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TMI Blog2012 (8) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... he orders of the authorities below, and the arguments of the assessee may be, in brief, stated as under. 4. As per the transfer pricing report submitted by the assessee, Chrysalis Management Companies are asset management companies for Investment Funds (Venture Capital Funds), who generally focus on investments in incubation ventures. The investment funds managed by the Chrysalis Management Companies concentrate on providing funds to entrepreneurs engaged in the business of providing software services, outsourcing services and technology out of India. The assessee-company, namely, Chrys Capital Investment Advisors (India) Pvt. Ltd. is engaged in providing investment advisory services to the Chrysalis Management Companies to assist them in their investment decisions. It is reported that the assessee-company carries out research and scouting activities for Chrysalis Management Companies to identify entrepreneurs and portfolio companies requiring assistance in terms of capital infusion, strategic direction and financial advice. 5. The international transactions entered into by the assessee-company with its associated enterprises during the year under consideration are as under :- S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice, the TPO has rejected the following two entities that were selected comparables by the assessee-company :- (i)SREI Capital Markets Limited and (ii)Integrated Enterprises (India) Limited. 9. On the other hand, the TPO introduced following two fresh comparables to determine arm's length price :- (i)Brescon Corporate Advisors Limited and (ii)ICDS Securities Limited. 10. After excluding the two comparables that were selected by the assessee and including two fresh comparables, the TPO determined the average margin of 52.86 per cent as under :- S. No. Company Name Operating Margin 1. Khandwala Securities Limited 43.35% 2. Keynote Corporate Services Limited 94.06% 3. Sumedha Fiscal Services Limited -16.71% 4. KJMC Global Market (India) Limited -10.42% 5. Brescon Corporate Advisors Limited 87.89% 6. ICDS Securities Limited 119.00% Arithmetic Mean 52.86% 11. In the light of the TPO's order, the Assessing Officer made a draft assessment order and sent the same to the Dispute Resolution Panel for their approval. 12. The assessee raised objection against arm's length price arrived at by the TPO before the learned DRP. The learned DRP upheld the TPO' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursed by assessee's associate enterprises as part of operating expenses and the correspondingly reimbursement as part of operating revenue of the assessee while determining ALP. (ix)The TPO has erred in not allowing the benefit of +/- 5 per cent. 16. Without going to the merit regarding the determination of arm's length price, we shall first decide as to whether learned DRP was justified in rejecting the assessee's objections and accepting the TPO's ' order in the manner as done by them. 17. In this case, after receiving the draft order from the Assessing Officer where an adjustment of Rs. 8,68,19,937 was made on the basis of TPO's order, the assessee filed objections before the DRP under section 144C of the Act against the TPO's order. The objections to the draft order were filed in form No. 35A alongwith grounds of objection, facts of the case as submitted by the assessee to the Assessing Officer, facts of the case as modified by the Assessing Officer and detailed reasons in support of the various objections raised by the assessee. The assessee has also relied upon various decisions. Form No. 35A alongwith annexures filed by the assessee is consisting of 75 pages. In thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions filed by the assessee; (c)evidence furnished by the assessee; (d)report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e)records relating to the draft order; (f)evidence collected by, or caused to be collected by, it; and (g)result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5), :- (a)make such further enquiry, as it thinks fit; or (b)cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the points shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer disallowed the aforesaid payment of Rs. 2,95,93,000 on account of payment of bonus. The matter was referred to the learned DRP and objection was raised by the assessee against the Assessing Officer's action. The learned DRP has decided this issue by directing the Assessing Officer to verify records of the earlier year and if it is allowed in the earlier years, the same should be allowed in this assessment year also. The Assessing Officer then completed the final assessment order under section 143(3) read with section 144C of the Act. In the final order, the Assessing Officer noted that assessee-company had paid salary and other allowances including bonus to its directors. Shri Ashish Dhawan was Managing Director and Shri Kunal Shroff was a director. The bonus of Rs. 1,89,75,000 and Rs. 1,06,18,000 was paid to these directors respectively. These two directors are major shareholders of the company with 50 per cent each. The Assessing