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2023 (6) TMI 1357
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....l set of facts and the reasoning given by the authorities below are also by and large similar. 2. We will first take up the cross appeal for A.Y.2003-04. In various grounds of appeal the assessee has challenged the following issues:- GROUND NO. GROUND/ISSUE 1. Upward adjustment of INR 1,50,72,130 in determining the ALP of the international transaction pertaining to provision of equity broking services in CH segment to AEs 2.1.1 CUP method applied by incorrectly considering the simple average of the brokerage rates charged instead of considering the weighted average of brokerage rates charged 2.1.2 Comparability analysis should be undertaken by considering both overseas and domestic independent clients (i.e. all non-AES transactions) for determining ALP while applying CUP. 2.1.3. Not granting adjustment for marketing cost with regards to cost for trading support services and salary cost of Mr. Parag Gude while applying CUP 2.1.4 No Adjustment of research cost and 50% of volume while applying CUP 2.1.5 Assessee's transactions with its AES, are at ALP since the Assessee has charged higher brokerage rates than average brokerage rates charged to AES by third party bro....
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....ssion and brokerage from trading in securities on behalf of its clients. 6. In so far as transfer pricing adjustments are concerned, the facts are that assessee had entered into international transactions for broking services for its AEs, i.e., trade executed with the assessee for Morgan Stanley Dean Witter (Mauritius) Co. Ltd. as well as Morgan Stanley International Inc. and the payment made by the assessee on account of overseas support services in Morgan Stanley International Inc. One of the controversies was that, assessee in the Transfer Pricing Study Report had adopted TNMM at entity level as the Most Appropriate Method for determining ALP for the said transactions with AE and reported that same were at arm's length. However, the ld. TPO rejected TNMM on the ground that applying TNMM at entity level is inappropriate for determining the ALP on share broking transactions carried out on behalf of its AE. He also held that there is an internal CUP which is available in the form of share broking transaction carried out on behalf of other entities like FIIs and therefore, according to him CUP is the Most Appropriate Method. The assessee had submitted that if CUP is to be applied, ....
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....se trades and delivery versus payment (DVP) trades signed respectively. The detailed working has been given by ld. TPO as annexure A & B in his order. 9. The ld. CIT (A) had by and large agreed with the ld. TPO's contention. However, he directed the ld. TPO to drop the brokerage rate charged to non-AEs for both house trades and DVP trades and also rejected the ld. TPO's basis for taking weighted average of the brokerage charge for computing the ALP and directed that simple average of each FII should be taken into consideration for computing the ALP. 10. The issue whether MAM will be CUP or TNMM in this case, by and large has been settled by the Tribunal that CUP should be the most appropriate method to be applied for bench marking the transaction of brokerage charged from AE. The only issue left is, as how the transfer pricing adjustment should be made, whether the margins of the comparables have to be taken on simple arithmetic mean of uncontrolled transactions or weighted average. We find that this issue had come up for consideration before the Tribunal in A.Y.2011-12, wherein the Tribunal had held that only arithmetic mean of the price of the brokerage should be taken ....
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....2009 passed under section 92CA (3) of the Act did not agree with the benchmarking analysis conducted by the assessee and following the approach adopted in the assessment year 2005-06 considered internal Comparable Uncontrolled Price ("CUP") method as the most appropriate method since the assessee was having similar transactions with third parties and data was available. The TPO further found that the commission earned from the associated enterprises is less than the commission earned from independent parties. Accordingly, the TPO made a total adjustment of Rs. 22,99,91,344, in respect of transaction pertaining to broking services after making an adjustment on account of marketing to an extent of 0.0313%. The learned DRP vide its directions issued under section 144C (5) of the Act rejected the objections filed by the assessee. Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorised Representative ("learned AR") submitted that for benchmarking the transactions by application of CUP, an adjustment of 40% has been granted by the coordinate bench of the Tribunal in assessee's own case for the preceding year be also allowed in the year under....
