M/s AT&T Communication Services (India)P.Ltd., Gurgaon V. DCIT, New Delhi

ITA 354/DEL/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4355 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 23-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; Double taxation relief; International transaction; Non-deduction of tax; Notional interest
• Section: 43B; 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-1 : NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.354/DEL/2017 ASSESSMENT YEAR 2012-13 ITA NO.1653/DEL/2016 ASSESSMENT YEAR: 2011-12 AT & T COMMUNICATION SERVICES (INDIA) P. LTD., VATIKA TRIANGLE, 3 RD FLOOR, SUSHANT LOK-1, BLOCK-A, GURGAON. PAN: AACCA8033E VS. DCIT, CIRCLE-3(2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KANCHUN KAUSHAL, AR & MS CHINU BHASIN, CA REVENUE BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 25.10.2018 DATE OF PRONOUNCEMENT : 31.10.2018 ORDER PER N.K. BILLAIYA, AM: THESE ARE SEPARATE APPEALS BY THE ASSESSEE PREFERRE D AGAINST TWO SEPARATE ASSESSMENT ORDERS DATED 20.12.2016 AND 29.01.2016 F RAMED U/S 143(3) R.W. SECTION 144C(13) OF THE ACT PERTAINING TO ASSESSMENT YEARS 2012-13 AND 2011-12, ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 2 RESPECTIVELY. BOTH THESE APPEALS WERE HEARD TOGETH ER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. 2. REPRESENTATIVES OF BOTH THE SIDES AGREED THAT AS SESSMENT YEAR 2012-13 MAY BE CONSIDERED AS THE LEAD ASSESSMENT YEAR FOR THE SAKE OF DISPOSAL OF THE APPEALS. ON SUCH CONCESSION, WE HAVE CONSIDERED THE FACTS FOR A SSESSMENT YEAR 2012-13. 3. THE APPELLANT COMPANY IS A WHOLLY OWNED SUBSIDIA RY OF AT & T COMMUNICATION SERVICES INTERNATIONAL INC., USA WHIC H STARTED ITS COMMERCIAL OPERATIONS DURING ASSESSMENT YEAR 2007-08 AND ITS BUSINESS OPERATIONS CAN BE DIVIDED INTO THE FOLLOWING THREE BROAD CATEGORIES:- I) PROVISION OF MARKET RESEARCH, ADMINISTRATIVE SUP PORT AND LIAISON SERVICES; II) PROVISION OF NETWORK OUTSOURCING SERVICES - SOL UTIONS BUSINESS; AND III) PROVISION OF NETWORK SUPPORT SERVICES - NETWOR K MONITORING AND SUPPORT. 4. DURING THE RELEVANT ASSESSMENT YEAR, THE APPELLA NT UNDERTOOK THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AES):- SR. NO. PARTICULARS OF TRANSACTION AMOUNT (IN RS CR) RESULT 1 PROVISION OF MARKET RESEARCH, ADMINISTRATIVE SUPPORT AND LIAISON SERVICES (MRA) 91.29 CONSIDERED TO BE AT ARMS LENGTH BY TPO 2. PROVISION OF NETWORK SUPPORT SERVICES (NSS) 24.55 CONSIDERED TO BE AT ARMS LENGTH BY TPO 3. REIMBURSEMENT OF EXPENSES TO AES 4.17 CONSIDERED TO BE AT ARMS LENGTH BY TPO 5. AS CAN BE SEEN FROM THE CHART, THE AFOREMENTIONE D INTERNATIONAL TRANSACTIONS WERE HELD TO BE AT ARMS LENGTH. HOWEVER, THE TPO WAS OF THE FIRM BELIEF THAT THE ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 3 OUTSTANDING RECEIVABLES FROM ASSOCIATED ENTERPRISES ARE LOAN AND, ACCORDINGLY, PROCEEDED BY IMPUTING NOTIONAL INTEREST ON THE SAME . THE TPO RE-CHARACTERISED THE OUTSTANDING RECEIVABLES FROM AES AS A LOAN AND MADE AN UPWARD ADJUSTMENT OF RS.7.84 CRORE. THE TPO USED THE AVERAGE SBI BASE R ATE OF THE RELEVANT YEAR + 300 BASIS POINTS AND ARRIVED AT AN INTEREST RATE OF 12. 