TaxTMI 
TaxTMI 
2016 (10) TMI 1267
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....non-binding investment advisory services with its A.E. and earned revenue of Rs. 25.83 crore. For bench marking the transaction, the assessee undertook a study by adopting TNMM as most appropriate method with OP/OC as the PLI. By considering itself as the tested party, the assessee undertook a search process in the data bases and identified following seven comparables with average arithmetic mean of 18.23% on the basis of three year data. i) Access India Advisors Pvt. Limited; ii) Future capital Advisors Pvt. Limited; iii) ICRA Management Consulting Services Limited; iv) IDC (India) Limited; v) Informed Technologies Limited; vi) Integrated Capital Services Limited; and vii) Kinetic Trust Limited. 2. As the assessee is reimbursed at cost plus 20% and the margin shown for the impugned assessment year by the assessee at 19.67% on operating cost is higher than the margin of the comparable companies on operating cost, the transaction was treated as at arm's length. The Transfer Pricing Officer, however, rejected the transfer pricing study of the assessee pointing out various defects and deficiencies. He also rejected ....
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....r the relevant assessment year a copy of which is placed at Page-509 of the paper book. He submitted, PMS and investment banking services being fee based are functionally different from investment advisory services. Further, referring to the annual report learned Sr. Counsel submitted, it is offering PMS products. He submitted, the reference to investment advisory services in the annual report is in relation to India Infrastructure Opportunities Fund Ltd. which actually is a PMS. He submitted, certain functions performed by this company such as investment PMS and brokerage are not performed by an investment advisor. Further, referring to the Profit & Loss account, he submitted, though, the company is engaged in a number of activities but the revenue is reported under one segment. Finally, the learned Sr. Counsel submitted, the functions performed, assets employed and risk undertaken by this company being totally different from the assessee, it cannot be treated as comparable. In support of such contention, learned Sr. Counsel relied upon the following decisions:- i) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./ 2015, A.Y. 2010-11, order dated 18th May 2016; ....
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.... the TPO and he had not furnished the process applied by which he had come to select the said two companies, that such an approach to select comparables was impressible in law and on that count alone the said two companies should be rejected, that the FIRST APPELLATE AUTHORITY had rejected ICRA-O as comparable on investment advisory servies rendered by the assessee and had stated assessee's knowledge process outsourcing division provided financial and analytical services and support of clients in the areas of Data Extraction, Aggregation, Electronic Conversion of Financial Statements, Validation and Analysis, Accounting and Finance, Research and Analytics, that the company was not engaged in investment advisory or consultancy services, that the A.O. was directed to exclude ICRA-O from the final set of comparable companies, that he had held that it was functionally not comparable to the assessee. Charging of fees by ICRA-O did not mean that it was a valid comparable to the assessee. As per the settled principles of TP for a company to be treated as a valid comparable the functions performed, assets employed and risks assumed have to be comparable and not nomenclatures in the annual ....
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....icals viz. outsource service, information service and software products and service. Referring to the annual report of the company for the relevant financial year, the learned Sr. Counsel submitted, the financials does not indicate the kind of service rendered by the outsource service segment. As per the information provided in the web site of the company, it has two strategic lines of business viz. (i) knowledge process outsourcing (KPO) and information service and technology solutions. He submitted, the KPO segment as per the information available, provides analytical service and support to clients in the areas of data extraction, aggregation, electronic conversion of financial statements, validation and analysis, accounting and finance, etc. He submitted, performance of the aforesaid activities make the company financially different from the assessee, hence, cannot be treated as a comparable. In support of his contention, the learned Sr. Counsel referred to the following case laws:- i) Carlyle India Advisors Pvt. Ltd., ITA no.1040/Mum./2015, A.Y. 2010-11, order dated 18.11.2015; and ii) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./ 2015 and ITA no.48....
