ACIT, New Delhi V. M/s. Citi Financial Consumer Finance India Ltd., New Delhi

ITA 6305/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96974 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 20-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK R WADEKAR
• Assessee Lawyers: C S AGGARWAL
• Keywords: Related party transaction; Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; International transaction; Question of law; Cost of acquisition; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 92A; 133(6); 37(1); 37; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I(2) , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. I. C. SUDHIR , JM ITA NO. 2848/DEL/2012 : ASSTT. YEAR : 2007 - 08 ITA NO. 6305/DEL/2012 : ASSTT. YEAR : 2008 - 09 ASSTT. COMMISS IONER OF INCOME TAX, CIRCLE 3(1), NEW DELHI VS M/S CITI FINANCIAL CONSUMER FINANCE INDIA LTD., 3, LOCAL SHOPPING CENTER, PUSHP VIHAR, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A AB CA3223B ASSESSEE BY : SH C. S. AGGARWAL, SR. ADV. & SH. RAVI PRATAP MAL L, ADV. REVENUE BY : SH . VIVEK R. WADEKAR, CIT DR & SH. RAHUL GARG, SR. DR DATE OF HEARING : 20 . 05 .2015 DATE O F PRONOU NCEMENT : 17 .08 .2015 ORDER PER N.K . SAINI , A.M. THESE TWO APPEALS BY THE DEPARTMENT ARE DIRECTED AGAINST THE SEPARATE ORDER S DATED 27.03.2012 AND 26.10.2012 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 RESPECTIVELY , PASSED BY THE L D. CIT(A) - XX, NEW DELHI . THESE APPEAL S WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIE NCE AND BREVITY. 2. FIRST WE WILL DEAL WITH THE APPEAL FOR THE ASSESSMENT YEAR 2007 - 08. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 2 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS. 24,40,36,690/ - ON ACCOUNT OF ADVERTISE MENT AND PUBLICITY EXPENSES. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS. 21,16,50,310/ - ON ACCOUNT OF LEASE HOLD IMPROVEMENTS EXPENSES. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS. 1,00,55,42 ,364/ - ON ACCOUNT OF DIRECT SELLING AGENT COMMISSION EXPENSES. 4. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS. 5,28,33,372/ - ON ACCOUNT OF LOSS ON SALE OF REPOSSESSED ASSETS. 5. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS. 3,61,02,215/ - ON ACCOUNT OF DEPRECIATION ON COMPUTER PERIPHERALS. 6. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS.5,74,05,698/ - ON ACCOUNT OF NCD AND COMMERCIAL PAPER ISSUE EXPENSE. 7. THE LD. CIT(A) HA S ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS.51,34,55,174/ - ON ACCOUNT OF LOAN ACQUISITION COSTS. 8. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS.1,13,56,639/ - ON ACCOUNT OF ADJUSTMENT ARM S LENGTH PRICE OF THE INTERNA TIONAL TRANSACTION. \ ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 3 9. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. VIDE GROUND NO. 1 THE GRIEVANCE OF THE DEPARTMENT RELATE S TO THE DELETION OF ADDITION OF RS. 24,40,36,690/ - MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT & PUBLICITY EXPENSES. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING FINANCE FOR AUTO LOANS, SALES FINANCE, MOR TGAGE (COMPRISING OF HOME LOANS AND HOME EQUITY) AND PERSONAL LOANS. THE ASSESSEE FILED THE RETURN OF INCOME ON 31.10.2007, DECLARING AN INCOME OF RS. 2 , 84,93,10,390/ - . THE SAID RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT). LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. THE AO PROCEEDED TO PASS THE DRAFT ASSESSMENT ORDER DATED 23.12.2010 U/S 144C OF THE ACT. THE ASSESSEE THEREAFTER CH OS E TO FILE AN APPEAL BEFORE THE LD. CIT(A) IN STEAD OF FILING OB JECTION S AGAINST THE PROPOSED ADDITION S BEFORE THE DRP AND COMMUNICATED THE SAME TO THE AO VIDE LETTER DATED 24.01.2011. THEREAFTER THE AO COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 144C OF THE ACT AND ASSESSED THE INCOME AT RS. 4 , 98,17,52,701/ - VIDE ORDER DATED 22.02.2011 BY MAKING FOLLOWING ADDITIONS/DISALLOWANCE S : ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 4 S. NO. PARTICULARS OF DISALLOWANCES AMOUNT (RS.) TREATMENT BY AO 1. ADDITION ON ACCOUNT OF ARM S LENGTH PRICE 1,13,56,639 DISALLOWED BY FOLLOWING TP ORDER U/S 92CA(3) 2. ADVERTISEMENT, PUB LICITY AND SALES PROMOTION EXPENSES 24,40,36,690 DEFERRED OVER A PERIOD OF 5 YEARS 3. LEASEHOLD IMPROVEMENT EXPENSES 21,16,50,310 CAPITALIZED AS PART OF BUILDING AND DEPRECIATION @ 10% HAS BEEN ALLOWED. 4. LOAN ACQUISITION COST 51,34,55,174 DEFERRED OVER A PERIOD OF 3 YEARS 5. DIRECT SELLING AGENT COMMISSION EXPENSES 100,55,42,364 DEFERRED OVER A PERIOD OF 3 YEARS 6. LOSS ON SALE OF REPOSSESSED ASSETS 5,28,33,372 HELD TO BE A CAPITAL LOSS 7. CLUB EXPENDITURE 59,849 HELD TO BE NON BUSINESS EXPENDITURE 8. DEPRECIATION ON COMPUTER PERIPHERALS 3,61,02,215 DEPRECIATION @ 15% ALLOWED AS AGAINST 60% CLAIMED BY THE APPELLANT 9. NCD AND COMMERCIAL PAPER ISSUE EXPENSES 5,74,05,698 DEFERRED OVER A PERIOD OF 5 YEARS TOTAL 2,13,24,42,311 4. BEING AGGRIEVED TH E ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO DELETED THE ADDITION OF RS. 24,40,36,690/ - MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT AND PUBLICITY BY FOLLOWING THE DECISION OF HIS PREDECESSOR IN DISPOSING ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 5 OF THE APPEAL FOR THE ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 WHEREIN THE ORDER DATED 18.12.2009 BY THE ITAT FOLLOWED THE EARLIER DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2001 - 02 AND 2002 - 03 WHICH HAD BEEN UPHELD BY THE HON BLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 30.03.2011. 5 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES ON THIS ISSUE AND ARE OF THE VIEW THAT SINCE THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE JUDGMENT OF THE HON BLE DELHI HIGH COURT AND MOREOVER, THIS ISSUE IS ALSO SQUARELY COVERED VIDE ORDER DATED 20.02.2015 IN ASSESSEE S OWN CASE IN ITA NO. 4776/ DEL/2010 FOR THE ASSESSMENT YEAR 2006 - 07 PASSED BY THIS BENCH OF THE TRIBUNAL WHEREIN RELEVANT FINDINGS HAS BEEN GIVEN AS UNDER: 13. APPLYING THE AFORESAID PRINCIPLE TO THE FACTS OF THIS CASE, IT CLEARLY EMERGES THAT THE EXPENDITURE ON PUBLICITY AND ADVERTISEMENT IS TO BE TREATED AS REVENUE IN NATURE ALLOWABLE FULLY IN THE YEAR IN WHICH IT WAS INCURRED. CONCEDEDLY, THERE IS NO ADVANTAGE WHICH HAS ACCRUED TO THE ASSESSEE IN THE CAPITAL FIE LD. THE EXPENDITURE WAS INCURRED TO FACILITATE THE ASSESSEE S TRADING OPERATIONS. NO FIXED CAPITAL WAS CREATED BY THIS EXPENDITURE. WE MAY ALSO ADD HERE THAT IN THE INCOME TAX LAWS, THERE IS NO CONCEPT OF ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 6 DEFERRED REVENUE EXPENDITURE. ONCE THE ASSESSEE CLA IMS THE DEDUCTION FOR WHOLE AMOUNT OF SUCH EXPENDITURE, EVEN IN THE YEAR IN WHICH IT IS INCURRED, AND THE EXPENDITURE FULFILLS THE TEST LAID DOWN U/S 37 OF THE ACT, IT HAS TO BE ALLOWED. ONLY IN EXCEPTIONAL CASES, THE NATURE MENTIONED IN MADRAS INDUSTRIAL CORPORATION (SUPRA), THE EXPENDITURE CAN BE ALLOWED TO BE SPREAD OVER, THAT TOO, WHEN THE ASSESSEE CHOOSES TO DO SO. 8. RESPECTFULLY FOLLOWING THE DECISION OF HON BLE DELHI HIGH COURT, THIS GROUND IS ALLOWED. 6 . IN VIEW OF THE ABOVE WE DO NOT SEE ANY MERIT IN THE DEPARTMENTAL APPEAL ON THIS ISSUE . 7 . THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 21,16,50,310/ - MADE BY THE AO ON ACCOUNT OF LEASE HOLD IMPROVEMENTS EXPENSES. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE ITAT IN ITS AFORESAID ORDER DATED 20.02.2015 WHEREIN THE RELEVANT FINDINGS HAD BEEN GIVEN IN PARA 9 TO 14 OF THE SAID ORDER. THE LD. DR COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNS EL FOR THE ASSESSEE. 8. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOTICED THAT AN IDENTICAL ISSUE WAS A SUBJECT MATTER OF ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 7 ADJUDICATION IN THE PRECEDING YEAR IN ASSESSEE S OWN CASE WHEREIN VIDE ORDER DATED 20.02.2015, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND RELEVANT DISCUSSION IS MADE IN PARAS 9 TO 14 WHICH READ AS UNDER: 9. THE SECOND GROUND RELATES TO DISALLOWANCE OF LEASEHOLD IMPROVEMENT EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWING ONLY DEPRECIATION @ 10%. 10. BR IEF FACTS APROPOS THIS ISSUE ARE THAT DURING THE YEAR THE ASSESSEE COMPANY HAD INCURRED LEASEHOLD IMPROVEMENT EXPENSES AMOUNTING TO RS. 6,46,12,909/ - AND THE SAME WAS CLAIMED AS REVENUE EXPENDITURE. THE ASSESSEE EXPLAINED THAT THE EXPENDITURE WAS INCURRED ON ACCOUNT OF SAFETY FILMS, SHUTTERS, LAYING OF CABLES, ELECTRICAL CONNECTIONS, INSTALLATION PVC CONDUITS, CATS, SANITARY FITTINGS, PARTITIONS AND PIN BOARDS, CIVIL WORKS, BRICK WORK, WATER PROOFING, FLOORING, FALSE CEILING, WALL FINISHES, TOILET FURNISHIN GS, PAINTS ON WALLS AND CEILINGS, EARTHLING, SWITCHES AND RECEPTACLES, GLAZING ON VENTILATORS ETC. IT WAS FURTHER EXPLAINED THAT THE CAPITAL EXPENDITURE WAS DULY BIFURCATED FROM THE BILLS AND THE BALANCE AMOUNT OF RS. 6.46 CRORES WAS CLAIMED AS LEASEHOLD I MPROVEMENTS. THE ASSESSING OFFICER TREATED THE ENTIRE EXPENDITURE BEING IN CAPITAL FIELD AND ALLOWED DEPRECIATION @ 10%. LEARNED COUNSEL SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT DATED 18 TH DECEMBER, 2009 FOR ASSESSMENT YEARS 2001 - 02 AND 2002 - 03 CONTAINED AT PAGE NO. 861 OF PAPER BOOK - II(A) AND ALSO BY THE DECISION OF ITAT FOR ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 CONTAINED AT PAGE NO. 1061 OF PAPER BOOK - II( A). LEARNED COUNSEL POINTED OUT THAT THE TRIBUNAL S DECISION FOR ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 8 ASSESSMENT YEARS 20 01 - 02 AND 2002 - 03 WAS ASSAILED BY REVENUE BEFORE HON BLE HIGH COURT. VIDE ITS JUDGMENT DATED 30.03.2011 HON BLE HIGH COURT DISMISSED THE REVENUE S APPEAL OBSERVING AS UNDER: 20. THE ARGUMENT OF MRS. BANSAL WAS THAT THE NOMENCLATURE OF TIMES OF EXPENDITU RE NAMELY SANITARY, FITTINGS, CIVIL WORKS, BRICKWORKS, FLOWING ETC. WOULD CLEARLY SHOW THAT THIS EXPENDITURE COULD BE CAPITAL IN NATURE. HER GRIEVANCE WAS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) OR THE TRIBUNAL DID NOT GO INTO THIS QUESTION AT ALL AN D SIMPLY ACCEPTED THE BIFURCATION GIVEN BY THE ASSESSEE IN CAPITALIZING THE PORTION OF THE EXPENDITURE AND TREATING THE PART OF THE EXPENDITURE AS REVENUE. HER PLEA, THEREFORE, WAS THAT THE MATTER BE REMITTED BACK TO THE ASSESSING OFFICER. SHE CONCEDED, AT THE SAME TIME, THAT EVEN THE ASSESSING OFFICER HAD NOT DONE THIS EXERCISE. IT IS CLEAR THAT THE ASSESSING OFFICER HAD NOT GONE INTO THE QUESTION AS TO WHETHER THE EXPENDITURE INCURRED ON LEASEHOLD IMPROVEMENTS WAS CAPITAL OR REVENUE IN NATURE. A LARGE NUM BER OF PREMISES ARE TAKEN ON LEASE BY THE ASSESSEE THROUGHOUT THE COUNTRY AND EXPENDITURE ON IMPROVEMENTS OF THESE LEASE PREMISES WAS INCURRED BY THE ASSESSEE. THE ASSESSEE HAS TREATED PART OF THE SAID EXPENDITURE AS CAPITAL IN NATURE AND DEPRECATION THERE ON. IN SO FAR AS EXPENDITURE TO THE EXTENT OF RS. 1.52 CRORES IS CONCERNED, THE SAME IS TREATED AS REVENUE IN NATURE. 