TaxTMI 
TaxTMI 
2019 (11) TMI 1879
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....ng the hearing of appeal." ITA No. 6555/Del/2015 1. "On the facts and in the circumstances of the case, the DRP-II erred in directing to reduce the addition of Rs. 3,33,32,572/- on account of proposed addition of arm's length price of the international transaction with its associated enterprises. 2. "On the facts and in the circumstances of the case, the DRP-II erred in directing TPO to apply export filter of 75% resulting in exclusion of 6 mentioned below companies from the final set of comparables : a) Almondz Global (Seg.) b) Lexcon Finance Ltd. c) IM+Capitals d) Ladderp Corporate Advisory Pvt. Ltd. e) Motilal Oswal Invst. Advisors Pvt. f) S R E I Capital Markets Ltd." 3. "On the facts and in the circumstances of the case, the DRP-II erred in directing TPO to include ICRA Management Consulting Services Pvt. Ltd in the list of suitable comparables." 4. "The appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. Brief facts of the case for A.Y. 2010-11 is taken up fir....
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....sessee. 4. The revenue is in appeal before us. 5. The Ld. DR submitted that the DRP erred in directing to reduce the addition of Rs. 6,67,02,130/- on account of proposed addition of arm's length price of the international transaction with its associated enterprises. The Ld. DR submitted that as regards with the comparables which was excluded by the DRP, the TPO has applied proper filter and thereafter included these comparables. Therefore, the Ld. DR submitted that the TPO's order should have been sustained and challenged the directions of the DRP wherein DRP directed to exclude six comparables and retained only two comparables. In fact, the DRP admitted in para 7.1 of the directions that no exact comparable is available in reality The endeavor is to find out a comparable which is in the similar line of business and having similar assets and risk profiles. The Ld. DR submitted that these comparable should be retained. Following are the comparables which the Ld. DR agitated before us: (i) Ajcon Global Services Ltd. : The Ld. DR submitted that the services provided by this company are broadly similar to the services being provided by the assessee company. Therefore, th....
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....pon various decisions as well. The DRP vide its order dated 01.12.2014 directed the TPO/AO to exclude the following 6 companies from the list of comparable companies for the purpose of comparing the average operating margin of comparable companies with that of the tested party. (1) Ajcon Global Services Limited The Company is engaged in stock market and DP operations, providing consultancy and advisory services and security trading activities. Higher risk undertaken by such service provider company, since total debtors is about 75.58% of total turnover of such company, whereas the total debtors of tested party are only about 0.018% of its total turnover. Further capital employed of such company is more than 17 times of capital employed of tested party. This company fails the functional test since about 50% of its income is earned from stock market and DP operations as well as profit from securities trading activities whereas the tested party does not carry out or have any income from such type of activities. This Company carries on fund based activities also and the therefore its earning is not on account of its personnel only but also on account of its capital an....
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.... other than financial advisory services. As income from consultancy services was Nil and the entire income of Rs. 19,10,48,799/- was derived from debt resolution and debt syndication, which is generally charged as per success fee model and hence commands higher margins on account of high risk undertaken when compared with low margin non-binding investment advisory services provided by the Assessee. Percentage of export income of this company is about 1% out of total turnover whereas income of tested party is 100% from exports. Accordingly, this company is to be excluded on the basis of 75% export turnover filter. Accordingly, as per Rule 10(B)(2) of I.T. Rules, this company is to be excluded from the list of comparable companies test. (3) Karvy Investors Services Ltd. This company is engaged in providing merchant banking services in India. Higher risk undertaken by such service provider company, since total debtors is about 6.68% of total turnover of such company, whereas the total debtors of tested party are only about 0.018% of its total turnover. Further capital employed of such company is more than 17 times of capital employed of tested party. This company fai....
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....acquisitions, private equity syndications and structured debt. Higher risk undertaken by such service provider company, since total debtors is about 31.03% of total turnover of such company, whereas the total debtors of tested party are only about 0.018% of its total turnover. Further capital employed of such company is more than 2.80 times of capital employed of tested party. This company fails the functional test since it is engaged in the equity capital markets, mergers and acquisitions, private equity syndications and structured debt and derives whereas the tested party does not carry out or have any income from the above type of services. Percentage of export income of this company is 49% which is less than 75% of total turnover whereas income of tested party is 100% from exports. Accordingly, this company is to be excluded on the basis of 75% export turnover test/filter. Accordingly, as per Rule 10(B)(2) of I.T. Rules, this company is to be excluded from the list of comparable companies. (6) Pushpak Financial Services Ltd. This Company is registered as NBFC with RBI. Higher risk undertaken by such service provider company, since total debtors is about 21.07%....
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....dered the submission of the assessee and order of the TPO. Around 50% of the income comes from stock market operations in this company. There is no segmental accounting reported. Therefore, this company should not be taken as a comparable in this case. (ii) Brescon Corporate Advisors Global Services Ltd.: The assessee has objected of this company by stating that it provides noncomparable services intermediation and advisory services of debt resolution and recapitalisation, debt syndication and other corporate financial services. DRP has considered this objection of the assessee and finds that this is in a different line of activity and therefore it should be excluded from the set of comparables. .......................................... (v) Karvy Investors Services Ltd.: DRP carefully examined the order of the TPO. TPO has accepted the argument and objection on the Karvy Investors Services Ltd. He has stated that "Since, the earning of the company is not on account of its personnel only but also on account of its capital also, the company will not be considered as comparable accepting the objection of the taxpayer" (on page 64 ....
