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2019 (6) TMI 660

..... LD THAT:- We set aside the issue to the file of the AO for fresh adjudication in accordance with law. The assessee is directed to produce copies of those agreements which the AO may call for. The AO shall examine these agreements and if the terms & conditions mentioned in these agreements are similar to the terms and conditions mentioned in the agreements considered by in the case of ICDS Ltd. [2013 (1) TMI 344 - SUPREME COURT] and if there are no material variations in the contracts, then depreciation has to be granted to the assessee as claimed. TP adjustment - payments made for “administrative support services” - HELD THAT:- Admittedly, this issue is covered in favour of the assessee by an order of the Tribunal in the assessee’s own case for the AY 2008-09, AY 2009-10 and AY 2010-11 [2014 (12) TMI 890 - ITAT BANGALORE] where this very same issue was examined. The Tribunal has set aside the matter to the file of the TPO with certain directions. Consistent with the view taken therein, we restore the matter to the file of the TPO for fresh adjudication in accordance with the law. Determination of ALP of international transactions for “Purchase of equipme .....

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..... arises for adjudication is TP adjustment on the issue of Provision of management services . For the AY 2013-14, the only other issue that arises is determination of arm s length price (ALP) and validity of the consequent TP adjustment made for the international transaction of Purchase of equipment for financial lease from Associate Enterprise (AE) . 4. We have heard Mr. Rajan Vora, the ld. counsel for the assessee and Shri C.H. Sundar Rao, the ld. CIT(DR) on behalf of the revenue at length. 5. On a careful consideration of the facts and circumstances of the case and on a perusal of papers on record and orders of the authorities below as well as case laws cited, we hold as follows. Disallowance of claim of depreciation on equipment leased by the assessee under financial lease arrangement 6. The AO in this case has not followed the binding judgment of Hon ble Supreme Court in the case of ICDS Ltd. V CIT [Civil Appeal No.3282 of 2008). He has from page 6 onwards in his order recorded views contrary to the ratio laid down by the Hon ble Supreme Court. This cannot be approved. He relied on the judgment of Hon ble Supreme Court in the case of M/s. Asea Brown Boveri Ltd. v. Industrial Fi .....

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..... ame issue was examined. The Tribunal has set aside the matter to the file of the TPO with certain directions. Consistent with the view taken therein, we restore the matter to the file of the TPO for fresh adjudication in accordance with the law. The TPO shall dispose of the matter in accordance with the directions given by the Tribunal on the very same issue in the earlier assessment years in AY 2008-09, AY 2009-10 and AY 2010-11. 11. In the result, appeal for AY 2011-12 is allowed for statistical purposes. AY 2013-14 12. The first issue that arises for adjudication for AY 2013-14 is grant of depreciation on assets given on financial lease. Consistent with the view taken by us on this issue in the earlier AY 2011-12, we set aside the matter to the file of AO with a direction to apply the decision of the Hon ble Supreme Court in the case of ICDS Ltd. (supra) and grant depreciation, wherever the terms & conditions of the financial lease agreements entered into by the assessee is similar to the terms & conditions of the financial lease agreements considered by the Hon ble Supreme Court. The assessee is directed to produce the copies of agreements as desired by the AO for verif .....

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..... of the reasons that the taxpayer has not used a filter of "minimum threshold Lease income out of the total income". This has resulted in the comparables chosen by the taxpayer predominantly engaged in businesses other than leasing. d. The assessee has treated its financial lease transactions as pure loan transactions and accordingly, has not claimed depreciation on the leased assets in its books of accounts. However, for computing the taxable income under the Indian Income Tax Law, it has treated the finance lease transaction as pure lease transaction and claimed depreciation on the leased assets. It is not clear whether the comparables chosen by the assessee have adopted the same method of accounting in respect of their lease transactions. Such being the case, comparing the profits after depreciation for ALP analysis would be inappropriate. When there are differences in the claims of depreciation of the tested party itself (the claim in the books of accounts and claim under the Indian Income Tax Law are different), comparing the profits before depreciation would not lead to correct results. Therefore, the PLI chosen by the taxpayer (PBIT/Capital employed) cannot be acce .....

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..... that is charged i.e. 10% of the purchase price and argues that no further adjustment can be made on the income side and that the adjustment required, if any, should be restricted only to depreciation and that too, only on depreciation on operating lease arrangements, as the assessee has not claimed depreciation in its books of account on financial lease transaction, though depreciation had been claimed while computing the taxable income. 19. He further submitted that the adjustment proposed would result in reduction of income u/s. 92(3) of the Act and pleaded that such adjustment reducing the income is not permissible. He filed a computation to demonstrate his claim of reduction of income. He pointed out that the purchases from related party is only 16.51% of total transactions and hence adjustment in question should be restricted to such transaction only as they are relatable to international transactions with AE. 20. On merits of the adjustment made, by following the TNMM as a MAM and for arriving at the ROCE, he submits that :- (a) provision in NPA should be considered as non-operating item as it is not allowable as a deduction claimed u/s. 36(1)(vii) of the Act; (b) the double .....

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..... and therefore cannot determine the ALP of equipment purchased by the assessee from the AE. 24. After hearing the rival contentions, we are of the considered opinion that the argument of the ld. counsel for the assessee that the ALP of the equipment purchases and imported by the assessee cannot be determined by computing the ROCE at the entity level by using TNMM as the MAM. The assessee states that only 16.51% of its total transactions were from the AE during the year. The PLI was calculated on the entire assets given on lease (operating and finance) and the adjustment of ₹ 50.72 crores pertain to the entire transaction and was not proportionate to the purchase and import of equipment from AE. The ld. DR agrees that a mistake has crept into the computation of ALP for the purpose of determination of the TP adjustment, as it is well settled that the adjustment can be restricted to only quantum of international transaction with the AE. 25. We find strength in the argument of the assessee that the purchase price of the equipment cannot be determined based on ROCE adopting TNMM as the MAM. This does not appear to be a correct method. CUP is a more direct method and when internal C .....

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