DCIT 7(1)(1), MUMBAI vs. GOLDMAN SACHS (INDIA) SECURITIES P.TL, MUMBAI

PER DIVA SINGH, J.M:

These are cross appeals filed by the Assessee and the

Revenue pertaining to 2010-11 assessment year assailing the

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 2 of 66 assessment order dated 28.01.2015 passed u/s 143(3) r.w.s.

144C(3) of the Income Tax Act, 1961 wherein the parties are

before the ITAT on the following grounds :

in ITA 2. The Grounds raised by the Assessee

1115/Mum/2015 read as under :

Aggrieved by the order passed by the Deputy Commissioner of Income-tax Range -7 (1)(1), Mumbai ('AO') in pursuance of the directions issued by Dispute Resolution Panel - III ('DRP'), Mumbai dated 28 January 2015 under section 143(3) read with section 144C(13) of the Act, the Appellant respectfully submits that the learned AO erred in passing the order on the following grounds: 1. In making an upward transfer pricing adjustment of Rs.4,36,18,542 in determining the arm's length pricing (ALP) of the international transaction pertaining to investment advisory/ support services provided by the Appellant to its overseas associated Enterprises(AE), inter alia, on following grounds:

a) Rejecting the search process adopted and documentation maintained by the Appellant for the international transaction;

b) Rejecting the following companies selected as comparables by the Appellant in the transfer pricing documentation: • IDC (India) Limited; • Access India Advisors Limited; • ICRA Management Consulting Services Limited; • Informed Technologies Limited; and • Kinetic Trust Limited. c) Not sharing the search process conducted by the learned transfer pricing officer (TPO) to arrive at the final set of comparable companies: d) Accepting the following additional companies which are functionally not comparable to the investment advisory services provided by the Appellant: • Motilal Oswal Investment Advisors Pvt. Ltd.: • IDFC Investment Advisory Ltd.; and • Kshitij Investment Advisory Co. Ltd.

e) Considering the following companies with significant related party transactions as comparable to the Appellant;

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 3 of 66 • IDFC Investment Advisory Ltd.; • Kshitij Investment Advisory Co. Ltd. f) Considering the following company with supernormal profits as comparable to the appellant : Motilal Oswal Investment Advisors Pvt. Ltd.

g) Rejecting the use of contemporaneous and multiple year data available for computing the ALP as on the date of filing of return of Income and relying only on the single year data (i.e. for the year ended 31 March 2010) for the purpose of determining the ALP; h) Not granting an adjustment on account of difference in risks assumed by comparable companies selected by the learned TPO vis-a-vis the Appellant; i) Using data/ information/ clarification obtained under section 133{6) of the Income-tax Act, 1961 (the Act) and not furnishing a copy of the request and response of the same to the appellant; and not giving an opportunity of being beard to the appellant while using the same. 2. In making an upward transfer pricing adjustment to the extent of Rs 7,23,68,349 (total adjustment of Rs. 12,05,80,331 less voluntary transfer pricing Adjustment of Rs 4,82,11,982) for the international transaction pertaining to provision of Information Technology enabled services to its AE and in re-computing the arm's length price under the Transactional Net Margin Method (TNMM), inter alia, on following grounds: a) Inappropriate rejection of certain comparable companies by the learned TPO identified by the Appellant in its transfer pricing study report for the financial year (FY) 2009-10; • CG VAK Software and Exports Limited • R Systems Limited b) Adopting additional companies which are functionally not comparable to the ITeS provided by the Appellant; • Eclerx Services Limited • Acropetal Technologies Limited c) Applying Incorrect additional filters to arrive at the final set of comparables; d) Considering companies with supernormal profits as comparable to the Appellant; e) Not granting an adjustment on account of difference in risks assumed by comparable companies selected by the learned TPO vis-a-vis the Appellant; f) Not granting an adjustment on account of differences between the working capital of the Appellant and the comparable companies; g) Rejecting the use of contemporaneous and multiple year data available for computing the ALP as on the date of filing of return of Income and relying only

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 4 of 66 on the single year data (i.e. for the year ended 31 March 2010) for the purpose of determining the ALP. 3. In making an upward transfer pricing adjustment to the extent of Rs. 4,97,37,603 for the international transact pertaining to broking services to its AE and in re-computing the arm's length price under the Comparable Uncontrolled Price (CUP), inter alia, on following grounds: a) Making an upward adjustment to commission earned from AEs under the CUP method, by considering only top 10 offshore clients as comparables and disregarding commission from other foreign and on shore clients in the absence of any dissimilarity in the nature of functions performed for the securities broking services rendered to onshore and offshore clients in respect of securities traded in cash equity segment on NSE and BSE;

b) Not granting the following adjustments to the CUP data: • For significantly higher volume of transactions of the Appellant with the AEs as compared to other clients; • Difference in risks assumed for transactions with AEs versus third party clients.

1546/Mum/2015 read as under:

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 5 of 66 assessee and at best it is charging of premium at a price which is much less than prevailing market price of the shares, i.e. lesser realization of share premium compared to the market price." 4. "Whether on the facts and circumstances of case and in law, the Hon'ble DRP erred in holding that the ESOP expenditure needs to be allowed u/s 37(1), without having regard to the fact that the expenditure claimed is capital in nature, as it necessarily relates to increase in the share capital of the assessee company and hence it is not allowable u/s 37(1)." 5. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary .”

2021. On the said date, noticing from the record that all

along the assessee in its written requests had sought

exemption from the virtual platform and opportunity to argue

the appeal in a physical Court. The ld. AR, accordingly was

required to address whether he was ready to argue his case

on a virtual platform.

4.1 The ld. AR Mr.Madhur Aggarwal submitted that ITA

1115/Mum/2015 is a stay gr anted appeal wherein on the

extension of Stay granted by the ITAT the Revenue had

invoked the Writ jurisdiction of the Hon’ble High Court, the

assessee consequently is now ready to argue these appeals

on a virtual platform itself. Copy of the order dated

13.09.2021 in Writ Petition No. 666 of 2020 was filed. The

relevant extract of the decision is extracted hereunder for

completeness :

“2. Mr. Agarwal states that main Appeal before the Income. Tax Appellate Tribunal had come up for hearing sometime in last week at which time the departmental

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 6 of 66 representative sought adjournment and the next date fixed is sometime in October, 2021. 3. Mr Suresh Kumar states that if the Court can direct Income Tax Appellate Tribunal to dispose of the Appeal itself on the next date of hearing or at least by 30th November, 2021, this Petition can be disposed of. 4. The stay has been in force for almost three years. The Miscellaneous Application rejecting recall of the order of stay was dismissed almost two and half years ago. The Appeal itself is ripe for hearing. In our view, interest of justice will be met if the Tribunal is requested to dispose of the Appeal on the next date of hearing and in any case by 30th November, 2021. 5. Accordingly, this Petition disposed of and the Income Tax Appellate Tribunal is requested to dispose of the Appeal on or before 30th November, 2021.”

4.2 Both the parties, accordingly, expressed their

willingness to argue the appeals on the next date i.e.

23.11.2021 on the virtual platform itself.

4.3. In view of this fact, it was directed that the appeals be

listed for hearing on the next day i.e. 23.11.2021.

4.4 On the said date, the Transfer Pricing issues arising in

assessee’s appeal were argued by Sr. Advocate Mr. P. J.

Pardiwalla assisted by Shri Madhur Agarwal, Advocate. The

hearing spilled over to 24.11.2021 on which date, both the

parties argued their appeals respectively and the hearing

was effectively concluded. However, since the parties were

required to sum up their arguments in writing, they were

directed to file their submissions after first mutually

exchanging these amongst them. For this limited purpose of

exchange of documents, the case was listed for hearing on

25.11.2021. On the next date, both the parties submitted

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 7 of 66 that the relevant documents have been exchanged with each

other, these are, accordingly taken on record.

adjudication, it is necessary to refer to certain necessary

background details.

dated 29.01.2014 passed u/s 92CA(3) of the Income Tax Act

has taken note of the fact that the assessee has been

incorporated in March,2006 for the purposes of inter-alia

undertaking securities broking, investment banking and

other financial services business in India. The assessee is

shown to be wholly owned subsidiary of M/s Goldman Sachs

(Mauritius) LLC.

6.1 The present appeals are against the final assessment

order dated 28.01.2015 passed by the AO u/s 143(3) read

with Section 144C(13) of the Income Tax Act passed in

pursuance to the directions of DRP.

6.2 The assessee in the year under consideration declared a

taxable income of Rs. 166,13,33,314/-. In Form No. 3CEB

the assessee has reported the following international

transactions with its Associated Enterprises :

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 8 of 66 1. International Transactions During the year under consideration, the company has entered into the following international transactions with its Associated Enterprises: Provision of Investment banking Rs 149,429,101 (Receipt TNMM services for services) Rs 1 34,450,732 (Payment for services)

2 Investment advisory and support Rs 511,629,884 TNMM services in respect of strategic investments into India 3 Securities broking services in respect Rs 399,170,671 CUP of securities traded in the cash equity segment on NSE and BSE 4 Securities broking and clearing Rs 630,021,886 CUP services in respect of contracts entered in the derivatives segment on NSE and BSE 5 Provision of Information Technology Rs 557,141,116 TNMM Enabled Services 6 Reimbursement/recovery of expenses Rs 1,04,98,35,657 NA 7 Allocation of expenses Rs 5,90,39,695 NA

computing the arms length price in relation to the

international transactions, the TPO made an upward

adjustments aggregating to Rs. 20,53,90,931/-. The break-

up of the adjustments is as under :

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 9 of 66 8. The assessee objected to these adjustments and carried

the issue in appeal before the next Forum provided by the

Statute. Considering the Objections, the DRP directed the

TPO to rework the adjustments made to the arms length

price in terms of the directions give. Aggrieved by the

directions given, both the assessee and the department are

in appeal before the ITAT on the above mentioned grounds.

