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TMI Blog2015 (12) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions reported by the assessee in Form No. 3CEB were noticed: S.No. Particulars Amount Method 1 Provision of Investment banking services Rs. 23,975,939 (Receipt Services) Rs. 197,487,761 (Payment for services) TNMM 2 Investment advisory services in respect of listed Indian equities Rs. 113,802,147 TNMM 3 Investment advisory and support services in respect of strategic investments into India. Rs. 463,736,750 TNMM 4 Securities broking services in respect of securities traded in the cash equity segment on NSE and BSE Rs. 741,198,967 CUP 5 Securities broking and clearing sevices in respect of contracts entered in the derivatives segment on NSE and BSE Rs. 365,367,953 CUP 6 Provision of Information Technology Enabled Services Rs. 435,013,724 TNMM 7 Reimbursement/recovery of expenses Rs. 432,490,891 NA 8 Allocation of expenses Rs. 87,487,835 NA 3.1. Accordingly, a reference u/s. 92C(1) of the Act was made to the TPO and TP adjustment proceedings started. During the course of the Transfer Pricing assessment proceedings, the TPO found that the assessee is into Investment Advisory Services for Indian equities and strategic investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be regarded as comparable companies for Investment Advisory Services (listed and unlisted. S. No. Name of the Company Margin for the year ended 31st March 2009 (%) 1. Axis Private Equity Ltd 30.42% 2. Brescon Advisors 116.24 3. Future Capital Investment Advisors Ltd. 23.4 4. Khandwala Securities Ltd. 40.8 5. Kshitiji Investment Advisory Co. Ltd. 28.28 6. Motilal Oswal Investment Advisors Pvt. Ltd. `82.44 7. Sundram Finance Distribution Ltd. 10847 8. Integrated Capital Services Ltd. 69.79 Arithmetic Mean 62.50% 3.7. The assessee's objection is as under: a) Rejection of TP documentation is not proper b) TPO has resorted to cherry picking the companies c) Rejection of companies earning super normal profits d) Appropriateness on use of various filters applied e) Use of single year data not proper and f) The business profiles of the companies selected do not match with the business activity of the assessee. 3.8. The TPO found assessee's argument more of general in nature. Drawing support from the findings of the DRP given for the year ending 31.3.2008, the TPO concluded by making the following adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment Advisors Pvt. Ltd. 82.44% - - 2. Brescon Corporate Advisors Pvt. Ltd., 116.24% - - 3. Sundram Finance Distribution Ltd. 108.47% - - 4. Integrated Capital Services Ltd. 69.79% - - 5. Khandwala Securities Ltd. 40.80% - - 6. Axis Private Equity Ltd 30.42% - - 6.1 The Ld. Senior Counsel furnished a detailed chart stating that if the comparables are excluded the operating margins of the assessee would be in the range of +/-5% from the arithmetic mean. The Ld. Counsel drew our attention to the decision of the Tribunal in assessee's own case for A.Y. 2007-08 in ITA No. 7724/M/2011. It is the say of the Ld. Counsel that since the DRP has drawn support from the findings given in earlier assessment years and the order of the DRP has been reversed from the Tribunal, the same view should also be taken for the year under consideration. 7. Per contra, the Ld. Departmental Representative strongly relied upon the findings of the Revenue authorities. It is the say of the Ld. DR that the comparables selected by the TPO and confirmed by the DRP are functionally comparable with that of the assessee as the comparable companies and the assessee are doing research ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para-15 has held that this company is engaged in the business of Merchant Banking and, therefore, is not a good comparable of a company providing investment advisory services to the AE. Similar view was taken by the Tribunal in the case of Wells Fargo Real Estate Advisors Pvt. Ltd in ITA No. 1093/M/2014 wherein the Tribunal at para-6 of its order has held that Motilal Oswal Investment Advisors Pvt. Ltd. was carrying on business of mergers and acquisitions and other related activities and is also a merchant banker. Drawing support from the decision of the Co-ordinate Bench given in the case of Carlyle India Advisors Pvt. Ltd. in ITA No. 2200/M/2011, it was held that Motilal Oswal Investment Advisors Pvt. Ltd., is functionally not comparable with an investment advisory company. In the case of Bain Capital Advisors (India) Pvt. Ltd in ITA No. 1360/M/2014, the Co-Ordinate Bench of the Tribunal are taking a consistent view that Motilal Oswal Investment Advisors Pvt. Ltd. has to be excluded from comparables on the plea that it was engaged in diversified activities. Respectfully following the findings of the Co-ordinate Benches, we direct for the exclusion of Motilal Oswal Investment Advi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parables. Respectfully following the findings/observations of the Co-ordinate Benches (supra), we direct the TPO for the exclusion of this company for the final list of comparables. 4. Integrated Capital Services Ltd. The only reason for including this company in the final set of comparables is that the DRP was of the strong view that the assessee itself has adopted this company as comparable though during the course of the proceedings before the DRP, the assessee requested for the rejection of this company as comparable. The DRP did not accept this contention since the assessee had not taken any ground relating rejection of this comparable. This reasoning given by the DRP cannot be accepted. The Co-ordinate Bench in the case of Stream International Services Pvt. Ltd in ITA No. 8997/M/2010 has clearly laid down the principle that there can be no escape from the proposition that the assessee is entitled to argue atleast before the appellate authorities that a wrong stand taken at the time of filing the return of income should be allowed to be modified. Strong reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Nirmala L. Mehta 269 ITR 01. Drawing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the exclusion of this company. This order of the Tribunal was confirmed by the Hon'ble High Court of Bombay vide Income Tax Appeal L. No. 1286 of 2012 dt. 22.2.2013. Respectfully following the observation/findings of the Co-ordinate Bench, we direct the TPO for the exclusion of this company from the final list of comparables. 6. Axis Private Equity Ltd. This company is engaged in managing directly or indirectly investments, mutual funds, venture, capital funds of share funds, pension funds, provident funds, insurance funds or any other funds and to promote manage and carry on any venture capital funds operation. This company acts as investment manager of Axis infrastructure fund. Out of its gross income of Rs. 11.45 crores, 11.28% has come from management fee i.e. from Axis Infrastructure fund. We also find that Axis Bank Ltd., owns 100% of the paid up capital of the company. In our considered opinion, the related party transactions are more than 90%. Moreover, the principle product/services of the company as per balance sheet abstract show that it is into the asset management services. Thus, it can be safely concluded that this company has functionally different from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Bombay, we direct the AO to exclude the telecommunication expenses from total turnover also. Ground No. 3 & 4 are treated as allowed for statistical purpose. 12. Ground No. 5 & 6 relate to the grievance related to ESOP cost. 12.1. The AO has considered this issue at para-6 of his order. While scrutinizing the return of income, the AO found that the employee costs include the cost of restrictive stock unit and stock option's plant under the Goldman Sachs Group Inc. amended and Restated Stock Incentive Plan, which is being charged to the profit and loss accounts over the period of vesting. The assessee was asked to submit the copies of the said agreement and the details of such expenditure. The assessee filed a detailed reply dated 18.2.2013, the contents of which are extracted at para-6.2 of the assessment order. 12.2. The submissions made by the assessee were considered but not found convincing. The AO proceeded by disallowing the net amount on account of amortization which was confirmed by the DRP. 12.3. Before us, the Ld. Senior Counsel drew our attention to the decision of the Special Bench of the Bangalore Tribunal in the case of Biocon Ltd 144 ITD 21 (Bang) wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us expense amounting to Rs. 1,11,48,316/- are not actually paid. 14.1. This issue has been considered by the AO at para-9 of his order wherein the AO observed that an amount of Rs. 1,11,48,316/- is adjusted during the year which pertains to bonus of employees of other group companies. The assessee was asked to justify its claim. The ssessee filed a detailed reply vide letter dated 18.2.2013 by which the assessee explained that in A.Y. 2008-09, the assessee has disallowed bonus amounting to Rs. 36,46,21,050/- payable to employees as the same was not paid on or before the due date of filing the return of income. The said amount was paid on A.Y. 2009- 10 and the same is claimed as deduction. The claim of the assessee was rejected by the AO who was of the firm belief that out of the total bonus payable, the amount of Rs. 1,11,48,316/- is not actually paid but adjusted and accordingly disallowed the same which was confirmed by the DRP. 14.2. Before us, the Ld. Counsel for the assessee drew our attention to exhibit 275 which is Appendix-IV to the Audit Report for the year ended 31.3.2008. It was pointed out by the Ld. Counsel that the bonus amount of Rs. 36,46,21,050/- was not paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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