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TMI Blog2017 (9) TMI 1890X X X X Extracts X X X X X X X X Extracts X X X X ..... o examine the suitability of comparable sought to be included by the assessee for benchmarking its international transaction. We set aside this issue to the ld. CIT (A) to decide afresh the suitability of the comparability of the Integrated Enterprises India Limited after allowing the application for additional evidence - additional ground is determined in favour of the assessee. Bonus paid to the employees by invoking provisions contained u/s 36(1)(ii) - HELD THAT:- As decided in own case [ 2017 (2) TMI 1389 - ITAT DELHI] 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 - Decided in favour of the assessee. M/s. Keynote Corporate Services Ltd. - Only the shareholding pattern of M/s. Keynote Corporate Services Ltd. is changed with amalgamation which has not affected the profit. However, this contention 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negative net worth. 15. Ld. CIT(A) has erred in not accepting Integrated Enterprises India Limited as a comparable of the appellant ignoring the fact that its financials are now available in public domain. 16. The Ld. CIT(A) / Ld. AO / Ld. TPO has erred in considering the amounts reimbursed by its associated enterprises (payments made by the assessee an behalf of its associated enterprises which were subsequently reimbursed to the appellant by the associated enterprises) as part of operating expenses and the corresponding reimbursement as part of operating revenue of the appellant while determining ALP. 17. Ld. CIT(A) / ld. AO has erred in disallowing the bonus amounting to ₹ 23,340,000 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. 18. The Ld. CIT(A) / Ld. AO has erred in not reducing the operating cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and size of markets, costs of labour and capital in market etc. iii. the above principle is in accordance with the transfer pricing law in India as well as followed in UN and OECD TP guidelines. 5. Briefly stated the facts necessary for adjudication of the controversy at hand are : assessee company stated to be into the business of providing advice to Chrysalis Management Companies in order to assess the investment decision. Assessee company reportedly carries out research work and scouting activities for Chrysalis Management Companies in order to identify entrepreneurs and portfolio companies requiring assistances for capital infusion, strategic investment and financial advice. As per Form No.3CB, the assessee company entered into international transactions during the year under assessment as under :- S.No. Description of transaction Method Value 1 Advisory services to CMC-III TNMM 111,160,500 2 Advisory services to CMC-IV TNMM 229,143,997 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as accepted TNMM as the most appropriate method for benchmarking the international transactions; that there is no change of business activities of the assessee during the year under assessment; that search for comparables already conducted in the immediately preceding years have been considered by TPO for the year under assessment and no fresh search for comparables has been done. 14. In the backdrop of the aforesaid undisputed facts, the ld. TPO has worked out the capital adjusted margin of the comparables as under :- S.No. Company Name Margins WC Adjusted margins 1. Khandwala Securities Ltd. 38.14 81.37 2. Keynote Corporate Services Ltd. 145.83 158.30 3. Sumedha Fiscal Services Ltd. 36.67 53.77 4. KJMC Global Market (India) Ltd. 13.89 -56.62 5. Brescon Corporate Advisors Ltd. 75.32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge in the business activities of the assessee company during the year under assessment when compared to the earlier years. Even otherwise, negligible amount of ₹ 15,67,690/- has been determined as ALP in case of services rendered by the assessee company to CMC-II and this fact has been fairly conceded by ld. DR. 20. Ld. DR for the Revenue further contended that for providing services by the assessee company to CMC-III and CMC-IV, there is an agreement entered into between the parties, available at page 104 of the Agreement then modified agreement at page 109 and again modified Agreement at page 107, and when we peruse the Agreement, the assessee company is not providing simple advisory services rather performing complicated functions like managing the company and maintaining books of account. The ld. DR for the Revenue further contended that there is a variation of cost of services to be paid by the AE to the assessee company in all the Agreements entered into between them without highlighting what additional function is being performed by the assessee and further contended that the assessee company is a financial company. 