GFK NIELSEN INDIA PRIVATE LIMITED,GURGAON V. NATIONAL FACELESS ASSESSMENT CENTRE THROUGH DEPUTY COMMISSIONER OF INCOME TAX, GURGAON, HARYANA

ITA 4175/DEL/2024

AI Insights

The case involves GFK Nielsen India Private Limited appealing against the final assessment order passed under various sections of the Income Tax Act, 1961, which included disputes over the disallowance of bad debts, data field costs, and transfer pricing adjustments. The Tribunal examined the submissions and evidence presented by both the assessee and the revenue, including the interpretations of specific provisions of the Act and relevant judicial decisions. The Tribunal's decision addressed each of the contested issues, providing a detailed analysis of the legal and factual aspects involved.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23721 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2020-2021
• Other Referred Cases: Roca Bathroom Products Private Limited, TRF Ltd. vs. Commissioner of Income Tax, CIT v. Modi Telecommunication Ltd, CIT v Prasad & Co., DIT v Oman International Bank SAOG, CIT v Omprakas B. Salecha, CIT v. Sambhav Media Ltd., Aravali Kshetriya Gramin Bank v ACIT, PCIT v Eco Auto Components (P.) Ltd., CIT v. Krone Communication Ltd., Hon'ble Delhi High Court in the case of CIT v. Ambassador Travels P. Ltd., Hon'ble Delhi High Court in the case of CIT v. Raj Kumar, N.H. Securities Ltd. vs. DCIT, CIT vs. Nagindas M. Kapadia, CIT vs. Atul Engineering Udyog, ACIT v. Sunil Chopra, Kiran Bansal v. ACIT, Ravindra R. Fotedar v. Asstt. CIT, CIT v. Dhanrajgirji Raja Narasingirji, CIT vs. Madras Refineries Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.K. JHADAV
• Assessee Lawyers: K.M. GUPTA
• Keywords: Set aside; Business income; Additional evidence; Transfer pricing; International transaction; Business expenditure; Bad and doubtful debts; Corroborative evidences; Deemed dividend; Commercial expediency; TDS; Related party transaction; FORM 26AS
• Section: 143(3); 195; 153; 22; 13; 274; 234B; 73; 37; 2(22)(e); 207; 92E; 20; 101

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No.4175/DEL/2024 (Assessment Year: 2020-21) GFK Nielsen India Private Limited, vs. NFAC through 11th Floor, Tower A, DCIT, Circle 1 (1), TRIL Commercial Centre Intellion Edge, Gurgaon. Sector 72, Fazilpur Jharsa (99), Gurgaon – 122 001 (Haryana). (PAN : AAACO3815A) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K.M. Gupta, Advocate Ms. Shruti Khimta, CA REVENUE BY : Shri S.K. Jhadav, CIT DR Date of Hearing : 16.01.2025 Date of Order : 26.03.2025 O R D E R PER S.RIFAUR RAHMAN, AM : 1. This appeal is filed by the assessee against the final assessment order dated 19.07.2024 passed u/s 143(3) r.w.s.144C (13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter called ‘the Act’) subsequent to the directions of the Ld. Dispute Resolution Panel (DRP)/TPO for Assessment Year 2020-21 raising following grounds of appeal :- 2 ITA No.4175/DEL/2024 “General Grounds 1. On the facts and circumstances of the case, the assessment order passed by the Learned Assessment Unit (hereinafter referred to as 'Learned Assessing officer' or 'Ld, AO') under section !43(3) r.w.s. 144C(13) r.w.s 144B of the Income-tax 'Act, 1961 ('the Act') after following directions of the Dispute Resolution Panel -1 (Ld. DRP') is bad in law, unlawful and unjust. 2. On the facts and circumstances of the case & in law, the final assessment order under section 143(3) r.w.s. 144C(13) r.w.s 144B of the Act dated July 19,2024 and Ld. DRP's directions under section 144C(5) of the Act dated June 30, 2024 are barred by limitation provided under section 153 of the Act and hence, deserves to be held as void-ab-initio, bad in law and time-barred. 3. On the facts and circumstances of the case and in law, the Ld. AO has erred in determining the total income of the Appellant at INR 37,56,31,055 as against the income of INR 14,03,06,300 offered to tax by the Appellant in its return of income, thereby making additions/disallowances of INR 23,53,24,755 in the final assessment order. Corporate Grounds Disallowance of Bad debts written off during the year 4. On the facts and circumstances of the case and in law, the Ld. AO /Ld. DRP has grossly erred in disregarding the submissions made by the Appellant and in concluding that conditions mentioned under section 36(1)(vii) of the Act have not been met for claiming the amount of bad debts as allowable deduction. Disallowance of Data field costs incurred during the year 5. That on the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP has grossly erred in disallowing the data field cost amounting to INR 19,38,31,537 on account of following incorrect assertions: 5.1 On the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP grossly erred in making addition of INR 4,33,56,115 3 ITA No.4175/DEL/2024 considering the payment made to M/s Nielsen India Private Limited ('Nielsen India') as deemed dividend under section 2(22)(e) of the Act, based on surmises, conjectures and without appreciating that such payment is made for a routine business transaction supported by adequate documentation. 5.2 On the facts and circumstances of the case and in law, pursuant to the directions of the Hon'ble DRP, the Ld. AO grossly erred in misinterpreting that Circular' No, 19/2017, dated June 12, 2017, issued by the Central Board of Direct Taxes (CBDT'), which specifically excludes the payment of loans or advances in the ordinary course of business from the scope of the deeming provisions for dividend income is not applicable to the instant case. 5.3 On the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP grossly erred in disallowing he amount of INR 15,04,75,422 towards data field cost based ?1 incorrect facts, surmises and conjectures, alleging that expense is not incurred for business purpose, without providing any cogent evidence and reasoning. 5.4 On the facts and in the circumstances of the case and in law, the Ld. AO/Ld. DRP failed to take cognizance of the supporting documents/information placed on record by the Appellant substantiating the routine nature, genuineness and commercial expediency of data field cost incurred during the year. Transfer Pricing Grounds 6. On the facts and circumstances of the case, and in law, the Ld. TPO as well as the Ld. DRP, erred in enhancing the income pertaining to provision of SUppOl1 services by INR 29,610,130 and in doing so have grossly erred in: 6.1. rejecting the benchmarking analysis undertaken by the Appellant using Transactional Net Margin Method CTNMM) as the most appropriate method C'MAM') and selecting Operating Profit/Total Cost COP /TC') as the net profit indicator (,NPl') by selecting the Appellant as the tested party; 6.2. conducting a fresh economic analysis for the international transaction pertaining to provision of support services without 4 ITA No.4175/DEL/2024 demonstrating deficiency/insufficiency in the approach followed by the Appellant and holding that the transaction is not compliant with the arm's length principles; 6.3. rejecting/ modifying the filters applied by the Appellant in spite of the fact that application of such filters is appropriate for conducting a search to determine the companies comparable to the Appellant; 6.4. rejecting the comparable viz. Pratisaad Communications Private Limited accepted by the Appellant in the TP documentation by applying incorrect filters and on invalid grounds; 6.5. selecting alleged comparable companies which are functionally dissimilar and contrary to the characterization of the Appellant on an arbitrary basis; 6.6. not correctly calculating the margins of the final comparables and thus not considering the correct margins as per the Annual Reports; 6.7. classifying \"Other Income\" which is in relation to \"liabilities no longer required written back\" as a part of non-operating income while computing the Profit Level Indicator ('PLI') of the Appellant. Consequential Grounds 7. On the facts and circumstances of the case and in law, the Ld. AO has erred in levying interest u/s 234 A and 234B of the Act. 8. On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s 270A of the Act on account of under-reporting of income.” 