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2016 (5) TMI 1284

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..... f the assessee of depreciation is accepted , the disallowance in this year cannot be sustained. Addition towards interest of sticky loans and advances - Held that:- Respectfully following the decision of Honourable Delhi high court in CIT Vashisth Chay Vyapar limited (2010 (11) TMI 88 - Delhi High Court ) and decision of coordinate bench in case of the assesse for AY 2003-004, we direct the AO to delete the addition of ₹ 8,08,14,506/- towards interest of sticky loans and advances which was not recognized as income by the appellant in accordance with the mandatory prudential norms issued by the Reserve Bank of India. In the result ground no 3 of the appeal is allowed. Disallownce of actual loss of sale repossessed assets and forming an integral part of the non-banking financial activity of the appellant - Held that:- the assessee is entitled to claim of loss on sale of repossessed assets. In view of the decision, Hon’ble Delhi High Court in the case of CIT Vs. Citicorp Maruti Finance Ltd [2010 (11) TMI 802 - Delhi High Court ] wherein it is held that loss of repossessed vehicle sold is also deductible to the assessee. The above decision of Hon’ble Delhi High Court has f .....

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..... 7,100/- to the Appellant's returned income of ₹ 99,70,75,770/-. 1.3 On the facts and circumstances of the case and in law, the order passed by the Ld. AO under the directions passed by the Hon'ble DRP under section 144C(5) of the Act is wrong and bad in law. B. Disallowance of depreciation on leased vehicles 2 On facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the Hon'ble DRP has further erred in confirming the disallowance of depreciation of ₹ 2,90,56,780/- claimed by the Appellant u/s 32 of the Act on vehicles leased out to customers, by holding that the Appellant is not the beneficial owner of these vehicles. C. Addition on account of Interest on sticky loans 3.1 On facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the Hon'ble DRP has further erred in confirming the addition of ₹ 8,08,14,506/- towards interest on sticky loans and advances which was not recognised as income by the Appellant in accordance with the mandatory Prudential Norms issued by the Reserve Bank of India. 3.2 Without prejudice to the above, the Ld. AO grossly erre .....

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..... of expenses, not appreciating the details submitted by the Appellant. 5.3 On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO erred in holding and the Hon'ble DRP further erred in confirming that the AEs did not have infrastructure and manpower situated in India for rendering such services, ignoring the fact that since the services were rendered from outside India, there was no requirement for the AEs to maintain any infrastructure and manpower in India. 5.4 On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO erred in rejecting and the Hon'ble DRP further erred in confirming the rejection of Transfer Pricing documentation maintained by the Appellant as per Rule 10D of the Income-tax Rules, 1962 based on conjectures and surmises. 5.5 On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO erred in rejecting and the Hon'ble DRP further erred in confirming the rejection of the arm's length price computation undertaken by the Appellant, on the ground that foreign comparables and foreign AEs were considered for the arms length analysis. 5.6 O .....

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..... DRP ) who issued direction on 21.09.2010. Pursuant to those directions, the assessment order u/s 143(3) read with section 144C of the Act was passed by the ld. AO on 26.10.2010, which is in appeal before us on several counts. 5. Ground No.1.1 to 1.3 of the appeal are supportive and general in nature and no specific arguments by the parties were advanced on these grounds therefore these are dismissed. Corporate Tax Issues 6. The ground No. 2 of the appeal is against the disallowance of depreciation of ₹ 2,90,56,780/- claimed by the appellant u/s 32 of the Act for vehicles leased out to customers. The ld. AO disallowed the depreciation on vehicles as they were registered in the name of the respective lessees and not in the name of the lesser i.e. assessee company. Ld. AO was of the view that transaction is in effect a finance transaction i.e. Loan Transaction and not lease transaction. On perusal of relevant clauses of lease agreement, Ld. AO held that assessee has entered into a finance arrangement under the guise of lease. According to him, vehicles are directly delivered to the lessee and he bears insurance, holds the warranty, and retains the right to exclusi .....

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..... and ii. uses it for the purpose of its business. Regarding the (ii) condition of user of the assets the issue is now no more in dispute in view of decision of Honourable Supreme court in ICDS Limited V CIT 350 ITR 527 where in it is held that :- 14. The Revenue attacked both legs of this portion of the section by contending: (i) that the assessee is not the owner of the vehicles in question and (ii) that the assessee did not use these trucks in the course of its business. It was argued that depreciation can be claimed by an assessee only in a case where the assessee is both, the owner and user of the asset. 15. We would like to dispose of the second contention before considering the first. Revenue argued that since the lessees were actually using the vehicles, they were the ones entitled to claim depreciation, and not the assessee. We are not persuaded to agree with the argument. The Section requires that the assessee must use the asset for the purposes of business . It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisf .....

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..... ), therefore, refers to the uses to which the machinery can be put. It does not specify that the assessee himself should use the machinery for these purposes. In the present case, the person to whom the machinery is hired does use the machinery for specified purposes under Section 32-A(2)(b)(iii). That person, however, is not the owner of the machinery. The High Courts of Karnataka and Madras have held that looking to the requirements specified in Section 32-A the assessees, in the present case, fulfil all the requirements of that section, namely, (1) the machinery is owned by the assessees; (2) the machinery is used for the purpose of the assessees' business and; (3) the machinery is as specified in sub-section (2). 10. We are inclined to agree with this reasoning of the High Courts of Karnataka and Madras. 17. The same judgment commented on the analogous nature of Section 33 on Development Rebate and clarified that the phrase used for the purpose of business does not necessarily require a usage of the asset itself. It held thus: 11. The provisions relating to investment allowance are akin to the provisions under Section 33 of the Income Tax Act, 1961 rel .....