21. MRS. BANSAL MAY NOT BE CORRECT IN HER SUBMISSION THAT THE COMMISSIONER OF INCOME TAX (APPEALS) SIMPLY ACCEPTED THE ASSERTION OF THE ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 9 A SSESSEE. THE ORDER OF THE CIT REVEALS THAT THE PLETHORA OF DOCUMENTS IN RESPECT OF EXPENDITURE INCURRED ON LEASEHOLD IMPROVEMENTS TO THE EXTENT OF RS. 1.52 CRORES WAS FILED AT PAGES 282 TO 336 OF THE PAPER BOOK. THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS) CLEARLY REVEALS THAT HE HAD PERUSED THE BILLS FILED BY THE APPELLANT AND ALSO VERIFIED ITS VARIOUS ASSERTIONS . THUS THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTED THE SAND OF THE ASSESSEE ONLY AFTER VERIFICATION OF THE RECORDS AND ARRIVING A T A FINDING OF FACT THAT THE EXPENDITURE ON THE AFORESAID ACCOUNT WAS REVENUE IN NATURE. IN THIS BACKDROP, THE ITAT HAS OBSERVED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAD VERIFIED THE DETAILS PRODUCED BY THE ASSESSEE AND GAVE HIS CATEGORICAL FINDIN G BASED THEREUPON. THIS WOULD, THUS, BE A MERE QUESTION OF FACT AND NO QUESTION OF LAW ARISES THEREUPON. 11. LEARNED COUNSEL FURTHER POINTED OUT THAT SLP FILED AGAINST THE JUDGMENT OF HON BLE DELHI HIGH COURT HAS BEEN DISMISSED. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. IN ASSESSMENT YEARS 2001 - 02 AND 2002 - 03 TRIBUNAL HAD OBSERVED IN PARA 39 AS UNDER: 39. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS, WE FIND THAT THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAS DULY PRODUCED ALL THE NECESSARY DETAILS AND THAT THE ASSESSEE HAS DULY IDENTIFIED THE CAPITAL PORTION OF THE EXPENDITURE INCURRED AND THE ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 10 AMOUNT OF THE IMPROVEMENTS EXPENSES WHICH WERE OF REVENUE IN NATURE. WE ALSO FIND THAT IT IS A SETTLED LAW THAT POWERS AND DUTIES OF THE COMMISSIONER OF INCOME TAX (APPEALS) ARE CO - TERMINUS WITH THAT THE ASSESSING OFFICER. HENCE, IN OUR CONSIDERED OPINION, THERE IS NO NEED TO INTERFERE WITH THE FINDIN G OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, WE UPHOLD THE SAME. 13. FURTHER IN ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 TRIBUNAL IN PARA NO. 9.2, AFTER TAKING NOTE OF THE DECISION OF HON BLE DELHI HIGH COURT FOR ASSESSMENT YEARS 2001 - 0 2 AND 2002 - 03 (SUPRA), OBSERVED AS UNDER: 9.2 IN THE LIGHT OF AFORESAID VIEW TAKEN BY THE HON BLE JURISDICTIONAL HIGH COURT, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF THE LEARNED COMMISSION OF INCOME TAX (APPEALS) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISION, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THEREFORE, GROUND NO. 2 IN THE APPEALS OF THE REVENUE FOR THESE THREE ASSESSMENT YEARS IS DISMISSED. 14. SINCE THE FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YEARS 2001 - 02 TO 2005 - 06, RESPECTFULLY FOLLOW ING THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT, THIS GROUND OF ASSESSEE IS ALLOWED. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 11 9. SO, RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL DATED 20.02.2015 IN ASSESSEE S OWN CASE, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENT AL APPEAL. 10. THE NEXT ISSUE VIDE GROUND NO. 3 RELATES TO THE DELETION OF ADDITION OF RS. 1,00,55,42,364/ - MADE BY THE AO ON ACCOUNT OF DIRECT SELLING AGENT COMMISSION EXPENSES. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS COVERED VIDE PARA 21 OF THE ORDER DATED 20.02.2015 IN ITA NO. 4776/DEL/2010 FOR THE ASSESSMENT YEAR 2006 - 07 IN ASSESSEE S OWN CASE. THE LD. DR COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 11. AFTER CONSIDERING THE SUBMISSION OF BOTH THE PARTIES , IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING YEAR VIDE PARA 21 OF THE ORDER DATED 20.02.2015 AND THE RELEVANT FINDINGS THEREIN READ AS UNDER: 21. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. IT IS NOT DISPUTED THAT THE FACTS ARE IDENTICAL TO ASSESSMENT ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 12 YEARS 2001 - 02 TO 2005 - 06. WE FIND THAT TRIBUNAL IN PARA NO. 13 HAS OBSERVED AS UNDER: 13. WE HAVE HEARD BOTH THE PARTI ES AND GONE THROUGH THE FACTS OF THE INDISPUTABLY AND AS POINTED OUT BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDERS AND THE ASSESSING OFFICER IN HIS ASSESSMENT ORDERS, FACTS AND CIRCUMSTANCES IN THE YEARS UNDER CONSIDERATION ARE SIM ILAR TO THE FACTS AND CIRCUMSTANCES IN THE AYS. 2001 - 02 & 2002 - 03. WE FIND THAT HON BLE JURISDICTIONAL HIGH COURT IN THEIR AFORESAID DECISION DATED 30 TH MARCH, 2011 WHILE ADJUDICATING A SIMILAR ISSUE IN THE AYS. 2001 - 02 AND 2002 - 03 CONCLUDED AS UNDER: 15 . AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD BEEN FINANCING THE HIRE PURCHASE OF VEHICLES AND HOMES ETC. AND THE PERIOD OF SUCH FINANCING WERE RANGING FROM LESS THAN ONE YEAR UPTO 5 YEARS. ON SUCH TRANSACTIONS, DIRECT SELLING EXPENSES, STAMPING FEE AND COMMISSION PAID TO THE SELLING AGENTS COULD NOT BE TREATED AS EXPENSE RELATING TO THE YEAR IN WHICH THE TRANSACTION TOOK PLACE AS THE PERIOD OF FINANCING WAS NORMALLY MORE THAN ONE YEAR. ON THIS PREMISE, THE ASSESSING OFFICER TOOK THE VIEW THAT THESE EXPE NSES COULD NOT BE TERMED AS HAVING THE CHARGEABILITY IN WHICH THEY WERE INCURRED. HE TOOK AVERAGE OF THREE YEARS FOR SUCH AGREEMENTS AND SPREAD THE EXPENSE OVER A PERIOD OF THREE YEARS THEREBY ALLOWING 1/3 RD EXPENDITURE INCURRED IN THAT PARTICULAR YEAR. TH E MATTER WAS TAKEN UP IN APPEAL AND BEFORE THE LD. COMMISSIONER OF ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 13 INCOME TAX (APPEALS), THE ASSESSEE QUESTIONED THE AFORESAID APPROACH OF THE ASSESSING OFFICER BY CONTENDING THAT IN THE COURSE OF ITS BUSINESS, THE ASSESSEE ENTERS IN THE LOAN AGREEMENTS OF HIRE PURCHASE WHICH AGREEMENTS ARE REQUIRED TO BE STAMPED IN ACCORDANCE WITH THE PROVISIONS OF INDIAN STAMPS ACT. THE STAMP DUTY PAID BY THE ASSESSEE IS DEBITED TO AGREEMENT STAMPING FEE UNDER THE MAJOR HEAD OF RATES AND TAXES AND IS CLAIMED AS REVENUE EXPENDITURE. THIS ENTIRE PROCESS OF GETTING STAMPED THE AGREEMENTS HAD BEEN OUTSOURCED BY THE ASSESSEE TO THE CONTRACT PROCESSING ASSOCIATES (CPA) AND WHO ARE PAID REMUNERATION AS WELL. THEREFORE, THE EXPENSE TOWARDS STAMPING AS WELL AS COMMISSION PAID TO THE AGENTS IS DEBITED IN WHOLE IN THE YEAR IN WHICH IT IS INCURRED AND COULD NOT BE TREATED AS ADVERTISEMENT EXPENSE. 16. THE COMMISSIONER OF INCOME TAX (APPEALS) WAS UNIMPRESSED WITH THIS ARGUMENT AND FOUND THAT THE ASSESSEE WAS SPREADING OVER THE INCOM E DURING THE NUMBER OF YEARS THAT THE FINANCING IS SPREAD OVER AND, THEREFORE, EXPENDITURE ON THE AFORESAID COUNTS WAS REQUIRED TO BE SPREAD OVER. THE ITAT, HOWEVER, DENOUNCED THIS REASONING OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND ACCEPTED THE PLEA THAT THE EXPENDITURE INCURRED HAD NOTHING TO DO WITH THE PERIOD OF LENGTH OF TIME AND HAD NO LINKAGE, WHATSOEVER, TO ANY PERIOD, THE ENTIRE EXPENDITURE WAS ALLOWABLE IN THE YEAR IN WHICH IT WAS INCURRED. THE TRIBUNAL HAS ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 14 FURTHER HELD THAT THE EXPENDITURE IS INCURRED ONCE FOR ALL IN THE FORM OF STAMPING DUTY AS WELL AS COMMISSION PAID TO THE DIRECT SELLING AGENTS FOR PROCURING THE LOAN ASSIGNMENTS AND IT IS NOT DEPENDENT UPON THE WORKING OUT OF THE AGREEMENTS ULTIMATELY ENTERED INTO BETWEEN THE ASSESSEE AND THE CUSTOMERS. SINCE THE COMMISSION IS PAID TO THE DIRECT SELLING AGENTS, FOR THEIR SERVICES IN SOURCING HIRE IN THE YEAR IN WHICH THE LOAN IS DISBURSED, IT IS TO BE ALLOWED AS BUSINESS EXPENDITURE. THE TRIBUNAL, TO ARRIVE AT THIS FINDING TOOK INTO CONSID ERATION THE CLAUSES OF THE AGREEMENT RELATING TO MODE OF PAYMENT OF CONSIDERATION AS WELL AS TERMINATION CLAUSE IN THE AGREEMENT. THUS, AS THE ENTIRE EXPENDITURE WAS INCURRED WHICH ADMITTEDLY HAVE NEXUS WITH THE BUSINESS OF THE ASSESSEE, IT WAS TREATED AS BUSINESS EXPENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. THE TRIBUNAL ALSO RELIED UPON THE JUDGMENT OF SUPREME COURT IN THE CASES OF CALCUTTA COMPANY LTD. VS CIT, 37 ITR 1, CIT VS ASSOCIATED CEMENT COMPANIES LTD., 172 ITR 257, EMPIRE JUTE COMPANY LTD. V S CIT, 124 ITR 01 AND JUDGMENT OF THIS COURT IN CIT VS SALORA INTERNATIONAL LTD., 308 ITR 199. 