INVESTMENT ADVISORY SEGMENT

the assessee maintaining the Objections and the grievances

on all the various aspects of the issues agitated qua the

Investment Advisory Segment which have been elaborated in

detail in the specific ground will first advance arguments

seeking exclusion of a specific comparable company taken by

the TPO. It was his submission that this submission may

not be so construed as to understand that the other

objections elaborated in Ground No. 1 namely rejection of

assessee’s Research purpose documentation; rejection of IDC

(India) Limited; Access India Advisors Limited; ICRA

Management Consulting Services Limited; Informed

Technologies Limited; and Kinetic Trust Limited as

comparables and Objections to the inclusion of Moti Lal

Oswal Investment Advisors Pvt. Ltd.; IDFC Investment Advisory

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 10 of 66 Ltd. and Kshitij Investment Advisory Co. Ltd. on the

grounds that these were functionally not comparable to

the assessee are being given up. Maintaining the objections

posed to the inclusion of IDFC Investment Advisory Ltd. and

Kshitij Investment Advisory Co. Ltd. on the grounds of

significant related party transactions also and further

seeking exclusion of Moti Lal Oswal Investment Advisors

Pvt. Ltd. also on the grounds of super normal profits etc.

it was submitted may be considered to be vehemently

agitated before the ITAT as these issues agitated in the

grounds are not being given up by the assessee. It was

requested that these may be kept alive. The grievances

posed on the above issues including the grievances posed in

Ground No. 1(a) & Ground No. 1(i) challenging the order on

the grounds of non-sharing of the search process conducted

by the TPO [Ground No.1(c)]; Rejection of contemporaneous

multiple year date on facts challenged vide Ground No. 1(g);

not granting adjustment on account of difference in risks

assumed by comparable companies selected by TPO [Ground

No. 1(h)]; using information u/s 133(6) without providing

copy of the questions sent and answers received; and denial

of opportunity of being heard thereon [Ground No. 1(i)] all

these grounds raised may be considered to be vehemently

agitated by the assessee and are not being given up.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 11 of 66 Maintaining the challenge posed in the grounds raised, it

was submitted that the assessee would first seek

adjudication on the issue of ex clusion of Moti Lal Oswal

Invest ment Advisors P vt. Ltd. challenged on various grounds

before the TPO and the DRP also. It was submitted that the

assessee is confident on the basis of facts and precedents

available in assessee’s own case that the assessee has a

binding precedent in its favour and hence must succeed in

the absence of any contrary view and decision. In the said

backdrop it was submitted that once this prayer of the

assessee on examining the record and the judicial precedent

is allowed, the other grounds in this segment become

academic for the assessee in the present proceedings. These

issues consequently may be kept open to be considered at

some later stage, if need be and in the present proceedings,

assessee would not seek any adjudication on these grounds

raised.

9.1 In the said backdrop, the ld. AR submitted that the

FAR of the assessee stands well settled and documented in

the various orders of the ITAT and also by the decisions of

the jurisdictional High Court as the issue has travelled to

the said Forum also in the earlier years. The fact that Moti

Lal Oswal Investment Advisors Pvt. Ltd. was not a valid

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 12 of 66 comparable all along it was submitted, stands fully

addressed.

9.2 Carrying his submissions through the factual

background of the objections to the said comparable before

the TPO and the DRP and the past history on the issue, ld.

counsel submitted that the Moti Lal Oswal I nvestment

Advisors Pvt.Ltd. in the year under consideration again was

wrongly included as a functionally comparable company.

The decision was challenged not only on the ground that the

FAR of the two companies was different but also on the

ground that consistently ITAT has held this company in the

facts of the assessee’s case itself to be functionally not

comparable in the earlier years and also in a subsequent

year. It was vehemently submitted that there are consistent

orders of the I TAT on this issue and also of the jurisdictional

High Court. Copy of these decisions, it was submitted, have

been made available before the Bench and were being heavily

relied upon. It was further argued that there is no contrary

decision or view after the decisions of the jurisdictional High

Court in the case of the assessee itself. Orders of the ITAT

followed in assessee’s case some of which have been upheld

by the jurisdictional High Court, it was submitted are relied

upon and copies have been filed. Decisions of the ITAT on

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 13 of 66 near identical facts and circumstances pertaining to this

very assessment year which have also held that Moti Lal

Oswal Investment Advisors Pvt. Ltd. is not a valid

comparable even in the year under consideration with

Investment Advisory companies filed were relied upon.

9.3 Specific attention was invited to the objections posed on

this ground before the TPO and the DRP also. Attention was

invited to Chart at page 2 of Additional Paper Book (II)

contrary a selection of some cases relied upon were referred

to:

Judicial Precedents A.Y. 1. PCIT - 7 v. Goldman Sachs (India) Securities Private Limited [ITA No.30/Mum/ 2017] 2009-10 (Bombay High Court) 2. PCIT v. NVP Venture Capital India Private Limited [ITA No. 406/Mum/2016] (Bombay High 2010-11 Court) 3. Goldman Sachs (India) Securities Private Limited v. DCIT, Circe- 7 (1)(1) [ITA No. 2011-12 927/Mum/2016] 4. Goldman Sachs Asset Management India Pvt Ltd. v. DCIT [ITA N . 6989/Mum/2014] 2010-11 5. Goldman Sachs (India) Securities Private Limited v. DCIT, Range 3(1)[ITA No. 2009-10 222/Mum/2014] 6. NVP Venture Capital India Private Limited v. DCIT - 3(2)(2) [ITA No.1564/Mum/2015] 2010-11 7. Bain Capital Advisors (India) Private Limited v. DCIT - 3(3) [ITA N0. 413/Mum/2015] 2010-11 8 3i India Private Limited v. DCIT [ITA No. 581/Mum/2015] 2010-11 9 AGM India Advisors Private Limited [ITA No. 4757/Mum/2015] 2010-11 10 Carlyle India Advisors Private Limited [ITA No. 1040/Mum/2015 2010-11 11 FIL Capital Advisors India Private Limited v. DCIT [ITA No. 7403/Mum/2014] 2010-11 12 AGM India Advisors Private Limited [ITA No. 537/Mum/2016] 2011-12 13 Carlyle India Advisors Private Limited v. DCIT -10(1) [ITA No. 2200/ Mum/2014] 2009-10 14 Carlyle India Advisors Private Limited v. DCIT -10(1), Mumbai [ITA No. 7367/Mum/2012] 2008-09

9.4 The ld. AR carrying the Bench through the TPO’s order

and the objections of the assessee posed before the DRP and

the rejection by the DRP submitted that in the facts of the

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 14 of 66 present case Moti Lal Oswal Investment Advisors Pvt. Ltd.

has wrongly been included as a valid comparable.

Considering the judicial precedent in assessee’s own cases

read along with orders of the ITAT in similarly identical

orders pertaining to 2010-11 assessment year, the prayer of

the assessee in the absence of any change in fact or

circumstance, it was submitted may be allowed.

Investment Advisors Pvt. has correctly been included as

comparable and the past history and the case laws relied

upon by the ld. AR it was argued, have no relevance as in

the facts of the present case, specific information u/s 133(6)

has been obtained by the TPO and it is only after considering

the facts that the said company has been included by the

TPO as a comparable. Specific reliance was placed on para

8.10 pages 12 and 13 of the TPO’s order. Thus, it was his

submission that the orders of the ITAT and the High Court

consequently rendered in the earlier years in the absence of

this information may, hence, be considered to be

distinguishable. Carrying us through the order of the TPO

and the DRP, the ld. CIT-DR submitted that the reasons for

holding the said company as incomparable are no longer

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 15 of 66 valid. Accordingly, it was his vehement prayer that the said

comparable may be retained.

the past history sought to be set aside on account of the

information sought u/s 133(6) was entirely misplaced. In

the absence of what questions were raised and what answers

were revealed the whole exercise, it was argued, is

meaningless. Objections to this extent have been raised

before the DRP and a ground before the ITAT. Drawing

specific attention to documents available in the public

domain made available to the TPO as well as the DRP which

constituted the Directors’ Report at specific page 292 of the

Paper Book were referred to. Copy of the Annual Report

obtained from the Website extracts available in the public

domain available at pages 291 to 316) it was submitted,

mentions the activities of the said comparable. Referring to

the same, it was submitted that it is mentioned that there

are four different business verticals of Moti Lal Oswal

Investment Advisors Pvt. Ltd. therein thus, the segmentals

allegedly obtained by the TPO have no relevance. The

specific extract from the Director’s Report page 292 of the

Paper Book highlighting the activities referred to is

reproduced hereunder:

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 16 of 66 “During the year ended 31st March, 2010 the revenue of your company have increased from Rs. 468.47 million to Rs. 655.26 million and the Profit After Tax (PAT) have increased from Rs. 149.38 million to Rs. 216.60 million-an increase of 40% and 45% respectively over the previous year. The company derives its business income from four different business verticals viz Equity Capital Markets, Mergers & Acquisitions, Private Equity Syndications and Structured Debt. The income source across the four products was more or less evenly balanced. The company continues to perform well on advising Indian corporate on cross border acquisitions. The Private Equity business over the last three years has skill set and experience within the team is very well appreciated by our clients.” (emphasis supplied)

11.1 Referring to the disclosure in Schedule-J of income

from operations, (Paper Book page 301 read alongwith page

305) it was submitted that all these activities were shown as

“advisory fees’. Attention was also invited to disclosure on

segmental report wherein in para 1.14, “the Company is

engaged in single segment and there are no separate

reportable segments as def ined in AS-17.”

11.2 Thus, it was submitted that the mere fact that the

narration given that it is “advisory fees” does not mean that

it is similar to assessee’s “advisory fees”. It was submitted

that this submission stands considered on facts by various

orders of the ITAT affirmed by the jurisdictional High Court.

Accordingly, it was argued that the submissions advanced on

behalf of the Revenue that legal precedent is distinguishable

on account of information sought from the comparable u/s

133(6) may be rejected.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 17 of 66 12. We have heard the rival submissions and peruse d the

material available on record. Keeping all the other issues

open for consideration, addressing the grievance posed by t he inclusion of Mot i Lal Oswal Investment Advisors P vt. Ltd. We are of the view that the said company on facts has to be

excluded. While coming to the said conclusion, we have

considered Paragraph 8.10 of the TPO specifically

highlighted by the CIT-DR. The reasons for coming to the

said conclusion, we elaborate hereinafter.

12.1 Para 8.10 of the TPO’s order has specifically been

relied upon by the ld. CIT-DR. We have considered the same

and on consideration thereof, we find that it in no way

establishes the claim of the Revenue that it is a valid

comparable. Notwithstanding the arguments advanced on

behalf of the assessee in support of Ground No. 1(i) that full

details qua the queries raised and answers received have not

been shared with the assessee; that these remain in the

exclusive knowledge of the TPO which arguments we propose

to address separately even de-hors this grievance on

considering the facts as available and relied upon, we are

unable to see how these can be said to be supporting a case

of the Revenue. The information referred to, we have seen

and considered. On a careful reading of it, we find that it

leads to many self contradictory instances of multiple,

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 18 of 66 arbitrary conclusions and infact demolishes the claim of the

Revenue. We find that for the purposes of the present

proceedings in support of the claim of the Revenue, it is a

worthless exercise in futility as it neither illustrates nor

evidences a compatibility of the said company with the

assessee. The reference to these following facts fails as an

evidence to establish comparability with the assessee. The

specific para is extracted hereunder for completeness :

“‘8.10 Further, the assessee has also submitted reasons for rejecting the additional comparables mentioned in the notice as under: • Motilal Oswal Investment Advisors Private Limited: The TPO used information collected u/s. 133(6) from the said company. The assessee has furnished its explanation on the proposal of the TPO to reject this comparable, as under: The assessee has contended that the functions performed by the company are not comparable to that of the Assessee since the company is engaged in rendering comprehensive investment banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments covering international & domestic capital markets, mergers & acquisitions advisory and restructuring advisory & implementations. Further, the assessee contended that the companies earning super normal profits should be rejected while arming at the ALP. The company is into private equity advisory services and qualified all the filters applied by the TPO. The assessee objected to its inclusion saying that the same was not available in the data base at the time of search. The contention of the assessee is not correct as there was a deficiency in the search carried out by the assessee for want of inclusion of the phrase "Investment Advisory services". Further, on going through the information regarding the services rendered by this company to the top 10 clients during the year under the proceeding, and contentions of the assessee, the following points emerge: (a) The company is engaged in providing high quality strategic and financial advisory services which are used in acquiring majority equity stake, financial advisory services for hundred percent acquisitions, rendering advisory services for placement of equity with investors, rendering strategic financial advisory services to enhance banking fund limits of the companies. The analysis of these services show that the strategic and financial advisory services, rendered by this company are comparable with the high quality, j investment advisory services rendered by the assessee company. (b) On going through the details of the top clients of this company, it is seen that the assessee has rendered strategic and financial advisory services to Renuka Sugars,

