TMI Blog2015 (6) TMI 962X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances/ facts in existence for the year under consideration which could have an influence on the results as well as on the determination of the transfer prices, then the data relating to financial year in which the international transaction has been entered into shall be used.- Decided against assessee. Introducing and upholding to new companies as comparables while determining the ALP - issue of bringing in two new companies, i.e. Brescon Corporate Advisors Ltd. and another Keynote Corporate Services Ltd.- Held that:- The factors for determining inclusion and exclusion of any case in the case of comparables are specifically provided under Rule. Therefore, unless and until there are specific reasons and factors as provided under Rule 10B, an entity cannot be excluded or eliminated from the list of comparables solely on the basis of high profit making unit or loss making unit because no such factor finds place either in Rule 10B(2) or 10B(3). - Decided against assessee. Sustaining the selection of Khandwala Securities Ltd. as comparable even when exceptional profit earned by this company during the financial year 2007-08. As we have already mentioned earlier that Rule 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the amendment made by the Finance Act, 2012 retrospectively thereby it has been made clear that benefit of +/- 5% under the Proviso to section 92C(2) of the Act shall not be allowed as standard deduction for the purpose of computation of arm’s length price. The benefit of proviso to section 92C(2) is available only when the price of international transaction is within the tolerance range of +/- 5% of the ALP computed by taking arithmetic mean of more than one price. Thus, it is clear that benefit under this proviso is not available to the assessee. - Decided against assessee. Disallowance of bonus paid by the assessee to its shareholders-cum-directors - Held that:- In assessee’s case, the Managing Director, Ashish Dhawan and Director, Shri Kunal Shroff were holding share of assessee company in the ratio of 2 : 1. They were only shareholders of the company. Bonus was paid in the ratio of shareholdings. In assessee’s case, the payment of the bonus was directly related to the shareholding patterns of the Directors. Shares were held in the ratio of 2:1. The bonus has been paid in the same ratio of 2 : 1. It is according to the shareholding of these two directors. Assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also introduced to include two companies as comparables, one Brescon Corporate Advisors Ltd. and another Keynote Corporate Services Ltd., for the purposes of determining the ALP. The assessee filed the objections before the DRP on the issues of using single year data for making the TP adjustments, introduction of two new companies as comparables, sustaining the selection of Khandwala Securities Ltd. as comparable by ignoring the exceptional profits earned by it, considering the reimbursement of expenses as a part of the operating expenses and corresponding reimbursement as a part of operating revenue for determining ALP and not providing adjustment of +/- 5% by Proviso to section 92C(2) of the Income-tax Act, 1961. These objections were considered by the DRP. Ld. DRP sustained the order of the TPO for applying the filters by the TPO in consideration of the profile of the assessee company. Further, the DRP has also upheld the application of additional filters based on the financials of the companies to arrive at the set of comparables. The DRP also rejected the assessee s claim for using prior years data for working out the comparative analysis in the absence of conditions mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses and operating income, respectively, of the appellant while determining the ALP. 8. The Ld. AO / TPO / DRP have erred in not allowing the benefit of 5% as provided by proviso to section 92C(2) of the Act. 4. While pleading on behalf of the assessee the ld. AR submitted that the assessee has determined the ALP after careful consideration of relevant factors as the assessee was fully conversant with various commercial realities surrounding assessee s business and a comprehensive internal analysis of the function performed, assets deployed and risk undertaken was carried out. The revenue authorities have rejected this analysis without any reason. He further submitted that the revenue authorities were not justified in using the single year data and ignoring the datas for the two preceding years while determining the ALP. Ld. AR also submitted that the TPO/Assessing Officer was not justified by adopting two new companies, Brescon Corporate Advisors Limited and Keynote Corporate Services Limited, as comparables for the purposes of determining ALP. Ld. AR also submitted that the revenue authorities were not justified in sustaining the Khandwala Securities Ltd. as comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escon Corporate Advisors Ltd., Keynote Corporate Services Ltd. and Khandwala Securities Ltd., the ld. DR submitted that there is no such law which provides that high margins comparables should be rejected. Ld. DR submitted that the law provides for an average that is mean of the comparables. If the high profit and less profit comparables are removed then it will give the result of medium rather than mean and it will go against the law. Therefore, high loss making company as well as high profit making company cannot be rejected or taken out of the comparables. He further submitted that the law provides for working out the average and by this variations are iron out. Ld. DR submits that law also provides +/- 5% margin to take care of such eventualities. Therefore, the assessee s ground in this regard deserves to be dismissed. Ld. DR submitted that two comparables, i.e. Brescon Corporate Advisors Ltd. and Keynote Corporate Services Ltd. added by TPO as comparables were also justified as both the companies were also performing the same functions which the assessee is doing. Brescon Corporate Advisors Ltd. appears in the initial list of the companies generated by the search process and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and unrelated transactions by using the data relating the financial year in which year the international transaction has been entered into. It has been stipulated under rule 10B(4) read with Rule 10D(4) of Income-tax Rules, that contemporaneous information and document should be considered as far as possible for the purpose of comparing uncontrolled transaction with the international transaction. Therefore, the comparability of an uncontrolled and unrelated transaction with the international transaction has to be decided by using current year data. Only when the current year data does not give a true picture of the affairs and results of the comparables due to existence of abnormal circumstances, the multi year data can be considered. When there is no such abnormal or exceptional circumstances/ facts in existence for the year under consideration which could have an influence on the results as well as on the determination of the transfer prices, then the data relating to financial year in which the international transaction has been entered into shall be used. Accordingly, we find no force/substance in this ground of assessee s appeal, hence the same stands dismissed. 8. The ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view has been approved by various coordinate Benches of the Tribunal including Exxon Mobil Company India (P.) Ltd. - (2011-TTJ-68-ITAT-MUMTP) and DCIT vs. M/s. B.P. India Services (P.) Ltd. ITA No.4425/Mum/2010 Assessment Year 2004-05. 10. The other ground in the assessee s appeal is regarding considering the reimbursable expenses and corresponding reimbursements as part of operating expenses and operating income respectively of the assessee while determining the ALP. 11. After hearing both the sides, we find that the functional analysis reveals that certain expenses amounting to ₹ 4.9 crores has been incurred in the course of services. Moreover, the agreements of the assessee with AEs stipulate that all ancillary expenses in connection with the services related to the function shall be paid out of the fixed fees paid by the management companies. The expenses incurred to with relation to services performed by the assessee, even if not part of the management fee, should be invariably routed through the profit and loss account and invited an appropriate mark up. In view of these facts, we find no infirmity in including the reimbursement amounting to ₹ 4.9 crores in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Delhi High Court decision in the case of CIT vs. Career Launcher India Ltd. in ITA No.939/2010 Ors. dated 19.04.2012. 17. On the other hand, ld. DR submitted that the bonus/commission paid to an employee is not allowable as deduction if it could have been paid as profit or dividend. There is no dispute that these two directors were also having all the share capital in the ratio 2 : 1. The bonus is also paid in the same ratio. Had the bonus not been paid to these persons it could have enhanced reserve of the assessee company which ultimately to be paid as dividend to these shareholders cum directors. The provisions of law are very clear. There is no ambiguity in this regard. He further submitted that the case law of Loyal Motor Service Co. Ltd. vs. CIT (cited supra) relied upon by the assessee was old and prior to the amendment of the Act. Further the facts were at variance in the cases of Bony Polymers Ltd. (supra) and ACIT vs. Coromandal Agrico Pvt. Ltd. therefore, they are not applicable in the facts of assessee s case. Ld. Dr further submitted that facts in the case of CIT vs. Career Launcher India Ltd. were at complete variance of the facts of assessee s case. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Taking all these facts into consideration, it would appear that the bonus was a reward for their work, in addition to the salary paid to them and was in no way related to their shareholding. The bonus payment cannot be characterised as a dividend payment in disguise. The Tribunal has found that having regard to the shareholding of each of the directors, they would have got much higher amounts as dividends than as bonus and there was no tax avoidance motive. The quantum of the bonus payment was linked to the services rendered by the directors. It cannot therefore be said that the bonus would not have been payable to the directors as profits or dividend had it not been paid as bonus/commission. In assessee s case, the payment of the bonus was directly related to the shareholding patterns of the Directors. Shares were held in the ratio of 2:1. The bonus has been paid in the same ratio of 2 : 1. It is according to the shareholding of these two directors. Assessee had also failed to justify the payment as reward for the work. Had the same be a reward it could not have been paid in the ratio of shareholding. The Managing Director and the Director s reward could not have been in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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