30.2 IT WILL ALSO BE APT TO REFER TO THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF CIT VS ASSOCIATED CEMENT COMPANIES LTD. IN 172 ITR 257 WHEREIN THE FA CTS ARE AS UNDER: THE RESPONDENT COMPANY, A MANUFACTURER OF CEMENT, WAS RUNNING A CEMENT FACTORY AT SHAHABAD. THE THEN GOVERNMENT OF HYDERABAD ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 15 INCLUDED THE FACTORY PREMISES WITHIN THE LIMITS OF SHAHABAD MUNICIPALITY. A TRIPARTITE AGREEMENT WAS ENTERED IN TO BETWEEN THE GOVERNMENT, THE MUNICIPALITY AND THE RESPONDENT COMPANY, WHEREBY THE COMPANY UNDERTOOK (I) TO SUPPLY WATER TO THE MUNICIPALITY AND PROVIDED WATER PIPELINES, (II) TO SUPPLY ELECTRICITY FOR STREET LIGHTING IN THE MUNICIPALITY AND PUP UP A TRAN SMISSION LINE THEREFORE, AND (III) TO CONCRETE THE MAIN ROAD FROM THE FACTORY TO THE RAILWAY STATION. IN RETURN, THE RESPONDENT WAS NOT LIAB LE TO PAY MUNICIPAL RATES AND T AXES FOR A PERIOD OF 15 YEARS. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YE AR 1959 - 60, THE RESPONDENT SPENT A SUM OF RS. 2,09,459/ - TOWARDS INSTALLING WATER PIPELINES AND ACCESSORIES OUTSIDE THE FACTORY PREMISES WHICH WERE TO BELONG TO AND BE MAINTAINED BY THE MUNICIPALITY. SINCE IT WAS NOT DISPUTED THAT THE ENTIRE EXPENDITURE CO NCERNED INSTALLATIONS AND ACCESSORIES WHICH CAME TO THE OWNERSHIP OF THE MUNICIPALITY, THE HIGH COURT, ON A REFERENCE HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE AND DEDUCTIBLE IN COMPUTING THE PROFITS OF THE COMPANY. THE HON BLE APEX COURT UPON CO NSIDERATION REFERRED TO THE DECISION AT THE APEX COURT IN THE EMPIRE JUTE CO. LTD. VS CIT 124 ITR 1 AND HELD THAT IF THIS PRINCIPLES IS APPLIED TO THE FACTS OF THE CASE BEFORE US, WHAT WE FIND IS THAT THE ADVANTAGE WHICH WAS SECURED BY THE ASSESSEE BY MAK ING THE EXPENDITURE IN QUESTION WAS THE SECURING OF ABSOLUTION OR IMMUNITY FROM LIABILITY TO PAY MUNICIPAL RATES AND TAXES UNDER NORMAL CONDITIONS FOR A PERIOD OF FIFTEEN YEARS. IF THESE LIABILITIES HAD TO BE PAID, THE PAYMENTS WOULD ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 16 HAVE BEEN ON REVENUE A CCOUNT AND HENCE THE ADVANTAGE SECURED WAS IN THE FIELD OF REVENUE AND NOT CAPITAL. AS A RESULT OF THE EXPENDITURE INCURRED THERE WAS NO ADDITION TO THE CAPITAL ASSETS OF THE ASSESSEE - COMPANY AND NO CHANGE IN ITS CAPITAL STRUCTURE. THE PIPELINES, ETC., WHI CH MIGHT HAVE BEEN REGARDED AS CAPITAL ASSETS AND WHICH CAME INTO . 17. WE ARE IN AGREEMENT WITH THE AFORESAID VIEW TAKEN BY THE TRIBUNAL AND HOLD THAT THE EXPENDITURE WAS REQUIRED TO BE ALLOWED AS REVENUE/BUSINESS EXPENDITURE INCURRED IN THAT YEAR. THE REASONS GIVEN BY US WHILE ALLOWING THE ADVERTISEMENT AND PUBLICITY EXPENDITURE WILL APPLY HERE AS WELL. 13.1 IN THE LIGHT OF AFORESAID VIEW TAKEN BY THE HON BLE JURISDICTIONAL HIGH COURT, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISION, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS). THEREFORE, GROUND NO. 5 IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003 - 04 AND GROUND NO. 5 IN THEIR APPEALS FOR ASSESSMENT YEARS 2003 - 04 AND 2005 - 06 ARE DISMISSED. 12. SO, RESPECTFULLY FOLLOWING THE AFORESAI D REFERRED TO ORDER OF THE TRIBUNAL, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 17 13. THE NEXT ISSUE VIDE GROUND NO. 4 RELATES TO THE DELETION OF ADDITION OF RS. 5,28,33,372/ - MADE BY THE AO ON ACCOUNT OF LOSS ON SALE OF REPOSSESSED A SSETS. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN ADJUDICATED IN THE PRECEDING YEAR AND THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARA 24 OF THE ORDER DATED 20.02.2015. THE LD. DR ALTHOUGH SUPPORTED T HE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 14. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF THE ASS ESSEE S APPEAL IN ITA NO. 4776/DEL/2010 FOR THE ASSESSMENT YEAR 2006 - 07 AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY OBSERVING IN PARA 24 OF THE IMPUGNED ORDER AS UNDER: 24. BRIEF FACTS APROPOS THIS ISSUE ARE THAT DURING THE YEAR THE ASSESSEE H AD SHOWN LOSS ON SALE OF RE - POSSESSED ASSETS TO THE TUNE OF RS. 5,92,69,342/ - . THE ASSESSEE EXPLAINED THAT THIS LOSS HAD BEEN WORKED OUT BY CALCULATING THE DIFFERENCE BETWEEN THE AMOUNT STILL TO BE RECOVERED FROM SUCH CUSTOMER AND THE AMOUNT RECEIVED ON SA LE OF RE - POSSESSED ASSETS. FOLLOWING THE DECISION OF HON BLE ALLAHABAD HIGH COURT IN THE CASE OF MOTOR AND GENERAL SALES (PRIVATE) LIMITED VS CIT ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 18 (226 ITR 137), DISALLOWED THE ASSESSEE S CLAIM OBSERVING THAT THE ASSETS DID NOT CONSTITUTE THE ASSESSEE S STO CK IN TRADE. HENCE, THE LOSS ON RE - POSSESSED ASSETS COULD NOT BE HELD AS REVENUE S LOSS FOR THE ASSESSEE COMPANY. LEARNED COUNSEL POINTED OUT THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY TRIBUNAL AS WELL AS BY HON BLE HIGH COURT IN EARLIER YEARS. WE FIND TH AT TRIBUNAL IN ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 HAS ALLOWED THIS GROUND OBSERVING IN PARA 17 PAGE 1072 OF PAPER BOOK AS UNDER: 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. IN DISPUTABLY AND AS POINTED OUT BY THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDERS AND THE AO IN HIS ASSESSMENT ORDERS, FACTS AND CIRCUMSTANCES IN THE YEARS UNDER CONSIDERATION ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YEAR 2002 - 03. WE FIND THAT A CO - ORDINATE B ENCH IN THEIR DECISION DATED 9 TH OCTOBER, 2009 IN ITA NO. 1966/D/09 FOR THE ASSESSMENT YEAR 2002 - 03 CONCLUDED AS UNDER: 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IT HAS BEEN NOTED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN PARA NO. 3.3 OF HIS ORDER THAT IT WAS SUBMITTED BEFORE HIM THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 56,926,000/ - ON ACCOUNT OF LOSS ON SALE OF REPOSSESSED ASSETS AS REVENUE EXPENDITURE. IT IS ALSO NOTED THAT IT IS THE CLAIM OF THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE IS NOTHING BUT BAD DEBTS INCURRED BY THE ASSESSEE DURING THE COURSE OF ITS NORMAL ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 19 BUSINESS OPERATIONS. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THIS ISSUE AGAINST THE ASSE SSEE ON THE BASIS THAT THIS LOSS IS RELATED TO WRITE OFF OF REPOSSESSED ASSETS AND IS NOT RELATED TO DEBTS AS SUCH. WE ARE OF THE CONSIDERED OPINION THAT THIS LOSS IS ALLOWABLE TO THE ASSESSEE SINCE THE LOSS HAS BEEN INCURRED IN NORMAL COURSE OF BUSINESS. REPOSSESSION OF THE ASSET WAS TAKEN BY THE ASSESSEE IN THE COURSE OF NORMAL COURSE OF BUSINESS. REPOSSESSION OF THE ASSET WAS TAKEN BY THE ASSESSEE IN THE COURSE OF NORMAL BUSINESS OPERATIONS AND SUCH REPOSSESSED ASSETS WERE SOLD AND LOSS INCURRED IN THIS PROCESS IS A NORMAL BUSINESS LOSS ALLOWABLE TO THE ASSESSEE. THE SAME IS ALLOWABLE U/S 36(1)(VII) OF THE ACT ALSO AS WRITE OFF OF BAD DEBTS BECAUSE WHEN THERE IS LOSS ON SALE OF REPOSSESSED ASSETS, SUCH DEFICIENCY IS REALIZABLE FROM THE CUSTOMER BUT SINCE THE ASSESSEE HAS WRITTEN OFF THE SAME IN THE P&L A/C INSTEAD OF DEBITING IT TO THE CUSTOMER ACCOUNT, IT IS EQUAL TO WRITE OFF OF BAD DEBT AND BY NOW, IT IS A SETTLED LEGAL POSITION THAT AFTER THE AMENDMENT IN SECTION 36(1)(VII) OF THE ACT W.E.F. 01.04.1989 , ONLY WRITE OFF IS SUFFICIENT AND THE ASSESSEE IS NOT REQUIRED TO SHOW THAT THE DEBIT HAS BECOME BAD. WE, THEREFORE, DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE SINCE WE ARE IN AGREEMENT WITH LEARNED COUNSEL OF THE ASSESSEE THAT THE JUDGMENT OF HON BLE A LLAHABAD HIGH COURT FOLLOWED BY THE AUTHORITIES BELOW IS NOT APPLICABLE BECAUSE OF CHANGE IN LAW AS WE HAVE NOTED THAT SECTION 36(1)(VII) OF THE ACT HAS BEEN AMENDED W.E.F. 01.04.1989. WE, THEREFORE, DECIDE THIS ISSUE ALSO IN FAVOUR OF THE ASSESSEE. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 20 17.1 SUBSEQUENTLY, HON BLE HIGH COURT IN THEIR ORDER 04.03.2011 IN ITA NO. 451/2011 UPHELD THE AFORESAID DECISION OF THE ITAT IN THE LIGHT OF VIEW TAKEN BY THE HON BLE HIGH COURT IN THEIR DECISION DATED 09.11.2010 IN CIT VS CITICORP MARUTI FINANCE LTD. IN ITA NO.S 1712 & 1714/2010, HOLDING THAT THE ASSESSEE WAS ENTITLED TO LOSS ON SALE OF REPOSSESSED ASSETS U/S 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. 17.2 IN THE LIGHT OF AFORESAID VIEW TAKEN BY THE HON BLE JURISDICTIONAL HIGH COURT, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISION, WE HAVE N O HESITATION IN UPHOLDING THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THEREFORE, GROUND NO. 6 IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003 - 04 AND GROUND NO. 5 IN THEIR APPEALS FOR THE ASSESSMENT YEARS 2004 - 05 AND 2005 - 06 ARE DISMISSED. 15. SO, RESPECTFULLY FOLLOWING THE ORDER DATED 20.02.2015 IN THE AFORESAID REFERRED TO ORDER IN ASSESSEE S OWN CASE, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 16 . NEXT ISSUE GROUND NO. 5 RELATES TO THE DELETION OF ADDITION OF RS. 3,61,02,215/ - MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON COMPUTER PERIPHERALS. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 21 17 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAD ALREADY BEEN A DJUDICATED BY THIS BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2006 - 07 WHEREIN THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARA 33 OF THE ORDER DATED 20.02.2015 WHICH READ AS UNDER: 33. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT HON BLE HIGH DELHI HIGH COURT IN THE CASE OF CITICORP MARUTI FINANCE LTD. (SUPRA) HAS HELD AS UNDER: THE ASSESSEE HAD ALSO CLAIMED DE PRECIATION AT THE RATE OF 60% ON COMPUTERS ACCESSORIES AND PERIPHERALS PURCHASED BY THE ASSESSEE DURING THIS YEAR. THE ASSESSING OFFICER, HOWEVER, ALLOWE D THE DEPRECIATION AT THE RATE OF 25%. THE COMMISSIONER OF INCOME TAX (APPEALS) REVERSED THIS PART OF THE ORDER OF THE ASSESSING OFFICER HOLDING THAT ON COMP UTER ACCESSORIES 60% DEPRECIATION WAS ALLOWABLE UNDER THE ACT. THIS ORDER IS ALSO UPHELD BY THE TRIBUNAL. IN SO FAR AS SECOND ISSUE IS CONCERNED, IT SHOULD NOT BE DISPUTED BY THE LEARNED COUNSEL FOR THE REVENUE THAT THIS ISSUE IS NOW SETTLED BY THE JUDGME NT OF THIS COURT IN THE CASE OF CIT VS BSES YAMUNA POWERS LTD. (ITA NO. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 22 1267/2010) DECIDED ON 31.08.2010), HOLDING THAT ON COMPUTERS AND PERIPHERALS, DEPRECIATION AT THE RATE OF 60% IS ALLOWABLE. 18 . SINCE THE FACTS IN THE YEAR UNDER CONSIDERATION ARE SI MILAR TO THE FACTS INVOLVED IN THE SAID ASSESSMENT YEAR 2006 - 07 . WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY DO NOT SEE ANY MERIT IN THE APPEAL OF THE DEPARTMENT ON THIS IS SUE. 19 . NEXT ISSUE VIDE GROUND NO. 6 REL ATES TO THE GRIEVANCE OF THE DEPARTMENT TO THE DELETION OF ADDITION OF RS. 5,74,05,698/ - MADE BY THE AO ON ACCOUNT OF NCD AND COMMERCIAL PAPER ISSUE EXPENSE. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT IT IS ALSO COVERED IN FAVOUR OF THE ASSESSEE VIDE PARA 39 OF THE ORDER DATED 20.02.2015 IN ASSESSEE S OWN CASE FOR THE PRECEDING ASSESSMENT YEAR I.E. 2006 - 07. THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE WAS NOT CONTROVERTE D BY THE LD. DR. 20 . IT IS NOTICED THAT A SIMILAR ISSUE HAVING IDENTICAL FACTS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE ASSESSMENT YEAR 2006 - 07 VIDE ORDER DATED 20.02.2015 BY ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 23 FOLLOWING THE EARLIER ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 20003 - 04 TO 2005 - 06 AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 39 WHICH READ AS UNDER: 39. HAVING HEARD BOTH THE PARTIES, WE FIND THAT TRIBUNAL IN PARA NOS. 25 TO 25.7 IN ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 OBSERVED AS UNDER: 25. WE HAVE HEARD B OTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE AFORESAID AMOUNT RELATES TO EXPENDITURE IN CONNECTION WITH THE ISSUE OF NON CONVERTIBLE DEBENTURES AND COMMERCIAL PAPER. THE ASSESSING OFFICER TREATED THE SAME AS DEFERRED EXPENDITUR E WHILE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM IN THE LIGHT OF DECISION OF INDIA CEMENTS LTD. (SUPRA). IT IS WELL ESTABLISHED THAT THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT . THE RELEVANT PROVISIONS OF THE ACT RECOGNIZE ONLY CAPITAL OR REVENUE EXPENDITURE. DEFERRED REVENUE EXPENDITURE DENOTES EXPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED, WHICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REA SONS LIKE QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRITTEN OFF OVER A PERIOD OF TIME E.G. EXPENDITURE ON ADVERTISEMENT, SALES PROMOTION ETC. THOUGH THE NATURE OF SUCH EXPENDITURE IS REVENUE, KEEPING IN VIEW THE FACT THAT THE BENEFIT ARISING T HERE FROM ARE EXPECTED TO BE DERIVED OVER A PERIOD OF TIME, STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING YEARS, THE TAXPAYERS HAVE BEEN AMORTIZING THE ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 24 SAME OVER THE EXPECTED TIME PERIOD OVER WHICH THE BENEFITS ARE LIKELY TO ACCRUE THERE FROM. ACCORDINGLY, ONLY A PROPORTION OF SUCH EXPENDITURE IS AMORTISED IN THE PROFIT AND LOSS ACCOUNT BUT AN APPROPRIATE ADJUSTMENT IS MADE IN THE COMPUTATION OF INCOME, CLAIMING THE ENTIRE AS ALLOWABLE REVENUE EXPENDITURE IN TERMS OF PROVISIONS OF SECTION 37(1) OF THE ACT. T HE EXPENDITURE WHICH IS TREATED AS DEFERRED REVENUE IN THE BOOKS ALMOST IN ALL CASES COMPRISES OF ITEMS, THE BENEFITS DERIVED WHEREFROM ARE EPHEMERAL AND TRANSITORY IN NATURE IN AS MUCH AS THESE ARE INCURRED AS A PART OF A CONTINUOUS PROCESS AND NEED TO BE EXPENDED IN ORDER TO GENERATE AND INCREASE THE BRAND RECALL AND SUSTAIN IT IN THE MINDS OF CUSTOMERS. WHETHER OR NOT EXPENDITURE IS OF ENDURING NATURE, THE HON BLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS CIT (1989) 177 ITR 377 HAS ITSELF OBSERVED THAT THE IDEA OF ONCE FOR ALL PAYMENT AND ENDURING BENEFIT ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITIONS; NOR ARE THE NOTIONS OF CAPITAL OR REVENUE A JUDICIAL FETISH. WHAT IS CAPITAL EXPENDITURE AND WHAT IS REVEN UE ARE NOT ETERNAL VERITIES BUT MUST NEEDS BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION ASSET OR ADVANTAGE OF, AN ENDURING NATURE WAS EVOLVED TO EMPHASIZE THE ELEMENT OF A SUFFICIENT DEGREE OF DURABILITY APP ROPRIATE TO THE CONTEXT. 25.1 MOREOVER, THE DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 25 TREAT THE SAME AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOL VED. FOR THE PURPOSE OF ALLOWABILITY OF ANY EXPENDITURE UNDER THE ACT, WHAT IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNIZE OF ANY CONCEPT OF DEFERRED REVENUE EXPENDITURE. THAT IS WHY ASSESSING OFFFICER HIM SELF ALLOWED THE 1/5 TH OF THE AMOUNT. IN A NUMBER OF JUDGMENTS VIZ. AMAR RAJA BATTERIES LTD. VS ACIT (2004) 91 ITD 280 (HYD.), JCIT VS MODI OLIVETTI LTD. (2005) 4 SOT 859 (DEL.), ACIT VS MEDICAMEN BIOTECH LTD. (2005) 1 SOT 347 (DEL.), HERO HONDA MOTORS LTD . VS JCIT (2005) 4 SOT 393 (MUM) AND ACIT VS ASHIMA SYNTEX LTD. 117 ITO 1 (AHD.) (SB) IT HAS BEEN AFFIRMED THAT WHERE ANY EXPENDITURE IS TREATED AS A DEFERRED REVENUE EXPENDITURE, IT PRESUPPOSES THAT THE CONCERNED EXPENDITURE, CREATING BENEFIT IS IN THE RE VENUE FILED AND IS A REVENUE EXPENDITURE, BUT CONSIDERING ITS ENDURING BENEFITS AS WELL AS THE FACT THAT IT DOES NOT RESULT IN THE CREATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIELD, THE SAME IS REQUIRED TO BE TREATED DISTINCTLY FROM CAPITAL EXPENDITURE. HOWEVER, WHERE ANY IDENTIFIABLE CAPITAL ASSET, TANGIBLE OR INTANGIBLE COMES INTO EXISTENCE AS A RESULT OF THE AMOUNT EXPENDED, THE SAME WILL HAVE TO BE TREATED AS A CAPITAL EXPENDITURE AND DEPRECIATION ALLOWABLE THEREON AS PER TH E PRESCRIBED RULES AND PROCEDURES UNDER THE INCOME TAX ACT. 25.2 IN THE INSTANT CASE, THERE IS NO MATERIAL BEFORE US TO INFER THAT THE AFORESAID EXPENDITURE ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 26 RESULTED IN CREATION OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE, AND THUS, THE QUESTION OF TREAT ING THE SAME AS CAPITAL EXPENDITURE DOES NOT ARISE. IN FACT, THE HON BLE SUPREME COURT ITSELF IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED (SUPRA) WHILE DISCUSSING THE ISSUE, IN THE SAID CASE, AND DISTINGUISHING BETWEEN VARIOUS SITUATIONS OBSERVED T HAT ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT O F IN HIS BOOKS OVER A PERIOD OF YEARS. 25.3 ANOTHER ARGUMENT BY THE LD. DR IS THE VARIATION AND DICHOTOMY BETWEEN THE ACCOUNTING TREATMENT OF SUCH EXPENDITURE IN THE BOOKS OF ACCOUNT AND ITS CLAIM UNDER THE ACT. AS FAR AS THE ENTRIES IN THE BOOKS OF ACCO UNT ARE CONCERNED, IT IS WELL SETTLED THAT THEY DO NOT CLINCH THE ISSUE EITHER WAY, AND ARE NOT DETERMINATIVE OF THE ALLOWABILITY OR OTHERWISE OF THE EXPEN DITURE. THE DECISIONS OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS INDIAN DISCOUNTS CO. LTD. (1 970) 75 ITR 191 (SC) ARE CLEAR ON THE ISSUE. THE ACCOUNTING ENTRIES IN THE BOOKS OF ACCOUNTS ARE OCCASIONED BY A DIVERSE SET OF CONSIDERATIONS AND ISSUES SUCH AS COMPLIANCE WITH STATUTORY LAWS AND MANDATORY ACCOUNTING STANDARDS/PRINCIPLES AND OF COURSE MAN AGEMENT DECISIONS AS TO THE TREATMENT OF A PARTICULAR ITEM WHICH CAN BE GUIDED BY CONSIDERATIONS OF REPORTED PROFITABILITY EARNING ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 27 PER SHARE, IMPACT ON SHARE PRICES ETC. THE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS CIT (1971) 8 2 ITR 363 (SC) ALSO AFFIR M ED THE ABOVE VIEW BY OBSERVING THAT WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN T HE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER. 25.4 SUBSEQUENTLY THE HON BLE COURT RE - AFFIRMED THE SAID VIEW IN SUTLEJ COTTON MILLS LTD. VS CIT 116 ITR 1 (SC) BUT IT IS NOW WELL SETTLED THAT THE WAY I N WHICH ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS. THE ASSESSEE MAY, BY MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER ACCOUNTANC Y PRINCIPLES, CONCEAL PROFIT OR SHOW LOSS AND THE ENTRIES MADE BY HIM CANNOT, THEREFORE, BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. 25.5 LIKEWISE, IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS CIT 227 ITR 172 (SC), HON BLE SUPREME COURT HELD THAT ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 28 IT IS TRUE THAT THIS COURT HAS VERY OFTEN REFERRED TO ACCOUNTING PRACTICE FOR AS CERTAINMENT OF PROFIT MADE BY A COMPANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIPLE OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION OF THE ACT AS WAS POINTED OUT BY LORD RUSSELL IN THE CASE OF B.S.C. FOOTWEAR LTD. (1970) 77 ITR 857, 860 (CA), THE INCOME TAX LAW DOES NOT MARCH STEP BY STEP IN THE FOOTPRINTS OF THE ACCOUNTANCY PROFESSION. 25.6 IN A LATER DECISION IN CIT VS SECURE METERS LTD. (2009) TIOL 93, HON BLE APEX COURT TAKING NOTE OF THEIR EARLIER DECISION IN INDIA CEMENTS LTD. (SUPRA) HELD THAT EXPENDITURE ON LOAN WAS ALLOWABLE AS REVENUE EXPENDITURE. THE REVENUE IN THIS CASE CONTENDED THAT SINCE THE DEBENTURES WERE CONVERTIBLE AND ON CONVERSION, IT WOULD ADD TO THE CAPITAL OF THE COMPANY, THE EXPENDITURE SHOULD ALSO BE CONSTRUED AS CAPITAL EXPENDITURE. THE HON BLE SUPREME COURT REJECTED THIS CONTENTION AND HELD THAT THE DEBENTURES WERE LOANS AND THE OBJECT OF A LOAN WAS NOT RELEVANT. ACCORDINGLY, IT WAS CONCLUDED THAT EXPENSES ON ISSUE OF DEBENTURES, WHETHER CONVERTIBLE OR NOT, IS ALLOWABLE AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 29 25.7 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE REVENUE HAVE NOT BROUGHT TO OUR NOTICE ANY CONTRARY DECISION NOR ANY OTHER MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE HA VE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) . THEREFORE, GROUND NO. 3 IN THE APPEAL OF THE REVENUE FOR THE AY 2003 - 04 AND GROUND NO. 7 IN THEIR APPEAL FOR THE AY 2005 - 06 ARE DISMISSED. 2 1 . SO, RESPECTFULLY F OLLOWING THE EARLIER ORDERS OF THE TRIBUNAL, WE ARE OF THE VIEW THAT THE LD. CIT(A) RIGHTLY DELETED THE IMPUGNED ADDITION MADE BY THE AO. 2 2 . THE NEXT ISSUE VIDE GROUND NO. 7 RELATES TO THE DELETION OF ADDITION OF RS. 51,34,55,174/ - MADE BY THE AO ON ACCO UNT OF LOAN ACQUISITION COSTS. 