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Lehman Brothers Advisers Private Limited Versus ACIT Circle 6 (3) ,

2015 (9) TMI 1405 - ITAT MUMBAI

Transfer Pricing Adjustment relating to international transaction of provision of non binding advisory and support services - whether the MOIAPL is a good comparable and whether it passed the functional test? - Held that:- The said company MOIAPL has undertaken 23 assignments successfully in the year under consideration. Major portion of the income is earned by MOIAPL out of cross border activity services and related financial services. The capital market business is one of the source3s of the a .....

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services whereas MOIAPL is into the merchant banking, capital markets, finance markets etc. Therefore, we find the MOIAPL is functionally dissimilar and therefore, the same should be excluded for benchmarking the international transactions. Accordingly, AO / TPO is directed to exclude the same. - Decided in favour of the assessee. - I.T.A. No. 7722/M/2012 (AY: 2008-2009) - Dated:- 30-9-2015 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER Appellant by : Ms. Kari .....

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visory and support services of ₹ 207,049,505/- 1. On the facts and in the circumstances of the case, the learned Transfer Pricing Officer ('TPO') and the learned Assessing Officer ('AO') under the directions of the Hon'ble Dispute Resolution Panel ('DRP') erred on facts and in law in making an addition of ₹ 207,049,505 in relation to provision of advisory and support services by the Appellant based on the provisions of Chapter X of the Income-tax Act, 1961 .....

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es'). 3. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in conducting a fresh benchmarking analysis using non contemporaneous data. 4. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in selecting Motilal Oswal Investment Advisors Private Limited as one of the comparable companies, which is functionally not comparable to the Appellant and therefore cannot be considered in the comparable set. 5. The learned AO / .....

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nal transactions. Ground 2: Short grant of credit for Tax Deducted at Source ('TDS') On the facts and in the circumstances of the case and in law, the learned AO has erred in granting TDS credit of ₹ 6,804,785 as against the TOS credit of ₹ 6,846,105 as claimed in the Return of Income by the Appellant. Ground 3: Levy of interest under section 234A of the Act Consequent to the Grounds mentioned above, the Appellant prays before the Hon'ble ITAT to direct the AO to delete t .....

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to direct the AO to delete the interest levied under section 2340 of the Act of ₹ 5,979,965 Ground 6 - Initiation of Penalty Proceedings under section 271(1)(c) The learned AO erred in initiating penalty proceedings under Section 271(1)( c) of the Act. 2. Briefly stated relevant facts of the case are that the assessee is engaged in the business of providing non-binding advisory and support services to the Associated Enterprise (AE) named Lehman Brothers group entities. The OP/TC for the a .....

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l different from that of the assessee. The TPO rejected all the comparables submitted by the assessee in the TP study and selected 3 different comparables to bench mark the international transactions of the assessee whereas MOIAPL with OP/TC margin at 72.33%. Explaining how MOIAPL is different, Ld Counsel for the assessee brought our attention to annual accounts of the said MOIAPL at page 13 of the paper book and submitted that the same is engaged in multiple business functions such as capital m .....

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IAPL was analysed by the Tribunal in adjudicating the appeals of the Carlyle India Advisors (P) Ltd (supra). In this regard, Ld Counsel for the assessee read out para 12 of the said Tribunal‟s order dated 7.2.2014, which is relevant for the proposition that the Tribunal has analysed the annual accounts of the MOIAPL as well as the 23 assignments reported by the said company, and held that the MOIAPL is engaged in the multiple and diversified activities, therefore, the said company is dissi .....

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herefore, the fact of diversified activities is not evident from the data available in the annual accounts. In reply to the same, Ld Counsel for the assessee demonstrated that though the receipts are categorized under the head advisory fees‟ the said fees is earned by the assessee from diversified activities as mentioned above. Therefore, the said MOIAPL is functionally different as held by the Tribunal in the case of Carlyle India Advisors (P) Ltd (supra). Consequently, the said MOIAPL is .....

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oyant and the Company made a quantum jump in business during the year 2007-08. On the whole, 23 assignments were completed successfully in the year as against 14 completed in the previous year. Income from cross border M&A a:tivity and the related financing solutions has been the largest contributor to the revenue mix during the year. The team size has now increased to 30 and there is a good blend of relationship managers, products specialist and sector expert. Specifically, the knowledge an .....

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hopeful that the same trend would continue in the coming year. Clients have appreciated the capability of the Structured Finance team and it remains a strong selling proposition for the Company to strengthen its position in the market place and to be able to cross sell its services across the clients and Industry sectors. The financial markets have seen an unprecedented turmoil over the last three months with both equity and credit markets being unstable and in a state of uncertainty. The marke .....

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financial restructuring, private equity have-offs shareholder value creation through buy-back/sell-outs and mergers. 5. From the above it is evident that the said company MOIAPL has undertaken 23 assignments successfully in the year under consideration. Major portion of the income is earned by MOIAPL out of cross border activity services and related financial services. The capital market business is one of the source3s of the advisory fees earned by the assessee. Assessee has also earned fees o .....

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is whether Motilal Oswal Investment Advisors Pvt Ltd can be considered as a comparable for the determination of ALP. A perusal of three comparables considered by the TPO shows that M/s. Future Capital Investment Advisors Ltd has operative profit at 21.79% whereas OPM of Motilal Lswal Investment Advisors Pvt Ltd is 72.33%. The comparables used by the TPO themselves are showing extreme OPM. A perusal of the Director‟s report of Motilal Oswal Investment Advisors Pvt Ltd shows that during the .....

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d company is registered with SEBI as a merchant banker and the Director‟s report show that it is into takeover acquisitions, disinvestments etc. In the absence of specific data it is not possible to make comparison. It can therefore be safely said that the said company being into merchant banking and cannot be considered as a comparable. We, accordingly, direct the AO not to consider Motilal Oswal Investment Advisors Pvt Ltd as a comparable for the determination of ALP and re-determine the .....

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