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TMI Blog2016 (11) TMI 1625X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act, determining its income at Rs. 4. 47 crores. 2. Effective ground of appeal deals with inclusion of certain comparables for determining the ALP of the IT. s. During the TP proceedings, the TPO find that the assessee was engaged in the business of providing non-binding investment advisory, that it had received Rs. 15. 85 crores from its AE as advisory fee, that it bench-marked the IT. s. by adopting the TNMM as most appropriate method and claimed that it's operating margin PLI (OP/TC)at 25. 42%% was at arm's length in comparison to the mean average margin of five comparables selected by the assessee arrived at 21. 18%. The TPO directed the assessee to explain as to how the cost plus 25. 42% markup was arrived at and to file details regarding the total revenue earned by the AE for which services were rendered by the assessee, percentage of revenue retained by the AE after paying the assessee alongwith the justification. As per the AO the assessee stated that there was no specific request for advice from the AE and it would collect information from list of companies identified by the AE. s, that details called for were not submitted by the assessee. The TPO held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity, that a talent pool of financial professionals and investment advisors were required, that even if such services had been outsourced the nature of the activity would not change, that the TPO had rightly included ICRA-O in the list of the comparables. 3. Before us, the Authorised Representative(AR) argued that MOIAPL, IDFC and ICRA-O were functionally different, that MOIPAL was a merchant banker, that IFDC and ICRA-O were not providing advisory services. He relied upon the case AGM India Advisors Private Limited, the Tribunal(ITA. s. /4757&4801/Mum/2015-AY. 2010-11, dtd. 18. 05. 2016), wherein all the three comparables were excluded. The Departmental Represnetative(DR)supported the order of the DRP and stated that the TPO had considered one of the segmen -ts, namely outsourced services for the purpose of benchmarking in the case of ICRA-O, that he had not considered the entity level margin of the comparable, that the order of the Tribunal in the case of Carlyle was distinguishable on facts, that neither the assessee nor the TPO had adopted the filter of 75% revenue from the service as adapted in the case of Carlyle, that even if the criteria or filter of 75% revenue from ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said order of the Tribunal, we find that it is decided in favour of the assessee vide ITA No. 7367/Mum/2012 (AY 2008-2009), dated 7. 2. 2014. On perusal of para 12 of the said order of the Tribunal, which contains the operational part, we find the same is relevant and the Tribunal has given its finding under the facts which are similar to that of the AY under consideration. The MOIAPL, which has engaged in the business of merchant banking is not a good comparable for determining the ALP. Relevant contents of the said para 12 are reproduced here for the sake of completeness of this order which read as under: "12. ............. . The only dispute is whether Motilal Oswal Investment Advisors Pvt Ltd can be considered as a comparable for determination of ALP. A perusal of three comparables considered by the TPO shows that M/s. Future Capital Investment Advisors Ltd. , has operating profit at 21. 79% whereas OPM of Motilal Oswal Investment Advisors Pvt. Ltd is 72. 33%. The comparables used by the TPO themselves are showing extreme OPM. A perusal of the Director‟s report of Motilal Oswal Investment Advisors Pvt Ltd shows that during the year under consideration, the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the order of the Tribunal in assessee's own case for the earlier AY. , we hold that MOIAPL should be excluded from the list of valid comparables. As far as remaining two other comparables i. e. IFDC and ICRA-O, are concerned, we find that in the matter of AGM (supra), the Tribunal has dealt their comparability visa vis non binding advisory services, as under: "In the case of Carlyle India Advisors India Pvt. Ltd (supra), for the AY. 2010-11, the Tribunal has held that IDFC should not be included in the list of comparables, while considering the matters of the entities engaged in providing non-binding-advisory services. We would like to reproduce the relevant portion of the order of the Tribunal: 17. We have carefully considered the rival submissions on this aspect. A perusal of the Directors report of IDFC Investment Advisors Ltd for the instant year reveals that it is registered as a Portfolio manager with SEBI whereby it is carrying out Portfolio Management Services envisaged under the SEBI (Portfolio Managers) Regulations, 1993. The detailed activities enumerated in the Directors Report show that it was offering Portfolio Management Services for the domestic retail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid discussion, in our view, IDPC Investment Advisors Limited deserves to be excluded from the final set of comparables for the purposes of computing arm's length price of assessee's international transaction of Provision of investment advisory related support services to associate enterprise. Thus, on this aspect also, assessee succeeds. " 5. 2. We would also like to quote the relevant portion of the order of the Tribunal in the case of Sparlkes Dhando Advisors Pvt. Ltd. (ITA/1047/M/2015-AY. 2010-11, dt. 31. 12. 2015), wherein the Tribunal has excluded MOIALP and IDFC from the list of the comparables. The relevant portion of the Tribunal order reads as follow: XXXXXXXXX "7. Regarding IDFC, it is demonstrated before us that the said company is engaged in rendering of services as Portfolio Manager, whose functions are intimately different from that of the functions of non-binding advisory services rendered by the assessee to its AEs. The fact of rejection of the same as a good comparable to a case of similar services as in the case of the assessee, assessee was also demonstrated by relying on the decision of the Tribunal in the case of Bain Capital Advi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid comparable to the assessee. As per the settled principles of TP for a company to be treated as a valid comparable the Functions performed, Assets employed and Risks assumed have to be comparable and not nomenclatures in the Annual Accounts. We would like to refer to Pg. 507 of the PB in case of ICRA-O and it reads as under: "ICRA Online Limited is a leading information services, outsourcing and technology solutions provider and caters for some of the biggest names in the financial services sector in(India) and abroad, which is a testimony to its product quality, commitment and credibility". From the above description it is clear that ICRA-O operated in two strategic lines of business, i. e. knowledge Process Outsourcing and information Services and Technology Solutions, with a list of reputed global and domestic clients. Note c(iii)on Pg. 507 of the PB also proves that the activities performed by the Company under the business line "Outsourced Services" were in the nature of "maintenance and management of data" and therefore cannot be compared with the assessee. . .... " In light of the above discussion, we are of the opinion that the TPO/DRP was not justified in inc ..... 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