TMI Blog2015 (6) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue authorities erred in excluding the same. Apropos the inclusion of Spanco as a comparable, we find that the TPO/DRP were incorrect, because as per the results seen in the case of Spanco, they pertain to BPO segment only, as against the business of the assessee, which provides need based business support services in connection with business activities in the area of financial services carried out by the AEs. Since both these business segments cannot be equated, we hold that the revenue authorities erred in taking the financials of Spanco as a comparable case. - Decided in favour of assessee. Upward adjustment pertaining to brokerage services provided by the assessee to its AEs - Held that:- The assessee had offered list of comparables which had matched its business profile, both with, foreign owned brokers and Indian owned brokers, who were conducting that business through a common channel and according to us, each broker in either category was giving its performance in an uncontrolled regime, therefore, according to us, the adoption of CUP was the most appropriate method, adopted by the assessee to benchmark its ALP. We do not find anything contrary in the conduct a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is a 100% subsidiary of GS (Mauritius) LLC, based in Mauritius. The assessee company was incorporated on 01.09.2006, and is in the core business of the group, i.e. securities broking, merchant banking and financial advisory services to its clients. 3. Since the assessee was engaged in transactions, which, resulted in international transactions as well, the AO referred the case for determination of ALP on international transactions, to the TPO, who suggested an adjustment of ₹ 6,25,29,197/- on the following segments : Business Support Services ₹ 1,60,45,600 Brokerage Services ₹ 99,49,597 Investment advisory services ₹ 3,65,34,000 Total ₹ 6,25,29,197 4. The matter was referred to before the DRP, who sustained the proposals made by the TPO u/s 92CA(3). 5. Hence the instant appeal. 6. Ground no. 1 is not pressed, hence it is rejected. 7. Ground no. 2 is against the upward TP adjustment of ₹ 1,60,45,600/- pertaining to business support services rendered to its A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing are the comparable companies for business support services: Name of the company OP/TC (%) Financial Year 2006-07 Spanco Telesystems Solutions Limited 24.82% Crisil Limited 21.41% Cyber Media Events Limited 8.43% Educational Consultants (India) Limited 10.64% ICRA Management Consulting Services Ltd. 15.23% IDC (India) Limited 15.33% NTPC Electric Supply Co. Ltd. 16.78% Arithmetic mean 16.09% Accordingly, the adjustment to be made in respect of this transaction is as under: Particulars Margins from BSS% Operating Costs 25,57,35,470 Add: Mark-up of 16.09% as discussed 4,11,47,837 Less: Amount already offered to tax by the assesse 2,51,02,237 Adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt services undertaken by the assessee, without getting into the controversy, that the comparable, as adopted by the assessee was a loss making concern. The AR, therefore, referred to the case of Brigade Global vs ITO, ITA no. 1494/Hyd/2010, delivered by coordinate Bench of Hyderabad, wherein it was held, 26. We have heard both the parties on these comparables. The contention of the assessee is that the loss making companies were not to be taken out from the comparables while determining the ALP. We find merit in the argument of the assessee s counsel. Determining of ALP is depend upon the comparables of identical or similar in controlled transactions in similar or comparable circumstances and thereafter suitable adjustment has to be made to set off the difference to make the transaction commercially comparable. Upon careful consideration of the assessee s counsel plea, we find ourselves in agreement with the assessee s contention that only abnormal loss making companies are to be taken out from the comparables. The judgement relied on by the assessee s counsel in Quark Systems Pvt. Ltd. (32 TTJ 1) (Chd.)(SB) supports the assessee s counsel arguments. Being so, for proper compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BPO Services International Call Centre. 16. It was submitted that selection of Spanco by the TPO was incorrect, because, the primary business of Spanco was providing call centre service, which business, in the case of the assessee was not so. The AR, therefore, reiterated that Spanco should not be taken as a comparable as functionally it was different. The AR pointed out that in the very next year, TPO has taken to Spanco as comparable for ITE Services. 17. The AR, therefore, submitted that in case the original comparables are retained there, there would be no adjustment. 18. The DR has relied on the orders of the TPO and DRP. 19. After hearing both the sides, we find that TPO rejected Capital Trust as a comparable simply because for the two out of the last three years taken into consideration, Capital Trust was in the red and not because the nature of business had any variance with that of the assessee. When we look into the business segment of Capital Trust, we find that in the foreign consultancy segment, which we are concerned with, in the year 2004-05, it had OP/OC at 27.25%. Since the nature of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason for this are increasing the breadth of relationships, ability to gather intelligence on Indian markets, diversification of risk, etc. The AE has traded with several Indian brokers for these reasons. In view of the above, the average of brokerage charged by all unrelated brokers have been compared vis- -vis the brokerage charged by the assessee . 26. The TPO, disagreed with the submission made before him and observed, the assessee being a foreign owned broking house, the comparable set to be used for the purpose of computing ALP should be the data pertaining to the foreign owned broking houses. Accordingly, the adjustment was made in respect of this transaction is as under: Particulars Brokerage % Brokerage charged by foreign owned broking houses 0.0023 Brokerage charged by the assessee 0.0020 Difference 0.0003 Taking the turnover of transactions in case of related parties is ₹ 36,262,364,261 the AO made an adjustment of ₹ 9,949,597 at 0.0003 basis charges of brokerage received from relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ENAM SECURITIES PVT LTD 14,715,357,830 32,450,161 0.0022 FIRST GLOBAL STOCK BRO KING PVT LTD. 161,485,255 247,427 0.0015 ICICI BROKERAGE SERVICE LIMITED 5,136,015,389 9,486,630 0.0018 IL FS INVESTSMART SECU- RITIES LIMITED (IISL) 2,865,142 3,822 0.0013 KOTAK SECURITIES LIMITED 21,709,316,394 34,460,263 0.0016 MANGAL KESHAV SECURITIES LIMITED 844,429,297 1,127,438 0.0013 MOTILAL OSWAL SECURITIES 8,478,885,470 18,710,372 0.0022 PRABHUDAS LILLADHER PVT. LTD. 2,687,019,357 4,733,266 0.0018 S.S. KANTILAL ISHWARLAL SECURITIES PVT. LTD. 3,187,773,007 6,877,574 0.0022 Sub total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat no adjustment is required to be made. The addition of ₹ 99,499,597 is therefore deleted. 35. The ground is, therefore, allowed. 36. Ground no. 4 pertains to adjustment of ₹ 36,534,000/- pertaining to: (a) investment advisory Services in respect of Listed Indian companies (b) investment advisory /support services in respect of strategic (unlisted) investments. 37. In the course of TP proceedings, the area of difference of bench marking of the comparables was with regard to the nature of business conducted by the assessee and comparables furnished by the TPO. In the year under consideration, the assessee submitted before the TPO that it was, The Investment Management Division of GSISPL is engaged in providing advisory services to GSSP and GSI. GSISPL acts as a sub-advisor and provides advisory and research services to GSSP and GSI. GSSP and GSI are advisers and/or investment managers of overseas mutual funds managed by GS Group, which inter-alia invest into Indian equity markets. GSISPL provides investment advisory and research services in respect of India securities listed on the stock exchanges. GSISPL has entered into a service agreement with its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advisory on the timing, considerations, terms mode and manner of investments and/or disinvestments; 39. The TPO, on the other hand selected the following as comparables S. No. Company Name 1 Centrum Capital Ltd. 2 Chartered Capital Investment Ltd. 3 Edelweiss Capital Ltd. 4 Keynote Corporate Services 5 L T Capital Co. Ltd. 6 SREI Capital Markets Ltd. 7 Sumedhia Fiscal Services Ltd. 40. The basic point of difference between TP study as submitted by the assessee and adoption of comparables by the TPO were that there was a functional difference between the conduct of business of the assessee and the comparables adopted by the TPO. The AR pointed out that the comparables selected by the TPO were the entities, whose primary source of business was merchant banker and in the current year the assessee was only providing investment advisory service and in the ..... 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