TaxTMI 
TaxTMI 
2013 (12) TMI 136
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....er and are being disposed off by way of this consolidated order. 2. We first proceed to dispose off the cross appeals for the assessment year 2005-06. In the appeal in ITA no.6572/Mum./2011, preferred by the assessee, vide which, two grounds have been raised and the first ground relates to addition on account of transfer pricing adjustment of Rs. 89,15,190, and the second ground relates to disallowance on account of security transaction tax payable of Rs. 6,26,417. Whereas the Revenue in its appeal in ITA no.6451/Mum./2011, has raised the following grounds of appeal:- "1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition to the extent of Rs. 53,22,397/- on account of transfer pricing adjustment. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 1,86,67,243/- u/s. 40(a)(ia)." 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 1,55,0591- paid to SEBI as interest pertaining to earlier years. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in d....
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....G, Hong Kong. UBS Securities provides support to the Associated Enterprises (AE) in relation to investment banking mandates executed by AEs outside India. The support provided include the following: Providing information to the AE as per specific requests made by the AE; Conducting rudimentary research and providing the findings of to the AE based on specific requests made by the A.E; and Assisting the AE in preparing marketing material such as presentations, pitch-packs, etc. 4.6.5 UBS Securities never interacts directly with the clients of the AE nor assist in securing orders on behalf of the AE. Further, UBS Securities does not engage in any negotiations or discussions on pricing, term, etc., with the clients on behalf of the AE and it does not execute any documents or give any assurance of any nature to any person on behalf of the A.E." 5. The value of international transaction in respect of investment banking and support service to UBS AG, Hong Kong, amounted to Rs. 6,12,24,967. For rendering of such services, the assessee is being compensated by its Associated Enterprise (A.E) at cost plus 10%. The margin earned under this segment was shown as under:- Par....
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.... in similar activities. Rejecting the assessee's search of comparables, the TPO also conducted a fresh search to identify fresh set of comparables with the following margin. Sr.no Name of Company / Segment OP/TC as per TP 1. Ajcon Global Services Ltd. 40..70% 2. Epic Energy Ltd. 78.94% 3. Sumedha Fiscal Services Ltd. 41.46% (Segment - Consultancy) 4. IDC (India) Ltd. 11.56% 5. India Securities Ltd. 11.74% 6. Kinetic Trust Ltd. 12.50% 7. Crisil Ltd. (Segment - 9.20% Research and Info. services) 8. Wall Street Finance Ltd. (Seg. 12.79% - Finance and Allied activities) 9. ICDS Securities Ltd. (Segment 75.00% - Financial & Advisory Services) 10. Maruti Insurance Brokers Ltd. 38.74% Arithmetic Mean 33.26% 10. These comparables were confronted to the assessee and, accordingly, a show cause notice was issued as to why the mean margin of 33.26% may not be considered as arm's length margin and necessary adjustment be made to the value of international transaction with the A.E. In response, the assessee submitted that at the time of preparing transfer pricing study report, data for financial year 2004-05 were n....
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....ment 75.00% - Financial & Advisory Services) Arithmetic Mean 35.59% Accordingly, upward adjustment of Rs. 1,42,37,587 was made. 11. Before the learned Commissioner (Appeals), very detail objections were made with regard to some of the comparables included by the TPO namely, Ajcon Global Services Ltd. Epic Energy Ltd., Sumedha Fiscal Services Ltd. (segmental), IDCS Securities Ltd. (segmental) and also the exclusion of Crisil Ltd. (segmental). The assessee's objections / submissions have been discussed in detail by the learned Commissioner (Appeals) and such contentions have been rejected except for the exclusion of Crisil Ltd. by the TPO was rejected and the assessee's contention for including the same in the set of comparables was accepted. Thus, after the findings of the learned Commissioner (Appeals), following nine comparables were chosen. Sr.no Name of Company / Segment OP/TC as per TP 1. Ajcon Global Services Ltd. 40.70% 2. Epic Energy Ltd. 78.94% 3. Sumedha Fiscal Services Ltd. 41.46% (Segment - Consultancy) 4. IDC (India) Ltd. 11.56% 5. India Securities Ltd. 11.74% 6. Kinetic Trust Ltd. 12.50% 7. Crisil Ltd. ....
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....on, there is always a problem of matching of revenue expenditure. This, at times, results into volatility of the margin for different years since the income of any year would not match with the expenditure incurred in that year. Thus, such a fluctuating margin and method of revenue recognition cannot be compared with the assessee's margin which is, by and large, constant due to mark-up given by the A.E. Another most important fact is that the income of the financial advisory segment mostly includes service charges received from Standard Chartered Bank which are shown at net of reimbursement of salary, rent and conveyance expenses. Such a netting of expenses results into increase in the margin of segment since its costs would reduce due to netting off. Such a netting of expenses has a huge impact on the profit margin. To support his contention, he has given the working of the operating income of the assessee on the gross basis as well as on the net basis and tried to demonstrate that if the operating income is taken on net basis in case of the assessee then margin would substantially increase. Further, he submitted that ICDS Securities Ltd. is into merchant banking and broking activ....
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....whereas the turnover of this company is Rs. 80.89 lakhs which is below Rs. 1 crore and this also includes sale of investment of Rs. 15.75 lakhs. Therefore, in all perspective, this company cannot be taken as comparable. iv) Epic Energy Ltd:- The learned Counsel for the assessee submitted that this company has increased its focus on energy sector and is mainly into project finance and consultancy. It has sold / discarded most of its assets from its balance sheet and no depreciation has been claimed in the financial year 2004-05. In the earlier years, there was huge expenditure on account of bad debt which in this year has been reduced substantially which has an impact on the profit margins. Lastly, he submitted that the turnover of this company is merely Rs. 34.03 lakhs and once the TPO himself has applied the turnover filter of less than Rs. 1 crore, then how such a company can be included in the comparability analysis. Thus, this company should also to be excluded from the final set of comparables. 14. Per contra, the learned Departmental Representative, Mr. Ajit Jain, submitted that the assessee has not furnished any kind of agreement with regard to functions performed with....
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....y the TPO. i) ICDC Securities Ltd:- Coming to the comparables also the learned Departmental Representative made his elaborate submissions. He submitted that there is nothing on record that income is mismatched with the expenditure. If such a company was involved in merchant banking and stock broking, then the assessee is also doing the same function as it itself is involved in stock broking. Thus, the reasons given by the TPO as well as the learned Commissioner (Appeals) with regard to the inclusion of such a comparable is wholly justified. ii) Regarding inclusion of Sumedha Fiscal Services Ltd., the learned Departmental Representative submitted that this company was earlier included by the assessee itself in its transfer pricing study report because of its functional profile. Now the same company is being contested by the assessee on the ground that its functions have changed mostly to merchant banking. The kind of service which have been rendered by this company is quite similar to the service rendered by the assessee. Further, in this case, the TPO has only considered the consulting segment, which is exactly done by the assessee also. Thus, this company has rightly been in....
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....oner (Appeals) and have been rightly included by the learned Commissioner (Appeals) in the final set of comparables, therefore, this objection of the Revenue cannot be sustained. 17. The learned Counsel for the assessee, by way of rejoinder to the earlier submissions of the learned Departmental Representative, submitted that even though the assessee is carrying out host of activities but one has to see what is the subject matter of bench marking. In this case, it is the international transaction with the A.E. which is purely investment banking support service. The assessee's transaction with the A.E. is only Rs. 6,12,24,967, whereas the assessee's other business transactions are far more. The issue before us is only the bench marking of the OP/TC of 10% with the A.E. and not the other activities. Regarding submissions of the learned Departmental Representative that the nature of activities and functions cannot be gathered due to lack of agreement and documents, he submitted that in the transfer pricing study report the entire functions carried out with the A.E. has been duly elaborated and also noted by the TPO. Thus, there is no quarrel with regard to the function performed wit....
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....arch and identified five comparables out of which there were four new comparables. The arithmetic mean of the margins of these five comparables was determined at 11.56% which was claimed to be within +/-5% range and thus assessee's margin were at arm's length. The TPO rejected the entire assessee's search of comparables and carried out his own search afresh to identify the fresh set of comparables after taking the following filters for eliminating the comparables. i) the company having zero fee based income; ii) the company having fund based income more than 25% of the total income; iii) the company having fee based income less than 25% of the total revenue; and lastly; iv) the company having total revenue less than Rs. 1 crore. Based on the aforesaid criteria, companies were to be excluded from the comparability analysis. After carrying out his fresh search, he identified 10 comparables which have already been stated in the forgoing paragraphs. After inviting assessee's objections, finally eight comparables were shortlisted, the arithmetic mean margin of these companies worked out at 35.59% and accordingly, this resulted into upward transfer pricing adjustment of Rs....