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....etween the assessee and TAL. During the F.Y. 2010-11 i.e. A.Y. 2011-12, assessee provided investment advisory services to its AE in the nature of investment recommendations primarily in real estate sector in India which were not binding in nature and served as Back Office for its AE. Assessee was engaged to provide investment advisory services to TAL as single client and accordingly 100% of its revenue of Rs. 9,29,01,576/- was derived from export of services and there was no domestic revenue. The TPO rejected 12 comparable companies as selected by the assessee on the basis of functional dissimilarity and instead selected 6 other companies as comparable companies and worked out the average operating margin for 6 comparable companies at 56.74%. On this basis, the proposed upward adjustment of Rs. 3,33,32,572/- to ALP was worked out by the TPO which was adopted by the Assessing Officer in draft assessment order u/s 144C of the Act. The DRP vide direction dated 15.09.2015 directed the TPO/AO to exclude all the 6 companies as taken by TPO/AO from the list of comparable companies and instead directed the TPO/AO for considering M/s ICRA Management Consulting Services Ltd. which was also c....
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.... as back office of TAL with certain specific manpower with certain skill sets in finance, legal, engineering and asset management. For providing such services, the Assessee charged its AE on cost plus arrangement thereby eliminating any risks on the assessee unlike other Cos. Carrying on advisory businesses like investment banking etc. working on multiple clients and thereby undertaking various risks. In other words, under such cost plus arrangement, all the risks in the form of market/business risk, credit and collection risk, capacity utilization risk, service liability risk, human resource management risk as well as foreign exchange fluctuation risk was borne by the AE and not by the Assessee Company. Further, the assessee company was a debt free company and its entire working capital requirement was supported by its AE in the form of advances against services as provided to the assessee. In support of the arm's length price (ALP) charged by the assessee company (TCK) to its AE (TAL), the assessee relied upon TP study report carried out in immediate preceding year and updated working sheet for the year under consideration as filed before TPO/AO/DRP, as per which the average oper....
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....come was derived from debt resolution & debt syndication, which is generally charged as per success fee model and hence commands higher margins on account of high risk undertaken when compared with low margin non-binding investment advisory services provided by the Assessee. Advisory fee, if any, is reflected as part of overall one single segment and hence in the absence of segment information, this Company cannot be considered as comparable to the tested party. Percentage of export income of this company is Nil whereas income of tested party is 100% from exports. Accordingly, this company is to be excluded on the basis of 75% export turnover filter. Accordingly, as per Rule 10(B)(2) of I.T. Rules, this company was rightly excluded from the list of comparable companies. ii. Motilal Oswal Investment Advisors Pvt. Ltd. : This Company was found to non-comparable by DRP in AY 2010-11 also. The company is engaged in different business verticals viz. equity capital markets, mergers and acquisitions, private equity syndications and structured debt. Higher undertaken by such service provider company since total debtors is about 37.18% of total turnover of such company, whereas the....
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....P) Ltd. Reported in 153 ITD 400 (Mumbai ITAT), it has been held that the business of investment, merchant banking, corporate finance and similar activities cannot be compared to investment advisory activities of the Assessee. Percentage of export income of this company is nil whereas income of tested party is 100% from exports. Accordingly, this company is to be excluded on the basis of 75 % export turnover test/filter. Accordingly, as per Rule 10(B)(2) of I.T. Rules, this company was rightly excluded from the list of comparable companies. iv. SREI Capital Markets Limited : The company is engaged in three business verticals i.e. (i) IPO & SEBI related vertical dealing with public issues, delisting, Buy-back, Open Offers, (ii) private equity and M&A vertical primarily dealing with fu d raising from private equity funds, advisory on mergers, acquisitions and disinvestments and (iii) debt syndication vertical. Higher risk undertaken by such service provider company since total debtors is about 59.67% of total turnover of such company, whereas the total debtors of tested party are only about 0% of its total turnover. Further capital employed of such company is more than 14.60 ....
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.... of Rs. 13.98 Crs. Moreover, this Co. has only four employees as against 14 employees of the tested party. This clearly shows that this Co. is primarily engaged in investment activities. Hence, this Co. fails the functional test as laid down by TP in his order in AY 2010-11. Further, during AY 2011 -12, TPO himself has considered such type of Cos. to be functionally dissimilar. In the case of Carlyle India Advisors (P) Ltd reported in 153 ITD 400, it has been held that the business of investment, merchant banking, corporate finance and similar activities cannot be compared to investment advisory activities of the Assessee. Moreover, in the absence of segment information between investment and management consultancy services, this Co. cannot be considered as comparable. Percentage of export income of this company is nil whereas income of tested party is 100% from exports. Accordingly, this company is to be excluded on the basis of 75% export turnover test/filter. Accordingly, as per Rule 10(B)(2) of I T. Rules, this company was rightly excluded from the list of comparable companies. vi. Almondz Global Securities Limited : The company is engaged in the following business seg....
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....ters taken into account by the TPO was rightly excluded by the DRP. The Ld. AR relied upon the order of DRP. 14. We have heard both the parties and perused all the relevant material available on record. Ground No. 1 and 4 are general hence dismissed. The DRP has given the following observations: "As regards objection no 2(3) challenging the action of the TPO in not applying the export filter while selecting the six comparable companies, the Panel gave an anxious consideration. It was noticed upon a perusal of the facts of the case that the same issue formed the subject matter of consideration before the erstwhile DRP in respect of AY 2010-11. It was adjudged by the said DRP in favour of the a' by holding that the TPO was unwarranted in ignoring the export filter while selecting the same 6 companies figuring during the AY 2011-12. It was also held by them that the a' being a company earning 100% of its revenue from exports deserved to be compared with companies having at least 75% of its income from exports. Aside from the above criteria, it was also held by such DRP that the above said 6 companies functionally dissimilar did not meet the service revenue filter test. ....