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Facts
The assessee's appeal arises against the assessment order framed in consequence to DRP directions. The core of the dispute involves transfer pricing adjustments related to intra-group services and royalty payments, disallowance of support service expenditure, denial of deduction for CSR expenditure, and disallowance of road and VAT on leased assets.
Held
The Tribunal partly allowed the assessee's appeal. For transfer pricing adjustments, issues were remanded to the TPO for fresh adjudication based on specific directions. Corporate tax grounds regarding support services and CSR expenditure were allowed, while the issue of annual revenue share-based license fee was to be finalized by the AO. Road tax and VAT on leased assets were allowed as revenue expenditure.
Key Issues
Whether transfer pricing adjustments for intra-group services and royalty are justified, whether support services and CSR expenditure are allowable, and whether road tax and VAT on leased assets are deductible as revenue expenditure.
Sections Cited
143(3), 144C(13), 10CA, 35ABB, 80G, 37(1), 234B, 234C, 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: Sh. Satbeer Singh Godara & Sh. Avdhesh Kumar Mishra
Asstt. Year: 2018-19 & SA No. 425/Del/2024 : Asstt. Year: 2018-19 AT&T Global Network Services India Vs ACIT, Pvt. Ltd., Vatika Triangle, 3rd Floor, Circle-1(1), Shushant Lok-I, Block-A, Gurgaon, New Delhi-110003 Haryana-122002 (APPELLANT) (RESPONDENT) PAN No. AAFCA8810L Assessee by : Sh. K. M. Gupta, Adv. & Sh. Shubham Gupta, CA Revenue by : Sh. Dharm Veer Singh, CIT-DR Date of Hearing: 21.03.2025 Date of Pronouncement: 21.03.2025 ORDER
Per Satbeer Singh Godara, Judicial Member:
This assessee’s appeal and Stay Application SA No. 425/Del/2024 for Assessment Year 2018-19 arise against the ACIT, Circle -1(1), Delhi’s assessment order dated 28.05.2022 framed in consequence to the Dispute Resolution Panel (“DRP”)-1, New Delhi directions dated 05.04.2022, in proceedings u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short “the Act”).
Heard both the parties at length. Case file(s) perused.
SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd.
This assessee’s appeal raises the following substantive grounds: “1. Final assessment order is void-ab-initio On the facts and circumstances of the case and in law, the final assessment order dated 28 May 2022 passed by the learned Assistant Commissioner of Income tax, Circle 1(1), Delhi (‘Ld. AO’) is contrary to the provisions of the Act and is therefore void-ab-initio. On the facts and circumstances of the case & in law, the final assessment Ld. AO is without jurisdiction as the same was ought to be passed by the National Faceless Assessment Centre and therefore, the order is void-ab-initio Transfer Pricing (TP) Grounds 2. TP adjustment with respect to receipt of Intra- Group Services On the facts and circumstances of the case, and in law, the Ld. AO / Learned Transfer Pricing Officer (‘Ld. TPO’) [in pursuance to the directions of the Dispute Resolution Panel (‘DRP’)], erred in enhancing the income of the Appellant by INR 21,61,52,391 holding that the international transaction pertaining to receipt of intra-group services do not satisfy the arm’s length principle envisaged under the Income-tax Act, 1961 (‘Act’), and in doing so have grossly erred in: 2.1. rejecting the combined transaction approach of benchmarking adopted by the Appellant in its TP documentation (i.e., aggregating availing of intra-group services with provision of network support services) and proceeding to determine the arm’s length price of international transaction pertaining to availing of intra-group services from its AEs on a standalone basis; 2.4. disregarding the elaborate documentary evidence submitted as part of assessment proceedings to erroneously assume that ‘no benefit’ has been conferred upon the Appellant from the international transactions pertaining to availing of intra-group services and thereafter re-determining the ALP of the said transaction as ‘NIL’; and 3. TP adjustment with respect to payment of royalty On the facts and circumstances of the case, & in law, the Ld. AO/ Ld. TPO (in pursuant to the directions of the DRP), erred in enhancing the income of the Appellant by INR 2,06,48,375 and holding that the international transaction pertaining to SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd. payment of