AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1174
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....t's total income, in respect of non-binding investment advisory services transaction of the Appellant alleging the same to be not at arm's length in terms of the provisions of Sections 92C(1) and 92C(2) of the Income -tax Act, 1961 ['the Act'] read with Rule 10B of the Income-tax Rules, 1962 ['the Rules']. (2) The CIT(A) erred on facts and circumstances of the case and in law in upholding the action of the AO, in not accepting the arm's length price determined by the Appellant, and in choosing to determine the arm's length price by making reference to the TPO even though none of the conditions laid down under section 92C(3) of the Act, were satisfied. (3). The CIT(A)/ AO/ TPO erred on facts and circumstances of the case and in law in disregarding the methodically prepared Transfer Pricing documentation submitted by the Appellant and in not appreciating that the arm's length price of the international transactions in relation to non-binding investment advisory services was appropriately determined in the Transfer Pricing documentation applying Transactional Net Margin Method. (4). The CIT(A)/AO/TPO erred on facts and circumstances of the ....
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....ny time before or at the time of hearing of the appeal." 2. That the present appeal filed by the assessee involves a delay of 38 days. The assessee had filed an application seeking condonation of delay, which is supported by an 'Affidavit' of the director of the assessee company therein deposing the facts leading to delay in filing of the appeal. It is claimed by the assessee that the order of the CIT(A) was received on 13th September 2014 and the 'Memorandum of appeal' was duly signed by the director of the assessee company, viz. Shri Puneet Bhatia as on 07.11.2014. It is stated that though the assessee had sent the office boy for filing of the appeal with the Income-tax Appellate Tribunal on 10.11.2014, however the latter inadvertently filed the same with the office of the Ld. Departmental Representative of the Tribunal. The assessee in order to fortify the aforesaid factual position had therein enclosed the copy of the acknowledgement of receipt of the aforesaid appeal given by the office of the Departmental representative on 10.11.2014. It is stated by the director of the assessee company that he was not aware about the said mistake involved in filing of the appeal. It is fu....
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.... delay of 38 days in filing the present appeal is thus allowed. BRIEF BACKGROUND: 3. The brief facts of the case are that the assessee company which is engaged in the business of providing Sub-investment advisory services, Market research and Statistical data to its holding company ,viz. TPG Capital LLP had filed its return of income for A.Y.2009-10 on 30.09.2009 declaring total income of Rs. 2,77,02,075/-. That during the year the assessee had entered into various international transactions with its Associate Enterprise (AE) and had furnished 'Form 3CEB' in support of such transactions. BEFORE THE A.O AND TPO : 4. The case of the assessee was taken up for scrutiny proceeding u/s. 143(2) and a reference was made by the A.O under Sec. 92CA(1) to the Transfer Pricing Officer ('TPO') for determination of the Arm's Length Price ('ALP') in respect of the International transactions carried out by the assessee with its AE. The assessee submitted before the TPO that for determination of the ALP as regards the 'Investment Advisory Services' rendered to its AE, it had selected TNMM as the most appropriate method. The assessee had selected itself as a tested party and the PLI sele....
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....d over and above the cost of service by the recipient of the advisories. The nature of business is such that it is neither labour intensive nor asset intensive and is purely run on the strength of professional war force, who charge sufficient mark ups on the professional services rendered by them. Loss notices in such business is certainly due to some abnormal situation/factors which has to be taken into account before accepting a loss making entity in this segment, as a comparable. The assesse has not offered any valid reasons with supporting data for the operating loss incurred by the company. Hence, such a comparable is liable to be rejected. 4. KPIT Cummins Global Business Solutions Ltd. As in the case of Future Capital Holdings Ltd., this company has incurred substantial operating loss of (-) 16.98% during the FY 2008-09. For the reasons elaborated above, such a loss making entity cannot be selected as a comparable. The TPO thus concluded that only 3 comparables given by the assessee in its TPSR could feasibly be accepted for benchmarking, as under:- Sr. No. Name of the comparable Weighted Avg. (OP/OC) (%) 1. ICRA Online Ltd. 41.42 2.....
