GOLDMAN SACHS (INDIA) SECURITIES PRIVATE LIMITED,MUMBAI vs. ASSESSMENT UNIT, INCOME-TAX DEPARTMENT, DELHI

The brief facts of the case are that the assessee is a wholly owned subsidiary of GSIA Holding Pte. Limited and is registered as a stockbroker with the Securities and Exchange Board of India (“SEBI”). The assessee has also been granted a merchant banking license by SEBI, which allows the assessee to provide a range of securities underwriting and corporate finance services in India. The assessee also provides Information Technology-enabled Services (“ITeS”) to certain affiliated companies through its branch in Bangalore. For the year under consideration, the assessee filed its return of income on 25.02.2022, declaring a total income of ₹ 372,79,47,300/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served to the assessee. Pursuant to the reference by the learned Assessing Officer (“AO”) under section 92CA(1) of the Act, the Transfer Pricing Officer (“TPO”) vide order dated 09.10.2023 passed under section 92CA(3) of the Act proposed a total transfer pricing adjustment of ₹ 14,84,49,910. In conformity, the AO passed the draft assessment order dated 20.12.2023 under section 144C(1) of the Act after incorporating the transfer pricing adjustments proposed by the TPO. In conformity with the directions issued by the learned DRP under section 144C(5) of the Act, the AO passed the final assessment order dated 24.10.2004 under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act, assessing the total income of the assessee at ₹ 408,92,21,980/-. Being aggrieved, the assessee is in appeal before us.

In this appeal, the assessee has raised the following grounds: - “

The issue arising in Ground No.1 raised in assessee’s appeal, pertains to the transfer pricing adjustment in relation to international transaction pertaining to non-binding investment advisory and support services rendered by the assessee to its associated enterprises.

The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee, inter alia, entered into international transaction pertaining to provision of non-binding investment advisory and support services to its associated enterprises in respect of strategic investments into India, for which it received advisory fees of ₹ 9,10,32,834/- at the mark-up of 22%. The assessee benchmarked the said transaction by adopting the Transactional Net Margin Method (“TNMM”) as the most appropriate method with the Profit Level Indicator (“PLI”) of operating profits to operating costs (“OP/OC”). By considering itself as the tested party, the assessee identified six companies as comparable with a 35th to 65th percentile range between 1.97% to 4.70%, with a median of 2.19%. As the assessee had earned an operating profit margin of 22%, it claimed that the international transaction pertaining to the provision of non-binding investment advisory and support services is at arm’s length price (“ALP”).

The TPO, vide its order dated 09.10.2023 passed under section 92A(3) of the Act, rejected four companies considered as comparable by the assessee and arrived at a set of the following two comparable companies for benchmarking the international transaction pertaining to the provision of non- binding investment advisory and support services: - Name of the Companies Weighted Average of operating profit on operating cost Everstone Capital Advisors Pvt. 7.41% Ltd. Axience Consulting Private 8.44% Limited Arm’s Length Margin 7.93% Margin earned by the Taxpayer on 22.00% Operating Costs (%)

During the transfer pricing assessment proceedings, it was observed that certain key management personnel of the non-binding investment advisory team of the assessee participated in carried interest plans offered by the Goldman Sachs Group (“GS Group”). Accordingly, the assessee was asked to confirm whether the key management personnel are entitled to any carried interest. In response, the assessee submitted that the carried interest is an arrangement between employees of the assessee and GS Group, and the assessee is not a party to the said arrangement. Accordingly, the assessee submitted that the arrangement for carried interest to the employees of the assessee is in their individual capacity and is entered into by such employees directly with the overseas entity. Accordingly, the assessee submitted that it is not privy to the details of the carried interest received by employees in their individual capacity.

The TPO, vide its order passed under section 92CA(3) of the Act, disagreed with the submissions of the assessee and on the basis of the information received during the APA proceedings for the assessment years 2012-13 to 2020-21 arrived at an amount of ₹ 90 lakh, relying upon the stand of the TPO in the earlier years, being the amount received by the employees of the assessee from GS Group as carried interest. On the basis that the incentives/carried interest earned by these employees was not included in the cost base for computing the margins of the assessee in the investment advisory and support services segment and given that the assessee is compensated on a cost-plus basis, the TPO computed the transfer pricing adjustment of ₹ 19,80,000/- with respect to the international transaction pertaining to provision of non-binding investment advisory and support services as follows: - Particulars Amount in INR Existing operating cost (A) 7,46,17,077 Add: Carried interest attributed to A.Y. 90,00,000 2021-22 (B) Revised operating cost C=(A+B) 8,36,17,077 Mark-up on existing cost base (D) = A*22% 1,64,15,757 Mark-up on revised cost base (E) =C*22% 1,83,95,756.94 Shortfall being adjustment u/s.92CA(E-D) 19,80,000

The learned DRP vide its direction issued under section 144C(5) of the Act rejected the objections filed by the assessee on this issue and upheld the action of the TPO in taking the carried interest in the cost base of the assessee for computing the transfer pricing adjustment. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. Based on discussions with the current employees of the assessee who were part of the non-binding investment advisory team during APA proceedings in preceding years, it was observed that these employees earned incentive/carried interest from the GS group in the range of approximately ₹ 1.5 crore to ₹ 5 crore. Accordingly, following the approach adopted by the TPO in the earlier years, which were covered under the APA proceedings, the TPO concluded that in the year under consideration, the employees received ₹ 90 lakhs. By including this incentive/carried interest earned by the employees of the assessee to the cost base of the investment advisory services rendered by the assessee to its associated enterprises, and given that the assessee was compensated at a cost-plus basis, the TPO computed the impugned transfer pricing adjustment at ₹ 19,80,000/- with respect to non-binding investment advisory services as noted in the foregoing paragraphs.

As per the assessee, the carried interest is an arrangement between the employees of the assessee and GS group in their individual capacity, to which the assessee is not a party, as the said arrangement was entered into directly by such employees with the overseas entity. During the transfer pricing assessment proceedings, the assessee made the following submissions in respect of its contention that the arrangement for carried interest should not be considered while determining the ALP of the non-binding investment advisory services provided by the assessee: -  “All the operating costs incurred by GS/SPL for provision of non-binding lA services to its associated enterprises are included in the cost base for the purpose of invoicing its AEs. Operating costs should include only those costs that GS/SPL is contractually and legally required to incur. Since carried interest entitlement is not an obligation of GS/SPL, the same should not be included in the cost base of GSISPL.  GS/SPL does not determine, define or make payment to employees for carried interest units held by the eligible employees. Further, the employment contract between GS/SPL and the employees does not mention carried interest benefit. We have enclosed the sample employee contract as Annexure 2 for your reference. Since carried interest payments/units are issued directly by an offshore carry interest vehicle to the key employees of GS/SPL, the cost/value of such carried interest units are not required to be recorded in the local financial statements of GS/SPL.  Further, as discussed above, the eligibility of carried interest to an employee is by virtue of their investment in their personal capacity. Accordingly, any benefit that accrues on the said investment should be considered as income of the employee in their personal capacity and should not be linked to GS/SPL. This is also evidenced by the fact that the employee can continue to hold the allotted carried interest units even after such employee discontinues to be employed with GS.  In most cases, the Funds in which the employees are entitled to carried interest have made global investments (and not India specific that are recommended by the employees of GS/SPL). Accordingly, there is no direct

From the perusal of the record, we find that there is no dispute amongst the parties that the assessee was compensated on a cost-plus basis. Further, it is evident from the record that the TPO, as per its computation, following the approach adopted in preceding years, came to the conclusion that during the year under consideration, an amount of ₹ 90 lakh was received by employees of the assessee who were part of the non-binding investment advisory services team. In the instant case, apart from the information collected by the Department pursuant to the discussion with the employees of the non-binding investment advisory team during APA proceedings in preceding years, there is no other information for arriving at the conclusion that the employees of the assessee received incentives/carried interest from the GS group during the year under consideration.

Such being the facts, we do not find any merit in making the impugned transfer pricing adjustment with respect to international transaction pertaining to provision of non-binding investment advisory services by further adding a markup of 22% on one hand, while on the other hand, without disputing the fact that the assessee was already reimbursed at cost plus 22% basis by its associated enterprises for non-binding investment advisory services. It is also pertinent to note that the TPO, while making the impugned transfer pricing adjustment, only increased the operating cost by ₹ 90 lakh, without considering the impact of the same for calculating the revised revenue, even if it is assumed that ₹ 90 lakh was the additional operating cost incurred by the assessee. If we do the same, we find that the margin of the assessee still remains at 22%. The same is evident from the following calculation: - Particulars Key Amount in INR Existing operating cost A 7,46,17,077 Add: Carried interest attributed to AY B 90,00,000 2021-22 Revised operating cost C=A+B 8,36,17,077 Existing revenue D 9,10,32,834 Add: Additional Revenue on carried E = B+(BX22%) 1,09,80,000 interest Revised Revenue F=D+E 10,20,12,834 Revised operating profit G=F-C 1,83,95,757 Revised Profit Level Indicator (PLI)/ H=G/C 22% margin

In the present case, it is further pertinent to note that as per TPO’s own calculation the employees of the assessee received an amount of ₹ 90 lakh as carried interest from GS Group and if the said amount is considered as additional revenue and also considered to be the additional operating cost of the assessee, then the revised margin of the assessee comes to 19.36%, as follows: - Particulars Key Amount in INR Carried interest from AY 2012-13 to AY 2020-21 A 5,00,00,000 Existing operating cost (A) B 7,46,17,077 Add: Carried interest attributed to AY 2021-22 C 90,00,000 Revised operating cost D=B+C 8,36,17,077 Existing revenue E 9,10,32,834 Add : Carried interest attributed to A.Y. 2021-22 F = C 90,00,000 Revised Revenue G=E+C 10,00,32,834 Revised operating profit H=G-D 1,64,15,757 Revised Profit Level Indicator (PLI)/ margin I=H/D 19.63%

Since the arithmetic mean margin of the companies considered as a comparable by the TPO was only 7.93%, therefore it is evident that by any manner, i.e., either by considering ₹ 90 lakh as an additional revenue or by further adding a mark-up of 22%, in respect of provision of non-binding investment advisory services, the assessee had earned margin more than the comparable companies. Accordingly, we do not find any basis for sustaining the transfer pricing adjustment in respect of this international transaction. As a result, Ground No. 1 in assessee’s appeal is allowed.

The issue arising in Ground No. 2, raised in assessee’s appeal, pertains to the transfer pricing adjustment in relation to international transaction pertaining to the provision of ITeS to its associated enterprises.

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case pertaining to this issue are that during the year under consideration, the assessee received an amount of ₹ 207,96,21,727/- from the provision of ITeS to its associated enterprises. The assessee benchmarked the transaction by adopting TNMM as the most appropriate method with PLI of OP/OC. By considering itself as a tested party, the assessee identified eleven companies as comparable with a 35th to 65th percentile range between 10.65% to 18.75%, with a median of 13.98%. As the assessee computed its own PLI at 16% on operating cost from ITeS transaction, it accordingly claimed that the international transaction pertaining to the provision of ITeS is at ALP.

The TPO, vide order passed under section 92 CA(3) of the Act, rejected seven companies considered as comparable by the assessee and introduced one new company as a comparable and arrived at a set of the following five comparable companies for benchmarking the international transaction of provision of ITeS: - Sr. No. Name of the company Weighted average of operating profits on operating cost (%) 1 CES Limited (Segemental) 8.23% 2 Tech Mahindra Business Services Limited 19.29% 3 Vitae International Accounting Services 30.08% Private Limited 4 Sundaram Business Services Limited 15.88% 5 MPS Limited 47.38% Arithmetic Mean 24.17%

During the hearing, the learned AR submitted that if only one company, i.e., R Systems International Ltd. (Segmental), which was excluded by the TPO on the basis of different financial year ending is directed to be included, then the international transaction pertaining to provision of ITeS will be at arm’s length and the entire transfer pricing adjustment made in respect thereof shall be deleted. Accordingly, in view of the submissions made by the learned AR, we have confined our findings in Ground No.2 only in respect of R Systems International Ltd. The other issues raised in Ground No.2 are treated as not pressed and are kept open for adjudication if they arise in the assessee’s case in future.

From the perusal of the record, we find that R Systems International Ltd. (Segmental) was selected as a comparable by the assessee and the same was rejected by the TPO on the basis that it has a different financial year ending. The learned DRP upheld the rejection of this company as comparable on the same basis. During the hearing, the learned AR submitted that R Systems International Ltd. is functionally comparable to the assessee and the extrapolated quarterly results for the year under consideration are available in the public domain.

