TaxTMI 
TaxTMI 
2023 (10) TMI 1196
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....x Act, 1961 (the Act), by the assessee was partly allowed. Both the parties aggrieved with the assessment order and therefore, are in appeal before us. 02. In ITA No.45/Mum/2018 The learned Assessing Officer is aggrieved by raising following grounds of appeal:- "1. Each ground is without prejudice to the others. 1.1 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in including comparable namely M/s IDC (India) Ltd., overlooking the fact that functional comparability and application of RPT is not ascertainable from the financials?" 1.2 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in including comparable namely M/s IDC (India) Ltd., on the basis of functional comparability without giving opportunity to the AO/TPO?" 1.3 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in including comparable namely M/s IDC (India) Ltd., overlooking the fact that M/s IDC Ltd. is owning a brand and in the case of M/s Rolls Royce Marine India Pvt. Ltd. reported in [2014], 49 taxmann.com 365 (Mum. Trib.) Hon'ble ITAT has....
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.... craves to prefer an appeal against the order passed by the Commissioner of Income- tax (Appeals) - 55, Mumbai (hereinafter referred to as the learned CIT(A)], under section 250 of the Income-tax Act, 1961 (Act) in respect of the order passed by the Deputy Commissioner of Income-tax- 4(1), Mumbai (the AO) under section 143(3) read with section 144C(3) of Act, on the following grounds: 1. The learned CIT(A) erred in re-computing the arm's length price (ALP) of the international transaction, pertaining to provision of broking services to Citigroup Global Markets Limited, UK (CGM UK), as Rs 6,242,387 as against Rs 4,161,591, resulting in an upward adjustment of Rs 2,080,796. 2. In determining the ALP of the International transaction of provision of broking services to CGM UK, the learned CIT(A) has inter alia erred on the following grounds: -Rejecting the transactional net margin method as the most appropriate method and considering the comparable uncontrolled price method (CUP) as the most appropriate method to benchmark the aforesaid international transaction; and -While applying CUP as the most appropriate method, in not granting the adjustme....
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....2/- for the impugned assessment year. Assessee adopted the Transactional Net Margin Method[ TNMM] as the most appropriate method [ MAM] for benchmarking research support services. The assessee's benchmarking shows that assessee has earned a margin of 15%. Assessee selected four comparable companies whose margin operating profit / total cost was 19.57% and therefore, since, the arithmetic mean of comparable prices is within +- 5% of the transfer prices, assessee concluded that its transaction is at Arm's Length Price. 05. The learned Transfer Pricing Officer asked for further details on accepts / reject matrix. The learned Assessing Officer found that assessee has used the data for three years of the comparable company and has taken the weighted average in the accept/ reject matrix. Assessee originally selected 6 companies but rejected two companies having significant related party transactions and one company on functional dissimilarity, thereafter, assessee based on the transfer pricing study report of subsequent year selected one more comparable as IDC India Limited because same was found comparable on the basis of annual report for financial year 2009-10. Therefore, the learn....
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..... The assessee objected to the same stating that there are functional differences in a respect to broking services rendered to Associated Enterprises and non-Associated Enterprises, however, it agreed for an adjustment of 0.05%. Accordingly, an adjustment of Rs.20,80,796/- is made. 08. Accordingly, the order under Section 92CA(3) of the Act was passed on 29th January 2014. 09. During the course of assessment proceedings, the learned assessing officer further examined :- a. that assessee has earned the tax-free dividend income of Rs. 520,000 and the same has been claimed as exempt. Assessee contended that no expenses were incurred for earning of exempt income and no sumo to disallowance was offered. Therefore, the learned assessing officer held that a certain percentage of the expenses claimed by the assessee company would definitely be attributable to the tax-free income earned by the assessee, as it is the common pool of human and financial resources, which are being utilized on income in various forms. He recorded his satisfaction about the correctness of the claim of the assessee that there is no expenditure incurred by the assessee. Accordingly the provisions of ....
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.... is treated as a speculation loss. d. Assessee has paid a sum of Rs. 1,981,158 levied on the assessee by the stock exchange as penalty relating to non-maintenance of complete records, delay in payout of funds and securities and incomplete forms short collection of margins et cetera. The assessee has argued that such penalties levied towards certain delay/technical non-compliance et cetera and therefore they are not hit by the explanation to section 37 (1) of the act. The learned assessing officer held it to be the penalty and disallowed the sum. e. The AO noted that assessee has debited the business development and entertainment expenditure of Rs. 59,764,000, repairs and maintenance of Rs. 13,468,000 and books and periodicals of Rs. 125, 71,000/- wherein the assessee was asked to substantiate these expenses with supporting bills and vouchers. Assessee merely explain the nature of such sum submitted that these are not capital expenditure and are allowable as expenditure bully and exclusively incurred for the purposes of the business. The learned assessing officer held that the explanation of the assessee is general and casual in nature and these expenses are not fu....
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....ee, he found that it performs the investment banking activities and therefore, functionally dissimilar. e. Accordingly, after the order of the learned CIT (A), four comparable companies remain in the comparability analysis whose operating margin was 19.57% and therefore, the TP adjustment with respect to the research report services was deleted. f. With respect to the adjustment on account of the provision for broking services, the learned CIT (A) agreed with the learned Transfer Pricing Officer and confirmed the addition on account of broking services. g. On the another issue of disallowing loss of Rs.2,31,06,114/- on account of error trade by the learned Assessing Officer holding that the loss arises on account of share trading by the assessee and therefore, the same is speculative in nature. During the course of verification by the learned Assessing Officer, it was noted that assessee has incurred loss on error trade transaction. The assessee was asked to explain that why the provisions of Section 73 should not be applied. The assessee explained that looking at the nature of its business of broking these are the losses arising out of the purchase and s....
