TaxTMI 
TaxTMI 
2016 (5) TMI 1284
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....le 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 Rs. 1,51,19,62,870/- as against the returned income of Rs. 99,70,75,770/-. 1.2 The Ld. AO erred in proposing and the Hon'ble DRP further erred in confirming the addition of Rs. 51,48,87,100/- to the Appellant's returned income of Rs. 99,70,75,770/-. 1.3 On the facts and circumstances of the case and in law, the order passed by the Ld. AO under the directions passed by the Hon'ble DRP under section 144C(5) of the Act is wrong and bad in law. B. Disallowance of depreciation on leased vehicles 2 On facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the Hon'ble DRP has further erred in confirming the disallowance of depreciation of Rs. 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 ....
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....Appellant's business operations; c) That all intra-group services were in the nature of shareholder and stewardship activities, ignoring the fact that all the shareholder and stewardship activities were separately identified by the AEs and no amount for such activities had been paid by the Appellant. d) That the Appellant failed to satisfactorily explain the basis of allocation of expenses, not appreciating the details submitted by the Appellant. 5.3 On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO erred in holding and the Hon'ble DRP further erred in confirming that the AEs did not have infrastructure and manpower situated in India for rendering such services, ignoring the fact that since the services were rendered from outside India, there was no requirement for the AEs to maintain any infrastructure and manpower in India. 5.4 On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO erred in rejecting and the Hon'ble DRP further erred in confirming the rejection of Transfer Pricing documentation maintained by the Appellant as per Rule 10D of the Income-tax Rules, 1962 based....
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....ng 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 by the ld. AO on 09.12.2009. Against the draft order assessee filed objection on 18.01.2010 before Dispute Resolution Panel-I, New Delhi (In short 'DRP') who issued direction on 21.09.2010. Pursuant to those directions, the assessment order u/s 143(3) read with section 144C of the Act was passed by the ld. AO on 26.10.2010, which is in appeal before us on several counts. 5. Ground No.1.1 to 1.3 of the appeal are supportive and general in nature and no specific arguments by the parties were advanced on these grounds therefore these are dismissed. Corporate Tax Issues 6. The ground No. 2 of the appeal is against the disallowance of depreciation of Rs. 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 transa....
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....r No.1978, dated 31st December 1999 it is instructed that in a case of lease transaction it is to be ensured that the 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 portion of the section by contending: (i) that the assessee is not the owner of the vehicles in question and (ii) that the assessee did not use these trucks in the course of its business. It was argued that depreciation can be claimed by an assessee only in a case where the assessee is both, the owner and user of the asset. 15. We would like to dispose of the second contention before considering the first. Revenue argued that since the lessees were actually using the vehicles, they were the ones entitled to claim depreciation, and not the assessee. We are n....
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....o small-scale industrial undertakings which may use the machinery for the business or manufacture or production of any article, and sub-section (2)(b)(iii) refers to the business of construction, manufacture or production of any article or thing other than that specified in the Eleventh Schedule. Sub-section 2(b), therefore, refers to the uses to which the machinery can be put. It does not specify that the assessee himself should use the machinery for these purposes. In the present case, the person to whom the machinery is hired does use the machinery for specified purposes under Section 32-A(2)(b)(iii). That person, however, is not the owner of the machinery. The High Courts of Karnataka and Madras have held that looking to the requirements specified in Section 32-A the assessees, in the present case, fulfil all the requirements of that section, namely, (1) the machinery is owned by the assessees; (2) the machinery is used for the purpose of the assessees' business and; (3) the machinery is as specified in sub-section (2). 10. We are inclined to agree with this reasoning of the High Courts of Karnataka and Madras." 17. The same judgment commented on the analogous nature ....