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....td., ITA no.1040/Mum./2015, A.Y. 2010-11, order dated 18.11.2015; iii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010-11, order dated 25.2.2016. iv) Bain Capital Advisors (India) Pvt. Ltd. v/s DCIT, ITA no. 413/Mum./2015, A.Y. 2010-11, order 15.5.2015; v) General Atlantic Pvt. Ltd. v/s DCIT, ITA no.1019/Mum./ 2014, A.Y. 2009-10, order dated 6.11.2015; vi) Wells Fargo Real Estate Advisors Pvt. Ltd. v/s DCIT, ITA no.1093/Mum./2014, A.Y. 2009-10, order dtd. 27.5.2015; vii) CIT v/s Carlyle India Advisors Pvt. Ltd., 32 taxmann.com 23, A.Y. 2007-08; viii) General Atlantic Pvt. Ltd. v/s DCIT, 68 taxmann.com 88, A.Y. 2006-07; and ix) Goldman Sachs India Securities P. Ltd. v/s CIT, 69 taxmann.com 19, A.Y. 2007-08. 10. Learned Departmental Representative submitted, if ICRA Management Consulting Services Ltd., which is also engaged in similar activity, is considered as a comparable to the assessee, then this company should also be considered as a comparable. 11. In rejoinder, the learned Sr. Counsel submitted, this very argument of the Department was considered and rejected by the Tribuna....
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....vities include portfolio management, credit syndication, counseling on M&A, etc. This whole range of functions and activities carried out by Motilal Oswal is definitely are far wider and much different from investment advisory services where core functions is to give advices for making the investments in diversified fields. A company which is engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of the function of a merchant banker, then the entire functions and transactions affects the generation of revenue and margins. Such functions are entirely different from investment advisory services. Mere classification of revenue as "advisory fees" will not put the company in a comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd. (supra), it has been held that, the merchant banking functions are entirely different from investment advisory services and this decision of the Tribunal has been upheld by the Hon'ble Jurisdictional High Court. Thus, in view of plethora of functional differences as discussed as above, we hold that Motilal Oswal cannot be put into the comparab....
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....e facts and circumstances are similar to the comparable. In this context, the learned Departmental Representative relied upon the decision of the Tribunal in Temasec Holdings India Pvt. Ltd. (supra). 16. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. The fact that there is restructuring of the business of the comparable as a result of realignment with another company is evident from the annual report of the company. Considering the aforesaid aspect, the Tribunal, Mumbai Bench, in Carlyle India Advisors Pvt. Ltd. ITA no.1040/Mum./2015, order dated 18th November 2015 (supra) for the very same assessment year held that this company cannot be treated as a comparable on account of peculiar economic circumstances arising out of its realignment. Relevant observation of the Tribunal is extracted hereunder for the sake of convenience:- "22. We have carefully considered the rival stands on the issue of exclusion of Kshitij Investment Advisory Co. Ltd. from the final set of comparables. The first and the foremost resistance articulated by the Revenue to oppose the exclusion of the said conce....
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....ble. In fact, in principle, we do not find any disagreement on the part of the TPO also on this aspect. However, what the TPO has stated is that in the present case, the realignment / restructuring is in the same line of business and, therefore, such restructuring / realignment does not result in any change in the activity of business. Therefore, according to the Revenue, there would be no impact on the financial results so as to make it incomparable with the tested transactions. We have carefully considered the aforesaid plea set up by the Revenue and in this context, we may briefly refer to the "Business Review" outlined in the Directors Report of the said concern, placed at page 536 of the paper book. It is stated therein that the investment advisory business has been realigned and all the employees have been transferred to Everstone Investment Advisors Pvt. Ltd. during the year under consideration to Everstone Investment Advisors Pvt. Ltd. during the year under consideration w.e.f. 1.1.2010. The note also suggests that the said concern did not enter into any non-compete agreement with Everstone Investment Advisors Pvt. Ltd. but was free to pursue any activity, including the act....
