9911796707
TMI Blog2024 (6) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... ified as to how CUP method is the most appropriate method except for the fact that in A.Y. 2004-05, the assessee has bench marked the transaction using CUP method. A.O./TPO has also not specified as to what were the comparables that was relied upon for determining the ALP of the said transaction and has also not given a specific finding as to what is the similarity in the services rendered to the AEs and non AEs provided by the assessee pertaining to the brokerage commission received by the assessee though the ld. TPO has stated in his order that TNMM method cannot be adopted in this case where the difference in product and services relate to unrelated parties are identifiable based on the documentation available with the assessee, the TPO has not given a detailed finding as to how he has arrived at the said contention. Thus as this issue is a recurring one, which has been dealt with by the Tribunal in assessee s case for various years, we do not find any change in the circumstances or the nature of transaction entered into by the assessee with its AE during the year under consideration. We, therefore, deem it fit to allow these grounds of appeal raised by the assessee by holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier years, with no change in facts and circumstances for the impugned year, we find no justification in deviating ourselves from the finding of the tribunal in assessee s case for other years. Therefore, ground nos. 11 to 16 raised by the assessee is hereby allowed. Payment of indirect cost - assessee and CLSA Hong Kong had entered into an indirect expenses reimbursement agreement for the purpose of reimbursement of indirect expenditure incurred at group level, which pertains to remuneration and travel and entertainment cost of sales team stationed in London and New york who are engaged exclusively for the assessee s business - HELD THAT:- As observed that the ld. A.O./TPO has not applied any of the prescribed methods mentioned in the provisions to determine the ALP of the said transactions and had rejected the ALP determined by the assessee by holding that the assessee has failed to substantiate its claim by any documentary evidences. Assessee stated that the issue of payment on indirect cost has been decided by the Tribunal in assessee s case for A.Y. 2003-04 and 2004-05 where it has been held that the assessee has bench marked the transaction by using TNMM method as one of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. Therefore, ground no. 27 raised by the assessee is allowed. - SHRI PRASHANT MAHARISHI, AM AND MS. KAVITHA RAJAGOPAL, JM For the Appellant : Shri Mukesh Bhutani, Ms. Karishma Phatarpekar, and Shri Paras Savla For the Respondent ; Shri Akhtar H. Ansari, Sr. AR Shri A. K. Ambastha, Sr. AR ORDER Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) ( ld.CIT(A) for short), National Faceless Appeal Centre ( NFAC for short) passed u/s.250 of the Income Tax Act, 1961 ( the Act'), pertaining to the Assessment Year ( A.Y. for short) 2005-06. 2. The assessee has raised various grounds of appeal which are reproduced hereunder: 1. On the facts and circumstances of the case and in law, the learned Transfer Pricing Officer (TPO) / the learned Assessing Officer ('AO') / learned CIT(A) erred in assessing the total income of the Appellant at INR 1,235,972,140. 2. On the facts and circumstances of the case and in law, the learned TPO / learned AO/learned CIT(A) erred in rejecting the Transfer Pricing (TP') analysis undertaken by the Appellant. Receipt of brokerage commission 3. On the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on relating to brokerage commission received by the Appellant from its AEs. 9. Without prejudice, the learned TPO, while computing the transfer pricing adjustment, has erred by comparing the internal CUP (as arrived at by the learned TPO), to the average brokerage rate charged by the Appellant to its AEs. 10. Without prejudice, the learned TPO/ learned AO / learned CIT(A) erred in not appreciating the evidence filed before the Appellant, which demonstrates the difference in the functions undertaken for serving Non- AE FIl's and thereby failed to grant an adjustment Payment of Royalty/Branding fees 11. On the facts and circumstances of the case and in law, the learned TPO/ learned AO /learned CIT(A) failed to appreciate that under the provisions of Section 92CA(3) of the Act, the learned TPO is required to determine the arm's length price in relation to the international transaction in accordance with Section 92C(3) of the Act, following any of the prescribed methods. 12. On the facts and circumstances of the case and in law, the learned TPO/ learned AO / learned CIT(A) erred by failing to discharge the burden of proof while rejecting the CUP analysis / corroborative TNMM an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against INR 66,060,930, without applying any of the prescribed methods. 