23 . REGARDING THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT HAS BEEN DECIDED IN THE EARLIER YEARS IN FAVOUR OF THE ASSESSEE BY THE ITAT AND FOR THE ASSESSMENT YEAR 20 06 - 07, THE RELEVANT FINDINGS HAVE BEEN GI VEN IN PARA 17 & 18 OF THE ORDER DATED 20.02.2015. THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE WAS NOT CONTROVERTED BY THE LD. DR. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 30 24 . IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS BEEN DECIDED IN ASSESSEE S FAVOUR IN TH E PRECEDING ASSESSMENT YEAR 2006 - 07 WHEREIN BY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 , THE RELEVANT FINDINGS HAVE GIVEN IN PARA 17 & 18 OF THE ORDER DATED 20.02.2015 IN ITA NO. 4776/DEL/2010 WHICH READ AS UN DER: 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 AFTER CONSIDERING THE FINDINGS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOR B OTH THE YEARS, OBSERVED IN PARA S 29 & 29.1 AS UNDER: 29. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE OFFERED LOAN PROCESSING FEES (INCOME) FOR TAX AND CLAIMED LOAN ACQUISITION COSTS AS EXPENSE IN THE YEAR OF ACCRUAL IN ACCORDANCE WITH, A PRACTICE BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE OVER THE YEARS AND NEVER QUESTIONED BY THE REVENUE. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED (SUPRA). ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 31 ON PERUSAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSING OFFICER COULD NOT TAKE A DIFFERENT STAND RELATING T O INCOME AND EXPENDITURE ON THE SAME ISSUE AND THE TREATMENT IN BOOKS OF ACCOUNTS DOES NOT GOVERN THE TAX TREATMENT, WHICH IS GOVERNED BY THE PROVISIONS OF THE ACT. AS ALREADY OBSERVED BY US IN PARAS 25 TO 25.7 WHILE ADJUDICATING GROUND NO. 3 IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003 - 04 AND GROUND NO. 7 IN THEIR APPEAL FOR THE ASSESSMENT YEAR 2005 - 06, THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. THE RELEVANT PROVISIONS OF THE ACT RECO GNIZE ONLY CAPITAL OR REVENUE EXPENDITURE. INDISPUTABLY, THE AMOUNT CLAIMED BY THE ASSESSEE IN THESE THREE ASSESSMENT YEARS IS REVENUE IN NATURE. DEFERRED REVENUE EXPENDITURE DENOTES EXPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED, WH ICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REASONS LIKE QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRITTEN OFF OVER A PERIOD OF TIME E.G. EXPENDITURE ON ADVERTISEMENT, SALES PROMOTION ETC. THERE IS NO MATERIAL BEFORE US TO INFER THAT THE AFORESAID EXPENDITURE RESULTED IN CREATION OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE, AND THUS, THE QUESTION OF TREATING THE SAME AS CAPITAL EXPENDITURE DOES NOT ARISE. IN FACT, THE HON BLE SUPREME COURT ITSELF IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED (SUPRA) WHILE ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 32 DISCUSSING THE ISSUE, IN THE SAID CASE, AND DISTINGUISHING BETWEEN VARIOUS SITUATIONS OBSERVED THAT ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OVER A PERIOD OF YEARS. 29.1 IN VIEW OF DETAILED REASONS GIVEN IN PARAS 25 TO 25.7 ABOVE, ESPECIALLY WHEN TH E REVENUE HAVE NOT BROUGHT TO OUR NOTICE ANY CONTRARY DECISION NOR ANY OTHER MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THEREFORE, GROUND NO. 4 IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003 - 04 AND GROUND NO. 3 IN THEIR APPEALS FOR THE ASSESSMENT YEARS 2004 - 05 AND 2005 - 06, ARE DISMISSED. 18. THE REVENUE HAVE NOT BROUGHT ANY DISTINGUISHING FEATURE IN THIS YEAR WHICH MAY P ERSUADED US TO TAKE ANY CONTRARY VIEW TO THE VIEW TAKEN BY TRIBUNAL IN ASSESSMENT YEARS 2003 - 04 TO 2005 - 06. IN RESULT, THIS GROUND IS ALLOWED. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 33 2 5 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF TH E DEPARTMENTAL APPEAL. 2 6 . THE LAST ISSUE VIDE GROUND NO. 8 RELATES TO THE DELETION OF ADDITION OF RS. 1,13,56,639/ - MADE B Y THE AO ON ACCOUNT OF ADJUSTMENT A RM S LENGTH PRICE O F THE INTERNATIONAL TRANSACTION . 2 7 . FACTS RELATED TO THIS ISSUE IN BRIEF AR E THAT THE INTERNATIONAL TRANSACTIONS IN THIS CASE WERE DIRECT SELLING AGENT COMMISSION PAYMENT, ORIGINAL DATA SERVICE CHARGES, INTEREST CHARGES, EXPENSES REIMBURSEMENT WITHIN THE GROUP AND FEES RECEIVED FOR SOFTWARE DEVELOPMENT AND S PORT SERVICES. THE AO REFERRED THE MATTER TO THE TPO U/S 92CA OF THE ACT AND THE TPO HELD THAT ALL THE INTERNATIONAL TRANSACTION EXCEPT SOFTWARE DEVELOPMENT AND S PORT SERVICES WERE AT ARM S LENGTH BASED ON TP DOCUMENTATION SUBMITTED BY THE ASSESSEE. FOR THE TRANSFER PRICING ANA LYSIS OF THE ABOVE SAID INTERNATIONAL TRANSACTION, THE ASSESSEE SELECTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD AND OPERATING PROFIT AS A PERCENTAGE OF TOTAL COST AS PROFIT LEVEL INDICATOR (PLI). ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 34 THE ASSESSEE SELECTED 18 COMPARAB LES AND THE AVERAGE PLI OF THE COMPARABLES WORKED OUT TO 13.43%. THE ASSESSEE HAD A RETURN ON TOTAL COST OF 18% DURING THE YEAR ENDED ON 31.03.2007. ACCORDINGLY, THE FEES RECEIVED BY THE ASSESSEE FOR SOFTWARE CUSTOMIZATION AND SPORT SERVICES RUN TO ITS ASS OCIATE ENTERPRISES AMOUNTING TO RS. 20,97,13,000/ - WAS CONSIDERED TO BE AT ARM S LENGTH . D URING T HE TRANSFER PRICING PROCEEDINGS, T HE TPO ASKED THE ASSESSEE TO SUBMIT TRANSFER PRICING STUDY REPORT AND OTHER NECESSARY INFORMATION ON THE BASIS OF WHICH COMPA RABLES WERE DEBITED BY THE ASSESSEE . THE TPO REJECTED 16 COMPARABLES USED BY THE ASSESSEE OUT OF THE TOTAL 18 COMPARABLES AND THEN PROCEEDED TO SEARCH FOR HIS OWN COMPARABLES . THE TPO USED 24 NEW COMPARABLES AND ALSO INCLUDED TWO COMPARABLES WHICH WERE SE LECTED BY THE ASSESSEE. THE AVERAGE PLI WORKED OUT BY THE TPO ON THE BASIS OF 26 (24+2) COMPARABLES WAS 24.39% AND THE ARM S LENGTH PRICE WAS COMPUTED BY THE TPO AT RS. 22,10,69,639/ - . ACCORDINGLY, AN UPWARD ADJUSTMENT OF RS. 1,13,56,639/ - WAS MADE BY THE TPO U/S 92CA OF THE ACT. THE AO MADE THE ADDITION OF THE AFORESAID AMOUNT BEING SATISFIED AND IN AGREEMENT WITH THE ORDER PASSED BY THE TPO. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 35 2 8 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS USED M ULTIPLE YEARS DATA WHEREAS THE TPO HAS USED SINGLE YEAR DATA FOR ANALYSIS . THE LD. CIT(A) OBSERVED THAT THE TPO GAVE REASONS TO THE FRESH SEARCH CONDUCTED BY HIM IN PROWESS AND CAPITALINE DATABASES BY USING DIFFERENT SET OF FILTERS AND JUSTIFIED THE DIFFER ENT FILTERS USED BY HIM. THE LD. CIT(A) POINTED OUT IN PARA 10.4 OF THE IMPUGNED ORDER THAT THE ASSESSEE AS WELL AS THE TPO USED THE FINAL SET OF FOLLOWING COMPARABLES: COMPARABLES USED BY ASSESSEE IN ITS TP STUDY COMPARABLES USED BY TPO BODHTREE CONSUL TING LTD. ACCEL TRANSMATIC LTD. (SEG.) FCS SOFTWARE SOLUTIONS LTD. AVANI CIMCON TECHNOLOGIES LTD. GOLDSTONE TECHNOLOGIES LTD. CELESTIAL LABS LTD. LARSEN & TURBO INFOTECH LTD. DATAMATICS LTD. MELSTAR INFORMATION TECHNOLOGIES LTD. E - ZEST SOLUTIONS LTD. ORIENT INFORMATION TECHNOLOGY LTD. FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) POWERSOFT GLOBAL SOLUTIONS LTD. GEOMETRIC LTD. (SEG.) SIP TECHNOLOGIES & EXPORTS LTD. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. SONATA SOFTWARE LTD. IGATE GLOBAL SOLUTIONS LTD. SYNETARIOS TECHNOLOGIES LTD. INFOSYS TECHNOLOGIES LTD. TRIDENT INFOTECH CORPN. LTD. ISHIR INFOTECH LD. VJIL CONSULTING LTD. KALS INFORMATION SYSTEMS LTD. (SEG.) ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 36 AKSHAY SOFTWARE TECHNOLOGIES LTD. LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD.) CAMRB IDGE TECHNOLOGY ENTERPRISES LTD. LUCID SOFTWARE LTD. ICRA TECHNO ANALYTICS LTD. MEDIASOFT SOLUTIONS LTD. MINDTREE CONSULTING LTD. MEGASOFT LTD. COMPUTECH INTERNATIONAL LTD. (SOFTWARE SEGMENT) PERSISTENT SYSTEMS LTD. KARUTURI NETWORKS LTD. (PROJECT SALE S AND SOFTWARE DEVELOPMENT SEGMENT) QUINTEGRA SOLUTIONS LTD. R S SOFTWARE (INDIA) LTD. R SYSTEMS INTERNATIONAL LTD. (SEG.) SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) TATA ELXSI LTD. (SEG.) THIRDWARE SOLUTIONS LTD. WIPRO LTD. (SEG.) SIP TEC HNOLOGIES & EXPORTS LTD. MINDTREE CONSULTING LTD. 29 . THE ASSESSEE RAISED SEVERAL OBJECTION S TO THE USE OF FRESH FILTERS WHICH THE LD. CIT(A) SUMMARIZED IN PARA 10.5 OF THE IMPUGNED ORDER WHICH READ AS UNDER: FILTER ASSESSEE S ARGUMENTS TPO ARGUMENTS 1) COMPANIES WITH RELATED PARTY TRANSACTIONS MORE THAN 25% OF THE OPERATING REVENUES HAVE BEEN REJECTED AS 18 ON REL ATED PARTIES DOES NOT PRESCRIBE ANY PERCENTAGE 15% TO BE CONSIDERED IN PLACE OF 25% RELYING ON SONY INDIA ITAT RPT DATA IS NOT AVAILABLE ON PUBLIC DOMAIN ASSESSEE DOES THIS FILTER IS APPROPRIATE TO ELIMINATE THE COMPANIES WHICH HAVE CONTROLLED TRANSACTIONS AND THEREBY HAVE A SIGNIFICANT INFLUENCE ON THE MARGINS EARNED. DEFINITION IN AS 18 IS PRINCIPALLY SAME AS SEC. 92A GUIDANCE CAN BE TAKEN FROM SEC. 92A(2)(A) (PG 33) ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 37 NOT HAVE POWERS LIKE TPO TO USE 133(6) RULING OF SONY DID NOT FIX THE LIMIT OF 15% LIMIT OR 25% IS CORRECT SINCE ON ONE HAND IT WILL H ELP IN EXCLUDING COMPANIES WITH SIGNIFICANT CONTROLLED TRANSACTIONS AND ON THE OTHER HAND IT WILL HELP IN OBTAINING ADEQUATELY LARGE SAMPLE SIZE 2) COMPANIES WITH EXPORT EARNINGS LESS THAN OR EQUAL TO 25% REJECTED ENTREPRENEURIAL COMPANIES WHETHER IN INDIA OR OUTSIDE INDIA WILL CHARGE RETURN FROM ITS CUSTOMERS AND APPLICATION OF THIS FILTER WILL ELIMINATE COMPANIES HAVING DOMESTIC SERVICE TRANSACTIONS THEREBY IGNORING FUNCTIONAL SIMILARITY UNCONTROLLED TRANSACTION AS PER RULE 10A(A) INCLUDES T RANSACTION WITH RESIDENT OR NON - RESIDENT. IT IS NOWHERE PROVIDED THAT THE