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TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 1054
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....ing grounds: 2. In disallowing transaction charges paid to National Stock Exchange (NSE)/ Bombay Stock Exchange (BSE) amounting to Rs. 28,669,998 and lease line charges amounting to Rs. 433,130. 3. In disallowing loss on account of error trades amounting to Rs. 7,774,691. 4. In disallowing depreciation on motor car amounting to Rs. 144,702. 5. In disallowing club entrance fees and subscription charges of Rs. 313,753. 6. In disallowing an amount of Rs. 742,851 out of client entertainment expenses. 7. In rejecting the internal Transactional Net Margin Method (TNMM) and adopting the Comparable Uncontrolled Price (CUP) method for determining the arm's length price (ALP) for provision of broking services for futures and options trades. 8. In making an upward adjustment of Rs. 43,088,000 with respect to the provision of broking services for futures and options trades. 9. In rejecting the internal TNMM method and adopting the CUP method for determining the ALP for provision of broking services for cash equity transaction. 10. In making an upward adjustment of Rs. 1,275,000 with respect to the provision of broking services for cash equity transaction. 11. In computi....
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.... section 143(3) r.w.s 144C(13) of the Act, whereby the total income has been determined at Rs. 1,72,69,27,800/- as per the normal provisions of the Act. The said assessment has been finalized by the Assessing Officer in conformity with the directions of Dispute Resolution Panel [hereinafter referred to as 'the DRP'] issued u/s 144C(5) dated 13.08.2010. The various grievances of the assessee against such assessment are manifested by the above stated Grounds of appeal with which we shall deal in seriatim. 4. Insofar as the Ground of appeal no. 1 is concerned, the same is general in nature and does not require any specific adjudication and is accordingly dismissed. 5. In Ground of appeal no. 2, the issue relates to disallowance of transaction charges and lease line charges paid to National Stock Exchange/Bombay Stock Exchange amounting to Rs. 28,669,998/- and Rs. 4,33,130/- respectively. The Assessing Officer has disallowed the said expenditure by invoking section 40(a)(ia) of the Act on the ground that the requisite tax required to be deducted at source was not deducted from the payments made. 5.1 Before us, it was a common ground between the parties that the payments made by the ....
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....scussion in the order of the Hon'ble High Court, which is relevant:- "32) Accordingly, we hold that the transaction charges paid by the assessee to the stock exchange constitute 'fees for technical services' covered under Section 194J of the Act and, therefore, the assessee was liable to deduct tax at source while crediting the transaction charges to the account of the stock exchange. However, since both the revenue and the assessee were under the bonafide belief for nearly a decade that tax was not deductible at source on payment of transaction charges, no fault can be found with the assessee in not deducting the tax at source in the assessment year in question and consequently disallowance made by the assessing officer under Section 40(a)(ia) of the Act in respect of the transaction charges cannot be sustained. We make it clear that we have arrived at the above conclusion in the peculiar facts of the present case, where both the revenue and the assessee right from the insertion of Section 194J in the year 1995 till 2005 proceeded on the footing that the assessee is not liable to deduct tax a source and in fact immediately after the assessment year in question i.e. from ....
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....fficer u/s 40(a)(ia) of the Act, is impermissible and is accordingly set aside. Thus on this aspect assessee succeeds. 6. By way of Ground of appeal no. 3, the grievance of the assessed is with respect to the disallowance of Rs. 77,74,691/- representing loss on account of error trades . 6.1 In this context, assessee had claimed before the lower authorities that the aforesaid amount represented losses incurred on account of equity error trades and derivative error trades. It was explained that in the normal course of business, assessee executed trades as per the orders placed by its clients but sometimes errors crept into the execution, whereby the executed trade is not as per the client's requirements. For instance, it has been explained that if the sales person places an order for a wrong stock/wrong quantity or mis-communication of details of the client, such loss is absorbed by the assessee. Thirdly, it was pointed that the personnel employed to carry out actual trading on the terminal of Stock Exchanges commit certain errors, for instance, placing of an order for a wrong stock/wrong quantity etc, such losses are also borne by the assesee. In sum and substance, the plea of the....
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...., person responsible, counter party, etc has been furnished. Therefore, insofar as the nature of loss and incurrence of the same in the normal course of the carrying on business activity of the assessee is concerned, the same is not disputed. The Hon'ble Supreme Court in the case of Badridas Daga (supra) has laid down that once it is established that the loss for which the deduction is claimed springs directly from carrying on of the business and is incidental to it, then the deduction for the same ought to be allowed. In the present case, it is evident that assessee is, inter-alia engaged in the business of broking and, therefore, such losses suffered in the course of carrying on such business cannot be denied. Coming to the specific objection of the Assessing Officer to the effect that assessee has not shown direct nexus between business transaction and the loss claimed, the same in our view is unsustainable having regard to the material which was available to the Assessing Officer for verification. The relevant details have been placed in the Paper Book at pages 37 to 77; and, having perused the same, we find that the requisite information was available for the Assessing Officer....
