BOFA SECURITIES INDIA LIMITED (FORMERLY KNOWN AS DSP MERILL LYNCH LTD,MUMBAI V. ACIT RG 4(1), MUMBAI

MA 168/MUM/2024

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The case involves Bofa Securities India Limited, formerly known as DSP Merrill Lynch Limited, who filed Miscellaneous Applications (MA No.168/Mum/2024 and MA No.169/Mum/2024) against the orders dated 10/06/2024 concerning the Assessment Years 2002-03 and 2003-04, respectively. The applications were filed to correct typographical errors in the Tribunal's earlier orders, which inaccurately stated various financial figures and percentages related to brokerage charges and trade volumes. The Tribunal acknowledged these errors and rectified them, thereby correcting the records to reflect the accurate data as submitted by the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473359 (ITAT-MUMBAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 30-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2002-2003
• Other Referred Cases: Morgan Stanley India Company Private Limited (ITA No- 266/Mum/2006), Morgan Stanley India Company Private Limited (ITA No-1164/Mum/2011)
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: P.J. PARDIWALA
• Keywords: Proportionate interest; Transfer pricing; Rule 8D
• Section: 43; 13; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘K’ BENCH MUMBAI BEFORE: SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER MA No.168/Mum/2024 (Arising out of ITA No.5416/Mum/2010) (Assessment Year :2002-03) & MA No.169/Mum/2024 (Arising out of ITA No.5864/Mum/2010) (Assessment Year :2003-04) M/s. Bofa Securities India Limited (Formerly known as DSP Merrill Lynch Limited) Ground Floor, A Wing One BKC, G Block Bandra Kurla Complex Bandra (E) S.O. Mumbai- 400 051 Vs. Assistant Commissioner of Income Tax, Ward 4(1) Mumbai PAN/GIR No.AAACD0535G (Appellant) .. (Respondent) Assessee by Shri P.J. Pardiwala / Shri Nitesh Joshi Revenue by Shri Hemanshu Joshi Date of Hearing 13/12/2024 Date of Pronouncement 30/01/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): MA No.168/Mum/2024 MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 2 The aforesaid Miscellaneous Application has been filed by the assessee against order dated 10/06/2024 wherein it has been stated that there are certain typographical mistakes which has occurred in the impugned Tribunal order. These Typographical mistakes have been stated in the following manner:- AY 2002-03 1. Incorrect amount mentioned for the brokerage charged by the assessee for CH/ Non- DVP trades in paragraph 11 on page 10 of the order Paragraph 11 on page 10 of the order inadvertently states that the amount of brokerage charged by the assessee as INR 11,22,376 (highlighted as A1 in the order enclosed as Annexure 1) The Applicant humbly requests your Honor to replace the amount with INR 7.11.22 376 (as can be seen in assessee's submission reiterated in paragraph 10 on page 9 of the order- relevant amount highlighted as B1 in the order enclosed as Annexure 1). 2. Incorrect amount mentioned for the volume of trades with non-AE FIIs for CH/ Non-DVP trades in paragraph 15 on page 13 of the order Paragraph 15 on page 13 of the order inadvertently states that the volume of trades with non- AE FIIs is INR 2,7774 crores (highlighted as A2 in the order enclosed as Annexure 1) The Applicant humbly requests your Honor to replace the amount with INR 2,774 crores (as can be seen in the table in paragraph 13 on page 11 of the order - relevant amount highlighted as B2 in the order enclosed as Annexure 1) 3. Incorrect rate mentioned for the broking services for Merrill Lynch Capital Market Espana for CH/ Non-DVP trades in paragraph 18 on page 17 of the order MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 3 Paragraph 18 on page 17 of the order inadvertently states that broking services were provided to Merrill Lynch Capital Market Espana at 0.38% (highlighted as A3 in the order enclosed as Annexure 1). The Applicant humbly requests your Honor to replace the rate with 0.43% (as can be seen in the table in paragraph 13 on page 11 of the order relevant rate highlighted as B3 in the order enclosed as Annexure 1). 4. Incorrect amount mentioned for the commission excl. service tax to Merrill Lynch Capital Market Espana S.A. SV for CH/ Non-DVP trades in the table in paragraph 18 on page 18 of the order. The table in paragraph 18 on page 18 of the order inadvertently states the commission excl. service tax from Merrill Lynch Capital Market Espana S.A. SV as INR 14,59,50,353 (highlighted as A4 in the arder enclosed as Annexure 1) The Applicant humbly requests your Honor to replace the commission amount with INR 1,45,95,08,353 (as can be seen in the table in paragraph 13 on page 11 of the order relevant text highlighted as B4 in the order enclosed as Annexure 1). 5. Incorrect rate mentioned for the weighted average rate of brokerage of all third party Fils for CH/ Non-DVP trades and adjustment of sales cost in paragraph 20 on page 20: Paragraph 20 on page 20 on the order inadvertently states that the weighted average brokerage rate earned by assessee from AEs if compared with rate earned by third party Fils, the difference is 0.07% and that the sales cost adjustment is 0.6% (highlighted as A5(1) and A5(ii) respectively in the order enclosed as Annexure 1) The Applicant humbly requests your Honor to replace the text in paragraph 20 on page 202 with the following: \"the weighted average brokerage rate eamed by assessee from AEs if compared with rate eamed by third party Flis, the difference is 0.06% Further, we find that Id. CIT(A) has given adjustment of sales cost of 0.06%\" Further, the table in paragraph 20 on page 20 of the order inadvertently states that the weighted average rate of MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 4 brokerage of all third party Flls is 43 basis points (highlighted as A5(iii) in the order enclosed as Annexure 1). The Applicant humbly requests your Honor to replace the rate with 0.42% (as can be seen in the table in paragraph 13 on page 11 of the order relevant rate highlighted as B5 in the order enclosed as Annexure 1) We have reproduced the updated table below: (i) Weighted average rate of brokerage of all third party FIIs 42 Bps (0.42%) (ii) Less: Marketing adjustment as allowed by the Id. CIT(A)) 6 Bps (0.06%) (iii) Adjusted weighted average brokerage for all third party FIIS 36 Bps (0.36%) (iv) Weighted average rate of brokerage charged to MLI & MLCME 36 Bps (0.36%) (v) ALP determination NIL Consequently, even paragraph 21 will be replaced with the language. \"Thus, we hold that no adjustment is made\" While we have substantiated each data point by highlighting the correct information in the order Itself, we have also attached the summary of contentions previously submitted with your Honor on 19 February 2024 (enclosed as Annexure 2), comprising of all facts and figures for your Honor's ready reference. 6. Incorrect words \"by sixth\" entered in para 42 on page 34 of the order Para 42 on page 34 of the order currently reads as MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 5 We have considered the aforesaid finding of the Id. AO and Id. CIT (A). The Id. AO has made disallowance by taking proportionate interest expenses to the extent of Rs 4.5 Crores which was computed by applying the average rate of interest to the total investment and multiplying with the same with the total borrowing to the total fund of the assessee 5% of the dividend income towards administrative expenses First of all it is a well-established law that Rule 8D is not applicable in the A.Y 2002-03 and the basis of which Id. AO has made the disallowance cannot be sustained, firstly, that no interest expenses can be attributed as noted above assessee had more surplus interest free funds by sixth investment made by the assessee. Thus, in such a case no disallowance can be made. Secondly, in so far as Revenue expenses are concerned, the Id. AO has taken 5% of dividend income. The id CIT (A) has reduced the addition after applying Rule 8D(2), the disallowance upheld by the Id. CIT(A), which is almost to the extent of suomoto disallowance offered by the assessee which under the facts and circumstances and looking to the fact that Rule 8D is not applicable is far more sufficient. Thus, suomoto disallowance offered by the assessee is accepted Consequently, assessee's appeal is allowed and Revenue's appeal is dismissed The above words, by sixth has been inadvertently entered and the correct words should be \"than the\" In view of the above, the Applicant humbly requests your Honor to replace the words by sixth with 'than the’. 2. On perusal of the records and the Tribunal order, we agree that there are certain typographical mistakes while noting down the figures and same is rectified as under:- (i) Rs.11,22,376/- shall be read as 7,11,22,376/- (ii) In para 15 of page 13 wherein it has been stated that volume of trades with non-AE FIIs is Rs.2,7774 Crores MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 6 which should be read as Rs.2,774/- Crores and accordingly, the same is rectified and the figure corrected is Rs.2,774/- Crores. (iii) In Para 18 of Page 17 wherein, this Tribunal has stated that broking services for Merrill Lynch Capital Market Espana at 0.36%, the same is replaced with 0.43%. (iv) In the table in paragraph 18 of page 18 inadvertently commission excluding service tax from Merrill Lynch Capital Espana S.A SV as INR 14,59,60,353/- should be replaced with 1,45,95,08,353/-, accordingly, the mistake is rectified. (v) Similarly in para 20 of page 20 the weighted average rate of brokerage rate of third party FIIs is 43 has been stated as 43 basis points where as it should be 0.42%, accordingly, it should be read as 0.42% (42 basis points). (vi) Similarly, in para 21 the language will be replaced as “thus, we hold that no adjustment is made.” (vii) and lastly, incorrect word has been entered in para 42 of page 34. So, the word ‘by sixth’ is replaced “by then”. MA No.169/Mum/2024 3. The aforesaid Miscellaneous Application has been filed by the assessee against order dated 10/06/2024 wherein it has been stated that there are certain typographical mistakes which has occurred in the impugned Tribunal order. These MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 7 Typographical mistakes have been stated in the following manner:- 2003-04: 1. Incorrect segment mentioned for ground 3 & 4 in relation to TP adjustment of equity broking services in paragraph 45 on page 36: The table in paragraph 45 on page 36 of the order inadvertently states that ground 3 & 4 in relation to TP adjustment of equity broking services for non-DVP/ CH segment (highlighted as A1(i) in the order enclosed as Annexure 1). The Applicant humbly requests your Honor to replace the segment with DVP segment (as can be seen in the table in paragraph 45 on page 36 of the order relevant segment highlighted as B1 in the order enclosed as Annexure 1) Further request your Honor to consequently correct the segment in the latter part of paragraph 45 on page 36 of the order from 'CH/ Non-DVP segment to DVP segment (highlighted as A1(ii) in the order) 2. Paragraph 49 on page 38 of the order inadvertently states that the Id. AO had asked the assessee to furnish the details of average rates charged for Top 10 third party institutional clients (highlighted as A2 in the order enclosed as Annexure 1): The