TaxTMI 
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2019 (7) TMI 76
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....-10 3. In ground no.1, the assessee has challenged the addition of Rs. 42,14,72,098, on account of transfer pricing adjustment relating to the interest on alleged loan advanced to the Associated Enterprise (AE). 4. Brief facts are, during the financial year 2008-09, the assessee had issued 17,20,40,000 number of equity shares of face value of Rs. 10 each to its holding company J.P. Morgan Special Situations (Mauritius) Ltd. During the transfer pricing proceedings for the assessment year 2008-09, the Transfer Pricing Officer while examining the aforesaid issue re-characterized sale of equity shares as long term loan to the AE without charging any interest. By treating it as an international transaction, the Transfer Pricing Officer determined the arm's length price of the shares issued at Rs. 28=02 per share and the difference between the arm's length price and actual issue price was treated as deemed loan advanced by the assessee to its holding company. By deeming it as loan, the Transfer Pricing Officer computed notional interest and made adjustment. Following the same method, the Transfer Pricing Officer charged interest @ 14.35% per annum in the impugned assessment y....
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....39;s length price. Identical adjustment was made by the Transfer Pricing Officer in the impugned assessment year as well. As could be seen from the material on record, while deciding the disputed addition in the appeal preferred by the assessee in the assessment year 2008-09 vide ITA no.7573/Mum./2012, etc., dated 25th March 2015, the Tribunal following the decision of the Hon'ble Jurisdictional High Court in Vodafone India Service Pvt. Ltd. (supra) held that the difference between the market price of equity shares and the face value cannot be treated as deemed loan to the AE. Accordingly, the Tribunal deleted the addition made on account of notional interest on such deemed loan. Facts being identical, respectfully following the aforesaid decision of the Co-ordinate Bench, we delete the addition made on account of notional interest. This ground is allowed. 9. Ground no.2 being consequential in nature does not require adjudication. 10. In ground no.3, the assessee has challenged the addition made of Rs. 1,57,46,155, on account of adjustment to the arm's length price of investment advisory services. 11. Brief facts are, the assessee is a subsidiary of J.P. Morgan Securi....
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.... the selection of this company as a comparable the learned Authorised Representative submitted, the company is engaged in investment banking activities as it provides comprehensive investment banking solution and transaction expertise covering private placement of equity, debt and convertible instrument covering international and domestic capital markets, mergers and acquisitions advisory and re-structuring advisory and implementation. In this context, he drew our attention to the annual report of the company placed in the paper book. He submitted, the company being functionally different from the assessee cannot be treated as comparable. He also submitted that in various decisions different Benches of the Tribunal have held that this company cannot be treated as comparable to an investment advisory service provider. In this context, he relied upon a number of decisions of different Benches of the Tribunal as under:- i) PCIT v/s Arisaig Partners India Pvt. Ltd., ITA no.609 of 2016, dated 10.10.2018; ii) DCIT v/s Arisaig Partners India Pvt. Ltd., ITA no.1083/ Mum./2014, etc., dated 25.03.2015 iii) General Atlantic Pvt. Ltd. v/s DCIT, ITA no.1019/ Mum./2014, dated 06.11.2015....
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....s own case for the assessment year 2010-11. He submitted, since there is no change in the activity of the company in the impugned assessment year, it should not be treated as comparable. In support of such contention, the learned Authorised Representative relied upon the following decisions:- i) Goldman Sachs (India) Securities Pvt. Ltd. v/s DCIT, ITA no.222/Mum./2014, dated 30.11.2015; and ii) Sungroup Enterprises Pvt. Ltd. v/s DCIT, ITA no.1029/ Del./2014, dated 21.05.2018; 17. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 18. We have considered rival submissions and perused the material on record. As could be seen, while rejecting the objections raised by the assessee against the selection of the aforesaid comparable, the Transfer Pricing Officer has held that the fee based segment providing financial advisory services relating to merger and acquisitions, equity and debt issue management, portfolio management and broking is comparable to the assessee. Learned DRP has also endorsed the Transfer Pricing Officers' view. However, on a perusal of the annual report of the company placed in the paper book....