21. On the facts and circumstances of the case and in law, learned CIT(A) failed to appreciate the documentation provided by the Appellant during the course of the proceedings justifying the indirect costs paid. 22. On the facts and circumstances of the case and in law, the learned TPO/learned AO /learned CIT(A) erred in not appreciating the evidence filed by the Appellant, which demonstrates the difference in the FAR profile of the Appellant vis- -vis the AEs. Outstanding Securities Transaction Tax ('STT') 23. On the facts and circumstances of the case and in law. the learned AO/ CIT(A) erred in adding the outstanding Securities Transaction Tax ('STT) of Rs 4,42,545 to the total income of the Appellant disregarding the fact that the Appellant (i) did not claim deduction for such STT in computing its taxable income, and (i) merely acts as a stock-broker for its Client dealings resulting in STT and such STT is a liability of the clients of the Appellant. Disallowance of transaction charges under section 40(a)(ia) of the Act 24. On the facts and circumstances of the case and in law, the learned AO/CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Ltd. and Bombay Stock Exchange and National Securities Depositary Ltd. (NSDL) and Central Depository Services (India) Ltd. and also holds a merchant banker and under licenses from SEBI. The assessee renders service to its AE s and non AE s which are based in India and also overseas. The assessee is involved in two segments of broking activities such as DVP trades and clearing house trades. The assessee filed its return of income dated 29.10.2005, declaring total income at Rs. 106,44,57,407/- and the same was processed u/s. 143(1) of the Act. The assessee s case was selected for scrutiny and notice u/s. 143(2) and 142(1) were duly issued and served upon the assessee. 5. The learned Assessing Officer (ld. A.O. for short) observed that the assessee has entered into various international transactions which are reported in Form No. 10CEB for which the ld. A.O. made a reference to the learned Transfer Pricing Officer (ld. TPO for short) u/s. 92CA(1) of the Act for the purpose of determining whether the International transaction entered into with the AE s are at arm s length price (ALP for short). The ld. A.O. passed the final assessment order dated 29.12.2008 u/s. 143(3) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ismiss the additional ground raised by the assessee by respectfully following the aforementioned decisions. 11. Ground Nos. 1 2 are general in nature and requires no separate adjudication. 12. Ground Nos. 3 to 10 pertains to the transfer pricing adjustment on brokerage commission received by the assessee from its AE s. It is observed that the assessee being a broker of both BSE and NSE is into DVP trades and clearing house trades for which the assessee has charged a total brokerage of Rs. 9,25,40,615/-, i.e., (Rs.9,14,44,240/- + Rs. 11,96,375/-) from its AE s. The assessee has worked out the rate of commission to be 0.13% of the turnover in the case of clearing house transaction and 0.04% in case of futures transaction and had bench marked the said transaction using TNMM. The ld. TPO observed that the assessee has charged 0.2326% to the overseas non AE s for clearing house trade segment and 0.06% on future segment and concluded that the assessee has charged higher rate of commission from overseas non AE s compared to that of its AE s for both the services. The ld. TPO proposed CUP method for bench marking the said transaction. The assessee contended that the nature of service rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of the data. The ld. AR further stated that the ld. AO/TPO has failed to justify why CUP method was preferred than TNMM and has also stated that this issue has been covered by the Tribunal s order in AY 2006-07, 2008-09 and 2011-12 in the assessee s own case where the Tribunal held the TNMM method to be the most appropriate method. It was, therefore, prayed that a consistent view is to be taken for the impugned year also. 15. The learned Departmental Representative (ld. DR for short), on the other hand, controverted the said facts and stated that the assessee has failed to substantiate why the brokerage/commission rate of non AE s are over and above that of the AE s and has also failed to establish why the cost of services, the nature of services, etc. are different from the non AE s. The ld. DR further stated that CUP method is more appropriate than TNMM as per the OECD guidelines and had further contended that the assessee itself has followed CUP method as MAM for A.Y. 2004-05. The ld. DR relied on the orders of the lower authorities. 16. We have heard the rival submissions and perused the materials available on record. The issue pertaining to this ground is the charging o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not specified as to what were the comparables that was relied upon for determining the ALP of the said transaction and has also not given a specific finding as to what is the similarity in the services rendered to the AEs and non AEs provided by the assessee pertaining to the brokerage commission received by the assessee though the ld. TPO has stated in his order that TNMM method cannot be adopted in this case where the difference in product and services relate to unrelated parties are identifiable based on the documentation available with the assessee, the TPO has not given a detailed finding as to how he has arrived at the said contention. We, therefore, are of the considered opinion that as this issue is a recurring one, which has been dealt with by the Tribunal in assessee s case for various years, we do not find any change in the circumstances or the nature of