J.P. MORGAN INDIA P. LTD, MUMBAI V. ADDL CIT RG 4(3), MUMBAI

ITA 8193/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93297 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 30-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DISPUTE RESOLUTION
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Bonafide belief; Retrospective amendment; Scheme of amalgamation; Commercial expediency
• Section: 143(3); 92B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH K MUMBAI. BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) J.P. MORGAN INDIA PVT. LTD. J.P. MORGAN TOWERS OFF CST ROAD, KALINA SANTACRUZ (EAST) MUMBAI 400 098. VS.` ADDITIONAL COMMISSIONER OF INCOME TAX-RANGE 4(3), MUMBAI, AAYKAR BHAVAN M.K. ROAD, MUMBAI 400 020. PAN/GIR NO. AABCH5865J APPELLANT RESPONDENT ORDER PER G.S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-4(3) M UMBAI, PASSED U/S 143(3) R.W.S 144C(13) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 23.09.2010 PERTAINING TO THE ASSESSMENT YEAR 2006-07, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL-1, MUMBAI (IN SHORT THE DRP) IN ORDER DATED 17.09.20 10. ASSESSEE BY SHRI P. PARDIWALA REVENUE BY SHRI. N. K. CHAND DATE OF HEARING 2 0 .04.2015 DATE OF PRONOUNCEMENT 22. 07.2015 2 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 2 OF 37 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED FOLLOWIN G GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED AO BASED ON DIRECTIONS OF DRP ERRED IN ASSESSING THE T OTAL INCOME AT RS 1,726,927,800 AS AGAINST INCOME OF RS 1,612,557,283 COMPUTED BY THE APPELLANT. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT OBJEC TS ON THE FOLLOWING GROUNDS: 2. IN DISALLOWING TRANSACTION CHARGES PAID TO NATIO NAL STOCK EXCHANGE (NSE)/ BOMBAY STOCK EXCHANGE (BSE) AMOUNTING TO RS 28,669, 998 AND LEASE LINE CHARGES AMOUNTING TO RS 433,130. 3. IN DISALLOWING LOSS ON ACCOUNT OF ERROR TRADES A MOUNTING TO RS 7,774,691. 4. IN DISALLOWING DEPRECIATION ON MOTOR CAR AMOUNTI NG TO RS 144,702. 5. IN DISALLOWING CLUB ENTRANCE FEES AND SUBSCRIPTI ON CHARGES OF RS 313,753. 6. IN DISALLOWING AN AMOUNT OF RS 742,851 OUT OF CL IENT ENTERTAINMENT EXPENSES. 7. IN REJECTING THE INTERNAL TRANSACTIONAL NET MARG IN METHOD (TNMM) AND ADOPTING THE COMPARABLE UNCONTROLLED PRICE (CUP) ME THOD FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) FOR PROVISION OF BROKING S ERVICES FOR FUTURES AND OPTIONS TRADES. 8. IN MAKING AN UPWARD ADJUSTMENT OF RS 43,088,000 WITH RESPECT TO THE PROVISION OF BROKING SERVICES FOR FUTURES AND OPTIO NS TRADES. 9. IN REJECTING THE INTERNAL TNMM METHOD AND ADOPTI NG THE CUP METHOD FOR DETERMINING THE ALP FOR PROVISION OF BROKING SERVIC ES FOR CASH EQUITY TRANSACTION. 10. IN MAKING AN UPWARD ADJUSTMENT OF RS 1,275,000 WITH RESPECT TO THE PROVISION OF BROKING SERVICES FOR CASH EQUITY TRANS ACTION. 11. IN COMPUTING THE ALP FOR THE TRANSACTION PERTAI NING TO MERCHANT BANKING SERVICES BY MAKING AN UPWARD ADJUSTMENT OF RS 31,06 1,627, IN ADDITION TO THE BOOK-TAX ADJUSTMENT AMOUNTING TO RS. 96,270,525 ALR EADY OFFERED TO TAX BY THE APPELLANT. WITHOUT PREJUDICE TO GROUND 11 ABOVE, IN SELECTIVEL Y USING THE DATA ONLY FOR FINANCIAL YEAR 2005-2006 FOR THE TRANSACTION PERTAI NING TO MERCHANT BANKING AND REJECTING THE DATA FOR FINANCIAL YEAR 2003-04 A ND 2004-05. 3 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 3 OF 37 13. IN REJECTING THE USE OF CONTEMPORANEOUS DATA FO R COMPUTING THE ALP FOR MERCHANT BANKING SERVICES AS ON THE DATE OF FILING OF RETURN OF INCOME IN ACCORDANCE WITH RULE 1 OD( 4). 14. WITHOUT PREJUDICE TO GROUND 11 TO 13 ABOVE, IN NOT TREATING KEYNOTE CORPORATE SERVICES AS NON COMPARABLE COMPANY FOR TH E FINANCIAL YEAR 2006-07, WHILE ARRIVING AT THE ALP FOR THE TRANSACTION PERTA INING TO MERCHANT BANKING SERVICES. 15. IN COMPUTING THE ARM'S LENGTH PRICE FOR THE TRA NSACTION PERTAINING TO MARKETING AND SALES SUPPORT SERVICES IN RELATION TO AMERICAN DEPOSITORY RECEIPTS (ADRS) AT RS 6,576,856 AND CONSEQUENTLY MAKING AN U PWARD ADJUSTMENT OF RS 866,768. 16. WITHOUT PREJUDICE TO GROUND 15 ABOVE, IN SELECT IVELY USING THE DATA ONLY FOR FINANCIAL YEAR 2005-06 FOR THE TRANSACTION PERTAINI NG TO MARKETING AND SALES SUPPORT SERVICES IN RELATION TO ADRS AND REJECTING THE DATA FOR FINANCIAL YEAR 2003-04 AND 2004-05. 17. IN REJECTING THE USE OF CONTEMPORANEOUS DATA FO R COMPUTING THE ALP FOR MARKETING AND SALES SUPPORT SERVICES IN RELATION TO ADRS AS ON THE DATE OF FILING OF RETURN OF INCOME IN ACCORDANCE WITH RULE 1 OD( 4). 18. WITHOUT PREJUDICE TO GROUND 7 TO 17 ABOVE, THE LEARNED AO ERRED IN COMPUTING THE ARM'S LENGTH PRICE BY NOT CONSIDERING THE +/- 5% VARIATION FROM THE ALP PERMITTED TO THE APPELLANT UNDER THE PROVIS IONS OF SECTION 92C(2) OF THE ACT. 3. THE APPELLANT IS A COMPANY INCORPORATED UNDER TH E PROVISIONS OF THE COMPANIES ACT, 1956 AND IS INTER ALIA ENGAGED IN THE BUSINESS OF MERCHANT BANKING, STOCK BROKING AND IN PROVIDING RE LATED FINANCIAL AND ADVISORY SERVICES. FOR THE ASSESSMENT YEAR UNDER CO NSIDERATION, IT FILED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS. 1, 612,557,283/- UNDER THE NORMAL PROVISIONS OF THE ACT AND THE BOOK PROF IT IN TERMS OF SECTION 115JB OF THE ACT WAS DETERMINED AT RS. 1,41,01,13,1 45/-. THE RETURN OF 4 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 4 OF 37 INCOME FILED BY THE ASSESSEE WAS SUBJECT TO SCRUTIN Y ASSESSMENT IN TERMS OF SECTION 143(3) R.W.S 144C(13) OF THE ACT, WHEREB Y THE TOTAL INCOME HAS BEEN DETERMINED AT RS. 1,72,69,27,800/- AS PER THE NORMAL PROVISIONS OF THE ACT. THE SAID ASSESSMENT HAS BEEN FINALIZED BY THE ASSESSING OFFICER IN CONFORMITY WITH THE DIRECTIONS OF DISPUTE RESOLUTIO N PANEL [HEREINAFTER REFERRED TO AS THE DRP] ISSUED U/S 144C(5) DATED 13.08.2010. THE VARIOUS GRIEVANCES OF THE ASSESSEE AGAINST SUCH ASS ESSMENT ARE MANIFESTED BY THE ABOVE STATED GROUNDS OF APPEAL WI TH WHICH WE SHALL DEAL IN SERIATIM. 4. INSOFAR AS THE GROUND OF APPEAL NO. 1 IS CONCERN ED, THE SAME IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION AND IS ACCORDINGLY DISMISSED. 5. IN GROUND OF APPEAL NO. 2, THE ISSUE RELATES TO DISALLOWANCE OF TRANSACTION CHARGES AND LEASE LINE CHARGES PAID TO NATIONAL STOCK EXCHANGE/BOMBAY STOCK EXCHANGE AMOUNTING TO RS. 28, 669,998/- AND RS. 4,33,130/- RESPECTIVELY. THE ASSESSING OFFICER HAS DISALLOWED THE SAID EXPENDITURE BY INVOKING SECTION 40(A)(IA) OF THE AC T ON THE GROUND THAT THE REQUISITE TAX REQUIRED TO BE DEDUCTED AT SOURCE WAS NOT DEDUCTED FROM THE PAYMENTS MADE. 5.1 BEFORE US, IT WAS A COMMON GROUND BETWEEN THE P ARTIES THAT THE PAYMENTS MADE BY THE ASSESSEE ON ACCOUNT OF TRANSAC TION CHARGES TO 5 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 5 OF 37 NSC/BSE ARE IN THE NATURE OF FEES FOR TECHNICAL SE RVICES WHICH IS SUBJECT TO THE WITHHOLDING TAX U/S 194J OF THE ACT FOLLOWIN G THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KO TAK SECURITIES LTD. IN INCOME TAX APPEAL NO. 3111 OF 2009 DATED 21.10.2011 . SO HOWEVER, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THA T SECTION 194J OF THE ACT WAS INSERTED W.E.F 1.7.1995 AND UPTO ASSESSMENT YEAR 2004-05 ASSESSEE AS