2. At the time of hearing, ld. AR of the assessee submitted that grounds no.1 & 3 are general in nature and ground no.2 is jurisdictional issue raised by the assessee based on limitation provided u/s 153 of the Act and based on the issue raised in the case of Roca Bathroom Products Private Limited 5 ITA No.4175/DEL/2024 (2021) 127 taxmann.com 332. Grounds No.7 & 8 are consequential in nature and does not require any adjudication at this stage. At the time of hearing, he submitted that assessee does not press these grounds. Accordingly, these grounds are dismissed as such. 3. With regard to ground no.4, relevant facts are, during assessment proceedings, Assessing Officer observed that assessee has claimed Rs.1,18,83,088/- on account of bad debts. He observed that no such supporting evidences brought on record, like, the name of the party, ledger account and other relevant details for examination of the issue in the context of provisions of section 36 of the Act. In the absence of any evidence to the contrary, why the above said amount be not added back to the taxable income of the assessee and show-cause notice was issued to the assessee. In response vide letter dated 28.08.2023, it was submitted that the assessee has claimed that deduction under the head ‘other expenses’ where the amount of Rs.1,18,83,088/- was included there on account of bad debts written off during the year. Further, it was submitted that the debit balance of Rs.1,18,83,088/- pertains to the company Gionee India Pvt. Ltd. which was written off as per the final settlement with the said company vide letter dated 03.09.2018. The AO further considering the above submissions observed that an amount of Rs.1,98,42,767/- receivable from the above said company as on 6 ITA No.4175/DEL/2024 01.01.2010 and amount of Rs.16,18,591/- was reduced therefrom on account of recovery of TDS and further amount of Rs.62,78,088/- was reduced in accordance with the settlement letter dated 03.09.2018. The AO observed that why the said debt was not reduced during the year 2019-20 which is the year for giving effect to the said transaction as per letter dated 03.09.2018. The AO observed that two conditions for claiming the same as bad debt was not fulfilled in this case. The assessee also failed to furnish as to what was relevant financial year in which the said amount representing the sales made/services offered to the said party. After analyzing the information contained in ledger account of the company, Gionee India Pvt. Ltd. by observing certain defects in maintaining of account, the AO proceeded to disallow the same. 4. Aggrieved assessee filed objections before the ld. DRP and before ld. DRP, assessee made a detailed submissions and submitted that the assessee provided services to Gionee India Pvt. Ltd. in FY 2017-18 and considering the amount of Rs.1,98,42,767/- (base amount of invoice being Rs.1,68,15,904/- and GST being Rs.30,26,863/-) was receivable against the rendition of services and submitted a copy of the invoices as additional evidences. Based on this, issue was remanded to the AO and AO submitted in his remand report that it is pertinent to mention that no documentary evidences relating to any actual efforts made by the assessee 7 ITA No.4175/DEL/2024 for recovery of said bad debts were submitted by the assessee. There is no document to prove that the said debts are actually recoverable and there is no scope of recovery left. After considering the findings of the AO and remand report, ld. DRP sustained the addition with the observation as under :- “7.5 The matter has been considered. The findings of the AO indicate that the impugned financial transactions was settled by the assessee in FY 2018-19, hence, as assessee has failed to satisfy the conditions necessary for claiming an item as bad debt in FY 2019- 20, the disallowance proposed by the AO is upheld.” 5. Aggrieved assessee is in appeal before us and at the time of hearing, ld. AR of the assessee submitted as under :- “8) Firstly, as per provisions of section 36(1)(vii) read with section 36(2) of the Act, as it stands today, it is evident that to claim deduction of bad debts, following 2 conditions are required to be fulfilled: o The amount of bad debts should be written off as irrecoverable in the books of accounts of the Appellant Company o Such debt has been considered in computing the taxable income of the Appellant Company in any of the previous years 9) With respect to the first condition, it is humbly submitted that the Central Board of Direct taxes (‘CBDT’) vide Circular No. 12/2016 dated 30.05.2016 clarified that, as per the amended law, there is no requirement for the taxpayer to establish that the debt claimed as bad has actually become irrecoverable. It is enough if bad debts have been written off as irrecoverable in books of account for that previous year. In this regard, reliance can be placed in the case of TRF Ltd. vs. Commissioner of Income Tax 8 ITA No.4175/DEL/2024 [2010] 323 ITR 397(Supreme Court) (Refer page no. 1 to 2 of CLC). 10) Further, the Appellant has also placed reliance on the decision of the Hon’ble Delhi High Court in the case of CIT v. Modi Telecommunication Ltd [2010] 195 Taxman 284 (Delhi HC) – AY 1998-99/12.04.2010 (Refer page no. 3 to 5 of CLC), wherein the Hon’ble Court has upheld the decision of tribunal on the basis that the bad debts has been written of in the books of accounts, which itself a sufficient compliance of the provisions indicated above. 11) The Appellant had duly submitted the summarized working/details of bad debts (Refer page no. 57 of P.B. Volume I), wherein the Appellant explained that out of the total opening balance of INR 1,98,42,767, Gionee has agreed to provide a full and final settlement amount of INR 62,78,088. In addition to this, an amount of INR 16,81,591 was reduced from the recoverable amount being the amount recovered in form of TDS(deducted and deposited by Gionee in FY 2017-18). This resulted into a net amount of INR 1,18,83,088 (INR 1,98,42,767 less 62,78,088 less 16,81,591) being written off as actual bad debts. 12) With referenced to the first condition of Section 36(1)(vii) of the Act, on perusal of the ledger account submitted by the Appellant Company (Refer page no. 58 of P.B. Volume I), it is clearly evident that the amount recoverable from Gionee had become bad and irrecoverable and was written off as bad debts in FY 2019-20 (AY 2020-21). The Company had claimed the deduction of bad debts expenditure (being irrecoverable in nature) amounting to INR1,18,83,088 in AY 2020-21. 