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....2014; and ii) DCIT v/s Arisaig Partners India Pvt. Ltd., ITA no.1083/ Mum./2014, etc., dated 25.03.2015. 20. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 21. We have considered rival submissions and perused the material on record. On going through the annual report of the company placed in the paper book, it is noticed that the company is a SEBI registered merchant banker and operates under a single segment i.e., merchant banking. It is also noticed that in assessee's own transfer pricing proceedings for the assessment year 2010-11, the Transfer Pricing Officer having found that it is not comparable to the assessee for the reasons stated herein before rejected it as a comparable. There is no material difference in the functional profile of this company in the assessment years 2009-10 and 2010-11. That being the case, the reasoning on the basis of which this company was rejected in assessment year 2010-11 equally applies to the impugned assessment year as well. Moreover, in the decisions cited before us by the learned Authorised Representative, this company has been rejected because of the fact that it i....
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....resaid, we direct the Assessing Officer to exclude this company from the list of comparables. v) SUMEDHA FISCAL SERVICES LTD. 25. Objecting to the selection of this company, the learned Authorised Representative submitted, it is registered as a merchant banking company with the SEBI and provides merchant banking service. Drawing our attention to the annual report of this company, he submitted, the company has earned income from loan syndication and consulting services. He submitted, the consultancy segment comprise of loan syndication, merchant banking, re-structuring and other related advisory services. He submitted, the Transfer Pricing Officer while selecting the company has observed that the consultancy segment is comparable to the assessee. 26. The learned Authorised Representative submitted, the aforesaid observation of the Transfer Pricing Officer is wrong considering that merchant banking service cannot be compared with investment advisory service. He submitted, in assessee's own case in assessment year 2010-11, the Transfer Pricing Officer has rejected this company as a comparable. Thus, he submitted, the company cannot be treated as comparable to the assessee. In s....
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....urg Pincus India Pvt. Ltd. v/s ACIT, ITA no.6981/ Mum./2012, etc., dated 13.01.2017; ii) TPG Capital India Pvt. Ltd. v/s DCIT, ITA no.7594/Mum./ 2014, dated 08.02.2017; iii) DCIT v/s Temasek Holdings Advisors Indian Pvt. Ltd., ITA no.968/Mum./2014, dated 27.06.2014. 30. Thus, he submitted, this company should be included as a comparable. 31. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 32. We have considered rival submissions and perused the material on record. On a critical analysis of the functional profile of the company, as mentioned in the annual report placed in the paper book, it is noticed that the services rendered by the company are similar to the services rendered by the assessee. Basically, this company provides various advisory services in strategy, risk management, operations improvement, etc. The main source of income of the company is also from consultancy service. Thus, it appears that this company is functionally similar to the assessee. Moreover, in the decision cited before us by the learned Authorised Representative, some of which pertain to the impugned assessment year, it has....
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.... has accepted this company as a comparable. In view of the aforesaid, we direct the Assessing Officer to include this company as a comparable. viii) IDC INDIA LTD. (NOW KNOW AS CYBRE MEDIA RESEARCH LTD.) 36. Objecting to the rejection of this company as a comparable, the learned Authorised Representative submitted, the company is engaged in market research activities and survey services. He submitted, the company renders user research, vertical research, go-to market service and consulting services which is comparable to the research activities undertaken by the assessee for potential investment particulars. He submitted, the company is a premier provider of market intelligence and advisory services. In this context, he drew our attention to the website extracts furnished in the paper book. The learned Authorised Representative submitted, the underlying functions/activities performed with respect to research and survey services provided by the company involved analysis of the business and operations of a company/sector, it's profitability, operation, efficiency, future outlook, etc. which are similar to the functions performed by the assessee. Thus, he submitted, the Transfer ....