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 19 of 66 Brazil for acquisition of majority equity stake. It has also provided strategic financial advisory services to the same company for 100% acquisition in another foreign company. It has acted as a lead manager to Dewan Housing Finance Corporation for placement of equity with investor in order to fund the expansion plans of the said company. Further, it has rendered advisory / consultancy service in connection with public offering of equity shares for M/s.MBL Infrastructures. It has also rendered strategic financial advisory services to Vuppalamritha Magnetic Components Ltd., to enhance its banking facilities fund base limit. It has acted as a lead manager to Jai Balaji Industries Ltd., in connection with proposed placement of equity shares to QIBs. Further, it has rendered strategic financial advisory services to Ind Bharat Power Infra Ltd., for proposed placement of equity I convertible instruments with financial investors. It has also rendered advisory services to Bessemer Venture Partners Trust and rendered exclusive strategic financial advisory services to Sequoia Capital India Operations LLC for its proposed investments in Bharat Power Infra Ltd., It has also rendered advisory services to Citigroup Venture Capital. The compensation of Rs.53.67 crores has been received from these 10 clients for rendering the advisory services mentioned above. These top 10 clients account for 82.64% (53.67/64.94 crores) of the total advisory fees received by the said company during the year under the proceedings. (c) On going through the Balance Sheet of Motilal Oswal Investment Advisors Pvt. Ltd., it is seen that the company has single reportable operational income segment and it is advisory fees of Rs.64.94 crores. The other income is a minor component of Rs.58.14 lacs. Further, on going through the Balance sheet, it is seen that the assessee has investments of Rs.52.50 lacs only. As per the notes to the accounts, the company has given a capital commitment of Rs.1.5 crores to Aditya Birla Pvt. Equity and Reliance Alternative Investment Fund out of which the company has contributed only Rs.30 lacs and Rs.22.50 lacs respectively. It has received Rs.31.72 crores of advisory fees (48.84%) in foreign exchange. At no place there is any mention of any investment fund or investment related activity being handled by the company. The related party transactions on a/c of advisory services rendered to fellow subsidiaries is Rs.8.33 crores (13.59%) only. Even if the rental payment of Rs.1.20 crores is taken into account, the RPT transactions are at 14.70%. The TPO has applied the RPT filter at 25%. It has been fairly settled that, the loan transactions, security deposit and other transactions need not be taken into account for the purpose of RPT calculation. This shows that the company is in the business of rendering advisory services and not in the business of managing funds. (d) On going through the information collected regarding the employee profile or salary structure payable to its employees it is seen that the company has paid salary of Rs. 10.24 crores to 30 employees at an average salary cost of Rs.34.14 lacs. This shows that the company is employing highly skilled set of employees which are paid equally high salaries. It is obvious that the skill sets put to use by these employees are comparable with those by the employees of the assessee company. On going through the above analysis, it is clear that Motilal Oswal Investment Advisors P. Ltd., is not into an investment banking activity and also not in the management of-assets for others. Further, the contention of the assessee that an investment bank assists corporations in mergers and acquisitions, is not a correct proposition. The merger and acquisition related advisory services infact are the advisory services which involves skill sets which are comparable to the investment advisory services. Further, the analysis of top 10 clients of Motilal Oswal, covers 82.64% of the revenues. None of these activities can be said to be in the nature of investment banking or merchant banking activities. Thus the contention of the assessee on this point cannot be accepted.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 20 of 66 Further, there is no concept like super profit as claimed by the assessee. Thus the company is considered as a comparable as it is functionally similar to the assessee and rendering investment advisory services. (emphasis supplied) 12.2 On considering the facts on the other hand we find

that there is a binding legal precedent on the issue in the

orders of the ITAT not only in assessee’s own case in the

preceding and subsequent assessment years but also in the

orders of similarly situated assessees for the specific year

under consideration which have been cited before us.

12.3 We find that the assessee in the facts of the present

case qua the Investment advisory segment has all along

opposed the inclusion of the said comparable on the

reasoning that it is engaged in merchant banking and

acquisition and mergers, thus, cannot be compared to

assessee's investment advisory services. Infact, on a reading

of the orders of the ITAT right from 2008-09 assessment

years and earlier as noted in order dated 22.07.2016 in I TA

6912/Mum/2012 it is seen that the merchant banking

companies have all along been consider ed t o be not comparable with activities and functioning of companies s ervices. There is engaged in invest ment advisor y

overwhelming legal precedent available on these facts which

shows that all along consistently and unanimously the

Courts/Tribunal have judicially noticed that FAR of

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 21 of 66 merchant and advis ory services is entirely distinguishable. Admittedly a merchant banker by its ver y nature of fu nctions

arranges capital and can become a s har e holder in t he

company, t he FAR of a Investment advisor is ent irely distinguishable. Thus, Moti Lal Oswal I nvestment Advisors

Pvt. Ltd. cannot be taken up as comparable for the assessee

vis-a-vis its Investment advisory segment.

12.4 This position on facts has consistently been taken by

the assessee over the years and this position has been

consistently upheld by the ITAT and on a further challenge

before the higher Forum by the jurisdictional High Court

also over a period of time.

12.5 For the said purposes, we deem it appropriate to refer

to question No. 2(c) considered by the Hon'ble Court in CIT

V s M/s Goldman Sachs (India) Securities Pvt. Ltd. (2016) 69

taxmann.com 19 (Bom). The order of the I TAT pertaining to

2007-08 assessme nt year was challenged in appeal on

certain issues including the issue at hand. The following

specific question in para 2(c) was raised before the Court:

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 22 of 66

12.5.1 This question was answered by the Court in the

following manner:

Re Question (c) 6. ( a ) We found that during the subject Assessment Year, the Respondent- Assessee was providing services of Broking Sendees, Business Support Services and Investment advisory sendees to its customers. The TPO had adopted a list of comparable companies which were primarily engaged in providing services as merchant banker as comparable to determine the ALP in respect of the Investment Advisory Services rendered by it to its AEs . The companies selected by the TPO were identical to one selected in Carlyle India Advisors (P) Ltd., The aforesaid decision of the TPO in Carlyle (I) Advisors (P.) Ltd. v. Asstt. CIT [2012] 24 taxmann.com 176 (Mum.) was a subject matter of consideration by the Tribunal in ITA No. 7901/Mum/2011. The Tribunal after examining the business of each of the individual comparable concluded that they were different from that of the services provided by Carlyle India Advisors (P.) Ltd. (supra). This is so as the comparable used were in the merchant banking business while M/s. Carlyle India (supra) just like the Respondent-Assessee were in Investment Advisory Services. The Revenue carried the issue from the order of the Tribunal rendered on 4th April, 2012 in Carlyle India Advisors (P.) Ltd. (supra) to this Court in appeal. The appeal being (CIT v. Carlyle India Advisors (P.) Ltd. [2013] 32 taxmann.com 23 (Bom.)) - wherein this Court refused to entertain the Revenue's appeal as is reflected in the order dated 22nd February, 2013. Thus, we see no reason to interfere with the impugned order of the Tribunal; (b) In the circumstance, the Tribunal in the impugned order adopted the same comparable it had adopted in the case of Carlyle India Advisors (P.) Ltd. (supra) for the purpose of arriving at the ALP in respect of its International Transaction; (c) Further, Mr. Kotangale, learned Counsel appearing for the Revenue my fairly points out that a similar issue as arising herein, was a subject matter of consideration by this Court in Income (CIT v. General Atlantic (P.) Ltd. [2016] 68 taxmann.com 88 (Bom.). In the above case also the Assessee was engaged in the business of advisory services like the Respondent here and the TPO had relied upon the comparable selected by him in the case of Carlyle India Advisors (P.) Ltd. (supra) to determine the ALP in the case of Assessee therein i.e. General Atlantic (P.) Ltd. (supra). The Tribunal allowed the appeal in General Atlantic (P.) Ltd. (supra) by following its decision in Carlyle India Advisory (P.) Ltd. (supra) just as the Tribunal has done in the Respondent's appeal by the impugned order; and (d) Accordingly, question (c) does not give rise to any substantial question of law. Thus not entertained. 6. Accordingly, Appeal dismissed.No order as to costs. (emphasis supplied) 12.6 We find on a reading of the above that in the face of

the position of law as accepted by the ld. counsel for the

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 23 of 66 Revenue before the Hon'ble jurisdictional High Court in

2007-08 assessment year, one would have thought that the

issue is settled and closed as far as the present Forum is

concerned. Despite conceding and accepting the position of

law as settled before the Court we find that periodically this

company overruling the objections of the assessee and

ignoring the legal precedent available is still consistently

picked up as a valid comparable by the Revenue.

12.7 It is seen that before the High Court again, this issue

was raised in ITA No. 30 of 2017 dated 10 t h June, 2019 in

2009-10 assessme nt year wherein on a detailed reasoning

considering the judicial precedent available, the Assessing

Officer’s challenge was rejected on the principle that

merchant banking activity etc. related functions of the

comparable are not similar to the investment advisory

services of the assessee. It is seen that before the Hon’ble

Court the following question was raised as additional

ground(i) :

i. Whether on law and in the facts of the instance case, was the Tribunai right in directing the AO to exclude Motilal Oswai Investment Advisory Pvt. Ltd. from the list of comparables, when the DRP has in this years found that the major source of revenue came from financial Advisory services and not from any activity of merchant banking. Assessee company itself has reported in its annual report income from operations under the head Advisory fees a fact that has not been controverted by the Respondent company? (emphasis supplied)

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 24 of 66 12.7.1 The issue raised was considered by the Hon'ble Court

in the following manner:

appropriate to also quote from the order dated 30.11.2015 of

the I TAT in 2009-10 assessment year wherein in I TA

222/Mum/2014 the Co-ordinate Bench directed the

exclusion of Moti Lal Oswal Inve stment Advisors Pvt. Ltd

which order as noticed above, has been upheld by the

Hon’ble High Court. The specific reasoning of the ITAT

which had been upheld reads as under :

8.2. Let us now consider the comparables selected by the TPO and objected by the assessee by one by one. 1. Motilal Oswal Investment Advisors Pvt. Ltd.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 25 of 66 This company has been excluded as a comparables for Investment Advisory Services by the Co-ordinate Benches in the case of Arisaig Partners India Pvt. Ltd in ITA No. 1083/M/2014 wherein the Co-ordinate Bench at para-15 has held that this company is engaged in the business of Merchant Banking and, therefore, is not a good comparable of a company providing investment advisory services to the AE. Similar view was taken by the Tribunal in the case of Wells Fargo Real Estate Advisors Pvt. Ltd in ITA No. 1093/M/2014 wherein the Tribunal at para-6 of its order has held that Motilal Oswal Investment Advisors Pvt. Ltd. was carrying on business of mergers and acquisitions and other related activities and is also a merchant banker. Drawing support from the decision of the Co-ordinate Bench given in the case of Carlyle India Advisors Pvt. Ltd. in ITA No. 2200/M/2011, it was held that Motilal Oswal Investment Advisors Pvt. Ltd., is functionally not comparable with an investment advisory company. In the case of Bain Capital Advisors (India] Pvt. Ltd in ITA No. 1360/M/2014, the Co-Ordinate Bench of the Tribunal are taking a consistent view that Motilal Oswal Investment Advisors Pvt. Ltd. has to be excluded from comparables on the plea that it was engaged in diversified activities. Respectfully following the findings of the Co-ordinate Benches, we direct for the exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. from the list of comparables in the case of investment advisory services. It would not be out of place to refer to the decision of the Tribunal in the case of General Atlantic Pvt. Ltd in ITA No. 1019/M/2014 wherein the same combination have excluded Motilal Oswal Investment Advisors Pvt. Ltd. from the list of final comparables.