details of average rates charged for Top 10 third party institutional clients were requested to be produced by the Hon'ble ITAT and not by the Ld. AO. To explain this, we have briefly explained below the events during the hearing, which led the Hon'ble ITAT to direct production of this information: During the hearing, for DVP trades, the assessee's representative (AR) had argued on two main points: a. Functions performed for all institutional clients are the same The functions performed by BofASIL for all institutional clients ie. AEs and Non-AEs are the same. Amongst institutional clients of BofASIL, it would be pertinent to note that there is no MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 8 difference in the functions being performed by BofASIL for foreign and domestic institutional clients as well. However, the learned TPO had only considered the brokerage rates charged by BofASIL to its third party FII clients as comparable on the basis that the geography of the service recipient is relevant while determining comparability. However, given that the functions performed by BofASIL are the same for foreign as well as domestic institutional clients and location of service recipient is not relevant, it was submitted that the rate charged to the category of all institutional third party clients may be considered. Use of pricing charged to third party institutional clients as comparable to the services provided by Assessee to its associated enterprise which is an institutional client has also been upheld by the Mumbai Tribunal in the case of Morgan Stanley India Company Private Limited (ITA No- 266/Mum/2006) for the AY 2002-03 and thereafter the same was upheld in AY 2004-05 (ITA No-1164/Mum/2011) b. Volume is an important factor to be considered The volume of business of BofaSIL with its AEs comprise of - 34% of the total institutional volume of business. Accordingly, volume is an important consideration for this transaction. In order to iron out the differences in functional profile and volume of business to some extent, where CUP method is proposed to be applied for benchmarking the transaction, on a without prejudice basis, the rates charged to Top 10 third party institutional clients may be used a comparable Alternatively, it was urged that where your Honors propose to consider third party FIIs as comparable, the rates charged to Top 10 third party FIIs may be considered. In view of the above arguments, the Hon'ble ITAT had requested the assessee to submit two additional data points, namely: (1) rates charged to Top 10 third party institutional clients, and MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 9 (ii) rates charged to Top 10 third party FIIs. The same was submitted before the Hon'ble ITAT by the assessee on 19 February 2024 (enclosed as Annexure 2) (which is reiterated in para 49 and 50 on pages 38 to 41). In view of the above, the Applicant humbly requests your Honor to replace the words \"In DVP segment in the appeal for AY 2002-03, Id. AO had asked the assessee to furnish the details of average rates charged for Top 10 third party institutional clients. These details are as under (highlighted as A2 in the order) to \"In DVP segment in the appeal for AY 2003-04, we had asked the assessee to furnish the details of average rates charged for Top 10 third party Institutional clients. These details are as under”. 4. Accordingly, as pointed out above, the rectification of the words and figures are being modified as under:- (i) The table in para 45 on page 36 instead of stating TP adjustment of equity broking services for non-DVP / CH segment, the same should be read as DVP segment. (ii) Para 49 of page 38, it has been inadvertently stated that ld. AO had asked the assessee to furnish the details of average rates charged for Top 10 third party institutional clients, it has been pointed out that the same was required to be produced by the direction of the Tribunal and not the ld. AO and the same is highlighted in the aforesaid application filed by the assessee, the said paragraph will read as under:- \"In DVP segment in the appeal for AY 2002-03, Id. AO had asked the assessee to furnish the details of average rates charged for Top 10 third party institutional clients. These details are as under (highlighted as A2 in the order) to \"In DVP segment in the appeal for AY 2003-04, we had asked the MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 10 assessee to furnish the details of average rates charged for Top 10 third party Institutional clients. These details are as under” (iii) In so far as point No.3, the same was not pressed during the course of hearing, accordingly, point No.3 which has been raised need not be adjudicated. (iv) Lastly, with regard to point No.4, the correct figure wherein in para 57 on page 43 of the order inadvertently amount INR 76,86,000/- should be read as 76,85,000/-, accordingly, all typographical mistakes are rectified as stated above. Accordingly, Miscellaneous Application filed by the assessee is allowed. 5. In the result, Miscellaneous Applications filed by the assessee are allowed. Order pronounced on 30th January, 2025. Sd/- (NARENDRA KUMAR BILLAIYA) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 30/01/2025 KARUNA, sr.ps MA Nos.168 & 169/Mum/2024 Bofa Securities India Limited 11 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai Date Initial 1. Draft dictated on Sr.PS 2. Draft placed before author Sr.PS 3. Draft proposed & placed before the second member JM/AM 4. Draft discussed/approved by Second Member. JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/P S 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed Yes 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "