TaxTMI 
TaxTMI 
2019 (7) TMI 76
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....olidated order. ITA no.990/Mum./2014 Assessee's Appeal - A.Y. 2009-10 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 Tra....
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....ted arm's length interest @ 14.39% per annum and treated it as adjustment to the arm'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 ....
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....ables disputed before us. i) MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. 13. Objecting to 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./2....
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.... comparable to the assessee. He submitted, for the aforesaid reason, the Transfer Pricing Officer himself has not selected this company as a comparable in assessee'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....
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....hould be removed from the list of comparables. In support, he relied upon the following decisions:- i) Carlyle India Advisors Pvt. Ltd. v/s DCIT, ITA no.2200/ Mum./2014, dated 22.08.2014; 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 equ....
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....rned Departmental Representative. Moreover, in the decisions cited before us by the learned Authorised Representative, this company has been held as not comparable to an investment advisory service provider. In view of the aforesaid, 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 adviso....
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....13-14 and 2015-16. Further, he submitted, in a number of decisions, the Tribunal has accepted this company as a good comparable to an investment advisory service provider. In support of this, he relied upon the following decisions:- i) Warburg 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....
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.... held that this company is a good comparable to an investment advisory service provider. Moreover, it has been brought to our notice by the learned Authorised Representative that in assessee's own case in assessment years 2013-14 and 2015-16, the Transfer Pricing Officer himself 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....
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....arable. As could be seen from the facts on record, this company was selected by the assessee itself as a comparable in its transfer pricing study report and the Transfer Pricing Officer also accepted it as a comparable. It is evident, selection of the aforesaid comparable was not objected to by the assessee 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 re....
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....sdictional High Court has expressed this view in PCIT V/s. J.P.Morgan India (P.) Ltd.[2019]102 taxmann.com 335(Bombay). Therefore, we are inclined to admit the additional ground raised by the assessee. However, since the issue has been raised for the first time before us, to afford a fair opportunity to the Department to examine 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 assess....
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....d., [2016] 76 taxmann.com 153 (P&H); ii) Mercer Consulting India Pvt. Ltd. v/s DCIT, [2014] 47 taxmann.com 84 (Del.); and iii) Capital IQ Information Systems India Pvt. Ltd. v/s ACIT, [2014] 49 taxmann.com 313 (Hyd.). 49. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 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, [201....
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...., ITA no.966/ Del./2014; iii) Maersk Global Service Centre India Pvt. Ltd. v/s DCIT, ITA no.2594/Mum./2014 & ITA no.2492/Mum./2014; and iv) Cisco Systems India Pvt. Ltd. v/s DCIT, S.P. no.130/ Bang./2014 & IT(TP)A no.271/Bang./2014. 53. The learned Departmental Representative submitted, since, the accounting period of the comparable is different from the assessee, it cannot 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 maintaini....
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....o third party vendors. Further, he submitted, the company has not undertaken separate segmental accounting for ITeS. Thus, he submitted, the company cannot be treated as a comparable. In support of such contention, he relied upon the following decisions:- i) CIT v/s Principal Global Services Pvt. Ltd., ITA no.280/ Pune/2014, [2018] 257 Taxman 244; ii) Principal Global Services Pvt. Ltd. v/s DCIT, 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 ....
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....usiness model it cannot be treated as a comparable. The other decisions cited by the learned Authorised Representative, many of which relate to the impugned assessment year, also express similar view with regard to the aforesaid company as a comparable to ITeS service provider. In view of the aforesaid, respectfully following the decisions referred to above, we direct the Assessing Officer to exclude this company as a comparable. d) GENESYS INTERNATIONAL CORPORATION LTD. 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 Indi....
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.... notice by the learned Departmental Representative, respectfully following the decision cited before us, we are of the view that the company cannot be treated as a comparable to the assessee. It is relevant to observe that the learned Departmental Representative has also submitted before us that this company was initially selected by the assessee also. However, in view of our reasoning while deciding the comparability of Cosmic Global Ltd. herein before, we do not find the submissions of the learned Departmental Representative acceptable. d) VISHAL 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 Represen....
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....respect of comparability of Cosmic Global Ltd. in the earlier part of this order. Ground no.4 is allowed in terms indicated above. 66. In ground no.5, the assessee has raised the issue of adjustment of refund amounting to Rs. 16,06,319. 67. The learned Authorised Representative submitted, while computing the tax liability of the assessee, the Assessing Officer has adjusted an amount of Rs. 16,06,319, as "amount already refunded", though, no such was ever granted to the assessee. 68. Having considered rival submissions, we direct the Assessing Officer to verify the issue factually and decide 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 ....
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....dia Pvt. Ltd. v/s ACIT, ITA no.840/ Mum./2015, dated 11.11.2016; iii) PCIT v/s Bain Capital & Advisors India Pvt. Ltd., ITA no. 541 of 2016, dated 24.11.2018; iv) Bain Capital Advisors India Pvt. Ltd. v/s DCIT, ITA no.413/Mum./2015; 15.05.2015; v) Carlyle India Advisors Pvt. Ltd. v/s ACIT, [2016] 66 taxmann.com 14 (Mum. Trib.); vi) AGM India Advisors Pvt. ltd. v/s DCIT, ITA no.4757/ Mum./2015m dated 18.05.2016, dated 18.05.2016; and vii) Sparkles Dhandho Advisors Pvt. Ltd. v/s ITO, ITA no. 1047/Mum./2015. 79. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 80. We have 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 ....
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....nts, 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 accounts. We would like to refer to Pg.507 of the PB in case of ICRA-O and it reads as under:- "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 rep....
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....as well as revenue due to re-structuring. In this context, he drew our attention to the annual report of the company. Thus, he submitted, the company cannot be treated as a comparable. In support, he relied upon the following decisions:- i) Carlyle India Advisors Pvt. Ltd. v/s ACIT, [2016] 66 taxmann.com 14 (Mum. Trib.); and ii) AGM India Advisors Pvt. ltd. v/s DCIT, ITA no.4757/Mum./2015m dated 18.05.2016, dated 18.05.2016. 83. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 84. We have considered rival submissions and perused the material on record. On a perusal of the annual report of the company, we find the aforesaid submissions of the learned 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 t....
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....siness takes place, such year is often a peculiar economic year in the history of a concern and in such a situation, it would be in the interest of justice and fair play that such a concern is not treated as a comparable. 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 w.e.f 1.1.2010. The note also suggests that the said concern did not enter ....
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....ons of the Co-ordinate Bench, which are for the very same assessment year, we exclude this company from the list of comparables. 4. ICRA MANAGEMENT CONSULTING SERVICES LTD. INFORMED TECHNOLOGIES LTD. IDC INDIA LTD. 86. Comparability issues relating to the aforesaid comparables also arose in assessee's appeal for the assessment year 2009-10 being ITA no.990/Mum./2014. The argument advanced by learned Counsels appearing for the parties in the appeal for assessment year 2009-10 were also adopted in the impugned assessment year. Therefore, the facts and contentions relating to the comparability of these companies being identical in both the years under consideration, respectfully following our decision in respect of these comparables while deciding assessee's appeal in assessment year 2009-10 in earlier part of this order, we direct the Assessing Officer to include these companies as comparable. 87. Besides the comparables dealt above, in the additional grounds filed on 30th March 2019, the assessee has disputed the selection of Integrated Capital Services Ltd., as a comparable. Pertinently, similar issue was raised by the assessee in its appeal for the assessment year 2....