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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of Hearing – 20.12.2018 Date of Order – 15.03.2019
O R D E R PER SAKTIJIT DEY, J.M.
The aforesaid appeal has been filed by the assessee challenging the assessment order dated 30th December 2015, passed under section 143(3) r/w 144C(13) of the Income Tax Act, 1961 (for short “the Act”) pertaining to the assessment year 2011–12, in pursuance to the directions of the Dispute Resolution Panel–2 (DRP), Mumbai.
2 Tata Asset Management Ltd.
Ground no.3 is general in nature and ground no.2, being consequential do not require specific adjudication.
In ground no.1, the assessee has challenged addition made on account of transfer pricing adjustment amounting to ` 43,02,044.
Brief facts are, the assessee is an Indian Company. As stated by the Transfer Pricing Officer, it is a wholly owned subsidiary of Tata Sons Ltd. and Tata Investment Corporation Ltd. The principal business of the assessee is to act as an Investment Manager to Tata Mutual Fund (TMF). As noted by the Transfer Pricing Officer, the assessee has entered into international transaction with Tata Mauritius, an overseas Associated Enterprise (AE), wherein the assessee holds 100% shares. As noted by the Transfer Pricing Officer, in the previous year relevant to the assessment year under dispute, the assessee provided investment advisory services and investment management services to its AE amounting to ` 1,59,23,669, and ` 16,63,35,682, respectively. However, in the present appeal, the dispute arises only with regard to the adjustment made to arm's length price of investment advisory services provided to the AE. It is evident, in the transfer pricing study report the assessee had benchmarked the arm's length price of investment advisory services segment by adopting Transactional Net Margin Method (TNMM) as the most appropriate method. The assessee
3 Tata Asset Management Ltd. selected five companies as comparable with average net cost plus margin of 12.26% on single year data. Since, the net cost plus margin shown by the assessee @ 20% is more than the average margin of comparables, the transaction was claimed to be at arm's length. The Transfer Pricing Officer, however, did not find the claim of the assessee acceptable. He observed, the assessee has deliberately ignored companies having high profit margin, though, they are in similar line of business. Pointing out various defects in the selection process adopted by the assessee, the Assessing Officer rejected the transfer pricing study report as well as the comparables selected by the assessee, though, he accepted TNMM as the most appropriate method. Having done so, the Assessing Officer proceeded to select three new comparables with arithmetic mean of 55.68%. The list of comparables selected by the Transfer Pricing Officer are as under:–
Sl.no. Company Name OP/OC 1. Motilal Oswal Investment Advisors Pvt. Ltd. 82.23% 2. Ladderup Corporate Advisory Pvt. Ltd. 52.42% 3. Motilal Oswal Private Equity Advisors Pvt. Ltd. 32.38% Arithmetic Mean 55.68%
Since the profit margin shown by the assessee @ 20% is much lower than the arithmetic mean of the comparables selected by the Transfer Pricing Officer, he made an upward adjustment of `
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47,34,638, to the arm's length price. On the basis of such adjustment made by the Transfer Pricing Officer, the Assessing Officer made corresponding addition in the draft assessment order. Against the draft assessment order so passed, the assessee raised objections before the DRP.
The DRP after considering the objections of the assessee agreed with the Transfer Pricing Officer with regard to selection/rejection of all the comparables except Motilal Oswal Investment Advisors Pvt. Ltd., which the DRP directed the Assessing Officer to exclude from the list of comparables.
Shri Faroq Irani, learned Sr. Counsel for the assessee, at the outset, submitted that the dispute in the present appeal is relating only to the issue of selection/rejection of certain comparables. Therefore, he submitted, he will confine his arguments to that issue alone.
Hereinafter, we will deal with each of the comparables disputed before us by the assessee.
Objecting to rejection of this comparable, the learned Sr. Counsel for the assessee submitted, the functional profile of this company is 5 Tata Asset Management Ltd.
identical to the assessee as it provides advisory services. He submitted, the comparability of this company came up for consideration in case of various other assessee’s providing investment advisory services and the Hon'ble Jurisdictional High Court as well as different Benches of the Tribunal have consistently held that this company is comparable to an investment advisory service provider. In support of his contention, learned Authorised Representative relied upon the following decisions:– i) CIT v/s Temasek Holdings Advisors India Pvt. Ltd., dated 17.11.2016; ii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 38 taxmann.com 80 (Mum.); iii) M/s. Carlyle India Advisors Pvt. Ltd. v/s ACIT, IT(TP)A no.2410/Mum./2017, dated 20.11.2018; iv) DCIT v/s General Atlantic Pvt. Ltd., ITA no.1717/Mum./2016, dated 21.02.2018; v) ACIT v/s Blackstone Advisors India Pvt. Ltd., ITA no. 928/Mum./2016; vi) SBI Macquarie v/s DCIT, ITA no.324/Mum./2016, dated 16.11.2018.
