GENERAL ATLANTIC P. LTD,MUMBAI vs. DCIT CIR 5(1)(1), MUMBAI

The learned DCIT/DRP/TPO erred in holding Ladderup Corporate Advisory Pvt. Ltd, a company engaged in investment banking, merchant banking, corporate finance and corporate advisory services as comparable to the Appellant.

The assessee company had entered into an “agreement” dated 31.10.2002, (updated on 31.03.2010) with its „Associate Enterprise‟ (for short „AE‟) viz. General Atlantic Service Corporation, USA. As per the aforesaid agreement the assessee was to provide services to its AE in relation to certain matters viz. (i) the economic and the political conditions in India; (ii) the information technology sectors of the economy of India; (iii) particular information technology enterprises in India; and (iv) possible investment opportunities involving information technology enterprises in India. Observing, that the assessee during the year had entered into international transactions with its AE exceeding an amount of Rs.15 crores, the A.O made a reference under Sec.92CA(1) of the I.T Act to the Transfer Pricing Officer (for short „TPO‟) after obtaining the approval of the Commissioner of Income-tax- 3, Mumbai, vide order dated 14.10.2014. The TPO in the course of the proceedings before him observed that the assessee was compensated by its AE on cost +18% basis for the non binding investment advisory services rendered to it. The assessee had chosen the Transaction Net Margin Method (for short „TNMM‟) as the most appropriate method for determining the arm‟s length price (for short „ALP‟), selecting itself as the tested party. The assessee had calculated its margin on total cost on the investment advisory services rendered to its AE at 17.65% and had claimed the transaction as being at an arm‟s length. As directed, the assessee in the course of proceedings before the TPO filed the margins of the comparables on single year basis, as under:

The A.O on receipt of the order passed by the TPO under Sec. 92CA(3), dated 28.01.2016 passed a draft assessment order under Sec. 144C(1) r.w.s 143(3), dated 25.02.2016. In the aforesaid order the A.O proposed a TP adjustment of Rs. 2,87,41,335/- under Sec. 92CA(4) of the I.T Act. The assessee filed its objections before the Dispute Resolution Panel-1 (WZ), Mumbai, which vide its directions dated 08.11.2016 rejected the same. Resultantly, the A.O vide his order passed under Sec.143(3) r.w.s 144C(13), dated 06.12.2016 made an upward adjustment under Sec.92CA(4) of Rs.2,87,41,335/- and assessed the income of the assessee company at Rs.9,87,38,270/-.

The assessee being aggrieved with the order passed by the A.O under Sec.143(3) r.w.s. 144C(13) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that as per instructions he was restricting his contentions solely to exclusion of Ladderup Corporate Advisory Pvt. Ltd. from the final list of comparables. It was submitted by him that in case the said comparable which was included by the TPO in the final list was excluded, then the ALP of the assessee would fall within the safe harbour range of +/- 5% and resultantly no TP adjustment would be called for in its hands. Adverting to the merits of his contention, it was averred by the ld. A.R that the assessee was engaged in the business P a g e | General Atlantic Private Ltd. Vs. Deputy Commissioner of Income Tax, Circle-5(1)(1) of rendering non-binding investment advisory services to its AE viz. General Atlantic Service Corporation, USA, vide the terms of an “agreement” dated 31.10.2002 (updated on 31.03.2010). Insofar the nature of such investment advisory services were concerned, the ld. A.R took us through the relevant extracts of the order passed by the TPO under Sec. 92CA(3) of the I.T Act. The ld. A.R further took us through the observations of the Hon‟ble High Court of Bombay in the assesses own case for A.Y. 2006-07 i.e CIT-3, Mumbai Vs. General Atlantic (P) Ltd. (2016) 68 taxman.com 88 (Bom). It was submitted by the ld. A.R that the Hon‟ble High court had in its aforesaid order upheld the view taken by the Tribunal that the assessee was functionally similar to M/s Carlyle India which was providing non- binding investment advisory services to its AE. In sum and substance, it was the contention of the ld. A.R that the assessee was providing non-binding investment advisory services to its AE i.e General Atlantic Service Corporation, USA, which fact had been approved by the Hon‟ble High Court in its aforementioned case for the preceding year. It was averred by the ld. A.R that there was no change in the functional profile of the assessee during the year under consideration and it continued to render non-binding investment advisory services to its aforementioned AE. In fact, it was submitted by the ld. A.R that the Tribunal while disposing off the cross-appeals in the assesses own case for A.Y. 2011-12, had observed that undisputedly the assessee was engaged in the business of providing non-binding investment advisory services to its AE viz. General Atlantic Service Corporation, USA. In the backdrop of the aforesaid fact that the assessee was a non-binding investment advisory service provider, it was submitted by the ld. A.R that the AO/TPO had erred in including Ladderup Corporate Advisory Pvt. Ltd. as a comparable for benchmarking the international transactions of the assessee. It was submitted by the ld.

Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and considered the material and the judicial pronouncements relied upon by them. Admittedly, the assessee company as observed by the TPO was P a g e | General Atlantic Private Ltd. Vs. Deputy Commissioner of Income Tax, Circle-5(1)(1) engaged in the business of rendering investments advisory services to its AE i.e General Atlantic Service Corporation, USA. As is discernible from the orders of the lower authorities, the assessee had entered into an “agreement” dated 31.10.2002 (updated on 31.03.2010) with its AE for provision of non-binding investment advisory services. In the backdrop of the concession advanced by the ld. A.R that he was seeking only the exclusion of Ladderup Corporate Advisory Pvt. Ltd. from the final list of comparables, we confine our adjudication of the said aspect only. We find that the TPO holding a conviction that the aforementioned company viz. Ladderup Corporate Advisory Pvt. Ltd. alike the assessee was providing similar kind of services and also possessed the similar kind of talent pool had included it in the final list of comparables for benchmarking the international transactions of the assessee during the year under consideration. As observed by us hereinabove, on the basis of the aforesaid deliberations the TPO had worked out an upward adjustment of Rs. 2,87,41,335/- to the ALP of the international transactions of the assessee with its AE.

We have deliberated at length on the issue under consideration and find substantial force in the contention advanced by the ld. A.R that the aforementioned company viz. Ladderup Corporate Advisory Pvt. Ltd. being functionally incomparable could not have been included in the final list of comparables for benchmarking the international transactions of the assessee for the year under consideration. In fact, the Tribunal in the assesses own case for the immediately preceding year i.e AY. 2011-12 had after giving thoughtful consideration concluded that as Ladderup Corporate Advisory Pvt. Ltd. was registered as a Category-1 merchant banking company with SEBI and was engaged in merchant banking services w.e.f July, 2010, therefore, it could not be treated as a comparable to the assessee which was providing non-binding investment advisory services to its P a g e | General Atlantic Private Ltd. Vs. Deputy Commissioner of Income Tax, Circle-5(1)(1) AE. As the functional profile of the assessee and that of the aforesaid entity viz. M/s Ladderup Corporate Advisory Pvt. Ltd. had not witnessed any change during the year under consideration, therefore, we find no reason to take a different view and thus respectfully following the view taken by the Tribunal in the assesses own case for A.Y. 2011-12, direct the A.O to exclude the aforementioned company i.e Ladderup Corporate Advisory Pvt. Ltd. from the final list of comparables. Before parting, we may herein observe that the Tribunal in the case of Temasek Holding Advisors Pvt. Ltd. Vs. ITO, Circle 14(3)(1), Mumbai (ITA No. 1429/Mum/2017; dated 03.01.2018 for A.Y. 2012-13) had after necessary deliberations rejected the aforementioned company i.e Ladderup Corporate Advisory Services Pvt. Ltd. as a comparable in the case of the assessee before them which was providing non-binding investment advisory services. Further, the Hon‟ble High Court of Delhi in the case of Avenue Asia Advisors Pvt. ltd .Vs. DCIT (2017) 85 taxman.com 311 (Del) had also rejected Ladderup Corporate Advisory Pvt. Ltd. as a comparable in the case of an assessee which was providing non-binding investment services to its AE. In fact, this Tribunal had recently while disposing off the appeal in the case of Carlyle India Advisors Pvt. Ltd. Vs. ITO, 14(1)(2), Mumbai (ITA No. 2366/Mum/2017) for A.Y. 2012-13, had directed the A.O/TPO to exclude the aforementioned company i.e Ladderup Corporate Advisory Pvt. Ltd. from the final list of the comparables for computing the ALP of the international transactions of the assessee which was providing non-binding investment services to its AE. In sum and substance, as the aforementioned company viz. Ladderup Corporate Advisory Pvt. Ltd. is functionally different as in comparison to the assessee before us, therefore, as observed by us hereinabove, the A.O/TPO are directed to exclude the aforementioned company viz. Ladderup Corporate Advisory Pvt. Ltd. from the final list