TMI Blog2019 (5) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... company i.e. Ladderup Corporate Advisory Pvt. Ltd. which was carrying on merchant banking and investment banking activity was functionally different from the assessee that was providing nonbinding investment advisory services and thus could not have been selected as a comparable for benchmarking the international transactions of the assessee during the year under consideration had wrongly been selected as a comparable for benchmarking the nonbinding investment advisory services provided by the assessee to its A.E during the year under consideration. We thus in terms of our aforesaid observations direct the A.O/TPO to exclude the aforementioned company i.e Ladderup Corporate Advisory Pvt. ltd. from the final list of the comparables and recompute the ALP of the international transactions of the assessee for the year under consideration. We have given a thoughtful consideration and are of the considered view that now when the comparables selected by the TPO/DRP have been excluded by us from the final list of comparables, hence the seeking of risk adjustment by the assessee in the backdrop of the fact that the comparables selected by the TPO/DRP unlike the assessee are entrepr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustments of ₹ 11,61,82,943/- to the transfer price of the international transaction pertaining to provision of non-binding investment advisory and related support services by the Appellant, alleging that the same to be not at arm's length in terms of the provisions of sections 92C(1) and 92C(2) of the Act, read with rule 10D of the Income-tax Rules,1962 ( the Rules‟). In doing so, the learned A.O learned TPO erred as follows: 2.1. Arbitrarily rejecting the economic analysis/ transfer pricing study undertaken by the Appellant in accordance with the provisions of the Act read with the Rules for the determination of the arm's length price; 2.2. Ignoring the provisions of rule 1013(4) of the Rules and judicial pronouncements, which advocate usage of multiple year data of comparable companies for the purpose of determination of the arm's length price ; 2.3. Rejecting objections raised by the Appellant inrelation to selection/rejection of comparable companies; 2.4. Rejecting ICRA Management Consulting Services Limited, IDC India Limited and Mecklai Financial Services Limited as compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as observed by him that the Profit Level Indicator (for short PLI‟) used by the assessee was Operating profit to Operating cost. Further, it was noticed by him that as per the TP Study Report the assessee for benchmarking its international transactions had selected three comparables viz. (i) ICRA Management Consulting Services Ltd; (ii) IDC (India) Ltd; and (iii) Mecklai Financial Services Ltd. On the basis of the average margin of 9.33% of the aforementioned comparables, it was claimed by the assessee that its margin of 15% was well within the arms length. The TPO rejected the aforesaid three companies as comparables by applying the export turnover filter. Apart therefrom, the TPO being of the view that the assessee was a high end ITeS/high end KPO service provider adopted the following three companies from the ITeS/KPO sector as comparables for benchmarking the ALP of the international transactions of the assessee : Sl. No. Name of the Company OP/TC 1. E-Clerx Services Limited 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the ITeS/KPO sector viz. (i) EClerx Services ITD; (ii) Acropetal Technologies Ltd.(Health Care Segment); and (iii) Excel Infoways Ltd. (Segment: BPO). The DRP did find favour with the contention of the assessee that as it was involved in the business of providing non-binding investment advisory services, therefore, the TPO was in error in re-charactering the assessee as a high end ITeS/high end KPO entity. Apart therefrom, the DRP was also not persuaded to subscribe to the export turnover filter that was adopted by the TPO and directed him not to consider the same. On the basis of his aforesaid deliberations the DRP rejected the aforesaid three companies which were selected by the TPO as comparables for benchmarking the ALP of the international transactions of the assessee during the year under consideration. Further, the DRP sought a remand report‟ from the TPO and called upon him to identify comparables after considering that the assessee was a non-binding investment advisory service provider. The DRP also directed the TPO not to consider the export turnover filter as it was not a relevant filter since the services were rendered by the assessee for the AE in India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter in appeal before us. The ld. authorized representative (for short A.R‟) for the assessee took us through the facts of the case. It was submitted by the ld. A.R that though the TPO had re-characterized the assessee as a high end ITes/high end KPO entity, however the DRP duly appreciating that the assessee was providing non-binding investment