b) work closely with Assessee's legal department to ensure that all terms and conditions for proposed sale is being approached in a manner consistent with the Assessee's policies and objectives; and c) ensure timely collection of payment and manage communications with and retention from the customers introduced by him. The pointed out that Mr. Neeraj Gupta was a tax resident of the US for FY 2014-15. The services under the aforesaid agreement were rendered by Mr. Neeraj Gupta from the US. Mr. Neeraj Gupta did not visit India during FY 2014-15 for the purposes of rendering services to the assessee under the said agreement; and Sales commission at a fixed % on the amount of revenue earned from the relevant client which was solicited by Mr. Neeraj Gupta was

The assessee pointed out that under Section 195 of the Act an obligation exists on the assessee making payment of a sum chargeable to income-tax in India to a non-resident to withhold tax at source at the applicable rates in force. A non-resident Company is chargeable to income-tax in India, inter alia, on income that is deemed to accrue or arise in India. The assessee submitted that sales commission paid to Mr. Neeraj Gupta did not qualify as 'sum chargeable to tax' in India and therefore assessee did not have an obligation to deduct tax at source u/s 195 of the Act, for the following reasons: i) Mr. Neeraj Gupta had not rendered any managerial, technical or consultancy services; ii) As per the exclusion provided for u/s 9(1)(vii) of the Act, sales commission payable by the Assessee to Mr. Neeraj Gupta for services utilised in its business carried on outside India, and for earning income from its customers outside India, is not taxable in India; iii) Sales commission payable by the Assessee was not taxable as FIS under Article 12 of the India — US Tax Treaty as the services did not make available any technical knowledge to the Assessee; iv) Sales commission is also not taxable under Article 15 of the India-US Tax Treaty as it was in the nature of Independent personal service.

The submission with regard to point (i) to (iii) above are identical to the submissions as was made on the first issue of disallowance u/s.40(a)(ia) of the Act of payments made to iRunway Inc., USA which we have already dealt with in the earlier paragraph. As far as point (iv) above is concerned, the submission was that Article 15 of the India-US Tax Treaty provides that income derived by a person from the performance of professional services. shall be taxed in the country of which he is resident except where the professional has a fixed base regularly available to him in India for the purpose of performing his activities or has stayed in India for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year. It was submitted that Mr. Neeraj Gupta did not satisfy the criteria as provided in Article 15 of the India-US Tax Treaty since neither he had a fixed base regularly available to him in India, neither he stayed even for a single day in India. Accordingly, sales commission paid to Mr. Neeraj Gupta is not taxable under Article 15 also of the India-US Tax Treaty as it does not satisfy either of the criteria specified therein.

The CIT(A) however upheld the order of the AO. He held that u/s.5(2)(b) of the Act, income that is deemed to accrue or arise to a person who is non-resident, in India is taxable in India. He held that the non- resident did not merely procure orders for the assessee but negotiated price and terms of the contact, opening of LC, shipment and payment and attend to queries in regard to shipment. Therefore the non-resident provided technical and consultancy services and hence the sum in question is taxable

Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. Learned Counsel for the assessee reiterated the submissions made before the lower authorities. Learned Counsel for the assessee drew our attention to the invoices raised by Mr. Neeraj Gupta and pointed out that none of the services were rendered in India. Copy of the invoices is at page 327 of the assessee’s Paper Book. Learned DR pointed out that Mr. Neeraj Gupta is a highly respected professional in IP world and IP litigation. Hence, the sales commission cannot be merely said to be sales commission and is in the nature of FTS. Learned DR drew our attention to clause 13 of the agreement of rendering services between the assessee and Mr. Neeraj Gupta dated 01.04.2015 wherein it was specifically provided that the assessee will be the owner of the IPR in all inventions conceived in whole or in part by the services of Mr. Neeraj Gupta. According to the Learned DR, this clause is clear evidence that technical services were not only rendered by Mr. Neeraj Gupta but those services made available technical skill, etc., to the assessee. She therefore submitted that the sum in question cannot be regarded as sales commission

