TaxTMI 
TaxTMI 
2017 (8) TMI 1490
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....16 passed by the Deputy Commissioner of Income-tax, Circle- 14(3)(1), Mumbai (hereinafter referred to as the learned A.O.) under section 143(3) read with section 144C(13) of the Act in pursuance of the directions issued by the Dispute Resolution Panel-2 Mumbai ( Honorable DRP). Ground 1 On the facts and in the circumstances of the case and in law, the learned A.O based on the directions of the Honorable DRP, erred in making an upward adjustment of Rs. 9,91,14,498/- in determining the arm's length price(ALP) of the International 'transaction pertaining to the provision of investment, advisory services by the Appellant to its associated Enterprise. Ground 2 On the facts and in the circumstances of the case and in law, the learned. A.O based on the directions of the Honorable DRP failed to appreciate that the ALP as determined, by the Appellant should have been accepted as the pre-condition in section 92C(3) of the Act before the Additional Commissioner of Income-tax, Transfer Pricing - 4(2) (hereinafter referred to as 'learned TPO') could proceed to determine the ALP was not fulfilled in this case. Further, the learned AO has also n....
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...., the time of the appeal, so as to enable the Honorable Income-tax Appellate Tribunal to decide this appeal according to law." 2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of rendering non-binding advisory services to its holding company, viz. Temasek Holdings Pvt. Ltd., Singapore, had filed its return of income declaring total income of Rs. 9,35,67,510/- on 28.11.2011, which was processed as such under Section 143(1) of the 'Act'. The case of the assessee was thereafter taken up for scrutiny proceedings under Section 143(2). 3. The assessee company had in its TP study report benchmarked the international transactions pertaining to provision of Investment advisory services rendered to its AE using the TNMM method and the PLI used was Operating Profit to Operating Cost. The assessee as per its TP study report reflected an operating profit margin of 20.93%, as in comparison to the weighted average margin of 15.69% on operating costs considering the financial data of comparable companies for three years. That still further the updated margin using single year data for F.Y. 2010-11 worked out at 13.53% on operatin....
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....or F.Y. 2010-11 Motilal Oswal Investment Advisors Private Limited. 82.33% Ladderup Corporate Advisory Private Limited. 52.42% Motilal Oswal Private Equity Advisors Private Limited. 32.38% Arithmetic Mean 55.60% The TPO thus adopted the margin of 55.60% on operating costs as the ALP margin as against 20.93% shown by the assessee and vide his order passed under Section 92CA(3), dated 28/01/2015 made an upward Transfer pricing adjustment of Rs. 16,06,51,776/-. The A.O. after receiving the report of the TPO passed a Draft Assessment Order u/s 143(3) r.w.s 92CA(3), dated 09/03/2015, and proposed to assess the income of the assessee company at Rs. 39,23,26,081/-. The assessee being aggrieved by the draft assessment order approached the Dispute Resolution Panel-2, Mumbai (DRP) and objected to the variations proposed by the A.O. 4. That the DRP vide its directions passed u/s 144C(5) though deleted the addition of Rs. 13,87,07,155/- made by the A.O u/s 40(a)(i), but however dismissed all the objections which were raised by the assessee against the TP adjustments made by the TPO, barring the objection raised as regards the inclusion by the TPO of M/s Motilal Osw....
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....mmediately preceding year, viz. A.Y.2010-11, and thus wrongly concluded that the assessee was involved in Portfolio management and management of companies in which the AE had made investments. The Ld. A.R taking us through the findings of the TPO recorded at Para 12-12.1 of his order, therein averred that even the mistakes in the aforesaid order of the preceding year were transposed as such by the TPO while passing the order for the year under consideration. The Ld. A.R referring to the nature of activities of the assessee company submitted that the assessee company, viz. Temasek Holding Advisors (I) Private Limited, (THAIPL) which is a wholly owned subsidiary company of Temasek Holding Private Limited, Singapore (THPL), had begun providing Investment advisory services to its holding company, viz. THPL in the year 2004. 'The Ld. A.R deliberating on the nature of services rendered by the assessee therein submitted that the assessee company provided non binding investment recommendations to THPL, which retained with itself the right on the use of the investment advise/information. The Ld. A.R submitted that during the year under consideration the assessee company had entered into....