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.....02.2013, therein incorporating the proposed adjustments suggested by the TPO. The A.O on being informed by the assessee that it wanted to exercise its option to appeal to the CIT(Appeal) against the variations/additions to its income and does not wish to proceed before the Dispute Resolution Panel (DRP) for dispute resolution, therefore carried out an adjustment of Rs. 7,17,85,793/- as suggested by the TPO and assessed the income of the assessee at Rs. 9,94,87,870/-. BEFORE CIT(A) : 7. The assessee assailed the assessment order before the CIT(Appeal). The CIT(A) after deliberating on the contentions of the assessee, therein observed as under:- (i). The CIT(A) did not find favor with the contention of the assessee that it had followed a methodical search process in Transfer Pricing documentation and observed that the TPO had not disturbed the TNMM followed by the assessee, but due to its faulty search process had only rejected few comparables and added few more comparables in order to make the comparability more effective. (ii). The CIT(A) being of the view that the case of the assessee was covered by the provisions of Section 92C(3)(a)/(c) of the 'Act', therefore no in....
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....es the use of data for the purpose of analysis, thus held that the contention of the assessee was misconceived and could not be accepted. (vi). The CIT(A) further rejected the claim of the assessee that as the companies selected by the TPO were exposed to significant business and market risks for which reasonable adjustment should have been allowed, therein observing that the assessee except for making the aforesaid statement had however failed to demonstrate as to how there was any difference in business and market risks of the comparables selected by the TPO, as in comparison to the assessee. It was further observed by the CIT(A) that when most appropriate method adopted by the assessee is TNMM, then the adjustment had to be in terms with Rule 10B(1)(e). (vii). The CIT(A) further relied on the order of the ITAT, Delhi in the case of : Techbooks International (P) Ltd. Vs. ACIT (2014) 45 taxmann.com 528, wherein it has been held that the AO at the time of making a reference to the TPO is not required to record detailed satisfaction that price charged/paid in an international transaction is not at ALP. The CIT(A) rejected the claim of the assessee that before making a referenc....
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....for the reason that the RPT in the case of the said comparable was more than 25%. The Ld. A.R further relied on the order of the ITAT, Mumbai in the case of: IIML Asset Advisors Ltd. Vs. ACIT (ITA No. 5173/Mum/2012, dated 22.02.2013- AY 2008-09), wherein the tribunal observing that the aforesaid comparable, viz Crisil Ltd. (supra) had substantial revenue from research, i.e revenue of Rs. 116.4 crore from research, as compared to advisory revenue of only 8.76 crore. It was further submitted by the Ld. A.R that the 'Annual report' of Crisil Ltd. (supra) for the year 2007 revealed that it was Indias leading independent and integrated research house which meets the requirement of more than 600 domestic and integrated clients, having unparalleled width and breadth spanning the entire economy. Thus in the backdrop of the aforesaid facts, it was submitted by the Ld. A.R that no feasible comparison could be arrived at by adopting the aforesaid comparable, viz Crisil Ltd. (supra), which as such was liable to be excluded. That on the other hand the Ld. D.R relied on the orders of the lower authorities and therein averred that the said comparable was functionally comparable and after thorough....