12.9 It has been seen that this view on challenge before the

Hon’ble High Court has been upheld by their Lordships. The

legal precedent on facts namely that merchant banking

companies cannot be included as a comparable for

investment advisory companies has consistently been

followed. It is also seen that this position has been followed

by the Co-ordinate Bench in 2011-12 assessment year also in

the case of the assessee itself in ITA 927/Mum/16 wherein

vide its order dated 11.01.2017 Moti Lal Oswal Investment

Advisors India Pvt. Ltd (MOIAPL) introduced by the TPO as a

valid comparable was directed to be excluded by the DRP as

it was engaged in merchant banking and hence functionally

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 26 of 66 not comparable to investment advisory services of the

assessee. The Co-ordinate Bench considering the decision

rendered in the case of AGM (India) Advisors Pvt. Ltd. in I TA

4757/Mum/2015 and others held as under :

“………..4.b. In the case of Tamasek(supra)for the AY.2010-11,the Tribunal has held that MOIAPL cannot be considered a valid comparable,as far as investment advisory services are concerned. Para 25 of the order reads as follow: 25. This comparable has been included by the TPO and while including the said comparable he has observed that its income is only from Advisory fees during the year and it is performing advisory services in that field of investment like assessee. Before us, Ld. CIT DR arguing for its inclusion submitted that, if the ICRA Management services can be included for having revenue from advisory services then on same analogy this company should also be given the same treatment. From the perusal of the directors’ report, it is seen that this company derives its business income from four different business verticals, i.e. Equity capital markets, merger and acquisitions, profit equity syndications and structured debt. It also give advises on cross border acquisition. Its core competence is in the field of merchant banking. It also provides comprehensive investment banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments in international and domestic 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 range 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 advices 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 of 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 put the company in a comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd (supra), it has been held that, the merchant banking functions are entirely different from investment advisory services and this decision of the Tribunal has been upheld by the Hon’ble Bombay High Court. Thus, in view of plethora of judicial decisions as referred to by Ld. Counsel and in view of functional differences as discussed as above, we hold that Motilal Oswal cannot be put into the comparability list and is directed to be excluded.”

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 27 of 66 In the case of Wells Fargo Real Estate Advisors Pvt.Ltd.(supra)similar view was taken as under: “6.We have heard the rival submissions and perused the material before us. We find that on 07.12.2012 the assessee had submitted its profile and analysis of the functions performed, assets utilised and risks assumed. As per the FAR the assessee would identify opportunity for parent company to participate in equity security particularly relating to commercially physical projects in the real estate sector,that it was sharing business intelligence, market research, compliance of regional regulatory requirement so as to assist its AE,that it would not conclude any contract on behalf of the AE nor was it facilitating external commercial borrowings in real estate business . We find that the TPO had rejected the comparable selected by the assessee and had adopted three new comparables. As far as MOIAPL is concerned, there is no doubt that the job profile of both the companies are different. The assessee is engaged in investment advisory services, whereas MOIAPL was carrying on business of mergers and acquisitions and other related activities. The assessee is not a merchant banker like MOIAPL.In the case of Carlyle India Advisors Private Limited (supra), the Tribunal has held that MOIAPL cannot be taken as a valid comparable in cases,where the assessee is rendering advisory servcies.In that matter the Tribunal held as under : “8.We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. It is an undisputed fact that the assessee is engaged in the business of rendering investment advisory and related services to its principal Carlyle Hong Kong. The dispute raised in ground no.4 relates to whether (i) KLG Capital Services Ltd (KLG);(ii) KJMC Corporate Advisors (India) Limited (KJMC) and(iii)Motilal Oswal Investment Advisors Pvt Ltd(MOIAPL)are functionally comparab-le cases or not considering the decision of the Tribunal as well as the judgment of the Bombay High Court relied upon by the assessee. Regarding MOIAPL, assessee relied heavily on the order of the Tribunal in its own case for the AY 2008- 2009, a copy of which is placed at page 282 of the paper book. On perusal of the said order of the Tribunal, we find that it is decided in favour of the assessee vide ITA No.7367/Mum/ 2012(AY 2008- 2009),dated 7.2.2014. On perusal of para 12 of the said order of the Tribunal, which contains the operational part, we find the same is relevant and the Tribunal has given its finding under the facts which are similar to that of the AY under consideration. The MOIAPL,which has engaged in the business of merchant banking is not a good comparable for determining the ALP. Relevant contents of the said para 12 are reproduced here for the sake of completeness of this order which read as under: "12…... .The only dispute is whether Motilal Oswal Investment Advisors Pvt Ltd can be considered as a comparable for determination of ALP.A perusal of three comparables considered by the TPO shows that M/s. Future capital Investment Advisors

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 28 of 66 Ltd., has operating profit at 21.79% whereas OPM of Motilal Oswal Investment Advisors Pvt Ltd is 72.33%. The comparables used by the TPO themselves are showing extreme OPM.A perusal of the Directors 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 Directors 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 Mottial Oswal Investment Advisors Pvt Ltd as a comparable for determination of ALP…… " 9.Considering the above, we direct the AO to exclude the MOIAPL from the list of the comparables for determination of ALP of the said transaction.” The Hon'ble Jurisdictional High Court has dismissed the appeal filed by the Department in the case of Carlyle India Advisors Private Limited (IT Appeal 1286 of 2012,dated 22. 02.2013). Here,we would also like to refer to the order of NVP Venture Capital India Private Ltd. (supra),where in a case of investment advisory the comparable of MOIAPL was rejected by the Tribunal.In that matter the Tribunal had held as under :- “7.We have carefully considered the rival submissions.We find that the assessee has been consistently canvassing before the lower authorities that Motilal Oswal Investment Advisors Private limited be excluded from the final set of comparables on the ground that its activities’are functionally incomparable to the activity of Provision of investment advisory services being rendered by the assessee to its Associated Enterprises. In fact, before the TPO, assessee pointed out that the said concern was engaged in providing comprehensive investment banking solutions and that it was rendering services across various products, viz. Equity Capital Markets, Mergers & Acquisitions, Private Equity Syndications and Structured Debt, etc. The appellant relied upon the decision of the Tribunal in the case of Carlyle India Advisors Private Limited (214 Taxmann 492), to support its plea for exclusion of the said concern from the final set of

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 29 of 66 comparables. The TPO rejected the aforesaid plea on the ground that the Profit and Loss account of the said concern for the year under consideration showed that the only stream of income was from advisory services and not from any activity of merchant banking and, therefore, the said concern was carrying out only advisory services and, according to him, the said concern was includible in the final set of comparables. The DRP also accepted the position that the said concern was engaged in advisory services which are broadly comparable to the assessee's activities under test. 8.We have perused the relevant material on record. It is starkly evident that the said concern M/s. Motilal Oswal Investment Advisors Private limited is engaged in qualitatively different and diversified business activities, whereas the activities of the assessee are confined to rendering non-binding investment advisory for its Associated Enterprises. No doubt, both the concerns may be in the business of rendering advisory services, so,however, it would also be necessary to evaluate the manner and the specific sectors, in which such services are being rendered by the two concerns.It is revealed from the Annual Financial Statement of Motilal Oswal Investment Advisors Private limited that the said concern is engaged in rendering services in diversified fields, viz. Equity Capital Markets, Mergers & Acquisitions, Private Equity Syndications and Structured Debt,etc.In the case of Carlyle India Advisors Private Limited(supra) for A.Y.2008-09, the Tribunal concluded that though the said concern was declaring a solitary stream of operating income under the head 'advisory fee', but undisputedly it was engaged in diversified fields and the financial results for each segment were not available. The Tribunal also found that the said concern was registered with SEBI as a Merchant Banker, and that it was carrying on merchant banking activities.In our considered opinion, the afore-said features with respect to the activities of the M/s. Motilal Oswal Investment Advisors Private limited (supra) noted by the Tribunal in the case of Carlyle India Advisors Private Limited (supra) for assessment year 2008-09,are clearly emerging in the instant year too and, therefore, it cannot be said to be a concern which is comparable to an entity which is rendering non-binding advisory investment services alone.Thus, in our considered opinion, the assessee is justified in seeking the exclusion of the said concern from the final set of comparables on account of functional dissimilarities.In fact,in other precedents cited by the ld. Representative for the assessee,the said concern has also

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 30 of 66 been excluded from the set of comparables under similar circumstances. 9. In conclusion, on the basis of the afore-said discussion and having regard to the precedents noted above, we hold that M/s. Motilal Oswal Investment Advisors Private Limited (supra) is liable to be excluded from the final set of comparables.” Following the above orders,we hold that job profile of MOIAPL was different as compared to the activities undertaken by the assessee.It was rendering investment advisory services, specifically related with real estate business whereas MOIPAL is a merchant banker.So,we hold that MOIAPL is liable to be excluded from the final set of comparables.” Respectfully, following the above,we hold that KIACL and MOIAPL were wrongly included in the list of valid comparables.Both are functionally different from the assessee. Activities carried out the assessee for the year under appeal are distinct and quite separate from the activities of those companies. So,reversing the order of the FAA,we decide first effective ground of appeal in favour of the assessee.” Respectfully, following the above,we hold that the DRP was not justified in excluding ICRA and IDCL from the list of the valid comparables.We also hold that the DRP had rightly excluded MOIALP from the list of comparables.” 12.10. Although we have addressed the specific information

relied upon in para 12.1 of this order and have held that on

merits it is of no relevance however, even procedurally we

are of the view that the manner in which the information has

been selectively used vitiates the procedure.

