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2023 (1) TMI 404 - AT - Income TaxTP adjustment on account of brokerage commission - As submitted that for benchmarking the transactions by application of CUP, an adjustment of 40% has been granted by the coordinate bench of the Tribunal in assessee s own case for the preceding year - HELD THAT - As respectfully following the order passed by the coordinate bench of the Tribunal in the assessee s own case 2022 (7) TMI 1210 - ITAT MUMBAI we direct the AO/TPO to grant adjustment to the extent of 40% to the assessee while determining the arm s length price of international transaction of brokerage and commission. As a result, ground No. 1.3 raised in assessee s appeal is partly allowed. TP adjustment on account of payment of overseas support fee - HELD THAT - Since the assessee is a stockbroker and its primary activity consists of institutional equities sales, therefore, it needs people who have relationships with the FIIs and can influence investments through the assessee thereby generating revenues for the assessee. The assessee has its head office outside India and the decision, on the basis of which the assessee gets its business viz. the decision to buy and sell securities on the Indian market are made by the head office situated outside India. The overseas sales and trading support fees are fees paid directly for such services which generate revenues for the assessee. Since this issue is recurring in nature and has been decided in favour of the assessee in preceding assessment years, therefore, respectfully following the judicial precedents in assessee s own case the AO/TPO is directed to delete the transfer pricing adjustment on account of the overseas support service fee. As a result, ground No. 2 raised in assessee s appeal is allowed. Disallowance of depreciation on BSE/NSE membership cards - HELD THAT - 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 in Techno Shares and Stocks Ltd 2010 (9) TMI 6 - SUPREME COURT held that a non-defaulting continuing member of BSE is entitled to depreciation on BSE membership card, as the said right of membership is a licence or akin to licence in terms of section 32(1)(ii) of the Act. In the present case, the claim of the assessee was denied by placing reliance upon the decision of the Hon ble jurisdictional High Court, which decision has now been set aside by the Hon ble Supreme Court. Therefore we direct the AO to allow the depreciation on BSE and NSE membership cards to the assessee. As a result, ground No. 3 raised in assessee s appeal is allowed. Disallowance of depreciation on other intangible assets - HELD THAT - We find no basis in upholding the disallowance of depreciation as claimed by the assessee on other intangible assets, which has been allowed to the assessee since the year of acquisition i.e. assessment year 2000 01, particularly in absence of any change in facts and law. Reliance in this regard is also placed on the decision of the Hon ble Supreme Court in Radhaswami Satsang 1991 (11) TMI 2 - SUPREME COURT . Hence, we direct the AO to grant the depreciation on other intangible assets under section 32 of the Act. Accordingly, ground No. 4 raised in assessee s appeal is allowed. Disallowance u/s 40A(2) in respect of payment made to Mr Ashith Kampani - HELD THAT - 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 2022 (7) TMI 1210 - ITAT MUMBAI we direct the AO to delete the disallowance made under section 40A(2) of the Act in respect of payment made to Mr Ashith Kampani. Accordingly, ground No. 5 raised in assessee s appeal is allowed. Disallowance u/s 14A - HELD THAT - We find that in CIT vs Essar Teleholdings Ltd. 2018 (2) TMI 115 - SUPREME COURT held that Rule 8D is prospective in operation and cannot be applied to any assessment year prior to the assessment year 2008-09. Thus, respectfully following the aforesaid decision, we are of the considered view that the AO has erred in applying Rule 8D of the Rules in the present case for the determination of disallowance under section 14A of the Act, as the said Rule does not apply to this year. Further, we find that in the preceding assessment years disallowance to an extent of Rs 1 lakh under section 14A of the Act has been upheld in assessee s own case - we direct the AO to restrict the disallowance under section 14A of the Act to an extent of Rs 1 lakh. Accordingly, ground No. 6 raised in assessee s appeal is partly allowed. Disallowance on account of transaction charges and lease line charges u/s 40(a)(ia) - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case for the assessment year 2005 06 following the decision of Hon ble Supreme Court in CIT vs Kotak Securities Ltd 2016 (3) TMI 1026 - SUPREME COURT held that these charges are merely the recovery of the cost of infrastructure support and therefore, neither it falls under section 194J or section 194C - 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. Disallowance on account of lease rental paid for the use of vehicles - claim of the assessee was denied by the Revenue on the basis that assessee s treatment of assets and liability in its accounts was as per the law and the principal amount for acquiring financial lease asset is a capital expenditure - HELD THAT - Revenue has not brought anything on record to prove that the assessee is the owner of the leased assets. It is trite that entries in the books of account alone are not conclusive in determining the income of the assessee. Further, the Revenue has also not denied that such assets were acquired by way of lease and the same were not purchased by the assessee. Thus, we are of the considered view that the lease rental paid by the assessee is in Revenue nature. Before concluding it is also relevant to note that in the immediately preceding year the assessee has claimed lease rental paid in respect of the vehicles, which was allowed by the AO vide order dated 29/12/2008 passed under section 143(3) of the Act. Thus in absence of any change in facts and law, we find no merit in upholding the disallowance made by the AO on this issue. Accordingly, we direct the AO to delete the disallowance on account of the lease rental paid for the use of vehicles. As a result, ground No. 8 raised in assessee s appeal is allowed.