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....the TPO applying the PLI of 55.60% of the aforementioned comparables as against 20.93% as stood reflected by the assessee, therefore, concluded that the international transactions of the assessee company with its AE were not found to be at arm's length; and computing the same as under:- Calculation of arm's length price OP/OC of comparable A 55.60% OP/OC of assessee B 20.93% Total operating income C 5,582,694,72 Operating cost as per assessee D 4,616,460,46 Arm's length Operating Profit E=D*A 25,667,520,2 Arm's length value of transaction F=D+E 718,321,248 Difference in actual and arm's length G=F-C 160,051,776 5% of international transaction H=5%of I 27,836,749 Transaction value I 5,567,349,70 Adjustment proposed 16,00,51,776 ,proposed an adjustment of Rs. 16,00,51,776/- as regards the Investment advisory transactions carried out by the assessee company during the year under consideration. It was submitted by the Ld. A.R that the DRP though sustained the rejection of all of the comparables selected by the assessee, but however excluded one ....
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....see, marked as: Temasek Holding Advisors India (P.) Ltd. v. Dy. CIT [2016] 67 taxmann.com 221 had categorically held that the aforesaid comparable, viz, ICRA Management Consultancy Services Limited was a good comparable qua the functions of the assessee, and as such had directed that it be included in the list of the final comparables. The ld. A.R drew our attention to Page no. 53 of the 'APB', wherein the Tribunal while disposing of the appeal of the assessee for A.Y. 2010-11 had observed as under:- "Here it is not the case where there is any unique functions materially affecting the revenue or net margins vis-a-vis the functions performed by ICRA. Hence on functional level it is a good comparable. As stated earlier, in the earlier years, the TPO has accepted ICRA to be a comparable and in later years the Tribunal in A.Ys 2008-09 & 2009-10 has held ICRA Management to be good comparable qua the functions of the assessee and there being no material change on facts, functional profile or any other factor in this year, then 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....
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....even in the preceding years also it was accepted as a comparable, therefore, in the absence of any substantial variance, either functionally or otherwise during the year under consideration, the said comparable could not be summarily rejected. The ld. A.R further submitted that the order of the ITAT, Mumbai in the case of the assessee for A.Y. 2008-09 wherein ICRA Management Consultancy Services Limited was held to be a good comparable, had been upheld by the Hon'ble High Court of Bombay in CIT v. Temasek Holdings Advisors (P.) Ltd. (ITA No. 1051 of 2014); Dt. 17.11.2016, and placed on record a copy of the order of the Hon'ble High Court. It was further averred by the Id. A.R that the ITAT, Mumbai Bench 'K', in the case of AGM India Advisors (P.) Ltd. v. Dy. CIT [2016] 70 taxmann.com 219 (Mum.- Trib.), had held ICRA Management Consultancy Services Limited as a good comparable, specifically taking note of the fact that it was accepted as such by the TPO in the earlier year as well as in the succeeding year. 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....
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....the assessee, the earlier orders passed by the Tribunal in the assessees own case cannot be characterized as a precedent. The ld. D.R in order to drive home his aforesaid contention, relied on the following judgments of the Hon'ble Supreme Court :- (i) Dalbir Singh v. State of Punjab [1979] 3 SCC 745 (ii) KTMTM Abdul Kayoom v. CIT AIR 1962 SC 680 (iii) Fida Hussain v. Moradabad Dev Authority [2011] 12 SCC 615 (iv) Executive Engineer, Dhenkanal Minor Irrigation Division v. N.C Budharaj [200l] 2 SCC 721 The ld. D.R thus on the basis of material placed on record, therein submitted that ICRA Management Consultancy Services Limited could not be accepted as a comparable and had rightly been excluded by the TPO and upheld by the DRP. 9. We have heard the Ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material placed on record. We have given a thoughtful consideration to the facts of the case and find that the DRP as a matter of fact relying on the order passed by his predecessor in the case of the assessee for A.Y. 2010-11, wherein the rejection of the aforesaid ....
