TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 931
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....s of appeal no. 4 and 7. Therefore, we are not adjudicating Grounds no. 1-3. Grounds no. 4 and 7 stand dismissed, as not pressed. 3. During the assessment proceedings, the AO found that the assessee has entered into International Transactions (IT. s) with its Associated Enterprises (AE). He made a reference to the Transfer Pricing Officer (TPO) to determine the arm's length price (ALP) of the IT. s. He proposed an upward adjustment of Rs. 4. 89 crores, vide his order dated 27/01/2015. Accordingly, the AO issued a draft assessment order and it was challenged before the DRP. After receiving the directions of the DRP, the AO finalised the assessment, as stated earlier. 4. Effective ground of appeal (Gs. OA-5&6)is about exclusion of certain comparables and inclusion of two comparables. During the Transfer Pricing (TP) proceedings, the TPO found that the assessee had earned a net profit margin of 15. 03% on operating costs, as compared to the weighted average margin of 12. 59% on operating costs considering the financial data of comparable companies for the past three AY. s i. e. AY. s 2009-10, 2010-11and 2011-12, that the updated margin using single year data worked out at 11. 13% on....
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....parable for support service system but not for the non-binding advisory services, that Informed Technology was not in the business of providing non-binding investment advisory services, that it was providing ITE-s, (SN. 15, LPB 1 pg 189), that ICRA was showing fluctuating profits, that it was rightly taken out of the list of valid comparables, (SN. 18, 19 of Index, PTC all scripts). About Motilal Oswal Private Equity Advisers India Private Ltd. and Ladder the DR stated that both were carrying out functions that were similar to the parent company of the assessee. 5.1. In his rejoinder the AR stated that in the AY. 2009-10 there were two entities i. e. IDC and ICE(India), that India Research Media was different from IDC India, that Cyber Media Research Ltd was known as IDC(India)Ltd. (Pg. 423 of the PB), that Cyber Media(India) Ltd. was in the fields of market research and management consultancy, that page 452 of the PB was about Holding company, that Informed Technology was engaged in ITE. s, that it was on the same vertical, that fluctuation in profit was not to be seen, that profit fluctuation could not be reason for rejecting any comparable, that functional comparability was to ....
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....at were made in the case of Temasek before the Tribunal, that the Tribunal decided the matter in favour of the assessee. We would like to refer the relevant portion of the order of the Tribunal, delivered in the case of Temasek (supra) and it reads as under: ( para 7-14). "7. The ld. A. R had assailed before us the rejection of the companies selected by the assessee as comparables and substitution of the same by a set of 2 new companies, viz. M/s Ladder Up corporate Advisory Pvt. Ltd. and M/s Motilal Oswal Pvt. Equity Advisors Pvt. Ltd. by the TPO, which as observed by us hereinabove had been upheld by the DRP. That at the very outset it was averred by the ld. A. R that without pointing out any substantial variance either as regards the functionality or any other factor, the comparables cannot be shifted arbitrarily by the TPO in different years. The ld. A. R restricting himself to the exclusion of two companies selected by the assessee as comparable, viz. ICRA Management Consultancy Services Limited and Informed Technologies Limited, therein submitted that if the exclusion of the said companies as a comparable by the A. O/TPO is set aside, then the case of the assessee would be ....
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....n as matter of consistency, we do not want to deviate from our findings given in the earlier years. There cannot be a pick and choose of comparables every year unless there are some material difference in facts and circumstances compelling to take a different conclusion. Thus, we hold that ICRA Management is a good comparable and should be included in the list of final comparables. " It was further submitted by the ld. A. R that in the earlier years the TPO had himself accepted ICRA Management Consultancy Services Limited as a comparable, while for in the later years, viz. A. Y. 2008-09 and 2009-10 the Tribunal had held the aforesaid company to be a good comparable. The ld. A. R in support of his aforesaid contention therein drew our attention to the observations of the coordinate bench of the Tribunal recorded in the case of the assessee for A. Y. 2007-08 and 2008-09, reported as Temasek Holding Advisors (I) Private Limited Vs. DCIT 3(3), Mumbai (2013) 38 taxmann. com 80 (Mumbai-Trib), dated 30. 08. 2013 (Page 26 of 'APB'), and the order passed by the Tribunal while disposing of the appeal of the revenue, reported as DCIT, Circle 3(3), Mumbai Vs. Temasek Holding Advisors Privat....
