UBS SECURITIES INDIA P.LTD, MUMBAI v. ACIT CIR 4(2), MUMBAI

CO 179/MUM/2011 | 2003-2004
Pronouncement Date: 16-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 17919923 RSA 2011
Assessee PAN AAACU1304N
Bench Mumbai
Appeal Number CO 179/MUM/2011
Duration Of Justice 9 year(s) 4 month(s) 25 day(s)
Appellant UBS SECURITIES INDIA P.LTD, MUMBAI
Respondent ACIT CIR 4(2), MUMBAI
Appeal Type Cross Objection
Pronouncement Date 16-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 16-03-2021
Date Of Final Hearing 17-11-2014
Next Hearing Date 17-11-2014
First Hearing Date 17-11-2014
Assessment Year 2003-2004
Appeal Filed On 21-10-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 9033/MUM/2010 ASSESSMENT YEAR: 2003-04 DCIT CIRCLE-4(2) ROOM NO.642 6 TH FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 VS. M/S. UBS SECURITIES INDIA PRIVATE LIMITED LEVEL 2 2 NORTH AVENUE MAKER MAXITY BKC BANDRA(E) MUMBAI-400 051 PAN NO. AAACU1304N APPELLANT RESPOND ENT CROSS OBJECTION NO. 179/MUM/2011 ASSESSMENT YEAR: 2003-04 M/S. UBS SECURITIES INDIA PRIVATE LIMITED LEVEL 2 2 NORTH AVENUE MAKER MAXITY BKC BANDRA(E) MUMBAI-400 051 PAN NO. AAACU1304N VS. DCIT CIRCLE-4(2) ROOM NO.642 6 TH FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 APPELLANT RESPOND ENT REVENUE BY : MR. UODHAL RAJ SINGH DR ASSESSEE BY : MR. DHANESH BAFNA AR LAST DATE OF HEARING : 08/01/2021 DATE OF PRONOUNCEMENT : 16/03/2021 UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 2 CO.NO.179/MUM/2011 ORDER PER N.K. PRADHAN A.M. THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15 MUMBAI [IN SHORT CIT(A)] AND ARISE OUT OF ORDER U/S. 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). SINCE COMM ON ISSUES ARE INVOLVED WE ARE PROCEEDINGS TO DISPOSE THEM OFF THROUGH A CO NSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE BEGIN WITH THE GROUNDS OF APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE IN RESPECT OF TRANSFERPRICING ADJUSTMENTS. 2.1 THE GROUND OF APPEAL FILED BY THE REVENUE READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN OVERLOOKING THE FACT THAT THE ASSESSEE HAS NOT PROVIDED ANY INFORMATION REGARDING THE LEVEL AND TYPE OF MANPOWER AVAILABLE AT THE DISPOSAL OF THE ASSOCIATED ENTERPRISES AND ASSOCIATED ENTERPRISES ( FIIS) AT MAURITIUS WAS NOTHING BUT A LETTER BOX ENTITY HAVING NO RESOURCES AT ITS DISPOSAL TO UNDERTAKE THE MARKETING AND RESEARCH FUNCTION STATED TO BE PE RFORMED BY IT. 2.2 THE REVENUE HAS FURTHER FILED AN ADDITIONAL GRO UND OF APPEAL WHICH IS PRODUCED BELOW:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW LD.CIT(A) ERRED IN ALLOWING THE BENEFIT OF 5% ON ARMS LENGTH PRICE (A LP) AT THE OPTION OF THE ASSESSEE EVEN THOUGH SECTION 92C(2A) CLARIFIES THAT 5% IS NOT A STANDARD DEDUCTION. 2.2.1 SINCE THE ADDITIONAL GROUND INVOLVES PURE QUE STION OF LAW AND DO NOT REQUIRE ANY FRESH EXAMINATION OF FACTS WE ADMIT IT BY FOLLOWING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD V. CIT (1998) 229 ITR 383. UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 3 CO.NO.179/MUM/2011 2.3. THE ASSESSEE HAS FILED CROSS OBJECTIONS WHICH READ AS UNDER:- 1. WHILE UPHOLDING THE APPLICATION OF THE CUP METHOD T O DETERMINE THE ALP OF THE BROKERAGE CHARGED THE CIT(A) HAS ERRED IN LAW AND FACTS BY: A. EXCLUDING THIRD PARTY DOMESTIC COMPARABLES THAT HAD A SIMILAR FAR PROFILE TO THIRD PARTY FOREIGN COMPARABLES CONSIDER ED FOR DETERMINING THE ALP; B. NOT MAKING ANY ADJUSTMENT TO TAKE INTO ACCOUNT T HE DIFFERENCE IN VOLUME OF TRADES EXECUTED FOR THE AE VIS-A-VIS THIRD PARTI ES USED AS COMPARABLES; AND C. DISREGARDING THE SALARY COSTS OF RESEARCH PERSON NEL ATTRIBUTABLE TO CLEARING TRADES FOR THIRD PARTY CLIENTS WHILE CALC ULATING THE MARKETING ADJUSTMENT. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS BY UPHOLDI NG THE REJECTION OF THE TNMM AND APPLICATION OF CUP METHOD BY THE TPO FOR D ETERMINING THE ALP OF THE BROKERAGE CHARGED BY THE APPELLANT TO ITS AE IN RESPECT OF CLEARING TRADES EXECUTED ON ITS BEHALF. 2.3.1 THE LD. COUNSEL HAS CATEGORICALLY STATED THAT THE SECOND GROUND IN THE CROSS-OBJECTION IS NOT PRESSED. HAVING CONSIDERED T HE ABOVE SUBMISSION AND FACTS OF THE CASE THE SECOND GROUND IN THE CROSS-O BJECTION IS DISMISSED AS NOT PRESSED. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2003-04 ON 28/11/2003 DECLARIN G TOTAL INCOME OF RS.27 54 04 365/-. THE ASSESSEE IS A PART OF UBS G ROUP AND IS A SECURITIES BROKING COMPANY AND WAS INCORPORATED IN INDIA ON 15 /02/1996. THE ASSESSEE IS A LEADING BROKING HOUSE IN INDIA SERVI CING THE NEEDS OF FIIS AND DOMESTIC MUTUAL FUNDS. THE ASSESSEE IS AN INDIRECT LY OWNED 100% SUBSIDIARY OF UBS SWITZERLAND AND HENCE ALL ITS TR ANSACTIONS WITH THE OTHER GROUP ENTITIES OF THE UBS FALL UNDER THE CATEGORY O F INTERNATIONAL TRANSACTIONS. DURING THE PREVIOUS YEAR 2002-03 REL EVANT TO THE AY 2003-04 THE ASSESSEE HAS ENTERED INTO TRANSACTIONS WITH SW ISS FINANCE CORPORATION AND UBS AG LONG-TERM INDIA INVESTMENT FUND. BOTH T HESE ENTITIES ARE FOREIGN INSTITUTIONAL INVESTORS (FIIS) BASED IN MAU RITIUS. UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 4 CO.NO.179/MUM/2011 THE MAIN INTERNATIONAL TRANSACTIONS ENTERED INTO B Y THE ASSESSEE IS ON ACCOUNT OF THE BROKERAGE CHARGED BY IT ON ITS GROUP ENTITIES FOR THE TRANSACTIONS UNDERTAKEN BY IT ON THEIR BEHALF IN I NDIA. FOR THE PURPOSE OF BENCHMARKING THIS TRANSACTION THE ASSESSEE HAS APP LIED TRANSACTIONAL NET MARGIN METHOD (TNMM). BEFORE THE TRANSFER PRICING O FFICER (TPO) IT WAS EXPLAINED BY THE ASSESSEE THAT THE SERVICES RENDERE D BY IT TO ITS GROUP FII COULD BE COMPARED WITH THE SERVICES RENDERED BY IT TO NON GROUP FII FOR WHOM IT HAD UNDERTAKEN SIMILAR TRADES. IT WAS HOWE VER EXPLAINED THAT