TMI Blog2022 (7) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod. In the present case for earlier years the learned and CIT A has granted adjustment to the extent of 40%, which is been upheld by the coordinate benches in case of the assessee for earlier years, we also direct the learned assessing officer/transfer pricing officer to adjust and grant benefit of 40% discount to the assessee. Comparability analysis - AO/TPO/ CIT(A) should have considered both overseas and domestic independent clients -As now assessee has submitted the details, wherein the third party rates are charged by the assessee for clearing house trading is 0.25% and adjustment on account of volume marketing etc. at the rate of 50% makes the arms length price of the brokerage at 0.13%. The assessee has charged the brokerage of 0.14% from Mauritius entity and 0.21 % from UK entity. Therefore, final amount of adjustment is in case of clearing house trades. With respect to the delivery versus Payment towards third party rates charged by assessee is 0.38% and after deduction of 50% it comes to 0.19%. Assessee has charged from Mauritius Associated Enterprises 0.14 % and from UK Associated Enterprises of 0.22%, looking to the volume of trade, the adjustment with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has not given any reason that why the above remuneration is excessive and unreasonable looking to the legitimate needs of the business. Further, the approval granted under the companies Act cannot use for making disallowance under the income tax Act, for the reason that both the enactments have different objects and reasons. Accordingly, ground no. 3 is dismissed. Disallowance u/s 14A - CIT(A) held that Rule 8D applies only with A.Y. 2008-09. He therefore, upheld the disallowance of only ₹1 lacs - HELD THAT:- There is no change in the facts and circumstances of the case and further Rule 8D of the Rules does not apply for this year also. Respectfully following the order of the co-ordinate Bench in assessee s own case, we upheld the order of the learned Commissioner of incometax (Appeal). Accordingly, ground no. 4 is dismissed. Addition u/s 40(a)(ia) - Disallowance of transaction charges lease line charges and VSAT charges paid by assessee to the Stock exchanges - HELD THAT:- We find that now this issue is squarely covered by the decision of Hon'ble Supreme Court in case of CIT vs. Kotak Securities Limited [ 2016 (3) TMI 1026 - SUPREME COURT] whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respectively, without appreciating the facts that these were composite charges for professional and technical services rendered by the stock exchange to its members and the assessee has failed to deduct TDS thereon. (ii) On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that these services are essential in nature as they can only be availed by members of Stock Exchange. (iii) On the facts and in the circumstances of the case and in law the Ld. CIT(A)erred in ignoring the facts that use of technology and algorithmic based programs have converted an erstwhile physical market into a digitally operated market. (iv) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the services rendered by the brokers are not standard services but services that has been developed to cater to the needs of the broker community to facilitate trading. v. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has overlooked the fact that the brokers have in subsequent years themselves started deducting the TDS on such payments and that there is no reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Uncontrolled Price Method (CUP Method) is applied for determining the ALP then the comparability analysis should consider an adjustment of at least 50% vis- -vis brokerage charged to independent clients. 1.4 In not accepting the Appellant's contention that even if the CUP Method is applied for determining the ALP then the comparability analysis should be undertaken considering both overseas and domestic independent clients. 1.5 In confirming the learned AO/TPO's order and disregarding the Appellant's stand on applicability of TP Regulations to trades executed for the AES (the said transaction) and in confirming the adjustment to the ALP to the extent mentioned above without appreciating the fact that none of the methods prescribed under Section 92C of the Act were applicable and accordingly, the basic machinery for computing the ALP failed. Ground 2: 2. In confirming the learned AO/TPO's order wherein the ALP of the aforesaid transactions was not determined in accordance with sections 92CA(1) and (2) of the Act as required under section 92C(3) of the Act. Ground 3: 3. In confirming the learned TPO's order without appreciating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer made an adjustment to the total income of the assessee with respect to the lower commission income earned by the assessee in case of clearing house transaction as well as DVP[ Delivery versus payment ] trades amounting to Rs. 14,82,08,736/-. The ld TPO passed order on 27/10/2008 u/s 92 CA (3) of the Act proposing upward adjustment of Rs. 148208736/- . 09. With respect to various support services, the learned transfer pricing officer held that there is no justification and genuineness of the payment Under the said to the associated enterprises and therefore as assessee has not received any benefits for which it is being overseas support fees to its associated enterprise, he determined the arm s-length price of this transaction at Rs nil. 010. The same was adjusted by increasing the total income of the assessee along with certain other adjustments and corporate additions. The assessment order was passed on 29th December, 2008. 011. This assessment order was challenged before the learned Commissioner of income-tax (Appeal). With respect to the addition of Rs. 14,82,08,736/-, on account of brokerage commission earned from Mauritius and UK entity, he rejected the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of arm s-length price of the overseas support services. 