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TMI Blog2016 (10) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... its A.E. and earned revenue of Rs. 25.83 crore. For bench marking the transaction, the assessee undertook a study by adopting TNMM as most appropriate method with OP/OC as the PLI. By considering itself as the tested party, the assessee undertook a search process in the data bases and identified following seven comparables with average arithmetic mean of 18.23% on the basis of three year data. i) Access India Advisors Pvt. Limited; ii) Future capital Advisors Pvt. Limited; iii) ICRA Management Consulting Services Limited; iv) IDC (India) Limited; v) Informed Technologies Limited; vi) Integrated Capital Services Limited; and vii) Kinetic Trust Limited. 2. As the assessee is reimbursed at cost plus 20% and the margin shown for the impugned assessment year by the assessee at 19.67% on operating cost is higher than the margin of the comparable companies on operating cost, the transaction was treated as at arm's length. The Transfer Pricing Officer, however, rejected the transfer pricing study of the assessee pointing out various defects and deficiencies. He also rejected six out of seven comparables selected by the assessee while retaining Future Capital Investment A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functionally different from investment advisory services. Further, referring to the annual report learned Sr. Counsel submitted, it is offering PMS products. He submitted, the reference to investment advisory services in the annual report is in relation to India Infrastructure Opportunities Fund Ltd. which actually is a PMS. He submitted, certain functions performed by this company such as investment PMS and brokerage are not performed by an investment advisor. Further, referring to the Profit & Loss account, he submitted, though, the company is engaged in a number of activities but the revenue is reported under one segment. Finally, the learned Sr. Counsel submitted, the functions performed, assets employed and risk undertaken by this company being totally different from the assessee, it cannot be treated as comparable. In support of such contention, learned Sr. Counsel relied upon the following decisions:- i) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./ 2015, A.Y. 2010-11, order dated 18th May 2016; ii) Carlyle India Advisors Pvt. Ltd., ITA no.1040/Mum./2015, A.Y. 2010-11, order dated 18.11.2015; iii) Bain Capital Advisors (India) Pvt. Ltd. v/s DCIT, ITA no. 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies should be rejected, that the FIRST APPELLATE AUTHORITY had rejected ICRA-O as comparable on investment advisory servies rendered by the assessee and had stated assessee's knowledge process outsourcing division provided financial and analytical services and support of clients in the areas of Data Extraction, Aggregation, Electronic Conversion of Financial Statements, Validation and Analysis, Accounting and Finance, Research and Analytics, that the company was not engaged in investment advisory or consultancy services, that the A.O. was directed to exclude ICRA-O from the final set of comparable companies, that he had held that it was functionally not comparable to the assessee. Charging of fees by ICRA-O did not mean that it was a 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service rendered by the outsource service segment. As per the information provided in the web site of the company, it has two strategic lines of business viz. (i) knowledge process outsourcing (KPO) and information service and technology solutions. He submitted, the KPO segment as per the information available, provides analytical service and support to clients in the areas of data extraction, aggregation, electronic conversion of financial statements, validation and analysis, accounting and finance, etc. He submitted, performance of the aforesaid activities make the company financially different from the assessee, hence, cannot be treated as a comparable. In support of his contention, the learned Sr. Counsel referred to the following case laws:- i) Carlyle India Advisors Pvt. Ltd., ITA no.1040/Mum./2015, A.Y. 2010-11, order dated 18.11.2015; and ii) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./ 2015 and ITA no.4801/Mum./2015, A.Y. 2010-11, order dated 18.5.2016. 7. Learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 8. We have considered the submissions of the parties and perused the material available o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.5.2015; v) General Atlantic Pvt. Ltd. v/s DCIT, ITA no.1019/Mum./ 2014, A.Y. 2009-10, order dated 6.11.2015; vi) Wells Fargo Real Estate Advisors Pvt. Ltd. v/s DCIT, ITA no.1093/Mum./2014, A.Y. 2009-10, order dtd. 27.5.2015; vii) CIT v/s Carlyle India Advisors Pvt. Ltd., 32 taxmann.com 23, A.Y. 2007-08; viii) General Atlantic Pvt. Ltd. v/s DCIT, 68 taxmann.com 88, A.Y. 2006-07; and ix) Goldman Sachs India Securities P. Ltd. v/s CIT, 69 taxmann.com 19, A.Y. 2007-08. 