TaxTMI 
TaxTMI 
2012 (8) TMI 730
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....f the assessee and its group as borne out of the orders of the authorities below, and the arguments of the assessee may be, in brief, stated as under. 4. As per the transfer pricing report submitted by the assessee, Chrysalis Management Companies are asset management companies for Investment Funds (Venture Capital Funds), who generally focus on investments in incubation ventures. The investment funds managed by the Chrysalis Management Companies concentrate on providing funds to entrepreneurs engaged in the business of providing software services, outsourcing services and technology out of India. The assessee-company, namely, Chrys Capital Investment Advisors (India) Pvt. Ltd. is engaged in providing investment advisory services to the Chrysalis Management Companies to assist them in their investment decisions. It is reported that the assessee-company carries out research and scouting activities for Chrysalis Management Companies to identify entrepreneurs and portfolio companies requiring assistance in terms of capital infusion, strategic direction and financial advice. 5. The international transactions entered into by the assessee-company with its associated enterprises duri....
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....d detailed analysis made by the TPO, the TPO passed the order dated 28-5-2009 under section 92CA(3) of the Act recommending an adjustment of Rs. 8,68,19,937 to the total income of the assessee. In determining the arm's length price, the TPO has rejected the following two entities that were selected comparables by the assessee-company :- (i)SREI Capital Markets Limited and (ii)Integrated Enterprises (India) Limited. 9. On the other hand, the TPO introduced following two fresh comparables to determine arm's length price :- (i)Brescon Corporate Advisors Limited and (ii)ICDS Securities Limited. 10. After excluding the two comparables that were selected by the assessee and including two fresh comparables, the TPO determined the average margin of 52.86 per cent as under :- S. No. Company Name Operating Margin 1. Khandwala Securities Limited 43.35% 2. Keynote Corporate Services Limited 94.06% 3. Sumedha Fiscal Services Limited -16.71% 4. KJMC Global Market (India) Limited -10.42% 5. Brescon Corporate Advisors Limited 87.89% 6. ICDS Securities Limited 119.00% Arithmetic Mean 52.86% 11. In th....
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....parables. (vi)The TPO has erred in accepting companies or entities with exceptional high margins as comparables. (vii)The TPO has erred in computing the operating margin of one of the comparables i.e., KJMC Global Market (India) Limited for the FY 2005-06. (viii)The TPO has erred in considering the amounts reimbursed by assessee's associate enterprises as part of operating expenses and the correspondingly reimbursement as part of operating revenue of the assessee while determining ALP. (ix)The TPO has erred in not allowing the benefit of +/- 5 per cent. 16. Without going to the merit regarding the determination of arm's length price, we shall first decide as to whether learned DRP was justified in rejecting the assessee's objections and accepting the TPO's ' order in the manner as done by them. 17. In this case, after receiving the draft order from the Assessing Officer where an adjustment of Rs. 8,68,19,937 was made on the basis of TPO's order, the assessee filed objections before the DRP under section 144C of the Act against the TPO's order. The objections to the draft order were filed in form No. 35A alongwith grounds of objection, facts of the case as submitte....
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.... by the assessee and support its conclusion with the reasons. Section 144C has given wide powers to DRP as would be clear from sub-sections 6 to 11 of section 144C which are as under :- "(6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following namely :- (a)draft order; (b)objections filed by the assessee; (c)evidence furnished by the assessee; (d)report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e)records relating to the draft order; (f)evidence collected by, or caused to be collected by, it; and (g)result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5), :- (a)make such further enquiry, as it thinks fit; or (b)cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-se....
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....er. 22. The next issue raised by the assessee is directed against the Assessing Officer's order in disallowing the bonus amounting to Rs. 2,95,93,000 paid by the assessee to its employees (who are also shareholders of the assessee-company) under section 36(1)(ii ) of the Act by holding that the same would have been payable by way of dividend. 23. In the draft assessment order, the Assessing Officer disallowed the aforesaid payment of Rs. 2,95,93,000 on account of payment of bonus. The matter was referred to the learned DRP and objection was raised by the assessee against the Assessing Officer's action. The learned DRP has decided this issue by directing the Assessing Officer to verify records of the earlier year and if it is allowed in the earlier years, the same should be allowed in this assessment year also. The Assessing Officer then completed the final assessment order under section 143(3) read with section 144C of the Act. In the final order, the Assessing Officer noted that assessee-company had paid salary and other allowances including bonus to its directors. Shri Ashish Dhawan was Managing Director and Shri Kunal Shroff was a director. The bonus of Rs. 1,89,75,000 and....