13) With reference to the second condition of the aforesaid provision [section 36(1)(vii)], it is to be noted that the Appellant provided services to Gionee in FY 2017-18 and consideration amounting to INR 1,98,42,767 (Base amount of invoice being INR 1,68,15,904 and goods and service tax being INR 30,26,863) was receivable against rendition of said service. The said amount has been duly included in the sales/revenue credited to the profit and loss account for the financial year 2017-18 and the same has been offered to tax while calculating taxable income for AY 2018-19. 9 ITA No.4175/DEL/2024 14) Also, on the afore-said base amount of INR 1,68,15,904, Gionee had deducted TDS of INR16,81,590 (as also appearing in the ledger account submitted by Appellant. Accordingly, TDS is duly reflected in Form 26AS for FY 2017-18. Since the Appellant Company has offered the income to tax in FY 2017-18, the corresponding amount of TDS has been claimed in the return of income filed for FY 2017-18. In this regard, the Appellant Company has submitted Form 26AS and relevant extract from ‘Schedule TDS’ in return of income for the said FY in the form of additional evidence before the Ld. DRP (Refer page no. 242 to 256 of P.B. Volume I). 15) Apart from the jurisprudence mentioned in preceding paras, the Appellant wishes to place reliance upon the following decisions in support of it’s claim: - CIT v Prasad & Co. [2012] 341 ITR 480 (Delhi HC) – AY 2000-01/02.02.2012 - DIT v Oman International Bank SAOG [2009] 184 taxman 314 (Bombay HC) – 09.09.2009 - CIT v Omprakas B. Salecha [2010] 325 ITR 24 (Bombay HC) – AY 1999-2000/12.03.2008 - CIT v. Sambhav Media Ltd. [2013] 216 Taxman 115 (Gujarat HC) – 21.01.2013 - Aravali Kshetriya Gramin Bank v ACIT [2018] 409 ITR 242 (Rajasthan HC) – AY 1998-99/05.09.2017 - PCIT v Eco Auto Components (P.) Ltd. [2018] 409 ITR 202 (Punjab & Haryana HC) – AY 2005- 06/28.08.2017 - CIT v. Krone Communication Ltd. [2011] 333 ITR 497 (Karnataka HC) – AY 1998-99/07.07.2010 16) It is important to highlight that the Ld. DRP/Ld. AO did not make any adverse comment or did not dispute the Appellant's contention that debts had been taken into account in computing the income of the Appellant of the previous year (the income was 10 ITA No.4175/DEL/2024 offered to tax in FY 2017-18).Hence, it is evident that the conditions necessary for claiming deduction of bad Debts have been fulfilled. The Ld. DRP/ Ld. AO seem to have questioned only the timing of deduction due to the date of settlement letter dated September 3, 2018 (Refer page no. 56 Volume I)falling in FY 2018-19 and not FY 2019-20. 17) In this regard, it is humbly submitted that it was a commercial business decision of the Appellant based on the commercial judgements to write off the irrecoverable amount in the captioned year i.e., AY 2020-21 so as to be certain on the recoverability of the agreed amount of INR 62,78,088. The applicable provisions of section 36(1)(vii) read with section 36(2) of the Act do not anywhere mention about the debt being made in the particular financial year / subject year. The Ld. AO is not justified to question the commercial rationale / acumen of the Appellant. 18) The decision to write off the irrecoverable amount during the captioned AY 2020-21, was a strategic business decision made by the Appellant. This action was undertaken following careful commercial judgment and evaluation of the financial circumstances surrounding the irrecoverable amount. The Appellant exercised its discretion in determining that the amount in question was unlikely to be recovered and, therefore, deemed it prudent to reflect this in the financial accounts for the specified period. This decision aligns with standard business practices, where entities routinely assess the recoverability of receivables and make informed decisions to write off amounts that are deemed uncollectible, ensuring the financial statements accurately represent the entity's financial position. Reliance is placed on the ruling in case of AWB India Pvt Ltd vs Addl. CIT1 wherein the Hon’ble tribunal held as under: “As also settled by judicial decisions (supra), the revenue authorities are not empowered to question the commercial wisdom of the assessee and it is entirely for the assessee to take such decisions as favour the advancement of the assessee’s business.” 19) In light of the above, it is clearly evident that the deduction of irrecoverable debt claimed by the Appellant is as per the 11 ITA No.4175/DEL/2024 provisions of section 36(1)(vii) of the Act. Accordingly, the said addition ought to be deleted.” 6. On the other hand, ld. DR of the Revenue relied on the order of the lower authorities. 7. Considered the rival submissions and material placed on record. We observed from the factual matrix of the case before us that assessee has rendered certain services to the company, Gionee India Pvt. Ltd. and raised bill of Rs.1,98,42,767/- which includes GST of Rs.30,26,863/- in FY 2017-18. After following up with the said company, the assessee could not recover the above said amount and finally they reached final settlement with them and agreed to settle the dispute with the final settlement letter dated 03.09.2018 for an amount of Rs.62,78,088/-. Therefore, the case of the Revenue is that the assessee should have booked the above bad debt in AY 2019-20. Since assessee claimed the same in current AY 2020-21, the same is not allowable. When the matter was remanded to the AO, AO raised the issue that the assessee has not submitted any documentary evidences that no actual efforts were made by the assessee for recovery of the same bad debts, were submitted before the tax authorities. After due consideration, it is a fact on record that assessee has rendered the services in FY 2017-18 and they reached a settlement in FY 2018-19 i.e. in AY 2019-20. The basic grievance of the Assessing Officer was that assessee should have written off the bad debt 12 ITA No.4175/DEL/2024 in AY 2019-20. After careful consideration, we are of the view that it is a fact on record that non-recovery of abovesaid amount has become bad debt and yes, no doubt, assessee should have claimed the same in AY 2019-20, however assessee has claimed as bad debt only in AY 2020-21. It does not change the character of the bad debt and considering the tax rate being same in both the FYs, it amounts to revenue neutral. Therefore, there is no bar in claiming the ascertained bad debt in the current assessment year. Accordingly, we are inclined to allow the claim of the assessee and ground no.4 is allowed. 8. With regard to Grounds No.5, 5.1 & 5.2, the relevant facts are, the AO observed that out of total amount of Rs.21,00,43,129/- claimed under the ‘Data Field Costs’, an amount of Rs.4,33,56,115/- was paid to the company, M/s. Nielsen India Pvt. Ltd. and the payment was duly reflected in the ledger account placed on record. He observed that the assessee is subsidiary company of GFK Asia Pte Limited, the holding company with 50.1% shareholding and other shareholders in the company Nielsen India Pvt. Ltd. with 49.9% shareholding. It is observed that the assessee has paid an amount of Rs.4,33,56,115/- to the difference as mentioned above. The AO related this transaction with deemed dividend u/s 2(22)(e) of the Act and he is of the view that any payment made by a private limited company to a shareholder covered under this clause, be it 13 ITA No.4175/DEL/2024 that advance or loan or any other payment. Therefore, the provisions are duly attracted in this case and payment of above said amount made by the assessee as data field costs during the year and the company, M/s. Neilsen India Pvt. Ltd. is a beneficiary shareholder in the assessee’s company. Accordingly, he invoked the provisions of section 2(22)(e) of the Act and proposed an addition of Rs.4,33,56,115/-. 