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....e even before learned DRP. However, now before us, the assessee is objecting to selection of this company as a comparable by raising an additional ground. It is the contention of the learned Authorised Representative that the company is engaged in rendering advisory and consulting services in the area of M & A and its activities are in the nature of investment banking service. In this context, he drew our attention to the annual report of the company. Further, he submitted that in various decisions of the Tribunal, the company has been held as not comparable to an investment advisory service provider. Thus, he submitted, the company should be excluded from the list of comparables. 40. Strongly opposing the contention of the learned Authorised Representative, the learned Departmental Representative submitted, this company is assessee's own comparable in transfer pricing study report and the assessee has neither objected the selection of this company before the Transfer Pricing Officer nor before the DRP. Thus, he submitted, at this stage the assessee cannot challenge the selection of this company through additional ground. In support of such contention he relied upon certain case ....
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....ne assessee's claim regarding comparability of this company, we restore the issue to the Assessing Officer for adjudication after due opportunity of being heard to the assessee. The additional ground is allowed for statistical purpose. 43. In ground no.4, the assessee has challenged the addition made of Rs. 5,85,288, on account of adjustment made to the price charged for the provisions of Information Technology Enabled Services (ITES). 44. Brief facts are, during the year under consideration assessee provided support services to its AEs in respect of building MS Access databases and MS Excel work sheets. In the transfer pricing analysis, the assessee benchmarked the aforesaid transaction by selecting TNMM as the most appropriate method with operating profit to operating cost as the PLI. By undertaking a search process applying certain filters, the assessee short listed eight companies as comparables with arithmetic mean of 18.56% as against margin shown by the assessee @ 15%. Thus, the price charged for international transaction with the AE was claimed to be at arm's length. The Transfer Pricing Officer, after verifying the transfer pricing analysis of the assessee found it....
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....50. We have considered rival submissions and perused the material on record. Undisputedly, the Transfer Pricing Officer rejected this company as a comparable on the reasoning that it fails export earning filter of 75%. Therefore, it is evident, there is no dispute with regard to functionally similarity between the assessee and this company. On a perusal of the annual report of the company placed in the paper book, it is noticed that the export earning of the company as a percentage of the total revenue works out to 74.45%. So, there is not much difference between the threshold limit fixed by the Transfer Pricing Officer @ 75% and the export revenue earned by the company. Therefore, it needs examination whether due to such marginal difference the company can be excluded. In case of Mercer Consulting India Pvt. Ltd. v/s DCIT, [2014] 150 ITD 001 (Del.), the Tribunal while dealing with the issue relating to rejection of the company as a comparable on identical reasoning held that the ratio of 75% fixed by the Transfer Pricing Officer is not something which is scientifically proven. The Bench held that the company cannot be excluded for such a minuscule difference, if, it is otherwise c....
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....nnot be treated as comparable. He submitted, due to difference in financial year the margin of the comparable for the financial year followed by the assessee cannot be computed. Thus, he submitted, in the aforesaid situation the company has to be rejected as a comparable. In support of such contention, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT V/s. Principal Global Services (P.) Ltd. [2018] 257 Taxman 244 (Bom.). 54. In rejoinder, learned Authorised Representative submitted, in the case before the Hon'ble Jurisdictional High Court, it was not possible to ascertain the financial result of the comparable for the financial year followed by the assessee. However, in case of R Systems International Ltd. the situation is different as the company is maintaining quarterly audited accounts from which the results for the financial year 2008-09, is easily ascertainable. Therefore, there is no difficulty in computing the margin of the comparable for the financial year 2008-09. Thus, he submitted, the company otherwise being functionally similar to the assessee, has to be included as a comparable. 55. We have considered rival submissions and perused....