advisory services had vacated the said view. It was further submitted by the ld. A.R that the DRP had also directed the TPO not to consider the export turnover filter as the services rendered by the assessee were for the AE in India and the investments also were to be made in India. The ld. A.R assailed the selection of Ladderup Corporate Advisory Private limited as a comparable by the TPO/DRP. It was submitted by the ld. A.R that the aforementioned company viz. Ladderup Corporate Advisory Private limited which was engaged in merchant banking and investment banking activity was functionally different and thus could not have been selected as a comparable in the case of the assessee. In order to drive home his contention that the aforementioned company was functionally different the ld. A.R took support of the fact that the TPO in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee as comparables viz. (i) IDC (India) Ltd; (ii) ICRA Management Consulting Services Ltd; and (iii) Mecklai Financial Services Ltd. The contentions advanced by the ld. A.R in respect of the aforementioned three comparables which were selected by the assessee but were excluded by the TPO are as under: ( A) IDC (INDIA) LTD:- It was submitted by the ld. A.R that the aforementioned company viz. IDC (India) Ltd. (now known as Cyber Media Research Ltd) being functionally similar to the assessee was rightly selected by the assessee as a comparable for benchmarking its international transactions in the TP Study report. It was submitted by the ld. A.R that the said company viz. IDC (India) Ltd. has been approved by the Hon ble ____________High Court of Bombay as a good comparable in the assesses own case for A.Y. 2007-08 viz. CIT-10, Mumbai Vs. M/s Carlyle India Advisors Pvt. Ltd. [ITA (L) No. 1286 of 2012; dated 22.02.2013] . It was submitted by the ld. A.R that now when there had been no shift in the facts of the case of the assessee for the year under consideration i.e A.Y 2012-13 as in comparison to those for A.Y. 2007- 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t consultancy. It was averred by the ld. A.R that in management consultancy and investment advisory common functions are involved viz. (i) researching; (ii) analysing; (iii) presenting the information by way of a report; (iv) making recommendations based on the analysis and reports; and (v) monitoring the solution and advice given. On the basis of the aforesaid facts it was submitted by the ld. A.R that a company providing management consultancy can safely be compared with an investment advisory company. In order to drive home his contention that ICRA Management Consulting Services Ltd. could safely be considered as a comparable in the case of a company providing investment consultancy services, reliance was placed by the ld. A.R on the order of the Tribunal in the case of Temasek Holdings Advisors (I) (P.) Ltd. Vs. ITO, [ITA No. 1429/Mum/2017] . It was submitted by the ld. A.R that in the aforementioned case the Tribunal had accepted the aforementioned company viz. ICRA Management Consulting Services Ltd. as a comparable in the case of the assessee before them which was providing investment advisory services. On the basis of the aforesaid deliberations it was the claim of the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected as a comparable. Lastly, the ld. D.R in order to support his contention that IDC (India) Ltd. was not a good comparable, submitted that the same could safely be gathered from the fact that the assessee itself had not selected the said company as a comparable in the immediately succeeding year i.e A.Y. 2013--14. 13. The ld. D.R further adverting to the exclusion of ICRA Management Consulting Services Ltd. from the final list of comparables, submitted that as the same was not functionally comparable, hence the lower authorities had rightly declined to include the same in the final list of comparables. It was submitted by the ld. D.R that in the case of the aforementioned company viz. ICRA Management Consulting Services Ltd. the average salary per employee was in the range of ₹ 10 to 25 lacs per year as against the average salary of ₹ 243 lacs per annum in the case of the assessee. The ld. D.R taking support of the low employee remuneration in the case of the aforementioned company submitted that the same clearly revealed low value addition in the functions performed by its employees. Further, it was submitted by the ld. D.R that there was substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanged subsequent to 28.02.2011 was absolutely misconceived and grossly incorrect. In order to buttress his aforesaid contention it was submitted by the ld. A.R that a perusal of the Annual report‟ of the aforementioned company for A.Y. 2007-08 and A.Y. 2012-13 revealed that the company in both the years was engaged in research and survey services. On the basis of his aforesaid contentions it was the claim of the ld. A.R that the functional profile of IDC (India) Ld. (now known as Cyber Media Research Limited) had not witnessed any change