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..... y the Andhra Pradesh High Court in the case of CIT v. Vinod Bhargava [1988] 169 ITR 549 (AP) where Jeevan Reddy, J. (as he then was) held that where leasing of machinery is a mode of carrying on business by the assessee the assessee would be entitled to development rebate. The Court observed (p. 551): Once it is held that leasing out of the machinery is one mode of doing business by the assessee and the income derived from leasing out is treated as business income it would be contradictory, in terms, to say that the machinery is not used wholly for the purpose of the assessee's business. 18. Hence, the assessee meets the second requirement discussed above. The assessee did use the vehicles in the course of its leasing business. In our opinion, the fact that the trucks themselves were not used by the assessee is irrelevant for the purpose of the section. In this case also assessee has offered lease rent which is charged to tax by the revenue as a leasing company. Coming to the first issue of the ownership the honourable supreme court has held that:- 19. We may now advert to the first requirement i.e. the issue of ownership. No depreciation allowance .....

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..... e. The same dictionary defines the term own as 'To have a good legal title'. These definitions essentially make ownership a function of legal right or title against the rest of the world. However, as seen above, it is nomengeneralissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. 22. A scrutiny of the material facts at hand raises a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was entered into by the assessee with the customer. Moreover, the relevant clauses of the agreement between the assessee and the customer specifically provided that: (i) The assessee was the exclusive owner of the vehicle at all points of time; (ii) If the lessee committed a default, the assessee was empowered to re-possess the vehicle (and not merely recover money from the customer); (iii) At the conclusion of the lease period, the lessee was obliged to return the vehicle to the assessee; (iv) The assessee had the right of inspection of the vehicle at all times. F .....

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..... ssee hereunder or upon 7 days notice previously given.. 23. The Revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle, making the assessee in effect a financer. However we are not persuaded to agree with the Revenue. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eyes of law. A scrutiny of the sale agreement cannot be the basis of raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement itself, which clearly point in favour of the assessee. We agree with the following observations of the Tribunal in this regard: 20. It is evident from the above that after the lessee takes possession of the vehicle under a lease deed from the appellant-company it (sic.) shall be paying lease rent as prescribed in the schedule. The ownership of the vehicles would vest with the appellant-company viz., ICDS as per clause (4) of th .....

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..... an agreement of lease or an agreement of a hypothecation, the person in possession of the vehicle under that agreement. 25. The general opening words of the Section say that the owner of a motor vehicle is the one in whose name it is registered, which, in the present case, is the lessee. The subsequent specific statement on leasing agreements states that in respect of a vehicle given on lease, the lessee who is in possession shall be the owner. The Revenue thus, argued that in case of ownership of vehicles, the test of ownership is the registration and certification. Since the certificates were in the name of the lessee, they would be the legal owners of the vehicles and the ones entitled to claim depreciation. Therefore, the general and specific statements on ownership construe ownership in favour of the lessee, and hence, are in favour of the Revenue. 26. We do not find merit in the Revenue's argument for more than one reason: (i) Section 2(30) is a deeming provision that creates a legal fiction of ownership in favour of lessee only for the purpose of the MV Act. It defines ownership for the subsequent provisions of the MV Act, not for the purpose of law in gener .....

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..... Act mandates that during the period of lease, the vehicle be registered, in the certificate of registration, in the name of the lessee and, on conclusion of the lease period, the vehicle be registered in the name of lessor as owner. The Section leaves no choice to the lessor but to allow the vehicle to be registered in the name of the lessee Thus, no inference can be drawn from the registration certificate as to ownership of the legal title of the vehicle; and (iii) if the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the Appellate Tribunal, was not done. It would be a strange situation to have no claim of depreciation in case of a particular depreciable asset due to a vacuum of ownership. As afore-noted, the entire lease rent received by the assessee is assessed as business income in its hands and the entire lease rent paid by the lessee has been treated as deductible revenue expenditure in the hands of the lessee. This reaffirms the position that the assessee is in fact the owner of the vehicle, in so far as Section 32 of the Act is concerned. 27. Finally, learned senior counsel appearing o .....

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..... for claim of depreciation are different. It was further submitted that no disallowance has been made by the AO himself for Assessment Year 2011-12 where the claim of the assessee was made in the return of income. Therefore, in subsequent years revenue has accepted the claim of the assessee. This fact is also not controverted by ld. DR. We are of the view that if there being no change either in facts or in law, as compared to this year and later on years where the claim of the assessee of depreciation is accepted , the disallowance in this year cannot be sustained. In assesses s own case for AY 2000-01 and 002-03 in ITA No 3192 2445/del 2007 dated 21/06/2013, ITAT decided this issue vide Para no 8 setting aside the issue back to the file of AO to examine the claim of the assessee with the terms of lease agreement entered into in light of decision of Honorable supreme court in case of ICDS limited. Further MA Nos 81 82/del/201 3 preferred by assessee in those appeals were also dismissed by order dated 13/01/2014.In view of the decision of the Coordinate bench on this issue, we restore this issue back to the file of AO to decide claim of depreciation of ₹ 2,90,56,78 .....

