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2016 (2) TMI 503 - ITAT MUMBAI

2016 (2) TMI 503 - ITAT MUMBAI - TMI - Transfer pricing adjustment - selection of Motilal Oswal as comparable - Held that:- functions and activities carried out by Motilal Oswal are different from the functions and activities of the assessee company. Accordingly, the risk profiles of the two are also different. It has been clearly mentioned in the annual report of Motilal Oswal that the said company is engaged in the business of merchant banking and investment, business advisory services. We fin .....

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IT (DR) ORDER Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals)-15, Mumbai {(in short Ld. CIT(A)} dated 27.10.2014 for the assessment year 2010-11, decided against the assessment order passed by the Assessing Officer (in short AO ) u/s 143(3) of the Act. 2. During the course of hearing, Shri Porus Kaka & Shri Divesh Chawla Authorised Representative (Ld. Counsel) on behalf of the assessee and Shri N .....

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ccurred. The assessee has supported the reason along with duly sworn affidavit. No serious objection has been raised by the department for condonation of delay. In view of these facts and in the interest of justice, the delay is condoned and appeal is admitted for adjudication. 4. Ground No.1: In this ground, the assessee has challenged the action of Ld. CIT(A) in confirming the action of AO in making addition as a result of upward Transfer Pricing Adjustment. The main grievance of the assessee .....

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comparable to the assessee company. It has been submitted that based on the Functional, Assets and Risk analysis of the assessee as documented in its Transfer Pricing Study Report, it can be concluded that the assessee company is a captive service provider with limited risk associated with carrying out such business and does not perform any decision making function and its activities are merely restricted to the provision of non-binding Investment Advisory Services under the institutions of its .....

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t banking company engaged in providing investment banking solutions. It has a team of experienced bankers and is capable of providing services for various projects viz capital markets mergers and acquisition, private equity and structured debt. It has been submitted that Motilal Oswal is primarily into merchant banking and IPO services, and quantification of its fee and remuneration stand on a absolutely different platform, which is charged mostly on percentage basis. Motilal Oswal is involved i .....

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ur attention has been drawn on various pages of the paper book to show Transfer Pricing Reports and Annual Reports of Motilal Oswal as well as the assessee company to show the distinction between the working mechanisms of both the companies. 4.3. Lastly, it has been submitted by the Ld. Counsel that this issue is no more res-integra. It has been decided in various judgments coming from the Tribunal and Hon ble Bombay High Court that Motilal Oswal is not pure advisory company and the same was rej .....

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1), Mumbai (49 taxmann.com 476) (Mumbai - Trib.) 5.General Atlantic (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle - 3(1), Mumbai (32 taxmann.com 178) (Mumbai - Trib.) 6.General Atlantic (P.) Ltd. v. Assistant Commissioner of Income-tax (OSD), Circle-3(1), Mumbai. (36 taxmann.com 44) (Mumbai - Trib.) 7.Temasek Holdings Advisors (I) (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle -3(3), Mumbai. (38 taxmann.com 80) (Mumbai - Trib.) 8.Deputy Commissioner of Income-tax, Cir. 3 (3), Mu .....

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/Mum/2014) 13. Acumen Fund Advisory Services India (P.) Ltd. v. Deputy Commissioner of Income-tax - 2(1), Mumbai. (50 taxmann.com 317) (Mumbai - Trib.) 14. Deputy Commissioner of Income-tax - 2(1), Mumbai v/s Arisaig Partners India Pvt Ltd. (1083/Mum/2014) 15. Lehman Brothers Advisers Pvt Ltd v/s ACIT - Circle 6(3) -ITANo.7722 4.4. Ld. Counsel has read before us various judgments from the above list to show that Motilal Oswal was excluded from the list of comparables in these cases which are hav .....

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but skill sets required to perform the functions are similar. In view of these facts Motilal Oswal should be held as comparable to the assessee company. 4.6. We have gone through the submissions made by both the sides. In our considered opinion, functions and activities carried out by Motilal Oswal are different from the functions and activities of the assessee company. Accordingly, the risk profiles of the two are also different. It has been clearly mentioned in the annual report of Motilal Osw .....

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4. We have heard both the parties on the limited issue of if the MOIAPL is a good comparable and whether it passed the functional test. In this regard, we examined the directors‟ report placed on page 13 of the paper book and the following is reported by the directors under the heading review of operations and future outlook‟, which reads as under: The market for the services of the Company is buoyant and the Company made a quantum jump in business during the year 2007-08. On the who .....

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steel and power have been strengthened. The Capital Markets business gained momentum during the year deriving its synergy from distribution team at Motilal Oswal Securities Limited. The company' was ranked as number one in Bloomberg ranking for QlP business during the quarter ended March, 2008. The Company has been able to originate and structure high quality deals in private equity business and, is hopeful that the same trend would continue in the coming year. Clients have appreciated the c .....

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r. At the same time, the liquidity crunch and re-valuation of assets across the board globally has opened up opportunistic buying and selling possibilities for our clientele in the industry and financial markets. The team has a good combination of skill set and knowledge to address the change in the market conditions. The Company expects a larger flow of transactions in the product areas of business and financial restructuring, private equity have-offs shareholder value creation through buy-back .....

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equity and credit market, is another source of income for the assessee. These functions of the assessee were analyzed by the Tribunal during the proceedings in the case of Carlyle India Advisors (P) Ltd (supra). The detailed findings of the Tribunal in this regard are mentioned in para 12 of the said Tribunal‟s order (supra) and the same is reproduced as under: 12. ..........The only dispute is whether Motilal Oswal Investment Advisors Pvt Ltd can be considered as a comparable for the dete .....

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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 a merchant banker and the Director‟s report show that it .....

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and including M/s. IDC [as per the directions of the DRP] i the light of the provisions of section 92C(2) r.w.s 92C(2A) of the Act. Ground no.4.1 and ground no.9 are accordingly allowed. 6. The contents of above extracted para highlights the fact that the MOIAPL is into merchant banking, and therefore, is functionally different to that of the assessee which is engaged in the business of non-binding advisory services. Therefore, in our opinion, the assessee is engaged in the function of non-bindi .....

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ailed finding of the Hon ble Bench are reproduced herein: 7. We have considered rival contentions, carefully gone through the orders of the authorities below and found that assessee is engaged in rendering investment advisory services to its AE. As per finding recorded in various judicial pronouncements in above referred cases, M/s Motilal Oswal Investment Advisory Pvt. Ltd. has been excluded from the list of comparables on the plea that it is engaged in diversified activities. In the case of Ac .....

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r the annual report of M/s Motilal Oswal Investment Advisory Pvt. Ltd. for the year ending on 31-3-2010 relevant assessment year 2010- 2011, the company derives its business income from four different business verticals viz. Equity Capital Markets, Mergers & Acquisitions, Private Equity Syndications and Structured Debt. The income source across the four products was more or less evenly balanced. The company continues to perform well on advising Indian corporate on cross border acquisitions. .....

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