from A.Y. 2007-08 till A.Y. 2012-13. It was the contention of the ld. A.R that though the name of IDC (India) ltd. was changed to Cyber Media Research Ltd. w.e.f 28.02.2011, however no material had been brought on record by the revenue to demonstrate that there was any change in the functional profile of Cyber Media Research Ltd. It was averred by the ld. A.R that now when there was no change in the functional profile of Cyber Media Research Ltd, therefore, the order of the Tribunal passed in case of the assessee for A.Y. 2007-08 accepting the aforesaid company viz. IDC India Ltd. as a comparable, which thereafter was approved by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. D.R that a similar view had also been taken by the Hon ble High Court of Bombay in the case of CIT Vs. Goldman Sachs (India) Securities Pvt. Ltd. (2016) 240 taxmann 736 (Bom) , wherein the contention of the revenue that a company has to be rejected as a comparable if it was suffering losses in the subsequent years was rejected by the High Court and the appeal of the revenue was dismissed. It was submitted by the ld. A.R that as IDC (India) ltd. had incurred loss only in the current year and not in the previous two years, thus it could not have been rejected as a comparable on the ground that it was a persistent loss making company. The ld. A.R rebutted the contention advanced by the revenue that Cyber Media Research Ltd [earlier known as IDC (India) Ltd.) was not a good comparable could safely be gathered from the fact that the assessee had not selected it as a comparable in the immediately succeeding year viz. 2013-14. It was submitted by the ld. A.R that the said observations of the revenue were based on misconceived facts and self suiting premature observations. It was submitted by the ld. A.R that as Cyber Media Research Ltd had from A.Y. 2013-14 witnessed a change in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om, it was submitted by the ld. A.R that the counsel for the revenue had most arbitrarily compared the percentage of sub-contracting cost to the total employee cost. It was submitted by the ld. A.R that the subcontracting cost was to be calculated as a percentage to the total operating cost and not to the total employee cost. Insofar, reliance that was placed by the counsel for the revenue on the judgment of the Hon ble High Court of Delhi in the case of Rampgreen Solutions Pvt. Ltd. Vs. CIT (2015) 377 ITR 0533 (Delhi) was concerned, it was submitted by the Ld. A.R that the facts of the said case were distinguishable. It was submitted by the ld. A.R that in the aforementioned case as the comparable therein involved viz. Vishal Information Technology Ltd. had a percentage of employee cost to total cost of only 4.32% while for the percentage of hire charges, vendor payments to total cost was 87%, therefore, due to the said huge variation it was concluded by the High Court that it could not be accepted as a comparable in the case of the assessee before them. Apart therefrom, it was submitted by the ld. A.R that unlike the comparable involved in the case of Rampgreen Solutions Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be included as comparable in the case of the assessee was based on misconceived facts. It was the contention of the ld. A.R that ICRA Management Consulting Services Ltd. used the aforementioned tools (IMaCS Risk Scorer IMaCS C-Cube Software) internally to render consulting and advisory services and did not earn any product income arising from using such tools. In order to fortify his aforesaid claim the ld. A.R drew our attention to the Annual report‟ of the said company. Insofar, the diverse consultation services that were provided by the aforementioned company as observed by the DRP and taken support of by the counsel for the revenue for justifying rejection of ICRA Management Consulting Services Ltd. as a comparable, it was submitted by the ld. A.R that in TNMM broad functionality has to be considered. It was submitted by the ld. A.R that as admitted by the TPO that there were very few comparables companies in the investment advisory sector, hence non-availability of comparables companies necessitated to broaden the search for them. On the basis of his aforesaid contention it was submitted by the ld. A.R. that as the functions undertaken by the aforesaid comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP study report for benchmarking its non binding investments advisory services rendered to its AE; (vi) that as to whether the company viz. Ladder up Corporate Advisory Pvt. Ltd. selected as a comparable by the TPO in the course of the remand proceedings and accepted by the DRP had a functional profile similar to that of the assessee; and (iii). that as to whether the TPO/DRP are justified in not granting the benefit of economic/risk adjustments to the assessee. 