9. Aggrieved assessee raised issues before the ld. DRP and filed detailed submissions. After considering the submissions, ld. DRP remanded the matter back to the AO and AO submitted that the Data Field Costs expenditure was disallowed u/s 37 of the Act which is related to not wholly and exclusively being used for the business and it was contended that the expenditure is not genuine. A part of this transaction of Data Field Costs is disallowed on the ground of non-deduction of TDS and deemed dividend u/s 2(22)(e) of the Act. Ld. DRP observed that AO has taken contradictory view in this case which required proper verification. Aggrieved, AO was directed to reexamine the evidence tendered by the assessee during the course of assessment and remand proceedings and directed to take a considered view and AO was asked to check whether the payments were trade advances or not. 10. In final assessment, AO sustained the addition with the observation that the said expenditure represented regular expenditure incurred by the 14 ITA No.4175/DEL/2024 assessee from year to year which is clearly covered under the provisions of section 2(22)(e) of the Act and it is not any trade advance. He further observed that it is a clear instance of diversion of funds to a company which hold 49.9% shares of the assessee company. Since Neilsen India Pvt. Ltd. held shares of 49.9% in the assessee company, he proceeded to treat the same as deemed dividend. 11. Aggrieved assessee is in appeal before us. 12. At the time of hearing, ld. AR of the assessee submitted as under :- “23) According to the provisions outlined in section 2(22)(e) of the Act, a payment qualifies as dividend if it is made in the form of loans, advances, or any payment by a company on behalf of or for the individual benefit of a shareholder, subject to additional conditions specified in the said Section. 24) However, it is pertinent to note that in the present scenario, the payment is not disbursed in the form of loans or advances; rather, it is remitted for services rendered by Nielsen India in the ordinary course of business. Also, the payments cannot be viewed as individual benefit of a shareholder since the payments were made against the services actually rendered by Neilsen India to the Appellant. Hence, provisions of Section 2(22)(e) of the Act are not applicable in the instant case. 25) Further, the relevant extract from CBDT circular 19/2017 dated 12 June 2017 (Refer page no. 6 to 7 of CLC) states that- “In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions, would not fall within the ambit of the word 'advance' in section2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon” 15 ITA No.4175/DEL/2024 26) In the aforesaid circular, the CBDT has also quoted the ruling of Hon’ble Punjab and Haryana High Court in the case of CIT vs Amrik Singh {[NJRS] 2015-LL-0429-5, ITA No. 347 of 2013} wherein the Court has held that “Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act”. 27) The facts in instant case seem to be covered by the above- mentioned circular and the ruling cited therein since the payment of INR 4,33,56,115 (though not advances but payment for actual services taken from Neilsen India) has been made to Nielsen India in respect of the services(relating to audit of certain shops/stores and provide raw data to the Appellant which in turn is used by the Company for providing services to the end customers/clients field data collection services) provided by Nielsen India to the Appellant Company in the normal course of business. 28) The Ld. DRP / Ld. AO have admitted that the terms and condition in the agreement and invoices submitted by the Appellant are same as in the cases of agreements executed with other companies in the normal / ordinary course of business (Refer page no. 161 to 164 of P.B.Volume I for the agreement and Refer page no. 189, 193, 194, 197, 200, 203, 205,207, 211, 216, 220, 222 & 228 of P.B. Volume I for copy of invoices)., which clearly indicate and further strengthen the Appellant’s stand that it has made payment for the services rendered by Nielsen India in the normal course of business. 29) Further, the report/sheet reflecting the information/ deliverable provided by the Nielsen India as a part of their services is enclosed as additional evidence before the Ld. DRP. The said sample report indicates that Nielsen India provide services of audit of certain shops/stores and provide raw data to the Appellant Company which in turn is used by the Company for providing services to the end customers/clients. 30) The Ld. A.O has not provided any specific reasons that how a commercial transaction is considered as a deemed dividend i.e., under which limb the transaction is covered. 16 ITA No.4175/DEL/2024 31) The Appellant Company also wishes to place reliance upon the following Judicial precedents -where the Appellant Company entered into normal business transaction as a part of day-to-day business activity, this cannot be treated as loans or as advances under section 2(22)(e) of the Act, which are: - CIT vs. Ambassador Travels P. Ltd. (2009) 318 ITR 376 (Del) (Refer page no. 8 to 9 of CLC) - CIT v. Raj Kumar (318 ITR 462) (High Court of Delhi) (Refer page no. 10 to 18 of CLC) - N.H. Securities Ltd. vs. DCIT reported in 11 SOT 302 - CIT vs. Nagindas M. Kapadia, 177 ITR 393 (Bom) - CIT vs. Atul Engineering Udyog [2015] 228 Taxman 295 (All) - ACIT v. Sunil Chopra (2 ITR 469) (Delhi bench of the Tribunal) - Kiran Bansal v. ACIT (2011) (10 ITR 180) (Delhi bench of the tribunal) - Ravindra R. Fotedar v. Asstt. CIT (2017) 167 ITD 100 (Mum.-Trib.) 32) Accordingly, the said addition made on account of deemed dividend is bad in law and ought to be deleted.” 13. On the other hand, ld. DR of the Revenue relied on the orders of lower authorities. 14. Considered the rival submissions and material available on record. We observed that assessee is dealing in the field of retail store data for mobile events, consumable electronics home appliances, personal computers and 17 ITA No.4175/DEL/2024 imaging in this line of business and assessee has incurred certain expenditure representing data of field cost. While verifying the abovesaid data field cost, AO observed that assessee has dealt with its related concern, Neilsen India Pvt. Ltd. and utilized their services and paid the amount of Rs.4,33,56,115/-. It is also evident from the Balance Sheet submitted before us at page 19 of the paper book wherein assessee has disclosed the information of related party transaction. This transaction being conducted regularly considering the fact that it is the core business related expenses which assessee has to carry on for the purpose of business and assessee also disclosed the related party transactions in its Balance Sheet as well as in Form 3CED and details are given at page 29 of the paper book wherein it was clearly disclosed that name of the shareholders as a substantial interest and data field costs to be paid to them. The AO treated this transaction as deemed dividend merely because assessee