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....r. It was averred by the ld. A. R that the Tribunal in the case of AGM India Advisors (P) Ltd. (supra) had accepted ICRA Management Consultancy Services Limited as a good comparable, after deliberating on three issues, viz. (i). Skill tests (ii). Functional Comparability and (iii). Consistency. The ld. A. R referring to the judgment of the Hon'ble High Court of Delhi in the case of Rampgreen Solution P. Ltd., therein took us through Para 31 of the order of the Hon'ble High Court, and submitted that it was held by the High Court that a broad comparability on industry base was not to be permitted, and as such high end and low end cannot be compared. The ld. A. R took us through the relevant extracts of the order passed by the Tribunal in its case for A. Y. 2010-11, and therein averred that the Tribunal after deliberating at length had held ICRA Management Consultancy Services Limited as functionally comparable. It was submitted by the ld. A. R that there cannot be cherry picking of comparables, and unless some material difference had arisen during the year under consideration as in comparison to the earlier year, the same could not be whimsically rejected as a comparable. The ld. A. ....
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....the rejection of the aforesaid comparable, viz. ICRA Management Consultancy Services Limited by the TPO was upheld by his predecessor, had merely gone by the said very reason and upheld the rejection of the said comparable during the year under consideration. We find that the rejection of the aforesaid comparable by the AO/TPO in A. Y. 2010-11 had been set aside by the Tribunal in the case of the assessee, reported as Temasek Holding Advisors India Private Limited Vs. DCIT, Circle 14(3)(1), Mumbai, vide order dated 25. 02. 2016, wherein the Tribunal had categorically held that the aforesaid company, viz. ICRA Management Consultancy Services Limited was a good comparable and had directed the inclusion of the same in the list of the final comparables. We are of the considered view that now when the order of the AO/TPO in the case of the assessee for the immediately preceding year, viz. A. Y. 2010-11, therein excluding the aforesaid comparable, viz. ICRA Management Consultancy Services Limited had been set aside by the Tribunal, therefore, the rejection of the said comparable, viz. ICRA Management Consultancy Services Limited by the A. O during the year under consideration, pursuant t....
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....e or the comparables have not witnessed any change during the year under consideration, as in comparison to the earlier years, therefore, the aforesaid principle so laid down by the Hon'ble Supreme Court would go to support the contention of the assessee that in case of no change in the functional profile of the assessee or ICRA Management Consultancy Services Limited, the latter cannot be rejected as a comparable during the year under consideration. We thus in the backdrop of our aforesaid observations are of the considered view that now when ICRA Management Consultancy Services Limited had been held to be a good comparable in the case of the assessee for the preceding years by the Tribunal, and the order of the Tribunal for A. Y. 2008-09 had even been upheld by the Hon'ble High Court of Bombay while dismissing the appeal of the department for A. Y. 2008-09, therefore, we are not persuaded to accept the aforesaid contentions of the ld. D. R. Thus in the totality of the aforesaid facts, we are of the considered view that there is no reason for us to take a view divergent from that arrived at by the Tribunal in the case of the assessee for the preceding years, and thus set aside the....
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.... It was thus averred by the ld. A. R that now when it remains as a matter of fact that the aforesaid company, viz. Informed Technologies Limited was functionally comparable, and during the year under consideration the functions performed by it were similar to those in A. Y. 2010-11 and 2009-10, therefore, the same could not be whimsically excluded by the TPO as a comparable during the year under consideration. The ld. A. R in order to substantiate his aforesaid contention placed on record the 'Annual report' along with the financial statements of the aforesaid comparable, viz. Informed Technology India Pvt. Ltd. for the immediately preceding year, i. e A. Y. 2010-11. That on the other hand the ld. D. R drawing our attention to the order of the TPO and the 'Annual report' of the aforesaid comparable for the year under consideration (Page 262), therein averred that as the said comparable unlike the assessee was a BPO and not into the 'Investment advisory business', therefore, the same was functionally incomparable and had rightly been rejected by the TPO. The Ld. D. R in order to fortify his aforesaid contention, therein submitted that as stood gathered from the 'Financial statements....
