Delhi High Court
Cit vs M/S Bharti Airtel Limited on 25 February, 2015
$~60
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on 25th February, 2015
+ ITA 606/2014
CIT ..... Appellant
Through: Mr.N.P.Sahni Sr.Standing Counsel
with Mr. Nitin Gulati, Jr.Standing
Counsel.
versus
M/S BHARTI AIRTEL LIMITED ..... Respondent
Through: Mr.Ajay Vohra, Sr. Adv. with
Ms.Kavita Jha and Ms.Shraddha,
Advs.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K.GAUBA
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. Admit.
2. Following questions of law are urged for consideration:
(i) Whether the ITAT has erred in law and on facts in deleting
the addition of ₹ 3,46,00,000/- pertaining to the non refundable
deposits being treated as income by the AO?
(ii) Whether the ITAT has erred in law and on facts in deleting
the addition of ₹10,11,786/- respecting ALP adjustment on
account of interest on inter-cooperate deposit?
ITA 606/2014
Page 1
3. The Revenue urges that the Income Tax Appellate Tribunal's (ITAT)
findings with respect to treatment of ₹3,46,00,000/-, being non refundable
deposit, it is not justified in law. It relies upon the decision of the Division
Bench of this Court in New Holland Tractors (India) Pvt. Ltd. vs. The
Commissioner of Income Tax, Delhi-V (ITA No.182/2002 decided on
25.09.2014). It is urged that the amount ought to have been treated as a
revenue receipt instead of assessee's contention that it ought to have been
amortized over the period of time or spread over the period of time.
4. This Court has considered the submissions. The ITAT accepted
the assessee's contentions and, inter alia, held as follows:
"We find that the non refundable security deposit received from
the landline subscribers is in respect of the services rendered by
the assessee over the period in which the connection is in use,
and, therefore, its being amortized over the estimated customer
chum period is in consonance with generally accepted
accounting principles inasmuch as it would indeed present a
distorted picture of financial affairs when entire amount of non
refundable security deposit is treated as income relatable to the
year in which it is received, This is the practice that the
assessee has consistently followed, and the revenue has also
accepted the same in the other years. As reiterated by Hon'ble
Supreme Court in the case of CIT Vs Excel Industries Ltd
[(2013) 358 ITR 295], it would be inappropriate to allow
reconsideration of an issue for a subsequent year when the
same fundamental aspect permeates in the different assessment
years. In view of these discussions, as also bearing in mind
entirety of the case, we are not inclined to approve the addition
made by the Assessing Officer. We direct the AO to delete the
same. The assessee gets the relief accordingly."
ITA 606/2014
Page 2
5. This Court also notices that the assessee's contentions with regard to
spread over of such amount was accepted in all the earlier years, except the
year in question i.e. Assessment Year (AY) 2007-08. Therefore, keeping in
view the Supreme Court's ruling in CIT vs. Excel Industries Ltd. 2013 (358)
ITR 295, it is held that the reconsideration of an issue, especially since it
pertains to the method of treating a class of receipt, would not be
appropriate.
6. The last question urged by the Revenue pertains to the adjustment of
₹10,11,786/- on account of the alleged difference in interest. The facts are
that the assessee in the course of his overseas operation advanced amount to
three of his subsidiaries at 7.33% per annum. These advances were made
without any security; the Transfer Pricing Officer (TPO) directed and the
DRT confirmed the adjustment on three counts i.e. lower rate of interest;
transaction cost on account of which a market up of 3% was directed, and
lack of any security. The assessee had contended that the amounts were
advanced to its subsidiaries and that even a comparison in libor showed that
interest rates were not unduly favourable to the subsidiary/borrowers.
7. The ITAT rejected the Revenue's contention and allowed the
assessee's appeal holding as follows:
"We have noted, as has been noted in the assessment order,
DRP order and TPO orders as well, that the advances to
subsidiaries are in foreign currencies i.e. in British Pounds, US
Dollars and Canadian Dollars. In these circumstances, the
interest rates on rupee bonds and debts, which has been
extensively referred to in the order of the TPO, have no
relevance at all. It is only elementary that interest is nothing but
time value of money and when inflation pressure on a currency
is lower as is the case with most strong currencies, the time
ITA 606/2014
Page 3
value of money, i.e. interest, tends to be lower too. Therefore,
comparing interest rate on rupee loans cannot at all be
compared with interest rates on strong currencies like GBP,
USD and CAD. All these erudite discussions about Indian bond
market and interest rate are thus wholly irrelevant. As for
TPO's observation to the effect that the tested party being the
assessee before us, i.e. lender, the prevalent interest that could
be earned by the taxpayer by advancing loan to an unrelated
party in India, we can only m point out that the interest rate on
foreign currency loans being qualitatively different, even if we
have to see the interest that the assessee would have earned on
foreign currency loans and not rupee denominated loans."
8. The ITAT has also taken note of the fact that two specific
comparables of USD borrowings i.e. L&T and Seri Infrastructure, on the
interest rate of Libor had been taken into consideration. There is no material
whatsoever, save and except for vague observations about weak financials of
the subsidiaries - which are not supported by any specific facts and proceed
on sweeping generalizations and assumptions, to reject the comparables
taken by the assessee. When a Transfer Pricing Officer rejects comparables
taken by the assessee, he has to set out specific, cogent and legally
sustainable reasons for doing so. On this point, therefore, the stand of the
Assessing Officer cannot be accepted.
9. As far as third ground i.e. Transaction Cost which led to the addition
of 3% per annum, Tribunal explained as follows:
"However, what the TPO overlooks is the fact that such a
transaction cost is relevant only to the domestic
borrower who borrows in foreign currency from outside
India. It has nothing to do with the arm's length interest
ITA 606/2014
Page 4
rate for foreign currency borrowing by an overseas
subsidiary. In any event, the interest rate is independent
of incidental costs, and since TPO has taken lender as
the tested party, the transaction cost to the borrower is
wholly irrelevant. This adjustment is, therefore devoid of
any legally sustainable basis."
10. The Tribunal further noticed that the assessee advanced monies to the
subsidiaries which were under its management and control, which in fact
substantially reduced the risk and in these circumstances there was no
rationale of adjusting any amount of higher basis.
11. This Court is of the opinion that the reasoning of the ITAT on each of
the heads which went into the adjustment of ₹10,11786/- is reasonable and
justified and does not call for any interference. No question of law arises.
S. RAVINDRA BHAT, J
R.K.GAUBA, J
FEBRUARY 25, 2015
mr
ITA 606/2014
Page 5
