TaxTMI 
TaxTMI 
2023 (6) TMI 1357
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....volved are identical arising out of identical 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 brok....
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....change and National Stock Exchange with institutional client both domestic and international. Its main source of income is commission 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 ....
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....0.3473% as against 0.2335% and 0.2380% charged to MSW Mauritius; and as against 0.2382% and 0.2273% charged to MSIL for clearing house 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 be....
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....the assessee selected 9 companies as comparables and concluded that its aforesaid transaction is at arm's length. The TPO vide order dated 20/10/2009 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 adj....
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.... (1) (a) (ii) of the income tax rules 1962 also allowed adjustment to the prices which could materially affect the price in the open market. 022. Further guidelines (2022) at 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 dec....
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....sed as not pressed. ITA No.2637/Mum/2014 (A.Y.2003-04) 18. In so far as ground No.1 is concerned, the depreciation of NSE membership card u/s. 32(1) of the Act, the same has been submitted that, 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 membe....
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....ainst the aforesaid addition. Being aggrieved, the assessee is in appeal before us. 29. Having considered the submissions of both sides and perused the material available on record, we find that this issue is recurring in 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 i....
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....e other hand, the Ld. DR for the revenue supported the order of AO. 17. We have considered the submissions of parties and perused the order of lower authorities. During the assessment, the AO noted that assessee has paid rent of Rs.1.41 crores to its sister 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 compa....
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....hat loss suffered by assessee out of its business of earning commission income and on the principle of matching concept of income and expenditure, the entire loss was allowed in AY 2001-02. We are further in agreement that allowance of interest of Rs 49,56,360/- is merely consequential 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 St....
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....ess practices: review of research reports with respect to compliance with applicable local legal and statutory requirements and internal standards of conduct, ethics and business practices; advice with respect to regulatory audits provision of global standards for goal setting, evaluations, training and promotion competencies. (c) Interpretation and understanding 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. ....
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....ction at "Nil". 27. The ld. CIT(A) following the earlier orders of the ld. CIT(A) for A.Y.2000-01 to 2007-08 held that no TP adjustment was required to be made on account of overseas support services paid by the assessee company to its overseas entities and accordingly, following the same he has held the assessee's appeal. 28. Before us it has been stated that the said adjustment has been consistently been deleted by the Tribunal from A.Y.2000-01 to 2006-07. The 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 ....
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....O's order as noted above, it is seen that, he has merely noted that assessee had various employees and therefore, there was no requirement or need for such services. Nowhere he is questioned or asked about the rendition of the services or to demonstrate whether there was any duplicative service. Once assessee has given the details, then ld. TPO should have at least asked for the documentation of proving the aforesaid tests and cannot simply determine arm's length price at "Nil". Since ld. TPO has not brought 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....
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....The ld. CIT (A) has dismissed the assessee's appeal on this issue, however, he has given directions with regard to computation errors in the computation made by the ld. AO. 37.1 Before us, it has been stated that this issue had come up for consideration before the Tribunal in A.Y.2005-06 and 2006-07 wherein disallowance has been restricted to Rs.1,00,000/- on the ground that Rule 8D is not applicable prior to A.Y.2008-09. Thus, following the same precedence, we hold that disallowance u/s.14A is to be restricted to Rs.1,00,000/- in absence of applicability of Rule 8D 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 assesse....
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....eleted the disallowance. We find that now this issue is squarely covered by the decision of Hon'ble Supreme Court in case of CIT vs. Kotak Securities Limited 67 taxmann.com 356, wherein it has been held that these are the standard facilities and no tax is required to be deducted for the reason that these are the services not specifically sought by the user but are standard services. In view of this, we do not find any infirmity in the order of the learned CIT(A) in deleting the above disallowance. Accordingly, ground no.5 is dismissed." 39. 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 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 follow....
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.... the decision of the Hon'ble Supreme Court in the case of M/s. Asia Brown Boveri Limited vs. Industrial Finance Corporation of India 154 Taxmann 512 disallowed the deduction of Rs.5,49,612/- claimed as lease rentals paid. The ld. CIT(A) allowed the claim holding that assessee was at no point of time the owner of the vehicles and the vehicles were to be given back to the owner after a period of the lease and nowhere the ld. AO has brought on record that this was a loan transaction in disguise on loan transaction and therefore, case law relied upon by the ld. AO is not applicable. Further, upto A.Y.2005-06, lease rental paid by 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 va....
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....t assessee had not incurred any direct or indirect expenditure in relation of earning dividend income. As an alternative claim, it was submitted that disallowance can be made at Rs.81,212/- which working was given before the ld. AO. He further submitted that before the ld. CIT(A), assessee had specifically made following submissions:-  While calculating the average value of investments income from which does not or shall not form part of the total income - the Appellant had inadvertently included value of certain investments, income from which is taxable and thus forms a part of the total Income  While calculating the average of total assets - the Appellant 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....
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....(ia) of the Act for non- deduction of TDS on transaction charges paid to local depository in respect of ADR/GDR 3. Disallowance on account of lease rentals paid for use of vehicles 58. Admittedly all the aforesaid issues have been discussed in earlier year and all these issues are covered in favour of the assessee in the order of the Tribunal accordingly, following the earlier year precedents all the grounds are dismissed. ITA No. 1018/Mum/2014 (A.Y.2009-10) 59. In various grounds of appeal, assessee has raised the following grounds:- GROUND NO. GROUND/ISSUE 1. Upward adjustment of INR 8,77,99,967 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 & 4 Disallowance under section 14A 5 Short grant of TDS 6 Assessm....
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....en claimed (other than what has been suo moto disallowed by the Appellant). 4. There is a proximate and live nexus between expenditure and exempt income Application of section 14A and Rule 8D is not automatic and it needs to be justified as to how expenditure incurred by assessee during relevant year is related to income not forming part of its total income. Expenditure must have a proximate relationship with exempted income and surmise or conjecture is no answer. Assessing Officer must give a clear finding with reference to assessee's accounts as to how other expenditure claimed by assessee out of non-exempt income was related to exempt income [CIT vs. Sociedade De Fomento Industrial (P.) Ltd. [2021] 123 taxmann.com 38] 63. The ld. DRP has rejected the objection raised by the assessee and confirmed the disallowance made by the ld. AO. This issue like in A.Y.2008-09 is remanded back to the file of the ld. AO to decide the issue afresh in line of the direction given in earlier year. Accordingly, this ground is also allowed for statistical purposes. 64. In so far as ground No.5 is concerned regarding short grant of TDS, it has been informed that assessee has alread....