TaxTMI 
TaxTMI 
2023 (4) TMI 1322
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....i) payment and royalty branding fees; ii) the payment of referral fees; and iii) reimbursement of indirect overhead expenses, assessee has applied TNMM as Most Appropriate Method, whereby assessee had shown its operating profit margin of 66.21% as against average of 6.43% of the comparable companies. In so far as the payment of royalty / branding fees are concerned, this issue has been raised vide ground Nos.3-9 and at the outset, it has been stated that same is squarely covered by the decision of the Tribunal in assessee's own case for A.Y.2002-03 and 2003-04. 4. Assessee has paid royalty and branding fees of Rs.1,30,22,846/- calculating @1% of gross receipts for the use of brand 'CLSA' as per the terms of branding agreement entered into with its AE CLSA BV Netherlands w.e.f.19/02/2002. The ld. TPO has determined ALP at 'Nil' holding that for any such transactions, no brand fee is paid by any independent enterprise and assessee has used TNMM method for computing the arm's length price of the international transaction by comparing the net profit margin of the company at entity level with that of the other permanent entities and the payment of 'brand fee....
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....nnot be considered as transaction and cannot be the basis of selection of comparable transaction. Further, CUP method cannot be applied if the relevant information is not available. This view is also supported by the decision of Mumbai Bench of the Tribunal in Cabot India Ltd. vs. DCIT on which the ld. Sr. Counsel has placed reliance. We, therefore agree with the finding of CIT(A) that CUP method on the facts of the case could not be applied. We are unable to accede to the request of the ld. CIT-DR, the AY .02-03 matter may be restored to AO/TPO to find out a comparable transaction for application of CUP method. No such comparable transaction has been brought on record even by AO or by DRP, though the assessee had clearly stated that no such information was available. No such comparable case has been placed by the ld. CIT-DR even before us. The issue, therefore, cannot be restored for making roving inquiries. 8.2 The ld. CIT-DR has placed reliance on the decision of the Tribunal in the case of M/s. Knorr Bremse (I) Pvt. Ltd. (supra), has argued that in case the assessee does not show that transaction by transaction approach was not possible and there has been no real or tangible ....
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.... was followed as per which client in particular country willing to buy AY .02-03 securities in other countries has to place order in CLSA entity in the home country which shares commission with CLSA unit of the other country. In Korea, there was commission sharing arrangement whereas CLSA Taiwan operated as a branch which books the commission and it is charged an allocation of certain head office expenses. In India there was no commission sharing arrangement and payment of royalty was therefore permitted. CIT(A) on examination of the arrangement/system followed by CLSA BV has also given a finding that in other jurisdictions, CLSA entities were making market contributions. Therefore only on the ground that other CLSA units did not pay any royalty, it could not be held that payment of royalty by the assessee was not justified. 8.4 CIT(A) has also examined the business development system followed by other comparable companies in India and has given a finding that these companies on average were incurring business development expenditure which was 6.4% of brokerage turnover whereas similar expenditure incurred by the assessee was only 1.28% including royalty of 1% paid by the assesse....
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....certified public Accountants, Hongkong which provides nature of expenses and the computation of indirect overhead expenses attributable to the assessee. Pursuant to this, the indirect overhead expenses attributable to the assessee from CLSA Hongkong books of account were extracted and the total amount of each indirect overhead expenses reimbursed by the assessee was validated by independent experts. The assessee has benchmarked both the above transactions i.e. payment of referral fees and reimbursement of indirect overhead expenses by using TNMM as the Most Appropriate Method and concluded that they are at ALP. The assessee has justified that sale efforts, research activities and IT infrastructure are the main functions responsible for earning of brokerage income from clients. Accordingly, payment of referral fees and indirect overhead expenses reimbursement is closely inter linked to the assessee's business and therefore, was benchmarked using TNMM by considering assessee as a tested party. 8. However, the ld. TPO has determined the ALP of this transaction at Nil and entire payment of referral fees and indirect overhead reimbursement was adjusted holding that assessee could n....
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....t the said hollow claim of the TPO is not backed by any concrete material which would support the same. On the basis of the aforesaid observations, we are unable to concur with the view taken by the lower authorities that the assessee had failed to substantiate receipt of referral services from its the AE, viz. CLSA Ltd., Hong Kong during the year under consideration on the basis of any supporting documentary evidence." 11. Thus, following the earlier year judicial precedence, we hold that the ld. TPO cannot benchmark the 'referral fee' at Nil and accordingly, adjustment made by the ld. TPO is deleted on similar reasoning. Accordingly, grounds Nos.10-17 are allowed. 12. In so far as Indirect overhead expenditure, again this issue is covered by the assessee's own case for A.Y.2003-04, wherein it has been held that ad-hoc TP addition without following any one of the prescribed method is not sustainable which has been discussed in detail in para 19 of the ITAT order cited supra. Apart from that, we find that the assessee has benchmarked the transaction using TNMM, which is one of the prescribed methods as per Section 92C. Further, the assessee has also provided a supplem....