M/S AMADEUS INDIA PVT LTD, NEW DELHI V. ASST.COMMISSIONER OF INCOME TAX CIRCLE 1(1),NEW DELHI, DELHI

ITA 1656/DEL/2022

AI Insights

The case involves Amadeus India Private Limited appealing against the order of the Assistant Commissioner of Income Tax, which included substantial additions and disallowances related to transfer pricing adjustments and expenses under section 14A of the Income Tax Act. The Tribunal found that the additions related to Advertising, Marketing, and Sales Promotion Expenses were not justified as the issue had been previously decided in favor of the assessee by the Delhi High Court. Additionally, the Tribunal ruled that the disallowance under section 14A was not applicable as there was no exempt income in the relevant assessment year. The Tribunal also addressed the claim of GST input credit, directing the Assessing Officer to verify its proper accounting and allow the deduction if it met the stipulated conditions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 22919 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2018-2019
• Other Referred Cases: Godrej & Boyce Manufacturing Co. Ltd. v. Dy. CIT & Anr., Commissioner of Income-tax v. Essar Teleholdings Ltd., Maxopp Investment Ltd. v. Commissioner of Income Tax, South Indian Bank Ltd. v. Commissioner of Income Tax, Shapoorji Pallonji & Co. Ltd. v. Commissioner of Income Tax, Wipro Ltd. v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S.K. JHADAV
• Assessee Lawyers: TARANDEEP SINGH
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Rule 8D
• Section: 14A; 43D

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA,ACCOUNTANT MEMBER ITA No.1656/Del/2022,A.Y.2018-19 Amadeus India Private Limited E-9, Connaught House, Connaught Place, New Delhi PAN No. AAACA0364L Vs. ACIT Circle -1 (1) Delhi (Appellant) (Respondent) Appellant by Sh. Tarandeep Singh, CA Respondent by Sh. S.K. Jhadav, CIT-DR Date of Hearing 31/12/2024 Date of Pronouncement 10/01/2025 ORDER PER AVDHESH KUMAR MISHRA, AM This appeal of the assessee for the Assessment Year (hereinafter, the ‘AY’) 2018-19 is filed against the order dated 27.05.2022 passed under section 143(3)/144C of the of the Income Tax Act, 1961 (hereinafter, the ‘Act’) by the Assistant Commissioner of Income Tax, Circle-1(1), Delhi [hereinafter, the ‘Assessing Officer’/ ‘AO’]. 2. Vide 10 grounds, the issues raised in this appeal are as under: - (i) Addition on account ALP adjustment for Advertising, Marketing and Sales Promotion Expenses (AMP) (Ground Nos. 1 to 8) ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 2 (ii) Disallowance of expenses under section 14A of the Act rwr 8D of the I. T. Rules (Ground Nos. 9 to 9.2) (iii) Rejection of revised computation of income (Ground No. 10 & 10.1) 3. The brief facts giving rise to this appeal are that the assessee, engaged in the business of providing data processing and related services to its Associated Enterprises (herein after, the ‘AE’). It provides software access to the subscribers Amadeus Products and Computer Database within India, Bangladesh and Nepal. The core activity of the assessee is to provide connectivity to the system by creation/modification/up-gradation of computer programmes online through Data Processing Center to its AE. The Transfer Pricing Officer (TPO)/AO has held that the assessee, by incurring substantial expenditure on Advertisement, Marketing & Promotion, has benefitted its AE by creating marketing in tangible. However, the AE has not suitably compensated the assessee. In the draft assessment order, the AO proposed protective addition of INR 146,700,000 applying bright line test method and substantive addition of INR 157,440,000. Further, the AO also proposed the disallowance of expenditure of INR 37,034,806 under section 14A of the Act r.w.r. 8D of the I. T. Rules. Aggrieved with the AO’s draft order, the assessee raised the matter before the Dispute Resolution Penal (hereinafter, the ‘DRP’). However, the DRP upheld the finding of the AO. Consequentially, the final assessment order was passed by the AO. ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 3 3.1 The AO further held that the assessee had made investments in its subsidiaries which could generate income non-chargeable to tax. Hence, the AO held that the direct & indirect expenditure incurred in the form of administrative expenditure, interest, etc. for earning exempted income could not be allowed under section 14A of the Act r.w.r. 8D of the I. T. Rules. The AO also found that the assessee had neither prepared separate account of expenditure in relation to the exempted income nor filed the bifurcation of expenditure relatable to the exempted income. Therefore, the AO invoked provisions of section 14A of the Act and thus, disallowed INR 37,034,806/- on this score, which was upheld by the DRP observing as under:- “4.8.1. Ground no.1.4 & 14.1 – These relate to addition made by AO u/s. 14A of the IT Act read with Rule 8D. The AO vide draft order dated 28.09.2021 at para no.6 & 7, has extensively discussed about the aforesaid issue. AO has recorded his/ her findings encompassing the various issues including the statutory provisions, facts of the case and also the judicial pronouncements. The Panel takes a note in this regard that Section 14A of the Income-tax Act read with Rule 8D of Income-tax Rules which provide for disallowance of expenditure incurred in relation to income which does not form part of the total income, had been subject matter of a number of controversies. The issues had finally travelled up to the Supreme Court. The Supreme Court has settled many important issues in regard to application of provisions of section 14A read with Rule 8D of Income-tax Rules vide three judgments delivered in the recent past in the case of Godrej & Boyce Manufacturing Co. Ltd. v. Dy. CIT & Anr. (2017) 394 ITR 449 (SC); Commissioner of Income-tax ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 4 v. Essar Teleholdings Ltd. (2018) 401 ITR 445 (SC) and Maxopp Investment Ltd. v. Commissioner of Income Tax (2018) 402 ITR 640 (SC). The issues which now stand settled by the Hon'ble Supreme Court are discussed hereunder: 1. The expenditure should be actually incurred 2. Rule 8D was prospective w.e.f. A.Y. 2008-09 3. In order to apply Rule 8D satisfaction is to be recorded 4. No disallowance on account of interest expense if borrowed funds have not been used for investments 5. Interest expenditure on loans taken for specific business purpose is not to be considered for the purpose of apportionment 6. In case own funds are more than the investments no disallowance on account of Interest is to be made 7. Position accepted in earlier years need to be followed in subsequent years 8. Disallowance is to be restricted to exempt income 9. Dominant purpose of investment is irrelevant 10. The basis on which disallowance is to be determined in the case of shares held as stock-in-trade. The Panel further takes a cognizance that the mandate of Sec- 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee. It is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed. The basic principle of taxation is to tax net income which applies even for the purposes of Sec-14A and expenses towards non- taxable income must be excluded. Once a proximate cause for disallowance is established - which is the relationship of the expenditure with income which does not form part of the total income - a disallowance has to be effected. The Panel also takes a note that in the recent judgment vide order dated-09-09-2021 in THE SUPREME COURT OF INDIA in civil appeal no 9606 OF 2011 SOUTH INDIAN BANK LTD. APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX RESPONDENT(S) WITH civil appeal no. OF 2021 [Arising out of SLP(C) No. 32761 OF 2018), the Hon'ble Court has inter-alia ruled that nexus needs to be ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 5 established between expenditure disallowed and earning of exempt income. In addition to above, this is also a fact that the CBDT is the apex authority for guiding towards implementing provisions of the IT Act; beyond its orders/notification/regulations etc, no income tax authority including the Assessing Officers can act there upon. Keeping in view of the discussion (supra) and also the earlier decision for AY 2017-18, DRP is of the view that there is no need to interfere in the AO's order in this regard; AO is directed to complete the assessment adjudicating the instant issue within the ambit of the provisions of Income Tax Act and CBDT's regulations. The assessee's objection hence is disposed off accordingly. 4. At the outset, the learned Authorized Representative (hereinafter, the ‘AR’) submitted that there was no international transaction involved herein as far as the expenditure of Advertisement, Marketing & Promotion expenses were concerned. He categorically submitted that this issue had been decided in favour of the assessee by the Hon’ble Delhi High Court vide order dated 26.04.2017 in ITA No.154/2017 in the assessee/ appellant’s own case. The addition on account ALP adjustment for AMP Expenses is squarely covered by the decision of the Hon’ble Jurisdictional High Court in assessee/appellant’s own case, which was followed by the ITAT subsequently. Hence, no addition on this score; either protective or substantive could be made. The Ld. AR therefore, requested knocking of the addition made by the AO and prayed for allowance of the ground Nos.1 to 8 accordingly. ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 6 4.1 Before us, the Ld. AR submitted that the issue of disallowance of INR 37,034,806/- made under section 14A of the Act r.w.r. 8D of the I. T. Rules was squarely covered in favour of the assessee/appellant by the order of the DRP in AY 2015-16. The facts of the relevant years were identical to the facts of the assessee’s own case for AY 2015-16. The Ld. AR, drawing our attention to the orders of ITAT in the appellant’s case for AY 2011-12 and 2014-15, prayed for deletion of the disallowance of INR 37,034,806/- made under section 14A of the Act. Emphasizing on the fact that the assessee was not having any income which were not includable in Total Income being exempted from tax, it was argued by the Ld. AR that the disallowance under section 14A of the Act could not be done in the present case. Further, it was also submitted that the assessee had made strategic investments, in its AEs/subsidiaries, out of its own fund and nothing from the borrowed fund. Hence, disallowance of interest under section 14A of the Act thereon did not arise. 4.2 The Ld. AR placed reliance on various decisions; such as, UTI Bank Ltd. [2022] 142 taxmann.com 136/289 Taxman 238 (SC), Shapoorji Pallonji & Co. Ltd. [2022] 141 taxmann.com 509/288 Taxman 661 (SC); South Indian Bank Ltd. [2021] 130 taxmann.com 178/283 Taxman 178 (SC),Maxopp Investments Ltd. v. CIT [2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 (SC), etc. He submitted that the broad principles laid down in all such cases were found mentioned in the DRP’s ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 7 order. However, the DRP did not adhere to those while issuing directions to the AO. He drew our attention to the above highlighted portion on page 12 of the DRP’s order. 4.3 Vide ground No.10 and 10.1, the appellant/assessee had requested for acceptance of revised computation of income furnished by it during the assessment proceedings vide email dated 30.11.2020. The Ld. AR submitted that the GST input/Cenvat credit of INR 28,979,544, which was shown as asset as prior period expenses in the relevant year in the audited balance sheet annexed with the ITR was later claimed as expenditure vide revised computation as per the resolution passed by the Board of Directors. It was submitted that the claim was legitimate. However, the AO did not take cognizance of the same though this expenditure, per se, was not questioned at all by the AO. To buttress his arguments in this regard, the Ld. AR drew our attention to the decisions of the Hon’ble Supreme Court in the cases of Wipro Ltd. 446 ITR 1 and Shri ram Investments 468 ITR 372 and requested for exercising the power under section 254 of the Act to allow the claim of expenditure of INR 28,979,544. 5. On the other hand, the Ld. Commissioner of Income Tax- Departmental Representative (hereinafter, the ‘CIT-DR”), placing reliance on the DRP and AO’s orders, argued vehemently and prayed for dismissal of the appeal. ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 8 6. We have heard both the parties at length and have perused the material available on record. Since the issue of transfer pricing raised vide ground No.1 to 8 has been decided in favour of the assessee by the Hon’ble Delhi High Court in the assessee’s own case. Therefore, following the reasoning given there in, we are of the considered view that no addition on this score is called for. Hence, the protective addition of INR 146,700,000 and substantive addition of INR 157,440,000 as mentioned above in para 3 of this order are hereby deleted. Consequently, the ground No.1 to 8 are allowed as above. 