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2022 (7) TMI 1361 - AT - Income TaxTP adjustment - origination and marketing support services in respect of investment banking mandates - Comparable selection - AR submitted that the assessee does not provide full fledged investment/merchant banking, consultancy/research and advisory services, as presumed by the tax authorities - HELD THAT:- No reason for rejecting M/s SREI Capital Markets Limited, M/s Edelweiss Capital Limited and M/s Keynote Corporate Services Limited. Accordingly, we direct the TPO/AO to include these three companies as comparable companies. We noticed earlier that the activities carried on by the assessee falls mainly under the category of marketing support services. It is also a fact that both the parties could not identify any other company, which carries on exactly same nature of activities as that of the assessee. There is no other option but to select companies whose functions are broadly comparable. There is no dispute that M/s Karvy Stock broking Limited and M/s Birla sunlife Distribution Company Limited are engaged in marketing of financial products of various companies. Accordingly we are of the view that these two companies can be taken as comparable companies. We direct the AO/TPO to take these two companies also as comparable companies. Accordingly, we restore this issue to the file of AO/TPO for determining ALP of the transaction afresh. TP Adjustment - international transaction pertaining to marketing and sales support services in relation to American Depository Receipt (ADR) - HELD THAT:- Companies functionally dissimilar with that of assessee need to be deselected. We restore this issue to the file of AO/TPO for determining ALP of the transaction afresh by excluding all the above said three companies [Sumedha Financial Services Limited, Sundaram Finance Distribution Limited AND L & T Capital Company Limited] - It is pertinent to note that the assessee had voluntarily made transfer pricing adjustment under this segment. AO/TPO may deal with the same in accordance with law. Companies functionally dissimilar with that of assessee investment advisory activities also be deselected. Deduction towards adjustment for Additional cost incurred for unrelated party trades and Additional interest earned for related party trades - HELD THAT:- We direct the AO/TPO to allow adjustment towards additional cost incurred in providing services to unrelated parties. Interest income adjustment on account of high volume of trades for related parties - HELD THAT:- We direct the AO/TPO to allow adjustment towards additional interest income earned in respect of related party transactions. Disallowance of claim of loss arising from error trades - AO disallowed the claim apparently holding that the error losses are not related to the business carried on by the assessee - HELD THAT:- We noticed earlier that the AO has followed the earlier year’s orders. We further notice that the DRP had directed the AO to verify the details of loss again. AO has observed that the details have been verified, yet he comes to the conclusion that the same is not acceptable, i.e., the AO has not given the basis on which he had to come to such a conclusion. Again the AO is confirming the disallowance, following the order passed by him in AY 2006- 07. We noticed that the Tribunal has allowed identical claim made in the assessment year 2006-07. Accordingly, following the order of the Tribunal, we direct the AO to allow this claim in this year. Disallowance u/s 14A - main contention of the assessee was that the investments are mainly strategic investments - HELD THAT:- We notice from the written submission furnished by the assessee that the assessee has raised an alternative ground contending that the disallowance should not exceed the amount of dividend and in this regard, it has placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of Joint Investments P Ltd [2015 (3) TMI 155 - DELHI HIGH COURT] Accordingly, we direct the AO to restrict the disallowance to the amount of dividend income. Disallowance made out of entertainment expenses - HELD THAT:- As decided in own case in A.Y. 2006-07 [2015 (7) TMI 1054 - ITAT MUMBAI] Apart from making a very generalized observation, the AO has not pointed out any particular instance which could demonstrate that the expenditure was incurred for any non business purpose. It is also not the case of Revenue that the explanation furnished by the assessee in the course of assessment proceedings was lacking in any manner. We direct the AO to delete the addition.
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