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..... ifically mentioned. Honorable; Supreme court in 358 ITR 295 in CIT V Excel Industries has held that Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. In case of Non performing assets even the principal amounts is also doubtful of recovery or has failed to serve the interest ion those loans. Now this issue in this case of the assessee has already been decided by ITAT in ITA No.4069/Del/2011 for the Assessment Year 2003-04 vide its order dated 31st October 2011 in that decision the coordinate Bench of this Tribunal has held as under:- 5. We have heard both the sides on this issue. This issue is squarely covered by the decision of ITAT in the case of GE Capital Service India, cited supra, wherein the ITAT has decided the issue as under :- 13. Admittedly the assessee is a non-banking financial company governed by the provisions of the RBI Act and the NBFCs Prudential Norms (Reserve Bank) Directions, 1998. Section 45Q of the RBI Act reads as un .....

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..... is also not in dispute that the assessee company being NBFC is bound by the aforesaid provisions. Therefore, under the aforesaid provisions, it was mandatory on the part of the assessee not to recognize the interest on the ICD as income having regard to the recognized accounting principles. The accounting principles which the assessee is indubitably bound to follow are AS-9. The relevant portion of the said accounting standard reads as under: 9. Effect of uncertainties on revenue recognition 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sal .....

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..... t income thereupon has not accrued . We are in agreement with the submission of Mr. Vohar on this count, supported by various decisions of different High Courts including this court which has already been referred to above. (2) In the instant case, the assessee-company being NBFC is governed by the provisions of the RBI Act. In such a case, interest income cannot be said to have accrued to the assessee having regard to the provisions of section 45Q of the RBI Act and Prudential Norms issued by the RBI in exercise of its statutory powers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. As noted above, Mr. Sabharwal, argued that the case of the assessee was to be dealt with for the purpose of taxability as per the provisions of the Act and not the RBI Act which was the accounting method that the assessee was supposed to follow. We have already held that even under the Incometax Act, interest income had not accrued. Moreover, this submission of Mr. Sabharwal is based entirely on the judgment of the Supreme Court in th .....

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..... e parties agreed that issues involved in this ground and the issue decided by ITAT in that order is identical. Further Now Honourable Delhi high court in case of CIT V Vishisth Chay Vyapar Co Limited 196 taxman 169 where in it is held as under (Head notes from taxmann. Com) It was not in dispute that on the application of the provisions of the RBI Act and the 1998 Directions, the ICDs advanced to S by the assessee had become NPA. It was also not in dispute that the assessee-company being NBFC was bound by the aforesaid provisions. Therefore, under the aforesaid provisions, it was mandatory on the part of the assessee not to recognize the interest on the ICDs as income having regard to the recognized accounting principles. The accounting principles, which the assessee was indubitably bound to follow, were AS-9. [Para 16] Therefore, it could not be said that income in the form of interest, though not received, had still accrued to the assessee under the provisions of the Incometax Act and was, therefore, exigible to tax. It was so for the reasons: (1) The assessee had not received any interest on the said ICDs placed with S since the assessment year 1996-97 a .....

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..... nst hypothecation of automobile or consumer durable products as security. In the event of default by the customers, such assets are repossessed by assessee from the lessses. Since these are repossessed assets, it is included in the balance sheet in the current assets as stock and credit is passed to the account of borrowers. Therefore, by passing this entry the assessee replaced the debtors by repossessed assets. When these assets are sold, excess or shortfall is booked as profit or loss in the profit and loss account and it is claimed as loss as a revenue loss/ profit. During the year, the ld. AO has disallowed this loss holding that this loss has not been actually incurred by the assessee. For disallowing this AO relied on the decision of the Hon ble Allahabad High Court in the case of Motor and General Sales Pvt. Ltd. vs. CIT 226 ITR 137. 20. The ld. AR submitted that this is real loss incurred by the assessee and not a hypothetical loss. It is just like writing off the bad debts in the books of the company. The ld. AR further submitted that this issue is squarely covered in the case of the assessee by the decision in the case of CIT Vs. Citicorps Maruti finance Limited In .....

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..... Availing of consulting administrative and IT services from GECC 70,322,844 TNMM OP/OC Consultancy- 19 13,96% 11% IT- 17 4.90% 7% Administrative-32 6.37% 6.7% Availing of consulting administrative and IT services from GECF Inc.* 30,068,780 TNMM OP/OC Consultancy 19 13.96% 11% IT- 17 4.90% 7% Administrative32 6.37% 1. 70% Availing of consulting administrative and IT services from GECT* 111,659,90 9 TNMM OP/OC Consultancy24 .....

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..... cated following various keys as evident from table in paragraph 6.1 of this order. (e) Admittedly, the assessee is engaged in business of consumer financial services in India since 1994 and it has 33 Offices with network of over 3500 dealers across the India and 5000 retail distribution network. The assessee employs huge technical workforces and has incurred personnel cost of ₹ 81.92 crore. It has its own Hums Resources department, It is matter of record that the assessee has infrastructure and a team of skilled manpower s in India for project and operation, marketing, commercial operation, logistic, credit research, PR and Communication, legal and professional advice, client management and human resources development etc. Whereas, these AEs do not have any infrastructure or manpower in India to render above services. It is pertinent to mention here that consumer behavior in the business of retail finance in India is quite different from USA where AEs are located. Accordingly, these alleged services require customization to .domestic requirement however, even that is not possible due to absence of infrastructure and manpower of the AEs in India. During course of procee .....

