Tribunal allows appeal, directs deletion of TPO adjustments, and remits repairs issue for fresh adjudication.

CLSA India P. Ltd., (Formerly CLS India Ltd) Versus DCIT Cir 4 (1) (1), Mumbai

CLSA India P. Ltd., (Formerly CLS India Ltd) Versus DCIT Cir 4 (1) (1), Mumbai - TMI Issues Involved:
1. Availing of intra-group services.
2. Receipt of brokerage commission.
3. Provision of sub-advisory services and IT support services.
4. Disallowance of expenditure on repairs and maintenance by treating it as capital in nature.

Issue-wise Detailed Analysis:

1. Availing of Intra-group Services:
The appellant challenged the adjustment to the Arm's Length Price (ALP) determined for intra-group services availed from Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) rejected the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) and determined the ALP as 'Nil'. The appellant argued that the TPO did not follow any prescribed method under Section 92C of the Income Tax Act, 1961, and ignored substantial evidence of services rendered and costs incurred. The Tribunal found that the TPO's adjustment was made on an ad-hoc basis without following any prescribed method, which is against the provisions of the Act. The Tribunal referred to its decision in the appellant's case for A.Y. 2012-13, where a similar adjustment was deleted. Consequently, the Tribunal allowed the appeal and directed the deletion of the adjustment of Rs. 127,38,27,995/-.

2. Receipt of Brokerage Commission:
The appellant contested the adjustment to the ALP for brokerage commission received from its AEs. The TPO applied the Comparable Uncontrolled Price (CUP) method instead of TNMM. The appellant argued that the CUP method was inappropriate due to differences in the functions, assets, and risks (FAR) profile of transactions with AEs and non-AEs. The Tribunal observed that the appellant provided detailed explanations of the differences in services provided to AEs and non-AEs, and that the TNMM was the most appropriate method. The Tribunal found that the TPO did not adequately consider the differences or make necessary adjustments under the CUP method. Therefore, the Tribunal set aside the DRP's order and directed the deletion of the adjustment of Rs. 21,73,90,712/-.

3. Provision of Sub-advisory Services and IT Support Services:
The appellant challenged the adjustment to the ALP for sub-advisory services and IT support services provided to its AEs. The TPO rejected certain comparables identified by the appellant and included others that were not functionally comparable. The Tribunal found that some of the comparables included by the TPO, such as Infosys Ltd., Zylog System Ltd., and Wipro Technologies Ltd., were functionally different from the appellant's services. The Tribunal directed the exclusion of these comparables and the inclusion of others, such as CG-VAK Software and Exports Ltd., ICRA Management Consulting Services Ltd., and IDC India Ltd., which were functionally similar. The Tribunal held that the appellant's transactions were within the ALP when the correct comparables were considered and directed the deletion of the adjustment of Rs. 67,62,961/-.

4. Disallowance of Expenditure on Repairs and Maintenance:
The appellant contested the disallowance of Rs. 4,43,68,457/- on repairs and maintenance, which was treated as capital expenditure by the AO. The appellant argued that the expenses were revenue in nature and provided additional evidence to support the claim. The Tribunal admitted the additional evidence and remitted the issue back to the AO for fresh adjudication. The Tribunal directed that if the expenses were found to be capital in nature, depreciation at the rate of 60% should be allowed for computer-related expenses as per the Income Tax Rules. The Tribunal allowed the ground for statistical purposes.

Conclusion:
The Tribunal allowed the appellant's appeal on all grounds, directing the deletion of adjustments made by the TPO and remitting the issue of repairs and maintenance expenses back to the AO for fresh adjudication with specific directions on the allowance of depreciation.