TMI Blog2018 (1) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... and support services to its Associated Enterprise(AE), filed its return of income on 29/11/2011, offering total income of ₹ 2. 58 crores. The AO completed the assessment on, 04/ 01/2016, u/s. 143 (3) r. w. s. 144C (13) of the Act, determining its income at ₹ 5. 87 crores. 2. During the course of hearing before us, the Authorised Representative (AR)stated that first three grounds were of general nature, that the assessee was not interested in pressing Grounds of appeal no. 4 and 7. Therefore, we are not adjudicating Grounds no. 1-3. Grounds no. 4 and 7 stand dismissed, as not pressed. 3. During the assessment proceedings, the AO found that the assessee has entered into International Transactions (IT. s) with its Associated Enterprises (AE). He made a reference to the Transfer Pricing Officer (TPO) to determine the arm s length price (ALP) of the IT. s. He proposed an upward adjustment of ₹ 4. 89 crores, vide his order dated 27/01/2015. Accordingly, the AO issued a draft assessment order and it was challenged before the DRP. After receiving the directions of the DRP, the AO finalised the assessment, as stated earlier. 4. Effective ground of appeal (Gs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally different. 5. During the course of hearing before us, the uthorised Representative(AR)stated that the DRP was not justified in approving the rejection of the comparables selected by the assessee, that it had wrongly approved two new comparables, that the new comparables were functionally different from the assessee, that comparables selected by the assessee were rendering the similar services as provided by it, that the Tribunal had approved the comparables, selected by the assessee, for benchmarking the IT is related with non-binding investment advisory services. He relied upon the case of Temasek Holdings Advisers India Private Ltd. (ITA/477/Mum/2016-AY. 2011-12, dated-11/08/2017). The Departmental Representative(DR)contended that IDC was a valid comparable for support service system but not for the non-binding advisory services, that Informed Technology was not in the business of providing non-binding investment advisory services, that it was providing ITE-s, (SN. 15, LPB 1 pg 189), that ICRA was showing fluctuating profits, that it was rightly taken out of the list of valid comparables, (SN. 18, 19 of Index, PTC all scripts). About Motilal Oswal Private Equity Adviser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT. s, that operating margin was based on multiple years, that single year margin for the AY. under consideration was 13. 53%, that the TPO rejected all the comparables selected by the assessee and substituted by a set of three new comparables, that the new comparables were the same that were selected by the TPO for the matter under consideration, that the DRP confirmed the rejection made by the TPO of the comparables selected by the assessee, that it held that MOIAPL was not a valid comparable, that after receiving the order of the DRP, the AO scaled-down the TP adjustment, that the assessee objected to exclusion of the comparable selected by it as well as inclusion of two new comparables, that the representatives of both the sides made almost identical arguments before us that were made in the case of Temasek before the Tribunal, that the Tribunal decided the matter in favour of the assessee. We would like to refer the relevant portion of the order of the Tribunal, delivered in the case of Temasek (supra) and it reads as under: ( para 7-14). 7. The ld. A. R had assailed before us the rejection of the companies selected by the assessee as comparables and substitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, and as such had directed that it be included in the list of the final comparables. The ld. A. R drew our attention to Page no. 53 of the APB , wherein the Tribunal while disposing of the appeal of the assessee for A. Y. 2010-11 had observed as under:- Here it is not the case where there is any unique functions materially affecting the revenue or net margins vis- -vis the functions performed by ICRA. Hence on functional level it is a good comparable. As stated earlier, in the earlier years, the TPO has accepted ICRA to be a comparable and in later years the Tribunal in A. Ys 2008-09 2009-10 has held ICRA Management to be good comparable qua the functions of the assessee and there being no material change on facts, functional profile or any other factor in this year, then as matter of consistency, we do not want to deviate from our findings given in the earlier years. There cannot be a pick and choose of comparables every year unless there are some material difference in facts and circumstances compelling to take a different conclusion. Thus, we hold that ICRA Management is a good comparable and should be included in the list of final comparables. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummarily rejected. The ld. A. R further submitted that the order of the ITAT, Mumbai in the case of the assessee for A. Y. 2008-09 wherein ICRA Management Consultancy Services Limited was held to be a good comparable, had been upheld by the Hon ble High Court of Bombay in CIT-3 Vs. Taemask Holdings Advisors Pvt. Ltd (ITA No. 1051 0f 2014); Dt. 17. 11. 2016, and placed on record a copy of the order of the Hon ble High Court. It was further averred by the ld. A. R that the ITAT, Mumbai Bench K , in the case of AGM India Advisors (P) Ltd. Vs. DCIT, 10(1), Mumbai (2016) 70 taxmann. com 219 (Mum) , had held ICRA Management Consultancy Services Limited as a good comparable, specifically taking note of the fact that it was accepted as such by the TPO in the earlier year as well as in the succeeding year. It was averred by the ld. A. R that the Tribunal in the case of AGM India Advisors (P) Ltd. (supra) had accepted ICRA Management Consultancy Services Limited as a good comparable, after deliberating on three issues, viz. (i). Skill tests (ii). Functional Comparability and (iii). Consistency. The ld. A. R referring to the judgment of the Hon ble High Court of Delhi in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii). KTMTM Abdul Kayoom Anr Vs. CIT (1962) Supp (1) SCR 518 ( iii). Fida Hussain Others Vs. Moradabad Dev. Authority (2011) 12 SCC 615 ( iv). Executive Engineer, Dhenkanal Minor Irrigation Vs. N. C Budhiraja (2001) 2 SCC 721 The ld. D. R thus on the basis of material placed on record, therein submitted that ICRA Management Consultancy Services Limited could not be accepted as a comparable and had rightly been excluded by the TPO and upheld by the DRP. 9. We have heard the Ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material placed on record. We have given a thoughtful consideration to the facts of the case and 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent for future cases. We are of the considered view that there cannot be a second view on the said aspect, but then, as held by the Hon ble Apex Court, if the court decides a certain issue for a certain set of facts, then, that issue stands determined for any other matter on the same set of facts. We are of the considered view that now when the ld. D. R had failed to establish as to how the facts involved in the present case are found to be distinguishable in context of the aforesaid comparable, viz. ICRA Management Consultancy Services Limited or the assessee in the year before us, as in comparison to those of the preceding years, therefore, the principle enunciated by the Hon ble Apex Court in the aforesaid cases would not assist the case of the department. We rather are of the considered view that now when the facts in respect of the assessee or the comparables have not witnessed any change during the year under consideration, as in comparison to the earlier years, therefore, the aforesaid principle so laid down by the Hon ble Supreme Court would go to support the contention of the assessee that in case of no change in the functional profile of the assessee or ICRA Management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fundamentals, corporate governance, director/executive compensation and capital market, which can be compared to the functions performed by the assessee. The assessee submitted before the DRP that declining turnover filter may be appropriate in scale based operations rather than in a service entity, as in the latter case the margins are not dependent on the scale or size of operations. It was submitted by the assessee that a declining turnover filter would not always increase the reliability of an analysis and hence should not be considered as a factor impacting profitability and comparability. The ld. A. R submitted before us that the TPO in his order passed in the case of the assessee for A. Y. 2009-10 and A. Y. 2010-11 had considered the aforesaid company, viz. Informed Technologies Limited as a comparable to the functions performed by the assessee. It was thus averred by the ld. A. R that now when it remains as a matter of fact that the aforesaid company, viz. Informed Technologies Limited was functionally comparable, and during the year under consideration the functions performed by it were similar to those in A. Y. 2010-11 and 2009-10, therefore, the same could not be whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be applied to the exclusion of the other relevant factors for drawing of adverse inferences in the case of a service entity, as margins in the latter case are not 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 our aforesaid observations are not persuaded to subscribe to the contentions of the ld. D. R who had tried to impress upon us that in light of certain facts in respect of the aforesaid