TaxTMI 
TaxTMI 
2013 (1) TMI 797
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.... under section 143(3) of the ITA (Impugned Order") and the directions issued by the Dispute Resolution Panel ("the DRP") under section 144C (5) of the ITA ("Impugned Direction") are bad in law and on facts and against the principles of natural justice 2. That the learned DCIT along with the DRP grossly erred in failing to appreciate the invalidity of assessment proceedings initiated against the Appellant, on account of the following grounds: a. Passing of the Impugned Order without the issuance of a valid notice under section 143(2) of the ITA ("Impugned Notice"); b. Failing to appreciate the need to use "reasonable effort' before service of a notice through affixture; c. Failing to appreciate the legal provisions permitting the Appellant to raise objections questioning the validity of the Impugned Notice at any time before the completion of assessment 3. That the learned DCIT along with the DRP erred in confirming the adjustment proposed by the Transfer Pricing Officer without understanding the business of the Appellant and facts and circumstances of the case 4. That the learned DCIT grossly erred in drawing factually incorrect....
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....98 under section 234B of the ITA 16. That the DCIT erred in levying interest of Rs. 277,298 under section 234C of the ITA as against interest of Rs. 155,079 computed by the appellant as per the return of income. 3. First we take up the issue in respect of transfer pricing adjustment as raised in ground nos 3 to 13 3.1 Briefly stated facts of the case are that the assessee is a company registered in India and belongs to the General Atlantic Group (GA), which is a private equity investment firm. The assessee is providing private equity investment advisory services to its AE i.e. General Atlantic Service Corporation (GASC LLC) a Delaware limited Liability Company. GASC LLC is engaged by GA in providing management services to its affiliated limited partnership globally. The hierarchical structure chart of GA group is as under: GA Atlantic PE investment firm - investment Committee GASC LLC Investor Manager (AE) General Atlantic Pvt Ltd - GAPL (Assessee) 3.1 GASC LLC is rendering the services to GA which includes (i) assistance in connection with the identification, investigation and analysis of potential investments and the management and disposition of invest....
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....ordingly, the TPO proceed to determine the arms length price by selecting its own comparables companies. For this purpose, the TPO has carried out search with the key words; merchant banking/corresponding banking and investment advisory services". The TPO finally selected 8 comparable companies and worked out the asthmatic mean by taking into consideration the single year data at 39.85% as against assessee's operating profit at 13.12% which resulted in TP adjustment of Rs. 3,48,59,293/- 3.6 After receiving the order passed by the TPO, the Assessing Officer sent a draft assessment order to DRP proposing an addition towards upward adjustment made by TPO at Rs. 3,48,59,293/-. The assessee raised the objections against the draft order of the Assessing Officer before the DRP including the objection against the validity of the notice issued u/s 143(2) through affixation. 3.7 The main objection of the assessee against the TP adjustment made by the TPO was the comparables selected by the TPOare not acceptable to the assessee because these are related to the merchant banking/investment banking whereas the assessee is providing advisory services only which is in the nature of support s....
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....lect GAPL India staff during the said meetings; 7. GASC LLC professionals discuss with the potential investee's management the potential of entering into a non-binding term sheet or letter of intent with respect to investment; 8. GASC LLC professionals share observations and conclusions of their discussion with the management of the investee companies with other GASC LLC professionals; 9. GASC LLC professionals further analyse any new information provided to aid in the decision of whether the investee company is a suitable for presentation to the investment committee of General Atlantic; 10, when an investee company is finalized for evaluation by the investment committee, GASC LLC provides guidance to GAPL India staff to prepare the information memorandum for submission to the investment committee 11. GAPL India provides the draft information memorandum to GASC LLC; 12. GASC LLC edits the information memorandum and prepares presentation materials and determines the logistics for presentation to the investment committee; 13. The investment committee decides not only on India specific investments but all the investments t....
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....nd made worldwide during the year, only two companies were related to investment in India. These details clearly show that the role of the assessee is nowhere connected with the final decision taken by the investment committee and therefore, the risk of identifying and converting a potential investee company into a favourable deal for its investor is the primary responsibility of GASC LLC. Even there is no guarantee that such an offer made by GASC LLC will be accepted by the Investment committee. 4.4 The ld Sr counsel has submitted that the role of the assessee starts by carrying out research on specific industry or company. On the basis of the information collected, the assessee provides recommendation and advice on the viability of the proposed investment to GASC LLC. Once the investee company is finalised by the GASC LLC for evaluation by the investment committee, GASC LLC would provide guidelines to the assessee's staff. Therefore, it was contended that the primary role of the assessee is limited to collecting information, providing recommendations and advice on the basis of information collected. In addition to this primary role, the assessee renders certain services to GAS....
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....see has no role in transfer of funds or investment in India. Therefore, the assessee's reports are independent to be considered by the investment committee. That is why, out of several presentations, only 27 reached to the investment committee and out of 27 only two companies were found suitable for investment and actual investment. Only GASC LLC has to decide on the advice to be forwarded to the Investment Committee. 4.7 The ld Sr counsel has further submitted that for the calendar year ended Dec 2005, GASC LLC has incurred an operating loss of US $ 1922940; therefore, the group as a whole along with its subsidiaries has incurred loss for the year under consideration. Whereas India, being a low risk service provider, has earned an assured cost plus mark up for rendering certain advisory services which should be considered at arm length price. 4.8 The ld Sr counsel has submitted that it would also be important to note that quite often leads for investment opportunities, may come from GASC LLC or from entities/affiliates outside India. An example of this scenario is GA's investment in GenPact. A managing director of GASC received a phone call from an industry colleague who ale....
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....ench of the Tribunal in the case of Carlyle India Advisors Private Ltd. (supra). He has referred the nature of the activity of Carlyle India Advisors Private Ltd ., and submitted that it is similar to the assesse's activity and therefore, the comparable considered by the TPO for determination of ALP are not sustainable as held by the Tribunal. 4.11 The ld Sr counsel for the assessee has submitted that since the operating margin of IDC Ltd., is at 14.58%, which is within + - 5% of the assessee's margin at 13.12%; therefore, no adjustment can be made. He has further submitted that even for comparisons of non risk entity like assessee with much high risk entity, multiyear data must be taken into consideration. 4.12 On the other hand, the ld DR has relied upon the orders of the authorities below and submitted that the functional comparability has to be for the same year. The order in the case of Carlyle India Advisors Private Ltd.(supra) pertains to AY 2007- 08 whereas the AY in the assessee's case in question is 2006-07; therefore, the company found as functionally comparable for the AY 2007-08 need not be necessarily be a suitable comparable for a different Assessment Year. ....
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....t advisory related support services to the GPs. To primarily identify and evaluate potential investee companies in India, Carlyle Hong Kong engaged the services of the Assesssee. Carlyle Hong Kong had entered into a Services Agreement with the Assessee effective from April 1, 2006 read with letter dated April 1, 2006 exchanged between the two ('Services Agreement') for rendering services. Scope of Services: As per the terms of the Advisory Agreement, Assessee inter-alia provides following services ('the said Services') to Carlyle Hong Kong: a. Analysis of investments opportunities and the provision of general advice in relation thereto, as per Carlyle Hong Kong's instructions b. Analysis of information to Carlyle Hong Kong on the merits, timing, structure, and appropriate terms of any acquisition or disposal of investments and general advice in relation thereto; c. Monitoring of all investments by the Funds from time to time under the instructions of Carlyle Hong Kong, and the provisions of reports thereon to Carlyle Hong Kong; d. Provision of information in relation to the economic and political developments in India having a b....
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.... at page 75 of the Paper Book. In this list the above three companies which were included in the final list of eight comparable companies selected by the TPO and which were earlier rejected by him have been listed. The reasons given by the TPO for rejecting these companies are comparable in his earlier correspondence were as follows: (i) M/s. Chatered Capital & Investment Ltd., on the ground that the company on a qualitative review and for the reason that its income is from merchant banking services. ii) M/s. Khandwala Securities Ltd., on the ground that the company on a qualitative review and for the reason that its income is from acting as Security and stock brokers. iii) M/s. Sumedha Fiscal Services Ltd. on the ground that the company on a qualititative review and for the reason that its income is from loan syndication and project consultancy services. 5.7 As it is clear from the comparables selected by the TPO in the case of the assessee before us that all these comparables are common to the comparables selected by the TPO in the case of Carlyle India Advisors Private Ltd (supra). In the said case, the Tribunal has found that only one comparable i.....
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....action [or specified domestic transaction] has actually been undertaken shall be deemed to be the arm's length price.] [Explanation.-For the removal of doubts, it is hereby clarified that the provisions of the second proviso shall also be applicable to all assessment or reassessment proceedings pending before an Assessing Officer as on the 1st day of October, 2009.] 5.10 The language of this proviso makes it clear that selecting a price within the range of +-5% of such arithmetic mean if more than one price is determined by the most appropriate method. Therefore, the ALP shall be taken to be in the range of +_5% of arithmetic mean of more than one price. Since in this case, one comparable is considered as ALP; therefore, the benefit under the said proviso would not be available. 5.11 As far as the multiyear data of the comparable are considered by the assessee is concerned, this issue is now settled and the current year data are taken into consideration until and unless some exceptional circumstances are brought on record to show that one year data of comparable do not give true picture being influent by such circumstances. As per Rule 10B (4) for determining the....
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....f the assessee and the comparables has been brought on record. Even otherwise, the adjustment on this account can be made when some real and accurate effect of such differences are brought on record. When the assessee has not properly quantified the alleged adjustments on account of differences in asset employed and risk assumed viz-a-vis the comparable, then we do not find any merit and substance in the claim of the assessee for adjustment in respect of risk, asset and functional differences. 5.15 Since the issue of ALP is principally decided in favour of the assessee as far as comparable are concerned, therefore, we do not propose to go into the validity of notice issued u/s 143(2) as raised in para 1 & 2. 6. Ground no.14 is not arising out of the impugned order and the assessee may seek remedy available under the law. 7. Ground no.15 & 16 are regarding levy of interest u/s 234B, C which is consequential in nature and no specific finding is required. 8. In the result, the appeal filed by the assessee is partly allowed. Order Pronouncement in the Open Court on this 31st day of Jan 2013. ============= Document 1 5 M/s. Keynote Corporate Services Ltd. S.No Nam....