TaxTMI 
TaxTMI 
2024 (7) TMI 1086
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.... "1. The CIT(A) erred in upholding the AO's action and disallowing an aggregate amount of Rs. 502,967 under section 14A of the Act as being an expenditure incurred for earning exempt dividend income. (a) The CIT(A) erred in enhancing the disallowance under section 14A made by AO by Rs. 1,65,517 and thereby holding that a disallowance of Rs. 502,967 is required to be made. (b) The CIT(A) having held that the provisions of rule 8D are not applicable to the year under appeal erred in adopting a method for computing disallowance under section 14A, which, in principle, resembles the method prescribed under rule 8D of Income Tax Rules, 1962. (c) The CIT(A) erred in adopting an adhoc method for computing the disallowance under section 14A, which was based on Rule 8D, thereby ignoring the appellants facts and submissions in the matter. (d) The appellants submit that the method adopted by CIT(A) for computing disallowance under section 14A, by using the monthly weighted average of the investments is unreasonable. (e) Without prejudice, the appellants submit that disallowance computed by CIT(A) is highly excessive. The appellant....
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....firming the action of the TPO in not allowing the adjustment in accordance with the provisions of Rule 10B of the Rules, on account of significant differences in the volume of the transactions entered by the Assessee with the associated enterprises vis-a-vis top ten FIIs. 8. The CIT(A) has erred in not allowing the adjustment in accordance with the provisions of Rule 10B of the Rules, on account of differential research cost incurred by the Assessee in transactions entered with associated enterprises and top ten FIIs client. 9. The CIT(A) has erred in withdrawing the adjustment allowed by the learned TPO in accordance with the provisions of Rule 10B of the Rules, for the marketing function performed by the Assessee in transactions entered with top ten FIIs, without assigning any basis for such withdrawal and without proving how the action of the AO in allowing such adjustment was incorrect or in the absence of any new fact or additional evidence supporting such withdrawal and without informing the appellant of the reasons for such withdrawal despite the Assessee's repeated requests in this regard. 10. The CIT(A) has erred in upholding / confirming the....
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....umstances of the case and in law, the Ld.CIT(A) has overlooked the fact that the brokers have in subsequent years themselves started deducting the TDS on such payments and that there is no reason to give a different treatment in this year. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A)) erred in allowing the disallowance being benefit of variation / reduction of 5% from the arithmetic mean as per provisions of section 92C(2) of the Act. 3. On the facts and in the circumstances of the case, the impugned order of the ld. CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored" 2.4. The Assessee has raised following grounds by way of Cross Objection No. 227/Mum/2012 filed in ITA No. 8033/Mum/2011: "1. On the facts and in the circumstances of the case and in law, the benefit/reduction of 5 per cent from the arithmetic mean as provided in proviso to Section 92C(2) of the Act, ought to be allowed while computing the adjustment to the total income of the Assessee." 3. The relevant facts, in brief, as emerging from record are that the Assessee is engaged, inter alia, in ....
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....n 14A of the Act by INR 1,65,517/- to INR 5,02,967/-. However, the CIT(A) granted relief to the Assessee by deleting disallowance of INR. 98,30,093/- made under Section 40(a)(ia) of the Act in respect of VSAT Expenses/Line Charges and Transaction Charges. 3.3 Being aggrieved by the above order of the CIT(A), both, the Assessee as well as the Revenue are in appeal before the Tribunal. Further, the Assessee has also filed Cross Objections to the appeal by the Revenue. The issues raised in the appeals/cross-objections, to the extent the same are connected, are taken up together hereinafter. ITA No. 8354/Mum/2011 4 We would first take up appeal preferred by the Assessee. The Assessee has raised 10 grounds of appeal and two additional grounds of appeal. Ground No. 1 to 1(e) 5 Ground No. 1 to 1(e) pertain to disallowance made under Section 14A of the Act. 5.1. During the Assessment proceedings the Assessing Officer observed that the Assessee has made investment in shares/mutual funds and had earned tax free dividend of INR. 30,68,000/- during the relevant previous year. However, the Appellant has not allocated any expenditure incurred towards earning of the tax exempt d....
