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Income Tax Appellate Tribunal, DELHI BENCH “I-2”: NEW DELHI
Before: SHRI I. C. SUDHIR & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. Appeal No 292/Del/2016 is filed by the assessee against the order of Deputy Commissioner of Income Tax, Circle-3(2), New Delhi (AO) passed u/s 144C(13) of the Income Tax Act, 1961 in pursuance of the direction issued by the Dispute Resolution Panel u/s 144C(5) of the Act dated 17.11.2015. 2. The assessee has raised the following grounds of appeal in Assessment Year 2011-12 as under:- “1. That on the facts in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel -
1. ("Hon'ble DRP") erred in upholding the adjustments made by the Learned Deputy Commissioner of Income Tax, Circle 3(2), New Delhi ("Ld. AO") which is bad in law, contrary to the facts and must be quashed.
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 2. Disallowance of interest expense on External Commercial Borrowings C'ECBs') 2.1 On the facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP erred in making a disallowance of Rs 38,53,481 towards interest expenditure incurred in relation to the ECBs availed by the Appellant for acquisition of fixed assets for continuation of its existing business, by invoking the proviso to section 36(i) (iii) of the Act. 2.2 Without prejudice, on the facts in the circumstances of the case and in law, the Ld. AO erred in not allowing depreciation under section 32 of the Act on the disallowed interest amount. 2.3 Without prejudice, on the facts in the circumstances of the case and in law, the Ld. AO erred in not allowing depreciation under section 32 of the Act on the interest expenditure already disallowed in the preceding assessment years.
3. Disallowance of circuit accruals 3.1 On the facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP have erred in making a disallowance of Rs. 70,34,607 (i.e. Rs. 1,02,51,865 being the disallowance for the subject assessment year after allowing credit of Rs. 32,17,258 already disallowed in the previous assessment year 2010-11) on account of accruals created towards bandwidth and last mile services availed by the Appellant ignoring that the accruals were based on a reasonable and scientific basis. 3.2 Without prejudice, on the facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP erred in not recording that out of the circuit accruals being disallowed for the subject assessment year, deduction should be allowed of the amount of accruals that are reversed/ utilized subsequently in the respective assessment years.
4. Disallowance of year-end accruals 4.1. On the facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP erred in making a disallowance of Rs. 97,29,438 (i.e. Rs. 1,20,98,089 being the disallowance for the subject assessment year after allowing credit of Rs. 23,68,651 already disallowed in the previous assessment year 2010-11) on account of year-end accruals representing accruals created towards normal business expenditure by the Appellant ignoring that the accruals were based on a reasonable and scientific basis. 4.2. Without prejudice, on the facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP erred in not recording that out of the year-end accruals being disallowed / during the subject assessment year, deduction should be allowed of the amount of accruals as are reversed/ utilized subsequently in the respective assessment years.
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 5. Disallowance of Support Service Expenditure 5.1 On the facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP erred in disallowing the legitimate business expenditure being in the nature of support service expenses of Rs. 13,42,85,216 paid to AT&T Communication Services India Private Limited ('ACSI'). 5.2 On the facts in the circumstances of the case and in law, the Hon'ble DRP erred in ignoring that the aforesaid disallowance on account of support service expenditure has been directed to be deleted by the Hon'ble DRP for the preceding assessment years.
Grounds relating to Transfer Pricing Matters: That, on the facts in the circumstances of the case and in law: 6.1 The Ld. Transfer Pricing Officer (TPO')/ AO/ DRP erred in making an addition of Rs. 21,57,89,704 under section 92CA of the Act to the total income of the Appellant on account of adjustment in Arm's Length Price ('ALP') of the international transactions pertaining to availing of intra-group services. 6.2 The Ld. AO/ TPO/ DRP erred, on facts in the circumstances of the case and in law, in rejecting the combined transaction approach of benchmarking adopted by the Appellant in its TP documentation and proceeding to determine the arm's length price of international transactions pertaining to availing of intra-group services from its AEs on a standalone basis by rejecting Transactional Net Margin Method ('TNMM') as the most appropriate method. 6.3 The Ld. AO/ TPO/ DRP erred in 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'. 6.4 Without prejudice, on the facts in the circumstances of the case and in law, the Ld. TPO/ AO/ DRP erred in disregarding the supplementary analysis furnished by the Appellant in respect of the international transactions pertaining to availing of intra- group services during the course of assessment proceedings which further corroborates the arm's length nature of the said international transaction entered into with its AEs. 6.5 The Ld. AO/ TPO/ DRP erred, on facts in the circumstances of the case and in law, in arbitrarily selecting Comparable Uncontrolled Price ('CUP') method as the most appropriate method to benchmark the international transactions pertaining to availing of intra-group services by the Appellant from its AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 associated enterprises, without duly establishing suitability thereof. 6.6 Without prejudice, the Hon'ble DRP erred in directing that payment by the Appellant for intra-group services is not wholly and exclusively incurred for the purposes of business and directing the Ld. AO to alternatively disallow such expenditure under section 37(1) of the Act, arbitrarily and without providing any opportunity of being heard to the appellant.
