TaxTMI 
TaxTMI 
2014 (11) TMI 346
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....rth Rs. 98,90,66,951/- to Xander Investment Management Ltd., Mauritius, its associated enterprise. Functional profile of the assessee, as set out by the Transfer Pricing Officer (TPO) on page 2 of his order, divulges that the assessee maintains an advisory relationship with its AE by sourcing and evaluating potential investment opportunities in India. Such opportunities are sourced by the assessee through direct proprietary relationship, intermediaries, electronic media and magazines, etc. Once a potential investment opportunity is sourced, the broad contours are discussed with its AE. On the basis of such discussion, the assessee is directed to either pursue the proposal or reject the same. If the opportunity is to be pursued, a detailed research exercise is conducted spreading over primary research including site visits for understanding demand-supply scenarios benchmarking of existing projects, vis-a-vis the opportunity, gauging competition, etc. to secondary research and, thereafter, engaging in discussions with the Indian counterparts in joint venture situations. Research for various analyses as conducted by the assessee above are presented in the form of an investment memo to....
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....held. At this juncture, it is pertinent to note the difference between a merchant banker and a private equity fund. 6. A merchant bank, apart from helping businessmen in raising finance, also renders consultancy services. It helps its clients in raising finance through issue of shares, debentures, bank loans, etc., from the domestic and international market. The term "Merchant Banker' has been defined in the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922, to mean : 'any person who is engaged in the business of Issue Management either by making arrangements regarding selling, buying or subscribing to Securities as Manager, Consultant, Adviser of rendering Corporate Advisory Service in relation to such Issue Management'. Its activities also include project counseling, corporate counseling in areas of capital restructuring, amalgamations, mergers, takeovers, discounting and rediscounting of short term papers in money market and acting as brokers in stock exchange and advisers on port folio management. On the other hand, a Private equity firm also known as a Private equity fund (hereinafter also called the 'PE fund'), is a group of investors, which collects money from wealthy indiv....
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....s, Xander Master Fund. The name by which a transaction is coined is not decisive of its character. It is the real nature of a transaction which is always relevant and conclusive. A bare perusal of the nature of activities carried out by the assessee in the extant international transaction abundantly proves that these are not that of a PE Fund. Ex consequenti, the decisions cited by the ld. AR seeking to canvass the exclusion of three companies on the strength of the assesse in those cases acting as PE Funds, do not advance his case any further. As such, we are desisting from considering such decisions, which were rendered drawing distinction between a merchant banker and a PE Fund and holding that a merchant banker cannot be considered as comparable to a PE Fund. Be that as it may, a company cannot be considered as comparable or incomparable on the generality of mere description of its overall category. This assumes more significance when a company is otherwise entitled to pursue several lines of activities. One needs to verify the nature of activity actually carried on for deciding its comparability or otherwise. No nomenclature can superimpose the real character of a transaction.....
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....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 such investment opportunity, then, to get involved in the process of finalization of the deal and then provide support services, including maintenance of books of account....
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....pital raising advisory and transaction execution relating to structured finance, real estate and infrastructure. Thus, out of total of 46% of the gross revenues of this company lying under the overall 'Corporate advisory services division', it is manifest that only some of the activities undertaken by it bear some similarity to those carried on by the assessee. However, if one may have to answer it as comparable or incomparable in totality, we can't term it as comparable because of the absence of any bifurcation of the income from advisory services in this overall segment. The fact that apart from entity level, no details of this overall segment of 'Corporate Advisory Services' are available, further cements our viewpoint. On the overall perspective, this company on an entity level cannot be considered as comparable with the assessee because of lack of any segmental data. We, therefore, order for the exclusion of this company from the list of comparables. Sumedha Fiscal Services Ltd. 13. The assessee argued before the TPO that this company could not be considered as comparable because its segment for Consultancy services also included income from merchant banking activity. The TP....
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....O's end, is impermissible. The Department cannot approbate and reprobate at the same time. The Special Bench of the Tribunal in DCIT vs. Quark Systems (P) Ltd., (2010) 132 TTJ (Chd) (SB) has allowed the assessee to claim exclusion of certain companies from the list of comparables which were inadvertently included by it in its transfer pricing study. We, therefore, reject this contention advanced on behalf of the Revenue. 16. To sum up, we direct the exclusion of the afore referred three companies from the list of comparables. The impugned order is set aside pro tanto and the matter is sent back to the TPO/AO for determining the ALP of the international transaction by considering the remaining four companies as comparable. It is made clear that on all other aspects, the order of the TPO is final and unchanged. 17. The only other ground argued by the ld. AR is against the disallowance of Rs. 2,48,589/- made by the AO u/s 14A of the Act read with rule 8D of the I.T. Rules, 1962. The facts apropos this ground are that the assessee earned dividend income from mutual funds to the tune of Rs. 10.32 lac, which was claimed as exempt. The AO, on perusal of the balance sheet, observed that ....