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....he development 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 then was) held that where leasing of machinery is a mode of carrying on business by the assessee the assessee would be entitled to development rebate. The Court observed (p. 551): "Once it is held that leasing out of the machinery is one mode of doing business by the assessee and the income derived from leasing out is treated as business income it would be contradictory, in terms, to say that the machinery is not used wholly for the purpose of the assessee's business." 18. Hence, the assessee meets the second requirement discussed above. The assessee did use the vehicles in the course of its leasing business. In our opinion, the fact that the trucks themselves were ....
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....rty, including right to transmit it to others.... The right of one or more persons to possess or use a thing to the exclusion of others.The right by which a thing belongs to some one in particular, to the exclusion of all other persons.The exclusive right of possession, enjoyment or disposal; involving as an essential attribute the right to control, handle, and dispose." The same dictionary defines the term "own" as 'To have a good legal title'. These definitions essentially make ownership a function of legal right or title against the rest of the world. However, as seen above, it is "nomengeneralissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied." 22. A scrutiny of the material facts at hand raises a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was entered into by the assessee with the customer. Moreover, the relevant clauses of the agreement between the assessee and the customer specifically provided that: (i) The assessee was the exclusive owner of the vehicle at all po....
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....curity 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 or upon 7 days notice previously given.." 23. The Revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle, making the assessee in effect a financer. However we are not persuaded to agree with the Revenue. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eyes of law. A scrutiny of the sale agreement cannot be the basis of raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement itself, which clearly point in favour of the assessee. We agree with the following observations of the Tribunal....
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....he Revenue, is Section 2(30) of the MV Act, which defines ownership as follows: - ""owner" means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation 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 in possession shall be the owner. The Revenue thus, argued that in case of ownership of vehicles, the test of ownership is the registration and certification. Since the certificates were in the name of the lessee, they would be the legal owners of the vehicles and the ones entitled to claim depreciation. Therefore, the general and specific statements on ownership construe ownership in favour of the lessee, and hence, are in favour of the Revenue. 26. We do no....
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....rson pays the prescribed fee: Provided further that a fresh certificate of registration issued in respect of a motor vehicle, other than a transport vehicle, shall be valid only for the remaining period for which the certificate cancelled under this sub-section would have been in force." Therefore, the MV Act mandates that during the period of lease, the vehicle be registered, in the certificate of registration, in the name of the lessee and, on conclusion of the lease period, the vehicle be registered in the name of lessor as owner. The Section leaves no choice to the lessor but to allow the vehicle to be registered in the name of the lessee Thus, no inference can be drawn from the registration certificate as to ownership of the legal title of the vehicle; and (iii) if the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the Appellate Tribunal, was not done. It would be a strange situation to have no claim of depreciation in case of a particular depreciable asset due to a vacuum of ownership. As afore-noted, the entire lease rent received by the assessee is assessed as business income in i....
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....'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 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 of the assessee. This fact is also not controverted by ld. DR. We are of the view that if there being no change either in facts or in law, as compared to this year and later on years where the claim of the assessee of depreciation is accepted , the disallowance in this year cannot be sustained. In assesses' s own case for AY 2000-01 and 002-03 in ITA No 3192 & 2445/del 2007 dated 21/06/2013, ITAT decided this issue vide Para no 8 setting aside the issue back to the file of AO to examine the claim of the assessee with the terms of lease agreement entered into in light of decision of Honorable supreme court in c....
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.... as per section 209 of the Companies Act it is mandatory for the appellant to recognize that interest. Section 209 (3) (b) of The Companies Act requires the books of accounts to be maintained on accrual basis. The Meaning of accrual cannot be different in different statues unless specifically mentioned. Honorable; Supreme court in 358 ITR 295 in CIT V Excel Industries has held that Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. In case of Non performing assets even the principal amounts is also doubtful of recovery or has failed to serve the interest ion those loans. Now this issue in this case of the assessee has already been decided by ITAT in ITA No.4069/Del/2011 for the Assessment Year 2003-04 vide its order dated 31st October 2011 in that decision the coordinate Bench of this Tribunal has held as under:- "5. We have heard both the sides on this issue. This issue is squarely covered by the decision of ITAT in the case of GE Capital Service India, ci....