12.10.1 We have examined the arguments of the Revenue

that since information u/s 133(6) has been obtained from

the comparable, hence, the decisions of the Hon’ble High

Court and the ITAT in assessee’s own case do not constitute

a valid binding legal precedent. On examining the same, we

hold that this argument is clearly misconceived and devoid

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 31 of 66 of merit. It is not disputed by the Revenue that the queries

raised and the answers received u/s 133(6) has not been

fully shared with the assessee. The assessee has repeated

this objection before the DRP and has also raised a specific

ground in the present appeal. The selective reliance on

selectively shared information, we are of the view cannot be

given any judicial recognition or precedence over and above

the information available in the public domain. We are of

the view that allowing the use of such selective information

would result in opening the flood gates to the use and abuse

of powers which have been vested in the authorities. The

mischief so carried out in this garb of statutory powers

vested cannot be tolerated. If any information is sought to

be used to the detriment of a party by a Quasi judicial

authority, then it is expected to be used fairly. In order to

use the information adversely it must necessarily be fully

shared with the party and a fair opportunity to rebut the

same must necessarily be provided.

12.10.2 We have also examined the issue from the angle

where such selective information without providing a fair

opportunity to rebut is pitted against disclosures made by

the company in the public domain, in such an eventuality we

are firmly of the view that the information available in the

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 32 of 66 public domain which is under the scrutiny of the various

Statutory Regulatory Authorities having the powers to

penalise for any incorrect information wins hands down. The

disclosures made in the public domain under the active

scrutiny of various Statutory Authorities cannot be treated

lightly and permitted to be downgraded giving precedence to

some half shared information obtained u/s 133(6). The

system does not exhibit any responsibility and seriousness

on proceeding against a recalcitrant party on perjury etc.

Giving serious consideration to the issues involved, we hold

that the mere availability of some information sought u/s

133(6) by itself is not sufficient to set aside the consistent

legal precedent merely because it is so argued. The fact

remains that unless and until the queries raised from the

said company and the answers received from the said

company are made available for a judicial consideration, the

credibility of such information remains questionable. The

fact that that first a fair opportunity to rebut the same to

the assessee need be provided is non negotiable. Reliance

placed on the selectively gathered evidence not fully made

available either to the assessee or made available for judicial

scrutiny has no credibility as it is a case of arbitrary

exercise of power appointing ones own self as Judge, Jury

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 33 of 66 and Advocate which position can neither be permitted nor

tolerated.

12.11 For the exclusion of the said comparable, we further

find support from the decision of the jurisdictional High

Court in the case of Eight Road Investment Advisors Pvt.

Ltd. (formerly known as (FIL Capital Advisors Ltd.0 (2020)

424 ITR 563 (Bombay).

12.12 Accordingly, considering the judicial precedent

available leaving all the other issues open for considering

the assessee’s prayer for seeking exclusion of Moti Lal Oswal

Investment Advisors Pvt. Ltd. on facts is allowed.

ITeS SEGMENT

ITeS section, multiple issues have been agitated by the

assessee wherein apart from challenges posed to the order

passed on the grounds of incorrect application of filters;

selection of companies with super normal profits not

allowing risk adjustments and adjustment to working

capital; rejecting use of contemporaneous multiple year data

etc. the challenge is also posed on the action of the TPO

upheld by the DRP in excluding valid comparables suggested

by the assessee and inclusion of companies which were

functionally not comparable.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 34 of 66 INCLUSION OF R SYSTEMS LTD. AND CG VAK SOFTWARE AND EXPORTS LTD. 14. The ld. AR submitted that the TPO has rejected R

Systems on the ground that it had a different year ending.

The rejection of this comparable in view of this fact was

sustained by the DRP.

14.1 The assessee before the ITAT has argued that

functionally the said comparable is a good comparable and

this fact is evide nced by the past history of the assessee

itself wherein the TPO itself in 2009-10 assessment year i.e.

in the immediately preceding assessment year has accepted

the said comparable as a good comparable. It has also been

argued that the ITAT in assessee’s own case in 2011-12 and

2012-13 assessment years has overruled identical objections

of the Revenue and has held that this comparable is a valid

comparable. The reliance placed upon the decision of the

Mumbai High Court in the case of CI T Vs PTC Software

(India) Pvt. Ltd. to justify its exclusion has been stated to be

not relevant in view of the fact that herein the quarterly

results are available and the profit of the company for the

financial year ending 2010, it has been argued, can be

determined. It was reiterated that relevant extrapolated

financials of R Systems Ltd. are relied upon. Accordingly, it

was his prayer that it may be directed to be included.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 35 of 66 15. Addressing the incorrect exclusion of CG VAK S oft ware

and Exports Ltd., it was submitted that the said comparable

also was accepted as functionally a good comparable by the

TPO himself in 2009-10 assessment year and there is no

change in the functionality of either the assessee or CG VAK

Software and Exports Ltd. since then. Similarly, herein also,

it was submitted that the ITAT in 2011-12 assessment year

has accepted the said comparable in the case of the assessee

itself. On account of persistent losses and failure of the

turnover filter, the TPO has rejected the said comparable. It

has been argued that before the DRP, it has been submitted

that CG VAK Software and Exports Ltd. is not a persistent

loss making company, thus the reason for exclusion is

factually incorrect. It has been argued that the legal

precedent is that companies which have persistent loss for

three years in a row applying the filter are rejected and

companies which are making loss in any two out of three

years, they cannot be termed as persistent loss making

companies. Sufficient precedent was relied upon to show

that CG VAK Software and Exports Ltd. having two segments,

software services and BPO Services and the BPO Services is

considered as comparable to the services provided by the

assessee. Referring to the OP/OC ratios, it has incorrectly

been termed as a loss making company.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 36 of 66 16. The ld. DR relies upon the orders of the TPO and the

DRP.

assessee in regard to the two companies have been extracted

at page 24 para 1.1.3 to para 1.1.5 page 27. For CG VAK

S oftware and Exports Ltd., the reason has been persistent

loss for the last 3 years which position of fact, we find is

incorrect on the basis of record made available. The

assessee has taken us through the relevant pages in the

Paper Book which have been the basis of submissions

extracted in page 25 and 26 of the DRP’s order. On

considering the same, we find that the said comparable in

the light of the judicial precedent cited before the DRP and

argued before us, the said comparable does not have

consecutive losses in the BPO segment for three years in a

row. Hence, considering the facts of the BPO segment, which

is the comparable segment, we direct the inclusion of the

said comparable. We have seen that these facts are not

disputed by the Revenue. We have also seen that no specific

economic circumstance is pleaded or brought on record by

the Revenue to justify its exclusion. In the absence of

operation of any unique economic circumstance being of the

view that fluctuations in loss and gains are normal business

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 37 of 66 cycles of an entity. Thus, merely because losses have been

noticed in some year by itself is not a specific ground to seek

its exclusion where TNMM is the most appropriate method

accepted by the parties to determine the arm’s length price

of the transaction. Considering the precedent and the facts,

the comparable in the segment relevant is not a persistent

loss making company and hence we direct the inclusion of

CG VAK Software and Exports Ltd.

TPO has rejected the same on the reasoning that its year

ending is different. The DRP referring to para 10.1 of the

TPO’s order has upheld the rejection overruling the

arguments advanced on behalf of the assessee that the

results for the comparative period can be extrapolated and

judicial precedent is available thereon. Hence, on the basis

of the evidences placed on record and no contrary rebuttal

thereon, we find that the comparable should be included. On

facts, it is seen that there is consistent judicial precedent

available on record to show that functionally the two

companies were comparable and noting that if for the entire

financial year, data was unavailable, the fact that as per

Rules, it could admittedly be extrapolated for which judicial

precedent in assessee’s own case is available. Accordingly,

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 38 of 66 considering the judicial precedent, we direct that the said

comparable is to be included in the list of comparables after

extrapolating the data for the entire year.

EXCLUSION OF ECLERX; ACROPETAL AND INFOSYS BPO

Ltd., Acropetal and Infosys BPO is sought.

inclusion of these three comparable companies has been

objected to by the assessee.

INFOSYS BPO

order page 35 to 37 it was submitted that the TPO himself

agreeing with the objections of the assessee agreed to

exclude the said comparable. However, it was still included

as a comparable without giving any contrary reason possibly

by mistake. This issue was agitated before the DRP but no

specific finding has been given. For seeking its exclusion,

the detailed arguments remain extracted in the TPO’s order.

Accordingly, without repeating these objections on facts

which had been agreed with by the TPO himself, appropriate

directions were requested.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 39 of 66 22. The ld. CIT-DR considering the TPO’s order and the

objections of the assessee before the DRP did not object to

the prayer of the assessee.

this specific reason is directed to be excluded as having been

included wrongly. The facts seeking its exclusion argued

before the TPO which have been taken into consideration by

him we find in peculiar facts of the present case require no

repetition. The comparable is directed to be excluded.

remaining two comparables, it is seen that the following

reasoning has been advanced by the DRP at page 41 & 42 for

justifying their inclusion :

“4.2.5 The assessee also objected to inclusion of two comparable which are discussed as under:- 1. Acropetal Technologies Limited : It is the objection of the assessee that this company provides services in the following segment: 1. Enterprise Development 2. Software Development 3. Project Development The annual report show that the company is into following segments viz Engineering Design Services, Information Technology Services and health care. This company is functionally comparable to the assessee. 2. EClerx Services Limited (eclerx):lt is the objection of the assessee that this company is providing KPO Services and hence it is not a comparable. We are of the view that the ITES segments covers whole range of services such as call centre operations, data processing, customer service support, medical transcription, engineering design services, back office support etc. Therefore, the functions of this company falls within the broader definition of TTeS”

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 40 of 66 25. The ld. AR repeating the objections posed before the

DRP and the TPO submitted that these may be directed to be

excluded.

S ervices Ltd. and Acropetals Technologies whose inclusion is

challenged by the assessee, the relevant discussion, it is

seen is at pages 27 and 28 of the DRP’s order. Th e Acropetal

Tec hn ologi es, as per the assessee’s claim is stated to be

functionally different. Similarly, Eclerx Services Ltd. is also

distinguished on the same reasoning. The DRP ignoring the

arguments reproduced in page 31 and 32 of the its order

ignoring the judicial precedent available that Eclerx was

engaged in high end KPO services hence incomparable to BPO

services directed the inclusion holding that pr oper

TP O. Similarly for opportunit y had been given by the

Acropetal Technologies ignoring the judicial precedent that

t he company was int o S oftware development and Engineering design services as noticed in the case of Bangalore Bench of

the ITAT in the case of Symphony Market Sales Pvt. Ltd.

directed its inclusion again holding t hat pr oper opportunity

had been given by the TPO.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 41 of 66 29. We find on considering the facts that reliance placed on

the so called opportunity provided by the TPO is misplaced

and misdirected. The adjudicating authority, it goes without

saying giving an opportunity of being heard is required to

give a fair hearing, pass a speaking order addressing the

objections. Otherwise, it becomes a meaningless e xercise if

facts, submissions and legal precedence relied upon remain

unaddressed. Providing an opportunity is not a mechanical

exercise where after confronting the conclusions, the

authority has a free reign to act arbitrarily. The box cannot

be claimed to be ticked by the so called opportunity where

the decision to include the comparable does not address the

objections posed. The arguments and evidences placed on

record seeking its exclusion are required to be addressed.