60%. 6. WHEN THE PROPOSED UPWARD ADJUSTMENT WAS OBJECTED BEFORE THE DRP, THE DRP, AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, RE DUCED THE ADDITION TO RS.2,85,19,002/-. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHE MENTLY STATED THAT AS A MATTER OF POLICY, THE APPELLANT DOES NOT CHARGE ANY INTEREST FROM THIRD PARTY CUSTOMERS ON OUTSTANDING RECEIVABLES. THEREFORE, FOLLOWING THE SAME POLICY, NO INTEREST SHOULD BE CHARGED ON OUTSTANDING RECEIVABLES FROM THE AES. PER CONTRA , THE DR, SUPPORTING THE FINDINGS OF THE LOWER AUTHORITIES, STATED THAT NO S UCH AGREEMENT HAS BEEN PLACED ON RECORD BY THE ASSESSEE. IT IS THE SAY OF THE DR TH AT VOLUME OF TRANSACTION WITH NON- AES IS MINISCULE TO THE VOLUME OF TRANSACTION WITH THE AES. THEREFORE, THE DRP HAS RIGHTLY UPHELD THE ADJUSTMENT OF RS.2,85,19,002/-. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. IN OUR CONSIDERED VIEW, THE OUTSTANDING RECEIVABLES FROM AES DO NOT TANTAMOUNT TO AN INTERNATIONAL TRANSACTION WHICH REQUIRES TO BE BENC HMARKED SEPARATELY AS THE TRANSACTION IS ALREADY EMBEDDED IN THE INTERNATIONA L TRANSACTION PERTAINING TO ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 4 PROVISION OF NETWORK SUPPORT SERVICES. WE FIND TH AT THE ASSESSEE HAS DULY BENCHMARKED THE RECEIVABLES ARRIVING FROM THE INTER NATIONAL TRANSACTION UNDERTAKEN BY IT BY TREATING IT AS CLOSELY LINKED TO THE MAIN TRA NSACTION AND, ACCORDINGLY, THE IMPACT OF THE CREDIT PERIOD EXTENDED ON THE ARMS LENGTH P RICE (ALP) WAS CONSIDERED WHILE DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N. MOREOVER, WE ARE OF THE OPINION THAT EARLY OR LATE REALIZATION OF SALE/SERVICE PROC EEDS IS INCIDENTAL TO THE TRANSACTION OF SALE/SERVICE AND IS NOT A SEPARATE TRANSACTION IN I TSELF. ONCE ALP IS DETERMINED IN RESPECT OF THE SALE/SERVICE TRANSACTION, IT WOULD B E DEEMED TO BE COVERING ALL THE ELEMENTS AND CONSEQUENCES OF THE SALE/SERVICE. 9. WE FURTHER FIND THAT THE ASSESSEE HAS NOT CHARGE D ANY INTEREST FROM NON-AES EVEN WHERE THE SAME IS DUE FOR A PERIOD OF APPROXIM ATELY 119 DAYS TO OVER 1700 DAYS AND THE AVERAGE CREDIT PERIOD EXTENDED TO UNRELATED PARTY CUSTOMERS WORKS OUT TO BE 955 DAYS. 10. IT IS PERTINENT TO MENTION HERE THAT A SIMILAR ADJUSTMENT WAS MADE IN ASSESSMENT YEAR 2009-10 AND THE DRP DELETED THE SAME BY OBSERV ING THAT THE INTEREST FOREGONE BY THE ASSESSEE ON OUTSTANDING RECEIVABLES FROM NON-AE S IS HIGHER THAN THE INTEREST FOREGONE FROM AES. 11. FOR THE SAKE OF COMPLETENESS OF THE ADJUDICATIO N, WE FIND THAT THE WORKING CAPITAL ADJUSTMENT SUBSUMED IN MAIN INTERNATIONAL T RANSACTION HAS BEEN ACCEPTED BY THE TPO INASMUCH AS WORKING CAPITAL ADJUSTED IN OPE RATING MARGIN OF THE COMPARABLE ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 5 COMPANIES WAS TAKEN BY THE TPO AT 6.38% WHEREAS APP ELLANTS MARGIN WAS 16.78% IN RESPECT OF PROVISION OF NETWORK SUPPORT SERVICES. THE APPELLANTS MARGIN IS 16.60% WHEREAS ARMS LENGTH MARGIN ACCEPTED BY THE TPO WAS 7.01%. ONCE THE WORKING CAPITAL ADJUSTMENT