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.... has conducted the search on prowess capital line and place and venture intelligence database. How a comparable company can enter into a comparability analysis beyond the search filters adopted by the assessee. He submitted that the CIT (A) has given the reasoning in paragraph no.4.4, which is bad and beyond a comprehension in transfer pricing. ii. With respect to the inclusion of IDFC investment advisory limited by the learned Transfer Pricing Officer but excluded by the learned CIT (A), he submitted that the learned Transfer Pricing Officer has categorically stated that IDFC investment advisories limited qualify all the filters adopted by the assessee and the learned Transfer Pricing Officer rejected it merely because of RPT filter. According to the assessee, it has related party transaction more than 25%. In the whole submission of the assessee, there is no challenge that it did not cross all the filters by the assessee as well as by the learned Transfer Pricing Officer. Assessee objected before the learned Transfer Pricing Officer that this comparables fails RPT filter, however, before the learned CIT (A), there is no whisper about RPT filter but altogether a functiona....
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.... profits of the company is only RPT transactions reflected was an increasing sundry debtors, which undisputedly had no impact on the profit and loss account. He further placed the detailed submission on the functional comparability by placing reliance on the website extract, disclosure and annual report on the information on employee functions furnished by the TPO. ii. With respect to the exclusion of IDFC investment advisors Ltd, Motilal Oswal investment advisors private limited and ladder up corporate advisory private limited, he submitted that the learned CIT - A has given his detailed finding that why the above comparable is to be excluded. The learned departmental representative did not challenge the reasons given by the learned CIT - A. iii. With respect to ground no.5 of the appeal, he submitted that the learned CIT (A) has followed the decision of the Hon'ble Bombay High Court on identical facts and circumstances and therefore, the provision of Section 73 of the Act does not apply. 016. On assessee's appeal, the learned authorized representative did not press ground number 1 and 2 of the appeal regarding T P adjustment confirmed by the learned CIT -....
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....nnot be admitted if the facts are not on record and further, same is required to be investigated. It was further stated that it is a factual aspect, which now at this stage cannot be entertained. 021. The learned Authorized Representative relied upon the decision of the Hon'ble Bombay High Court in case of CIT vs. Tata Power Solar Systems Ltd. 77 taxmann.com 326, stating that if a comparable has been included mistakenly, assessee has not been barred in law from withdrawing the comparable. 022. During the course of hearing, the assessee was also directed to explain and submit search process for research support services, which was submitted along with accept/ reject matrix for the same. It was submitted. The assessee was also asked about the comparability of the employee cost ratio between the assessee and IDC Ltd, it was submitted that the assessee employee cost was 34.9% whereas the employee cost of IDC India Ltd is 34.50%. 023. We have carefully considered the rival contention and perused the orders of the lower authorities along with the transfer pricing study report submitted by the assessee as well as further details called for by us. In the appeal of the revenue,....
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....section 133 (6) of the act. As no new facts, additional evidences were submitted by the assessee for its inclusion before the learned CIT - A, we do not find any infirmity in the order of the learned CIT - A in directing the learned TPO to include the above comparable. Accordingly ground number 1 of the appeal of learned AO is dismissed 025. The learned assessing officer has challenged the order of the learned CIT - A as per ground number 2 - 4 with respect the order of the learned CIT - A that has excluded the IDFC investment advisors Ltd on the basis that it is engaged in the business of providing portfolio management services as a registered portfolio manager with the securities and board of India which is having 90% of its revenue coming from that stream and only 10% revenue stream is from advisory services. The learned CIT - A has also directed for exclusion of Ledger up corporate advisory private limited, which is found to be engaged primarily in the business of providing investment banking services like that syndication, private equity deals and other corporate advisory mandates. It is also registered with the securities and exchange board of India and therefore the learn....
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....e 8D. The assessee has also without prejudice raised an issue that no expenditure having direct and proximate connection with the earning of exempt income has been incurred by the appellant and thus no disallowances of expenditure incurred in relation to earning exempt income is warranted. The claim of the assessee is that assessee has earned tax-free income from shares of Bombay stock exchange Ltd as dividend. Assessee is stockbroker and was holding shares of Bombay stock exchange. On conversion of the Bombay stock exchange membership card of the assessee into the shares under the scheme of 2005 assessee got equity shares. From these equity shares, assessee received the above dividend. Assessee claims that it has not incurred any expenditure for earning the dividend income. On the issue of not incurring any expenditure for earning dividend income , ld AO rejected stating that there is common pool of expenses for earning taxable and exempt income. The learned AO, disallowed Rs. 48,325/- applying rule 8D. On appeal before the learned CIT - A, he upheld the validity of rule 8D following his own order in assessee's case for earlier year and confirmed the disallowance. Assessee has twi....
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....ses incurred for business and non business purposes separately as the volume of the same are huge and bulky. Accordingly the AO disallowed 20% of the above expenditure resulting into disallowance of Rs. 9,301,653/-. The learned CIT - A confirmed the action of the learned assessing officer however reduced the disallowance from 20% to the 10% of the total expenditure. We find that the learned CIT - A has confirmed the ad hoc disallowance by reducing the quantum of disallowance from 20% to 10%. We find that the above expenditure incurred by the assessee is merely 1.6% of the total expenditure incurred by the assessee. In earlier years, no such disallowances are made. Thus, this disallowance is resulted only for this year. We find that, if the assessing officer is not satisfied by any amount of expenditure, the expenditure to that extent should have been disallowed irrespective of its percentage. Merely applying an ad hoc percentage to the total expenditure for holding that such expenditure are not bifurcated into business and non business expenditure is not correct. It is not the case of the revenue that any bogus expenditure has been debited in the books of accounts. Further merely b....