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GE Money Financial Services Pvt. Ltd., Versus ACIT, Circle-12 (1) , New Delhi

2016 (5) TMI 1284 - ITAT DELHI

Disallowance of depreciation - Held that:- Assessee has shown these assets under its wealth tax return and it has been charged to wealth tax as assets of the assessee for the wealth tax purpose. This fact is not controverted by the Ld. DR. Accordingly the wealth tax Act only the assets which are ‘owned’ by the assessee are chargeable to tax. Therefore, now in Income tax Act it cannot be disputed that the assets are not owned by the assessee. Ld. DR has also not shown us any reasons to say that t .....

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n 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. - 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 add .....

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n 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 further been upheld by Hon’ble Supreme Court [2012 (1) TMI 290 - SUPREME COURT]. Therefore, respectfully following the decision of Hon’ble supreme court we allow the claim of the assessee of loss arising on sale of r .....

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y 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. - ITA No 5882/Del/2010 5816/Del/2011 & 6282/Del/2012 - Dated:- 2-5-2016 - SHRI A.T. VARKEY, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER Assessee by: Sh. Sachit Jolly, Adv. Sh. Rahul Sateja, Adv. Sh. Gautam Swanibi, Adv. Respondent by: Sh. Amendra Kumar, CIT DR O R D E R PER PRASHANT .....

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rred in passing the impugned assessment order dated December 9, 2009 (the 'Draft Assessment Order') and the Hon'ble Dispute Resolution Panel ('Hon'ble DRP1) erred in passing directions under Section 144(C) of the 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 ₹ 1,51,19,62,870/- as against the returned income of ₹ .....

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d 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 .....

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d advances of which the principal amount itself had been writtenoff during the year ended March 31, 2006 should be allowed as deduction under section 36(1)(vii) read with section 36(2) of the Act. D. Disallowance of loss on sale of Repossessed Assets 4 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 ₹ 22,33,25,067/-representing actual loss on sale of repossessed assets, and form .....

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at Rs NIL under section 92CA(3) as against the sum of ₹ 21,20,48,533/- determined by the Appellant. 5.2 That the Ld. TPO and the Ld. AO erred on facts in alleging and the Hon'ble DRP further erred in confirming - a) that no economic and commercial benefits were derived by the Appellant from receipt of the intra-group services and that the Appellant failed to furnish evidences to demonstrate that the services were actually rendered by the Associated Enterprises (AEs), not appreciating .....

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unt 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. 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 .....

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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 On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in not appreciating that the AEs have lodged their tax return in India on the taxable income derived f .....

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nt under section 244A of the Act as a consequence to the above disallowances confirmed by the Hon'ble DRP. H. Initiation of penalty proceedings under Section 271 (1)(c) of the Act 8 On the facts and circumstances of the case, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of the income, without appreciating the fact that the Appellant has made full disclosures in respect of its claims and did not furnish any inaccur .....

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return of income was revised on 28.03.2008 to ₹ 99,70,75,767/-. Assessee, engaged in the business of consumer and automobile finance, had entered into the international transaction(In short IT) with its associated enterprises ( In short AE). These transactions were referred to The Transfer pricing officer (In short The TPO ). Ld. TPO vide its order dated 30.10.2009 passed the order u/s 92CA (3) of the Act. In pursuance to the order of the Ld. TPO draft order u/s 144C of the Act was passed .....

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ed 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 .....

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ke basis. At the end of the lease the assets never taken back by the assessee , therefore relying on the instruction No.1978 of The CBDT , AO was of the view that the assessee s lease transaction are in effect finance transactions and hence depreciation on the assets financed cannot be allowed as assesse is not the owner of the assets. 7. The ld. DRP did not intervene in the matter, as according to them the issue is a matter of disallowance in past assessment year and it has not reached the fina .....

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. Therefore, in subsequent years revenue has accepted the claim of the assessee. Therefore, he submitted that disallowance may please be deleted. 9. The ld.DR supported the orders of lower authorities AO. 10. We have carefully considered the rival contention on this ground. The issue is that the assessee is engaged in the business of leasing of vehicles as non-banking financial company that provides assets on lease to various customers. These assets are not capitalized in the books of account in .....

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claim of depreciation is not disallowed to both the lessor and the lessee. According to the provision of section 32 of the act the depreciation is allowable to the assessee who i. owns , wholly or partly, assets 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 .....

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s 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 satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case before us, the asse .....

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erpreting the words "used for the purposes of business" in case of analogous provisions of Section 32A(2) and Section 33 of the Act, dealing with Investment Allowance and Development Rebate respectively, held thus: - "9. Sub-section (2) of Section 32-A, however, requires to be examined to see whether there is any provision in that sub-section which requires that the assessee should not merely use the machinery for the purposes of his business, but should himself use the machinery .....

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aircraft. Under sub-section (2)(b), however, any such express requirement that the assessee must himself use the plant or machinery is absent. Section 32A(2)(b) merely describes the new plant or machinery which is covered by Section 32-A. The plant or machinery is described with reference to its purpose. For example, sub-section (2)(b)(i) prescribes "the purposes of business of generation or distribution of electricity or any other form of power". Sub-section (2)(b)(ii) refers to small .....

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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 .....

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1961 relating to development rebate… ** ** ** 12. Since the provisions of Section 33 dealing with development rebate are similar to the provisions of Section 32-A, it is necessary to look at cases dealing with the grant of development rebate under Section 33. In the case of CIT v. Castlerock Fisheries [1980] 126 ITR 382 the Kerala High Court considered the case of an assessee which temporarily let out its cold-storage plant to a sister concern. The income derived by such letting was asses .....

