TaxTMI 
TaxTMI 
2024 (3) TMI 1222
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.... disallowance under section 14A of the Act and enhancing the disallowance computed by the learned AO. 2. In disallowing the salary paid to expatriate employee of the Indian branches in respect of services rendered wholly and exclusively in connection with the Indian operations of the Appellant 3. In confirming the transfer pricing adjustment of Rs.1,737,912 made by the learned Transfer Pricing Officer ('the learned TPO'). 4. In upholding the taxation by the learned TPO of the mark-up in respect of provision of services rendered by the Appellant to its head office/ overseas branches in contradiction of Article 7(3) of the Double Taxation Avoidance Agreement between India and Canada. 5. In upholding the inclusion of comparable companies selected by the learned TPO in determining the arm's length price in respect of transactions relating to the provision of correspondent banking services rendered by the Appellant to its HO/ overseas branches. 6. In upholding that the margin range of 38.74% to 78.94% of the comparable companies selected by the learned TPO cannot be considered to be wide and it proves that the companies engaged in these financial spaces have g....
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....e filed the appeal before the ld. CIT(A). however, the ld. CIT(A) further made enhancement to the disallowance by Rs.3,21,184/- and sustained the total amount of disallowance of Rs.12,78,076/- as an expenditure incurred towards earning the exempt income. 5. During the course of appellate proceedings before us the ld. Counsel submitted that the issue of disallowance of expenditure towards earning exempt income is fully covered in favour of the assessee as per the various decision of the ITAT, Mumbai in the case of the assessee itself as under: "1. ITAT Order in the Appellants own case for AY 2004-05 [ITA No 3530/MUM/2009 (Mum)] 2. ITAT Order in the Appellants own case for AY 2002-03 [ITA No 6818/MUM/2006(Mum)] 3. ITAT Order in the Appellants own Case for AY 1998-99 [ITA 5351/M/2001 (Mum.)]" 6. Heard both the sides and perused the material on record. We have considered the decisions of the ITAT in the case of the assessee as referred by the ld. Counsel. With the assistance of ld. Representative we have perused the decision of ITAT Mumbai for A.Y. 2004-05 vide ITA No. 3530/Mum/2009. The relevant operating part of the decision is reproduced as under: "5. We have heard the ....
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....- whether to be excluded in view of Article 7(3) of the IndiaCanada DTAA and Upholding the inclusion of comparable selected by the TPO in respect of correspondent banking services and Upholding the use of single year data in determining arm's length price in respect of Correspondent banking services: 7. All these grounds are not pressed therefore the same stand dismissed. Ground No. 2: Expatriate Salary: 8. During the course of assessment the assessing officer noticed that assesse has claimed deduction for salary paid to expatriate employees to the amount of Rs.106,08,973/-. However, the assessing officer was of the view that the aforesaid expenses had been incurred as overseas salaries of the expatriate was in the nature of head office expenditure, therefore, same was disallowed u/s 44C of the Act. 9. The assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) held that expenditure so claimed on the salary of expatriate employees is found to be deductible and allowable only to the extent of the evidence produced in respect of presence of Shri Denis Vaz till 30.10.2014. Therefore, 7/12 of the salary pertaining to M/s Danis Vaz which comes to Rs.35,25,270/- was allowed ....
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.... these employees that their global income has been offered to tax in India for the assessment year 2005-06 to the amount of Rs.60,43,321/- in respect of Mr. Denis Vaz and amount of Rs.45,65,652/- in the case of Mr. Terry Watkins. The assessee has brought on record the relevant return of income of both the employees showing that global income was offered to tax in India in accordance with provision of Sec. 5 and Sec. 6 of the Income Tax Act for remaining present in India on secondment with Indian Branch of BNS. The revenue has not brought on record any relevant materials to disprove these material facts and evidences. Considering the above facts and material we find that decision of ld. CIT(A) in sustaining the disallowance is not justified. Accordingly, this ground of appeal of the assessee is allowed. ITA No. 5634/Mum/2011 (Revenue's Appeal) "1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the interest under section 115A has to be computed on the gross interest income and not on the net interest income and accordingly directing the Assessing Officer to levy tax on interest of Rs. 83,714,078/- as per section 115A and not as ....
