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TMI Blog2022 (12) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO be rejected as per the ground number 9 of the assessee. During the study the TPO should take care specific characteristics of the products being compared, functions performed, contractual terms and conditions. It is directed that the benchmarking undertaken by the assessee under CUP method using correct filter on NSE, BSE and NSDL data. We accepted, arithmetic mean of which comes 18.13%then the interest rate on CCD in respect of the impugned international transaction of 17.65% is at arm s length. The benchmark performed on Bloomberg database by the appellant be considered, the impugned international transaction of interest on CCD paid at 17.65% is at arm s length. We delete the T.P. adjustment addition proposed by the TPO and made by the A.O. in the draft assessment order and accordingly, grounds of appeal of the assessee company are setting aside to TPO considering the findings of the Bench. Needless to say the assessee should get reasonable opportunity for the case. Disallowance of legal and professional expenses - HELD THAT:- Examples of research activity involves activities aimed at obtaining new knowledge, the search for alternatives and the formulation, desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed under section 143(3) read with Section144C(1) of the I.T. Act, 1961. 2. Briefly stated facts of the case are that the assessee company is engaged in the business of Builders- Property Developers. The assessee company filed it s return of income on 29.11.2014 declaring total income of Rs.3,69,080/-. The said return was processed under section 143(1) of the I.T. Act, 1961. Subsequently, the case of the assessee company was selected for scrutiny and notice under section 143(2) of the Act dated 31.08.2015 was issued and duly served upon the assessee. Further, the A.O. issued statutory notice under section 142(1) of the Act along with questionnaire and served on the assessee calling for details. In response to the said notice, the Authorised Representative of the assessee appeared before the A.O. and filed submissions and details as called for. The details filed have been verified and kept on record by the A.O. Since, the assessee company reported international transactions, the A.O. made a reference under section 92CA(1) of the Act to the TPO for determination of Arm s Length Price [in short ALP ]. 2.1. The brief facts relating to international transactions of the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the DRP and the DRP in turn, provided to the assessee company for it s comments. The submissions made by the assessee company in response to the above reports have been duly considered by the DRP and partly allowed the objections of the assessee company. 4. Still aggrieved, the assessee company filed the present appeal before the Tribunal by raising the following grounds : 1. assessing the total income of the Appellant at INR 99,21,200 as against the income of INR 3,69,080 offered in the return of income by the Appellant. Transfer pricing General 2. making a transfer pricing adjustment of Rs.16,45,67,968 in respect of the international transaction of payment of interest on Compulsorily Convertible Debentures ('CCDs') to Associated Enterprise ('AE'); Rejecting the economic analysis undertaken by the Appellant 3. rejecting the economic analysis conducted by the Appellant undertaken in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('the Rules') in the transfer pricing study report for the purpose of determination of the arm's length price of the impugned transaction of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant had submitted documentary evidences to substantiate the significance of application of the real estate filter; Contradictory observations made by the Hon'ble DRP 12. without prejudice to the above , erred in providing contradictory observations byupholding the CUP analysis considering loan instruments performed by the TPO in the Bloomberg search and at the same time rejecting the search conducted by Appellant by considering RBI data on the ground that the same pertains to data of loan lending rates; Rejecting the fresh search undertaken by the Appellant 13. without prejudice to the above , erred in rejecting the fresh search undertaken by the Appellant on Bloomberg database considering the interest rate earned by debt instruments similar to the CCDs issued by the Appellant by companies during AY 2014-15; Corporate tax Disallowance of Legal and Professional expenses of Rs 50,94,255 14. disallowing legal and professional expenses of Rs.50,94,255 by treating the same as capital expenditure; 15. ignoring the fact that legal and professionalexpenses of Rs.7,50,000 has been suo-moto disallowed by the Appellant in the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCDs issued to AE vis- -vis comparable debt instructions. Further the assessee company has also under taken the economic analysis for determination of the ALP in accordance with the provisions of the Act, read with Rules. In order to identify comparables, the assessee company referred the websites of BSE, NSE and NSDL. In it s search assessee company listed 4687 debt instruments from BSE website and after analyzing the parameters such as (i) Debt instruments not issued during FY 2013-14 (ii) Debt instruments issued at floating rate or at zero debt