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.... 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 the aforesaid provisions, it was mandatory on the part of the assessee not to recognize the interest on the ICD as income having regard to the recognized accounting principles. The accounting principles which the assessee is indubitably bound to follow are AS-9. The relevant portion of the said accounting standard reads as under: 9. Effect of uncertainties on revenue recognition - 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncerta....
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....cerned, as a result of the aforesaid precarious financial position of Shaw Wallace. What to talk of interest, even the principal amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". We are in agreement with the submission of Mr. Vohar on this count, supported by various decisions of different High Courts including this court which has already been referred to above. (2) In the instant case, the assessee-company being NBFC is governed by the provisions of the RBI Act. In such a case, interest income cannot be said to have accrued to the assessee having regard to the provisions of section 45Q of the RBI Act and Prudential Norms issued by the RBI in exercise of its statutory powers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. As noted above, Mr. Sabharwal, argued that the case of the assessee was to be dealt with for the purpose of taxability as per the provisions of the Act and not the RBI Act which was the accounting method t....
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.... the result, this ground is allowed." Respectfully following the decision of the aforesaid decision of ITAT, Delhi Bench 'C', New Delhi, we dismiss the ground taken by the revenue. 17. Both the parties agreed that issues involved in this ground and the issue decided by ITAT in that order is identical. Further Now Honourable Delhi high court in case of CIT V Vishisth Chay Vyapar Co Limited 196 taxman 169 where in it is held as under (Head notes from taxmann. Com) "It was not in dispute that on the application of the provisions of the RBI Act and the 1998 Directions, the ICDs advanced to 'S' by the assessee had become NPA. It was also not in dispute that the assessee-company being NBFC was bound by the aforesaid provisions. Therefore, under the aforesaid provisions, it was mandatory on the part of the assessee not to recognize the interest on the ICDs as income having regard to the recognized accounting principles. The accounting principles, which the assessee was indubitably bound to follow, were AS-9. [Para 16] Therefore, it could not be said that income in the form of interest, though not received, had still accrued to the assessee under the provision....
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....s. 22,33,25,067/- as expenses arising out of loss on sale of repossessed assets. Assessee 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 repossessed assets. When these assets are sold, excess or shortfall is booked as profit or loss in the profit and loss account and it is claimed as loss as a revenue loss/ profit. During the year, the ld. AO has disallowed this loss holding that this loss has not been actually incurred by the assessee. For disallowing this AO relied on the decision of the Hon'ble Allahabad High Court in the case of Motor and General Sales Pvt. Ltd. vs. CIT 226 ITR 137. 20. The ld. AR submitted that this is real loss incurred by the assessee and not a hypothetical loss. It is just like writing off the bad debts in the books of....
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....% 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% Administrative- 34 2.98% 5.7% 5. Provision of consultancy services 43,278,924 TNMM OP/OC 5 8.98% 11% 6. Interest paid on unsecured loan 59,623,221 CUP NA 1 Libor+10 0 -120BP Libor. +100BP 7. Availing Oracle support (data processing services) 16,351,785 NA NA NA NA NA 8 Reimbursement 24,028,546 NA NA NA NA 25. There is no dispute regarding the international transaction with respect to other items except for item at serial no. 4 which is Intra Group services. 26. However with respect to services availed by the assess....
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....d manpower of the AEs in India. During course of proceeding before me the assessee did not furnish any evidence to prove that the AE had actually rendered these alleged services to the assessee. In the comparable circumstances, in my view any independent enterprise would not have either undertaken these activities internally or would not have been willing to pay an independent third party 10 do so. Since neither of these alternatives holds true, the OECD guidelines as mentioned above, take the view that the activity should not regarded as an intra-group service. (g) A careful comparison of infrastructure and activities carried 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 undertaken by one group member that merely duplicate a service that....
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....er Rule 10D that the assessee had not conducted FAR analysis in regards 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 require arm's length remuneration accordingly the issue of charging profit markup up the cost of services does arise this reason I have not tested the arms length price of mark up levied by the AE on these services." 27. Therefore on perusal of the order of Ld. TPO it is apparent that Ld. AO has alleged that :- i. Assessee could not establish whether such services were needed by the assessee (i.e. Need Test) ii. Whether such services are rendered to the assesse by AE (I.e. Rendition test) iii. Whether the assessee has derived any economic or commercial benefit from these services ( i.e. Benefit test ) ....
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....actions. The TPO concluded that the assessee failed to prove by furnishing required evidences that the services in lieu of cost recharge or reimbursement were actually required by the assessee and that these were actually rendered. The assessee could not conclusively prove that it has derived any economic and commercial benefit from these services. The basis of allocation of expenses towards various heads could not be satisfactorily explained. The TPO has explained that the assessee has 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 customization to suite domestic requirements and lack of required man power of the claimed AE's in India is a reasonable circumstantial evidence of not rendering of commensurate services. Relying on the OECD guideli....
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.... 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 have been provided to the assessee. Further, it was also held that risk management services were doubted for the reason that how the sharing of best practices by exchange of business leaders across countries could provide legal help to the assessee. After discussion, DRP came to the conclusion that some quantum can be attributed to the expenses incurred by the assesseeand since the payments are not cost based but allocation of expenses it was difficult to quantify them and therefore Ld. DRP held 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 ....
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..../2012 - AY 2008-09 xi. Nippon Leakless Talbros v. ACIT:IT(TP)A No. 475/Del/2015 - AY 2010-11 xii. Hughes Systique India P. Ltd. v. ACIT: [2013] 25 ITR (Trib) 556 (Delhi) - AY 2007-08, 2008-09 xiii. Knorr-Bremse India (P.) Ltd. v. ACIT: [2013] 56 SOT 349 (Delhi) - AY 2007-08 xiv. Thyssen Krupp Industries India (P.) Ltd. v. ACIT: [2013] 55 SOT 497 (Mumbai) - 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 three broad heads viz., Consulting, IT and Administrative Services. The Assessee had paid a sum of Rs. 35,85,80,010/- to the aforesaid two entities for availing the Consultancy, IT and Administrative services as per the following mark ups: i. IT :-Cost Plus 7% ii. Administrative Services :-Cost Plus 3.73% iii. Consulting Services :-Cost Plus 11% Therefore, i....
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....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 services he submitted that segment wise paper book is filed before TPO for Finance, QC, HR and Risk. He referred to Para no six of the TPO order where in it is mentioned that the none of the benefit are tangible or real. Therefore, now there is no dispute about the rendition of services. He submitted that order of Ld. DRP for AY 2008-09 clearly proves that services are rendered and received by the parties and therefore only 5 % of the cost is computed by Ld. DRP as ALP. ii. Regarding benefit test, he 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 the....
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....he arm's length price. Explanation.-For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm's length 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 enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as the case may be. 36. According to the above provisions following principles emerge:- i. An international Transaction is entered in to between two or more associated enterprises for jointly acquiring or developing some property or for obtaining services. ii. The parties to transaction enter in to mutual agreement or arrangement to sha....
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....m 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 services been not availed from the AEs, the assessee either himself or from a third party would have received these services which would have attracted additional expenditure. With respect to each of the above services the assessee explained the services and shown and why it is needed. For each of the services explanation was given by the assessee. Regarding Finance function it was submitted that helps the businesses to develop management information that enables them to effectively manage their 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 focuse....
