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TMI Blog2017 (9) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act, 1961 ("the Act") is bad in law and on facts and circumstances of the case. 2. The Ld. CIT(A) / Ld. AO / Ld. TPO has erred in accepting Motilal Oswal Investment Advisors Private Limited as a comparable to the appellant. 3. The Ld. CIT(A) / Ld. AO / Ld. TPO have erred in re-characterizing the delay in receiving the advisory fees by the appellant as deemed loan given by it to associated enterprises and making an adjustment on account of interest receivable on such delayed receipts. 4. The Ld. CIT(A) / Ld. AO / Ld. TPO have erred in benchmarking the delay in receipt of advisory fees on the basis of prime lending rate adopted by State Bank of India. The Ld. AO/ TPO have erred in applying an ad-hoc adjustment of 300 basis points towards risk premium on prime lending rate. 5. The Ld. CIT(A) / Ld. AO / Ld. TPO have erred in benchmarking the delay in receipt of advisory fees without applying any of the five prescribed methods as per section 92C(1) of the Act and treating the method applied by Comparable Uncontrolled Price Method. 6. The Ld. CIT(A) / Ld. AO has erred in disallowing the bonus amounting to Rs. 21,636,500 paid by the appellant to its employees (who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isory services to CMC-IV 198271750 TNMM 3 Advisory services to CMC-V 396552766 TNMM 4 Reimbursement of expenses by CMC-II 94886 No separate analysis has been done 5 Reimbursement of expenses by CMC-III 1203148 No separate analysis has been done 6 Reimbursement of expenses by CMC-IV 3971904 No separate analysis has been done 7 Reimbursement of expenses by CMC-V 26861433 No separate analysis has been done 6. Taxpayer in its transfer pricing study chosen 5 comparables by using Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for benchmarking its international transactions having margin of 4.21% as against Operating margin of the tested party viz. taxpayer as 6.28% and found its international transactions with its Associated Enterprises (AE) at arms length price. 7. However, ld. TPO rejected 3 comparables out of 5 comparables taken by the assessee and introduced 5 new comparables and worked out its average margin at 36.37% and proposed an adjustment of Rs. 64,31,754/- to bring the transactions at arms length price. 8. Taxpayer carried the matter by way of filing appeal before the ld. CIT (A) who has partly allowed the same. Feeling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine bullet point no.4 reproduced above, the TPO has himself adopted the filter to exclude companies having more than 25% related party transactions (sales as well as expenditure combined) of the sales. When we apply this filter to Motilal Oswal Investment Advisors Pvt. Limited selected as a comparable by the TPO which has transaction of 36.74% of the total expenses incurred with related parties. The TPO while benchmarking the international transactions changed the denominator while examining the related party transactions. 14. Identical issue has come up before the coordinate Bench of the Tribunal in case cited as SunGard Solutions (India) (P.) Ltd. vs. DDIT (International Taxation-I) - (2014) 51 taxmann.com 339 (Pune - Trib.) which was decided in favour of the assessee and operative part thereof is reproduced as under :- "8. We have carefully considered the rival submissions on this aspect and we are unable to uphold the stand of the Revenue. The discussion made by the TPO in para 6.5.2 of his order on the impugned issue shows that he has considered a filter 25% of the RPTs for the purpose of excluding a concern from the list of comparables. While applying the said filter in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on such delayed receipts. Ld. CIT (A) by applying the decision rendered by the Tribunal in case of Cheil India Private Limited vs. DCIT in ITA No.1230/Del/2014 for AY 2009-10 upheld the addition made by the AO and also on the ground that the assessee was entitled to receive the advisory fees in advance from its AE. 17. However, the ld. AR for the assessee challenging the impugned order contended that the AO/CIT (A) have made incorrect recharacterisation of the transaction and relied upon in cases of Sony India Pvt. Ltd. vs. DCIT - 2008-TIOL-439-ITAT11 DEL, CIT vs. EKL Appliances - (2012) 345 ITR 241 (Delhi) and Nimbus Communications Ltd. vs. ACIT - ITA No.6597/Mum/09. 