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ns for the grant of development rebate including the condition that the assessee had used the machinery for the purposes of its business. The High Court said that it must, therefore, necessarily be assumed that the conditions laid down in Section 33(1)(a) that the machinery or plant is wholly used for the purposes of the business carried on by the assessee, is duly satisfied and the assessee is entitled to development rebate. In appeal before this Court, a Bench of three Judges of this Court uph .....

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lopment rebate must be considered as having been rightly granted. Therefore, where the business of the assessee consists of hiring out machinery and/or where the income derived by the assessee from the hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purposes of its business. 13. A similar view has been taken by the Andhra Pradesh High Court in the case of CIT v. Vinod Bhargava [1988] 169 ITR 549 (AP) where Jeevan Reddy, J. (as he .....

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he 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 require .....

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he depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time." 21. Black's Law Dictionary (6th Edn.) defines 'owner' as under: "Owner. The person in whom is vested the ownership, dominion, or title of property; propr .....

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s one who owns the fee and who has the right to dispose of the property, but the terms also included one having a possessory right to land or the person occupying or cultivating it. The term "owner" is used to indicate a person in whom one or more interests are vested his own benefit. The person in whom the interests are vested has 'title' to the interests whether he holds them for his own benefit or the benefit of another. Thus the term "title" unlike "owner&quo .....

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ry 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, alo .....

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ease 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. For the sake of ready reference, the relevant clauses of the lease agreement are extracted hereunder:- "2. Lease Rent The lessee shall, during the period of lease punctually pay to the lessor free of any deduction whatsoever as rent for the assets the sum of moneys specified in the Schedule 'B' hereto. All rents shall be paid at the ad .....

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r upon any premises where the assets is believed to be kept and inspect and/or test the equipment and/or observe its use. 18. Default If the lessee shall make default in payment of moneys or rent payable under the provisions of this agreement, the Lessee shall pay to the Lessor on the sum or sums in arrears compensation at the rate of 3% per month until payment thereof, such compensation to run from the day to day without prejudice to the lessor's rights under any terms, conditions and agree .....

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uch place as the Lessor may specify in good repair, condition and working order. As soon as the return of the asset the Lessor shall refund the amount of security deposit. If the lessee fails to deliver the equipment to the Lessor in accordance with any direction given by the Lessor, the Lessee shall be deemed to be the tenant of the assets at the same rental and upon the same terms herein expressed and such tenancy may be terminated by the Lessor immediately upon default by the lessee hereunder .....

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inst 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 appe .....

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as leased out. Finally, as per clause (19), on the expiry of the lease tenure, the lessee should return the vehicle to the appellant company in working order. 21. It is true that a lease of goods or rental or hiring agreement is a contract under which one party for reward allows another the use of goods. A lease may be for a specified period or in perpetuity. A lease differs from a hire purchase agreement in that lessee or hirer, is not given an option to purchase the goods. A hiring agreement o .....

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he business of the assessee-appellant are leases under agreement, but not hire purchase transactions. In fact, they are transactions of 'hire'. Even viewed from the angle of the author of 'Lease Financing and Hire Purchase', the views of whom were discussed in pages 16 and 17 of this order, the transactions involved in the appellant business are nothing but lease transactions. 23. As far as the factual portion is concerned now we could come to a conclusion that leasing of vehicle .....

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ation to a motor vehicle which is the subject of a hire-purchase agreement, or 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 .....

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ument 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 general. It serves more as a guide to what terms in the MV Act mean. Therefore, if the MV Act at any point uses the term owner in any Section, it means the one in whose name the vehicle is registered and in the case of a lease agreem .....

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held under the said agreement shall be made in the certificate of registration except with the written consent of the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement. (5) Where the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken posse .....

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hat the certificate of registration is not produced before it, cancel the certificate and issue a fresh certificate of registration in the name of the person with whom the registered owner has entered into the said agreement: Provided that a fresh certificate of registration shall not be issued in respect of a motor vehicle, unless such person pays the prescribed fee: Provided further that a fresh certificate of registration issued in respect of a motor vehicle, other than a transport vehicle, s .....

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s, 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 i .....

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of an asset in a lease agreement. CIT v. A.M. Constructions [1999] 238 ITR 775 (AP); CITv. Bansal Credits Ltd. [2003] 259 ITR 69/126 Taxman 149 (Delhi); CIT v. M.G.F. (India) Ltd. [2006] 285 ITR 142/[2007] 159 Taxman 335 (Delhi); CIT v. Annamalai Finance Ltd. [2005] 275 ITR 451/146 Taxman 627 (Mad.). In each of these cases, the leasing company was held to be the owner of the asset, and accordingly held entitled to claim depreciation and also at the higher rate applicable on the asset hired out. .....

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rship of the trucks in question. 29. Therefore, in the facts of the present case, we hold that the lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out. 11. Therefore, the issue of the ownership of the assets is also covered squarely in favour of the appellant assessee .....

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t cannot be disputed that the assets are not owned by the assessee. Ld. DR has also not shown us any reasons to say that the meaning of the word owned in wealth tax Act and its meaning as per section 32 of the Income Tax Act 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 .....

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laim 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/2013 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 ₹ 2,90,56,780/-u/s 32 of the Act denovo in view of the decision of Hon ble Supreme Court .....