We have given a careful consideration to the rival submissions. We shall take up the argument on the issue with reference to Indo US treaty, first. The findings on applicability of Article 12(4)(b) of the Indo US treaty while deciding the disallowance of sums paid to iRunway Inc., USA, will equally apply to this disallowance also, ie., the disallowance of payments made to Mr.Neeraj Gupta u/s.40(a)(ia) of the Act. Mr.Neeraj Gupta was paid commission on the basis of sales orders procured. Merely because he was technically qualified, sales commission paid for enabling sale cannot become payment for rendering technical services. Even in terms of Article 15 of the Indo US Treaty, the sum in question qualifies as that income derived by a person from the performance of professional services and therefore shall be taxed in the country of which he is resident except where the professional has a fixed base regularly available to him in India for the purpose of performing his activities or has stayed in India for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year. Admittedly, Mr. Neeraj Gupta did not satisfy the criteria as provided in Article 15 of the India-US Tax Treaty since neither he had a fixed base regularly available to him in India, neither he stayed even for a single day in India. Accordingly, sales commission paid to Mr. Neeraj Gupta is not taxable under Article 15 also of the India-US Tax Treaty as it does not satisfy either of the criteria specified therein. We therefore hold

The next issue that arises for consideration is as to whether the Revenue authorities were justified in disallowing a sum of Rs.1,19,305/- under section 40(a)(ia) of the Act on the ground that the assessee did not deduct tax at source on the provisions created towards professional charges. The facts as far as the aforesaid grounds is concerned are that during the financial year relevant to AY 2015-16, the assessee incurred certain expenses in the nature of professional charges. As per the mercantile system of accounting followed by it, the assessee had to accrue these expenses in its books of account as at 31 March 2015.In the absence of invoices from the relevant vendors, instead of crediting the 'liability account', the assessee recorded a provision for expenses of Rs. 1,170,000 as at 31 March 2015.On 1 April 2015, the assessee reversed the above provision for expenses of Rs. 1,170,000 and recorded the actual expenditure upon receipt of the relevant vendor invoice at a subsequent date. In the absence of invoices from the relevant vendors and the exact amount of expense, instead of recording these expenses by crediting a 'liability', the assessee had made a provision for expense by crediting 'expenses payable'. Further, since the vendor's right to receive such professional fees arose only after 31 March 2015 when an invoice was raised by it, the assessee did not deduct any taxes at source at the time of recording a provision as at 31 March 2015.

During the assessment proceedings, the AO directed the assessee to show-cause as to why provision for expenses of Rs. 1,170,000 should not be disallowed u/s 37 of the Act by holding it to be contingent in nature and

Before CIT(A), the assessee submitted that the assessee follows mercantile system of accounting as per which it would record for any expenses/ income on accrual basis in its books of account. Accordingly, the assessee has recorded a 'provision' towards certain expenses as at 31 March 2015. These amounts represented expenses for which services were availed of by the assessee during FY 2014-15 and thus, under the mercantile system of accounting the expenses were to be accrued during FY 2014-15 itself. In the absence of invoices from the relevant vendors and the exact amount of expense, instead of recording these expenses by crediting a 'liability', the assessee had made a provision for expense by crediting 'expenses payable'. The above provision towards expenses payable was reversed upon receipt of actual invoice and an accounting entry recording exact liability for such expenses were recorded as and when invoices were received from the relevant Vendors. Based on the above , the Assessee submits that there was no requirement to deduct tax on provision for professional fee and that it did qualify for deduction u/s 37 of the Act. The Assessee also placed reliance on the following decision in this regard:

Without prejudice to the above, it was submitted that provision towards professional charges ought to be disallowed u/s 40(a)(ia) of the Act, the AO erred in disallowing 100% of the provision made, instead of 30%, as required u/s 40(a)(ia) of the Act vide amendment made by Finance Act, 2014 w.e.f. 1 April 2015. Without prejudice to the above grounds, and even assuming while denying, that provision towards professional charges ought to be disallowed u/s 37/ 40(a)(ia) of the Act for AY 15-16, a deduction for the corresponding reversal of provision in the subsequent year, viz., AY 2016-17 ought to be allowed to the Assessee.

The CIT(A) however upheld the order of the AO by following the decision of ITAT Bangalore in the case of IBM India (P) Ltd. (2015) 59 taxmann.com 107 wherein it was held that even in respect of provision for expenses made in the books of accounts, the assessee had to deduct tax at source at the time of entry to the suspense account. Hence the present appeal by the assessee before the Tribunal. Learned Counsel for the assessee reiterated submissions made before the Revenue authorities. Learned DR relied on the order of the CIT(A).

We are of the view that the statutory provisions require deduction of tax at source even when the nomenclature used by the assessee for describing as an expenditure as in the nature of suspense account or a profession. The learned Counsel for the assessee however made a prayer that if the disallowance is upheld, the same amount should not be disallowed when the provision is reversed on the first day of April of the

The other grounds with regard to levy of interest under section 234B and 234C are purely consequential. The AO is directed to give consequential relief.

In the result, appeal of the assessee is partly allowed.