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....IT, ITA no.1847/ Mum./2014, dated 27.04.2016; iii) VFS Global Services Pvt. Ltd. v/s DCIT, ITA no.1847/ Mum./2014, dated 27.04.2016; iv) Mazimize Learning Pvt. Ltd. v/s ACIT, [2015] 58 taxmann.com 169 (Pune Trib.); v) BNY Mellon International Operations v/s DCIT, [2015] 55 taxmann.com 386 (Pune-Trib.); vi) ADP Pvt. Ltd. v/s SCIT, ITA no.134 & 191/Hyd./2014; vii) Cummins Turbo Technologies Ltd. v/s DDIT, ITA no.784/ Pune/2014; viii) Macquarie Global Services Pvt. Ltd., ITA no.6803/ Del./2104; ix) Xchanging Technology Services India Pvt. Ltd., ITA no. 6803/Del./2013; x) NCS Pearson India Pvt. Ltd. ITA no.2556/Del./2014; xi) M/s. Parexel International India Pvt. Ltd., ITA no.144/ Hyd./2014; and xii) E4e Business Solutions India Pvt. Ltd., ITA no.1777 & 1845/Bang./2013. 57. The learned Departmental Representative submitted, the assessee itself has selected this company as comparable. Therefore, he submitted, the company should not be rejected. 58. The learned Authorised Representative submitted, though, the assessee might have selected the company as a comparable on the basis of limited data available in public domain, however, subsequently more inform....
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..... 60. Objecting to the selection of this company as a comparable, the learned Authorised Representative submitted, under no circumstances, the company can be treated as a comparable to the assessee as it is engaged in Geospatial Services and Engineering design services which include Geographical Information Service (GIS), Lidar, 3D Mapping, etc. In this context, the learned Authorised Representative extensively referred to the annual report of the company placed in the paper book. Thus, he submitted, the company being functionally different from the assessee cannot be treated as a comparable. In support of such contention, he relied upon the following decisions:- i) CIT v/s Mercer Consulting India Pvt. Ltd. [2016] 76 taxmann.com 153 (P&H); ii) Mercer Consulting India Pvt. Ltd. v/s DCIT, [2014] 47 taxmann.com 84 (Del. Trib.); iii) Capital IQ Information Systems India Pvt. Ltd., [2014] 49 taxmann.com 313 (Hyd. Trib.); iv) Hyundai Motors India Engineering Pvt. Ltd. v/s DCIT, [2014] 49 taxmann.com 290 (Hyd. Trib.); v) Excellence Data Research Pvt. Ltd. v/s ITO, [2014] 49 taxmann.com 409 (Hyd. Trib.); vi) Knoah Solutions Pvt. Ltd. v/s ITO, [2014] 52 taxmann. com 308 ....
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....ISHAL INFORMATION TECHNOLOGIES LTD. 63. Objecting to the selection of this company as a comparable the learned Authorised Representative submitted, the business model of the company is completely different from the assessee as it outsources major part of its work to third parties. To demonstrate the aforesaid factual aspect, the learned Authorised Representative drew our attention to the annual report of the company placed in the paper book and submitted that 64.61% of the cost are towards payment to third party vendors. Thus, he submitted, the company cannot be treated as comparable to the assessee. The learned Authorised Representative relied upon the following decisions:- i) e4e Business Solutions India Pvt. Ltd., ITA no.1777 & 1845/Bang./2013; ii) CIT v/s Mercer Consulting India Pvt. Ltd. [2016] 76 taxmann.com 153 (P&H); iii) PCIT v/s PTC Software India Pvt. Ltd., ITA no.598/2016, dated 16.04.2018; iv) PTC Software India Pvt. Ltd. v/s DCIT, [2014] 52 taxmann.com 351 (Pune-Trib.); v) Maersk Global Service Centres India Pvt. Ltd. v/s DCIT, ITA no.2594/Mum./2014, etc., dated 16.01.2015; vi) Nomura Structured Finance Services Pvt. Ltd. v/s DCIT, etc., dated 31.0....
