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2015 (11) TMI 1506 - ITAT MUMBAI

2015 (11) TMI 1506 - ITAT MUMBAI - TMI - Additions made on account of Transfer pricing adjustment - Held that:- It is an undisputed fact that the assessee is engaged in the business of investment advisory, therefore, the comparables relating to merchant banking cannot be accepted.

Chartered Capital & Investment Ltd be excluded as comparable as this company is totally functioning on different platform and cannot be used as comparable.

Edelweiss Capital Ltd. company is also f .....

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Consultancy Services at ₹ 787.63 lacs.

Motilal Oswal Investment Advisors Pvt. Ltd. company also cannot be included in the final list of comparable firstly because it is doing business on a different filed and secondly and more importantly the related party transaction is more than 50%.

Disallowance of foreign travel expenditure - Held that:- The details of expenditure which are exhibited at pages 6,7 & 8 of the assessment order. We find that the details are complete .....

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ll into error by confirming the same. We, therefore direct the AO to delete the impugned disallowance - Decided in favour of assessee

Incorrect adjustment on account of refund not received - Held that:- We restore this issue to the file of the AO. The AO is directed to furnish the complete adjustment sheets to the assessee explaining how the refund was adjusted after giving a reasonable opportunity of being heard to the assessee - Decided in favour of assessee. - I.TA No.1019/Mum/2014 .....

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ent. 2.1. The main contention of the assessee is that the Revenue authorities have failed to understand and appreciate the functions performed , assets employed and risks assumed by the assessee and its Associated Enterprises, thereby comparing companies engaged in investment banking, merchant banking, securities broking, fund management, portfolio management etc. with the assessee. 2.2. Rival contentions were heard at length. We have carefully perused the orders of the authorities below and wit .....

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ny. GASC LLC is engaged by GA in providing management services to its affiliated limited partnerships globally. 2.4. The assessee is wholly owned subsidiary of GASC LLC based in India and providing information on industries alongwith information in relation to potential targets located in Indian Jurisdictional to its AE GASC LLC, as per the service agreement dated 31.10.2002 entered into between the parties. 2.5. In the Transfer Pricing report, the business of the assessee company is explained a .....

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o time require in connection with the management of General Atlantic Limited. GASC is not engaged in funding for investment but assist GA with investment decisions. In the process of rendering the aforesaid services, GASC LLC requires certain information on specific industries along with the information in relation to potential targets located in various jurisdictions. For the purpose of effectively identifying the potential investment opportunity, GASC LLC has entered into exclusive service agr .....

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ial analysis of the assessee company is as under: Total income 399595638 Total Expenses 354701791 Operating Profit 44893847 Cost Plus Ratio 12.66% 2.8. The assessee conducted a search and selected the following seven companies as comparable: Sr. No. Name of the Company Cost plus ratio 1. Credible Management &Consultants Pvt. Ltd. 9.52% 2. Crisil Risk & Infrastructure Solutions Ltd 30.65% 3. Future Capital Investment Advisors Ltd 34.59% 4. ICRA Management Consulting Services Ltd. 4.69% 5. .....

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te Corporate Services Ltd. /82.11% 5. L&T Capital Co. Ltd. 340.69% 6. S R E I Capital Markets Ltd. -17.57% 7. Sumedha Fiscal Services Ltd. 59.93% 8. I D C (India) Ltd. 9.99% Average 67.02% 2.10. The assessee was asked to explain why these companies should not be accepted during the year under consideration also. Vide letter dated 29.10.2012, the assessee strongly objected to the inclusion of these companies as comparables stating that these companies are functionally different because they a .....

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sory business. KJMC Corporate Advisors (India) Ltd. Motilal Oswal Investment Advisors Pvt. Ltd. AR Venture Fund Management ltd. KLG Capital Services Ltd. Quantum Advisors Pvt. Ltd. Kshitij Investment Advisory Co. Ltd. Brescon Corporate Advisors Ltd.- 2.11. The assessee strongly submitted that these companies are functionally different as these are not exclusively investment advisory services. In support of its claim, the assessee submitted the Director s report and financials of these companies. .....

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5. IDC (India) Ltd. 10.46% Common & confirmed by DRP 6. Centrum Capital Ltd 35.91% Confirmed by DRP 7. Chartered Capital & Investment Ltd. 86.93% - do - 8. Edelweiss Capital Ltd. -61.84% -do - 9. Keynote Corporate Securities Ltd. 82.11% - do - 10. L&T Capital Co. Ltd. 340.69% - do - 11. Sumedha Fiscal Services Ltd. 59.93% - do - 12. SREI Capital Markets Ltd. -17.57% - do - 13. KJMC Corporate Advisors (India) Ltd. 31.03% New Comparables from the TP Report of the assessee 14. Motilal O .....