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....ot there before the Tribunal in the preceding years, it could safely be concluded that the same was functionally different as in comparison to the assessee. We thus are of the considered view that the aforesaid comparable, viz. Informed Technologies Limited had rightly been selected by the assessee as a comparable, therefore, set aside the order of the AO/TPO and direct that the same be included in the final list of the comparables. 12. We now advert to the new comparables which had been included by the TPO in the final list of comparables. The ld. A. R strongly assailing the inclusion of M/s. Ladderup Corporate Advisory Private Limited as a comparable by the TPO, which thereafter had been upheld by the DRP, therein submitted that the aforesaid company was functionally not comparable and had wrongly been included by the TPO in the final set of comparables. The ld. A. R drew our attention to the 'Profit and loss account' of the said comparable (Page 322 of APB) and the 'Schedule' forming part of the same (Page 329), which revealed that the main source of the said comparable was by way of 'Financial and Management Consultancy Fees', and thus was entirely different from the activiti....
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....by the Ld. A. R that now when the aforesaid comparable, viz. M/s Ladderup Corporate Advisory Private limited was functionally different as in comparison to the assessee company, therefore, it could by no means be adopted as a comparable and thus was liable to be excluded from the final list of the comparables. That on the other hand the ld. D. R submitted that as per the 'Annual report' of the aforesaid comparable, the latter was in the business of corporate advisory services and had received advisory fees. It was submitted by the ld. D. R that the aforesaid comparable, viz. Ladderup Corporate Advisory Services Limited had received merchant banking registration in the month of July, 2010 from SEBI, but no actual income was received from the said activity. Thus in the backdrop of the aforesaid facts it was submitted by the ld. D. R that the aforesaid comparable was deriving income only from advisory services, and as such if the functioning of the assessee company were pitted as against that of the aforesaid comparable, it stood revealed that the said comparable was providing advisory functions on restructuring like the assessee, as well as providing advisory services on acquisition,....
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....sed by the averrment of the Ld. D. R who by referring to the observations recorded by the coordinate bench of the Tribunal in the case of Avenue Asia (supra) had therein averred that though the aforesaid comparable was planning to expand its wings by venturing into merchant banking activities and broaden its horizon, which revealed that during the year it was not engaged in merchant banking activities, had therein tried to drive home his contention that the aforesaid comparable was not involved in merchant banking activities. We are of the considered view that the aforesaid observations of the coordinate bench of the Tribunal were recorded in context of A. Y. 2009-10 involved in the case before them, while for the year before us in the present appeal is A. Y. 2011-12. Thus the case law relied upon by the Ld. D. R is distinguishable on facts, and as such for the foregoing reason would be of no assistance to him to support his aforesaid contention. That in the backdrop of the aforesaid facts as had been brought to our notice, and as such are irrebuttably supported by the records produced before us, we hold a strong conviction that now when the aforesaid comparable, viz. Ladder up Cor....
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....opted for including the two comparables by the TPO. What are the criteria, key words, quantitative and qualitative filters applied for selecting the comparables. If rules provides for selection criterion of comparable, then same has to be adhered to strictly by either parties. If a particular mechanism of search process is to be done scientifically by the assessee then same applies to the TPO also, otherwise it will always create suspicion of cherry picking of the comparables by the parties. There cannot be two different standards under the law, one for the assessee and one for the TPO. So far as selection of the comparables by the TPO, nothing has been brought on record before us, that TPO has adopted any scientific method for selection of his two comparables, i. e. Motilal Oswal Investment Advisory Pvt. Ltd. and Future Capital Holdings Ltd. From the perusal of para 9. 2 of the TPO's order it appears that, he has tried to pickup the two comparables from the accept and reject matrix of companies by the assessee during its search process. Such an approach clearly indicates cherry picking, which approach cannot be accepted. " Alternatively, it was submitted by the ld. A. R that no....
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....'directors report' (Page 343 of APB) that the aforesaid comparable was carrying out investments in portfolio companies. We find that a perusal of the 'directors report' of the aforesaid comparable reveals that during the year under consideration it had managed 'India business excellence fund I' and 'India reality excellence fund I' (IREF-I), and was further contemplating to raise IREF-II with a corpus of between Rs. 500-750 crores in financial year 2012. We are of the considered view that the functional analysis of the aforesaid comparable substantially places it at a variance as against the assessee company which is engaged in the business as that of an investment advisor. We further find that from a perusal of the 'Annual report' of the aforesaid comparable for Financial year 2010-11, it stands revealed that the latter operates 4 different business verticals, viz. financial advisory, investment advisory, management and facilitation services and identifying investment opportunities. We find that despite the aforesaid multiple sectors of operations, no segmental data is available in the 'Annual report', and the income from the advisory operating constitute only 42. 10% of its total....