TMI Blog2015 (11) TMI 1713X X X X Extracts X X X X X X X X Extracts X X X X ..... dia since 2000 as a subsidiary of Carlyle Hong Kong, provides Investment advisory related support services to Carlyle Honk Kong. Thus companies functionally dissimilar with that of assessee need to be rejected from final list. - IT APPEAL NOS. 1040 AND 1517 (MUM.) OF 2015 - - - Dated:- 18-11-2015 - G. S. PANNU, ACCOUNTANT MEMBER AND AMIT SHUKLA, JUDICIAL MEMBER Ajeet Kumar Jain and Radhika Thakker for the Appellant. N.K. Chand and Jeetendera Kumar for the Respondent. ORDER G.S. Pannu, Accountant Member These Cross Appeals are directed against the order of Dy. CIT Cir, 10(1), Mumbai passed u/s 143(3) r.w.s 144C of the Income Tax Act, 1961 (in short 'the Act') dated 24.03.2014 pertaining to the assessment year 2009-10, which has been passed in conformity with the directions given by the Dispute Resolution Panel, Mumbai (in short 'the DRP') in order dated 15.12.2014. 2. In this appeal, the assessee has raised following Grounds of Appeal :- 1. On the facts and circumstances of the case and in law, the Ld AO has erred in assessing the income of the Appellant for the relevant AY at income of INR 24,08,91,640, as against returned incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to appreciate that on segmental level 98% receipt in the case of comparable company ICRA online Ltd are from service revenue. 3. On the facts and in the circumstances of the case and in law, the Dispute Resolution Panel has failed to appreciate that when segment results are used for comparability, the entity level revenues cannot be used for computing the radio of service revenue and the total operating revenues in the filter used by the TPO. Total operating revenue here will only relate to the operating-revenue of the segmental result ' 4. As the aforestated Grounds of appeal reveal the substantive dispute before us relates to the determination of arm's length price of the international transaction of Provision of investment advisory related support services by the assessee company to its associated enterprise abroad. 5. Brief facts relevant for adjudicating the aforesaid controversy can be summarized as follows. The appellant is a company incorporated under the provisions of Companies Act, 1956, and is a subsidiary of Carlyle Asia Investment Advisory Ltd. (in short referred as 'Carlyle Hongkong'). The appellant company belongs to the world-wide C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of section 92B of the Act for stated consideration of ₹ 53,17,96,142/-. The Assessing Officer made a reference to the TPO u/s 92CA(1) of the Act for computation of arm's length price in relation to the international transactions of Provisions of investment advisory related support services and accordingly the TPO passed an order u/s 92CA(3) of the Act, dated 20-1-2014, whereby the arm's length price of the international transaction of Provisions of investment advisory related support service was determined at ₹ 64,94,84,941 as against the stated consideration of Rs, 53,17,96,142/-, thereby working out an adjustment of ₹ 11,76,88,799/- on account of transfer pricing adjustment. On 24.03.2014, the Assessing Officer passed a draft assessment order u/s 143(3) r.w.s 144C of the Act proposing the transfer pricing adjustment of ₹ 11,76,88,799/- as determined by the TPO against which, assessee preferred objections before the Dispute Resolution Panel (in short the DRP ). The DRP vide its order dated 15.12.2014 issued certain directions, in particular, the Assessing Officer was directed to exclude one of the comparable concerns adopted by the T.PO i.e. IC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables whereby the arithmetic mean of the margins was determined at 40.455% as under:- Sr. No. Name of the comparable OP/TC% 1 Future Capital Investment Advisors Ltd. 17.72 2 Kshitij Investment Advisory Co. Ltd. 32.33 3 Future Capital Holdings Ltd. (Segment-Investment Advisory) 16.26 4 Motilal Oswal Investments Advisors Pvt. Ltd. 97.89 5 IDFC Investment Advisors Ltd. 36.63 6 ICRA online Ltd. 41.77 Arithmetic Mean 40.45 8. In determining such arithmetic mean, the TPO has considered the Profit Level Indicator (PLI) as Operating Profit/Operating Cost for which there is no dispute. Based on such arithmetic mean, the arm's length price of the international transaction of Provision of investment advisory related support services was determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive for the assessee has canvassed that the plea of the assessee for excluding the same from the final set of comparables has been unjustly rejected by the lower authorities. The fundamental point raised by the assessee is that the said concern is involved in multiple set of activities which are functionally incomparable to the activity of Provision of investment advisory related support services undertaken by the assessee for its associate enterprise. In support, a reference has been made to page 512 of the Paper Book, wherein is placed a copy of the Annual Report of the said concern for the instant year and in particular, our attention was invited to the contents of the Directors report in order to emphasize that the said concern is deriving income from four different business verticals, viz., Equity Capital Markets, Mergers Acquisitions, Private Equity Syndications and structured debt. The Directors report has been further referred to substantiate that the said concern is also engaged in advising Indian clients on cross-border acquisitions and in providing equity placements and managing IPOs. On this basis, the ld. Representative for the assessee justified the exclusion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justify the inclusion of Motilal Oswal Investments Advisors Pvt. Ltd. The Ld. CTT (DR) pointed out that the said concern was found to be engaged in providing high quality strategic financial advisory services used for acquiring major equity stakes, acquisitions, placement of equity with investors, etc. and that such-like services are comparable with the investment advisory related support services rendered by the assessee company. Further, it is pointed out that the Financial statements of the said concern indicate that there is a single reportable operational income segment and, therefore, the absence of segmental reporting cannot be a ground to exclude the said concern from the list of comparables. The Ld. CIT (DR) also referred to the discussion made by the TPO in para 9.1.2 (iii) to emphasize that there was no mention of any investment fund or investment related activity being undertaken by the said concern and, therefore, the said concern was essentially in the business of rendering advisory services and not in the business of managing funds, so as to be excluded from the final set of comparables 14. We have carefully considered the rival submissions, At the outset, we note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered with SEBI and is carrying out Portfolio Management Services. Before us, the Ld. Representative has referred to the financial statements of the said concern, placed in the Paper Book at pages 491 to 510, in order to point out that the activities of the said concern are different and further that only 10% of the income can be considered in the nature of advisory fees and in the absence of any segmental financial data, the entity level financial results of the said concern cannot be considered for benchmarking assessee's activity of rendering investment advisory related support services to associate enterprise. 16. On the other hand, the Ld. CIT (DR) appearing for the Revenue referred to the discussion made by the TPO in para 9.3.2 of the order in order to support the inclusion of IDFC Investment Advisors Ltd in the final set of comparables. The Ld. CIT(DR) emphasized that the said concern was engaged in rendering of investment advisory related support services also and it was earning substantial revenues in the form of 'advisory fee' and 'performance fee'. Therefore, according to the Ld. CIT (DR), the said concern could not be excluded merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia) (P.) Ltd. (supra), wherein for the instant assessment year itself, IDFC Investment Advisors Limited has been held to be incomparable with an assessee who is engaged in providing non-binding investment advisory related support services only. In our considered opinion, the decision of the Tribunal in the case of Bain Capital Advisors (India) (P.) Ltd. (supra) also supports the plea of the assessee for exclusion of IDFC Investment Advisors Limited from the final set of comparables. In view of the aforesaid discussion, in our view, IDFC Investment Advisors Limited deserves to be excluded from the final set of comparables for the purposes of computing arm's length price of assessee's international transaction of Provision or investment advisory related support services to associate enterprise. Thus, on this aspect also, assessee succeeds. 18. The third plea of the assessee is for exclusion of Kshitij Investment Advisory Co. Ltd. from the final set of comparables. Before the TPO, assessee company canvassed that Kshitij Investment Advisory Co. Ltd. should not be considered as a comparable because the investment advisory business of the said concern had undergone a restruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case it is excludible by applying the filter adopted by the TPO to accept/reject the comparables. In this context, the Ld. Representative for the assessee referred to the following portion of para 6.8 of the show-cause notice issued by the TPO dated 27.12.2013:- Companies that are functionally different from that of taxpayer or working in peculiar economic circumstances, after giving valid reasons, were excluded to explain that the aforesaid filter applied by the TPO excludes the said concern from being considered as a good comparable because of the existence of peculiar economic circumstances reflected by the restructuring/realignment of investment advisory services in this year. The. Ld. Representative relied upon the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information System India (P.) Ltd. v. Dy. CIT [2013] 32 taxmann.com 21 for the proposition that extraordinary events, like merger or demerger, which impact the profitability of a concern in a particular year renders such a concern as non-comparable. Accordingly, it is canvassed that Kshitij Investment Advisory Co. Ltd be excluded from the final set of comparables. 22. We have carefull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucturing of business takes place, such year is often a peculiar economic year in the history of a concern and in such a situation, it would be in the interest of justice and fair play that such a concern is not treated as a comparable. In fact, in principle, we do not find any disagreement on the part of the TPO also on this aspect. However, what the TPO has stated is that in the present case, the realignment/restructuring is in the same line of business and, therefore, such restructuring/realignment does not result in any change in the activity of business. Therefore, according to the Revenue, there would be no impact on the financial results so as to make it incomparable with the tested transactions. We have carefully considered the aforesaid plea set up by the Revenue and in this context we may briefly refer to the Business Review outlined in the Directors Report of the said concern, placed at page 536 of the Paper Book. It is stated therein that the investment advisory business has been realigned and all the employees have been transferred to Everstone Investment Advisors Pvt Ltd during the year under consideration w.e.f 1.1.2010. The note also suggests that the said concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of comparables which remain are as under:- Sr. No. Name of the Company OP/TC(%) 1. Future Capital Investment Advisors Ltd. 17.72% 2. Future Capital Holdings Ltd. (Segment Investment Advisory) 16.26% Arithmetic Mean 16.99 24. Assessee's margin is 15% and the arithmetic mean of the margins of the comparables is 16.99%; thus, the variation between the arm's length price and the price at which the amount of international transaction of Provision of investment advisory related support services has been entered into is within the +/- 5% range, then in terms of proviso to section 92C(2), no adjustment is required to be made to the stated value of the consideration. As a consequence, the impugned addition of ₹ 11,59,32,559/- is liable to be deleted. In view of the aforesaid, residual plea of the assessee for inclusion of IDC India Ltd as a comparable is rendered academic and is not being adjudicated at this stage. 25. Before parting, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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