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TMI Blog2021 (10) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... ground. Accordingly, ground no.1.2, is dismissed as not pressed. 4. Ground no.1.3, raised by the assessee relates to assessee's contention that even if the comparable Uncontrolled Price Method is applied for determining the arm's length price then the comparability analysis should consider an adjustment of at least 50% vis-a-vis brokerage charged to independent clients. 5. During the course of hearing both the learned Counsel appearing for the parties agreed that the issue for our adjudication has been decided by the Co-ordinate Bench of the Tribunal, Mumbai Bench, in assessee's own case for the assessment year 2002-03, vide order dated 25th February 2020, ACIT v/s Morgan Stanley India Company Pvt. Ltd., ITA no.266/Mum./2006, etc., wherein the issue has been decided against the Revenue and in favour of the assessee. The relevant portion of the findings of the Tribunal is reproduced below for reference:- "26. We have considered the submissions of both the parties, perused the record. While filing the return of income, the assessee reported transactions with its A.E. as reported in Form no.3CEB. Consequent to that, the A.O. made reference to the TPO vide reference dated 25-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has carried out adjustment for marketing function by making adjustment considering part of marketing cost and has not made any adjustment to research activities on the premise that Mauritius AE would he getting research related services from assessee. Thus, the Ld. CIT(A) not agreed with the view of TPO that no adjustments are required to he made for research activities based on assumption and possibility and not on actual facts. The Ld.CIT(A), after considering the high volume of business profit of Mauritius A.E. to assessee which is 15% of the total business volume of assessee and the other highest client account is only 3.7% of total business volume the Ld. CIT(A) took his view that it is settled commercial principle that "volume increase the price decrees". The Ld.CIT(A), after considering the facts, passed the following order:- I agree with the appellant that if CUP method has to he applied then appropriate adjustments need to be made for all differences. The TPO has carried out adjustments for marketing functions by making an adjustment considering part of marketing cost. The TPO has not made any adjustments for research activities on the premise that MSDW Mauritius would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the discounting factor of atleast 50% should he applied as an adjustment to the brokerage rate charged to all independent clients. Keeping the entire factual matrix in mind, I feel that the ends of justice would be met to both sides by considering a discounting factor of 40%. This discounting factor of 40% would cover the marketing cost adjustment already considered by the TPO. Conclusion Based on the above, this sub-ground is partly allowed. For comparability purposes, all the independent entities i.e. domestic as well as overseas should he considered, and a discounting factor of 40% as adjustment should be applied. The calculation of the arm's length price is enclosed as Annexure 1. Particulars Clearing House Trades DVP Trades Overseas Trades 13,513,701,695 62,321,033,641 Domestic Trades 9,741,948,998 2,248,476,175 Total Uncontrolled Trades 23,255,650,692 64,569,509,816 Total Commission for Uncontrolled Trades 81,660,811 298,410,339 Weighted Average Rate 0.3511% 0.4622% Discount @ 40% 0.1405% 0.2080% Arm's length price (i.e., adjusted average rate for uncontrolled trades) 0.2107% 0.2542% Trades for MSDW Mauritius 131,622,69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting services provided by the assessee would remain the same whether the service receiver is located in 'X' country or 'Y' country as long as service provider is in India. Reliance is placed on the following judicial precedents to support the said contention:- * SI Group-India Ltd v. DCIT (2016) 68 taxmann.corn 158 (Mumbai-Trib) * Bharti Airtel Ltd v. ACIT (2014)43 TAXMANN.COM 50 (Delhi-Trib) * Tower Watson India Pvt Ltd vs DCIT [TS-260-ITAT-20 I 9(DEL)-TP] * Inslico Ltd v. DC ITTs-623-ITAT-2015(DEL)-TP * Clear Plus India Pvt Ltd vs DCIT 30 CCH 0652 Del Trib * BMW India Pvt Ltd vs ACIT (TS-401-ITAT-201 8 (Del Trib) * M/s Garware Pokester vs Dv.CIT-8(1), Mumbai ITA No.6169/Mum/2011 *ADIT, Circle 1(1), International Taxation, New Delhi vs ABB Lummus Heat Transfer BV [2015] 64 taxrnanitcom 210 (Delhi-Trib) 23. The Ld.AR accordingly submits that the Ld.CIT(A) was justified in taking the average brokerage rate charged by assessee to its overseas and Indian clients irrespective of geographical location of service recipients. The Ld. AR further submits that volume discount / adjustment should be allowed in computing arm's length price. It was explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... function performed / asset utilised and risk assumed. It may further stated that assessee did not perform any marketing and sales activities while executing trade for A.E. in Mauritius. Even the levels of other activities like research, trade relationship, etc., are lower as compared to independent client. In addition, Mauritius A.E. is the trusted client of assessee and provided substantial volume of business. Mauritius A.E. is dedicated client of the assessee. While fixing the brokerage rate of Mauritius A.E., the assessee has to consider all the above factors. Accordingly, the assessee urged that if CUP has to be applied, then discounting factor of 50% should be applied as an adjustment to the brokerage rate charged to all Indian clients. 28. The contention of assessee was accepted by Ld. CIT(A) by taking view that if CUP method has to be applied, then appropriate adjustment need to be made for all differences. The Ld. CIT(A) further noted that TPO has carried out adjustment for marketing function by making adjustment considering part of marketing cost and has not made any adjustment to research activities on the premise that Mauritius AE would he getting research related ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the appellant, MSDW Mauritius is a dedicated client i.e. it bought and sold securities only through the appellant for the entire previous ear. Accordingly, while fixing the brokerage rate for MSDW Mauritius, the appellant has to consider the fact that MSDW Mauritius has no transactions through any of its competitors. The TPO has not considered any adjustments for the same. I am unable to agree with the TPO as certain amount of adjustment is required to loyalty factor of MSDW Mauritius. The appellant carries out "Clearing House" and 'DVP' trades for MSDW "Clearing House" trades. As stated above, the average brokerage charged to all independent clients for "Clearing House" trades is 0.3511%. The TPO in his order has already considered an adjustment of 0.1076% on account of marketing cost. Thus, adjustment granted by the TPO amounts to approx. 30% of average brokerage charged to all independent clients. As stated above, the appellant has contended that the discounting factor of atleast 50% should he applied as an adjustment to the brokerage rate charged to all independent clients. Keeping the entire factual matrix in mind, I feel that the ends of justice would be met to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not pressed. 13. Ground no.5, being general in nature no separate adjudication is needed. 14. In the result, assessee's appeal is allowed. ITA no.1582/Mum./2011 Revenue's Appeal - A.Y. - 2004-05 15. Ground no.1, relates to disallowance of remuneration under section 40A(2) of the Act. 16. After hearing both the learned Counsel appearing for the parties and on a perusal of the material on record, we find that this issue has been decided by the Co-ordinate Bench of the Tribunal in assessee's own case for the assessment year 2002-03, in assessee's own case for the assessment year 2002-03, vide order dated 25th February 2020, ACIT v/s Morgan Stanley India Company Pvt. Ltd., ITA no.266/Mum./ 2006, etc., wherein the issue has been decided against the Revenue and in favour of the assessee. The relevant portion of the findings of the Tribunal is reproduced below for reference:- "14. We have considered the submissions of the parties and perused the order of the lower authorities. We noted that during the assessment before A.O. the assessee stated that they have paid remuneration of Rs. 48,88,261/- to Shri Ashish Kampani for the year under consideration. The remuneration consists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, we find that the issue of disallowance of notional interest on deposits claimed under section 40A(2) of the Act has been decided by the Co-ordinate Bench of the Tribunal in assessee's own case for the assessment year 2002-03, in assessee's own case for the assessment year 2002-03, vide order dated 25th February 2020, ACIT v/s Morgan Stanley India Company Pvt. Ltd., ITA no.266/Mum./ 2006, etc., wherein the issue has been decided against the Revenue and in favour of the assessee. The relevant portion of the findings of the Tribunal is reproduced below for reference:- "7. We have considered the submissions of parties and perused the order of lower authorities. During the assessment, the AU noted that assessee has paid rent of Rs.1.41 crores to its sister concern for occupying of 12.030 sq.ft. of office premises in Forbes building. The assessing officer further noted that assessee has paid deposit of Rs.3.00 crore with its sister concern. The A.O. noted that no explanation was given for such deposit with sister concern. The AO calculated interest @10% amounting to Rs.30 lakhs and made addition on account of interest free deposit. The AO concluded that even the rent paid is reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal is reproduced below for reference:- "6. We have considered the submission of both the parties and perused the record. We have seen that the assessee claimed an amount of Rs.10,94,87,945/- as a business expenditure on account of overseas support fees paid to Morgan Stanley India Securities Private Limited. The AO held that overseas support services are not in the business interest of the assessee. These expenses were neither necessitated nor justified by commercial expediency. The AO further held that no businessman will part its income by way of overseas support fees. The AO held that these are the transactions between sister concerns and covered by provisions of section 40A(2) being not incurred wholly and exclusively. The AO also held that no businessman will part its income by way of overseas Support fees. The AO held that no businessman will part its income by way of overseas support fees. The AO held that these are the transactions between sister concerns and covered by provisions of Section 40A(2) being not incurred wholly and exclusively. On appeal, the Ld. C1T(A) deleted the addition by following the decision of his predecessor far AYs 2000-01 and 2001-02. 7. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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