has paid the above said amount to them and he has not considered the fact that the assessee has utilized the services in the regular business and he cannot treat the same as loans or advances within the meaning of deemed dividend. The provisions of section 2(22)(e) of the Act are not attracted in the regular business carried on by the assessee unless the AO brings on record that the assessee received the services and makes the payment which is not as per market condition or 18 ITA No.4175/DEL/2024 fair market price. Merely because assessee has entered into transaction with them, this will not attract provisions of section 2(22)(e). Therefore, we are inclined to allow Grounds No.5, 5.1 & 5.2 used by the assessee by relying on the decision of CIT vs. Ambassador Travels P. Ltd. (supra) and the relevant findings of the decision are given below :- “4. The Tribunal was of the view that there is nothing on record to show that the amounts that considered by the Assessing Officer were in any manner advances or loans in the account of the Assessee. Being a travel agency, it had regular business dealings with the above two concerns dealing with holiday resorts and the tourism industry. Therefore, since the transactions were normal business transactions, which were carried out during the course of the relevant previous year, they cannot be described as advances or loans, which form a distinct category of financial transactions. Under the circumstances, the Tribunal came to the conclusion that since these transactions did not represent loans or advances, the provisions of Section 2(22)(e) of the Act were not at all applicable. 5. We are of the view that the order passed by the Tribunal does not suffer from any error of law. It is quite clear that the Assessee was a travel agency and the above two concerns that it had dealings with, that is, M/s Holiday Resort Pvt. Ltd. and M/s Ambassador Tours (I) Pvt. Ltd. were also in the tourism business. The Assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. The financial transactions cannot in any circumstances be treated as loans or advances received by the Assessee from these two concerns. 6. Consequently, the Tribunal was right in coming to the conclusion that the provisions of Section 2(22)(e) of the Act are not applicable.” 15. With regard to Grounds No.5.3 & 5.4, the relevant facts are, during assessment proceedings, AO observed that the assessee has incurred huge 19 ITA No.4175/DEL/2024 data field costs during the year under consideration. A show-cause notice was issued to the assessee to explain the transactions in which expenditure was claimed on account of collection of data executed through second companies representing certain specific categories. In this regard, assessee has submitted and placed on record copies of certain agreements as field work service agreement. On verification of the same in one of the agreements executed with Elixir Softech Private Limited, he observed that there was no mention of specific date wherein the date column was left open. After considering the sample agreements, he observed certain discrepancies and after comparing the works executed by them in the ledger account submitted by the assessee and claimed the same as field data cost, he observed that assessee has not placed on record complete details in this regard i.e. the mode of manner of the raising of invoices is not coming out on the records. He observed that there appears a conflict between receipts and expenses which are seen from the revenue head as mentioned above thereby that it is a kind of research carried on the products which are generating receipts of the company and what is distinction fee/revenue and expenses claimed under the head fees/data field costs. He observed that assessee has claimed expenditure of Rs.40,49,86,424/- under the head service support fees paid to its AEs. Not convinced with the evidence submitted by the assessee, technically 20 ITA No.4175/DEL/2024 he disallowed the total expenditure of Rs.21,00,43,129/- minus already disallowed u/s 2(22)(e) of the Act and he disallowed the net amount of Rs.15,04,75,422/-. 16. Aggrieved assessee raised objections before the ld. DRP and after considering the remand report from the AO, ld. DRP set aside the issue to the AO to verify the same. The AO sustained the issue in the final assessment order by observing as under :- “It can be seen from above that issue was examined thoroughly during the course of those proceedings. As per paragraph 9.4 of the DRP Order, there is a reference of the remand report submitted by the jurisdictional officer mentioning that the documents produced but assessee could not prove the genuineness of the expenses of data field cost as these were just certain writeup. It is worthwhile to mention here that assessee has failed to prove the expenses particularly considering the fact that there was claim of expenditure of Rs. 17,74,72,883/-_ on account of employee expenses and claim of expenditure of Rs.40,49,86,424/- on account of service support fees and under the given circumstances, assessee was under legal obligation to establish as to the exact nature of the expenses under different segments like salaries, data filed cost and service support fees which constitute the three major heads under which the expenses have been claimed. There is a conflict between the receipts and expenses here which is seen from the very nomenclature of the revenue head which is super scribed as market research fees which further means that it is a kind of research in the field which is the source of revenue in the case and seen from this angle, [then what is the distinction between the fees/revenue and expenses. Moreover, assessee has not furnished the ledger accounts of the parties and the modus operandi of the business operations with-reference to the services solicited from the suppliers vis-a-vis the role of the retailers whereas it was a specific query raised during the proceedings. Thus, keeping in view, the facts and circumstances of the case amount of Rs.15,04,75,422/-is being added back to the taxable income, Along with penalty proceedings are initiated u/s 270A for under-reporting of income.” 21 ITA No.4175/DEL/2024 17. Aggrieved assessee is in appeal before us and at the time of hearing, ld. AR of the assessee submitted as under :- “35) The Ld. AO has considered data field cost amounting to INR 15,04,75,422 (being an expenditure directly related to the business of the Appellant Company) as non-business expenses without considering the factual and legal submissions made by the Appellant. The Appellant Company submitted all the relevant details and documents vide submission dated August 28, 2023 providing the following: a) Ledger Account of data field cost (Refer page no. 59 to 87 of P.B. Volume I); b) Sample copy of agreements (Refer page no. 88 to 180 of P.B. Volume I) and c) Sample copy of invoices (Refer page no. 181 to 230 of P.B. Volume I) 36) Above-mentioned documents/details represent the direct and proximate nexus between the business operation / business receipts and the data field cost incurred by the Appellant. Hence, it is evident that the Appellant has duly provided the documents/information clearly substantiating that the data field cost is a genuine business expenditure. 37) With regard to the modus operandi (as already explained by Appellant in its previous submissions before Ld. AO and Ld. DRP), it is humbly submitted that the Appellant Company is engaged in the business of Retail Store Audit of specific product categories. Here the retail store audit involves periodic (generally monthly) monitoring of specific product categories through a representative panel of retail stores. It requires the selection of a sample of retailers from whom sales information can be collected at regular intervals. To conduct these audits, Appellant Company requires various representatives to visit the stores for which Appellant Company has entered into agreement with various entities. 22 ITA No.4175/DEL/2024 38) Further, various individuals on field visit the selected stores and collect raw data such as turnover of the store, type of products sold, number of products sold, model of the product, price at which product is sold etc. Sample of data/reports provided by vendors has been enclosed as additional evidence. (Refer page no. 257 to 262 of P.B Volume I). This raw data is then entered into the system by vendors in certain format which in turn is analyzed by the Appellant Company and is utilized in creating reports for onward selling to Appellant Company’s customers. The reports generated by Appellant Company using data provided by the auditors on field contains data such as the top selling brands of a particular product(relevant to the business of the customer), average prices on which products are sold, most demanded model/product, geographical needs, performance ratings of products etc. These reports sold by the Appellant Company help the clients in formulating policies, understanding market trends, competitive position of their products in the market etc. 39) Considering the afore-mentioned nature of Appellant Company’s business, Data field cost includes the following components to ensure the sustainable data collection: - Cost of auditors who visit retail outlets to collect the data - Cost of incentives to retailers for sharing their data with Appellant Company - Cost of travel for running field manual visits to retailers etc. - Universe studies conducted to count the entire universe of covered channels in India. - Third party co-operation agreements for special projects and studies related to additional information to be gathered from the market for MI studies. 40) With regard the manner of raising invoices (as already explained in previous submissions before Ld. AO/ Ld. DRP), in the agreement entered with various entities, based on historical and statistical data, the Appellant Company agrees on the number of towns and shops to be covered by a particular vendor on an 23 ITA No.4175/DEL/2024 estimated basis considering the technical expertise and reach of each vendor, the number covered may differ and can be more or less than number agreed in the agreement. Further, a per shop rate is agreed as compensation for services rendered by the vendors. This exercise is done by the Appellant Company based on the ability and expertise of the vendor. The vendor raises invoice on the Appellant Company basis the actual number of shops covered by it during a particular period (usually monthly). 41) For instance, in the agreement with Elixir Softech Private Limited (‘Elixir’) submitted by the Assessee during the course of assessment proceedings as well as during the DRP proceedings, based on its past experience and historical data, the Assessee has agreed for a per shop rate which will be paid to Elixir based on number of actual shops audited by it. Now, when Elixir will audit the shops and collate the data, it will raise an invoice on the Assessee based on the actual number of shops it has audited during a particular month/period and provide raw data so collected to Company for further utilization. The Hon’ble Bench can refer the invoices raised by Elixir wherein Elixir has raised invoices based on audit for actual stores. 42) With regard to basis of raising the invoices, the Appellant would like to explain the manner of raising the invoice in the form of illustration which is as follows: Illustration 1: Pursuant to the agreement with Elixir, the Appellant Company agreed to pay a fee of INR 640 per retail outlet for audits conducted from December 2019 to February 2020(Refer page no. 123 of P.B. Volume I). Upon completing the audits, Elixir issued an invoice on January 28, 2020, totaling INR 20,48,435 (excluding GST). This total includes a fee of INR 15,04,581, calculated at a rate of INR 519 per outlet for 2,899 outlets. Additionally, Elixir charged a fee of INR 3,50,779, calculated at a rate of INR 121 per outlet for the same number of outlets. The gross rate charged was INR 640 per outlet, sum total of INR 519 plus INR 121(Refer page no. 187 of P.B. Volume I). 43) Further, the Ld. AO has inadvertently stated that one of the parties i.e. Basarsoft Bilgi Teknolojileri A.S. is a foreign company but its name has not been mentioned in the list of companies given 24 ITA No.4175/DEL/2024 in the audit report under section 92E of the Act, and neither its name has been mentioned in the ledger account in respect of the Data Field Costs. In this regard, the Appellant respectfully submits that Basarsoft Bilgi Teknolojileri A.S is not a related party and accordingly was not required to be reported in the report filed under section 92E of the Act. Further, the transactions with Basarsoft Bilgi Teknolojileri A.S. are duly reflecting in the ledger account of data field cost. For instance, Invoice No. 400003043 raised by Basarsoft Bilgi Teknolojileri A.S.is duly appearing in the ledger account (Refer page no. 60 of P.B. Volume I, copy of corresponding invoice attached at page no. 230 of P.B. Volume I). Therefore, it is evident that the Ld. AO has completely overlooked the details in the ledger account. 44) Further, the Ld. AO’s has alleged that the Company has receipts under the heads \"Market Research Fee and Business Support Fee\" and the same is in conflict with expenditure incurred by it. In this regard, the Appellant humbly submits that the Appellant has primarily generated the income in the form of market research fee from retail store audit. The nexus between revenue earned by the Appellant (disclosed as ‘Market Research Fee’) and the data field cost expenditure has been explained in the foregoing paragraphs (para 37 and 38). 45) Based on above, data field costs is a direct business expenditure incurred by the Appellant Company for providing services. 46) In view of the above, it is clearly evident/unambiguous that the data field cost expenditure is a direct expenditure considering nature of business activities of the Appellant. 47) The Appellant Company also wishes to place reliance upon the following judicial precedents where expenditure laid out wholly and exclusively for the business was allowed ad deductible expenditure since it was incurred on grounds of commercial expediency: - Sasoon J David & Co Pvt Ltd Vs CIT (1979) 118 IT 261 (SC) (Refer page no. 25 to 34 of CLC) 25 ITA No.4175/DEL/2024 - CIT v. Dalmia Cement (Bharat) Ltd (2002) 254 ITR 377 (Delhi) (Refer page no. 19 to 24 ofCLC) - Eastern Investments Ltd. vs. CIT, West Bengal [1951] 20 ITR 1 (SC) - CIT v Panipat Woolen and General Mills 103 ITR 66 (1976)(SC) - Hero Cycles (P.) Ltd. v. CIT [2015] (63 taxmann.com 308) (SC) - CIT v Sales Magnesite (P.) Ltd. 214 ITR 1 - CIT v Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 - Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207 (SC) - Birla Cotton Spinning & Weaving Mills Ltd. [1971] 82 ITR 166 (SC) - Dresser- Rand India Pvt. Ltd. (2011) 141 TTJ 385 - Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT [1997] 223 ITR 101 (SC) - CIT v. Kamal & Co. [1993] 203 ITR 1038 (Raj) - CIT vs. Madras Refineries Ltd. [2004] 266 ITR 170 (MAD) - Addl CIT v. Rajasthan Spg. & Wvg. Mills Ltd.