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....th an international transaction shall be the data relating to the financial year for which the international transactions have been entered into and, therefore, the earlier comparables which were based on earlier financial data should not be given preference to; and secondly, once the TPO himself has carried out fresh search and shortlisted the comparables based on current financial data, the same should be analysed rather than supporting the inclusion of such comparables on the ground that the assessee itself has chosen at the time of original T.P. report. There should not be cherry picking of the comparables but should be based on certain criteria and functional analysis. The comparables as chosen by the TPO has to be considered for the comparability analysis based on his filtration search criteria because that is the subject matter of acceptance and non-acceptance of comparables before us. 21. Now, we proceed to take up the comparables which have been included by the TPO and objected by the assessee so as to examine, whether they can be included in the set of comparables for the purpose of comparability analysis or not:- i) ICDS Securities Ltd:- The TPO has taken the segme....
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.... syndication is nothing but a merchant banking activity which is different from the functions carried out by the assessee with its A.E. The assessee is rendering investment banking advisory services and related support service to its A.E. The Tribunal in Carlyle India Advisors Pvt. Ltd. (supra) has held that Sumedha Fiscal Services Ltd. (segmental), which is engaged in merchant banking cannot be compared with the companies which are rendering investment advisory and related support services. The said company cannot be held to be compared with all the functions and activities carried out by the assessee. It is further noticed that under the product description in which the service are being carried out by Sumedha Fiscal Services Ltd. (segmental), also includes broking services and merchant banking and underwriting. These activities are not carried out by the assessee with its A.E. Thus, Sumedha Fiscal Services Ltd. (segmental) cannot be functionally compared with that of the assessee as per the data given for the financial year 2004-05 and, therefore, this company cannot be included in the final set of comparables; iii) Ajcon Global Services Ltd:- As per the financial statement a....
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....., which has been excluded by the TPO and included by the learned Commissioner (Appeals), which is the subject matter of ground raised by the Revenue, it is seen that the TPO has rejected the said comparables on the ground that this company is mainly into gas and infrastructure advisory services which is entirely different from field as compared to the assessee's business function with its A.E. 24. Before the learned Commissioner (Appeals), it has been brought on the record that the TPO has taken wrong segment and in fact the correct segment should have been "research and information services". Before us also, the learned Counsel for the assessee had submitted the annual report of Crisil Ltd. for the financial year 2004-05, which shows that it has prepared segmental accounts with regard to "research and information services" separately and even the TPO in his show cause notice has also taken this particular segment information which disclosed the operating margin at 9.20%. The learned Commissioner (Appeals) has duly appreciated the information and has held that the TPO has taken a wrong segment for the purpose of comparing the margins and if the correct segment is taken into con....
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....not be held to be rendering of technical services and, accordingly, cannot be considered to be covered under section 194J. Therefore, no disallowance under section 40(a)(ia) can be made. 31. Before us, it has been admitted by both the parties that the decision of the Hon'ble Jurisdictional High Court in Angle Capital and Debit Market Ltd. (supra) it has been held that fees paid for V-SAT and lease line charges are not "fees for technical services" as the same do not fall within the purview of section 194J. Regarding transaction charges, it has been pointed out by the learned Counsel for the assessee that in the earlier years, no disallowance has been made by the Revenue and, therefore, in this year also, the assessee can be held to entertain bonafide belief that no TDS is required to be made. In view of the decision in CIT v/s Kotak Securities Ltd., [2012] 340 ITR 333 (Bom.) such a disallowance should not be made. 32. After hearing both the parties, we are of the considered opinion that in view of the facts and the decision of the Hon'ble Jurisdictional High Court in Angel Capital and Debit Market Ltd. (supra), the TDS is not required on the payment of V-SAT charges and lease....
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..... Before the learned Commissioner (Appeals), the assessee submitted that it has paid a sum of Rs. 1,55,059 to SEBI during the earlier year which pertains to the payment made under SEBI (Interest Liability Regulation Scheme) 2004. Detail submissions of the assessee have been dealt by the learned Commissioner (Appeals) from Para-6.2.1 to Para-6.2.9. After following various decisions of the Tribunal, the learned Commissioner (Appeals) decided the issue in favour of the assessee as per the findings given in Para-6.3. 36. Before us, both the parties agreed that this issue stands covered by series of decisions given by the Tribunal in various cases, some of which are as under:- 1. Wallfort Financial Services Ltd. v/s ITO-4(2)(2) ITA no.5984/Mum./2008 2. Wallfort Financial Services Ltd. v/s ACIT (2010) 41 SOT 200 (Mum.) 3. Vfc Securities Ltd. ITA no.4200/Mum./2009 4. ACIT v/s BLB Ltd. ITA no.2290(Del.)/2008 5. ACIT v/s Bulls and Bears Portfolios Ltd. (2011) 48 SOT 0527 (Del.) 37. In these cases, the Tribunal has held that the turnover charges were in the nature of tax, duty, cess or fees payable under the law and any payment made thereon has to be allowed under sectio....
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....per chapter VI-A leviable in relation to stockbroker for failure to issue contract note, failure to deliver securities or make payments and for charging excess brokerage. It is further submission of the appellant that it has not been charged penalty in accordance with SEBI (Procedure for holding Inquiry and imposing penalty by Adjudicating Officer) Rules, 1995. It. is seen from the sample copies of statements issued by NSCCL submitted by the appellant that such payments are in the nature of processing fees for bad/short delivery, wrong claim for the corporate benefit, late reporting delayed settlement of IT trades, margin shortage charges etc. As these charges are computed based on the penalty points calculated based on aforesaid default and .find their mention in the statement issued by NSCCL as processing charges, the charges so levied as penalty is found to be compensatory in nature. The AO has no where brought out that these penalties are not compensatory in nature. Further in the case the appellant for A.Y. 2000-01, such penalty payment has been held to be compensatory in nature by the Ld. CIT(A) in the office and further the same was confirmed by the Hon'ble ITAT. In view of ....
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.... on account of trade executed during the last two days of the financial year 2004 -05. The learned Commissioner (Appeals), however, upheld the action of the Assessing Officer but observed that the assessee has added the amount in the subsequent years which has been paid by the assessee as demand by the NSE and corresponding deduction can be claimed in the return of income on the payment basis in the year of payment. The relevant observations of the learned Commissioner (Appeals) are as under:- "I have considered the facts of the case, together with. the submission of the appellant as against the finding of the AO in his assessment order. It is the fact of the case that the appellant has deducted higher amount of STT than it was required to deduct from its FII client. Further after the amount paid to NSE, the balance amount which was in effect not regarded as SIT by the NSE software has not been refunded to the FIL Further it is fact of the case that such, instances have occurred on subsequently and the appellant himself has written back these amounts as income. These facts clearly prove the point that the excess amount so retained by the appellant has been treated by the appella....
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....e Assessing Officer and the learned Commissioner (Appeals) as well as the relevant details of amount offered for tax which, for the sake of ready reference, is reproduced herein below:- Particulars A.Y. 2005-06 A.Y. 2006-07 Amount under dispute 6,26,417 9,52,738 Less: amount offered for tax in A.Y. 2008-09 1,50,171 4,90,647 Less: Amount paid in September 2009 4,61,217 3,60,766 Balance amount payable 15,029 1,01,325 In view of the above, we direct the Assessing Officer to verify this contention of the assessee and, accordingly, decide this issue afresh after calling for the necessary details from the assessee. Ground no.2, is thus treated as allowed for statistical purposes. 50. In the result, assessee's appeal for the assessment year 2005-06 is treated as partly allowed for statistical purposes and Revenue's appeal is treated as partly allowed. We now take up assessee's appeal in ITA no.7728/Mum./2011, for the assessment year 2006-07, which has been preferred against the final assessment order passed in pursuance of the DRP direction date 27th July 2010. 51. Ground no.1 raised by the assessee relates to disallowance of Rs. 18....
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....iable for deduction of TDS on transaction charges in view of the events given as above. The facts of the assessee's case are covered by the decision of the Hon'ble Jurisdictional High Court in Kotak Securities Ltd. (supra) and the findings given in the assessment year 2005-06 will also apply mutatis mutandis to the present case and also on V-SAT and lease line charges. Thus, the ground raised by the assessee is treated as allowed. 56. Insofar as the additional ground is concerned that the disallowance under section 40(a)(ia) should be restricted to amount payable in view of the Special Bench decision of the Tribunal in Merilyn Shipping and Transport v/s ACIT, has become purely academic. 57. In ground no.2, the assessee has challenged the addition of Rs. 15,93,547 on account of penalty charges paid to National Securities Clearing Corporation of India after invoking the provisions of Explanation to section 37(1). 58. After hearing both the parties, we find that this issue is similar to the grounds raised in the assessment year 2005-06, wherein this issue has been decided in favour of the assessee. Moreover, the learned Counsel for the assessee has also submitted a compilatio....