Shri M.K. Singh, the learned Departmental Representative, strongly relying upon the observations of the Transfer Pricing Officer and the DRP submitted that this company has been rejected by the departmental authorities on valid reasoning. He submitted, on proper analysis of facts on record, it has been found by the departmental
6 Tata Asset Management Ltd. authorities that the company is not functionally similar to the assessee. He submitted, the function of the assessee is that of a fund manager and not investment advisor. Therefore, this company cannot be selected as comparable. Further, he submitted, the decisions relied upon by the learned Sr. Counsel for the assessee having not been rendered in assessee’s own case may not be applicable.
We have considered rival submissions and perused material on record. At the very outset, we propose to deal with the contentions of the learned Departmental Representative that the assessee is providing the services as fund manager. On a perusal of the impugned order of the Transfer Pricing Officer it is noticed that the assessee is providing services to its AE in two segments i.e., non–binding Investment Advisory Services and Investment Management Services. In fact, the Transfer Pricing Officer himself was accepted the price charged to the AE for investment management services to be at arm's length. He has made adjustment only with regard to the price charged for investment advisory services. Therefore, the contention of the learned Departmental Representative that the assessee is providing investment management services alone is not borne out from record. Be that as it may, this company has been rejected by the Transfer Pricing Officer on the reasoning that it does not provide investment advisory services. The DRP has also sustained the rejection of this 7 Tata Asset Management Ltd.
comparable accepting the view expressed by the Transfer Pricing Officer. However, as could be seen, in case of various companies providing non–binding investment advisory services, this company has been accepted as a comparable not only by the Hon'ble Jurisdictional High Court but by different Benches of the Tribunal including Mumbai Benches. In this context, we may refer to the decision of the Hon'ble Jurisdictional High Court in CIT v/s Temasek Holding Advisors India Pvt. Ltd., dated 17th November 2016 and CIT v/s Carlyle India Advisors Pvt. Ltd., [2013] 357 ITR 584 (Bom.). Besides the above decisions of the Hon'ble Jurisdictional High Court, the Tribunal, Mumbai Bench, in a number of decisions pertaining to the very same assessment year has held that this company is a good comparable to an investment advisory service provider. In case of DCIT v/s General Atlantic Pvt. Ltd., ITA no.1717/Mum./2016 & Anr., dated 21st February 2018, the Tribunal has held as under:–
“14. We have heard rival submissions and perused material available on record. Insofar as ICRA Management Consulting Services Ltd. is concerned, the Transfer Pricing Officer has rejected it as a comparable basically on the reasoning that unlike the assessee this company is providing management consulting service. One more reason by the Transfer Pricing Officer to exclude this company is difference in skill set of employees. However, we find nothing new in the argument of the Department as upon consideration of the very same argument, this company has been found to be a comparable to a non– binding investment advisory service provider. It is relevant to observe, in case of AGM India Advisors Pvt. Ltd. v/s DCIT, [2017] 79 taxmann.com 86 which is for the very same assessment year, the Tribunal after considering argument
8 Tata Asset Management Ltd. advanced by the Department regarding difference in skill set held that ICRA Management Consultancy Services is a valid comparable to a company providing non–binding investment advisory services. It is also relevant to note, in assessee’s own case for assessment year 2009–10, this company has been accepted as a comparable by the DRP. Even otherwise also, the observations of the Transfer Pricing Officer on difference in skill set between the assessee and the comparable company appears to be not on the basis of proper analysis of fact and more on assumption and presumption. As regards other functional differences of this comparable pointed by the learned Departmental Representative, it needs to be mentioned, neither Transfer Pricing Officer nor DRP have deliberated on those aspects. Since these issues raised by the learned Departmental Representative are completely new issues and never raised at any stage earlier, we do not consider it appropriate to deal with them as it requires verification of fresh facts. Therefore, respectfully following the decisions of the Tribunal cited before us by the learned Authorised Representative, we direct the Assessing Officer to accept this company as a comparable.”
The same view has been expressed by the Tribunal in Blackstone Advisors India Pvt. Ltd., ITA no.928/Mum./2016, dated 30th November 2018, and Wells Fargo Real Estate Advisors Pvt. Ltd. v/s DCIT, dated 15th April 2016. Respectfully following the consistent view of the Hon'ble Jurisdictional High Court and the Tribunal, as referred to above, we hold that this company should be included as a comparable to the assessee.
i) ICRA ONLINE LTD. ii) IDC (INDIA) LTD. iii) INFORMED TECHNOLOGIES INDIA LTD.
