TMI Blog2023 (10) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... because of incorrect disclosure of related party transactions. Before us it was not shown that how the disclosure in the annual accounts of that company could be said to be erroneous without making any enquiry under section 133 (6) of the act. As no new facts, additional evidences were submitted by the assessee for its inclusion before the learned CIT- A, we do not find any infirmity in the order of the learned CIT A in directing the learned TPO to include the above comparable. Accordingly ground number 1 of the appeal of learned AO is dismissed. CIT-A held that has excluded the IDFC investment advisors Ltd on the basis that it is engaged in the business of providing portfolio management services as a registered portfolio manager with the securities and board of India which is having 90% of its revenue coming from that stream and only 10% revenue stream is from advisory services. CIT- A has also directed for exclusion of Ledger up corporate advisory private limited, which is found to be engaged primarily in the business of providing investment banking services like that syndication, private equity deals and other corporate advisory mandates. It is also registered with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership card where assessee is a stockbroker does not help the case of assessee. In this case the total dividend income is received and according to rule 8D, the learned that AO has disallowed. We do not find any infirmity in the order of the learned lower authorities in confirming the above disallowance. Accordingly, ground number 3 of the appeal of the assessee is dismissed. Ad hoc disallowance of 10% of entertainment and conference expenses, repair maintenance expenses and books and periodical expenses - HELD THAT:- If the assessing officer is not satisfied by any amount of expenditure, the expenditure to that extent should have been disallowed irrespective of its percentage. Merely applying an ad hoc percentage to the total expenditure for holding that such expenditure are not bifurcated into business and non business expenditure is not correct. It is not the case of the revenue that any bogus expenditure has been debited in the books of accounts. Merely because certain vouchers are held to be prepared by self showing cash expenditure, does not result into any illegality as there are certain types of expenditure which are prepared on self made vouchers and reimbursed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri Nishant Thakkar Mr. Jasmin Amalsadwala, ARs For the Revenue : Ms. Vranda U. Matkari, DR ORDER PER PRASHANT MAHARISHI, AM: 01. ITA No. 72/Mum/2018 is filed by Citigroup global Market (India) Private Limited (assessee /appellant) and ITA No.45/Mum/2018 is filed by Jt. Commissioner of Income Tax (OSD) 4(1)(1), Mumbai (the learned Assessing Officer) for A.Y. 2010-11 against the appellate order passed by the Commissioner of Income-tax (Appeals)-55, Mumbai [the learned CIT (A)] dated 12th October, 2017, wherein the appeal filed by the assessee against the assessment order dated 26th March, 2014, passed by the Dy. Commissioner of Income Tax, Circle 4(1), Mumbai under Section 144C read with section 143(3) of the Income-tax Act, 1961 (the Act), by the assessee was partly allowed. Both the parties aggrieved with the assessment order and therefore, are in appeal before us. 02. In ITA No.45/Mum/2018 The learned Assessing Officer is aggrieved by raising following grounds of appeal:- 1. Each ground is without prejudice to the others. 1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in including comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that the provisions of Explanation to Section 73 of the Income Tax Act, 1961 are applicable to the assessee-company which states that where any part of the business of a company consists of purchase and sale of shares of other companies, such company shall, for the purpose of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. 03. In ITA No. 72/Mum/2018 assessee is also aggrieved raising following grounds of appeal:- On the facts and circumstances of the case and in law, Citigroup Global Markets India Private Limited (hereinafter referred to as 'CGMIPL' or the 'Appellant'] craves to prefer an appeal against the order passed by the Commissioner of Income- tax (Appeals) - 55, Mumbai (hereinafter referred to as the learned CIT(A)], under section 250 of the Income-tax Act, 1961 (Act) in respect of the order passed by the Deputy Commissioner of Income-tax- 4(1), Mumbai (the AO) under section 143(3) read with section 144C(3) of Act, on the following grounds: 1. The learned CIT(A) erred in re-computing the arm's length price (ALP) of the international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Commissioner of Income Tax, Transfer Pricing Officer, Mumbai, (the learned TPO) for examination of Arm s Length Price of these international transactions. The assessee is providing origination and other support services to its Associated Enterprises and provides support services and other related advisory services to clients in India. It also acts as a broker in the equity and derivative segment mainly to institutional clients. It has entered into 17 different kind of international transactions. The only two international transactions are in dispute before us. The research report services amounting to ₹16,24,58,348/- and brokerage fees of ₹181,49,41,232/- for the impugned assessment year. Assessee adopted the Transactional Net Margin Method[ TNMM] as the most appropriate method [ MAM] for benchmarking research support services. The assessee s benchmarking shows that assessee has earned a margin of 15%. Assessee selected four comparable companies whose margin operating profit / total cost was 19.57% and therefore, since, the arithmetic mean of comparable prices is within +- 5% of the transfer prices, assessee concluded that its transaction is at Arm s Length Price. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the average broking charges of the assessee to the Associated Enterprises in respect of cash equity trade is 0.25% and assessee has also earned commission in respect of trade executed with unrelated parties, average brokerage commission charged to top of 10 unrelated foreign institutional investors in cash equity trade is 0.15%. Therefore, the assessee claimed that transaction is at Arm s Length. 07. The learned Transfer Pricing Officer found that assessee has charged 0.10% to Citi Group Global Market Limited, UK at the rate of 0.10%. Therefore, assessee was asked to explain that why benchmarking of this transaction should not be made by adopting the rate charged to FIIs. The assessee objected to the same stating that there are functional differences in a respect to broking services rendered to Associated Enterprises and non-Associated Enterprises, however, it agreed for an adjustment of 0.05%. Accordingly, an adjustment of ₹20,80,796/- is made. 08. Accordingly, the order under Section 92CA(3) of the Act was passed on 29th January 2014. 09. During the course of assessment proceedings, the learned assessing officer further examined :- a. that assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade act usual, clearing and settlement of trade of its clients. In the normal course of its business, the company incurs the above loss on account of errors committed by legs the deals. The company being a registered broker is responsible for the purchase and sale of shares including the payment and delivery thereof even if the transaction is on the behalf of the clients. Therefore the loss of incurred by the assessee is incidental to the companies business the learned assessing officer disbelieved the explanation of the assessee and applied the provisions of section 73 and disallowed the above sum holding that the above provision applies to the purchase and the sale of shares and therefore the loss on trade is treated as a speculation loss. d. Assessee has paid a sum of ₹ 1,981,158 levied on the assessee by the stock exchange as penalty relating to non-maintenance of complete records, delay in payout of funds and securities and incomplete forms short collection of margins et cetera. The assessee has argued that such penalties levied towards certain delay/technical non-compliance et cetera and therefore they are not hit by the explanation to section 37 (1) of the act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee, he held that same is primarily engaged in providing portfolio services, whereas the assessee is engaged in rendering research report services and therefore, is functionally different and hence excluded. c. With respect to the Ladderup Corporate Advisory Pvt. Ltd. which is included by the learned Transfer Pricing Officer objected to by the assessee, he held that it is primarily engaged in providing investment banking services, where the assessee is engaged in rendering research report services and therefore, the same is to be excluded. d. on the issue of M/s Motilal Oswal Investment Advisory P. Ltd. included by the learned Transfer Pricing Officer and objected by the assessee, he found that it performs the investment banking activities and therefore, functionally dissimilar. e. Accordingly, after the order of the learned CIT (A), four comparable companies remain in the comparability analysis whose operating margin was 19.57% and therefore, the TP adjustment with respect to the research report services was deleted. f. With respect to the adjustment on account of the provision for broking services, the learned CIT (A) agreed with the learned Transfer P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l representative submitted that i. IDC India Limited that assessee did not have the above comparable company in it s accept/ reject matrix. However, assessee included the same, as it was part of its comparability analysis for A.Y. 2011-12. He referred to the paragraph no.7.4 of the learned Transfer Pricing Officer. According to him when in the accept/ reject matrix of the assessee where six companies were selected cyber media research limited earlier known as IDC Limited was not a comparable company. The assessee included the same only on the basis that for A.Y. 2011-12 and 2012-13 this company was in the comparability analysis of the assessee. He submitted that the assessee has conducted the search on prowess capital line and place and venture intelligence database. How a comparable company can enter into a comparability analysis beyond the search filters adopted by the assessee. He submitted that the CIT (A) has given the reasoning in paragraph no.4.4, which is bad and beyond a comprehension in transfer pricing. ii. With respect to the inclusion of IDFC investment advisory limited by the learned Transfer Pricing Officer but excluded by the learned CIT (A), he submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned CIT (A) and has correctly dealt with its inclusion or exclusion. He submitted that IDC India was appearing in the accept reject matrix of the assessee however the same was inadvertently rejected it was submitted before the learned transfer pricing Officer as per letter dated 10 January 2014 and before the learned CIT A as per letter dated ninth may 2017 and therefore assessee did not cherry picked the comparable. He submitted that since IDC India is a comparable its inclusion could not be objected now. It was further stated that in the related party transaction disclosures of that company does not have any bearing on the profits of the company is only RPT transactions reflected was an increasing sundry debtors, which undisputedly had no impact on the profit and loss account. He further placed the detailed submission on the functional comparability by placing reliance on the website extract, disclosure and annual report on the information on employee functions furnished by the TPO. ii. With respect to the exclusion of IDFC investment advisors Ltd, Motilal Oswal investment advisors private limited and ladder up corporate advisory private limited, he submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee stating that in the research report service income segment comparability analysis Kshitij Investment company advisories limited has wrongly been considered as comparable. It was submitted that since it has undergone a realignment of business during the assessment year 2010-11, therefore, assessee submits that above ground should be admitted for the purpose of determination of Arm's Length Price. It was further stated that the above ground should be admitted relying on the decisions of the Hon'ble Supreme Court. 020. The learned Departmental Representative vehemently objected to the same stating that additional ground cannot be admitted if the facts are not on record and further, same is required to be investigated. It was further stated that it is a factual aspect, which now at this stage cannot be entertained. 021. The learned Authorized Representative relied upon the decision of the Hon'ble Bombay High Court in case of CIT vs. Tata Power Solar Systems Ltd. 77 taxmann.com 326, stating that if a comparable has been included mistakenly, assessee has not been barred in law from withdrawing the comparable. 022. During the course of hearing, the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating cost was 34.9% whereas in case of the comparable company it is 34.5%. However, in the original except reject matrix of the assessee this company appeared as a comparable. Inadvertently it was excluded. When the assessee pointed out the same before the learned TPO asking for its inclusion, the learned TPO held it to be functionally not comparable stating that the annual account of the assessee company are not reliable because of incorrect disclosure of related party transactions. Before us it was not shown that how the disclosure in the annual accounts of that company could be said to be erroneous without making any enquiry under section 133 (6) of the act. As no new facts, additional evidences were submitted by the assessee for its inclusion before the learned CIT A, we do not find any infirmity in the order of the learned CIT A in directing the learned TPO to include the above comparable. Accordingly ground number 1 of the appeal of learned AO is dismissed 025. The learned assessing officer has challenged the order of the learned CIT A as per ground number 2 4 with respect the order of the learned CIT A that has excluded the IDFC investment advisors Ltd on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT A in deleting the above disallowance. Ground number 5 of the appeal of the learned assessing officer is dismissed. 027. Accordingly, ITA number 45/M/2018 filed by the learned assessing officer for assessment year 2010 11 is dismissed. 028. Coming to ITA number 72/M/2018 filed by the assessee, ground number 1 and 2 of the appeal with respect to the transfer pricing adjustment of ₹ 2,080,796/- pertaining to brokerage services is not pressed , therefore same are dismissed. 029. Ground number 3 of the appeal is against the disallowance confirmed by the learned CIT A of ₹ 48,325/ under section 14 A of the act read with rule 8D. The assessee has also without prejudice raised an issue that no expenditure having direct and proximate connection with the earning of exempt income has been incurred by the appellant and thus no disallowances of expenditure incurred in relation to earning exempt income is warranted. The claim of the assessee is that assessee has earned tax-free income from shares of Bombay stock exchange Ltd as dividend. Assessee is stockbroker and was holding shares of Bombay stock exchange. On conversion of the Bombay stock exchange membership ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted the nature of these expenditure and the learned AO held that the explanation submitted by the assessee is very general and casual in nature and is not supported by any cogent evidences or strong nexus for inclination to say that the expenses has got a business incidence. On verification of details filed, it was observed by the AO, that these expenses are not fully supported by proper bills and vouchers and certain expenses are incurred through self-made vouchers in cash. Claim of ld AO is that Assessee has furnished some Ledger accounts for the said expenses however the assessee has not furnished sufficient detail to substantiate the claim of the expenses incurred for business and non business purposes separately as the volume of the same are huge and bulky. Accordingly the AO disallowed 20% of the above expenditure resulting into disallowance of ₹ 9,301,653/ . The learned CIT A confirmed the action of the learned assessing officer however reduced the disallowance from 20% to the 10% of the total expenditure. We find that the learned CIT A has confirmed the ad hoc disallowance by reducing the quantum of disallowance from 20% to 10%. We find that the above expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower authorities also. However before us assessee has stated that note number 14 (17) of notes to the accounts of Kshitij investment advisors Co Ltd has realigned its investment advisory activities by the alignment agreement effective from 1 January 2010 wherein Everstone investment advisors private limited would be carrying on all investment advisory services. Thus with effect from that date the functionality of comparable is different. Thus, at least Comparable continued same activity only for nine months of the year. This is in extraordinary event, which has affected margin of the comparable for that year. Therefore, it should be excluded from comparability analysis. Honourable Bombay High Court in CIT versus Tata Power solar systems limited (2017) 77 taxmann.com 326 (Bombay) wherein, Tribunal held that party is not barred in law from withdrawing from its list of comparables, if the same is found to have been included on account of mistake as on facts, it is not comparable, was upheld. In that case, the issue of exclusion of a comparable, which was included by the assessee, was argued before the TPO, it is not permitted by the TPO. In this case also, though it was not argued be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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