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....paragraph number 2.17 also suggest that in considering whether controlled and uncontrolled transaction is comparable, regard should be held to the effect on price of broader business functions other than just product comparability. Where the differences exist between the controlled and uncontrolled transaction is on between the enterprises undertaking those transactions, it may be difficult to determine reasonably accurate adjustment to eliminate the effect on price. However such difficulties should in all fairness be adjusted reasonably but that should not preclude the application of cup method. In the present case for earlier years the learned and CIT - A has granted adjustment to the extent of 40%, which is been upheld by the coordinate benches in case of the assessee for earlier years, we also direct the learned assessing officer/transfer pricing officer to adjust and grant benefit of 40% discount to the assessee. 11. The learned DR could not show us any reason to deviate from the aforesaid decision and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in the assessee's....
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.... it is covered by the decision of the Tribunal as series of decisions of the Tribunal in A.Y.2000-01, 2001-02 and 2006-07 wherein the Tribunal has allowed the depreciation @25% of BSE and NSE membership after observing as under:- "20. We have considered the rival submissions and perused the material available on record. In the present case, the assessee claimed depreciation on BSE and NSE membership cards on the basis that the same grant licence to the assessee to carry on broking business on the BSE and NSE, respectively, and thus the said membership is in the nature of "licence" eligible for depreciation under section 32 of the Act. On a without prejudice basis, the assessee also submitted that they are clearly business commercial rights eligible for depreciation @25%. We find that the Hon'ble Supreme Court in Techno Shares and Stocks Ltd (supra) held that a non-defaulting continuing member of BSE is entitled to depreciation on BSE membership card, as the said right of membership is a licence or akin to licence in terms of section 32(1)(ii) of the Act. In the present case, the claim of the assessee was denied by placing reliance upon the decision of the Hon'ble jurisdiction....
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....nature and has been decided in favour of the assessee in the preceding assessment years. We find that the coordinate bench of the Tribunal in assessee's own case for the assessment year 2005-06 cited supra, while deciding a similar issue, observed as under: "037. Ground no. 3 is with respect to the disallowance of remuneration paid to Mr. Ashith Kampani under Section 40A(2) of the Act. The disallowance has been made by the learned Assessing Officer holding remuneration is paid in excess of limits permitted by Ministry of law and justice vide letter dated 24th April, 2001. The learned CIT(A) found that remuneration was paid of Rs.89,17,000/- against the approval limit of 53,72,360/-. He further held that Mr. Ashith Kampani has 18 years of experience in the field of capital market. Identical issue arose in case of assessee for A.Y. 2004-05 where learned CIT(A) deleted the addition which was confirmed by ITAT. In view of this, we find no infirmity in the order of the learned CIT(A) in deleting the disallowance which has been confirmed by ITAT in assessee's own case for earlier years. We also find that the learned Assessing Officer has not given any reason that why the above rem....
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....concern for occupying of 12,030 sq ft of office premises in Forbes building. The assessing officer further noted that assessee has paid deposit of Rs.3.00 crore with its sister concern. The AO noted that no explanation was given for such deposit with sister concern. The AO calculated interest @10% amounting to Rs 30 lakhs and made addition on account of interest free deposit. The AO concluded that even the rent paid is reasonable, the interest on deposits has to be considered as an excess within the meaning of section 40A(2) of the Act. On appeal before Id. CIT(A), Id. CIT(A) took his view that the AO has not made a case for disallowance of any expenditure and made addition for notional return of interest from deposit. It was further held that the AO made addition to the income of assessee which has not been earned and. therefore, deleted the addition. Before us, neither the Ld. DR brought any contrary law nor any comparable rate of rent in similarly situated property. Moreover, the AO has not made a case of disallowance on the basis of any comparable and simply made addition for notional return of interest free deposit The Hon'ble Bombay High Court in Karma Energy [2015] 57 ta....
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....quential in the year under consideration. Therefore, we do not find any merit in the ground of appeal. The same is dismissed. 24. Thus, this ground is consequently disallowed. 25. In so far as ground No.6 is concerned, the Tribunal had itself accepted the stand of the Revenue in A.Y 2011-12 to consider simple average brokerage rate for comparability purposes and accordingly, such a contradictory ground taken by the department in this year is dismissed. 25. In ground No.7, the Revenue has challenged deletion of the disallowance of Rs.8,03,67,075/- on account of overseas support services have been broadly classified under the head "finance" (controllers, treasury and tax, information technology, legal and compliance and HR). The Ld. TPO with regard to letter of undertaking dated 21/03/2003 signed on behalf of the assessee on 31/03/2003 referred to the existing agreement between assessee and M/s. Morgan Stanley International Inc. and other overseas entities, the content of the letter has been reproduced by the ld. TPO in his order. It mentions various kinds of support services to be rendered which include training of employees, overseas research in respect of Indian capital market, ....