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....r and the facts on the basis of which the decisions were rendered by the Tribunal remains same in the case of the present assessee further, as no contrary decision was brought to our notice by the learned Departmental Representative, respectfully following the aforesaid decisions of the co-ordinate bench, we exclude this company from the list of comparables. 18. Besides seeking exclusion of the aforesaid companies, assessee has sought inclusion of certain companies as comparable. Herein after, we will deal with each of these companies. ICRA MANAGEMENT CONSULTING SERVICE PVT. LTD. 19. Learned Sr. Counsel objecting to the exclusion of this company as a comparable submitted, the company offers consulting / advisory services through different business groups and practice areas pertaining to strategy, risk management, operations improvement, corporate advisory, etc. He submitted, the Profit & Loss account forming part of annual report of the company for the year ended March 2010, indicates that it derives revenue from consulting fees. He submitted, the website of the company indicates that the functions / activities performed with respect to management consultancy service....
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....functional analysis, it can be seen that the company was operating in various verticals and conducted its business through various practice divisions such as Government and infrastructure practice, energy practice, banking and financial service, corporate advisor practice, etc. He submitted, from the activities mentioned in the website extract it can be seen, activities of the company are diverse, hence, it is not comparable to the assessee. 22. Learned Departmental Representative referring to the annual report of the company submitted, it is engaged in the cross boarder merger and acquisition transactions. He submitted, annual report of the company does not provide any segmental information. He submitted, as per the information obtained from the annual report of the company it has rendered service to various organisations like World Bank, Asian Development Bank, UNISEF, NSDC, etc. He submitted, if MOIAPL is rejected as a comparable, for the very same reasons, this company cannot be treated as comparable. As far as applicability of the decision of the Tribunal in case of Temasec Holdings Advisors India Pvt. Ltd. (supra), the learned Departmental Representative submitted, these d....
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....ood comparable observing as under:- "20. At the outset, this comparable was subject matter of consideration before the Tribunal in AY 2008-09 & 2009-10, wherein this company was held to be good comparable both on the ground of functional similarity and in view of principles of consistency as it was held to be a good comparable by the TPO in the earlier years. From the perusal of the annual report, which is appearing from pages 156 to 187 of the paper book, we find that it is essentially providing consultancy services in diversified areas, like in government sectors, infrastructure, energy, corporate advisory, banking and financial services, etc. It focuses on consultancy and advisory which is its core area and competency. The revenue generation is purely from consultancy fees which is evident from profit and loss account as on 31st March 2010 (appearing at page 176 of the paper book). The TPO in his order has noted that its consultation or advisory operations ranges in various fields which have been tabulated by him at pages 9 to 11 of the order, which according to him assessee is not performing. On the perusal of the directors' report and also the remarks of the TPO, we f....
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....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." 25. Again, in the case AGM India Advisor Pvt. Ltd. (supra), the Tribunal, after considering almost similar argument of the learned Departmental Representative, followed the decision in Temasec Holdings Advisors India Pvt. Ltd. (supra) upholding the company as a comparable. While doing so, the bench also took note of the decision relied upon by the learned Departmental Representative which were also cited before us. Undisputedly, the aforesaid decisions of the co-ordinate bench are for the very same assessment year i.e., assessment year 2010-11. Therefore, respectfully following the aforesaid decisions of the co-ordinate bench, we include this company as a comparable. IDC INDIA LIMTED 26. The learned Sr. Counsel submitted, the company is engaged primarily in the business of research and certificate. He submitted, the company is a premier global provider of market intelligence advisory service and events for the information technology, telecom and consumer technology markets. He submitted, assessee se....
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....bmitted that it is a product company, hence, cannot be a comparable to the assessee. In support of such contention, he relied upon the following decisions:- i) Tevapharm Pvt. Ltd. ITA no.6623/Mum./2011; and ii) Actis Advisors Pvt. Ltd. v/s ACIT, ITA no.1998/Del./2014. 29. In the rejoinder, the learned Sr. Counsel referring to the annual report of the company submitted, it is primarily engaged in the business of market research and management consultancy which is identified as the only business segment of the company. Refuting the contention of the learned Departmental Representative that it is a product company the learned Sr. Counsel submitted, merely because the annual accounts used the term "sales" it does not mean that it sells products similar to any trader or manufacture. As far as payment for copyright is concerned, the learned Sr. Counsel submitted, it is towards use of certain copyrighted material while rendering service. He submitted, had IDC India Ltd. been a trader or product company, it would have shown cost / inventory in its Balance Sheet which is not the case. 30. We have considered the submissions of the parties and perused the material avai....