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....the assessee before us. We have deliberated on the judgments of the Hon'ble Apex Court and find that it has been held that a decision of this court on specific facts does not operate as a precedent for future cases. We are of the considered view that there cannot be a second view on the said aspect, but then, as held by the Hon'ble Apex Court, if the court decides a certain issue for a certain set of facts, then, that issue stands determined for any other matter on the same set of facts. We are of the considered view that now when the ld. D.R had failed to establish as to how the facts involved in the present case are found to be distinguishable in context of the aforesaid comparable, viz. ICRA Management Consultancy Services Limited or the assessee in the year before us, as in comparison to those of the preceding years, therefore, the principle enunciated by the Hon'ble Apex Court in the aforesaid cases would not assist the case of the department. We rather are of the considered view that now when the facts in respect of the assessee or the comparables have not witnessed any change during the year under consideration, as in comparison to the earlier years, therefore, t....
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....velopment and data validation and maintenance services. It was submitted by the ld. A.R that the 'Annual report' of the aforesaid comparable indicated that it collected and analyzed data on financial fundamentals, corporate governance, director/executive compensation and capital market, which can be compared to the functions performed by the assessee. The assessee submitted before the DRP that 'declining turnover' filter may be appropriate in scale based operations rather than in a service entity, as in the latter case the margins are not dependent on the scale or size of operations. It was submitted by the assessee that a 'declining turnover' filter would not always increase the reliability of an analysis and hence should not be considered as a factor impacting profitability and comparability. The ld. A.R submitted before us that the TPO in his order passed in the case of the assessee for A.Y. 2009-10 and A.Y. 2010-11 had considered the aforesaid company, viz. Informed Technologies Limited as a comparable to the functions performed by the assessee. It was thus averred by the Ld. A.R that now when it remains as a matter of fact that the aforesaid company, vi....
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....t the said comparable during the year under consideration. We are further persuaded to subscribe to the contention of the ld. A.R that though 'declining turnover' filter may be appropriate in scale based operations, but the same cannot be applied to the exclusion of the other relevant factors for drawing of adverse inferences in the case of a service entity, as margins in the latter case are not dependent on the scale or size of operations. Thus in the backdrop of our aforesaid observations, we are of the considered view that now when the comparable, viz. Informed Technologies Limited had been considered as a good comparable qua the functions performed by the assessee in A.Y. 2009-10 and A.Y. 2010-11, therefore, in the absence of any material change, there is no reason as to why the same is to be rejected as a comparable during the year under consideration. We thus in the backdrop of our aforesaid observations are not persuaded to subscribe to the contentions of the ld. D.R who had tried to impress upon us that in light of certain facts in respect of the aforesaid comparable, which were not there before the Tribunal in the preceding years, it could safely be concluded that ....
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.... the ld. A.R that the aforesaid downloaded extract revealed that the said comparable was formed as a separate group entity offering Investment banking, Corporate finance and Corporate advisory services. Thus in the backdrop of the aforesaid factual matrix, it was submitted by the ld. A.R that it stood revealed beyond any scope of doubt that the aforesaid comparable, viz. M/s. Ladderup Corporate Advisory Private Limited was into 'Investment banking business', which by no means could be compared with the Investment advisory business' as that of the assessee company. The ld. A.R relying on the order of the Tribunal so passed in the case of General Atlantic (P.) Ltd. v. Dy. CIT [2013] 32 taxmann.com 178/57 SOT 27 (Mumbai - Trib.) (URO) (Pages 85-97 of APB), which thereafter had been affirmed by the Hon'ble High Court of Bombay in the case of CIT v. General Atlantic (P.) Ltd. [2016] 68 taxmann.com 88/238 Taxman 535/384 ITR 271 (Pages 98-101 of APB), therein submitted that pursuant to the aforesaid judgment of the Hon'ble jurisdictional High Court, the issue that an 'Investment advisor' cannot be compared to a 'Merchant banker' is no more res integra. ....
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....tivities during the year under consideration and had rightly been included by the TPO in the final list of the comparables. 13. We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material placed on record before us. We have given a thoughtful consideration to the facts of the case and find that the aforesaid comparable, viz. Ladderup Corporate Advisory Pvt. Limited is registered as a category one merchant banking with SEBI and is engaged in rendering merchant banking services w.e.f July 2010, which factual position stands duly substantiated from the perusal of the web portal extracts of the aforesaid company. We further find that as per the 'Annual report' the aforesaid comparable is engaged in only one segment, which includes merchant banking. We thus in the backdrop of the very fact that the aforesaid comparable is engaged in the merchant banking/investment banking and other similar activities', are of the considered view that the same cannot be considered as functionally comparable to the assessee company which is engaged in the business of rendering non-binding investment advisory services. We....
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....It was averred by the ld. A.R that as no segmental data was available in the 'Annual report' and income from the advisory services constituted only 42.10% of the total operating income, therefore, no feasible comparison of the assessee company could be carried out as against the aforesaid comparable. It was further submitted by the ld. A.R that the TPO without placing on record the 'Search process' on the basis of which the aforesaid company was selected as a comparable, had therein most arbitrarily proceeded with and included the same in the final list of comparables. The ld. A.R in support of his aforesaid contention that the selection of a comparable by the TPO without placing on record the 'Search process' cannot be sustained, therein relied on the order passed by the Tribunal in the case of the assessee itself for A.Y. 2010-11, reported as Temasek Holding Advisors India (P.) Ltd. (supra) wherein the Tribunal had held as under: - "Before analyzing each and every comparable, in the background of the arguments made before us and material placed on record, it is noticed that nowhere in the TPO's order it is mentioned what selection process has ....
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....he claim of the assessee that the aforesaid comparable, viz. Motilal Oswal Equity Pvt. Limited had during the year launched a fund was factually not correct. It was submitted by the ld. D.R that the 'Annual accounts' of the aforesaid comparable revealed that it was providing advisory services to various funds and had not launched any funds of its own. The ld. D.R referring to Schedule J' of the 'Annual report' of the aforementioned comparable, therein submitted that the latter during the year under consideration had an income from advisory fees of Rs. 5,30,41,908 and a Management fee of Rs. 6,69,13,428, on the basis of which it could safely be concluded that the said comparable, viz, Motilal Oswal Equity Pvt. Limited was functionally comparable to the assessee company and had rightly been included in the final list of the comparables by the AO/TPO. 15. We have heard the ld. Authorized Representatives of the both the parties, perused the orders of the lower authorities and the material placed on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that as per the facts available on record, it stands duly subs....
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....from the final list of the comparables. 16. That in light of our aforesaid observations we herein direct the AO/TPO to recompute the ALP of the assessee company. The AO/TPO are directed that if the ALP of the assessee is found within the safe harbour of (+)/(-) 5% parameters, then no addition would be called for in the hands of the assessee. The appeal of the assessee is thus allowed in terms of our aforesaid observations. ITA NO. 816/MUM/2016 : The department aggrieved with the directions of the DRP, therein leading to a consequential setting aside of a disallowance suggested by the AO under Sec. 40(a)(i) in the draft assessment order and exclusion of the said disallowance by the AO in the assessment framed under Section 143(3) r.w.s. 92CA(3), had assailed the said direction of the DRP by filing an appeal before us, raising the following grounds of appeal: - "1. On the fads and in the circumstances of the case and in law, the Hon'ble DRP, Mumbai has erred in deleting the addition made by the AO on account of reimbursement of expenses made by the assessee company to its overseas foreign company, without appreciating the fact that while making payment of ....