SUCH RATES HAVE NOT BEEN COMPARED FOR THE ONLY REASON TH AT THE ASSESSEE UNDERTAKES MARKETING FUNCTION IN RESPECT OF ITS TRA NSACTIONS WITH UNRELATED PARTIES WHEREAS FOR THE PURPOSE OF ITS TRANSACTION S WITH RELATED PARTIES IT DOES NOT UNDERTAKE ANY MARKETING FUNCTION. THE TPO OBSERVED THAT WHILE APPLYING TNMM THE ASSESSEE HAS COMPARED PROFITS EA RNED BY IT WITH THE PROFITS EARNED BY OTHER ENTITIES OPERATING IN INDIA PROVIDING SIMILAR BROKING SERVICES. ON THE BASIS OF THE ANALYSIS UNDERTAKEN B Y THE ASSESSEE IT HAS IDENTIFIED 10 COMPARABLE COMPANIES WHO HAVE EARNED A NET OPERATING MARGIN ON COST OF 15.75%. THE ASSESSEE FURTHER CONT ENDS THAT IT HAS EARNED THE MARGIN OF 153.76% ON ITS OPERATING COSTS WHICH IS MUCH HIGHER THAN THE MARGIN EARNED BY THE COMPARABLE CASES. THUS IT WAS CONTENDED BEFORE THE TPO THAT THE INTERNATIONAL TRANSACTIONS ENTERED INT O BY IT WITH ITS GROUP FII ARE AT ARMS LENGTH PRICE (ALP). THE TPO REJECTED T HE TNMM APPLIED BY THE ASSESSEE FOR THE FOLLOWING REASONS:- (I) IN THE GIVEN CASE THE ASSESSEE CLEARLY HAS NOT APPLIED THE MOST APPROPRIATE METHOD. IT IS SEEN THAT THERE IS A CLEAR MARKET RAT E PREVAILING FOR BROKING SERVICES WHICH IS EXPRESSED IN TERMS OF A PERCENTAGE OF THE TRADE UNDERTAKEN. IN THE PRESENCE OF A RELIABLE COMPARABLE UNCONTROLLED PRIC E THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD SHOULD HAVE BEEN CH OSEN BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD. THE CUP METHOD IS MOST DIR ECT METHOD AND HENCE PREFERABLE TO ALL OTHER METHODS WHICH DETERMINE TH E ALP IN AN INDIRECT MANNER. UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 5 CO.NO.179/MUM/2011 (II) THE INFORMATION OR DATA USED BY THE ASSESSEE F OR THE COMPUTATION OF ALP IS NOT RELIABLE OR CORRECT. THE COMPARABLE CASES CONSIDERE D BY THE ASSESSEE UNDER THE TNMM ARE NOT ENGAGED IN THE FUNCTIONS THAT ARE SIMI LAR TO THE ASSESSEE. THEREFORE THE TPO PREFERRED INTERNAL COMPARABLE U NCONTROLLED TRANSACTION TO THE EXTERNAL COMPARABLES SELECTED BY THE ASSESSEE. BEFORE THE TPO THE ASSESSEE PROVIDED CERTAIN DETAILS OF COSTS INCURRED ON ACCOUNT OF MARKETING IN CONNECTION WITH THE THIRD PARTY TRANSA CTIONS ENTERED INTO BY IT. THE ASSESSEE HAS MAINLY CONSIDERED COSTS ON ACCOUNT OF MEMBERSHIP AND SUBSCRIPTION SALARY COSTS COMMUNICATION COSTS AND TRAVELLING COSTS. THE TPO FOR THE PURPOSE OF MAKING ADJUSTMENTS TO THE B ROKERAGE RATE CONSIDERED THE COSTS INCURRED ON ACCOUNT OF TRAVELL ING COMMUNICATION MEMBERSHIP AND SUBSCRIPTION. FINALLY THE TPO INCRE ASED THE TOTAL INCOME OF THE ASSESSEE BY A SUM OF RS.1 93 27 020/-. THE AO BY FOLLOWING THE ORDER OF THE TPO MADE AN ADJUSTMENT OF RS.1 93 27 020/-. 4. AGGRIEVED BY THE ORDER OF THE AO ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A). WE FIND THAT VIDE ORDER DATED 05/10/2010 THE LD.CIT(A) UPHELD THE CUP METHOD ADOPTED BY THE TPO. FURTHER THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE REGARDING VOLUME ADJUST MENTS. REGARDING THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF SALARY CO STS OF EQUITY SALES AND EQUITY RESEARCH PERSONNEL THE LD.CIT(A) HELD THAT (I) THE SALARY COST OF RESEARCH PERSONNEL INCURRED TOWARDS THIRD PARTY CLI ENTS FOR THE PURPOSE OF CARRYING OUT THE BROKERAGE ADJUSTMENT AS RESEARCH I S A FUNCTION WHICH IS EQUALLY APPLICABLE TO SFC AS WELL AS UNRELATED/ THI RD PARTY CLIENTS AND CANNOT BE SEGREGATED IS DISREGARDED (II) THE SALARY COST OF EQUITY SALES PERSONNEL HAS BEEN INCURRED FOR MARKETING FOR UNRELATED/THIRD PARTY CLIENTS AND MARKETING EFFORTS FOR AE BUSINESS WOULD BE NEGLIGIB LE OR NON-EXISTENT (III) UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 6 CO.NO.179/MUM/2011 THE ASSESSEE HAS SHOWN VARIOUS DETAILS OF EQUITY SA LES PERSONNEL COST TO DEMONSTRATE THAT THOSE PERSONNELS WERE INVOLVED IN MARKETING FUNCTION. ACCORDINGLY THE LD. CIT(A) WORKED OUT THE BROKERA GE RATE CHARGED BY THE ASSESSEE TO ITS AE AT 0.28%. 4.1 ALSO THE LD. CIT(A) HELD THAT THE ASSESSEE IS E NTITLED TO 5% BENEFIT FOR THE IMPUGNED ASSESSMENT YEAR IN RESPECT OF ADJUSTME NT MADE ON CLEARING HOUSE TRADES. THE COMPUTATION OF THE ADJUSTMENT BY HIM AFTER GIVING THE BENEFIT OF 5% TO THE ASSESSEE IS REPRODUCED BELOW: COMPUTATION OF 5% RANGE PARTICULARS AMOUNT IN RS. TOTAL CLEARING HOUSE TRADES WITH RELATED PARTIES 29 477 212 989/ - ALP ARMS LENGTH BROKERAGE (0.31% AS COMPUTED ABOVE ) 89 927 690/ - 95% OF ARMS LENGTH PRICE (ALP) 85 431 306/ - ACTUAL BROKERAGE (I.E. TRANSFER PRICE) CHARGED BY TH E APPELLANT TO THE RELATED PARTY CLEARING HOUSE TRADES 83 743 226/ - ADJUSTMENT 1 688 080/ - THUS THE LD. CIT(A) CONSIDERING THE ADJUSTED RATE OF BROKERAGE OF 0.31% AND ALLOWING THE BENEFIT OF 5% WORKED OUT TH E ALP OF THE RELATED PARTY CLEARING HOUSE TRADES SEGMENT AT RS.85 431 30 6/- AS AGAINST RS.10 31 70 245/- WORKED OUT BY THE TPO. ACCORDINGL Y THE ASSESSEE GOT RELIEF OF RS.1 76 38 940/-. 