Income tax - Sections 37(1), 40(a)(ia), 195 - Delhi ITAT Clarifies Criteria for Comparables under TNMM, Allows ESOP and Software Expenses as Revenue Expenditure, and Relieves Payer from TDS Obligation under Section 195 for Non-Taxable Payments - The Tribunal’s decision underscores the necessity of close functional similarity in the selection of comparables for transfer pricing analysis, even under the TNMM. The ruling clarifies that ESOP discounts, when computed as the difference between exercise price and market price, are allowable business expenditure under Section 37(1). Furthermore, software expenditure that does not yield enduring benefits is to be treated as a revenue outgo. Importantly, where a non-resident recipient is not taxable in India on a particular receipt, the payer is absolved from the requirement to deduct TDS under Section 195, and consequential disallowance under Section 40(a)(ia) cannot be made. Assessees are advised to closely analyze the functional profile of proposed comparables and substantiate the nature of expenditure to ensure proper tax treatment.
Income Tax - Sections 92B, 143(3), 254 - ITAT Chennai Rules AMP Expenses Not Separate International Transaction When TNMM Applied at Entity Level: Relief to Assessee in Transfer Pricing Dispute - In light of the above findings, the Tribunal conclusively held that AMP expenses incurred in the ordinary course of business for marketing and selling the assessee’s own products do not constitute a separate international transaction, even if the AE derives some incidental benefit. It further clarified that where TNMM is adopted at the entity level, segregating and benchmarking AMP expenses again is impermissible and contrary to established transfer pricing principles. As a result, the Revenue’s appeal was dismissed.
Income-tax - Sections 143(3), 144C(13) - ITAT Mumbai Rules APA Overrides Disallowance of Business Expenditure under Section 37(1) for Covered International Transactions: No Scope for Re-litigation of ‘Need-Benefit’ Test - The ITAT unequivocally concluded that where an international transaction is subject to a binding APA, the tax authorities are barred from making a disallowance under Section 37(1) on the ground that the expenditure is not incurred wholly and exclusively for the purpose of business. The APA process, having already vetted the need, rendition, and benefit criteria, renders any further enquiry under Section 37(1) otiose for the covered transactions. The Tribunal also directed that deduction under Section 80JJAA cannot be disallowed merely for alleged procedural lapses when the assessee has submitted all requisite documents, and revenue authorities must duly consider all material provided before arriving at their decision.
Income Tax - Sections 143(3), 144C - ITAT Chennai Orders Fresh Review of ALP Determination in Intangibles Transfer Due to TPO’s Misinterpretation in Edict Pharma-PAR, USA Case - The Tribunal’s decision underscores the critical importance of both factual accuracy and methodological rigor in transfer pricing assessments, particularly in cases involving complex intangibles. The case was remanded to the TPO for a fresh, independent benchmarking exercise of the intangibles transfer, with directions for the assessee to submit full supporting evidence for its chosen benchmarking method. The appeal was allowed for statistical purposes, pending a fresh determination.
Income tax - Sections 44C - ITAT Special Bench Clarifies: Treaty Prevails Over Section 44C for Pre-2008 Head Office Deductions; Software Expenses for Indian Branches Not Restricted - The ITAT Special Bench decisively held that, for years prior to the 1 April 2008 amendment of the India-UAE DTAA, head office expenses attributable to the Indian PE are fully deductible under Article 7(3), with no reference to or limitation from Section 44C of the Income Tax Act, 1961. Article 25(1) of the DTAA does not operate to import domestic restrictions into the computation mechanism of Article 7(3). Furthermore, branch-specific software and SWIFT expenses, being directly incurred for the Indian branches, fall outside the purview of Section 44C and are deductible under Section 37(1).
Income Tax - Sections 143(3), 144C(13) - ITAT Delhi Rules Contractual Milestone Payments for Rolling Stock Supply Not Taxable as FTS under India-Germany DTAA - Based on the Tribunal's ruling, payments received for milestone activities under a lump sum supply contract, which are inextricably linked with the main objective of supply and are integral preparatory steps, do not qualify as Fees for Technical Services under Article 12(4) of the India-Germany DTAA. Such payments, when not for independent managerial, technical, or consultancy services, are not subject to tax as FTS in India.
Income Tax - Sections 144B, 144C, 153 - ITAT Delhi Quashes Faceless Final Assessment Order Passed Beyond Statutory Limitation under Section 153 r.w.s. 144C(13) for AY 2020-21 - The ITAT Delhi has unequivocally held that a Final Assessment Order issued under Section 143(3) read with Section 144C(13) after the expiry of the statutory period under Section 153 is null and void. Tax authorities must ensure strict adherence to the limitation period, even in cases routed through the DRP under Section 144C. Taxpayers facing belated assessments can seek relief based on this decision, and pending matters should be closely monitored for further developments arising from the Supreme Court's consideration of the issue.
