TMI Blog2016 (10) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... sed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short the Act ) for the assessment year 2010 11, in pursuance to the direction of the Dispute Resolution Panel (DRP). 2. Brief facts are, the assessee a wholly owned Indian subsidiary of FIL Mauritius, is engaged in providing non binding investment advisory services to its overseas Associate Enterprises (A.E). It is stated, the assessee provides investment advisory services only to its A.E., therefore, it is a risk mitigated entity. For the assessment year under consideration, the assessee entered into international transaction of non binding investment advisory services with its A.E. and earned revenue of ₹ 25.83 crore. For bench marking the transaction, the assessee undertook a study by adopting TNMM as most appropriate method with OP/OC as the PLI. By considering itself as the tested party, the assessee undertook a search process in the data bases and identified following seven comparables with average arithmetic mean of 18.23% on the basis of three year data. i) Access India Advisors Pvt. Limited; ii) Future capital Advisors Pvt. Limited; iii) ICRA Managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft assessment order adding back the transfer pricing adjustment. Against the draft assessment order, the assessee raised objections before the DRP. However, the DRP more or less rejected all the contentions / objections of the assessee in relation to the transfer pricing adjustment and issued direction to the Assessing Officer to finalise the draft assessment and accordingly, the impugned assessment was passed against which the assessee is in appeal before us. 4. Though, in the grounds of appeal, the assessee has raised various issues, however, at the time of hearing Shri Porus Kaka, learned Sr. Counsel, appearing for the assessee, restricted his arguments to selection / rejection of comparables by the Transfer Pricing Officer / DRP. Herein after, we will deal with the arguments of the parties in respect of each of the comparables under dispute. IDFC INVESTMENT ADVISORS PVT. LTD. 5. Objecting to the selection of this company as a comparable, learned Sr. Counsel submitted, this company is engaged in providing portfolio management service (PMS). In this context, learned Sr. Counsel, referring to the annual report of the company for the relevant assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental details are not available Further, we have also noted from the annual report of the company that it has made investment and also incurred brokerage expenses. If we compare the assessee s activities with the comparable, it could be seen that the assessee is only providing advisory service to its A.E. which is non binding in nature, therefore, is totally different from the functions performed by IDFC. Considering the aforesaid aspect, the Tribunal, Mumbai Bench, in Carlyle India Advisors Pvt. Ltd. (supra), has held that this company is not comparable to an investment advisor service provider. Same view has also been expressed by the Tribunal, Mumbai Bench, in AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./2015, A.Y. 2010 11, order dated 18th May 2016, and other decisions of the Tribunal, Mumbai Bench, relied upon by the learned Sr. Counsel. The Bench in the case of AGM Advisors India Pvt. Ltd. (supra), ultimately concluded as under: 7. We find that the assessee objected to the inclusion of ICRA 0 and IDFC on the ground that the TPO had applied no scientific method in arriving at the said two companies that the companies had been cherry picked by the TPO an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee engaged in the business of providing investment advisory services. The Tribunal has in the cases discussed at paragraph 6.d.a. held that IDFC was not a valid comparable. Considering the above discussion, we are of the option that the order of the FIRST APPELLATE AUTHORITY and exclude both the comparables does not suffer from any legal or factual infirmity. So, confirming his order, we decide the issue against the AO. 5. It is also relevant to observe, the Hon'ble Jurisdictional High Court in General Atlantic Pvt. Ltd. (supra), while approving the view expressed in Carlyle India Advisors Pvt. Ltd. (supra) has observed that where a company is remunerated on cost plus basis, it is risk insulated, therefore, on application of FAR, it cannot be compared with other companies if there is any difference. Therefore, respectfully following the decision of the co ordinate bench of the Tribunal referred to above as well as the principle laid down by the Hon'ble Jurisdictional High Court, we reject this company as a comparable. ICRA ONLINE LIMITED 6. Objecting to this company, the learned Sr. Counsel submitted, the company has three lines of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it derives its business income from four different businesses verticals viz. equity capital market, mergers and acquisition, private equity syndication and structural debt. He submitted, as per the annual report, the company advises Indian corporate on cross boarder acquisitions. He submitted, MOIAPL is a SEBI regulated merchant Banker which provides investment banking service in the nature of acquisition equity placements, IPOs, syndication, etc. He submitted, as per the transaction details in the financial statements, MOIPL has undertaken activities as lead manager/ arranger / sole book runner, etc., for various investment banking deals during the period from April 2009 to March 2010 and has earned investment banking fee for the same. He, therefore, submitted MOIAPL is not comparable to a non binding investment advisory and related service provider like the assessee. In support of such contention, learned Sr. Counsel relied upon a number of decisions of the Tribunal, as well as the Hon'ble Jurisdictional High Court as under: i) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./ 2015 and ITA no.4801/Mum./2015, A.Y. 2010 11, order dated 18.5.2016; ii) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before us, Ld. CIT DR arguing for its inclusion submitted that, if the ICRA Management Services can be included for having revenue from advisory services then on same analogy this company should also be given the same treatment. From the perusal of the directors report, it is seen that this company derives its business income from four different business verticals, i.e., equity capital markets, merger and acquisitions, profit equity syndications and structured debt. It also given advises on cross boarder acquisition. Its core competence is in the field of merchant banking. It also provides comprehensive investment banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments in international and domestic capital markets, monitoring mergers and acquisitions and advising M A as professional and restructuring advisory and implementations. It is also involved in various professional activities of the merchant banking. A merchant banker provides capital to companies in the form of share ownership instead of loans. It also provides advisory on corporate matters to the companies in which they invest. The focus is on negotiated private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with Everstone Investment Advisors Pvt. Ltd. to realign its investment advisory activities with a view of having a focused and dedicated approach to the investment advisory business. He submitted, this arrangement was effective from 1st January 2010. He submitted, as a result of such realignment the entire business was re structured. Referring to the Profit Loss account of the company for the financial year 2010 11, the learned Sr. Counsel submitted, it has earned no revenue from investment advisory business in pursuance to realignment and its employees have also been transferred. He submitted, the company has operated only for nine months during the financial year 2009 10, hence, cannot be compared to the assessee. In support of his contention, he relied upon the following decision: i) Carlyle India Advisors Pvt. Ltd., ITA no.1040/Mum./2015, A.Y. 2010 11, order dated 18.11.2015; and ii) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./ 2015 and ITA no.4801/Mum./2015, A.Y. 2010 11, order dated 18.5.2016; 15. Learned Departmental Representative referring to the Balance Sheet of Future Capital Investment Advisory Ltd. submitted, realignment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute and it is a trite law that no tax can be levied or collected from a subject except by an authority of law. We may hasten to add here that we are not staying that on each and every aspect of the assessment declared in the return of income, an assessee is entitled to turn around and argue differently before the income tax authorities; rather, there has to be justifiable reasons shown by the assessee, duly supported by law or facts, whereby the change in stand is marited. In the present case, what the assessee is claiming is that there has been a restructuring / realingment of investment advisory business being carried out by Kshitij Investment Advisory Co. Ltd. which has impacted the financial results thereby rendering the said concern as an unfit comparable. The proposition being canvassed by the assessee is supported by the decision of Hyderabad Bench of the Tribunal in the case of Capital IQ Information System (India) Pv.t Ltd. (supra). In fact, it is quite well understood that in a year where realignment / restructuring of business takes place, such year is often a peculiar economic year in the history of a concern and in such a situation, it would be in the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport for subsequent financial year of 2010 11 showed no such operations by the said concern. Therefore, considering the aforesaid fact situation, the instant financial year of the said concern is containing peculiar economic circumstances and the same has to be taken into consideration while evaluating the rationale for its inclusion as a comparable. Before us, the Ld. Representative also pointed out that the said restructuring / realignment which has taken place w.e.f. 1.1.2010, did impact the financial results inasmuch as the income from operations of the said concern for the year under consideration reduced to ₹ 17,23,10,815 from ₹ 26,47,96,102 in the immediately preceding year. Considering the entire conspectus of facts and circumstances, in our view, the assessee company is justified in asserting that Kshitij Investment Advisory Co. Ltd. deserves to be excluded from the final set of comparables on account peculiar economic circumstances during the year under consideration. Thus, on this aspect also, assessee succeeds. 17. Following the aforesaid decision, the Tribunal again in case of AGM India Advisors Pvt. Ltd. (supra) held that this company cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. The learned Sr. Counsel submitted, the company has been accepted as a comparable in assessee s own case by the Transfer Pricing Officer and the DRP in assessment year 2009 10. He, therefore, submitted, the company should be included as a comparable to the assessee. In support of such contention, learned Sr. Counsel relied upon the following decisions. i) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, ITA no. 6315/Mum./2012, order dated 6.2.2013; ii) Carlyle India Advisors Pvt. Ld. V/s ACIT, ITA no.7901/ Mum./2011, order dated 4.4.2012; iii) General Atlantic Pvt. Ltd. v/s DCIT, ITA no.8914/Mum./ 2010, dated 31.1.2013; iv) AGM India Advisor Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./ 2015, dated 18.5.2016; v) Temasec Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010 11 order dated 25.2.2016; and vi) Blackstone Advisors India Pvt. Ltd. v/s DCIT, ITA no.1581/Mum./ 2014, order dated 9.3.2016. 20. Learned Sr. Counsel submitted, the Hon'ble Jurisdictional High Court in CIT v/s Carlyle India Advisors Pvt. Ltd., 32 taxmann.com 23, A.Y. 2007 08, has also dismissed the Department s appeal on the issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord in the light of the decisions relied upon. From the documentary evidences brought on record by the assessee, we have observed that the assessee is also providing non binding investment advisory service in various sectors such as infrastructure, retail, telecommunication and networking equipment, health care, financial intermediaries, design and engineering related to infrastructure, media and communication. Thus, as could be seen, though, the service provided by the assessee covers the wide spectrum of activities, however, the nature of service is virtually one viz. advisory services. The same is the case with the comparable. Though, it is alleged by the learned Departmental Representative, the comparable is providing service through various sectors, however, the nature of service is advisory. We have also noted that absolutely similar argument was advanced by the learned Departmental Representative in relation to this comparable in case of Temasec Holdings Advisors India Pvt. Ltd. (supra) in A.Y. 2010 11. The Tribunal, after considering the submissions of the learned Departmental Representative and also the proposition advanced by him in relation to the principles of res jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne has to see the transaction undertaken are comparable or not and whether any adjustment is required to obtain a reliable result, because under TNMM the net margin are less affected by transactional differences and is more tolerant to some minor functional differences between controlled and uncontrolled transactions. However, if any unique function or property significantly affects the operating costs or net margin or has a bearing in the generation of revenue itself, then it cannot be considered to be a fit comparable for benchmarking the net margins. Here it is not the case where there is any unique functions materially affecting the revenue or net margins vis- -vis the functions performed by ICRA. Hence on functional level it is a good comparable. As stated earlier, in the earlier years, the Transfer Pricing Officer has accepted ICRA to be a comparable and in later years the Tribunal in AY 2008-09 2009-10 has held ICRA Management to be good comparable qua the functions of the assessee and there being no material change on facts, functional profile or any other factor in this year, then as matter of consistency, we do not want do deviate from our findings given in the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um./2015, A.Y. 2010 11, order dated 25.2.2016. iii) Temasek Holdings Advisors (I) Pvt. Ltd. v/s DCIT, ITA no. 968/Mum./2014, A.Y. 2009 10; iv) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no. 6315/ Mum./2012, A.Y. 2008 09; v) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, ITA no.6315/ Mum./2012, A.Y. 2008 09; vi) Carlyle India Advisors Pvt. Ltd. v/s DCIT, ITA no.7367/Mum./ 2012, A.Y. 2008 09; vii) Carlyle India Advisors Pvt. Ltd. v/s ACIT, ITA no.7901/ Mum./2011, A.Y. 2007 08; viii) General Atlantic Pvt. Ltd. v/s ACIT, ITA no.7638/Mum./2011, A.Y. 2007 08. 27. Learned Sr. Counsel submitted, the Hon'ble Jurisdictional High Court while upholding the decision of the Tribunal in CIT v/s Carlyle India Advisors Pvt. Ltd., 32 taxmann.com 23, A.Y. 2007 08, has accepted that the functions performed by the IDC India Ltd., is comparable to functions performed by an investment advisory services provider. 28. Learned Departmental Representative strongly opposing the inclusion of this company as a comparable submitted, it is a product company which is evident from the website of the company as well as its annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the advisory and consultancy services for the purpose of investment made in various sectors and secondly, it has been found to be good comparable by the TPO in the assessment year 2007-08 and 2009-10. Once company has been held to be good comparable consistently for three years then without any change in the material facts, it cannot be held that this comparable could be rejected in this year. Moreover, in the case of Carlyle Advisory India Ltd., ITAT Mumbai Bench, reported in 43 taxman.com 184, the Tribunal held that this company is a good comparable with the companies rendering investment advisory services. This decision of the Carlyle Advisors have also upheld by the Hon ble Bombay High Court. Moreover, we have already discussed the functions performed by the IDC India Ltd while dealing with Ld. Counsel s argument that functions of advisory services are quite similar to the functions of the assessee and, therefore, we accept the assessee s contention that this comparable cannot be rejected. Accordingly, same is directed to be included in the comparability list. 31. In case of AGM India Advisors Pvt. Ltd. (supra), the co ordinate bench after considering the very same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Sr. Counsel relied upon the following decisions: i) Temasek Holdings Advisors (I) P. Ltd. v/s DCIT, ITA no. 968/Mum./2014, A.Y. 2009 10 order dated 27.6.2014; and ii) Temasek Holdings Advisors (I) Pvt. Ltd. v/s DCIT, ITA no. 4203/Mum./2012, A.Y. 2008 09 and ITA no.6504/Mum./ 2012, A.Y. 2007 08, order dated 30.08.2013. 33. Learned Departmental Representative referring to the annual report of the company submitted that it is into business process outsourcing. He further submitted, the company has incurred expenditure of ₹ 2.12 crore towards rental / business centre charges, which is indicative of different business model. Therefore, the company being functionally dissimilar cannot be treated as a comparable. 34. In rejoinder, the learned Sr. Counsel submitted, neither the Transfer Pricing Officer nor the DRP has mentioned about the expenditure of ₹ 2.13 crore towards rental / business centre charges. Therefore, the learned Departmental Representative cannot argue rejection of the company by applying A different criteria. 35. We have considered the submissions of the parties and perused the material available on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted, the Transfer Pricing Officer and the DRP have accepted this company as comparable to the assessee for the assessment year 2009 10. He, therefore, submitted the company should be included as comparable. In support of his contention, learned Sr. Counsel relied upon the decision of Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010 11, order dated 25th February 2016. 39. The learned Departmental Representative referring to the show cause notice issued by the Transfer Pricing Officer submitted, if it is read with Transfer Pricing order it can be seen that the Transfer Pricing Officer has rejected all comparable having turnover of less than ₹ 1 crore, hence, this company could not have been included. He further submitted, the Transfer Pricing Officer has also given a categorical finding that functions of the company do not appear to be similar to the assessee. In support of his contention that applying the turnover filter the company cannot be treated as a comparable, the learned Departmental Representative relied upon the following decisions: i) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, ITA no.6315/ Mum. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a low turnover filter of less than ₹ 1 crore, following the same logic, he should have applied a high turnover filter. Further, in the order passed under section 92CA(3), the Transfer Pricing Officer has not emphasized the filter finally applied by him and the selection process undertaken, therefore, it cannot be said with any degree of certainty that he applied low turnover filter. Even, assuming that such filter was applied, following the same logic, he should have applied high turnover filter to exclude companies. We have further noted that the Tribunal, Delhi Bench, in Mckinsey Knowledge Centre India Pvt. Ltd. (supra) has held that if a company is functionally similar, only because of its low turnover, it cannot be rejected if such turnover filter was not applied either by the assessee or by the Transfer Pricing Officer. The aforesaid observations of the Tribunal, Delhi Bench, was affirmed by the Hon'ble Delhi High Court in its judgment referred to above. It is also noteworthy that in the case of Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010 11, order dated 25th February 2016, the co ordinate bench after considering virtually i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the turnover filter is appropriate one and applicable, cannot be answered in the abstract and is entirely fact dependent. Lastly, the Tribunal in assessee s own case for the assessment year 2008-09 2009-10 has accepted the Kinetic Trust Ltd as a comparable company so far as the functions performed by the assessee. The Ld. TPO in utter disregard to the Tribunal s order has stated that the said decision of the ITAT cannot be accepted, because the finding was given on the ground that the TPO has accepted this comparable in the earlier years. This cannot be the ground for rejection, rather the Kinetic Trust Ltd is to be included as the comparable company following judicial precedence and consistency in view of the Tribunal orders for two consecutive earlier years. 42. Facts on the basis of which the co ordinate bench in Temasek Holdings Advisors India Pvt. Ltd. (supra) accepted this company as comparable are more or less similar to the facts involved in the case of present assessee as undisputedly in assessment year 2009 10, the Transfer Pricing Officer / DRP have accepted this company as a comparable. Thus, applying the rule of consistency as well as following the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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