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TMI Blog2017 (9) TMI 1890X X X X Extracts X X X X X X X X Extracts X X X X ..... is bad in law and an facts and circumstances of the case. 11. The Ld. CIT(A) as well as Learned Assessing Officer ("Ld. AO") and the Learned Transfer Pricing Officer ("Ld. TPO") have erred in law as well as facts of the case in not accepting the Arm's Length Price (" ALP") as determined by the appellant. 12. The Ld. CIT(A) / Ld. AO / Ld. TPO has erred in determining the ALP on the basis of data far financial year 2006-07 only and ignoring the data for two prior financial years i.e. FY 2004-05 and FY 2005-06. 13. The Ld. CIT(A) / Ld. AO / Ld. TPO has erred in introducing Brescon Corporate Advisors Limited as a comparable, ignoring the exceptionally high margins earned by it, while determining the ALP. 14. The Ld. CIT(A) / Ld. AO / Lei TPO has erred in not accepting a company i.e. IDFC Investment Advisors Limited as a comparable of the appellant and rejecting the same on the contention that it is the first year of operation of this company and it has a negative net worth. 15. Ld. CIT(A) has erred in not accepting Integrated Enterprises India Limited as a comparable of the appellant ignoring the fact that its financials are now available in public domain. 16. The Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax, Range 3, New Delhi (hereinafter referred to as 'the Revenue'), by filing the present appeal sought to set aside the impugned order dated 17.09.2013 passed by the Commissioner of Income-tax (Appeals)XX, New Delhi, for the Assessment Years 2007-08 on the grounds inter alia that :- "1. The Ld. CIT(A) has erred in law and on the facts in excluding M/s Keynote Corporate Services Ltd., as a comparable by ignoring that: i. an entity can be excluded from list of com parables only on the ground of incomparability taking into account comparability factors as stipulated u/s 92C(1) of the Act and rule 10B(2) & (3) of the rule and not only on the basis of higher or lower profit rate. ii. the decisive factors for determining exclusion or inclusion of any case from the list of comparables are the specific characteristics of services provided, assets employed, risks assumed, contractual terms and conditions including geopraphical location and size of markets, costs of labour and capital in market etc. iii. the above principle is in accordance with the transfer pricing law in India as well as followed in UN and OECD TP guidelines." 5. Briefly stated the facts necessary for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that he has no material to support Grounds No.10, 11, 12, 14 & 16 and as such, same may be taken as not pressed, so grounds no.10, z11, 12, 14 & 16 are decided against the assessee. GROUNDS NO.13 & 15 AND ADDITIONAL GROUND 12. Assessee by filing the present appeal has challenged the inclusion of 2 comparables, namely, Brescon Corporate Advisors Limited and Integrated Enterprises India Limited by the Transfer Pricing Officer (TPO) for benchmarking the international transactions. 13. Undisputedly, the ld. TPO has accepted TNMM as the most appropriate method for benchmarking the international transactions; that there is no change of business activities of the assessee during the year under assessment; that search for comparables already conducted in the immediately preceding years have been considered by TPO for the year under assessment and no fresh search for comparables has been done. 14. In the backdrop of the aforesaid undisputed facts, the ld. TPO has worked out the capital adjusted margin of the comparables as under :- S.No. Company Name Margins WC Adjusted margins 1. Khandwala Securities Ltd. 38.14 81.37 2. Keynote Corporate Services Ltd. 145.83 158.30 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negligible amount of Rs. 15,67,690/- has been determined as ALP in case of services rendered by the assessee company to CMC-II and this fact has been fairly conceded by ld. DR. 20. Ld. DR for the Revenue further contended that for providing services by the assessee company to CMC-III and CMC-IV, there is an agreement entered into between the parties, available at page 104 of the Agreement then modified agreement at page 109 and again modified Agreement at page 107, and when we peruse the Agreement, the assessee company is not providing simple advisory services rather performing complicated functions like managing the company and maintaining books of account. The ld. DR for the Revenue further contended that there is a variation of cost of services to be paid by the AE to the assessee company in all the Agreements entered into between them without highlighting what additional function is being performed by the assessee and further contended that the assessee company is a financial company. 