Income tax - Sections 9(1)(vi) - No Royalty on Live Telecast Rights for Cricket Matches: Delhi High Court Rules in Favor of Sri Lanka Cricket - Based on the facts and the legal framework analyzed above, it is clear that payments made exclusively for the live telecast of cricket matches, where no enduring rights are granted to the licensee, do not constitute royalty under Section 9(1)(vi) of the Income Tax Act. Taxpayers and assessees engaging in similar transactions should ensure that their agreements specify the scope of rights clearly, limiting them to live telecast where royalty implications are to be avoided.
Income Tax - Sections 143(3), 144C(13) - ITAT Delhi Holds Reimbursement of Intranet Charges to German Supplier Taxable as FTS—PE Irrelevant Under India-Germany DTAA - In light of consistent judicial findings and clear legal provisions, the ITAT has reaffirmed that receipts from technical and supervisory services—even when received as reimbursement—are taxable as FTS under both domestic law and the India-Germany DTAA. The existence of a PE in India is irrelevant for taxing such receipts when they fall within the FTS definition. Assessees engaged in cross-border technical services should carefully evaluate the nature of receipts, as nomenclature or reimbursement claims will not alter taxability if the underlying services are technical in character.
Income Tax – Sections 144C(13), 147 - Delhi ITAT Rules No Permanent Establishment for Foreign Online Booking Company Earning Commission from Indian Hotels: 'Disposal Test' Not Met - On the facts and in law, the Delhi ITAT concluded that the earning of commission by a foreign online accommodation platform from Indian sources, without any physical presence, place of business, personnel, or agent at its disposal in India, does not satisfy the “disposal test” or any other condition necessary to establish a Permanent Establishment under Article 5 of the India-Netherlands DTAA. Consequently, the entire addition made by the AO was deleted. The Tribunal’s decision provides a clear, actionable precedent: digital business models without tangible presence in India cannot be taxed as having a PE, even with significant Indian-sourced income.
Income tax – Sections 9(1)(vi) - ITAT Mumbai Rules Non-Exclusive Broadcasting Rights for Cinematographic Films Not Taxable as Royalty under Income Tax Act or India-Mauritius DTAA - The ITAT Mumbai decisively held that payments received by a non-resident for granting non-exclusive broadcasting rights for cinematographic films are not taxable as royalty in India. This is because such consideration is specifically excluded from the definition of royalty under Explanation 2(v) to Section 9(1)(vi) of the Income Tax Act (as applicable at the relevant time), and does not fall within the purview of royalty under Article 12(3) of the India-Mauritius DTAA, in the absence of any transfer of copyright or related rights. Assessees in similar situations should ensure that their agreements limit rights to non-exclusive broadcasting, without any transfer of copyright or rights to modify or exploit the work, to remain outside the ambit of royalty taxation in India.
Income Tax - Sections 143(3), 144C(13), 144(B) - ITAT Bangalore Directs Reconsideration of Warranty Provisions: Disallowance of Rs. 4.51 Crore Set Aside in Heavy Vehicle Dealer’s Case - The ITAT has underscored the need for correct computation of warranty provision deductions, clarifying that such provisions, when based on scientific estimation and properly substantiated, are allowable under Section 37(1) as laid down in Rotork Controls India (P) Ltd. v. CIT. The AO is directed to recompute the deduction on the basis of actual provision created during the year and not simply the closing balance or amount utilized, ensuring proper tax treatment in line with judicial principles.
Income Tax - Sections 90, 90A, 139(1), 128(9) - ITAT Mumbai Rules Denial of Foreign Tax Credit on Technical Grounds Unjust, Orders Fresh Hearing - The ITAT Mumbai decision underscores that the denial of Foreign Tax Credit solely due to the delayed filing of Form 67 is not legally tenable. The procedural requirement under Rule 128(9) should not override the substantive right to claim FTC if the taxpayer is otherwise eligible. The Tribunal’s order to remand the matter for fresh factual verification reaffirms the need for a fair hearing and adherence to the principles of natural justice. Taxpayers should ensure that all procedural requirements are met, but genuine claims should not be rejected merely on technical grounds.
Income Tax - Section 90 - ITAT Bangalore Rules Clerical Error in Form 67 Not a Bar to Foreign Tax Credit for Salary Earned Abroad - The ITAT Bangalore’s decision establishes that a mere clerical and unintentional error in Form 67 does not justify denial of otherwise valid Foreign Tax Credit. The Tribunal ruled that procedural or technical lapses must not override substantive rights where the underlying foreign tax payment and its Indian tax offer are undisputed and supported by evidence. Actionable takeaway: assessees should ensure accurate filing of Form 67, but in cases of genuine error, relief may be sought at appellate forums, with evidence of foreign tax payment and Indian tax offer.
ITAT Mumbai Reaffirms Tax Exemption Under Article 8 of India-USA DTAA for Profits from Code-Sharing Arrangements in International Air Traffic - Based on the ITAT’s ruling, it is clear that profits derived from the transportation of passengers by an airline under code-sharing arrangements—where the airline issues tickets under its code and the service is part of its international operations—qualify as profits from the operation of aircraft under Article 8 of the India-USA DTAA. Accordingly, such profits are taxable only in the United States and not in India. Taxpayers operating in similar circumstances should ensure that their code-sharing arrangements and ticketing practices are properly documented to fall within the ambit of Article 8 and secure exemption from Indian taxation.
Appellate Tribunal Confirms FEMA Violation in Use of Overseas Subsidiaries for Round-Tripping; Special Director’s Independent Analysis Upheld - Based on a comprehensive review of the facts, statutory provisions, and regulatory framework, the Tribunal dismissed the appeals and affirmed the penalty imposed by the Special Director. The Tribunal held that the use of the two overseas subsidiaries constituted impermissible round-tripping rather than genuine overseas business activity, thereby violating Section 6(3)(a) of FEMA, 1999, and Regulations 6(2)(ii) and 7 of the 2004 Regulations. Furthermore, the Tribunal concluded that the adjudicating authority had exercised independent judgment, and thus the penalty order was not procedurally infirm.
Tribunal Affirms Continuing Liability of Struck-off Companies and Legal Representatives under FEMA; Reduces Penalties on Grounds of Proportionality - In partial allowance of the appeals, the Tribunal unequivocally affirmed that liabilities of companies struck off under the Companies Act, 2013, remain enforceable, including penalties under FEMA, unless specifically set aside by judicial order. It further held that proceedings and penalties against legal representatives under Section 43 of FEMA are maintainable, but such liability is limited to the estate inherited from the deceased. The Tribunal clarified that for penalties under Section 13(1) of FEMA, no proof of mens rea is required. Applying the proportionality principle, the Tribunal reduced the penalties imposed on the individual appellants and ordered adjustment of pre-deposits. Penalties at the company level remain in force, subject to any appellate or higher judicial intervention.
Tribunal Affirms Abetment in Foreign Exchange Violations: Directors’ Role Proven Despite Retractions, Penalty Reduced to Rs. 10 Lakhs - On the basis of detailed testimonial, documentary, and circumstantial evidence, the Tribunal concluded that the appellant had indeed abetted the contravention of Sections 8(3) and 8(4) of FERA, read with Section 64(2). The legal presumption of culpable mental state under Section 59 stood unrebutted. While the appellant’s arguments regarding the retracted statements were considered, the corroborative evidence was decisive. The penalty was reduced to Rs. 10 lakhs, with the amount already deposited to be set off. Assessees in similar circumstances should ensure that any retraction of statements is promptly supported by credible evidence and that all documentary trails are transparent and justifiable to avoid adverse inferences.
Income Tax - Section 92CA(3) - Delhi High Court Strikes Down TPO Order for Withholding Agreements—Violation of Natural Justice in Transfer Pricing Assessment - The Delhi High Court’s decision clarifies that any quasi-judicial authority, including the TPO, is under a legal obligation to supply copies of all documents it relies upon to the assessee during transfer pricing proceedings. The failure to do so vitiates the entire exercise and constitutes a breach of natural justice, warranting the setting aside of the resultant order. Assessees facing similar refusals should assert their right to disclosure, and authorities must ensure procedural fairness by complying with these requirements.
Income Tax - Section 197 - Delhi High Court Clarifies Deductibility of Full Expenses Against Attributed PE Revenue for UK-based CRS Provider; Directs Proportionate TDS Adjustment Amidst Pending Non-India POS Dispute - The Delhi High Court has reaffirmed that, for non-residents with a PE in India, the entire eligible expenses incurred for generating attributed revenue must be deducted before computing taxable income, as per Supreme Court precedent. Attribution of revenue to the PE does not serve as a ceiling for deductible expenses. Where a dispute remains pending on the taxability of a particular revenue stream (such as non-India POS transactions), courts may grant partial or proportionate relief in withholding tax rates to balance interests of both the taxpayer and the revenue authorities. Tax authorities are required to follow judicial precedent strictly and cannot invent new computational methods contrary to binding Supreme Court rulings.