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.... at source in accordance with Sec. 192 of the 'Act' by the holding company, viz. THPL, therefore, the reimbursements of the amounts of such salary payments by the assessee, viz. THAIPL to its holding company, viz. THPL did not require any further deduction of tax at source as the same otherwise would lead to 'double taxation'. The aforesaid contention of the assessee company did not find favour with the AO, who therein rejected the same by observing as under:- "(i) The employees on deputation from THPL are working exclusively for the benefit and operations of the holding company, though the employees are under the direct supervision and reporting to the directors of the assessee company. They have been put under the surveillance of the assessee company in India, just for the purpose of keeping tab on their work and to man their operations and movement and extract the desired output, out of their labour and intellect in terms of the expected man-hours. (ii) The services being rendered by these employees comes under the category of technical services, keeping up posted the holding company i.e. M/s. THPL with economic developments having a....
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....pany to repatriate the profits earned to its parent company without withholding the taxes in India. Moreover, on the similar issues, the Department is already sitting in appeal before the Bombay High Court for AY 2008-09." The A.O. thus being guided by his aforesaid conviction disallowed the aforesaid claim of reimbursement of expenses of Rs. 13,87,07,155/- by the assessee company to its holding company, and added back the same to the returned income of the assessee. 18. The assessee assailed before the DRP the aforesaid disallowance of Rs. 13,87,07,155/- so made by the A.O. under Section 40(a)(i) of the 'Act'. That before the DRP it was averred by the assessee that as the aforesaid amounts paid to the holding company, viz. THPL were in the nature of reimbursement of the salary of the employees of the holding company who were deputed in India and exclusively working for the operations of the assessee company, and the salary had already been subjected to deduction of tax at source by the holding company, viz. THPL at the time of payment of the salaries of the said employees for their services rendered in India, therefore no disallowance as regards the said reimbursemen....
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....identifying and analyzing potential investments particulars in India evaluating political and economic scenario for the investment in India and also to monitor and make recommendation in respect of specified investment in India. Based on this advise, the THPL, makes investment in India. For rendering these services, the THPL, pays a mark-up of 21% besides reimbursement of certain expenses on actual basis. The services are being provided by the Indian company to the Singapore Company and not vice versa. This aspect has to be kept in mind in the present case. The Singapore company has seconded two employees one, Mr. Anuj Maheshwari and other Mr. Manish Kejariwal to the assessee company in India to assist the assessee to render investment advisory service to THPL, Singapore. As per the secondment agreement entered into the THPL and the assessee company, the salary of these two employees was to be paid by the THPL, and the assessee company had to reimburse, the cost of salary and other expenses relating to their employment which has been paid by the THPL. Since the salary was paid by the THPL, it has deducted tax under section 192 and has deposited the same in the Indian Government tre....
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....HPL are that of independent contractor and reimbursement of salary is some kind of a contractual payment, then also, it does not strengthen the case of the Assessing Officer, because the THPL has paid the salary as per the secondment agreement and that too after withholding the tax as per the provisions of section 192 of Indian Income tax Act and such a payment of salary has been reimbursed as per the secondment agreement only. The basic condition under the law for deducting the tax on such payment (which is nothing but salary) and depositing the same in the Government of India treasury stands fulfilled. Hence, this reasoning given by the Assessing Officer has no relevance at all. The third, reasoning given by the Assessing Officer was that the assessee company is beneficiary of such expenditure as it has inherent character of salary and by expending the said amount, the assessee has earned its business income and, accordingly, the same is business expenditure of the assessee. First of all, the assessee company is not a beneficiary of this expenditure because the seconded employees have been paid salary by THPL who are working in India for the assessee company and the assessee is m....