TaxTMI 
TaxTMI 
2023 (10) TMI 1196
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....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 held that brand Owners Company can't be taken as comparable." 1.4 ....
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....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 adjustments sought to be made to the brokerage rates charged to Non AES, on account of differences in the efforts involved, functions performed and risks assume....
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....enchmarking 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 learned Transfer Pricing Officer was of the view that assessee has done cherry picking. Further, the assessee is also using same set off comparables for investment banking as well as for research support....
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....or 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 rule 8D of the IT rules read with section 14 A of the act were applied and accordingly the disallowance of Rs. 48,325/- was made. b. The AO found that assessee has shown Rs. 3,241,723 under the head leasehold im....
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....nd 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 fully supported by proper bills and vouchers. The learned AO held that there is an element of personal expenditure in these heads of expenditure, which cannot be ruled out for want of itineraries and logbooks and final details. Accordingly he ....
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.... 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 sale of shares with an obligation of payments and delivery to certain times the client does not accept the loss and therefore, assessee has to bear it by reversal of the trade. The learned Assessing Officer disallowed the same holding that the provisions of Section 73 of the Act hit it and loss....
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....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 functionality ground was decided and this comparable was excluded. iii. With respect to the Ladder up corporate advisory Pvt. Ltd., the assessee has excluded the same on account of business review and iv. Similarly, Motilal Oswal Investment Advisories Pvt. Ltd. was also objected on that basis. Both the objections were reje....
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....O. 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 - A of Rs.20,80,796/-. 017. On the issue of disallowance under Section 14A of the Act, he submitted that though assessee has earned tax-free dividend income of Rs.5,20,000/- assessee has stated it has not incurred any expenditure towards earning exempt income for the reason that it is holding only the shares of stock exchange for which it is broking. The learned Assessing Office....
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....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, the learned AO is aggrieved by the direction of the learned CIT - A to include IDC (India) Ltd, and to exclude IDSA investment advisors Ltd, Ledger up corporate advisory private limited and Motilal Oswal investment advisory private limited. 024. As per ground number 1 of the appeal, the assessee has challenged the order of the learned CIT - F for inclusion of cyber media research Ltd (forme....
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....er 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 learned CIT - A held that it is engaged in merchant banking activities and therefore not comparable to the assessee. On the issue of exclusion of Motilal Oswal investment advisors private limited, it was held that it is engaged in the business of providing investment banking, merchant banking services based on the extracts of the annual reports. It was also found that it is an investment banking compa....
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....vidend. 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 twin claims before us, (i) non-recording of satisfaction by the AO before invoking rule 8D and (ii) the assessee received the shares and has not incurred any expenditure. We find that that according to the Para number 5.2 the learned assessing officer has categorically stated that there is a composite use of funds and there is a common pool of human and financial resources which are being utilized by the as....
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....firmed 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 because certain vouchers are held to be prepared by self showing cash expenditure, does not result into any illegality as there are certain types of expenditure which are prepared on self made vouchers and reimbursed or paid in cash, i.e. Petty cash expenditure, conveyance etc. As such, the assessee has submitted all the Ledgers of such expenditure, which had proper narration of the nature, and the amount s....