TRANSACTION SHOULD NECESSARILY H AVE A CROSS BORDER ELEMENT TPO HAS HIGHLIGHTED THE DIFFERENCE IN GEOGRAPHICAL LOCATION OF CUSTOMERS WITHOUT DEMONSTRATING THE EFFECT OF SUCH DIFFERENCE ON NET PROFIT MARGIN IN OPEN MARKET STRENGTH OF TNMM IS THAT NET MARGINS ARE LESS AFFECTED BY TRANSACTIO NAL DIFFERENCES 25% THRESHOLD IS OF NO AS PER OECD AND INCOME TAX RULES, GEOGRAPHY OF MARKET/CUSTOMERS IS IMPORTANT (PG 36) CLAUSE (D) OF RULE 10B(2) REQUIRES COMPARABILITY WITH REFERENCE TO THE MARKETS IN WHICH RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE PRICING IS DEPENDENT UPON MARKET FORCE (PG 42) TPO HAS DEMONSTRATED THE EFFECT OF GEOGRAPHICAL DIFFERENCE BY EXPLAINING THAT PRICE CHARGES IN EXPORT SECTOR VARIES FROM PRICE CHARGED IN DOMESTIC SECTOR BECAUSE OF COST ARBITRAGE AVA ILABLE IN EXPORT SECTOR WHICH IS NOT AVAILABLE IN DOMESTIC SECTOR RELIANCE ON JUDICIAL RULINGS ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 38 ECONOMIC SIGNIFICANCE 3) COMPANIES WITH EMPLOYEE COST LESS THAN 25% OF SALES REJECTED TRANSFER PRICING ANALYSIS SHOULD BE BASE ON FAR WHEREIN ACTUAL FUNCTIONS PERFORMED BY THE COMPAN Y SHOULD BE EVALUATED RATHER THAN BE BASED ON FINANCIAL RATIOS COMPANIES CAN HAVE DIFFERENT BUSINESS MODELS WHICH MAY NOT BE REFLECTED IN WAGES TO SALES RATIO TNMM METHOD DOES NOT DIFFERENTIATE B/W DIFFERENT HEADS OF COST AND POSSIBILITY OF APPLYING THIS RATIO WILL QUESTION THE APPROPRIATENESS OF THIS METHOD THERE MAY NOT BE UNIFORMITY IN DISCLOSING EMPLOYEE COST AND DIFFERENT COMPANIES MAY DISCLOSE IT UNDER HEADS EMPLOYEE COST IS A MAJOR COST IN THIS INDUSTRY AND FAILURE TO COMPLY WITH THIS FILTER MEANS T HAT THE COMPANY IS OUTSOURCING ITS MAJOR WORK OR IS A SOFTWARE PRODUCTS COMPANY OR A TRADING COMPANY OR A COMPANY WITH PECULIAR ECONOMIC CIRCUMSTANCES LOW EMPLOYEES COST MEANS THAT THE CO IS FUNCTIONALLY DIFFERENT REVENUE EARNED BY A SOFTWARE DEVELOPMENT COMPANY IS GENERALLY DIRECTLY PROPORTIONAL TO NUMBER OF EMPLOYEES POWER U/S 133(6) WAS USED TO WHERE COMPLETE INFO WAS NOT AVAILABLE NO COMPARABLE HAS BEEN ACCEPTED/REJECTED MERELY ON THIS GROUND 4) COMPANIES WITH DIMINISHING REVENUE FILTER (REVENUE LES S THAN 30% OVER LAST 10 YEARS OR AT LEAST 3 YEARS) REJECTED NEITHER THE ACT NOR THE OECD PROVIDES THAT THE REVENUE TREND IS A DETERMINANT OF COMPARABILITY COMPANY THAT HAS DIMINISHING REVENUES NEED NOT NECESSARILY BE A CONSISTENT LOSS MAKER ON ONE HAND C OMPANIES WHICH DEMONSTRATE A POSITIVE GROWTH TREND IN REVENUES ARE BEING CONSIDERED AND ON THE IF A CERTAIN SOFTWARE COMPANY IS UNDER DIMI NISHING REVENUES FOR 3 YEARS IT IMPLIES THAT THE COMPANY HAS SOME PECULIAR PROBLEMS AND THE SAME IS NOT IN LINE WITH THE GROWTH IN SOFTWARE INDUSTRY DIMINISHING REVENUES ALSO INDICATE THAT COMPANY MAY BE ON THE VERGE OF CLOSURE, UNDERUTILIZATION OF ASSETS OR HUMAN RESOURCES. REASONABLE ADJUSTMENTS CANNOT BE MADE THERE IS A DIFFERENCE B/W USE OF EARLIER YEAR DATA FOR ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 39 OTHER HAND COMPANIES WHICH HAVE LOSSES ARE BEING DISCARDED. THIS SHALL RESULT IN SELECTING ONLY HIGH MARGIN COMPANIES ANALYZING ECONOMIC CIRCUMSTANCES AND FOR COMPUTATION OF MEAN ALP RELIANCE ON SONY INDIA 5) COMPANIES WITH DIFFERENT YEAR ENDING REJECTED THE FACT THAT COMPANY HAS A STATUTORY YEAR END ON 31 DEC 2006 AS AGAINST FINANCIAL YEAR ENDING MARCH 2007 DOES NOT BY ITSELF RENDER THAT COMPANY INCOMPARABLE SINCE FINANCIAL INFORMATION FALLS WITHIN THE SAME PERIOD SEC. 212 OF COMPANIES ACT PERMITS CONSOLIDATI ON OF STATEMENTS IN THE FINANCIAL YEAR END IS WITHIN 6 MONTH PERIOD OF HOLDING COMPANY ACCOUNTING STANDARDS ALSO ACCEPT THE ABOVE DATA OF COMPANIES WHOSE FINANCIAL YEAR DOES NOT END ON 31 MARCH 2007 BUT HAS RELATION TO FY 2006 - 07 (E.G YEAR ENDING JUNE 2006 ) CAN BE ACCEPTED POWER U/S 133(6) HAS BEEN USED ONLY COMPANIES WITH FINANCIAL YEAR ENDING 31 MARCH HAVE BEEN TAKEN AS COMPARABLES IN CONTRAST TO YEAR ENDING JUNE OR ANY OTHER MONTH TAKEN BY THE ASSESSEE DIFFERENT ACCOUNTING YEAR OF A COMPARABLE MEANS THA T TRANSACTION TAKING PLACE IN DIFFERENT PERIOD ARE BEING COMPARED COMPANIES WITH SAME ACCOUNTING PERIOD ARE AVAILABLE FOR COMPARISON SO THERE IS NO NEED TO TAKE INTO ACCOUNT COMPANIES WITH DIFFERENT ACCOUNTING YEARS AND THEN ADJUST THEIR MARGINS THERE WIL L BE AMBIGUITY REGARDING WHICH YEAR DATA IS TO BE USED IN CASE OF OVERLAPPING PERIOD FOR E.G FOR YEAR ENDING SEPT. 2007, WHETHER DATA FOR FY 2005 - 06 OR FY 2006 - 07 TO BE USED 6) COMPANIES WHOSE ONSITE REVENUE EXCEEDS 75% OF EXPORT REVENUE ARE REJECTED DET AILS OF ONSITE AND OFFSITE REVENUES FOR COMPARABLES IS NOT AVAILABLE IN PUBLIC DOMAIN ANY ASSESSEE WILL BE ENGAGED IN BOTH ONSITE AND OFFSITE REVENUES COMPOSITION OF WHICH WILL VARY TAXPAYER IS MAINLY AN OFFSHORE SERVICE PROVIDER AND IS D IFFICULT TO GET INDEPENDENT COMPANIES WHICH GENERATE REVENUES ONLY FROM OFFSHORE SOFTWARE DEVELOPMENT SERVICES OFFSHORE MARGINS ARE MORE THAN ONSHORE MARGINS PRICING FOR THE TOW IS ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 40 FROM YEAR TO YEAR DIFFERENT SINCE IN CASE OF OFFSHORE PROJECTS MOST OF THE COSTS ARE INCURRE D IN INDIA WHEREAS EMPLOYEE COSTS SIGNIFICANTLY INCREASES IN CASE OF ONSITE PROJECT ONSITE COMPANIES DO NOT HAVE SIGNIFICANT ASSETS SINCE MOST OF THE WORK IS CARRIED OUTSIDE INDIA ON CUSTOMER SITE CO S GENERATING MORE THAN 75% OF EXPORT REVENUES FROM ONSIT E COMPANIES WORKING OUTSIDE INDIA HAVING THEIR OWN GEOGRAPHICAL MARKETS, COST OF LABOUR ETC. 30 . THE ASSESSEE OBJECTED TO THE REJECTION OF HIS OWN COMPARABLE BY THE TPO AND EXPLAINED THE FUNCTIONS PERFORMED BY IT IN THE FOLLOWING WORDS: THE APPELLANT I S A NON BANKING FINANCE COMPANY PRIMARILY ENGAGED IN THE BUSINESS OF PROVIDING FINANCE TO CUSTOMERS FOR AUTO, SALES FINANCE, PERSONAL LOANS AND MORTGAGE (I.E. HOME LOAN AND HOME EQUITY) LOANS. THE APPELLANT HAS BEEN USING A SOFTWARE CALLED I - LOAN FOR ITS FINANCING BUSINESS SINCE 2002. I - LOAN IS IN HOUSE DEVELOPED SOFTWARE THAT ENABLES THE APPELLANT TO EVALUATE ITS LOAN PORTFOLIO & PROCESS THESE TRANSACTIONS. THE SAME ALSO PROVIDES A PLATFORM FOR MANAGEMENT REPORTING. SINCE THE INFRASTRUCTURE (ASSETS, MANP OWER ETC.) WHICH IS USED TO UPGRADE THE SOFTWARE ON CONTINUOUS BASIS FOR THE PURPOSES OF APPELLANT S OPERATIONS, REMAINS UNDERUTILIZED, IT WAS DECIDED TO DO SIMILAR ACTIVITIES FOR ITS ASSOCIATED ENTERPRISES (AES) SO THAT THE APPELLANT ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 41 IS ABLE TO UTILIZE IT S RESOURCES OPTIMALLY. HENCE, THE SOFTWARE WAS IMPLEMENTED IN OTHER LOCATIONS WITHIN THE GROUP TO MAKE OPTIMAL USE OF THE BENCH STRENGTH. ACCORDINGLY, THE APPELLANT RENDERS SOFTWARE CUSTOMIZATION, IMPLEMENTATION AND SUPPORT SERVICES TO ITS AES WHICH IS LIM ITED TO THE I - LOAN SOFTWARE BEING USED BY IT FOR ITS OWN BUSINESS OPERATIONS. FUNCTIONS PERFORMED BY THE APPELLANT CAN BE BROADLY CLASSIFIED INTO THE FOLLOWING: ASSESSING THE NEEDS AND REQUIREMENTS OF THE ASSOCIATED ENTERPRISES. IMPLEMENTATION OF MODULES AND SOFTWARE CUSTOMIZATION TO MAKE IT ADAPTABLE FOR USE BY ASSOCIATED ENTERPRISES; SOURCING ADDITIONAL MODULES FROM THIRD PARTY VENDORS IF REQUIRED; MAKING AVAILABLE DATA CENTRE HARDWARE (SERVER, ETC.) TO THE ASSOCIATED ENTERPRISES; ON - GOING PERSONNEL SUPPORT AS REQUIRED BY THE ASSOCIATED ENTERPRISE FOR ENSURING SMOOTH FUNCTIONING OF IT APPLICATIONS; AND UPGRADATION AND IMPLEMENTATION OF ON - GOING ENHANCEMENTS TO THE SOFTWARE. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 42 IN RESPECT OF THE ABOVE, THE APPELLANT RECOVERS COMPENSATION FROM ITS ASSOCI ATED ENTERPRISES ON A COST PLUS BASIS. 3 1 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , DISCUSSED THE CORRECTNESS OF USING THE COMPARABLE AS UNDER: INFOSYS TECHNOLOGIES LIMITED ('LNFY'): APPELLANT HAD RAISED THE ISSUE OF 'BRAND INF OSYS, SCALE OF OPERATION, FUNCTIONAL DIFFERENCES,' INTANGIBLES OWNED BY INFOSYS AND R&D EXPENSES AS THE MAIN REASON WHY IT SHOULD NOT BE INCLUDED IN THE SET OF COMPARABLES. ALL THE SUBMISSIONS MADE BEFORE THE TPO ARE THE SAME AS SUBMITTED DURING THE APPELL ATE PROCEEDINGS. I HAVE CONSIDERED THE SUBMISSIONS AND FIND THAT TPO HAS EFFECTIVELY DEALT WITH EACH OF THE ISSUES RAISED BY THE APPELLANT. TPO HAS ALSO POINTED OUT THAT TILL LAST ASSESSMENT YEAR THE APPELLANT ITSELF WAS USING INFOSYS AS A COMPARABLE COMPA NY IN ITS SET. THEREFORE, I HOLD THAT THERE IS NO MERIT IN THE ARGUMENT OF THE APPELLANT AND THIS COMPANY SHOULD BE CHOSEN AS A COMPARABLE. MEGASOFT LTD. ('MEGASOFT'): APPELLANT HAD MADE THE FOLLOWING SUBMISSION ABOUT THIS COMPARABLE: 'WITHOUT PREJUDIC E TO THE ARGUMENT OF THE APPELLANT ON COLLECTION OF INFORMATION UNDER SECTION 133(6) OF THE ACT, THE APPELLANT PROCEEDS TO SUBMIT AS UNDER: FUNCTIONALLY DIFFERENT: THE APPELLANT SUBMITS BEFORE YOUR HONOURS THAT MEGASOFT IS A FUNCTIONALLY DIFFERENT COMPAN Y FROM THE APPELLANT. ACCORDING TO THE REPLY SUBMITTED BY MCGASOFT LTD. TO THE REVENUE QUOTED BY THE TPO IN HIS ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 43 ORDER, MEGASOFT IS INTO PRODUCT DEVELOPMENT AND PROVIDING SPECIALIZED APPLICATION SERVICES THROUGH ITS TWO DIVISIONS NAMELY XIUS - BCQI DIVISION A ND BLUEALLY DIVISION. PLEASE FIND BELOW THE EXTRACT OF THE REPLY SUBMITTED BY MEGASOFT (PAGE NO 702 OF THE PAPER BOOK): 'XIUS - BCGI DIVISION 1. THE XIUS - BCGI DIVISION IS A TOTAL TELECOM DIVISION WHOSE MAIN FOCUS WOULD BE TO INVENT, MARKET AND MANAGE CUTTIN G EDGE TELECOM PRODUCTS, APPLICATIONS & SERVICES. XIUS - BCGI DIVISION HAS BEEN INVENTING AND IMPLEMENTING INDUSTRY TRANSFORMING TECHNOLOGIES FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. XIUS HELPS CARRIERS TO MAXIMIZE THE VALUE OF THEIR WIRELESS NETWOR K THROUGH ITS APPLICATIONS, PRODUCTS AND TECHNOLOGIES PLATFORM INTEGRATION AND SUPPORT. THE DIVISION PERFORMS DIFFERENT LEVELS OF ACTIVITIES THROUGHOUT THE PROCESS OF SOFTWARE DEVELOPMENT. THE DETAILS OF ACTIVITIES PERFORMED WITH RESPECT TO SOFTWARE DEVELO PMENT ARE DETAILED IN ANNEXURE - L. 2. XIUS - BCGI PERFORMS MARKET ANALYSIS, TECHNOLOGY EVOLUTION ASSESSMENT AND THEN BUILDS A PRODUCT ROLL OUT AND OR PRODUCT ENHANCEMENT ROAD MAP PLAN. ONCE THE ROAD MAP PLAN IS DEFINED, DEVELOPMENT TEAM GOES ABOUT IMPLEMENTING THIS ROADMAP. PRODUCTS THAT ARE RESULTANT OF THIS SOFTWARE DEVELOPMENT ARE DEFINED AND SOLD AS PACKAGED PRODUCTS TO CUSTOMERS. WHILE IMPLEMENTING THESE STANDARDIZED PRODUCTS AT CUSTOMER LOCATION OR IN THEIR BUSINESS ENVIRONMENT, CUSTOMERS MAY REQUEST US TO CUSTOMIZE OUR PRODUCT OR RECONFIGURE OUR PRODUCTS TO FIT ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 44 INTO THEIR BUSINESS WORKFLOW, ENVIRONMENT, IT/ TELECOM INFRASTRUCTURE. IN ORDER TO MAKE IT HASSLE FREE IMPLEMENTATION AND USAGE FOR CUSTOMERS, XIUS - BCGI ALSO ENGAGES IN CUSTOMISING OUR PACKAGED PROD UCT TO MEET THE EXPECTATIONS AND NEEDS OF THE CUSTOMERS. THUS AT THE TIME OF ENGAGING WITH CUSTOMERS, XIUS - BCGI WORKS WITH CUSTOMERS AND IDENTIFY THESE AREAS OF CUSTOMIZATION AND FROM THE SCRATCH DEVELOPMENT. ONCE THESE AREAS ARE IDENTIFIED AND FURTHER DET AILED THROUGH REQUIREMENT DEFINITIONS. XIUS - BCGI DEVELOPMENT TEAM WILL DEVELOP THESE CUSTOMIZED CAPABILITIES AND INTEGRATE/ DEPLOY THEM IN CONJUNCTION WITH THE PACKAGED PRODUCT. 