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....information advisory services, therefore, a feasible company level comparison with the said comparable could not be carried out. The Ld. A.R further taking us to the relevant extract of the 'Annual report' of the aforesaid comparable (Page 825 of APB), therein substantiated his contention that the main source of income of the aforesaid comparable was from 'Rating services' (including 'credit service'), and not advisory services. The Ld. A.R further took us through the 'Segment breakup' which duly substantiated his aforesaid contention. The Ld. A.R further relied on the order of ITAT 'K' Bench, Mumbai, in the case of DCIT, Mumbai Vs. Temasek Holdings Advisors Pvt. Ltd., Mumbai (ITA 968/mum/2014, dated 27.06.2014- AY 2009-10). Thus in light of the aforesaid observations so recorded by the Tribunal in the abovementioned case, it was submitted by the Ld. A.R that the aforesaid comparable so adopted by the TPO, viz ICRA Limited. (supra) could safely be held to be functionally incomparable. The Ld. A.R further in support of his aforesaid contention relied on the order of ITAT 'K' bench, Mumbai, in the case of : Temasek Holding Advisors (India) Pvt. Ltd., Vs DCIT, Mum (ITA No. 4203/mum/20....
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....the Ld. A.R that the aforesaid comparable, viz ICRA Limited being functionally incomparable has to be excluded from the list of the comparables selected by the TPO, and thus direct accordingly. (3). SBI Fund Management Ltd.- That the Ld. A.R submitted that the aforesaid comparable, viz SBI Fund Management Ltd. was an 'Asset manager' and unlike the assessee was not into investment advisory business. The Ld. A.R in order to fortify his contention therein took us through the relevant extracts of 'Annual report' of the aforesaid comparable (Page 695- 696 of APB). The Ld. A.R in order to further support his contention that the main source of income of the aforesaid comparable, viz SBI Fund Management Pvt. Ltd. (supra) was by way of 'management fees', therein took us to its 'Profit and loss account' for the Financial Year: 2008-09 (Page 704 of APB), which on a bare perusal substantiated beyond any scope of doubt the aforesaid claim of the Ld. A.R. Thus in the backdrop of the aforesaid averments it was submitted by the Ld. A.R that the aforesaid comparable selected by the TPO was functionally incomparable and hence was liable to be excluded. The Ld. A.R further relying on the order of ....
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....rable selected by the TPO, unlike the assessee, was an asset management company. The Ld. A.R in order to fortify his aforesaid contention therein took us to the relevant extracts of the 'Annual report' of the aforesaid comparable (Page 757 & 763) ,wherein a glance over the 'Profit and loss a/c' of the said comparable for the year under consideration therein revealed that the main source of income of the aforesaid comparable, viz Sundaram Asset Management Ltd. (supra) was 'Investment management fees', while for the advisory fees was substantially on the lower side. That still further the Ld. A.R took us to Page 677 and Page 770 of the APB, which further substantiated the fact that the said comparable was primarily into asset management, investment advisory services and portfolio management services. The Ld. A.R in order to support his claim that the aforesaid comparable could not be adopted as a feasible comparable in the case of an assessee which was rendering investment advisory services to its holding company, therein relied on the order of ITAT 'K' bench, Mumbai, in the case of : DCIT Vs. Temasek Holding Advisors Pvt. Ltd. (ITA No.968/Mum/2014, dated 27.06.2014 AY 2009-10), wher....
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....nally incomparable. The fact that no feasible comparison could be effected between the assessee company which is in the business as that of Investment advisory, as against the aforesaid comparable, had been appreciated in the host of orders passed by the coordinate benches of the Tribunal to which our attention was drawn by the Ld. A.R during the course of hearing of the appeal. We are of the considered view that in the backdrop of the aforesaid facts as stands emerged from the records and loudly fortifies the fact that the aforesaid comparable viz SBI Fund Management Ltd.(supra) is functionally incomparable with the assessee, and finding no reason to take a different view as against that arrived at by the coordinate benches of the Tribunal in the case of : DCIT Vs. Temasek Holding Advisors Pvt. Ltd. (ITA No.968/Mum/2014, dated 27.06.2014 AY 2009-10) and Temasek Holding Advisors Pvt. Ltd. Vs. DCIT (ITA No. 4203/Mum/2012 - AY 2007-08 and ITA No. 6504/Mum/2012 - AY 2008-09, dated 30.08.2013) and the judgments of the Hon'ble High Court in the case of : CIT Vs. General Atlantic Pvt. Ltd., (ITA No.1993 of 2013, dated 08.3.2016) and CIT Vs. M/s Carlyle India Advisors (P) Ltd. (ITA No. 12....