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....pany is a good comparable. While doing so, the Tribunal had given a categorical finding that IDC India Ltd. is not a product company. Since the aforesaid decisions of the Tribunal are for the very same assessment year, they will squarely apply to the facts of the present case. Moreover, we have noted the fact that in assessee's own case for the assessment year 2009-10, this company has been accepted as a comparable by the Transfer Pricing Officer / DRP. That being the case, we do not see any justifiable reason for excluding this company. As far as the decision rendered in case of Tevapharm Pvt. Ltd. (supra), after carefully reading the said order, we have noted that nowhere the Tribunal has held that IDC India Ltd. is a product company. On the contrary, it was excluded since the Tribunal found it functionally dissimilar to that assessee. The decision of Actis Advisors Pvt. Ltd. (supra) is also factually distinguishable, hence, would not be apply. Therefore, respectfully following the decisions of the Co-ordinate Bench of the Tribunal referred to above, we hold that IDC India Ltd. is a comparable to the assessee. INFORMED TECHNOLOGIES LIMITED 32. Seeking inclusion of thi....
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....ering the aforesaid fact, the Tribunal in Temasek Holdings Advisors (I) Pvt. Ltd. (supra), while including the company as a comparable has observed as under:- "(v) Informed Technologies Ltd. This company mostly offers range of data management services to the financial sector in USA. It collects and analyses data of financial fundamentals, corporate governance and capital market. It outsource services i.e., BPO services consisting of financial data base and back office activities for research and advisory reports. Thus, the data outsourcing charges are mostly related to analysing of data based on which advise is given for the investment purpose in India. Moreover, this company has been accepted by the TPO in the year 2009-10. Thus, it is a good comparable." 36. We do not find any material difference between the facts in assessee's case and in case of Temasek Holdings Advisors (I) Pvt. Ltd. (supra) on the basis of which the Tribunal included it as a comparable. Moreover, there is no dispute that the Transfer Pricing Officer has accepted this company as a comparable in assessee's own case for assessment year 2009-10. That being the case, in our considered opinion, the comp....
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....no.115/2015. 40. In the rejoinder, learned Sr. Counsel submitted while selecting the final set of comparables, the assessee has not applied the turnover criteria as one of the factors. He submitted, assessee has not cherry picked the comparables by inserting a turnover filter but included comparables irrespective of the amount of turnover. He submitted, while rejecting this company the Transfer Pricing Officer has not applied the turnover filter but has rejected it on the basis of functions performed. The learned Sr. Counsel relies upon the decision of the Tribunal, Delhi Bench, in Nortel Network India Pvt. Ltd. (supra), in the absence of application of turnover filter by either of the parties a company cannot be rejected on account of low turnover. He submitted, the aforesaid decision of the Tribunal was also affirmed by the Delhi High Court in Nortel Network India Pvt. Ltd., ITA no.3043/2015. He submitted, the Tribunal again in case of Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum. /2015, A.Y. 2010-11, order dated 25th February 2016, after considering almost similar argument advanced by the learned Departmental Representative had accepted this company as a....
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....itted that the TPO has observed that in the annual report of the Kinetic Trust, does not specify that the said company is engaged in the investment advisory; further the said company is NBFC registered with RBI; and lastly, its turnover is only Rs. 20 lakhs. To counter this TPO's observation, Mr. Kaka pointed out that firstly, Directors' report for financial year 2009-10 specifically mentions that the company has concentrated on its main activity of a corporate consultancy services and financial services. This is evident from Directors' report given at page 193 of the paper book. Merely because the said company is NBFC, the same does not change the nature of activities undertaken by the company i.e., Consultancy Services. Secondly, while selecting the list of comparables in search criteria, the assessee has not considered the turnover criteria as one of the factor in determining or streamlining the selection of the companies. It has not cherry picked the comparables by inserting any kind of lower or higher turnover filter. The reliance placed by the TPO on the decision of Tribunal in the case of Trilogy E Business Software P Ltd vs DCIT (ITA No. 1054/Bang/2011) is not correct as th....