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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 ..... akhs.” So, in these circumstances, grounds determined in favour of the assessee. Addition on account of bonus by the taxpayer to its Managing Director and Director who were also shareholder of the assessee in the ratio of 2 : 1 u/s 36(1)(ii) - Held that:- As in assessee’s own case for AY 2006-07 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 is determined in favour of the assessee. Exclusion of M/s. Keynote Corporate Services Ltd. as unsuitable comparable - Held that:- Revenue's contention that only the shareholding pattern of M/s. Keynote Corporate Services Ltd. is changed with amalgamation which has not affected the profit is not tenable in the face of uncontroverted fact that the profit margin of assessee company has raised up to 145% during the year under assessment which is extremely volatile and abnormal and is due to the amalgamation and merger. Moreover, launch of ESOP Division which focused on designing and implementing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the bonus amounting to ₹ 21,636,500 paid by the appellant to its employees (who are also shareholders of the appellant) u/s 36(1)(ii) of the Act by holding that the same would have been payable by way of dividend. The Ld. CIT(A) / Ld. AO has ignored the fact that the ratio of bonus paid by the appellant is different from the ratio of the shareholding of the shareholders employee and thus, bonus paid cannot be disallowed u/ s 36(1)(ii) of the Act. 7. The Ld. CIT(A) / Ld. AO / Ld. TPO has erred in law by ignoring several judicial precedents relied upon by the appellant including few decisions by the jurisdictional bench of Income Tax Appellate Tribunal and High Court. 8. The above grounds of appeals are independent and without prejudice to one another. 9. The appellant craves leave to add I withdraw or amend any ground of appeal at the time of hearing. 3. Appellant, Deputy Commissioner of Income Tax, Circle 3(1), New Delhi (hereinafter referred to as the Revenue ), by filing the present appeal sought to set aside the impugned order dated 30.05.2014 passed by the Commissioner of Income-tax (Appeals)-XX, New Delhi, for the Assessment Years 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 aggrieved, taxpayer as well as Revenue has come up before the Tribunal by way of challenging the impugned order passed by ld. CIT (A) by filing aforesaid cross appeals. 9. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. ASSESSEE S APPEAL (ITA NO.4294/DEL/2014) GROUND NO.1 10. Ground No.1 is general in nature and does not require any adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining 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 the case of Compucon Software Ltd. he has aggregated the receipts for services rendered and the payments made for services received and thereafter he has divided the total figure by the total turnover of the assessee. Quite clearly, the numerator considered by the TPO comprises of receipts for services rendered as also the payments made for services received meaning thereby that sales as well as expenses having a component of RPTs are included, whereas the denominator comprised o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the transaction and relied upon in cases of Sony India Pvt. Ltd. vs. DCIT 2008-TIOL-439-ITAT 11 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 ₹ 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 contended that in these circumstances, LIBOR is applicable instead of PLR. 20. Issue as to whether LIBOR or PLR rate are applicable in such cases was decided by the Hon ble High Court in case cited as CIT-I vs. Cotton Natural (I) (P.) Ltd. (2015) 55 taxmann.com 523 (Delhi) by returning following findings :- 39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 questionable whether such an adjustment could be based on Art. 11(6). For Art. 11(6), at least its wording, allows the authorities to ̳ eliminate hypothetically the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinate 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 ₹ 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 payable as profit or dividend. Assessing Officer pointed out that in the case of assessee company, profit of ₹ 5,06,14,970/- had been declared, however, no dividend had been proposed or distributed among the shareholders which also included the directors of the company. Thus, he concluded that in case of directors of the company, the sum paid as commission and bonus coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, 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 challenging the findings of ld. CIT (A) who has excluded this company as comparable for benchmarking the international transaction. 28. M/s. Keynote Corporate Services Ltd. is selected by ld. TPO as a suitable comparable having margin of 139.00%. The ld. CIT (A) by taking into account volatile profit of the company to the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected. 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 period ended 31st March, 2007 are drawn up to give effect to the scheme. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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