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ect of non-performing assets amounting to ₹ 8,08,14,506/-. According to the assessee, it is hypothetical income, which has not accrued to the assessee. The ld. AO has made this addition because according to him the accounts of the assessee company are required to be maintained u/s 209 of The Companies Act, 1956 on accrual basis. According to AO, interest income on sticky loans has accrued to the assessee during the year and therefore is chargeable to tax. The AO was also adopting consisten .....

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not recognizing interest on sticky loans and advances is as per the guidelines of RBI. He further submitted that this issue is covered in favour of the assessee by the decision of TAT in the past years in assessee s own case. Therefore, he submitted that disallowance/ addition be deleted. 15. Ld. DR relied on the order of the lower authorities. 16. We have carefully considered the rival contentions. We do not agree with the contention of the Ld. AO that as the company is required to maintain its .....

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f 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 d .....

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Q Chapter III-B to override other laws - The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." Thus, this section takes precedence over any other law and, therefore, section 145 has to be read subject to provisions in the RBI Act. The assessee company being NBFC was bound by the provisions of RBI Act. The RBI has issued a notification, .....

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see. There is no dispute that assessee had reversed the income in respect of NPA as per the "Prudential Norms". The assessee had to comply with the requirements of RBI norms and, therefore, could not account for the income in respect of assets, which had become NPA. Therefore, section 145 could not be resorted to for accounting income purely on accrual basis. We find that this issue is squarely covered by the decision of Hon'ble Delhi High Court in CIT vs. Vasisth Chay Vyapar Ltd., .....

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of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." it is not in dispute that on the application of the aforesaid provisions of the RBI and the directions, the ICD advanced to M/s Shaw Wallace by the assessee herein had become NPA. It is also not in dispute that the assessee company being NBFC is bound by the aforesaid provisions. Therefore, under .....

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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 a .....

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for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized." In this scenario, we have to examine the strength in the submission of learned counsel for the R .....

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e cost of repetition that the admitted position is that the assessee had not received any interest on the said ICD placed with Shaw Wallace since the AY 1996-97 as it had become NPAs in accordance with the Prudential Norms which was entered in the books of account as well. The assessee has further successfully demonstrated that even in the succeeding assessment years, no interest was received and the position remained the same until the AY 2006-07. Reason was adverse financial circumstances and .....

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e 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 .....

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Incometax Act, interest income had not accrued. Moreover, this submission of Mr. Sabharwal is based entirely on the judgment of the Supreme Court in the case of Southern Technology [2010] 320 ITR 577. No doubt, in first blush, reading of the judgement gives an indication that the court has held that the RBI Act does not override the provisions of the Income-tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observa .....

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re or loss but more in the nature of a reserve, and thus not deductible u/s 36(1)(vii) of the Act. The AO, however, did not bring to tax ₹ 20,34,605 as income (being income accrued under the mercantile system of accounting). The dispute before the apex court centered around deductibility of provision for NPA. After analyzing the provisions of the RBI Act, their Lordships of the apex court observed that in so far as the permissible deductions or exclusions under the Act are concerned, the s .....

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n be said, therefore, that the apex court approved the real income theory which is engrained in the Prudential Norms for recognition of revenue by NBFC." 14. Respectfully following the decision of Hon'ble jurisdictional High Court, the assessee's claim of reversal of income, aggregating to ₹ 45,78,232/- is allowed. 15. In the result, this ground is allowed." Respectfully following the decision of the aforesaid decision of ITAT, Delhi Bench 'C', New Delhi, we dismi .....

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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 assess .....

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assessment year 2006-07. Reason was adverse financial circumstances and the financial crunch faced by S . So much so, it was facing winding up petitions which were filed by many creditors. Those circumstances led to an uncertainty insofar as, recovery of interest was concerned, as a result of the aforesaid precarious financial position of S . What to talk of interest, even the principal amount itself had become doubtful to recover. In that scenario, it was legitimate move to infer that interest .....

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ted to have been accrued in favour of the assessee. [Para 17] Therefore, decision of the Tribunal was correct in law . Therefore, respectfully following the decision of Honourable Delhi high court in CIT V vashisth Chay Vyapar limited (Supra) 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 th .....

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see Company is engaged in the business of providing financial assistance to various customers against 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 repos .....

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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 ITA No 1712& 1714/2010 dated 09-11-2010. He submitted that therefore loss is rightly allowable. 21. The ld. DR submitted that there is no real loss incurred by the assessee and he vehemently relied on th .....

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/2011 dated 13.01.2012. Therefore, respectfully following the decision of Hon ble supreme court we allow the claim of the assessee of loss arising on sale of repossessed vehicle, delete the disallowance madeby ld. AO, and confirmed by DRP. Ground No.4 of appeal is allowed. Transfer pricing Issues 23. Ground No 5 relates to transfer pricing adjustments made in the hands of the assessee of ₹ 21,20,48,533/- . 24. The assessee is engaged in the business of consumer financing services in India .....

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* 3. Receipt of residual value 3,302 CUP NA 1 - * 4. 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 28.60% 11% Administra .....

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the assessee from AE amounting to ₹ 21,20,48,533/- for availing consulting and administrative and IT service, ld. TPO on following reasons determine the arm s length price of these service at Rs. NIL as under :- 7. Determination of arm s length price of international transaction: In view of above discussions and findings of the facts as recorded in paragraph 6.7 to paragraph 6.10 of this order, I have reached to following conclusions: (a) It is evident from above discussions that the asses .....

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The assessee has failed miserably to furnish basis for selection of allocation keys and reason for allocation of various expenditure on the basis of these keys for eg. Expenses that are administrative in nature have been allocated 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 .....