Objecting to rejection of these companies, the learned Sr. Counsel for the assessee advanced arguments similar to the 9 Tata Asset Management Ltd.
arguments advanced while objecting to the rejection of ICRA Management Consulting Services Ltd. In support of his contention, he relied upon a number of decisions of the Hon'ble Jurisdictional High Court as well as the Tribunal, as submitted in the legal paper book.
The learned Departmental Representative relying upon the observations of the DRP and the Transfer Pricing Officer reiterated the submissions as was made in case of ICRA Management Consulting Services Ltd. hereinabove.
We have considered rival submissions and perused material on record. As could be seen, the comparability of ICRA Online Ltd. was considered by the Tribunal in case of Temasek Holding Advisors India Pvt. Ltd. v/s DCIT, [2013] 38 taxmann.com 80. The Tribunal accepted this company as comparable. While deciding Revenue’s appeal on the issue, the Hon'ble Jurisdictional High Court in of 2014, dated 17th November 2016, upheld the decision of the Tribunal. That being the case, we direct the Assessing Officer to include this company as a comparable.
Insofar as IDC (India) Ltd. is concerned, consistent view of the Tribunal is in favour of including this company as a comparable in case of an investment advisory service provider. In case of General Atlantic Pvt. Ltd., ITA no.1717/Mum./2016 & Anr., dated 21st February 2018,
10 Tata Asset Management Ltd. the Tribunal has accepted this company as a comparable holding as under:–
“15. Insofar as IDC (India) Ltd. is concerned, it is observed, in assessee’s own case for assessment year 2006–07, the Tribunal accepted this company as a comparable which was upheld by the Hon'ble Jurisdictional High Court while dismissing the appeal filed by the assessee. While upholding the decision of the Tribunal, the Hon'ble Jurisdictional High Court observed that since the non–binding advisory service provided by the assessee is similar to the service provided by Carlyle India Ltd., wherein, IDC (India) Ltd. is accepted as a comparable there is no reason to defer with the decision of the Tribunal. It is necessary to observe, in case of other assessees engaged in providing non– binding investment advisory services akin to the assessee for the very same assessment year, the Tribunal has held that IDC (India) Ltd. is a good comparable. In this context, we refer to the decisions of the Tribunal in case of AGM India Advisory Pvt. Ltd. (supra) and Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, 87 taxmann.com 168 (Mum.). Moreover, in assessee’s own case in the earlier assessment years, this company having been found to be functionally similar was accepted as a comparable. In view of the aforesaid, we direct the Assessing Officer to include this company as a comparable.”
The same view has been reiterated by the Tribunal in Blackstone Advisors India Pvt. Ltd., ITA no.928/Mum./2016 & Anr., dated 30th November 2018. It is relevant to observe, the aforesaid decisions of the Tribunal also pertain to assessment year 2011–12. Moreover, in a number of decisions cited before us by learned Authorised Representative, the Hon'ble Jurisdictional High Court has also accepted this company as a comparable to investment advisory service provider. Though, the aforesaid decisions of the Hon'ble Jurisdictional High Court relate to different assessment years, however, facts
11 Tata Asset Management Ltd. involved are more or less identical. Therefore, following the consistent view of the Tribunal and the Hon'ble Jurisdictional High Court, we hold that IDC (India) Ltd. should be included as a comparable.
Insofar as Informed Technologies India Ltd. is concerned, upon analyzing the facts and materials on record, we are of the view that the functional profile of this company is similar to the assessee. Moreover, the Hon'ble Jurisdictional High Court in CIT v/s Temasek Holdings Advisors India Pvt. Ltd, of 2014, dated 17th November 2016, has upheld the decision of the Tribunal accepting this company as a comparable to an investment advisory service provider. There being no material difference in facts involved on the basis of which the Tribunal in Temasek Holdings Advisors India Pvt. Ltd. (supra), has accepted this company as a comparable, we hold that Informed Technologies India Ltd., should be treated as comparable.
Besides the above, the assessee has objected to selection of two comparables viz., Ladderup Corporate Advisory Pvt. Ltd. and Motilal Oswal Private Equity Advisors Pvt. Ltd.
The learned Authorised Representative submitted, Ladderup Corporate Advisory Pvt. Ltd. is carrying the activity of merchant / investment banking, hence, cannot be treated as comparable to the assessee. In support, he relied upon the following decisions:–
12 Tata Asset Management Ltd. i) M/s. Carlyle India Advisors Pvt. Ltd. v/s ACIT, IT(TP) no. 2410 and 2506/Mum./2017; ii) DCIT v/s General Atlantic Pvt. Ltd., ITA no.1717/Mum./2016, dated 21.02.2018; iii) ACIT v/s Blackstone Advisors India Pvt. Ltd., ITA no. 928/Mum./2016; and iv) SBI Macquarie v/s DCIT, ITA no.324/Mum./2016, dated 16.11.2018.
As regards Motilal Oswal Private Equity Advisors Pvt. Ltd., the learned Authorised Representative submitted, the company is involved in various activities including merchant banking/investment banking. Therefore, it cannot be considered as a comparable. In support of such contention, he relied upon the following decisions:–
i) ACIT v/s Blackstone Advisors India Pvt. Ltd., Mum./2016; and Wells Fargo Real Estate Advisors Pvt. Ltd. v/s DCIT, ita ii) no.1520/Mum./2016, dated 15.04.2016.
The learned Departmental Representative strongly relied upon the reasoning of the Transfer Pricing Officer and learned DRP.
We have considered rival submissions and perused material on record. The basic issue which arises for consideration is, whether Motilal Oswal Private Equity Advisors Pvt. Ltd., is functionally similar to the assessee. As could be seen, the Tribunal while considering the 13 Tata Asset Management Ltd.
aforesaid issue in case of Blackstone Advisors India Pt. Ltd., ITA no. 928/Mum./2016, dated 30th November 2018, has upheld the decision of the learned Commissioner (Appeals) in rejecting this company as a comparable to an investment advisory service provider. The observations of the Tribunal in this regard is reproduced below for better appreciation:–
“27. We have considered rival submissions and perused materials on record in the light of the decisions relied upon. As could be seen from the facts on record, though, the aforesaid company has four business verticals, however, the segmental details are not available in the annual report. Further, in case of Temasek Holding Advisors India Pvt. Ltd. (supra), the Tribunal, while considering the comparability of the aforesaid company to an investment advisory services provider held that this company cannot be a comparable due to differences in functional profile. The same view was reiterated by the Co–ordinate Bench while deciding this particular issue in case of Wells Fargo Real Estate Advisors Pvt. Ltd. (supra). Since, the aforesaid decisions of the Co–ordinate Bench are for the very same assessment year and no distinguishing facts have been brought to our notice by the learned Departmental Representative, in our considered opinion, the ratio laid down in the above referred decisions clearly apply to the facts of the present case. Moreover, the Tribunal in assessee’s own case for assessment year 2008–09 has passed an order in ITA no.1581/Mum./ 2014, dated 26th September 2018, holding that the company cannot be a comparable to the assessee. There being no dissimilarity in facts brought to our notice by the learned Departmental Representative, respectfully following the aforesaid decisions of the Co–ordinate Bench, we hold that this company cannot be a comparable to the assessee.”
In view of the aforesaid, we direct the Assessing Officer to exclude this company from the list of comparables.
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Insofar as Ladderup Corporate Advisory Pvt. Ltd. is concerned, it is observed from the facts on record that this company is engaged in the activity of merchant banking and investment banking. Therefore, the functionality of this company is different from the assessee. Considering the aforesaid aspect, the Tribunal in General Atlantic Pvt. Ltd. (supra) has excluded this company as a comparable. The relevant observations of the Tribunal is reproduced below:–
“16. Insofar as Ladderup Corporate Advisory Pvt. Ltd. is concerned, it is seen that the comparability of this company to an investment advisory service provider came up for consideration before the Tribunal, Mumbai Bench, in Temasek Holding Advisors India Pvt. Ltd. (supra). The Bench after considering the submissions of the parties having found that the company is registered as a Category–1 Merchant Banking Company with SEBI and is engaged in Merchant Banking service w.e.f. July 2010 held that the company cannot be treated as comparable to non–binding investments advisory provider. Respectfully following the aforesaid decision of the Co–ordinate Bench, we exclude this company from the list of comparables.”
The same view has been reiterated by the Tribunal in Blackstone Advisors India Pvt. Ltd., ITA no.928/Mum./2016, dated 30th November 2018 & Anr. The aforesaid decisions of the Tribunal pertain to the very same assessment year. Moreover, in a number of other decisions cited before us by the learned Sr. Counsel for the assessee, this company has been rejected as a comparable to an investment advisory service provider. Though, these decisions of the Tribunal pertain to different assessment years, however, the basic facts on which the company has 15 Tata Asset Management Ltd.
been rejected as a comparable remain same. In view of the aforesaid, we direct the Assessing Officer to exclude Ladderup Corporate Advisory Pvt. Ltd. from the list of comparable. 27. The Assessing Officer is directed to compute the adjustment, if any, after implementing our directions given herein above. This ground is partly allowed.
In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 15.03.2019