2015 (11) TMI 1506

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....lly perused the orders of the authorities below and with the assistance of the Ld. Senior Counsel, we have considered the relevant documentary evidences brought on record in the form of Paper Book. 2.3. Briefly stated the facts of the case are that the assessee is a company registered in India and belongs to the General Atlantic group which is a private equity investment firm. The assessee is providing private equity investment advisory services to its AE which is General Atlantic Service Corporation USA (GASC LLC) a Delaware Limited liability company. GASC LLC is engaged by GA in providing management services to its affiliated limited partnerships globally. 2.4. The assessee is wholly owned subsidiary of GASC LLC based in India and providing information on industries alongwith information in relation to potential targets located in Indian Jurisdictional to its AE GASC LLC, as per the service agreement dated 31.10.2002 entered into between the parties. 2.5. In the Transfer Pricing report, the business of the assessee company is explained as under: "General Atlantic Service Company, LLC, (USA) ('GASC LLC'), a Delaware limited liability company, is engaged i....

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....e of the company Margins 1. Centrum Capital Ltd. 35.91% 2. Chartered Capital & Investment Ltd 86.93% 3. Edelweiss Capital Ltd. -61.84%   4. Keynote Corporate Services Ltd. /82.11% 5. L&T Capital Co. Ltd. 340.69% 6. S R E I Capital Markets Ltd. -17.57% 7. Sumedha Fiscal Services Ltd. 59.93% 8. I D C (India) Ltd. 9.99%   Average 67.02%   2.10. The assessee was asked to explain why these companies should not be accepted during the year under consideration also. Vide letter dated 29.10.2012, the assessee strongly objected to the inclusion of these companies as comparables stating that these companies are functionally different because they are doing investment banking as well as investment advisory. Rebutting the claim of the assessee, the TPO asked the assessee to justify the selection of comparables made by it wherein the companies are also not exclusively engaged in investment advisory. The TPO further noticed that the assessee has excluded certain companies on the ground that these are not functionally comparable. The assessee was asked to explain why the following companies hav....

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.... 12,14,61,293     2.13. Finally an adjustment of Rs. 12,14,61,293/- was made to the income of the assessee on account of consultancy services. 3. The assessee carried the matter before the DRP and strongly objected to the selection of comparables made by the TPO. Once again it was strongly contended that the comparables selected by the TPO are functionally different companies where main function was that of a merchant banker whereas the assessee is an investment advisor. After considering the facts and the objections raised by the assessee, the DRP directed to accept the following comparables which are similar in activities with the assessee for computing Arm's Length Price required for finalizing the value of international transactions: Sr. No. Company Selected by 1. Crisil Risk & Infrastructure Solutions Ltd. Assessee 2. ICRA Management Consulting Services Ltd., Assessee 3. IDFC Investment Advisors Ltd. Assessee   4. Future Capital Investment Advisors Ltd., Assessee 5. IDC (India) Ltd. Assessee 6. Chartered Capital & Investment Ltd. TPO 7. Edelweiss Capital Ltd. TPO 8. Sumed....

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..... 7. The bone of contention is whether a merchant banker can be compared with an investment advisor. It may be like comparing apples with oranges. One may say that what is the difference, both are fruits. But on second thought except that both are fruits can they be said to be on the same level playing field? The definition of investment advisor as given in Investopedia reads as under: "As defined by the Investment Advisors Act of 1940, any person or group that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications. An investment advisor who has sufficient assets to be registered with the SEC is known as a Registered Investment Advisor, or RIA. Investment advisors are prohibited from disseminating advice known to be deceitful or fraudulent, and from acting as a principle on their own accounts by buying and selling securities between themselves and a client without prior written consent." and the definition of merchant bank given in Vikipedia is as under: "A merchant bank is a financial institution providing capital to companies in the form of share ownership ins....

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.... again it can be seen that this company is also functionally not comparable. As mentioned elsewhere, the Tribunal in assessee's own case in A.Yrs 2006-07 and 2007-08 has rejected the inclusion of this company. 3. Sumedha Fiscal Services Ltd. At Page-212 of the Paper book, the Profile of this company has mentioned which says that this company is a boutique financial services and advisory solutions. It has proven expertise in analyzing and advising on various business and financial models. The investment service provide by this company are in the field of Stock Broking, Depository services, Commodity Broking and Currency Derivatives Broking and Corporate services are for equity placement, Financial Restructuring, Merchant Banking and also Mergers and Takeovers. This company has earned income from fee based activities like Loan Syndication and Project Consultancy Services at Rs. 787.63 lacs. We have further gone through the financials of this company alongwith the auditor's report. We find that this company is also functionally not comparable with the assessee and for similar reason the Tribunal has excluded this company from the final list of comparables in A.Yrs 2006-07 & 2....