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nfrastructure 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 proceeding before me the assessee did not furnish any evidence to prove that the .....

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rried on by the assessee for carrying out its business with nature of services allegedly rendered to the assessee has revealed that these AEs have provided duplicate services, business development, e-commerce, client relational management facilities mid operation which the assessee is already performing internally. The OECD guidelines in paragraph 7.1 1 of chapter VII has dealt with duplicate services us under: "7.11 In general, no mint-group service should in found for activities undertake .....

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ubject. It is evident from the guidelines that as a general rule, where one group company provides a service to another which duplicates what the recipient is already performing; internally or is acquiring from a third party provider, that service would not qualify as a valid intragroup services and should not, therefore, carry a charge. However, exceptions to this general Rule have been provided in above guidelines. The OECD guidelines cite as examples the obtaining of a second legal opinion in .....

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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 th .....

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ds to these alleged services and had failed to justify the functions performed by the AE for these payments. This is probably a reason that the receipt of alleged services have not been benchmarked under any of the five method prescribed under the Act in the Transfer Pricing report but the assessee has bench marked the profit margin charged by the ARs on these services. (j) It is pertinent to mention here that I have reach to a conclusion that these services are not intragroup services which req .....

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hether the assessee has derived any economic or commercial benefit from these services ( i.e. Benefit test ) iv. Basis of allocation v. These services are duplicative in nature vi. There is only incidental benefit from these services. 28. Against this the draft objection filed before DRP who confirmed the finding of the TPO as under:- 2.1 In the transfer pricing order passed u/s 92CA(3) of I.T. Act, the TPO has made an upward adjustment of ₹ 21,20,48,533/- in the arm's length price of .....

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o be nil. 2.2. The assessee has not accepted the above adjustments in the Arm's length price of International Transactions and has objected to the same. It has been submitted that the ALP of the assessee's international transactions pertaining to availing of consulting, administrative and IT services from its associated enterprises have wrongly 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 .....

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ining 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 internatio .....

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huge distribution network, technical workforce including human resource department, business development and client management departments and has incurred huge expenses on credit investigation and legal and professional charges, sales promotion and communication. As against to the same, the associated enterprises based abroad did not have sufficient infrastructure to satisfactorily prove rendering of services to the assessee. Looking into the nature of services, their adaptation and customizat .....

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ssessee could also not satisfactorily prove that requisite FAR analysis was conducted in case of these services. The receipts of these services have also not been benchmarked under any of the prescribed methods of the I T Act. In the light of these facts, brought out by the TPO, we find no compelling reasons to interfere with the order of TPO and the Assessing Officer and hence the same are confirmed. Therefore Ld. DRP has also confirmed the findings of ld. TPO and did not issue any direction in .....

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o 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 Calcutt .....

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the ld. TPO as to how and why only the service recipient can be the tested party. ii. It was submitted that in Para no 4.6 of the Direction of The DRP for AY 2008-09 u/s 144C of the Act dated31.8.2012, it is accepted that services have been rendered and received but the assessee could not show the benefit derived by it. Further, in case of E-commerce services ld. DRP has held that such services could have been availed locally. Further order of DRP specifically held that financial services could .....

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d that 5 % of the total cost allocated to the assessee can be considered for the business purposes of the assessee for computing ALP. Therefore, it was submitted that when the DRP itself has computed ALP of the services received by the assessee against Nil Computed by Ld. TPO, the issue of rendering of services receipt of services cannot be doubted by ld. TPO. Therefore it was submitted that question whether the services were actually rendered or not does not survive any more as ld. DRP itself h .....

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of the ld. AO that these services are duplicative in nature is incorrect. iv. He submitted that only issue remains is whether these services are required by the assessee and whether the benefit is received by the assessee or not. It was further submitted that the benefit derived by the assessee could not be subject to the satisfaction of revenue as revenue cannot dictate about the business requirement of the assessee as well as regarding the selection of suppliers from services should have been .....

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[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.) - .....

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bai) - AY 2007-08 xv. LG Polymers India P. Ltd. v. ACIT: [2012] 16 ITR (Trib) 240 - AY 2006-07 v. He submitted that assessee had availed services from GE Capital Finance Inc., USA ("GECF Inc") under a Master Service Agreement ("MSA") and Information Technology Services Agreement ("ITSA"). The Assessee had also availed services from GECG Asia Ltd. ("GECF Asia"] under a separate MSA. Both GECF Inc. and GECF Asia had provided services to the Assessee under th .....

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herefore, they are appropriate and proper. vi. Further, the TPO has selectively applied OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration without appreciating that in terms of para 7.14, the exact same services which the Transfer Pricing Officer has held to be in the nature of stewardship activity are treated by the OECD as substantial services which even an independent enterprise would have been willing to pay for. It is settled law that such selective applic .....

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d. 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 a .....

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wing judgments to support his arguments i. Dressser - rand India P limited V ADDl CIT 13 ITR (Trib) 422 (Mumbai) ii. Gillet India Limited V ACIT 2015-TII-340-ITAT -jaipur-TP iii. Petro Araldite P Ltd V DCIT 2013-TII-182-ITAT-MUM-TP iv. Gem Plus India Private Limited V ACIT 2010-TII-55-ITAT-Bang-TP v. Knorr Bermese India P Ltd V ACIT 2012-TII-138-ITAT-DEL-TP vi. Bombardier Transportation India Pvt Ltd Vs DCIT 1626/del /2015 32. In rejoinder ld. AR Submitted that :- i. Regarding rendition of servi .....

