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M/s. Goldman Sachs (India) Securities Pvt. Ltd. Versus The DCIT, Range 3 (1) , Mumbai

2015 (12) TMI 966 - ITAT MUMBAI

Transfer pricing adjustment - Held that:- Motilal Oswal Investment Advisors Pvt. Ltd. be excluded from the list of comparables in the case of investment advisory services as 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.

Brescon Advisors Limited be excluded from the list of comparables as this company has earned its revenue from debt resolution/debt syndication and fin .....

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also find from the Annual Report that the income is recognized from insurance agency commission and brokerage.

Integrated Capital Services Ltd. be excluded as be excluded as this company is rendering advisory and consultancy services in the area or merger acquisition and reconstruction of business.

Khandwala Securities Limited be rejected as this company as comparable on the ground that its income is very akin as security and stock brokers.

Axis Private Equity Lt .....

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ould not be excluded from export turnover for inclusion of deduction u/s. 10A - Held that:- Respectfully following the ratio laid down in the case of CIT Vs Gem Plus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT ] we direct the AO to exclude the telecommunication expenses from total turnover also. - Decided in favour of assessee

Grievance related to ESOP cost - Held that:- Respectfully following the decision of the Special Bench of Biocon Ltd (2013 (8) TMI 629 - ITAT BANGALORE), we h .....

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elete the impugned additions as the amount paid as penalty was on account of irregularities committed by the assessee’s clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such a case the explanation to Sec. 37 would not apply - Decided in favour of assessee

Non-allowance of deduction on the ground that bonus expense not actually paid - Held that:- The assessee drew our attention to exhibit 275 which is Appendix-IV to the .....

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r giving reasonable and sufficient opportunity of being heard to the assessee - Decided in favour of assessee by way of remand

Addition on account of the difference between the actual payments made by the assessee to American Express Banking Corporation (AEBC) and the confirmation provided by AEBC - Held that:- We find force in the contention of the Ld. Counsel. A perusal of DRP’s order also show that the corrected amount was provided to the DRP but the same was not accepted as it was .....

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SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri P.J. Pardiwala For The Respondent : Shri N.K. Chand ORDER PER N.K. BILLAIYA, AM: This appeal by the assessee is preferred against the assessment order dated 27.11.2013 made u/s. 143(3) r.w. Section 144C(13 of the Act. 2. The assessee was incorporated in March 2006 for the purpose of inter alia undertaking securities broking, investment banking, underwriting and other financial services business in India. The assessee is a wholly own .....

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. Particulars Amount Method 1 Provision of Investment banking services ₹ 23,975,939 (Receipt Services) ₹ 197,487,761 (Payment for services) TNMM 2 Investment advisory services in respect of listed Indian equities ₹ 113,802,147 TNMM 3 Investment advisory and support services in respect of strategic investments into India. ₹ 463,736,750 TNMM 4 Securities broking services in respect of securities traded in the cash equity segment on NSE and BSE ₹ 741,198,967 CUP 5 Secu .....

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he TPO found that the assessee is into Investment Advisory Services for Indian equities and strategic investments in India. The TPO further noticed that the assessee has segmented in the investment advisory services in Indian equities and for the strategic investment in India. The TPO found that the assessee has resorted to independent benchmarking in respect of both services provided by it. The assessee was asked to demonstrate the difference between these two services. The assessee filed a det .....

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egies for investment, support in connection with the negotiations and the other logistics related support. 3.2. The TPO further observed that the basic difference between the two activities is not related to the functional aspect of the advisory services being provided but the manner in which services are being provided. 3.3. The TPO found that the assessee has used entity wise margin for the purpose of benchmarking and has selected TNMM as the most appropriate method with NCM(Operating profit/o .....

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justified. The TPO proceeded with current year s margin. 3.5. The assessee has selected following participants: 1. Access Advisors Ltd. 2. Besant Raj International Ltd. 3. Capital Trust Ltd (seg) 4. CRISIL Ltd (seg) 5. ICRA Management Consulting Services ltd. 6. ICRA online Ltd. 7. IDCI Ltd. 8. Informed Technologies Ltd 9. Integrated Capital Services ltd. 10.Kinetic Trust ltd 3.6. The TPO issued a show cause notice to the assessee asking him as to why the following companies should not be regar .....

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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 fi .....

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ffered by the assessee @ 26.42% 96,926,033 Adjustment 132,330,665 Accordingly, a TP adjustment of ₹ 17,42,63,267/- was made. 4. The assessee carried the matter before the DRP. It was strongly contended that the TPO has grossly erred in rejecting the separate functional analysis, search process adopted and documentation maintained by the assessee for the transactions. It was further argued that the TPO was wrong in treating the two separate transactions as a single transaction for the purpo .....

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bles is based on the function of Investment Advisor which is held to be the business of the assessee. The DRP concluded by confirming the TP adjustments made by the TPO. 5. Aggrieved by which, the assessee is before us. 6. The Senior Ld. Counsel vehemently submitted that none of the lower authorities has given reasons for rejecting assessee s comparables. The Ld. Counsel further stated that the DRP has not even considered the objections raised by the assessee. The Ld. Counsel further pointed out .....

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escon 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 .....

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P are functionally comparable with that of the assessee as the comparable companies and the assessee are doing research and thereafter giving advisories. It is the say of the DR that even though the advisors are being given on different issues but the fact of the matter is that after doing research both are giving advised therefore, they are good comparables. Referring to the decision of the Hon ble High Court of Kerala 211 ITR 635, the Ld. DR vehemently submitted that the intelligent analysis h .....