From the relevant portion of the financial statements of R Systems International Ltd., forming part of the paper book dated 18th June 2025, we noticed that this company is maintaining its accounts with the year ending December. On the other hand, the assessee, i.e., the tested party in the present case, is maintaining its account with the year ending March. Thus, it is evident that the company sought to be included by the assessee as a comparable has a different financial year ending. It is pertinent to note that, for the purpose of proper comparability, it is relevant that both the tested party and the comparable should have similar financial year endings for proper analysis of the functions performed, assets employed and risks assumed. It is also pertinent to note that the company, which is otherwise functionally similar, cannot be rejected as a comparable merely on the basis that its accounts are maintained with a different financial year ending, provided that results for the relevant financial year can reasonably be extrapolated from the available data on record. In this regard, the following findings of the Hon'ble Delhi High Court in CIT v/s Mckinsey Knowledge Centre India Private Limited, in of 2014, judgment dated 07/03/2015, are relevant to note: - “14. The Revenue is in appeal before this Court questioning the admissibility of the above mentioned comparables while computing Arm‟s Length Price regarding the IT Support services after the TPO and AO rejected the above mentioned companies but was later allowed by the CIT (A) and ITAT. While

In view of the above, we direct the assessee to provide the extrapolated data of R Systems International Ltd. for the relevant financial year ending March 2021, if so available, for necessary examination by the TPO. The data, if so provided, shall be examined by the TPO for the purpose of comparability of R Systems International Ltd. with the assessee. With the above directions, we remand the issue of comparability of R Systems International Ltd. to the file of the TPO/AO for de novo adjudication. We order accordingly. Ground No.2 raised in assessee’s appeal is decided accordingly.

The issue arising in Grounds No.3 and 4, raised in assessee’s appeal, pertains to the addition of ₹ 33,35,64,406/- vide intimation issued under section 143(1) of the Act in respect of the refund received towards Goods and Services Tax (“GST”).

We have considered the submissions of both sides and perused the material available on record. Vide intimation dated 22.09.2022 issued under section 143(1) of the Act, the return filed by the assessee was processed, and the refund of ₹ 33,35,64,406/- of GST, which was disclosed in the tax audit report, was added to the total income of the assessee. It is evident from the record that no query in this regard was raised during the scrutiny assessment proceedings. Thus, this issue does not arise from the scrutiny assessment proceedings resulting in the present appeal. During the hearing, the learned AR submitted that the assessee filed a rectification application dated 21.10.2002 under section 154 of the Act on this issue, which is still pending consideration. Accordingly, in view of the aforesaid observations, we are not expressing any finding on the merits of the addition as the same does not arise from the orders in the appeal before us. However, we direct the AO to decide the rectification application filed by the assessee at the earliest in accordance with law. As a result, Grounds No.3 and 4 raised in assessee’s appeal are allowed for statistical purposes.

The issue arising in Ground No.5, raised in assessee’s appeal, pertains to the levy of interest under section 234A of the Act.

During the hearing, the learned AR submitted that the assessee filed the original return of income for the year under consideration within the statutorily prescribed time limit. Accordingly, the learned AR submitted that the AO erred in levying the interest under section 234A of the Act in the year under consideration.

We have considered the submissions of both sides and perused the material available on record. The interest under section 243A of the Act is levied for default/delay in furnishing the return of income. In the present case, it is not in dispute that the assessee filed the return of income for the relevant assessment year. Thus, the only aspect which needs examination is whether there is any delay in filing the return of income in order to levy interest under section 234A of the Act. In view of the above, we deem it fit to direct the jurisdictional AO to carry out necessary verification whether the return of income was filed by the assessee within time and levy interest under section 234A of the Act, in case of delay, in accordance with law. Accordingly, Ground No.5 raised in assessee’s appeal is allowed for statistical purposes.

Ground No.6 raised in assessee’s appeal pertains to computation of a statutory interest, which is consequential to our aforesaid findings, and therefore, the same needs no separate adjudication.

The issue arising in Ground No.7 pertains to the levy of interest under section 270A of the Act, which is premature in nature. Therefore, the said ground is dismissed.

In the result, the appeal by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 01/08/2025