DCIT, NEW DELHI vs. M/S. CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD., NEW DELHI

The above two appeals has been restored before us by the order of the Hon’ble High Court of Delhi in view of its order dated 12.03.2018 in ITA No. 286/2018. The Pr. CIT2, vide an appeal against the order dated 19.09.2017 passed by the coordinate bench in Assessment Year 2009-10 dated 12.03.2018 wherein, the question before the Hon’ble High Court was Did the Tribunal (ITAT) fall into error in excluding the two comparable i.e. Keynote Corporate Service Ltd and Motilal Oswal Investment Advisors Pvt. Ltd. ?

The Hon’ble High Court vide the above order has sent back the issue of the exclusion of the above two comparables allowing the appeal of the revenue two to reconsider the functional similarity and dissimilarity afresh. Therefore, the matter is remanded back to the coordinate bench. 3. decided by the coordinate bench for AY 2009-10 on 19.09.2017 was also contested by the Pr. CIT-2 before the High Court. The Hon’ble High Court in ITA No. 354/2018 passed an order on 23.03.2018 wherein, the identical ground was raised before the Hon’ble High Court. The Hon’ble High Court reproduced the direction given by it in ITA No. 286/2018 dated 12.03.2018 and remanded the matter back to the file of the coordinate bench. 4. Therefore, now before us the issue is with respect to exclusion of (1) Keynote Corporate Service Ltd and (2) Motilal Oswal Investment Advisors Pvt. Ltd. Both the comparables were excluded by the ITAT and Hon’ble High Court send it back and remand both the comparables for examination by ITAT afresh. 5. The ld AR submitted that Motilal Oswal Investment Advisors Pvt. Ltd did not passed 25% filter of related party transaction as, Motilal Oswal has 36.74% of its total expenses with related parties, hence, it deserves to be excluded. He further referred to the decision of the Hon’ble High Court wherein, the Hon’ble High Court sent it back to the coordinate bench stating that RPT filter has only been considered by the coordinate bench with respect to total expenses only. He therefore, submitted that the above formula of applying RPT sales to total sales as well as RPT expenses two total expense for all other comparables. 6. With respect to Keynote Corporate Service ltd he submitted that there is a restructuring during the year 31.03.2007 in the comparable. It was further stated that this company is a leading merchant banker and is engaged in managing the public issues. Therefore, it is functionally different. He further referred to several judicial precedents wherein, in case of some other assessee’s, the coordinate benches have held that Keynote Service Ltd is not a good comparable.

The ld DR vehemently supported the order of the learned transfer pricing officer. He submitted that for the related party transaction filter the learned TPO has correctly included Motilal Oswal as it passed all the filters. He therefore submitted that merely comparing the expenses of that comparable with the related party expenses, does not make it a non comparable. He referred to page number 38 – 39 of the order of the learned transfer pricing officer wherein he stated that the related party transaction has been measured with respect to sales transaction primarily because the sales transactions are clearly identifiable. It is a uniform practice and in case of all the comparables which has been taken by the assessee or by the TPO, The RPT has been calculated in relation to the sales turnover. With Keynote services private limited, he submitted that if the comparable has been excluded in any other assessee’s case, it does not have any impact on the functional comparability in the case of the assessee. He submitted that there is no restructuring in case of the above comparable for this assessment year. He further submitted that in the comparable selected by the assessee also there are certain merchant bankers. He referred to page number 28 of the order of the learned transfer pricing officer where the objection of the assessee with respect to the above comparable has been considered.

We have carefully considered the rival contentions and before us only two comparables are for adjudication for further exclusion. The coordinate bench in its earlier order has directed that both these comparable should be excluded.

We first come to the Keynote corporate services Ltd, this comparable has been selected by the learned transfer pricing officer. The assessee has raised several objections in para number 8.1 at page number 28 of the transfer pricing officer’s order. The assessee has raised the functional dissimilarity issue stating that the comparable company is engaged in the merchant banking business and has also acted as a lead manager in various initial public offerings and right issues. This functional dissimilarity has been dealt with in the last paragraph at page number 37 of the order of the learned transfer pricing officer wherein it has been stated that this entity has been used as a comparable by the assessee in previous year and in this year too it qualifies as a comparable based on the assessee’s own search process. He held that comparable company is also functioning in the domain of financial consultancy and therefore the same will be used for the purpose of benchmarking the transaction of the assessee. The learned CIT – A has given one of the reasons for the exclusion of the above comparable that the dispute resolution panel in the assessee’s own case for assessment year 2006 – 07 has held that this comparable is not a robust comparable. The learned CIT – A has also held that comparable company is engaged in rendering a number of diversified services like managing and advising on public offerings such as IPOs, the GDR etc. we are of the view that a merchant banker has a different role and responsibility as provided in the SEBI rules and regulation whereas the functions performed by the assessee are not comparable with a merchant banker who is engaged in managing the initial public offerings of financial instruments such as equity and GDRs. However we are not of the view that if a comparable has been excluded by the learned dispute resolution panel or any adjudicating authority in one financial year, same is always excludible, as each year is different and only the functional comparability of the assessee vis-à-vis comparable is required to be seen each year. Further we are also not swayed by the number of judicial precedents where particular comparable has been excluded by comparing the functionality of that assessee because each assessee has a different functions and the comparable selected based on filters i.e Accept/ Reject Matrix should be considered for the comparability analysis. However in the present case we find that Keynote corporate consultancy private limited is functionally different from the assessee for this year. Therefore, we direct the learned transfer pricing officer/assessing officer to exclude the above comparable and accordingly we uphold the order of the learned CIT – A directing its exclusion.

With respect to the Motilal Oswal investment advisors private limited, the contention of the assessee has been reproduced at page number 38 of the order of the learned transfer pricing officer wherein it has been stated that it has entered into substantial related party transaction and the details of such expenses were provided. It was noted that out of total expenses of the comparable of Rs 24,73,83,621 out of which the expenditure of ₹ 90,886,291 are paid to the related parties and therefore 36.74% of the total expenditure have been incurred/paid to the related parties. Therefore the contention of the assessee is that that this comparable does not cross the 25% threshold of RPT filters. The learned transfer pricing officer has rejected the above contention stating that related party transaction has been measured with respect to sales transaction primarily because the sale transactions are clearly identifiable. He further noted that according to the uniform practice and in case of all comparable companies selected either by the assessee or by the TPO the RPT has been calculated in relation to the sales turnover. Therefore he rejected the contentions of the assessee. This was not challenged before the learned CIT – A. The learned and CIT – A in para number 7.5 has stated that after excluding Religare and Keynote from the final set of comparables , the average margin of the comparable comes to 21.82% whereas the margin of the appellant is 24.79%. Therefore, there is no requirement of any adjustment. In view of this even otherwise the exclusion or inclusion of Motilal Oswald Ltd was merely an academic exercise. Even otherwise we are not of the view that related party filter should be applied only with respect to the total expenditure. Further the 25% since filter with respect to sales to related party, , this comparable has crossed that filter. Even before us there was no functional dissimilarity shown in the comparable vis-a-vis the functions of the assessee. In view of this we are of the view that Motilal Oswald investment and advisory services Ltd has crossed the RPT filter and is functionally similar therefore same cannot be excluded.