ALTICO CAPITAL INDIA P.LTD,MUMBAI vs. ADDL CIT RG 3(1), MUMBAI

Though, the assessee has raised as many as eight grounds of appeal contesting the addition made of ` 77.09.785 on account of transfer pricing adjustment, however, the dispute is basically confined to selection/rejection of certain comparables. Before we proceed to deal with the specific dispute raised before us, it is necessary to briefly narrate the relevant facts relating to the issue in dispute.

Brief facts are, the assessee is a resident company and part of Clearwater Capital Partners (CCP Group), which is an investment firm founded in the year 2001. The assessee is a subsidiary of CCP Cyprus and is basically engaged in providing investment sub advisory services to its Associated Enterprises (AE) CCP, Singapore. During the year under consideration the assessee provided non–binding investment advisory services to its AE and received an amount of ` 4,44,15,472. In the transfer pricing study report, the assessee benchmarked the aforesaid transaction with the AE by adopting Transactional Net Margin Method (TNMM) as the most appropriate method. The assessee selected ten companies as comparables with average margin of 16.19% as against its own margin of 20%. Thus, the transaction with AE was claimed to be at arm's length. The Transfer Pricing Officer, however, pointed out various defects and deficiency in the transfer pricing study report as well as selection of comparables. After rejecting

Learned Commissioner (Appeals), however, upheld the adjustment made by the Transfer Pricing Officer.

Shri Farookh V. Irani, learned Counsel for the assessee confined his submissions to selection/rejection of three comparables. Hereafter, we will be dealing with these comparables.

Objecting to the rejection of this company, the learned Counsel submitted, the company is functionally similar to the assessee, hence, there is no reason to reject this company. He submitted, 75% of the Revenue earned by the company is from consulting fees which is suggestive of the fact that it is providing advisory services, hence, is functionally similar to the assessee. Thus, he submitted, this company should be included as a comparable. In support, he relied upon the following decisions:–

The learned Departmental Representative strongly relied upon the observations of the Transfer Pricing Officer and learned Commissioner (Appeals).

We have considered rival submissions in the light of the decisions relied upon and perused the material on record. It is observed, the comparability of this company with a non binding investment advisory service provider has come up for consideration not only before the Tribunal, but even before the Hon'ble Jurisdictional High Court. After analyzing the function, asset and risk (FAR) of this company, the Tribunal found that the service provided by this company is akin to the service provided by an investment advisory service provider. Therefore, this company has been found to be a good comparable. The decisions relied upon by the learned Counsel for the assessee, as referred to above, clearly support this view. In fact, in assessee’s own case in Assessment Year 2010–11, though this company was rejected by the TPO, however, learned Commissioner (Appeals) having found this company to be functionally similar, accepted it as a comparable. This is evident from the order passed by the Tribunal in ITA no.5142/Mum./2017, dated 10th January 2010. Therefore, respectfully following the observations made in the judicial precedents referred to 6 Altico Capital India Pvt. Ltd.

Objecting to rejection of this company, the learned Counsel for the assessee submitted, this company provides services relating to analysis of data on financials, fundamentals, corporate governance, director / executive compensation and capital market. In other words, it offers a range of data management services to the financial sector. Therefore, it is comparable to an investment advisory service provider. In support of such contention, he relied upon the following decisions:–

The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals).

We have considered rival submissions and perused the material on record. From the material placed before us, it appears that the 7 Altico Capital India Pvt. Ltd.

Objecting to selection of this company, the learned Authorised Representative submitted, though, in the transfer pricing study report, the assessee due to lack of proper information/availability of data in the public domain relating to this company had included it as a comparable, however, the Transfer Pricing Officer in the show cause notice issued by him in the course of proceedings has stated that this company not being functionally similar cannot be considered as a comparable. He submitted, in various decisions also this company having been found to be functional dissimilar has been rejected. Thus, he submitted, the company cannot be treated as comparable. The 8 Altico Capital India Pvt. Ltd.

The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned Commissioner (Appeals).

We have considered rival submissions and perused the material on record. No doubt, the assessee had selected this company as a comparable. However, from the show cause notice issued by the Transfer Pricing Officer himself, it becomes very clear that he himself considers the company as functionally dissimilar to the assessee, hence, not comparable, though, in the final analysis he had selected the company as a comparable. It is further relevant to observe, in assessee’s own case in assessment year 2010–11 and 2011–12, the Transfer Pricing Officer has rejected this company as a comparable. In fact, in case of Warburg Pincus India Pvt. Ltd. (supra), the Tribunal, Mumbai Bench, has rejected this company from being treated as a comparable to an investment advisory service provider. The other decisions relied upon by the learned Authorised Representative also clearly hold that this company cannot be treated as a comparable to investment advisory service provider. In view of the aforesaid, we direct the Assessing Officer to exclude this company.

In the course of hearing, it was submitted before us by the learned Counsel for the assessee that with the inclusion of the ICRA Management Consultancy Services Pvt. Ltd., and Information Technologies Pvt. Ltd. and exclusion of Integrated Technologies Ltd., assessee’s margin would be within the ±5% range of the raised of the 10 Altico Capital India Pvt. Ltd.

In the result, appeal is partly allowed as indicated above. Order pronounced in the open Court on 13.03.2020