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..... he AEs these services neither reduced the risk of wrong business .decision nor were related to business reorganisation. Accordingly, these- duplicate services do not fall within exception as provided in above referred to the guideline. In view of above discussion I am of considered view that these services are duplicate services and should not therefore carry a charge on the assessee. (h) I agree with a view that it is not impossible however, for a group member to benefit incidentally from infrastructure maintained by the principal AE to monitor and control the group entities. For example in this case, the assessee might be benefited from supervisory activities under taken by the AE. However, such incidental benefits are not regarded as giving rise to arrangement subject to arm's length pricing as stipulated in OECD TP guidelines paragraph 7.13 under chapter VII. These findings lead to an irresistible conclusion that cost contribution and reimbursement of expenses to the AE are not at arm's length price (i) 1 have noted from detailed contained in the transfer pricing report of the assessee under Rule 10D that the assessee had not conducted FAR analysis in regard .....

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..... ongly been held to be nil, against the sum of ₹ 21,20,48,53s/-. It has been submitted that the TPO erred by disregarding the ALP as determined by the assessee in the TP documentation. The assessee has submitted that the intra-group services were rendered by the AE's for which the assessee received economic and commercial benefit thus requiring remuneration at ALP and were not incidental or duplicate services and were not covered under cost .contribution as alleged by the TPO. It has been submitted that the TPO erred by holding that certain services like human resource, legal, compliance, risk management, quality, consultation and training etc. were in the nature of shareholder services and are not allowable. The assessee has submitted that the TPO has wrongly held that the AE's did not have any infrastructure and manpower situated in India to render various services to the assessee. 2.3 The findings of the TPO and the submissions made by the assessee have been taken into consideration. In the body of transfer pricing order the TPO has discussed in detail the reasons of determining of arm's length price of international transactions. The TPO concluded that th .....

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..... RP] the TNMM method applied by the Assessee to justify the payment made to GECF Inc. and GECF Asia and also held that a foreign party cannot be treated as the Tested Party because the service recipient, i.e., the Assessee is in India. aforesaid action of the TPO is unsustainable in law and in contradiction to the various decisions of the Tribunal. The Delhi Bench of the Tribunal, in the case of Ranbaxy Laboratories Vs. ACIT - 299 ITR (AT) 175(Del), the Ahmedabad Bench of the Tribunal in General Motors India Pvt. Ltd. Vs. DCIT (2013] 27 ITR (Trib.) 373 and the Calcutta Bench of the Tribunal in the case of Development Consultancy Vs. DCIT - 115 TTJ 577 , have held that the foreign associated enterprise can be taken as a Tested Party provided that the relevant data for comparison is available in public domain or furnished to the Tax Administration. Assessee had furnished foreign comparables along with the relevant back up documentation to justify the price charged by GECF Inc. and GECF Asia for the services rendered by them. It has also not been demonstrated by the ld. TPO as to how and why only the service recipient can be the tested party. ii. It was submitted that in Par .....

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..... procured from whom. For this he relied on the decisions of i. CIT V Walchand CO Limited 65 ITR 381 (SC) ii. Sasoon J David co P Ltd V CIT 118 ITR 261 (SC) iii. Hive Communications P Ltd V CIT 201 Taxman 99 ( Del ) iv. CIT V EKL Appliances 345 ITR 241 ( Del) It was further submitted that several tribunals have held that TPO cannot question the commercial wisdom of the assessee. i. Dresser-Rand India Pvt. Ltd. v. ACIT [2012] 13 ITR (Trib.) 422 (Mum) ii. Ericsson India (P) Ltd. v. DCIT [2012] 146 TTJ 708 (Del) iii. AWB India Pvt. Ltd. v. ACIT: ITA No.4454/Del/2011 (Del-ITAT); AY 2007-08 iv. SC Enviro Agro India Ltd. v. DCIT [ITA No.2057-2058/Mum/2009] v. Abhishek Auto Industries Ltd. v. DCIT: ITA No.1433/Del/2009 AY 2004-05 vi. McCann Erickson India Pvt. Ltd. v. ACIT: ITA No.5871/Del/2011 AY 2007-08 vii. DSM Anti- Infectives India Ltd. v. ACIT: ITA Nos. 1139/Chd/2011 and 1290/Chd/2012 AY 2007-08; 2008-09 viii. TNS India Pvt. Ltd. V. ACIT: (2014) 32 ITR (Trib.) 44 (Hyd.) AY 2003-04; 2004-05; 2005-06 ix. Atotech India Ltd. v. ACIT: ITA No.104/Del/2012 AY 2007-08 x. .....

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..... same are accepted by Ld. TPO/ AO and DRP. 31. Ld. DR submitted vehemently supported the order of AO and DRP for AY 2006-07 and 2008-09 and submitted that:- i. Assessee has not been able to demonstrate that the services are rendered by AE and received by the assessee. Assessee did not prove before Ld. AO / TPO and DRP. ii. Regarding the submission made by the assessee before Ld. AO/ TPO in case of various services such as Information technology, Quality management, Finance and Risk and Human Resources management, it was submitted that these are samples only and does not give full picture of the services rendered by AE and received by assessee. iii. He further relied on OECD guidelines reproduced by TPO stating that the service in respect of Information technology etc. is incidental in nature and therefore AE should not have been remunerated for the same. iv. He submitted that services rendered now need a fresh look in view of the evidences and therefore matter should be set aside to the file of TPO/ AO. v. He further submitted following judgments to support his arguments i. Dressser rand India P limited V ADDl CIT 13 ITR (Trib) 422 (Mumbai) .....