–[2005] 274 ITR 465 (Raj) - CIT v. Karnataka Financial Corporation [2010] 326 ITR 355 (KAR.) 48) In view of the above, the disallowance of data field cost expenditure is not warranted and ought to be deleted.” 18. On the other hand, ld. DR of the Revenue brought to our notice page 54 of the final assessment order and vehemently argued and brought to our 26 ITA No.4175/DEL/2024 notice findings of the AO and submitted that the assessee has not submitted the relevant information on justification of such huge expenditure claimed under the head ‘data field costs’ which is more than employee benefit expenses whereas the assessee is a service specific company where there is no purchase and sales of goods and all the revenue generation is from the offering of services in the specific field and he relied on the findings of the lower authorities. 19. Considered the rival submissions and material available on record. We observed that before tax authorities, assessee has submitted ledger copy of data field costs which is placed on record and also sample copy of agreements and sample of invoices. It is a fact on record that assessee is engaged in the business of retail store data of specific product categories. This is done through a representative panel of retail stores and they proceeded with collection of sample of retailers of whom sales information can be collected on regular interval. Based on the raw data collected from these entities, the assessee enters these datas into a system and then analysis the same by the assessee and utilized the same in creating reports for onward selling to various customers. The report generated by the assessee by using data provided by the auditors on field containing data, such as, top selling brands of a particular product, average prices on which products are sold, most demanded 27 ITA No.4175/DEL/2024 models/products, geographical needs, performance ratings of products etc.. These informations/ reports were sold by the assessee to help their clients in formulating policies etc.. In order to achieve that, assessee has to incur certain cost to ensure the sustainable data collection as under :- - Cost of auditors who visit retail outlets to collect the data - Cost of incentives to retailers for sharing their data with Appellant Company - Cost of travel for running field manual visits to retailers etc. - Universe studies conducted to count the entire universe of covered channels in India. - Third party co-operation agreements for special projects and studies related to additional information to be gathered from the market for MI studies. 20. After considering the observations of the AO, we observed that AO has mentioned in his order that there is conflict between income received by the assessee, market research fee and the expenditure. After careful consideration, we are of the view that assessee is collecting fees after conducting data with the help of various agencies and the fees would be collected from its clients are regarded as market research fees and related expenditure on collection of data regarded as data fee cost expenditure. The data field expenditure are the related expenditure incurred by the assessee in support submitted the relevant agreements entered with various agencies and assessee incurs cost on collection of data, pays 28 ITA No.4175/DEL/2024 incentives to retailers for sharing their data and expenditure on deposits etc. and incurring of expenditure on data field cost is a direct business expenditure incurred by the assessee in collecting the information and directly correlates with the market research fees collected by the assessee. In our considered view, it is the running expenditure incurred by the assessee and it is also fact on record that the same is duly audited. Therefore, we are inclined to allow the grounds raised by the assessee. 21. With regard to Ground No.6, relevant facts are, in assessment proceedings. TPO rejected the economic analysis, functional profile of comparables and filters applied by the assessee in the TP documentation and proceeded to reject five comparables of the assessee and selected 13 new comparables proposed and adjustment of Rs.5,30,02,280/- pertaining to provisions of support services. 22. Assessee filed objections before the ld. DRP against the draft assessment order and after considering the submissions of the assessee, finally ld. DRP excluded 8 comparables out of 13 comparables selected by the TPO and included 3 comparables selected by the assessee. 23. In order giving effect to the ld. DRP’s order, 10 comparables were finalized to benchmark the ALP of the assessee as under :- (i) Cyber Media Research & Services Limited; (ii) Kestone Integrated Marketing Services Private Ltd.; 29 ITA No.4175/DEL/2024 (iii) Cheers Interactive (India) Private Ltd. (iv) Concept Software Services Private Ltd. (v) Enkon Pvt. Ltd. (vi) PR Pundit Public Relations Pvt. Ltd. (vii) Axience Consulting Private Ltd. (viii) Pressman Advertising Ltd. (ix) Adbur Pvt. Ltd. (x) Just Dial Ltd. and ALP was determined as under :- Particulars Amount (in INR) Operating Cost (A) 40,61,13,638 Arm’s Length Margin (B)(%) 14.03% Arm’s Length Price (C) (ALP)(A*114.03%) 46,30,91,381 Price Received (D) 43,34,81,247 Shortfall Being adjustment u/s 92CA(C-D) 2,96,10,134 24. Aggrieved with the above order, assessee is in appeal before us and at the time of hearing, ld. AR of the assessee raised the issue of rejecting comparables viz. Pratisaad Communication Private Limited on the basis of persistent loss filter. Ld. AR submitted that the above comparable was selected by the assessee as the same passes the filer as comparable company and in this regard, he submitted as under :- 30 ITA No.4175/DEL/2024 “The Appellant humbly submits that Pratisaad has earned an operating loss of INR 58.14 lacs and INR7.32 lacs in FY 2017-18 and 2019-20 respectively. However in FY 2018-19, it has earned an operating profit of INR 51.15 lacs. Thus, Pratisaad qualifies the PBT filter as it has not earned negative operating profit in last 3 successive years. In the case of KBACE Technologies Pvt. Ltd. in ITA No.3189/Bang/2018 dated 29.1.2020for the AY 2014-15 has observed that the persistent loss filter can be applied only if there is a successive loss in 3 assessment years and if there is profit in any one financial year out of 3 successive financial years, then that company cannot be excluded on the basis of persistent loss-making filter. Therefore, Ld. TPO has erroneously applied PBT filter and excluded the company from the final list of comparables. Further, Pratisaad is engaged in the business of providing advertising services in relation to the management support services and inter-alia in artwork, designing of advertising and allied services. The Appellant submits that Pratisaad should be accepted as a comparable as it passes all filters proposed by Ld. TPO and also is functionally comparable. The detailed contentions of the Appellant are provided in the paperbook.” 