21. However, we are of the considered view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant Commissioner of Income Tax, Circle-18(1), New Delhi. Learned counsel pointed out that in both these decisions this company had been considered and it was held that this was a merchant banking company with its main source of income from recapitalization advisory and debt syndications and, thus, it was not a simple investment advisory services as the assessee is. Learned CIT (DR) submitted that the decision in the case of Xander Advisors India (P.) Ltd vs. Assistant Commissioner of Income Tax, Circle-18(1), New Delhi pertains to assessment year 200809 and not to assessment year 2006-07 which is before us. In this regard, he relied on Rule on 10B(4), wherein, it has been mandated that the data to be used in analyzing the comparability with an international transaction shall be the data of the financial year in which the international transaction has been entered into. As regards, the Temasek Holdings Advisors India (P.) Ltd., also learned CIT(DR) pointed out that the same dealt with assessment year 2005-06 and not for assessment year 2006-07. He, therefore, submitted that both these case relied by learned counsel are not relevant and since in earlier year this comparable was use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artly resembles with the services rendered by the assessee. The Id. DR himself candidly accepted, and rightly so, that the other components of this stream of the revenue are of no match with that of the assessee. Now, the question arises as to whether Brescon Corporate Advisors Ltd., under these circumstances can be considered as comparable? At this stage, it is pertinent to mention that the gross revenue of this company amounts to ₹ 20.27 crore and there is no segmental data available either in respect of net profit from 'Fee based financial services' or 'Other income'. As 'Other income' also includes income from Investment activity, being profit/loss on sale of investment and dealing in shares and securities, the impact of such profit/loss on the overall net profit of the company on entity level, cannot be determined. Even though some component of 'Equity related advisory/M A Advisory', with the gross revenue of ₹ 2.03 crore, partly resembles with the assessee, still in the absence of any segmental data of such composition, there can be no valid comparison. Revenue from this component accounts for around 10% of the total gross revenue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee s own case for AY 2006-07 (supra), we are of the considered view that Brescon Corporate Advisors Ltd. introduced by the TPO and retained by ld. CIT (A) in the final list of comparables is not a suitable comparable, hence ordered to be excluded from the list of comparables. INTEGRATED ENTERPRISES INDIA LIMITED : 25. Assessee by moving an application dated 15.06.2012 before ld. CIT (A) under Rule 46A of the Income-tax Rules 1962 sought to bring on record the financial data of Integrated Enterprises India Limited to be selected as a suitable comparable on the ground that during transfer pricing proceedings before ld. TPO, the financial data was not available in the public domain and as such could not be furnished. 26. Undisputedly, TPO has rejected this comparable for want of financial data available in the public domain. However, perusal of the impugned order passed by ld. CIT (A) goes to prove that this comparable company, Integrated Enterprises India Limited, has not found any place for discussion and might be overlooked by the ld. CIT (A) due to mistake. 27. We are of the considered view that when a specific prayer has been made by the assessee to admit additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 could have been paid as profit or dividend which is not the case here. After considering the assessee s detailed reply he made an addition of ₹ 2,95,93,000/-. At the time of hearing, ld. counsel pointed out that this issue is covered in favour of assessee by the decision of Hon ble Delhi High Court in assessee s own case for the assessment year 2008-09. Having heard both the parties, we find that Hon ble Delhi High Court vide ITA No.417/2014 dated 27th April, 2015, has observed as under: The final question that arises for this Courts determination in the present appeal is the assessee s claim for deduction under Section 36(1)(ii) of the Act in respect of the bonus paid by it to its two shareholders - Ashish Dhawan and Kunal Shroff. The lower authorities denied such claim, holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RATE SERVICES LTD. 33. 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. 34. 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 tune of 145% due to the alliances formed with a Middle East based consulting companies and Swiss based consulting companies and has also launched ESOP Division which focused on designing and implementing stock option schemes for corporate. Ld. CIT (A) also relied upon the decision rendered by DRP in assessee s own case for AY 2006-07 wherein M/s. Keynote Corporate Services Ltd. is held to be not a robust comparable. 35. Undisputedly, business model of M/s. Keynote Corporate Services Ltd. was restructured during the year ending 31.03.2007 which is reproduced from page 8 of the annual report of 2006-07 for ready reference as under :- Business Restructuring During the year ended 31ST March, 2007, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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