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..... He further relied on several judicial precedents on the issues. Ld. DR also submitted several judicial precedents, which are also noted in his submissions. We have considered them in detail. 34. The brief facts are that the rendering of intra group services for which Assessee has paid ₹ 21,20,48,533/-TPO has determined ALP at NIL holding that the assessee did not obtained any benefit of such services and the services provided by the foreign AE were either not required , these are incidental or stewardship services or duplicate services and hence unwarranted. Since, in his opinion, the assessee failed to provide any evidence about the services rendered by the AE necessitating the payment of such charges, he computed the ALP of this international transaction at Rs. Nil. Ld. TPO has simply held that as there is no benefit from the services for which payments has been made in determined the ALP of this international transaction at Nil without carrying out any FAR analysis of this intra-group services. 35. The Income tax Act provides computation of Arm s length price of any international transaction as under. Computation of income from international transaction having reg .....

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..... g the benefits it expects to derive from the agreement. 37. Now we proceed to examine these transaction with respect to the provision of section 92(2) of the Income Tax Act as under :- a. These transactions are backed by the three agreements entered in to by the assessee (i) Master Service agreement between General electric Consumer Finance Inc. for the various services provided in Para no 2 and schedule 3 of that agreement (ii) Information Technology service agreement with general electric Consumer finance inc for providing information technology services which are prescribed in schedule 3 of that services (iii) Master service agreement with GECF Asia Limited for services prescribed under schedule 3 of that agreement at page no 38 of the agreement . Therefore, all the services are backed by the agreement between the service provider and the company being one of the group companies. b. Regarding the need test vide submission dated 7th April 2011 assessee submitted that it needs the following services because the assessee has vast business operations and for managing operations of such a business effectively, specialized and experienced services are .....

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..... ed the need for that service showing that Quality initiative is pivotal to sustaining growth and maximizing operating effectiveness. GE Money differentiates itself through superior customer focus and continuous improvement. As part of this process, GE Money is assisted by quality consultants in implementing Six Sigma quality initiatives throughout the business entities. Regarding business Development sales and marketing services assessee submitted that this function encompasses a range of activities focused on expanding GE Money's business, either by identifying opportunities for market growth through strategic acquisitions or through new product/market support. These activities include evaluating prospective acquisitions, negotiating tentative purchase agreements with acquisition targets, initiating the due diligence process to evaluate the target company, and completing the final acquisition negotiations. Regarding CRM Services it is submitted that focus of this function is on projects (new and in progress) that deliver quantifiable results in the areas of insurance, strategic pricing, new business improvements, campaign management, profitability-based service, credit line in .....

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..... companies and operating in different geographies have also received and used these services which is evident from the allocation list submitted by the assessee therefore this itself proves that for the assessee to remain competitive in its business such services are required. Therefore the assessee satisfied the need test which is alleged by ld. TPO to have not been satisfied by the assessee. We reject this view of the ld. TPO and ld. DRP. c. Regarding rendering of those services by the service provider appellant has submitted before the Ld. TPO the evidences in the form of e-mails exchanged in day-to-day operations, correspondences, documents received, planning studies conducted, strategies developed etc. by the AEs for the assessee, demonstrating the actual receipt of these services. For each of the services assessee has submitted comprehensive details showing that what are those services, what the need of those services is and what is the benefit derived by the assessee from those services. Regarding IT Services assessee has shown that the systems, platforms and software that either is developed by the HQ or had been sourced by HQ from external vendors centrally. Indian b .....

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..... ssional Web / Deski Intelligence Licenses Crystal Reports Developer Business Objects OLAP Intelligence 5. Connect Direct Connect Direct is a software product that performs large file transfers. Connect Direct is supported and maintained by HQ. Businesses procure the licenses and install the tool at their businesses. 6. Experian It is a strategy manager tool. 7. Fermat Basel II It is a regulatory compliance risk reporting tool. 8. Global Architecture HQ conducts Architecture Reviews on site, support for PAR reviews and project distress. 9. Global ESB The Global ESB is the Enterprise Service Bus. It has been designed to be reliable / resilient and supports audit and security requirements. 10. Network HQ performs network circuits, hosting and equipment maintenance at shared data center locations. It also performs business firewall maintenance renewals. .....

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..... by Genpact and Satyam workforce. It also includes help for setting OHR ID and Email ID at active directory. 17. Postilion Support, Maintenance, Server Infrastructure License for Postilion Application that is a data processing tool. 18. SAS SAS is an analytical reporting tool utilized by GE businesses globally. HQ maintains the SAS software on behalf of all businesses including India. 19. Vision Plus Vision Plus support provided by HQ includes license, maintenance, compliance, BAU support teams and Gold Source Hosting. 20. ITAM Infrastructure Hosting and maintenance for ITAM Shared infrastructure, including Production, preproduction and Testing environments for UAPM, ITAM T1, Asset Intelligence, Oracle Reporting and Database servers. Regarding the receipt of such services assessee has shown the date wise details of such services rendered by AE and received by the assessee as under:- Reference Name Date .....

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..... er of IT assets. GEMFSL_Benefits Document_#5_V+ mannual VisionPlus (V+) is a platform that was developed by HQ and provided to all GE Money business including India. V+ is a one source global solution for credit cards, loans and payment processing. HQ got the system developed from PaySys Inc in the USA. V+ has multiple features and capabilities; which includes but not limited to offering new account processing, merchant administration, cardholder billing and management, collections, risk management, promotions and cobranding capabilities. It is a comprehensive tool that provides extensive loans functionality. HQ initially got the system developed; subsequently it provided detailed manuals to the businesses including India on implementation of the system and its usage. GEMFSL_Benefits Document_#6_VisionPl us For Finance Users.ppt September 2006 HQ conducted training for Indian business on the functionality and capabilities of the V+. The training would help GE Money India employee to quickly grab pace in relation to using and implementing V+ in their day-to-day ope .....

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..... d the process to roll out Digital Guardian security tool. HQ also set up level 1 and level 2 helpdesk so that employees from Indian business can seek real time help. Further HQ prepared training and manual on how to seek help from the helpdesk. GEMFSL_Benefits Document_#13_GECC Information Security Policy Approved.msg November 11, 2010 HQ framed and rolled out Information Security Policy for all businesses. With implementation of this policy, business would be more secure and compliant with various regulatory requirements. GEMFSL_Benefits Document_#14_!!!IMME DIATE ATTENTION!!! Firewall ports for Snare installation.msg December 3, 2010 HQ initiated and installed new firewall in the computer systems of the employees of GE Money India in order to make the systems more secure with the most updated security applications. GEMFSL_Benefits Document_#15_ Change Control Policy.msg December 7, 2010 HQ rolled out new change control policy for all businesses including India. This poli .....

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..... rvices for AYs 2003-04 to 2005-06 and held as under: 16. We have considered the issue. We are unable to accept the contention of the Assessing Officer/TPO with reference to the services provided by AEs. Assessee has provided the agreements which were entered not during the year but in earlier year and has been paying the service fee termed as management fee accordingly. This claim is not arising for the first time in this year but, is also there in earlier years and later years. Assessee is part of a worldwide group and they have placed some corporate centers for guidance of various units run by them across the globe. It was submitted that the costs being incurred by the centers are being shared by various units and assessee's share in this year has come to 5% of the receipts payable to NFO Worldwide Inc USA and at 4% to NFO Asia Pacific Ltd. Hongkong on the net revenues. These amounts are within the norms prescribed for payment of fees to various group companies of similar nature. There is no dispute with reference to services being provided by the group companies to assessee and assessee also paid various other amounts including royalty. As submitted by assessee, even .....

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..... ceived by the assessee from other parties hence these services cannot be said to be duplicative in nature. Ld. AR of the assessee submitted that the letter dated 7.11.2011 shows that though some activities similar to these intragroup services, however, there is a varied difference in the nature of activities performed by the assessee himself and services availed from the AEs. The services are not identical and are availed from the AEs based on the requirement of the assessee. It was also his submission that that these intra-group services have not been availed from the independent parties and there is significant difference in the activities performed in-house and those performed by the AEs. Therefore according to the assessee there is no duplication of services/ activities. Ld. TPO and Ld. DRP has not held that the similar kind of services are already available with the assessee with any concrete evidence. Acceptably independent parties cannot remunerate these kinds of services if duplicative in nature. Howsoever in absence of any instances of services provided by the AE and services availed by the assessee from independent parties are similar in nature and it creates any redundan .....

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..... which business are operated it is difficult to operate the business successfully for sustainable period without receipt of various services which carry huge intrinsic and creative value to the assessee. Before ld. TPO and ld. DRP assessee has submitted what are the business benefit derived by the assessee as under :- S. No. Nature of services Illustrative summary of the services rendered and benefits derived 1 Finance Advice and assistance on business strategies and future plans Sharing, development and implementation of best accounting and finance practices Advice and assistance in achieving net earnings and assets growth Developing internal audit tools and controls 2 Human Resources Advice and assistance in developing HR strategies Advice and assistance in meeting staffing requirement and talent development Advice and assistance on Best HR practices and policies Recruitment and coaching of top level executives Rendering due diligence support and harmonizing employment terms and conditions Management of incentiv .....

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..... activities Sharing of best practices pertaining to sales model for each market Providing guidance, assistance and ongoing support to local sales and business development teams through interactions, trainings, reviews, development of databases of contacts, deals etc Providing experts with detailed product knowledge and experience Advice and assistance in branding strategies and campaigns 8 Customer Relationship Management Developing and maintaining relationship with Illustrative summary of the services rendered and benefits derived trade partners Support for new businesses/products Sharing of strategic resources and best Practices Sharing benefits of global agreements Advise and assistance in branding strategies and initiatives 9 CEO Determining overall business strategies Reviewing businesses and assisting local management in determining operational profile Advise and assistance on current and future products Advices and assistance on best practices 10 Operations and Sourcing/facilities Reviewing opportunities for process i .....

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..... sider all the above aspects of the services for which AE is remunerated. In absence of all these criteria satisfied cumulatively for services, it is incomprehensible that any independent party would pay for the services i.e. i. if services are not required, ii. if they are not rendered , iii. if they are not benefitting the recipient iv. if they are duplicative in nature v. if they are for the safeguarding interest of owner .i.e. shareholder activity And if it were so, there would not be any comparable instances for similar kind of services and the purpose of determining arms length price of the International transaction will most probably fail. h. Honourable Punjab Haryana High court in Knorr Bermesse India P Ltd V ACIT 2015-TII-51-HC-P H-TP has held that 23. Enterprises, businessmen and professionals constantly experiment with different business models, theories and ventures. The aim indeed is to further the business, to enhance their profits. So long as that is the aim, it is sufficient for the purpose of the Income Tax Act. In a given case, profit may not even be the motive. Even so it would not indicate that the transactions in .....