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE RELI ES ON THE DECISION OF THE ORDER OF THE TRIBUNAL IN THE CASE OF MORGAN STANLEY INDIA COMPANY PVT. LTD. (ITA NO. 266/MUM/2006) AND FILES THE FOLLOWING CHAR T : UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 7 CO.NO.179/MUM/2011 PARTICULARS TRANSFER PRICING ORDER CIT(A) ORDER SCENARIO 1 SCENARIO 2 SCENARIO 3 AVERAGE OF RATES CHARGED TO THIRD PARTY FIIS & DOMESTIC CLIENTS VOLUME DISCOUNT SALARY COST OF RESEARCH PERSONNEL CROSS OBJECTION 1(A) CROSS OBJECTION 1(B) CROSS OBJECTION 1(C) BROKERAGE RATE CHARGED BY THE RESPONDENT TO ITS AE 0.28 0.28 0.28 0.28 0.28 BROKERAGE RATE CHARGED BY THE RESPONDENT TO UNRELATED FIIS 0.39 0.39 0.34 0.35 0.39 LESS : ADJUSTMENT ON ACCOUNT OF MARKETING FUNCTION GRANTED BY TPO (0.04) (0.04) (0.04) (0.04) (0.04) LESS: ADJUSTMENT ON ACCOUNT OF SALARY COST OF : - SALES PERSONNEL - (0.04) (0.04) (0.04) (0.04) -RESEARCH PERSONNEL - - - - (0.05) - ADJUSTED BROKERAGE RATE 0.35 0.31 0.26 0.27 0.26 RELYING ON THE ABOVE CHART THE LD. COUNSEL IN RES PONSE TO THE CLARIFICATION SOUGHT BY THE BENCH ON 08.01.2021 SU MMARIZES HIS CONTENTIONS STATING THAT : PARTICULARS AS PER MORGAN STANLEY DECISION (ITA NO. 266/MUM/2006) FIIS & DOMESTIC CLIENTS VOLUME DISCOUNT AND SALARY COST OF RESEARCH PERSONNEL CROSS OBJECTIONS 1(A) 1(B) & 1(C) BROKERAGE RATE CHARGED BY THE RESPONDENT TO ITS AE 0.28 BROKERAGE RATE CHARGED BY THE RESPONDENT TO UNRELATED FIIS 0.33 UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 8 CO.NO.179/MUM/2011 LESS: ADJUSTMENT ON ACCOUNT OF MARKETING FUNCTION GRANTED BY TPO (0.04) LESS: ADJUSTMENT ON ACCOUNT OF SALARY COST OF : - SALES PERSONNEL (0.04) - RESEARCH PERSONNEL (0.05) ADJUSTED BROKERAGE RATE 0.20 6. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESEN TATIVE (DR) SUBMITS THAT THE TPO HAS RIGHTLY PREFERRED INTERNAL COMPARA BLE UNCONTROLLED TRANSACTION TO THE EXTERNAL COMPARABLES SELECTED BY THE ASSESSEE. FURTHER IT IS EXPLAINED BY HIM THAT AS THE WHOLE BUSINESS OF T HE ASSESSEE IS DRIVEN BY STOCK MARKET AND THEREFORE VOLUME FACTORS ARE NO T APPLICABLE ON THE FACTS OF THE CASE. THUS HE SUPPORTS THE ORDER OF THE LD. CIT(A) ON THE ABOVE. HOWEVER THE LD. DR EXPLAINS THAT AS THE ASSESSEE FAILED TO PROVIDE ANY PARTICULAR OF MARKETING FUNCTION UNDERTAKEN BY THE OVERSEAS AE AND FURTHER FAILED TO PROVIDE THE DETAILS OF EMPLOYEES OF THE A ES IN THIS REGARD THE TPO HAS RIGHTLY COME TO A FINDING THAT THE ASSESSEE UND ERTAKES THE MARKETING FUNCTION IF ANY IN RESPECT OF BOTH THE RELATED PA RTY TRANSACTIONS AS WELL AS THIRD PARTY TRANSACTIONS. THEREFORE IT IS PLEADED BY HIM THAT THE ORDER OF THE LD. CIT(A) IN RESPECT OF SALARY COSTS BE SET ASIDE AND THE ORDER PASSED BY THE TPO/AO BE RESTORED. THE LD. DR FURTHER EXPLAINS THAT THE LD. CIT(A) IS NOT CORRECT IN ALLOWING THE BENEFIT OF 5% ON ALP AT THE OPTION OF THE ASSESSEE EVEN THOUGH SECTION 92C(2A) CLARIFIES THAT 5% IS NOT A STANDARD DEDUCTION. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 9 CO.NO.179/MUM/2011 AS MENTIONED EARLIER THE ASSESSEE HAS RELIED ON T HE ORDER OF THE TRIBUNAL IN THE CASE OF MORGAN STANLEY INDIA COMPANY PVT. LTD. (SUPRA). IN THAT CASE THE TRIBUNAL VIDE ORDER DATED 25.02.2020 HELD AS UNDER: 21. GROUND 6 RELATES TO REDUCING THE ARMS LENG TH PRICE IN RESPECT OF BROKERAGE RATE CHARGE FOR MORGAN STANLEY DEAN WITTER MAURITIUS LIM ITED. THE LD.AR OF THE ASSESSEE SUBMITS THAT ASSESSEE IS A BROKER / DEALER OF BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE. ASSESSEE IS HAVING INSTITUTIONAL CLIENTS LOCALLY AND GLOBALLY. DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE RENDERED BROKI NG SERVICES TO ITS AE AND TO THIRD PARTY CLIENTS BOTH IN INDIA AND OVERSEAS. THE ASSES SEE BENCHMARKED THIS TRANSACTION BY USING TRANSACTION NET MARGIN METHOD (TNMM) IN ITS TR ANSFER PRICING STUDY REPORT WHEREBY NET MARGIN EARNED BY ASSESSEE AT ENTITY LEVE L WAS COMPARED WITH THE PROFIT MARGIN EARNED BY COMPARABLE COMPANIES ENGAGED IN SIM ILAR BROKING BUSINESS. THE NET MARGIN EARNED BY ASSESSEE IS 35.38% WHICH IS HIGHER THAN THE NET PROFIT MARGIN EARNED BY COMPARABLE COMPANIES I.E. 21.63%. ACCORDINGLY THE TRANSACTION OF ASSESSEE IS WITHIN ARMS LENGTH PRICE (ALP). DURING THE TRANSFER PRIC ING ASSESSMENT PROCEEDINGS THE TPO REJECTED THE APPROPRIATE METHOD ADOPTED BY ASSESSEE AND COMPUTED THE ARMS LENGTH PRICE BY USING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD THEREBY MADE AN ADJUSTMENT OF RS.1 18 59 779/- WITH REGARD TO THE INTERNATIONAL TRANSACTION. THE TPO REJECTED THE CONTENTION OF ASSESSEE WHILE COMPUTING THE ARMS LE NGTH PRICE UNDER CUP. FURTHER ON APPEAL BEFORE CIT(A) THE CONTENTION OF ASSESSEE WA S ACCEPTED AND ADJUSTMENT WAS REDUCED TO RS.658 ONLY. THE LD.AR OF THE ASSESSEE FURN ISHED THE WORKING OF CALCULATION ADOPTED BY TPO AND THE LD.CIT(A) IN THE FOLLOWING MANNE R:- PARTICULARS CLEARING HOUSE (CH) TRADES DELIVE RY VERSUS PAYMENT (DVP) TRADES BY TPO BY CIT(A) BY TPO BY CIT(A) ARMS LENGTH BROKERAGE RATE* 0.4358% 0.3511% 0.4728% 0.4622% LESS:ADJUSTMENT MADE TO THE AFORESAID RATE- 30 PERCENT/40 PERCENT** 0.1076% 0.1405% 0.1076% 0.2080% ADJUSTED ARMS LENGTH BROKERAGE RATE (A) 0.3282% 0.2107% 0.3652% 0.2542% RATE CHARGED BY MSICPL(B) 0.2381% 0.2381% 0.2403% 0.2403% DIFFERENCE IN BROKERAGE RATE (C=A- B) 0.0901% NIL 0.1249% 0.0139% UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 10 CO.NO.179/MUM/2011 VOLUME EXECUTED BY MSDW MAURITIUS (D) 13 16 22 69 259 13 16 22 69 259 47 35 557 47 35 557 TRANSFER PRICING ADJUSTMENT (C*D) 1 18 53 866 NIL 5 913 658 22. THE LD.AR EXPLAINED THAT TPO GRANTED AN ADJUST MENT OF MARKETING COST TO THE EXTENT OF 0.1076% WHICH IS APPROXIMATELY 30% OF WE IGHTED AVERAGE RATE CHARGED TO THIRD PARTY CLIENT. HOWEVER LD. CIT(A) GRANTED ADJUSTMENT OF 40% WITH RESPECT TO MARKETING COST ADJUSTMENT FOR SIGNIFICANT VOLUME AND RESEARCH C OST AND GRANTED RELIEF TO THE ASSESSEE. THE LD.AR FURTHER SUBMITS THAT GEOGRAPHIC AL LOCATION OF MARKET IS OF NO CONSEQUENCE IN JUDGING COMPARABILITY OF AN UNCONTROL LED TRANSACTION FOR PURPOSE OF APPLYING CUP METHOD. THE DIFFERENCE IN GEOGRAPHICAL LOCATION CANNOT BE REASON ENOUGH TO DISCARD COMPARABLES. GEOGRAPHICAL LOCATION OF SER VICE RECIPIENT TO BE IRRELEVANT CONSIDERATION BECAUSE THE CONSULTING SERVICES PROVI DED BY THE ASSESSEE WOULD REMAIN THE SAME WHETHER THE SERVICE RECEIVER IS LOCATED IN X COUNTRY OR Y COUNTRY AS LONG AS SERVICE PROVIDER IS IN INDIA. RELIANCE IS PLACED ON THE FOLLO WING JUDICIAL PRECEDENTS TO SUPPORT THE SAID CONTENTION:- SI GROUP-INDIA LTD V. DCIT (2016) 68 TAXMANN.COM 158 (MUMBAI-TRIB) BHARTI AIRTEL LTD V. ACIT (2014) 43 TAXMANN.COM 50 ( DELHI-TRIB) TOWER WATSON INDIA PVT LTD VS DCIT [TS-260-ITAT-2019( DEL)-TP] INSLICO LTD V. DCIT TS-623-ITAT-2015(DEL)-TP CLEAR PLUS INDIA PVT LTD VS DCIT 30 CCH 0652 DEL TRI B BMW INDIA PVT LTD VS ACIT (TS-401-ITAT-2018 (DEL TRIB ) M/S GARWARE POLYESTER VS DY.CIT-8(1) MUMBAI ITA NO .6169/MUM/2011 ADIT. CIRCLE 1(1) INTERNATIONAL TAXATION NEW DELH I VS ABB LUMMUS HEAT TRANSFER BV [2015] 64 TAXMANN.COM 210 (DELHI-TRIB ) 23. THE LD.AR ACCORDINGLY SUBMITS THAT THE LD. CIT(A ) WAS JUSTIFIED IN TAKING THE AVERAGE BROKERAGE RATE CHARGED BY ASSESSEE TO IT S OVERSEAS AND INDIAN CLIENTS IRRESPECTIVE OF GEOGRAPHICAL LOCATION OF SERVICE RE CIPIENTS. THE LD.AR FURTHER SUBMITS THAT VOLUME DISCOUNT / ADJUSTMENT SHOULD BE ALLOWED IN COMPUTING ARMS LENGTH PRICE. IT WAS EXPLAINED THAT VOLUME TRADED / EXECUTED BY ASSE SSEE ON BEHALF OF MAURITIUS ENTITY WAS RS.1 316 CRORES FOR CH TRADE WHICH CONSTITUTE A PPROXIMATELY 34% OF TOTAL CH TRADE EXECUTED BY ASSESSEE OF ITS CLIENTS. AND ON THE OTHER THE HIGHEST THIRD PARTY CLIENT HAD EXECUTED VOLUME OF CH TRADE OF RS. 396.84 CRORE W HICH CONSTITUTE 10% OF THE TOTAL CH TRADES EXECUTED BY ASSESSEE TO ALL ITS CLIENTS. IN SUPPORT OF HIS SUBMISSIONS THE LD AR FOR THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS; CLARIANT CHEMICAL ( INDIA) LTD VS JCIT[ 2014] 44 TA XMANN.COM 421 (MUMBAI-TRIB) UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 11 CO.NO.179/MUM/2011 DRESSER-RAND INDIA (P) LTD VS ACIT [2011] 13 TAXMAN N.COM 82 (MUMBAI TRIB) LIVINGSTONES VS DCIT [2014] 41 TAXMANN.COM 499(MUMB AI-TRIB) 24. IT WAS FURTHER EXPLAINED THAT ADJUSTMENT OF RES EARCH COST SHOULD BE ALLOWED FOR COMPUTING THE ARMS LENGTH PRICE. 25. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUP PORTED THE ORDER OF TPO/ AO. 26. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH SIDES PERUSED THE RECORD. WHILE FILING THE RETURN OF INCOME THE ASSESSEE REP ORTED TRANSACTIONS WITH ITS AE AS REPORTED IN FORM 3CEB. CONSEQUENT TO THAT THE AO MA DE REFERENCE TO THE TPO VIDE REFERENCE DATED 24.09.2003 FOR COMPUTATION OF ARMS L ENGTH PRICE. THE TPO VIDE HIS ORDER DATED 22.02.2005 SUGGESTED THE ADJUSTMENT OF RS. 1 18 559 779/- THE TPO REJECTED THE TNMM METHOD APPLIED BY THE ASSESSEE FOR B ENCHMARKING ITS TRANSACTION WITH ITS AE. THE TPO COMPUTED THE ARMS LENGTH PRICE BY APPLYING CUP METHOD. AND SUGGESTED ADJUSTMENT OF RRS.1 18 59 779/- IN ARMS LE NGTH PRICE. ON RECEIPT OF REPORT OF THE TPO THE AO MADE ADDITION OF RS.1 18 59 779/- IN RESPECT OF ARMS LENGTH PRICE WHILE PASSING THE ASSESSMENT ORDER. THE ASSESSEE FILED APPE AL BEFORE CIT(A). BEFORE CIT(A) THE ASSESSEE BESIDES OTHER CONTENTIONS STATED THAT C UP METHOD CANNOT BE USED AS IT IS FOR DETERMINATION OF ALP OF ASSESSEES TRANSACTIONS WITH ITS AE AS IT IS DIFFICULT TO MAKE ACCURATE ADJUSTMENTS FOR ITSELF AS COMPARED TO OTHER TRADES/TRANSACTIONS AND TNMM ON THE OVERALL BASIS SHOULD HAVE BEEN CONSIDERED BEING M ORE RELIABLE AND ACCURATE METHOD IN ASSESSEES CASE. THE LD. CIT(A) AFTER CONSIDERIN G THE SUBMISSIONS OF ASSESSEE CONCLUDED THAT CUP IS THE MOST APPROPRIATE METHOD WHIC H SHOULD BE APPLIED TO THE PROPER ADJUSTMENT INSTEAD OF USING TNMM WHICH IS AN INDIRECT METHOD. 27. ON THE GROUNDS OF COMPARABILITY OF COMPARABLES CONCLUDED THAT DOMESTIC INDEPENDENT CLIENT SHOULD BE CONSIDERED FOR COMP ARABILITY PURPOSE. THE ASSESSEE FURTHER STATED THAT IF CUP IS TO BE APPLIED THEN APPROPRIATE ADJUSTMENT NEED TO BE MADE FOR LESSER FUNCTION PERFORMED / ASSET UTILISE D AND RISK ASSUMED. IT WAS FURTHER STATED THAT ASSESSEE DID NOT PERFORM ANY MARKETING AND SALES ACTIVITIES WHILE EXECUTING TRADE FOR AE IN MAURITIUS. EVEN THE LEVELS OF OTHER ACTIVITIES LIKE RESEARCH TRADE RELATIONSHIP ETC. ARE LOWER AS COMPARED TO INDEPENDEN T CLIENT. IN ADDITION MAURITIUS AE IS THE TRUSTED CLIENT OF ASSESSEE AND PROVIDED SUBSTAN TIAL VOLUME OF BUSINESS. MAURITIUS AE IS DEDICATED CLIENT OF THE ASSESSEE. WHILE FIXING THE BROKERAGE RATE OF MAURITIUS AE THE ASSESSEE HAS TO CONSIDER ALL THE ABOVE FACTORS. ACCORDINGLY THE ASSESSEE URGED THAT IF UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 12 CO.NO.179/MUM/2011 CUP HAS TO BE APPLIED THEN DISCOUNTING FACTOR OF 50% SHOULD BE APPLIED AS AN ADJUSTMENT TO THE BROKERAGE RATE CHARGED TO ALL INDIA N CLIENTS. 28. THE CONTENTION OF ASSESSEE WAS ACCEPTED BY LD. C IT(A) BY TAKING VIEW THAT IF CUP METHOD HAS TO BE APPLIED THEN APPROPRIAT E ADJUSTMENT NEED TO BE MADE FOR ALL DIFFERENCES. THE LD. CIT(A) FURTHER NOTED THAT TP O HAS CARRIED OUT ADJUSTMENT FOR MARKETING FUNCTION BY MAKING ADJUSTMENT CONSIDERING PART OF MARKETING COST AND HAS NOT MADE ANY ADJUSTMENT TO RESEARCH ACTIVITIES ON THE PREMISE THAT MAURITIUS AE WOULD BE GETTING RESEARCH RELATED SERVICES FROM ASSESSEE. THUS THE LD. CIT(A) NOT AGREED WITH THE VIEW OF TPO THAT NO ADJUSTMENTS ARE REQUIRED TO B E MADE FOR RESEARCH ACTIVITIES BASED ON ASSUMPTION AND POSSIBILITY AND NOT ON ACTUAL FACTS. THE LD.CIT(A) AFTER CONSIDERING THE HIGH VOLUME OF BUSINESS PROFIT OF MA URITIUS AE TO ASSESSEE WHICH IS 15% OF THE TOTAL BUSINESS VOLUME OF ASSESSEE AND THE OTH ER HIGHEST CLIENT ACCOUNT IS ONLY 3.7% OF TOTAL BUSINESS VOLUME THE LD.CIT(A) TOOK HI S VIEW THAT IT IS SETTLED COMMERCIAL PRINCIPLE THAT VOLUME INCREASES THE PRICE DECREES . THE LD.CIT(A) AFTER CONSIDERING THE FACTS PASSED THE FOLLOWING ORDER:- I AGREE WITH THE APPELLANT THAT IF CUP METHOD HAS T O BE APPLIED THEN APPROPRIATE ADJUSTMENTS NEED TO BE MADE FOR ALL DIFFER ENCES. THE TPO HAS CARRIED OUT ADJUSTMENTS FOR MARKETING FUNCTIONS BY MA KING AN ADJUSTMENT CONSIDERING PART OF THE MARKETING COST. THE TPO HAS NOT MADE ANY ADJUSTMENTS FOR RESEARCH ACTIVITIES ON THE PREMISE T HAT MSDW MAURITIUS WOULD BE GETTING RESEARCH RELATED SERVICES FROM THE A PPELLANT. I AN UNABLE TO AGREE WITH THE TPO WHO HAS FORMED A VIEW THAT NO ADJU STMENTS ARE REQUIRED TO BE MADE FOR RESEARCH ACTIVITIES BASED ON CERTAIN ASSUMPTIONS AND POSSIBILITIES AND NOT ON ACTUAL FACTS. FURTHER THE TPO HAS NOT CONSIDERED ANY ADJUSTMENT FO R THE HIGH VOLUME OF BUSINESS GIVEN BY MSDW MAURITIUS TO THE APPELLANT. THE TOTAL VOLUME OF TRADES (FOR PURCHASES AND SALE) GENERATED BY MSDW MAUR ITIUS IS RS.1316 CRORES. AS NOTED BY THE TPO ON PAGE 8 OF HIS ORDER T HE BUSINESS PROVIDED BY MSDW MAURITIUS IS APPROXIMATELY 15% OF THE TOTAL BU SINESS VOLUME OF TOTAL TRADES. THE NEXT HIGHEST CLIENT ACCOUNTS FOR ONLY 3. 77% OF THE TOTAL BUSINESS VOLUME. IT IS WELL SETTLED COMMERCIAL PRINCIPLE THAT 'AS VOLUME INCREASES THE PRICE DECREASES'. THE TPO HAS DEALT WITH THIS ISSUE O N PARA 2 OF PAGE 8 IN HIS ORDER. THE TPO HAS PICKED OUT CERTAIN INSTANCES WHERE EVEN THOUGH THE VOLUME HAS INCREASED THERE IS NO DECREASE IN THE BROK ERAGE RATE AND UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 13 CO.NO.179/MUM/2011 ACCORDINGLY HAS NOT CONSIDERED ANY ADJUSTMENT FOR VOL UME DIFFERENCES. I AM UNABLE TO AGREE WITH THE TPO TO THE EXTENT THAT ONE CANNOT DISREGARD WELL- SETTLED COMMERCIAL PRINCIPLE BASED ON CERTAIN STRAY I NSTANCES. THE FACT THAT 'AS VOLUME INCREASES THE PRICE DECREASES' IS A WELL-EST ABLISHED COMMERCIAL PRINCIPLE AND ACCORDINGLY DUE WEIGHTAGE /ADJUSTMENT SH OULD BE GIVEN FOR THE HUGE VOLUME OF BUSINESS GIVEN BY MSDW MAURITIUS. AS PER THE APPELLANT MSDW MAURITIUS IS A DEDICATED C LIENT I.E. IT BOUGHT AND SOLD SECURITIES ONLY THROUGH THE APPELLANT FOR THE E NTIRE PREVIOUS YEAR. ACCORDINGLY WHILE FIXING THE BROKERAGE RATE FOR MSD W MAURITIUS THE APPELLANT HAS TO CONSIDER THE FACT THAT MSDW MAURITI US HAS NO TRANSACTIONS THROUGH ANY OF ITS COMPETITORS. THE TPO HAS NOT CON SIDERED ANY ADJUSTMENTS FOR THE SAME. I AM UNABLE TO AGREE WITH THE TPO AS CERTAIN AMOUNT OF ADJUSTMENT IS REQUIRED TO LOYALTY FACTOR OF MSDW MAUR ITIUS. THE APPELLANT CARRIES OUT 'CLEARING HOUSE' AND 'DVP ' TRADES FOR MSDW CLEARING HOUSE' TRADES. AS STATED ABOVE THE AVERAGE BROKERAGE CHARGED TO ALL INDEPENDENT CLIENTS FOR 'CLEARING HOUSE' TRADES IS 0.3 511%. THE TPO IN HIS ORDER HAS ALREADY CONSIDERED AN ADJUSTMENT OF 0.1076% O N ACCOUNT OF MARKETING COST. THUS ADJUSTMENT GRANTED BY THE TPO A MOUNTS TO APPROX. 30% OF AVERAGE BROKERAGE CHARGED TO ALL INDEPENDENT CLIEN TS. AS STATED ABOVE THE APPELLANT HAS CONTENDED THAT THE DISCOUNTING FACTOR OF ATLEAST 50% SHOULD BE APPLIED AS AN ADJUSTMENT TO THE BROKERAGE RATE CHARGED TO ALL INDEPENDENT CLIENTS. KEEPING THE ENTIRE FACTUAL MATRIX IN MIND I FEEL T HAT THE ENDS OF JUSTICE WOULD BE MET TO BOTH SIDES BY CONSIDERING A DISCOUNTING FACT OR OF 40%. THIS DISCOUNTING FACTOR OF 40% WOULD COVER THE MARKETING C OST ADJUSTMENT ALREADY CONSIDERED BY THE TPO. CONCLUSION BASED ON THE ABOVE THIS SUB-GROUND IS PARTLY ALLOWED. FOR COMPARABILITY PURPOSES ALL THE INDEPENDENT ENTITIES I.E. DOMESTIC A S WELL AS OVERSEAS SHOULD BE CONSIDERED AND A DISCOUNTING FACTOR OF 40% AS ADJU STMENT SHOULD BE APPLIED. THE CALCULATION OF THE ARM'S LENGTH PRICE IS ENCLOS ED AS ANNEXURE 1. UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 14 CO.NO.179/MUM/2011 ANNEXURE-1 PARTICULARS CLEARING HOUSE TRADES DVP TRADES OVERSEAS TRADES DOMESTIC TRADES 13 513 701 695 9 741 948 998 62 321 033 641 2 248 476.175 TOTAL UNCONTROLLED TRADES 23 255 650 692 64 569 509 816 TOTAL COMMISSION FOR UNCONTROLLED TRADES WEIGHTED AVERAGE RATE DISCOUNT @40% 81 660 811 0.3511% 0.1405% 298 410 339 0.4622% 0.2080% ARMS LENGTH PRICE (I.E. ADJUSTED AVERAGE RATE FOR UNCONTROLLED TRADES) 0.2107% 0.2542% TRADES FOR MSDW MAURITIUS COMMISSION AMOUNT 131 622 693 31 343 868 4 735 557 11 379 RATE CHARGED TO MSDW MAURITIUS 0.2381% 0.2403% DIFF IN ALP AND RATE CHARGED TO MSDW ADDITION 0.0139% 658 CONSIDERING THE ARM'S LENGTH PRICE DETERMINED ON THE A BOVE FACTORS THE BROKERAGE RATE CHARGED BY THE APPELLANT TO MSDW MAU RITIUS FOR 'CLEARING HOUSE' TRADES MEETS WITH THE ARM'S LENGTH PRINCIPLE . HOWEVER THE BROKERAGE RATE CHARGED BY THE APPELLANT TO MSDW MAURITIUS FOR 'DVP' TRADES DOES NOT MEET WITH THE ARM'S LENGTH PRINCIPLE AND CONSEQUENTL Y THE ADDITION OF RS.658 IS THEREFORE CONFIRMED. 29 BEFORE US THE LD. DR FOR THE REVENUE COULD NOT BRING OUT ANY FACT TO ENABLE US TO TAKE A DIFFERENT VIEW. NO CONTRARY LAW IS BROUGHT TO OUR NOTICE. THEREFORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDIN G OF LD. CIT(A). IN THE RESULT THIS GROUND OF APPEAL ALSO FAILS. 7.1 WE BEGIN WITH THE CONTENTIONS OF THE ASSESSEE R EGARDING AVERAGE OF RATES CHARGED TO THIRD PARTY FIIS AND DOMESTIC CLIE NTS. THE TNMM APPLIED BY THE ASSESSEE HAS BEEN RIGHTLY REJECTED BY THE TPO/A O FOR THE REASONS THAT (I) IN THE GIVEN CASE THE ASSESSEE CLEARLY HAS NOT APPL IED THE MOST APPROPRIATE METHOD AS THERE IS A CLEAR MARKET RATE PREVAILING F OR BROKING SERVICES WHICH IS EXPRESSED IN TERMS OF A PERCENTAGE OF THE TRADE UNDERTAKEN (II) IN THE UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 15 CO.NO.179/MUM/2011 PRESENCE OF A RELIABLE COMPARABLE UNCONTROLLED PRIC E THE CUP METHOD SHOULD HAVE BEEN CHOSEN BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD AS IT IS MOST DIRECT METHOD AND HENCE IS PREFERABLE TO ALL OTHER METHODS WHICH DETERMINE THE ALP IN AN INDIRECT MANNER (III ) THE COMPARABLE CASES CONSIDERED BY THE ASSESSEE UNDER THE TNMM ARE NOT E NGAGED IN FUNCTIONS THAT ARE SIMILAR TO THE ASSESSEE. 7.2 RULE 10B(1)(A) OF THE INCOME TAX RULES 1962 (T HE RULES) DELINEATES COMPARABLE UNCONTROLLED PRICE METHOD (CUP) BY WHIC H - (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS IDENTIFIED; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFERENCES IF ANY BETWEEN THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS WHICH COULD MATERIALLY AFFE CT THE PRICE IN THE OPEN MARKET; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUSE (II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION. 7.3 GUIDANCE NOTE ON REPORT U/S 92E (REVISED 2019) ISSU ED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) EXPLAINS IN PAGE 88 THE FOLLOWING: GEOGRAPHICAL DIFFERENCES MARKET CONDITIONS AND SIZ E OF THE MARKETS ;- THE PRICE AT WHICH A PRODUCT IS SOLD IN ONE COUNTRY CANNOT BE COMPARED WITH THE PRICE AT WHICH THE SAME PRODUCT IS SOLD IN ANOTHER COUNTRY BECAUSE OF THE IMPACT ON ACCOUNT OF GEOGRAPHICAL DIFFERENCES I.E. COUNTRY SPECIFIC DEMAND/ SUPPLY FACTORS MARKET CONDITIONS REGULATIONS AND GOVERNM ENT ORDERS IN FORCE LEVEL OF COMPETITION AVAILABILITY OF SUBSTITUTE PRODUCTS C ONSUMER PURCHASING POWER ETC. WHICH COULD HAVE A BEARING ON THE PRICE. UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 16 CO.NO.179/MUM/2011 7.4 COMPARABLE UNCONTROLLED TRANSACTIONS WHICH INVO LVE A TRANSACTION BETWEEN ONE OF THE ENTERPRISES AND AN UNCONTROLLED PARTY ARE REFERRED TO AS INTERNAL COMPARABLES. COMPARABLE UNCONTROLLED TR ANSACTIONS WHICH INVOLVE A TRANSACTION BETWEEN TWO PARTIES NEITHER OF WHICH IS AN ASSOCIATED ENTERPRISE ARE CALLED EXTERNAL COMPARAB LES. CUP CANNOT BE APPLIED ON BASIS OF COMPARABLE UNCONT ROLLED TRANSACTIONS- INTERNAL OR EXTERNAL- THAT ARE UNDERT AKEN IN DIFFERENT GEOGRAPHICAL MARKETS AS COMPARED TO THE MARKET IN W HICH THE CONTROLLED TRANSACTIONS IS UNDERTAKEN. 7.5 FOR THE PURPOSES OF SUB-RULE (1) OF RULE 10B T HE COMPARABILITY OF AN INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED AS PER SU B-RULE (2) WITH REFERENCE TO THE FOLLOWING NAMELY:- (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TR ANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; (B) THE FUNCTIONS PERFORMED TAKING INTO ACCOUNT AS SETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED BY THE RESPECTIVE P ARTIES TO THE TRANSACTIONS; C) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLI CITLY HOW THE RESPONSIBILITIES RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RE SPECTIVE PARTIES TO THE TRANSACTIONS; (D) CONDITIONS PREVAILING IN THE MARKETS IN WHICH T HE RESPECTIVE PARTIES TO THE TRANSACTION OPERATE INCLUDING THE GEOGRAPHICAL LOC ATION AND SIZE OF THE MARKETS THE LAWS AND GOVERNMENT ORDERS IN FORCE COSTS OF L ABOUR AND CAPITAL IN THE MARKETS OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. 7.6 IT IS CRYSTAL CLEAR THAT THE ASSESSEES TRANSAC TIONS ARE WITH OVERSEAS FIIS AND HENCE COMPARISON WITH OTHER OVERSEAS FIIS WOULD ALONE BE APPROPRIATE. THE FACT REMAINS THAT DOMESTIC THIRD P ARTY TRANSACTIONS ARE NOT UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 17 CO.NO.179/MUM/2011 COMPARABLE WITH THE OVERSEAS FIIS ON ACCOUNT OF GEO GRAPHIC DIFFERENCES. THUS THE 1(A) OF CROSS-OBJECTION IS REJECTED. 8. THEN WE COME TO THE ISSUE REGARDING VOLUME ADJUS TMENTS. WE OBSERVE THAT THOUGH THE ASSESSEE WAS SPECIFICALLY R EQUESTED BY THE TPO VIDE OFFICE LETTER DATED 17.01.2006 TO EXPLAIN HOW THE B ROKERAGE RATE WAS DETERMINED FOR ITS AE NO SPECIFIC RESPONSE WAS GIV EN; NOR ANY EVIDENCE FURNISHED TO SHOW THAT THE AE WAS BOUND TO GIVE TH E ASSESSEE A MINIMUM VOLUME OF BUSINESS. A PERUSAL OF THE DOCUMENTS FILE D BEFORE US CLEARLY INDICATES THAT THE ASSESSEE WHILE DETERMINING THE RATE CHARGED INDIVIDUALLY IN RESPECT OF THE VARIOUS THIRD PARTY FIIS HAS CONS IDERED THE WEIGHTED AVERAGE RATE WHICH TAKES INTO ACCOUNT THE VOLUMES. FURTHER AS PER THE INFORMATION COLLECTED BY THE TPO WHICH WAS ALSO PR OVIDED TO THE ASSESSEE ABN AMRO ASIA EQUITY (INDIA) LTD. HAS CHARGED AN AV ERAGE BROKERAGE RATE OF 0.40% IN RESPECT OF CLEARING HOUSE TRADES OF RS.283 1 CRORES WITH OVERSEAS FIIS. DSP MERRILL LYNCH LTD. HAS CHARGED A BROKERAG E RATE OF 0.44% FOR CLEARING HOUSE TRADE OF RS.2103 CRORES WITH OVERSEA S FIIS. THUS SIGNIFICANT VOLUME OF TRANSACTIONS WERE BEING UNDERTAKEN AT THE SE RATES IN INDIA BETWEEN UNRELATED PARTIES. IN VIEW OF THE ABOVE FAC TS THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE NEGATION OF VOLUME DISCOUNT R AISED BY THE ASSESSEE. THUS THE 1(B) OF CROSS-OBJECTION IS REJECTED. 9. THEN WE TURN TO THE ISSUES REGARDING SALARY COST S. DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS THE ASSESSEE VIDE ITS LETTER DATED 17.02.2006 HAS CONSIDERED A SUM OF RS.6.53 CRORES AS SALARY CO STS ON ACCOUNT OF MARKETING FOR THIRD PARTY BUSINESS. HOWEVER AS REC ORDED BY THE TPO AS PER THE TABLE PROVIDED AT ANNEXURE 3 OF THE LETTER DATE D 16.01.2006 A SUM OF RS.1.94 CRORES HAS BEEN CONSIDERED AS BEING INCURRE D FOR THIRD PARTY CLEARING HOUSE TRANSACTIONS AND A SUM OF RS.2.60 CRORES HAS BEEN CONSIDERED AS BEING UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 18 CO.NO.179/MUM/2011 INCURRED FOR RELATED PARTY CLEARING HOUSE TRANSACTI ONS. THUS THE TPO HELD THAT NO PORTION OF THE SALARY COSTS CAN BE CONSIDER ED AS BEING INCURRED FOR MARKETING FOR THIRD PARTIES ON THE REASONS THAT (I) THOUGH THE ASSESSEE WAS SPECIFICALLY REQUESTED VIDE OFFICE LETTER DATED 21.02.2006 TO PROVIDE DOCUMENTARY EVIDENCE TO SHOW THAT THE SAID SUM OF R S.6.53 CRORES WAS INCURRED ON ACCOUNT OF MARKETING ACTIVITY RELATING TO THIRD PARTY OVERSEAS FIIS FOR COMPARISON NO DOCUMENTARY EVIDENCE IN THI S REGARD COULD BE PROVIDED BY THE ASSESSEE (II) THE ASSESSEE ITSELF CONTENDS THAT FOR ITS RELATED PARTY TRANSACTION NO MARKETING ACTIVITIES WERE UNDE RTAKEN BY IT. EVEN THAN A SALARY COST OF RS.2.60 CRORES HAS BEEN ATTRIBUTED T O ITS RELATED PARTY CLEARING HOUSE TRANSACTIONS WHICH INDICATES