015. We first deal with appeal of assessee. The learned Authorized Representative submitted that ground no. 1 is general in nature, therefore, same may be considered in light of other specific grounds. We find that ground no. 1 is general in nature and therefore, no specific arguments were advanced, hence, dismissed. 016. The learned Authorized Representative submitted that ground no. 1.2 is not pressed, where the TNMM method adopted by the assessee as the most appropriate method was rejected by the learned Transfer Pricing Officer and learned CIT(A) and CUP method was considered as the most appropriate method. In view of this, the arms length price of the international transaction entered into by the assessee are required to be derived only on the basis of CUP method. Hence, ground no. 1.2 is dismissed. 017. Ground no. 1.3 and 1.4 were claimed by the learned Authorized Representative covered in favour of assessee by the decision of co-ordinate Bench in assessee s own case. 018. By ground no. 1.3, the assessee claimed that if CUP method is applied for determining the arms length price of international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r five of that order wherein also at page number 5 of that decision in the last para the learned and CIT A allowed the discounting factor of 40%. The coordinate bench upheld the order of the learned CIT A. Therefore, the assessee cannot be allowed 50% discount on the price of the comparables (third parties) but only 40% as per the order of the coordinate benches in earlier years. 021. We also find that rule 10 B (1) (a) (ii) of the income tax rules 1962 also allowed adjustment to the prices which could materially affect the price in the open market. 022. Further guidelines (2022) at paragraph number 2.17 also suggest that in considering whether controlled and uncontrolled transaction is comparable, regard should be held to the effect on price of broader business functions other than just product comparability. Where the differences exist between the controlled and uncontrolled transaction is on between the enterprises undertaking those transactions, it may be difficult to determine reasonably accurate adjustment to eliminate the effect on price. However such difficulties should in all fairness be adjusted reasonably but that should not preclude the application of cup meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjustment with the UK entity is Rs. Nil and with Mauritius entity is Rs. 9,59,202/-. The learned Assessing Officer is directed to verify the same and computation of arms length price has directed the above. Accordingly, ground no. 1.4 of the appeal is allowed with above direction. 028. Ground no. 1.5, ground no. 2 and ground no. 3 were not pressed and hence, dismissed. 029. This leaves us to ground no. 1.1. The claim of the assessee is that the transaction of charging of brokerage commission income from its associate enterprise is at arm s length price for the reason that third party brokerages namely Motilal Oswal Securities Limited and ICICI Brokerage Services Limited have charged higher brokerage rates to these associate enterprises. Therefore, there cannot be any adjustment. For this proposition, he referred to page no. 215 to 213 of the Paper Book, wherein Mauritius Associated Enterprises has entered into clearing house transactions with ICICI Brokerage Services Limited at an average commission rate of 0.7% and with Motilal Iswal Securities Limited at an average of 0.08%. He submitted that the rates charged by the assessee from the associated enterprises compared to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the facts of the case as the issue in that case related to the adoption of other method where the authentic quotes were accepted. In the present case, the huge rate variants do not inspire any confidence in the data submitted by the assessee. Further assessee cannot change the benchmarking and comparability analysis at his own whims and fancies. Accordingly, ground no. 1.1 is dismissed. 032. Accordingly, appeal of the assessee is partly allowed. 033. Now, we come to the appeal of the learned Assessing Officer. 034. Ground no. 1 and 2 are relating to the Transfer Pricing adjustment. 035. Ground no. 1 relates to transfer priding adjustment with respect to brokerage income which is already covered in the appeal of the assessee. The learned CIT(A) has dealt with this issue which is now covered by the appeal of the assessee. As we have already granted substantial relief, assessee following the decision of the co-ordinate Bench in earlier years, we do not find any infirmity on this score in the order of learned CIT(A) accordingly, ground no. 1 is dismissed. 036. Ground no. 2, is with respect to the disallowance of Rs. 6,24,08,002/- deleted by the learned CIT(A) on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance of Rs. 78,93,438/- under Section 14A of the Act. The learned Assessing Officer disallowed the above sum applying the provisions of Rule 8D of the Income Tax Rules, 1962 (the Rules). The learned CIT(A) held that Rule 8D applies only with A.Y. 2008-09. He therefore, upheld the disallowance of only ₹1 lacs. The learned CIT(A) also followed his own order for A.Y. 2004-05 in A.Y. 2002-03 in assessee s own case, the disallowance to the extent of Rs.1 lacs was upheld. There is no change in the facts and circumstances of the case and further Rule 8D of the Rules does not apply for this year also. Respectfully following the order of the co-ordinate Bench in assessee s own case, we upheld the order of the learned Commissioner of incometax (Appeal). Accordingly, ground no. 4 is dismissed. 039. Ground no.5 is with respect to the disallowance of transaction charges lease line charges and VSAT charges paid by assessee to the Stock exchanges. The assessee paid a sum of Rs.1,72,51,564/-, however, did not deduct any tax at source. The learned Assessing Officer held the same to be fees for technical services under Section 194J of the Act or under Section 194C of the Act. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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