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....rtunities and improve the flow of best practices between markets. Regarding CEO function assessee 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 operation and sourcing facilities it justified that Operations help in looking for opportunities for improvements in process & productivity with local management. Sourcing supports in the review of planning budgets. An annual review of existing contracts is undertaken to determine whether deals are at market best. Regarding IT Services assessee justified the need submitting that Information Technology and Systems Support encompasses activities ranging from the strategic business use of IT to the systems support necessary for the hardware and software on which GE Money relies. It co-ordinates and support projects to ....
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.... Platforms, Software Description 1. AML / Actimize AML/Actimize is a tool/solution used to monitor transactions for behavior indicative of Money Laundering. HQ performed the hosting, management and operation of the AML Shared Service environment including GIS infrastructure, Disaster Recovery, GDC Support, Software Licenses and maintenance. 2. Active Directory Active Directory (AD) is a Microsoft technology which provides various network services like Authentication, windows client 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 (Multiprotocol Label Switching) & Internet connectivity in addition to providing a bridge to the GIS (Geographical Information System) Network and services in ....
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....ements to central 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 2^nd and 3^rd level of operational support. 14. IG Mainframe Security Ops Mainframe security operations support included RACF (System Access Approvals) security for shared service LPARS. 15. MS Premier HQ entered a global pre-paid service contract for MS Premier Support contract with Microsoft for problem resolution. A block of support hours are purchased each year by HQ which can be utilized for the following services: - Problem Resolution Support (PRS): Provides assistance for problems with specific symptoms encountered while using Microsoft products, where there is a reasonable expectation that the problem is caused by the MS Product. - Support Assistance: Provides shortterm advice and guidance for problems not covered with PRS. It primarily is a consulting function to help projects in the design / develo....
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....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 program, HQ prepared the data and information security awareness training. These trainings were made available to all the employees in GE Money India so that they can themselves understand and implement the data security tools and processes. With such program and training available, Indian business did not have to set up similar program on their own. GEMFSL_Benefits Document_#4_ IT Clearance_Assets Handover process.doc HQ helped Indian business set up a IT helpdesk where an employee can raise a IT issue, 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 V....
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....or mitigating risk under financial services regulatory expectations. Based on their review they guided businesses on the fields that should be masked. With implementation of the suggestions from HQ, business would also be regulatory compliant. GEMFSL_Benefits Document_#11_ LSL EMEA call 1-oct-2010.msg October 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 business can seek real time help. Further HQ prepared training and manual on how to seek help from the helpdesk. GEMFSL_Benefits Document_#13_GECC Information Security Policy Approved.msg November 11, 2010 HQ framed and rolled out Information Security Policy for all businesses. With implementation of this policy, business would be more secure....
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....ed 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 Private Limited 2014-TII-24-ITAT-HYD-TP Coordinate bench has dealt with the rendition test of Intra Group services for AYs 2003-04 to 2005-06 and held as under: "16. We have considered the issue. We are unable to accept the contention of the Assessing Officer/TPO with reference to the services provided by AEs. Assessee has provided the agreements which were entered not during the year but in earlier year and has been paying the service fee termed as management fee accordingly. This claim is not arising for the first time in this year but, is also there in earlier years and later years. Assessee is part of a worldwide group and they have placed some corporate centers for guidance of various units run by them across the globe. It was submitted that the costs being incurred by the centers are being shared by various units and assessee's share in this year has come to 5% of the r....
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...., we reject the view point of Ld. TPO and Ld. DRP that assessee has not shown the receipt of the services. In view of above we are of the view that assessee has justified the receipt of services and satisfied the rendition 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 performed by the assessee himself and services availed from the AEs. The services are not identical and are availed from the AEs based on the requirement of the assessee. It was also his submission that that these intra-group services have not been availed from the independent parties and there is significant difference in the activities performed in-house and those performed by the AEs. Therefore according to the assessee there is no duplication of services/ activities. Ld. TPO and L....
