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2020 (1) TMI 251
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....he ALP of the international transactions undertaken by the assessee during the year. The TPO, during the course of TP assessment proceedings, noted that the assessee had entered into the following international transactions with its AE during the year:- S.No. Type of International transaction Method Selected Total value of transaction (Rs.) MAM PLI i. Provision of rating support services TNMM OP/OC 72,737,844 ii. Availing of services TNMM OP/OC 1,205,798 iii. Reimbursement of expenses to AEs TNMM OP/OC 16,240,953 iv. Provision of support services TNMM OP/OC 103,130,435 3. From the various details furnished by the assessee, he noted that The McGraw Hill Companies Inc., USA is the major shareholder holding 9,999 shares which is 99.99% of the total percentage of shareholding. Standard & Poor's India LLC is holding only one share which amounts to 0.01% of the total shareholding. From the various details furnished by the assessee, the TPO further noted that the assessee has benchmarked the international transactions relating to provision of support services by considering them in the nature of softwar....
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....gth margin (Rs.) 17016522 Arm's length price 110771463 Price charged by the assessee 103130435 International transaction 103130435 5% of Price charged in international transaction 5156522 Difference between ALP and Price charged by assessee 7641028 Percentage of sales made to AEs to total revenue (Rs. 103130435/Rs. 103130435*100) 100.00% Proportionate Difference for which adjustment is required to be made 7641028 RATING SUPPORT SERVICES S.No. Company Name OP/OC(%) Working Capital adjusted OP/OC (%) i. Almondz Global Securities Limited 17.45 17.69 ii. IM + Capitals Ltd. 92.01 81.86 iii. ICRA Management Consulting Services Ltd. 15.71 10.14 iv. Ladderup Corporate Advisory Pvt. Ltd. 53.09 49.41 v. Motilal Oswal Investment Advisors Pvt. Ltd. 82.61 78.42 vi. SREI Capital Markets Ltd. 5.96 -2.53 Average 44.47% 39.17% 48.2 Accordingly, the arm's length price of the international transaction related to Rating Support Services is computed as below: Particulars Amount (INR) Operating Cost 63,250,300 Arm's length margin (%) ....
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....ed transaction"). Ground No. 2 The learned AO / TPO / DRP have erred in not accepting the economic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("the Rules"), and modifying the same for the determination of the Arm's Length Price ("ALP") of the appellant's impugned transaction to hold that the same is not at arm's length. Ground No. 3 The learned AO / TPO / DRP have erred in: a. Not accepting the use of multiple year data, as adopted by the appellant in TP documentation; and b. Determining the arm's length margins / prices using data pertaining only to financial Year ("FY") 2010-11, which was not available to the appellant at the time of complying with the Indian TP documentation requirements. Ground No. 4 The learned AO / TPO / DRP have erred in rejecting certain comparable companies identified by the appellant by applying inappropriate comparability criteria such as a. Different accounting year; b. Employee cost lesser than 25 percent of total cost; and c. Diminishing revenues Ground No. 5 Th....
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....hant banker registered with SEBI and requires a separate license to operate. This shows that it is absolutely different from the assessee. Referring to page 14 of the annual report of the said company, the ld counsel drew the attention of the Bench to Schedule 11 of the Profit & Loss Account and submitted that the same reveals that the main source of income of the said comparable was by way of financial and management consultancy fees and, thus, was entirely different from the activities of the assessee which was not into the business of financial and management consultancy. Referring to page 9 of the annual report, he drew the attention of the Bench to segment information and submitted that the same reveals that the aforesaid comparable was into financial and management consultancy and, therefore, it is functionally different. Referring to the decision of the Hon'ble Delhi High Court in the case of M/s Mckinsey Knowledge Centre India Pvt. Ltd., vide ITA No.461/2017 and batch of other appeal, order dated 9th August, 2018, he submitted that the Hon'ble High Court has upheld the decision of the Tribunal in excluding this company from the list of comparables on the ground that this....
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....erchant banking actuary, financial advisory, etc. The functions performed by Motilal Oswal Investment Advisors Private Limited which is into merchant banking activities cannot be compared to the assessee whose functions are strictly limited to that of providing rating support services. Referring to the following decisions, he submitted that Motilal Oswal Investment Advisors Private Limited was excluded from the list of comparables on account of functional dissimilarity:- i) Carlyle India Advisors Private Limited (ITA No.2410/Mum/2017 and ITA No.2506/Mum/2017 (A.Y. 2011-12); ii) Carlyle India Advisors Private Limited (ITA No.7367/Mum/2012 (A.Y. 2008-09); iii) ITAT Delhi in case of D.E. Shaw India Advisory Services Pvt. Ltd. Vs. DCIT, ITA No.1681/Del/2015 dated 04.09.2017; iv) ITAT Mumbai in ACIT vs. Blackstone Advisors India Pvt. Ltd., ITA no.928 & 1370/Mum/2016 dated 30.11.2018; and v) ITAT Mumbai in Carlyle India Advisors Private Limited (ITA No.2410 & 2506/Mum/2017 dated 20.11.2018. 12. He submitted that if the above two comparables are excluded from the list of comparables, the entire adjustment stands deleted and, therefore, the o....
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....e addition in respect of provision of support services of Rs. 76,41,028/- and the Revenue is not in appeal before the Tribunal. So far as the adjustment on account of provision of rating support services is concerned, it is the submission of the ld. Counsel for the assessee that if Ladderup Corporate Advisory Private Limited and Motilal Oswal Investment Advisors Private Limited are excluded from the list of comparables, the profit margin of the assessee would fall within the +/- 5% and the entire addition would stand deleted. 15.1 So far as Ladderup Corporate Advisory Private Limited is concerned, we find this company was included by the TPO on the ground that it is functionally similar as it is engaged in providing financial and management consultancy services. However, in our opinion, this company should be excluded from the list of comparables on account of different functionality. A perusal of the details filed by the assessee shows that Ladderup Corporate Advisory Private Limited operates as an investment banking firm offering high quality investment banking, corporate finance and corporate advisory services to clients in the mid-market space. It is also a category 1 mercha....
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....ove comparable on the ground that it is functionally similar as it is engaged in providing advisory on merchant banking, equity placement, mergers and acquisition, restructuring, etc. However, in our opinion, this company also should be excluded from the list of comparables on account of different functionality. From the copy of the Director's Report, we find this company operates in four different business verticals. A perusal of the Director's Report shows that the company derives its business income from four different business verticals viz., equity capital markets, mergers and acquisitions, private equity syndication and structured debt. 18. Despite the aforesaid multiple sectors/verticals of operations, we find no segmental data is available in the annual report. A perusal of the segment reporting shows that the company is engaged in single segment and there are no reportable business segment as per AS-17. We find the assessee company is engaged in providing high end rating support and would require skilled personnel in the field of merchant banking, actuary, financial advisory, etc. The functions performed by Motilal Oswal Investment Advisors Private Limited which is into....
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....estic capital markets, monitoring mergers and acquisitions and advising M&A as professional and restructuring advisory and implementations. It is also involved in various professional activities of the merchant banking. A Merchant Banker provides capital to companies in the form of share ownership instead of loans. It also provides advisory on corporate matters to the companies in which they invest. The focus is on negotiated private equity investment. The wide ranges of activities 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 advice 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 as 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....