Considering the precedent on facts where FAR of the two

companies is entirely distinguishable in as much as software

solutions and Engineering design services are being performed Technologies, we have no hesitation in by Acropetals

directing its inclusion. The company is functionally not

similar and the judicial precedent available fully supports

this view. We further support our conclusion placing reliance

on the case of Rampgreen Sales Pvt. Ltd. Vs CIT (2015) 377 ITR

533 (Delhi) wherein the Hon'ble High Court examined similar

claim of a wide spectrum of ITeS companies and went on

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 42 of 66 to deliberate on the various sub-classifications in this

segment in para 31 of the order. Accordingly, considering the

facts, we direct the exclusion of Acropetals Technologies Ltd.

challenged by the assessee which we find has also been

claime d to be functionally different by the assessee, the

objections placed before the DRP extracted at pages 32 to 38

namely that the company is functionally different, have been

seen. The arguments on risk adjustments sought on account

of difference in FAR, we find remain unrebutted and the

inclusion of the said comparable has also been directed by

the DRP on the reasoning that proper opportunity was

provided by the TPO. Again observing that providing of

opportunity without addressing the arguments advanced is a

meaningless exercise having no judicial recognition or

sanctity to the so called opportunity claimed to have been

allegedly provided. We find on considering the reasons

sought for its exclusion placed on record by the assessee and

the reasons justifying its inclusion by the DRP and the ld.

CIT-DR, we are of the view that on facts in the absence of

any rebuttal on the repeated submissions and evidences on

record, the said comparable deserves to be excluded. The

said company is on the high end of KPO related ITeS and

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 43 of 66 cannot be compared to the BPO segment. The judicial

precedent cited remains unrebutted by the Revenue.

30.1 We are further fortified in coming to the said

conclusion by the position of law as settled by the Hon'ble

Delhi High Court in the case of Rampgreen Solutions Co. Ltd.

(supra). It would not be out of place to briefly refer to the

aforesaid decision wherein the finding of the Tribunal that

“once a service falls under the category of IT eS, then there is

no sub-classif ication of segment” has not found favour with

the Hon'ble Court. The Court expressed reservations on

such erroneous conclusions. Agreeing that there cannot be a

straight jacket formula for all situations, the Court opined

that “ITeS encompasses a wide spectrum of services that use

information technology based delivery. Such services could

include rendering highly technical services by qualif ied

technical personnel, involving advanced skills and knowledge

such as engineering, design and support. While on the

other end of the spectrum ITeS would also include voice based

Call Centres that render routine customer support for the

clients”. Thus the Court held that the characteristics of the

service and the functions of the wide range of ITeS

companies their business environment, assets and capital

employed would all have material bearing on their

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 44 of 66 profitability and would be entirely distinguishable across

this spectrum.

30.2 Accordingly, Eclerx is directed to be excluded.

2 in sub-grounds (c)(ii)(g) are left open.

seen that in order to determine the arm’s length price for

broking services rendered by the assessee to its AE, CUP

method has been accepted by both the parties. The issue, it

is seen has been discussed by the DRP at pages 18 to 23 in

para 3 to 3.2. In the year under consideration, the assessee

provided trade execution and clearing services on NSE and

BSE for equity market both to its AE and third party clients.

Upward adjustment was made by the TPO by considering only

off-shore clients and that too only top 10 FII clients as

comparables. The commission from on-shore clients was

considered to be dissimilar on the grounds of distinctions on

account of dissimilarity in the nature of functions performed

and risks assumed. The said action has been opposed by the

assessee before the TPO as well as the DRP. Since the DRP

confirmed the view of the TPO, the assessee is in appeal

before the ITAT.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 45 of 66 33. The ld. AR objects to the Approach/Methodology of

selecting only top ten FIIs and not the entire pool of FIIs

stating that there is no rationale given in the year under

consideration to deviate from the accepted practice followed

in the earlier years and also subsequent assessment year. It

was submitted that for the deviation in the year under

consideration, no justification for picking up of only top

ten FIIs has been given. Maintaining its objections on all the

points agitated before the TPO and the DRP before the ITAT,

the ld. AR submitted that first and foremost he would want

to argue that the method all along followed in the earlier

years on the issue be followed. Ignoring the past history on

the issue of methodology without assigning any reasons

where admittedly there is no change in facts and

circumstances, the stand of the Revenue was opposed as

being arbitrary. Referring to the record, it was submitted

that in the orders, the respective authorities have given no

valid reason for varying the methodology and picking up only

top ten FIIs. Thus, the order is challenged on the grounds of

consistency. It has been argued that in the prior assessment

year as well as the subsequent assessment, similar broking

services have been provided wherein CUP has been used as a

method and average commission charged by the assessee to

its AEs is compared with its third party clients. For ready

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 46 of 66 reference, extract of the TP Study Report page 11 Form 3CEB

specific page 22 and TPO’s order page 24 to 71 for

assessment year 2008-09 was relied upon. Similarly

referring to the Additional Paper Book again for 2009-10

assessment year, extract of TP Study Report page 76; Form

3CEB page 88 TPO’s order page 89 to 97 was referred to.

The facts pertaining to subsequent assessment year i.e.

2011-12 assessment year placed in the additional Paper

Book were relied upon wherein the TPO’s order supported by

the TP Study and Form 3CEB is available at page 116 and

143 and for 2013-13 assessment year, the TPO’s order at

page 161 to 185 relying upon the TPSR and Form 3CEB was

relied upon. Thus, it was submitted that the same approach

as in earlier years and subsequent years may be followed.

33.1 Referring to these facts, it was argued that there is no

change in facts over the years, it was his prayer that a

direction to the Revenue may be given to follow the same

methodology. The said action, it was submitted is supported

by the following legal precedent to name a few :

• Principal Commissioner of Income-tax, New Delhi v Maruti Suzuki India Private Limited (Civil Appeals nos. 5409 of 2019) (Supreme Court) • Radhasoami Satsang v Commissioner of Income-tax (Civil Appeals nos. 10574 to 10583 of 1983) (Supreme Court) • Commissioner of Income-tax v Gopal Purohit (IT Appeal No. 1121 of 2009) (High Court of Bombay)

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 47 of 66 • Principal Commissioner of lncome-tax-4, Pune v. Vishay Components India (P.) Ltd. (IT Appeal No. 1643 Of 2016) (High Court of Bombay) • Principal Commissioner of lncome-tax-8 v Quest Investment Advisors (P.) Ltd (IT Appeal No. 280 of 2016) (High Court of Bombay)

33.2 It was further submitted that even on facts, there is

no justification for considering only top ten off-shore clients

as comparables and disregarding the commission from other

foreign and on-shore clients in the absence of any functional

dissimilarity. Attention was invited to para 9.4 of the TPO’s

order wherein it has been held that there is no co-relation

between the brokerage rates charged and the volume of

business given by the client. Thus, it was submitted that

there was no valid rationale to pick up only top ten FIIs.

33.3 It has also been argued that there is no justification

on record for rejection of domestic clients. The DRP has

upheld the TPO’s orders which has no justification on the

reasoning that the assessee is exposed to foreign exchange

risk which fact is absent in domestic clie nt, hence

commission from domestic client should not be considered.

The ld. AR submitted that the said argument is hollow and

incorrect in view of the fact that the assessee raises its

invoices in INR for all clients whether domestic or FII. This

fact, it was submitted, is evidenced from the Transfer Pricing

Study Report page 594 of the Paper Book wherein the

relevant extract narrates to Foreign exchange risk: GSISPL

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 48 of 66 does not bear any forei gn exchange risk as it invoiced its AEs in Indi an rupees. Thus, it was argued that between the

transactions with the foreign and domestic third party

clients there is no perceivable difference hence all third

parties should be considered in the CUP analysis.

33.4 Without prejudice to the above arguments, it has also

been argued that if for any reason the third parties i.e.

domestic and foreign are not considered then brokerage

charged to all FII third party clients should be considered

because if it is so considered that there is a distinction

between FII and domestic clients, then all FIIs should be

considered for the purposes of determining the arms’ length

price.

33.5 Without prejudice to the above it was also

alternatively argued that if all FIIs are not considered, then

the TPO be directed to consider the top ten FIIs of the same

jurisdiction where the AE is situated. It has been argued

that in case the TPO/Revenue is of the view that there are

certain differences which exist between the services rendered

by the assessee to its third party clients and the service

rendered by the assessee to its AE, then appropriate

adjustments need to be made to the arm’s length price in

order to make it comparable to the international transaction,

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 49 of 66 then the following adjustments to the average commission

rate charged by the assessee to the third party clients, it

was his prayer should be made; namely adjustments for

significantly higher volume of transaction that the AE has

compared to other clients and adjustment for difference in

risks assumed for AEs versus third party clients.

authorities. The relevant discussion from the DRP’s order at

pages 22 & 23 relied upon by the Revenue is extracted

hereunder :

“3.2 Discussion & Direction to the DRP The assessee has provided security broking services in respect of securities traded in the cash equity segment on NSE and BSE. In the TPSR assessee had benchmarked the transactions using CUP as MAM. The broking services were rendered by the assessee to it's AE which are Flls. Therefore, the TPO has issued a show cause as to why only the Fll clients cannot be considered as comparable. He had considered only top 10 Fll clients of the assessee as the pricing considerations for domestic client are different from pricing consideration for the Fll. In para 9.2 the TPO has brought out the total turnover of top 10 Fll as 9497.74 crores on which brokerage of 21.84 cores was earned by the assessee. The request of the assessee with regard to volume and credit risk adjustment has been considered and since there is no co- relation between the brokerage rate charged and the volume of the business given by the client he did not accept the adjustment for volume. From the submissions he ascertained that the assessee was taking margin money from both the 3rd party client as well as the related parties. Since margin money is taken from all the clients including the AEs he concluded there is no need to grant any adjustment for credit risk also. 3.2.1 In the TPSR the average rate of commission charged by the assessee to it's AE was 20.47 bps and the average commission rate charged for third party was 20bps. Since the rate charged for the AEs are higher it was considered as arm's length by the assessee. However with regard to the top 10 Flls the TPO had arrived at the average brokerage of 23.01 bps. The objection of the assessee is that he has considered only the top 10 off shore Fll clients as comparable. In this regard the assessee has

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 50 of 66 contended that the nature of functions performed and risks assumed for the services rendered to both onshore and offshore clients are similar in respect of securities traded in the cash equity segment on NSE and BSE. However it is pointed out that the risk and reward and therefore comparability would be better and enhanced if the top 10 Fll are considered for the purposes of benchmarking as the assessee's services to the AE is also the service provided to the an Fll. Further top 10 Fll data would also be relevant in terms of volume of transaction and aspect relating to transactions and relevant effect of foreign exchange fluctuation. This aspect would be totally absent in respect of the domestic clients of the assessee. Accordingly we are of the view that the average commission earned from the top 10 Fll of 23.01 bps is in order. Therefore, the adjustment made at 2.54 by the TPO on account of broking services is found to be in order. The total turnover of the AE clients during the year was 19,500.45 crores. Since almost 50% of the turnover came from the top 10 AE clients we found the average brokerage charged from top 10 Fll as comparable is also found to be in order. 3.2.2 In view of the above discussion, no interference is called for with regard to the rejection/ selection of comparable by the assessee. Therefore the adjustment made by the TPO is found to be in order and no interference is called for.

