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2015 (5) TMI 953 - ITAT MUMBAI

2015 (5) TMI 953 - ITAT MUMBAI - TMI - Transfer pricing adjustment - selection of comparable - Held that:- Job profile of MOIAPL was different as compared to the activities undertaken by the assessee.It was rendering investment advisory services, specifically related with real estate business whereas MOIPAL is a merchant banker.So,we hold that MOIAPL is liable to be excluded from the final set of comparables.

It is further found that the TPO selected two more comparables, besides MOIA .....

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out those two comparable,but it also did not pass a rectification order with regard to the application filed by the assessee,u/s.154 0f the Act.

Therefore, we are of the opinion, that in the interest of justice matter should be restored back to the file of the DRP who would give a clear direction about the remaining two comparables selected by TPO and objected by the assessee. The DRP would afford a reasonable opportunity of hearing to the assessee before deciding the appeal. Addition .....

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ct, the assessee has raised following Grounds of Appeal: Aggrieved by the order passed by the Deputy Commissioner of Income-tax Range -10(1). Mumbai ('AO') in pursuance of the directions issued by Dispute Resolution Panel - I ('DRP'), Mumbai under section 143(3) read with section 144C(13) of the Income-tax Act,1961(' Act'), the Appellant respectfully submits that the learned AO erred in passing the order on the following grounds: 1.In making an upward transfer pricing adj .....

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Not providing a detailed search process undertaken to arrive at the final set of comparable companies; iii.Adopting a set of comparable companies inter-alia engaged in rendering merchant banking/ investment banking and management consultancy in turnaround & restructuring, mergers and amalgamations etc. which are not comparable to the assesse. iv. Rejecting the multiple year data and relying only on the single year data (i.e. for the year ended March 2009); v. Considering companies with super .....

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bstitute or amend any or all of the above grounds of appeal, at any time before or at, the time of the appeal, so as to enable the Hon'ble Income -Tax Appellate Tribunal to decide this appeal according to law. Vide its letter dt. 5.11.2014 the assessee has raised following additional grounds of appeal: 1.The Hon ble DRP has erred in not adjudicating and thereby not accepting IDC Limited as comparable to the appelant s finctions, without appreciating the facts and circumstances of the case. ( .....

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nt advisory segment, wholesale credit and treasury segment and retail financial services segment, filed its return of income on 30.9.2009 ,declaring total income of ₹ 4,09,91,773/-.The AO completed the assessment u/s.143(3) of the Act on 20.1.2014,determining the income of the assessee at ₹ 10, 27,81,540/-. 3.Effective ground of appeal is about upward Transfer Pricing (TP) adjustment of ₹ 6,17, 90, 764/-in determining the Árm s-Length-Price (ALP) of the international tra .....

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he Transfer Pricing Officer(TPO) for the computation of ALP of the interna -tional transactions entered into by the assessee.The TPO tabulated the international transactions of the assessee in following manner:- SN Nature of Transaction AE with which transaction undertaken Value of transaction (in Rs.) Most Appropriate Method 1. Finanical support services Wachovia Development Corporation, USA 69,32,335 TNMM 2. Service income Wachovia Development Corporation, USA 18,15,66,918 TNMM 3. Reimbursemen .....

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that the average PLI of the comparables was 14.67% as per the analysis of the TP document,that the price charged by the assessee for its international transactions was higher than the arithmetical mean price, that the price charged had to be treated as at arm s length,that the PLI of the comparables was arrived by considering weighted average margin of 3 years i.e. data for the FY.s 06-07 to 08-09.Referring to Rule 10(4) of the Income Tax,Rules,1962(Rules)the TPO held that it was mandatory to u .....

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of the international transaction by the TPO and filed submissions in that regard.After considering the submissions,he held that there were pertinent defects in the selection of comparables by the assessee, that the determination of ALP by it was unreliable, that the assessee had correctly followed the TNMM as the most appropriate method, that it did not use the current year data in one of the seven comparable selected by it, that it also used the earlier year data along with the current year da .....

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udy report, it had used the prowess and capital line database for finding comparables and using key-phrases, that it did not use the crucial key-phrase i.e. investment advisory services while searching comparables. The TPO made further search in the data base available in public domain.Vide his letter,dt.17.1.2007,he asked the assessee to explain as to why the transactions entered by it with the AE should not be benchmarked for determining ALP with reference to the arithmetic mean of the PLIs (O .....

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he TPO. After considering the objections of the assessee the TPO considered following comparable: Sl.No. Name of the company PLIassesseeOP/TC(%) 1. Motilal Oswal Investment Advisors Pvt. Ltd. 82.44 2. Future Capital Investment Advisors Ltd. 23.40 3. Integrated Capital Services Ltd. 69.72 Arithmetical Mean Margin 58.52 Finally,the TPO computed the APL as under : Arm s Length mean margin 58.52% on cost Operating Cost Rs.15,38,70,269/- Arms Length Mean Margin 58.52% of the Operating Cost Arms Lengt .....

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d three grounds of appeal as well as additional grounds of appeal. It made submission before the DRP about MOIAPL and argued that it was engaged in provision of Merchant Banking services, that it was offering comprehensive Investment Banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments covering international & domestic capital markets, mergers & acquisitions advisory and restructuring advisory & implementations, that the i .....

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rious anomalies in the search process conducted by the TPO, that MOIAPL,ICSL were earning supernormal profits 82.44% and 69.79% respectively, that those comparable should be rejected. The assessee placed reliance on the following judicial precedents for exclusion of companies with significant related party transactions: 1.24/7 Customer.Com Pvt. Ltd (ITA No. 227/ Bang/2010), 2.Benetton India Pvt. Ltd.(144 TTJ 449), 3.M/s Willis Processing Services (I) P Ltd.(ITA No. 4429 & 4547/Mum/2012), 4.M .....

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rough debts, that it had advised clients on financial restructuring and giving over view of the Indian Financial markets, that in one of the project it had helped a client in obtaining a joint venture partner, that the assessee had performed the service of analysing "the various financial option, review and financing of models for its c1ients,that MOIAPL also performed similar activity and helped its clients in raising funds through various methods, that the TPO had rightly included the sam .....

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n to the assessee in that regard, that the TPO had discussed as what was the basis for selecting the three comparable, that he did not give the job profile of the comparables selected by him, that the DRP has discussed the order of the TPO with regard to MOIAPL only, that it failed to give any direction about the remaining 2 comparables selected by the TPO and objected to by the assessee, that the assessee was not a merchant banker like MOIAPL, that merger and acquisitions were the main activiti .....

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10, dt.22.8.2014),NVP Venture Capital India Private Ltd. (ITA/1564/ Mum/2015 AY.2010-11, dt.30.4.2015), Sandstone Capital Advisors Pvt. Ltd. (ITA/6315/ Mum/ 2012AY.2008-09,dt.06.2.2013)and Q-India Investment Advisors Private Limited(ITA/923/ Mum/2015 AY 2010-11,dt.24.4.2015).Departmental representative supported the order of the DRP and the AO. He referred to the service level agreement entered into by the assessee on 24. 11.2008 and contended that job-profile of the assessee was similar to the .....

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cially physical projects in the real estate sector,that it was sharing business intelligence, market research, compliance of regional regulatory requirement so as to assist its AE, that it would not conclude any contract on behalf of the AE nor was it facilitating external commercial borrowings in real estate business . We find that the TPO had rejected the comparable selected by the assessee and had adopted three new comparables. As far as MOIAPL is concerned, there is no doubt that the job pro .....

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d both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. It is an undisputed fact that the assessee is engaged in the business of rendering investment advisory and related services to its principal Carlyle Hong Kong. The dispute raised in ground no.4 relates to whether (i) KLG Capital Services Ltd (KLG); (ii) KJMC Corporate Advisors (India) Limited (KJMC) and (iii) Motilal Oswal Investment Advisors Pvt Ltd (MOIAPL)are functionally co .....

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der of the Tribunal, which contains the operational part, we find the same is relevant and the Tribunal has given its finding under the facts which are similar to that of the AY under consideration. The MOIAPL, which has engaged in the business of merchant banking is not a good comparable for determining the ALP. Relevant contents of the said para 12 are reproduced here for the sake of completeness of this order which read as under: "12…... .The only dispute is whether Motilal Oswal .....

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ompany has completed 23 assignments successfully as against 14 completed in the immediately preceding year. A close look at the financial statements of the said company show that the income from operations have been shown only as advisory fees whereas it is admittedly an undisputed facts that the said company is engaged in diversified activities. Segmental reporting is not available. Profit and loss account appears to be only of consolidated accounts. The said company is registered with SEBI as .....

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o exclude the MOIAPL from the list of the comparables for determination of ALP of the said transaction. The Hon'ble Jurisdictional High Court has dismissed the appeal filed by the Department in the case of Carlyle India Advisors Private Limited (IT Appeal 1286 of 2012,dt.22.2.2013). Here, we would also like to refer to the order of NVP Venture Capital India Private Ltd. (supra),where in a case of investment advisory the comparable of MOIAPL was rejected by the Tribunal. In that matter the Tr .....

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out that the said concern was engaged in providing comprehensive investment banking solutions and that it was rendering services across various products, viz. Equity Capital Markets, Mergers & Acquisitions, Private Equity Syndications and Structured Debt, etc. The appellant relied upon the decision of the Tribunal in the case of Carlyle India Advisors Private Limited (214 Taxmann 492), to support its plea for exclusion of the said concern from the final set of comparables. The TPO rejected t .....

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mparable to the assessee's activities under test. 8.We have perused the relevant material on record. It is starkly evident that the said concern M/s. Motilal Oswal Investment Advisors Private limited is engaged in qualitatively different and diversified business activities, whereas the activities of the assessee are confined to rendering non-binding investment advisory for its Associated Enterprises. No doubt, both the concerns may be in the business of rendering advisory services, so, howev .....

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A.Y.2008-09, the Tribunal concluded that though the said concern was declaring a solitary stream of operating income under the head 'advisory fee', but undisputedly it was engaged in diversified fields and the financial results for each segment were not available. The Tribunal also found that the said concern was registered with SEBI as a Merchant Banker, and that it was carrying on merchant banking activities. In our considered opinion, the afore-said features with respect to the activ .....

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al set of comparables on account of functional dissimilarities. In fact, in other precedents cited by the Id. Representative for the assessee,the said concern has also been excluded from the set of comparables under similar circumstances. 9. In conclusion, on the basis of the afore-said discussion and having regard to the precedents noted above, we hold that M/s. Motilal Oswal Investment Advisors Private Limited (supra) is liable to be excluded from the final set of comparables. Following the ab .....

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