royalty does not satisfy the arm’s length principle envisaged under the Act, and in doing so have grossly erred in: 3.1. rejecting the combined transaction approach of benchmarking adopted by the Appellant in its TP documentation (i.e., aggregating payment of royalty, availing of intra-group services with provision of network support services) and proceeding to determine the arm’s length price of international transaction pertaining to payment of royalty from its AEs on a standalone basis by rejecting TNMM as the most appropriate method; 3.2. holding that the Appellant did not receive tangible benefit in lieu of the payment of royalty thereby challenging the commercial wisdom of the Appellant in making payment for royalty; 3.3. arbitrarily rejecting the supplementary analysis using CUP method to benchmark the payment of royalty transaction submitted by the Appellant without giving any cogent reasons; 3.4. undertaking fresh benchmarking analysis using Royaltystat database and selecting agreements which are not comparable to the royalty payment made by the Appellant to its AEs; 3.5 not providing the detailed search process along with backup documentation such as accept-reject matrix to provide Appellant an opportunity to evaluate the appropriateness of the benchmarking analysis; and 3.6. erroneously computing arm’s length price as arithmetic mean of the royalty rates of eleven comparable agreements instead of applying the range concept as prescribed under Rule 10CA of the Income-tax Rules, 1962. Corporate Tax Grounds 4. Disallowance of Support Service Expenditure 4.1. On the facts, in circumstances of the case and in law, the Ld. AO/ DRP erred in disallowing the legitimate business expenditure being in the nature of support service expenses of INR 9,31,97,824 paid to AT&T Communication Services India Private Limited (‘ACSI’). 4.2. On the facts, in circumstances of the case and in law, the Ld. AO/ DRP erred in not taking cognizance of the submissions made by Appellant and the documentary and circumstantial evidence/ proof produced by the Appellant, SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd. which duly substantiate that support services were rendered by ACSI to the Appellant company. 4.3. On the facts, in circumstances of the case and in law, the Ld. AO/ DRP erred in ignoring that the aforesaid disallowance on account of support service expenditure has been deleted by the Hon’ble ITAT for AYs 2008-09, 2009-10, 2010-11 and 2011-12. 4.4. On the facts, in circumstances of the case and in law, the Ld. AO failed to grant sufficient opportunity to the Appellant to present its contentions, which is in violation of the principles of natural justice.
5. Disallowance of annual revenue share-based license fee 5.1. On the facts, in the circumstances of the case and in law, the Ld. AO/ DRP erred in disallowing an amount of INR 35,68,47,514 under the head licence fees debited to Profit & Loss Account by holding that annual license fee is not allowable as a revenue expenditure and it should be amortized under section 35ABB of the Act.
6. Denial of Deduction of Donation under section 80G of the Act 6.1. On the facts, in the circumstances of the case and in law, the Ld. AO/ DRP erred in disallowing an amount of INR 1,97,30,416 related to Corporate Social Responsibility Expenditure (‘CSR’) expenditure and holding that the same would not be eligible for deduction under section 80G of the Act since CSR is not voluntary rather mandatory in nature. 6.2. On the facts, in circumstances of the case and in law, the Ld. AO / DRP erred in not taking cognizance of the submissions made by the Appellant and the documentary and circumstantial evidence / proof produced by the Appellant which states that Appellant has made donation to trust / institutions registered under section 80G of the Act and the same has not been claimed under section 37 of the Act. 6.3. On the facts, in circumstances of the case and in law, the Ld. AO failed to grant sufficient opportunity to the Appellant to present its contentions, which is in violation of the principles of natural justice. 6.4. On the facts, in circumstances of the case and in law, the Ld. AO / DRP has erred in ignoring the provisions of section 80G of the Act wherein it is provided that expenditure on account of CSR expenditure will not be allowed as deduction under section 80G of the Act for donation to Swachh Bharat Kosh and Clean Ganga Fund only.
SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd.
7. Allowability of road tax and value added tax on assets taken on lease 7.1. On the facts, in circumstances of the case and in law, the road tax (INR 14,32,442) and value added tax (INR 17,10,593) on motor vehicles amounting to INR 31,43,035 paid by is an allowable business expenditure under section 37(1) and ought to have been allowed by the Ld. AO / DRP. 7.2. On the facts, in circumstances of the case and in law, the Ld. AO / DRP has erred in ignoring the submission / clarifications provide by the Appellant which states that said such expenses have not been capitalized for Income tax purpose. 7.3. On the facts, in circumstances of the case and in law, the Ld. AO / DRP has erred in ignoring the fact that whether the money paid is a revenue expenditure or capital expenditure depends not so much upon the facts as to whether the amount paid is large or small or whether it has been paid in lump sum or by installments, as it does upon the purpose for which the payment has been made and expenditure has been incurred. 7.4. On the facts, in circumstances of the case and in law, the Ld. AO / DRP has erred in ignoring the fact for the purposes of the Act, the Appellant has not capitalized the assets (motor vehicles), thereby not claiming depreciation thereupon and hence, the expenses related to road tax and value added tax shall be allowed to the Appellant as the same are revenue in nature. 7.6. On the facts, in circumstances of the case and in law, the Ld. AO has erred in holding that the Appellant has not claimed such expenses as deduction in its return of income. By holding so, the Ld. AO has erred in not following the judicial precedents available, basis which the Appellant should be allowed to claim an expense even if it does not form part of its return of income. 7.7. Without prejudice to the above-mentioned contentions of the Appellant, in case the claim for road tax and value added tax is not allowed as a revenue expenditure, then the depreciation on the same should be allowed to the Appellant.
8. Short-grant of credit for taxes deducted at source 8.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in not granting complete credit of taxes deducted at source to the Appellant.
9. Levy of interest under section 234B and 234C of the Act SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd. 9.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in incorrectly charging interest under section 234B and 234C of the Act.
10. Initiation of penalty proceedings 10.1. On the facts, in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act against the Appellant on account of the above adjustments made in the impugned final assessment order dated 28 May 2022.”
Learned counsel submits first of all that the assessee’s first substantive issue is general in nature. Rejected in very terms.
Next comes the assessee’s second substantive ground challenging the learned lower authorities’ action making the transfer pricing adjustment relating to it’s receipt of intra group services amounting to Rs.21,61,52,391/- thereby adopting the arm’s length price thereof as “Nil” only. Both the parties are very much ad idem during the course of hearing that the instant issue is a recurring one which had arisen for the first time in assessment year 2009-10 wherein the tribunal’s order dated 18.09.2017 restored it back to the Transfer Pricing Officer (“TPO”) in paras 52 to 53 at pages 74 to 76 in the paper book.
Learned counsel further seeks to buttress to the assessee’s point that the some of the intervening assessment years also involve the very issue travelling upto the tribunal which
The Revenue on the other hand highlights the facts that once the first and foremost assessment year 2009-10 has witnessed remand directions, the subsequent orders of the tribunal not considering the same would not form binding precedent.
8. We have given our thoughtful consideration to the foregoing vehement rival submissions. We find merit in the Revenue’s stand in principle as once the instant issue is to be remanded back going by A.Y. 2009-10’s findings, the same could not be allowed for computation purposes at this stage being a pre-mature exercise. We thus accept the assessee’s instant second ground herein for statistical purposes only at this stage; to be adjudicated afresh by the learned TPO, as per our directions in the first and foremost assessment year 2009- 10. Needless to say, he shall indeed consider all the intervening developments as well as assessee’s evidence as per law. Ordered accordingly.
