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2015 (4) TMI 795 - ITAT MUMBAITransfer pricing adjustment in relation to international transactions - Adjustment on account of provision of non binding investment advisory and related services - Rejection of comparables - Dis-allowance of expenses incurred related to bonus u/s 36(1)(ii) of Income Tax Act, 1961 - Bonus was part of employee agreement & based on performance - Held that:- We find that payment of bonus to shareholder-employees had resulted in payment of more taxes in comparison to tax payable had the same amount been paid as dividend to shareholders.We have gone through the chart giving details of tax paid the assessee-company and the shareholders with respect to the bonus payment.So,it cannot be held that it was a device to evade taxes.Not only this,it is found that the shareholders were professionally highly qualified.Payment of bonus is a business decision and till it is not proved that same was not paid actually,it cannot be disallowed.The assessee had claimed that it was based on performance evaluation and the AO had not contravened the fact.The assessee had deducted tax at source on the bonus paid to the shareholder directors and they have shown the receipt of bonus in their respective returns. Here,we would also like to refer the decision of Shahzada Nand and Sons [1977 (4) TMI 4 - SUPREME Court] wherein the Hon’ble Apex Court has laid down some principles with regard to payment of commission.In our opinion same principles are applicable to payment of bonus also. In this case supreme court held that it is not necessary, for commission paid to an employee to be allowable under section 36(1)(ii), that it should be paid under a contractual obligation and it is now well-settled that the mere fact that the commission is paid ex gratia would not necessarily mean that it is unreasonable. In the case under consideration condition of payment of bonus was part of the employment agreement and it was a performance based payment. Considering the above discussion and the peculiar facts and circumstances of the case,we are deciding first effective ground of appeal in favour of the assessee. Transfer pricing adjustment in relation to international transactions - It is found that the assessee is engaged in providing nonbinding research,advisory and other ancillary support services whereas ICSL is providing advisory and consulting services in the specialised area of M&A,TRAS,that activities of ICSL are in the nature of Investment banking,that the assessee is not representing any company in India,but ICSL represents the Indian Companies.We have noticed that the assessee-company is not involved in business plan with lenders, restructure, implementation, M&A.Thus the activities carried out by the assessee and the comparable i.e. ICSL are not similar-there is functionally substantive difference in their job profile.In our opinion activities of ICSL are akin to the job of a merchant banker.We find that the Ho’ble Court has,in the case of CIAIPL [2013 (4) TMI 486 - BOMBAY HIGH COURT],held that merchant banking and investment banking services were functionally different from investment advisory services.Therefore,we are of the opinion that ICSL has to be excluded for TPA for the year under consideration.Once ICSL is excluded from the TP comparision,the arithmetic mean OP/TC of comparables would be 24.24% as against the mean of 20.73 shown by the assessee.As it is within the 5% range available to the assessee and it meets the arm’s length standard,so,we decide second ground of appeal in favour of the assessee. - Decided in favour of assessee.
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