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....rs 1997-98, 1998-99 and 2002-03 in appeal by the Department for the respective Assessment Years. The Tribunal in Assessment Year 2002-03 decided the issue against the Department holding as under: "7.1 We have heard the submissions made by rival sides. We find that in assessment year 1997-98 identical disallowance was made by Assessing Officer, the CIT(A) deleted the same, the Revenue carried the issue in appeal before the Tribunal in ITA No.306/Mum/2001. The Coordinate Bench vide order dated 21/04/2004 dismissed the ground raised in the appeal of Revenue by observing as under:- " 3. We have heard the rival submissions and also perused the orders of authorities below. Parties appearing before us have respectively relied upon the order of A.O and CIT(A). Since the introduction of section 115A certain changes have been made and with the passage of time the Finance Act 1994 has also carried out certain amendments in the said section w.e.f. 1/4/95 the scope and effect of the amendments was explained by CBDT in Circular No.684 dated 6/6/94(208 ITR 08(St.), relevant page-43. This CBDT circular and related provisions of IT Act has been elaborately discussed by the first appellate aut....
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....e have gone through the decision of ITAT for A.Y. 2004-05. The relevant part of the decision is reproduced as under: "3.1 In respect of ground No.3 relating to interest paid by Indian Branch to Head Office, the ld. Authorized Representative of the assessee submitted that similar issue was considered by the Tribunal in appeal by the Revenue in Assessment Year 2002-03 (supra). The Tribunal decided the issue in favour of assessee and dismissed the ground raised in appeal by the Revenue. There is no change in facts in the impugned Assessment Year." Following the decision of ITAT we don't find any merit in this ground of appeal, therefore the same stand dismissed. Ground No. 3: (Whether salary paid to Expatriate staff at branch is hit by Section 44C of the Act: 19. During the course of appellate proceedings before us at the outset the ld. Counsel submitted that similar issue on identical facts has been adjudicated by the ITAT in the case of the assessee itself for the earlier years in favour of the assessee. He referred the following judicial pronouncements made by the ITAT on similar issue: "1. ITAT Order in the Appellants own case for AY 04-05 [ITA No.3530/MUM/2009 (Mum)] ....
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....rest paid to head office/overseas branches of Rs.84,05,943/-: 21. On similar issue on identical facts we have adjudicated the appeal of the revenue for assessment year 2005-06 vide ITA No. 5634/Mum/2011 in respect of ground no. 2 of the revenue and the ground of appeal the revenue has been dismissed after following the decision of the ITAT in the case of the assessee for assessment year 2004-05. Therefore, applying the finding of the same as mutatis mutandis this ground of appeal of the assessee is allowed. ITA No. 4655/Mum/2007 (Revenue's Appeal) AY: 2003-04 Ground No. 1: Disallowance of expenditure amounting to Rs.86,35,941 expended towards earning interest income exempt under section 10(15): 22. We have adjudicated similar issue on identical facts in favour of the assessee as per the ground no. 1 of appeal of the assessee for assessment year 2005-06 vide ITA No. 5740/Mum/2011 as above in this order. Applying the finding of the aforesaid decision as mutatis mutandis this ground of appeal of the revenue is dismissed. Ground No. 2: Applicability of S.115A to interest income from Foreign Currency Loan: 23. We have dismissed the ground of appeal of the Revenue on the simila....
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....te Staff deputed at branch is hit by S. 44C: 27. We have decided similar issue on identical grounds in favour of the assessee as per ground no. 2 of appeal of the assessee for assessment year 2005-06 vide ITA No. 5740/Mum/2011 as above in this order. Applying the finding of the aforesaid decision as mutatis mutandis this ground of appeal of the assessee is allowed. ITA No. 3862/Mum/2013 (Assessee's Appeal) AY: 2008-09 Ground Nos. 1 to 8: Transfer pricing adjustment in respect of Correspondent banking services and Upholding the use of single year data in determining arm's length price in respect of correspondent banking services and Disregarding margin analysis using the financial data of comparable companies for F.Y. 2006-07 and Correspondent Banking Charges - whether to be excluded in view of Article 7(3) of the India-Canada DTAA: 28. All these grounds of the assessee are not pressed therefore the same stand dismissed. Ground Nos. 9 to 13: (Transfer Pricing adjustment for administrative support services in relation to inter bank indemnities: 29. During the course of assessment the assessing officer noticed that assessee's overseas branches have executed interbank indemni....