HAS BEEN ACCEPTED, THEN, WE DO N OT FIND ANY MERIT IN MAKING FURTHER ADJUSTMENT IN RESPECT OF OUTSTANDING RECEIVABLES. OUR VIEW IS FURTHER FORTIFIED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT O F DELHI IN THE CASE OF KUSUM HEALTHCARE PVT. LTD., IN ITA NO.765/2016 . THE RELEVANT EXTRACT IS REPRODUCED BELOW:- 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE A O WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CA N HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT THE FIGURE OF R ECEIVABLES BEYOND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES O N THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIS-A-VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING REC EIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE-CHARACTERISED THE TRANSACTION. T HIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIA NCES LTD. (2012) 345 ITR 241 (DELHI).' 12. CONSIDERING THE FACTS OF THE CASE IN HAND IN TO TALITY IN THE LIGHT OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE ADJUSTMENT MADE BY THE ASSESSING OFFICER. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.2,85,19,002/-. GROUND NO.1 WITH ALL ITS SUB-GROUNDS IS ALLOWED. 13. GROUND NO.2 RELATES TO THE DISALLOWANCE ON ACCO UNT OF STATUTORY LIABILITIES PAYABLE. 14. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY AS TO WHY ADDITIONS/D ISALLOWANCES MADE IN EARLIER YEARS ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 6 SHOULD NOT BE MADE IN THIS YEAR, AGAIN. THE ASSESSE E EXPLAINED THAT DURING THE RELEVANT ASSESSMENT YEAR, AN AMOUNT OF RS.1,34,62,243/- WAS BOOKED UNDER THE HEAD OTHER CURRENT LIABILITIES IN THE BALANCE SHEET. THE ASS ESSING OFFICER FOUND THAT THE PROOF OF PAYMENT/REVERSAL FOR RS.76,01,691/- WERE NOT EXAMIN ED AND IT WAS FOUND THAT SERVICE TAX PAYMENTS OF RS.6,90,777/- WERE MADE AFTER THE D UE DATE OF FILING OF RETURN. ON VERIFICATION OF THE EVIDENCES SUBMITTED BY THE ASSE SSEE, THE ASSESSING OFFICER ALLOWED RS.76,01,691/- OUT OF RS.1,34,62,243/- AND MADE AN ADDITION OF RS.58,60,552/- U/S 43B OF THE ACT WHICH WAS CONFIRMED BY THE DRP. 15. BEFORE US, THE COUNSEL EXPLAINED THAT THE ASSES SEE IS MAINTAINING ITS BOOKS OF ACCOUNT ON ACCRUAL BASIS AND FURTHER EXPLAINED THE ACCOUNTING ENTRIES POSTED IN THE BOOKS OF ACCOUNT IN RESPECT OF OUTPUT SERVICE TAX A ND NOW SERVICE TAX. IT IS THE SAY OF THE COUNSEL THAT THE OUTPUT SERVICE TAX PAYABLE WHI CH IS COLLECTED FROM AND ON BEHALF OF CUSTOMERS TO BE DEPOSITED TO THE GOVERNMENT ACCO UNT IS SHOWN AS CURRENT LIABILITY IN THE BALANCE SHEET. SIMILARLY, THE INPUT SERVICE T AX CREDIT WHICH IS LEVIED BY THE VENDORS IS RECORDED AS A CURRENT ASSET UNDER THE HE AD LOANS AND ADVANCES. THE COUNSEL VEHEMENTLY STATED THAT NEITHER OF THE TWO I S CHARGED TO PROFIT & LOSS ACCOUNT. THEREFORE, THERE IS NO QUESTION OF ANY DISALLOWANCE U/S 43B OF THE ACT. IT IS THE SAY OF THE COUNSEL THAT ENTRIES HAVE NOT BEEN PROPERLY APP RECIATED BY THE ASSESSING OFFICER AND, THEREFORE, THE ASSESSING OFFICER MAY BE DIRECT ED TO VERIFY THE ENTRIES AND DECIDE THE ISSUE AFRESH. PER CONTRA , THE LD. DR COULD NOT ADD ANYTHING TO WHAT THE ASS ESSING OFFICER HAS DONE. ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 7 16. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW QUA THE ISSUE. IT APPEARS THAT THE ASSESSING OFFICER HAS NOT PROPE RLY APPRECIATED THE ACCOUNTING ENTRIES IN THEIR DUE PERSPECTIVE. THE MARGINAL HEA DING OF SECTION 43B CLEARLY STATES THAT CERTAIN DEDUCTIONS TO BE ALLOWED ON ACTUAL PAY MENT. THIS MEANS THAT IF THE ASSESSEE HAS CLAIMED DEDUCTIONS, THE SAME CAN BE DI SALLOWED U/S 43B OF THE ACT. HOWEVER, IN THE CASE IN HAND, THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION AS THE INPUT SERVICE TAX AND THE OUTPUT SERVICE TAX HAVE NEVER B EEN ROUTED THROUGH THE P&L ACCOUNT. HOWEVER, IN THE INTEREST OF JUSTICE AND F AIR PLAY, WE RESTORE THIS ISSUE TO THE FILES OF THE ASSESSING OFFICER. THE ASSESSEE IS DI RECTED TO EXPLAIN THE ENTRIES AND THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AN D DECIDE THE ISSUE AS PER THE PROVISIONS OF THE LAW. GROUND NO.2 IS TREATED AS A LLOWED FOR STATISTICAL PURPOSES. 17. GROUND NO.3 RELATES TO THE DISALLOWANCE OF YEAR END ACCRUALS AMOUNTING TO RS.1.58 CRORE. THE DETAILS OF YEAR END ACCRUALS OU TSTANDING AS ON 31.03.2012 ARE AS FOLLOWS:- (I) ACCRUAL CONTROL ACCOUNT - RS.8,19,18,087/- (II) SIP AGREEMENT - RS.55,73,350/- 18. OUT OF THE ABOVE ACCRUAL, INVOICES AGGREGATING TO RS.2.92 CRORE WERE SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AND, F URTHER, REVERSAL ENTRIES OF RS.4.23 CRORE WERE SHOWN AS REVERSED IN THE SUCCEEDING ASSE SSMENT YEAR. THE ASSESSING OFFICER, ACCORDINGLY, GRANTED THE BENEFIT OF RS.7.1 6 CRORE, BUT, DISALLOWED RS.1.58 CRORE. THE MAIN REASON GIVEN BY THE ASSESSING OFFI CER FOR DISALLOWING RS.1.58 CRORE ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 8 IS THAT THE ASSESSEE DID NOT HAVE INVOICES FOR THE SAME AND THERE IS NO BASIS OF RECORDING THE YEAR END ACCRUAL AND THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE UTILIZATION/REVERSAL OF SUCH ACCRUALS IN SUBSEQUENT YEARS ALSO. 19. BEFORE US, THE COUNSEL STATED THAT SINCE THE AS SESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, IN ORDER TO ARRIVE AT THE CORRECT PROFIT FOR ANY GIVEN YEAR, IT IS REQUIRED TO ACCOUNT FOR ALL EXPENSES PERTAINING TO THE YEAR IN ACCORDANCE WITH THE MATCHING PRINCIPLE. IT IS THE SAY OF THE COUNSEL T HAT THE INVOICES RELATABLE TO THE YEAR- END ACCRUALS WERE RECEIVED/PAID BY THE ASSESSEE IN THE SUBSEQUENT YEARS, THE YEAR-END ACCRUALS ARE REVERSED AND THE ACTUAL EXPENSES ARE CHARGED AND DEBITED TO THE P&L ACCOUNT. THE COUNSEL REQUESTED FOR THE ALLOWANCE O F THE EXPENSES IN THE YEAR OF CREATION ITSELF. THE AR STRONGLY SUPPORTED THE FIN DINGS OF THE ASSESSING OFFICER. 