TMI Blog2014 (2) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that Ld. CIT(A) was right in granting relief to the assessee and we decline to interfere in his findings on this issue.- Decided in favour of assessee Disallowance under section 14A - CIT(A) deleted the entire addition - Held that:- Respectfully following the order of the Tribunal in assessee’s own case for A.Y 2001-02, we hold that ₹ 10,000/- should be disallowed under section 14A of the Act. Accordingly this ground of the revenue is partly allowed. Disallowance in respect of Club Membership Fees - CIT(A) deleted the entire addition - Held that:- This issue is covered in favour of the assessee by the decision of Hon’ble Supreme Court in the case of CIT vs. United Glass Manufacturing Co. [2012 (9) TMI 914 - SUPREME COURT] holding that club membership fees for employees incurred by the assessee is business expense under Section 37 - Decided in favour of assessee. Addition considered as capital in nature in respect of software, support services, repairs and maintenance - CIT(A) deleted the entire addition - Held that:- Similar disallowance was allowed in respect of assessment year 2001-02 to held that such expenditure was revenue expenditure.- Decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its to be set aside and that of the Assessing Officer be restored. 6) The appellant craves e to amend or alter any ground or add a new ground which ma L necessary . 2. Ground relating to T.P. adjustment of ₹ 74,79,266/- is common in both the appeals. It is the sole ground in the assessee s appeal and the grievance of the revenue regarding this adjustment is stated in Ground No.4. 2.1 The basic facts relating to this adjustment are as under: 2.2 The assessee has provided broking of services to related parties as well as unrelated parties. There is two types of braking activities. One activity is described as Delivery Verses Payment (DVP) and other type of activity is Direct Custodian Settlement(DCS). The average rate charged by the assessee on such type of activities in relation to related and unrelated parties is described in following table: Particulars Brokerage rates Related parties Unrelated parties DVP trades 0.35% 0.56% DCS trades 0.36% 0.40% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ationship 6 3 Marketing and order origination 3 * 3 Preparation and circulation of research reports 3 3 Order execution 3 3 Risks Funding risk 3 3 Risk of non delivery 6 # 3 Operational risk 3 3 *Effort incurred is significantly lower for related parties vis- -vis unrelated party. # no origination and marketing efforts are undertaken for Copthall Mauritius Investment Limited ( CMIL )- CMIL is a key client of the assessee to whom it renders broking services. CMIL provides a large volume of business to the assessee. Also, CMIL carries out its trades only through the assessee. 2.4 It was further submitted that the assessee has to incur lower cost in providing broking services to related parties which was considered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DVP Type Client Type Turnover Brokerage Earned Brokerage as a % of turnover Corporates Unrelated party 845,908,450.00 2,959,427.25 035% Foreign Institutional investors Related party 2,999,190,384.43 10,249,561.47 0.34% Unrelated party 39,159,283,008.14 222,132,207.28 0.57% Local Mutual Funds Unrelated party 613,337,538.12 1,962,493.13 0.32% Overseas Corporate Bodies Related party 1,866,731,718.36 6,939,937.55 0.37% Unrelated party 1,005,095,230.62 4,138,025.36 0.41% Staff Unrelated party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that TNMM was not a proper method in view of the availability of internal cup method. Ld. CIT(A) also observed that the adjustment sought for by the assessee on account of functions performed, asset employed and risk assumed should have been granted to the assessee. Accepting the aforementioned submissions of the assessee with regard to difference on account of services rendered to related parties and unrelated parties, Ld. CIT(A) has deleted the addition. The assessee in its appeal is objecting to the findings of Ld. CIT(A) vide which it has been held that TNMM adopted by the assessee is not an appropriate method. The department in its appeal is aggrieved by the relief granted by Ld. CIT(A). 2.8 Arguing the appeal for revenue it was submitted by Ld. DR that TPO was right in making the adjustment and Ld. CIT(A) has wrongly deleted the same. 2.9 Against such arguments of Ld. DR it was submitted by Ld. AR that assessee s first contention is that the method adopted by it has wrongly been rejected by Ld. CIT(A) and TPO. In the alternative it is the contention of the assessee that Ld. CIT(A) has rightly held that assessee was entitled to get relief on account of difference in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also noticed that for assessment year 2001-02 similar addition was deleted by the CIT(A). 4.1 During the course of hearing it was brought to our notice that revenue had preferred an appeal against aforementioned deletion and Tribunal vide its order dated 20/04/2011 in respect of A.Y 2001-02 has sustained the disallowance to the extent of ₹ 10,000/- with the following observations: 6.2 We have perused the records and considered the matter carefully. The dispute is regarding disallowance of expenditure in relation to dividend income received by the assessee. The shares of KCL from which dividend had been received were acquired during the F.Y.1996-97 out of own funds. This claim is not contraveted before us. Even the AO has not given any finding that the shares were acquired out of borrowed funds. Therefore, there is no interest expenditure involved. However, as held by Hon ble High Court of Mumbai in case of Godrej Boyce Manufacturing Co. Ltd. (supra) both direct and indirect expenses have to be considered for disallowance on a reasonable basis. Though the assessee in this case has received dividend only from one company some indirect expenses on collection of divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/2011 in respect of A.Y 2001-02 had restored this issue to the file of AO. It was also brought to our notice that in pursuance to the aforementioned order of the Tribunal AO has passed fresh assessment order dated 28/03/2013, where after considering the submissions of the assessee it has been held by the AO that such expenditure was revenue expenditure. Copy of the assessment order was produced before us. The AO has accepted the claim of the assessee with the following observations: On perusal of case Law relied upon by Hon ble ITAT and assessee s submission. It has been observed that the expenditure by the Assessee on software did not result bring into existence of an asset or advantage for the enduring benefit. As assessee has got the licensing agreement which has to be renewed after particular time. and is mere facilitating the conduct of business of the Assessee. Accordingly, in line with the case law relied upon by Hon ble ITAT the software expenses incurred is held as revenue in nature and accordingly allowed . 6.1 Accordingly, after hearing both the parties, as Revenue itself has accepted such claim of the assessee in immediate preceding year, we decline to interfe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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