We next advert to the assessee’s second substantive ground raising “royalty” adjustment issue in transfer pricing SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd. proceedings. We make it clear first of all that the assessee is indeed very fair during the course of hearing in not challenging the impugned adjustment in principle. Learned counsel’s sole plea is that the lower authorities herein have not computed the impugned adjustment going by Rules 10CA(7) proviso r.w.s. sub-rule (8) thereof prescribing such a transfer pricing adjustment going by the “percentile method”. That being the limited issue raised, we hereby direct the learned Transfer Pricing Officer to consider the assessee’s instant sole plea and finalize his consequential computation as per law in very terms. The assessee’s second substantive ground is partly allowed for statistical purposes.
Next comes the third substantive issue between the parties relating to “corporate tax” wherein the learned lower authorities have disallowed the assessee’s support services expenditure to the tune of Rs.9,31,97,824; in the course of draft assessment and upheld in the DRP’s directions. We notice that the instant issue is very much a recurring one which stands accepted by this tribunal learned co-ordinate bench earlier order dated 18.09.2017 in assessment year 2009-10. We adopt the above learned co-ordinate bench detailed discussion mutatis mutandis SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd. to accept the assessee’s instant third substantive ground in very terms. Necessary computation shall follow as per law.
So far as the assessee’s fourth substantive ground raising the issue of annual revenue share-based license fee as in the nature of a revenue expenditure claim is concerned, both the learned representatives are very much ad idem that the same is no more res integra in light of CIT Vs. Bharti Hexacom Limited (2024) 162 taxmann.com 669 (SC) holding that it has to be amortized under Section 35ABB of the Act. That being the case, we are of the considered view that the learned Assessing Officer requires to finalize his consequential “amortization” computation as per law in very terms. It is further made clear that it shall be the assessee’s risk and responsible only to plead and prove all the relevant facts in consequential proceedings. Allowed for statistical purposes.
Coming to the assessee’s next substantive ground claiming section 80G deduction of CSR expenditure, the Revenue’s vehement contention before us is that the same lacks the element of “voluntariness” so as to be treated as an eligible deduction. We find in this factual backdrop that the instant issue is more res integra in light of M/s Goldman Sachs Services SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd. pvt. Ltd. [(TS-331-ITAT-2020 (Bang.)], FNF India Pvt. Ltd. [(TS-6-ITAT-2021 (Bang.)], Allegis Services (India) Pvt. ltd. Vs. ACIT, Bangalore (ITA No. 1693/Bang./2019) and First American (India) Pvt. Ltd. Vs. ACIT, Bangalore (ITA No. 1762/Bang/2019) holding that such a “CSR” expenditure also qualifies section 80G deduction. This assessee’s sixth ground succeeds in very terms.
Next comes the assessee’s seventh ground claiming road tax and value added tax paid; on assets taken on lease, as revenue expenditure which has been declined in the learned lower authorities’ respective findings.
Learned CIT-DR vehemently argues that the assessee has paid the impugned charges to make the corresponding leased assets as operational ones and to put them to use which were not claimed in the return, and, therefore, both the lower authorities have rightly declined it’s impugned claim. We find no reason to accept the Revenue’s contention. We make it clear first of all that the assessee’s lease rent charges have already been accepted as revenue expenditure. So far as the Revenue’s objection is that it had not raised the impugned claim first time in the return, we quote para 4 of the hon’ble apex court landmark decision Goetze (India) Ltd. vs. CIT (2006) 284 ITR SA No. 425/Del/2024 AT&T Global Network Services India Pvt. Ltd. 323 (SC) that even an appellate authority under the provision of the Act, could entertain a new claim in absence of a revised return. We thus deem it as a fit case to accept the assessee’s instant seventh ground and direct the learned Assessing Officer to frame his consequential computation as per law after allowing the assessee’s impugned road tax and “VAT” as leased assets in very terms.
Learned counsel next submits that the assessee’s tenth substantive ground is consequential in nature. Rejected in very terms.
This assessee’s appeal in Stay Application SA No. 425/Del/2024 stands dismissed as rendered infructuous. A copy of this common order be placed in the respective case files. Order Pronounced in the Open Court on 21/03/2025.