ACIT, NEW DELHI vs. M/S. BARING PVT. EQUITY PARTNERS INDIA PVT. LTD., NEW DELHI

Briefly stated relevant facts are that the assessee is engaged in the business of carrying out research and scouting activities, primarily for its Associated Enterprise (“AE”) BPEP Ltd. in relation to investments in India. During the financial year 2010-11, assessee was engaged in the business of identifying and evaluating investment opportunities in equity shares, preference shares and other financial instruments of Indian companies.

For the assessment year 2011-12 they have filed their return of income on 23rd November, 2011 declaring an income of Rs.4,14,17,230/-, which was revised on 13/10/2012 declaring an income of Rs.4,29,26,230/-. Learned Assessing Officer found that the assessee entered into international transaction with the AE, the details of which were mentioned in form No. 3 CEB filed by the assessee. Learned Assessing Officer, therefore, referred the determination of the arm’s-length price under section 92CA(1) of the Act to the Ld. TPO.

During the Assessment Year 2011-12, the margin of the assessee, with the PLI of OP/OC, was 21.11%. Assessee selected IDFC investment Advisors Ltd, SREI as comparable in their transfer pricing study capital markets Ltd and Transwarranty Finance Ltd as comparables, whereas the Ld. TPO rejected the Transwarranty Finance Ltd from the above list of comparables and, on the other hand he had introduced threeadditional comparables that is Motilal Oswal Investment Advisors Private limited, Aditya Birla Capital Advisors Private limited and Portfolio Financial Services Ltd., thereby making the list of comparables containing five entities. The average margin of these five companies came to 33.61%. Ld. TPO, therefore, by order dated 13/01/2015 suggested an adjustment of Rs.2,24,41,826/-attributable to difference in arm’s length price of the international transaction, in accordance with which the assessing officer made such an addition and assessed the income of the assessee at Rs. 6, 53, 68, 060/-.

Assessee carried the matter in appeal before the Ld. CIT(A). Ld. CIT(A) by the of impugned order directed the exclusion of the company Motilal Oswal Investment Advisors Pvt. Ltd. Since the exclusion of this company had the effect of deleting the entire transfer pricing adjustment, there was no necessity of dealing with the other comparable entities in detail. Challenging the exclusion of Motilal Oswal Investment Advisors Pvt. Ltd., Revenue preferred Ld. TPO in rejecting certain filters applied by the assessee in determination of the comparables, assessee preferred C.O. No. 46/Del/2017.

It is the argument of the Ld. DR that, being an active investor, the Baring group leverages the organisation, reputation, business network and the world-class investor base to add value; whereas the assessee has been engaged in the business of providing advisory services to BPTP Ltd and primarily carries out research and scouting activities per BPEP Ltd to identify and to procure and portfolio companies requiring assistance in the form of capital infusion strategic direction and financial advice. In respect of the profile of Motilal Oswal Investment Advisors Pvt. Ltd., Ld. DR submits that, this company derives its business income from four different business verticals, namely, equity capital markets, mergers and acquisitions, private equity syndications and a structured date and company continues to perform well on advertising Indian corporate on cross-border acquisitions. According to the Ld. DR, both the entities are in the field of merchant banking services and, therefore, are performing similar functions. He, therefore, argues that Motilal Oswal Investment Advisors Pvt. Ltd. is a good comparable to the assessee and by ordering its exclusion, an error was committed by the Ld. CIT(A).

Per contra Ld. AR supports the exclusion of this company by submitting that Motilal Oswal Investment Advisors Pvt. Ltd. is functionally dissimilar to the assessee inasmuch as it has diversified operations for which no segmental data is available. Secondly, he submits that Motilal Oswal Investment Advisors Pvt. Ltd. fails related party transactions (RPT) filter because its related party expenses are more than 40% of its total expenses during the year.

We have gone through the record in the light of the submissions made on either side. As could be seen from the annual report of Motilal Oswal Investment Advisors Pvt. Ltd. at page No. 602 of the paper book, it is clear that this entity is a deriving its income from four different business verticals, namely, equity capital markets, mergers and acquisitions, private equity syndications and a structured editor. From the functional profile of the assessee to be found in the paper book at page No. 168, we do not find the assessee to have been performing any of such activities. Further, the report of Motilal Oswal Investment Advisors Pvt. Ltd. shows that this company has been engaged in the merchant banking activities. Though the Motilal Oswal Investment Advisors Pvt. Ltd. derives its income from four different segments, as could be found from page No. 615 of the paper book its income from operations is shown to be only from advisory fees to the tune of Rs. 404,579,994/-and no segmental information is available.

Further objection of the Ld. AR, basing on the related party schedule and profit and loss account of Motilal Oswal Investment Advisors Pvt. Ltd. incorporated at page No. 620 of the paper book, is that the related party expenses of Motilal Oswal Investment Advisors Pvt. Ltd. is more than 40% of its total expenses during the year inasmuch as the total operating expenses of the assessee to Rs.221,944, 336 and the related party transaction expenses are about Rs.93,555,299/-and it fails the filter of 25% applied by the Ld. TPO.

In the said factual situation, we are convinced with the reasoning given and conclusion reached by the Ld. CIT(A) for ordering the exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. because of its functional dissimilarity and failing the related party transaction expenses filter. We, therefore, uphold the finding of the Ld. CIT(A) in excluding the Motilal Oswal Investment Advisors Pvt. Ltd. from the list of comparables. Grounds of appeal

11. Now coming to the cross objections filed by the assessee, it is submitted by the Ld. AR that the exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. from the list of comparables has the effect of wiping of the entire transfer pricing adjustment proposed by the Ld. TPO and,therefore,in such an event the discussion on the grounds of cross objection would only be academic. We, therefore, do not think it necessary to delve deeper into the grounds of cross objection. As such the Cross Objection become infructuous and is accordingly dismissed.