transaction entered into by the assessee with its AE during the year under consideration. We, therefore, deem it fit to allow these grounds of appeal raised by the assessee by holding the said transaction to be at arm s length and TNMM to be the most appropriate method for determining the arm s length price (ALP fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd entity when the said company is based in Hongkong and merely producing the brand registration letter to prove the ownership of CLSA BV is per se not sufficient. It was further argued that mere RBI s approval does not determine whether or not the said transaction is at arm s length and the same is to be determined as per the provisions of the Act. The RBI s approval also does not specify to which entity i.e., CLSA Hongkong HA and CLSA BV, the payment is to be made by the assessee for the ownership of the brand. It is also observed that the assessee has paid the brand fee w.e.f 19.02.2002 whereas the application to RBI was made on 29.02.2002 which negates the contention of the assessee. The ld. TPO has also specified that inspite of the fact that CLSA has various group entities in Hong Kong, India, Indonesia, Japan, Korea, Philipenes, Shanghai (China), Shenzhen (China), Singapore, Taiwan and Thailand and except for the assessee company no one else has paid royalty to CLSA BV for use of its brand and neither has the group entities in Australia, Malaysia, New Zealand, Pakistan and Sri Lanka has paid any royalty. The ld. TPO held that the comparable uncontrolled transaction method is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e finding of the Tribunal in earlier years, with no change in facts and circumstances for the impugned year, we find no justification in deviating ourselves from the finding of the tribunal in assessee s case for other years. Therefore, ground nos. 11 to 16 raised by the assessee is hereby allowed. 23. Ground Nos. 17 to 22 raised by the assessee pertains to the payment of indirect cost. The facts of these grounds are that the assessee and CLSA Hong Kong had entered into an indirect expenses reimbursement agreement dated 01.04.2003 for the purpose of reimbursement of indirect expenditure incurred at group level, which pertains to remuneration and travel and entertainment cost of sales team stationed in London and New york who are engaged exclusively for the assessee s business. The breakup of reimbursement of expenses is tabulated hereunder for ease of reference: For the period from April 1 2004 to March 31 2005 (Amount in USD'000s) Allocation key London office New York Office Total 1 Sales staff expenses Actual 489 535 1024 2 Travel Entertainment Allocated per headcounts 40 118 158 3 Office premises cost Actual 21 117 38 4 Telecommunications Actual 7 13 20 5 Professional fee Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the prescribed methods mentioned in the provisions to determine the ALP of the said transactions and had rejected the ALP determined by the assessee by holding that the assessee has failed to substantiate its claim by any documentary evidences. 27. The ld. AR for the assessee stated that the issue of payment on indirect cost has been decided by the Tribunal in assessee s case for A.Y. 2003-04 and 2004-05 where it has been held that the assessee has bench marked the transaction by using TNMM method as one of the prescribed method u/s. 92C of the Act, whereas the ld. TPO/A.O. has merely made an adhoc addition without prescribing to any of the methods as per the provisions of the Act and had thereby deleted the impugned addition. The facts of this ground is identical to that of earlier years where the Tribunal has decided this issue in favour of the assessee with no change in facts and circumstances during the year under consideration. Hence, we deem it fit to direct the ld. A.O. to delete the impugned addition made on account of reimbursement of indirect overhead expenses. Therefore, ground nos. 17 to 22 raised by the assessee is allowed. 28. Ground No. 23 pertains to the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Stock Exchanges. The assessee is merely acting as an agent of the Stock Exchanges for collecting STT from the buyers and sellers of the shares while facilitating those transactions as a broker. Thus, it is very much clear that the liability to pay STT is not on the assessee. Moreover, it is evident, the assessee has not debited the STT to the Profit Loss Account. Rather, he has shown it as a Balance Sheet item under the head Liability. That being the case, the liability of STT which the assessee is merely a custodian of, cannot be treated as liability of the nature coming within the ambit of section 43B(a) of the Act. The decisions relied upon by the leaned Sr. Counsel for the assessee also supports this view. Accordingly, we direct the deletion of disallowance made under section 43B(a) of the Act. These grounds are allowed. 30. By respectfully following the above said decision, we hereby allow ground no. 23 raised by the assessee and, therefore, direct the ld. A.O. to delete the disallowance made u/s. 43B(a) of the Act. 31. Ground nos. 24 to 26 raised by the assessee relates to the disallowance of transaction charges and straight through processing (STP) charges u/s. 40(a)(ia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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