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submitted that, before Ld. DRP a detailed presentation was submitted showing the benefit received from each of the services received by the assessee from its AE.These details he further referred filed before us vide page no 2847 to 2849 and further charts were shown filed in paper book no VI before us. iii. He further submitted that when the ld. DRP itself has accepted that there is rendering of service by AE and receipt of services by assessee and then computing ALP the decision of DRP is bind .....

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pplicable. v. He further submitted that according to OECD commentary at Para no 7.14 describes what is the intra group services, which are independent activity and not incidental activities, and it can be that there would be expected benefit to the assessee. 33. We have carefully considered the rival contentions. Before us, the LD AR has submitted VI paper books where in the submissions made before the ld. TPO and Ld. DRP were submitted. He further relied on several judicial precedents on the is .....

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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 computa .....

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th price. (2) Where in an international transaction [or specified domestic transaction], two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enter .....

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ect of joint property. iii. The cost or expenses incurred should be in connection with a benefit or services of facility provided or to be provided to any one or more of such enterprise. The expectation of mutual benefit is important consideration for the acceptance of arrangement for pooling of resources by the enterprises. iv. The enterprises would require that each participant s proportionate share of the contribution is consistent with the proportionate share of overall benefits expected to .....

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s 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 pro .....

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the assessee has vast business operations and for managing operations of such a business effectively, specialized and experienced services are required across all the departments like HR, legal, Finance, Risk compliance, IT, etc. Therefore, for running the business expeditiously, various services from the AEs in the nature of consultancy, administrative and IT are required by the assessee. It is pertinent to note that the services being extremely essential for the business operations, had these .....

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business. It helps in developing business plans and interpreting information. Regarding HR Functions, it was submitted that human resource is the most vital asset. Human Resource function helps in developing strategies for recruitment, remuneration, promotion and training of personnel. Regarding E Commerce services assessee explained that it has tremendous opportunities for the growth of GE Money. It is expected to rapidly change how entities deal with vendors, partners, and customers. It focus .....

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l regulatory requirements and works with the local business to ensure that the legal entity is in compliance with all local regulatory requirements. Regarding risk management assessee explained that It helps in developing global credit risk strategies, coordinating risk assessment and regulatory and internal reporting, analyzing the credit risks associated with acquired entities and their portfolios, managing counter-party risk and the allocation of risk capital to GE Money entities worldwide. R .....

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hat 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 .....

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ee explained that this function provides advice & assistance on strategic management & development of the GE Consumer Finance business and implementation of GECF corporate initiative within GECF as how to best develop the GECF business in Asia with regard to the participation in the operational reviews of business metrics & review of business performance & driving necessary changes determined from the process with regard to all aspects of the business planning cycle. Regarding op .....

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he systems support necessary for the hardware and software on which GE Money relies. It co-ordinates and support projects to ensure that the IT infrastructure is secure. Regarding communication and Public Relation services it justified that these services are required as It helps in enhancement of communication profile and brand protection which is necessary for existence of any business. On appreciation of the above facts it is apparent that looking to the size of the business of the assessee a .....

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assessee is part of the MNE organization, which has provided the service to many companies across the globe. As all other companies situated in all together different 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 .....

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as 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 business along with other GE Money businesses access and uses these tools in their day-to-day business operations. These tools are: S.No. To .....

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management, DNS Software security, server maintenance, authentication of servers. HQ provides support & hosting for AD. AD is used by businesses globally and has about 130 Domain Controllers (Servers which host AD database). There are some Domain Controllers, software and supporting servers which are owned and managed by HQ. The Domain Controllers hosted at the business locations are owned by the business. 3. Asia Network Hub (Collapsed with Global Network) The Asia Network hub provides MPLS .....

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ernal firewalls) and 3rd Party connectivity. 4. Business Objects The SAP Business Objects portfolio provides comprehensive solutions that can empower businesses to optimize their business performance through intelligent reporting. The following licenses can be procured from the OTS License Support team: BOXI Enterprise Professional Licenses for Crystal Reports BOXI Enterprise Professional Licenses for OLAP Intelligence BOXI Enterprise Professional Web / Deski Intelligence Licenses Crystal Report .....

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B 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. Circuits - Circuits provide connectivity into the shared data centre and network hubs sites such as CSC Clayton & Pyrmont, and Cincinnati; Equipment Maintenance - Hardware maintenance on t .....

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l products. 12. Security Services Security services provided by HQ include database scanner and technical security compliance assessment. 13. IG-iSeries Security Ops HQ procured license for Bsafe security operations software and provided it to various GE Money businesses. In addition, HQ maintained the software and provided 2nd and 3rd level of operational support. 14. IG Mainframe Security Ops Mainframe security operations support included RACF (System Access Approvals) security for shared serv .....

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shortterm advice and guidance for problems not covered with PRS. It primarily is a consulting function to help projects in the design / development / deployment stage which involve Microsoft Technologies / products. Support assistance is provided 24x7. 16. OTS Offshore Technology Support (OTS) is support and maintenance for the support provided by Genpact and Satyam workforce. It also includes help for setting OHR ID and Email ID at active directory. 17. Postilion Support, Maintenance, Server I .....

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sting 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 Description GEMFSL_Benefits Document_#1_GE Money Tech Stack with Telco updates May 22nd 08.xls May 2008 HQ has entered into global contracts with third party vendors for supply of various IT & IT infrastructure related items. B .....