THAT SALARY COST S HAVE TO BE INCURRED FOR NON-MARKETING PURPOSES ONLY. THE QUANTUM OF TRADE U NDERTAKEN AS CLEARING HOUSE THIRD PARTY TRANSACTION AND CLEARING HOUSE RE LATED PARTY TRANSACTION IS ALMOST THE SAME. HENCE THE ENTIRE SALARY COSTS OF RS.1.94 CRORES CONSIDERED FOR THIRD PARTY CLEARING HOUSE TRANSACTION IS ON AC COUNT OF NON-MARKETING FUNCTIONS ONLY (III) THE ASSESSEE HAS FAILED TO PR OVIDE ANY PARTICULARS OF MARKETING FUNCTION UNDERTAKEN BY THE OVERSEAS AE. T HE ASSESSEE HAS NOT EVEN PROVIDED THE DETAILS OF THE EMPLOYEES ON ROLE OF THE AE IN THIS REGARD. ALL THIS CLEARLY INDICATES THAT THE ASSESSEE UNDERT AKES THE MARKETING FUNCTIONS IF ANY IN RESPECT OF BOTH RELATED PARTY TRANSACTIONS AS WELL AS THIRD PARTY TRANSACTIONS (IV) COSTS THAT HAVE BEEN INCUR RED EXCLUSIVELY FOR THIRD PARTY TRANSACTIONS HAVE IN ANY CASE BEEN CONSIDERED . WITH THE ABOVE OBSERVATIONS THE TPO CONCLUDED THA T NO PORTION OF THE SALARY COSTS CAN BE CONSIDERED AS BEING INCURRED FO R MARKETING FOR THIRD PARTIES. 10. IT WAS THE CONTENTIONS OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT COST CENTRE-WISE-MONTH-WISE DETAILS OF EQUITY SALES AND RESEARCH SALARY COST UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 19 CO.NO.179/MUM/2011 WERE FILED WITH THE TPO; HOWEVER CORRESPONDING TRA VEL EXPENSES OF EQUITY SALES AND RESEARCH EMPLOYEES HAVE ALREADY BEEN ALLO WED BY THE TPO AS A MARKETING COST; HENCE IT WOULD BE APPROPRIATE TO AL IGN THE TREATMENT OF EQUITY SALES AND RESEARCH SALARY COST TO THAT OF TR AVEL COST BY ALSO ALLOWING THE FORMER. IT IS FURTHER EXPLAINED THAT THE SPLIT FINANCIALS SUBMITTED TO THE TPO VIDE SUBMISSION DATED 02.12.2005 WERE WITHOUT PREJUDICE BASIS AND ON TPOS REQUEST ONLY HENCE THE TREATMENT OF THE SAID SALARY COST CANNOT BE CONSIDERED AS ASSESSEES ACCEPTANCE. THUS IT IS SUBMITTED THAT THROUGHOUT THE ASSESSMEN T PROCEEDINGS THE ASSESSEE CONTINUED TO CONTEND THAT NO MARKETING EFF ORT WAS INVOLVED WITH RESPECT TO TRADES FROM AE AND THAT SALARY COST OF E QUITY SALES AND RESEARCH PERSONNEL IS PURELY DRIVEN TOWARDS GENERATING THIRD PARTY BUSINESS ONLY. THEREFORE IT IS FINALLY STATED THAT THE SAID SALARY COST BE CONSIDERED AS MARKETING COST. IN RESPONSE TO THE CLARIFICATION DATED 08.01.2021 BY THE BENCH THE LD. COUNSEL HAS FILED A STATEMENT SHOWING ADJUSTMENT FO R EQUITY RESEARCH SALARY COST WHICH IS REPRODUCED BELOW: PARTICULARS PERCENTAGE AMOUNT (RS.) REMARKS TOTAL EMPLOYEE COST EQUITY RESEARCH TEAM A 3 32 99 500/- PAGE NO. 94 OF THE PAPER BOOK (ENCLOSED HEREWITH) TURNOVER OF ALL UNRELATED PARTY TRADES EXECUTED BY USB B 71 36 23 68 841/- PAGE NO. 10 OF CIT(A) ORDER (ENCLOSED AS ANNEXURE 3 TO SUMMARY CHART) TURNOVER OF CLEARING HOUSE UNRELATED PARTY TRADES EXECUTED BY USB C 29 38 01 23 671/- PAGE NO. 10 OF CIT(A) ORDER (ENCLOSED AS ANNEXURE 3 TO SUMMARY CHART) TOTAL SALARY COST ATTRIBUTABLE TO CLEARING TRADES FOR UNRELATED PARTIES D=A* C/B 1 37 09 514/- FURTHER MARKETING COST ADJUSTMENT ON ACCOUNT OF EQUITY RESEARCH SALARY COST E=D/ C 0.05% UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 20 CO.NO.179/MUM/2011 ATTRIBUTABLE TOWARDS UNRELATED PARTY CLEARING HOUSE TRADES 11. AS MENTIONED EARLIER THE LD. COUNSEL HAS RELIE D ON THE ORDER OF THE TRIBUNAL IN THE CASE OF MORGAN STANLEY INDIA COMPANY PVT. LTD. ( SUPRA). A PRECEDENT IS AN AUTHORITY ONLY FOR WHAT IT ACTUALLY DECIDES AND NOT FOR WHAT MAY REMOTELY OR EVEN LOGICALLY FOLLOW FROM IT. JUDG MENTS MUST BE READ AS A WHOLE AND OBSERVATIONS IN JUDGMENTS SHOULD BE CONSI DERED IN THE CONTEXT IN WHICH THEY ARE MADE AND IN THE LIGHT OF THE QUES TIONS THAT WERE BEFORE THE COURT AS HELD IN CIT V. SUN ENGINEERING WORKS PVT. LTD . 198 ITR 297 (SC). IN INDIA THE BURDEN OF PROOF IN TRANSFER PRICING L ITIGATION TO ESTABLISH THE ARMS LENGTH NATURE OF INTERNATIONAL TRANSACTIO N IS GENERALLY WITH THE ASSESSEE. ONCE THE ASSESSEE DISCHARGES THIS BURDEN THE BURDEN SHIFTS TO THE TAX AUTHORITIES TO ESTABLISH THAT THE ARMS LEN GTH PRICE HAS NOT BEEN DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THE LAW OR THAT THE INFORMATION OR DATA USED IN THE COMPUTATION IS NOT RELIABLE OR CORRECT. 12. KEEPING IN MIND THE ABOVE ASPECTS WE ARE OF TH E CONSIDERED VIEW THAT THE SALARY COST OF RESEARCH PERSONNEL NEED TO BE RE -EXAMINED. THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ABOVE ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO/TPO FOR MAKING A FRESH ORDER AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BE FORE THE AO/TPO. THUS THE GROUND OF CROSS OBJECTIONS RAISED BY THE ASSESS EE IN RESPECT OF SALARY COST OF RESEARCH PERSONNEL I.E 1(C) IS ALLOWED FOR STATISTICAL PURPOSES. SIMILARLY THE 1 ST GROUND OF APPEAL FILED BY THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSES ON THE REASONS THAT THE TAX A UTHORITIES HAVE PROCEEDED UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 21 CO.NO.179/MUM/2011 TO EXAMINE THE ACTUAL RATE CHARGED BY THE ASSESSEE TO ITS AE IN MAURITIUS AND COMPARE THE SAME WITH THE RATES CHARGED BY IT TO TH IRD PARTIES. 13. THE LD. CIT(A) HAS HELD THAT THE APPLICANT WIL L BE ENTITLED TO 5% BENEFIT FOR THE IMPUGNED ASSESSMENT YEAR IN RESPECT OF ADJUSTMENT MADE ON CLEARING HOUSE TRADES. IN THIS REGARD WE MAY REFER TO THE PROVISO TO 92C(2) OF THE ACT AS SUBSTITUTED BY THE FINANCE ACT 2002 W.E.F. 01.04.2002 WHICH READS AS UNDER: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMI NED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION OF THE ASSESSEE A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMETICAL MEAN. 13.1 WHERE THE VARIATION BETWEEN ALP AS DETERMINED WITH REFERENCE TO TRANSFER PRICING RULES AND THE TRANSACTION PRICE IS LESS THAN 5% NO ATTEMPT CAN BE MADE TO SUBSTITUTE ALP FOR THE TRANSACTION P RICE IN VIEW OF SECTION 92C(2). BUT THIS RULE CAN HAVE NO APPLICATION WHER E IT EXCEEDS 5% SO AS TO REDUCE EXCESS BY 5% AS CLAIMED BY THE ASSESSEE. IN OTHER WORDS WHERE THE DIFFERENCE EXCEEDS 5% THERE CAN BE NO APPLICATION OF TOLERANCE LIMIT OF 5% AS DECIDED BY THE TRIBUNAL IN GLOBAL VANTAGE P. LTD V. DCIT (2010) 1 ITR (TRIB.) 326 (DELHI). THUS FOR THE IMPUGNED ASSESSMENT YEAR TOLERANCE L IMIT OF 5% U/S 92C IS NOT A STANDARD DEDUCTION TO BE REDUCED FROM THE ADDITIONS MADE ON ACCOUNT OF ALP. AFTER THE INSERTION OF SUB SECTION 2A TO SECTION 92C WITH RETROSPECTIVE EFFECT FROM 1.4.2002 +/- 5 % WILL NO T BE A STANDARD DEDUCTION. UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 22 CO.NO.179/MUM/2011 IN VIEW OF THE ABOVE PROVISIONS IN THE ACT THE AD DITIONAL GROUND FILED BY THE REVENUE IS ALLOWED. 14. FINALLY WE TURN TO THE 2 ND AND 3 RD GROUNDS OF APPEAL FILED BY THE REVENUE WHICH READ AS UNDER : 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD.CIT(A) ERRED IN OVERLOOKING THE FACT THAT THE EXPLANATORY NOTES TO THE FINANCE ACT 2005 CLEARLY STATED THAT TRANSACTIONS IN DERIVATIVES SHA LL CEASE TO BE SPECULATIVE ONLY FROM THE DAY THE STOCK EXCHANGES FULFILL THE CONDIT IONS TO BE PRESCRIBED BY THE CENTRAL GOVERNMENT AND IT WAS ONLY W.E.F 25 TH JANUARY 2006 THAT THE NOTIFICATION TO THAT EFFECT WAS ISSUED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) FAILED TO CONSIDER THAT THE PROVISO TO 43(5) WAS MA INLY A SAFEGUARD TO COVER THE LOSSES THAT MAY ARISE BY WAY OF HOLDING THE STOCKS AND NOT TO COVER CASES OF SIMULTANEOUS PURCHASE AND SALE OF SHARES /DERIVATIV ES WITH A VIEW TO EARNING PROFITS OUT OF PRICE DIFFERENTIALS IN DIFFERENT SEG MENTS. 15. THE AO IN HIS ORDER HAS STATED THAT THE TRADING OF SHARES BY THE ASSESSEE-COMPANY COMES WITHIN THE AMBIT OF THE EXPL ANATION TO SECTION 73 AND ACCORDINGLY DISALLOWED THE TRADING LOSS OF RS.4 0 82 623/-. IN APPEAL THE LD. CIT(A) ALLOWED THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ON THE ABOVE DISALLOWANCE WITH FOLLOWING R EASONS : I HAVE EXAMINED THE ISSUE AND THE FACTS ON RECORD. THE APPELLANT IS A SHARE BROKER AND HAS PURCHASED AND SOLD THE SHARES ON BEH ALF OF ITS CLIENTS. FROM THE EVIDENCE GATHERED DURING THE COURSE OF THE HEARING THE LOSS HAS OCCURRED ON ACCOUNT OF DEALING ERRORS OR SOME MISTAKE IN CARRYI NG OUT THE INSTRUCTIONS OF THE CLIENT SUCH AS SPECIFIC LIMIT INSTRUCTIONS OF THE C LIENT ARE OVERLOOKED ORDERS CANCELLED BY CLIENT ARE NOT ENTERED INTO THE SYSTEM OR OVERLOOKED BY DEALER ETC. THE APPELLANT ITSELF IS NOT ENGAGED IN THE BUSINESS OF SHARE TRADING. THE LOSS SUFFERED BY THE APPELLANT ON ACCOUNT OF ERRORS IN T HE SCRIPTS TRADED BY THE APPELLANT ON BEHALF OF THE CLIENTS WHICH COMES TO APPROX 0.79% OF THE TURNOVER OF THE APPELLANT CANNOT BE TERMED AS EXCESSIVE. THU S THE LOSS IS INCIDENTAL TO THE SHARE BROKING BUSINESS AND THE PROVISIONS OF EXPLAN ATION TO SECTION 73 OF THE ACT UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 23 CO.NO.179/MUM/2011 ARE NOT APPLICABLE IN THE PRESENT CASE. IN ANY CASE THIS ISSUE HAS BEEN DECIDED IN APPELLANT'S FAVOUR BY THE ITAT FOR THE IMMEDIATELY PRECEDING YEAR (A.Y. 2002- 03). 16. BEFORE US THE LD. DR SUBMITS THAT THE ASSESSEE -COMPANY HAS DEBITED AN AMOUNT OF RS.35 82 623/- ON ACCOUNT OF LOSS ON S HARE TRADING DURING THE YEAR. ACCORDINGLY THE PROPORTIONATE EXPENSES INCUR RED TOWARDS INCURRING SPECULATION LOSS IS TO BE DISALLOWED. IT IS STATED BY HIM THAT AS THE ASSESSEE HAS NOT GIVEN ANY EXPENSE ALLOCATION THE AO HAS RI GHTLY DISALLOWED ON ESTIMATE THE EXPENSES OF RS.5 00 000/- PERTAINING T O THE SHARE TRADING ACTIVITY OF THE ASSESSEE. THUS IT IS ARGUED BY THE LD. DR THAT THE ORDER PASSED BY THE AO BE AFFIRMED. 17. ON THE OTHER HAND THE LD. COUNSEL SUBMITS THAT DURING THE FINANCIAL YEAR 2002-03 THE ASSESSEE INCURRED LOSS ON ACCOUNT OF DEALING ERRORS SUCH AS NON-EXECUTION OF MINIMUM CONTRACT QUANTITY/AMOUN T DEALING ERRORS BY STAFF ETC. IN SUCH CIRCUMSTANCES THE CLIENT DISOWN S SHARES AND THE ASSESSEE IS FORCED TO PURCHASE/SELL THE SHARES DUE TO SUCH ERRO RS AND IN THE PROCESS THERE HAS BEEN A LOSS OF RS.35 82 623/-. IT IS STAT ED BY HIM THAT THE LD. CIT(A) IN ASSESSEES OWN CASE FOR AY 2001-02 AND AY 2002-03 HAS HELD THAT THE SHARE TRADING LOSS IS ALLOWABLE AS BUSINESS LOS S. THUS THE LD. COUNSEL RELIES ON THE ORDER OF THE LD. CIT(A). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE EXPLANATI ON TO SECTION 73 REFERRED BY THE AO IS NOT APPLICABLE AS THE ASSESSEE IS NOT ENGAGED IN BUSINESS OF PURCHASE/SALE OF SHARES OF OTHER COMPANIES. FURTHER LOSS WAS INCURRED ON ACCOUNT OF ERROR TRADES IN RESPECT OF DEALINGS OF C LIENTS AND NOT ON OWN ACCOUNT AND THE LOSS INCURRED IN COURSE OF CARRYING ON SHARE BROKING BUSINESS IS IN LINE WITH ACCEPTED MARKET PRACTICES. FURTHER WE FIND THAT NO UBS SECURITIES INDIA PVT.LTD. ITA NO. 9033/MUM/2010 24 CO.NO.179/MUM/2011 EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RE SPECT OF ERROR TRADES. IN SUCH A SITUATION DISALLOWANCE OF RS. 35 82 623/- O N ACCOUNT OF LOSS ON SHARE TRADING AND AD-HOC DISALLOWANCE OF RS.5 00 000/- N OT SUPPORTED BY ANY REASONABLE BASIS HAS BEEN RIGHTLY DELETED BY THE LD . CIT(A). THUS THE 2 ND AND 3 RD GROUND OF APPEAL FILED BY THE REVENUE ARE DISMISSE D. 19. IN THE RESULT THE APPEAL BY THE REVENUE IS PAR TLY ALLOWED AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE PARTLY ALLOWED FOR S TATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 16/03/2021. SD/- SD/- (VIKAS AWASTHY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 16/03/2021 RAHUL SHARMA SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR ITAT MUMBAI 6. GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT MUMBAI