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2020 (12) TMI 815 - AT - Income TaxDisallowance of deduction of SEBI Merchant License fee - HELD THAT:- Clear and unequivocal direction given by the CIT(A) while disposing off the assessee’s appeal for A.Y 2001-02, we are of the considered view that there was no justification on the part of the lower authorities in not allowing the assessee’s claim for deduction of ₹ 1,66,666/- (i.e 1/3rd of ₹ 5,00,000/-). Accordingly, we direct the A.O to allow the assessee’s claim for deduction of ₹ 1,66,666/- i.e 1/3rd of the registration fees of ₹ 5 lac that was paid by it towards merchant banking license fees to SEBI in the period relevant to A.Y. 2001-02. We thus in terms of our aforesaid observations ‘set aside’ the order of the CIT(A) in context of the aforesaid issue under consideration and vacate the disallowance. Disallowing claim for deduction of loss from error trades of equity shares on account of dealing in securities in the ordinary course of its share and stock broking business - disallowance of the proportionate expenditure made by the A.O by attributing the said amount on an ad hoc basis to carrying on of speculation business by the assessee - HELD THAT:- As the assessee had carried out the transactions of purchase and sale of shares on account of a business exigency and not with an intention to earn profit, therefore, the same would not come within the purview of ‘Explanation’ to Sec.73 - We thus not being able to persuade ourselves to subscribe to the view taken to the contrary by the lower authorities that the loss on account of transactions in shares incurred by the assessee was to be held as speculation loss within the meaning of ‘Explanation’ to Sec. 73 therein, set aside the same and direct the A.O to allow the assessee’s claim for deduction of business loss on account of transactions in shares. As concluded that the loss on account of transaction in shares cannot be held to be speculation loss, therefore, disallowance of the proportionate expenditure that had been attributed by the lower authorities to the aforesaid speculative transactions also cannot be sustained and is consequentially deleted. TP adjustment - Royalty/branding fees paid by the assessee to its AE - AO/TPO determining the ALP of the royalty/branding fees paid by the assessee to its AE viz. CLSA, Netherland at Rs.nil, as against that claimed by the assesseeat ₹ 49,38,615/- - HELD THAT:- International transactions of payment of royalty/brand fee by the assessee to its AE, viz. CLSA BV, Netherland was to be held as being at arm’s length. Our aforesaid view is fortified by the CBDT Circular No. 6-P, dated 06.07.1968, wherein, in context of the provisions of Sec. 40A(2)(b) it was therein clarified that where the scale of remuneration of a director of a company had been approved by the Company Law Administration, there would be no question of disallowance of any part thereof in the income tax assessment of the company, on the ground, that the remuneration was unreasonable or excessive. Now when the payment of the royalty/brand fees by the assessee to its AE viz. CLSA BV, Netherlands had been approved by the RBI, the same, thus, on the said ground also could safely be held to be at arm’s length. In fact, the aforesaid CBDT Circular had been pressed into service in the case of Kinetic Honda Motor Limited Vs. JCIT, [2000 (3) TMI 201 - ITAT PUNE]. In the aforesaid case, the Tribunal while dislodging the view taken by the A.O and the CIT(A), had observed, that when the payments made by an assessee are approved by one wing of the government, then, there would be no question of treating such payment as excessive or unreasonable having regard to the legitimate business needs. Thus determining of the ALP of the royalty/brand fee paid by the assessee to its AE viz. CLSA BV, Netherland at Rs.nil by the TPO, as against that shown by the assessee at ₹ 49,38,615/- cannot be sustained and is liable to be vacated. Non substantiate receipt of referral services from its the AE, viz. CLSA Ltd., Hong Kong - documents filed by the assessee as “additional evidence” in two parts before the CIT(A) - HELD THAT:- 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. We have given a thoughtful consideration to the contentions of the ld. A.R as regards the invalid assumption of jurisdiction by the TPO for determining the ALP of the referral services rendered by the AE, viz. CLSA Ltd., Hong Kong at RS. Nil i.e without adopting any one of the prescribed method contemplated in Sec. 92C(1) of the Act, and are persuaded to subscribe to the same. We are unable to concur with the aforesaid manner in which the TPO had determined the ALP of the referral services rendered by the AE, viz. CLSA, Hong Kong to the assessee at Rs.nil. In our considered view, on a reference made under Sec. 92CA(1) of the Act to the TPO, the latter therein is obligated to benchmark the international transactions of the assessee only after applying any one of the prescribed methods provided in Sec. 92C(1) of the Act. Under no circumstances the TPO can benchmark the transactions at nil or in an ad hoc manner by dispensing with the statutory obligation cast upon him to take recourse to and therein determine the ALP by applying any one of the methods prescribed under Sec. 92C(1) of the Act. We are unable to sustain the determination of the ALP of the aforesaid international transaction of rendering of referral fees by the AE, viz. CLSA Ltd., Hong Kong to the assessee at Rs.nil, i.e without following any one of the prescribed methods provided in Sec.92C(1) - Decided in favour of assessee.
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