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....nding of business rules and changes thereto from time to time In the event SEBL BSE, NSE, NSDL, RBI, DCA announce any change in the existing rule announces new rule, Law department in India keeps the overseas Law department informed. Subsequently both the offices discuss the contents of the announcement. Its impact on the company and identity departments/persons who would be responsible for implementing the rule. The entire process is handled jointly by India and overseas office. (d) Coordinating with regulators to seek necessary guidance/clarification: Upon discussions with overseas Law department, if any provisions of any announcement is not clear or there is a possible double interpretation, then the overseas Law department would advice the Indian office to approach the regulator for clarification. (e) Formulating company policies on each such rule: Once the provisions are clear, Compliance department of India works jointly with overseas Compliance department to draft necessary Compliance Notice detailing how the new rule should be Implemented. Compliance department also jointly decides departments who should be getting the Compliance Notice. (f) Roll out of the polic....
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.... Tribunal in A.Y.2000-01 has deleted the disallowance. The Tribunal held that assessee has discharged its onus to prove the need of the services received by it from AE which was procured by the impugned service provider under the valid agreement and looking to the performance and growth achieved by the company in the initial years, the quantum of fee paid is fully justified. It was held that keeping in mind the comparable services have been received by the assessee company which has rightly benefitted the assessee company in its business as is evident from the performance in the initial year of the business held, that addition should be deleted. 29. We have heard both the parties at length and also gone through the earlier year orders of the Tribunal. However, we find that nowhere the nature of intra-group services and how the services has been rendered and utilised have been analysed by the Tribunal nor any of the tests for examining the arm's length price for such services has been discussed nor any of the tests for examining the arm's length principle have been looked into. The intra-group services needs to satisfy the following tests:- (i) Need Test (ii) Rendition Test (....
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.... anything on record, therefore, we have no option but to follow the earlier year orders even though none of the orders of the Tribunal have considered this aspect. Accordingly, the Revenue cannot substantiate the disallowance of ALP at Nil and accordingly, the Revenue's appeal is dismissed. 33. In the result, appeal of the assessee is partly allowed and appeal of the Revenue is dismissed. ITA No.7675/Mum/2012 (A.Y.2007-08) 34. In various grounds of appeal, assessee has raised the following grounds:- GROUND NO GROUND/ISSUE 1. Confirming adjustment of Rs 18,92,07,817 made by the Ld. AO/TPO on account of ALP of commission received on trades executed for the AEs and also enhancing the adjustment by Rs 8,50,93,244 1.1 Assessee's transactions with its AES, are at ALP since the Assessee. has charged higher brokerage rates than average brokerage rates charged to AEs by third party brokers. 1.1.2. Deleting the adjustment of marketing cost to CUP granted by the Ld. TPO 1.1.3. No Adjustment of research cost while applying CUP 1.1.4 No Adjustment of 50% of volume while applying CUP 1.1.5 Not adopting transaction-wise approach while computing simple average i.e. comparabil....
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....in A.Y.2007-08. One of the reasons is that in case of the assessee, disallowance of interest is unjustified because admittedly assessee had more interest free funds exceeding the investments yielding any tax free income and now this issue stands covered by the judgement of the Hon'ble Supreme Court in the case of South India Bank Ltd vs. CIT - 130 Taxmann.com 178 (SC). Accordingly, ground No.2 is partly allowed. 38. Lastly, with regard to disallowance of lease line charges, VSAT charges paid to stock exchange and transaction charges paid to local depository u/s.40a (ia) by the ld. AO. The ld. AO noted that assessee company has paid transaction charges to BSE / NSE as well as VSAT and lease line charges to Rs.6,74,13,552/-. The assessee's case was that transaction charges as well as VSAT and lease line charges are merely charges for recovery of cost infrastructure support and no tax should be deducted u/s.194C/194J and therefore, no disallowance is warranted u/s.40(a)(ia). However, the ld. AO following the assessment order for A.Y.2006-07 has made the disallowance of Rs. 74,44,687/- holding that transaction charges, VSAT and lease line charges are nothing but technical services fol....
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....son to deviate from the aforesaid decision and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in the assessee's own case cited supra, we direct the AO to delete the disallowance made under section 40(a)(ia) of the Act in respect of transaction charges and lease line charges. As a result, ground No. 7 raised in assessee's appeal is allowed. 40. Consequently, the ground raised by the assessee is allowed. ITA No.831/Mum/2007-08 (A.Y.2007-08) 41. The Revenue has raised the following grounds:- GROUND NO. GROUND/ISSUE 1. Deletion of addition of INR 18,92,07,817 on account of ALP of brokerage received by the Assessee and directing the AO to make enhancement of INR 8,50,93,244 to total income. 2. Transfer pricing adjustment w.r.t to availment of overseas support services 3. Disallowance of remuneration to Mr. Ashith Kampani u/s 40A(2) 4. Disallowance on account of lease rentals paid for use of vehicles 42. In so far as the first ground is concerned on account of ALP of brokerage received by the assessee. We find that, in fact ld. CIT(A) has not deleted addition of Rs....
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....the assessee has been allowed as deduction. 46. We find that the Tribunal in A.Y.2016-17 following the order of the Tribunal in A.Y.2005-06 has deleted the said disallowance on the ground that nowhere it has been proved that assessee was the owner of the leased assets. Accordingly, following the earlier year precedents, the claim of the assessee is allowed and the ground raised by the Revenue is dismissed. 47. In the result, appeal of the assessee is partly allowed and appeal of the Revenue is dismissed. ITA No.1714/Mum/2016 (A.Y.2008-09) 48. In various grounds of appeal the assessee has challenged the following issues:- GROUND NO. GROUND/ISSUE 1 Upward adjustment of in determining the ALP of the international transaction pertaining to provision of equity broking services in CH segment to AES 2.1.1 Assessee's transactions with its AEs, are at ALP since the Assessee has charged higher brokerage rates than average brokerage rates charged to AEs by third party brokers. 2.1.2 No Adjustment of research cost and 50% of volume while applying CUP 2.2. Applicability of TNMM 2.3. To grant benefit of +/- 5 percent u/s. 92C(2) 3. The Ld. AO erred in making reference to th....
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....had inadvertently added the value of deferred tax asset and reduced the value of current liabilities.  Accordingly, it was submitted before the CIT(A) that where the disallowance under section 14A of the Act read with Rule 8D of the Rules is proposed not to be deleted, the learned AO should be directed to re-compute the disallowance under Rule BD of the Rules correctly amounting to INR 2,358,109/-  However, the CIT(A) without considering/ appreciating or dealing with the working provided by the Appellant, has upheld the order of the learned AO merely on the ground that similar disallowance has been made in the earlier years. 55. Before us, ld. Counsel submitted that, firstly, ld. AO has not recorded his satisfaction or reasons for not being satisfied with the correctness of the claim of the assessee. Therefore, disallowance u/s.14A cannot be made under rule 8D. In the absence of any proximate relationship established between the expenditure disallowed u/s.14A of the Act and the exempt income earned and as an alternative he submitted that later in the earlier year disallowance should be restricted to Rs.1,00,000/-. 56. After considering the entire gamut of fact....
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....t to AES 2.1.1 Assessee's transactions with its AES, are at ALP since the Assessee has charged higher brokerage rates than average brokerage rates charged to AEs by third party brokers. 2.1.2 No Adjustment of research cost and 50% of volume while applying CUP 2.2 Applicability of TNMM 2.3 To grant benefit of +/- 5 percent u/s. 92C(2) 3 & 4 Disallowance under section 14A 5 Short grant of TDS 6 Assessment of incorrect amount of income under the head profits and gains from business. profession leading to the assessment of an incorrect amount of total income. 60. The ground Nos.2.1.1 to 2.1.2 are exactly same which has been discussed in the earlier years. Now, these issues are covered by the earlier decision of the Tribunal, accordingly, these grounds are partly allowed. 61. Ground No.2.2 is dismissed as not pressed and ground No.2.3, we have already given direction to the ld. AO to give benefit in accordance with law. 62. Ground Nos. 3 & 4 relate to disallowance u/s.14A. The assessee had earned dividend income of Rs.86,88,529/- out of which assessee had made suomoto disallowance of Rs.2,51,534/-, whereas ld. AO has made disallowance in Rule 8D at Rs.41,25,431/-. T....