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....to them as dividend. In this connection, reliance was placed on the decision of Hon'ble Bombay High Court in the case of Loyal Motor Service Co. v. CIT [1946] 14 ITR 647 . He also relied upon the recent case of Dy. CIT v. Cheviot International Ltd. MANU/ID/310/2010 (Trib. - Delhi), a copy of which is placed at page 579 of the paper book of judicial precedents. 25. The learned counsel for the assessee further submitted that in a hypothetical scenario in which bonus is allowed as a result of their shareholding, there would be huge difference between the actual bonus paid and the bonus ought to be paid as shown below :- S. No. Name of the Employee Bonus Amount (Actual) (in Rs.) Bonus Amount (in ratio of 1:1) (in Rs.) Difference (in Rs.) 1. Mr. Ashish Dhawan 1,89,75,000 1,47,96,500 (41,78,500) 2. Mr. Kunal Shroff 1,06,18,000 1,47,96,500 41,78,500 Total 2,95,93,000 2,95,93,000 26. Without prejudice to the aforesaid submissions, the learned counsel for the assessee further submitted that total tax paid by the assessee and the concerned employee on the amount of bonus were higher than the taxes that would have....
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....allow the assessee's claim as so directed by the learned DRP. If no such claim was made in the earlier year and it is for the first time the claim has been made, the DRP shall decide the matter on merits having regard to the provisions contained in section 36(1)(ii) in the light of facts of the present case and the contentions/submissions of the assessee as well as the decisions cited by the learned counsel for the assessee. The Assessing Officer/DRP shall provide reasonable opportunity of being heard to the assessee. 29. Next ground is with regard to disallowance of severance cost of Rs. 35,10,000 paid by the assessee-company to one of its employees. 30. During the relevant year, the assessee-company paid a severance cost of 35,10,000 to one of its employees namely Shri Girish Baliga, at the time of his leaving the job in November, 2005. The Assessing Officer disallowed the assessee's claim and the matter was referred to the DRP for final directions. The learned DRP has decided this issue by observing that in the earlier year also, similar disallowance was made and the appeal was pending before appellate authorities. Learned DRP, therefore, was not inclined to interfere in t....
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....s. 1,30,000 to M/s Neemrana Hotels Pvt. Ltd., on 17-11-2005 by debiting staff welfare expenses to profit and loss account. The assessee explained before the Assessing Officer that the assessee has held official get together at The Pataudi Palace for its employees and the amount incurred was booked as staff welfare expenses in the books of account. The copy of bill in relation to the above mentioned expenditure was furnished. The Assessing Officer disallowed the same in the draft assessment order and the matter was then referred to DRP. DRP has directed the Assessing Officer to disallow the same for the reason that the assessee has failed to establish that these expenses were incurred for the purpose of business. 35. We have heard both the parties and have gone through the orders of the authorities below. It is not in dispute that the amount of Rs. 1,30,000 has been paid for arranging get together at the Pataudi Palace, Haryana. The claim of the assessee was that the get together was held for the benefit of the employees. Since the expenditure was incurred for the benefit of the employees in the course of carrying on business by the assessee, it cannot be said that the amount has....
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....r the assessee, therefore, submitted that the Assessing Officer has erred in disallowing the expenses to the extent of Rs. 1,55,379 which has not been claimed by the assessee as expenses in its profit & loss account. 40. After hearing both the parties, we are in agreement with the contention of the learned counsel for the assessee that if expenses have not been claimed as deduction in the profit and loss account, the question of disallowance thereof would not arise. Insofar as the payment of Rs. 42,100 and Rs. 25,269 as printing and stationery and courier charges are concerned, the Assessing Officer was justified in disallowing the same as no tax was deducted at source. However, with regard to rest amount of Rs. 1,55,379, we restore the matter back to the Assessing Officer to verify whether this aforesaid sum of Rs. 1,55,379 has been claimed as deduction in the profit and loss account and if it is not so claimed as deduction, the Assessing Officer shall delete the disallowance. We order accordingly. 41. The assessee has also raised a ground against disallowance of payment made to auditor on account of late deposit of TDS. 42. The Assessing Officer has disallowed the paymen....