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y of services i.e. Investment advisory services which the assessee is giving (a) for listed securities and (b) for unlisted securities. As mentioned elsewhere, assessee has furnished the comparables. The details of markup charged by the assessee and arithmetic mean of margin of comparable company selected by the assessee are as under: Particulars Margin of the applicant Arithmetic mean of margin of comparable companies selected by the applicant on multiple year basis Investment advisory services .....

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Sundram Finance Distribution Ltd. 108.47% Integrated Capital Services Ltd. 69.79% Arithmetic mean 62.50% 8.2. Let us now consider the comparables selected by the TPO and objected by the assessee by one by one. 1. Motilal Oswal Investment Advisors Pvt. Ltd. This company has been excluded as a comparables for Investment Advisory Services by the Co-ordinate Benches in the case of Arisaig Partners India Pvt. Ltd in ITA No. 1083/M/2014 wherein the Co-ordinate Bench at para-15 has held that this comp .....

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port 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 th .....

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l comparables. 2. Brescon Advisors Limited A review of the Annual report indicates that this company has earned its revenue from debt resolution/debt syndication and financial restructuring advisory services. As per the profits and loss account, income is earned from debt resolution and debt syndication. It is further observed that this company also makes significant investments in companies using its own funds. This company has not been considered by the Coordinate Benches of the Tribunal in th .....

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nal similarity with that of the assessee. Respectfully following the findings/observations of the Co-ordinate Benches in respect this company (supra) we direct the TPO to exclude this company from the final list of comparables. 3. Sundram Finance Distribution Ltd. On perusal of the Annual Report of this company show that this company is primarily engaged in the business of agency and retail distribution, operational income and income from brokerage service charges and incentives forms 96% of the .....

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010 has directed the exclusion of this company from the list of comparables. 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 proce .....

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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 support from the decision of the Co-Ordinate Bench (supra), we do not find any strength in DRPs observations. Since this company is also not comparable, we direct the TPO to exclude the same from the final list of comparables. This compa .....

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hes (supra), we direct the TPO to exclude this company from the final list of comparables. 5. Khandwala Securities Limited The overall operations of this company include Investment banking, Corporate Advisory Services, Institutional Banking, Private Client Broking and Investment Advisory Services. It is seen from the Annual Report of this company, this company s performance was affected by the Global crisis and the resultant/market meant down. For management purposes this company is organized in .....

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in corporate advisory services for which separate segmental are available. However, on perusal of the Annual Report show that and as reported under the head segmental information, the company has not reported any secondary segment information. This company has also been excluded by the Co-ordinate Bench in the case of Carlyle India Advisors Pvt. Ltd. in ITA No. 7901/M/2011 for the reason that the TPO himself has rejected this company as comparable on the ground that its income is very akin as se .....

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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 ₹ 11.45 crores, 11.28% has come from management fee i.e. from Axis Infrastructure fund. We also find that Axis Ban .....

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that about the exclusion of these companies from the final list of comparables, only two companies remained i.e. Kshitij Investment Advisory Co. Ltd - 28.28% and Future Capital Investment Advisors Ltd - 23.40%, the arithmetic mean comes to 25.84%. The assessee s margin is at 24.83%. Thus assessee s margin is within the range. This is properly explained as under: Name of the comparable Margin (%) Motilal Oswal Investment Advisors Pvt. Ltd. 82.44% Brescon Advisors 116.24% Sundram Finance Distribu .....

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lowed. 11. Ground No. 3 & 4 relate to the computation of deduction u/s. 10A of the Act. 11.1. This issue has been considered by the AO at para-5 of his order wherein he has drawn support from the observations made in the assessment order for A.Y. 20-08-09 by which the assessee was asked to explain why 50% of the telecommunication expenses should not be excluded from export turnover for inclusion of deduction u/s. 10A of the Act. 11.2. The assessee strongly objected to this proposal of the AO .....

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tinguishing decision in favour of the Revenue. 11.5. We have given a thoughtful consideration to the facts qua the decision of the Hon ble High Court of Bombay (supra). Respectfully following the ratio laid down by the Hon ble High Court 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 considere .....

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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 on similar facts the discount on issue of ESOP was allowed as .....

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Exchange and National Stock Exchange. 13.1. This issue has been considered by the AO at para-7 of his order. While scrutinizing the return of income, the AO found that the assessee has paid ₹ 22,91,790/- to Stock Exchanges towards find for non compliance of clearing house trades, client code modification etc. The AO disallowed the same treating as violations of legislated law. The same was confirmed by the DRP. 13.2. Before us, the Ld. Senior Counsel drew our attention to the decision of .....

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en though such penalty payment was clearly disallowable under Explanation to Section 37(1) of the Income Tax Act? and the same was answered by the Hon ble High Court as under: As regards question (C) is concerned, the finding of fact recorded by the ITAT is that the amount paid as penalty was on account of irregularities committed by the assessee s clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such a case the explanation to Se .....

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hat an amount of ₹ 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 ₹ 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. 2 .....

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onus amount of ₹ 36,46,21,050/- was not paid on or before the due date for furnishing the return of income out of which the assessee paid an amount of ₹ 35,34,72,734/- during the year under consideration. It is the say of the Ld. Counsel that the AO has not properly appreciated the facts of the case. 14.3. We find force in the contention of the Ld. Counsel. It appears that the AO has not appreciated the facts in the right perceptive therefore in the interest of justice and fair play, .....

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