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..... m the use of the goods or services it does not follow that they were not sold at an arm's length price. 26. A view to the contrary would cause considerable confusion and lead to arbitrary, if not illogical, results. A view to the contrary would then raise a question as to the extent of profitability necessary for an assessee to establish that the transaction was at an arm s length price. A further question that may arise is whether the arm s length price is to be determined in proportion to the extent of profit. Thus, while profit may reflect upon the genuineness of an assessee s claim, it is not determinative of the same. From the above decision of Honourable High court it is apparent that the user of the services are concerned with the usefulness of its services which enhances the value thereof and consequently in furtherance of its commercial interest. Merely profitability cannot be the criteria for benefit, it is much more than what is determinable in monetary terms. Therefore while determining ALP of IA , usefulness, enhancement in value and furtherance of business interest is required to be seen. The issue now arises that from whose perspective these tests can .....

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..... . i. In view of the above decision, it is apparent that benefit Test needs to be satisfied but same shall be judged from the viewpoint of assessee and with business prudence. All the decision cited by the ld. AR says that ld. TPO does not have right to question the wisdom of the assessee and he is not required to see whether the assessee is getting direct, tangible, substantial benefit from the services by replacing the view of ld. TPO in place of views of assessee. Ld. DR also says that these tests may be examined. Now the above two decisions of honourable high court has held that the benefit test cannot be applied from the perspective of revenue and ld. TPO does not have the right to question the wisdom of the assesse. Therefore it is apparent that assessee cannot be asked to demonstrate it with 100 % mechanical precision. If assessee has expected potential benefits out of his business prudence at the time of receipt of services which he can demonstrate from commercial point of view, according to us that satisfies the benefit test for intra Group services. Meaning thereby that the benefit needs to be identified from the view point of the assessee which can be potential .....

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..... ould generally not be acceptable where specific services that form a main business activity of the enterprise are provided not only to associated enterprises but also to independent parties. While every attempt should be made to charge fairly for the service provided, any charging has to be supported by an identifiable and reasonably foreseeable benefit. Any indirect-charge method should be sensitive to the commercial features of the individual case (e.g. the allocation key makes sense under the circumstances), contain safeguards against manipulation and follow sound accounting principles, and be capable of producing charges or allocations of costs that are commensurate with the actual or reasonably expected benefits to the recipient of the service. k. Recently honorable Delhi high court in case of Cushman Wakefield Limited in 46 taxmann.com 317 has held that: 34. The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the AO. This distinction was made clear by the ITAT in Dresser-Ran .....

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..... is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. Similarly, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is No. evidence of services having been rendered at all, the arm's length price of these services is 'nil'. 35. The TPO's Report is, subsequent to the Finance Act, 2007, binding on the AO. Thus, it becomes all the more important to clarify the extent of the TPO's authority in this case, which is to determining the ALP for international transactions referred to .....

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..... since a comparable entity would pay 'nil' amount for these services, this Court noted that remarks concerning, and the final decision relating to, benefit arising from these services are properly reserved for the AO. 36. In this case, the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee - activities for which, according to the assessee's claim - interaction with IBM's regional offices in Singapore and the United States was necessary. These services cannot - as the ITAT correctly surmised - be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be secondguessed by the Revenue. [Underline and bold supplied by us] In above decisi .....

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..... test as envisaged u/s 92 (2) of the act and the services provided by the AE are neither duplicative or shareholder s activity, therefore the LD. AO/ ld. TPO is directed to determine Arms length price of these services based on the documents submitted by the assessee by determining tested party , determination of most Appropriate method and Comparability analysis . For these purposes these grounds of transfer pricing is set aside to the file of Ld. TPO. 39. We also take note of the arguments advanced by the ld. AR of the appellant against the issue being set aside to the file of Ld. AO/ TPO relying on decision of ITAT in case of Zuari Leasing and Finance Corp. Ltd V ITO 112 ITD 205( Delhi) (TM ) where in it is held that 10. It is clear from above that primary power, rather obligation of the Tribunal, is to dispose of the appeal on merits. The incidental power to remand, is only an exception and should be sparingly used when it is not possible to dispose of the appeal for want of relevant evidence, lack of finding or investigation warranted by the circumstances of the case. Remand in a casual manner and for the sake of remand only or as a short cut, is totally prohi .....

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..... erefore, if the revised return is filed by the assessee is in accordance with the provisions of section 139(4) of the Income tax Act, we direct ld. AO to consider the same and process accordingly. 45. In the result appeal for AY 2006-07 ITA No. 5882/Del/2010(Assessment Year: 2006-07) is partly allowed. 46. Now we come to appeal no 5816/Del/2011 for A. Y. 2007-08 preferred raising following grounds of appeal. Grounds for the Assessment Year 2007-08 General 1.1 On facts and circumstances of the case and in law, the Ld. AO erred in passing the assessment order dated December 16, 2010 (the 'Draft assessment order') and the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') erred in passing directions under Section 144(C) of re Income-tax Act, 1961 (the 'Act') confirming the Draft assessment order. On the facts and circumstances of the case and in law, the learned AO erred in assessing the income of the Appellant at ₹ 1,02,06,71,340/- as against the returned income of ₹ 47,14,28,736/-. 1.2 The Ld. AO erred in proposing and the Hon'ble DRP further erred in confirming the addition of ₹ 54,92,42,604/- to th .....