WELL AS THE REVENUE PROCEEDED ON THE FO OTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTI ON CHARGES INASMUCH AS NO ACTION WAS TAKEN U/S 40(A)(IA) OF THE ACT TO DISALLOW THE IMPUGNED EXPENDITURE TILL ASSESSMENT YEAR 2004-05. IT IS FUR THER POINTED OUT THAT THE ASSESSEE HAS STARTED DEDUCTING THE REQUISITE TA X AT SOURCE U/S 194J OF THE ACT ON THE TRANSACTION CHARGES PAID TO THE STOC K EXCHANGES FROM JULY 2006 ONWARDS. THE LD. REPRESENTATIVE POINTED OUT T HAT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA), THE HONBLE HIGH COU RT HAS OBSERVED THAT SECTION 194J WAS INSERTED W.E.F 1.7.1995 AND TILL A SSESSMENT YEAR 2005-06 BOTH REVENUE AND ASSESSEE HAD PROCEEDED ON THE FOOT ING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTI ON CHARGES AND UNDER THESE CIRCUMSTANCES THE HONBLE HIGH COURT DID NOT FIND IT FIT TO UPHOLD THE ACTION TAKEN U/S 40(A)(IA) OF THE ACT IN RELATI ON TO THE ASSESSMENT YEAR 2005-06. AS PER THE HONBLE HIGH COURT, IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT ATTRACTED, THEN IN THE ASSESSMENT YEAR BEFORE IT I.E. ASSESSMENT YEAR 2006-06, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING TAX AT SOU RCE U/S 194J OF THE ACT 6 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 6 OF 37 AND CONSEQUENTLY IT ULTIMATELY DISAPPROVED THE ACTI ON TAKEN U/S 40(A)(IA) OF THE ACT. 5.2 THE LD. REPRESENTATIVE CONTENDED THAT SIMILAR A NALOGY BE DRAWN IN THE PRESENT CASE TOO, INASMUCH AS STARTING FROM 01. 07.1995 AND UPTO ASSESSMENT YEAR 2004-05 NEITHER THE ASSESSEE HAD DE DUCTED TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCO UNT OF THE STOCK EXCHANGE AND NOR THE REVENUE HAD RAISED ANY OBJECTI ON OR TAKEN ACTION U/S 40(A)(IA) OF THE ACT. INSOFAR AS ASSESSMENT YE AR 2005-06 WAS CONCERNED, DISALLOWANCE WAS MADE BUT THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE CIT(A). 5.3 WE HAVE CONSIDERED THE AFORESAID POINT RAISED B Y THE APPELLANT AND THE FOLLOWING DISCUSSION IN THE ORDER OF THE HONBL E HIGH COURT, WHICH IS RELEVANT:- 32) ACCORDINGLY, WE HOLD THAT THE TRANSACTION CHAR GES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE 'FEES FOR TECHNICAL S ERVICES' COVERED UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSE E WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO T HE ACCOUNT OF THE STOCK EXCHANGE. HOWEVER, SINCE BOTH THE REVENUE AND THE A SSESSEE WERE UNDER THE BONAFIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NO T DEDUCTIBLE AT SOURCE ON PAYMENT OF TRANSACTION CHARGES, NO FAULT CAN BE FOU ND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DISALLOWANCE MADE BY THE ASSESSING OFF ICER UNDER SECTION 40(A)(IA) OF THE ACT IN RESPECT OF THE TRANSACTION CHARGES CANNOT BE SUSTAINED. WE MAKE IT CLEAR THAT WE HAVE ARRIVED AT THE ABOVE CONCLUSION IN THE PECULIAR FACTS OF THE PRESENT CASE, WHERE BOTH THE REVENUE A ND THE ASSESSEE RIGHT FROM THE INSERTION OF SECTION 194J IN THE YEAR 1995 TILL 2005 PROCEEDED ON THE FOOTING THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT T AX A SOURCE AND IN FACT 7 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 7 OF 37 IMMEDIATELY AFTER THE ASSESSMENT YEAR IN QUESTION I .E. FROM AY 2006-07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CRE DITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE. 5.4 IN THE BACKGROUND OF AFORESAID PRONOUNCEMENT BY THE HONBLE HIGH COURT IN THE PRESENT CASE TOO, PECULIAR CIRCUMSTANC ES EXIST WHICH REQUIRE MITIGATION OF THE RIGORS OF THE APPLICATION OF SECT ION 40(A)(IA) OF THE ACT. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION W AS FILED BY THE ASSESSEE ON 29.11.2006 AND THE JUDGMENT OF HONBLE BOMBAY HI GH COURT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) WAS RENDERED ON 21 .10.2011. THEREFORE, AT THE RELEVANT POINT OF TIME, THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT WAS NOT AVAILABLE SO AS TO REQUIRE THE ASSESSEE TO DEDUCT TAX AT SOURCE. MOREOVER, IN THE PAST ASSESSMENT YEARS I.E UPTO ASS ESSMENT YEAR 2004-05, NEITHER ASSESSEE DEDUCTED TAX AT SOURCE ON TRANSACT ION CHARGES PAID TO STOCK EXCHANGE AND NOR REVENUE HAD RAISED ANY OBJECTION U /S 40(A)(IA) OF THE ACT; AND, THE ACTION TAKEN U/S 40(A)(IA) OF THE ACT IN A SSESSMENT YEAR 2005-06 BY THE ASSESSING OFFICER WAS ALSO SET ASIDE BY THE CIT (A). IN THE BACKGROUND OF AFORESAID PECULIAR CIRCUMSTANCES, WE ARE INCLINED T O UPHOLD THE PLEA OF ASSESSEE THAT NO FAULT CAN BE FOUND WITH THE ACTION OF ASSESSEE IN NOT DEDUCTING TAX AT SOURCE U/S 194J OF THE ACT IN THE INSTANT ASSESSMENT YEAR AND THUS THE INVOKING OF SECTION 40(A)(IA) OF THE A CT IS LIABLE TO BE SET ASIDE. IT IS ALSO UNDISPUTED THAT ASSESSEE HAS STARTED DED UCTING TAX AT SOURCE U/S 194J OF THE ACT ON THE TRANSACTION CHARGES PAID TO THE STOCK EXCHANGE FROM JULY 2006 ONWARDS. CONSIDERING THE AFORESAID PECULI AR FACTS, AND FOLLOWING THE PARITY OF REASONING LAID DOWN BY THE HONBLE BO MBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA), THE DISALLOW ANCE MADE BY INVOKING SECTION 40(A)(IA) OF THE ACT IS HEREBY DELETED. 8 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 8 OF 37 5.5 INSOFAR AS THE PAYMENT OF LEASE LINE CHARGES TO STOCK EXCHANGES IS CONCERNED, FOLLOWING THE JUDGMENT OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF ITO VS. ANGEL CAPITAL & DEBIT MARKET L TD IN INCOME TAX APPEAL NO. 475/2011 DATED 28.07.2011, IT HAS TO BE HELD TH AT SUCH PAYMENTS WERE MERELY REIMBURSEMENT OF THE CHARGES PAID/PAYAB LE TO THE STOCK EXCHANGE TO THE DEPARTMENT OF TELECOMMUNICATION (DO T) AND, THEREFORE, IT DOES NOT HAVE ANY ELEMENT OF INCOME WHICH WOULD REQUIRE DEDUCTION OF TAX AT SOURCE. IN VIEW OF THE AFORESAID, THE ACTION TAKEN BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT, IS IMPERMISSIBLE AND IS ACCORDINGLY SET ASIDE. THUS ON THIS ASPECT ASSESSEE SUCCEEDS. 6. BY WAY OF GROUND OF APPEAL NO. 3, THE GRIEVANCE OF THE ASSESSED IS WITH RESPECT TO THE DISALLOWANCE OF RS. 77,74,691/- REPRESENTING LOSS ON ACCOUNT OF ERROR TRADES . 6.1 IN THIS CONTEXT, ASSESSEE HAD CLAIMED BEFORE TH E LOWER AUTHORITIES THAT THE AFORESAID AMOUNT REPRESENTED LOSSES INCURR ED ON ACCOUNT OF EQUITY ERROR TRADES AND DERIVATIVE ERROR TRADES. IT WAS EXPLAINED THAT IN THE NORMAL COURSE OF BUSINESS, ASSESSEE EXECUTED TR ADES AS PER THE ORDERS PLACED BY ITS CLIENTS BUT SOMETIMES ERRORS CREPT IN TO THE EXECUTION, WHEREBY THE EXECUTED TRADE IS NOT AS PER THE CLIENT S REQUIREMENTS. FOR INSTANCE, IT HAS BEEN EXPLAINED THAT IF THE SALES P ERSON PLACES AN ORDER FOR A WRONG STOCK/WRONG QUANTITY OR MIS-COMMUNICATION O F DETAILS OF THE 9 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 9 OF 37 CLIENT, SUCH LOSS IS ABSORBED BY THE ASSESSEE. THI RDLY, IT WAS POINTED THAT THE PERSONNEL EMPLOYED TO CARRY OUT ACTUAL TRADING ON THE TERMINAL OF STOCK EXCHANGES COMMIT CERTAIN ERRORS, FOR INSTANC E, PLACING OF AN ORDER FOR A WRONG STOCK/WRONG QUANTITY ETC, SUCH LOSSES A RE ALSO BORNE BY THE ASSESEE. IN SUM AND SUBSTANCE, THE PLEA OF THE ASS ESSEE WAS THAT IN THE COURSE OF CARRYING OUT ACTIVITY ON BEHALF OF THE CL IENTS ON THE STOCK EXCHANGES, LOSSES SUFFERED BECAUSE OF ERRORS ARE BO RNE BY THE ASSESSEE AND SUCH LOSSES AMOUNTING TO RS. 77,74,691/- HAD BE EN CLAIMED AS DEDUCTION. 