20. We shall first advert to the three companies which were selected by the assessee as comparables for benchmarking the ALP of its international transactions, but were rejected by the lower authorities viz. (i) IDC India Ltd; (ii) ICRA Management Consulting Services Ltd; and (iii) Mecklai Financial Services Ltd, as under: ( A). IDC (India) Ltd. We find that it is a matter of record that the aforementioned company viz. IDC (India) Ltd. was held as a good comparable by the Tribunal in the assesses own case for A.Y 2007-08 i.e Carlyle India Advisors Pvt. Ltd. Vs. ACIT (ITA No. 2901/Mum/2011; dated 04.04.2012) . The aforesaid order of the Tribunal was thereafter on an appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of the ld. D.R to state that there has been a change in the functional profile of the assessee during the year under consideration as against that A.Y. 2007-08. In the case of Onward Technologies ltd. (supra) as the view taken by the TPO in the preceding years was found to be explicitly against the statutory provisions, thus it was for the said reason that the Tribunal had declined to be guided by the said earlier view so taken by the TPO. In our considered view as the facts of the case before us are clearly distinguishable as against those involved in the aforementioned case, thus the same would in no way assist the revenue. Insofar, the ld. D.R by taking support of the employee cost filter had tried to establish that the aforementioned company viz. IDC India Ltd. was functionally different from the assessee is concerned, we are not persuaded to subscribe his said contention. In our considered view as it is incorrect to seek application of a new filter for analysis of the comparables in the course of the appellate proceedings, thus the seeking of the application of the employee cost filter by the ld. D.R has to be rejected on the said count itself. Our aforesaid view that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered a loss during the year under consideration i.e A.Y. 2012-13. As regards the turnover filter sough to be applied by the ld. D.R in the course of the proceedings before us, we are of the considered view that as observed by us hereinabove, a new filter cannot be applied at the stage of the appellate proceedings before the Tribunal. Insofar, the reliance placed by the ld. D.R on the order of the ITAT, Mumbai in case of Jacob Engineering Pvt. Ltd. Vs. DCIT (ITA No. 7194/Mum/2012) , we are of the considered view that in the said case the turnover filter was applied before the lower authorities itself and only its quantification was in dispute before the Tribunal. As regards the contention of the ld. D.R that the aforementioned company was not a good comparable in the case of the assessee could safely be gathered from the fact that it was not selected as a comparable by the assessee in its TP study report for A.Y. 2013- 14, we find that the same as explained by the ld. A.R was for the reason that as the business of the said company had undergone a change from A.Y. 2013-14, which thus had rendered it functionally incomparable to the assessee, therefore, it was not selected as a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the TPO/DRP had erred in excluding the aforementioned company viz. Mecklai Financial and Commercial Services Ltd. as a comparable for benchmarking the ALP of the international transactions of the assessee. We thus in terms of our aforesaid observations direct the A.O/TPO to rework the ALP of the international transactions of the assessee after including the aforementioned company i.e. Mecklai Financial and Commercial Services ltd. in the final list of comparables. ( C). ICRA MANAGEMENT CONSULTING SERVICES LTD. We shall now advert to the validity of the orders of the TPO/DRP wherein they had excluded ICRA Management Consulting Services ltd. from the final list of the comparables. We find that the aforementioned company viz. ICRA Management Consulting Services Ltd. is into advisory and management consultancy, whereas the assessee is into providing investment advisory services. In our considered view that both in investment advisory as well as in management consultancy some common functions are involved viz. (i) research; (ii) analysing; (iii) reporting; (iv) making recommendations based on the analysing and report; and (v) monito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en selected as a comparable is concerned, the same in our considered view is based on misconceived facts. As submitted by the ld. A.R before us the aforementioned company i.e ICRA Management Consulting Services Ltd. had incurred sub-contracting expenses of only 11.79% of the total operating cost and not 24% as claimed by the ld. D.R. Rather, we are in agreement with the ld. A.R that the counsel for the revenue instead of working out the sub-contracting cost as a percentage to the total operating cost, had however most arbitrarily computed the same in the backdrop of the total employee cost. We are also persuaded to subscribe to the contention of the ld. A.R that as in case of Rampgreen Solutions Pvt. Ltd. (supra) there was huge variation between the percentage of employee cost to total cost of 4.32% as against the percentage of hire charges, vendor payments to total cost of 87%, thus it was due to the said huge variation that the High Court had observed that as the said company was into a different business model, hence it could not be selected as a comparable for benchmarking the international transactions of the assessee before them. We have given a thoughtful consideration to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the year 2009. In our considered view the aforesaid fluctuation of margin in the case of the aforementioned company can by no means be held to be abnormal which would justify the rejection of the same as a comparable in the case of the assessee. Apart therefrom, no mention of any abnormality in the profit margins is also discernible on a perusal of the Annual report‟ of the aforementioned company i.e. ICRA Management Consulting Services ltd. Insofar, the reliance placed by the ld. D.R on the 5 judicial pronouncements to buttress his claim that fluctuating profits would justify rejection of a company as a comparable is concerned, the same in our considered view being differently placed are distinguishable on facts. We find that in all the case laws that have been relied upon by the revenue in support of its aforesaid contention were witnessed by abnormal fluctuation of profits, in the backdrop of which the same were held as not being a good comparable viz. (i) Aptara Technologies (P) Ltd. (2016) 72 taxmann.com 352 (Pune) [Highest margin: 34.71 Lowest margin (-) 44.21]; (ii) Cummins Turbo Technologies Ltd. (2015) 53 taxmann.com 492 [Highest margin: 34.71 Lowest margin: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. vs. ITO (ITA No. 1429/Mum/2017) for A.Y. 2012-13 had concluded that ICRA Management Consulting Services Ltd. was a good comparable in the case of the assessee before them which was providing non-binding investment advisory services. On the basis of our aforesaid observations, we direct the A.O/TPO to rework the ALP of the international Transactions of the assessee company after including the aforementioned company i.e. ICRA Management Consulting Services Ltd. in the final list of comparables. 21. We shall now advert to the maintainability of the order of the lower authorities to the extent they had included Ladderup Corporate Advisory Pvt. Ltd. as a comparable for benchmarking the international transactions of the assessee. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We are of the considered view that as the aforementioned company i.e. Ladderup Corporate Advisory Pvt. Ltd. is engaged in merchant banking and investment banking activity, therefore, the same is functionally different from the assessee. Interestingly, the aforementioned company was rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration. 22. We thus in terms of our aforesaid observations direct the A.O/TPO to recompute the ALP of the international transactions of the assessee after including/excluding the aforementioned companies from the final list of the comparables. In case the ALP of the assessee is found to be within the safe harbour margin of +/- 5% of the mean margin of the final list of comparables then no TP adjustment would be called for its hands of the assessee. 23. The ld. A.R had further submitted before us that the assessee which being a captive entity is a limited risk bearing entity operates in a virtually risk free environment, as in comparison to the comparables selected by the TPO/DRP which are entrepreneurs and undertake full range of economic risks viz. market risk, price risk, product risk, idletime risk, credit risk, foreign exchange fluctuation risk, technology obsolescence risk, warranty risk etc. It was further submitted by the ld. A.R that with economics governing the commercial world margins earned are a result of three interplaying variables viz. functions performed, assets utilized and risks borne. It was further submitted by him that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst returned income of INR 18,44,01,430/-. 2. On facts and circumstances of the case and in law, the learned AO / TPO have erred in arbitrarily rejecting the economic analysis/ transfer pricing study undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1961('Rules'), for the determination of the arm‟s length price of the international transactions entered into by the Appellant. 3. On facts and circumstances of the case and in law, the learned AO / TPO have erred in re-characterising the Appellant as a Knowledge Process Outsourcing service provider, and not appreciating that it was providing non-binding investment advisory services to its associated enterprises. 4. On facts and circumstances of the case and in law, the learned AO / TPO have erred in applying inappropriate quantitative filters, while determining the arm's length price of the international transactions entered into by the Appellant. 5. On facts and circumstances of the case and in law, while determining the arm's length price of the international transaction entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,44,01,430/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T. Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2). During the course of the assessment proceedings the A.O made a reference under Sec. 92CA(1) of the I.T. Act to the DCIT, Transfer Pricing Office-1 (3)(1), Mumbai (for short TPO‟), for computing the arms length price of the international transactions of the assessee with its Associate Enterprise (for short AE‟). The TPO in the course of the proceedings observed that the assessee had selected three companies as comparables, details of which along with the reason for selecting the same as a comparable by the assessee are culled out as under: Sl. No. Name of the Comparable companies Reasons for acceptance given by the assessee. 1. Alomndz Global Securities Ltd. Almondz Global Securities Ltd. was incorporated in 1994 and is listed on the BSE and NSE. The companies activities include me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. IRIS Business Services Ltd. 27.29 Arithmetic Mean 30.42 The objections raised by the assessee as regards selection of the aforementioned comparables did not find favour with the TPO. Accordingly, by adopting the arms length margin of the comparables at 30.42% (operational profits/total cost) the TPO reworked the ALP of the international transactions of the assessee at ₹ 99,14,57,885/- and suggested a consequential adjustment of ₹ 11,72,24,575/- in the hands of the assessee. 28. The A.O on the basis of the order passed by the TPO under Sec. 92CA(3), dated 19.10.2016 proposed an addition of ₹ 11,72,24,575/- and assessed the income of the assessee at ₹ 30,33,13,505/-, vide his draft order passed under Sec.143(3) r.w.s. 144C(1), dated 31.10.2016. 29. Aggrieved, the assessee filed objections with the Dispute Resolution Panel-1, Mumbai (for short DRP‟). In the course of the proceedings before the DRP the assessee assailed its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset employed and risk assumed by the assessee as in comparison to the earlier years, thus the aforesaid re-characterisation of the assessee as a high end ITeS/KPO entity was without any basis and was liable to be vacated. It was submitted by the ld. A.R that as in the preceding years the assessee during the year under consideration also was rendering its services as a sub-advisor to its AE, and the ultimate decision with respect to the investments was taken by the General Partners of the fund who managed and operated the funds. In sum and substance, it was the contention of the ld. A.R that the assessee as in the earlier years was providing non-binding investment advisory and related support services during the year under consideration. In order to buttress his aforesaid contention it was submitted by the ld. A.R that the assessee had entered into a service agreement effective from 01.04.2006 to render non-binding investment advisory to its Associate Enterprises (for short A.E‟) viz. Carlyle Hong Kong. It was the contention of the ld. A.R that the aforesaid service agreement continued from year to year and as such remained in force for the year under consideration i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bom)] . It was submitted by the ld. A.R that the DRP in A.Y. 2013-14 had upheld the recharacterisation of the assessee as a KPO service provider for certain reasons viz. (i) high salary cost of the employees; (ii) Mr. Neeraj Bhardhwaj joining Carlyle India in the current year and the press release in this regard; (iii) purported non availability of comparables (due to application of export filter); and (iv) that the ITAT/High Court had not critically examined the functional characterisation of the assessee. It was submitted by the ld. A.R that in A.Y. 2012-13 it was on the basis of the salary details that the TPO had sought to draw adverse inference and had re-characterised the assessee as a KPO service provider, which however was set aside by the DRP for the reason that the TPO had failed to substantiate that such salaries were not being paid to the employees in the earlier years or that the employees in investment advisory segment were not being paid similar levels of salaries. It was thus the contention of the ld. A.R that now when the point of high salary was comprehensively dealt with by the DRP in A.Y. 2012-13, wherein it was observed by him that the assessee on the said coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d; and (vi) that Mr. Neeraj Bhardwaj was a highly qualified person whose services were not merely to be deployed for advisory purposes. 