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..... sh evidences to demonstrate that the services were actually rendered by the Associated Enterprises (AEs), not appreciating the details, explanations and evidences submitted by the Appellant; b) that services received from the AEs were incidental or duplicate in nature, not appreciating that the services were not similar to those performed in-house and were essential for Appellant's business operations; c) that all intra-group services were in the nature of shareholder and stewardship activities, ignoring the fact that all the shareholder and stewardship activities were separately identified by the AEs and no amount for such activities had been paid by the Appellant; d) that the Appellant failed to satisfactorily explain the basis of allocation of expenses, not appreciating the details submitted by the Appellant even though the Hon'ble DRP has itself observed that the allocation keys for some of the services were supported by evidence. 7. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in holding that analysis of rationale and justification of each allocation key adopted by the appellant and supporting evidences .....

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..... ult ground, no .2 of the appeal is allowed accordingly. 50. Ground No 3 of the appeal is against addition of ₹ 13,79,24,461/- on account of interest on stocky loans which was not recognized as income of the assessee. 51. Both the parties agreed that this ground is identical to ground no 3 in the appeal of the assessee for AY 2006-07 disposed of by this common order. Therefore, following our findings in AY 2006-07 in ground no 2 of that appeal where we, following the decision of coordinate bench in case of the assesse for AY 2003-004, directed the AO to delete the addition. Similarly, for this year also we direct AO to delete the addition of Rs. ₹ 13,7924,461/- towards interest of sticky loans and advances, which was not recognized as income by the appellant in accordance with the mandatory prudential norms issued by the Reserve Bank of India. In the result ground no 3 of the appeal is allowed. 52. Ground No 4 of the appeal is against disallowance of ₹ 21,64,06,930/- on account of actual loss on sale of repossessed assets. 53. Both the parties agreed that this ground of appeal is identical to ground no 4 of the appeal of the assessee in AY 2006-07. Ther .....

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..... the case and in law, the Ld. DCIT erred in passing the assessment order dated December 19, 2011 ('Draft assessment order') and the Hon'ble Dispute Resolution Panel ('DRP') erred in passing directions under section 144(c) of the Income Tax Act, 1961 (the 'Act'), confirming the Draft Assessment Order, subject to TP adjustment. On the facts and circumstances of the case and in law, the Ld. DCIT erred in assessing the income of the Appellant at ₹ 49,02,19,720/- as against the revised returned income declaring a loss of ₹ 21,00,37,579/-. 1.2 The Hon'ble DRP further erred in confirming the addition of ₹ 700,257,300/- to the Appellant's returned income of (Rs.21,00,37,579). 1.3 On the facts and circumstances of the case and in law, the assessment order passed by the Ld. DCIT under the directions passed by the Hon'ble DRP under section 144C(5) of the Act is bad in law. B. Transfer pricing Adjustment 2.1 On the facts and circumstances of the case and in Law, the Learned Transfer Pricing Officer (TPO1) and the Learned AO have erred in proposing and the Hon'ble DRP has further erred in confirming the arm& .....

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..... and AO/TPO have erred in holding that the rejection of the arm's length price computation undertaken by the Appellant, on the ground that foreign comparables and foreign associate enterprises were considered for the arm's length analysis. 2.8 That on the facts and circumstances of the case and in law, the DRP and AO/TPO have erred in not appreciating that the AEs have lodged their tax return in India on taxable income derived from the Appellant and there was no intention/occasion whatsoever on the part of the Appellant to shift profits outside India. C. Disallowance of depreciation on leased vehicles 3. On the facts and circumstances of the case and in law, the Ld. DCIT has erred in proposing and the Hon'ble DRP has further erred in confirming the disallowance of depreciation of ₹ 12,74,54,846/- claimed by the Appellant u/s 32 of the Acton vehicles leased out to the customers, by holding that the Appellant is not the beneficial owner of these vehicles. D. Addition on account of interest on sticky loans 4.1 On the facts and circumstances of the case and in law, the Ld. DCIT has erred in proposing and the Hon'ble DRP has furth .....

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..... by this common order. We have set aside the issue of TP adjustments back to the file of ld. TPO/AO to simply determine the ALP of this international transaction. Therefore following our decision we set aside this ground of appeal on this score and remit the matter to the file of AO/TPO for deciding it in conformity with our above direction. Further, the issues raised regarding consideration of foreign comparables for determining ALP are also intertwined with transfer pricing issues of the appeal of the assessee for this year. Because of that reason , we also send them back to the file of the AO for deciding them afresh, as in the original assessment TPO has determined ALP at Nil only on the basis of qualitative test and not on the basis of comparability and availability of data. In the result ground, no 2 is allowed accordingly with directions. 65. Ground no 3 of the appeal is against the disallowance of depreciation on leased vehicles amounting to ₹ 12,74,54,846/- . 66. Both the parties agreed that this ground is identical to ground no 2 in the appeal of the assessee for AY 2006-07 disposed of by this common order. Therefore following our findings given in AY 2006-07 .....

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