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....establish that the said Motor Car was acquired by the assessee in the immediately preceding year though it has been registered in the name of another group concern under the Motor Vehicles Act, 1988. There is no denying the fact that the assessee has paid full price for acquiring the Motor vehicle and it has been using the same for its business. In the year under consideration, assessee has claimed depreciation on written down value (WDV) of Motor vehicle and the same, in our view, cannot be denied following the Judgment of Hon'ble Bombay High Court in the case of Dilip Singh Saradarsingh Bagga (supra). In view of the Judgment of Hon'ble Bombay High Court, we direct the Assessing Officer to allow depreciation to the assessee on the WDV of the Motor Vehicle in question. Thus on this aspect assessee succeeds. 8. By way of Ground of appeal no. 5, the grievance of assessee is with regard to a disallowance of Rs. 3,13,753/- representing club entry fees and subscription charges. In this context, it is noticed that assessee has claimed entrance fee and subscription charges of Rs. 3,92,191/- as expenditure in Profit & Loss Account. In respect of aforesaid club expenses, the explanation of....
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....essee in the course of assessment proceedings was lacking in any manner. Therefore, we direct the Assessing Officer to delete the addition of Rs. 7,42,851/-. Thus, assessee succeeds on this aspect also. 9. In respect of Ground of appeal Nos. 7 to 18, the issues relate to the additions made by the Assessing Officer on account of transfer pricing adjustments. Notably, the assessee had entered into certain international transactions within the meaning of section 92B of the Act with its associated enterprises; and, income arising therefrom was required to be computed having regard to their arm's length price as mandated by section 92(1) of the Act. 10. Insofar as it is relevant for the present controversy it would suffice to note that assessee had, inter-alia, carried out international transaction with its associated enterprises in the field of investment banking services, marketing and sales support services, brokerage services for Futures & Options; and, broking services for cash equity transactions. It is only in relation to the aforesaid three category of international transactions entered by the assessee with its associated enterprises that the stated values have been adjusted b....
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....lated as well as non related parties and, therefore, the commission charged by the assessee from unrelated parties for the broking services provided to them could be functionally compared with similar services provided to the associated enterprises; in other words as per the TPO there existed a valid internal CUP data and thus he adopted the CUP method. At the time of hearing, it was pointed out that in the assessment year 2002-03 (supra), similar aspect was considered by the Tribunal and because of availability of the internal CUP data , the action of the TPO in rejecting the TNM method and adopting the CUP method has been affirmed. We have perused the said decision of the Tribunal dated 12.02.2014 (supra) and find that the issue before the Tribunal related to brokerage transactions rendered by the assessee in respect of delivery payment trades and clearing house trade undertaken by it for related parties as well as unrelated parties. In view of the aforesaid precedent, in our considered opinion the selection of the internal CUP method as the most appropriate method even in the current assessment year of 2006-07 deserves to be upheld. Therefore, in principle insofar as the applica....
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....related trades is based on the level of margin monies placed by the related parties and unrelated parties. In this context, the Ld. Representative for the assessee has placed the following working of the interest earned on margin monies placed by the associated enterprises as compared to the unrelated parties:- Particulars Total Interest earned by assessee based on Margin Monies placed by associated enterprises 1,86,323 Interest earned by assessee based on Margin Monies placed by nonrelated parties 64,081 Additional interest earned by assessee based on margin monies placed by associated enterprises as compared to Non- related parties 1,22,242 11.2 On this point, the Ld. DR has opposed the plea of assessee by pointing out that in the assessment year 2002-03 also, the Assessing Officer had recognized the difference in activities in the services rendered by the assessee to its associated enterprises vis-à-vis the services related to unrelated parties and appropriate adjustment was allowed. The additional cost that was found to have been incurred in relation to services rendered to the unrelated parties was adjusted and, thereafter, the commission earned....
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.... it fit and proper to direct the Assessing Officer to verify the working of additional interest earned on account of high volume of trades for related party trades and, thereafter, he shall factor-in such difference in the internal CUP data for the purposes of bench-marking the international transaction of provision of broking services for Futures & Options trades. Needless to say, the Assessing Officer shall allow the assessee an appropriate opportunity of being heard before re-working the arm's length price of the international transaction of provision of broking services of Futures & Options trades for the aforesaid limited extent. In the result insofar as the Ground of appeal no. 7 is concerned, the assessee fails therein and insofar as Ground of appeal no. 8 is concerned, the same is allowed for statistical purposes. 11.6 Similarly with regard to international transactions on account of broking services for cash equity transactions is concerned, the Ground of appeal no. 9 is dismissed in view of the precedent in assessee's own case dated 12.02.2014 (supra). In Ground of appeal no. 10, no specific argument has been made and, therefore, the same is also dismissed. 12. Now we m....
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.... Cetrum Capital Limited 26.26% 2. Keynote Corporate Services Limited 45.37% 3. Khandwala Securities Limited 38.17% 4. Sumedha Fiscal Services Limited 22.03% 5. SREI Capital Market Limited 18.94% Arithmetic Mean 30.15% 12.2 On the aforesaid basis the adjustment to the stated values of the international transaction of investment banking services has been finally determined at Rs. 3,10,61,627/-, against which assessee is in appeal before us. 12.3 On this aspect, the Ld. Representative for the assessee has only articulated exclusion of two comparables, namely, Keynote Corporate Services Limited and Khandwala Securities Limited from the final set of comparables. In the context of Keynote Corporate Services Limited, the plea set up by the assessee is that the said concern is excludible because of exceptional financial results due to amalgamations. It was pointed out that in the year under consideration in terms of scheme of amalgamation approved by the Hon'ble High Court on 02.12.2005, three other concerns - M/s Concept Assets Management, Concept Holding Limited and Concept Capital Management Limited amalgamated with the assessee whereby the asset....
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....lgamations cannot be claimed. The Hyderabad Bench of the Tribunal in the case of Capital I-Q investment Ltd Vs. DCIT, ITA No. 6961/Hyd/11 dated 23.11.2012 held that a concern could not be considered as a good comparable on account of exceptional final results due to mergers/demergers. The Mumbai Bench of the Tribunal in the case of Petro Araldite Pvt. Ltd. (ITA No. 6217/Mum/2012 dated 18.01.2013) for assessment year 2008-09 also held that on account of acquisition and demergers during the relevant year, a concern cannot be included in the final set of comparables. In fact, as per the Tribunal once it is found that there has been an exceptional event on account of mergers/demergers there was no need to further look into comparability or otherwise of the factual aspects of such a concern with that of the tested party. According to the Tribunal, in such circumstances such a concern should be excluded from the final set of comparables. In our considered opinion, the aforesaid decision of the Tribunal clearly support the plea of assessee for exclusion of Keynote Corporate Services Limited from the final set of comparables. 12.6 So however, the Ld. DR has pointed out that the assessee i....
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....e direct the Assessing Officer to exclude Keynote Corporate Services Pvt. Ltd from the final set of comparables. 13. The next plea of the assessee is for exclusion of Khandwala Securities Ltd from the final set of comparables. On this aspect, the Ld. Representative submitted that in Grounds of appeal enumerated in the Memo of appeal, the plea relating to exclusion of Khandwala Securities Limited was not specifically raised, though it can be considered as subsumed in Ground of appeal no. 11, wherein, the enhanced adjustment to the stated value of the international transaction has been assailed. Be that as it may, it has been pointed out that assessee has raised an Additional Ground of appeal whereby exclusion of Khandwala Securities Ltd has been specifically canvassed. 14. The assessee company has sought exclusion of Khandwala Securities Ltd. from the final set of comparables while evaluating the international transaction of merchant banking services on the ground that the said concern has earned more than 75% of the 'fee based operations' segmental income from rendering broking services. In this context, the case set-up by the assessee is that in the Investment banking services s....
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....erchant banking Services segment is concerned, the Assessing Officer is directed to give effect to the aforesaid directions and, therefore, recompute the arm's length price of the international transactions entered with the associated enterprises. 18. Now, we may take up the last issue relating to determination of arm's length price of the international transaction of rendering of marketing and sales support services in respect of American Depository Receipts (ADRs) programs of the associated enterprises for the Indian clients. 19. In respect of the international transaction relating to provision of marketing and sales support services rendered to associated enterprises in relation to ADR services, assessee used the TNM method for benchmarking the same. The PLI used was Operating Profits to Operating costs and assessee's margin was computed at 4.48%. The assessee determined a set of comparables wherein the arithmetic mean of the operating margins was computed at 1.55% and accordingly the stated value of the transaction was claimed to be at arm's length price. The TPO disagreed with the assessee on the use of financial data of multiple years of the comparables. Instead, the TPO us....
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....r Pricing Study to say that the functional analysis of the impugned segment brings out that the services rendered, which include identifying financial contracts and opportunities in Indian market; preparation of marketing material; arrangement of meetings; marketing presentations; providing information and market intelligence to associated enterprises; coordination and support services in relationship clients; and, other miscellaneous support services. It has been emphasized that all the said activities involve employee/personnel as a critical component of functioning. 24. We have carefully considered the rival submissions. As per the Director's report of Sundaram Finance Distribution Limited, a copy of which is placed on page 274 of the Paper Book, the said concern has no employees on its pay roll. It is for this reason that the administrative and other expenses debited in its Profit & Loss Account (copy at page 276 of the Paper Book) reflects a debit of Rs. 1,45,37,206/- under the head sourcing fee. The factual position in the case of the assessee is quite different inasmuch as it renders services on its own by employing its own employees whereas Sundaram Finance Distribution Li....