2017-TII-INSTANT-ALL-491
21 September 2017   

simply inTAXicating

GST: Ek Desh Ek Kar | Episode 3

TII EDIT

Taxation of Indirect transfer- India was right after all

CASE LAWS

2017-TII-73-HC-DEL-TP

NOKIA INDIA PVT LTD Vs DCIT : DELHI HIGH COURT (Dated: September 21, 2017)

Income Tax - Writ - Sections 153(2A) & 153(3).

Keywords : Fresh assessment order - Time barred & Time limit.

The Assessee-company is engaged in manufacture and sale of mobile handsets and filed its return declaring an income of Rs. 8,10,62,32,096/-. Since, during the AY in question, the Assessee was involved in international transactions with its AE, a reference was made by the AO to the TPO. Some TP adjustments were recomended by the TPO and the Assessee filed objections to the report of the TPO before the DRP contesting the TP adjustment by which the returned income of the Assessee stood enhanced. Those objections were disposed of by the DRP. On the basis of the directions issued by the DRP, the AO completed the assessment by passing an assessment and following the same, the AO enhanced the income. On appeal, the Tribunal set aside the order to the file of the AO with the directions to decide the issue afresh after affording the Assessee a reasonable opportunity of being heard.

Accordingly, the AO referred the TP issues to the TPO which remained was pending. Meanwhile, the Assessee contended that Section 153(2A) was applicable and, therefore, the fresh order of assessment was required to be passed within two years from the end of the FY in which the order of the Tribunal had been received by the Commissioner and therefore the proceedings had become time-barred and accordingly, any notice issued thereafter would be without jurisdiction. The AO disposed of the above objections by holding that the case was not covered u/s 153(2A) which, according to the AO, was applicable only when a fresh assessment order had to be made pursuant to an order in appeal or revision. Since the assessment had not been totally set aside or cancelled by the Tribunal and, in fact, had been partly upheld on certain issues, the objection regarding limitation was not valid.

In Writ, the High Court held that,

Whether the clock would start ticking under Sec 153(2A) as soon as an order is remanded with a direction to pass a fresh assessment order - YES: HC

Whether the time limit imposed by the provisions of Sec 153(2A) would not come into force unless the entire order is remanded to the AO - NO: HC

++ the assessment order was set aside and the matter remanded to the AO, the Court is unable to agree with the contention of Revenue that the aforementioned order of the ITAT did not constitute a complete setting aside of the assessment with directions to the AO to pass a fresh order. The Court does not agree with the submission of the Revenue that the AO was 'chained' by the ITAT's directions and could not have passed a fresh assessment order de novo pursuant to such remand. The Court is also unable to agree with the contention that unless the entire assessment order is wholly set aside, the time limit for passing the fresh order u/s 153(2A) would not be attracted. There is no warrant for such an interpretation. The object behind introduction of sub-section (2A) was to prescribe a time limit for completing the assessment proceedings upon the original assessment being set aside or being cancelled in appeal. Clearly, the intention was not to restrict the applicability of sub-section (2A) only to such cases where the 'entire' original assessment order is set aside. It was noted that, "Under the existing provisions of section 153(3), such fresh assessments are not subject to any time limit." Indeed, Section 153, as it stood at that time, did not prescribe any time limits. Section 153(3)(ii), in particular, did not require the order passed thereunder to be issued within any particular time limit. Further there is a distinction between an 'assessment' that is set aside and an 'assessment order' being set aside. When the assessment on an issue is set aside and the matter remanded, with a direction that the issue has to be determined afresh, Section 153(2A) would get attracted;

Whether the provisions of Sec 153(3) come into play only in cases where Sec 153(2A) does not apply - YES: HC

++ what is important to note is that, along with the insertion of sub-section (2A), sub-section (3) underwent a simultaneous change. It was expressly made "subject to the provisions of sub-section (2A)." This meant that Section 153(3) would thereafter apply only to such cases where Section 153(2A) did not apply. In other words, in all instances of an AO having to pass a fresh assessment order upon remand where Section 153(2A) would apply, the AO would be bound to follow the timelimit imposed by sub-section (2A). Where the AO was only giving effect to an appellate order, then Section 153 (3) (ii) of the Act would apply;

++ in the present case, of the seven issues, the assessment in respect of five was set aside and the issues remanded for a fresh determination. Whether the remand was to the TPO or the DRP would not make a difference as long as what results from the remand is a fresh assessment of the issue. Clearly, therefore, the time limit for completing that exercise was governed by Section 153(2A).