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....ssessee has submitted a detailed benefit analysis with respect to each services vide submission dated 7/11/2011 where in the benefit accruing to the assessee from each services is demonstrated. However, ld. TPO and Ld DRP has held that assessee has not shown that the assessee has received some tangible and direct benefit. In general considering the complex business environment in which business are operated it is difficult to operate the business successfully for sustainable period without receipt of various services which carry huge intrinsic and creative value to the assessee. Before ld. TPO and ld. DRP assessee has submitted what are the business benefit derived by the assessee as under :- S. No. Nature of services Illustrative summary of the services rendered and benefits derived 1 Finance Advice and assistance on business strategies and future plans Sharing, development and implementation of best accounting and finance practices Advice and assistance in achieving net earnings and assets growth Developing internal audit tools and controls 2 Human Resources Advice and assistance in developing HR strategies Advice and assistance in meeting staffi....
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....tance on venture funding activities Sharing of best practices pertaining to sales model for each market Providing guidance, assistance and ongoing support to local sales and business development teams through interactions, trainings, reviews, development of databases of contacts, deals etc Providing experts with detailed product knowledge and experience Advice and assistance in branding strategies and campaigns 8 Customer Relationship Management * Developing and maintaining relationship with Illustrative summary of the services rendered and benefits derived trade partners Support for new businesses/products Sharing of strategic resources and best Practices Sharing benefits of global agreements Advise and assistance in branding strategies and initiatives 9 CEO Determining overall business strategies Reviewing businesses and assisting local management in determining operational profile Advise and assistance on current and future products Advices and assistance on best practices 10 Operations and Sourcing/facilities Reviewing opportunities for process improvements Conducting operational reviews Advise and sharing best practices Advise and assistance in busin....
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....e services i.e. i. if services are not required, ii. if they are not rendered , iii. if they are not benefitting the recipient iv. if they are duplicative in nature v. if they are for the safeguarding interest of owner .i.e. shareholder activity And if it were so, there would not be any comparable instances for similar kind of services and the purpose of determining arms length price of the International transaction will most probably fail. h. Honourable Punjab & Haryana High court in Knorr Bermesse India P Ltd V ACIT 2015-TII-51-HC-P&H-TP has held that "23. Enterprises, businessmen and professionals constantly experiment with different business models, theories and ventures. The aim indeed is to further the business, to enhance their profits. So long as that is the aim, it is sufficient for the purpose of the Income Tax Act. In a given case, profit may not even be the motive. Even so it would not indicate that the transactions in question are not at an arm's length price. Whether a transaction is entered into at an arm's length price or not must depend upon the facts of each case relating to the transaction per se, i.e., the transaction itself. Profit is on....
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....ontrary would then raise a question as to the extent of profitability necessary for an assessee to establish that the transaction was at an arm's length price. A further question that may arise is whether the arm's length price is to be determined in proportion to the extent of profit. Thus, while profit may reflect upon the genuineness of an assessee's claim, it is not determinative of the same." From the above decision of Honourable High court it is apparent that the user of the services are concerned with the usefulness of its services which enhances the value thereof and consequently in furtherance of its commercial interest. Merely profitability cannot be the criteria for benefit, it is much more than what is determinable in monetary terms. Therefore while determining ALP of IA , usefulness, enhancement in value and furtherance of business interest is required to be seen. The issue now arises that from whose perspective these tests can be seen. Honourable Delhi 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....
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.... have right to question the wisdom of the assessee and he is not required to see whether the assessee is getting direct, tangible, substantial benefit from the services by replacing the view of ld. TPO in place of views of assessee. Ld. DR also says that these tests may be examined. Now the above two decisions of honourable high court has held that the benefit test cannot be applied from the perspective of revenue and ld. TPO does not have the right to question the wisdom of the assesse. Therefore it is apparent that assessee cannot be asked to demonstrate it with 100 % mechanical precision. If assessee has expected potential benefits out of his business prudence at the time of receipt of services which he can demonstrate from commercial point of view, according to us that satisfies the benefit test for intra Group services. Meaning thereby that the 'benefit" needs to be identified from the view point of the assessee which can be potential, reasonably foreseeable, may not be quantifiable in money alone, may be strategic but it cannot be incidental. The benefit also cannot have the qualification such as "substantial" , "direct" and 'tangible" because we do not find any such words in....
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....e service provided, any charging has to be supported by an identifiable and reasonably foreseeable benefit. Any indirect-charge method should be sensitive to the commercial features of the individual case (e.g. the allocation key makes sense under the circumstances), contain safeguards against manipulation and follow sound accounting principles, and be capable of producing charges or allocations of costs that are commensurate with the actual or reasonably expected benefits to the recipient of the service." k. Recently honorable Delhi high court in case of Cushman Wakefield Limited in 46 taxmann.com 317 has held that: "34. The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the AO. This distinction was made clear by the ITAT in Dresser-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....
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....also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is No. evidence of services having been rendered at all, the arm's length price of these services is 'nil'." 35. The TPO's Report is, subsequent to the Finance Act, 2007, binding on the AO. Thus, it becomes all the more important to clarify the extent of the TPO's authority in this case, which is to determining the ALP for international transactions referred to him or her by the AO, rather than determining whether such services exist or benefits have accrued. That exercise - of factual verification is retained by the AO under Section 37 in this case. Indeed, this is not to say that the TPO cannot - after a considerat....
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....pendent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee - activities for which, according to the assessee's claim - interaction with IBM's regional offices in Singapore and the United States was necessary. These services cannot - as the ITAT correctly surmised - be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be secondguessed by the Revenue." [Underline and bold supplied by us] In above 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. Therefore ld. TPO is empowered only to view the benefit mentioned in section 92 (2) of th....
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....ed party', determination of 'most Appropriate method' and 'Comparability analysis'. For these purposes these grounds of transfer pricing is set aside to the file of Ld. TPO. 39. We also take note of the arguments advanced by the ld. AR of the appellant against the issue being set aside to the file of Ld. AO/ TPO relying on decision of ITAT in case of Zuari Leasing and Finance Corp. Ltd V ITO 112 ITD 205( Delhi) (TM ) where in it is held that "10. It is clear from above that primary power, rather obligation of the Tribunal, is to dispose of the appeal on merits. The incidental power to remand, is only an exception and should be sparingly used when it is not possible to dispose of the appeal for want of relevant evidence, lack of finding or investigation warranted by the circumstances of the case. Remand in a casual manner and for the sake of remand only or as a short cut, is totally prohibited. It has to be borne in mind that litigants in our country have to wait for long to have fruit of legal action and expect 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 Tribuna....
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....y allowed. 46. Now we come to appeal no 5816/Del/2011 for A. Y. 2007-08 preferred raising following grounds of appeal. Grounds for the Assessment Year 2007-08 General 1.1 On facts and circumstances of the case and in law, the Ld. AO erred in passing the assessment order dated December 16, 2010 (the 'Draft assessment order') and the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') erred in passing directions under Section 144(C) of re Income-tax Act, 1961 (the 'Act') confirming the Draft assessment order. On the facts and circumstances of the case and in law, the learned AO erred in assessing the income of the Appellant at Rs. 1,02,06,71,340/- as against the returned income of Rs. 47,14,28,736/-. 1.2 The Ld. AO erred in proposing and the Hon'ble DRP further erred in confirming the addition of Rs. 54,92,42,604/- to the Appellant's returned income of Rs. 47,14,28,736/-. 1.3 On the facts and circumstances of the case and in law, the assessment order passed by the Ld. AO under the directions passed by the Hon'ble DRP under section 144C(5) of the Act is wrong and bad in law. B. Disallowance of depreciation on leased vehicle....
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....re essential for Appellant's business operations; c) that all intra-group services were in the nature of shareholder and stewardship activities, ignoring the fact that all the shareholder and stewardship activities were separately identified by the AEs and no amount for such activities had been paid by the Appellant; d) that the Appellant failed to satisfactorily explain the basis of allocation of expenses, not appreciating the details submitted by the Appellant even though the Hon'ble DRP has itself observed that the allocation keys for some of the services were supported by evidence. 7. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in holding that analysis of rationale and justification of each allocation key adopted by the appellant and supporting evidences were absent, not appreciating the justification, details arc explanations submitted 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....
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....re, following our findings in AY 2006-07 in ground no 2 of that appeal where we, following the decision of coordinate bench in case of the assesse for AY 2003-004, directed the AO to delete the addition. Similarly, for this year also we direct AO to delete the addition of Rs. Rs. 13,7924,461/- towards interest of sticky loans and advances, which was not recognized as income by the appellant in accordance with the mandatory prudential norms issued by the Reserve Bank of India. In the result ground no 3 of the appeal is allowed. 52. Ground No 4 of the appeal is against disallowance of Rs. 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 appeal of the assessee which is also disposed of by this common order, we respectfully following the decision of Hon'ble Delhi High Court, allow the claim of the assessee of loss on account of sale of repossessed vehicle and delete the disallowance made by AO and confirmed by DRP of Rs. 21,64,06,930/-. Ground No.4 is allowed. 54. Ground No....
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....Ld. DCIT erred in assessing the income of the Appellant at Rs. 49,02,19,720/- as against the revised returned income declaring a loss of Rs. 21,00,37,579/-. 1.2 The Hon'ble DRP further erred in confirming the addition of Rs. 700,257,300/- to the Appellant's returned income of (Rs.21,00,37,579). 1.3 On the facts and circumstances of the case and in law, the assessment order passed by the Ld. DCIT under the directions passed by the Hon'ble DRP under section 144C(5) of the Act is bad in law. B. Transfer pricing Adjustment 2.1 On the facts and circumstances of the case and in Law, the Learned Transfer Pricing Officer (TPO1) and the Learned AO have erred in proposing and the Hon'ble DRP has further erred in confirming the arm's length price for international 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 Rs. 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 an....
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....ntention/occasion whatsoever on the part of the Appellant to shift profits outside India. C. Disallowance of depreciation on leased vehicles 3. On the facts and circumstances of the case and in law, the Ld. DCIT has erred in proposing and the Hon'ble DRP has further erred in confirming the disallowance of depreciation of Rs. 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 confirming the addition of Rs. 32,94,40,444/- towards interest on sticky loans and advances which was not recognized as income by the Appellant in accordance with the mandatory Prudential Norms issued by the Reserve Bank of India. 4.2 The Ld. DCIT grossly erred in rejecting and the Hon'ble DRP has further erred in confirming the rejection of Appellant's alternate submission that write-off of Rs. 13,79,24,461 in respect of interest on sticky loans and advances of which t....
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....t reason , we also send them back to the file of the AO for deciding them afresh, as in the original assessment TPO has determined ALP at Nil only on the basis of qualitative test and not on the basis of comparability and availability of data. In the result ground, no 2 is allowed accordingly with directions. 65. Ground no 3 of the appeal is against the disallowance of depreciation on leased vehicles amounting to Rs. 12,74,54,846/- . 66. Both the parties agreed that this ground is identical to ground no 2 in the appeal of the assessee for AY 2006-07 disposed of by this common order. Therefore following our findings given in AY 2006-07 in ground no 2 of that appeal we also restore this issue back to the file of AO to decide the issue of claim of depreciation of Rs. 12,74,54,846/- 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 .3 of the appeal is allowed with that direction. 67. Ground No 4 of the appeal is against addition of Rs. 32,94,40,444/- on account of interest on stocky loans which was not recognized as income of the assessee. 68. Both the parties agreed that this ground is identical to ground no....