TMI Blog2014 (11) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have possibly made it comparable with the assessee – thus, the company is directed to be excluded from the list of comparables. Khandawala Securities Ltd. – Held that:- There is no data of net income of this component on segment level, except for its gross revenue - it includes equity capital markets transaction execution, mergers and acquisitions advisory, capital raising advisory and transaction execution relating to structured finance, real estate and infrastructure - Thus, out of total of 46% of the gross revenues of this company lying under the overall ‘Corporate advisory services division‘, it is manifest that only some of the activities undertaken by it bear some similarity to those carried on by the assessee - The fact that apart from entity level, no details of this overall segment of ‘Corporate Advisory Services’ are available, further cements the viewpoint – the company is directed to be excluded from the list of comparables. Sumedha Fiscal Services Ltd. – Held that:- The segmental data is available but such segment with the caption ‘Consultancy services’ also encompasses loan syndication, merchant banking, restructuring and other related advisory services apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, its associated enterprise. Functional profile of the assessee, as set out by the Transfer Pricing Officer (TPO) on page 2 of his order, divulges that the assessee maintains an advisory relationship with its AE by sourcing and evaluating potential investment opportunities in India. Such opportunities are sourced by the assessee through direct proprietary relationship, intermediaries, electronic media and magazines, etc. Once a potential investment opportunity is sourced, the broad contours are discussed with its AE. On the basis of such discussion, the assessee is directed to either pursue the proposal or reject the same. If the opportunity is to be pursued, a detailed research exercise is conducted spreading over primary research including site visits for understanding demand-supply scenarios benchmarking of existing projects, vis-a-vis the opportunity, gauging competition, etc. to secondary research and, thereafter, engaging in discussions with the Indian counterparts in joint venture situations. Research for various analyses as conducted by the assessee above are presented in the form of an investment memo to its AE for suitable decision making. Once investments are made, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expedient to highlight the argument of the ld. AR that the assessee is a private equity fund and hence these three companies chosen by the TPO, which are basically merchant banks, are not comparable. To bolster this submission, he relied on certain decisions in which it has been so held. At this juncture, it is pertinent to note the difference between a merchant banker and a private equity fund. 6. A merchant bank, apart from helping businessmen in raising finance, also renders consultancy services. It helps its clients in raising finance through issue of shares, debentures, bank loans, etc., from the domestic and international market. The term Merchant Banker has been defined in the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922, to mean : any person who is engaged in the business of Issue Management either by making arrangements regarding selling, buying or subscribing to Securities as Manager, Consultant, Adviser of rendering Corporate Advisory Service in relation to such Issue Management . Its activities also include project counseling, corporate counseling in areas of capital restructuring, amalgamations, mergers, takeovers, discounting and rediscounting of short te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the ld. AR that the assessee acted as a PE Fund in India, is not tenable. The Manager subcontracted specific activities to the assessee, which were in the nature of advisory to him. By no stretch of imagination, the assessee can be described as PE Fund, who, in present facts is, Xander Master Fund. The name by which a transaction is coined is not decisive of its character. It is the real nature of a transaction which is always relevant and conclusive. A bare perusal of the nature of activities carried out by the assessee in the extant international transaction abundantly proves that these are not that of a PE Fund. Ex consequenti, the decisions cited by the ld. AR seeking to canvass the exclusion of three companies on the strength of the assesse in those cases acting as PE Funds, do not advance his case any further. As such, we are desisting from considering such decisions, which were rendered drawing distinction between a merchant banker and a PE Fund and holding that a merchant banker cannot be considered as comparable to a PE Fund. Be that as it may, a company cannot be considered as comparable or incomparable on the generality of mere description of its overall cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resembles with the services rendered by the assessee. The ld. DR himself candidly accepted, and rightly so, that the other components of this stream of the revenue are of no match with that of the assessee. Now, the question arises as to whether Brescon Corporate Advisors Ltd., under these circumstances can be considered as comparable? At this stage, it is pertinent to mention that the gross revenue of this company amounts to ₹ 20.27 crore and there is no segmental data available either in respect of net profit from Fee based financial services or Other income . As Other income also includes income from Investment activity, being profit/loss on sale of investment and dealing in shares and securities, the impact of such profit/loss on the overall net profit of the company on entity level, cannot be determined. Even though some component of Equity related advisory/M A Advisory , with the gross revenue of ₹ 2.03 crore, partly resembles with the assessee, still in the absence of any segmental data of such composition, there can be no valid comparison. Revenue from this component accounts for around 10% of the total gross revenue of this company and if we further exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee s composition of income. If there is some commonality, that can be traced to the income from Corporate advisory services , which accounts for 46.23% of the gross revenue. There is no data of net income of this component on segment level, except for its gross revenue. When we further examine the break-up of Corporate advisory services , which is available at page 369 of the paper book, it comes to the fore that it includes equity capital markets transaction execution, mergers and acquisitions advisory, capital raising advisory and transaction execution relating to structured finance, real estate and infrastructure. Thus, out of total of 46% of the gross revenues of this company lying under the overall Corporate advisory services division , it is manifest that only some of the activities undertaken by it bear some similarity to those carried on by the assessee. However, if one may have to answer it as comparable or incomparable in totality, we can t term it as comparable because of the absence of any bifurcation of the income from advisory services in this overall segment. The fact that apart from entity level, no details of this overall segment of Corporate Advi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed opinion, this contention deserves to be jettisoned. Just like a situation in which the assessee chooses a company as comparable, which can be excluded by the TPO on finding it as incomparable, there can be no fetters on the assessee requesting for the exclusion of a company, originally considered by it comparable by inadvertence. After all, it is for the TPO to examine and evaluate such contention and then decide about its comparability on merits. To foreclose the raising of such a contention by the assessee for further appraisal at the TPO s end, is impermissible. The Department cannot approbate and reprobate at the same time. The Special Bench of the Tribunal in DCIT vs. Quark Systems (P) Ltd., (2010) 132 TTJ (Chd) (SB) has allowed the assessee to claim exclusion of certain companies from the list of comparables which were inadvertently included by it in its transfer pricing study. We, therefore, reject this contention advanced on behalf of the Revenue. 16. To sum up, we direct the exclusion of the afore referred three companies from the list of comparables. The impugned order is set aside pro tanto and the matter is sent back to the TPO/AO for determining the ALP of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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