9911796707
TMI Blog2017 (8) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... ircle- 14(3)(1), Mumbai (hereinafter referred to as the learned A.O.) 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 ( Honorable DRP). Ground 1 On the facts and in the circumstances of the case and in law, the learned A.O based on the directions of the Honorable DRP, erred in making an upward adjustment of Rs. 9,91,14,498/- in determining the arm's length price(ALP) of the International 'transaction pertaining to the provision of investment, advisory services by the Appellant to its associated Enterprise. Ground 2 On the facts and in the circumstances of the case and in law, the learned. A.O based on the directions of the Honorable DRP failed to appreciate that the ALP as determined, by the Appellant should have been accepted as the pre-condition in section 92C(3) of the Act before the Additional Commissioner of Income-tax, Transfer Pricing - 4(2) (hereinafter referred to as 'learned TPO') could proceed to determine the ALP was not fulfilled in this case. Further, the learned AO has also not highlighted the specific sub-clause of section 92C(3) of the Act, on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase are that the assessee company which is engaged in the business of rendering non-binding advisory services to its holding company, viz. Temasek Holdings Pvt. Ltd., Singapore, had filed its return of income declaring total income of Rs. 9,35,67,510/- on 28.11.2011, which was processed as such under Section 143(1) of the 'Act'. The case of the assessee was thereafter taken up for scrutiny proceedings under Section 143(2). 3. The assessee company had in its TP study report benchmarked the international transactions pertaining to provision of Investment advisory services rendered to its AE using the TNMM method and the PLI used was Operating Profit to Operating Cost. The assessee as per its TP study report reflected an operating profit margin of 20.93%, as in comparison to the weighted average margin of 15.69% on operating costs considering the financial data of comparable companies for three years. That still further the updated margin using single year data for F.Y. 2010-11 worked out at 13.53% on operating costs, as under:- Name of the Company Operating Margin as per TP study based on multiple years. Single year margins for F.Y. 2010-11 Access India Advisors Limited. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the margin of 55.60% on operating costs as the ALP margin as against 20.93% shown by the assessee and vide his order passed under Section 92CA(3), dated 28/01/2015 made an upward Transfer pricing adjustment of Rs. 16,06,51,776/-. The A.O. after receiving the report of the TPO passed a Draft Assessment Order u/s 143(3) r.w.s 92CA(3), dated 09/03/2015, and proposed to assess the income of the assessee company at Rs. 39,23,26,081/-. The assessee being aggrieved by the draft assessment order approached the Dispute Resolution Panel-2, Mumbai (DRP) and objected to the variations proposed by the A.O. 4. That the DRP vide its directions passed u/s 144C(5) though deleted the addition of Rs. 13,87,07,155/- made by the A.O u/s 40(a)(i), but however dismissed all the objections which were raised by the assessee against the TP adjustments made by the TPO, barring the objection raised as regards the inclusion by the TPO of M/s Motilal Oswal Investment Advisors Pvt. Ltd. in the final list of the comparable companies for benchmarking the ALP of the international transactions entered into by the assessee company with its AE. The A.O. following the directions of the DRP recomputed the ALP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the aforesaid order of the preceding year were transposed as such by the TPO while passing the order for the year under consideration. The Ld. A.R referring to the nature of activities of the assessee company submitted that the assessee company, viz. Temasek Holding Advisors (I) Private Limited, (THAIPL) which is a wholly owned subsidiary company of Temasek Holding Private Limited, Singapore (THPL), had begun providing Investment advisory services to its holding company, viz. THPL in the year 2004. 'The Ld. A.R deliberating on the nature of services rendered by the assessee therein submitted that the assessee company provided non binding investment recommendations to THPL, which retained with itself the right on the use of the investment advise/information. The Ld. A.R submitted that during the year under consideration the assessee company had entered into international transactions, as under:- Sr. No. Nature of transaction A.Y. 2011-12 (Rs.) Method used as per TPSR 1. Investment advisory services 55,67,34,970 TNMM 2. Reimbursement of salary & other cost 13,87,07,155 Not Applicable The ld. A.R submitted that the assessee company had taken the following compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee D 4,616,460,46 Arm's length Operating Profit E=D*A 25,667,520,2 Arm's length value of transaction F=D+E 718,321,248 Difference in actual and arm's length G=F-C 160,051,776 5% of international transaction H=5%of I 27,836,749 Transaction value I 5,567,349,70 Adjustment proposed 16,00,51,776 ,proposed an adjustment of Rs. 16,00,51,776/- as regards the Investment advisory transactions carried out by the assessee company during the year under consideration. It was submitted by the Ld. A.R that the DRP though sustained the rejection of all of the comparables selected by the assessee, but however excluded one of the comparable which was included by the TPO, viz. Motlal Oswal Advisors Private Limited, as a result whereof the TP adjustment of Rs. 16,00,51,776/- was scaled down to Rs. 9,91,14,498/-. 