Delhi High Court - Orders
Principal Commissioner Of Income Tax -6 vs M/S Nokia Siemens Network India P. Ltd on 21 March, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
$~17
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 728/2019
PRINCIPAL COMMISSIONER OF INCOME TAX -6
..... Appellant
Through: Mr. Ruchir Bhatia, Sr.SC
alongwith Ms. Deeksha Gupta,
Advocates
Versus
M/S NOKIA SIEMENS NETWORK INDIA P. LTD.
..... Respondent
Through: Mr. Deepak Chopra and Mr.
Ankul Goyal, Advocates
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
ORDER
% 21.03.2024
1. The Revenue questions the judgment rendered by the Income Tax Appellate Tribunal ["ITAT"] dated 16 February 2018 and has proposed the following questions of law for our consideration:-
"A. Whether on facts and in the circumstances of the case and also prevailing law, the Hon'ble Tribunal was justified in directing to exclude Bodhtree Consulting Ltd., Cat Technologies Ltd., E- Infochips Bangalore Ltd., FCS Software Solutions Ltd., Goldstone Technologies Ltd., Helios & Matheson Information Technologies Ltd., Igate Global Solution Ltd., Infosys Ltd., Kals Information Systems Ltd., LGS Global Ltd., Larsen & Toubro Infotech Ltd., Mindtree Ltd., Persistent System Ltd., Quintegra Solutions Ltd., R Systems International Ltd. and Tata Elxsi even though these companies perform similar functions as that to assessee and are functionally comparable to it under TNMM method?
B. Whether on facts and in the circumstances of the case and also prevailing law, the Hon'ble Tribunal was justified in directing to include SIP Technologies Ltd. as a comparable even though this company had failed diminishing revenue filter applied by the TPO?
C. Whether on facts and in the circumstances of the case and also prevailing law, the Hon'ble Tribunal erred in allowing cherry picking og low margin companies by excluding high margin This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 20:31:40 companies as comparable although these companies perform similar functions to the assessee and are functionally comparable to it under TNMM method?
D. Whether on facts and in the circumstances of the case and also prevailing law, the Hon'ble Tribunal is perverse in laying down very stringent standards of comparability, and attempting to identify exact replica of the taxpayer for comparability analysis, whereas the Indian law and the international jurisprudence recognizes that reality there cannot be exact comparables in a situation without any differences, and without appreciating that such stringency will defeat purpose of flexibility provided in comparability analysis for determination of ALP under TNMM?
E. Whether on facts and in the circumstances of the case and also prevailing law, the Hon'ble Tribunal was justified in holding that the disallowance under Section 40(a)(i) of the Act is revenue neutral and therefore the Respondent assessee is entitled to a corresponding deduction under Section 10A of the Act?"
2. Having heard Mr. Bhatia, learned counsel appearing in support of the appeal, we would note that in so far as questions (A) to (D) are concerned, they would be covered by the judgment rendered today in ITA 48/2020. The solitary question which thus survives is question (E)
4. We note that the ITAT while dealing with the aforesaid issue has observed as follows:-
"20. In respect of the deduction of Rs.4,35,81,838/- claimed in respect of 10A of the Act, it was the submission of the assessee that the TDS in respect of the expenditure incurred by 10A units of the assessee was duly complied and even otherwise inasmuch as 10A unit is entitled to 100% deduction u/s 10A of the Act, any disallowance u/s 40(a) of the Act will not impact the tax liability of such unit. The prayer of the learned AR is that if the disallowance is not deleted, the learned AD may be directed to increase the corresponding deduction also.
21. In this regard reliance is placed on the order passed by the Gujarat High Court in case of ITO vs. Keval Constructions 354 ITR 013 (guj.) wherein while dealing with a similar issue, the court held as under:-
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 20:31:40
"5. Having heard counsel on both the questions today in this appeal, we find no error in the Tribunal's ultimate conclusion. Even if a certain expenditure which was incurred by the assessee for the purpose of developing housing project was not allowable by virtue of section 40(a)(ia) of the Act, since the assessee had not deducted the tax at source as required under law, it cannot be denied that such disallowance would ultimately go to increase the assessee's profit from the business of developing housing project. Whatever be the ultimate profit of the assessee as computed even after making disallowance under section 40(a)(ia) of the Act, would qualify for deduction as provided under the law. No question of law, therefore, arises. The tax appeal is dismissed."
22. Reliance is also placed on the order of the Ahmadabad Income Tax Appellate Tribunal („Tribunal‟) in the case of DCIT vs. Ascendum Solutions India (P.) Ltd. [2017] 86 taxmann.com 114 (Ahmadabad - Trib.) wherein while dealing with an identical issue it has been held as under:-
"6. What has been accepted by the CBDT, as learned counsel rightly points out, is the principle that when a disallowance results in an enhancement of business profits but such an enhancement is revenue neutral inasmuch as related business profits, in totality, are eligible for deduction under chapter VI, such appeals need not be pursued. The reference to Section 40(a)(ia) is no more than illustrative in nature, and what holds good for disallowance under section 40(a)(ia) applies, in principle, equally to disallowance under section 40(a)(i) as well. In this view of the matter, in terms of the CBDT circular (supra), the appeal filed by the Assessing Officer, on this point, is indeed not maintainable. As regards the point made by the learned counsel that the non-deduction of tax at source from payments made to the non-residents must be dealt with at a different level, and bearing in mind the need to protect our tax base, we can only point out that lapses with respect to tax withholding obligations from payments made to non- residents is visited with several type of consequences- disallowance under section 40(a)(i), recovery under section 201, penalty under section 271C and, in certain situations, even prosecution under section 276B. What we are dealing with right now is a limited aspect of the matter having impact on computation of taxable income, and while dealing with this limited aspect of the matter, This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 20:31:41 we must not bother about the considerations which are not germane to this context. As for the present context, the issue raised in the appeal, given the settled legal position, is wholly academic and revenue neutral, and, in the light of the CBDT instructions which bind all the field authorities under section 119 of the Act, cannot be pursued by the appellant. We, therefore, see no need to even deal with the matter on merits in the context of the present proceedings, even as we take on record learned counsel's submission that, even on merits, the issue is now covered in favour of the assessee and that the assessee did not have any obligations to deduct tax at source at all. That aspect of the matter is wholly academic. In view of these discussions, and bearing in mind entirety of the case, we uphold the preliminary objection of the assessee and dismiss this ground of appeal as not maintainable."
23. In this set of facts and circumstances we are satisfied that the disallowance under section 40(a)(i) of the Act is revenue neutral and the learned AO is directed to allow the corresponding deduction to the assessee u/s 10A of the Act.
5. As would be manifest from the above, the ITAT has essentially found no cause to entertain the said issue bearing in mind the „revenue neutrality effect‟.
6. In view of the aforesaid, while we keep the submission of Mr. Bhatia and who seeks to advocate a distinction between Section 40(a)
(i) and Section 40(a)(ia) of the Income Tax Act, 1961 open to be considered in an appropriate case, we dismiss the instant appeal.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J.
MARCH 21, 2024 p'ma This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 20:31:41 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 20:31:41