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.... it in accordance with law. Ground raised is allowed for statistical purposes. 69. In ground no.6, the assessee has challenged levy of interest under section 234B and 234D of the Act. 70. Levy of interest being consequential is not required to be adjudicated at this stage. 71. In the result, appeal is partly allowed. ITA no.1754/Mum./2014 Revenue's Appeal - A.Y. 2009-10 72. The grounds raised by the Revenue are corresponding to grounds no.1 and 2 of ITA no.990/Mum./2014. In view of our decisions given in the earlier part of this order, the grounds raised by the Revenue have become redundant, hence, dismissed. 73. In the result, appeal is dismissed. IT(TP)A no.1597/Mum./2015 Assessee's Appeal - A.Y. 2010-11 74. Grounds no.1, 2 and 3, are identical to grounds no.1 and 2 of ITA no.990/Mum./2014. Following our decision therein in the earlier part of this order, we allow the grounds raised. 75. In grounds no.4 and 5, the assessee has challenged the addition made of Rs. 29,54,289, on account of adjustment made to the arm's length price of investment advisory service provided to overseas Associated Enterprise. 76. The dispute in these grounds is confined to....
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....considered rival submissions and perused the material on record. As could be seen from the annual report of the company placed in the paper book, it is not only registered as a portfolio manager with SEBI but it actually provides portfolio management service. By providing such services during the year it has also earned substantial revenue. It is relevant to observe, while examining the issue of comparability of this company to an investment advisory service provider in case of FIL Capital Advisors India Pvt. Ltd. v/s DCIT, ITA no.7403/Mum./2014, dated 25th October 2016, the Tribunal has held as under:- "4. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the annual report of this company, it is very much clear that the company is engaged in providing PMS and such service is fee based. That apart, reference to the Profit & Loss account does indicate that the company, though, has earned revenue from different segments such as portfolio management fee, performance fee, advisory fee, etc., but the segmental details are not available Further, we have also noted from the annual re....
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.... "ICRA Online Limited is a leading information services, outsourcing and technology solutions provider and caters for some of the biggest names in the financial services sector in (India) and abroad, which is a testimony to its product quality, commitment and credibility." From the above description it is clear that ICRA-O operated in two strategic lines of business, i.e., knowledge process outsourcing and information services and technology solutions, with a list of reputed global and domestic clients. Note c(iii) on Pg.507 of the PB also proves that the activities performed by the company under the business line "Outsourced Services" were in the nature of "maintenance and management of data" and therefore cannot be compared with the assessee. As far as IDFC is concerned, we would like to mention that a portfolio manager is a body corporate who pursuant to a contract or arrangement with the client would advises or direct or undertake on behalf of the client-whether as a discretionary portfolio manager or otherwise. FAR analysis of a portfolio manager cannot be compared with an assessee engaged in the business of providing investment advisory services. The Tribunal has in the ....
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....ed Authorised Representative acceptable. While deciding the comparability of this company in case of AGM India Advisors Pvt. Ltd. v/s DCIT (supra), the Co-ordinate Bench following its decision in Carlyle India Advisors Pvt. Ltd. v/s ACIT (supra), has excluded it from the list of comparables. The observations of the Co-ordinate Bench in Carlyle India Advisors Pvt. Ltd. (supra) in this regard is as under:- "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 concern from the final set of comparables is the fact that such concern was included by the assessee itself as a comparable in its Transfer Pricing Study. As per the Revenue, since the said concern has been adopted by the assessee as a comparable, it is impermissible for the assessee to raise a plea asking for its exclusion in the process of determination of average margins under the TNM method. In our considered opinion, the proposition being canvassed by the Revenue is not absolute, but it has to be considered in the facts and ci....
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....y 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 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 activity in relation to investment advisory services. The aforesaid aspect has been highlighted by the Revenue to say that the said concern continues to be in the business or rendering investment advisory services and, therefore, the restructuring does not impact the comparability of the concern. In our considered opinion, the approach of the Revenue in this context is quite flawed. Firstly, it is not disputed that the activity of investment advisory services has been realigned which included the transfer of all employees to Everstone Investment Advisory Pvt. Ltd. The averments in the Directors Report suggest that pos....