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....ssee which was engaged in investment advisory business. The Ld. AR further took support from the order of the ITAT, Mumbai 'K' bench in the case of : IIM Asset Advisors Ltd. Vs ACIT (ITA No.5173/Mum/2012, dated 22.02.2013-AY 2008-09), wherein the Tribunal taking cognizance of the fact that the aforesaid comparable had RPT of 88.49%, had therein proceeded with and found favor with the contention of the assessee that the aforesaid comparable so included by the TPO was liable to be excluded. That the Ld. D.R on the other hand placed heavy reliance on the orders of the lower authorities and therein averred that the aforesaid comparable was functionally comparable and had rightly been selected by the TPO for benchmarking the ALP of the international transactions of the assessee with its AE as regards its Investment Advisory Services. We have heard the Ld. Representatives, perused the orders of the lower authorities and the records available before us and are of the considered view that in light of the functional incomparability as well as substantial RPT involved in the case of the said comparable, as had been so observed by the coordinate benches of the Tribunal in the case of : DCI....
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....rgin of 2.39% in comparable segment in the preceding year, the same could not be considered as a loss making company. That it was thus submitted by the Ld. A.R that now when the aforesaid comparable was not into continuous loss making for more than 3 years, which was a fact borne from record, therefore, it could not be excluded as a feasible comparable on the ground that it was a loss making company. That on the other hand the Ld. D.R relied on the order of the lower authorities and therein submitted that the TPO had rightly excluded the aforesaid comparable, which thereafter had rightly been upheld by the CIT(A). We have given a thoughtful consideration to the submissions of the Ld. representatives and after perusing the records to which our attention was drawn during the course of the appellate proceedings, we are of the considered view that though it is a fact that the aforesaid comparable, viz Future Capital Holding Ltd., for the year under consideration had reflected a loss and its OP/OC was -25.04%, but then as stands gathered from the records, it remains as a matter of fact that in the immediately preceding year the said comparable had made profits and its OP/OC was 23.31....
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...., dated 27.06.2014 - A.Y 2009-10). (ii) Temasek Holdings Advisors India Pvt. Ltd., Vs. DCIT (ITA No. 776/Mum/2015, dated 25.02.2016 - A.Y. 2010-11). (iii) M/s General Atlantic Pvt. Ltd., Vs. DCIT (ITA No. 199/Mum/2014, dated 06.11.2015 - A.Y 2009-10). (iv) Avenue Asia Advisors Pvt. Ltd. Vs. DCIT (ITA No. 6638/Den/2013, dated 22.01.2016 - A.Y 2009-10). (v) AGM India Advisors Pvt. Ltd. Vs. DCIT (ITA No. 4456/Mum/2015, dated 18.05.2016 AY 2010-11). The Ld. AR further drawing support from the fact that the aforesaid order of the Tribunal so passed in the case of General Atlantic Pvt. Ltd. (supra) had thereafter been upheld by the Hon'ble High Court of Bombay in the case of : CIT Vs. General Atlantic Pvt. Ltd. (ITA No. 8914 of 2010, dated 08.03.2016 - A.Y 2006-07), therein submitted that now when pursuant to the aforesaid judgment of the Hon'ble High Court the functional comparability of the aforesaid comparable was no more res-integra therefore the adverse inferences so drawn by the lower authorities were liable to be set aside. That on the other hand the Ld. D.R though conceded to the fact that the RPT in the case of the aforesaid comparable was ....
