2017 (2) TMI 1389 - ITAT DELHI

TPA - comparability analysis - functinal similarity - Held that:- Assessee is engaged in the business of providing advisory services to its associated enterprises noted above to assist them in providing services to the Investment funds. CCIAPL primarily carries out research and scouting activities for ChrysCapital Management Companies to identify entrepreneurs and portfolio companies requiring assistance in the form of capital infusion, strategic direction and financial advice. ChrysCapital Management Companies are asset management companies for investment funds (Private Equity Funds) who generally focus on investment in incubation ventures. These investment funds concentrate on providing funds to entrepreneurs engaged in the business of providing software services, outsourcing services and technology out of India, thus companies functionality dissimilar with that of assessee need to be delsected from final list.

We direct for excluding Brescon Corporate Advisors Limited from the list of comparables.

Deduction under Section 36(1)(ii) in respect of payment of bonus to the two shareholder-directors - Held that:- This issue is covered in favour of assessee by the decision in assessee's own case for the assessment year 2008-09 [2015 (4) TMI 949 - DELHI HIGH COURT] as held the bonuses paid to the two shareholder-directors in the preceding two financial years were in the ratio of 60-65%:40-35%, even though their shareholding was 1:1. The balance sheet of the assessee placed on record also indicates that the two shareholders also hold directorial positions in the assessee. Therefore, the assessee's contention that the bonus was paid to the shareholders in their managerial capacity, like in the case of other managers, cannot be questioned merely on the basis of a speculation by the revenue that such payment was to avoid tax. In such circumstances, the deduction under Section 36(1)(ii) in respect of payment of bonus to the two shareholder-directors is allowed

Allowability of severance cost - Held that:- Admittedly, Sri. Girish Baliga was neither a shareholder nor a director of the assessee company and did not have any other beneficial interest in the assessee. He was a qualified CA and a very experienced person. Therefore, there could not be any other consideration for severance cost of ₹ 35,10,000/- paid to him except the services rendered by him to assessee company. The assessee in its submissions has, inter-alia, pointed out that this payment was based on business exigency keeping in mind the best practices being followed in the industry. Therefore, the payment made to Sri. Girish Baliga by the assessee company as going concern was in line with the practice prevalent in the industry. In order to maintain good reputation as regards employment of Human Resources, it had to meet the common commercial practices. The payment had not been made in contemplation of closing down of unit but in regular course of carrying on assessee's business. Under such circumstances, this payment cannot be held to be in capital field and was an allowable expenditure in the hands of the assessee company. In the result, the appeal of the assessee is partly allowed.