TMI Blog2022 (12) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, respectfully following the order passed by the coordinate bench of Tribunal in assessee‟s own case cited supra, we uphold the plea of the assessee and delete the impugned adjustment in respect of international transaction of Payment of Interest on FCDs‟. Accordingly, grounds No. 1 and 2 aised in assessee's appeal are allowed. - ITA No.424/Mum./2018,.ITA No.11/Mum./2018 - - - Dated:- 4-7-2022 - SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER Assessee by : Shri Madhur Agrawal a/w Shri Fenil Bhatt Revenue by : Shri Rajesh Kumar Yadav, Sr. AR O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present cross appeals have been filed by either parties challenging the impugned order dated 25/10/2017, passed under section 250 of the Income Tax Act, 1961 ( the Act ) by learned Commissioner of Income Tax (Appeals) 55, Mumbai, ( learned CIT(A) ), for the assessment year 2011 12. 2. In its appeal, the Revenue has raised following grounds: Whether on the facts of the case and in law the cita erred in holding that M/s.ICRA Management Consulting Services Ltd, a become bench the of the ass and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a comparable company to benchmark the transaction of the assessee and has erred in directing to exclude this comparable from the set of the comparables, without appreciating the fact that the assessee is also engaged in business of acquiring non-performing loans and other assets and providing long term finance to corporate borrowers thus performing functions which are akin to the functions performed by Ladderup Corporate Services Private Limited. 6. The appellant prays that the order of CIT (A) on the above ground be set-aside and that of the assessing officer be restored. 7. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 3. While, assessee, in its appeal, has raised following grounds: Ground 1: 1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the upward adjustment made by the Assistant Commissioner of Income-tax 14(1)(2), Mumbai (hereinafter referred to as 'learned AO')/ Deputy Commissioner of Income-tax (Transfer Pricing)-1(2)(1), Mumbai (hereinafter referred to as 'learned TPO‟ with respect to the international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnologies (India) Limited and Integrated Capital Services Limited which are functionally comparable to the non-binding investment advisory services rendered by the Appellant; 4.2 In adjudicating on a comparable Future Capital Investment Advisors Limited, which was neither a comparable in Appellant's set nor in learned TPO's set; 4.3 In rejecting the use of contemporaneous and multiple year data available for computing the ALP as on the date of filing of return of income and relying on the single year data (.e. the year ended 31 March 2011) for the purpose of determining the ALP; Each of the grounds of appeal referred above is separate, and may kindly be considered independent of each other. The Appellant craves leave to add, alter, vary, omit, substitute or amend the grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Income Tax Appellate Tribunal to decide this appeal according to law. 4. Both assessee and Revenue are, inter-alia, aggrieved against the findings of the learned CIT(A) in respect of selection of comparables for benchmarking the international transaction pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perating Profit to Operating Cost ( OP/OC ). By considering itself as the tested party, assessee identified 7 comparable companies with three-year average weighted margin of 12.59%. As the assessee computed its own PLI at 20%, accordingly, it claimed that the international transaction of Provision of Investment Advisory Services‟ is at arm‟s length price ( ALP ). In its transfer pricing study, following functions have been stated to have been performed by the assessee in relation to the investment advisory services: a) Advice on investment opportunities in Indian stock market; b) Advice on the merits, timing of any acquisition or disposal of investments held are proposed to be acquired by the overseas funds; c) Assistance in monitoring such investments including the analysis of the performance of the Indian companies and to advise on divestments being considered; d) Advice in relation to the economic and political developments in India having bearing on investment opportunities; and e) To keep under surveillance and review the portfolio from time to time and as circumstances may require, recommend changes in such a portfolio. In the transfer pricing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailability of single year data during transfer pricing assessment proceedings. Learned counsel submitted that assessee in its appeal in ground No. 4.2 has also sought exclusion of this comparable. Accordingly, ground No. 2 raised in Revenue‟s appeal as well as ground No. 4.2 raised in assessee‟s appeal are allowed and the TPO/AO is directed to exclude Future Capital Investment Advisory Services for purpose of benchmarking the international transaction. Further, learned counsel also agreed to the Revenue‟s prayer for exclusion of Goldman Sachs India Securities Private Limited, and therefore ground No. 3 raised in Revenue‟s appeal is allowed. The TPO/AO is directed to exclude Goldman Sachs India Securities Private Limited for purpose of benchmarking the international transaction. 10. Further, learned counsel submitted that if Informed Technologies (India) Ltd and ICRA Management Consulting Services Ltd are directed to be included, while Motilal Oswal Investment Advisers Pvt. Ltd and Ladderup Corporate Advisers Private Limited are directed to be excluded, then entire transfer pricing adjustment made in respect of international transaction of Provision of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, appearing for the assessee, submitted that the assessee is providing non-binding advisory services to its associated enterprises and it was for its associated enterprises to make the final decision in respect of the investments. Learned counsel further submitted that ICRA Management Consulting Services Ltd was accepted as a comparable in assessee‟s own case in earlier and subsequent assessment years. 