18. Undisputedly, there is 4 - 5 days delay in receiving the amounts. It is also not in dispute that in most of the cases, advance fee has been taken by the taxpayer as per agreement and an amount of Rs. 1.13 lakhs was delayed. 19. AO made an adjustment qua the delayed receipt of advisory fees on the basis of prime lending rate adopted by State Bank of India by applying an ad hoc adjustment of 300 basis point towards risk from time to time on PLR. The ld. AR for the assessee to cut short his arguments contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. An economic criterion for one party may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the proceeds in US $ are expected to become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no ̳special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 23. However, the coordinate Bench of the Tribunal in assessee's own case for AY 2006-07 (supra) decided the identical issue as to making payment of bonus to Shri Ashish Dhawan and Shri Kunal Shroff aforesaid in favour of the assessee by following decision of Hon'ble Delhi High Court in ITA 417/2004 dated 27.04.2015. 24. For ready perusal, findings returned by the coordinate Bench of the Tribunal in assessee's own case for AY 2006-07 (supra) are reproduced as under :- "41. Now, we come to the grounds relating to corporate issues. The assessee has primarily pressed ground nos. 10 and 11 in this regard. Brief facts of the case qua ground no.10 are that during the year under consideration, the assessee company had paid salary and other allowances to its directors. The payment also included bonus to its Managing Director and Directors namely Sri. Ashish Dhawan and Sri. Kunal Shroff at Rs. 1,89,75,000/- and 1,06,18,000/- who are also major shareholders in the company with 50% shareholding of each. Assessing Officer observed that as per the provision of section 36(I)(ii) bonus and/or commission paid to an employee is allowable as deduction, if and only if, it is not payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the two shareholderdirectors is allowed. The assessee has relied upon a number of judicial pronouncements to support its contention. However, we do not consider it necessary to discuss those decisions for ruling in its favour. Therefore, this question is answered in favour of the assessee." 42. Respectfully following aforementioned decision, the ground raised by the assessee is allowed." 25. Following the aforesaid decision rendered by coordinate Bench of the Tribunal which is based on the Hon'ble High Court judgment, we are of the considered view that the deduction u/s 36(1)(ii) in respect of payment of bonus to the aforesaid shareholder/Director who are also major shareholder in the company with 50% shareholding of each is allowable deduction as there is no change in the shareholding pattern during the year under assessment, hence ground no.6 is determined in favour of the assessee. GROUNDS NO.7 & 8 26. Grounds No.7 & 8 are general in nature and do not require any specific adjudication. REVENUE'S APPEAL (ITA NO.4287/DEL/2014) : 27. The Revenue by filing the present appeal has sought inclusion of M/s. Keynote Corporate Services Ltd. as a suitable comparable by chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 21ST December, 2006, 9th March 2007 and 19th March, 2007 respectively and effected. During this financial year, in terms of the Scheme of Amalgamation 77,170 new Equity Shares were issued to the shareholders of transferor companies and 14,51,702 Equity Shares have been transferred to "Keynote Trust." All the relevant formalities/procedures relating to the said orders have been completed. 16. Pursuant to the scheme of Amalgamation between Cobal Investment Company Limited, West Coast Lighterage Company Private Limited, Starline Ispat And Alloys Limited. Galaxy Leasing Limited, Keynote Finstock Limited and Plethora Investments Company Limited (hereinafter known as Transferor companies) and Keynote Corporate Services Limited (hereinafter known as Transferee company) approved by shareholders and then approved by the Honorable High Court of Allahabad, Bombay, Guwahali vide their orders dated 21st December, 2006, 9th March, 2007 & 19th March, 2007 respectively. The assets and liabilities of the Transferor companies are vested in the Transferee Company with retrospective effect from 1st April, 2005, the appointed date under the scheme. The accounts of the Transferee Company for the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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