6.2 WE FIND THAT THE ASSESSING OFFICER HAS DISALLOW ED THE CLAIM PRIMARILY ON THE GROUND THAT ASSESSEE HAS NOT FURNI SHED EVIDENCE TO SHOW ANY NEXUS BETWEEN BUSINESS TRANSACTIONS IN NORMAL C OURSE AND THE IMPUGNED LOSS CLAIMED ON ACCOUNT OF ERRORS. 6.3 BEFORE US THE LD. REPRESENTATIVE FOR THE ASSESS EE HAS VEHEMENTLY POINTED OUT THAT COMPLETE DETAILS OF THE LOSSES WER E FURNISHED AND IN THIS CONTEXT HE HAS REFERRED TO THE DETAILS OF SUCH LOSS PLACED AT PAGES 37 TO 77 OF THE PAPER BOOK. ON THE BASIS OF SUCH DETAILS, IT IS SOUGHT TO BE EXPLAINED THAT THE TYPE OF ERROR, THE SCRIP INVOLVED, QUANTIT Y OF SCRIPS INVOLVED AND THE LOSS SUFFERED THEREOF HAVE BEEN ITEMIZED. FURTH ER, IT HAS BEEN POINTED OUT THAT ASSESSEE HAS ALSO DETAILED THE RESPECTIVE CLIENTS AS ALSO THE EMPLOYEE RESPONSIBLE FOR COMMITTING SUCH ERROR. APA RT FROM THE AFORESAID, THE LD. REPRESENTATIVE POINTED OUT THAT THE RATIO OF THE 10 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 10 OF 37 JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA V. CIT [1958] 34 ITR 10 IS CLEARLY APPLICABLE INASMUCH AS THE IMPUGNED LOS S HAS TAKEN PLACE IN THE COURSE OF CARRYING ON OF THE BUS INESS. RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S HSBC SECURITIES AND CAPITAL MARKETS (INDIA) PVT . LTD VS ADDL. CIT IN ITA NO. 6979/MUM/2008 DATED 29.06.2012, WHEREIN, LOSS SUFFERED ON ACCOUNT OF ERROR IN TRADES EXECUTED ON BEHALF OF THE CLIENTS HAS BEEN ACCEPTED AS A BUSINESS LOSS. FOR THE SAID PROP OSITION RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF D.S. PURBHOODAS & CO. VS. DCIT IN ITA NO. 138/MUM/2 000 DATED 23.07.2009. 6.4 ON THE OTHER HAND, THE LD. DR APPEARING FOR TH E REVENUE HAS REJECTED THE OBJECTIONS TAKEN BY THE ASSESSING OFFI CER IN DENYING THE AFORESAID LOSS AS PER THE DISCUSSION CONTAINED IN P ARA 6(II) OF THE ASSESSMENT ORDER. 6.5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. FACTUALLY SPEAKING THERE IS NO ASSERTION BY THE ASSESSING OFF ICER THAT THE IMPUGNED LOSS CLAIMED BY THE ASSESSEE IS INCURRED IN THE COU RSE OF AN ACTIVITY NOT CONNECTED TO BUSINESS. IN FACT, THE ASSESSING OFFIC ER ACKNOWLEDGES THE FURNISHING OF REQUISITE DETAILS BY THE ASSESSEE WHE REIN DETAILS OF DATE OF ERROR, SCRIP, NATURE, PERSON RESPONSIBLE, COUNTER P ARTY, ETC HAS BEEN FURNISHED. THEREFORE, INSOFAR AS THE NATURE OF LOSS AND INCURRENCE OF THE 11 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 11 OF 37 SAME IN THE NORMAL COURSE OF THE CARRYING ON BUSINE SS ACTIVITY OF THE ASSESSEE IS CONCERNED, THE SAME IS NOT DISPUTED. T HE HONBLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA (SUPRA) HAS LAID DOWN THAT ONCE IT IS ESTABLISHED THAT THE LOSS FOR WHICH THE DEDUCTION I S CLAIMED SPRINGS DIRECTLY FROM CARRYING ON OF THE BUSINESS AND IS IN CIDENTAL TO IT, THEN THE DEDUCTION FOR THE SAME OUGHT TO BE ALLOWED. IN THE PRESENT CASE, IT IS EVIDENT THAT ASSESSEE IS, INTER-ALIA ENGAGED IN THE BUSINESS OF BROKING AND, THEREFORE, SUCH LOSSES SUFFERED IN THE COURSE OF CA RRYING ON SUCH BUSINESS CANNOT BE DENIED. COMING TO THE SPECIFIC OBJECTION OF THE ASSESSING OFFICER TO THE EFFECT THAT ASSESSEE HAS NOT SHOWN DIRECT NE XUS BETWEEN BUSINESS TRANSACTION AND THE LOSS CLAIMED, THE SAME IN OUR V IEW IS UNSUSTAINABLE HAVING REGARD TO THE MATERIAL WHICH WAS AVAILABLE T O THE ASSESSING OFFICER FOR VERIFICATION. THE RELEVANT DETAILS HAVE BEEN PL ACED IN THE PAPER BOOK AT PAGES 37 TO 77; AND, HAVING PERUSED THE SAME, WE FIND THAT THE REQUISITE INFORMATION WAS AVAILABLE FOR THE ASSESSING OFFICER TO CARRY OUT ANY VERIFICATION EXERCISE THAT HE MAY HAVE DEEMED FIT. SO HOWEVER, INSTEAD OF CARRYING OUT ANY VERIFICATION EXERCISE, THE DETAILS SOUGHT TO BE FURNISHED BY THE ASSESSEE HAVE BEEN MERELY DISBELIEVED AND BR USHED-ASIDE. THE SAID APPROACH IN OUR VIEW IS QUITE UNTENABLE, AND C ANNOT BE SUSTAINED. 6.6 THEREFORE, CONSIDERING THE ENTIRETY OF FACTS AN D CIRCUMSTANCES, IN OUR VIEW, THE IMPUGNED LOSS SUFFERED BY THE ASSESSE E ON ACCOUNT OF CLIENT ERRORS, DEALING ERRORS OR SALE ERRORS IS INCURRED I N THE ORDINARY COURSE OF ITS BUSINESS AND BEING INCIDENTAL TO ITS BUSINESS A CTIVITY, , DESERVES TO BE 12 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 12 OF 37 ALLOWED AS A BUSINESS LOSS. THUS INSOFAR AS GROUND OF APPEAL NO. 3 IS CONCERNED, ASSESSEE SUCCEEDS. 7. BY WAY OF GROUND OF APPEAL NO. 4, THE GRIEVANCE OF ASSESSEE IS AGAINST THE DENIAL OF DEPRECIATION ON MOTOR CAR AMO UNTING TO RS. 1,44,702/- ON THE GROUND THAT THE MOTOR VEHICLE WAS NOT REGISTERED IN THE NAME OF ASSESSEE COMPANY. BEFORE THE ASSESSING OFFI CER IT WAS EXPLAINED THAT THE MOTOR VEHICLE WAS PURCHASED AND WAS PROVID ED FOR USE OF ONE OF ITS EMPLOYEE AND, THUS, THE SAME WAS USED FOR ITS B USINESS PURPOSES. THE MOTOR VEHICLE WAS NOT REGISTERED IN THE NAME OF THE ASSESSEE BUT IN THE NAME OF J.P. MORGAN WEST BANK, A GROUP CONCERN. ASS ESSEE CONTENDED THAT SINCE THE MOTOR VEHICLE WAS USED BY THE ASSESSEE FO R ITS BUSINESS, THOUGH REGISTERED IN THE NAME OF A GROUP CONCERN, DEPRECIA TION WAS ALLOWABLE ON THE SAME IN THE HANDS OF ASSESSEE. IN THE ABSENCE OF THE REGISTRATION OF THE VEHICLE IN THE NAME OF ASSESSEE COMPANY, THE DE PRECIATION CLAIMED OF RS. 1,44,702/- WAS DISALLOWED BY THE ASSESSING OFFI CER. 7.1 BEFORE US, THE LD. REPRESENTATIVE POINTED OUT T HAT NOT ONLY THE POSSESSION OF VEHICLE WAS WITH THE ASSESSEE BUT IT WAS ALSO BEING USED FOR ITS BUSINESS PURPOSES; AND THE FULL PRICE WAS ALSO PAID BY THE ASSESSEE ITSELF. AT THE TIME OF HEARING, RELIANCE WAS PLAC ED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DILIP SINGH SARADARSINGH BAGGA. 201 ITR 995 IN SUPPORT OF CLAIM OF DEPRECIATION. 13 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 13 OF 37 7.2 THE LD. DR APPEARING FOR THE REVENUE HAS DEFEND ED THE ACTION OF ASSESSING OFFICER FOR THE REASON THAT THE OWNERSHIP OF MOTOR VEHICLE COULD NOT BE ESTABLISHED IN THE ABSENCE OF ITS REGISTRA TION IN THE NAME OF ASSESSEE COMPANY. 7.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. QUITE CLEARLY, THE FACTS EMERGING FROM THE ORDER OF THE ASSESSING OFFICER ESTABLISH THAT THE SAID MOTOR CAR WAS ACQUIRED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR THOUGH IT HAS BEEN REGISTERED IN THE NAME OF ANOTHER GROUP CONCERN UNDER THE MOTOR VEHICLES ACT, 1988. T HERE IS NO DENYING THE FACT THAT THE ASSESSEE HAS PAID FULL PRICE FOR ACQUIRING THE MOTOR VEHICLE AND IT HAS BEEN USING THE SAME FOR ITS BUSI NESS. IN THE YEAR UNDER CONSIDERATION, ASSESSEE HAS CLAIMED DEPRECIATION O N WRITTEN DOWN VALUE (WDV) OF MOTOR VEHICLE AND THE SAME, IN OUR VIEW, C ANNOT BE DENIED FOLLOWING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DILIP SINGH SARADARSINGH BAGGA (SUPRA). IN VIEW OF THE JU DGMENT OF HONBLE BOMBAY HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION TO THE ASSESSEE ON THE WDV OF THE MOTOR VEHICLE IN QUESTION. THUS ON THIS ASPECT ASSESSEE SUCCEEDS. 8. BY WAY OF GROUND OF APPEAL NO. 5, THE GRIEVANCE OF ASSESSEE IS WITH REGARD TO A DISALLOWANCE OF RS. 3,13,753/- REPRESEN TING CLUB ENTRY FEES AND SUBSCRIPTION CHARGES. IN THIS CONTEXT, IT IS NO TICED THAT ASSESSEE HAS CLAIMED ENTRANCE FEE AND SUBSCRIPTION CHARGES OF RS . 