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....essing officer made the adjustment to the arm's length price as recommended by the TPO. 32. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed this ground of appeal of the assessee. 33. During the course of appellate proceeding before us the ld. Counsel submitted that Indian branch is the PE of the foreign bank and the counter guarantee given by it was fully protected. Therefore, the India branch has only charged administration cost and same cannot be compared with the local guarantee given by the bank. The ld. Counsel further submitted that TNMM is the most appropriate method and TPO has determined the arm's length price without rejecting the TNMM. The ld. Counsel also submitted that CUP method is not applicable for determination of arm's length price in respect of provision of interbank indemnity services transaction provided to related parties. The ld. Counsel further submitted that identical issue on similar fact has been adjudicated by the ITAT, Mumbai in the case of Australia & New Zealand Banking Group Ltd. Vs. DCIT (2022) 140 taxmann.com 574 (Mum Trib) in favour of the assessee. He further submitted that vide letter dated 11.10.2011 the asse....
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....y them to the assessee was only the administrative services provided by them and not based on the rates that would have been charged to third parties. After perusing the material placed on record we find in the case of BNS India no public information on third party to third party transaction of similar or identical services was found that reflects the characterstics of the services provided by BNS India. Further as per provision of Rule 10B of the I.T Rules comparables for provision of interbank indemnity services would have to be companies which provide same or similar services as BNS India, and are comparable in terms of function performed, risk assumed and asset utilized. As per the information provided by BNS India it had earned operating margin of 25.41% on operating cost which was higher than the arm's length margin of 15.28% on operating cost. The lower authority has not brought on record any relevant material to contrary to the material facts as discussed supra in this order. We have gone through the decision of ITAT in the case of Australia & New Zealand Banking Group Ltd. Vs. DCIT (2022) 140 taxmann.com 574 (Mum Trib) wherein it is held that where TPO observed that asse....
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.... the same, thereby the risk of exchange fluctuation would be very very negligible due to reduced time span involved therein. Given these undisputed facts, it would be appropriate to consider assessee as the tested party as it would be the least complex entity and its profitability could be reliably ascertained Admittedly, the transaction which requires to be benchmarked is the receipt of processing fees by the assessee for the guarantees issued by rendering the aforesaid secretarial services Hence, what is to be looked into is under similar terms and conditions and under similar circumstances what is the guarantee fee charged by the third party comparables from the AEs. This is what precisely assessee has done in the instant case. The assessee had taken into account the third party comparable margins and compared the same with its margins using Transactional Net Margin Method. For this purpose, the assessee had taken the third party comparables which are engaged in providing liasoning services, managerial services, marketing services, administrative services and information services. Effectively all these services could be loosely termed as business support services. Hence, when th....
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....fore the Id. DRP made an alternative submission that the fee of 1% proposed by the Id TPO may be applied in respect of fresh guarantees issued during the year. The details of fresh guarantees issued during the year were also furnished before the Id. DRP in pages 577-579 of the paper book vide letter dated 27- 4-2016 But we find that the Id DRP had merely brushed aside the same and grossly erred in stating that no details were filed by the assessee. 3.10 In view of the aforesaid observations, we hold that INMM method would be the Most Appropriate Method in the facts and circumstances of the instant case and CUP could not be applied herein because of non availability of data. In any case in respect of adjustment made simply relying on 133(6) information from the market had been deleted by this Tribunal in the case of Asian Paints Ltd, referred to supra. It is also prudent to note that the same transactions were accepted by the Id. TPO upto A Y2012-13 in the case of the assessee Hence, even going by the rule of consistency as has been held by the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 60 Taxman 248/193 ITR 321, there is no need for the Id. TPO to ....
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....2011 as above in this order. Applying the finding of the aforesaid decision as mutatis mutandis this ground of appeal of the revenue is dismissed. Ground Nos. 3 to 5: (Transfer pricing adjustment in respect of Correspondent banking services: 39. These grounds of appeal are not pressed, therefore, the same stand dismissed. Ground No.6: Correspondent Banking Charges - Whether to be excluded in view of Article 7(3) of the India - Canada DTAA: 40. This ground of appeal is also not pressed, therefore, the same stand dismissed. Ground No. 7: Transfer Pricing adjustment in respect of Inter-Bank Indemnity services making upward adjustment: 41. On similar issue and identical fact we have adjudicating the ground nos. 9 to 13 of appeal of the assessee in favour of the assessee for assessment year 2008-09 vide ITA No. 3862/Mum/2013 as above in this order. Applying the finding of the aforesaid decision as mutatis mutandis this ground of appeal of the assessee is allowed. ITA No.4036/Mum/2012 (Assessee's Appeal) AY: 2007-08 Ground No. 1 to 6: (Transfer pricing adjustment in respect of Correspondent banking services and Upholding the use of single year data in determining arm's length....