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TMI Blog2023 (4) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the matter in detail as to why other CLSS entities were not paying royalty which was because of the fact that CLSA had different arrangement in different jurisdictions. CLSA was present in 13 markets out of which India, Korea and Taiwan had capital market regulation which required FIIs to contract directly with a domestic CLSA entity. In other jurisdictions, a single contract model was followed CIT(A) on examination of the arrangement/system followed by CLSA BV has also given a finding that in other jurisdictions, CLSA entities were making market contributions. Therefore only on the ground that other CLSA units did not pay any royalty, it could not be held that payment of royalty by the assessee was not justified. 8.4 CIT(A) has also examined the business development system followed by other comparable companies in India and has given a finding that these companies on average were incurring business development expenditure which was 6.4% of brokerage turnover whereas similar expenditure incurred by the assessee was only 1.28% including royalty of 1% paid by the assessee. Therefore expenditure incurred by the assessee on royalty and business development could not be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri ORDER AMIT SHUKLA, MEMBER (J) 1. The aforesaid appeal has been filed by the assessee against the order dated 24/03/2014 passed by ld. CIT(A)-10, Mumbai for the quantum of assessment passed u/s. 143(3) for the A.Y.2004-05. 2. In various grounds of appeal, the assessee has mainly challenged following three additions / adjustments:- 3. The facts in brief are that the assessee company operates in financial services industry and capital markets. The principal business activities of the assessee include equity research, equity brokerage and advisory services. The assessee is a member of the National Stock Exchange of India Limited and the Bombay Stock Exchange and works primarily as institutional brokerage services. For benchmarking the international transaction relating to; i) payment and royalty branding fees; ii) the payment of referral fees; and iii) reimbursement of indirect overhead expenses, assessee has applied TNMM as Most Appropriate Method, whereby assessee had shown its operating profit margin of 66.21% as against average of 6.43% of the comparable companies. In so far as the payment of royalty / branding fees are concerned, this issue has been raised vide ground Nos.3-9 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as excessive and made adjustment on this account which was followed by the AO. 8.1 In our view the approach adopted by TPO/AO is not correct. International transaction in case of the assessee has to be compared with uncontrolled transactions. There can be an internal CUP provided, the transaction is with an unrelated party. But comparing the transaction in case of the assessee with transactions of CLSA BV with another associate enterprise cannot be considered as internal CUP. Moreover, lack of transaction cannot be considered as a transaction. Regarding external CUP also, TPO has not placed any material on record to show that no payment of royalty has been made by any independent party for using brand name/trade name. Non availability of a comparable transaction cannot be considered as transaction and cannot be the basis of selection of comparable transaction. Further, CUP method cannot be applied if the relevant information is not available. This view is also supported by the decision of Mumbai Bench of the Tribunal in Cabot India Ltd. vs. DCIT on which the ld. Sr. Counsel has placed reliance. We, therefore agree with the finding of CIT(A) that CUP method on the facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. The decision of the Tribunal relied upon by the ld. CIT-DR, therefore, cannot be applied to the facts of the present case. 8.3 We also find that the AO without any detailed examination as to why other CLSA entities were not making any payment of royalty, rushed to apply the CUP method which as we have held could not be applied for the lack of proper information. CIT(A) has examined the matter in detail as to why other CLSS entities were not paying royalty which was because of the fact that CLSA had different arrangement in different jurisdictions. CLSA was present in 13 markets out of which India, Korea and Taiwan had capital market regulation which required FIIs to contract directly with a domestic CLSA entity. In other jurisdictions, a single contract model was followed as per which client in particular country willing to buy AY .02-03 securities in other countries has to place order in CLSA entity in the home country which shares commission with CLSA unit of the other country. In Korea, there was commission sharing arrangement whereas CLSA Taiwan operated as a branch which books the commission and it is charged an allocation of certain head office expenses. In India there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2003. The assessee has contributed towards its portion of overhead expenses incurred by CLSA group for the purpose of specified functions attributable to the operations in India. It has been stated that CLSA group is engaged India sales Specialists who were based in New York, London and Singapore and cater exclusively for generating great flow to the Indian market. The India Sales Specialists are responsible for interacting with the clients on day to day basis to sell CLSA India services and research products to the clients. Accordingly, assessee had reimbursed Rs.42,223,050/- towards cost and in respect of India sales specialists. To justify the ALP of the payment, assessee has submitted independent 'Agreed upon Procedures Report' issued by PLIC certified public Accountants, Hongkong which provides nature of expenses and the computation of indirect overhead expenses attributable to the assessee. Pursuant to this, the indirect overhead expenses attributable to the assessee from CLSA Hongkong books of account were extracted and the total amount of each indirect overhead expenses reimbursed by the assessee was validated by independent experts. The assessee has benchmarked b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferral services by the AE, viz. CLSA Ltd., Hong Kong to the assessee during the year under consideration. As is discernible from the records, we find, that the TPO on being confronted with the aforesaid additional evidence , had however, in neither of his three remand reports been able to place on record any such material which would dislodge the factum of rendition of referral services by the AE, viz CLSA Ltd., Hong to the assessee during the year under consideration and therein prove to the contrary that no such referral services were therein factually rendered. Except for claiming that the documents filed by the assessee did not demonstrate that any actual referrals were made by the AE, viz. CLSA Ltd., Hong Kong, to the assessee, we find, that the said hollow claim of the TPO is not backed by any concrete material which would support the same. On the basis of the aforesaid observations, we are unable to concur with the view taken by the lower authorities that the assessee had failed to substantiate receipt of referral services from its the AE, viz. CLSA Ltd., Hong Kong during the year under consideration on the basis of any supporting documentary evidence. 11. Thus, following t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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