3,92,191/- AS 14 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 14 OF 37 EXPENDITURE IN PROFIT & LOSS ACCOUNT. IN RESPECT O F AFORESAID CLUB EXPENSES, THE EXPLANATION OF ASSESSEE WAS THAT SUCH FACILITY WAS PROVIDED TO ITS EMPLOYEES TO FIND SUITABLE AVENUES TO FURTH ER THE BUSINESS OF ASSESSEE COMPANY. THE ASSESSING OFFICER FOLLOWING T HE DIRECTIONS OF DRP CONSIDERED 20% OF THE SAID EXPENDITURE AS RELATED T O BUSINESS AND BALANCE OF RS. 3,13,753/- HAS BEEN DISALLOWED. 8.1 IN THIS CONTEXT IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 , THE TRIBUNAL VIDE ITS ORDER IN ITA NO. 618/MUM/2008 DATED 12.02.2014 HAS ALLOWED THE CLAIM OF ASSESSEE FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. UNITED GLASS MANUFACTURING CO. LTD . DATED 12.09.2012. FOLLOWING THE PRECEDENT, THE ASSESSING OFFICER IS D IRECTED TO DELETE THE IMPUGNED ADDITION OF RS. 3,13,753/- OUT OF CLUB FEE S AND SUBSCRIPTION CHARGES. THUS ON THIS ASPECT ASSESSEE SUCCEEDS. 8.2 BY WAY OF GROUND OF APPEAL NO. 6, THE ASSESSEE HAS ASSAILED THE ACTION OF ASSESSING OFFICER IN DISALLOWING 7,42,851 /- OUT OF CLIENT ENTERTAINMENT EXPENSES. THE ASSESSEE WAS FOUND TO H AVE INCURRED AN EXPENDITURE OF RS. 14,85,703/- AS CLIENT ENTERTAINM ENT EXPENSES AND THE ASSESSING OFFICER DISALLOWED 50% OF THE SAME I.E. 7 ,42,851/- ON THE GROUND THAT THERE WAS NO CONCRETE MATERIAL TO ESTAB LISH THE AUTHENTICITY AND COMMERCIAL EXPEDIENCY OF SUCH EXPENSES. AGAINST THE AFORESAID, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THA T COMPLETE DETAILS OF 15 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 15 OF 37 EXPENDITURE WERE FURNISHED, COPIES OF WHICH HAVE BE EN PLACED IN THE PAPER BOOK AT PAGES 200 TO 209. IT WAS ALSO POINTED OUT THAT FRINGE BENEFIT TAX (FBT) ON SUCH EXPENDITURE WAS ALSO PAID AND THAT SIMILAR EXPENDITURE WAS DISALLOWED IN ASSESSMENT YEAR 2003- 04, WHICH WAS ALLOWED BY THE CIT(A). THE LD. REPRESENTATIVE STATE D AT BAR THAT THE AFORESAID DECISION OF CIT(A) WAS NOT CONTESTED BY T HE DEPARTMENT IN THE APPEAL BEFORE THE TRIBUNAL AND, THEREFORE, THERE WA S NO JUSTIFICATION FOR THE ASSESSING OFFICER TO HAVE MADE SUCH AD HOC DISALLOWANCE. 8.3 WE HAVE CONSIDERED THE OBJECTIONS PUT FORTH BY THE ASSESSEE AND FIND THAT THE DISALLOWANCE MADE BY THE ASSESSING OF FICER IS BASED ON PURE CONJECTURES AND SURMISES. APART FROM MAKING A VERY GENERALIZED OBSERVATION, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY PARTICULAR INSTANCE WHICH COULD DEMONSTRATE THAT THE EXPENDITU RE WAS INCURRED FOR ANY NON BUSINESS PURPOSE. IT IS ALSO NOT THE CASE OF REVENUE THAT THE EXPLANATION FURNISHED BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS WAS LACKING IN ANY MANNER. THEREFORE, W E DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 7,4 2,851/-. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT ALSO. 9. IN RESPECT OF GROUND OF APPEAL NOS. 7 TO 18, THE ISSUES RELATE TO THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS. NOTABLY, THE ASSESSEE HAD ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITHIN THE MEANING OF SECTION 92B OF T HE ACT WITH ITS 16 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 16 OF 37 ASSOCIATED ENTERPRISES; AND, INCOME ARISING THEREFR OM WAS REQUIRED TO BE COMPUTED HAVING REGARD TO THEIR ARMS LENGTH PRICE AS MANDATED BY SECTION 92(1) OF THE ACT. 10. INSOFAR AS IT IS RELEVANT FOR THE PRESENT CONTR OVERSY IT WOULD SUFFICE TO NOTE THAT ASSESSEE HAD, INTER-ALIA, CARRIED OUT INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES IN THE FIELD OF INV ESTMENT BANKING SERVICES, MARKETING AND SALES SUPPORT SERVICES, BROKERAGE SE RVICES FOR FUTURES & OPTIONS; AND, BROKING SERVICES FOR CASH EQUITY TRAN SACTIONS. IT IS ONLY IN RELATION TO THE AFORESAID THREE CATEGORY OF INTERNA TIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS ASSOCIATED ENTERP RISES THAT THE STATED VALUES HAVE BEEN ADJUSTED BY THE REVENUE SO AS TO B RING IT TO THE LEVEL OF THEIR ARMS LENGTH PRICE. NOTABLY, THE ADJUSTMENTS TO THE STATED VALUE OF TRANSACTIONS WERE DETERMINED BY THE ASSESSING OFFIC ER IN CONFORMITY WITH THE ORDER PASSED BY THE TRANSFER PRICING OFFICER (I N SHORT THE TPO) ON A REFERENCE U/S 92CA(3) OF THE ACT DATED 30.10.2009 R EAD WITH THE DIRECTIONS OF DRP U/S 144C(5) OF THE ACT DATED 17.0 9.2010. IN RESPECT OF THE INTERNATIONAL TRANSACTION OF PROVISION OF BROKI NG SERVICES FOR FUTURES & OPTIONS TRADE IS CONCERNED, AN ADDITION OF RS. 4, 30,88,000/- HAS BEEN MADE WHICH IS CONTESTED BY THE ASSESSEE BY WAY OF G ROUND OF APPEAL NOS. 7 AND 8. THE ADDITION MADE IN RESPECT OF INTERNATIO NAL TRANSACTION OF PROVISION OF BROKING FOR CASH EQUITY TRANSACTIONS A MOUNT TO RS. 12,75,000/-, WHICH IS CONTESTED BY THE ASSESSEE BY WAY OF GROUND OF APPEAL NOS. 9 & 10. IN RELATION TO THE INTERNATIONA L TRANSACTION OF 17 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 17 OF 37 INVESTMENT BANKING SERVICES, AN ADJUSTMENT OF RS. 3 ,10,61,627/- HAS BEEN MADE WHICH IS CONTESTED BY THE ASSESSEE BY WAY OF G ROUND OF APPEAL NOS. 11 TO 14. IN RELATION TO THE INTERNATIONAL TRANSACT IONS OF MARKETING AND SALE SUPPORT SERVICES, AN ADDITION OF RS. 8,66,768/ - HAS BEEN MADE WHICH IS CONTESTED BY THE ASSESSEE BY WAY OF GROUND OF AP PEAL NOS. 15 TO 17. 11. FIRST, WE MAY TAKE UP THE SEGMENT OF INTERNATIO NAL TRANSACTIONS ENTERED BY THE ASSESSEE ON ACCOUNT OF PROVISION OF BROKING SERVICES FOR FUTURES & OPTIONS TRADES AND FOR CASH EQUITY TRANSA CTIONS. NOTABLY, ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MERC HANT BANKING, STOCK BROKING AND IN PROVIDING FINANCIAL AND ADVISORY REL ATED SERVICES TO ITS ASSOCIATED ENTERPRISE AS WELL AS NON RELATED PARTIE S. WHILE BENCH-MARKING ITS INTERNATIONAL TRANSACTIONS IN THE SEGMENT OF PR OVISION OF BROKING SERVICES FOR FUTURES & OPTIONS TRADES AS WELL AS F OR CASH EQUITY TRANSACTIONS, ASSESSEE IN ITS TRANSFER PRICING STUD Y HAS ADOPTED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD, WHEREIN THE OPERATING MARGIN OVER OPERATING COST WAS USED AS PROFIT LEVEL INDICATOR (PLI). THE TPO DIFFERED WITH THE ASSESSEE ON ADOPTION OF TNM METHOD AS THE MOST APPROPRIATE METH OD INASMUCH AS ACCORDING TO THE TPO THE INTERNAL COMPARABLE UNCONT ROLLED PRICE (CUP) METHOD WAS THE MOST APPROPRIATE METHOD IN THE PRESE NT CASE. THE TPO JUSTIFIED THE ADOPTION OF INTERNAL CUP METHOD BY NO TICING THAT ASSESSEE HAD CARRIED OUT TRANSACTIONS WITH RELATED AS WELL A S NON RELATED PARTIES AND, THEREFORE, THE COMMISSION CHARGED BY THE ASSES SEE FROM UNRELATED 18 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 18 OF 37 PARTIES FOR THE BROKING SERVICES PROVIDED TO THEM C OULD BE FUNCTIONALLY COMPARED WITH SIMILAR SERVICES PROVIDED TO THE ASSO CIATED ENTERPRISES; IN OTHER WORDS AS PER THE TPO THERE EXISTED A VALID IN TERNAL CUP DATA AND THUS HE ADOPTED THE CUP METHOD. AT THE TIME OF HEAR ING, IT WAS POINTED OUT THAT IN THE ASSESSMENT YEAR 2002-03 (SUPRA), SI MILAR ASPECT WAS CONSIDERED BY THE TRIBUNAL AND BECAUSE OF AVAILABIL ITY OF THE INTERNAL CUP DATA , THE ACTION OF THE TPO IN REJECTING THE TNM M ETHOD AND ADOPTING THE CUP METHOD HAS BEEN AFFIRMED. WE HAVE PERUSED THE S AID DECISION OF THE TRIBUNAL DATED 12.02.2014 (SUPRA) AND FIND THAT THE ISSUE BEFORE THE TRIBUNAL RELATED TO BROKERAGE TRANSACTIONS RENDERE D BY THE ASSESSEE IN RESPECT OF DELIVERY PAYMENT TRADES AND CLEARING HOU SE TRADE UNDERTAKEN BY IT FOR RELATED PARTIES AS WELL AS UNRELATED PART IES. IN VIEW OF THE AFORESAID PRECEDENT, IN OUR CONSIDERED OPINION THE SELECTION OF THE INTERNAL CUP METHOD AS THE MOST APPROPRIATE METHOD EVEN IN THE CURRENT ASSESSMENT YEAR OF 2006-07 DESERVES TO BE UPHELD. T HEREFORE, IN PRINCIPLE INSOFAR AS THE APPLICATION OF CUP METHOD FOR THE PU RPOSES OF BENCH- MARKING ASSESSEES INTERNATIONAL TRANSACTION ENTERE D WITH ITS ASSOCIATED ENTERPRISES ON ACCOUNT OF PROVISION OF BROKING SERV ICES FOR FUTURES & OPTIONS TRADE AS WELL AS CASH EQUITY TRANSACTION TR ADE IS CONCERNED, THE SAME IS UPHELD. 11.1 BEFORE US, IN THE CONTEXT OF ADJUSTMENT OF RS. 4,30,88,000/- WITH RESPECT TO INTERNATIONAL TRANSACTION OF PROVISION O F BROKING SERVICES FOR FUTURES & OPTIONS TRADE IS CONCERNED, THE LD. REPRE SENTATIVE FOR THE 19 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 19 OF 37 ASSESSEE HAS RAISED A SOLITARY POINT WHICH RELATED TO THE MANNER IN WHICH THE TPO HAS ALLOWED THE ADJUSTMENT TO THE INTERNAL CUP DATA OF COMMISSION CHARGED FROM UNRELATED PARTIES ON ACCOUN T OF ADDITIONAL INTEREST EARNED ON THE VOLUMES OF BUSINESS WITH THE RELATED PARTIES. IN ORDER TO APPRECIATE THE GRIEVANCE OF ASSESSEE BRIEF BACKGROUND CAN BE UNDERSTOOD AS FOLLOWS. AS PER THE APPELLANT, ONCE THE COMMISSION CHARGED BY ASSESSEE FROM UNRELATED PARTIES IS COMP ARED WITH THE PERCENTAGE OF COMMISSION CHARGED FROM THE ASSOCIATE D ENTERPRISE, SUITABLE ADJUSTMENTS BE ALLOWED FOR THE DIFFERENCE BETWEEN THE FUNCTIONS PERFORMED AND RISK ASSUMED IN RESPECT OF BROKING SE RVICES RELATED PARTIES VIS--VIS UNRELATED PARTIES. THE TPO ACCEPTED THE SAID POSIT ION CANVASSED BY THE ASSESSEE AND ACCORDING TO HIM TO ACCOUNT FOR SUCH DIFFERENCES, THE ADDITIONAL COSTS INCURRED IN TRANSACTIONS WITH UNRE LATED PARTIES VIS--VIS RELATED PARTIES WOULD NEED TO BE REDUCED FROM THE B ROKERAGE CHARGED TO UNRELATED PARTIES TO ARRIVE AT THE ADJUSTED COMPARA BLE BROKERAGE RATE I.E. INTERNAL CUP DATA. ONE OF THE ELEMENTS IDENTIFIED B Y THE TPO IN THIS REGARD WAS THE INTEREST EARNED ON ACCOUNT OF HIGH V OLUME TRADES OF RELATED PARTIES. IN TERMS OF CALCULATION PLACED IN PARA 25.7 OF THE ORDER OF THE TPO, IT WAS NOTED THAT INTEREST EARNED VIS-A-VIS VOLUMES OF TRADE IN RELATED PARTIES AND UNRELATED PARTIES AS A PERCENTA GE OF RESPECTIVE TURNOVERS WAS 0.0348% AND 0.0212%; AND, AS A CONSEQ UENCE ADDITIONAL INTEREST EARNED IN THE VOLUME OF RELATED PARTY TRAD E WAS COMPUTED AT 0.0136% I.E. 0.0348% MINUS 0.0212%. THE BRIEF POINT MADE OUT BY THE ASSESSEE IS THAT ADJUSTMENT FOR ADDITIONAL INTEREST EARNED ON ACCOUNT OF 20 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 20 OF 37 HIGH VOLUME TRADES OF RELATED PARTIES CANNOT BE COM PUTED AS A PERCENTAGE OF TURNOVER SINCE INTEREST EARNED HAS NO CONNECTION WITH THE TURNOVER. AS PER THE APPELLANT, THE INTEREST EARNED IN THE RELAT ED AND UNRELATED TRADES IS BASED ON THE LEVEL OF MARGIN MONIES PLACED BY T HE RELATED PARTIES AND UNRELATED PARTIES. IN THIS CONTEXT, THE LD. REPRESE NTATIVE FOR THE ASSESSEE HAS PLACED THE FOLLOWING WORKING OF THE INTEREST EA RNED ON MARGIN MONIES PLACED BY THE ASSOCIATED ENTERPRISES AS COMPARED TO THE UNRELATED PARTIES:- PARTCULARS TOTAL INTEREST EARNED BY ASSESSEE BASED ON MARGIN MONIES PLACED BY ASSOCIATED ENTERPRISES 1,86,323 INTEREST EARNED BY ASSESSEE BASED ON MARGIN MONIES PLACED BY NON - RELATED PARTIES 64,081 ADDITIONAL INTEREST EARNED BY ASSESSEE BASED ON MAR GIN MONIES PLACED BY ASSOCIATED ENTERPRISES AS COMPARED TO NON- RELATED PARTIES 1,22,242 11.2 ON THIS POINT, THE LD. DR HAS OPPOSED THE PLEA OF ASSESSEE BY POINTING OUT THAT IN THE ASSESSMENT YEAR 2002-03 AL SO, THE ASSESSING OFFICER HAD RECOGNIZED THE DIFFERENCE IN ACTIVITIES IN THE SERVICES RENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES VIS--VIS THE SERVICES RELATED TO UNRELATED PARTIES AND APPROPRIATE ADJUSTMENT WAS ALLOWED. THE ADDITIONAL COST THAT WAS FOUND TO HAVE BEEN INCURRE D IN RELATION TO SERVICES RENDERED TO THE UNRELATED PARTIES WAS ADJU STED AND, THEREAFTER, THE COMMISSION EARNED FROM UNRELATED PARTIES WAS CO MPARED WITH THE COMMISSION EARNED FROM THE ASSOCIATED ENTERPRISES. BY REFERRING TO THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2002-0 3 VIDE ORDER DATED 21 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 21 OF 37 12.02.2014, (SUPRA) THE LD. DR SUBMITTED THAT ASSES SEE DID NOT OPPOSE THE CALCULATION OF SAID ADJUSTMENT FOR DIFFERENCES. TH EREFORE, ACCORDING TO HIM, THE PLEA OF ASSESSEE FOR RE-WORKING THE ADJUST MENT ON ACCOUNT OF INTEREST EARNED BY A METHODOLOGY DIFFERENT THAN THA T USED BY THE ASSESSING OFFICER SHOULD NOT BE ALLOWED. 11.3 IN REPLY, THE LD. REPRESENTATIVE POINTED OUT T HAT IN THE ASSESSMENT YEAR 2002-03, ASSESSEE HAD NOT RENDERED ANY BROKING SERVICES IN RELATION TO THE SEGMENT OF FUTURES & OPTIONS TRADE TO ASSOCI ATED ENTERPRISES AND THEREFORE, THERE WAS NO OCCASION FOR THE ASSESSEE T O RAISE THE AFORESAID ISSUE. IN THE PRESENT YEAR, THE ADJUSTMENT THAT IS SOUGHT BY THE ASSESSEE IS ON ACCOUNT OF THE INTEREST EARNED ON HIGH VOLUME TR ADES IN ASSOCIATED ENTERPRISES SEGMENT WHICH IS BASED ON MARGIN MONIES PLACED BY THE ASSOCIATED ENTERPRISES VIS--VIS THE MARGIN MONIES PLACED BY THE UNRELATED PARTIES IN THE FUTURES & OPTIONS TRADE SEGMENT. 11.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. FACTUALLY SPEAKING WE ARE IN AGREEMENT WITH THE STAND OF ASSE SSEE THAT SO FAR AS THE SEGMENT RELATING TO THE PROVISION OF BROKING SERVIC ES FOR FUTURES & OPTIONS TRADE IS CONCERNED, THE SAME WAS ABSENT IN ASSESSMENT YEAR 2002-03, THOUGH ASSESSEE HAD RENDERED BROKING SERVI CES TO ITS ASSOCIATED ENTERPRISES IN OTHER SEGMENT, AND THE COMMISSION CH ARGED FROM UNRELATED PARTIES HAS BEEN USED AS AN INTERNAL CUP DATA. THE MATERIAL ON RECORD ALSO DOES NOT SUGGEST THAT IN ASSESSMENT YEAR 2002-03(SU PRA), THE INTERNAL 22 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 22 OF 37 CUP DATA WAS ADJUSTED FOR THE DIFFERENCE IN THE LEV EL OF INTEREST EARNED ON ACCOUNT OF RESPECTIVE VOLUMES OF TRADES OF ASSOCIAT ED ENTERPRISES AND THE UNRELATED PARTIES. IN THIS YEAR THE TPO HAS HIMSELF ACCEPTED SUCH A DIFFERENCE AND ALLOWED CERTAIN ADJUSTMENT. THEREFOR E, THE ISSUE RAISED BY THE ASSESSEE IS NOT GOVERNED BY THE EARLIER PRECEDE NT. 11.5 INSOFAR AS, THE MERITS OF THE CLAIM IS CONCERN ED, IT IS ABUNDANTLY CLEAR THAT THE METHODOLOGY PROPOSED BY THE ASSESSEE IS MO RE APPROPRIATE THAN THE MANNER IN WHICH THE ADJUSTMENT FOR THE DIFFEREN CE ON ACCOUNT OF INTEREST EARNED IN THE RESPECTIVE SEGMENTS OF RELAT ED AND UNRELATED PARTIES HAS BEEN ALLOWED BY THE TPO. THEREFORE, WE DEEM IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO VERIFY THE WORKI NG OF ADDITIONAL INTEREST EARNED ON ACCOUNT OF HIGH VOLUME OF TRADES FOR RELA TED PARTY TRADES AND, THEREAFTER, HE SHALL FACTOR-IN SUCH DIFFERENCE IN T HE INTERNAL CUP DATA FOR THE PURPOSES OF BENCH-MARKING THE INTERNATIONAL TRA NSACTION OF PROVISION OF BROKING SERVICES FOR FUTURES & OPTIONS TRADES. N EEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE AN APPRO PRIATE OPPORTUNITY OF BEING HEARD BEFORE RE-WORKING THE ARMS LENGTH PRIC E OF THE INTERNATIONAL TRANSACTION OF PROVISION OF BROKING SERVICES OF FUT URES & OPTIONS TRADES FOR THE AFORESAID LIMITED EXTENT. IN THE RESULT INSOFAR AS THE GROUND OF APPEAL NO. 7 IS CONCERNED, THE ASSESSEE FAILS THERE IN AND INSOFAR AS GROUND OF APPEAL NO. 8 IS CONCERNED, THE SAME IS AL LOWED FOR STATISTICAL PURPOSES. 23 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 23 OF 37 11.6 SIMILARLY WITH REGARD TO INTERNATIONAL TRANSA CTIONS ON ACCOUNT OF BROKING SERVICES FOR CASH EQUITY TRANSACTIONS IS CONCERNED, THE GROUND OF APPEAL NO. 9 IS DISMISSED IN VIEW OF THE PRECEDENT IN ASSESSEES OWN CASE DATED 12.02.2014 (SUPRA). IN GR OUND OF APPEAL NO. 10, NO SPECIFIC ARGUMENT HAS BEEN MADE AND, THE REFORE, THE SAME IS ALSO DISMISSED. 12. NOW WE MAY TAKE UP GROUNDS OF APPEAL NOS. 11 TO 14 WHICH RELATE TO DETERMINATION OF ARMS LENGTH PRICE OF INTERNATI ONAL TRANSACTIONS PERTAINING TO MERCHANT BANKING SERVICES RENDERED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. ASSESSEE RENDERS THE INVEST MENT BANKING SERVICES TO ITS ASSOCIATED ENTERPRISES AND SUCH TRANSACTIONS WERE BENCH-MARKED BY USING TNM METHOD, WHEREIN, THE PROFIT LEVEL INDICAT OR USED WAS OPERATING PROFITS OVER OPERATING COSTS. IN THE TRANSFER PRICI NG STUDY, ASSESSEE COMPUTED THE ARITHMETIC MEAN OF THE MARGINS EARNED BY COMPARABLE COMPANIES AT 18.91% AND AFTER COMPARING IT WITH ASS ESSEES MARGIN OF (-)39%, ASSESSEE MADE A BOOK TAX-ADJUSTMENT OF RS. 9,62,70,525/-. THE TPO CONSIDERED THE SAME SET OF COMPARABLES SELECTED BY THE ASSESSEE, BUT HE CONSIDERED THE FINANCIAL DATA OF SUCH COMPARABLE CONCERNS FOR THE FINANCIAL YEAR UNDER CONSIDERATION ALONE AS AGAINST THE MULTIPLE YEARS FINANCIAL DATA CONSIDERED BY THE ASSESSEE. ACCORDIN GLY, THE TPO CONSIDERED THE FOLLOWING SIX COMPARABLES AS THE FIN AL SET OF COMPARABLES AND COMPUTED THE ARITHMETIC MEAN OF THE OPERATING M ARGIN OF 48.06%:- 24 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 24 OF 37 SL. NO. NAME OF COMPANY OPERATING MARGIN ON OPERATING COST (%) 2006 1. BRESCON CORPORATE ADVISORS LIMITED 117.72% 2. CETRUM CAPITAL LIMITED 26.26% 3. KEYNOTE CORPORATE SERVICES LIMITED 65.25% 4. KHANDWALA SECURITIES LIMITED 38.17% 7. SUMEDHA FISCAL SERVICES LIMITED 22.03% 8. SREI CAPITAL MARKET LIMITED 18.94% ARITHMETIC MEAN 48.06% 12.1 BASED ON THE AFORESAID THE TPO WORKED-OUT THE ADJUSTMENT OF RS. 8,05,54,275/- THAT WAS REQUIRED TO BE MADE TO ARRIV E AT THE ARMS LENGTH PRICE. BEFORE THE DRP, ASSESSEE OBJECTED TO INCLUSI ON OF KEYNOTE CORPORATE SERVICES LIMITED AND BRESCON CORPORATE ADVISORS LIM ITED IN THE FINAL SET OF COMPARABLES. THE DRP HAS ACCEPTED THE PLEA OF TH E ASSESSEE FOR EXCLUDING BRESCON CORPORATE ADVISORS LIMITED FROM T HE FINAL SET OF COMPARABLES AND WITH RESPECT TO THE KEYNOTE CORPORA TE SERVICES LIMITED, THE DRP HELD THE SAME TO BE INCLUDIBLE. SO HOWEVER, THE DRP RE-WORKED THE OPERATING MARGIN OF KEYNOTE CORPORATE SERVICES LIMITED AT 45.37% AS AGAINST 65.25% TAKEN BY THE TPO. AS A CONSEQUENCE T HE DRP DIRECTED THE ASSESSING OFFICER TO RE-WORK THE ARITHMETIC MEAN OF THE FINAL SET OF COMPARABLES AS UNDER:- SL. NO. NAME OF COMPANY OPERATING MARGIN ON OPERATING COST (%) 2006 1. CETRUM CAPITAL LIMITED 26.26% 2. KEYNOTE CORPORATE SERVICES LIMITED 45.37% 3. KHANDWALA SECURITIES LIMITED 38.17% 4. SUMEDHA FISCAL SERVICES LIMITED 22.03% 5. SREI CAPITAL MARKET LIMITED 18.94% ARITHMETIC MEAN 30.15% 25 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 25 OF 37 12.2 ON THE AFORESAID BASIS THE ADJUSTMENT TO THE S TATED VALUES OF THE INTERNATIONAL TRANSACTION OF INVESTMENT BANKING SER VICES HAS BEEN FINALLY DETERMINED AT RS. 3,10,61,627/-, AGAINST WHICH ASSE SSEE IS IN APPEAL BEFORE US. 12.3 ON THIS ASPECT, THE LD. REPRESENTATIVE FOR TH E ASSESSEE HAS ONLY ARTICULATED EXCLUSION OF TWO COMPARABLES, NAMELY, K EYNOTE CORPORATE SERVICES LIMITED AND KHANDWALA SECURITIES LIMITED F ROM THE FINAL SET OF COMPARABLES. IN THE CONTEXT OF KEYNOTE CORPORATE SE RVICES LIMITED, THE PLEA SET UP BY THE ASSESSEE IS THAT THE SAID CONCER N IS EXCLUDIBLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS DUE TO AMALGAMATIO NS. IT WAS POINTED OUT THAT IN THE YEAR UNDER CONSIDERATION IN TERMS OF SC HEME OF AMALGAMATION APPROVED BY THE HONBLE HIGH COURT ON 02.12.2005, T HREE OTHER CONCERNS - M/S CONCEPT ASSETS MANAGEMENT, CONCEPT H OLDING LIMITED AND CONCEPT CAPITAL MANAGEMENT LIMITED AMALGAMATED WITH THE ASSESSEE WHEREBY THE ASSETS AND LIABILITIES OF THE COMPANIES VESTED IN THE ASSESSEE COMPANY WITH RETROSPECTIVE EFFECT FROM 01.04.2003. BY REFERRING TO THE ANNUAL REPORT OF M/S KEYNOTE CORPORATE SERVICES LIM ITED FOR THE FINANCIAL YEAR UNDER CONSIDERATION, IT WAS POINTED OUT THAT THE ACCOUNTS OF THE SAID CONCERN FOR THE FINANCIAL YEAR UNDER CONSI DERATION HAVE BEEN DRAWN UP AFTER GIVING EFFECT TO THE SCHEME OF AMALG AMATION. THE LD. REPRESENTATIVE HAS REFERRED TO SCHEDULE - O OF THE ANNUAL REPORT WHEREBY THE MATTERS RELATING TO THE SCHEME OF AMALGAMATION AND THE ACCOUNTING 26 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 26 OF 37 FOR SUCH AMALGAMATION HAS BEEN BROUGHT OUT. IT WAS, THEREFORE, POINTED OUT THAT THIS WAS AN EXTRAORDINARY SITUATION AND AC CORDINGLY THE FINANCIAL RESULTS OF THE SAID CONCERN IN THE YEAR UNDER CONSI DERATION SHOULD NOT BE CONSIDERED. ON THIS ASPECT REFERENCE HAS ALSO BEEN MADE TO THE DISCUSSION IN THE ORDER OF DRP IN WHICH IT HAS BEEN FURTHER NO TICED THAT FOR THE SUBSEQUENT FINANCIAL YEAR OF 2006-07 ALSO, THERE HA S BEEN A PROCESS OF AMALGAMATION BETWEEN THE SAID CONCERN AND SIX OTHER COMPANIES WHEREBY THE ASSETS AND LIABILITIES OF THE AMALGAMAT ED COMPANIES WERE VESTED IN THE SAID CONCERN WITH RETROSPECTIVE EFFE CT FROM 01.04.2005. IT WAS, THEREFORE, CONTENDED THAT ON ACCOUNT OF EXTRAO RDINARY EVENTS, THE SAID CONCERN SHOULD BE EXCLUDED FROM THE LIST OF CO MPARABLES. 12.4 ON THE OTHER HAND, THE LD. DR APPEARING FOR TH E REVENUE CONTENDED THAT THE SAID CONCERN HAS BEEN INCLUDED AS A COMPAR ABLE BY THE ASSESSEE IN ITS OWN TRANSFER PRICING STUDY AND, THEREFORE, I T IS INAPPROPRIATE FOR THE ASSESSEE TO SEEK EXCLUSION OF THE SAID CONCERN AT T HIS STAGE. AS PER THE LD. CIT(DR), ONCE THE FUNCTIONAL SIMILARITY IS NOT DISP UTED, THE SAID CONCERN SHOULD NOT BE EXCLUDED. 12.5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. OSTENSIBLY, THE INFORMATION REGARDING KEYNOTE CORPORATE SERVICES LI MITED, IS AVAILABLE IN PUBLIC DOMAIN IN THE TERM OF ITS ANNUAL REPORT, WH ICH BRINGS OUT THAT THE SAID CONCERN IS UNDERGOING A PROCESS OF BUSINESS RE STRUCTURING. THE DIRECTORS REPORT OF THE SAID CONCERN PERTAINING TO THE FINANCIAL YEAR UNDER 27 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 27 OF 37 CONSIDERATION SPEAKS OF BUSINESS RE-STRUCTURING WHE REBY THE SCHEME OF MERGER OF THREE SUBSIDIARIES WAS EFFECTED IN THE IN STANT YEAR PURSUANT TO THE SCHEME APPROVED BY THE HONBLE BOMBAY HIGH COUR T VIDE ORDER DATED 02.12.2005. THUS, THE EXCEPTIONAL /NON-RECURRING EV ENTS ON ACCOUNT OF BUSINESS RESTRUCTURING AND AMALGAMATIONS CANNOT BE CLAIMED. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF CAPI TAL I-Q INVESTMENT LTD VS. DCIT, ITA NO. 6961/HYD/11 DATED 23.11.2012 HELD THAT A CONCERN COULD NOT BE CONSIDERED AS A GOOD COMPARABLE ON ACC OUNT OF EXCEPTIONAL FINAL RESULTS DUE TO MERGERS/DEMERGERS. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PETRO ARALDITE PVT. LTD. (I TA NO. 6217/MUM/2012 DATED 18.01.2013) FOR ASSESSMENT YEAR 2008-09 ALSO HELD THAT ON ACCOUNT OF ACQUISITION AND DEMERGERS DURING THE RELEVANT YE AR, A CONCERN CANNOT BE INCLUDED IN THE FINAL SET OF COMPARABLES. IN FAC T, AS PER THE TRIBUNAL ONCE IT IS FOUND THAT THERE HAS BEEN AN EXCEPTIONAL EVENT ON ACCOUNT OF MERGERS/DEMERGERS THERE WAS NO NEED TO FURTHER LOOK INTO COMPARABILITY OR OTHERWISE OF THE FACTUAL ASPECTS OF SUCH A CONCE RN WITH THAT OF THE TESTED PARTY. ACCORDING TO THE TRIBUNAL, IN SUCH CI RCUMSTANCES SUCH A CONCERN SHOULD BE EXCLUDED FROM THE FINAL SET OF CO MPARABLES. IN OUR CONSIDERED OPINION, THE AFORESAID DECISION OF THE T RIBUNAL CLEARLY SUPPORT THE PLEA OF ASSESSEE FOR EXCLUSION OF KEYNOTE CORPO RATE SERVICES LIMITED FROM THE FINAL SET OF COMPARABLES. 12.6 SO HOWEVER, THE LD. DR HAS POINTED OUT THAT TH E ASSESSEE ITSELF INCLUDED THE SAID CONCERN AS A COMPARABLE IN ITS TR ANSFER PRICING STUDY 28 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 28 OF 37 AND, THEREFORE, ASSESSEE IS NOT JUSTIFIED IN SEEKI NG ITS EXCLUSION. ON THIS ASPECT OF THE MATTER, THE LD. REPRESENTATIVE FOR TH E ASSESSEE CONTENDED THAT AT THE STAGE OF TRANSFER PRICING STUDY THE SAI D CONCERN WAS INADVERTENTLY INCLUDED BY THE ASSESSEE IN THE LIST OF COMPARABLES BUT ON THE GIVEN FACTS WHICH ARE ON RECORD THE SAID CONCER N DESERVES TO BE EXCLUDED. 12.7 HAVING CONSIDERED THE AFORESAID OBJECTION OF T HE LD. DR, IN OUR VIEW, THE CASE SET-UP BY THE ASSESSEE FOR EXCLUSION OF TH E SAID CONCERN FROM THE LIST OF COMPARABLES CANNOT BE MERELY DECIDED ON THE BASIS OF THE POSITION THAT THE ASSESSEE HAD TAKEN AT A GIVEN POINT OF TIM E. QUITE CLEARLY, THE PURPOSE OF INCOME TAX ASSESSMENT IS TO ARRIVE AT TH E CORRECT TAX LIABILITY OF THE ASSESSEE AND IT IS NOT DEPENDENT ON WHAT POSITI ON THE ASSESSEE HAD TAKEN, BUT THE SAME IS TO BE DETERMINED HAVING REGA RD TO THE APPLICABLE LEGAL POSITION. IT IS WELL UNDERSTOOD THAT IN THE A PPELLATE PROCEEDINGS, AN ASSESSEE IS ENTITLED TO SET-UP A CASE AGAINST A WRO NG CLAIM THAT MIGHT HAVE BEEN MADE IN THE RETURN OF INCOME SUBJECT OF COURS E AFTER DEMONSTRATING THAT THE FRESH CLAIM IS MADE ON BONAFIDE CONSIDERAT IONS. AT THIS STAGE, WE MAY ALSO REFER TO THE DECISION OF THE SPECIAL BE NCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS (P) LTD 132 T TJ CHD(SB) 1, WHEREIN ASSESSEE WAS ALLOWED TO CLAIM EXCLUSION OF CERTAIN CONCERNS FROM THE FINAL SET OF COMPARABLES WHICH WERE OTHERWISE INADVERTENT LY INCLUDED BY IT IN ITS TRANSFER PRICING STUDY. IN THE PRESENT CASE, A SSESSEE INCLUDED KEYNOTE CORPORATE SERVICES LIMITED AS A COMPARABLE IN ITS T RANSFER PRICING STUDY 29 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 29 OF 37 BASED ON FUNCTIONAL SIMILARITIES, SO HOWEVER, THE CASE BEING SET-UP NOW IS NOT BASED ON FUNCTIONAL DISSIMILARITIES BUT ON ACCO UNT OF EXCEPTIONAL CIRCUMSTANCES. THE FACTUM OF THE SAID CONCERN HAVIN G UNDERGONE EXCEPTIONAL CIRCUMSTANCES ON ACCOUNT OF BUSINESS RE STRUCTURING AND AMALGAMATION OF OTHER CONCERNS, IS CLEARLY EMERGING FROM THE MATERIAL ON RECORD, WHICH IS AVAILABLE IN PUBLIC DOMAIN. THUS, THE SAID CONCERN DESERVES TO BE EXCLUDED AND SUCH A PLEA OF THE ASSS ESEE CANNOT BE THWARTED MERELY BECAUSE AT A GIVEN POINT OF TIME TH E SAID CONCERN WAS CONSIDERED AS A COMPARABLE BY THE ASSESSEE. OSTENSI BLY, THE SAID INCLUSION WAS AN INADVERTENT MISTAKE. THEREFORE, IN VIEW OF T HE AFORESAID DISCUSSION, WE DIRECT THE ASSESSING OFFICER TO EXCL UDE KEYNOTE CORPORATE SERVICES PVT. LTD FROM THE FINAL SET OF COMPARABLES . 13. THE NEXT PLEA OF THE ASSESSEE IS FOR EXCLUSION OF KHANDWALA SECURITIES LTD FROM THE FINAL SET OF COMPARABLES. O N THIS ASPECT, THE LD. REPRESENTATIVE SUBMITTED THAT IN GROUNDS OF APPEAL ENUMERATED IN THE MEMO OF APPEAL, THE PLEA RELATING TO EXCLUSION OF K HANDWALA SECURITIES LIMITED WAS NOT SPECIFICALLY RAISED, THOUGH IT CA N BE CONSIDERED AS SUBSUMED IN GROUND OF APPEAL NO. 11, WHEREIN, THE E NHANCED ADJUSTMENT TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTIO N HAS BEEN ASSAILED. BE THAT AS IT MAY, IT HAS BEEN POINTED OUT THAT ASSESS EE HAS RAISED AN ADDITIONAL GROUND OF APPEAL WHEREBY EXCLUSION OF KH ANDWALA SECURITIES LTD HAS BEEN SPECIFICALLY CANVASSED. 30 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 30 OF 37 14. THE ASSESSEE COMPANY HAS SOUGHT EXCLUSION OF KH ANDWALA SECURITIES LTD. FROM THE FINAL SET OF COMPARABLES W HILE EVALUATING THE INTERNATIONAL TRANSACTION OF MERCHANT BANKING SERVI CES ON THE GROUND THAT THE SAID CONCERN HAS EARNED MORE THAN 75% OF THE F EE BASED OPERATIONS SEGMENTAL INCOME FROM RENDERING BROKING SERVICES. I N THIS CONTEXT, THE CASE SET-UP BY THE ASSESSEE IS THAT IN THE INVESTME NT BANKING SERVICES SEGMENT, THE ACTIVITIES PERFORMED BY KHANDWALA SECU RITIES LTD. ARE QUALITATIVELY DIFFERENT AS THE SAID CONCERN IS ACT ING AS SECURITIES AND STOCK BROKERS. IT HAS BEEN POINTED OUT THAT EVEN IN THE C ASE OF M/S CARLYLE INDIA ADVISORS (P) LTD. VS. ACIT [2012] 146 TTJ (MUM) 52 1, THE SAID CONCERN WAS EXCLUDED ON THE GROUND THAT IT WAS ACTING AS A SECURITIES AND STOCK BROKER AND IT WAS NOT COMPARABLE TO A CONCERN WHICH WAS RENDERING INVESTMENT ADVISORY SERVICES. IT WAS ALSO POINTED O UT THAT THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CAR LYLE INDIA ADVISORS (P) LTD. (SUPRA) HAS ALSO BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT IN THE INCOME TAX APPEAL (B) NO. 1286 OF 2012 DATED 22 .02.2013. 15. ON THIS ASPECT ALSO, THE ONLY PLEA SET UP BY TH E LD. DR IS THAT THE SAID CONCERN WAS INITIALLY INCLUDED BY THE ASSESSEE ITSE LF AS A COMPARABLE AND THUS IT SHOULD NOT BE EXCLUDED. SO HOWEVER, THE FUN CTIONAL DISSIMILARITY SOUGHT TO BE SET UP BY THE ASSESSEE HAS NOT BEEN AS SAILED BY THE LD. DR . 16. AT THE THRESHOLD, WE MAY SAY THAT THE FUNCTIONS PERFORMED BY THE ASSESSEE IN ITS SEGMENT OF MERCHANT BANKING ACTIVIT IES DOES NOT INVOLVE 31 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 31 OF 37 BROKING SERVICES WHICH IS A SEPARATE SEGMENT AND HA S BEEN SEPARATELY BENCH-MARKED. THEREFORE, QUALITATIVELY SPEAKING, TH E ACTIVITIES UNDERTAKEN BY KHANDWALA SECURITIES LIMITED STANDS O N A DIFFERENT FOOTING THAN THE ACTIVITY UNDERTAKEN BY THE ASSESSEE IN THE COURSE OF RENDERING INVESTMENT/MERCHANT BANKING SERVICES TO ITS ASSOCIA TED ENTERPRISES. THEREFORE FOLLOWING THE PRECEDENT IN THE CASE OF CA RLYLE INDIA ADVISORS PVT. LTD. (SUPRA) THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. WE HOLD SO. 17. INSOFAR AS THE PLEA OF REVENUE THAT ASSESSEE HA S INCLUDED THE SAID CONCERN AS A COMPARABLE IN ITS TRANSFER PRICING STU DY IS CONCERNED, THE SAME HAS ALREADY BEEN ADDRESSED BY US IN THE EARLIE R PARAS WHILE DEALING WITH ASSESSEES PLEA FOR EXCLUSION OF KEYNOTE CORPO RATE SERVICES LIMITED. IN OUR VIEW, THE REASONS ASSIGNED BY US TO UPHOLD T HE EXCLUSION OF KEYNOTE CORPORATE SERVICES LIMITED QUA THE AFORESAID OBJECT ION OF THE LD. DR APPLIES HEREIN ALSO AND THE SAME IS ACCORDINGLY REJ ECTED. IN THE RESULT, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE KHANDWALA S ECURITIES LTD FROM THE FINAL SET OF COMPARABLES. THUS, INSOFAR AS THE DE TERMINATION OF ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTI ON PERTAINING TO MERCHANT BANKING SERVICES SEGMENT IS CONCERNED, THE ASSESSING OFFICER IS DIRECTED TO GIVE EFFECT TO THE AFORESAID DIRECTIONS AND, THEREFORE, RE- COMPUTE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED WITH THE ASSOCIATED ENTERPRISES. 32 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 32 OF 37 18. NOW, WE MAY TAKE UP THE LAST ISSUE RELATING TO DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF RENDERING OF MARKETING AND SALES SUPPORT SERVICES IN RESPECT OF AMERICAN DEPOSITORY RECEIPTS (ADRS) PROGRAMS OF THE ASSOCIATED ENTERPRI SES FOR THE INDIAN CLIENTS. 19. IN RESPECT OF THE INTERNATIONAL TRANSACTION REL ATING TO PROVISION OF MARKETING AND SALES SUPPORT SERVICES RENDERED TO AS SOCIATED ENTERPRISES IN RELATION TO ADR SERVICES, ASSESSEE USED THE TNM METHOD FOR BENCH- MARKING THE SAME. THE PLI USED WAS OPERATING PROFIT S TO OPERATING COSTS AND ASSESSEES MARGIN WAS COMPUTED AT 4.48%. THE AS SESSEE DETERMINED A SET OF COMPARABLES WHEREIN THE ARITHMETIC MEAN OF THE OPERATING MARGINS WAS COMPUTED AT 1.55% AND ACCORDINGLY THE S TATED VALUE OF THE TRANSACTION WAS CLAIMED TO BE AT ARMS LENGTH PRICE . THE TPO DISAGREED WITH THE ASSESSEE ON THE USE OF FINANCIAL DATA OF M ULTIPLE YEARS OF THE COMPARABLES. INSTEAD, THE TPO USED THE FINANCIAL DA TA OF THE COMPARABLE CONCERNS PERTAINING TO THE FINANCIAL YEAR UNDER CON SIDERATION AND ACCORDINGLY ADOPTED A FINAL SET OF EIGHT COMPARABLE S WHOSE ARITHMETIC MEAN OF OPERATING MARGIN WAS DETERMINED AT 39.85%. ACCORDINGLY AN ADJUSTMENT OF RS. 19,35,370/- WAS WORKED OUT. THE DRP CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE AND FINALLY DIREC TED THE ASSESSING OFFICER TO ADOPT THE FOLLOWING FIVE COMPARABLES, WHOSE ARIT HMETIC MEAN OF THE MARGINS WAS DETERMINED AT 20.2%. 33 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 33 OF 37 NAME OF THE COMPANY OPERATING MARGIN ON OPERATION COSTS (%) ALLIANZ SECURITIES LIMITED 22.20% IDC (INDIA) LIMITED 10.58% SREI MONEY MALL 0.51% SUNDARAM FINANCE DISTRIBUTION LIMITED 49.76% SREI CAPITAL MARKETS 14.53% ARITHMETIC MEAN 20.2% 20. ON THIS BASIS, THE ADJUSTMENT FOR THE PURPOSE O F COMPUTING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION WAS DETER MINED AT RS. 8,66,768/- WHICH IS THE SUBJECT MATTER OF DISPUTE BEFORE US. 21. ON THIS ASPECT, THE ONLY PLEA OF THE ASSESSEE I S FOR EXCLUSION OF M/S SUNDARAM FINANCE DISTRIBUTION LIMITED FROM THE FINA L SET OF COMPARABLES. THE PLEA SET UP BY THE LD. REPRESENTATIVE FOR THE A SSESSEE IS THAT THE SAID CONCERN HAS NO SALARY COSTS, WHICH SHOW THAT IT HAS OUTSOURCED ITS ACTIVITIES. IT IS, THEREFORE, CONTENDED THAT THE BU SINESS MODEL UNDER WHICH THE SAID CONCERN OPERATES IS QUITE DIFFERENT FROM T HAT OF THE ASSESSED, AND, HENCE THE SAID CONCERN IS EXCLUDIBLE FROM THE LIST OF COMPARABLES. IN SUPPORT OF SUCH PROPOSITION, RELIANCE HAS BEEN PLAC ED ON THE FOLLOWING DECISIONS OF THE TRIBUNAL:- (1) M/S STREAM INTERNATIONAL SERVICES PVT. LTD. VS. ASS T. DIRECTOR OF INCOME TAX, ITA NO. 8997/MUM/2010 DATED 7.01.2013 34 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 34 OF 37 (2) TECHBOOKS INTERNATIONAL PVT. LTD., ITA NO. 4990/DEL/11 DATED 02.04.2014. 22. PER CONTRA, THE LD. DR APPEARING FOR THE REVENU E HAS CONTENDED THAT THE LEVEL OF EMPLOYEE COST IS NOT A CRITICAL FACTOR IN THE CONTEXT OF THE ACTIVITIES WHICH HAVE BEEN BENCH-MARKED. 23. IN REPLY THE LD. REPRESENTATIVE FOR THE ASSESSE E VEHEMENTLY POINTED OUT THAT MARKETING AND SALES SUPPORT SERVICES IN RE LATION TO ADR RENDERED BY THE ASSESSEE DOES INVOLVE EMPLOYEE/PERSONNEL ACT IVITIES AND, THEREFORE, SUCH FACET OF BUSINESS OPERATIONS IS CRI TICAL INSOFAR AS THE COMPARABILITY ANALYSIS IS CONCERNED. THE LD. REPRE SENTATIVE HAS ADVERTED TO PAGE 231 OF THE PAPER BOOK WHEREIN IT PLACED THE RELEVANT EXTRACTS OF ITS TRANSFER PRICING STUDY TO SAY THAT THE FUNCTION AL ANALYSIS OF THE IMPUGNED SEGMENT BRINGS OUT THAT THE SERVICES RENDE RED, WHICH INCLUDE IDENTIFYING FINANCIAL CONTRACTS AND OPPORTUNITIES I N INDIAN MARKET; PREPARATION OF MARKETING MATERIAL; ARRANGEMENT OF M EETINGS; MARKETING PRESENTATIONS; PROVIDING INFORMATION AND MARKET INT ELLIGENCE TO ASSOCIATED ENTERPRISES; COORDINATION AND SUPPORT SE RVICES IN RELATIONSHIP CLIENTS; AND, OTHER MISCELLANEOUS SUPPORT SERVICES. IT HAS BEEN EMPHASIZED THAT ALL THE SAID ACTIVITIES INVOLVE EMPLOYEE/PERSO NNEL AS A CRITICAL COMPONENT OF FUNCTIONING. 24. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AS PER THE DIRECTORS REPORT OF SUNDARAM FINANCE DISTRIBUTION LIMITED, A COPY OF 35 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 35 OF 37 WHICH IS PLACED ON PAGE 274 OF THE PAPER BOOK, THE SAID CONCERN HAS NO EMPLOYEES ON ITS PAY ROLL. IT IS FOR THIS REASON T HAT THE ADMINISTRATIVE AND OTHER EXPENSES DEBITED IN ITS PROFIT & LOSS ACCOUNT (COPY AT PAGE 276 OF THE PAPER BOOK) REFLECTS A DEBIT OF RS. 1,45,37,206 /- UNDER THE HEAD SOURCING FEE. THE FACTUAL POSITION IN THE CASE OF T HE ASSESSEE IS QUITE DIFFERENT INASMUCH AS IT RENDERS SERVICES ON ITS OW N BY EMPLOYING ITS OWN EMPLOYEES WHEREAS SUNDARAM FINANCE DISTRIBUTION LIM ITED HAS OURSOURCED ITS ACTIVITIES. IN A SIMILAR SITUATION, MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVIC ES PVT. LTD. (SUPRA) DIRECTED THE EXCLUSION OF A CONCERN FROM THE LIST OF COMPARABLES FOR THE REASON THAT IT WAS OUTSOURCING THE SERVICES AND THE SAME COULD NOT BE COMPARED TO A TESTED PARTY WHICH WAS RENDERING SERV ICES ON ITS OWN. NOTABLY, THE TRIBUNAL IN THE CASE OF STREAM INTERNA TIONAL SERVICES PVT. LTD. (SUPRA) FOLLOWED A VIEW TAKEN BY THE BANGALORE BENC H OF THE TRIBUNAL 24/7 CUSTOMER.COM PVT. LTD VS. DCIT [ITA NO. 227/B ANG/2010] IN THIS REGARD. THEREFORE, IN VIEW OF THE AFORESAID PRECED ENTS, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE SUNDARAM FINANCE DISTR IBUTION LIMITED FROM THE FINAL SET OF COMPARABLES AND, THEREAFTER, RE-WO RK THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATING TO THE PROVISION OF MARKETING AND SUPPORT SERVICES TO ASSOCIATED ENTERP RISES IN RELATION TO ADR SERVICES. THUS, ON THIS ASPECT ASSESSEE SUCCEED S. 36 ITA NO 8193/MUM/2010 (ASSESSMENT YEAR: - 2006-07) PAGE 36 OF 37 25. APART FROM THE AFORESAID NO SPECIFIC ARGUMENTS HAVE BEEN ADVANCED AND ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS CONS IDERED AS PARTLY ALLOWED AS ABOVE. 26. IN THE RESULT, CAPTIONED APPEAL OF THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 22ND DAY OF JULY 2016. SD/- SD/- ( VIJAY PAL RAO ) (G.S. PANNU) (JUDICIAL MEMBER ) (ACCOUNTANT MEMBER ) PUNE DATED 22-07-2015 SKS SR. P.S, COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, K BENCH, ITAT, PUNE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI