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Temasek Holdings Advisors India Private Limited Versus Income Tax Officer Circle- 14 (3) (1) , Mumbai

2018 (1) TMI 239 - ITAT MUMBAI

TPA - rejection of the comparables selected by the assessee in its TP study report - Held that:- As referring to investment advisory services rendered to its AE the comparables functionally dissimilar with that of assessee need to be deselected from final list. - ITA No. 1429/Mum/2017 - Dated:- 3-1-2018 - SHRI RAJENDRA, AM AND SHRI RAVISH SOOD, JM For The Appellant : Shri Porus Kaka, Senior Advocate & Shri Divesh Chawla, A.R For The Respondent : Shri Jayant Kumar, D.R ORDER PER RAVISH SOOD, .....

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fer an appeal under section 253 of the Incometax Act, 1961 (Act) against the order dated 30 January 2017 passed by the Income-tax Officer, Circle - 14(3)(1), Mumbai (hereinafter referred to as the 'learned AO') under section 143(3) read with section 144C(13) of the Act in pursuance of the directions issued by the Dispute Resolution Panel - 2, Mumbai (Hon'ble DRP). Ground 1 On the facts and in the circumstances of the case and in law, the learned AO based on the directions of the Hon& .....

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d in accordance with subsection (1) and (2) of section 92C of the Act, should have been accepted since the pre-condition in section 92C(3) of the Act, before the Deputy Commissioner of Income-tax, Transfer Pricing - 4(2)(1) (hereinafter referred to as 'learned TPO') could proceed to determine the ALP, was not fulfilled in this case. Further, the data used by the Appellant in computation of ALP is taken from two widely recognised commercial information databases for obtaining publicly ava .....

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well accepted TP principles, the learned A.O has erred in rejecting the search process that is adopted by the Appellant in its transfer pricing documentation and has also not highlighted the specific sub-clause of Section 92C(3) of the Act, on the basis of which the same has been rejected. Ground 3 On the facts and in the circumstances of the case and in law, the learned A.O based on the directions of the Hon'ble DRP, erred in not following a search process in determining the comparable comp .....

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ting ICRA Management Consulting Services Limited, ICRA Online Limited, Informed Technologies Limited, Integrated Capital Services Limited and Cyber Media Research Limited [formerly known as IDC (India) Limited] selected by the Appellant as comparable companies in the transfer pricing documentation maintained by the Appellant; b. In selecting Ladderup Corporate Advisory Private Limited, ICRA Techno Analytics Limited and CRISIL Limited as comparable companies with regard to the non-binding investm .....

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f arriving at the operating margins of the said comparable companies. Ground 5 On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in concluding that the Appellant is engaged in rendering, nondiscretionary portfolio management/ investment management services. Ground 6 The learned AO, based on the directions of the Hon'ble DRP erred, on facts and in law, in rejecting the use of contemporaneous and multiple year data available for computing the ALP as on the .....

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es using the financial information of the comparable companies pertaining to the FY 2009-10, FY 2O1O-11 and FY 2011-12 that were available at the time of complying with the TP documentation requirements. During the assessment proceedings, the Appellant has submitted detailed reasoning on the use of contemporaneous and multiple year data with the learned TPO vide submission dated 2 March 2015. Each of the grounds of appeal referred above is separate, and may kindly be considered independent of ea .....

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filed its return of income for AY 2012-13 on 26.11.2012, declaring total income of ₹ 8,57,28,430/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter selected for scrutiny assessment under Sec. 143(2) of the Act. 3. That the assessee company in its TP study report had benchmarked the international transactions pertaining to provision of Investment advisory services rendered to its AE using the TNMM method, .....

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) Limited 11.66% -30.51% ICRA Management Consulting Services Limited. 7.60% 6.94% ICRA Online Limited. 30.65% 16.64% Informed Technologies Limited. 15.10% 8.26% Integrated Capital Services Limited. -2.92% -1.98% Arithmetic Mean 13.21% -0.13% 4. The A.O during the course of the assessment proceedings made a reference under Section 92CA(1) to the Transfer Pricing Officer (for short TPO ) for computation of Arm s Length Price ( ALP ) in respect of the Investment Advisory Services rendered by the as .....

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ing the international transactions of the assessee with its AE. That still further, the TPO in his order observed that the assessee was also performing nondiscretionary portfolio management services for its AE. The TPO rejected all the comparables selected by the assessee and substituted the same by a set of three new comparables, which were identified by him as comparable to the assessee, as under:- Name of the Company Operating Margin for F.Y. 2011-12 ICRA Techno Analytics Limited (Segment - P .....

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E, as under: Calculation of arms length price OP/OC of comparables A 37.82% OP/OC of assessee B 19.42% Total operating income C 40,40,42,118 Operating cost as per assessee D 33,83,37,061 Arms length operating cost E=D*A 12,79,59,076 Arms length value of transaction F=D+E 46,62,96,137 Difference in actual and arms length G=F-C 6,22,54,019 5% of international transaction H=5% of I 2,02,02,016 Adjustment proposed 6,22,54,019 The TPO thus proposed an upward Transfer pricing adjustment of ₹ 6,2 .....

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sed by the assessee against the TP adjustments made by the TPO. The DRP after deliberating on the contentions of the assessee as regards the rejection of the comparables selected by the assessee, viz. (i) ICRA Managing Consulting Services Ltd; (ii) ICRA Online Ltd; (iii) Informed Technologies Ltd; (iv) Integrated Capital Services Ltd; and (v) IDC (India) Ltd., observed that as the rejection of all of the said comparables by the TPO in the immediately preceding year, viz. A.Y 2011-12 was upheld b .....

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ing year, therefore, for the said reason the inclusion of the same as a comparable by the TPO during the year under consideration did not call for any interference on his part. That as regards the other two comparables selected by the TPO, viz. (i). CRISIL Ltd.; and (ii). ICRA Techno Analytics Ltd., the DRP observed that as their activities were functionally comparable to the assessee, therefore, their inclusion in the final list of comparables by the TPO was liable to be sustained. The DRP furt .....

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assessee company and assessed its income at ₹ 14,79,82,450/- under the normal provisions and the book profit u/s 115JB at ₹ 7,03,79,199/-. 8. The assessee being aggrieved with the order passed by the A.O. under Section 143(3) r.w.s. 144C(13) had therein carried the matter in appeal before us. The Ld. Authorized Representative for the assessee (for short A.R ) had assailed the upward adjustment of ₹ 6,22,54,019/- carried out by the A.O/TPO on the basis of the directions of the D .....

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ich revealed that the latter had from Para 9 to Para 18.2.2 merely reproduced the observations recorded by his predecessor in the immediately preceding year, viz. A.Y 2011-12. It was submitted by the ld. A.R that the TPO instead of deliberating on the facts of the case in the backdrop of the submissions of the assessee, had rather adopted a convenient approach by transposing the order passed by his predecessor for the immediately preceding year in the order for the year under consideration. The .....

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sultancy Services Ltd.; and (ii) Informed Technologies Ltd. had been set aside by the Tribunal while disposing of the appeal of the assessee for. A.Y 2011-12, viz. Temasek Holdings Advisors India Pvt. Ltd Vs. DCIT (ITA No. 477/Mum/2016 and AY 2011-12), dated 11.08.2017. It was submitted by the ld. A.R that the Tribunal after deliberating at length on the aforesaid two comparables, observing that as the same were good comparables had directed the AO/TPO to include the same in the final list of co .....

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the same was functionally incomparable to the assessee company. That as regards the remaining two comparables, viz. (i) ICRA Techno Analytics Ltd., (Segment-Professional services); and (ii) CRISIL Ltd. (Segment Research Services), it was submitted by the ld. A.R that as in the case of the CRISIL Ltd, the related party transactions (for short RPT ) were to the extent of 47.1%, therefore, the same could not have been taken as a comparable. The ld. A.R to fortify his aforesaid contention took us th .....

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was further submitted by the ld. A.R that the TPO while including the aforesaid comparables had neither confronted the same nor afforded an opportunity of being heard to the assessee. The ld. A.R in order to drive home his contention that no opportunity of being heard was afforded by the TPO while including the fresh set of comparables, drew our attention to Page 39-Para10.135 of the objections filed before the DRP, which revealed that a specific objection as regards non affording of an opportu .....

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on the part of the TPO to allow an opportunity of being heard to the assessee while including the aforesaid comparables, viz. (i). CRISIL; and (ii). ICRA Techno Analytics was specifically raised before the DRP, however, the said objection of the assessee was not disposed. The ld. A.R drew our attention to Page 18 - Para 10.25 of the objections filed before the DRP, and submitted that the assessee had further averred before the DRP that the TPO had merely relied on the order passed by his predece .....

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service provider, therefore, the TPO had rightly selected the comparables in the final list of comparables. The ld. D.R submitted that the appeal of the assessee was devoid of any merit and deserved to be dismissed. 9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present case is sought to adjudicate as to whether the rejection of the comparables selected by t .....

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ed Capital Services Ltd; and (v) IDC (India) Ltd. We find that as averred by the ld. A.R, the exclusion by the TPO of two comparables, viz (i) ICRA management Consultancy Services Ltd.; and (ii) Informed Technologies Ltd. in the case of the assessee for the immediate preceding year, viz. A.Y. 2011-12 was set aside by the Tribunal while disposing of the appeal of the assessee for. AY 2011-12, viz. Temasek Holdings Advisors India Pvt. Ltd Vs. DCIT (ITA No. 477/Mum/2016 and AY 2011-12), dated 11.08 .....

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find that the DRP as a matter of fact relying on the order passed by his predecessor in the case of the assessee for A.Y. 2010-11, wherein the rejection of the aforesaid comparable, viz. ICRA Management Consultancy Services Limited by the TPO was upheld by his predecessor, had merely gone by the said very reason and upheld the rejection of the said comparable during the year under consideration. We find that the rejection of the aforesaid comparable by the AO/TPO in A.Y. 2010-11 had been set asi .....

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immediately preceding year, viz. A.Y. 2010-11, therein excluding the aforesaid comparable, viz. ICRA Management Consultancy Services Limited had been set aside by the Tribunal, therefore the rejection of the said comparable, viz. ICRA Management Consultancy Services Limited by the A.O during the year under consideration pursuant to the direction of the DRP, wherein the latter had merely followed the order of his predecessor so passed in the case of the assessee for. A.Y. 2010-11, which as observ .....

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t Consultancy Services Limited had also been held to be a good comparable by the Tribunal in the case of the assessee for A.Y(s). 2007-08, 2008-09 and 2009-10, while for in the earlier years the TPO himself had accepted the said company as a comparable. Thus in the totality of the aforesaid facts, we find no reason to take a divergent view, and thus set aside the order of the AO/TPO rejecting the aforesaid comparable, and therein direct that the same be included in the final list of the comparab .....

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find that in the case of the assessee for the immediately preceding year, i.e A.Y. 2010-11, the aforesaid comparable had been accepted by the TPO as a good comparable, and was consequently included in the final list of comparables. We find ourselves to be in agreement with the contention of the ld. A.R that now when the aforesaid comparable had been accepted by the TPO in the immediately preceding year, i.e A.Y. 2010-11, therefore without pointing out any substantial variance, either functional .....

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dependent on the scale or size of operations. Thus in the backdrop of our aforesaid observations, we are of the considered view that now when the comparable, viz. Informed Technologies Limited had been considered as a good comparable qua the functions performed by the assessee in A.Y. 2009-10 and A.Y. 2010-11, therefore in the absence of any material change, there is no reason as to why the same is to be rejected as a comparable during the year under consideration. We thus in the backdrop of ou .....

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ood comparables while disposing of the appeal of the assessee for the immediately preceding year, viz. A.Y. 2011-12, therefore, now when there is no change in the functional profile of the said respective comparables as in comparison to that of the assessee company, and the facts and circumstances involved therein remain the same, thus it can safely be concluded that the assessee had rightly included the said comparables in its TP study report for benchmarking its international transactions pert .....

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(ii) ICRA Online Ltd; and (iii) Cyber Media Research Ltd, from the final list of comparables by the TPO while determining the ALP of the international transactions of the assessee, however, as no submissions had been advanced before us as regards the same, therefore, we refrain from adjudicating the same. 11. We shall now advert to the comparables which had been included by the TPO in the final list of the comparables and thereafter approved by the DRP. We find that the TPO had included three fr .....

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of the international transactions of the assessee in the immediate preceding year, viz. A.Y. 2011-12 and approved by the DRP, was however on appeal by the assessee excluded by the Tribunal. We find that the Tribunal observing that the said comparable was functionally incomparable had directed the AO/TPO to exclude the same from the final list of comparables, by observing as under: 11. We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authoriti .....

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rt‟ the aforesaid comparable is engaged in only one segment, which includes merchant banking. We thus in the backdrop of the very fact that the aforesaid comparable is engaged in the merchant banking/investment banking and other similar activities, are of the considered view that the same cannot be considered as functionally comparable to the assessee company which is engaged in the business of rendering non binding investment advisory services. We are further not impressed by the averrmen .....

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activities. We are of the considered view that the aforesaid observations of the coordinate bench of the Tribunal were recorded in context of A.Y. 2009-10 involved in the case before them, while for the year before us in the present appeal is A.Y. 2011-12. Thus the case law relied upon by the Ld. D.R is distinguishable on facts, and as such for the foregoing reason would be of no assistance to him to support his aforesaid contention. That in the backdrop of the aforesaid facts as had been brough .....

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ded to subscribe to the contention of the ld. A.R that the aforesaid comparable, viz. Ladder up Corporate Advisory Pvt. Ltd. is functionally incomparable to the assessee company, and as such had wrongly been included by the AO/TPO in the final list of the comparables. We thus in light of our aforesaid observations direct the AO/TPO to exclude the aforesaid comparable, viz. Ladderup Corporate Advisory Pvt. Ltd. from the final list of comparables. We have perused the aforesaid observations of the .....

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t of the comparables, therefore, direct the AO/TPO to exclude the same from the final list of comparables. 12. We now advert to the remaining two comparables, viz. (i) ICRA Techno Analytics Ltd., (Segment-Professional services); and (ii) CRISIL Ltd. (Segment Research Services) which were selected by the TPO as comparables and included in the final list of the comparable for determining the ALP of the international transactions of the assessee. Before us, the ld. A.R had submitted that as in the .....

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.151 of the objection filed by the assessee before the DRP reveals that the assessee had assailed the inclusion of the said comparable on the ground that as it had significant RPT of 47.1% during the year under consideration, therefore, it was wrongly included by the TPO in the final list of the comparables. We find that the DRP while passing the order had failed to take cognizance of the said specific objection of the assessee, and loosing sight of the said material fact had upheld the inclusio .....

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jection of having been divested of an opportunity of being heard at the time of inclusion of CRISIL as a comparable by the TPO (Page 39- Para 10.135 of the objections), but however, the DRP loosing sight of the same while passing the order, had allowed such serious infirmity on the part of the TPO to perpetuate. We are of the considered view that in all fairness, now when the assessee was never afforded an opportunity of being heard at the time of inclusion of the aforesaid comparable by the TPO .....

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ables. However, we may herein clarify that in case the RPT in the case of the said comparable is found to be more than 25%, then the AO/TPO shall exclude the same from the final list of comparables. 13. We shall now advert to the inclusion of ICRA Techno Analytics Ltd as a comparable by the TPO. We find that the ld. A.R had submitted before us that as the said comparable was a Software development company, therefore, it could not have been selected as a comparable in the case of the assessee whi .....

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