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