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l contracts entered by HQ are: Client hardware Client software Server software Server hardware Network Application technology Applications Security Call centre GEMFSL_Benefits Document_#2_ GE Information Security Awareness Training 1.doc HQ developed program for businesses including India on the data and information security. The program was GEMFSL_Benefits Document_#3_ GE Information Security Awareness Training 2.doc applicable to all the employees of all countries. After rolling out the progra .....

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ue, which can be tracked for the actions taken and would be closed once the IT issue has been resolved. HQ also developed a SOP (Standard of Practice) which can be readily used by the employees for logging a IT issue. The illustrated SOP shows the process to be followed for seeking IT clearance while doing handover 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 g .....

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led 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 operations. Few instances of IT support received from HQ in recent years. As the support from HQ is a continu .....

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ory Accounts and reported any defects on a monthly basis. This would result in secure application and clean up inactive accounts to optimize performance. GEMFSL_Benefits Document_#9_ AD Accounts Report-Password Never Expires.msg September 2, 2010 HQ processed all AD accounts in GE Money to check for all the accounts where the secured access passwords are not refreshed after regular intervals. This will help GE Money India in reducing the risk of password being compromised. GEMFSL_Benefits Octobe .....

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r 5,2010 HQ has shared best practices on data security and how to create awareness for data and information security among all the employees of the business. GEMFSL_Benefits Document_#12_Security Operations.msg November 3, 2010 HQ has proposed to set up some security operations for the Indian business for which Indian business has asked for guidance. HQ then provided the process to roll out Digital Guardian security tool. HQ also set up level 1 and level 2 helpdesk so that employees from Indian .....

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ber 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 policy would ensure that all the systems used by business and any changes undertaken in them are secure and complaint with the regulatory requirement .....

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portant information, updation are posted by HQ. This space can be access by employees of GE Money India to check for data relevant for them. d. Similarly for each of the services assessee has submitted the date wise chart, which is part of its submission in paper book page no 66 to 131, which are also part of the submission of the assessee before ld. TPO and ld. DRP, vide its letter dated 7/11/2011. For the purposes of substantiating the services rendered by the assessee it has submitted the det .....

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f services of higher level merely because the services have been rendered by its AE. Against these overwhelming evidence placed by the assessee before the lower authorities ld. TPO has merely stated that assessee has not been able to provide any evidence n that the AE has provided such services to the assessee. We could not find any instances placed in the order of LD, TPO where it held that the evidence placed by the assessee are not substantiated by rendition of service by the AE. In TNS India .....

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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. Th .....

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ifficult, like proving the role of an anesthesian in an operation conducted by a surgeon. There may be an evidence of operation being performed by the Doctor in the form of sutures or scars etc, which can be proved later but the role of an anesthesian before operation and after gaining consciousness is difficult to prove as that is not tangible in nature. Likewise, for the advise given by various group centers to the group companies in day-to-day manner is difficult to place on record by way of .....

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ven in day-to-day operations. What sort of evidence satisfies the AO is also not specified. Assessee has already placed lot of evidence in support of claims. Therefore, on that count, we are not in agreement with the Assessing Officer and TPO that services were not rendered by the group companies to assessee. (underline supplied by us ) Hence in view of the overwhelming evidence placed by the assessee for receipt of services and following the decision of coordinate bench respectfully , we are of .....

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endition test. e. Looking to the nature of services rendered by the AE which are of specific nature and are not available with the assessee on its own or these are not being already received 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 perfor .....

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ld 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 redundancy, we rejected the viewpoint of Ld. TPO and Ld. DRP on duplicity test and we are of the view that services provide .....

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letter dated 7/11/2011. Generally shareholder services are those services which are not a. required by the assessee i.e. does not fulfill the need test but are required by the ownership for the purposes of maintaining and safeguarding its own interest b. which are not actually received by the assessee and those services are received by the owner for safeguarding ownership interest c. which does not have any potential possible and foreseeable benefit likely to accrue to the assessee as it gives .....

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both have held that these services are shareholder activities however, there is not a single instance pointed out in the order stating the nature of services that how they are resulting in to safeguard interest of the owner. g. The view mentioned by the Ld. TPO and Ld. DRP is that there is no tangible benefit accruing to the assessee. Before ld. AO and ld. DRP assessee has submitted a detailed benefit analysis with respect to each services vide submission dated 7/11/2011 where in the benefit ac .....

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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 a .....

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emails, online marketing Advice on optimising website designs Development and maintenance of regional infrastructure (Asia) Development of local infrastructure (India), marketing tools and other applications Development of GE Money web design toolkit Sharing of best e-business practices 4 Legal and Compliance Development of Regulatory Compliance Program Execution of operational policies and procedures Advice and assistance in risk assessment exercise Sharing of best practices by exchange of bus .....

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ocedures Providing expertise in all areas of risk Illustrative summary of the services rendered and benefits derived management Sharing of best practices with regard to risk management Advice and Assistance in recruitment, training and development of local risk personnel 6 Quality Rendering consultancy to improve business practice and processes Sharing of best practices in the area of quality control and management Assistance in identifying more efficient means of operation of key processes 7 Bu .....

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ing 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 business .....

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views Advise and sharing best practices Advise and assistance in business acquisition process (due diligence etc) 11 Information Technology Design development of common operating and business systems Ensuring compliance with global internal corporate standards Implementation of global IT best practices Developing and support appropriate infrastructure/framework Support in recruitment and development of IT staff Execution of Global, National and Regional IT contracts Licensing of various software .....

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ich specifically speaks that Transfer price of cost or expenses allocated or apportioned to such enterprise or contributed by such enterprise shall be determined having regard to Arm s length price of such benefit, service or facility received by the enterprise. In view of this it is necessary that arms length price is required to be determined of an international transaction with respect to the benefit. Therefore, the benefit test is necessary part of determining arm s length price of any inter .....