Issues Involved:
1. Transfer pricing adjustment on account of brokerage commission. 2. Transfer pricing adjustment on account of payment of overseas support fee. 3. Disallowance of depreciation on BSE/NSE membership cards. 4. Disallowance of depreciation on other intangible assets. 5. Addition on account of disallowance under section 40A(2) in respect of payment made to Mr. Ashith Kampani. 6. Disallowance under section 14A. 7. Disallowance on account of transaction charges and lease line charges under section 40(a)(ia). 8. Disallowance on account of lease rental paid for the use of vehicles. 9. Initiation of penalty proceedings under section 271(1)(c). Detailed Analysis: 1. Transfer Pricing Adjustment on Account of Brokerage Commission: The issue pertains to the transfer pricing adjustment of Rs. 22,99,91,344 due to alleged lower commission charged to associated enterprises. The assessee benchmarked the transaction using the Transactional Net Margin Method (TNMM), but the TPO applied the Comparable Uncontrolled Price (CUP) method. The Tribunal directed the AO/TPO to grant a 40% adjustment, following the precedent set in the assessee's own case for the previous year. Ground No. 1.3 was partly allowed, while Ground No. 1.5 was dismissed based on the same precedent. Ground No. 1.4 was allowed for statistical purposes, directing the AO/TPO to grant the benefit of the tolerance range as per section 92C. 2. Transfer Pricing Adjustment on Account of Payment of Overseas Support Fee: The assessee paid Rs. 3,71,74,349 for overseas support services. The TPO disallowed this payment, but the Tribunal followed the precedent set in the assessee's own case for the previous year, directing the AO/TPO to delete the transfer pricing adjustment. Ground No. 2 was allowed. 3. Disallowance of Depreciation on BSE/NSE Membership Cards: The assessee claimed depreciation of Rs. 6,70,988 on BSE/NSE memberships, which was disallowed by the AO based on a jurisdictional High Court decision. However, the Tribunal followed the Supreme Court's decision in Techno Shares and Stocks Ltd., directing the AO to allow the depreciation. Ground No. 3 was allowed. 4. Disallowance of Depreciation on Other Intangible Assets: The assessee claimed depreciation of Rs. 10,45,624 on other intangible assets described as goodwill. The AO disallowed this based on the same High Court decision. The Tribunal, however, noted that the depreciation had been allowed in previous years and followed the Supreme Court's decision, directing the AO to grant the depreciation. Ground No. 4 was allowed. 5. Addition on Account of Disallowance under Section 40A(2) in Respect of Payment Made to Mr. Ashith Kampani: The AO disallowed Rs. 90,55,400 paid to Mr. Ashith Kampani as it exceeded the limits approved by the Central Government. The Tribunal followed its own precedent, noting that the AO did not provide reasons for the disallowance and that the approval under the Companies Act does not affect the Income Tax Act. Ground No. 5 was allowed. 6. Disallowance under Section 14A: The AO applied Rule 8D to disallow Rs. 69,04,902 under section 14A. The Tribunal noted that Rule 8D is applicable only from the assessment year 2008-09 and followed its own precedent, restricting the disallowance to Rs. 1 lakh. Ground No. 6 was partly allowed. 7. Disallowance on Account of Transaction Charges and Lease Line Charges under Section 40(a)(ia): The AO disallowed Rs. 3,04,30,352 paid to BSE/NSE and for VSAT/WAN/leased line charges, considering them as fees for technical services. The Tribunal followed the Supreme Court's decision in Kotak Securities Ltd., holding that these are standard facilities and not technical services, directing the AO to delete the disallowance. Ground No. 7 was allowed. 8. Disallowance on Account of Lease Rental Paid for the Use of Vehicles: The AO disallowed Rs. 14,61,606 claimed as lease rental for vehicles, treating it as capital expenditure. The Tribunal noted that the lease rentals were allowed in the previous year and that the assessee is not the owner of the leased assets, directing the AO to delete the disallowance. Ground No. 8 was allowed. 9. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal dismissed this ground as premature. Ground No. 9 was dismissed. Conclusion: The appeal by the assessee was partly allowed, with directions to the AO/TPO to make adjustments and deletions as specified for each ground. The judgment was pronounced in open court on 25/11/2022.
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