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....cable to Assessment Year 2005-06. Accordingly, the Assessing Officer was not correct in applying provisions of Rule 8D of the IT Rules. Despite observing as aforesaid, the CIT(A) adopted a method similar to provisions contained in Rule 8D of the IT Rules to compute disallowance at INR 5,02,967/-, thus, enhancing the disallowance by INR. 1,65,517/-. We note that in the case of Godrej and Boyce Manufacturing Limited (Supra), the Hon'ble Bombay High Court had held that for prior years (to which provision contained in Rule 8D of the IT Rules did not apply), it is duty of the Assessing Officer to determine the quantum of disallowance on a reasonable basis. In the case of Oracle Finance Services Software Limited Vs Additional Commission of Income Tax - Range 8(2), Mumbai [ITA No. 1473/Mum/2018, AY 2006-07], following the judgment of the Hon'ble Bombay High Court in the case of Godrej Agrovet Limited (ITA No.934/2011), the Mumbai Bench of the the Tribunal had adopted 2% of the exempt income as a reasonable basis of quantifying disallowance under Section 14A of the Act for the Assessment Year 2006-07. Similar view has been taken by the Tribunal in the case of Deputy Director of Income Tax,....
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....valid/proper 'Nil' tax withholding certificate (containing the name of the Assessee) having been issued under Section 197(1) of the Act for the relevant previous year, the Assessee was under obligation to deduct tax at source from payments made to Team Lease as per provisions of Section 194C of the Act. Therefore, We concur with the following findings returned by the CIT(A): "31. I have considered the facts of the case and submissions of the appellant. It is the fact of the case on the payment of Rs. 10,27,625/- to M/s Team Lease no TDS has been done by the appellant. Further it is facts of the case that there is no certificate from the AO u/s 197 for the year under consideration for the payment so made by the appellant to M/s Team Lease. The appellant has not disputed that the payment is covered u/s 194C of the Act. The submission of the appellant that the so called error has been rectified in the subsequent year and that for the year under consideration, it was only the procedural error, cannot itself mitigate the legal encumbrance/compliance by the appellant for the year under consideration. Accordingly the action of the AO in disallowing the payment so made u/s 40(a)(i....
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....visions of the Act as well as Article 12(4)(b) of the DTAA. The Assessing Officer observed that the functions/heads contained in Schedule II of the Cost Contribution Agreement between the Assessee and its AEs in terms of which Global Overhead Charges were paid, covered functions/sub-heads which made available technical knowledge. experience, skill, know-how of process etc. to the Assessee. 7.2. Bring aggrieved, the Assessee carried the issue in appeal before the CIT(A). The CIT(A) confirmed the disallowance reiterating the findings of the Assessing Officer and in addition made following observation in relation to the 'make available' Clause contained in Article 12(4)(b) of the DTAA and the explanation contained in the Memorandum of Understanding concerning 'Fees for Included Services' executed between India and USA forming part of the DTAA: (a) Word 'Make available' as used in treaty never meant that the other party should be trained or made expert in such technical knowledge etc. It will be absurd on part of a person to make other person expert of its own core competency, which will result in situation that the recipients of service will not look again to him when ....
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....erson acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available." (Emphasis Supplied) 7.8. The CIT(A) has rejected the contention of the Assessee on the ground that mere provisions of services (without making available any technical skill, know how etc.) was sufficient for attracting provisions of Article 12(4)(b) of the DTAA. The aforesaid conclusion drawn by the CIT(A) is contrary to the above memorandum of understanding. 7.9. We note that it was contended by the Assessee that the global overhead charges were payable in respect of managerial or business support services and the same did not make available any technical skill, know how etc to the Assessee. We find that as per the Transfer Pricing Review Report [placed at page 117 to 146 of the paper-book] the global overhead charges were paid as p....
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....by the Assessing Officer as well as CIT(A) on this issue are set aside. The disallowance of INR 1,37,15,947/- made under Section 40(a)(i) of the Act is deleted and Ground No.3 rasied by the Assessee is allowed. Ground Nos. 4 to 10 & Ground No. 12 (Additional Ground) 8 Ground Nos. 4 to 10 and Ground No. 12 pertain to the transfer pricing additions. 8.1. The relevant facts in brief are that during the assessment proceedings reference was made to the Transfer Pricing Officer (TPO) for determination of APL of the International Transactions between the Assessee and its AEs. The TPO noted that the Assessee was engaged in the equity broking business and had undertaken various international transactions relating to the equity broking service - Clearing House Trade [for short 'CH Trades'], Delivery Versus Payment/Delivery Based Trades (DVP) Trade and Programme Trade. TPO noted that for benchmarking the International Transaction relating to CH Trades, the Assessee had adopted Comparable Uncontrolled Price Method [for short 'CUP Method'] as the Most Appropriate Method. Even though the Assessee had undertaken CH Trades with non-AEs/third parties, the Assessee rejected the aforesaid tr....