3. THE BILLING FOR SALE OF PRODUCTS IS DONE ON NUMBER OF LICENSES BEING SOLD TO THE CLIENT. THE VALUE OF THE INVOICE DEPENDS UPON PERIOD OF LICENSE, AREA COVERED, ROAMING FACILITY, REVENUE SHARING IN CALL HITS AND ANY HARDWARE IS EMBEDDED WITH SOFTWARE ETC. FOR INSTANCE, THE COMPANY SOLD TO BPL CELLULAR LTD 3 LAKHS LICENSES AT A PRICE OF RS. 2.40 CRORES. WE HAVE ENCLOSED INVOICES FOR SALE OF LICENSES FOR THE FY 2005 - 06 AND FY 2006 - 07. THE COMPANY DOES NOT CHARGE THE CUSTOMER'S SEPARATELY FOR CUSTOMIZATION. THE COST OF CUSTOMIZATION IS INCLUDED IN THE COST OF SALE FOR LICENSES. 4. THE RE VENUES FROM THIS DIVISION INCLUDES MANY COMBINATION VIZ SALE OF HARDWARE EMBEDDED WITH CUSTOMIZED SOFTWARE, SALE OF LICENSES WITH NO . OF USERS, REVENUE SHARING IN MOBILE ROAMING USAGE, UPFRONT FEE OR PRODUCT INSTALLATION, ANNUAL MAINTENANCE INCOME, SHARING OF PREPAID BILLING SOLUTIONS. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 45 HENCE IT IS PRACTICAL DIFFICULT TO STATE NUMBER OF LICENSES SOLD AND REVENUES EARNED FROM THIS DIVISION. EACH I NVOICE VARIE S FROM CUSTOMER TO CUSTOMER, STRICTLY PRICES ARE NOT COMPARABLE AND NOT ATTRIBUTED TO PARTICULAR HEAD OF REVENUE. (COPIES OF INVOICES ARE INCLUDED) 5. BLUEALLY DIVISION BLUEALLY SERVICES PORTFOLIO COMPRISES OF APPLICATION DEVELOPMENT AND APPLICATION MANAGEMENT SERVICES A N D CONCEPT - TO - MARKET PARTNERSHIPS. APPLICATION DEVELOPMENT SERVICES: BLUEALLY HELP S CUSTOMERS OPTIMIZE THEIR IT INVESTMENTS BY ADVISING ON HOW BEST TO RATIONALIZE THEIR APPLICATION PORTFOLIO. WITH SIGNIFICANT EXPERIENCE WORKING ACROSS VARIOUS PLATFORMS AND TECHNOLOGIES, INCLUDING INTEGRATION OF MULTIPLE TECHNOLOGY ENVIRONMENTS. APPLIC ATION MANAGEMENT SERVICES: DESIGNED TO ADDRESS CUSTOMERS' NEEDS F OR RELIABILITY, HIGH AVAILABILITY, AND EVOLVING FUNCTIONALITY OF THEIR EXISTING BUSINESS APP LICATIONS. BECAUSE AN EFFECTIVE AND FULLY UTILIZED ENTERPRISE APPLICATION PORTFOLIO IS A CLEAR COMP ETITIVE ADVANTAGE FOR ANY BUSINESS. CONCEPT - TO - MARKET SERVICES: DESIGNED TO HELP CUSTOMERS ACCELERATE THEIR PRODUCTS' TIME - TO - MARKET, THROUGH BLUEALLY'S COMPREHENSIVE IP - CP3 FRAMEWORK (IP CREATION, PROCUREMENT, PROTECTION AND PROPAGATION) AND INDUSTRY - LE ADING PRODUCT PARTNERSHIP MODELS. ' COPY OF ANNUAL REPORT OF MEGASOFT FOR YEAR ENDED 31 DECEMBER 2007 IS ENCLOSED AS ANNEXURE 2. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 46 HOWEVER AS SUBMITTED ABOVE, THE APPELLANT IS NEITHER INTO ANY PRODUCT DEVELOPMENT NOR IS ITS SOFTWARE SALEABLE IN THE MARKE T. THE APPELLANT ONLY PROVIDES LIMITED SOFTWARE SERVICE TO ITS AES. ACCORDINGLY, THE TPO HAS ERRED IN HOLDING THAT MEGASOFT IS FUNCTIONALLY COMPARABLE TO THE APPELLANT. SCALE OF OPERATIONS: ACCORDING TO THE STANDALONE FINANCIALS OF MEGASOFT FOR THE YEAR ENDED 31 DECEMBER 2007, TOTAL SALES OF MEGASOFT IS INR 104.17 CRORES AS AGAINST FEES OF INR 20.97 CRORES (APPROX) RECEIVED BY THE APPELLANT FOR SOFTWARE CUSTOMIZATION. AS EXPLAINED ABOVE (REFER PAGE NO . 3 ABOVE), THE TWO CANNOT BE COMPARED ON ACCOUNT OF DI FFERENCE IN SCALE OF OPERATIONS. R&D EXPENSES: AS MENTIONED AT PAGE NO 27 OF THE ANNUAL REPORT, MEGASOFT HAS A STRONG R&D BACKGROUND ALONG WITH PRODUCT DEVELOPMENT EXPERTISE. IN ORDER TO PROTECT ITS INTELLECTUAL PROPERTY, THE COMPANY HAS APPLIED FOR ELEV EN PATENTS AND REGISTRATION OF VARIOUS TRADEMARKS. THE COMPANY HAS ALSO CAPITALIZED PATENTS IN ITS BOOKS OF ACCOUNT (REFER PAGE NO 838, 839 OF THE PAPER BOOK) YOUR HONOURS WILL APPRECIATE THAT SUCH AN INVESTMENT IN R&D WILL FRUCTIFY IN FUTURE AND OFFER ADV ANTAGE IN LEVERAGING NEW TECHNOLOGY FOR OFFERING HIGHER VALUE IN SERVICE THEREBY GENERATING GREATER REVENUE. HOWEVER, THE APPELLANT BEING A LIMITED SOFTWARE SERVICE COMPANY CATERING ONLY TO ITS AES DOES NOT UNDERTAKE ANY R&D ON ITS OWN ACCOUNT. BUSINESS DEVELOPMENT EXPENSES: DURING THE YEAR ENDED 31 DECEMBER 2007, MEGASOFT HAS INCURRED BUSINESS DEVELOPMENT EXPENSES AMOUNTING TO INR 1.45 CRORES WHICH CONSTITUTE 6.82% OF THE OPERATING EXPENSES. HOWEVER, THE APPELLANT DOES NOT INCUR ANY SUCH EXPENDITURE IN R ELATION TO THE SERVICES PROVIDED TO ITS AES. YOUR HONOURS WILL ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 47 APPRECIATE THAT CREATION OF MARKETING INTANGIBLES CONTRIBUTE TO OVERALL RETURN OF THE COMPANY. ACCORDINGLY, MEGASOFT CANNOT BE CONSIDERED AS A COMPARABLE TO A COMPANY LIKE THE APPELLANT WHO DOE S NOT INCUR ANY MARKETING EXPENDITURE OR PERFORM ANY BRAND BUILDING EXERCISE. RESTRUCTURING/ EXTRA - ORDINARY BUSINESS CIRCUMSTANCES: AS PER THE PAGE NO 3 OF THE ANNUAL REPORT OF MEGASOFT, THE COMPANY HAS UNDERGONE RESTRUCTURING DURING THE RELEVANT FY. FOL LOWING EXTRACT FROM COMPANY'S ANNUAL REPORT SUPPORTS THE SAME: THE FINANCIAL RESULTS OF BOTH STANDALONE AND CONSOLIDATED FOR THE PREVIOUS FINANCIAL YEAR INCLUDE THE BUSINESS PERFORMANCE OF VISUALSOFT TECHNOLOGIES LIMITED W.E.F. 1 OCTOBER 2006, CONSEQUENT TO THE AMALGAMATION. HENCE, THE RESULTS ARE NOT COMPARABLE. ' FURTHER, THE COMPANY HAS ALSO ACQUIRED US BASED BOSTON COMMUNICATIONS GROUP INC (BCGI) IN AUGUST 2007. THE ABOVE MENTIONED ACQUISITIONS HAVE RESULTED IN HIGH PROFIT MARGIN FOR THE COMPANY. AC CORDINGLY, MEGASOFT CANNOT BE CONSIDERED AS COMPARABLE TO THE APPELLANT DUE TO PRESENCE OF PECULIAR ECONOMIC CIRCUMSTANCES. INCORRECT COMPUTATION OF PLI - WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, IT IS SUBMITTED THAT PLI COMPUTED BY THE TPO IS INCORRECT ON ACCOUNT OF THE FOLLOWING REASONS: AS PER THE TPO'S ORDER (PAGE NO 705 OF THE PAPER BOOK), REVENUE OF BOTH XIUS - BCGI DIVISION AND BLUEALLY DIVISION HAS BEEN TAKEN FOR COMPUTING OPERATING PROFITS. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 48 THE TPO HAS NOT CONSIDERED DEPRECIATION AND MISC ELLANEOUS EXPENSES AS OPERATING EXPENSES' FINDINGS: THE ABOV E SUBMISSION OF THE APPELLANT IS CAREFULLY CONSIDERED. THERE IS AMALGAMATION IN THE COMPANY DURING THE FINANCIAL YEAR. THE COMPANY HAS ALSO ACQUIRED A US BASED COMPANY. THE COMPANY IS IN MULTIP LE AREAS OF SOFTWARE TECHNOLOGY HAVING DIFFERENT LINES OF BUSINESS. THEREFORE, I HOLD THAT THIS COMPANY SHOULD NOT BE TAKEN AS A COMPARABLE. CELESTIAL LABS LTD. ('CELESTIAL LABS') : APPELLANT HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN SOFTWARE PRODUCTS , HAS ABNORMAL PROFITS AND HAVING HIGH ADVERTISEMENT SPENDING. THESE ISSUES WERE RAISED BEFORE THE TPO. FROM THE ORDER OF THE TPO, I AM OF THE OPINION THAT THE TPO H AS EFFECTIVELY COUNTERED ALL DOUBTS RAISED BY THE TAXPAYERS. ON THE ISSUE OF PRODUCTS, THE COMPANY HAS CATEGORICALLY STATED THAT IT HAS NO INCOME FROM THE SALE OF PRODUCTS TO THIRD PARTIES. MORE THAN 96% OF THE REVENUES ARE FROM THE SOFTWARE DEVELOPMENT ACTIVITY OF THIS COMPANY. THE TPO HAS ALSO GONE TO THE DRAFT 'RED HEARING PROSPECTUS' FILED B Y THE COMPANY BEFORE SEBI. I AM OF THE OPINION THAT THIS COMPANY SHOULD BE RETAINED IN THE SET OF COMPARABLES. AVANI CIMCON TECHNOLOGIES LTD. ('AVANI TECHNOLOGIES') : APPELLANT HAS STATED THAT THIS IS A COMPANY IN THE SOFTWARE PRODUCT SEGMENT. THIS ARGUME NT WAS GIVEN BEFORE THE TPO BUT TPO HAS CATEGORICALLY STATED IN HIS ORDER THAT THIS COMPANY IS IN THE SOFTWARE DEVELOPMENT AND DOES NOT HAVE ANY REVENUES FROM SALE OF PRODUCTS. THEREFORE, I AGREE WITH ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 49 THE TPO AND THIS COMPANY SHOULD BE RETAINED IN THE SET OF COMPARABLES. 