10. Learned Departmental Representative submitted, if ICRA Management Consulting Services Ltd., which is also engaged in similar activity, is considered as a comparable to the assessee, then this company should also be considered as a comparable. 11. In rejoinder, the learned Sr. Counsel submitted, this very argument of the Department was considered and rejected by the Tribunal in the case of Temasec Holding Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum//2015, dated 25th February 2016. 12. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Having gone through the annual report of MOIAPL, we have noted that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of the function of a merchant banker, then the entire functions and transactions affects the generation of revenue and margins. Such functions are entirely different from investment advisory services. Mere classification of revenue as "advisory fees" will not put the company in a comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd. (supra), it has been held that, the merchant banking functions are entirely different from investment advisory services and this decision of the Tribunal has been upheld by the Hon'ble Jurisdictional High Court. Thus, in view of plethora of functional differences as discussed as above, we hold that Motilal Oswal cannot be put into the comparability list and is directed to be excluded." 13. Following the aforesaid decision, the Tribunal, Mumbai Bench, expressed similar view in case of AGM India Advisors Pv.t Ltd. (supra). In fact, in host of other decisions cited by the learned Sr. Counsel, the Tribunal has held MOIAPL not to be a comparable to a company involved in investment adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucturing of the business of the comparable as a result of realignment with another company is evident from the annual report of the company. Considering the aforesaid aspect, the Tribunal, Mumbai Bench, in Carlyle India Advisors Pvt. Ltd. ITA no.1040/Mum./2015, order dated 18th November 2015 (supra) for the very same assessment year held that this company cannot be treated as a comparable on account of peculiar economic circumstances arising out of its realignment. Relevant observation of the Tribunal is extracted hereunder for the sake of convenience:- "22. We have carefully considered the rival stands on the issue of exclusion of Kshitij Investment Advisory Co. Ltd. from the final set of comparables. The first and the foremost resistance articulated by the Revenue to oppose the exclusion of the said concern from the final set of comparables is the fact that such concern was included by the assessee itself as a comparable in its transfer pricing study. As per the Revenue, since the said concern has been adopted by the assessee as a comparable, it is impermissible for the assessee to raise a plea asking for its exclusion in the process of determination of average margins under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be no impact on the financial results so as to make it incomparable with the tested transactions. We have carefully considered the aforesaid plea set up by the Revenue and in this context, we may briefly refer to the "Business Review" outlined in the Directors Report of the said concern, placed at page 536 of the paper book. It is stated therein that the investment advisory business has been realigned and all the employees have been transferred to Everstone Investment Advisors Pvt. Ltd. during the year under consideration to Everstone Investment Advisors Pvt. Ltd. during the year under consideration w.e.f. 1.1.2010. The note also suggests that the said concern did not enter into any non-compete agreement with Everstone Investment Advisors Pvt. Ltd. but was free to pursue any activity, including the activity in relation to investment advisory services. The aforesaid aspect hs been highlighted by the Revenue to say that the said concern continues to be in the business of rendering investment advisory services and, therefore, the restructuring does not impact the comparability of the concern. In our considered opinion, the approach of the Revenue in this context is quite flawed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusion of the aforesaid companies, assessee has sought inclusion of certain companies as comparable. Herein after, we will deal with each of these companies. ICRA MANAGEMENT CONSULTING SERVICE PVT. LTD. 19. Learned Sr. Counsel objecting to the exclusion of this company as a comparable submitted, the company offers consulting / advisory services through different business groups and practice areas pertaining to strategy, risk management, operations improvement, corporate advisory, etc. He submitted, the Profit & Loss account forming part of annual report of the company for the year ended March 2010, indicates that it derives revenue from consulting fees. He submitted, the website of the company indicates that the functions / activities performed with respect to management consultancy service involves the analysis of the business and operations of a company, its profitability, operational efficiency, future outlook, etc., based on which consultancy or advise is given to the management of a company. Such functions are similar to that of a non-binding investment advisory and related services rendered by the assessee i.e., research activities marketing analysis, financial analysis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. 22. Learned Departmental Representative referring to the annual report of the company submitted, it is engaged in the cross boarder merger and acquisition transactions. He submitted, annual report of the company does not provide any segmental information. He submitted, as per the information obtained from the annual report of the company it has rendered service to various organisations like World Bank, Asian Development Bank, UNISEF, NSDC, etc. He submitted, if MOIAPL is rejected as a comparable, for the very same reasons, this company cannot be treated as comparable. As far as applicability of the decision of the Tribunal in case of Temasec Holdings Advisors India Pvt. Ltd. (supra), the learned Departmental Representative submitted, these decisions pertained to different assessment years and principles of res judicata does not apply to the income-tax proceedings. For such proposition, he relied upon the decision of the Hon'ble Kerala High Court in CIT v/s Kalpetta Estates Ltd, [1995] 211 ITR 635 (Ker.). 23. In the rejoinder, the learned Sr. Counsel submitted, the issue is covered by various decisions of the Tribunal in case of the same comparable. As far as applicabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the paper book, we find that it is essentially providing consultancy services in diversified areas, like in government sectors, infrastructure, energy, corporate advisory, banking and financial services, etc. It focuses on consultancy and advisory which is its core area and competency. The revenue generation is purely from consultancy fees which is evident from profit and loss account as on 31st March 2010 (appearing at page 176 of the paper book). The TPO in his order has noted that its consultation or advisory operations ranges in various fields which have been tabulated by him at pages 9 to 11 of the order, which according to him assessee is not performing. On the perusal of the directors' report and also the remarks of the TPO, we find that the ICRA Management is providing consultancy services in a myriad areas ranging from development, transportation, urban infrastructure, energy sector, banking and financial services and advising cross border M&A transaction etc. Some other observation made by the TPO is that ICRA has participated in various international forums, partnered with foreign company in multiple projects and has a very big client base unlike assessee. However all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doing so, the bench also took note of the decision relied upon by the learned Departmental Representative which were also cited before us. Undisputedly, the aforesaid decisions of the co-ordinate bench are for the very same assessment year i.e., assessment year 2010-11. Therefore, respectfully following the aforesaid decisions of the co-ordinate bench, we include this company as a comparable. IDC INDIA LIMTED 26. The learned Sr. Counsel submitted, the company is engaged primarily in the business of research and certificate. He submitted, the company is a premier global provider of market intelligence advisory service and events for the information technology, telecom and consumer technology markets. He submitted, assessee selected it as a comparable on the basis that it is engaged in the research and survey functions which is functionally comparable to advisory support services rendered by the assessee. He submitted, the activities performed with respect to research and survey by the company involves analysis of the business and operations of a company its profitability, operational efficiency, future outlook, etc., which are similar to the functions and activities performed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. Refuting the contention of the learned Departmental Representative that it is a product company the learned Sr. Counsel submitted, merely because the annual accounts used the term "sales" it does not mean that it sells products similar to any trader or manufacture. As far as payment for copyright is concerned, the learned Sr. Counsel submitted, it is towards use of certain copyrighted material while rendering service. He submitted, had IDC India Ltd. been a trader or product company, it would have shown cost / inventory in its Balance Sheet which is not the case. 30. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the information available in the website and annual report of the company, we have noted that it is primarily engaged in the business of market research and management consultancy. Therefore, the contention of the learned Departmental Representative that it is a product company may not be correct. Further, we have noted that in case of Temasec Holdings Advisors India Pvt. Ltd. (supra), the very same argument of IDC India Ltd. being a product company and provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the decision rendered in case of Tevapharm Pvt. Ltd. (supra), after carefully reading the said order, we have noted that nowhere the Tribunal has held that IDC India Ltd. is a product company. On the contrary, it was excluded since the Tribunal found it functionally dissimilar to that assessee. The decision of Actis Advisors Pvt. Ltd. (supra) is also factually distinguishable, hence, would not be apply. Therefore, respectfully following the decisions of the Co-ordinate Bench of the Tribunal referred to above, we hold that IDC India Ltd. is a comparable to the assessee. INFORMED TECHNOLOGIES LIMITED 32. Seeking inclusion of this company as a comparable, the learned Sr. Counsel submitted, the company is engaged in offering a range of data management services to the financial sector. He submitted, the company collects and analyses data on financial fundamentals, corporate governance, director / executive compensation and capital market. The outsource service consist of financial data bases and back office activities for research / advisory reports. Therefore, the key function of the company of collecting and analysing financial fundamental is comparable to the assessee as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysing of data based on which advise is given for the investment purpose in India. Moreover, this company has been accepted by the TPO in the year 2009-10. Thus, it is a good comparable." 36. We do not find any material difference between the facts in assessee's case and in case of Temasek Holdings Advisors (I) Pvt. Ltd. (supra) on the basis of which the Tribunal included it as a comparable. Moreover, there is no dispute that the Transfer Pricing Officer has accepted this company as a comparable in assessee's own case for assessment year 2009-10. That being the case, in our considered opinion, the company should be treated as comparable to the assessee. KINETIC TRUST LIMITED 37. Seeking inclusion of this company, learned Sr. Counsel submitted, it is engaged in corporate consultancy and financial services. In this context, the learned Authorised Representative referred to the annual report of the company as submitted in paper book which reads as under:- "The company concentrated on its main business activity of corporate consultancy and financial services. The company results have improved in a modest way as compared to previous year result. On the basis of its professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of application of turnover filter by either of the parties a company cannot be rejected on account of low turnover. He submitted, the aforesaid decision of the Tribunal was also affirmed by the Delhi High Court in Nortel Network India Pvt. Ltd., ITA no.3043/2015. He submitted, the Tribunal again in case of Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum. /2015, A.Y. 2010-11, order dated 25th February 2016, after considering almost similar argument advanced by the learned Departmental Representative had accepted this company as a comparable. Learned Sr. Counsel further submitted if the Transfer Pricing Officer applies the lower turnover filter, then, he must apply higher turnover filter. In this context, he relied upon the decision of the Tribunal, Delhi Bench, in DCIT v/s Mckinsey Knowledge Centre India Pvt. Ltd. ITA no.2195/Del./2011, dated 13th Sept. 2013, which was subsequently confirmed by the Hon'ble Delhi High Court in the case of same assessee in an appeal preferred by the Department registered as ITA no.217/2014, vide judgment dated 27th March 2015. 41. We have considered the submissions of the parties and perused the material available on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange the nature of activities undertaken by the company i.e., Consultancy Services. Secondly, while selecting the list of comparables in search criteria, the assessee has not considered the turnover criteria as one of the factor in determining or streamlining the selection of the companies. It has not cherry picked the comparables by inserting any kind of lower or higher turnover filter. The reliance placed by the TPO on the decision of Tribunal in the case of Trilogy E Business Software P Ltd vs DCIT (ITA No. 1054/Bang/2011) is not correct as the Tribunal's decision was based on the facts and in that context it has highlighted the importance to apply the turnover over filter ranging between Rs. 1 crore to Rs. 200 crores. The said decision does not implicate that the range of Rs. 1 crore to Rs. 200 crores is to be applied essentially in all the cases. Thus, the decision of the said Tribunal cannot be applied to the facts of the present case. On the contrary in the case of Nortel Networks India P Ltd, reported in [2014] 44 taxman.com 46 the Delhi Tribunal has held that, if the functional profile of the comparable is the same with that of the assessee then, it cannot be excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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