Assessee's writ allowed

2017-TII-359-ITAT-DEL-TP

AT & T GLOBAL NETWORK SERVICES (INDIA) PVT LTD Vs DCIT : DELHI ITAT (Dated: September 18, 2017)

Income tax - Sections 36(1)(iii), 92CA, 143(3), 144C

Keywords - external commercial borrowings - interest expenditure - utilization of ECBs - use of acquired assets - support services to AE - network conectivity services

A) The Assessee company had filed its return declaring income of Rs. 85,32,56,895/-, which was subsequently picked up for scrutiny and reference thereon was made to the TPO u/s 92CA to determine the ALP of international transactions entered into by the assessee with its AE, with regard to Interest on ECBs. At the beginning of the F.Y, ECB account had a credit balance of USD 22,500,000. Subsequently, AGNS had availed additional ECBs of USD 2,500,000 on various dates. During the financial year, the Assessee had incurred interest expense of Rs. 38,53,481 on account of ECB's availed during the year. The AO however disallowed the interest expense by invoking the proviso to section 36(1)(iii). The AO also observed that the ECBs had been utilized for acquisition of capital assets which have not been put to use, and thus the interest incurred till the date such assets have been put to use should be disallowed.

B) The Assessee during the subject year, had incurred support service expenditure of Rs. 13,42,85,216 to its group company i.e. AT&T Communication Services India Private Limited for support services rendered by it. The AO however disallowed the expenditure on the basis that in AY 2008-09, on the same issue, department had filed appeal before the ITAT and the decision on the issue was awaited as on date of this order. Therefore, to maintain consistency in the stand of the department on this issue, addition was made on account of this expenditure.

C) During the year, the Assessee had provided network connectivity services to customers of its AEs and for rendering such services, it availed certain services from its AE i.e. AT&T Communication Services International Inc., U.S.A in the nature of IT, network engineering, project management, service delivery, billing, and other support services and paid Rs. 101,27,19,418 to its AE on account of such services. The TPO determined the ALP of the said transactions to be Nil and proposed an adjustment.

On appeal, the ITAT held that,

Whether interest expenditure incurred in relation to ECBs, availed for acquisition of fixed assets for continuation of existing business, can be disallowed by invoking the proviso to section 36(i)(iii) - NO: ITAT

+ as far as interest on ECBs are concerned, we find that both the parties had submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10 & 2010-11. The parties also reiterated the same arguments. We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the disallowance towards ECBs availed during the year. This ground of appeal has already been decided in AY 2009-10 in I.T.A. No. 2538/Del/2014 and AY 2010-11 ITA No. 1059/Del/2015 by orders of even date deleting the disallowance. Since there is no change in facts in this year from the facts in preceding years, accordingly, we direct the AO to delete the disallowance of interest;

Whether legitimate business expenditure being in the nature of support service expenses paid to AEs, can be disallowed - NO: ITAT

+ as far as support services expenditure is concerned, both the parties has submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10. The parties also reiterated the same arguments. We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the disallowance towards support service expenditure. This ground of appeal has already been decided in AY 2009-10, I.T.A. No. 2518/2014 and AY 2010-11 ITA No. 1778/2015 for even date and since there is no change in facts in this year from the facts in preceding year, we direct the AO to delete the disallowance accordingly for this year too;

Whether payment made in respect of intra group services rendered by the AEs, can be disallowed, when such payments are made solely for the purposes of business - NO: ITAT

+ as far as network connectivity services are concerned, it is seen that again both the parties has submitted that this issue is identical to ground in appeal of the assessee for AY 2009-10. The parties has also reiterated the same arguments. We have gone through the relevant facts of the case and arguments and submissions advanced by both the parties in connection with the above adjustment to ALP of the international transactions . This ground of appeal has already been decided in AY 2009-10, I.T.A. No. 2518/2014 and AY 2010-11 ITA No. 1778/2015 for even date where in we have set aside this ground to the file of AO with direction to determine ALP of the transactions, and since there is no change in facts in this year from the facts in preceding year, we also set aside this ground of appeal to AO with similar direction for this year.

Assessee's appeal partly allowed

 

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