Officer then referred to the provision of section 36(1)(ii) where it has been provided that in computing the business income referred to in section 28, a deduction on account of any sum paid to an employee as bonus or commission for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee further submitted that in a hypothetical scenario in which bonus is allowed as a result of their shareholding, there would be huge difference between the actual bonus paid and the bonus ought to be paid as shown below :- S. No. Name of the Employee Bonus Amount (Actual) (in Rs.) Bonus Amount (in ratio of 1:1) (in Rs.) Difference (in Rs.) 1. Mr. Ashish Dhawan 1,89,75,000 1,47,96,500 (41,78,500) 2. Mr. Kunal Shroff 1,06,18,000 1,47,96,500 41,78,500 Total 2,95,93,000 2,95,93,000 26. Without prejudice to the aforesaid submissions, the learned counsel for the assessee further submitted that total tax paid by the assessee and the concerned employee on the amount of bonus were higher than the taxes that would have been paid in case the amount was declared as dividend. In this connection, a comparative analysis of the taxes payable under both the situations was filed :- Particulars Bonus Announced Bonus Not Announced Other Costs 100 100 Bonus 50 - Total Costs 150 100 Profit Margin of the appellant 24.15% 24.15% Taxable Profits 36.23 24.15 Tax Rate 33.66% 33.66% Tax Paid by the appellant (A) 12.20 8.13 Dividend (ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound is with regard to disallowance of severance cost of Rs. 35,10,000 paid by the assessee-company to one of its employees. 30. During the relevant year, the assessee-company paid a severance cost of 35,10,000 to one of its employees namely Shri Girish Baliga, at the time of his leaving the job in November, 2005. The Assessing Officer disallowed the assessee's claim and the matter was referred to the DRP for final directions. The learned DRP has decided this issue by observing that in the earlier year also, similar disallowance was made and the appeal was pending before appellate authorities. Learned DRP, therefore, was not inclined to interfere in this matter. In the final assessment, the Assessing Officer disallowed the aforesaid cost of 35,10,000 by observing that no such amount was paid to other employees leaving service either in the current year or in the past. 31. In the course of hearing of this appeal, the learned counsel for the assessee pointed out that Shri Girish Baliga was a qualified Chartered Accountant and had the experience of working with JP Morgan and Whitefield Capital Investment Advisors prior to working with the assessee. He further pointed out that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the Assessing Officer to disallow the same for the reason that the assessee has failed to establish that these expenses were incurred for the purpose of business. 35. We have heard both the parties and have gone through the orders of the authorities below. It is not in dispute that the amount of Rs. 1,30,000 has been paid for arranging get together at the Pataudi Palace, Haryana. The claim of the assessee was that the get together was held for the benefit of the employees. Since the expenditure was incurred for the benefit of the employees in the course of carrying on business by the assessee, it cannot be said that the amount has not been incurred for the purpose of business. The assessee is in the business of investment advisory services and its business is solely dependent on the skills and expertise of its employees. Nowadays, it is a common practice in the industry to conduct training sessions for its employees and get together. We, therefore, hold that the disallowance of Rs. 1,30,000 made by the Assessing Officer was unjustified. We, therefore, delete the same. 36. Next ground is with regard to disallowance of the payment of Rs. 1,04,690 made by the assessee to Hunt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges are concerned, the Assessing Officer was justified in disallowing the same as no tax was deducted at source. However, with regard to rest amount of Rs. 1,55,379, we restore the matter back to the Assessing Officer to verify whether this aforesaid sum of Rs. 1,55,379 has been claimed as deduction in the profit and loss account and if it is not so claimed as deduction, the Assessing Officer shall delete the disallowance. We order accordingly. 41. The assessee has also raised a ground against disallowance of payment made to auditor on account of late deposit of TDS. 42. The Assessing Officer has disallowed the payment to auditor on the ground that the tax deducted at source amounting to Rs. 12,342 in respect of audit fees amounting to Rs. 2,20,000 has not been deposited within the due date. 43. In this respect, the assessee has submitted that the tax deducted at source was deposited in the government treasury on 18-8-2006 alongwith interest of Rs. 620. A challan of Rs. 12,962 dated 18-8-2006 is placed at page 193 of the paper book dated 29-10-2010. The assessee also submitted the copy of TDS certificate before the DRP as additional evidence. The assessee has also issued TD ..... X X X X Extracts X X X X X X X X Extracts X X X X
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