7. The ld. A.R had assailed before us the rejection of the companies selected by the assessee as comparables and substitution of the same by a set of 2 new companies, viz. M/s. Ladder Up corporate Advisory Pvt. Ltd. and M/s. Motilal Oswal Pvt. Equity Advisors Pvt. Ltd. by the TPO, which as observed by us hereinabove had been upheld by the DRP. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there is any unique functions materially affecting the revenue or net margins vis-a-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 further submitted by the ld. A.R that in the earlier years the TPO had himself accepted ICRA Management Consultancy Services Limited as a comparable, while for in the later years, viz. A.Y. 2008-09 and 2009-10 the Tribunal had held the aforesaid company to be a good comparable. The ld. A.R in support of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51 of 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 Id. A.R that the ITAT, Mumbai Bench 'K', in the case of AGM India Advisors (P.) Ltd. v. Dy. CIT [2016] 70 taxmann.com 219 (Mum.- Trib.), 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 of Rampgreen Solutions (P.) Ltd. v. CIT [2015] 377 ITR 533/234 Taxman 573/60 taxmann.com 355 therein took us through Para 31 of the order of the Hon'ble High Court, and submitted that it was held by the High Court that a broad comparability on industry base was not to be permitted, and as such high end and low end cannot be compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been set aside by the Tribunal in the case of the assessee, reported as Temasek Holding Advisors India (P.) Ltd. (supra), wherein the Tribunal had categorically held that the aforesaid company, viz. ICRA Management Consultancy Services Limited was a good comparable an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Consultancy Services Limited, the latter cannot be rejected as a comparable during the year under consideration. We thus in the backdrop of our aforesaid observations are of the considered view that now when ICRA Management Consultancy Services Limited had been held to be a good comparable in the case of the assessee for the preceding years by the Tribunal, and the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ize 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.Ys. 2010-11 and 2009-10, therefore, the same could not be whimsically excluded by the TPO as a comparable during the year under consideration. The ld. A.R in order to substantiate his aforesaid contention placed on record the 'Annual report' along with the financial statements of the aforesaid comparable, viz. Informed Technology India Pvt. Ltd. for the immediately preceding year, i.e A.Y. 2010-11. That on the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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, therefore, set aside the order of the AO/TPO and direct that the same be included in the final list of the comparables. 12. We now advert to the new comparables which had been included by the TPO in the final list of comparables. The ld. A.R strongly assailing the inclusion of M/s. Ladderup Corporate Advisory Private Limited as a comparable by the TPO, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R relying on the order of the Tribunal so passed in the case of General Atlantic (P.) Ltd. v. Dy. CIT [2013] 32 taxmann.com 178/57 SOT 27 (Mumbai - Trib.) (URO) (Pages 85-97 of APB), which thereafter had been affirmed by the Hon'ble High Court of Bombay in the case of CIT v. General Atlantic (P.) Ltd. [2016] 68 taxmann.com 88/238 Taxman 535/384 ITR 271 (Pages 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. That on the other hand the ld. D.R submitted that as per the 'Annual report' of the aforesaid comparable, the latter was in the business of corporate advisory service's and had received advisory fees. It was submitted by the ld. D.R that the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Advisors (P.) Ltd. (supra) had therein averred that though the aforesaid comparable was planning to expand its wings by venturing into merchant banking activities and broaden, its horizon, which revealed that during the year it was not engaged in merchant banking activities, had therein tried to drive home his contention that the aforesaid comparable was not involved in merchant banking activities. We are of the consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (P.) Ltd. (supra) 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 mechanism of search process is to be done scientifically by the assessee then same applies to the TPO also, otherwise it will always create suspicion of cherry picking of the comparables by the parties. There cannot be two different standards under the law, one for the assessee and one for the TPO. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t fee of Rs. 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 AO/TPO. 15. 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 excellence fund I' and 'India reality excellence fund I' (IREF-I), and was further contemplating to raise IREF-II with a corpus of between Rs. 500-750 crores in financial year 2012. We are of the considered view that the functional analysis of the aforesaid comparable substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40(a)(i) in the draft assessment order and exclusion of the said disallowance by the AO in the assessment framed under Section 143(3) r.w.s. 92CA(3), had assailed the said direction of the DRP by filing an appeal before us, raising the following grounds of appeal: - "1. On the fads and in the circumstances of the case and in law, the Hon'ble DRP, Mumbai has erred in deleting the addition made by the AO on account of reimbursement of expenses made by the assessee company to its overseas foreign company, without appreciating the fact that while making payment of the expenses by the assessee company to its overseas counterpart, TDS was not deducted against the payment of the expenses and was not deposited with the Government Treasury. 