7. Next issue is in respect of the disallowance of expenditure of INR 37,034,806/- under section 14A of the Act. Section 14A of the Act provides for disallowance of expenditure which is related to income not forming part of total income. Investment made by an assessee may result in both type of income exempt, as well as taxable. The expenditure incurred for earning such income may be either separately accounted for or may be mixed. The onus is on the assessee to identify expenditure which relates to exempt income. However, the AO can reject such suo-moto disallowance only after recording satisfaction that claim of disallowance made by the assessee as per accounts maintained by him are not correct. The order of the DRP has reiterated, in bold letters, the findings of the Hon’ble Supreme Court on page 12 of its order, which are self-explanatory. The finding that ‘the ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 9 disallowance is to be restricted to exempt income’ means that the disallowance cannot be done if there is no exempt income. Admittedly, there was NO EXEMPT INCOME. We are of the considered view that if there is no exempt income, no disallowance under section 14A of the Act can be made upto AY 2021-22. However, after insertion of Explanation to section 14A of the Act from AY 2022-23, the disallowance under section 14A of the Act relating to exempt income can be made even though no exempt income was earned during the relevant year. Therefore, following the reasoning given in the decisions of the Hon’ble Supreme Court in the cases cited on page 12 of the DRP’s order, we are of the considered view that no disallowance under section 14A of the Act is called for. Therefore, we delete the disallowance of INR 37,034,806/- made under section 14A of the Act. Consequently, the ground No. 9 & 9.2 are allowed as above. 8. Vide ground No.10& 10.1, the appellant/assessee had requested for acceptance of revised computation of income furnished by it during the assessment proceedings. The reasoning for the revised computation of income filed by the assessee is that the assessee, who shown the payment of the GST as Input Credit on asset side of the Balance Sheet (not routed through the Profit & Loss Account), has decided to claim the same (GST Input Credit) as expenditure against the Income (to route through the Profit & Loss Account). In principle, we do find merit in the said claim of the appellant/assessee subject to the fact that such GST Input Credit ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 10 would result such goods and services which could be charged to the tax under the Act. However, we are of considered view that the claim of deduction of GST of INR 28,979,544 is allowable subject to above verifications. In other words, the claim of GST Input Credit is held allowable if the effect of such GST Input Credit is resulting revenue receipts chargeable to tax; otherwise not. The corollary of the same is that the said GST input credit is not embedded in the cost of goods and or services constituting the stock-in-trade and or similar entries on the credit side of the Profit & Loss Account of the appellant/assessee. Undisputedly, the income has to be charged to tax; not a single penny more not a single penny less. 9. The GST of INR 28,979,544 paid by the appellant/assessee has to be allowed subject to the above and in accordance with the provisions of section 30 to 43D of the Act. Since the GST of INR 28,979,544 was not routed through the Profit & Loss Account of the appellant/assessee; therefore, it cannot be ruled out that the effect of the GST of INR 28,979,544 is reflected/embedded in the cost of goods and or services constituting the stock-in-trade and or services or similar entries on the credit side of the Profit & Loss Account of the appellant/assessee. We are therefore, direct the AO to verify the same. In case the GST of INR 28,979,544 was not claimed as expenditure in the Profit & Loss Account ITA No.1656/Del/2022 Amadus India Pvt. Ltd. 11 with corresponding contra entries duly reflected/embedded in the cost of goods and or services constituting the stock-in-trade and or services or similar entries on the credit side of the Profit & Loss Account of the appellant/assessee, the effect of the GST of INR 28,979,544 will become revenue neutral if corresponding cost of goods and or services constituting the stock-in-trade and or services or similar entries are on the credit side of the Profit & Loss Account of the appellant/assessee. Subject to the above and decisions of the Hon’ble Supreme Court in the cases of Wipro Ltd. (supra) and Shri ram Investments (supra), we hereby direct the AO to allow the deduction of GST of INR 28,979,544 subject to the verification and observations as above. For this limited purpose, this issue is restored back to the AO. 10. In the result, the appeal of the assessee is allowed for statistical purposes as above. Order pronounced in open Court on 10th January, 2025 SD/- SD/- (VIKAS AWASTHY) (AVDHESH KUMAR MISHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 10/01/2025 Neha, Sr. PS "