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TMI Blog2022 (12) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable companies selected by the TPO and granting relief to the assessee. 2. Whether on the facts and in the circumstance of the case and in law, the Ld.CIT(A) was right in rejecting the list of comparable companies by the TPO without adjudicating on the finding of the TPO that main business of the assessee company is not merely investment banking but knowledge process Outsourcing Services (KPO Services). 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in reducing list of 8 comparable companies selected by the assessee itself in its TP Study report only on the basis of difference in functionality. 4. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. Both the assessee and the revenue filed cross appeal against the order of the Ld. CIT(A). Here, we are passing a common order by considering both the appeals for the assessment year 2008-09. 4. In brief we advert the fact of the case. The assessee is engaged in supporting its associated enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting the comparison of the assessee to KPO companies selected by the TPO. On the other hand, the assessee filed an appeal on ground that the Ld. CIT(A) erred by rejecting the assessee's prayer to exclude two companies i.e.Khandwala Securities Ltd. and Keynote Corporate Services Ltd from the list and not including KJMC Global Market (India) Limited and Kinetic Trust Limited in the final list. Second ground which was selected by the assessee as comparable in its TP study. Incorrectly including two companies Khandwala Securities Ltd. and Keynote Corporate Services Ltd. by the Ld. CIT(A) without considering the activities of the company. Both the revenue and assessee filed an appeal before the ITAT for further adjudication. 5. The learned counsel of the assessee vehemently argued that the ld. TPO in his order determined the function of investment Banking Support service specific to AE as captive unit would fall under a KPO services with the Broad Category of BPO. The ld Counsel mentioned the nature of business is the point of contradiction with TPO in between KPO vs Investment Advisory Company. The ld. CIT(A) appreciated and accepted the argument of the Assessee.Since the Assessee fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O/TPO under the directions of the Hon'ble DRP erred on facts and in law in not allowing appropriate adjustments namely; risk adjustment to the comparables as is required to be done in accordance with the provisions of Rule 10B(1)(e)(iii) of the Income-tax Rules, 1962 to account for difference between the risk profile of the Appellant and the alleged comparable selected by the learned AO/TPO." It was also pointed out that the view expressed in the aforesaid decision is the consistent view of the Hon'ble Tribunal by relying on the following other decisions: 1. Apax Partners India Advisers Pvt. Ltd. v/s. DCIT (AY 2009-10) [98 taxmann.com 500 (Mum.)] 2. Cariyle India Advisors Pvt. Ltd. v/s. DCIT (AY 2014-15) [118 taxmann.com 135 (Mum.)] 3. Cariyle India Advisors Pvt. Ltd. v/s. DCIT (AY 2015- 16) [ITA no 7515/Mum/2019 and SA No 28/Mum/020] 6. In Ground no-3, during the hearing the only submission made by the Revenue's Counsel was that that the Assessee ought not to be permitted to seek exclusion of companies selected by itself in its comparable set. The Ld. DR did not challenge the basis on which the CIT(A) accepted the rejection of the companies. 6.1 The ld C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in addition to those companies engaged in the field of providing advisory services. The assessee placed reliance on the ruling of JP Morgan India Pvt Ltd v/s ACIT (ITA no 1502/Mum/2014) for AY 2009-10, wherein the Tribunal recognised in identical circumstances, that since it was not possible to identify any other company which carries on exactly same nature of activities as that of the assessee.There is no other option but to include Investment Banking companies in the comparable set. Ld Counselsubmitted that where only companies engaged in advisory services are considered from the list of comparables selected by the assessee.The same can be identified from the comparable already selected by the assessee, and upheld by the CIT(A), without requiring a remand of the matter. The same are provided below: Name of the Company Nature of Activity Margin Access India Advisors Ltd Advisory/ consultancy services 45.97% ICRA Management Consulting Services Ltd Advisory/ consultancy services 3.22% IDC (India) Ltd Consultancy services 14.87% Kinetic Trust Limited Consultancy services -4.27% Arithmetic mean 14.84% The assessee is not comparable to KPO.In fact, that TP analysi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant years. Ld. DR did not strongly object on the plea of assessee. No objection was made by the ld DR in factual position. So, these companies should not be excluded on the ground of loss-making company. It is to be directed to the ld. TPO that KJMC Global Market (India) Limited and Kinetic Trust Limited be included in the set of comparable. Accordingly, the Ground no-1 of the assessee is allowed. 7.4. Ground 2 of the Assessee: Erroneous acceptance of KhandwalaSecurities Ltd and Keynote Corporate Services Ltd. The ld Counsel further argued that the ld. CIT(A) had erred in rejecting the plea of the assessee to exclude Khandwala Securities Ltd, on the basis that it is functionally comparable to the Assessee. 7.4.1.The ld. Counsel further stated that Khandwala Securities Ltd. is not a comparable since the percentage of income from corporate advisory to total revenue from fee based operations for FY 2007-08 is less than 75% (Pg 1052 and 1081 of the Factual paperbook of assessee). The company has derived 48.88% of its revenue from broking activity under this segment and therefore the revenue from consultancy/advisory activities is 51.12%, i.e. less than 75% and there is no furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solutions Ltd. from the list of comparables in view of its abnormally high profit margin for the subject Assessment Year at 57.02% as compared to operating profit margins in the preceding financial year of 19.94% to 14.75% and in the succeeding financial year at 37.09%. b. The impugned order of the Tribunal following the decision of the Special Bench in Maersk Global Centers (India) (P.) Ltd. v. Asstt. CIT [2014] 43 taxmann.com 100/147 ITD 83 (Mum. - Trib.) rendered by the Tribunal on 7.3.2014 carried out further analysis and concluded that high profit margin of FCS Software Solutions Ltd. was not a normal business condition. Consequently, the same could not be considered as comparable." 7.5.2. We heard the above-mentioned arguments of the ld Counsel. The ld DR did not make any strong objection in this issue. No contrary judgment was produced by ld DR during hearing. We are directing that M/s Khandwala Securities Ltd & M/s Keynote Corporate Services Ltd be excluded from the set of comparable. Accordingly, the Ground no-2 of the assessee is allowed. 8. In the result the appeal of the revenue ITA no- 5636/Mum/2014 is dismissed and appeal of assessee ITA no-5709/Mum/2014 is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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