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ransaction @ 112.6% of total cost 39,95,95,638/- Adjustment 12,14,61,293 2.13. Finally an adjustment of ₹ 12,14,61,293/- was made to the income of the assessee on account of consultancy services. 3. The assessee carried the matter before the DRP and strongly objected to the selection of comparables made by the TPO. Once again it was strongly contended that the comparables selected by the TPO are functionally different companies where main function was that of a merchant banker whereas the .....

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Capital Investment Advisors Ltd., Assessee 5. IDC (India) Ltd. Assessee 6. Chartered Capital & Investment Ltd. TPO 7. Edelweiss Capital Ltd. TPO 8. Sumedha Fiscal Services Ltd. TPO 9. Motilal Oswal Investment Advisors Pvt. Ltd. Assessee 10. AR Venture Fund Management Assessee 11. Kshitij Investment Advisory Assessee 3.1. Following the directions of the DRP, the AO completed the ALP adjustment at ₹ 3,24,66,614/-. 4. Aggrieved by this, the assessee is before us. 5. The Ld. Counsel for t .....

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assessee is only an investment advisory company. The Ld. Counsel further stated that in assessee s own case for A.Yrs 2006-07 and 2007-08, three companies mentioned at item No. 1,2 & 3 above were excluded by the Tribunal therefore, the same deserves to be excluded for the year under consideration also. 5.2. So far as the inclusion of Motilal Oswal Investment Advisors Pvt. Ltd., is concerned, the Ld. Counsel stated that firstly this company is not an investment advisor but an investment bank .....

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ies are excluded from the final list of comparables, the difference would come within the range of ±5% and therefore no TP adjustment would be required. 6. Per contra, the Ld. Departmental Representative strongly submitted that same skill set is required for investment advisory and merchant banking therefore it cannot be said that these companies are functional not comparable. It is the say of the Ld. DR that there is no error in the selection of the comparables and the same should be acc .....

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ns or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications. An investment advisor who has sufficient assets to be registered with the SEC is known as a Registered Investment Advisor, or RIA. Investment advisors are prohibited from disseminating advice known to be deceitful or fraudulent, and from acting as a principle on their own accounts by buying and selling securities between themselves and a client without prior wri .....

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ubt that in both these companies Chartered Accountants and MBAs are involved but that would not make their functions similar as they are working in different filed with different risks and remuneration. It is an undisputed fact that the assessee is engaged in the business of investment advisory, therefore, the comparables relating to merchant banking cannot be accepted. 9. Let us now consider the comparables strongly objected by the assessee. 1. Chartered Capital & Investment Ltd. In its Ann .....

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t during the financial year 2008-09, ₹ 14,908.33 crores were mobilized via Public issue, right issue & QIPs through 50 issues and under the head Outlook , it is mentioned that we offer comprehensive Investment Banking Solutions and transaction expertise covering equity offerings, debt and convertible instruments covering international & domestic capital markets. Thus it can be clearly seen that this company is totally functioning on different platform and cannot be used as comparab .....

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Promoter funding, Loan against shares, Loan against ESOPs, IPO financing etc. Once again it can be seen that this company is also functionally not comparable. As mentioned elsewhere, the Tribunal in assessee s own case in A.Yrs 2006-07 and 2007-08 has rejected the inclusion of this company. 3. Sumedha Fiscal Services Ltd. At Page-212 of the Paper book, the Profile of this company has mentioned which says that this company is a boutique financial services and advisory solutions. It has proven exp .....

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her gone through the financials of this company alongwith the auditor s report. We find that this company is also functionally not comparable with the assessee and for similar reason the Tribunal has excluded this company from the final list of comparables in A.Yrs 2006-07 & 2007-08, 4. Motilal Oswal Investment Advisors Pvt. Ltd At the very outset, in the balance sheet abstract of this company, it is shown as Merchant Banking and Investment/business Advisory Company. Moreover, during the yea .....

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at in respect of the 4 companies mentioned hereinabove, in our considered opinion, these companies should be excluded from the final list of comparables, we accordingly direct the AO to exclude these companies from the final list of comparables and decide the issue afresh as per the provisions of the law. Ground No. 1 is allowed for statistical purpose. 11. The second grievance relates to the disallowance of foreign travel expenditure. 11.1. During the course of the scrutiny assessment proceedin .....

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he assessment order. Without any further verification, the AO disallowed the entire expenditure stating that the meeting of potential investee is not a meeting for the purpose of business , addition of ₹ 24,36,150/- has been made. 12. The assessee carried the matter before the DRP but without any success. 13. Before us, the Ld. Counsel for the assessee stated that the AO has simply made the additions without going into the merits of the case. It is the say of the Ld. Senior Counsel that th .....

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