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....ort (TPSR), the Assessee had adopted CUP Method as the Most Appropriate Method, inter alia, stating that the Assessee and its AEs had undertaken comparable transactions with unrelated enterprises. The comparable transactions undertaken by the Assessee with unrelated parties were not considered by the Assessee on the ground that it was not possible to quantify the impact of the various factors influencing the brokerage rate in case of CH Trades for making suitable adjustments. However, we note that during the assessment proceedings that Assessee had quantified and had sought adjustment for volume, marketing, research. Further, in our view, the Assessee had also failed to show how the transactions entered by the AEs with unrelated party would not require adjustments for the factors (other than the scope of services) affecting the rate of brokerage in case of CH Trades identified by the Assessee itself in the TPSR. Therefore, we do not find any infirmity in the approach adopted by the TPO to determine the ALP of the International Transaction under consideration taking comparable uncontrolled transactions undertaken by the Assessee with Non-AEs. However, given the facts and circumstanc....
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....;s order (refer Para 28, Page 18-19 of the Order as well as caselaw paper book) as noted by Hon'ble ITAT are stated below: ".......If CUP method has to be applied, then appropriate adjustments need to be made for all the differences. "......The TPO has carried out adjustments for marketing functions by making an adjustment considering part of the marketing cost. The TPO has not made any adjustments for research activities on the premise that MSDW Mauritius would be getting research related services from the appellant. I am unable to agree with the TPO who has formed a view that no adjustments are required to be made for research activities based on certain assumptions and possibilities and not on actual facts." "The fact that 'as volume increases, the price decreases' is a well-established commercial principle and accordingly due weightage/ adjustment should be given for the huge volume of business given by MSDW Mauritius." "Keeping the entire factual matrix in mind, I feel that the ends of justice would be met to both Judicial Precedents to justify the Comparability Adjustments" Further, in the case of Morgan Stanley Indie C....
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....the above submission it has been contended on behalf of the Assessee that, in case adjustments as claimed by the Assessee are granted, no transfer pricing adjustment would be required. Keeping in view the same, we direct the Assessing TPO/Officer to grant suitable Volume and Marketing Cost Adjustment after verifying the computation thereof placed on record by the Assessee. In terms of the aforesaid the TPO/Assessing Officer is directed to recomputed the ALP and determine the quantum of transfer pricing adjustment, if any. 8.8. In view of paragraph 8 to 8.7 above, Ground No. 5 & 6 raised by the Assessee is dismissed, and Ground No. 4, 7, 8, 9 and 10 raised by the Assessee are allowed for statistical purposes. 8.9. Vide letter, dated 22/08/2022, the Assessee had raised additional ground (Ground No. 12) containing alternative plea that in the event a view is taken that it is not possible to quantify the adjustment claimed by the Assessee, TNMM should be taken as Most Appropriate Method. We observe that the Transfer Pricing Study Report (TPSR) the Assessee had itself adopted CUP Method as the Most Appropriate Method. Further, the facts relevant for adjudication of this ground are....
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....6.5, 6.6, 6.11 and 6.12 of the Assessment Order. The contention of the Revenue was that tax was required to be withheld from payments of VSAT/Leased Line and Transaction Charges as the same were in the nature of fee for technical services. Since, the Assessee had not deducted tax at source under Section 194J of the Act, the Assessing Officer correctly made disallowance under Section 40(a)(ia) of the Act. 11.5. Per Contra, the stand of the Assessee is that the VSAT/Leased Line Charges and Transaction Charges were paid in respect of standard facility provided by the stock exchanges to its members. The aforesaid charges are charges by the stock exchanges from members to recover the cost of providing infrastructure set-up and its day-to-day operations. Reliance was placed in judicial precedents to support the order passed by the CIT(A) on this issue. 11.6. We note that identical issue had come up for consideration before the Hon'ble Supreme Court in the case of Commissioner of Income-tax-4, Mumbai Vs. Kotak Securities Limited : [2016] 239 Taxman 139 (SC). In that case, after examining the nature of transaction charges collected by the stock exchange, the Hon'ble Supreme Court....
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....ich the charges in question had been paid by the appellant-assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity....