AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 993
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....5, 6, 7, 9 and 10. This is how the appeal came up for hearing before this Bench. The issue raised in ground nos. 5, 6, 7, 9 and 10 relates to the issue of applicability of certain filters while selecting comparables and risk adjustment. Briefly put the facts are, assessee, a resident company, is engaged in the business of providing investment advisory services to its overseas associated enterprises (AE). For providing such services to the AE, the assessee has earned revenue of Rs.48,49,75,777 during the year. For benchmarking the aforesaid transaction with the AE, the assessee had selected transactional net margin method (TNMM) as the most appropriate method. After conducting a search in databases, the assessee selected four companies as comparable. By applying profit level indicator (PLI) of operating profit to operating cost (OP/OC), the mean margin of the comparables was worked out at 6.28%. The margin shown by the assessee at 25.84% being much higher to the average margin of the comparables, the assessee claimed the transaction with the AE to be at arm's length. The Transfer Pricing Officer (TPO), however, did not accept the benchmarking of the assessee, though, he accepted TNM....
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....ted, this company cannot be treated as comparable. 4. Per contra, learned Departmental Representative submitted, after detailed analysis by the TPO, this company having been found to be functionally similar to the assessee was included as a comparable. He submitted, though, in assessee's own case in assessment year 2009-10, the Tribunal had included this company as a comparable, however, after the matter was remanded back by the Hon'ble High Court while deciding the appeal of Revenue, the Tribunal held this company to be a comparable to the assessee. In this context, he drew our attention to the relevant observations of the Tribunal while disposing of the appeal for assessment year 2009-10 vide order dated 10.12.2020. As regards the contention of the assessee that the company does not pass the RPT filter, learned Departmental Representative submitted, since plea is unacceptable as similar contention of the assessee was rejected by the Tribunal in assessment year 2009-10. Thus, he submitted, this company cannot be rejected as a comparable. 5. In rejoinder, learned counsel for the assessee submitted, for applying RPT filter, sale to sale and expenses to expenses ratio has t....
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....selected either by the assessee or by the TPO the RTP has been calculated in relation to the sales turnover. Therefore he rejected the contentions of the assessee. This was not challenged before the learned CIT-A. The learned and CIT-A in para number 7.5 has stated that after excluding Religare and Keynote from the final set of comparables, the average margin of the comparable comes to 21.82% whereas the margin of the appellant is 24.79%. Therefore, there is no requirement of any adjustment. In view of this even otherwise the exclusion or inclusion of Motilal Oswald Ltd. was merely an academic exercise. Even otherwise we are not of the view that related party filter should be applied only with respect to the total expenditure. Further the 25% since filter with respect to sales to related party, this comparable has crossed that filter. Even before us there was no functional dissimilarity shown in the comparable vis-à-vis the functions of the assessee. In view of this we are of the view that Motilal Oswald investment and advisory services Ltd. has crossed the RPT filter and is functionally similar therefore same cannot be excluded." 7. As could be seen from the foresaid obs....
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....assessee's own case in assessment years 2007-08 and 2009-10 has rejected this company as a comparable. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned DRP. 11. We have considered rival submissions and perused the material available on record. As could be seen from material placed before us, while examining the comparability of this company in assessee's own case in assessment year 2007-08, the Tribunal looking at the abnormally volatile nature of profit margin shown by the company has rejected it as a comparable. In assessment year 2009-10 also, post remand by the Hon'ble jurisdictional High Court, the Tribunal, in order dated 10.12.2020, has upheld the rejection of this company as a comparable with the following observations: "9. We first come to the Keynote corporate services Ltd, this comparable has been selected by the learned transfer pricing officer. The assessee has raised several objections in para number 8.1 at page number 28 of the transfer pricing officer's order. The assessee has raised the functional dissimilarity issue stating that the comparable company is engaged in the merchant banking b....
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....identical, respectfully following the aforesaid decision of the co-ordinate Bench, we direct the Assessing Officer to exclude this company from the list of comparables. 13. The only other surviving issue arising from the grounds left for consideration by this Bench is, with regard to assessee's claim of providing working capital and risk adjustment. Learned counsel for the assessee submitted, the assessee performs in risk free environment and has been guaranteed a mark-up of 25% over the cost. He submitted, the mark up is not dependent upon any investment or subsequent exit. Whereas, he submitted, the comparables have diversified area of additional functions, such as, marketing etc. and have more risk exposure. Therefore, a risk adjustment has to be allowed while computing the margin. In this context, learned counsel for the assessee drew our attention to the observations of the Hon'ble jurisdictional High Court while deciding assessee's appeal in assessment year 2008-09: "41. This Court, on a perusal of the orders of the lower authorities and the assessee's submissions before them which have been placed on record in this appeal, finds that securities were based onl....