comparable, which were not there before the Tribunal in the preceding years, it could safely be concluded that the same was functionally different as in comparison to the assessee. We thus are of the considered view that the aforesaid comparable, viz. Informed Technologies Limited had rightly been selected by the assessee as a comparable, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood revealed beyond any scope of doubt that the aforesaid comparable, viz. M/s. Ladderup Corporate Advisory Private Limited was into Investment banking business , which by no means could be compared with the Investment advisory business as that of the assessee company. The ld. A. R relying on the order of the Tribunal so passed in the case of General Atlantic (P) Limited Vs. DCIT, Circle 3(1), Mumbai (2013) 32 Taxmann. com 178 (Mumbai Trib) (Page 85-97 of APB), which thereafter had been affirmed by the Hon ble High Court of Bombay in the case of CIT-3, Mumbai Vs. General Atlantic (P) limited. (2016) 68 taxmann. com 88 (Page 98-101 of APB), therein submitted that pursuant to the aforesaid judgment of the Hon ble jurisdictional High Court , the issue that an Investment advisor cannot be compared to a Merchant banker is no more res-integra. It was thus submitted by the Ld. A. R that now when the aforesaid comparable, viz. M/s Ladderup Corporate Advisory Private limited was functionally different as in comparison to the assessee company, therefore, it could by no means be adopted as a comparable and thus was liable to be excluded from the final list of the comparables. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration to the facts of the case and find that the aforesaid comparable, viz. Ladderup Corporate Advisory Pvt. Limited is registered as a category one merchant banking with SEBI and is engaged in rendering merchant banking services w. e. f July 2010, which factual position stands duly substantiated from the perusal of the web portal extracts of the aforesaid company. We further find that as per the Annual report 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 averrment of the Ld. D. R who by referring to the observations recorded by the coordinate bench of the Tribunal in the case of Avenue Asia (supra) had therein averred that though the aforesaid comparable was planning to expand its wings by venturing into merchant banking activities and broaden i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . R that the TPO without placing on record the Search process on the basis of which the aforesaid company was selected as a comparable, had therein most arbitrarily proceeded with and included the same in the final list of comparables. The ld. A. R in support of his aforesaid contention that the selection of a comparable by the TPO without placing on record the Search process cannot be sustained, therein relied on the order passed by the Tribunal in the case of the assessee itself for A. Y. 2010-11, reported as Temasek Holding Advisors India Private Limited Vs. DCIT, Circle 14(3)(1) (67 taxmann. com 221) (Mumbai Trib) , wherein the Tribunal had held as under:- Before analyzing each and every comparable, in the background of the arguments made before us and material placed on record, it is noticed that nowhere in the TPO s order it is mentioned what selection process has been adopted for including the two comparables by the TPO. What are the criteria, key words, quantitative and qualitative filters applied for selecting the comparables. If rules provides for selection criterion of comparable, then same has to be adhered to strictly by either parties. If a particular mech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and had not launched any funds of its own. The ld. D. R referring to Schedule J of the Annual report of the aforementioned comparable, therein submitted that the latter during the year under consideration had an income from advisory fees of ₹ 5, 30, 41, 908/- and a Management fee of ₹ 6, 69, 13, 428/-, on the basis of which it could safely be concluded that the said comparable, viz. Motilal Oswal Equity Pvt. Limited was functionally comparable to the assessee company and had rightly been included in the final list of the comparables by the A. O/TPO. 13. We have heard the ld. Authorized Representatives of the both the parties, perused the orders of the lower authorities and the material placed on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that as per the facts available on record, it stands duly substantiated from the directors report (Page 343 of APB) that the aforesaid comparable was carrying out investments in portfolio companies. We find that a perusal of the directors report of the aforesaid comparable reveals that during the year under consideration it had managed India business exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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