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TMI Blog2017 (3) TMI 1660X X X X Extracts X X X X X X X X Extracts X X X X ..... . 27,147,213 after adopting profit level indicator of 27.18% as against 18.91% as adopted by the Appellant and consequently making an upward adjustment of Rs. 2,5999,882 4. In adopting a different comparable set of comparable companies to benchmark the investment advisory service rendered by the Appellant and not making available the search process adopted in determining the same; 5. In using inappropriate filters/criteria and keywords in evaluating comparable companies; 8. In not granting credit of tax deducted at source amounting to Rs. 1,222,588; and 9. Levyng consequential additional interest amounting to Rs. 673,557 under section 234B of the Act and Rs. 17,697 under section 234C of the Act." The additional ground raised vides separate petition reads as under: "Companies engaged in rendering merchant banking/investment banking services, being functionally different from the Appellant which is engaged in rendering investment advisory services, ought not be taken into consideration for the purpose of determining the arm's length price despite the fact that the Appellant included such companies in its transfer pricing study report." Thus, the issues raised vide ground nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made. 6. The DRP, after considering the objections raised by the assessee on the basis of the material placed on record, rejected three comparables selected by the TPO and accepted M/s. Keynote Corporate Services Limited by considering the arithmetic mean of three years data for the F.Ys 2003-04, 2004-05 and 2005-06. The final list of comparables after the stage of DRP is as under: Sr.No. Name of the companies Operating margin considering on FY 2005 -06 1 Centrum Capital Limited 37.92% 2 Keynote Corporate Services Limited 45.37% 3 SREI Capital Markets Limited 14.53% 4 Sumedha Fiscal Services Limited 23.50% 5 IDC India Limited 14.58% Arithmetic mean 27.18% 7. Before us, out of the aforesaid five comparables, the assessee has challenged four comparables. Viz,:- a) Centrum Capital Limited; b) Keynote Corporate Services Limited; c) SREI Capital Markets Limited; and d) Sumedha Fiscal Services Limited. At the outset, the learned counsel, Shri Nishant Thakkar submitted that all these four comparables now stands covered by series of Tribunal decisions, wherein it has been held that these comparable companies cannot be held to be good comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to make the final investment decision. In other words, the advisory given by the assessee is non-binding. The nature of activities performed by the assessee for its AE as stated in the TP study report are illustrated as under:- a) Identification and recommendation of Investment opportunities in Indian equity and debt securities. b) Credit analysis of identified investment opportunities including analysis of financial statements, loan documents, bond prospectus and other data sources. c) Valuation of the debt and equity of the investee company based on the aforementioned analysis. d) Assistance and support in relation to any due diligence exercise undertaken by the investors in relation to potential investment opportunities and making recommendations to the AEs on any due diligence findings as may be provided by the AEs to JPMAIPL from time to time. e) Assistance with monitoring and assessing the performance of investments made by its clients and recommend new/additional courses of action with regard to investment/return from investment. f) Provision of such other support services incidental or related to the foregoing services, as requested by the AEs from time to time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer pricing provisions is to determine the appropriate ALP, which can be done only by bench marking with the proper comparables based on FAR analysis and under the prescribed methods. If in the course of the proceedings, it is found that certain comparables do not stand the test of functional analysis or for some other reasons, then the same should be excluded and we do not find any reason that they should to be included simply because the assessee had included the same initially. If the cogent reasons have been given by the assessee for excluding the same, the same should be considered. The initial onus or duty is cast upon the assessee to carry out the selection of proper comparables based on FAR analysis and by adopting suitable transfer pricing method and then analyse its transaction to show the correct arm's length result. Thereafter, it is axiomatic that the taxing authorities / TPO, should scrutinize the assessee's report on arm's length result and the entire process of arriving at the ALP, whether they are based on transfer pricing principles and statutory provisions or not. If he himself founds some irregularity or mistake in any of the process or the steps undertaken, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and on perusal of the material available before us, we find that it is an undisputed fact that M/s. Centrum Capital Limited is mainly into 'merchant banking' activities and its main income is from syndication fees, brokerage and commission and income from trading in bonds. The function of merchant banker is entirely different, because they are mainly into portfolio management, credit syndication, negotiating draft equity investment, counseling Merger and Acquisition (M&A), etc. These functions are entirely different from 'investment advisory services' where core function is to advice on investments to be made in diversified fields. This Tribunal in the case of Carlyle India Advisors Private Limited vs. ACIT (supra) has held that the functions of merchant banking are entirely different from that of investment advisory services and it has been informed by the learned counsel that this decision of the Tribunal has been upheld by the Hon'ble Bombay High Court also. Apart from that, this decision has been followed in catena of other cases by this Tribunal. Thus, we hold that Centrum Capital Limited cannot be held to be a good comparable for benchmarking the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are unable to appreciate the learned CIT DR's contentions. First of all, Rule 10B(1)(e)(ii) envisages that net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. Here comparison of net margin is done between enterprise or unrelated enterprise from a comparable transaction or number of comparable transactions, that is, one or more. The comparability analysis between the controlled transaction and the comparable uncontrolled transaction has to be on the same base, i.e., either cost incurred; or sales effected; or assets employed; for determining the PLI. Thus, this rule envisages that the net profit margin realised can be bench marked either from one comparable uncontrolled transaction or from more than one. Further first proviso to section 92C provides that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be arithmetic mean of said prices. Thus, the main emphasis under the law is to identify comparable case to benchmark the arm's length price of the controlled transaction. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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