TaxTMI 
TaxTMI 
2017 (10) TMI 1521
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....rence to the Transfer Pricing Officer (TPO). After receiving the order of the TPO, he issued a draft order to the assessee proposing adjustments of Rs. 7. 89 crores. The assessee filed objections before the DRP. After receiving the directions of the DRP, the AO finalised the assessment, on 27. 11. 2013, the AO passed u/s. 143(3)r. w. s. 144C(5)of the Act, determining its income at Rs. 2. 15 crores. ITA/342/Mum/2014: 3. Solitary ground of appeal, raised by the AO, is about direction of the DRP to consider IDC Ltd. (ICDL)as a valid comparable. During the TP proceedings, the TPO found that for computing the ALP, the assessee had adopted Transactional Net Margin method ('TNMM'), that the operating profit to operating cost(OP/OC)was taken as PLI, that the Assessee itself was the tested party, that seven companies were taken as comparables, that last three years' data was used, that the assessee justified the arm's length nature of the controlled transaction of 'advisory and support services' with reference to the OP/OC ratio, realised by seven comparables namely-Future Capital Holding Ltd. (FCHL), ICRA Management Consulting Services Ltd. (ICRA), ICRA Online Ltd. (ICRA Online), ICR....
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....include IDCL in the set of comparables for the purpose of bench marking. 5. Before us, the Departmental Representative(DR)supported the order of the TPO with regard to IDCL. For other comparables he relied upon the order of the DRP. The Authorised Representative(AR), with regard to FHCL, stated that it did not fail the RPT, that the RPT of the comparable was only 11. 46%, that while calculating the RPT the Depart - mental authorities had taken RPT% as RPT expenses +RPT Income/Total Income. He referred to Pg. 22 of the PB wherein working of RPT was given and stated that it was 11. 46 %. He argued that RPT percentage was much below the 25% filter. He referred to the case of PTC Software(India) Pvt. Ltd. (ITA/1605/PN/2011 dtd. )and stated that the Hon'ble Bombay High Court had upheld the order of the Tribunal. (ITAX No. 732 of 2014). With regard to MOIAPL, he stated that it was excluded from the list of valid comparables by the Tribunal, while deciding appeal for earlier year (ITA/7722/Mum/2012 dtd. 30/09/2015. ). He relied upon the cases of Carlyle India Advisors(P. )Ltd. (49 taxmann. com. 476). Referring to the annual report of IDCL, he stated that the TPO had computed t....
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..... We hold that correct mean of profit for the year was 10. 45%. We also find that IDCL was accepted as a valid comparable in the earlier year. No fresh facts have been brought on record proving that there were distinguishing facts of the year under appeal vis-a-vis facts of earlier year. Principles of tax jurisprudence stipulate that rule of consistency should be adhered to as far as possible. In the case of Carlyle India Advisory Pvt. Ltd. (ITA(L)No. 1286 of 2012)the Hon'ble Bombay High Court has held that IDCL was a valid comparable for benchmarking investment advisory, as it was carrying out research/ consultancy activities. In the matters of General Atlantic Private Limited(ITA/8914/ Mum/ 2010)and Sandstone Capital Advisors Pvt. Ltd. (ITA/6315/ Mum/2012), the Tribunal has held that, for comparing investment advisory services, IDCL was to be considered a good comparables. Considering the above, we are of the opinion that the DRP had rightly held that IDCL was a valid comparable for benchmarking investment advisory services. So, confirming its order, we decide the effective ground of appeal against the AO. ITA No. 595/Mum/2014 7. First effective ground of appeal, rais....
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....the total transactions, the same are liable to be excluded for the purposes of comparability analysis. The TPO further decided to compute the limit of 25% of RPT transactions with reference to the appropriate base, which was either sales or total operating expenses, as the case may be. In para 6. 3. 2. of his order, the TPO has noticed in relation to FCS Software ltd that the said company had sales revenues from related parties of Rs. 36. 89 crores against total sales of Rs. 131. 27 crores and it had incurred RPT expenses of nil against total expenses of Rs. 107. 58 crores. He computed the percentage of RPT to the total transactions at 15. 40% by the following method: RPT sales divided by (total sales + total expenses) multiplied by 100 i. e. , Rs. 36. 89 crores divided by (Rs. 131. 27 + Rs. 107. 58) multiplied by 100. 13. Ostensibly, the aforesaid calculation results in RPTs of 15. 40% which is below the filter of 25% adopted by the TPO and accordingly, it was not excluded. However, it is quite evident that the denominator of Rs. 238. 85 crores adopted by the TPO is wrong in as much as it includes total expenses also whereas as per TPO's own observations, there a....
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....5. 40% percentage of RPT resulting in its RPTs being 15. 40% i. e. less than 25% RPTs being 15. 40% i. e. less than 25% filter. (b) The impugned order of the Tribunal accepts the grievance of the respondent assessee. It records the fact that the denominator in the formula adopted by the TPO is incorrect as it also includes the total expenses when the TPO on facts has held that there are no expenses in respect of the RPT. Therefore, the option of the denominator by considering total sales + total expenses when there are no RPT expenses would lead to misleading results. The denominator was restricted to only total sales and the result would be the RPT are at 28. 10%. -i. e. in excess of 25% filter and, therefore, is excludable from the list of comparables. (c) Mr. Suresh Kumar, learned Counsel for the Revenue reiterates the findings in the order of the TPO. No reasons are forthcoming from the Revenue as to what exactly is its grievance with regard to the findings of the Tribunal in case of M/s. FCS Software Ltd. (d) We find that this is a purely factual determination and the RPTs have to be considered in the context of total transactions and not by a conver....
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..... 79% whereas OPM of Motilal Lswal Investment Advisors Pvt Ltd is 72. 33%. The comparables used by the TPO themselves are showing extreme OPM. A perusal of the Director‟s report of Motilal Oswal Investment Advisors Pvt Ltd shows that during the year under consideration, the said company has completed 23 assignments successfully as against 14 completed in the immediately preceding year. A close look at the financial statements of the said company show that the income from operations have been shown only as advisory fees whereas it is admittedly an undisputed facts that the said company is engaged in diversified activities. Segmental reporting is not available. Profit and loss account appears to be only of consolidated accounts. The said company is registered with SEBI as a merchant banker and the Director‟s report show that it is into takeover acquisitions, disinvestments etc. In the absence of specific data it is not possible to make comparison. It can therefore be safely said that the said company being into merchant banking and cannot be considered as a comparable. We, accordingly, direct the AO not to consider Motilal Oswal Investment Advisors Pvt Ltd as a comparable....