TMI Blog2017 (3) TMI 1174X X X X Extracts X X X X X X X X Extracts X X X X ..... upholding the action of the Deputy Commissioner of Income-tax - 3(3) [AO] and the Transfer Pricing Officer II(5), Mumbai [TPO] in making an addition of ₹ 7,17,85,793/- by way of transfer pricing adjustment, to the Appellant's total income, in respect of non-binding investment advisory services transaction of the Appellant alleging the same to be not at arm's length in terms of the provisions of Sections 92C(1) and 92C(2) of the Income -tax Act, 1961 ['the Act'] read with Rule 10B of the Income-tax Rules, 1962 ['the Rules']. (2) The CIT(A) erred on facts and circumstances of the case and in law in upholding the action of the AO, in not accepting the arm's length price determined by the Appellant, and in choosing to determine the arm's length price by making reference to the TPO even though none of the conditions laid down under section 92C(3) of the Act, were satisfied. (3). The CIT(A)/ AO/ TPO erred on facts and circumstances of the case and in law in disregarding the methodically prepared Transfer Pricing documentation submitted by the Appellant and in not appreciating that the arm's length price of the international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiating penalty proceedings under Section 271(1)(c) of the Act. The Appellant crave leave to add, amend, delete, rectify, substitute and / or modify any of the aforesaid grounds of appeal herein provided and / or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal. 2. That the present appeal filed by the assessee involves a delay of 38 days. The assessee had filed an application seeking condonation of delay, which is supported by an Affidavit of the director of the assessee company therein deposing the facts leading to delay in filing of the appeal. It is claimed by the assessee that the order of the CIT(A) was received on 13th September 2014 and the Memorandum of appeal was duly signed by the director of the assessee company, viz. Shri Puneet Bhatia as on 07.11.2014. It is stated that though the assessee had sent the office boy for filing of the appeal with the Income-tax Appellate Tribunal on 10.11.2014, however the latter inadvertently filed the same with the office of the Ld. Departmental Representative of the Tribunal. The assessee in order to fortify the aforesaid factual position had therein enclosed the copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, and not on account of any lapses or laches on the part of the assesee. We thus are of the considered view that the delay of 38 days involved in the filing of the present appeal deserves to be condoned. The application filed by the assessee seeking condonation of delay of 38 days in filing the present appeal is thus allowed. BRIEF BACKGROUND: 3. The brief facts of the case are that the assessee company which is engaged in the business of providing Sub-investment advisory services, Market research and Statistical data to its holding company ,viz. TPG Capital LLP had filed its return of income for A.Y.2009-10 on 30.09.2009 declaring total income of ₹ 2,77,02,075/-. That during the year the assessee had entered into various international transactions with its Associate Enterprise (AE) and had furnished Form 3CEB in support of such transactions. BEFORE THE A.O AND TPO : 4. The case of the assessee was taken up for scrutiny proceeding u/s. 143(2) and a reference was made by the A.O under Sec. 92CA(1) to the Transfer Pricing Officer ( TPO ) for determination of the Arm s Length Price ( ALP ) in respect of the International transactions carried out by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice products. The thrust of its business is quite dissimilar from the focus of assessee s business and it does not offer the investment advisory services. 2. ICRA Management Consulting Services Ltd., This company has significant related party transactions during the year and also is a loss making entity. In the business of rendering investment advisory services, incurring operating loss is an exception, which can happen due to abnormal operational problems. Therefore, this company cannot be considered as a good comparable in this sector. Hence rejected. 3. Future Capital Holdings Limited. The company has suffered huge operating loss of (-) 25.04%. The business of investment advisory is purely a professional service based activity which always gets adequately compensated over and above the cost of service by the recipient of the advisories. The nature of business is such that it is neither labour intensive nor asset intensive and is purely run on the strength of professional war force, who charge sufficient mark ups on the professional services rendered by them. Loss notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he international transactions of the assessee with its AE, as under:- Sr. No. Name of the comparable Weighted Avg. (OP/OC)(%) 1. ICRA Online Ltd., 41.42 2. Informed Technologies Ltd., 23.13 3. ICRA Techno Analytics Limited 10.01 4. Crisil Limited (segmental) 62.1 5. SBI Fund Management Pvt. Ltd., 83.5 6. Sundaram Asset Management Co. Ltd., 24.02 7. ICRA Ltd., 50.57 8. Deutche Asset Management India Ltd., 48.94 Average 42.94 The TPO thus adopted a broad based representative sample of 8 uncontrolled comparables whose average profit margin (OP/OC) during the subject year was 42.94%, for benchmarking the ALP of the international transactions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in the computation of the ALP was not reliable. (iii). The CIT(A) further observed that the entire exercise carried out by the TPO while excluding some of the companies relied upon by the assessee as comparables and rather supplementing the same by fresh comparables which were selected by him, was duly backed by detailed discussion on the part of the TPO who had dealt with in detail about the fresh comparables selected by him as well as had duly taken cognizance of the objections raised by the assessee before him, therefore no infirmity could be attributed to the said process of selection/rejection of the comparables so carried out by the TPO. The CIT(A) further observed that the reliance placed by the assessee on the order of the Tribunal in the case of Temasek Holding Advisors India (P) Ltd.(ITA NO. 6504/Mum/2012) and Sandstone Capital Advisors Pvt. Ltd. (ITA No. 6315/Mum/2012), which was pressed into service by the assessee to support its contention were also found to be misconceived and distinguishable on facts. (iv). The CIT(A) further adverting to the contention of the assessee who had assailed the rejection of the 4 comparables which were selected by it for comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the CIT. The CIT(A) thus being of the considered view that the reference made by the A.O to the TPO u/s 92CA (1) was as per the mandate of law, therefore the contention of the assessee challenging the very making of a reference to the TPO was liable to be rejected. 7.1 The CIT(A) on the basis of his aforesaid observations, therein upheld the order of the TPO/AO and dismissed the appeal of the assessee. 8. The assessee being aggrieved with the order of the CIT(A) had therein carried the matter in appeal before us. That the Ld. Authorized Representative (for short A.R ) for the assessee had at the very outset of the hearing of the appeal assailed the 5 comparables selected by the TPO for benchmarking the ALP of the international transactions carried out by the assessee with its AE, as under:- (1). Crisil Ltd., (segment Research Service):- The Ld. A.R at the very outset submitted that the co-ordinate bench of the Tribunal while disposing of the appeal of the revenue so filed in the case of DCIT, Mumbai Vs. M/s Temasek Holdings Advisors (I) Private Ltd. (ITA No.968/Mum 2014, dated 27/06/2014), had therein upheld the order of the DRP who had excluded Crisil Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its Investment Advisory Services. We have considered the submissions of Ld. Representatives of both the parties, perused the orders of the lower authorities and the record available before us, and find substantial force in the contention of the Ld. A.R who had at length demonstrated before us that the aforesaid comparable, viz. Crisil Ltd (supra) was not only functionally different, but had RPT of more than 25%. We are of the considered view that in light of the fact that the advisory segment comprising international advisory and risk management practice of the aforesaid comparable, viz M/s Crisil Ltd. (supra) had been transferred to its wholly owned subsidiary, coupled with the fact that a coordinate benches of the Tribunal in the case of : M/s Temasek Holdings Advisors (I) Private Ltd. (ITA No.968/Mum 2014, dated 27/06/2014 A.Y. 2009-10) and M/s Avenue Asia Advisors Private Ltd. Vs. DCIT Delhi (ITA No. 6638/Delhi/2013 A.Y 2009-10, dated 22.01.2016), taking cognizance of the RPT of more than 25% in the case of the said comparable had upheld the exclusion of the said comparable, viz M/s Crisil Ltd. (supra), as well as the observations of another coordinate bench of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically held that as the aforesaid comparable, viz ICRA Limited (supra) was a credit rating agency in India, the same therefore could not be held to be functionally comparable with the assessee company which was rendering investment advisory services to its holding company. The Ld. A.R further referred to similar observations arrived at by the ITAT K bench, Mumbai in the case of : Sandstone Capital Advisors Pvt. Ltd. Vs. ACIT, Mum (ITA No. 6315/Mum/2012, dated 06,02.2013 - AY 2008-09), wherein the Tribunal had observed that as ICRA Limited. (supra) was mainly into the business of providing rating services, therefore the same was functionally incomparable with the case of the assessee before the Tribunal, which too was mainly in the business of investment advisory. That on the other hand the Ld. D.R relied on the orders of the lower authorities and therein averred that the said comparable was functionally comparable and had rightly been selected by the TPO for benchmarking the ALP of the international transactions of the assessee with its AE as regards its Investment Advisory Services. We have considered the submissions of the Ld. Representatives of both the parties, perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal while disposing of the aforesaid appeal had categorically observed that the receipts of the said comparable, viz SBI Fund Management Ltd.(supra) was from management fees, while for the advisory fees which was very negligible was also found to be relatable to the portfolio advice business. It was thus submitted by the Ld. A.R that the Tribunal in the aforementioned appeal, therein referring to the investment advisory business of the assessee before it, had therein observed that the said comparable was functionally different as in comparison to the assessee before it. That on the other hand the Ld. D.R relied on the orders of the lower authorities and therein submitted that the aforesaid comparable was functionally comparable and had rightly been selected by the TPO for benchmarking the ALP of the international transactions of the assessee with its AE as regards its Investment Advisory Services. We have given a thoughtful consideration to the contentions of the Ld. Representatives of both the parties in the backdrop of the records before us. We are of the considered view that the aforesaid comparable, viz SBI Fund Management Ltd.(supra), as stands gathered from its A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid comparable, viz Sundaram Asset Management Company (supra), being functionally incomparable, was thus liable to be excluded from the list of the comparable so adopted by the TPO. The Ld. A.R further relied on the order passed by the ITAT in the case of : Temasek Holding Advisors Pvt. Ltd. Vs. DCIT (ITA No. 4203/Mum/2012 AY 2007-08 and ITA No. 6504/Mum/2012 AY 2008-09), dated 30.08.2013, wherein the Tribunal had observed that M/s Sundaram Asset Management Ltd. (supra) could not be adopted as a feasible comparable in the case of an assessee which was in the business of providing investment advisory services to its holding company. The Ld. A.R in order to substantiate his aforesaid contention, therein placed reliance on the judgments of the Hon ble High Court of Bombay so passed in the case of :- (i). CIT Vs. General Atlantic Pvt. Ltd., (ITA No.1993 of 2013, dated 08.3.2016). (ii). CIT Vs. M/s Carlyle India Advisors (P) Ltd. (ITA No. 1286 of 2012, Dt. 22.02.2013). , wherein the Hon ble High Court had upheld the respective orders of the Tribunal which had concluded that the comparables adopted by the TPO which were not in the business of investment advisory service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly incomparable to the assessee has to be excluded from the list of the comparables selected by the TPO, and thus direct accordingly. 5. Deutsehe Asset Management India Ltd: - That it was submitted by the Ld. A.R that the aforesaid comparable selected by the TPO was engaged in providing asset management services, and thus being functionally incomparable had wrongly been included by the TPO in the list of comparables. The Ld. A.R in order to support his contention took us to the qualitative review non-segmental pertaining to the aforesaid comparable, which fortified the aforesaid claim. The Ld. A.R further referring to the Financial statements of the aforesaid comparable, therein took us to Page 898 of the APB which revealed that the comparable ,viz Deutsehe Asset Management India Ltd. (supra) had obtained registration from the SEBI to function as an asset management company for the Deuteshe mutual fund with effect from 29.10.2002. The Ld. A.R further taking support from the segment reporting of the aforesaid comparable, therein referred to Page 912 of the APB, which revealed that the said comparable was mainly engaged in the business of asset management services. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012, dated 06.02,2013 A.Y 2008-09) and IIM Asset Advisors Ltd. Vs ACIT (ITA No.5173/Mum/2012, dated 22.02.2013 A.Y 2008-09), we find no reason to arrive at a different view and are persuaded to exclude the aforesaid comparable so included by the TPO. Thus in light of our aforesaid observations we herein exclude the aforesaid comparable, viz Deuteshe Asset Management India Ltd.(supra) from the list of the comparables selected by the TPO, and direct accordingly. 9. That the Ld. A.R further adverting to the comparables which were included by the assessee in its TP study report, but had been excluded by the TPO, therein assailed the said action of the TPO which was upheld by the CIT(A), as under:- (1). Future Capital Holding :- That it was submitted by the Ld. A.R that the aforesaid comparable, viz Future Capital Holding (supra) had been included in the case of the assessee itself for all the earlier years, and thus in absence of any facts which could go to prove that during the year under consideration the said comparable was rendered functionally incomparable, the exclusion of the same on the part of the TPO was not called for and was thus unjustified. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said comparable was not a persistent loss making company, and thus the same could not have been excluded by the TPO for the reason that the latter during the year under consideration had suffered an operating loss. Thus, in light of our aforesaid observations we are unable to persuade ourselves to subscribe to the aforesaid findings of the TPO, which thereafter had been upheld by the CIT(A). We thus set aside the observations of the lower authorities therein excluding the aforesaid comparable from the list of the comparables provided by the assessee. Thus the order of the CIT(A) to the extent sustaining the exclusion of the aforesaid comparable is herein set aside. (2). ICRA Management Consulting Services Ltd . :- The Ld. A.R submitted that the aforesaid comparable had been excluded by the TPO from the list of comparables provided by the assessee for the reason that as per the TPO the said comparable had significant related party transactions during the year and was also a loss making entity. The Ld. A.R adverting to the aforesaid observations of the TPO which therein had been upheld by the CIT(A), therein averred that as the RPT of the aforesaid comparable was 14%, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Ltd. (supra) was not merely investment advisory functions, but rather the same was substantially functionally different. It was further averred by the Ld. D.R that a perusal of the Profit and loss account of the aforesaid comparable, which formed part of the APB revealed that the said comparable unlike the assessee was not merely into providing services, but was also into sales, and as such no feasible comparison could be carried out as against the business of the assessee company. Thus, in the backdrop of the aforesaid submissions it was submitted by the Ld. D.R that the aforesaid comparable, viz ICRA Management Consulting Services Ltd. (supra) had rightly been excluded by the TPO, which thereafter had been sustained by the CIT(A). We have heard the Ld. Representatives, perused the record and are unable to persuade ourselves to be in agreement with the observations of the lower authorities which had excluded the aforesaid comparable selected by the assessee company. We are unable to subscribe to the averments made before us by the Ld. D.R that as the aforesaid comparable was functionally incomparable, therefore the same had rightly been excluded by the TPO. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant year. It was submitted by the Ld. A.R that in the case of Bobst India Pvt. Ltd. (supra), the Tribunal had categorically observed that a comparable could be held to be into persistent loss making where it had suffered continuous loss for more than 3 years. Thus in the backdrop of the aforesaid facts, it was submitted by the Ld. A.R that the aforesaid comparable which had incurred operating loss only during the year under consideration, thus could not be excluded on the said ground. The Ld. D.R on the other hand relied on the order of the lower authorities and therein submitted that as the aforesaid comparable had incurred operating loss during the year under consideration, therefore the TPO had rightly excluded the same from the list of the comparables selected by the assessee, and the same had thereafter rightly been upheld by the CIT(A). We have heard the Ld. Representatives of both the parties, perused the record available before us and are of the considered view that as the aforesaid comparable, viz. KPIT Cummins Global Business Solution Ltd.(supra) though had incurred operating loss of -16.98% during the year under consideration, but the same solely on the said ground c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Ltd. (supra) was not a product company as suggested by the D.R, and rather the functions and activities so performed by it were similar to that of the functions and activities performed by the assessee for rendering investment advisory services. That on the other hand the Ld. D.R relying on the Profit and loss account of the aforesaid comparable, therein submitted that the same was not only rendering services, but rather was also into sale activities. The Ld. D.R in order to fortify his aforesaid contention, therein drew our attention to the Schedule 18 which was an abstract of the latters Balance sheet and revealed the general business profile of the aforesaid comparable, as per which the latter was into conducting research and survey. The Ld. D.R thus submitted that as the aforesaid comparable was also into sales and not merely into rendering services, therefore the same was functionally incomparable with the assessee company which was in the investment advisory business. It was thus averred by the Ld. D.R that as the business of the aforesaid comparable was substantially different from the focus of the business of the assessee and it did not offer the investment advis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latters Annual report . Thus in nutshell it was submitted by the Ld. A.R that the Tribunal while disposing of the appeal of Actis Advisers Private Limited (supra) had erred in erroneously considering the facts pertaining to Cyber Media (India) Limited for rejecting IDC India Limited as a comparable company. The Ld. A.R further referring to the order of the ITAT, Mumbai in the case of Tevapharm Private Limited (supra), therein submitted that the reliance placed by the Ld. D.R on the said order of the Tribunal was misplaced. It was submitted by the Ld. A.R that Tevapharm Private Limited (supra) was engaged in the business of providing contract research, business development, pharma and technical services and contract testing services, and it was in the backdrop of the said functional profile of the assessee that the Tribunal had in the said case concluded that IDC India Limited could not be considered as a comparable. That interestingly it was averred by the Ld. A.R that as the Tribunal in the case of Tevapharm Private Limited (supra) had held that the comparable, viz. IDC India Limited was providing market research and survey services , therefore the said order of the Tribunal rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the said concern had rightly been selected as a comparable. That in light of the aforesaid facts and no material having been placed on record by the Ld. D.R, on the basis of which we could be persuaded to observe that there had been a shift in the nature of business of the assessee during the year under consideration, as against that of the immediately preceding year, coupled with the fact that the Tribunal had consistently in host of decisions as had been so relied upon by the Ld. A.R therein concluded that the aforesaid comparable, viz IDC India Ltd (supra) was into investment advisory business, therefore do not find any reason to take a different view. Thus, in light of our aforesaid observations we are of the considered view that the TPO had wrongly excluded the aforesaid comparable from the list of the comparables selected by the assessee company, and therefore set aside the order of the CIT(A) who had upheld the said findings of the TPO. 10. That during the course of the hearing of the appeal it was submitted by the Ld. A.R that he was assailing the order of the CIT(A) to the extent the latter had upheld the rejection of the 4 comparables selected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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