33. Per contra, the ld. Departmental Representative (for short D.R‟) submitted that as the facts for the year under consideration had witnessed a change in comparison to the preceding years, thus the view taken by the TPO/DRP in the said earlier years would not assist the case of the assessee for the year under consideration. Further, it was submitted by the ld. D.R that the fact that the assessee was a KPO service provider could safely be gathered from the T.P study report wherein it was mentioned that the remuneration paid to the directors was dependant on the functions that were performed by them. The ld. D.R submitted that such fact was not reported in the T.P study report of the assessee for the earlier years. On the basis of his aforesaid contention it was claimed by the ld. D.R that the high salary which was paid by the assessee to its employee revealed that they were highly qualified professionals who were rendering high value added services. It was further submitted by the ld. D.R that a perusal of the FAR given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aying to its employees was concerned, it was submitted by the ld. A.R that the said contentions was without any basis as the FAR of an assessee is qua the activities and not the salaries paid. 35. The ld. A.R further assailed the application of the export turnover filter in the case of the assessee by taking support of the view that was taken by the DRP in the assesses own case for A.Y. 2012-13. It was submitted by the ld. A.R that the DRP had directed the TPO not to apply the export filter for the reasons viz. (i). services were rendered by the assessee for its A.E in India; (ii). that though the location of the A.E was outside India the investments were to be made in India; and (iii). that the case of the assessee was not as that of a software or ITeS companies where the exports were made outside India and the revenue was generated from such exports. It was thus submitted by the ld. A.R that now when in A.Y. 2013-14 there had been no change in facts as in comparison to the immediately preceding year i.e A.Y 2012-13, therefore, the DRP was in error in upholding the application of export turnover filter as the same clearly militated against its directions for A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, it was the contention of the ld. A.R that the aforesaid company during the year under consideration i.e A.Y. 2013-14 was not authorized to undertake the activity of issue management, under writer and portfolio manager. On the basis of the aforesaid facts it was submitted by the ld. A.R that as the aforementioned company alike the assessee was purely into research based investment advisory during the year under consideration, hence it was rightly selected as a comparable for benchmarking the international transactions of the assessee for the year under consideration. 38. Insofar, the exclusion of Crisil Risk and Infrastructure Solution ltd. as a comparable by the TPO/DRP was concerned, it was submitted by the ld. A.R that the said company was a leading advisor to regulators and governments, multilateral agencies, investors and large public and private sector firms. In support of his contention that Crisil Risk and Infrastructure Solution Ltd. could safely be selected as a comparable to a company providing investment advisory services, the ld. A.R relied on the orders of the Tribunal viz. ( i) Kitara Capital Pvt. ltd. Vs. ITO [ITA No. 130/Mum/2014]; and (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. which was providing services in the nature of ITeS/IT service in health care sector and thus could not have been selected as a comparable, it was submitted by the ld. A.R that DRP during the year under consideration had rejected as a comparable a similarly placed company viz. Accentia Technologies Ltd. It was submitted by the ld. A.R that on a similar footing Hartron Communication ltd. was also liable to be rejected from the final set of comparables for fair benchmarking of the ALP of the international transactions of the assessee for the year under consideration. The ld. A.R in order to fortify his claim that the aforementioned company had a different functional profile, therein submitted that though the website of the said company revealed that it was offering a wide range of BPO, LPO, I.T and back office services, however the segmental information of the aforementioned company was available only in respect of the office back up operations provided by it. In sum and substance, it was the claim of the ld. A.R that as the aforementioned company viz. Hartron Communication Ld. was functionally different from the assessee and its segmental data was not available, hence the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Vs. DCIT (2017) 86 taxman.com 169 (Mum) , wherein it was held that e-Clerx Services ltd. could not be taken as a comparable to a company providing non-binding investment advisory services. Further, the ld. A.R also submitted that as the RPT percentage of the aforementioned company worked out to 25.55%, i.e. in excess of the RPT filter of 25% that was applied by the TPO, hence on the said count also it was liable to be excluded from the final list of comparables. 41. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the maintainability of the exclusion of certain companies which were selected by the assessee as comparables in its TP study report, but the same not finding favour with the TPO/DRP were excluded from the final list of comparables, as under: ( A) CRISIL RISK AND INFRASTRUCTURE SOLUTIONS LTD: We find from a perusal of the notes‟ to the financial statements of Crisil Risk and Infrastructure Solutions Ltd. that it is a leading advisor to regulators and governments, multilat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the aforementioned company viz. Crisil Risk and Infrastructure Solutions Ltd. from the final list of the comparables. In terms of our aforesaid observations, we herein direct the A.O/TPO to include the said company viz. Crisil Risk and Infrastructure Solutions Ltd. in the final list of comparables for benchmarking the international transactions of the assessee during the year under consideration. ( B) ALMONDZ GLOBAL SECURITIES LTD: We have perused the Annual report‟ of the aforementioned company and find that the business of the assessee during the year comprised of providing consultancy in the financial areas. The assessee has taken the margin earned by the aforementioned company under the segment of Corporate Finance and Advisory Fee segment. As per the annual report‟ of the company the SEBI had passed two ad interim ex-parte orders on 28.12.2011 (which were confirmed vide interim orders dated 11.09.2012 and 21.09.2012), as per which the company was prohibited from taking new assignment or involvement in any new issue of capital including IPO, follow-on issue etc. from the securities market in any manner whatsoe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and dislodged by the ld. A.R in his submissions placed in the appeal of the assessee for A.Y 2012-13. We are of the considered view that as the facts of the case before us, as well as the functional profile of the assessee and the aforementioned company viz. ICRA Management Consulting Services Ltd. had not witnessed any change during the year under consideration, therefore, our observations recorded for including the said company as a comparable in the case of the assessee for A.Y 2012-13 shall apply mutatis mutandis in the present appeal of the assessee for A.Y 2013-14. We thus in terms of our aforesaid observations are of the considered view that the assessee had rightly included the aforementioned company viz. ICRA Management Consulting Services Ltd. as a comparable in the case of the assessee and the same had wrongly been excluded by the TPO/DRP. In terms of our observations recorded while disposing off the appeal of the assessee for A.Y 2012-13 i.e in ITA No. 2366/Mum/2017, we herein direct the A.O/TPO to include ICRA Management Consulting Services Ltd. in the final list of comparables for benchmarking the ALP of the international transactions of the assessee during the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable in the case of a company providing non-binding investment advisory services stands fortified from the order of the Tribunal in the case of Apax Partners India Advisors (P) Ltd. Vs. DCIT (2017) 86 taxman.com 169 (Mum) , wherein it was held that e-Clerx Services Ltd. could not be taken as a comparable in the case of a company providing nonbinding investment advisory services. Also, as the RPT percentage of the aforementioned company works out to 25.55% i.e in excess of the RPT filter of 25% applied by the TPO, thus on the said count also the same could not have been selected as a comparable in the case of the assessee. We thus in terms of our aforesaid observations are of the considered view that the TPO/DRP had wrongly included the aforementioned e-Clerx Services Ltd. as a comparable in the case of the assessee. In terms of our aforesaid observations we direct the AO/TPO to exclude e-Clerx Services Ltd. from the final list of comparables for benchmarking the ALP of the international transactions of the assessee during the year under consideration viz. A.Y 2013-14. ( B). HARTRON COMMUNICATIONS LTD.: We shall now advert to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a comparable a company viz. Accentia technologies ltd which was also providing services in the industry of ITeS/IT services in health care sector, thus he could not have taken a contrary view and selected the aforementioned company i.e Hartron Communications Ltd. as a comparable for benchmarking the international transactions of the assessee during the year under consideration. We also find force in the averments of the ld. A.R that as only segmental information of office back up operations of the aforementioned company i.e. Hartron Communications ltd. which is engaged in wide range of BPO, LPO, IT office services is available on its website, thus in the backdrop of the said fact too it could not have been selected as a comparable in the case of the assessee. We thus in terms of our aforesaid observations are of the considered view that the TPO/DRP had wrongly included the aforementioned Hartron Communications Ltd. as a comparable in the case of the assessee. In terms of our aforesaid observations we direct the AO/TPO to exclude Hartron Communications Ltd. from the final list of comparables for benchmarking the ALP of the international transactions of the assessee during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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