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, independent parties may not pay for it as it amounts to redundancy. Therefore as ld. TPO is only empowered to determine arm s length price of international transaction, as per provision of section 92 (2) of the act he is required to consider 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. .....

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P 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 question are not at an arm s length price. Whether a transaction is entered into at an arm s length .....

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. But if it cannot do so, it does not weaken it. 24. The profit earned by an assessee could be for reasons other than those relating to the international transactions or by virtue of international transactions as well as by virtue of other factors. In that event, the assessee having profited from the venture involving the international transactions, obviously, would not establish that the arm s length price was correct or justified. 25. It would make no difference even if the profit is entirely .....

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price paid for the same is another thing altogether. Profit is a motive and the aim of a venture. The factors that are involved in achieving this objective are the means of achieving this end. Absent any special term in the contract, the seller of goods or the provider of services is not concerned whether its purchaser profits from the use that the goods or services are put to. It is concerned with the same only as far as the usefulness of its products and services enhances the value thereof an .....

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sults. 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 .....

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i high court in case of Hive Communication P Ltd V CIT 12 taxmann.com 287 has held that :- 7. The question whether the expenditure is excessive or unreasonable in a given case has to be examined keeping in mind the services (with which we are concerned in the present case) for which payment is made. In the process the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee from such services is also to be kept in mind. After applying t .....

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enter (P.) Ltd. [1972] 86 ITR 370, the Calcutta High Court considering identical provision in 1922 Act, it was held that the section places two limitations in the matter of exercise of the power. The section enjoins the Assessing Officer in forming any opinion as to the reasonableness or otherwise of the expenditure incurred must take into consideration (i) the legitimate business needs of the company and (ii) the benefit derived by or accruing to the company. The legitimate business needs of th .....

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company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the viewpoint of a reasonable and honest person in business. i. In view of the above decision, it is apparent that benefit Test needs to be satisfied but same shall be judged from the viewpo .....

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e 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 .....

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oreseen, visualized, we are of the view that conditions of provision of section 92 (2) of the act Arms length price of such payments for services are not satisfied because in such circumstances such services will not have any value and no independent party would pay for such services. All the decision cited by the assessee that benefit cannot be judged from the view point of the revenue also supports the above propositions. j. For the above proposition we also get support from the OECD Guideline .....

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ctivity if performed for it by an independent enterprise or would have performed the activity in- house for itself. If the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the arm s length principle. 7.23 In such cases, MNE groups may find they have few alternatives but to use cost allocation and apportionment methods which often necessitate some degree o .....

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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 .....

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ee benefits. That aspect of the exercise is left to the AO. This distinction was made clear by the ITAT in Dresser-Rand India (P.) Ltd. v. Addl. CIT [2011] 47 SOT 423/13 taxmann.com 82 (Mum.): "8. We find that the basic reason of the Transfer Pricing Officer's determination of ALP of the services received under cost contribution arrangement as 'NIL' is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were .....

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It is only elementary that how an Assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an Assessee and what is not. An Assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question Assessee's wisdom in doing so. The Transfer Pricing Offic .....

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e services. This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an Assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. When evaluating the arm's length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real .....

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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 .....

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e that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the TPO stating that the assessee did not benefit from these services, which amounts to disallowing expenditure. That decision is outside the authority of the TPO. This aspect was made clear by the ITAT in Delloite Consulting India (P.) Ltd. v. Dy. CIT/ITO [2012] 137 ITD 21/22 taxmann.com 107 (Mum): '37. On the issue as to whether the Transfer .....

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the Transfer Pricing Officer is justified in making an adjustment under the arm's length price. 38. In the case on hand, the Transfer Pricing Officer has determined the arm's length price at "nil" keeping in view the factual position as to whether in a comparable case, similar payments would have been made or not in terms of the agreements. This is a case where the assessee has not determined the arm's length price. The burden is initially on the assessee to determine the a .....

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tricts the authority of the TPO. Whilst the report of the TPO in this case ultimately noted that the ALP was 'nil', 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 R .....

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uplicated 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 decision honourable court has also held that the Duty of Ld. TPO is restricted to determine ALP of the International transaction and he cannot replace his own views with the views of the assessee .....

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arious services rendered by its AE and ld. TPO has erred in replacing with its own judgment of the benefit derived by the assesse, we reject this approach. m. For determination of arms Length pricing assessee has adopted TNMM as the most appropriate method and has chosen the foreign AE as the tested party. Ld. TPO has rejected this approach and has held that as these services have been availed in India hence, assessee should be taken as tested party and secondly the method applied should be CUP .....

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h the data is available for comparability analysis. Therefore, with this issue we direct the ld. TPO to examine the relevant documents as per rule 10B submitted by the assessee and then to decide the issue of tested party, Most appropriate method and comparability analysis. n. Before parting we state that we have considered all the decision of various coordinate benches. However we have respectfully followed the principles laid down by above sated decisions of Honourable high courts in deciding .....

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n 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 .....

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the Tribunal to decide on merit. It is, therefore, all the more necessary that matter should be decided on merit without allowing one of the parties before the Tribunal to have another inning, particularly when such party had full opportunity to establish its case. Unnecessary remands, when relevant evidence is on record, belies litigant s legitimate expectations and is to be deprecated. Having regard to aforesaid principle, it is necessary to look into records to see whether there is sufficient .....