14. We have considered the rival submissions and perused the material available on record. In the present case, the functional profile of the assessee in respect of international transaction pertaining to Provision of Investment Advisory Services‟ is not in dispute. TPO/AO rejected the impugned comparables selected by the assessee treating them not to be functionally comparable to the assessee. We find that ICRA Management Consulting Services Ltd was selected as a comparable by the assessee in the preceding as well as subsequent assessment years. While, in assessment years 2007 08, 2008 09, 2012 13 and 2013 14, ICRA Management Consulting Services Ltd was selected as a comparable by the assessee for benchmarking its international transaction pertaining to Provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned comparable merely on the basis of functional dissimilarity. However, as stated above the said comparable was not only selected by the assessee, but, the said comparable was also retained by the TPO/AO for benchmarking the international transaction in assessment years 2007 08, 2008 09, 2012 13 and 2013 14. Further, in assessment year 2010 11, learned CIT(A)‟s order directing inclusion of ICRA Management Consulting Services Ltd has not been challenged by the Revenue. Similarly, in assessment year 2009 10, the said company was held to be comparable to the assessee. In the present case, neither there is any allegation by the Revenue that there is any change in functional profile of ICRA Management Consulting Services Ltd in the relevant assessment year nor any material to that effect has been brought on record. 16. Before concluding, it is relevant to note that Hon‟ble jurisdictional High Court in Pr.CIT vs AGM India Advisors Private Limited, in ITA No. 1377 of 2017, vide judgment dated 11/03/2020, for the assessment year 2011-12, upheld the inclusion of ICRA Management Consulting Services Ltd as a comparable to a taxpayer, who was engaged in business of providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally similar to the assessee. In fact, in various decisions cited before us, some of which relate to the impugned assessment year, the Tribunal as well as the Hon'ble Jurisdictional High Court has held that this company is functionally similar to an investment advisory service provider. Therefore, following the consistent view expressed in relation to this company in the judicial precedents referred to above, we direct the Assessing Officer to include this company as a comparable. 21. We further find that Informed Technologies (India) Ltd. was selected as a comparable by the assessee in the preceding as well as subsequent assessment years. In assessment years 2008 09, 2012 13 and 2013 14, Informed Technologies (India) Ltd. was selected as a comparable by the assessee for benchmarking its international transaction pertaining to Provision of Investment Advisory Services‟ and the said transaction was accepted by the TPO and no adjustment was made. In the present case, the TPO/AO rejected the impugned comparable merely on the basis of functional dissimilarity. Further, neither there is any allegation by the Revenue that there is any change in functional profile of Info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvisers Pvt. Ltd. is not comparable to the assessee. The assessee further submitted that Motilal Oswal Investment Advisers Pvt. Ltd. is engaged in merchant banking and other similar activities, which are not functionally comparable to assessee, which is engaged in rendering advisory services. However, TPO rejected the contention of the assessee and considered Motilal Oswal Investment Advisers Pvt. Ltd. As comparable for benchmarking the international transaction. In appeal, learned CIT(A) following judicial precedents directed exclusion of this company for the purpose of benchmarking international transaction. 25. We find from the annual report for FY 2010-11 of Motilal Oswal Investment Advisers Pvt. Ltd., forming part of the paper book, that the company derives its business income from 4 different business verticals, namely, equity capital markets, mergers and acquisitions, private equity syndications and structured debt. However, from the schedules to profit and loss account, we find that there is only one segment under the head income from operations‟ and there is no break-up of the revenue from various business streams this company is engaged. 26. We further find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of financial and management advisory and consultancy fees. In appeal, learned CIT(A) vide impugned order, following decisions of coordinate bench of Tribunal, directed exclusion of this company as the same is not comparable to the assessee. Being aggrieved, Revenue is in appeal before us. 30. During the course of hearing, learned DR vehemently relied upon the order passed by the TPO. On the other hand, learned counsel submitted that this company has been held as not comparable to a taxpayer having similar functional profile as the assessee. 31. We have considered the rival submissions and perused the material available on record. In the present case, during the course of transfer pricing assessment proceedings, assessee submitted that Ladderup Corporate Advisers Pvt. Ltd. is engaged in high end investment banking activity and debt capital management. The assessee, by referring to the website extract of the company, further submitted that the company is engaged in investment banking and debt capital services and not in investment advisory, as is the case of assessee. The assessee also submitted that the company is engaged in the business of merchant bankers and acts as S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the business of providing non binding advisory services, it adopted TNMM to determine the ALP of the international transactions entered into by it with its AEs. The Tribunal observed that (i) Ladderup Corporate Advisory Pvt. Ltd. is registered as a category 1 merchant banking with SEBI and is engaged in rendering merchant banking services w.e.f. July 2010, which factual position stands duly substantiated from the perusal of the web portal extracts of the aforesaid company, (ii) As per the annual report of Ladderup Corporate Advisory Pvt. Ltd, it is engaged in only one segment, which includes merchant banking. Observing as above, the Tribunal held that we thus in the backdrop of the very fact that the aforesaid comparable is engaged in the merchant banking /investment banking and other similar activities, are of considered view that the same cannot be considered as functionally comparable to the assessee company which is engaged in the business of rendering non-binding investment advisory services. In the case of Kitara Capital Pvt. Ltd. (supra), the assessee company is engaged in provision of investment advisory services to its group company. During the AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /07/2010 which fact was duly substantiated by the website of the company as well as its Annual Reports and therefore, not functionally comparable with an entity which was engaged in the business of rendering non-binding investment advisory services. The ratio of this decision has subsequently been followed in recent decision of the Tribunal rendered in Wells Fargo Real Estate Advisors Private Ltd. Vs DCIT [ITA No. 1520/M/2016 17/01/2018]. We also find that the reliance of the revenue on the case of AGM India Advisors Pvt. Ltd. Vs DCIT [supra] was misplaced since no findings regarding this comparable has been given by the Tribunal in that order since the assessee came within the range of +/-5% even with inclusion of this comparable. Therefore, finding identical facts in the present case and respectfully following the judicial precedent, we direct exclusion of this comparable from final analysis. 7.1 Similar view has been taken by the Tribunal for exclusion of Ladderup‟ in the case of General Atlantic Pvt. Ltd.(supra). The relevant extract of the finding of the Tribunal reads as under:- 16. Insofar as Ladderup Corporate Advisory Pvt. Ltd. is concerned, it is seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved against transfer pricing adjustment of Rs. 4,57,86,527 in respect of international transaction of Payment of Interest on Fully Convertible Debentures (FCDs)‟. 36. The brief facts of the case pertaining to this issue, as emanating from record, are: As per the transfer pricing study report, the assessee is engaged in the business of acquiring non-performing loans, other assets and providing medium to long term finance to corporate borrowers. As the assessee would require finance from time to time to engage in the activities described above, assessee requested its associated enterprises (CCP Cyprus) to provide such finance by subscribing to FCDs issued by the assessee on a private placement basis. All the FCDs issued by assessee to the associated enterprise carried interest at the rate of 12%, during the year under consideration. The assessee benchmarked this international transaction by applying Comparable Uncontrolled Price ( CUP‟) method as the most appropriate method. Further, the assessee considered the lending rates offered by other banks, as published by RBI on a quarterly basis, in respect of advances other than export credits to be an appropriate ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Partner (India) Pvt. Ltd. vs DCIT, in ITA No. 6641 and 6642/Mum/2012, vide order dated 22/04/2021, for assessment year 2005 06 and 2007-08, while considering similar issue upheld the TPO‟s approach of adopting average PLR of Indian banks, observing as under: 9. Considered the rival submissions and material on record. We notice that assessee has issued fully convertible debentures represented by Indian currency and agreed to pay 12% per annum to its A.E. In initial year that is assessment year 2005-06, assessee adopted PLR +5% and subsequently it adopted fixed rate of 12%. At the time of benchmarking for the purpose of TP study assessee adopted on the basis of PLR data of Indian banks maintained by RBI and it adopted the maximum interest rate range at which at least 60% of the business was contracted by the commercial banks. We notice that on the other hand TPO adopted the average of the PLR of Indian banks as it would be the most appropriate comparable while applying the CUP method. We notice that the assessee argues that investment in its company would be inherently risky due to following reason that it is in start-up stage and it received its NBFC license only in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minimum risk. Since the assessee has already mitigated the risk by investing in the fully convertible debentures when the risk is already mitigated one more time the same risk element cannot be considered for bench marking on the interest payment also. Based on the above discussion, we are in agreement with the findings of the Ld CIT(A) therefore the grounds of appeal raised by the assessee in both the appeals are dismissed. 41. As there is no change in facts and the methodology adopted by the assessee for benchmarking the international transaction of Payment of Interest on FCDs‟ has been accepted in the prior years, we see no reason to deviate from the view so taken by the coordinate bench of Tribunal in assessee‟s own case cited supra. Further, the learned DR could not show us any reason to deviate from the aforesaid order. Thus, respectfully following the order passed by the coordinate bench of Tribunal in assessee‟s own case cited supra, we uphold the plea of the assessee and delete the impugned adjustment in respect of international transaction of Payment of Interest on FCDs‟. Accordingly, grounds No. 1 and 2 (and sub-grounds thereto), raise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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