20. AFTER CONSIDERING THE UNDERLYING FACTS IN THE I SSUE, WE FIND THAT THE COORDINATE BENCH IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE COORDINATE BENCH IN IT A NO.1016/DEL/2015 HAS HELD AS UNDER:- '25. WHEN UNDISPUTEDLY NO MISTAKE HAS BEENPOINTE D OUT BY THE ASSESSING OFFICER INTHE CALCULATION NOR IT IS THE CASE OF THE AO THAT THE TAXPAYER HAD NOT PAID CERTAIN BILLS AND THE TAXPAYER IS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING AND THE EXPENSES ARE HAVING ELEMENT OF ESTIMATION AS WELL A S SCIENTIFIC BASIS, KEEPING IN VIEW THE PAST TREND, THE EXPENSES ARE REQUIRED TO B E ALLOWED IN THE YEAR OF CREATION ITSELF, PARTICULARLY, WHEN THE REVENUE AUT HORITIES HAS ALLOWED THE ENTIRE CLAIM OF EXPENDITURE IN THE SUBSEQUENT YEARS. 26. SO, FOLLOWING THE LAW LAID DOWN BY THE HON'BLE APEX COURT IN ROTORK CONTROLS INDIA (P) LTD. (SUPRA) AND THE DECISION RE NDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN AGNSI IN ITA NO.1059/DEL/2015 FO R AY 2010-11, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE TAXPAYER HAS WORK ED OUT THE LIABILITY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION BY PROVING 95% O F THE INVOICES ON THE BASIS OF ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 9 HISTORICAL TREND, NO DISALLOWANCE CAN BE MADE. SO, WE ORDER TO DELETE THIS ADDITION.' 21. RESPECTFULLY FOLLOWING THE FINDINGS OF THE COOR DINATE BENCH, WE ORDER FOR THE DELETION OF THE SAID ADDITION. GROUND NO.3 IS ALLO WED. 22. GROUND NO.4 RELATES TO THE ADDITION ON ACCOUNT OF NON-CHARGING OF MARK-UP ON SUPPORT SERVICE CHARGES BILLED TO AGNSI AMOUNTING T O RS.1.99 CRORE. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSE SSEE WAS ASKED TO JUSTIFY AS TO WHY ADDITIONS MADE IN THE LAST YEAR SHOULD NOT BE MADE IN THIS YEAR ALSO. THE SAID QUERY RELATED TO THE TRANSACTIONS BETWEEN A GROUP COMPANY AGNSI AND THE SSESSEE. AGNSI COMMENCED ITS BUSINESS OPERATIONS FROM ASSESSMENT Y EAR 2008-09 ONWARDS AND DID NOT HAVE ITS OWN SUPPORT SERVICE FUNCTIONS SUCH AS TAX, LEGAL, FINANCE, HR, ETC. ACCORDINGLY, AGNSI ENTERED INTO AN OPERATIONAL SUPP ORT SERVICE AGREEMENT WITH THE ASSESSEE FOR PROVISION OF SUCH SUPPORT SERVICES TO AGNSI. AS PER THIS AGREEMENT, NO MARK-UP WAS REQUIRED TO BE CHARGED ON THE SUPPORT S ERVICE CHARGES PAID BY AGNSI TO THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE FIR M BELIEF THAT NO PRUDENT BUSINESS WILL PROVIDE SERVICES TO THE OTHER ENTITY WITHOUT P ROFIT MOTIVE. ACCORDINGLY, THE ASSESSING OFFICER MADE AN ADDITION OF RS.1.84 CRORE ON ACCOUNT OF NON-CHARGING OF MARK-UP ON SUPPORT SERVICES. THE ADDITION WAS CONF IRMED BY THE DRP. 23. BEFORE US, THE COUNSEL FOR THE ASSESSEE STATED THAT THE COSTS INCURRED BY THE ASSESSEE FOR PROVISION OF SUCH SERVICES TO AGNSI AR E CHARGED. HOWEVER, NO MARK UP IS APPLICABLE AND REQUIRED TO BE CHARGED ON THE SUP PORT SERVICE CHARGES PAID BY ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 10 AGNSI. IT IS THE SAY OF THE COUNSEL THAT THERE IS NO PROVISION UNDER THE ACT TO IMPUTE NOTIONAL INCOME FOR DOMESTIC TRANSACTIONS. THE COU NSEL FURTHER STATED THAT THE PROVISIONS OF THE ACT DO NOT STIPULATE CHARGING OF ANY MARK UP IN RELATION TO EXPENSES CROSS CHARGED BETWEEN TWO DOMESTIC ENTITIES. THE D R STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER. 24. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER HAS PROCEEDED BY REFERRING TO THE ADDITIONS MADE IN LAST YEAR. WE FIND THAT IN EARLIER YEAR, THE COORDINATE BENCH IN ITA NO.1016/DEL/2015, ASSESSMENT YEAR 2010-11, HAS DELETED THE SIMILAR ADDITIONS. T HE RELEVANT FINDINGS OF THE COORDINATE BENCH READ:- 16. SO, IN THE INSTANT CASE ALSO, THE REVENUE HAS FAILED TO CONTROVERT THE INVOICES, ME DETAILS OF PAYMENT MADE AND EVIDENCING THE PAYMENTS THEREOF TO DISPUTE THE GENUINENESS OF THE EXPENSES AND THE FAC T THAT THE TAXPAYER AS WELL AS AGNSI ARE PROFIT MAKING ENTITIES AND THERE WAS NO T AX INCENTIVES FOR THE PURPOSE TO DEFLATE THE REVENUES EARNED BY THE TAXPAYER, THE REVENUE HAS BASED ITS DECISION ON COMMERCIAL CONSIDERATION. MOREOVER, IN CASE OF B OTH THE RESIDENT PARTIES, TERMS AND CONDITIONS OF THE ARRANGEMENT CANNOT BE Q UESTIONED BY THE REVENUE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. IN CASE OF A CONTRACT BY BOTH THE PARTIES WHO ARE ADMITTEDLY RESIDENT INDIAN ENTITIES , THEY MAKE THE LAW FOR THEMSELVES WHICH CANNOT BE INTERFERED UNLESS CONTRA CT IS UNLAWFUL OR SPECIALLY BARRED BY THE LAW OF THE LAND. MOREOVER BY SUCH A D ECISION OF NOT CHARGING MARK UP BY THE TAXPAYER ON SUPPORT SERVICES CHARGES BILL ED TO AGNSI, NO LOSS OF TAX HAS BEEN CAUSED TO REVENUE. SO, THE FINDINGS OF THE TPO/DRP THAT THE TAXPAYER IS NOT ONLY TO CUT CHARGES BUT MARK UP ALSO IS NOT SUSTAINABLE IN THE EYES OF LAW. SO, WE ORDER TO DELETE THE ADDITION ON ACCOUNT OF N OT CHARGING OF MARK UP ON SUPPORT SERVICES CHARGES BILLED TO AGNSI.' 25. RESPECTFULLY FOLLOWING THE FINDINGS OF THE COOR DINATE BENCH, WE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. GROUND NO.4 IS ALLOWED. GROUND NO.5 IS NOT PRESSED AND THE SAME IS DISMISSE D AS NOT PRESSED. ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 11 26. GROUND NO.6 RELATES TO THE ADDITION ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE ON REIMBURSEMENT MADE TO AT &T WORLD PERSONN EL SERVICES INC. (AWPS). 27. THE UNDERLYING FACTS IN THIS ISSUE SHOW THAT TH E ASSESSEE ENTERED INTO MASTER SERVICE AGREEMENT WITH AT&T USA FOR PROVISION OF MA RKET RESEARCH, ADMINISTRATIVE SUPPORT AND LIAISON SERVICES AND OTHER SUPPORT SERV ICES. AWPS IS A COMPANY INCORPORATED IN THE US AND IS ENGAGED IN PROVISION OF MANPOWER RECRUITMENT SERVICES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE R EQUIRED PERSONNEL FOR FACILITATING ITS BUSINESS OPERATIONS IN INDIA. ACCORDINGLY, CERTAIN EMPLOYEES HAVING DIFFERENT WORK PROFILES AND JOB RESPONSIBILITIES WERE SECONDED BY AWPS TO ASSESSEE IN INDIA. ACCORDINGLY, THE INTERNATIONAL ASSIGNEES WERE RELEA SED FROM ALL OBLIGATIONS TOWARDS AWPS AND WOULD FUNCTION SOLELY UNDER THE CONTROL, D IRECTION AND SUPERVISION OF THE ASSESSEE. PURSUANT TO THE SECONDMENT AGREEMENT, TH E ASSESSEE REIMBURSED A SUM OF RS.4,17,56,851/- TO AWPS FOR THE SALARY AND OTHER C OST PAID BY AWPS TO SUCH EXPATRIATES OUTSIDE INDIA FOR AND ON BEHALF OF THE ASSESSEE. 28. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF TH AT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE U/S 40A(I) OF THE ACT AND FO R FAILURE DISALLOWED RS.4,17,56,851/. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE S AID AMOUNT REMITTED TO AWPS CONSTITUTES FEES FOR INCLUDED SERVICES (FIS)/FEE FO R TECHNICAL SERVICES (FTS) IN TERMS OF INDO-US DTAA AS WELL AS U/S 9(1)(VII) OF THE ACT AND RELIED UPON THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CENT RICA INDIA OFFSHORE PVT. LTD. VS. ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 12 CIT (2014) 364 ITR 336 (DEL). THE ACTION OF THE ASS ESSING OFFICER WAS CONFIRMED BY THE DRP. 29. BEFORE US, THE COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT PROVISIONS OF SECTION 192 OF THE ACT ARE APPLICABLE ON THE IMPUGN ED TRANSACTION AND THE ASSESSING OFFICER HAS WRONGLY APPLIED THE PROVISIONS OF SECTI ON 195 OF THE ACT. IT IS THE SAY OF THE COUNSEL THAT EMPLOYEES WERE SECONDED BY AWPS TO THE ASSESSEE AND THE SECONDED EMPLOYEES WERE RESPONSIBLE FOR PERFORMING ALL BUSIN ESS FUNCTIONS IN THEIR PERSONAL CAPACITY EFFECTIVELY AS EMPLOYEE OF THE ASSESSEE AN D WERE NOT RENDERING ANY SERVICES TO THE ASSESSEE FOR AND ON BEHALF OF AWPS. IT IS T HE SAY OF THE COUNSEL THAT THE SECONDED EMPLOYEES WERE NOT WORKING IN INDIA TO FAC ILITATE THE BUSINESS OF AWPS, THEREFORE, THE PAYMENT MADE TO THE EMPLOYEES SECOND ED BY AWPS CAN ONLY BE CLASSIFIED AS SALARY ON WHICH TAX HAS BEEN DEDUCTED AT SOURCE U/S 192 OF THE ACT AND SECTION 195 IS NOT AT ALL APPLICABLE ON THE FACTS O F THE CASE. PER CONTRA , THE DR, SUPPORTING THE ASSESSMENT ORDER, STATED THAT NO EMP LOYER-EMPLOYEE RELATIONSHIP HAS BEEN BROUGHT ON RECORD BETWEEN THE ASSESSEE AND THE SECONDED EMPLOYEES AND, THEREFORE, PROVISIONS OF SECTION 195 ARE APPLICABLE AND NOT SECTION 192. THE DR REQUESTED FOR UPHOLDING THE FINDINGS OF THE ASSESSI NG OFFICER. 30. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. IT WOULD BE APPROPRIATE TO REPRODUCE THE RELATED ST ATUTORY PROVISION SET OUT IN SECTION 195(1): ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 13 ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT , NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST (NOT BEING INTEREST ON SECURITIES) OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NO T BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CR EDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THER EOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE. 31. IT CAN BE SEEN FROM THE ABOVE THAT SO LONG AS A PAYMENT TO NON-RESIDENT ENTITY IS IN THE NATURE OF PAYMENT CONSISTING OF INCOME CHARG EABLE UNDER THE HEAD SALARIES, THE ASSESSEE DOES NOT HAVE ANY TAX WITHHOLDING APPL ICATIONS U/S 195 OF THE ACT. IN OUR CONSIDERED VIEW, THE NATURE OF INCOME EMBEDDED IN R ELATED PAYMENTS IS RELEVANT FOR DECIDING WHETHER OR NOT SECTION 195 WILL COME INTO PLAY. WE HAVE ALSO GONE THROUGH THE AGREEMENTS EXHIBITED AT PAGES 525-530 OF THE PA PER BOOK AND HAVE ALSO CONSIDERED FORM 16 WHICH ARE PLACED ON RECORD ON PAGE 605 OF T HE PAPER BOOK. CONSIDERING THE FACTS ON RECORD, IT CAN BE REASONABLY CONCLUDED THA T THE EMPLOYEES SECONDED TO THE ASSESSEE COMPANY ARE WORKING AS THE EMPLOYEES OF TH E ASSESSEE COMPANY, THEIR SALARY IS SUBJECT TO TDS U/S 192 OF THE ACT AND, THEREFORE , PROVISIONS OF SECTION 195 ARE NOT APPLICABLE ON THE FACTS OF THE CASE IN HAND. 32. IN OUR CONSIDERED VIEW, THE RELIANCE ON THE DEC ISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CENTRICA (SUPRA) BY THE ASS ESSING OFFICER IS MISPLACED INASMUCH AS THE SECONDED EMPLOYEES OF AWPS WERE NOT TAKING FORWARD THE BUSINESS OF AWPS IN INDIA, BUT, WERE EFFECTIVELY WORKING UND ER THE CONTROL AND SUPERVISION OF THE ASSESSEE COMPANY AND BY NO MEANS CAN BE SAID TO BE RENDERING SERVICES ON BEHALF OF AWPS. WHEREAS IN THE CASE OF CENTRICA (SUPRA), IT WAS ESTABLISHED ONLY TO PROVIDE ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 14 SERVICES TO THE OVERSEAS ENTITY TO ENSURE THAT THE SERVICES TO BE RENDERED TO THE OVERSEAS ENTITIES BY THE INDIAN VENDOR ARE PROPERLY COORDINA TED. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT REIMBURSEMENT MADE BY THE APPE LLANT COMPANY CANNOT BE CLASSIFIED AS FTS/FIS UNDER THE PROVISIONS OF THE A CT AND INDO-US DTAA. IT WOULD NOT BE OUT OF PLACE TO MENTION HERE THAT TOTAL TAX DEDUCTED BY THE ASSESSEE U/S 192 OF THE ACT IS RS.1,97,36,176/- WHICH IS MUCH HIGHER TH AN THE WITHHOLDING TAX SOUGHT TO BE LEVIED BY THE ASSESSING OFFICER WHICH COMES TO 10% OF RS.4,17,56,851/-. CONSIDERING THE FACTS IN TOTALITY, WE DIRECT THE ASSESSING OFFI CER TO DELETE THE IMPUGNED ADDITION. GROUND NO.6 IS ALLOWED. 33. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES. ITA NO.1653/DEL/2016 (A.Y. 2011-12) 34. GROUND NO.1 RELATES TO THE ADDITION ON ACCOUNT OF MARK UP NOT CHARGED ON SUPPORT SERVICES. 35. AN IDENTICAL ISSUE WAS CONSIDERED BY US IN ITA NO.354/DEL/2017 (SUPRA) VIDE GROUND NO.4 OF THE APPEAL. FOR OUR DETAILED DISCUS SION THEREIN, THIS GROUND IS ALLOWED. GROUND NO.2 RELATES TO THE ADDITION ON ACCOUNT OF Y EAR-END ACCRUALS. A SIMILAR ISSUE WAS CONSIDERED BY US IN ITA NO.354 (SUPRA) VIDE GRO UND NO.3 OF THE APPEAL. FOR OUR DETAILED DISCUSSION THEREIN THIS GROUND IS ALLOWED. ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 15 36. GROUND NO.3 RELATES TO THE DISALLOWANCE ON ACCO UNT OF STATUTORY LIABILITIES. A SIMILAR ISSUE HAS BEEN CONSIDERED BY US IN ITA 354 (SUPRA) VIDE GROUND NO.2 OF THE APPEAL WHEREIN WE HAVE RESTORED THE ISSUE WITH CERT AIN DIRECTIONS TO THE FILES OF THE ASSESSING OFFICER. FOR SIMILAR REASONS, WE RESTORE THIS ISSUE TO THE FILES OF THE ASSESSING OFFICER TO BE DECIDED ACCORDINGLY. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 37. GROUND NO.4 RELATES TO THE TRANSFER PRICING ADJ USTMENT OF RS.1,10,99,474/-. 38. BEFORE US, THE COUNSEL STATED THAT THIS ADDITIO N HAS BEEN DELETED BY THE ASSESSING OFFICER VIDE ORDER DATED 08.08.2016 FRAME D U/S 154 OF THE ACT. SINCE THE ADDITION HAS BEEN DELETED BY THE ASSESSING OFFICER, THIS GROUND BECOMES INFRUCTUOUS. 39. IN THE RESULT, ITA NO.1653/DEL/2016 IS AL LOWED IN PART FOR STATISTICAL PURPOSES. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 3 1.10.2018. SD/- SD/- (SUCHITRA KAMBLE) (N.K. BILL AIYA) JUDICIAL MEMBER ACCOUNTAN T MEMFBER DATED: 31 ST OCTOBER, 2018 DK ITA NO.354/DEL/2017 ITA NO.1653/DEL/2016 16 COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI