DCIT Vs Elara Securities (India) Pvt. Ltd. (ITAT Mumbai)
The Mumbai ITAT disposed of Revenue appeals arising from orders of the CIT(A) for A.Ys. 2011-12 and 2012-13 concerning transfer pricing adjustments and disallowance of expenses allegedly attributable to speculative business. The assessee was a corporate member of various stock exchanges engaged in stock broking, investment and related activities, and had entered into international stock-broking transactions with associated enterprises (AEs). For A.Y. 2011-12, the assessee benchmarked these transactions using the Comparable Uncontrolled Price (CUP) method, based on internal comparable transactions with unrelated parties. The Assessing Officer rejected CUP, questioned the comparability of the uncontrolled transactions on factors including date, volume, account type, country and terms and conditions, rejected other methods, and adopted the Transactional Net Margin Method (TNMM), resulting in an arm’s length price adjustment of Rs. 9,53,33,796/-. The CIT(A) deleted the adjustment, holding that CUP was appropriate under Rule 92C(1) of the Income-tax Rules, 1962 and that the AO had not provided proper basis for rejecting it. For A.Y. 2012-13, the AO similarly rejected CUP and adopted TNMM, resulting in an adjustment of Rs. 2,46,79,325/-, which the CIT(A) also deleted.
Before the ITAT, the Revenue relied on the AO’s orders, while the assessee submitted that it provided identical stock-broking services to AEs and unrelated parties, with brokerage charges depending on factors such as market and investor account. The assessee relied on internal comparables and referred to the OECD TP Guidelines, UN TP Manual and the decision in RBS Equities (India) Ltd. The Tribunal held that the assessee’s internal CUP was supported by the proposition that where an internal comparable exists, it should be considered over an external comparable. It observed that the AO had rejected CUP through general observations regarding comparability factors without bringing specific cogent material on record to establish why CUP was inappropriate. The ITAT therefore upheld the CIT(A)’s deletion of the transfer pricing adjustments and held that the CUP method selected by the assessee was appropriate.
