DEUTSCHE EQUITIES INDIA PVT. LTD.,MUMBAI V. ADDL.C.I.T. RG. 4(1), MUMBAI

MA 274/MUM/2024

AI Insights

The case revolves around M/s. Deutsche Equities India Private Limited, which engaged in equity broking and undertook various international transactions. The Transfer Pricing Officer (TPO) initially rejected the Assessee's benchmarking of certain transactions with non-associated enterprises (AEs) and considered them comparable uncontrolled transactions. The Tribunal's earlier decision supported the TPO's approach, leading the Assessee to file a Miscellaneous Application under Section 254(2) of the Income Tax Act, 1961, seeking rectification of the Tribunal's order. The Tribunal dismissed this application, stating that the Assessee's contentions did not reveal any mistake apparent on the record but rather sought a review of the Tribunal's decision, which is beyond the scope of Section 254(2).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717731 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 12-08-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2005-2006
• Appeal Filed On: 09-12-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Transfer pricing; International transaction

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL \"I\" BENCH, MUMBAI SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER M.A. No.274/MUM/2024 (Arising out of ITA No.8354/Mum/2011) (Assessment Year:2005-2006) M/s. Deutsche Equities India Private Limited 14th Floor, The Capital, G Block, Bandra (East), Mumbai – 400051 Maharashtra [PAN:AABCD7551M] ………….… Appellant Vs Additional Commissioner of Income Tax, Range – 4 (1), Mumbai Aayakar Bhavan, M. K. Marg, Mumbai – 400020, Maharashtra ……………. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Niraj Sheth Shri Virabhadra Mahajan Date Conclusion of hearing Pronouncement of order : : 27.06.2025 12.08.2025 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present Miscellaneous Application has been moved by the Assessee under Section 254(2) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] seeking rectification/modification of the said Common Order, dated 08/07/2024, [for short ‘the Order’] whereby the appeal preferred by the Assessee [ITA No. 8354/Mum/2011] for the Assessment Year 2005-2006 was disposed by this Tribunal. By way of the aforesaid the Order, in addition to the appeal preferred by the Assessee, the Appeals preferred by the Revenue as well as Cross- Printed from counselvise.com M.A.274/Mum/2024 (Arising out of ITA No.8354/Mum/2011) Assessment Year: 2005-2006 2 Objections filed by the Assessee for the Assessment Year 2005- 2006 were also disposed off. The scope of the present application is restricted to seeking rectification/modification of the Order to the extent it related to adjudication of Ground No. 5 raised by the Assessee in ITA No. 8354/Mum/2011. We have heard both the sides in relation to the same and have perused the material on record. 2. The relevant facts in brief are that during the relevant previous year the Assessee was engaged in the equity broking business and had undertaken various international transactions relating to the equity broking service Clearing House Trade [for short 'CH Trades'], Delivery Versus Payment/Delivery Based Trades (DVP) Trade and Programme Trade. The Transfer Pricing Officer (TPO) noted that for benchmarking the International Transaction relating to CH Trades, the Assessee had adopted Comparable Uncontrolled Price Method [for short 'CUP Method'] as the Most Appropriate Method. Even though the Assessee had undertaken CH Trades with non-AEs/third parties, the Assessee rejected the aforesaid transactions for the purpose of benchmarking citing differences in the nature of services and other factors and also failure to make suitable adjustments for the same. This was not accepted by the TPO and the transactions undertaken by the Assessee with non- AEs/Third Parties were taken by the TPO as comparable uncontrolled transactions. The aforesaid issue travelled to the Tribunal in appeal preferred by the Assessee. Ground No.4 to 10 and Ground No.12 (Additional Ground) raised by the Assessee pertained to the transfer pricing additions and the same were dealt with by the Tribunal in Paragraph 8.1 to 8.9 of the Order. 3. The contention of the Assessee is that findings returned by the Tribunal in Paragraph 8.6 of the Order suffer from mistake Printed from counselvise.com M.A.274/Mum/2024 (Arising out of ITA No.8354/Mum/2011) Assessment Year: 2005-2006 3 apparent on record. In this regard we find it pertinent to refer to Paragraph 4 & 5 of the application under consideration which reads as under: “4. In this connection, the Applicant invites attention to page 166 and 167 of paper book from which it can be seen that the Applicant had examined uncontrolled transactions entered into by both -Applicant (i.e., Applicant's transactions with unrelated FII clients) and the Associated Enterprises ('AE') (i.e., AE transactions with unrelated broker in India) to benchmark the CH trade transactions. The analysis of transactions in case of AEs indicated some differences like volume, etc. and, therefore, an adjustment could have been made. However, any adjustment to the commission rate charged by third parties to AEs would reduce the commission rate. Since the rates charged by unrelated parties to the AE were lower than what the Applicant charged to the AE, the international transactions between the Applicant and the AE were at Arm's Length Price ('ALP') even without considering any comparability adjustment to the aforesaid CUP and, therefore, no such comparability adjustment was undertaken by the Applicant since the same was not necessary. If such adjustment were carried out, it would further lower the CUP and Applicant's transaction would remain at ALP. This was specifically submitted at page 166 and 171 of paper book. 5. It is therefore submitted that the Hon’ble Bench’s observation that the applicant failed to show how the transactions entered by the AEs with unrelated party would not require adjustments and on that footing uploading the TPO’s adoption of the Applicant’s transactions with unrelated parties as CUP, constitutes a mistake apparent from the record.” (Emphasis Supplied) 4. We have perused the Paragraph 166 to 171 of the Paper Book which form part of the Submission, dated 20/10/2008, filed by the Assessee before the Transfer Pricing Officer (‘in short ‘TPO’). It would be pertinent to refer to the following relevant extract of the aforesaid submissions (at Page 167 of the Paper-Book) which reads as under: Printed from counselvise.com M.A.274/Mum/2024 (Arising out of ITA No.8354/Mum/2011) Assessment Year: 2005-2006 4 “Our analysis of both the controlled and uncontrolled transactions in this case also indicated some differences. However, any possible adjustments for these differences would only reduce the price of the uncontrolled transaction. For example, one of the differences between the two is in regards to volume. DSML's transactions with third-party are for comparatively lesser volume (INR 11,307 million) than the trade volume between DSML and Deutsche Equities (INR 112,114 million). In the broking industry trade volume has an inverse relationship with the brokerage rate i.e. the brokerage rate declines as the volume increases. The assessee submits that any impact a suitable volume adjustment would have in this case would be downward adjustment in the commission rate in the uncontrolled transaction. Based thereon, the assessee choose not to carry out any adjustment to the uncontrolled transaction. Based thereon, the assessee choose not to carry out any adjustment to the uncontrolled transactions.” 5. On perusal of the above, it becomes clear that there were differences between the controlled and uncontrolled transactions, and the Assessee had chosen not to carry out any adjustments to the uncontrolled transactions. Before the TPO, the Assessee justified the same by making a statement that any possible adjustments for these differences would only reduce the price of the uncontrolled transaction and supported by the aforesaid statement by citing inverse relationship between brokerage and volume without quantifying the same. Admittedly, no efforts were made to identify the differences (other than volume difference) and quantify the adjustments required in relation to the same on the premise that the adjustment would only result in reduction of the price. The submissions made by the Assessee before TPO (at Page 167) support the findings returned by the Tribunal that the controlled as well as uncontrolled transactions required adjustments. Further, the Tribunal had noted that in the Transfer Pricing Study Report, the Assessee had taken a stand that comparable transactions undertaken by the Assessee with Printed from counselvise.com M.A.274/Mum/2024 (Arising out of ITA No.8354/Mum/2011) Assessment Year: 2005-2006 5 unrelated parties were not considered by the Assessee on the ground that it was not possible to quantify the impact of the various factors influencing the brokerage rate in case of CH Trades for making suitable adjustments even though the Assessee had quantified the impact and sought adjustments for volume, marketing, research. The relevant extract of TPSR (at page 139 to 140 of the Paper Book) read as under: “There are the various factors influencing the price as mentioned in table above for CH trades. It is not possible to quantify the impact of each of the aforesaid factors and make an adjustment in the brokerage rate charged by Deutsche Equities to its unrelated customer. Therefore it was concluded that the brokerage rate charged by Deutsche Equities to unrelated customer in CH trade cannot be used to benchmark the transactions entered charged by Deutsche Equities to its associated enterprises. We have been given to understand that associated enterprises also entered into CH trades on the comparable terms with the unrelated brokers and Deutsche Equities. The associated enterprises has paid lower brokerage rate to unrelated parties for comparatively lower volume of transactions. As per the economics of the transaction we understand that in the brokering industry lower brokerage rate is paid for higher volumes. Associated enterprises has paid lower brokerage rate to unrelated brokers for comparatively smaller quantities. Accordingly, it can be concluded that if the volume adjustment is made to brokerage charged by unrelated broker to associated enterprises the adjusted brokerage rate will be further low than the current brokerage paid to unrelated broker.” (Emphasis Supplied) 6. After considering the aforesaid the Tribunal had accepted the approach adopted by the TPO to determine the ALP of the International Transaction under consideration taking comparable uncontrolled transactions undertaken by the Assessee with Non- AEs (subject to adjustments) and had returned following findings in paragraph 8.6 of the Order which reads as under: Printed from counselvise.com M.A.274/Mum/2024 (Arising out of ITA No.8354/Mum/2011) Assessment Year: 2005-2006 6 “8.6. In the Transfer Pricing Study Report (TPSR), the Assessee had adopted CUP Method as the Most Appropriate Method, inter alia, stating that the Assessee and its AEs had undertaken comparable transactions with unrelated enterprises. The comparable transactions undertaken by the Assessee with unrelated parties were not considered by the Assessee on the ground that it was not possible to quantify the impact of the various factors influencing the brokerage rate in case of CH Trades for making suitable adjustments. However, we note that during the assessment proceedings that Assessee had quantified and had sought adjustment for volume, marketing, research. Further, in our view, the Assessee had also failed to show how the transactions entered by the AEs with unrelated party would not require adjustments for the factors (other than the scope of services) affecting the rate of brokerage in case of CH Trades identified by the Assessee itself in the TPSR. Therefore, we do not find any infirmity in the approach adopted by the TPO to determine the ALP of the International Transaction under consideration taking comparable uncontrolled transactions undertaken by the Assessee with Non-AEs. However, given the facts and circumstances of the present case, we find merit in the contention advanced on behalf of the Assessee that suitable adjustment are required to be made to accommodate for difference in brokerage rates on account of difference in volume and research/marketing function……………….. “ (Emphasis Supplied) 7. The Assessee has not challenged the directions given by the Tribunal in paragraph 8.6 of the Order for granting suitable adjustments in while determining Arms Length Price of the international transaction under consideration by taking transactions between Assessee and Non-AE’s/Third Parties as comparable uncontrolled transactions to accommodate for difference in brokerage rate on account of difference in volume and research/marketing functions. Printed from counselvise.com M.A.274/Mum/2024 (Arising out of ITA No.8354/Mum/2011) Assessment Year: 2005-2006 7 8. The issue agitated in the present application were examined and deliberated upon before arriving at a conclusion. While disposing off Ground No. 5 the Tribunal had taken a view after taking into consideration the submissions advanced and material relied upon during the course of hearing; and the view so taken cannot be regarded as a mistake apparent on record. The power of the Tribunal under Section 254(2) of the Act can be exercised for correction of mistakes apparent from the record and does not extend to review of the earlier order. In case the contentions advanced on behalf of the Applicant/Assessee are accepted the same would lead to a review and/or substitution of the original order passed by the Tribunal which is not permissible in view of the limited scope of Section 254(2) of the Act. Thus, we do not find any merit in the contentions advanced on behalf of the Assessee. 9. In view of the above, we reject the contention of the Assessee that any mistake had crept into the Order passed by the Tribunal while disposing the Ground No.5 raised by the Assessee. 10. In result, the present Miscellaneous Application preferred by the Assessee is dismissed. Order pronounced on 12.08.2025. Sd/- Sd/- (Narendra Kumar Billaiya) Accountant Member (Rahul Chaudhary) Judicial Member मुंबई Mumbai; िदनांकDated :12.08.2025 Milan, LDC Printed from counselvise.com M.A.274/Mum/2024 (Arising out of ITA No.8354/Mum/2011) Assessment Year: 2005-2006 8 आदेशकीŮितिलिपअŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent. 3. आयकरआयुƅ/ The CIT 4. Ůधान आयकर आयुƅ/ Pr.CIT 5. िवभागीयŮितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 6. गाडŊफाईल / Guard file. आदेशानुसार/ BY ORDER, सȑािपतŮित //True Copy// उप/सहायकपंजीकार /(Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, मुंबई / ITAT, Mumbai Printed from counselvise.com "