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TMI Blog2013 (1) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... directions issued by the Dispute Resolution Panel ("the DRP") under section 144C (5) of the ITA ("Impugned Direction") are bad in law and on facts and against the principles of natural justice 2. That the learned DCIT along with the DRP grossly erred in failing to appreciate the invalidity of assessment proceedings initiated against the Appellant, on account of the following grounds: a. Passing of the Impugned Order without the issuance of a valid notice under section 143(2) of the ITA ("Impugned Notice"); b. Failing to appreciate the need to use "reasonable effort' before service of a notice through affixture; c. Failing to appreciate the legal provisions permitting the Appellant to raise objections questioning the validity of the Impugned Notice at any time before the completion of assessment 3. That the learned DCIT along with the DRP erred in confirming the adjustment proposed by the Transfer Pricing Officer without understanding the business of the Appellant and facts and circumstances of the case 4. That the learned DCIT grossly erred in drawing factually incorrect inferences from information! news items which appeared on the Appellant's website and also erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant as per the return of income. 3. First we take up the issue in respect of transfer pricing adjustment as raised in ground nos 3 to 13 3.1 Briefly stated facts of the case are that the assessee is a company registered in India and belongs to the General Atlantic Group (GA), which is a private equity investment firm. The assessee is providing private equity investment advisory services to its AE i.e. General Atlantic Service Corporation (GASC LLC) a Delaware limited Liability Company. GASC LLC is engaged by GA in providing management services to its affiliated limited partnership globally. The hierarchical structure chart of GA group is as under: GA Atlantic PE investment firm - investment Committee GASC LLC Investor Manager (AE) General Atlantic Pvt Ltd - GAPL (Assessee) 3.1 GASC LLC is rendering the services to GA which includes (i) assistance in connection with the identification, investigation and analysis of potential investments and the management and disposition of investment; (ii) administration and accounting services; and (iii) such other services which GA may from time to time require in connection with the management of General Atlantic Ltd Partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". The TPO finally selected 8 comparable companies and worked out the asthmatic mean by taking into consideration the single year data at 39.85% as against assessee's operating profit at 13.12% which resulted in TP adjustment of Rs. 3,48,59,293/- 3.6 After receiving the order passed by the TPO, the Assessing Officer sent a draft assessment order to DRP proposing an addition towards upward adjustment made by TPO at Rs. 3,48,59,293/-. The assessee raised the objections against the draft order of the Assessing Officer before the DRP including the objection against the validity of the notice issued u/s 143(2) through affixation. 3.7 The main objection of the assessee against the TP adjustment made by the TPO was the comparables selected by the TPOare not acceptable to the assessee because these are related to the merchant banking/investment banking whereas the assessee is providing advisory services only which is in the nature of support services and not an investment or mercantile banking. 3.8 The DRP has rejected the objections of the assessee and agreed with the view of the TPO that the activities of the assessee are very near to the merchant banking/investment and the comparison ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their discussion with the management of the investee companies with other GASC LLC professionals; 9. GASC LLC professionals further analyse any new information provided to aid in the decision of whether the investee company is a suitable for presentation to the investment committee of General Atlantic; 10, when an investee company is finalized for evaluation by the investment committee, GASC LLC provides guidance to GAPL India staff to prepare the information memorandum for submission to the investment committee 11. GAPL India provides the draft information memorandum to GASC LLC; 12. GASC LLC edits the information memorandum and prepares presentation materials and determines the logistics for presentation to the investment committee; 13. The investment committee decides not only on India specific investments but all the investments to be made anywhere in the world; 14. If an Indian company is on the investment committee agenda then GAPL India staff will be invited to participate via teleconference; 15, The role of GAPL India staff will be to clarify any questions on the investment memorandum and elaborate any other aspect of the investment prospect; 16. The decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility of GASC LLC. Even there is no guarantee that such an offer made by GASC LLC will be accepted by the Investment committee. 4.4 The ld Sr counsel has submitted that the role of the assessee starts by carrying out research on specific industry or company. On the basis of the information collected, the assessee provides recommendation and advice on the viability of the proposed investment to GASC LLC. Once the investee company is finalised by the GASC LLC for evaluation by the investment committee, GASC LLC would provide guidelines to the assessee's staff. Therefore, it was contended that the primary role of the assessee is limited to collecting information, providing recommendations and advice on the basis of information collected. In addition to this primary role, the assessee renders certain services to GASC LLC., which is merely consequential to the advice already provided. He has further submitted that there is no market risk, credit risk, risk of loss on underperforming of investment, risk of time sent for research activity, risk of identifying suitable business opportunities, risk of failure in executing the transactions, reputational risk, Fiduciary risk, etc., in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be forwarded to the Investment Committee. 4.7 The ld Sr counsel has further submitted that for the calendar year ended Dec 2005, GASC LLC has incurred an operating loss of US $ 1922940; therefore, the group as a whole along with its subsidiaries has incurred loss for the year under consideration. Whereas India, being a low risk service provider, has earned an assured cost plus mark up for rendering certain advisory services which should be considered at arm length price. 4.8 The ld Sr counsel has submitted that it would also be important to note that quite often leads for investment opportunities, may come from GASC LLC or from entities/affiliates outside India. An example of this scenario is GA's investment in GenPact. A managing director of GASC received a phone call from an industry colleague who alerted the managing director of this potential investment opportunity. The managing director, after consultations with other GASC executives, then instructed the assessee to investigate the company which later on led ultimately to an investment by the fund in GenPact. Therefore, the assessee's role is limited to support GASC LLC in performance of aforesaid significant functions wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has submitted that since the operating margin of IDC Ltd., is at 14.58%, which is within + - 5% of the assessee's margin at 13.12%; therefore, no adjustment can be made. He has further submitted that even for comparisons of non risk entity like assessee with much high risk entity, multiyear data must be taken into consideration. 4.12 On the other hand, the ld DR has relied upon the orders of the authorities below and submitted that the functional comparability has to be for the same year. The order in the case of Carlyle India Advisors Private Ltd.(supra) pertains to AY 2007- 08 whereas the AY in the assessee's case in question is 2006-07; therefore, the company found as functionally comparable for the AY 2007-08 need not be necessarily be a suitable comparable for a different Assessment Year. 5. We have considered the rival contention as well as the relevant material on record. The assessee has selected 7 comparables for benchmarking ALP of its international transactions. The companies selected by the assessee are as under: S.No. Name of the comparable OP/TC% 1 Crisil Research & Information Services Ltd 0.11 2 KJMC Global Markets (India) Ltd 16.38 3 MCS Ltd 5.54 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see inter-alia provides following services ('the said Services') to Carlyle Hong Kong: a. Analysis of investments opportunities and the provision of general advice in relation thereto, as per Carlyle Hong Kong's instructions b. Analysis of information to Carlyle Hong Kong on the merits, timing, structure, and appropriate terms of any acquisition or disposal of investments and general advice in relation thereto; c. Monitoring of all investments by the Funds from time to time under the instructions of Carlyle Hong Kong, and the provisions of reports thereon to Carlyle Hong Kong; d. Provision of information in relation to the economic and political developments in India having a bearing on investment opportunities; e. To assist Carlyle Hong Kong in identifying external advisors and consultants, to assist them in identifying or investigating any commercial, legal, regulatory or tax matters in relation to a potential investment opportunity or divestment; f. Assistance and support in relation to potential investment opportunities and providing related information to Carlyle Hong Kong as required. g. Provision of such other support services incidental or related to the foreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a qualitative review and for the reason that its income is from acting as Security and stock brokers. iii) M/s. Sumedha Fiscal Services Ltd. on the ground that the company on a qualititative review and for the reason that its income is from loan syndication and project consultancy services. 5.7 As it is clear from the comparables selected by the TPO in the case of the assessee before us that all these comparables are common to the comparables selected by the TPO in the case of Carlyle India Advisors Private Ltd (supra). In the said case, the Tribunal has found that only one comparable i.e IDC India has to be considered for determination of ALP. 5.8 Since the facts and the nature of activities are identical; therefore, we follow the order of the Tribunal in the case of (supra) and accordingly, the ALP has to be taken as operating profit in the case of IDC Ltd at 14.58%. In the absence of any change in the business profile and other facts and circumstances as exist in the Assessment Year 2006-07 and 2007-08 as well functions of the sole comparable company the contention of the ld DR that the comparable found for the Assessment Year 2007-08 can't be a suitable comparable for Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f arithmetic mean of more than one price. Since in this case, one comparable is considered as ALP; therefore, the benefit under the said proviso would not be available. 5.11 As far as the multiyear data of the comparable are considered by the assessee is concerned, this issue is now settled and the current year data are taken into consideration until and unless some exceptional circumstances are brought on record to show that one year data of comparable do not give true picture being influent by such circumstances. As per Rule 10B (4) for determining the ALP u/s 92C, the data to be used in analysing any comparability of uncontrolled transaction with an international transaction shall be the data relating to the Financial Year in which the international transaction has been entered into. Thus, it is manifest from the sub rule (4) of Rule 10B that the data of the financial year in which the international transaction has been entered into to be used for analysing comparability of uncontrolled transaction in order to determine the ALP. The proviso to sub. rule (4) of Rule 10B provides the option for considering the data relating to the period other than the financial year in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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