TMI Blog2021 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Ladderup Corporate Advisory Pvt Ltd - We find that the assessee company before us, provides non-binding and non discretionary investment advisory and other related services to its AEs and the Funds in relation to investments made by the Funds situated in overseas location. From the perusal of various functions performed by the assessee company which are detailed hereinabove, we find that the functions performed by the aforesaid comparable company is functionally dissimilar with that of the assessee company. Hence direct the ld TPO / ld AO to exclude Ladderup Corporate Advisory Pvt Ltd in the final list of comparables for working out the arithmetic mean margin of the comparables. Inclusion of Cyber Media Research Limited - AR before us submitted that the same rate may be applied for other two AEs also. We find that the ld DR vehemently raised objection to this argment advanced by the ld AR by stating that APA rate could be adopted only when mechanism provided in Rule 10B of the Rules fails. We find that this aspect of the issue need not be gone into by us at this stage in view of our aforesaid decision taken on the exclusion of 2 comparables and inclusion of 1 comparable su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking final investment / divestment recommendation to the Funds. The analysis carried out by assessee is not binding on the AEs and AEs may take a decision not to recommend investment / divestment opportunity identified by assessee to the Funds. 3.1. Functions performed by assessee The main objective of assessee is to conduct industry and market research and furnish industry / market feedback of Indian companies with a view to provide information and thereby enabling the AEs to make informed decision on making final investment / divestment recommendations to the Funds. The investment decisions are solely the responsibility of the Board of Directors of the Funds. Assessee does not make any decision on investment / divestment on behalf of AEs/ the Funds. Assessee renders various services to AEs in pursuance of arrangements, between assessee and the AEs. Accordingly, assessee provides the following services to AEs: Identify and recommend investment opportunities in India; Provision and procurement of research and statistical data in relation to investing opportunities in India; Carrying out such preliminary due diligence as is required to allow a reasonable asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis involves a due diligence review of the proposed investee company. If required, inputs from external lawyers are also taken on the basis of the analysis above, the analysts make a presentation, summarizing the findings to the AEs. Such preliminary due-diligence is required to allow a reasonable assessment to be made, the competitive position and the financial prospects of the prospective investee companies and of qualification and expertise of their management. c) Final Investment Analysis Based on the preliminary analysis, the local advisors prepare a formal report which indicates the pros and cons of making the investment or divestment. The analysis is largely based on the due diligence review carried out earlier and depicts the level of risk involved in the investment. d) Progress reports Assessee also prepares quarterly reports pertaining to the investments made by AEs. These reports detail the progress of the investment, a latest update of the value of the portfolio, a brief on the industry developments relevant to the investment etc. 3.1.2. For the purpose of carrying out the above functions, assessee maintains / updates database of financial and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded investment / divestment opportunities in India. They do not participate nor control the investment approval process. Funds The ultimate decision of investment / divestment is made by the board of directors of the Funds incorporated outside of India. 3.3. The assessee had arrived at the Arms Length Price (ALP) Margin by adopting Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM). We find that the Profit Level Indicator used by the assessee was Operating Profit to Total Cost (OP / TC) and its margin was 16.16% on provision of these services to four AEs. We find that the ld TPO by disturbing the comparables chosen by the assessee determined the ALP at 55.67% and made transfer pricing adjustment of ₹ 25,54,67,000. This was reduced by the ld DRP to 42.40% by providing certain reliefs to the assessee in respect of comparables. We find that the assessee had disputed the determination of margin by ld DRP at 42.40% on various grounds. We find that the ld AR before us argued that if Ground No. 1.3. raised by the assessee is taken up for adjudication first and decided in favour of the assessee, the assessee would be well within the +/- 5% accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid order, the Tribunal relying on the earlier orders of its coordinate benches viz. (i) DCIT Vs. General Atlantic Pvt. Ltd., 91 taxmann.com 406 (Mum); (ii) Temasek Holdings Advisors India Pvt. Ltd. Vs. DCIT, (2017) 87 taxmann.com 168; (iii) Well Fargo Real Estate Advisors Pvt. Ltd. Vs. DCIT, (2018) 90 taxmann.com 18; and (iv) Avenue Asia Advisors Pvt. Ltd. Vs. DCIT, (2017) 85 taxmann.com 311 (Del), had concluded that the aforementioned company could not be considered as a comparable to an investment advisory service provider due to difference in functional profile. The Tribunal while concluding as hereinabove had observed, as under: 17. We have considered rival submissions and perused materials record in the light of the decisions relied upon. As could be seen from the facts on record, though, the aforesaid company has four business verticals, however, the segmental details are not available in the annual report. Further, in case of Temasek Holding Advisors India Pvt. (Ltd. (supra), the Tribunal, while considering the comparability of the aforesaid company to an investment advisory services provider held that this company cannot be a comparable due to differences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of this tribunal dated 11.6.2019 passed in the case of Bain Capital Advisors(India) Ltd vs ACIT in ITA No. 1996/Mum/2016. We find that this comparable company is in the business of providing financial and corporate advisory services to corporate clients. These advisory services cover the major spectrum of capital structure advising clients to raise traditional debt facilities as well as structures debt, restructuring advisory services, raising private equity and sourcing executing Merger Amalgamation opportunities domestic as well as cross border. We find that the ld DR vehemently argued that the functions performed by this comparable company is similar to that of the assessee company and hence it becomes a valid comparable. We find that the assessee company before us, provides non-binding and non discretionary investment advisory and other related services to its AEs and the Funds in relation to investments made by the Funds situated in overseas location. The relevant portion of the tribunal order dated 11.6.2019 which has addressed this issue is reproduced hereunder for the sake of convenience:- 9. . (B) Ladder up Corporate Advisors Pvt. Ltd: We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the same could not be treated as a comparable to a company engaged in the activity of rendering investment advisory services. The Tribunal while concluding as hereinabove, had relied on the earlier decisions of the coordinate benches of the Tribunal viz. (i) DCIT Vs. General Atlantic Pvt. Ltd., 91 taxmann.com 406 (Mum); (ii) Temasek Holdings Advisors India Pvt. Ltd. Vs. DCIT, (2017) 87 taxmann.com 168; (iii) Well Fargo Real Estate Advisors Pvt. Ltd. Vs. DCIT, (2018) 90 taxmann.com 18; and (iv) Avenue Asia Advisors Pvt. Ltd. Vs. DCIT, (2017) 85 taxmann.com 311 (Del). The Tribunal while concluding as hereinabove, had observed as under: 14 . We have considered rival submissions and perused materials on record. From the functional profile of the aforesaid company, it appears that it is registered as Category -I Merchant Banking Company with SEBI and is engaged in merchant banking services w.e.f. July 2010. Considering the aforesaid factual aspect, the Co-ordinate Bench in the decisions cited by the learned Authorised Representative for the assessee has held that this company cannot be a comparable to a company engaged in the activity of investment advisory services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we direct the ld TPO / ld AO to include Cyber Media Research Limited in the final list of comparables for working out the arithmetic mean margin of the comparables. 4. Apart from this, we find that the ld AR stated that a resolution under Advance Pricing Agreement (APA) has been reached with respect to transactions between the assessee and its 2 AEs viz Standard Chartered Bank, Singapore Branch and Standard Chartered-Real Estate Fund, which includes the assessment year under consideration before us. We find that the APA entered with CBDT had arrived at the ALP of Cost plus 20%. The ld AR before us submitted that the same rate may be applied for other two AEs also. We find that the ld DR vehemently raised objection to this argument advanced by the ld AR by stating that APA rate could be adopted only when mechanism provided in Rule 10B of the Rules fails. We find that this aspect of the issue need not be gone into by us at this stage in view of our aforesaid decision taken on the exclusion of 2 comparables and inclusion of 1 comparable supra. Accordingly, the issue raised by the assessee with regard to APA rates and objection raised by the ld DR are left open and we refrain to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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