2. The appellant craves leave to add amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 3. The appellant prays that the order of DRP, Mumbai on the above ground be set-aside and that of the Assessing Officer be restored." 17. Briefly stated, the facts pertaining to the issue under consideration are that the assessee company had during the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the direct supervision and reporting to the directors of the assessee company. They have been put under the surveillance of the assessee company in India, just for the purpose of keeping tab on their work and to man their operations and movement and extract the desired output, out of their labour and intellect in terms of the expected man-hours. (ii) The services being rendered by these employees comes under the category of technical services, keeping up posted the holding company i.e. M/s. THPL with economic developments having a bearing on the investment opportunities to be encashed and milked by M/s. THPL at the best opportune time. (iii) Even, though M/s. THPL is deducting the TDS while making salary payment to the deputed employees, the deduction of TDS on salary should be treated in isolation and cannot be mixed up with the reimbursement of the salary expenses by the assessee company to its foreign holding company. (iv) Payment to the holding company is another and independent economic transaction with separate financial implications which does not have any bearing with the TDS deducted by the holding company while making salary payment to the em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id amounts paid to the holding company, viz. THPL were in the nature of reimbursement of the salary of the employees of the holding company who were deputed in India and exclusively working for the operations of the assessee company, and the salary had already been subjected to deduction of tax at source by the holding company, viz. THPL at the time of payment of the salaries of the said employees for their services rendered in India, therefore no disallowance as regards the said reimbursements was called for under Section 40(a)(i) in the hands of the assessee. It was submitted by the assessee that an identical issue had came 'up for consideration before the Tribunal in the assessees own case for A.Y. 2007-08 and 2008- 09, viz. Temasek Holding Advisors (P.) Ltd. (supra), and the issue was decided in favor of the assessee company. The DRP going by the fact that the issue was squarely covered by the order of the ITAT in the assessees own case for the preceding years, viz. A.Y. 2007-08 and A.Y. 2008-09, therefore, directed the AO/TPO to delete the addition made in .the draft assessment order, and as such accepted the objection so raised by the assessee before him. 19. The A.O. be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to render investment advisory service to THPL, Singapore. As per the secondment agreement entered into the THPL and the assessee company, the salary of these two employees was to be paid by the THPL, and the assessee company had to reimburse, the cost of salary and other expenses relating to their employment which has been paid by the THPL. Since the salary was paid by the THPL, it has deducted tax under section 192 and has deposited the same in the Indian Government treasury. In support of this, Form-16 and other details have been placed in the paper book which has been extensively referred by the learned Sr. Counsel. Being an international transaction i.e., reimbursement of the expenses to the THPL by the assessee company, this issue was subject matter of the reference under transfer pricing including the payment of 21% mark-up for rendering investment advisory service. The TPO has found these transactions at ALP. 25. Now coming to the observation of the Assessing Officer, it is noticed that the Assessing Officer has taken an adverse view regarding the reimbursement of the salary by the assessee company to the THPL on the ground that TDS under section 195 has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer was that the assessee company is beneficiary of such expenditure as it has inherent character of salary and by expending the said amount, the assessee has earned its business income and, accordingly, the same is business expenditure of the assessee. First of all, the assessee company is not a beneficiary of this expenditure because the seconded employees have been paid salary by THPL who are working in India for the assessee company and the assessee is merely reimbursing the same. By rendering this service to the THPL, the assessee is earning business income and salary paid is certainly a business expenditure on which TDS has already been deducted as the liability to withhold the tax on salary falls within the purview of section 192 only, which has been done in this case. There cannot be a double deduction of TDS once at the time of payment of the salary and again on the reimbursement made by the assessee to the THPL. Thus, there was no requirement for deducting the tax at the time of reimbursement, when already tax has been deducted at the time of payment of salary." 21. We thus finding ourselves to be in agreement with the aforesaid order of the co-ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