3 2 . THE SUBMISSIONS OF THE ASSESSEE ON THE COMPARABLES WHICH WERE INCLUDED BY IT AND REJECTED BY THE TPO WERE AS UNDER: ORIENT INFORMATION TECHNOLOGIES LTD. (OITL): 'THE LD. TPO HAS NOT GIVEN ANY PARTICULAR REASON IN ITS ORDER AS TO WH Y OITL HAS BEEN EXCLUDED FROM THE SET OF COMPARABLES. AS PER THE TRANSFER PRICING STUDY REPORT OF THE APPELLANT, OITL DESIGNS, DEVELOPS AND DEPLOYS CUSTOMIZED SOFTWARE SOLUTIONS AND APPLICATIONS (CUSTOM APPLICATION DEVELOPMENT SERVICES). THE ID. TPO ITS OR DER HAS NOT RAISED ANY SPECIFIC CONTENTION WITH RESPECT TO THE FUNCTIONALITY OF THE COMPANY. ACCORDINGLY IT IS SUBMITTED THAT THE ID. TPO AGREES TO THE FACT THAT THE COMPANY IS FUNCTIONALLY COMPARABLE TO THE APPELLANT. THE OP/TC OF OITL HAS BEEN WORKED O UT AT - 5.96%. IT IS RESPECTFULLY SUBMITTED THAT JUST BY THE REASON THAT OITL IS A LOSS MAKING COMPANY, THE SAME CANNOT BE EXCLUDED FROM THE SET OF COMPARABLES. IN THIS REGARD, APPELLANT WOULD LIKE TO PLACE RELIANCE ON THE RECENT DECISION OF DELHI TRIBUNAL IN THE CASE OF YUM RESTAURANTS INDIA PRIVATE LIMITED (ITA NO. 5122/DEL/2010) (ENCLOSED AS ANNEXURE 5) WHEREIN IT HAS BEEN HELD THAT LOSS MAKING COMPANIES CANNOT BE REJECTED AS COMPARABLES SIMPLY ON THE GROUND OF LOSSES. FOLLOWING OBSERVATION HAS BEEN MADE BY ITAT: 'WE HAVE NO HESITATION IN OBSERVING THAT MERELY A COMPANY IS SHOWING LOSSES WOULD NOT LOOSE ITS STATUS OF COMPARABLE IF ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 50 OTHER CRITERIA DEPICTED STATUS OF COMPARABLES. DECLARATION OF LOSS IS AN INCIDENTAL OF BUSINESS WHICH IS AT PAR WITH THE PROF IT.' SIMILAR VIEW HAS ALSO BEEN TAKEN BY DELHI TRIBUNAL IN THE CASE OF SONY INDIO (P) LIMITED 114 ITD 448 WHERE THE TRIBUNAL OBSERVED AS FOLLOWS: 'IT IS NO DOUBT TRUE THAT LOSS AND COMPETITION ARE NORMAL INCIDENT OF BUSINESS AND MERELY ON ABOVE FACTOR S, EXCLUSION MAY NOT BE JUSTIFIED.' ACCORDINGLY THE APPELLANT PRAYS THAT THE ABOVE COMPANY SHOULD BE INCLUDED IN THE SET OF COMPARABLES. PLEASE FIND ENCLOSED THE DIRECTOR'S REPORT, BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF OITL FOR THE YEAR ENDED 31 MARCH 2007 (REFER ANNEXURE 3). UPON GOING THROUGH THE ENCLOSED INFORMATION, YOUR HONOURS WILL FIND THAT ALTHOUGH THE COMPANY HAS INCURRED A LOSS OF RS. 3.85 CRORES IN THE RELEVANT FINANCIAL YEAR, NET WORTH OF THE COMPANY IS POSITIVE (65.98 CRORES). FURTHE R, LOSSES OF THE COMPANY HAVE REDUCED SIGNIFICANTLY FROM 18 CRORES IN THE PREVIOUS YEAR ENDED 31 MARCH 2006 TO 3.85 CRORES IN THE PREVIOUS YEAR ENDED 31 MARCH 2007. THIS SHOWS THAT THE COMPANY IS IN THE PROCESS OF RECOVERING FROM LOSSES CONTRARY TO THE ALL EGATION MADE BY THE TPO THAT THE COMPANY IS INCURRING SIGNIFICANT LOSSES OF THE PAST THREE YEARS AND MIGHT BE ON THE VERGE OF CLOSURE. ACCORDINGLY, IT IS PRAYED THAT THE COMPANY BE INCLUDED AS A COMPARABLE FOR WORKING OUT THE ARM S LENGTH PRICE. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 51 3 3 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE SAID COMPANY CANNOT BE EXCLUDED BY OBSERVING AS UNDER: I HAVE CAREFULLY GONE THROUGH THE SUBMISSION MADE BY THE APPELLANT AND FIND THAT THERE IS MERIT IN THE ARGUMENT. IN FACT THE TPO HAS NOT GIVEN ANY REASON FOR REJECTING THIS COMPARABLE IN HIS ORDER. THIS COMPANY ALSO DOES NOT QUALIFY TO BE CALLED AS DIMINISHING REVENUE COMPANY SINCE ITS LOSSES ARE REDUCING COMPARED TO THE EARLIER YEARS. IN VIEW OF THE ABOVE, I HOLD THAT THIS IS A COMPARABLE COMPANY. THE DECISION OF THE HON BLE ITAT DELHI IN THE CASE OF YUM RESTAURANTS INDIA PVT. LTD. (SUPRA) IS ALSO APPLICABLE IN THIS CASE. JUST BECAUSE THE COMPANY IS MAKING LOSSES THE SAME CANNOT BE EXCLUDED. 3 4 . AS REGARDS TO THE ANOTHER CO MPARABLE I.E. MELSTAR INFORMATION TECHNOLOGIES LIMITED, THE ASSESSEE SUBMITTED TO THE LD. CIT(A) THAT IT SHOULD BE RETAINED IN THE LIST OF COMPARABLES. THE LD. CIT(A) OBSERVED THAT THE TPO HAD GIVEN TWO REASONS FOR REJECTING THIS CASE DECLINING REVENUE S AND REVENUE COMING FROM ON SITE OPERATION S . HE F URTHER OBSERVED THAT THE REASON GIVEN BY THE TPO WERE JUSTIFIABLE. HE, THEREFORE, HELD THAT THE SAID COMPARABLE WAS RIGHTLY REJECTED. ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 52 3 5 . NOW THE DEPARTMENT IS IN APPEAL AGAINST THE ACTION OF T HE LD. CIT(A) D IRECTED THE TPO/AO TO EXCLUDE MEGA SOFT LTD. FROM THE SET OF COMPARABLES AND INCLUDE ORIENT INFORMATION TECHNOLOGIES AS A COMPARABLE AND REST OF THE COMPARABLES AS SELECTED BY THE TP O SHOULD BE RETAINED IN THE SET, W ITH THIS OBSERVATION THE WORKING CAPITAL ADJUSTMENT AS GIVEN BY THE TPO WAS UPHELD. THE LD. CIT(A) ALSO HELD THAT IF THE MEAN MARGIN OF THE 26 COMPARABLES SO CALCULATED FALLS WITHIN 5% OF THE RANGE, THEN, THE ADDITION MADE TO THE INTERNATIONAL TRANSACTION SHOULD BE DELETED. 3 6 . THE LD. DR STRO NGLY SUPPORTED THE ORDER OF THE TPO/AO AND FURTHER SUBMITTED THAT THE AO ACCEPTED WHATEVER DATA WAS PROVIDED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE TPO/AO TO EXCLUDE THE MEGA SOFT LTD. BECAUSE THE ASSES SEE HAD NOT PROVIDED ANY DATA TO SUBSTANTIATE THAT THE SAID COM PARA B L E WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. HE FURTHER SUBMITTED THAT THE LD. CIT(A) WAS ALSO NOT JUSTIFIED IN INCLUDING THE ORIENT INFORMATION TECHNOLOGY LTD. PARTICULARLY WHEN THIS COMPANY WAS ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 53 MAKING LOSS AND WAS A DIMINISHING REVENUE COMPANY. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: SONY INDIA PVT. LTD. VS DCIT 114 ITD 448 (DEL.) 3 7 . IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MA DE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION OF PROVIDING SOFTWARE DEVELOPMENT SERVICES AND THE FINANCIAL RESULT WITH REGARD TO THE SOFTWARE SCHEME SHOWED NCP PERCENTAGE AT 18% BY USING TNMM METHOD. IT WAS FURTHER STATED THAT THE ASSESSEE COMPARED PROFIT LEVEL INDICATOR WITH 18 COMPARABLES, THE MEAN MARGIN OF WHICH WAS 13.43%. IT WAS ALSO STATED THAT THE TPO REJECTED 16 COMPARABLES INCLUDING ORIENT INFORMATION TECHNOLOGY LTD. WITHOUT ASSI GNING ANY RESULT. THE SAID COMPARABLE I.E. ORIENT INFORMATION TEC HNOLOGY LTD. WAS TO BE ACCEPTED, I N VIEW OF THE DECISION IN THE CASE OF YUM RESTAURANTS INDIA PVT. LTD. IN ITA NO. 5122/DEL/2010 DECIDED BY THE ITAT DELHI BENCH. IT WAS FURTHER STATED THAT ME GA SOFT LTD. WAS RIGHTLY DIRECTED BY THE LD. CIT(A) TO BE EXCLUDED FROM THE ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 54 COMPARABLES BECAUSE THE SAID COMPANY WAS FUNCTIONALLY DIFFERENT. 3 8 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE GRIEVANCE OF THE DEPARTMENT ONLY RELATES TO THE EXCLUSION OF MEGA SOFT LTD. AND INCLUSION OF ORIENT INFORMATION TECHNOLOGY LTD. IN THE SET OF COMPARABLE S . AS REGARDS TO THE INCLUSION OF ORIENT INFORMATI ON TECHNOLOGY LTD. IS CONCERNED, T HE TPO HAD NOT GIVEN ANY PARTICULAR REASON FOR ITS EX CLUSION. THE SAID COMPANY ALSO DESIGN S, DEVELOPS AND DEPLOYS CUSTOMIZED SOFTWARE SOLUTION AND APPLICATION SO ITS FUNCTIONALITY WAS COMPARABLE WITH THE ASSESSEE. THE SAID CO MPANY WAS NOT CONSIDERED BY THE TPO BECAUSE IT WAS A LOSS MAKING COMPANY BUT THAT CANNOT BE A REASON TO EXCLUD E IT FROM THE SET OF COMPARABLE, I N VIEW OF THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF YUM RESTAURANTS INDIA LTD. IN ITA NO. 5122/DEL/201 0 WHEREIN IT HAS BEEN HELD THAT MERELY A COMPANY SHOWING LOSS WOULD NOT LOSE ITS STATUS OF COMPARABLE IF OTHER CRITERIA DEPICTED STATUS OF COMPARABLE. SAME VIEW HAS BEEN TAKEN ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 55 BY THE ITAT DELHI BENCH IN THE CASE OF SONY INDIA LTD. REPORTED AT 114 ITD 448. 39 . AS REGARDS TO THE EXCLUSION OF MEGA SOFT LTD. IS CONCERNED AS DIRECTED BY THE LD. CIT(A ), I T IS NOTICED THAT THE SAID COMPANY HAD GONE RESTRUCTURING DURING THE FINANCIAL YEAR UNDER CONSIDERATION , ITS TOTAL SALE S WAS RS. 104.17 CRORES AS COMPARED TO T HE FEES RECEIVED BY THE ASSESSEE AT RS. 20.97 CRORES. IT HAS A STRONG R&D BACKGROUND ALONGWITH PRODUCT DEVELOPMENT EXPERTISE WHICH THE ASSESSEE DID NOT HAVE . THE SAID COMPANY ALSO ACQUIRED US BASED BOSTON COMMUNICATIONS GROUP INC. IN AUGUST 2007, WHICH ALS O RESULTED IN HIGH PROFIT MARGIN OF THE SAID COMPANY. THEREFORE, THE LD. CIT(A) RIGHTLY HELD THAT MEGA SOFT LTD. TO BE EXCLUDED FROM THE SET OF COMPARABLES. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE ARE OF THE VIEW THAT THE LD. CIT(A) RIGHTLY DIRECTED THE AO TO EXCLUDE THE MEGA SOFT LTD. AND INCLUDE THE ORIENT INFORMATION TECHNOLOGY LTD. IN THE COMPARABLES AND WORKED OUT THE ARM S LENGH PRICE AND IF IT FALLS WITHIN THE RANGE OF 5 % OF THE RANGE THEN NO ADDITION IS TO BE M ADE. WE DO NOT SEE ANY INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A). ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 56 40 . IN ITA NO. 6305/DEL/ 2012 FOR THE ASSESSMENT YEAR 2008 - 09, FOLLOWING GROUND HAVE BEEN RAISED: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION ON ACCOUNT OF LOAN ACQUISITION COST AMOUNTING TO RS. 1,24,84,98,967/ - IGNORING THE FACTS AND JUDICIAL DECISIONS THE LOAN ACQUISITION FEE EXPENSES IS SPREAD OVER THE PERIOD OF THREE YEARS ACCORDING 1/3 RD OF THE TOTAL LOAN ACQUISITION FEE IS ALLOWED IN CURRENT YEAR RE ST BEING IS ALLOWABLE IN THE NEXT TWO YEARS. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 9,60,08,845/ - ON ACCOUNT OF NCD & COMMERCIAL PAPER ISSUE EXPENSES IGNORING THE FACT THAT THE SAME EXPENDITURE HAS BEEN SPREAD OVER THE PERIOD OF FIVE YEARS AND ACCORDINGLY 1/5 TH IS ALLOWED IN THE CURRENT YEARS AND REST BEING WILL BE ALLOWED IN THE NEXT FOUR YEARS. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION ON ACCOUNT OF DEPRECIATION ON COMPUTER SOFTWARE ARE ELIGIBLE FOR DEPRECIATION AND SAME CANNOT BE EXTENDED TO COMPUTER ACCESSORIES AND PERIPHERALS. 4. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 41 . AS REGARDS TO THIS APPEAL, IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES THAT THE ISSUES RAISED VIDE ITA NOS. 2848 & 6305 /DE L/ 201 2 CITI FINANCIAL CONSUMER FINANCE INDIA LTD. 57 GROUND NOS. 1, 2 & 3 OF THIS APPEAL ARE SIMILAR TO THE ISSUES RAISED IN GROUND NOS. 7, 6 & 5 IN ITA NO. 2848/DEL/2012 FOR THE ASS ESSMENT YEAR 2007 - 08, WHICH WE HAVE ALREADY ADJUDICATED IN THE FORMER PART OF THIS ORDER. THEREFORE, OUR FINDINGS GIVEN IN THE FORMER PART OF THIS ORDER IN RESPECT OF THESE ISSUES SHALL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR 2008 - 09. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 42 . IN THE RESULT, APPEAL S OF THE DEPARTMENT ARE DISMISSED . ( ORDER PRON OUNCED IN THE COURT ON 17 /0 8 / 2015) . SD/ - SD/ - (I. C. SUDHIR ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 /0 8 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR