CLSA INDIA P.LTD, MUMBAI V. DCIT CIR 4(1)(1), MUMBAI

ITA 902/MUM/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6929 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 23-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Share purchase agreement; International transaction; Transactions in derivatives; Additional evidence; Commercial expediency; Capital expenditure; Set aside
• Section: 92C; 143(3); 142(1); 10B; 143(1); 201; 143(2); 43; 13; 22; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI C N PRASAD, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.902/MUM/2016 ASSESSMENT YEAR : 2011 -12 CLSA INDIA P. LTD., (FORMERLY CLS INDIA LTD) 8/F, DALAMAL HOUSE, NARIMAN POINT, MUMBAI 400 021. PAN AAACC2262K VS. DCIT CIR 4(1)(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : MR MUKESH BUTANI, MS KARISHMA PHATARPHEKAR & MR HARSH SHAH RESPONDENT BY : MS JOTHILAKSHMI NAYAK DATE OF HEARING :27.09.2019 DATE OF PRONOUNCEMENT : 03.02.2020 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE DRP-1, MUMBAI, DATED 26.11.2015, U/S. 144C(5) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) RELATING TO A.Y. 2011-12. 2. GROUND NOS. 1 TO 3 ARE GENERAL IN NATURE AND REQ UIRE NO ADJUDICATION. 3. GROUND NOS. 4 READ AS UNDER: AVAILING OF INTRA-GROUP SERVICES 4. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN PROPOSING / UPHOLDING AN ADJUSTMENT TO THE ARM'S LENGTH PRICE ( 'ALP') DETERMINED BY THE APPELLANT IN RESPECT OF THE INTERNATIONAL TRANS ACTIONS IN CONNECTION WITH AVAILING OF INTRA-GROUP SERVICES BY THE APPELL ANT FROM ITS ASSOCIATED ITA NO.902/MUM/2016 CLSA INDIA P LTD. 2 ENTERPRISES ('AES'). IN DOING SO, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN LAW AND IN FACTS BY: 4.1.REJECTING TRANSACTIONAL NET MARGIN METHOD (TNMM ') AS THE MOST APPROPRIATE METHOD ('MAM') FOR THE DETERMINATION OF THE ALP. 4.2.NOT APPROPRIATELY APPLYING ANY OF THE PRESCRIBE D METHODS AS PER SECTION 92C(1) OF THE ACT. 4.3.NOT APPRECIATING THE VOLUMINOUS DOCUMENTARY EVI DENCE, DETAILS OF COST INCURRED BY THE AES, DETAILS OF ALLOCATION KEY S USED BY THE AES ETC FILED BY THE APPELLANT. 4.4.NOT CONSIDERING THE BENEFITS DERIVED BY THE APP ELLANT AND ALSO DISREGARDING THE COMMERCIAL EXPEDIENCY OF THE APPEL LANT. 4.5.DETERMINING THE ALP AS 'NIL'. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 21.11.1994 UNDER THE COMPANIES ACT, 1956. IT IS A PART OF THE CLSA GROUP, WHICH IS AN ASIA BROKERAGE HOUSE, HAVING ITS REGIONAL HEADQU ARTERS IN HONG KONG. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INSTITUTIONA L EQUITY BROKING AND HAS MEMBERSHIP OF THE BOMBAY STOCK EXCHANGE LIMITED (BS E) AND THE NATIONAL STOCK EXCHANGE LIMITED (NSE). THE ASSESSEES CUSTOMERS C OMPRISE OF FOREIGN INSTITUTIONAL INVESTORS (FII) AND DOMESTIC INSTITUT IONAL INVESTORS (DII). THE ASSESSEE DID NOT HAVE INTERNATIONAL SALES PRESENCE AND THE C APABILITY OF MAINTAIN CLIENT RELATIONSHIPS WITH GLOBAL FII CLIENTS. THE ASSESSE E DOES NOT HAVE THE RESOURCES TO UNDERTAKE ACTIVITIES LIKE REGIONAL RESEARCH, OR VAR IOUS OTHER GLOBAL BACK OFFICE FUNCTIONS. IN ORDER TO SERVE THE CLIENTS EFFECTIVE LY, EXPERTISE AT GLOBAL/REGIONAL LEVEL IS REQUIRED TO BE MAINTAINED. THE RESOURCES AVAILA BLE WITH THE ASSESSEE FOR SALES, RESEARCH, BACK OFFICE WERE PURELY FOR LOCALISED WOR K AND NOT CAPABLE TO CARRY OUT THE SPECIALISED GLOBAL/REGIONAL ACTIVITIES. IN ORDER T O OVERCOME THE SAID PROBLEMS, THE ASSESSEE ENTERED INTO SEPARATE AGREEMENTS WITH CLSA LIMITED, HONK KONG (CLSA HONG KONG) AND CLSA SINGAPORE PTE LIMITED (CSLA SIN GAPORE), WHO HAVE CAPABILITY TO MAINTAIN THE GLOBAL CLIENT RELATIONSHIPS AND THU S, PROVIDE SERVICES IN THE NATURE OF INTERNATIONAL EQUITY SALES, SALES TRADING SUPPORT, DEALING SUPPORT AND REGIONAL RESEARCH AS WELL AS A RANGE OF BACK OFFICE SUPPORT SERVICES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 25.11.2011 DECLARING TOTAL INCO ME AT RS 214,39,00,518/-, WHICH WAS PROCESSED U/S. 143(1) OF THE INCOME TAX ACT, 19 61. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND THE AO ISSUED NOTICE U/S. 143(2) AND 142(1) OF THE ACT, ITA NO.902/MUM/2016 CLSA INDIA P LTD. 3 WHICH WERE DULY SERVED ON THE ASSESSEE. THE AO OBS ERVED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCI ATED ENTERPRISES (AE) DURING THE YEAR, WHICH HAVE BEEN LISTED IN THE AUDITORS REPOR T IN FORM NO. 3CEB FILED ALONG WITH THE RETURN OF INCOME. IN ORDER TO DETERMINE T HE ARMS LENGTH PRICE OF THESE TRANSACTION S , THE MATTER WAS REFERRED TO THE JT. CIT TRANSFER P RICING-2(3), MUMBAI (TPO). THE TOP VIDE ORDER U/S. 92CA(3), DATED 30.0 1.2015, DETERMINED AN ADJUSTMENT OF RS 151,68,82,394/- TO BE MADE TO THE TRANSACTIONS VALUE OF THE TRANSACTIONS OF THE ASSESSEE WITH ITS AE. THE ASSE SSING OFFICER HAS COMPUTED THE TOTAL INCOME OF THE ASSESSEE UNDER SUB SECTION (4) OF SECTION 92C IN ACCORDANCE WITH ARMS LENGTH PRICE DETERMINED BY THE TPO U/S. 9 2CA(3 OF THE ACT. THE ADJUSTMENT COMPRISED THE FOLLOWING: SR NO. PARTICULARS AMOUNT 1 PROVISION OF BROKERAGE SERVICES 21,73,90,712/- 2 AVAILING OF INTRA GROUP SERVICES 127,38,29,995/- 3 PROVISION OF IT SUPPORT SERVICES 1,57,55,055/- 4 PROVISION OF SUB-ADVISORY SERVICES 99,06,632/- TOTAL ADJUSTMENTS 151,68,82,394/- ULTIMATELY, THE ASSESSMENT WAS FRAMED BY THE ASSESS ING OFFICER VIDE ORDER, DATED 28.01.2016, PASSED U/S. 143(3) R.W.S. 144C(13) OF T HE ACT, INTER ALIA, MAKING AN ADDITION OF RS 151,68,82,394/- 5. AS STATED ABOVE, ASSESSEE ENTERED INTO SEPARATE AGREEMENTS WITH CLSA LIMITED, HONK KONG (CLSA HONG KONG) AND CLSA SINGAP ORE PTE LIMITED (CSLA SINGAPORE), IN ORDER TO PROVIDED SERVICES IN THE NA TURE OF INTERNATIONAL EQUITY SALES, SALES TRADING SUPPORT, DEALING SUPPORT AND REGIONAL RESEARCH AS WELL AS A RANGE OF BACK OFFICE SUPPORT SERVICES TO INTERNATIONAL CLIEN TS. THE CONSIDERATION PAID BY THE ASSESSEE TO CLSA HONG KONG AND CLSA SINGAPORE FOR T HE SERVICES RENDERED UNDER THE RESPECTIVE AGREEMENTS WITH THE SAID AE WAS ON T HE BASIS OF COST PLUS A MARK-UP. IN TERMS OF THE SAID AGREEMENTS, THE ASSESSEE AVAIL ED THE FOLLOWING SERVICES WHICH WERE INTEGRAL TO SERVE ITS CLIENTS: ITA NO.902/MUM/2016 CLSA INDIA P LTD. 4 BROKING MANAGEMENT INFORMATION TECHNOLOGY CLIENT MANAGEMENT INTERNAL AUDIT COMMUNICATIONS INTERNATIONAL SALES AND SALES TRADING SUPPORT COMPLIANCE LEGAL CREDIT RISK MANAGEMENT MANAGEMENT EVENT MARKETING OPERATIONAL RISK MANAGEMENT FINANCE AND ACCOUNTING REGIONAL RESEARCH HUMAN RESOURCES TAX PLANNING AND MANAGEMENT DURING THE YEAR THE ASSESSEE MADE A PAYMENT OF RS 1 27,38,29,995/- FOR AVAILING SUCH GROUP SERVICES. THE ASSESSEE HAD BENCHMARKED T HIS INTERNATIONAL TRANSACTIONS USING TRANSACTIONAL NET MARGIN METHOD (HEREINAFTER REFERRED TO AS TNMM) AS MOST APPROPRIATE METHOD ( HEREINAFTER REFERRED TO AS MAM ) BASED ON THE METHODOLOGIES, WHICH WERE DULY EXPLAINED TO THE TPO VIDE SUBMISSIO N DATED 30.12.2014. IN THE TRANSFER PRICING STUDY REPORT, THE ASSESSEE CONSIDE RED ITSELF AS THE TESTED PARTY AND ADOPTED OPERATING PROFIT/OPERATING COST AS THE PROF IT LEVEL INDICATOR. SINCE THE ASSESSEES MARGIN OF 11.78% WAS BETTER THAN THE COM PARABLE COMPANIES' MARGIN OF 5.46% , THE TRANSACTIONS WERE CONSIDERED TO BE AT ARM'S LEN GTH. AS AN ALTERNATIVE APPROACH, THE ASSESSEE HAD ALSO BENCHMARKED THESE T RANSACTIONS BY CONSIDERING THE FOREIGN AES AS THE TESTED PARTIES AND BASED ON COMP ARABLE COMPANIES MARGIN JUSTIFIED THAT THE MARK-UP CHARGED BY THE AES WAS A T ARM'S LENGTH. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT DESPITE ASSESSEE HAVING SUBMITTED ALL NECESSARY EVIDENCES QUA THE INTERNATI ONAL TRANSACTIONS AND TRANSFER PRICING REPORT, THE TPO HAS NOT FOLLOWED ANY OF THE PRESCRIBED METHOD U/S 92C OF THE ACT, AND, THUS CAME TO THE CONCLUSION THAT THE ARMS LENGTH PRICE OF THE FEES PAID BY THE ASSESSEE TO THE ASSOCIATE ENTERPRISES I S NIL, WHICH IS WRONG AND AGAINST THE PROVISIONS OF THE ACT. THE LEARNED AR ALSO SUB MITTED THAT THE DRP HAS ERRED IN UPHOLDING THE ORDER OF THE TPO WHEREIN NONE OF THE PRESCRIBED METHODS WAS FOLLOWED FOR DETERMINING THE ALP OF THE INTERNATION AL TRANSACTIONS WITH THE ASSOCIATE ENTERPRISE. THE ASSESSEE FURTHER SUBMITTED THAT PA YMENT OF INTRA-GROUP SERVICES IS CLOSELY INTERLINKED WITH BROKERAGE INCOME. UNLESS T HE ASSESSEE AVAILS THESE INTRA- GROUP SERVICES, IT CANNOT EARN BROKERAGE INCOME FRO M FII CLIENTS. THE LEARNED AR ITA NO.902/MUM/2016 CLSA INDIA P LTD. 5 SUBMITTED THAT ASSESSEES CASE IS COVERED BY THE DE CISION OF THE TRIBUNAL IN ITS OWN CASE FOR A.Y. 2012-13, WHEREIN THE CO-ORDINATE BENC H HAS HELD THAT THE ORDER OF THE DRP IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT MA DE BY THE TPO ON ESTIMATION BASIS WITHOUT FOLLOWING ANY PRESCRIBED METHOD IS BA D IN LAW. IN THE LIGHT OF THE SAID DECISION, THE LEARNED AR SUBMITTED THAT GROUND NO. 4 MAY THEREFORE BE ALLOWED IN FAVOUR OF THE ASSESSEE BY DELETING THE ADJUSTMENT M ADE OF RS 127,38,27,995/- 7. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ISSUE IS NOT COVERED BY THE DECISION OF THE CO-ORDINATE BENCH FOR A.Y. 2 012-13 AS THE ASSESSEE HAS NOT CARRIED OUT ANY BENCHMARKING BASED ON FOREIGN AES A S TESTED PARTY IN A.Y. 2011-12. THE LEARNED DR SUBMITTED THAT IN A.Y. 2012-13 THE A SSESSEE HAS CONSIDERED FOREIGN AE AS TESTED PARTY AND, ACCORDINGLY CARRIED OUT BEN CHMARKING WHEREAS IN A.Y. 2011- 12, THE ASSESSEE HAS AGGREGATED ALL ITS TRANSACTION S AND CHOSEN ITSELF AS THE TESTED PARTY AND CARRIED OUT BENCHMARKING. THE LD DR FURT HER SUBMITTED THAT SINCE ASSESSEE HAS BENCHMARKED ITS TRANSACTIONS SEPARATEL Y, THE TRIBUNAL IN A.Y. 2012-13 UPHELD THE MAM METHOD ADOPTED BY THE ASSESSEE. THE LEARNED AR REBUTTING THE ARGUMENTS OF THE LEARNED DR SUBMITTED THAT THEY WER E FACTUALLY INCORRECT IN STATING THAT FOR A.Y. 2011-12 THE ASSESSEE HAS NOT BENCHMAR KED ITS TRANSACTIONS CONSIDERING FOREIGN AE AS THE TESTED PARTY. THE LE ARNED AR FILED TWO SUBMISSIONS DATED 30 TH DEC. 2014 AND 21 ST JANUARY 2015 (COPIES FILED AT PAGE 713 OF PAPER- BOOK VOL 2 AND PAGE NO 1943 OF PAPER-BOOK VOL (4) WITH THE TPO WHEREIN IT HAS EXPLAINED ITS BENCHMARKING APPROACH CONSIDERING FOR EIGN AES AS THE TESTED PARTIES. THE LEARNED DR ALSO STATED THAT IN A.Y. 2012-13 THE TRIBUNAL HAS NOT DECIDED THE QUESTION AS TO WHETHER THE ASSESSEE HAS AVAILED INT RA GROUP SERVICES FROM ITS AES. FOR THIS PURPOSE, THE DR HAS REFERRED TO PARA 17 OF THE TRIBUNAL ORDER FOR AY 2012- 13. AS PER THE DR IN AY 2011-12, TPO HAS DETERMINED THE ALP AS NIL SINCE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE OF RENDERING SERVICE S BY AES. AS THE TRIBUNAL IN ITS ORDER FOR AY 2012-13, DID NOT EXAMINE THE ISSUE OF ACTUAL RENDITION OF SERVICES BY AES, IT CANNOT BE TREATED AS A COVERED ISSUE. HE F URTHER CONTENDED THAT IN ANY CASE, RENDITION OF SERVICES IS A FACT, WHICH NEEDS TO BE EXAMINED ON A YEAR ON YEAR BASIS AND THUS, IS NOT COVERED BY THE ORDER OF THE CO-ORD INATE BENCH. THE LEARNED AR SUBMITTED THAT THE TPO IN ITS ORDER AT PAGE 11 HAS SUBMITTED THAT THE ASSESSEE HAS ITA NO.902/MUM/2016 CLSA INDIA P LTD. 6 ALSO SUBMITTED SUPPLEMENTARY ANALYSIS, WHEREIN THE AE WAS TAKEN AS TESTED PARTY. THE LEARNED AR WHILE REBUTTING THE ARGUMENTS OF THE LEARNED DR ON THE ISSUE OF NON-APPLICABILITY OF DECISION OF THE TRIBUNAL FOR A .Y. 2012-13, CONTENDED THAT THE ASSESSEE VIDE SUBMISSION DATED 21.01.2015 FILED DET AILED DOCUMENTATION TO DEMONSTRATE RENDITION OF INTRA GROUP SERVICES BY TH E AES TO THE ASSESSEE. ALL THESE EVIDENCES WERE EXAMINED BY THE TPO AS WELL AS THE D RP AND AFTER EXAMINATION THEY BRUSHED THEM ASIDE GIVING GENERIC REASONS. THE LEA RNED AR ALSO SUBMITTED THAT THE ASSESSEE ALSO FURNISHED PWC AUP REPORT OBTAINED BY THE ASSESSEE WHICH STATES THAT SERVICES WERE ACTUALLY RECEIVED AND COST INCURRED B Y THE AE, BASIS OF ALLOCATION ETC. REFERRING TO PAGE 26 OF THE ORDER OF THE TPO, THE L EARNED AR SUBMITTED THAT THE TPO HAS NEVER ALLEGED THAT NO EVIDENCES WERE PROVID ED OR THAT NO SERVICES HAVE BEEN RENDERED. 8. WE HAVE HEARING THE PARTIES AND PERUSAL THE MATE RIAL AVAILABLE ON RECORD INCLUDING THE DECISION OF THE CO-ORDINATE BENCH IN ITA NO. 1182/MUM/2017 FOR A.Y. 20212-13. WE OBSERVE THAT IDENTICAL ISSUE WAS INVO LVED IN THAT YEAR AND THAT CO- ORDINATE BENCH HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON THE PARTI ES. THE FIRST ISSUE PERTAINS TO THE ASSESSEES OBJECTION RAISED BEFORE THE LD. DRP ON THE GROUND THAT THE LD. TPO HAS WRONGLY REJECTED THE TN MM FOLLOWED BY THE ASSESSEE IN ITS TRANSFER PRICING ANALYSIS. BRIEF FA CTS AND MATERIAL WHICH NEED NECESSARY MENTION FOR THE PURPOSE OF DECIDING THE ISSUES INVOLVED ARE THAT THE ASSESSEE COMPANY INCORPORATED UNDER TH E COMPANIES ACT 1956, IS PRIMARILY ENGAGED IN THE BUSINESS OF EQUIT Y BROKING AND HAS MEMBERSHIP OF BOMBAY STOCK EXCHANGE AND THE NATIONA L STOCK EXCHANGE. THE ASSESSEES CUSTOMERS COMPRISE OF FOREIGN INSTIT UTIONAL INVESTORS (FIIS) AND DOMESTIC INSTITUTIONAL INVESTORS (DIIS). AS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, SINCE THE ASSESSEE HAD NO INTERNATIONAL SALES PRESENCE OR CAPABILITY TO MAINTAIN CLIENT RELATIONS HIP WITH FIIS ON GLOBAL BASIS OR INTERNAL RESOURCES TO UNDERTAKE VARIOUS AC TIVITIES LIKE REGIONAL RESEARCH OR PERFORM VARIOUS BACK-OFFICE FUNCTIONS, IT ENTERED INTO AGREEMENTS WITH CLSA LTD. HONG KONG AND CLSA SINGAP ORE PRIVATE LTD., WHICH HAD THE CAPACITY TO MAINTAIN THE CLIENT RELAT IONSHIP ON GLOBAL BASIS FOR PROVIDING SERVICES IN THE NATURE OF INTERNATION AL EQUITY SALES AND SALES TRADING SUPPORT, DEALING SPORT AND REGIONAL RESEARC H AS WELL AS A RANGE OF BACK-OFFICE SUPPORT SERVICES. IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR ITA NO.902/MUM/2016 CLSA INDIA P LTD. 7 UNDER CONSIDERATION, THE ASSESSEE MADE PAYMENT OF R S. 146,67,42,784/- FOR AVAILING THESE INTRA GROUP SERVICES. THE ASSESS EE BENCHMARKED THE SAID INTERNATIONAL TRANSACTION USING TNMM AS THE MO ST APPROPRIATE METHOD CONSIDERING ITSELF AS THE TESTED PARTY AND A DOPTED OPERATING PROFIT (OP)/OPERATING COST (OC) AS THE PROFIT LEVEL INDICATOR (PLI). SINCE THE ASSESSEES MARGIN OF 26.09% WAS BETTER THAN THE COMPARABLE COMPANIES MARGIN OF 10.14% THE ASSESSEE CLAIMED THE TRANSITION TO BE AT ARMS LENGTH. ALTERNATIVELY, THE ASSESSEE ALSO BENC HMARKED THE SAID TRANSACTION BY CONSIDERING THE AES AS THE TESTED PA RTY AND BASED ON COMPARABLE COMPANIES MARGIN JUSTIFIED THAT THE MARK UP CHARGED BY THE AES ARE AT ARMS LENGTH. 11. SINCE, CLSA INDIA HAD PAID RS. 129,30,35,428/- TO CLSA HONG KONG AND RS. 17,37,07,356/- TO CLSA SINGAPORE FOR PROVID ING OPERATIONAL SUPPORT TO CLSA AFFILIATES INCLUDING THE ASSESSEE D URING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE LD. TPO ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF INTRA GROUP SERVI CES AND SUBSTANTIATE THE ALP FOR THE SAME ALONG WITH THE RELEVANT SUPPOR TING DOCUMENTS. THE ASSESSEE WAS FURTHER ASKED TO SHOW CAUSE AS TO WHY SIMILAR ADJUSTMENT SHOULD NOT BE MADE PARTICULARLY IN THE LIGHT OF THE FACT THAT SIMILAR ADJUSTMENT ON INTRA GROUP PAYMENTS WAS CONFIRMED BY THE LD. DRP IN THE A.Y. 2011-12 UNDER THE SIMILAR SET OF FACTS. 12. IN RESPONSE TO THE SAID QUERY, THE ASSESSEE SUB MITTED THAT IT HAS ENTERED INTO SEPARATE SERVICE LEVEL AGREEMENTS WITH THE CLSA SERVICE PROVIDERS, PURSUANT TO WHICH THE FOLLOWING SERVICES WERE RENDERED BY THEM DURING THE YEAR RELEVANT TO THE ASSESSMENT YEA R UNDER CONSIDERATION:- BROKING MANAGEMENT, CLIENT MANAGEMENT, CLSA U, COMMUNICATIONS, COMPLIANCE, CREDIT RISK MANAGEMENT, DEVELOPMENT SQUAD, EVENT MARKETING, FINANCE AND ACCOUNTING, FUTURE & OPTIONS MANAGEMENT SUPPORT SERVICES, HUMAN RESOURCES, INFORMATION TECHNOLOGY, INTERNAL AUDIT, INTERNATIONAL SALES AND SALES TRADING SUPPORT, LEGAL, MANAGEMENT, MARKET RISK MANAGEMENT, OPERATIONAL RISK MANAGEMENT, REGIONAL ALGORITHM BUSINESS SUPPORT, REGIONAL RESEARCH, TAX PLANNING AND MANAGEMENT. ITA NO.902/MUM/2016 CLSA INDIA P LTD. 8 13. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE INTER A LIA SUBMITTED TRANSFER PRICING STUDY REPORT, COPY OF AUDITED FINANCIALS, C OPIES OF SERVICE LEVEL AGREEMENT ENTERED INTO WITH CLSA, HONG KONG AND CLS A, SINGAPORE, DESCRIPTION OF SERVICES AND SUMMARY OF BENEFITS, SU PPLEMENTARY ANALYSIS KPMG BENCHMARKS, DOCUMENTARY EVIDENCE TO PROVE SERV ICES RENDERED BY THE INTRAGROUP UNDER THE HEADS ADMINISTRATION, BROK ING MANAGEMENT, CLIENT MANAGEMENT, COMMUNICATIONS, COMPLIANCE, CRED IT RISK MANAGEMENT, DEVELOPED SQUAD, EVENTS MARKETING, FINA NCE, HUMAN RESOURCES, INFORMATION TECHNOLOGY, INTERNAL AUDIT, INTERNAL SALES AND SALES TRADING SUPPORT, LEGAL, MANAGEMENT, OPERATION AL RISK MANAGEMENT AND REGIONAL RESEARCH. THE ASSESSEE ALSO SUBMITTED DESCRIPTION OF THE VARIOUS SERVICES, HEAD-WISE BREAKUP OF THE PAYMENTS AND COST ALLOCATION AS PER KEYS PROVIDED IN AGREEMENT. 14. AS POINTED OUT BY THE LD. COUNSEL, THE ASSESSEE HAS BENCHMARKED THE TRANSACTION WITH ENTRY-LEVEL TNMM. IT HAS BENCHMARK ED THE TRANSACTION SEPARATELY BY ADOPTING AE AS TESTED PARTY AND USING FOREIGN DATA BASE. WE NOTICE THAT THE ARITHMETIC MEAN OF THE COMPARABL E COMPANIES WAS 10.14% AND THE ASSESSEE HAD EARNED NET PROFIT MARGI N OF 26.09%. AS POINTED OUT BY THE LD. COUNSEL, THE MARGIN EARNED B Y THE ASSESSEE COMPANY AT AN ENTRY LEVEL IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C(2) OF THE ACT. BUT THE LD. TPO DID NOT ACCEPT T HE ENTRY LEVEL BENCHMARKING OF THE COST CONTRIBUTION HOLDING THAT THE COST CONTRIBUTION CONSTITUTES A SMALL PART OF THE TOTAL TRANSACTIONS AT THE ENTRY LEVEL, THEREFORE, THE PROFIT MARGIN AT THE ENTRY LEVEL CAN NOT BE THE BASIS FOR DETERMINING THE ALP OF THE COST CONTRIBUTION. THE P ROFIT AT ENTRY LEVEL IS AFFECTED BY VARIOUS OTHER FACTORS THEREFORE THE TNM M IS NOT THE MOST APPROPRIATE METHOD TO BENCHMARK THE TRANSACTION OF COST CONTRIBUTION. SECONDLY, THE LD. TPO HELD THAT UNDER THE TRANSFER PRICING PROVISIONS, EACH INTERNATIONAL TRANSACTION HAS TO BE BENCHMARKE D SEPARATELY. 15. WE FURTHER NOTICE THAT THE ASSESSEE HAS BENCHMA RKED THE TRANSACTION BY USING FOREIGN COMPARABLE COMPANIES I.E., BY USIN G AE AS TESTED PARTY. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE ASSESSEE HAS SEPARATELY BENCHMARKED ITS VARIOUS INTERNATIONAL TR ANSACTIONS INCLUDING THE TRANSACTION OF PAYMENT OF INTRA GROUP SERVICES. THE ASSESSEE HAS SUBMITTED TRANSFER PRICING STUDY REPORT WHICH IS AV AILABLE AT PAGE 43 TO 74 OF THE PAPER BOOK SUBMITTED BY THE ASSESSEE. THE TRANSFER PRICING STUDY REPORT REVEALS THAT THE NET PROFIT MARGINS OF THE IDENTIFIED COMPARABLE COMPANIES RANGE BETWEEN -2.88 AND 25.13% AND THE ARITHMETIC MEAN OF THE NPMS OF COMPARABLE COMPANIES IS 10.40%. ON THE OTHER HAND, THE NET PROFIT MARGIN OF THE ASSESS EE COMPANY FOR THE FINANCIAL YEAR ENDED MARCH 31, 2011 AT ENTRY LEVEL WAS 26.09%. IN THE LIGHT OF THE AFORESAID FACTS, THERE IS NO MERIT IN THE FINDINGS OF THE LD. TPO THAT THE MARGIN EARNED BY THE ASSESSEE AT AN EN TRY LEVEL IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C(2) OF THE ACT. UNDER THESE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 9 CIRCUMSTANCES, THE ACTION OF THE LD. DRP IN CONFIRM ING THE TRANSFER PRICING ADJUSTMENT DONE BY THE LD. TPO IS NOT JUSTI FIED. THE ASSESSEE HAS ALSO SUBMITTED A SUPPLEMENTARY ANALYSIS I.E. AUP RE PORT FROM PRICE WATERHOUSE COOPERS (PWC) WHICH CERTIFIES THE COST A ND MARKUP CHARGED BY AES AND KPMG BENCHMARKING REPORT, WHICH DETERMIN ES ARMS LENGTH MARKUP FOR SERVICES AVAILED. SO, THERE IS MERIT IN THE CONTENTION OF THE LD. COUNSEL THAT THE ASSESSEE HAS COMPLIED WITH ALL REQ UIREMENTS AS PRESCRIBED UNDER THE ACT AND THE RULES AND THE TP A NALYSIS HAS BEEN CARRIED OUT AS PER THE PROVISIONS OF LAW. WE ARE TH EREFORE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS DISCHARGED IT S ONUS BY DEMONSTRATING THAT THE TRANSACTION IS AT THE ARMS L ENGTH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C OF THE ACT AND H AS MAINTAINED THE PRESCRIBED DOCUMENTATION IN SUPPORT OF SUCH COMPLIA NCE. 16. ON THE OTHER HAND THE LD. DRP HAS UPHELD THE FI NDINGS OF THE LD. TPO REJECTING THE OBJECTIONS FILED BY THE APPELLANT /ASSESSEE. THE OPERATIVE PART OF THE FINDINGS OF THE LD. DRP READ AS UNDER: 3.3.1 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE ASSESSEE. WE FIND THAT THE ISSUES AT HA ND ARE SQUARELY COVERED AGAINST THE ASSESSEE IN ITS OWN CA SE FOR A.Y. 2011-12, BY THE DECISION OF DRP-I (WZ), MUMBAI HOLD ING AS UNDER:- WE HAVE CONSIDERED THE FACTS OF THE CASE AND THE S UBMISSIONS MADE. AS PER THE PROVISIONS OF SECTION 92C OF THE A CT, THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSA CTION SHALL BE DETERMINED BY ADOPTING ANY OF THE PRESCRIBED FIVE M ETHODS, BEING THE MOST APPROPRIATE METHOD (MAM) HAVING REG ARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTIONS OR C LASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH P ERSONS OR SUCH OTHER RELEVANT FACTORS AS MAY BE PRESCRIBED. E ACH TRANSACTION IS TO BE EXAMINED SEPARATELY AND INDEPE NDENTLY. DIFFERENT TRANSACTIONS CANNOT BE BUNDLED UP TOGETHE R. ONLY THOSE TRANSACTIONS WHICH ARE CLOSELY INTERLINKED, INTERRE LATED, INTERLACED, INTER-WINED, INTER-CONNECTED, INTER-DEPENDENT AND C ONTINUOUS CAN BE GROUPED AND BUNDLED TOGETHER FOR BENCH MARKI NG PROVIDED THE SAID TRANSACTIONS CAN BE EVALUATED AND ADEQUATELY COMPARED AN AGGREGATE BASIS. OTHERWISE THE BUNCHING OF INDEPENDENT AND DIFFERENT TRANSACTIONS IS NOT PERMI TTED. P&H HIGH COURT ALSO IN THE CASE OF KNORR BREMSE INDIA P VT. LTD. IN ITA NOS. 182 AND 172 OF 2013 IN THEIR ORDER DATED 06.11 .2015 HAVE HELD AS UNDER:- 43 IT FOLLOWS, THEREFORE, THAT IF THE TPO HAD CORR ECTLY COME TO THE CONCLUSION THAT THE SAID FIVE ITEMS WERE NOT CONNEC TED TO THE REST, HE WAS JUSTIFIED IN DETERMINING THE ARMS LENGTH PR ICE THEREOF SEPARATELY FROM AND INDEPENDENT OF THE OTHERS. IT W OULD BE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 10 NEITHER LOGICAL NOR RATIONAL IN THAT EVENT TO CLUB SEVERAL INDEPENDENT AND UNCONNECTED TRANSACTIONS FOR THE PU RPOSE OF DETERMINING THE ARMS LENGTH PRICE. IF, ON THE OTHE R HAND, IT IS ESTABLISHED THAT THE SALE OF VARIOUS GOODS AND/OR T HE PROVISION OF SERVICES FORMED ONE COMPOSITE INDIVISIBLE TRANSACTI ON, TNM METHOD CANNOT BE APPLIED SELECTIVELY TO SOME OF THE COMPONENT AND THE CUP OR ANY OTHER METHOD TO THE REMAINING CO MPONENT. 44 IN THE PRESENT CASE, ALL THE ITEMS TABULATED ABO VE WERE NOT PROVIDED BY THE SAME ENTITY. THEY WERE PROVIDED BY DIFFERENT ENTITIES. THAT THESE ENTITIES WERE ALL PART OF THE SAME GROUP IS NOT DETERMINATIVE OF THE ISSUE WHETHER THEY WERE PART O F A SINGLE INTERNATIONAL TRANSACTION. EACH PARTY TO THE GROUP IS A SEPARATE LEGAL ENTITY. WE DO NOT RULE OUT THE POSSIBILITY OF THESE BEING A SINGLE INTERNATIONAL TRANSACTION WHERE GOODS ARE SO LD AND/OR SERVICES ARE SUPPLIED BY VARIOUS ENTITIES WITHIN A GROUP UNDER A SINGLE TRANSACTION. THAT, HOWEVER, WOULD DEPEND UP ON THE FACTS OF EACH CASE. THE ONUS WOULD BE ON THE ASSESSEE TO ESTABLISH THAT THOUGH THE GOODS WERE SUPPLIED AND/ OR THE SERVICES WERE RENDERED BY DIFFERENT LEGAL ENTITIES THEY WERE PART OF AN INTERNATIONAL TRANSACTION PURSUANT TO AN UNDERSTAND ING BETWEEN THE VARIOUS MEMBERS OF THE GROUP. THIS WOULD BE AN ISSUE OF FACT FOR THE DETERMINATION OF THE AUTHORITIES UNDER THE ACT. 1.1. THE VARIOUS INTERNATIONAL TRANSACTIONS OF THE ASSESSEE ARE: (I) BROKERAGE (II) IT SUPPORT SERVICES, (III) FEES FOR SUB-ADVISORY SERVICES,(IV) PAYMENT FOR INTRA-GROUPS SERVICES (V) INTEREST (VI) REIMBURSEMENT OF EXPENSES AND (VII) BANK CHARGES. T HESE TRANSACTIONS CANNOT BE SAID TO BE CLOSELY INTER-LIN KED, INTERRELATED, INTERLACED, INTER-WIND, INTER-CONNECTED AND INTER-D EPENDENT AND ALSO THEY CANNOT BE EVALUATED AND ADEQUATELY COMPAR ED ON AGGREGATE BASIS. ALL THESE TRANSACTIONS ARE DIFFERE NT AND INDEPENDENT OF EACH OTHER. THEY ARE ALSO PROVIDED T O DIFFERENT ENTITIES. THEREFORE, THEY CANNOT BE BUNCHED TOGETHE R FOR BENCHMARKING BY APPLYING TNMM AT ENTITY LEVEL. THE REFORE THE BENCHMARKING OF THE ASSESSEE IS NEITHER SCIENTIFIC NOR PERMITTED AS PER LAW. HENCE, THE TPO HAS RIGHTLY REJECTED THE EN TITY LEVEL TNMM. THE SAME IS HEREBY UPHELD. 1.2. ALL THESE TRANSACTIONS CAN BE INDEPENDENTLY EX AMINED AND BENCHMARKED APPLYING CUP. HENCE, THE TPO HAS RIGHTL Y APPLIED CUP IN RESPECT OF THESE TRANSACTIONS. ITAT MUMBAI I N THE CASE OF GOLDMAN SACHS (INDIA) SECURITIES PRIVATE LIMITED V ACIT (ITA NO.7724/MUM/2011) HAS UPHELD THE APPLICATION OF CUP IN THE CASE OF BROKERAGE TRANSACTIONS SIMILAR TO THOSE OF THE A SSESSEE. FURTHER, ITAT BANGALORE IN THE CASE OF M/S FOSROC CHEMICALS INDIA PRIVATE LIMITED IN IT (TP) A NO. 148/BANG/2014 FOR AY 2009- 10 IN THEIR ITA NO.902/MUM/2016 CLSA INDIA P LTD. 11 ORDER DATED 10.04.2015 HAS UPHELD APPLICATION OF CU P AS MAM FOR BENCHMARKING OF PAYMENT FOR TECHNICAL AND MANAGEMEN T SERVICES. 1.3. ITAT BANGALORE IN FOSROC CHEMICALS INDIA CASE SUPRA HAS ALSO HELD THAT AGGREGATION OF DIFFERENT INTERNATIONAL TR ANSACTIONS WOULD DEPEND ON THE NATURE OF SERVICES RECEIVED BY THE AS SESSEE AND HOW THE DIFFERENT SEGMENT OF THE ASSESSEE BENEFITED FROM THE SERVICES RECEIVED. THE TEST WHETHER TO ADOPT A COMB INED TRANSACTION APPROACH OR TO EVALUATE THE INTERNATION AL TRANSACTION ON A TRANSACTION-BY-TRANSACTION BASIS IS TO SEE WHE THER THE TRANSACTION CAN BE EVALUATED ADEQUATELY ON A SEPARA TE BASIS. THOUGH THE ITAT HAS NOT ANSWERED THE QUESTION AGGRE GATION OF TRANSACTIONS IN THIS CASE BUT EMPHASIS HAS BEEN LAI D ON PREFERENCE FOR SEPARATE BENCHMARKING. 1.4. FURTHER, DELHI HIGH COURT IN SONY ERICSSONS C ASE IN ITA NO. 16/2014 IN THE ORDER DATED 16.03.2015 HAS CLEARLY L AID DOWN THE CRITERIA FOR AGGREGATION OF THE DIFFERENT TRANSACTI ONS. P&H HIGH COURT ALSO IN THEIR ORDER DATED 06.11.2015 IN THE C ASE KNORR- BREMSE INDIA PVT. LTD. ITA NO. 172 & 182 OF 2013 HA VE CLEARLY LAID DOWN THE CRITERIA FOR AGGREGATION OF DIFFERENT TRAN SACTION AND ALSO FOR BENCH MARKING OF INTRA-GROUP SERVICES. IT HAS B EEN HELD IN THIS CASE, THAT INTRA GROUP SERVICES CANNOT BE BENCHMARK ED APPLYING ENTITY LEVEL TNMM BUT IT HAS TO BE BENCHMARKED APPL YING CUP. THEREFORE, ON FACTS OF THIS CASE THE TRANSACTIONS C ANNOT BE AGGREGATED. HENCE, OBJECTIONS REGARDING REJECTION O F ENTITY LEVEL TNMM AND APPLICATION OF CUP ARE REJECTED. 17. THE LD DRP HAS UPHELD THE TRANSFER PRICING ADJU STMENT MADE BY THE LD.TPO IN THE LIGHT OF THE JUDGMENTS OF THE HONBLE HIGH COURT OF DELHI IN SONY ERICSSONS CASE (SUPRA) AND THE P&H HIGH COURT IN THE CASE KNORR- BREMSE INDIA PVT. LTD.(SUPRA) IN WHICH IT HAS BEEN HELD THAT THE ANSWER TO THE ISSUE WHETHER A TRANSACTION IS AT AN ARMS L ENGTH IS NOT DEPENDENT ON WHETHER THE TRANSACTION RESULTS IN THE ASSESSEE S PROFIT. BUT THE ONLY IMPORTANT ASPECT WHICH IS TO BE SEEN IS WHETHER THE TRANSACTION ENTERED INTO IS BONA FIDE OR THE SAME HAS BEEN ENTERED INTO FOR THE PURPOSE OF DIVERTING THE PROFITS. THE LD. DRP HAS FURTHER RELI ED ON THE DECISION OF THE ITAT MUMBAI IN THE CASE OF GOLDMAN SACHS (INDIA) SE CURITIES PRIVATE LIMITED V ACIT (ITA NO. 7724/MUM/2011) AND ITAT BAN GALORE IN THE CASE OF M/S FOSROC CHEMICALS INDIA PRIVATE LIMITED IN IT (TP) A NO. 148/BANG/2014 FOR AY 2009-10 IN WHICH THE TRIBUNAL HAS UPHELD THE APPLICATION OF CUP AS MAM FOR BENCHMARKING OF PAYME NT FOR TECHNICAL AND MANAGEMENT SERVICES. IN THE LIGHT OF THE ABOVE FINDINGS OF THE LD. DRP THE FOLLOWING QUESTION ARISE: (A) WHETHER THE LD. TPO HAS DETERMINED THE ALP IN T HIS CASE BY FOLLOWING COMPARABLE UNCONTROLLED PRICE (CUP) METHO D AS THE MOST APPROPRIATE METHOD AND (B) WHETHER THE LD. DRP HAS ITA NO.902/MUM/2016 CLSA INDIA P LTD. 12 RIGHTLY UPHELD THE TRANSFER PRICING ADJUSTMENT MADE BY THE LD. TPO? 18. IN ORDER TO DETERMINE THE SAID QUESTIONS, IT IS IMPORTANT TO SEE AS TO WHETHER THE LD. TPO HAS DETERMINED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS BY FOLLOWING ONE OF THE PRESCRIBED METHODS WHICH IS THE MOST APPROPRIATE IN THE LIGHT OF THE F ACTS AND THE CIRCUMSTANCES OF THE CASE? WE NOTICE THAT THE LD. T PO HAS ESTIMATED THE MAN HOURS OF SERVICES RENDERED BY THE AE TO THE ASS ESSEE AT 10000 HOURS AND APPLYING THE RATE OF 3000 PER HOURS DETERMINED THE ARMS LENGTH COMPENSATION OF THE SERVICES RENDERED BY THE AE TO THE ASSESSEE AT RS. 3,00,00,000/-. THE RELEVANT PART OF THE ORDER PASSE D U/S 92CA(3) OF THE ACT IS REPRODUCED AS UNDER: 5.8.2 THOUGH NO CONCRETE EVIDENCE OF RECEIPT OF SE RVICE HAS BEEN PROVIDED BY THE ASSESSEE AS DETAILED ABOVE, ON A WITHOUT PREJUDICE BASIS IT IS ESTIMATED THAT, AT THE VERY B EST, THE AE COULD HAVE DEVOTED A MAXIMUM OF THE FOLLOWING MAN HOURS I N RESPECT OF VARIOUS SERVICES CLAIMED TO BE AVAILED BY THE AS SESSEE SL NO. DEPARTMENT TOTAL SHARE IN % REMARKS OF THE TPO 1 INTERNATIONAL SALES AND SALE TRADING SUPPORT 774477979 52.80 THESE THREE DEPARTMENTS CONSTITUTES 80% OF ALLOCATION, 8000 MAN HOURS ARE ESTIMATED 2 REGIONAL RESEARCH 248699719 16.96 3 MANAGEMENT 16213236 11.05 4 INFORMATION TECHNOLOGY 109448954 7.46 REST OF THE DEPARTMENT CONSTITUTES 20% ALLOCATION SO 2000 MAN HOURS ARE ESTIMATED. 5 BROKING MANAGEMENT 37815450 2.58 6 LEGAL 32086984.3 2.19 7 EVENTS MARKETING 18507639.4 1.26 8 CLIENT MANAGEMENT 14499282.2 0.99 9 CLSA U 12405574.2 0.85 10 FUTURES & OPTIONS MANAGEMENT SUPPORT 11789552.8 0.80 11 HUMAN RESOURCES 10720135.2 0.73 12 CREDIT RISK MANAGEMENT 10106024.4 0.69 13 REGIONAL ALGORITHM BUSINESS SUPPORT 9183280.17 0.63 14 TAX PLANNING AND MANAGEMENT 8796597.54 0.60 15 COMPLIANCE 5334397.79 0.36 16 OPERATIONAL RISK MANAGEMENT 4286031.08 0.29 17 FINANCE & ACCOUNTING 3741284.96 0.26 18 INTERNAL AUDIT 1356363.47 0.09 18 DEVELOPMENT SQUAD 1299073.45 0.09 20 MARKET RISK MANAGEMENT 1119912.22 0.08 21 COMMUNICATIONS -11063811 -0.75 THIS IS NEGATIVE, SO MAN HOURS ARE NOT ALLOCATED TOTAL 1466742784 100 10000 1 ITA NO.902/MUM/2016 CLSA INDIA P LTD. 13 19. THE LD. TPO HAS JUSTIFIED THE METHOD OF ESTIMAT ING THE HOURS DEVOTED BY THE AE IN RESPECT OF VARIOUS SERVICES CLAIMED TO BE AVAILED BY THE ASSESSEE HOLDING AS UNDER:- 5.11.2 IN THE ABSENCE OF ALL THESE DETAILS REGARDI NG THE NUMBER OF EMPLOYEES WORKING WITH THE AE, THE SALARI ES PAID TO THESE EMPLOYEES, THE EDUCATIONAL QUALIFICATION OF T HESE EMPLOYEES, THE NUMBER OF HOURS DEDICATED BY THESE E MPLOYEES TOWARDS THE SERVICES RENDERED TO THE ASSESSEE, THE UNDERSIGNED IS CONSTRAINED TO GO BY ESTIMATION TO THE BEST JUDG MENT, TO QUANTIFY THE VALUE OF THE SERVICES IF AT ALL ANY BE ING RENDERED BY THE AE TO THE ASSESSEE. WITHOUT PREJUDICE TO THE CO NTENTION OF THE UNDERSIGNED, REGARDING THE SERVICES BEING RENDE RED BY THE AE TO THE ASSESSEE. HOWEVER AFTER CONSIDERING THE E VIDENCE FILED BY THE ASSESSEE, AS A MATTER OF ABUNDANT PRECAUTION , THE UNDERSIGNED PROCEEDS TO MAKE A REASONABLE ESTIMATE, OF WHATEVER LITTLE SERVICES THAT CAN BE SAID TO HAVE B EEN RENDERED IN THE FACTS AND CIRCUMSTANCES OF THIS CASE. HAVING RE GARD TO THE NATURE OF SERVICES WHICH ARE CLAIMED TO HAVE BEEN R ENDERED IN THE INSTANT CASE, THE UNDERSIGNED ESTIMATES THE SAL ARY FOR SUCH AN EMPLOYER AT RS. 3000 PER HOUR. TO THE BEST OF MY JUDGMENT, THE NUMBER OF MAN HOURS RENDERED BY THE EMPLOYEES T OWARDS RENDERING OF THESE SERVICES TO THE ASSESSEE, IS EST IMATED EARLIER AT 10,000 HOURS AT PARA 5.8.2 20. FROM THE OBSERVATIONS OF THE LD. TPO, IT IS CLE AR THAT TPO HAS MADE THE TRANSFER PRICING ADJUSTMENT PURELY ON ESTIMATIO N BASIS WITHOUT ANY SUPPORTING MATERIAL. THOUGH THE LD. TPO HAS MENTION ED THAT ARMS LENGTH PRICE HAS DETERMINED BY APPLYING CUP METHOD BUT IN FACT THE LD. TPO HAS NOT COME UP WITH ANY COMPARABLES TO JUSTIFY THE APP LICATION OF CUP METHOD. THE LD. TPO HAS NOT BROUGHT ON RECORD ANY M ATERIAL TO SUBSTANTIATE THAT THE AE PROVIDED THE SIMILAR SERVI CES TO AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES. THE LD. TP O HAS ALSO NOT BROUGHT ON RECORD ANY INSTANCE WHERE COMPARABLE SER VICES WERE PROVIDED TO AN INDEPENDENT ENTERPRISE IN THE RECIPI ENT MARKET. SO IN VIEW OF THE FACT THAT THE LD. TPO HAS, IN FACT, NOT APPL IED THE CUP METHOD TO DETERMINE THE ARMS LENGTH PRICE OF THE TRANSACTION , THERE IS NO REASON TO REJECT THE TNMM METHOD APPLIED BY THE ASSESSEE. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF JOHNSON & JOHNSON LTD. (SUPRA) WHILE DEALING WITH THE ISSUE OF DETERMINATION OF AR MS LENGTH PRICE OF ROYALTY ON ESTIMATION BASIS BY THE TPO HELD AS UNDE R:- (D) WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNA L UPHOLDING THE ORDER OF THE CIT (A) IN THE PRESENT FACTS CANNO T BE FOUND FAULT WITH. THE TPO IS MANDATED BY LAW TO DETERMIN E THE ALP BY FOLLOWING ONE OF THE METHODS PRESCRIBED IN SECTION 92C OF THE ACT READ WITH RULE 10B OF THE INCOME TAX RULES. HOWEVER , THE AFORESAID EXERCISE OF DETERMINING THE ALP IN RESPEC T OF THE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 14 ROYALTY PAYABLE FOR TECHNICAL KNOWHOW HAS NOT BEEN CARRIED OUT AS REQUIRED UNDER THE ACT. FURTHER, AS HELD BY THE CIT (A) AND UPHELD BY THE IMPUGNED ORDER OF THE TRIBUNAL, THE T PO HAS GIVEN NO REASONS JUSTIFYING THE TECHNICAL KNOWHOW ROYALTY PAID BY THE ASSESSING OFFICER TO ITS ASSOCIATED ENTERPRISE BEIN G RESTRICTED TO 1% INSTEAD OF 2%AS AS CLAIMED BY THE RESPONDENT ASS ESSEE. THIS DETERMINATION OF ALP OF TECHNICAL KNOWHOW ROYALTY B Y THE TPO WAS AD-HOC AND ARBITRARY AS HELD BY THE CIT (A) AND THE TRIBUNAL. 21. HENCE, FROM THE PLAIN READING OF THE RELEVANT P ROVISIONS AND THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT, IT CAN BE CONCLUDED THAT THE LAW DOES NOT PERMIT THE TPO TO DETERMINE T HE ARMS LENGTH PRICE ON ESTIMATION BASIS. WE ARE THEREFORE, OF THE CONSI DERED VIEW THAT THE ARMS LENGTH DETERMINED BY THE LD. TPO IS NOT IN ACC ORDANCE WITH THE PROVISIONS OF THE ACT AND THE RATIO OF LAW LAID DOW N BY THE HONBLE JURISDICTIONAL HIGH COURT. ON THE OTHER HAND THE IN TRA GROUP SERVICES ARE CLOSELY LINKED TO THE BUSINESS OF THE ASSESSEE AND THE ASSESSEES BENCHMARKING APPROACH IS BASED ON TNMM. FURTHER AS POINTED OUT BY THE LD. COUNSEL, THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF KNORR BREMSE INDIA P. LTD. VS. AICT 77 TAXMANN.COM 101 (DELHI TR I), HAS HELD THAT PAYMENT OF INTRA GROUP SERVICES MAY BE BENCHMARKED USING TNMM. THE OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER:- 18. AS REGARDS TO THE APPLICATION OF METHOD FOR DETERMINING THE ARMS LENGTH PRICE, WE ARE OF THE V IEW THAT THE METHOD TO BE USED TO DETERMINE ARMS LENGTH PRICE F OR INTRA- GROUP SERVICES SHOULD BE IN ACCORDANCE WITH THE GUI DELINES IN CHAPTER- I, II & III ECD TRANSFER PRICING GUIDELIN ES WHICH PROVIDES THE VARIOUS METHODS TO BE APPLIED AND THE CUP METHOD IS LIKELY TO BE A MOST APPROPRIATE METHOD WHERE THE RE IS A COMPARABLE SERVICE PROVIDED BETWEEN INDEPENDENT ENT ERPRISES IN THE RECIPIENTS MARKET OR BY THE AES PROVIDING THE SERVICES TO AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES. IN THE PRESENT CASE, THE TPO ALTHOUGH APPLIED THE CUP METH OD BUT NOTHING WAS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE AE PROVIDED THE SIMILAR SERVICES TO AN INDEPENDENT ENT ERPRISE IN COMPARABLE CIRCUMSTANCES. HE ALSO DID NOT BRING ON RECORD ANY INSTANCE WHERE COMPARABLE SERVICES WERE PROVIDED TO AN INDEPENDENT ENTERPRISE IN THE RECIPIENT MARKET. THE REFORE, IN OUR OPINION, IN THE ASSESSEES CASE THE CUP METHOD WAS NOT THE MOST APPROPRIATE METHOD. ON THE CONTRARY, THE ASSESSEE R IGHTLY APPLIED THE TNMM METHOD AS MOST APPROPRIATE METHOD BECAUSE IT WAS DIFFICULT TO APPLY THE CUP METHOD OR THE COS T PLUS METHOD. THEREFORE, THE TNMM WAS THE MOST APPROPRIATE METHOD IN THE ABSENCE OF A CUP WHICH IS APPLICABLE WHERE THE NATU RE OF THE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 15 ACTIVITIES INVOLVED, ASSETS USED, AND RISK ASSUMED IS COMPARABLE TO THOSE UNDERTAKEN BY AN INDEPENDENT ENTERPRISE. 22. SECTION 92C(1) OF THE ACT, CONTEMPLATES THAT TH E ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE D ETERMINED BY COMPARABLE UNCONTROLLED PRICE METHOD; RESALE PRICE METHOD; COST PLUS METHOD; PROFIT SPLIT METHOD; TRANSACTIONAL NET MARG IN METHOD OR SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. HEN CE, THE TPO IS BOUND TO DETERMINE THE ALP BY FOLLOWING ONE OF THE PRESCRIBED METHODS, HOWEVER, WE NOTICE THAT IN THE PRESENT CASE THE LD. TPO HAS NOT FOLLOWED ANY PRESCRIBED METHODS AND MADE THE TRANSFER PRICIN G ADJUSTMENT BY ESTIMATING THE MAN HOURS AND THE COST OF SERVICE PE R HOUR. WE THEREFORE, FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL THA T ANY AD-HOC DETERMINATION OF ARMS LENGTH PRICE BY THE LD TPO U/ S SECTION 92 DE-HORS SECTION 92C(1) OF THE ACT CANNOT BE SUSTAINED. THE CONTENTION OF THE LD. COUNSEL IS FURTHER SUPPORTED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TA X VS. MERCK LTD. 389 ITR 70 (MUM). IN THE SAID CASE THE HONBLE HIGH COU RT DECLINE TO INTERFERE WITH THE FINDINGS OF THE MUMBAI BENCH OF THE TRIBUNAL THAT THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO WITHOUT FOLLOWING ONE OF THE PRESCRIBED METHODS MAKES THE ENTIRE TRANSFER PR ICING ADJUSTMENT UNSUSTAINABLE IN LAW. THE GRIEVANCE OF THE REVENUE WAS THAT THE CONSIDERATION PAID TO THE AE IS ONLY ATTRIBUTABLE T O THE SERVICES RECEIVED / AVAILED. 23. IN THE LIGHT OF THE FACTS OF THE CASE, PROVISIO NS OF THE LAW AND THE CASES DISCUSSED IN THE FOREGOING PARAS, WE ARE OF T HE CONSIDERED VIEW THAT THE TRANSFER PRICING ADJUSTMENT MADE BY THE LD . TPO ON AD HOC BASIS IS NOT SUSTAINABLE IN LAW. SINCE, THE ORDER PASSED BY THE TPO U/S 92 CA(3) OF THE ACT IS NOT SUSTAINABLE, THE LD. DRP OU GHT TO ALLOWED THE OBJECTION FILED BY THE ASSESSEE. HENCE, WE DECIDE B OTH THE QUESTIONS MENTIONED IN PARA NO 17 (SUPRA) IN NEGATIVE AND FUR THER HOLD THAT THE ASSESSMENT ORDER PASSED BY THE AO PURSUANT TO THE D IRECTIONS PASSED BY THE LD DRP U/S 144(5) OF THE ACT, IS NOT SUSTAINABL E IN LAW. 24. NOW THE ISSUE ARISES AS TO WHETHER THE LEGAL IN FIRMITY IN THE IMPUGNED ORDER CAN BE CURED BY RESTORING THE ISSUE TO THE LD. TPO? ON THE SAID ISSUE THE LD. COUNSEL FOR THE ASSESSEE HEA VILY RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, DELIVERED IN CIT VS. KODAK INDIA PVT. LTD.,(SUPRA) IN WHICH THE COORDINA TE BENCH HAD DECLINED TO RESTORE THE ISSUE SIMILAR TO THE PRESENT CASE TO THE FILE OF TPO HOLDING THAT THE METHODS AS PRESCRIBED BY THE LEGISLATURE A RE MANDATORY AND NOT DIRECTORY AND WHEN THE MANDATORY PROVISION IS EITHE R SUPERSEDED OR IGNORED IT AFFECTS THE JURISDICTION. SINCE, THE TPO DID NOT ADHERED TO THE PRESCRIBED METHODS CONSCIOUSLY, ANOTHER INNINGS TO RECTIFY THE MISTAKE CANNOT BE ALLOWED. THE HONBLE HIGH COURT HELD THAT THE TRIBUNAL HAS RIGHTLY DECLINED TO RESTORE THE SIMILAR ISSUE TO AS SESSING OFFICER FOR RE- DETERMINING ALP BY ADOPTING ONE OF THE METHODS AS L ISTED OUT IN SECTION ITA NO.902/MUM/2016 CLSA INDIA P LTD. 16 92C OF THE ACT. THE RELEVANT PARAS OF THE ORDER OF THE HONBLE COURT READS AS UNDER:- 10. WE MUST ALSO RECORD THE FACT THAT THE ALP WAS ARRIVED AT BY THE TRANSFER PRICING OFFICER (TPO) BY NOT ADOPTING ANY OF THE METHODS PRESCRIBED UNDER SECTION 92C OF THE ACT. THE METHOD TO DETERMINE THE ALP ADOPTED WAS NOT ONE OF THE PRESCRIBED METHODS FOR COMPUTING THE ALP. IT WAS NO T EVEN ANY METHOD PRESCRIBED BY THE BOARD. AT THE RELEVANT TIM E, I.E. FOR A.Y. 2008-09 SECTION 92C OF THE ACT DID NOT PROVIDE FOR OTHER METHOD AS PROVIDED IN SECTION 92(C)(I)(F) OF THE AC T. THE IMPUGNED ORDER OF THE TRIBUNAL HOLDS THAT THE METHO D ADOPTED BY THE REVENUE TO DETERMINE THE ALP WAS ALIEN TO TH E METHODS PRESCRIBED UNDER SECTION 92C OF THE ACT. IN THE ABO VE CIRCUMSTANCES, THE TRIBUNAL DECLINED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR RE-DETERMINING THE ALP BY ADO PTING ONE OF THE METHODS AS LISTED OUT IN SECTION 92C OF THE ACT . THIS FINDING OF THE TRIBUNAL HAS ALSO NOT BEEN CHALLENGED BY THE REVENUE. 11. IN VIEW OF THE FACT THAT THE REVENUE HAS ACCEPT ED THE ORDER OF THE TRIBUNAL ON ITS FINDINGS ON FACTS ON T HE TWO ISSUES AS POINTED OUT HEREINABOVE AS WELL AS THE REFUSAL OF T HE TRIBUNAL TO RESTORE THE ISSUE OF DETERMINATION OF ALP TO THE TP O BY FOLLOWING ONE OF THE METHODS PRESCRIBED UNDER THE ISSUE OF DE TERMINATION OF ALP TO THE TPO BY FOLLOWING ONE OF THE METHODS P RESCRIBED UNDER SECTION 92C OF THE ACT. THUS, THE QUESTION AS FORMULATED FOR OUR CONSIDERATION EVEN IF ANSWERED IN FAVOUR OF THE REVENUE WOULD BECOME ACADEMIC IN THE PRESENT FACTS. THUS, W E SEE NO REASON TO ENTERTAIN THIS APPEAL. HOWEVER, WE MAKE I T CLEAR THAT THE ISSUES OF LAW WHICH HAS BEEN RAISED IN THE PRES ENT APPEAL ARE LEFT OPEN FOR CONSIDERATION IN AN APPROPRIATE CASE. 25. IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDIC TION HIGH COURT, THE ISSUE CANNOT BE RESTORED TO THE FILE OF THE LD. TPO TO DETERMINE THE ARMS LENGTH PRICE BY APPLYING MOST APPROPRIATE METHOD OU T OF THE PRESCRIBED METHODS UNDER THE PROVISIONS OF LAW. 26. HENCE, IN THE LIGHT OF THE FACTS AND CIRCUMSTAN CES OF THE CASE AND THE RATIO LAID DOWN BY THE COURTS OF LAW DISCUSSED ABOV E, WE HOLD THAT SINCE THE TPO HAS NOT MADE THE TRANSFER PRICING ADJUSTMEN T BY FOLLOWING THE MANDATORY PROVISIONS OF THE LAW AND DETERMINED THE SAME ON ESTIMATION BASIS, ACTION OF THE LD. DRP IN UPHOLDING THE TP AD JUSTMENT SO MADE BY THE LD. TPO IS BAD IN LAW. SO FAR AS THE CASES RELI ED UPON BY THE LD. DR IS CONCERNED, WE ARE OF THE CONSIDERED VIEW THAT THE F ACTS OF THE SAID CASES ARE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. S INCE, THE LD. TPO HAS NOT DETERMINED THE ARMS LENGTH PRICE IN ACCORDANCE WITH THE PROVISIONS OF LAW, THERE IS NO REASON TO HOLD THAT THE TNMM ME THOD APPLIED BY THE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 17 ASSESSEE IS NOT THE MOST APPROPRIATE METHOD WITHIN THE MEANING OF SECTION 92C OF THE ACT. 27. WE THEREFORE, DECIDE GROUND NO. 3 TO 3.4 OF THE APPEAL IN FAVOUR OF THE ASSESSEE AND ALLOW THE APPEAL OF THE ASSESSEE A ND DIRECT THE AO TO DELETE THE UPWARD ADJUSTMENT OF RS. 143,67,42,784/- CONFIRMED BY THE LD. DRP. 9. WE HAVE CONSIDERED THE FACTS FOR A.Y. 2011-12 VI Z-A-VIZ A.Y. 2012-13. ONLY DIFFERENCE IN THESE TWO YEARS IS THAT IN A.Y. 2012- 13, THE TPO HAS GIVEN ALLOWANCE ON THE BASIS OF ADHOC RATE PER HOUR AND IN A.Y. 201 1-12, THE TPO HAS MADE IT NIL ON ADHOC BASIS. THE ASSESSEE HAS PROVIDED EVIDENCES I N BOTH THE YEARS OF SERVICES RECEIVED AND BENEFITS. ALSO ASSESSEE HAS PROVIDED AES MARGIN AND BENCH MARKING INCLUDING PWC-AUP REPORT FOR BOTH THE YEARS AND USE D TNMM TO JUSTIFY ELP. HOWEVER, ON THE OTHER HAND, TPO HAS FOLLOWED NO PRE SCRIBED METHOD AS ENVISAGED BY SECTION 92 C OF THE ACT. THEREFORE, WE ARE INCL INED TO HOLD THAT ADJUSTMENT MADE BY THE TPO IS BAD IN LAW AND, ACCORDINGLY, DELETED. FURTHER THE TPO HAS NOT DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTION S IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C OF THE ACT. THERE IS NO REASON TO DISAPPROVE THE TRANSACTIONAL NET MARGIN METHOD APPLIED BY THE ASSE SSEE AS THE MOST APPROPRIATE METHOD. ACCORDINGLY, GROUND NO.4 IS ALLOWED. 10. GROUND NO.5 READS AS UNDER: RECEIPT OF BROKERAGE COMMISSION 5. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN PROPOSING / UPHOLDING AN ADJUSTMENT TO THE ALP DETERMINED BY TH E APPELLANT IN RESPECT OF THE INTERNATIONAL TRANSACTION IN CONNECT ION WITH RECEIPT OF BROKERAGE COMMISSION BY THE APPELLANT FROM ITS AES. IN DOING SO, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN LAW AND IN FACTS BY: 5.1.REJECTING THE TNMM AS THE MAM FOR THE DETERMINA TION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF BROKERAGE COMMISSI ON RECEIVED BY THE APPELLANT FROM ITS AES IN RESPECT OF NON-DIRECT MAR KET ACCESS ('DMA') TRANSACTIONS. ITA NO.902/MUM/2016 CLSA INDIA P LTD. 18 5.2.INAPPROPRIATELY APPLYING THE COMPARABLE UNCONTR OLLED PRICE ('CUP') METHOD WHILE COMPUTING THE ALP. 5.3.NOT GRANTING APPROPRIATE ECONOMIC ADJUSTMENTS I N ORDER TO ELIMINATE THE DIFFERENCES IN THE FUNCTIONS, ASSETS AND RISK ( 'FAR') PROFILE OF THE TRANSACTIONS UNDERTAKEN WITH THE AES VIS-A-VIS NON- AES. 11. FACTS IN BRIEF, AS STATED EARLIER, THE ASSESSEE IS IN THE BUSINESS OF EQUITY BROKING BOTH IN THE BOMBAY STOCK EXCHANGE AND THE N ATIONAL STOCK EXCHANGE. IT ALSO RENDERED SERVICES TO AES AND ALSO TO NON-AES. THE NON-AES ARE BASED IN INDIA AND ALSO OVERSEAS. THERE ARE PRINCIPALLY TWO SEGME NTS WHERE THE BROKING ACTIVITIES ARE UNDERTAKEN I.E. CASH AND F&O. THE ASSESSEE HAS SHOWN TO HAVE CHARGED A TOTAL BROKERAGE OF RS 22,77,50,526/- FROM THE AES IN CASH SEGMENT. THE RATE OF COMMISSION WORKS OUT TO BE 0.138% OF THE TURNOVER A ND THE ASSESSEE HAS BENCHMARKED THIS TRANSACTION BY USING TNMM. THE TP O OBSERVED THAT ASSESSEE HAS ALSO RENDERED SIMILAR SERVICES TO THE OVERSEAS NON- AES, FROM WHOM THE ASSESSEE CHARGED COMMISSION/BROKERAGE @ 0.250%. THE RATE O F COMMISSION CHARGED BY THE ASSESSEE FROM OVERSEAS NON-AE IS MORE THAN THE RAT E OF COMMISSION CHARGED FROM AE WHILE RENDERING EQUITY BROKING SERVICES. ACCORD INGLY, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE ALP OF THE BRO KERAGE COMMISSION RECEIVED FROM AES SHOULD NOT BE BENCHMARKED UNDER CUP METHOD OF 0.25% IN LINE WITH THE BROKERAGE COMMISSION RECEIVED FROM THE OVERSEAS NON -AES. THE ASSESSEE REPLIED TO THE SHOW CAUSE NOTICE IS REPRODUCED AS UNDER: (A) THE ASSESSEE HAS SUBMITTED THAT TNMM IS THE MO ST APPROPRIATE METHOD FOR BENCHMARKING THE ABOVE TRANSACTION. THE ASSESSEE SUBMITTED THAT IT HAS GIVEN DUE CONSIDERATION TO ALL THE FACT S AND CIRCUMSTANCES RELATED TO THE TRANSACTIONS THAT IT EXECUTED FOR AE AND HAS EARNED A MARGIN ON OPERATING INCOME OF 15.44% AS COMPARED TO THE AVERAGE MARGIN ON OPERATING INCOME OF 16.27% EARNED BY INDE PENDENT COMPARABLE INDIA BROKERAGE HOUSES. (B) A NUMBER OF FUNCTIONS NAMELY, CLIENT ORIGINATIO N ACTIVITIES, DEDICATED SALES AND SALES TRADING STAFF IN THE NEW YORK, LOND ON AND HONG KONG SALES OFFICES OF CLSA THAT COVER THE INDIA MARKET, CENTRALIZED CLIENT SUPPORT FUNCTIONS, RESEARCH TEAMS BASED OUTSIDE IND IA, CORPORATE ACCESS ITA NO.902/MUM/2016 CLSA INDIA P LTD. 19 AND INVESTOR FORUMS AND APPLICATIONS SOFTWARE DEVEL OPMENT AND IT SUPPORT ARE PERFORMED BY THE AES FOR NON-AE FLL CLI ENTS OF THE ASSESSEE. (C) THE DETAILED FAR ANALYSIS SUBMITTED BY THE ASSE SSEE HIGHLIGHTS THE KEY DIFFERENCES BETWEEN TRANSACTIONS EXECUTED FOR I TS AE AND NON-AE CLIENTS AND ESTABLISHES THAT AES AND NON-AE TRANSAC TIONS ARE DIFFERENT AND NOT DIRECTLY COMPARABLE FOR THE PURPOSES OF CUP. AS PER THE ASSESSEE, THE NON-AE TRANSACTIONS ARE ALSO NOT COMPARABLE WITHIN EACH OTHER WHICH ARE EVIDENCED BY THE VARIATIONS IN THE BROKERAGE RATES CHARGED TO NON AES AS PER THE SAMPLES BROKERAGE RATES PROVIDED BY THE ASS ESSEE. (D) THE NATURE OF SERVICES RENDERED TO CLIENTS VARI ES IN TERMS OF CORPORATE ACCESS, ANALYST ACCESS, RESEARCH, REGULARITY OF BUS INESS, SALES AND TRADING COVERAGE, CLIENT'S CREDITWORTHINESS ETC. AND HENCE THE SERVICE RENDERED AND THE RATE CHARGED FOR THAT CANNOT BE COMPARED FR OM ONE CLIENT TO ANOTHER. THUS, THE APPLICATION OF THE CUP METHOD IS NOT SUPPORTED UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND H ENCE CANNOT BE SELECTED AS THE MOST APPROPRIATE METHOD. (E) THE BROKERAGE RATE RECEIVED BY THE ASSESSEE FRO M ITS NON-AE CLIENTS REMUNERATES THE ASSESSEE FOR FUNCTIONS THAT ARE PER FORMED BY THE AES FOR SUCH CLIENTS ON ACCOUNT OF THE INDIAN REGULATORY EN VIRONMENT APPLICABLE TO SHARING OF COMMISSION BY BROKERS. (F) AS PER THE ASSESSEE, THE DEGREE OF COMPARABILI TY IS TO BE JUDGED TAKING INTO ACCOUNT THE FAR OF THE PARTIES, THE ECO NOMIC, BUSINESS AND REGULATORY ENVIRONMENT, AMONG OTHERS. FURTHER, REAS ONABLE ACCURATE ADJUSTMENTS ARE TO BE MADE TO TAKE INTO ACCOUNT THE DIFFERENCES AND WHERE SUCH ADJUSTMENTS ARE NOT RELIABLY QUANTIFIABL E; CUP METHOD SHOULD NOT BE USED. (G) THE ASSESSEE SUBMITTED THAT IT HAS DISCHARGED I TS ONUS BY DEMONSTRATING COMPLIANCE WITH THE ARM'S LENGTH PRIC E IN ACCORDANCE WITH SECTIONS 92C(1) & (2) OF THE ACT AND HAS MAINTAINED THE PRESCRIBED DOCUMENTATION IN SUPPORT OF ITS COMPLIANCE. THE ONU S IS ON THE TPO TO ESTABLISH WHY CASH EQUITY TRANSACTIONS EXECUTED BY THE ASSESSEE FOR UNRELATED FLLS SHOULD BE CONSIDERED A SUITABLE BENC HMARK TO ESTABLISH AN ARM'S LENGTH BROKERAGE RATE FOR CASH EQUITY TRANSAC TIONS EXECUTED BY THE ASSESSEE FOR ITS AES. H) IN CASE CUP IS CONSIDERED AS THE MOST APPROPRI ATE METHOD, THE ASSESSEE SUBMITTED ON A WITHOUT PREJUDICE BASIS, TH AT REASONABLE AND ACCURATE ADJUSTMENTS SHOULD BE MADE TO ENHANCE THE COMPARABILITY/ ELIMINATE THE MATERIAL DIFFERENCES, AS BETWEEN THE TRANSACTIONS THAT THE ASSESSEE EXECUTES FOR ITS AE AND NON AE FU CLIENTS. IN OTHER WORDS, THE COMMISSION RATE RECEIVED BY THE ASSESSEE FROM ITS N ON AE FU CLIENTS ITA NO.902/MUM/2016 CLSA INDIA P LTD. 20 REMUNERATES IT FOR FUNCTIONS THAT ARE PERFORMED BY ITS AES FOR SUCH CLIENTS. IN OTHER WORDS, THE ASSESSEE ALSO RECEIVES COMMISSION INCOME FROM ITS NON AE FU CLIENTS FOR FUNCTIONS THAT IT DO ES NOT PERFORM AND HENCE THE INTERNAL CUP SO IDENTIFIED, NEEDS TO BE A DJUSTED TO REFLECT THE FACT THAT THE REMUNERATION RECEIVED BY THE ASSESSEE FROM ITS NON AE CLIENTS COMPENSATES IT FOR FUNCTIONS THAT ARE PERFO RMED OFFSHORE FOR THOSE CLIENTS BY THE AES. BASED ON THE ABOVE ARGUMENT, TH E ASSESSEE SUBMITTED THE ADJUSTMENT WORKING TO THE COMPARABLE CUP. (I) THE ASSESSEE FURTHER SUBMITTED ADJUSTMENTS B ASED ON VOLUME, SUBMITTING THAT THE AVERAGE RATE OF ONLY TOP 10 CLI ENTS IN EACH CATEGORY SHOULD BE CONSIDERED AS A CUP OR BY ONLY CONSIDERIN G CLIENTS WHO HAVE HAD A TURNOVER OF HIGHER THAN 2000 CRORES. 12. THE TPO AFTER CONSIDERING THE REPLY OF THE ASSE SSEE CAME TO THE CONCLUSION THAT THE ASSESSEE IS PROVIDING BROKING SERVICES TO AES AND NON-AES. THE SERVICES PROVIDED BY THE BROKERS MAINLY INCLUDE TRADE EXECUT ION. THERE IS A DIRECT INTERNAL COMPARABLE AVAILABLE IN THE FORM OF BROKERAGES CHAR GED FROM THE THIRD PARTIES. THE ASSESSEE HAS ARGUED THAT THE CHOICE OF MOST APPROPR IATE METHOD LIES WITH THE ASSESSEE. THE OPINION EXPRESSED BY THE ASSESSEE IS CORRECT TO AN EXTENT IF THERE IS PROPER APPLICATION OF THE PRINCIPALS LAID DOWN IN T HE PROVISIONS OF THE I.T ACT. AS PER THE ASSESSEE, THE CUP METHOD COULD NOT HAVE BEEN AP PLIED BECAUSE OF THE REASONS MENTIONED IN THE TP DOCUMENTATION REPORT, WHICH ARE REPRODUCED BELOW: A) MARKETING/ ORIGINATION ACTIVITY IN RELATION TO N ON-AE FLLS B) SIGNIFICANT RESEARCH FUNCTION CENTRALIZED AT HON G KONG AND USED BY NON-AE FIIIS C) CENTRALIZED BUSINESS SUPPORT PROVIDED D) AS PER CIRCULAR ISSUED BY NSE, THE ASSESSEE IS N OT ALLOWED TO PASS ANY COMMISSION TO ITS AES FOR SERVICES PROVIDED. 13. HOWEVER, THE LEARNED TPO REJECTED THE REPLY OF THE ASSESSEE BY CITING THE FOLLOWING REASONS: A) THE ASSESSEE IS EASILY RELYING ON MARKETING AND ORIGINATION ACTIVITIES PROVIDED BY THE OVERSEAS AES. NO DIRECT EVIDENCE HA S BEEN PRODUCED TO ESTABLISH THAT THE CLIENTS ARE SERVICED BY THE GLOB AL OFFICE, IN SUPPORT OF ITS ITA NO.902/MUM/2016 CLSA INDIA P LTD. 21 CLAIM IT HAS SUBMITTED A LIST OF SALES CORPORATE, R OAD SHOWS IN FOREIGN COUNTRIES AND VISIT OF ONE OF ITS ANALYSTS /TO INDI A. IT HAS ALSO SUBMITTED AN AFFIDAVIT BY FORMER EMPLOYEES. B) AFTER GOING THROUGH THE EVIDENCES, THE FOLLOWING FINDING IS GIVEN:- (I) NOT A SINGLE EVIDENCE HAS BEEN FILED TO PROVE T HAT THE CLIENT MANAGEMENT WAS DONE FOR THE BENEFIT OF THE ASSESSEE COMPANY. I T IS WELL KNOWN THAT THE CLSA GROUP IS INVOLVED IN CROSS BORDER INVESTMENT B ANKING AND M&A DEALS. THEREFORE, IT HAS TO MAINTAIN MANAGERS FOR CLIENT M ANAGEMENT AS WELL AS SALE AND IS ANY BENEFIT HAS ACCRUED TO THE ASSESSEE COMP ANY, THE SAME IS ONLY INCIDENTAL. (II) THE ASSESSEE HAS FILED SOME PRINTOUTS OF THE S O-CALLED MEETINGS CONDUCTED BUT NOT A SINGLE EVIDENCE IS FILED TO PRO VE THE PURPOSE OF THE MEETING OR WHAT HAS TRANSPIRED DURING THE MEETING P ERTAINING TO THE ASSESSEE COMPANY. (III) THE LIST OF ROAD SHOWS AND MEETING WITH CLIEN TS ARE ENCLOSED. AGAIN THESE EVIDENCES DO NOT PROVE THAT THE PURPOSE OF THESE RO AD SHOWS AND MEETINGS WERE FOR THE BENEFIT OF THE ASSESSEE COMPANY. IT IS WELL KNOWN THAT THE CLSA GROUP IS INVOLVED IN RAISING PRIVATE EQUITY FOR PRI VATE EQUITY INVESTMENT AS WELL AS ITS OWN INVESTMENT IN VARIOUS ENTITIES. IT IS ALSO INVOLVED IN CROSS BORDER INVESTMENT BANKING AND M&A DEALS. THEREFORE IT HAS TO MAINTAIN MANAGERS FOR CLIENT MANAGEMENT AS WELL AS SALE AND IS ANY BENEFIT HAS ACCRUED TO THE ASSESSEE COMPANY, THE SAME IS ONLY I NCIDENTAL. (IV) THE ASSESSEE HAS FILED VARIOUS RESEARCH REPOR TS GENERATED BY ITS AES TO PROVE THAT THE RESEARCH IS PROVIDED BY THE AE. THIS IS NOT CORRECT AS THE ASSESSEE COMPANY HAS ITS OWN RESEARCH SITTING IN IN DIA. THEREFORE, IT IS MORE LIKELY TO PREPARE RESEARCH REPORT ON INDIAN MARKET AND IN FACT IT MUST BE FEEDING IT AE WHO MAY BE COMPILING THE RESEARCH GEN ERATED BY THE INDIAN ITA NO.902/MUM/2016 CLSA INDIA P LTD. 22 ENTITY. EVEN IF IT IS ASSUMED THAT THE RESEARCH IS DONE BY AE EVEN THEN IT IS FOR ALL THE PUBLIC AT LARGE WHICH ARE USED BY BOTH NON-AES AND AES. IT IS ALSO SEEN THAT IN ALL THE REPORTS SUBMITTED BY THE ASSES SEE COMPANY, THE RESEARCH RELATING TO INDIA, HAS BEEN PROVIDING BY THE ASSESS EE COMPANY. THEREFORE THERE IS NO DIRECT NEXUS BETWEEN THE RESEARCH DONE BY THE AE AND THE BENEFIT ACCRUING TO THE ASSESSEE COMPANY. (V) THE ASSESSEE IN TP REPORT, REJECTED THE CUP MET HOD CITING FUNCTIONAL DIFFERENCES. HOWEVER, AS DISCUSSED ABOVE THE FUNCTI ONS PERFORMED BY THE ASSESSEE COMPANY IS ALMOST SIMILAR FOR BOTH NON-AES AND AE CLIENTS. (VI) IN A CUP METHOD, REASONABLE AND ACCURATE ADJUS TMENTS ARE ALLOWED FOR BETTER COMPARABILITY. INSTEAD OF WORKING OUT ADJUST MENTS AT THE TIME OF THE TP REPORT, IT HAS ALTOGETHER REJECTED THE CUP METHO D WHICH MAKES THE TP REPORT NON-RELIABLE AS THE CHOICE OF MOST APPROPRIA TE METHOD HAS NOT BEEN DONE IN THE MANNER PRESCRIBED U/S 92C(1) & (2) OF THE IT ACT. (VII) THE ASSESSEE HAS SUBMITTED ON WITHOUT PREJUDI CE BASIS THAT THE RATE CHARGED FROM THE NON-AE DILS MAY BE TAKEN AS COMPAR ABLE. THIS IS NOT CORRECT AS THE CUSTOMERS ARE NOT LOCATED IN INDIA. THE AES ARE MORE COMPARABLE TO NON-AE FIIS. THEREFORE THE RATE CHARG ED FROM THE NON-AE FILS IS TAKEN AS COMPARABLE. (VIII) THERE IS NOT MUCH DIFFERENCE IN CREDIT RISK AS WELL BECAUSE THE ASSESSEE TAKES MARGIN MONEY BOTH FROM AE AND NON-AE. FINALLY, THE TPO TOOK THE ALP AT 0.250% AS AGAINST THE BROKERAGE OF 0.138% CHARGED BY THE ASSESSEE FROM THE AES AND THUS THE A DJUSTMENT OF RS 21,73,90,771/- WAS MADE TO THE INCOME OF THE ASSESS EE AS PROPOSED BY THE TPO. 14. THE LEARNED AR SUBMITTED BEFORE THE BENCH THAT THE TPO HAS THRUST THE CUP METHOD UPON THE ASSESSEE WITHOUT ANALYSING WHETHER ANY REASONABLE AND ACCURATE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 23 ADJUSTMENT WOULD BE WORKED OUT TO IRON OUT DIFFEREN CE BETWEEN THE AE AND NON-AE TRANSACTIONS. THE LEARNED AR SUBMITTED THAT THE TP O ITSELF HAS HELD THAT THERE ARE NO DIFFERENCES BETWEEN THE NON-AE AND AE TRANSACTIO NS AND THEREBY BRUSHING ASIDE THE DETAILED SUBMISSIONS DATED 27.10.2014 FILED BEF ORE THE TPO, EXPLAINING THE FACTS. IT WAS ALSO SUBMITTED THAT IF IT IS NOT POS SIBLE TO ELIMINATE THE DIFFERENCES BETWEEN THE TRANSACTIONS, THE METHOD HAS TO BE REJE CTED AND A METHOD HAS TO BE ANALYSED AS DOCUMENTED IN THE TRANSFER PRICING ANAL YSIS. THE LEARNED AR FURTHER ARGUED THAT IN THIS CASE THE TPO OUGHT TO HAVE REJE CTED THE CUP METHOD. THE LEARNED AR FURTHER SUBMITTED THAT IN THE CASE OF JP P MORGAN INDIA (P) LTD. V. ACIT [2014] 44 TAXMANN.COM 466 (MUM), THE CUP METHOD WAS HELD TO BE THE MOST APPROPRIATE METHOD BY IRONING OUT THE DIFFERENCE BE TWEEN THE AE AND NON-AE TRANSACTIONS. THIS EXERCISE HAS NOT BEEN DONE IN T HE CASE OF THE ASSESSEE AND, THEREFORE, THE CUP METHOD CANNOT BE CONSIDERED AS T HE MOST APPROPRIATE METHOD. THE LEARNED AR FURTHER SUBMITTED THAT IF THE BENCH IS OF THE VIEW THAT CUP METHOD SHOULD BE ADOPTED AS THE MOST APPROPRIATE METHOD BA SED ON A NON-BINDING PRECEDENT IN THE CASE OF J P MORGAN INDIA (P) LTD. (SUPRA), SIMILAR ADJUSTMENTS TO THE COST STRUCTURE SHOULD BE ALLOWED TO IRON OUT TH E DIFFERENCES BETWEEN THE AE AND NON-AE TRANSACTIONS. THE LEARNED AR VEHEMENTLY POI NTED OUT THAT THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF J P MORGAN INDIA ( P) LTD. (SUPRA), HAS NO BINDING PRECEDENCE DESPITE ORDER OF HONBLE BOMBAY HIGH COU RT, AS THE HIGH COURT HAS REFUSED TO ADMIT THE APPEALS AND MERELY AFFIRMED TH E ORDERS OF LOWER AUTHORITIES INCLUDING THE CIT(A) AND THE TRIBUNAL. THE LEARNED AR PRAYED THAT THE TNMM MAY BE ADOPTED AS THE MOST APPROPRIATE METHOD AND, WITH OUT PREJUDICE, IF CUP METHOD IS TO BE ADOPTED AS THE MOST APPROPRIATE METHOD THE ADJUSTMENTS TO THE COST STRUCTURE BE ALLOWED TO IRON OUT THE DIFFERENCES BE TWEEN THE AE AND NON-AE TRANSACTIONS. 15. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THE ASSESSEE HAS BENCH MARKED THE TRANSACTION BY USING TNMM AND SINCE THE ASSESSEE IS RENDERING SIMILAR SERVICES TO OVERSEAS AES, THE TPO HAS RIGHTLY PROPO SED THE CUP METHOD IN PLACE OF TNMM. THE ARGUMENT OF THE ASSESSEE THAT SAME BROKE RAGE SERVICES ARE TO BE PROVIDED TO THE AES AND NON-AES THOUGH THE FUNCTION S ARE DIFFERENT, WAS REJECTED ITA NO.902/MUM/2016 CLSA INDIA P LTD. 24 BY THE DRP AS IT FAILED TO DEMONSTRATE AS TO HOW TH E FUNCTIONS AS BROKERAGE ACTIVITIES ARE DIFFERENT BETWEEN AES AND NON-AES. THE LEARNED DR FURTHER SUBMITTED THAT IN THE CASE OF J P MORGAN INDIA PVT. LTD., (SU PRA), THERE WAS DIFFERENCE IN THE ACTIVITIES IN THE SERVICES RENDERED BY THE ASSESSEE TO THE AES AND NON-AES AND THE SAME WAS DEMONSTRATED BEFORE THE APPELLATE AUTHORIT IES. HOWEVER, NO SUCH DIFFERENCE IN ACTIVITIES HAS BEEN ESTABLISHED BY TH E ASSESSEE BEFORE THE TPO/DRP IN THE PRESENT CASE. CONSIDERING ALL THE ABOVE, THE L EARNED DR CONTENDED THAT THE ORDERS OF THE TPO AND DRP BE UPHELD. 16. WE HAVE HEARD THE PARTIES AND PERUSED MATERIAL ON RECORD. WE OBSERVED THAT THE ASSESSEE BEING AN INSTITUTIONAL BROKERAGE HOUSE HAS EARNED SIGNIFICANT BROKERAGE COMMISSION FROM FII CLIENTS, WHICH INCLUD ED AE AND NON AE ENTERPRISES. THE TRANSACTIONS FROM NON-AE FII CLIENTS, THE ASSES SEE IS REQUIRED TO PROVIDE BROADER RANGE OF SERVICES VIZ-A-VIZ SERVICES TO AE FII CLIENTS DID NOT INCLUDE MARKETING AND INTERNATIONAL SALES SUPPORT. WE FIND THAT THE ASSESSEE IS DEPENDENT ON THE OVERALL CLSA GROUP RESOURCES WITHOUT WHICH T HE BROKERAGE FROM FII CLIENTS COULD NOT HAVE MATERIALIZED. THE ASSESSEE ALSO FIL ED SUBMISSION DATED 27.10.2014 BEFORE THE TPO PROVIDING DETAILED EXPLANATION WITH REGARD TO THE DIFFERENCES IN SERVICES PROVIDED TO THE AE AND NON-AES AND EXPLANA TION IN SUPPORT THAT TNMM WAS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF BROKERAGE EARNED FROM AES. WE FIND MERIT IN THE SUBMISSION THAT TNMM IS THE CO RRECT METHOD AND INTERNAL CUP WOULD ENTAIL ADHOC ADJUSTMENT TO PRICE IN SO FAR AS BROKING COMMISSION FROM AE AND NON AES ARE CONCERNED. WE ALSO FIND MERIT IN THE C ONTENTION OF THE AR THAT IF THE DECISION IN THE CASE OF J P MORGAN INDIA PVT. LTD. (SUPRA), IS TO BE FOLLOWED, THEN ADJUSTMENTS TO THE COST STRUCTURE SHOULD BE ALLOWED TO IRON OUT THE DIFFERENCES BETWEEN THE AE AND NON-AE TRANSACTIONS. UNDER THES E CIRCUMSTANCES, WE ARE OF THE VIEW THAT OPERATING MODEL OF J P MORGAN INDIA P VT. LTD. IS NOT COMPARABLE TO THAT OF THE ASSESSEE AS MAJORITY OF THE INCOME IN T HE CASE OF J P MORGAN INDIA PVT. LTD WAS FROM RELATED PARTIES, WHEREAS IN THE CASE O F THE ASSESSEE SIGNIFICANT REVENUE IS FROM THIRD PARTY FII CLIENTS. WE ALSO N OTED THAT ASSESSEE COULD NOT HAVE GENERATED BUSINESS FROM FII CLIENTS WITHOUT THE SUP PORT OF CLSA GROUP RESOURCES, FOR WHICH IT IS PAYING INTRA GROUP SERVICE CHARGES. HENCE, IN SUCH A CASE, TNMM ITA NO.902/MUM/2016 CLSA INDIA P LTD. 25 COULD BE USED AS THE MOST APPROPRIATE METHOD. IN V IEW OF THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT ASSESSEE HAS RIGHTLY FOLLOWED THE TNMM AS THE MOST APPROPRIATE METHOD AND THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF J P MORGAN INDIA PVT LTD. (SUPRA) IS NOT APPLICA BLE TO THE PRESENT SET OF FACTS OF THE ASSESSEE. ACCORDINGLY, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE DRP AND DIRECT THE TPO/AO TO DELETE THE ADJUSTMENT OF BROKE RAGE INCOME OF RS 21,73,90,712/-.GROUND NO.5 IS ALLOWED. 17. GROUND NO.6 READS AS UNDER: PROVISION OF SUB-ADVISORY SERVICES AND INFORMATION TECHNOLOGY ('IT') SUPPORT SERVICES 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN PROPOSING/ UPHOLDING AN ADJUSTMENT TO THE ALP DETERMINED BY TH E APPELLANT IN RESPECT OF PROVISION OF SUB-ADVISORY SERVICES AND I T SUPPORT SERVICES BY THE APPELLANT TO ITS AES. IN DOING SO, THE LEARNED TPO/LEARNED AO/ HON'BLE DRP HAS ERRED IN LAW AND IN FACTS BY: 6.1. REJECTING THE TP DOCUMENTATION MAINTAINE D AND THE DETAILED FAR ANALYSIS AND BENCHMARKING ANALYSIS CONDUCTED BY THE APPELLANT. 6.2. DISREGARDING MULTIPLE / PRIOR YEAR DATA C ONSIDERED BY THE APPELLANT IN DETERMINING THE ALP AND ADOPTING THE F INANCIAL DATA FOR A SINGLE YEAR [IE, THE FINANCIAL YEAR ('FY') 2010-11] OF THE COMPARABLE COMPANIES DESPITE THE FACT THAT THE SAME WERE NOT A VAILABLE TO THE APPELLANT AT THE TIME OF PREPARING THE TP DOCUMENTA TION. 6.3. REJECTING CERTAIN COMPARABLE COMPANIES I DENTIFIED BY THE APPELLANT IN ITS TP DOCUMENTATION USING UNREASONABL E COMPARABILITY CRITERIA AND CONTRARY TO FACTS AS EVIDENCED BY THE AUDITED FINANCIAL STATEMENTS OF THE SAID COMPANIES. 6.4. APPLYING CERTAIN ADDITIONAL FILTERS AND FINALIZING THE TP ORDER WHILE CONSIDERING COMPANIES AS COMPARABLE TO THE AP PELLANT DESPITE SUCH COMPANIES FAILING THE TEST OF COMPARABILITY. 6.5. NOT GRANTING WORKING CAPITAL AND RISK AD JUSTMENT. 6.6. NOT CONSIDERING THE UPPER RANGE OF 5 PERC ENT FROM THE VALUE OF THE INTERNATIONAL TRANSACTION, AS ALLOWED UNDER THE ACT AND THE INCOME- TAX RULES, 1962 ('THE RULES'). ITA NO.902/MUM/2016 CLSA INDIA P LTD. 26 18. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASS ESSEE IS PROVIDING TWO DIFFERENT TYPES OF SERVICES TO ITS AE I.E. IT SUPPORT SERVICE S AND, SECONDLY, SUB-ADVISORY SERVICES. THE TPO HAS PROPOSED AN ADDITION ON ACCO UNT OF PROVISION OF BOTH THESE SERVICES. WITH REGARD TO THE IT SUPPORT SERVICES T O ITS AE, THE ASSESSEE HAS USED TNMM TO BENCHMARK THE TRANSACTION, WHICH HAS BEEN A CCEPTED BY THE TPO. THE PROFIT LEVEL INDICATOR USED WAS OPERATING PROFIT DI VIDED BY OPERATING COST. THE ASSESSEES MARGIN WAS 18% (PLUS 5% = 23.9%) AND THE TPO HAS SHORTLISTED THE FOLLOWING COMPARABLES: NAME OF THE COMPANY OPERATING PROFIT/OPERATING COST ACROPETAL TECHNOLOGIES LIMITED 22.06% INFOSYS LIMITED 43.75% KALS INFORMATION SYSTEMS LIMITED 9.95% LARSEN AND TOUBRO INFOTECH LIMITED 18.28% ZYLOG SYSTEM LIMITED 26.90% WIPRO TECHNOLOGIES LIMITED 55.46% THIRDWARE SOLUTIONS LIMITED 16.01% THE DRP NEITHER ALLOWED ANY EXCLUSION OF COMPARABLE COMPANIES IDENTIFIED BY THE TPO NOR ALLOWED ANY INCLUSION OF COMPARABLE COMPANI ES FROM THE ASSESSEES TRANSFER PRICING STUDY. HOWEVER, HE DIRECTED THE T PO TO COMPUTE THE MARGINS OF THE COMPARABLE COMPANIES AFTER CONSIDERING THE FORE IGN EXCHANGE FLUCTUATION AS OPERATING IN NATURE. THUS, BASED ON THE DRPS DIRE CTIONS THE TPO COMPUTED THE ADDITION OF RS 1,49,08,248/- 19. THE TPO REJECTED GC VAK SOFTWARE AND EXPORTS LI MITED AS COMPARABLE ON THE GROUND THAT THE SAID COMPANY INCURRED LOSSES IN THE SOFTWARE SEGMENT. THE TPO ALSO OBSERVED THAT IT HAD 85% OF THE BUSINESS FROM NORTH AMERICA AND DUE TO ECONOMIC SLOW DOWN IN THE SAID REGION CG VAK FACED DIFFICULTY AND SUFFERED LOSSES IN THE SUBSEQUENT YEAR ALSO. THE DRP UPHELD THE RE JECTION OF THE COMPARABLE BY THE TPO ON THE GROUND THAT THERE WAS PERSISTENT LOS SES IN THE COMPARABLE SOFTWARE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 27 SEGMENT AND OTHER INCOME INCLUDED FOREIGN CURRENCY INCOME OF RS 46 LACS, WHICH IS UNALLOWABLE. 20. THE LEARNED AR SUBMITTED BEFORE THE BENCH THAT THE SAID COMPARABLE IS NOT A PERSISTENT LOSS MAKER. HE REFERRED TO PAGE NOS. 44 2 & 781 OF THE PAPER-BOOK, WHICH SHOWS THE PROFIT MARGIN OF 7.46%, 8.80% AND 6 .42% FOR THE YEAR ENDING MARCH 2009, 2010 AND 2011 RESPECTIVELY. THE LEARNE D AR FURTHER SUBMITTED THAT TPO HIMSELF ADMITTED THAT THE MARGIN OF THIS YEAR I S 6.42 % BY REFERRING TO PAGE 41 OF THE TPOS ORDER. WE FIND MERIT IN THE ARGUMENTS OF THE LEARNED AR THAT THE COMPANY CANNOT BE EXCLUDED MERELY BECAUSE IT HAS IN CURRED LOSS. THE CASE IS SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. WELSPUN ZUCCHI TEXTILE LIMITED [2017] 391 ITR 221 ( BOM); PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BOBST INDIA PVT. LTD. VS. D CIT [2015] 63 TAXMANN.COM 339 AND THE DECISIONS OF MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF TPG CAPITAL INDIA PVT. LTD. VS. DCIT [2017] 79 TAXMAN.COM 101 A ND WALT DISNEY CO. (INDIA) PVT. LTD. VS. DCIT [2017] 188 TTJ 100. IN VIEW OF THE R ATIO LAID DOWN IN THE SAID DECISIONS, WE ARE IN AGREEMENT WITH THE LEARNED COU NSEL OF THE ASSESSEE THAT C G VAK SOFTWARE AND EXPORTS LIMITED SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. 21. IT WAS SUBMITTED BY THE COUNSEL OF THE ASSESSEE THAT OUT OF NINE COMPARABLES SELECTED BY THE TPO IF THREE COMPARABLES VIZ INFOSY S LTD., ZYLOG SYSTEM LTD. AND WIPRO TECHNOLOGIES LTD. WERE EXCLUDED THEN OP/OC OF ASSESSEE WOULD BE HIGHER THAN THE ARITHMETIC MEAN OP/OC OF THE REMAINING COM PARABLES. 22. INFOSYS LTD. & ZYLOG SYSTEM LTD: THE ASSESSEE ARGUED THAT THE SAID COMPANIES ARE FUNCTIONALLY DIFFERENT AS THEY ARE EN GAGED INTO SOFTWARE PRODUCTS AND SERVICES AND SEGMENTAL DATA IS NOT AVAILABLE FOR SO FTWARE SERVICES. MOREOVER, THEY HAVE SIGNIFICANT BRAND VALUE UNLIKE THE ASSESSEE. THUS, THESE COMPANIES ARE NOT COMPARABLE WITH THAT OF THE ASSESSEE FOR THE REASON S THAT THEIR FUNCTIONS ARE DIFFERENT, HAVE SIGNIFICANT BRAND VALUE AND WIDE MA RKETING NETWORK. IN THE CASE OF INFOSYS LTD., THE TPO OBSERVING THAT THE BRAND BUIL DING EXPENSES IS ONLY 0.37% OF THE TOTAL REVENUE AND, HENCE, BRAND IS NOT CREATED ON ACCOUNT OF MARKETING EXPENSES BUT SUPERIOR SERVICES, BRUSHED ASIDE THE C ONTENTION OF THE ASSESSEE. THE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 28 DRP UPHELD THE ORDER OF THE TPO BY HOLDING THAT ASS ESSEE IS ALSO INTO SOFTWARE PRODUCT DEVELOPMENT ACTIVITY, WHICH INCLUDES SOFTWA RE INTEGRATION, DEVELOPMENT, APPLICATION SOFTWARE DEVELOPMENT, CLSA APPLICATION, MAINTENANCE AND SUPPORT, INFRASTRUCTURE MANAGEMENT ETC. SIMILARLY, IN THE C ASE OF ZYLOG SYSTEMS LTD., THE TPO OBSERVED THAT THIS COMPANY IS PRIMARILY PROVIDI NG SERVICES AND THUS CONSIDERED IT AS A VALID COMPARABLE, WHICH WAS UPHELD BY THE D RP. THE LEARNED COUNSEL SUBMITTED BEFORE THE BENCH THAT THE COMPANY IS INTO SOFTWARE DEVELOPMENT AND HARDWARE PRODUCTS AND IS NOT A COMPARABLE TO THE BU SINESS MODEL OF THE ASSESSEE, WHICH IS INTO SOFTWARE SERVICES. THE LEARNED COUNS EL RELIED ON FOLLOWING DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL, WHEREIN TH E SAID COMPANIES HAVE BEEN EXCLUDED FROM THE LIST OF VALID COMPARABLES. NESS TECHNOLOGIES INDIA PRIVATE LIMITED VS. DCIT [2 016] 76 TAXMANN.COM 209 ORANGE BUSINESS SERVICES INDIA SOLUTIONS PRIVATE LI MITED. VS. DCIT [2016] 71 TAXMANN.COM 206 CLEAR 2 PAY INDIA (P.) LTD VS. ITO [2018] 95 TAXMAN N.COM 284 ALCATEL LUCENT INDIA LIMITED VS. DCIT [2016] 74 TAX MANN.COM 105 SIMILARLY, THE LEARNED AR RELIED ON THE FOLLOWING J UDGMENTS OF HONBLE JURISDICTIONAL HIGH COURT WHEREIN IT HAS BEEN HELD THAT A COMPANY INVOLVED IN SOFTWARE PRODUCT CANNOT BE COMPARE TO A COMPANY PROVIDING SOFTWARE D EVELOPMENT SERVICES : CIT VS. PTC LTD. [2017] 395 ITR 176 CIT VS. PRINCIPAL GLOBAL SERVICES P LTD. [2018] 95 TAXMANN.COM 315 ON THESE FACTS AND RATIO LAID DOWN BY THE TRIBUNAL AND THE HONBLE JURISDICTIONAL HIGH COURT, WE ARE OF THE VIEW THAT INFOSYS LTD. AN D ZYLOG SYSTEM LTD. ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 23. WIPRO TECHNOLOGIES LIMITED: THE TPO HAS OBSERVED THAT ACTIVITIES OF THE COMPANY COMPRISE OF SOFTWARE RELATED SUPPORT SERVIC ES, PRIMARILY INFORMATION TECHNOLOGY SOFTWARE SOLUTIONS/MAINTENANCE AND TECHN OLOGY SUPPORT SERVICES. FURTHER, HE ALSO OBSERVED THAT 94% OF ITS INCOME IS EXPORT INCOME. THE TPO HELD IT ITA NO.902/MUM/2016 CLSA INDIA P LTD. 29 TO BE A VALID COMPARABLE, WHICH WAS ALSO UPHELD BY THE DRP. THE LEARNED AR SUBMITTED BEFORE THE BENCH THAT ALL TRANSACTIONS OF WIPRO TECHNOLOGIES LIMITED ARE CONTROLLED TRANSACTIONS. IT WAS INCORPORATED ON 15 TH SEPT. 2004 AS CITI TECHNOLOGIES SERVICES LIMITED AS A SUBSIDIARY OF CITICORP BANKIN G CORPORATION AND LATER ON PURSUANT TO SHARE PURCHASE AGREEMENT DATED 21.01.20 09, ALL THE SARES OF WIPRO TECHNOLOGY SERVICES LIMITED WERE PURCHASED BY ITS H OLDING COMPANY WIPRO LIMITED. THIS COMPANY IS CURRENTLY PROVIDING SERVICES TO CIT IGROUP ENTITIES GLOBALLY, WHICH IS CONSIDERED AS ON SEGMENT. HENCE IN VIEW OF THE PRI OR ARRANGEMENT BETWEEN WIPRO LIMITED AND CITICORP, THE TRANSACTIONS ARE CONTROLL ED AS PER SECTION 92B(2). THE LEARNED COUNSEL FURTHER POINTED OUT THAT IN THE SAM E ASSESSMENT YEAR I.E. 2011-12, THIS COMPANY HAS BEEN EXCLUDED BY THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. PENTAIR WATER INDIA (P.) LTD. [2016] 381 IT R 216 (BOM) AND THE TRIBUNAL IN THE FOLLOWING CASES: NESS TECHNOLOGIES INDIA PRIVATE LIMITED VS. DCIT [2 016 76 TAXMANN.COM 209 ORANGE BUSINESS SERVICES INDIA SOLUTIONS PRIVATE LI MITED VS. DCIT [2016] 71 TAXMANN.COM 206 CLEAR 2 PAY INDIA (P) LTD. VS. INCOME TAX OFFICER [ 2018] 95 TAXMANN.COM 284 ALCATEL LUCENT INDIA LIMITED V. DCIT [2016] 74 TAXM ANN.COM 105 24. ON PERUSAL OF THE FACTS OF THE CASE AND THE RAT IO LAID DOWN IN VARIOUS DECISIONS AS DISCUSSED ABOVE, WE OBSERVE THAT INFOS YS AND ZYLOG ARE ALSO INTO SOFTWARE PRODUCTS AND DO NOT HAVE SEPARATE SEGMENTS FOR SOFTWARE SERVICES. THEREFORE, THEY ARE NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEES TRANSACTIONS OF PROVIDING IT SUPPORT SERVICES. THEREFORE, IN OUR V IEW, THEY ARE LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. WITH REGARD TO WIPRO TECHNOLOGIES, IT HAS BEEN HELD IN THE ABOVE CASES THE COMPANY HAS CONTROLLED TRANS ACTIONS AND LIABLE TO BE EXCLUDED. THEREFORE, FOLLOWING THE DECISIONS OF C O-ORDINATE BENCHES FOR SIMILAR A.Y. 2011-12, WE ARE OF THE VIEW THAT WIPRO TECHNOLOGY L TD SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. AS REGARDS CG-VAK SOFTWA RES AND EXPORTS LTD , WE ARE IN AGREEMENT WITH THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAME SHOULD BE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 30 INCLUDED IN THE LIST OF COMPARABLES. THE LEARNED CO UNSEL DEMONSTRATED THAT ON INCLUDING CG-VAK SOFTWARES AND EXPORTS LTD AND EXC LUDING INFOSYS, ZYLOG AND WIPRO, THE ASSESSEES MARGIN IS HIGHER THAN THE REM AINING COMPARABLES. 25. THE OTHER ISSUE CHALLENGED BY THE ASSESSEE BEFO RE US IS AGAINST THE ADDITION OF RS 67,62,961/- WITH REGARD TO SUB-ADVISORY SERVI CES. THE ASSESSEE IS PROVIDING INVESTMENT SERVICES TO ITS AE AND NON-AES. THE ASSE SSEE HAS USED TNMM TO BENCHMARK THESE TRANSACTIONS. THE TPO HAS NOT DIST URBED THE BENCHMARKING METHOD USED BY THE ASSESSEE. HOWEVER, HE DID NOT A GREE WITH THE ASSESSEES MARGIN, WHICH IS 26% ON THE BASIS OF THE FOLLOWING COMPARABLES: CRISIL LTD. ICRA MANAGEMENT CONSULTING SERVICES LTD. IDC (INDIA) LTD. MECKLAI FINANCIAL SERVICES LTD. THE TPO REJECTED ALL THE COMPARABLE COMPANIES AND I DENTIFIED ONLY TWO COMPARABLES VIZ. MOTILAL INVESTMENT ADVISORS PVT. L TD. AND LADDERUP CORPORATE ADVISORY PRIVATE LIMITED AND COMPUTED AN ADDITION O F RS 99,06,632/- HOWEVER, THE DRP DID NOT AGREE FOR THE INCLUSION OF COMPARABLE C OMPANIES FROM ASSESSEES TRANSFER PRICING STUDY REPORT AND ALLOWED EXCLUSION OF ONE TPO COMPARABLE COMPANY I.E. MOTILAL INVESTMENT ADVISORS PVT. LTD. ACCORDI NG, AS PER THE DIRECTIONS OF THE DRP THE TPO COMPUTED THE ADDITION AT RS 67,62,961/- . 26. THE LEARNED AR SUBMITTED BEFORE US THAT THE TPO HAS HIMSELF ACCEPTED THE FACT THAT LADDERUP CORPORATE ADVISORY PRIVATE LIMIT ED IS INTO INVESTMENT BANKING BUSINESS AND, HENCE, COMPARING THE SAME WITH NON-BI NDING ADVISORY SERVICES IS WRONG. THE TPO INCLUDED THE SAID COMPARABLE ON THE GROUND THAT THE COMPANY IS PROVIDING SIMILAR KIND OF SERVICES AS THAT OF THE A SSESSEE. THE LEARNED AR SUBMITTED THAT THE DRP, ON THE OTHER HAND, OBSERVED THAT SAID COMPANY HAS ACQUIRED MERCHANT BANKING ACTIVITY ONLY IN JULY 2010, THERE IS NO EVIDENCE THAT DURING THE YEAR 2010-11 ANY INCOME HAS BEEN RECEIVED FROM MERC HANT BANKING AND MERELY REGISTERING WITH SEBI AS A MERCHANT BANKER DOES NOT MEAN INCOME IS EARNED FROM MERCHANT BANKING. THE LEARNED AR FURTHER SUBMITTED THAT LADDERUP CORPORATE ADVISORY PRIVATE LIMITED IS NOT A PUBLIC LIMITED CO MPANY HENCE, THE FINANCIALS ARE ITA NO.902/MUM/2016 CLSA INDIA P LTD. 31 PROVIDING ONLY NUMBERS. THERE S NO DIRECTORS REPO RT, WHICH DISCUSS THE NATURE OF ACTIVITIES CARRIED OUT BY THE COMPANY. IN SUCH SCE NARIO, RELEVANT INFORMATION CAN ONLY BE FOUND ON THE WEBSITE, WHICH CLEARLY SHOWS T HAT THE COMPANY HAS EXECUTED INVESTMENT BANKING DEALS IN THE YEAR UNDER CONSIDER ATION. THE LEARNED AR FURTHER REFERRED TO THE SERVICES PROVIDED BY THIS COMPANY U NDER TWO CATEGORY I.E. INVESTMENT BANKING AND DEBT CAPITAL. THE LEARNED A R FURTHER SUBMITTED THAT THE SAID COMPANY HAS EXECUTED PRIVATE EQUITY PLACEMENT FOR A CUSTOMERS, SALE OF STRATEGIC EQUITY OF CUSTOMER, PROVIDED DEMERGER ADV ISORY TO CUSTOMERS ETC. THEREFORE, THE LEARNED AR SUBMITTED THAT THE SAID A E IS NOT A GOOD COMPARABLE AS THE SAID COMPANY IS NOT INTO THE KIND OF SERVICES T HE ASSESSEE IS PROVIDING. THE LEARNED AR RELIED ON THE FOLLOWING TRIBUNAL DECISIO NS: MCKINSEY KNOWLEDGE CENTRE PRIVATE LIMITED V. DCIT [ 2017] 77 TAXMANN.COM 154 MOUNT KELLETT CAPITAL MANAGEMENT INDIA (P.) LTD. [2 018] 100 TAXMANN.COM 367 WELLS FARGO REAL ESTATE ADVISORS (P.) LTD. V. DCIT [2018] 90 TAXMANN.COM 18 DCIT V. GENERAL ATLANTIC (P.) LTD. [2018] 91 TAXMAN N.COM 406 ACIT V. BLACKSTONE ADVISORS INDIA (P.) LTD. [2019] 101 TAXMANN.COM 116 TEMASEK HOLDINGS ADVISORS INDIA (P.) LTD. V. DCIT [ 2017] 87 TAXMANN.COM 168 CARLYLE INDIA ADVISORS PVT. LTD. V. ACIT [IT(TP)A N O.2410/MUM/2017] THE LEARNED AR FURTHER RELIED ON THE FOLLOWING JUDG MENTS OF THE HONBLE BOMBAY HIGH COURT WHEREIN IT HAS HELD THAT COMPANIES INVOL VED IN MERCHANT BANKING BUSINESS CANNOT BE COMPARED TO NON-BINDING INVESTME NT ADVISORY SERVICES PCIT V. NEW SILK ROUTE ADVISORS P. LTD. [ITA NO. 21 6 OF 2016] CIT V. GENERAL ATLANTIC PRIVATE LTD. [ITA NO. 1993 OF 2013] CITV. GOLDMAN SACHS (INDIA) SECURITIES PVL LTD. [IT A NO. 2222 OF 2013] 27. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF LOWER AUTHORITIES. 28. AFTER HEARING BOTH THE PARTIES AND GOING THE MA TERIAL AVAILABLE ON RECORD AS ALSO THE DECISIONS CITED, WE OBSERVE THAT IN THE AB OVE CASES, THE CO-ORDINATE BENCH HAS HELD THAT LADDERUP CORPORATE ADVISORS HAS TO BE EXCLUDED AS THE SAID COMPANY IS INTO INVESTMENT BANKING BUSINESS AND NOT RENDERI NG NON-BINDING INVESTMENT SERVICES. SIMILARLY, BOMBAY HIGH COURT IN THE CASE OF NEW SILK ROUTE ADVISORS P. ITA NO.902/MUM/2016 CLSA INDIA P LTD. 32 LTD GENERAL ATLANTIC PRIVATE LTD. AND GOLDMAN SACH HS (INDIA) SECURITIES PVT LTD. (SUPRA), HAS HELD THAT MERCHANT BANKING BUSINESS CA NNOT BE COMPANY TO NON- BINDING INVESTMENT ADVISORY SERVICES RESPECTFULLY, FOLLOWING THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT AND THE CO-ORDINATE BENCHES, WE DIRECT THE TP O TO EXCLUDE LADDERUP CORPORATE ADVISORY PRIVATE LIMITED FROM THE LIST OF COMPARABLES. 29. SIMILARLY, THE ASSESSEE HAS ARGUED BEFORE US TH AT FOR THE INCLUSION OF MECKLAI FINANCIAL SERVICES LTD., ICRA MANAGEMENT CONSULTING SERVICES LTD AND IDC INDIA LTD. THE LEARNED AR SUBMITTED THAT IF THESE COMPAN IES ARE INCLUDED AS COMPARABLES BY THE TPO THEN THE TRANSACTIONS WITH THE AES WOULD BE WITHIN THE ALP. IN THE CASE OF MECKLAI FINANCIAL SERVICES LTD, THE TPO REJECTED THE SAID COMPARABLE BY APPLYING THE LOSS MAKING FILTER AS THE COMPANY HAD INCURRED LOSSES IN F.Y. 2010-11. THE LEARNED DRP UPHELD THE ORDER OF THE TPO EXCLUDING T HE SAID COMPARABLE ON THE GROUND THAT THE ASSESSEE IS PROVIDING SERVICES OF E QUITY BASED INVESTMENT AND NOT PROVIDING ANY ADVISORY FOR RISK, CURRENCY FUTURE BR OKERING OR CONSULTANCY SERVICES TO CORPORATE AND INSTITUTION. THE LEARNED DRP OBSERVE D THAT THE SAID COMPANY IS PROVIDING ADVISORY SERVICES IN COMPLETELY DIFFERENT AND UNRELATED SECTOR AND IT IS ALSO A CONSISTENTLY LOSS MAKING COMPANY. 30. THE LEARNED AR SUBMITTED THAT THE OBSERVATION O F THE TPO AND THE DRP THAT THE COMPANY IS CONSISTENTLY LOSS MAKING IS WRONG AS IT HAD PROFIT OF 12.64%, 16.41 AND 0.17% IN MARCH 2009, MARCH 2010 AND MARCH 2011 RESPECTIVELY. THE LEARNED AR FURTHER SUBMITTED THAT PRODUCT SIMILARITY IS NOT IMPORTANT WHEN THE METHOD SELECTED IS TNMM. FURTHER, IT WAS SUBMITTED THAT T HE PERUSAL OF THE WEBSITE EXTRACT OF THE COMPANY CLEARLY STATES THAT IT IS INTO ADVIS ING CLIENTS IN RELATION TO FOREIGN EXCHANGE IN THE SAME WAY ASSESSEE IS INVOLVED IN AD VISING CLIENTS ALBEIT RELATING TO EQUITY SECURITIES. THE LEARNED AR SUBMITTED THAT F UNCTIONS OF A FOREIGN EXCHANGE ADVISOR ARE SIMILAR TO AN INVESTMENT ADVISOR. THEI R FUNCTIONS INVOLVE RESEARCHING, ANALYSING, PRESENT THE INFORMATION BY WAY OF REPORT , MAKE RECOMMENDATIONS BASED ON THE ANALYSIS AND REPORT, MONITOR THE SOLUTION GI VEN ETC. THE LEARNED AR THEREFORE, PRAYED THAT CONSIDERING ALL THESE ASPECT S OF MECKLAI FINANCIAL SERVICES ITA NO.902/MUM/2016 CLSA INDIA P LTD. 33 LTD. , IT MAY BE INCLUDED AS A GOOD COMPARABLE. TH E LEARNED AR FURTHER STATED THAT THE SAID COMPANY HAS BEEN INCLUDED AS A COMPARABLE BY THE TRIBUNAL IN THE CASE OF AGM INDIA ADVISORS PRIVATE LIMITED VS. DCIT [2016] 70 TAXMANN.COM 219. IT WAS FURTHER STATED THAT A COMPANY CANNOT BE EXCLUDED ME RELY BECAUSE IT HAS INCURRED LOSS, UNLESS IT IS A CONSISTENT LOSS MAKING ONE. I N SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. WELSPUN ZUCCHI TEXTILE LIMITED [2017] 391 T R 211. TO DEFEND THE ARGUMENT ON THE ISSUE OF PRODUCT SIMILARITY DOES NO T MATTER IF THE METHOD FOLLOWED IS TNMM, LEARNED AR RELIED ON THE DECISION OF DIAGE O INDIA (P) LTD. VS. DCIT [2013] 28 ITR(T) 242. 31. THE LEARNED DR RELIED ON THE ORDER OF THE AUTHO RITIES BELOW. 32. WE HAVE BOTH THE SIDES AND PERUSED MATERIAL ON RECORD. WE DO NOT FIND FORCE IN THE OBSERVATION OF THE TPO THAT THE SAID C OMPANY IS A PERSISTENT LOSS MAKING COMPANY, WHICH IS CLEAR FROM PAGES 561 AND 5 77 OF THE PAPER-BOOK. IT HAS INCURRED LOSS ONLY DURING THE YEAR. WE ALSO FIND M ERIT IN THE ARGUMENT OF THE LEARNED AR THAT PRODUCT SIMILARITY IS NOT IMPORTANT WHEN THE METHOD SELECTED FOR BENCHMARKING IS TNMM. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE CASE LAWS, WHICH HAS BEEN DISCUSSED ABOVE. ACCORDINGLY, WE DIRECT THE TPO TO HOLD MECKLAI FINA NCIAL SERVICES AS A VALID COMPARABLE. 33. IN THE CASE OF ICRA MANAGEMENT CONSULTING SERVI CES LTD. THE TPO OBSERVED THAT IT IS IN THE BUSINESS OF PROVIDING MANAGEMENT CONSULTING AND ADVISORY SERVICES TO CLIENTS, WHO ARE CORPORATE, BANKS, GOVERNMENT, M ULTI-LATERAL AGENCIES, INSTITUTIONAL INVESTORS ETC. ACCORDING TO THE TPO, THE SERVICES PROVIDED BY THIS COMPANY ARE IN NO WAY RELATED TO THE SERVICES PROVI DED BY THE ASSESSEE AND, THEREFORE, IT WAS REJECTED AS A COMPARABLE. THE D RP OBSERVED THAT THE COMPANY IS PROVIDING CONSULTANCY SERVICES AND ENGAGED IN MANAG EMENT CONSULTANCY. THE LEARNED DRP RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SANDSTONE CAPITAL ADVISORS PVT. LTD. IN ITA NO. 6315/MUM/2012, WHEREI N IN HAS BEEN HELD TO BE COMPANY THAT IS INTO RATING SERVICES, WHICH IS NOT COMPARABLE TO INVESTMENT ADVISORY ITA NO.902/MUM/2016 CLSA INDIA P LTD. 34 SERVICES, AND REJECTED THE COMPARABLE. FURTHER THE DRP ALSO NOTED A FACT THAT THE SAME COMPANY WAS REJECTED BY HIS PREDECESSOR IN A.Y . 2010-11 ALSO. 34. SIMILARLY, IN THE CASE OF IDC INDIA LTD., THE T PO OBSERVED THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF RESEARCH, SURVEY SERVICE AND PRODUCTS. IT PROVIDES USER RESEARCH, VERTICAL RESEARCH, AND CONSULTING SERVICE S WHICH ENABLE IT PROFESSIONALS, BUSINESS EXECUTIVES TO MAKE COST BASED DECISIONS ON TECHNOLOGY PURCHASES AND BUSINESS STRATEGY. HENCE, THE TPO WAS OF THE OPIN ION THAT IT IS IN NO WAY COMPARABLE WITH THAT OF THE ASSESSEE. BEFORE THE D RP, THE PLEA OF THE ASSESSEE WAS REJECTED ON THE GROUND THAT THE SAID COMPANY IS NOT ENGAGED IN THE BUSINESS OF PROVIDING INVESTMENT ADVISORY SERVICES. THE LEARNE D DR DISTINGUISHES THE CASE OF THE ASSESSEE WITH THAT OF CARLYLE INDIA ADVISORS PV T. LTD. N ITA NO. 7901/MUM/2011, STATING THAT THERE WAS NO DISCUSSION BY THE TRIBUNAL ON COMPARABILITY OF THIS COMPANY AS DEPARTMENT AND ASS ESSEE HAD ACCEPTED THIS COMPANY. HOWEVER, IT DOES SET A PRECEDENT AS EACH YEAR IS DIFFERENT AND COMPARABILITY HAS TO BE JUDGED ACCORDINGLY. HE UPH ELD THE ORDER OF THE TPO. 35. BEFORE US, THE LEARNED AR PLACED RELIANCE ON TH E FOLLOWING DECISIONS, WHEREIN THE ICRA MANAGEMENT CONSULTING SERVICES LTD. AND ID C INDIA LTD. ARE ACCEPTED TO BE A COMPARABLE TO NON-BINDING INVESTMENT ADVISORY ACTIVITY: AGM INDIA ADVISORS PRIVATE LIMITED DCIT [2017] 79 T AXMANN.COM 86 GOLDMAN SACHS INDIA PRIVATE LIMITED V. ACIT [2017] 78 TAXMANN.COM 142 DCITV. GENERAL ATLANTIC (P.) LTD. [2018] 91 TAXMANN .COM 406 ACIT V. BLACKSTONE ADVISORS INDIA (P.) LTD. [2019] 101 TAXMANN.COM 116 CARLYLE INDIA ADVISORS PVT. LTD. V. ACIT [IT(TP)A N O.2410/MUM/2017] WE HAVE PERUSED ALL THESE CASE LAWS AND FIND THAT T HE TRIBUNAL HAS HELD THESE TWO COMPANIES AS A VALID COMPANY IN CASE OF NON-BINDING INVESTMENT ADVISORY COMPANIES. RESPECTFULLY FOLLOWING THE SAID DECISIO NS, WE DIRECT THE TPO TO INCLUDE THESE TWO COMPANIES VIZ. ICRA MANAGEMENT CONSULTING SERVICES LTD. AND IDC INDIA LTD. AS VALID COMPARABLES. THE AO IS DIRECTED ACC ORDINGLY .THE GROUND NO.6 IS ALLOWED. ITA NO.902/MUM/2016 CLSA INDIA P LTD. 35 36. GROUND NOS. 7 TO 9 READ AS UNDER: 7. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO / HON'BLE DRP HAS ERRED IN DISALLOWING T HE EXPENDITURE, IN THE NATURE OF REPAIR AND MAINTENANCE, OF INR 4,43,68,45 7 BY TREATING THE SAME AS CAPITAL IN NATURE. 8. WITHOUT PREJUDICE TO GROUND 7, ON THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO / HON'BLE DRP H AS ERRED IN CONSIDERING THE ENTIRE REPAIRS AND MAINTENANCE EXPE NDITURE AMOUNTING TO INR 4,43,68,457 TOWARDS COMPUTERS AS AGAINST INR 3, 59,00,484 PERTAINING TO COMPUTERS. BALANCE AMOUNT OF REPAIRS AND MAINTENANCE EXPENDITURE AMOUNTING TO INR 84,67,973 DOES NOT REL ATE TO COMPUTERS. 9. WITHOUT PREJUDICE TO GROUNDS 7 AND 8 ABO VE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A O / HON'BLE DRP HAS ERRED IN ALLOWING DEPRECIATION AT THE RATE OF 25 PE RCENT ON REPAIRS AND MAINTENANCE EXPENDITURE, DISALLOWED AND ACCORDINGLY CAPITALIZED, AMOUNTING TOLNR 3,59,00,484 RELATING TO COMPUTERS A S AGAINST THE APPLICABLE RATE OF DEPRECIATION OF 60 PERCENT AS PR ESCRIBED UNDER RULE 5 OF THE RULES READ WITH SECTION 32 OF THE ACT. 37. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAS DE BITED A SUM OF RS 4,43,68,457/- ON ACCOUNT OF REPAIRS AND MAINTENA NCE CHARGES OF COMPUTERS. THE AO ASKED THE ASSESSEE AS TO WHY THE EXPENSES SH OULD NOT BE TREATED AS CAPITAL EXPENDITURE. THE ASSESSEE VIDE LETTER DATED 18.02. 2015 SUBMITTED THAT THE EXPENSES WERE TOWARDS MAINTENANCE OF SERVES, UPS, C ONTROL SYSTEMS, SPARE PART PURCHASES, MONITORING AND MAINTENANCE OF TELECOMMUN ICATION EQUIPMENT, MONTHLY CHARGES TOWARDS ONSITE SUPPORT SERVICES, LICENSE FE ES TO VENDORS RELATING TO TRADING SYSTEMS, RISK MANAGEMENT SYSTEMS ETC. THE ASSESSEE ALSO SUBMITTED THE LIST VENDORS FROM WHOM THE SERVICES WERE AVAILED. THE A O FURTHER ASKED THE ASSESSEE TO SUBMIT SAMPLE INVOICES. THUS, THE AO OBSERVED T HAT THE ASSESSEE HAS NOT CLARIFIED THE NATURE OF EXPENSES IN SUPPORT OF ITS CLAIM. IN THE ABSENCE OF THE SUPPORTING DOCUMENTS, THE AO TREATED THE EXPENDITUR E OF RS 4,43,68,457/- AS CAPITAL IN NATURE AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE FILED OBJECTION BEFORE THE DRP, WHO ISSUED FOLLOWIN G DIRECTIONS ON THE ISSUE: 7.3 THE DRP HAS ISSUED DIRECTIONS ON THIS ISSUE AS UNDER: WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMIS SIONS MADE. THE AO HAS MADE THE DISALLOWANCE FOR THE REASONS THAT T HE ASSESSEE HAS NOT ITA NO.902/MUM/2016 CLSA INDIA P LTD. 36 FURNISHED THE EVIDENCE IN SUPPORT OF THE EXPENSES C LAIMED. BEFORE THE PANEL ALSO NOTED THAT THE ASSESSEE HAS NOT FURNISHE D ANY SUCH EVIDENCE IN SUPPORT OF THE EXPENSES DURING HEARING ALSO. IT IS IMPERATIVE ON THE ASSESSEE TO SUBMIT THE DETAILS/EVIDENCE IN SUPPORT OF THE EXPENSES CLAIMED. BUT SUCH ONUS HAS NOT BEEN DISCHARGE. TH EREFORE DISALLOWANCE MADE BY THE AO IS HEREBY UPHELD. ALTERNATIVELY, THE ASSESSEE HAS URGED THAT THE AO B E DIRECTED TO ALLOW DEPRECIATION ON THE EXPENSES HELD TO BE CAPITAL IN NATURE. THE AO IS DIRECTED TO ALLOW DEPRECIATION AT APPROPRIATE RATES AS APPLICABLE. 7.4 IN VIEW OF THE ABOVE, THE ADDITION PROPOSED DIS ALLOWANCE VIDE DRAFT ASSESSMENT ORDER DATED 19.02.2015 IS CONFIRME D AT RS.3,32,76,343/- AFTER ALLOWING DEPRECIATION 25 PER CENT. 38. NOW THE ASSESSEE HAS SUBMITTED BEFORE US THAT T HE ASSESSEE HAS FILED ADDITIONAL EVIDENCE BEFORE THE TRIBUNAL VIDE APPLIC ATION DATED 16.09.2016 IN SUPPORT OF ITS CLAIM OF REPAIRS AND MAINTENANCE OF COMPUTER S OF RS 4,43,68,457/-. THE LEARNED AR REQUESTED BEFORE THE BENCH THAT THE SAME MAY KINDLY BE ADMITTED AS THEY HAVE BEARING ON THE CORRECT APPRECIATION ON TH E ISSUE, AND ACCORDINGLY MAY BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICAT ION. THE LEARNED AR SUBMITTED THAT THE EXPENSES WERE REVENUE IN NATURE. THE LEARNED A R ALSO CONTENDED THAT IF THESE EXPENSES WERE IN CASE HELD AS CAPITAL IN NATURE THE N DEPRECIATION @60% MAY BE ALLOWED IN SO FAR AS IT RELATES TO COMPUTERS. THE L EARNED DR, ON THE OTHER HAND, OPPOSED THE CONTENTIONS OF THE LEARNED AR AND PRAYE D BEFORE THE BENCH THAT THE ORDER OF THE DRP MAY BE UPHELD ON THE ISSUE AS IT H AS ALSO DIRECTED TO ALLOW 25% AS DEPRECIATION EXPENSES. 39. AFTER HEARING BOTH THE PARTIES, WE FIND THAT AD DITIONAL EVIDENCES HAVE BEEN FILED WHICH HAVE BEARING ON THE ISSUE INVOLVED AND ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO TO DECIDE THE SAME IN TH E LIGHT OF THESE FRESH EVIDENCES AS PER FACTS AND LAW . NEEDLESS TO MENTION THAT IN CAS E, THE AO FINDS THESE EXPENSES TO BE IN CAPITAL IN NATURE, THEN THE ASSESSEE MAY BE A LLOWED DEPRECIATION ON THAT PART OF THE CAPITAL EXPENDITURE @60% IN TERMS OF PROVISI ONS OF THE INCOME TAX RULES. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.902/MUM/2016 CLSA INDIA P LTD. 37 40. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 RD FEBRUARY, 2020. SD/- SD/- (C N PRASAD) (RAJE SH KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED : 3 RD FEBRUARY, 2020 SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. THE CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI