TaxTMI 
TaxTMI 
2019 (5) TMI 1542
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....the assessee relates to not granting TDS credit and withdrawing interest u/s 244A of the Act and levying interest u/s 234D of the Act. BUSINESS PROFILE OF THE ASSESSEE "M/s. GE Capital Services India (GECS1) is a company incorporated in India. GECSI is 98.73% owned by GE Capital Services (Mauritius) Ltd.. 0.635% owned by Genera! Electric Capital Services India Holding Inc. and 0.635% owned by General Electric Capital Services Indian Investments, LLC. GE ultimately owns all these companies. GECS was incorporated in India in October 22, 1993 as an NBFC with the primary objective of participating in the development of India's financial services markets as well as in infrastructure and industrial growth. It obtained approval of the Foreign Investment Promotion Board (FIPB) on July 6, 1993 to carry out the following activities:- • To operate in the sphere of project finance, especially in the power sector, industrial and equipment leasing and financing, export and trade finance, consumer finance and corporate finance; * Taking any special deposits through financial institutions but not offering checking deposit/saving deposit facilities as in t....
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....it cannot be ruled out that the assessee has not incurred any expenditure directly or indirectly on upkeep/updated/maintain/look after the investments. The DRP further observed that admission of the assessee for disallowance of Rs. 25,819/- u/s 14A r.w.r 8D justifies the Assessing Officer's action in principle. The DRP declined to interfere with the findings of the Assessing Officer regarding disallowance u/s 14A of the Act. However, the DRP directed the Assessing Officer to record specific satisfaction of incorrectness of the working of the assessee for making disallowance u/s 14A of the Act while issuing the final order. 9. Pursuant to the directions of the DRP, the Assessing Officer simply made addition of Rs. 7,94,53,077/- after reducing the suo moto disallowance by the assessee of Rs. 25,817/-. 10. Before us, the ld. DR strongly supported the findings of the AO. The ld. AR vehemently submitted that firstly, the DRP grossly erred in directing the Assessing Officer to record satisfaction and secondly, inspite of this direction, the Assessing Officer simply made the addition without going into the merits of the case. It is the say of the ld. AR that there is no dispute that....
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....,000/- after adjusting the sale consideration of Rs. 9,08,29,87,000/- received from STFCL and resultant loss at Rs. 103,42,07,000/- has been claimed as expenses in the Profit and Loss Account. The assessee was asked to explain under which section these expenses are allowable as deduction. 16. The reply of the assessee reads as under: "In this regard, the assessee submits that, during the subject year, it had sold part of its finance receivables to Shri Ram Transport Finance Company Limited ('STFCL'j. All the rights and liabilities along with the finance receivables were also transferred to STFCL without 'recourse', i.e. in the event of default by the borrower in repaying installments to STFCL, STFCL cannot claim such loss from the assessee. The sale resulted in a loss of Rs. 103.45 crores for GBCSI and Rs. 0.93 crores in the case of GE Capital Financial Services. This loss has been debited by the assessee in its Profit & Loss account. In response to the query/ clarification sought by your office regarding the deductibility of the aforesaid loss under the provisions of the Act, the assessee, submits detailed reply as under: Allowability of L....
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....on to the obligator from whom amount are due for a period greater than or equal to ninety one calendar days as on the record date; a) 86% of the principle outstanding as on the closing date, b) 86% of the delinquent installment as on the closing date c) 86% of the accrued but unpaid charges including repossession fee as on the closing date d) 86% of the interest accrued but not due as on the closing date (iii) 100% of the advances received from the obligators as on the closing date, (for avoidance of doubt it is clarified that this advance amount shall be set off against the other amount payable by the buyer and only the difference shall be paid. 1.1.8 "GBCFS Loan Agreement" shall mean the master security and loan agreement entered into between GECFS and the respective GECFS obligators including related loan applications, loan files and under writing document, setting out the terms and conditions for the Rupee loan facility lent and advanced by GECFS to the respective GECFS obligators, for financing the acquisition of construction equipment/ commercial vehicle as the case may be 1.1.16 "GECFS Underlying security" shall ....
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....k product privileges. 7.8 Except for the buyer looses arising due to claim under sub clause 5:1.2 for which the seller shall indemnify the buyer up to the outstanding amount of the relevant obligator receivable at the time of such claim , the liability of the each of the seller to the buyer for all buyer losses at any time under this article VII, shall not exceed 20% of their portion of the actual purchase consideration" 19. After examining the aforementioned clauses, the Assessing Officer came to the conclusion that the assessee has not transferred loan facilities in totality. The main reason for coming to this conclusion is that even after the execution of this agreement, the assessee has entered into an interim service agreement for collection and security agent of the buyer with respect to obligator receivables for a specific period of time. The Assessing Officer was of the opinion that the clause of agreement clearly establishes that even after selling receivables, the assessee company continues to carry on the business activities with respect to these receivables as a collection agent of the buyer company. 20. The Assessing Officer further observed that the ass....
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....the assessee, then why het purchaser has right to indemnity @ 20% 25. We have given a thoughtful consideration to the orders of the authorities below. However, after going through the relevant documentary evidences, we do not find any force in the contention of the Revenue and we will address each issue one by one as under. (i) STFCL has no authority to recover the loan from the borrower as hypothecation is in the name of the assessee. 26. There is no dispute that the assessee has lent money to around 45000 borrowers who gave security of vehicles in the form of hypothecation to the assessee. In this line of trade, the lender takes post dated cheques from the borrowers in advance. Since on the date of sale agreement executed with STFCL the assessee was holding post dated cheques of the borrower, therefore, for the period to which post dated cheques were with the assessee, the assessee collected installments for and on behalf of STFCL and after retaining the commission at 1.75%, the assessee remitted the amount to STFCL. 27. For this reason, the assessee acted as collection agent of STFCL. In so far as hypothecation of vehicle is concerned, in our understanding, the....
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....mean an estimate determined by the Sellers of the Actual Purchase Consideration, which shall be equivalent to the value of the Obligor Receivables as on the Pre-Closing Valuation Date and shall be calculated as follows: (i) In relation to the Obligors from whom amounts are due for a period lesser than 91 (ninety-one) calendar days as on the Record Date: (a) 87% (Eighty-Seven Percent) of the principal outstanding as on the Pre-Closing Valuation Date; (b) 87% (Eighty-Seven Percent) of the Delinquent installment as on the Pre-Closing Valuation Date; (c) 87% (Eighty-Seven Percent) of accrued but unpaid charges including repossession fee as on the Pre-Closing Valuation Date; and (d) 87% (Eighty-Seven Percent) of the interest accrued but not due as on the Pre-Closing Valuation Date. (ii) In relation to the Obligors from whom amounts are due for a period greater than or equal to 91 (ninety-one) calendar days as on the Record Date: (a) 86% (Eighty-Six Percent) of the principal outstanding as on the Pre-Closing Valuation Date; (b) 86% (Eighty-Six Percent) of the Delinquent installment as on the Pre-Closing Valuation Dat....
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....r, registration or qualification of, or with, any court or regulatory authority or other governmental body having jurisdiction over the Seller, the absence of which would adversely affect the legal and valid execution, delivery and performance by the Seller of this Agreement or the taking by the Seller of any actions contemplated herein, is required; and (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated herein, do not conflict with or result in a breach of or a default under any of the terms, conditions or provisions of any legal restriction (including, without limitation, any judgment, order, injunction, decree or ruling of any court or governmental authority, or any applicable law) and does not violate or result in the violation of the Seller's Memorandum and Articles of Association.. Obligor Receivables and Underlying Documents (i) The Seller is the full and absolute legal and beneficial owner of the applicable Obligor Receivables and has a clear and marketable title thereto; (ii) The Seller has not sold, transferred or assigned or disposed off or agreed to sell, transfer, assign or dispose....
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...., or any applicable law) and does not violate or result in the violation of the Buyer's Memorandum and Articles of Association; and The Buyer has conducted a limited due diligence of the Underlying Documents based on a random sample of the same provided by the Sellers and a visit and review of the central payment processing facility (post dated cheque processing) at Chennai. 5.3 The Parties agree that the representations and warranties of each of the Sellers and the Buyer recorded above in Clauses 5.1 and 5.2 respectively shall constitute their sole and exclusive representations and warranties to each other." 36. In the light of the aforesaid clauses, it was agreed that the buyer [STFCL] will retain 20% if the title in loan account is found defective or if for some other reason STFCL is sued by the borrower and to safeguard itself, it was mutually agreed that the liability of each of the seller [assessee] to the buyer STFCL for all the buyer losses at any time shall not exceed 20% of their portion of actual purchase consideration. 37. After addressing to the objection of the Assessing Officer/DRP/DR, we are of the considered opinion that if the Revenue is objecting t....
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....tice in order to minimize its business loss. This was a case of outright sale without recourse obligations. The assessee was NBFC and, therefore, the financing was done in ordinary course of business and the loans under current assets acquired more or less the same character as of stock-in-trade and, accordingly, constituted trade debts/ receivables. It is not disputed that amount received on sale of delinquent assets had been adjusted against the outstanding balances and only net amount had been claimed as deduction. Thus, receipts also got accounted for in profit & loss account. Therefore, it was primarily a trading loss arising during the ordinary course of assessee's business. Further, we find that different clauses of memorandum of association reads as under:- "6.4 It was submitted that the aforesaid activity of the Appellant is in line with the objects stated in its Memorandum of Association ("MOA"). It was explained that Clause III of the MOA lists down the main and incidental/ancillary Objects for which the Appellant Company has been formed. The following relevant Clauses of the MOA were also reproduced for Ld. AO's ready reference:- "1. To carry o....
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....ervices [IGS] which had been bench marked under TNMM. A show cause notice was issued by the TPO. The following queries were raised : (i) "Please furnish all the agreements entered into by the assessee company, related to the Intra Group Sendees obtained by the assessee company from the A Es during the year. (ii) Please identify each of the services actually received by the assessee company. (Hi) Please specify the amount of payment made for each of such services. Please furnish the copy of account of the AE (providing the services) in your books of accounts, and your copy of account in the books of the AE. (iv) Please submit the contemporaneous documentary evidence to show that these services have actually been received by the assessee company. (v) Please justify the need for the receipt of such sendees for which payment has been made. (vi) Please state with documentary evidence as to when and how these sendees were requisitioned from the AEs. (vii) Please state as to how the rate or payment for IGS has been determined at the time of entering in to the agreement ? Please also furnish the basis thereof. (viii) P....
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....year, GECSI has entered into a Master Sendee Agreement with General Electric International Inc.- JapanfGEU Japan) for receiving the regional headquarters services front 01 January, 2008. The copy of agreement has been enclosed as part of Annexure-2. (b) Please identify each of the services actually received by the assessee company: The nature of services actually received by the assessee from GEII Japan alongwith other relevant details, is given as part of transfer pricing documentation maintained by the assessee. The transfer pricing documentation has already been fled via submission dated November 16, 2012. (c) Whether AE is rendering such services to any other AEs/Independent parties also. If yes, the details thereof including the rates/amount charged from such AEs alongwith mark up, if any: GEII Japan does not render such regional head-quarter sendees to independent parties under same or similar terms and conditions. It however renders this service to its other affiliates across the world. The basis of fees it charges from such affiliates is given in agreement enclosed as Annexure-2. (d) If the AE has rendered service to more than en....
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....e and has remitted the matter for verification of certain facts. The ld. AR supplied copy of the judgment of the co-ordinate bench in the case of GE Money Finance Services Pvt Ltd 179 TTJ 588. The relevant findings of the co-ordinate bench read as under: "i. In view of the above decision, it is apparent that "benefit Test" needs to be satisfied but same shall be judged from the viewpoint of assessee and with business prudence. All the decision cited by the ld. AR says that ld. TPO does not have right to question the wisdom of the assessee and he is not required to see whether the assessee is getting direct, tangible, substantial benefit from the services by replacing the view of ld. TPO in place of views of assessee. Ld. DR also says that these tests may be examined. Now the above two decisions G E Money Financial Services Pvt Limited AY ITA No 5882/Del/2010 5816/Del/2011 & 6282/Del/2012 2006-07 2007-08 & 2008-09 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 assessee. Therefore it is apparent that assessee cannot be asked to demonstrate it with 100 ....
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.... issue of tested party, Most appropriate method and comparability analysis." 47. The ld. AR drew our attention to the order of the TPO pursuant to the aforesaid directions of the co-ordinate bench and pointed out that in the remand proceedings, the TPO has accepted foreign AE as tested party and TNMM was accepted as the most appropriate method. 48. The ld. DR could not bring any distinguishing decision in favour of the revenue. 49. In the light of the aforementioned decision of the co-ordinate bench, we are of the considered opinion that the dispute has to be given a fresh look by the TPO in the light of several documentary evidences brought in support of the IGS fee paid by the assessee. We, accordingly, remit the matter back to the file of the TPO/Assessing Officer with the direction to consider the issue afresh in light of the decision of the co-ordinate bench [supra]. Ground No. 3 is allowed for statistical purposes. 50. Brief facts of Ground No. 4 are that on perusing the financials of the assessee, the TPO found that the assessee has substantial amount of outstanding receivables from the AEs which remained outstanding for a prolonged period and no interest had bee....
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....tstanding period of delay. It is the say of the ld. AR that in the financials of the assessee, under the head "Service Income Receivable", amounts outstanding in respect of 3 AEs are Rs. 41,890/- 25,459/- and 16,411/- respectively. 59. Per contra, the ld. DR showed his inability to explain how the TPO has computed the delay in payment and on which amount considered as outstanding receivables. 60. We have given a thoughtful consideration to the orders of the authorities below. There is no dispute that the TPO has solely based his findings on the retrospective amendment to section 92B of the Act. We are of the opinion that when the impugned T P study report was furnished by the assessee as per the then applicable provision, outstanding receivables were not considered as international transaction. In our humble opinion, a party cannot be called upon to perform an impossible act i,e., to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. 61. For this proposition, we draw support from the judgment of the Hon'ble Bombay High Court in the case of NGC Networks [India] Pvt Ltd in ITA No. 397 of 2015 dated 29.01.2018 wherei....