25. In this regard, he relied on the following case laws :- 1. KBACE Technologies Pvt. Ltd ITANo.3189/Bang/2018] (Refer page 35 to 41of CLC) 2. M/s. Inteva Products India Automotive Pvt. Ltd. [IT(TP)ANo.2843/Bang/2017](Refer page 35 to 41of CLC) 31 ITA No.4175/DEL/2024 26. On the other hand, ld. DR of the Revenue relied on the findings of TPO that this comparable company has incurred continuous losses in FY 2017- 18 and 2019-20 respectively. This comparable was compared and it fails persistent loss filter. 27. Considered the rival submissions and material available on record. We observed that TPO and ld. DRP rejected the Pratisaad Communications Private Ltd. as comparable based on the filter of persistent loss by observing that it has incurred loss of Rs.58.14 lakhs in FY 2017-18 and loss of Rs.7.32 lakhs in FY 2019-20. However, we observed that in FY 2018-19, it registered profit of Rs.51.15 lakhs. It is settled position of law that comparable company, which registers consistent loss for three consecutive years, has to be rejected on the basis of consistent loss. However, we observed that in the case of KBACE Technologies Ltd., ITAT, Bangalore has discussed the similar issue and held that in any of the three previous financial years, if it has made a profit then it shall not be excluded by applying the persistent loss filter. The relevant findings are given below :- “8. As far as inclusion of 3 companies which was argued before us by the ld. counsel for the assessee, the first company which the assessee seeks for inclusion is Sagarsoft (I) Ltd. This company was rejected by the TPO by applying the RPT filter which was not accepted by the DRP. The DRP directed the TPO to consider the comparability of this company afresh. The TPO while giving effect to the order of DRP, chose to reject this company as a comparable by pointing out that this company fails the persistent loss filter. It 32 ITA No.4175/DEL/2024 was the submission of the ld. counsel for the assessee that that in the light of decision of ITAT Pune Bench in the case of Yezaki (I) Pvt. Ltd., ITA No.621/PUN/2014 AY 2009-10, order dated 11.17.2019, the persistent loss filter can be applied only if there is a loss in 3 successive assessment years and that if there is a profit in any one of the 3 past financial years, then that company cannot be excluded on the basis of persistent loss making filter. It was submitted that all other filters have been accepted by the TPO in the order giving effect and therefore this company deserves to be included as a comparable company. 9. We have given a careful consideration to the submissions of the ld. counsel for the assessee and are of the view that if in any of the three previous financial years, if Sagarsoft (I) Ltd. has made a profit, then it shall not be excluded by applying the persistent loss filter. The TPO/AO will verify this aspect and consider inclusion of this company in the final comparables in accordance with law, after due opportunity to the assessee.” 28. Respectfully following the above decision, we are inclined to allow the grounds raised by the assessee on the issue of persistent loss which cannot be applied in the case of Pratissad Communications Pvt. Ltd. which has registered profit in FY 2018-19. Accordingly, we direct the AO/TPO to include this comparable company as comparable with the assessee company. 29. With regard to other comparables, even though the assessee has raised Ground No.6.5 on exclusion of other comparable companies, however not made any submission before us, and at the time of hearing, ld. AR has only pressed on the issue of persistent loss, therefore, we are restricting ourselves to adjudicate on the above issue. 33 ITA No.4175/DEL/2024 30. Coming to ground no.6.7 for not considering the other income in the case of the assessee which is in relation to liabilities no longer required to be written back as a part of non-operating income while computing the Profit Level Indicator (PLI) of the assessee, in this regard ld. AR of the assessee submitted as under :- “In this regard it is pertinent to mention that the liabilities written back belonging to earlier years were directly relatable to regular business operations of the Appellant. Reference is made to the following judicial pronouncements holding that liabilities written back should be considered as operating in nature:  Tetra Pak India Pvt. Ltd. [TS-573-HC-2023(BOM)-TP] (Refer page 139 to 146 of CLC)  Adobe Systems Software Ireland Ltd. [[2023]155 taxmann.com 101 (Delhi - Trib.)] (Refer page 147 to 161 of CLC)  Sony India (P) Ltd. [2008] 114 ITD 448 (Delhi)(Refer page 73 to 138 of CLC) The Appellant had added a sum of INR 25,43,072 being the “provisions no longer required written back”. The aforesaid provisions being considered as operating in the year of creation and being considered to arrive at the operating margin of those years. Accordingly, the Appellant praying that the sum of INR 25,43,072 being treated as operating income for computation of margin. Please refer Annexure 2 for other operating income and computation of operating margin. 34 ITA No.4175/DEL/2024 31. On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities. 32. Considered the rival submissions and material available on record. We observed that assessee has written back liabilities pertaining to earlier years and the details are given in Annexure 2 before us which is already reproduced below for clarity :- 35 ITA No.4175/DEL/2024 33. By relying on case laws, ld. AR submitted that the amount of Rs.25,43,072/- being the liability no longer required written back and in the above decisions, aforesaid provisions being considered as operating in the year of creation and being considered to arrive at the operating margin of those years. After careful consideration, we observed from the Annexure 2 submitted before us clearly indicates that assessee has treated liabilities no longer required as other income of the assessee of Rs.54,45,780/- and however, the same was allocated between AE and no- AE on the basis of revenue. Accordingly, assessee has allocated Rs.25,43,072/- to AE segment. In the case laws relied on by the assessee in the case of Tetra Pak India Pvt. Ltd. (supra), we observed that the company normally made gross provisions towards doubtful debts and when it reverses the provisions it was treated as operating income. Similar view was expressed in other decisions as well. However, in the present case, no doubt assessee has written back the provisions no longer required as other income we observed that the assessee has only allocated the cost between the two divisions – AE and non-AE segment. They are not able to demonstrate how the provisions written back directly linked to the business of the AE rather they allocated the total written back of liabilities on the basis of revenue from the clients. The general allocation 36 ITA No.4175/DEL/2024 of right back between segments cannot be treated as operating income of the relevant segment i.e. AE segment. Therefore, we are not inclined to accept the submissions of the assessee. Therefore, the case law relied on by the assessee is distinguishable. Accordingly, ground no.6.7 raised by the assessee is dismissed 34. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on this 26th day of March, 2025. Sd/- sd/- (VIMAL KUMAR) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 26.03.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "