AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (12) TMI 549
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....ransaction pertaining to provision of braking services to associated enterprises ("AES'). 3. On the facts and circumstances of the case and in law, the learned AO/TPO/CIT(A) erred in rejecting TNMM as the MAM for the determination of the ALP of the international transaction of brokerage commission received by the Appellant from its AEs. 4. On the facts and circumstances of the case and in law, the learned AO / TPO/CIT(A) has erred in applying the Comparable Uncontrolled Price (CUP) method as the MAM for benchmarking the international transaction of brokerage commission received by the Appellant from its AES, failing to appreciate the following: a. There are key differences between the Functions Performed, Assets Employed and Risk Assumed ('FAR') in respect of transactions executed by the Appellant with AEs vis-à-vis non-AEs. a. Brokerage rates differ inter alia based on clients, volume of transactions, geographical differences, nature of services offered to each client and client relationships, b. The brokerage rate charged to non-AEs includes remuneration for services performed by AEs which could not be shared by the Appellant with the AEs given the In....
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....n the facts and circumstances of the case and in law, the learned AO/TPO/CIT(A) erred in not applying an appropriate turnover filter and granting volume discount for the purposes of applying the internal CUP for benchmarking the international transaction elating to brokerage commission received by the Appellant from its AEs in respect of non-DMA transactions." 03. Facts show that appellant is a member of Bombay stock exchange and National stock exchange and engaged in the business of stock broking. Assessee company has filed its return of income on 29/9/2008 declaring a total income of Rs. 3,550,372,407/-. As assessee has entered into certain international transactions with its associated concern, the deputy Commissioner of income tax, range 4 (1), Mumbai (the learned AO) referred the matter to the additional Commissioner of income tax, transfer pricing -I (2) Mumbai (the learned TPO) for determination of arm's-length price of such international transactions. 04. Facts shows that assessee has entered into an international transactions of brokerage commission of Rs. 570,842,965 with its associated enterprises, assessee benchmark the about transaction using the transactional net ma....
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.... submitted that different services are offered to different clients in view of which the services rendered to one client cannot be compared to services rendered to another client. The basic flaw in the argument of the assessee cannot be overlooked. If different services are offered to different clients then the price (brokerage) charged for that can be different. But what services are rendered over and above the services rendered to the AE's have to be evidenced. It just cannot be a matter of argument. If the assessee has provided research services are trading coverage et cetera, then a separate charge for that should have been made from the concerned client. Rendering services over and above equity broking can be charged separately wherever applicable but if the invoices raised are only by way of brokerage and there is no basis of the assessee for taking the centre of the argument as above. The chargeability of any service is dependent upon factors like the cost of providing them, the competitive environment, the bargaining position of the buyers etc. The assessee is contending that services rendered to the non-AE is over and above those rendered to the AE's and hence higher rate ....
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....rm's-length price of the rate of brokerage is 0.23% and therefore there reason adjustment proposed of Rs. 427,723,876/-. Accordingly an order u/s 92CA (3) of the act was passed on 14/10/2011. 08. Consequent to that the draft assessment order u/s 144C read with Section 143 (3) of the act was passed on 23/12/2011 wherein certain other corporate additions/disallowances were made and total income was computed at Rs. 3,978,250,390/-. 09. As assessee did not file any objection, consequently assessment order u/s 143 (3) of the act was passed on 3/2/2012. 010. Aggrieved, assessee preferred an appeal before the Commissioner of income tax (appeals) - 15, Mumbai challenging the rejection of transactional net margin method adopted by the assessee and adoption of cup method as the most appropriate method by the learned transfer-pricing officer. The learned CIT (A) decided the issue as Under:- a. In grounds of appeal, 2, 3, and 4 the appellant has contended that the AO was not justified in rejecting the TNMM. The appellant submitted the FAR analysis to strengthen its argument that the cup method could not have been the most appropriate method as there are differences in functions performed,....
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....on also where transfer-pricing regulations apply, the preference for cup is evident. Accordingly, contention of the appellant is not acceptable. c. The appellant also contended that TNMM should have been accepted, since its TP study was undertaken by an independent external consultant. In this regard, it is mentioned that the argument of the appellant has no force since the consultant is always an external person, which is not specific to the case of the appellant only. d. The appellant further argued that no circumstances as enumerated under clause (a) to (d) of Section 92C (3) have been pointed out by the TPO to reject the TP study report. In this regard it is mentioned that in para 5.1.3 of his order on Page 5 and 6, the AO has discussed in detail the basis for rejection of TNMM and applying cup method. Hence, this contention of the appellant is factually incorrect. e. The appellant contended that the adjustment was required to be made relating to economic circumstances since the appellant is remunerated by non-AES for the significant additional functions performed to service non-AE clients vis-à-vis is the limited services performed to service AEs. In this regard, ....