21. However, we are of the considered view that again the contentions raised by the ld. DR are not sustainable for 3 reasons:- (i) that the ld. DR is not empowered to improve upon the case mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that this was a merchant banking company with its main source of income from recapitalization advisory and debt syndications and, thus, it was not a simple investment advisory services as the assessee is. Learned CIT (DR) submitted that the decision in the case of Xander Advisors India (P.) Ltd vs. Assistant Commissioner of Income Tax, Circle-18(1), New Delhi pertains to assessment year 200809 and not to assessment year 2006-07 which is before us. In this regard, he relied on Rule on 10B(4), wherein, it has been mandated that the data to be used in analyzing the comparability with an international transaction shall be the data of the financial year in which the international transaction has been entered into. As regards, the Temasek Holdings Advisors India (P.) Ltd., also learned CIT(DR) pointed out that the same dealt with assessment year 2005-06 and not for assessment year 2006-07. He, therefore, submitted that both these case relied by learned counsel are not relevant and since in earlier year this comparable was used for determining arms price length price of international transaction therefore it was rightly included by learned TPO. 35. We have considered the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinent to mention that the gross revenue of this company amounts to Rs. 20.27 crore and there is no segmental data available either in respect of net profit from 'Fee based financial services' or 'Other income'. As 'Other income' also includes income from Investment activity, being profit/loss on sale of investment and dealing in shares and securities, the impact of such profit/loss on the overall net profit of the company on entity level, cannot be determined. Even though some component of 'Equity related advisory/M&A Advisory', with the gross revenue of Rs. 2.03 crore, partly resembles with the assessee, still in the absence of any segmental data of such composition, there can be no valid comparison. Revenue from this component accounts for around 10% of the total gross revenue of this company and if we further examine this 10% component in itself, it turns out that the same also includes M&A advisory, which is obviously not akin to the services rendered by the assessee. The assessee's activity, in a nutshell, is to tender advice to the Manager about the avenues for making investment in real estate, and, if the Manger agrees to go ahead with su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re ld. CIT (A) under Rule 46A of the Income-tax Rules 1962 sought to bring on record the financial data of Integrated Enterprises India Limited to be selected as a suitable comparable on the ground that during transfer pricing proceedings before ld. TPO, the financial data was not available in the public domain and as such could not be furnished. 26. Undisputedly, TPO has rejected this comparable for want of financial data available in the public domain. However, perusal of the impugned order passed by ld. CIT (A) goes to prove that this comparable company, Integrated Enterprises India Limited, has not found any place for discussion and might be overlooked by the ld. CIT (A) due to mistake. 27. We are of the considered view that when a specific prayer has been made by the assessee to admit additional evidences in the form of financial data which was not available in the public domain during the TP proceedings before TPO, it was imperative on the part of ld. CIT (A) to pass an order on the application for additional evidence and to examine the suitability of comparable sought to be included by the assessee for benchmarking its international transaction. In view of the matter, we s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profit or dividend which is not the case here. After considering the assessee's detailed reply he made an addition of Rs. 2,95,93,000/-. At the time of hearing, ld. counsel pointed out that this issue is covered in favour of assessee by the decision of Hon'ble Delhi High Court in assessee's own case for the assessment year 2008-09. Having heard both the parties, we find that Hon'ble Delhi High Court vide ITA No.417/2014 dated 27th April, 2015, has observed as under: "The final question that arises for this Courts determination in the present appeal is the assessee's claim for deduction under Section 36(1)(ii) of the Act in respect of the bonus paid by it to its two shareholders - Ashish Dhawan and Kunal Shroff. The lower authorities denied such claim, holding that the bonus was paid to the shareholders in lieu of dividend with the objective of avoiding tax. Such inference was drawn from two facts: a) the bonus paid was in proportion of their shareholding in the assessee company, i.e. 2:1; and b) no dividend had been declared by the assessee. However, a perusal of an excerpt from the DRP‟s order dated 21.09.2012 quoted by the AO in his order dated 19.10.2012 contradicts bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt volatile profit of the company to the tune of 145% due to the alliances formed with a Middle East based consulting companies and Swiss based consulting companies and has also launched ESOP Division which focused on designing and implementing stock option schemes for corporate. Ld. CIT (A) also relied upon the decision rendered by DRP in assessee's own case for AY 2006-07 wherein M/s. Keynote Corporate Services Ltd. is held to be not a robust comparable. 35. Undisputedly, business model of M/s. Keynote Corporate Services Ltd. was restructured during the year ending 31.03.2007 which is reproduced from page 8 of the annual report of 2006-07 for ready reference as under :- "Business Restructuring During the year ended 31ST March, 2007, the Scheme of Amalgamation of group companies viz Cobal Investment Company limited, West Coast Lighterage Company Private Limited, Starline Ispat and Alloys Limited, Galaxy leasing Limited, Keynote Finstock Limited, Plethora Investments Company Limited ("the transferor companies") with Keynote Corporate Services Limited (''the transferee company") have been approved by Hon'ble High Courts, at Allahabad, Bombay and Guwahati vide their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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