coupon rates (iii) Debt instruments issued by companies not engaged in real estate industry; and (iv) Debt instruments issued at floating redemption, the assessee company selected 18 listings for further evaluation. Similarly, in NSE India, the assessee company listed 6 and in NSDL 97 instruments were listed. On merging the search results of the 3 searches undertaken under NSE, BSE and NSDL a total of 91 listings were considered for further evaluation. Out of 91 listings, again the assessee company eliminated 84 debt instructions by following the criteria i.e., (i) Debt instruments due to duplication; and (ii) Instruments issued by compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration and since the Arm s Length Study adopted by the TPO is in accordance with Act and Rules, the orders of the authorities below may please be confirmed. 7. We have heard the rival submissions of both the parties, perused the paper book filed by the assessee, orders of the authorities below and the material available on record. In the instant case, we find that similar issue on hand has been came before the Mumbai Bench of the Tribunal in the case of India Debt Management in ITA.No.7518/Mum/2014 order dated 10.03.2016 and the order of the Tribunal has been affirmed by the Hon ble Bombay High Court in the case of India Debt Management Pvt. Ltd., vide ITA.No.266/2017 order dated 15.04.2019 wherein the Hon ble Court observed that as far as the benchmarking done by the lower authorities based on external data using Thomson Reuters, DealScan and Bloomberg Database is not correct. The relevant observations of Hon ble Jurisdictional High Court is reproduced as under : 15. The last leg of the controversy is, whether the benchmarking analysis done by the assesses is correct or not and whether the average rate of interest of 11.30% paid by the assessee to its AE is at ALP or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s length rate . This data/document from public domain now made available before us is worth reiving to benchmark and analyse the current transaction of coupon rate of interest paid/payable on CCDs issued by the assessee . Accordingly, we hold that 11.30% interest rate is at arm's length price. Thus, in our conclusion, the transfer pricing adjustment made by the TPO and as confirmed by the DRP at Rs.48,53,19,310/stands deleted, and consequently ground no. 1 is allowed. 7.1. In the TP study the assessee had taken the comparables in CUP method related to database used NSE, BSE and NSDL database margin of the appellant is 17.65% gross or 15% net of tax system whereas the rate or merging as per database 18.13%. The assessee in secondary analysis calculated the rate at the rate of 17.89% on basis of the term loan lending rates offered by various banks in India as published in the Reserve Bank of India. the learned TPO undertook a fresh search using Bloomberg database to benchmark the international transaction without appreciating that the circumstances necessitating determination of price by the TPO as mentioned in subsection 3 of section 92Cof the Act did not exist in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Counsel for the Assessee submitted that since the professional fees paid by MHPL to EY and RV Shah Associates was for assessing and understanding the various funding nuances in respect of loan for acquiring land and undertaking construction and development activity, it could be said that business nexus under section 37 of the I.T. Act, 1961 is being demonstrated and, therefore, the same should be eligible for tax deduction. 9. The Ld. D.R. on the other hand strongly relied on the orders of the lower authorities and prayed that the orders of the authorities below be confirmed. 10. We have heard the rival submissions of both the parties and perused the material available on record. We find that as per AS 26, any expenditure incurred in the research phase should be expensed out. In this case, the examples of research activity involves activities aimed at obtaining new knowledge, the search for alternatives and the formulation, design, evaluation and selection of possible alternatives. Since the above said expenses cannot be characterized as expenditure incurred for obtaining enduring benefit and cannot be included in the definition of project cost as per Guidance Note, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the definition of project cost, it was characterized as revenue expenditure and expensed out in books of accounts. He further submitted that since the advertisement expenses are incurred for undertaking brand-building, sponsorship for facilitating sales, business nexus under section 37 of the Act could be demonstrated and thus, these should be allowed for tax deduction. In support of his contention, the Learned Counsel for the Assessee relied upon the Judgment of Hon ble Supreme Court in case of Empire Jute Co. Ltd. (V980) 03 taxman 69 (SC) wherein the Hon ble Supreme Court held that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account even though the advantage may endure for an indefinite future. The Learned Counsel for the Assessee also relied upon the Judgment of Hon'ble Gujarat High Court in the case of DCIT vs. Core Healthcare Ltd. (2009) 308ITR 263 (Gujarat) wherein the Hon ble Gujarat High Court has held that, even brand promot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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