Disallowance on account of statutory liabilities payable 7.1 That on the facts in the circumstances of the case and in law, the Ld. AO/ Hon DRP erred in disallowing Rs. 23,626 on account of TDS payable on salary and Rs. 66,090 on account of service tax payable under section 43B of the Act.
8. Non-grant of credit for taxes deducted at source and advance tax 8.1 On the facts in the circumstances of the case and in law, the Ld. AO erred in not granting credit of taxes deducted at source amounting to Rs 23,23,33,857 and advance tax amounting to Rs. 8,05,39,706 claimed by the Appellant in its return of income filed for the subject AY.
Lew of interest under section 234.6 and 234.0 of the Act 9.1 On the facts in the circumstances of the case and in law, the Ld. AO erred in incorrectly charging interest under section 2346 and 2340 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 271(i)(c) of the Act against the Appellant on account of the above adjustments made in the impugned final assessment order
The assessee company filed its return of income on 30.11.2011 declaring income of Rs. 85,32,56,895/-. Subsequently, the return was picked up for the scrutiny and notice u/s 143(2) was issued on 19.09.2012. During the course of assessment proceedings reference u/s 92CA of the Act was also made by the ld. AO to the ld Transfer Pricing Officer to determine the arm‟s length price of international transactions entered into by the assessee with its Associate Enterprises . The Transfer Pricing Officer passed order u/s 92CA(3) of the act on 09.10.2014 making adjustment of Rs. 21,57,89,704/- The Assessing Officer incorporating the above adjustment on account of transfer pricing adjustments passed a draft of proposed assessment 4 | P a g e
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 order u/s 144C read with section 143(3) of the Income Tax Act on 27.03.2015 assessing the total income at Rs. 1,48,21,29,756/-The assessee filed its objection before the Dispute Resolution Panel which was disposed of by the ld Dispute Resolution Panel vide directions dated 17.11.2015. Consequently, the Assessing Officer passed order u/s 144C(13) of the Income Tax Act on 31.12.2015 determining the total income of the assessee at Rs. 1,22,62,04,402/- against the returned income of the assessee of Rs. 85,32,56,895/- making following additions and disallowances:-
Particulars Amount in INR
Returned Income 85,32,56,895/- Statutory Liabilities 1,66,97,014/- Transfer Pricing adjustment 21,57,89,704/- Interest on ECBs 38,53,481/- Infrastructure cost/Last Mile charges – Lack of supporting documents 70,34,607/- Provisions not added back 97,29,438/- Support Service Expenditure 13,42,85,216/- Less : Deduction allowed for 35ABB 1,44,41,953/- Total Additions 38,73,89,460/- 1,22,62,04,402/ Assessed Income -
Therefore, assessee aggrieved with the order passed by the Assessing Officer u/s 144C(13) of the Income Tax Act has preferred appeal before us in ITA Appeal No 292/Del/2016.
The first ground is general in nature hence dismissed.
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 6. The second ground of appeal is with respect to the disallowance of Rs 38,53,481 towards interest expenditure incurred in relation to the ECBs. At the beginning of the financial year relevant to the subject assessment year, ECB account had a credit balance of USD 22,500,000 as on April 01, 2010. During the financial year relevant to the subject assessment year, AGNS had availed additional ECB‟s of USD 2,500,000 on various dates. During the financial year, the appellant has incurred interest expense of Rs. 38,53,481 on account of ECB‟s availed during the year. The Ld. AO disallowed the interest expense of Rs. 38,53,481 incurred towards ECBs availed during the year by invoking the proviso to section 36(1)(iii) of the Act. The Ld. AO also observed that the ECBs have been utilized for acquisition of capital assets which have not been put to use, and thus the interest incurred till the date such assets have been put to use should be disallowed.
7. Parties before us submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10 & 2010-11. Parties also reiterated the same arguments.
We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the disallowance towards ECBs availed during the year. This ground of appeal
has already been decided in AY 2009-10 in and AY 2010
11. ITA No. 1059/Del/2015 by orders of even date deleting the disallowance. Since there is no change in facts in this year from the facts in preceding years, accordingly, we direct the ld AO to delete the disallowance of interest. Hence, ground no 2 of appeal is allowed.
9. Ground No. 3 of the appeal is with respect of Disallowance of circuit accruals. During the Financial Year 2010-11, the appellant company incurred circuit charges aggregating to Rs. 175.03 crores (out of which Rs. 83.56 crores was towards infrastructure cost and balance Rs. 6 | P a g e
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 91.47 crores was towards last mile charges for services provided by other telecom operators). This amount of Rs. 175.03 crores included the payments amounting to Rs. 156.02 crores made during the year as well as the year end circuit accruals of Rs. 19.01 crores in respect of which bills/ invoices could not be received before March 31, 2011. Out of the accruals of Rs. 19.01 crores, invoices of Rs 17.98 crores were furnished to the AO, and the balance accruals for which no bills/evidences for reversals could be submitted amounted to Rs. 1.03 crores. Thus, the Ld. AO disallowed the circuit charges amounting to Rs. 1.03 crores.
Parties before us submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10 & 2010-11. Parties also reiterated the same arguments.
We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the disallowance towards circuit accruals. This ground of appeal
has already been decided in AY 2009-10 in and AY 2010
11. ITA No. 1059/Del/2015 of even date where in the disallowance on identical facts and circumstances is deleted. Since there is no change in facts in this year from the facts in preceding year, we also direct the ld AO to delete the disallowance accordingly. Hence, this ground no 3 of the appeal is allowed.
12. Ground No. 4 of the appeal Disallowance of year-end accruals. The detail of year end provisions outstanding as on 31.03.2011 was submitted by the appellant company. The details are reproduced as under:
Particulars Accrual as on 31.03.2011 Accrual control account 13.99 crores SIP Accruals 3.21 crores Total 14.02 crores
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12
Out of the above year end accruals the Ld. AO disallowed year-end accruals of Rs. 1.20 crores (Accrual control and SIP accrual) on account of non-submission of supporting documents, the break-up of which is as follows:
Particulars Accrual as on 31.03.2011 Total Accrual control account 14.02 crores Invoices Produced by the 6.20 crores assessee Reversal Entries filed by the 6.61 crores assessee Total Amount verifiable 12.81 crores Balance Amount 1.20 crores
Effectively, the AO made disallowance of Rs. 97,29,438/- (Rs. 1,20,98,089/- being the disallowance for the subject year after allowing Rs. 23,68,651/- credit for the amount disallowed in preceding year i.e. AY 2010-11).
Parties before us submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10 & 2010-11. Parties also reiterated the same arguments.
We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the disallowance towards year end accruals. This ground of appeal has already been decided in AY 2010-11 of even date where this disallowance is deleted and since there is no change in facts in this year from the facts in preceding year, we direct the ld AO to delete the disallowance accordingly. In the result ground no. 4 of the appeal of the assessee is allowed.
17. Ground No. 5 of the appeal of Disallowance of Support Service expenditure. The appellant has incurred support service expenditure
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 of Rs. 13,42,85,216 paid to its group company i.e. AT&T Communication Services India Private Limited („ACSI‟) for support services rendered by it. The AO disallowed the expenditure on the basis that in AY 2008-09, on the same issue, department has filed appeal before the Hon‟ble ITAT and the decision on the issue is awaited as on date of this order. Therefore, to maintain consistency in the stand of the department on this issue, addition is made on account of this expenditure.
Parties before us submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10. Parties also reiterated the same arguments.
We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the disallowance towards support service expenditure. This ground of appeal
has already been decided in AY 2009-10, and AY 2010
11. ITA No. 1778/2015 for even date and since there is no change in facts in this year from the facts in preceding year, we direct the ld AO to delete the disallowance accordingly for this year too. Accordingly, Ground no 5 of the appeal is allowed.
20. Ground No. 6 is on Transfer Pricing Adjustment. During the year, the assessee provided network connectivity services to customers of its Associated Enterprises („AEs‟). For rendering such services, it availed certain services from its AE [i.e. AT&T Communication Services International Inc., U.S.A.] in the nature of IT, network engineering, project management, service delivery, billing, and other support services and paid Rs. 101,27,19,418 to its AE on account of such services. The ld. TPO/AO determined the arm‟s length price of the said transactions to be Nil and proposed an adjustment.
21. Parties before us submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10. Parties also reiterated the same arguments. 9 | P a g e
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 22. We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the above adjustment to ALP of the international transactions . This ground of appeal has already been decided in AY 2009-10, and AY 2010-11 ITA No. 1778/2015 for even date where in we have set aside this ground to the file of the ld AO with direction to determine ALP of the transactions, and since there is no change in facts in this year from the facts in preceding year, we also set aside this ground of appeal to the file of the ld AO with similar direction for this year too. Accordingly, Ground no 6 of the appeal is allowed.
23. Ground No. 7 of the appeal Disallowance on account of statutory liabilities payable. It is seen that the disallowance of statutory liability payable was made on account of non-furnishing of challans for TDS payable on salary amounting to Rs.23,626/- and on account of service tax amounting to Rs.66,090/-. The Ld. DR argued that this amount should be disallowed as the assessee could not substantiate its claim by sufficient evidences/documents. The Ld. AR requested that another opportunity be granted to submit the necessary evidence. In view of this matter, we allow assessee opportunity to the assessee to submit the evidences before the lower authorities for necessary verification within 15 days of the receipt of this order and Ld AO is directed to verify the same and decide the issue in accordance with law. The ground no. 7 of appeal is allowed accordingly in view of above finding.
24. Ground No. 8 of the appeal for Non-grant of credit for taxes deducted at source and advance tax . While giving effect to our above order, the AO is directed to grant the claim of TDS section 244A if applicable in accordance with law.
25. Ground No. 9 of the appeal for Levy of interest under section 234B and 234C of the Act. Ground No. 10 of the appeal for initiation of penalty proceedings. These grounds are consequential in nature. The appeal
AT & T Global Network Services ( India) Pvt Ltd Vs DCIT , Circle -2 (1) New Delhi ( Assessee) A Y 2011-12 by assessee on these grounds is therefore premature and no interference is called for.
In the result appeal of the assessee is partly allowed .