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....said comparable, viz ICRA Management Consulting Services Ltd., (supra) from the list of the comparables selected by the assessee, and direct accordingly. (3). KPIT Cummins Global Business Solution Ltd:- That it was submitted by the Ld. A.R that the aforesaid comparable was excluded by the TPO for the reason that the latter had incurred operating loss of -16.98% during the year under consideration, and as the same was a loss making company, therefore it could not be selected as a comparable. The Ld. A.R in context of the aforesaid observations of the lower authorities, therein averred that as the aforesaid comparable was not a persistent loss making company, therefore drawing of adverse inferences for the reason that the latter had incurred operating loss during the year under consideration would not justify the exclusion of the same from the list of the comparables selected by the assessee. In this regard the Ld. A.R fortified his contention by relying on the order of the ITAT, Pune Bench in the following cases:- (i) Bobst India (P) Ltd. Vs. DCIT (2015) 63 taxmann.com 339 (Pune). (ii) Tibco Software India Pvt. Ltd. Vs. DCIT (2015) 50 taxmann.com 91 (Pune) ,w....
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....imarily engaged in the business of research and survey service and products, and thus as per the TPO it could safely be concluded that the business of the said comparable was quite dissimilar from the focus of assessee's business, as it was not into offering investment advisory services. The Ld. A.R referring to the aforesaid observations of the TPO which thereafter had been upheld by the CIT(A), therein submitted that the TPO had accepted the said comparable in the immediately preceding years, and to support his contention therein drew our attention to the order of the Tribunal passed in the case of the assessee for A.Y 2008-09, titled as : TPG Capital India Pvt. Ltd. Vs. ACIT (ITA No. 880/Mumbai/ 2013, dated 29.10.2014). The Ld. A.R further relying on the order of the Tribunal in case of : Temasek Holdings Advisors (India) Pvt. Ltd., (ITA No. 4203 & 6504/Mum/ 2012) for A.Y's 2007-08 and 2008-09, therein submitted that the aforesaid comparable was held by the Tribunal to be engaged in advisory and consultancy services for the purpose of investment made in various sectors. The Ld. A.R lastly relied on the order of the Tribunal so passed in the case of : AGM India Advisors Pvt. Ltd.....
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....functional profile was totally different from the functional profile of the assessee which was in the activity of providing investment advisory services to it's A.E. It was further submitted by the Ld. D.R that the coordinate bench of the Tribunal in the case of Tevapharm Private Limited (supra) had therein concluded that IDC India Limited was engaged in providing market research and survey services which was not comparable to the functional profile of the assessee, therefore could not be considered as a comparable. The Ld. D.R in the backdrop of the observations of the coordinate benches of the Tribunal therein submitted that the aforesaid comparable, viz. IDC India Limited being functionally different had thus rightly been rejected by the TPO as a comparable. The Ld. A.R rebutting the aforesaid contentions, therein submitted that the ITAT Delhi in the case of Actis Advisers Private Limited (supra) had erred by summarily adopting the observations of the DRP, who had wrongly relied on the information as available on the website relating to Cyber Media (India) Limited, viz http://www/cybermedia.co.in/static/produts, which was not the website link for IDC India Limited, but that of i....
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....ent with the Ld. A.R. We find that in the case of Actis Advisers Private Limited (supra) the comparable IDC India Limited had been rejected by relying on the information available on the website relating to Cyber Media (India) Limited, viz http://www/cybermedia.co.in/static/produts, which was not the website link for IDC India Limited, but for its holding company , i.e Cyber Media (India) Limited. Thus in the backdrop of the aforesaid facts, it can safely be concluded that no adverse inference as regards selection of the comparable, viz IDC India Limited can be drawn by relying on the order of the ITAT, Delhi bench in the case of : Actis Advisers Private Limited (supra). That we are further persuaded to subscribe to the contention of the Ld. A.R that the reliance placed on the order of the ITAT, Mumbai in the case of Tevapharm Private Limited (supra) was misplaced. We have perused the order of the Tribunal and find that the observations as regards the comparable, viz. IDC India Limited were rendered in context of the assessee before the Tribunal, viz Tevapharm Private Limited (supra), which we find is functionally different from the present assessee before us. We further find ourse....