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....year 2011 - 12 dated 3 February 2020 has upheld the transactional net margin method as the most appropriate method and deleted the addition. Therefore, this appeal is squarely covered in favour of the assessee as far as the most appropriate method is concerned. 014. The learned departmental representative also supported the order of the learned transfer pricing officer, learned CIT - A and learned DRP for assessment year 2006 - 07 and submitted that the cup method is the most appropriate method in the transactions entered into by the assessee of brokerage. 015. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also carefully gone through the orders of the coordinate bench in assessee's own case for assessment year 2006 - 07 and 2011 - 12. We find that the coordinate bench in ITA number 902/M/2016 in assessee's own case for assessment year 2011 - 12 per order dated 3/2/2020 has dealt with this issue in paragraph number 11 onwards as Under:- "10. Ground no.5 reads as under: Receipt of brokerage commission 5. On the facts and circumstances of the case and in law, the learned TPO / learned AO / Hon'ble DRP has erred....
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....15.44% as compared to the average margin on operating income of 16.27% earned by independent comparable India brokerage houses. (B) A number of functions namely, client origination activities, dedicated sales and sales trading staff in the New York, London and Hong Kong sales offices of CLSA that cover the India market, centralized client support functions, research teams based outside India, corporate access and investor forums and applications software development and IT support are performed by the AEs for non-AE Fll clients of the assessee. (C) The detailed FAR analysis submitted by the assessee highlights the key differences between transactions executed for its AE and non-AE clients and establishes that AEs and non-AE transactions are different and not directly comparable for the purposes of CUP. As per the assessee, the non-AE transactions are also not comparable within each other which are evidenced by the variations in the brokerage rates charged to non AEs as per the samples brokerage rates provided by the assessee. (D) The nature of services rendered to clients varies in terms of corporate access, analyst access, research, regularity of business, sales and tradi....
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....to the comparable CUP. (I) The Assessee further submitted adjustments based on volume, submitting that the average rate of only Top 10 clients in each category should be considered as a CUP or by only considering clients who have had a turnover of higher than 2000 crores." 12. The TPO after considering the reply of the assessee came to the conclusion that the assessee is providing broking services to AEs and Non-AEs. The services provided by the brokers mainly include trade execution. There is a direct internal comparable available in the form of brokerages charged from the third parties. The assessee has argued that the choice of most appropriate method lies with the assessee. The opinion expressed by the assessee is correct to an extent if there is proper application of the principals laid down in the provisions of the I.T Act. As per the assessee, the CUP method could not have been applied because of the reasons mentioned in the TP documentation report, which are reproduced below: a) Marketing/ origination activity in relation to non-AE Flls b) Significant research function centralized at Hong Kong and used by non-AE FIIIS c) Centralized business support provided ....
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....e which are used by both Non-AEs and AEs. It is also seen that in all the reports submitted by the assessee company, the research relating to India, has been providing by the assessee company. Therefore there is no direct nexus between the research done by the AE and the benefit accruing to the assessee company. (v) The assessee in TP report, rejected the CUP method citing functional differences. However, as discussed above the functions performed by the assessee company is almost similar for both Non-AEs and AE clients. (vi) In a CUP method, reasonable and accurate adjustments are allowed for better comparability. Instead of working out adjustments at the time of the TP report, it has altogether rejected the CUP method which makes the TP report non-reliable as the choice of most appropriate method has not been done in the manner prescribed u/s 92C(1) & (2) of the IT Act. (vii) The assessee has submitted on without prejudice basis that the rate charged from the Non-AE DIls may be taken as comparable. This is not correct as the customers are not located in India. The AEs are more comparable to Non-AE FIIs. Therefore the rate charged from the Non-AE FIls is taken as comparab....
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....he adjustments to the cost structure be allowed to iron out the differences between the AE and Non-AE transactions. 15. The learned DR, on the other hand, submitted that the assessee has bench marked the transaction by using TNMM and since the assessee is rendering similar services to overseas AEs, the TPO has rightly proposed the CUP method in place of TNMM. The argument of the assessee that same brokerage services are to be provided to the AEs and Non-AEs though the functions are different, was rejected by the DRP as it failed to demonstrate as to how the functions as brokerage activities are different between AEs and Non-AEs. The learned DR further submitted that in the case of J P Morgan India Pvt. Ltd., (supra), there was difference in the activities in the services rendered by the assessee to the AEs and Non-AEs and the same was demonstrated before the appellate authorities. However, no such difference in activities has been established by the assessee before the TPO/DRP in the present case. Considering all the above, the learned DR contended that the orders of the TPO and DRP be upheld. 16. We have heard the parties and perused material on record. We observed that the ....