material available on record. We find on facts that there is

no discussion whatsoever as to why the methodology only in

the year under consideration has been changed by the

Revenue. Considering the past precedent available on the

issue, which has been followed in the subsequent

assessment year also which position of fact is not contested

by the ld. CI T-DR, we direct the TPO to consider the issue in

the light of the past accepted method followed by the

department. All the other submissions advanced by the

assessee, accordingly, become academic in nature and do not

require any specific adjudication in the year under

consideration. While coming to the above conclusion, we

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 51 of 66 have seen that there is no rationale given to deviate from the

method accepted all along. We have also seen that this

argument also has not been rebutted by the Revenue. The

justifications given for picking up the top 10 FIIs in the

facts, we have seen, are devoid of merit. The other issues

argued accordingly do not need to be addressed at this stage

as the issue has been decided on the principle of consistency

itself.

relies on past legal precedent so as to argue that it is not an

infraction of law hence, the expense have incorrectly been

disallowed by the Department.

been deleted by the ITAT in the earlier years however,

maintaining the stand that these are payments for violations

hence, the addition, it was his prayer may be sustained.

is seen that the facts are discussed in para 6 to 6.6 at pages

11 to 17 by the AO in the draft assessment order wherein for

payment of Rs.10,21,507/- to the Stock Exchange as fine for

non compliance of clearing house trades, code modification

etc. the amount was added to the computation of income of

the assessee. The AO relying upon similar factual position

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 52 of 66 as available in 2008-09 and 2009-10 assessment years. This

position stood confirmed by the DRP also and hence it was

directed that the addition of the said amount should be

maintained. The submissions advanced on behalf of the

assessee that it was not a fine/penalty in the true sense of

the word and that infact these were payments for procedural

lapses occuring on account of non confirmation of clearing

house trades etc. were overruled. Various decisions of the

ITAT relied upon to show that in almost all various similarly

situated assessees who are members of NSE/BSE they also

have been exposed to these routine payments for procedural

lapses and these expenses have been allowed u/s 37(1) stand

ignored. It has been argued that these violations are not in

the nature of any penalty for contravention of any law and is

only to ensure that errors beyond a point are not made.

However, these submissions did not find favour either with

the AO or with the DRP. The DRP has considered the issue

at pages 52 to 55 of their order in paras 6 to 6.2.1.

Considering the legal precedent and the nature of the

payments, we have seen that these are not charges for any

Statutory violations. The payment we have seen are charges

where the facility provided to rectify the errors committed at

the time of placing the order are exceeded beyond a limit.

The charges are levied to encourage the broker to make fewer

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 53 of 66 errors and consequently fewer modifications. It is seen that

in terms of the Rules/conditions for trading at the Stock

Exchanges all transactions in respect of institutional trades

executed are required to be settled by the custodian of the

institutional client at the Stock Exchange within the

prescribed time limit. At times the custodian may reject the

institutional trade after the cut off time prescribed by the

Stock Exchange for settlement. The obligation for settlement

is then passed on by the Stock Exchange to the Broker. The

payments made for such non-acceptance of settlement by a

custodian results into “non custodial settlement” which

attracts a charge in the hands of the broker. We have seen

that these are not instance of violations of statutory

requirements inviting penalty. Circular No.

NSCCL/SEC/2007/0102 dated 26.07.2007 issued by NSCCL

in pursuance to the Bye-Laws and Regulations of NSE and

circular No. NSE/CL/C&S/242 dated 27.03.2003. Specific

point No. 8.9 of NSCC circulars NSCC/CMP/248 dated

09.06.2007 alongwith their copies attached as Annexures

relied before the DRP have been seen. Accordingly, we hold

that the DRP was incorrect in sustaining the addition in para

6.2 of their order relying on the past history.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 54 of 66 38.1 We have seen that the ITAT has had an occasion to

examine this issue in assessee’s own case in the earlier

years and the addition has been deleted. The DRP has

categorically held while denying relief that there is no

change in fact and circumstance. Nor has the ld. DR made

any submission to show that there is a change in facts in the

year under consideration. No contrary view on behalf of the

Revenue to justify overlooking the legal precedent in

assessee's case has been cited considering the settled legal

position on this issue in assessee’s own case itself.

Accordingly, We are of the view that the ground raised has

to be allowed.

38.2 We are further fortified by the decision of the

jurisdictional High Court in assessee's case itself in ITA 30

of 2017 dated 10 t h June, 2019 placed on record wherein the

Hon’ble Court considering the following additional question

raised by the Revenue in Question No. (vii) has settled the

issue. The following question was raised by the Revenue for

consideration before the Court :

“vii. Whether on the facts and in the circumstances of the case and in law, the ITAT was right in holding that the penalty was on account of irregularities committed by the assessee's client without appreciating the facts that non compliance to clearing house trades and trades and client code modification are default attributable to the assessee company majorly and not to its client?"

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 55 of 66 38.2.1 It is seen that it has been answered by the Hon'ble

Court in para 11 & 12 as under : 11. The question No.vii pertains to disallowing an expenditure which the revenue argues was in the nature of penalty. We notice that similar issue was considered by this Court in case of The Income Tax Commissioner Mumbai City-4 Vs. Angel Capital & Debit Market Ltd. (Income Tax Appeal (L) No.475 of 2011) in the order dated 28th July, 2011, following question was examined:- "Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the disallowance made by the Assessing Officer of claim of the Assessing Company for a deduction of payment of Rs.6,51,240/-towards penalty paid to Stock Exchange even though the penalty payment was clearly disallowable under Explanation to Section 37(1) of the Income Tax Act? 12. The question raised by the revenue was rejected making following observations:- "3. As regards question (C) is concerned the finding of fact recorded by the ITAT is that the amount paid as penalty was on account of irregularities committed by the assessee's clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such a case the explanation to section 37 would not apply. Accordingly question (C) raised by the Revenue cannot be entertained." • In that view of the matter, this question is also not entertained. 38.3 Accordingly, respectfully following the precedent, the

addition is directed to be deleted. Ordered accordingly.

38.4 Ground No. 5, it is seen is consequential in nature.

ADDITIONAL GROUND

following additional ground submitting that similar grounds

have been allowed to be raised as additional grounds by the

Co-ordinate Bench relying upon the decision of the

jurisdictional High Court in the case of Sesa Goa Limited v

ACIT [(ITA No. 17 of 2013) Bombay HC] Relying upon the

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 56 of 66 decision of the Apex Court in the case of National Ther mal

P ower Co. Ltd. vs CIT[1991] 229 ITR 383 (SC), Jai Parabolic

Springs v. CIT[2008] 306ITR 42 (Delhi High Court) and

Indian Express (Madurai) (P.) Ltd. v. CIT[1983] 13 Taxman

441 (Madras High Court),it was his prayer that following

ground No. 6 raised vide application dated 10 t h December

2020 may be admitted as it does not require any

investigation of new facts and is purely legal. The ground

reads as under :

“6. Based on the facts and circumstances of the case and in law, the Assessing Officer be directed to allow the deduction in respect of education cess paid on income- tax amounting to Rs 7,124,404 for the year under consideration. Without prejudice to the above, upon adjudication, where your Honours decide the aforesaid Ground No. 6 in favor of the appellant and any other grounds against the appellant, then the Appellant humbly request your Honours to allow the deduction of total education cess paid on income-tax after considering the additional education cess payable on the tax effect relating to such ground(s) which is/ are decided against the appellant.

39.1 Following supporting decisions were relied upon for

admission and allowability of assessee's claim :

• Sesa Goa Limited v ACIT [(ITA No. 17 of 2013) Bombay HC]; • Chambal Fertilizers and Chemicals Ltd v JCIT [(ITA No. 52 of 2018) Rajasthan HC]; • Voltas Limited v ACIT [(ITA No. 6612/ Mum/ 2018 & ITA No. 7028/ MUM/ 2018) Mumbai Tribunal]; • Philips India Limited v ACIT [(ITA No. 2612/ Kol/ 2019) Kolkata Tribunal]; • Tata Steel Limited v ACIT [(ITA No. 5616 & 4043/ 2012) Mumbai Tribunal]; • Bajaj Allianz General Insurance Company Ltd v DCIT [(ITA No. 1111 & 1112/2017) Pune Tribunal]; • ITC Ltd v DCIT [(ITA No. 685/ Kol/ 2014) Kolkata Tribunal]; and • Grasim Industries Ltd. vs. ACIT [(ITA No.2525/Mum/2014) Mumbai Tribunal].

admission of the said specific ground agreed that no

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 57 of 66 objections are posed by the Revenue for admission of the

said additional Ground at this stage.

Bench admission of the above ground at the time of hearing

via virtual platform was directed. Accordingly, in terms of

the pronouncement made at the time of hearing considering

the judicial precedent cited, we deem it appropriate to admit

the ground and restore the same back to the file of the AO

with the direction to allow the claim in accordance with law.

for statistical purposes.

REVENUE’S APPEAL

appeal it is seen that vide ground No. 1, the AO has

challenged the direction of the DRP in holding that

Integrat ed capital services be excluded as a comparable.

the said comparable does not clear the one crore filter and is

also functionally different from that of the assessee. It was

submitted that no doubt the said comparable was selected by

the TPO, however, on noticing that it was functionally

dissimilar and did not clear the filter, its exclusion was

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 58 of 66 directed. The DRP’s direction that it be included as a valid

comparable was challenged. The detailed FAR analysis of the

assessee carried out by the TPO in para 8.1 and 8.2 was

highlighted. Addressing Integrated Capital Services it was

submitted, that when compared with the functions of the

assessee, it was submitted that the two companies were not

comparable. Considering the average salary paid to the

employees of the assessee which was stated to be Rs. 77 lacs

it was argued that it was evident that a higher level of

intellect was required in the case of the assessee hence, the

assessee is not comparable with Integrated Capital Services.

It was submitted that the TPO had adopted certain filters

including the filter of low turnover. The ld. DR agreed that

in the show cause notice, the TPO has observed at page 8 of

his order that the “company is fu nctionally comparable.

Thus the company is accepted as a comparable”. However, in

the final analysis, this comparable has not been accepted.

The finding of the DRP at page 17 of the order that this

comparable is to be included, it was argued, is without any

justification. Once the comparable, it was argued, does not

satisfy the requirements of the filters adopted, the said

comparable has to be excluded, moreover, it was argued even

otherwise it was not functionally comparable.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 59 of 66 44.1 Apart from that, it was submitted, that in 2009-10

assessment year, the said comparable was rejected as a valid

comparable in the case of the assessee itself.

comparable on facts was accepted as functionally comparable

by the TPO has ultimately been rejected by the TPO giving no

valid reason and till date no argument on facts has been

made available to seek its exclusion. In the absence of any

argument the assessee has no alternative but to rely upon

the order under challenge by the Revenue.

before the Bench. We have seen that in the facts of the

present case the TPO applying the filters has proposed the

said comparable and has also held that functionally it is

similar. Thereafter, why the said comparable was rejected,

there is no discussion in the TPO’s order. We further find

that the DRP taking note of the fact that there is no

justification for exclusion of the said comparable have

directed its inclusion. On facts we find no infirmity with the

said direction. The arguments now advanced on the so called

average high salaries paid to the assessee's employees, we

find on facts is misplaced. Reference has been made to page

5 & 6 of the TPO’s order. We find that by itself it means

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 60 of 66

nothing. For the purposes of completeness, the facts as set

out in the show cause notice are attached hereunder :

Sr. Name of Employee Designation Educational Qualification Work experience No. (years) 1 RadhikaSinha VicePresident Masters of Business 13.8 Administration 2 Vijay M Karnani Managing Masters of Business 18 Director Administration 3 SumerJuneja Associate Bachelors of Science Degree 5.7 in Politics & Economics 4 Alok Nitin Sheth Associate Masters in Systems 5 Engineering 5 Rupen Jhaveri Associate Bachelors of Science 5.8 6 Pooja Tyebjee Associate Masters in Technology 12.5 7 PrakeetDhawan VicePresident Masters in Technology 14.5 8 Vishal Bakshi Managing Masters of Business 17.3 Director Administration 9 AnantJalan Associate Bachelors in 8.8 Technology

46.1 The reply of the assessee incorporated in the notice

given with the conclusion of the TPO drawn for addressing

the assets or the skill sets of the assessee's employees while

analyzing the FAR of the assessee is as under :

Vide submissions dated 29 October 2013, the assessee submitted the salary range of the above employees as under : Title Min. CTC (INR) Max. CTC (INR) Associate 38,00,000 54,00,000 VP 67,00,000 97,56,000 MD 74,00,000 2,25,00,000 8.4 Before proceeding to analyse the comparables, it would be worthwhile to examine the employee profile of the assessee company. These details have been submitted by the assessee vide its submission dated 14 October 2013. Here the assessee has submitted the list of employees involved in providing investment advisory services to its AE. A total of 9 employees have been paid a salary at an average of Rs.77 lacs per employee. Even a cursory look at these average salaries show that the assessee has deployed very highly qualified employees in its operation of providing investment advisory services. The brief regarding these qualifications is reproduced above.

8.5 On going through the educational qualifications of these employees and their extremely high pay packages, one gets an idea of the skill sets that these employees bring to the table. These highly qualified employees of the assessee have obviously performed

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 61 of 66 highly skillful set of tasks of analyzing the financial details of the target companies and rendered investment advisory services to the AE. The high pay packages are also indicative of the higher level of decision making that rests with these employees. The entire FAR of the assessee and that of the comparables has to be viewed in the light of these important facts. 8.6 The nature of work undertaken by the assessee has been described in the functional analysis discussed above. As stated therein, the assesse is rendering Investment Advisory Services to its AE. The taxpayer after collecting information regarding potential sectors and prospective companies, evaluates them by analyzing their past performance. For shortlisting and finalization of the investee companies, the AE acts as a Coordinating Intermediary and helps the AE arriving at the decisions. It shows that the set of 9 employees have been paid over Rs.7 Crores in salary and they have rendered concentrated and intensive research related services of these many opportunities in the entire year. So, in selecting the comparables, the nature of services rendered by the comparables will have to be scrutinized in detail to evaluate which of the comparables are broadly similar to that of the assessee company. With this in view, the TPO now proceeds to analyse the comparables relied upon by the assessee.

46.2 On a reading of the above without any comparative

analysis with the salaries and the qualifications of the

employees of Integrated Capital Services, we find that it is a

meaningless exercise. The argument that it is very high has

no basis available for comparison and hence at best can be

termed to be a suspicion, surmise or conjecture. Unless

some rationale basis for concluding that employing MBA

personnel etc. by itself means that education and skill set is

not commensurate with advisory services. We are unable to

consider these observations in the manner ld. CIT-DR would

want to argue. We find that these facts on a stand alone

basis mean nothing. It is further seen that this has not even

been the basis or the rationale of the AO as per record.

Accordingly, the argument now advanced by the Revenue

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 62 of 66 drawing strength from stray observations and discussions in

the order to support this ground is misplaced. As we

understand, selection of comparables starts first with a

thorough analysis of the FAR of the tested party and

thereafter suitable and appropriate filters are selected and

applied. The comparables thus thrown up on the application

of the selected filters are thereafter analysed keeping the

FAR of the tested party in focus. Thus, admittedly the filters

have to be applied before establishing functionality of the

comparables. The final selection from this group is made on

the basis of FAR of these comparable companies. The criteria

to select, reject is based on the comparison of their FAR

analysis with the tested party. In the facts of the present

case, the TPO after applying the filters presumably carried

out a FAR analysis and has held that the said comparable is

functionally a valid comparable. The occasion to then again

apply filter after establishing functionality, we find has not

been addressed by the Revenue. We fail to understand why

the need to apply it afterwards arose. Once companies are

thrown up applying filters, the TPO carries out a FAR

analysis of those companies only after that. Having so done,

he held that it is a valid comparable. Thereafter, no

justification whatsoever is given on record to exclude the

said comparable. In the absence of any discussion on this

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 63 of 66 issue, the assessee and the DRP are left with no alternative

but to insist that the said comparable be included.

46.3 We have seen that the ld. CIT-DR seeks to submit that

the said comparable has been excluded in the case of the

assessee in some other assessment year. Since in the year

under consideration, the discussion for seeking its exclusion

is absent and the finding of the TPO is on record that it

clears the filters and it is functionally comparable,

accordingly, we do not interfere with the finding of the DRP

and hold that the finding arrived at herein shall not

constitute a precedence in any other case where facts are

properly discussed and set out. The departmental ground

accordingly fails .

out in para 5 to 5.2.5 at pages 43 to 52 of the DRP’s order.

A perusal of the record shows that the AO relying upon

2008-09 and 2009-10 assessment year wherein on similar

facts and circumstances in regard to ESOP cost incurred by

the assessee in respect of Restricted Stock Units (RSUs)

granted to the assessee stood confirmed by the DRP. The AO

accordingly proceeded to make a similar addition as per

discussion in the order at pages 3 to 11 vide paras 5 to 5.6.

The AO noticed that it is a recurring issue. He, accordingly,

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 64 of 66 disallowed the net amount on account of amortization of RSU

expenses. The DRP relying upon the judicial precedent as

available in the case of PVP Ventures Ltd. (2012) 211 tax man

554 of the Madras High Court, decision of the Special Bench,

Bangalore in Biocon; and Delhi Bench in Ranbaxy Laboratory

124TTJ 771 etc. considering the specific facts deleted the

addition. Revenue is aggrieved.

Bench we find that the specific findings of facts have not

been upset by the Revenue. The facts as enumerated and the

position qua the specific plan as appreciated by the DRP in

para 5.2.1 we note remains unrebutted. Considering the

judicial precedent in para 5.2.2 to para 5.2.4 which also

remaining unrebutted, we find no infirmity with the

conclusions drawn. For the sake of completeness, we

reproduce the relevant findings on facts being upheld by us :

5.2 Discussion & Direction of the DRP :

The AO had discussed the issue in para 5.1 to 5.5 of the draft assessment order. He has noticed from note 2(vii) of Schedule 14 to final accounts that employee costs include the cost of restrictive stock unit (RSU) and stock option plan under the Goldman Saohs Groups Inc. The assessee was directed to furnish RSU/Option agreement vide order sheet noting of the AO dated 17.02.2014. Expenditure along with exchange difference on the same was

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 65 of 66 charged to the P & L account. The AOs in the earlier year i.e. A.Y.2008-09 and 2009-10 had disallowed the expenditure and it was also confirmed by the DRP in both the years. Therefore, the show cause was issued to disallow the expenditure charged during the current assessment year. The AO was of the view that the employees will be issued shares free of cost without the employees actually exercising the same and therefore the cost pertaining to RSU should not be regarded as contingent/notional and should be allowed as deduction in the year of vesting u/s 37(1) of the Act. The AO had referred to the decision of ITAT in the case of Ranbaxy Laboratories Ltd. On an identical issue the DRP has confirmed the action of the AO in A.Y. 2008-09 and 2009-10 and since there is no change in the facts in the current year and hence amount debited to P & L account amounting to Rs.60,63,49,187/- was disallowed and added as income.

5.2.1 We have carefully considered the submission of the assessee. There are several types of RSU plans for instance in one of the plan issued during year 2006 (2006 year end plan) provides for option vesting of 40% of the stocks granted and the balance 60% vested after a period of 3 years i.e. in the year 2007 (20%) 2008 (20%) and 2009 (20%). Accordingly the assessee amortized 40% oi the cost in the first year of the plan and the balance 60% cost is amortized over the vesting period of three years. As per the accounting policy the grant price on the date of grant of RSU is amortized in the books of assessee in accordance with vesting schedule as laid down in the plan. The method of accounting is in accordance with the accounting standards in India. The facts in the present case reveal that:

• The Assessee pays a sum to GSGI upon the delivery of the RSUs (pertaining to shares of GIGI) to employees of the Assessee. • The sum payable by the Assessee to GSGI is determined with reference to the value of the shares of GSGI as on the date of vesting of the RSUs. • As the Assessee is required to pay aforesaid sum to GSGI on account of the grant of the RSUs to its employees, such payment being an actual expenditure for the Assessee is considered as part of the compensation cost of the employees in the year in which it is incurred in accordance with the method of accounting followed 5.2.2 Therefore, the ESOP expenses should not be regarded as contingent or notional and it should be allowed as deduction u/s 37(1) of the IT. Act. The appellant had relied on the decision of DCIT v Accenture Services P Ltd [ITA No. 4540/M/08 order dated 23rd March 2010] and Novo Nordisk India Private Limited v DCIT -12(2) (ITA No.1275/Bang/2011) (Bang Trib). 51. The departmental grounds, accordingly, fail.

Goldman Sachs (India) Securities P.Ltd. V DCIT ITA NO.1115 & 1546/MUM/2015 (A.Y.2010-11) Page 66 of 66 53. In the result, appeal of the assessee is partly allowed

for statistical purposes and the appeal of the Revenue is

dismissed.

The said order was pronounced in the court on

17.02.2022.

Sd/- Sd/- (S. RIFAUR RAHMAN) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई/Mumbai, �दनांक/Dated: /02/2022 SK, PS/Poonam (CHD) ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/The Appellant , 2. ��तवाद�/ The Respondent. 3. आयकर आयु�त(अ)/ The CIT(A)- 4. आयकर आयु�त CIT 5. �वभागीय ��त�न�ध, आय.अपी.अ�ध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file. BY ORDER, //True Copy// Dy./Asstt. Registrar, ITAT, Mumbai