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claim of the assessee of foreign AEs as tested party and also adopted CUP as most appropriate method against the claim of the assessee as TNMM without given any reasons. Therefore, we reject the argument of the LD. AR against setting aside the above stated limited issues with respect to determination of ALP of International Transactions. 40. In the result ground no 5 of the appeal is allowed with above direction. 41. Ground No 6 and 7 are against charging of interest u/s 234D and withdrawal of .....

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bmitted before us that assessee has filed the revised return of income however facts relating to revised return are not coming out from the order of AO or DRP. Ld. DR did not express any objection if the revised return is in accordance with the law. Therefore, 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. 588 .....

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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 the Appellant's returned income of ₹ 47,14,28,736/-. 1.3 On the facts an .....

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s 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. On the facts and circumstances of the case and in law, the Ld. AO has erred in proposing and fee Hon'ble DRP has further erred in confirming the addition of ₹ 13,79, 24,461/- towards Merest on sticky loans and advances which was not recognised as income by the Appellant in accordance with the mandatory Prudential Norms issued by t .....

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, the learned Transfer Pricing (hereinafter referred to as 'Ld. TPO') and the Ld. AO have erred in proposing and the DRP has further erred in confirming the arm's length price for international pertaining to availing of intra-group services, i.e. Consulting, Administrative and at Rs NIL under section 92CA(3) as against the sum of ₹ 17, 94,92, 688/- determined by the Appellant. 6. That the Ld. TPO and the Ld. AO erred on facts and in law in alleging and the Hon'ble DRP erred .....

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cate 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 allocat .....

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mitted by the Appellant. 8. On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO in rejecting and the Hon'ble DRP further erred in confirming the rejection of the arm's price computation undertaken by the Appellant, on the ground that foreign comparables and foreign AEs were considered for the arms length analysis. 9. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in not that the AEs have lodged their tax return .....

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anted to the Appellant under section 244A of the Act as a to the above disallowances confirmed by the Hon'ble DRP. H. Initiation of penalty proceedings under section 271(1)(c) of the Act 12. On the facts and circumstances of the case, the ld AO erred in initiating penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of the income, without appreciating the fact that the Appellant has made full disclosures in respect of its claims and did not furnish any .....

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2006-07 in ground no 2 of that appeal, we restore this issue back to the file of AO to decide the issue of claim of depreciation of ₹ 2,90,56,780/- u/s 32 of the Act in view of the decision of Honourable Supreme Court in case of ICDS Ltd. In the result 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 .....

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cognized 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. Therefore, following our findings in ground no 4 of the appe .....

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4,92,688/- where the TPO has determined ALP of the same at NIL. 55. Both the parties agreed that ground No 5 of this appeal is also identical in facts and circumstances as ground no 5 of the appeal of the assessee for AY 2006-07. We have already decided the ground no 5 of the appeal for AY 2006-07 by this common order. We have set aside the issue of TP adjustments back to the file of TPO/AO to determine the ALP of these transactions. Therefore, following our decision we set aside this ground of .....

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ata. 57. In the result ground, no 5 to 9 are allowed accordingly with directions. 58. Ground No 10 and 11 are against the interest charged u/s 234D of the act and withdrawal of interest allowed u/s 244A of the act respectively. No separate arguments against and for of them are raised before us and as they are consequential in nature, we dismiss them. 59. Ground No 12 of the appeal is against the initiation of penalty u/s 271(1) (c) of the Act. This ground is premature and therefore it is dismiss .....

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n 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 returne .....

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ernational transactions pertaining to availing of intergroup services, i.e. Consulting, Administrative and IT Services at Rs.1,79,29,000/- under Section 92CA(3) as against the sum of ₹ 35,85,80,010/- determined by the appellant. 2.2 That on facts and in law, the DRP and the TPO erred in presumptively holding that the revenue authorities are empowered to question the commercial decision of the Assessee and in not appreciating the jurisprudence that the DRP and the AO/ TPO cannot go beyond t .....

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have erred in determining the arm's length price for international transactions pertaining to availing of intra-group services, i.e. consulting, administrative and IT services at ad-hoc cost of only 5% of the total cost thereby making / upholding adjustment of ₹ 34,06,51,010/- without applying /following any prescribed method in complete disregard to transfer pricing regulations and judicial precedence. 2.5 That on the facts and circumstances of the case and in law, the DRP and AO/TPO .....

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uld have been availed by the Appellant locally in local currency. b. That the benefit of intra-group services is difficult to identify c. That all services claimed by the Appellant have not passed the benefit test from the point of recipient. 2.7 That on the facts and circumstances of the case and in law, the DRP 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 e .....

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T 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 further erred in confirmin .....

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itself had been written-off during the year ended March 31, 2008 should be allowed as deduction under section 36(1)(vii) read with section 36(2) of the Act. E. Levy of interest under Section 234D of the Act 5. On the facts and circumstances of the case and in law, the Ld. DCIT erred in levying interest of ₹ 22,89,108 under section 234D of the Act as a consequence to the above disallowance confirmed by the Hon'ble DRP F. Withdrawal of interest granted under Section 244A of the Act 6. O .....

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preciating the fact that the Appellant has made full disclosure in respect of its claims and did not furnish any inaccurate particulars of its income. 62. Ground No 1 is general and supportive in nature and no specific arguments were advanced for and against this ground therefore same is dismissed. 63. Ground No 2 is against the transfer pricing adjustment made by TPO on account of various Intra Group services amounting to ₹ 35,85,80,010/- which of which ld. TPO determined ALP at Nil and D .....

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ing 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 A .....

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