D.E. SHAW INDIA ADVISORY SERVICES PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER All these appeals have been preferred by the assessee against

the orders giving effect to the directions given by the Hon’ble

Dispute Resolution Panel-IV (DRP), New Delhi. As the grounds are

almost identical in all three appeals, these are being disposed of

through this common order.

Advisory Services Private Limited (D. E. Shaw India), is a

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 company incorporated in India as a private limited company, with

its registered office in New Delhi. It is a wholly owned subsidiary

of D. E. Shaw & Co. (Mauritius). D. E. Shaw India renders

services in the nature of investment advisory services to its AE (D.

E. Shaw & Co. Mauritius). The year wise facts are as under -

2.1 ITA 1681/Del/2015 – AY 10-11:

For this year, the return of income was filed at a total income

of Rs.149,821,815/-. The Transfer Pricing Officer (TPO) made an

upward adjustment of Rs. 241,095,763/- on account of advisory

and consultancy services and Rs. 28,516,238/- on account of

receivables, thus making a total adjustment of Rs.

2,69,612,001/-. The assessee approached the Hon’ble DRP who

gave partial relief and directed the AO/TPO to allow working

capital adjustment, thereby reducing the Transfer Pricing (TP)

adjustment to Rs. 175,168,000/-. However, the Hon’ble DRP did

not grant any relief in respect of the receivables.

2.1.1 In this year, the assessee had selected seven comparables

for benchmarking in respect of transactions involving investment

advisory services in its transfer pricing documentation and the

TPO rejected four comparables out of the same and added six

new comparables in the final set of comparables. The final list of

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

comparables after the directions of the Hon’ble DRP are nine

which are as under:-

S.No. Co Comparable companies Adjusted OP/TC Original TP Study / Added by TPO 1. IM + IM + Capital (Brescon Corporate Advisors 83.74% Added by TPO Limited) 2. Cyb Cyber Media Research Limited 11.53% Original TP Study Futu Future Capital Investments 3. 14.17% Original TP Study 4. ICR ICRA Management Consulting Services (-) 3.98% Original TP Study Limited 5. Kar Karvy Investor Services Limited 20.94% Added by TPO 6 Key Keynote Corporate Services Limited 82.69% , Added by TPO Added by TPO 7 Kshi Kshitij Investment Advisory Services 36.79% Limited Added by TPO 8. 95.87% MotilalOswal Investment Advisors Private Limited Added by TPO Ladderup Corporate Advisory Private 9 9.61% Limited Ave Average 39.04%

2.1.2 Out of these comparables, the assessee is accepting

Cyber Media Research Limited, Future Capital Investments and

ICRA Management Consulting Services Ltd. but is contesting the

remaining five comparables. The following grounds have been

raised in this year’s appeal:-

“1. That on the facts and circumstances of the case and in law, the order of assessment framed by the learned Deputy Commissioner of Income-tax, Circle - 7(1), New Delhi (hereinafter referred to as 'the learned AO') pursuant to the directions of the Hon'ble Dispute Resolution Panel - IV (hereinafter referred to as 'the Hon'ble DRP') under section 143(3) read with section 144C of the Act, is a vitiated order having been passed in violation of principles of natural

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

justice and is otherwise arbitrary and is thus bad in law and void ab-initio.

3.1 That the learned TPO erred, on facts and in law, in rejecting the economic analysis in the documentation filed by the Appellant in terms of section92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") and proceeded to make a transfer pricing addition based on re- determination of the arm's length price of the international transaction.

3.2 That the learned TPO erred, on facts and in law, in changing the filters applied by the Appellant for selectionof the appropriate comparable companies for determination of the arm's length price of international transaction using the Transactional Net Margin Method ("TNMM") as the most appropriate method in the documentation maintained under section 92D of the Act read with Rule 10D of the Rules.

3.3 That the learned TPO erred, on facts and in law, in using single year financial data (i.e. data for FY 2009-10 only) as against multiple year financial data used by the Appellant for determination of the arm’s length price of the international transaction pertaining to provision of financial and investment advisory services.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

3.4 That the learned TPO erred, on facts and in law, in rejecting certain companies selected as comparable on the ground that it had different financial year end.

3.5 That the learned TPO erred, on facts and in law, in applying lower turnoverfilter of INR 5 crore to reject ICRA Online Limited, Informed Technologies India Limited, Integrated Services Private Limited and Kinetic Trust Limited which are otherwise comparable for the international transaction pertaining to provision of financial and investment advisory services. Without prejudice, the learned TPO erred on facts and in law in not applying an upper turnover filter. 3.6 That the learned TPO erred in selecting Brescon Advisors Holding Limited, Karvy Investor Services Limited, Keynote Corporate Services Limited, Motilal Oswal InvestmentAdvisors Private Limited and Kshitij Investment Advisory Company Limited as comparables without appreciating that these comparables are engaged in merchant banking services, security and stock broking services, loan syndication/ debt syndication and project consultancy services, investment banking services, institutional equities, insurance brokerage, asset management and wealth management, merger and acquisition advisory, ESOP advisory, equity/ debt placements and restructuring, syndication of finance, portfolio management and mutual fund distribution and do not satisfy the functional, assets and risks ("FAR") analysis test vis-a-vis the Appellant in relation to the international transaction pertaining to provision of financial and investment advisory services. 3.7 That the learned TPO erred in selecting certain companies as comparables without appreciating that these companies have displayed exceptional profit during the relevant financial year (i.e. FY 2009-10) under consideration 5

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 which was on account of exceptional circumstances and did not portray the correct operational profitability in the industry. 3.8 The learned AO/ learned TPO have erred, in law and on facts and circumstances of the case, by failing to include foreign exchange gains/ losses and bank charges as an operating income/ expenditure while computing the operating margins of the Appellant and the comparable companies. 3.9 That the learned TPO erred, on facts and in law, by not making appropriate adjustment for risk differences between the Appellant and the selected comparable companies in the arm's length price so determined for the international transaction pertaining to provision of financial and investment advisory services, as the Appellant is remunerated on cost plus basis for impugned transactions and bears minimal risk. 3.10 That the learned TPO erred in not allowing the benefit of downward adjustment of 5%, as provided in the Proviso to section 92C of the Act, from the arm's length price determined for the impugned transaction.

4.1.The learned AO/ learned TPO/ Hon'ble DRP have erred, in law and on facts and circumstances of the case, in charging arbitrary interest rate while determining the notional interest to be charged from the alleged delay in collection of receivables. 6

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

The above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.”

2.2 ITA No.1018/Del/2016 – AY 2011-12: In this appeal for assessment year 2011-12, the return of

income was filed at a total income of Rs. 96,703,420/-. The TPO

made an upward adjustment of Rs. 166,613,797/- on account of

advisory and consultancy services, Rs. 13,031,164/- on account

of receivables and Rs. 49,66,653/- on account of buy back of

shares. On the assessee approaching the Hon’ble DRP, the

Hon’ble DRP gave partial relief to the assessee by directing the

Assessing Officer to allow working capital adjustment thereby

reducing the TP adjustment to Rs. 89,112,587/-. The Hon’ble

DRP also directed the adjustment in respect of buy back of

shares to be deleted. However, the Hon’ble DRP did not grant 7

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

any relief in respect of receivables. In this assessment year, the

assessee had selected eight comparables to benchmark the

transaction involving investment advisory services in its TP

documentation. TPO rejected six of the comparables and only

retained two and thereafter, added ten new comparables. The

final list of comparables after the Hon’ble DRP directions are 12

as under:-

S. Comparable companies Adjusted OP/ TC Original TP Study No. I Added by TPO 1 A. K. Capital Services Limited -75.08% Added by TPO

Aditya Birla Capital Advisors Private Ltd. 2 41.65% Added by TPO

Limited 3 Ajcon Global Services Limited 10.56 % Added by TPO 4 Axis Private Equity Limited 30.36% Added by TPO

Cyber Media Research Limited (IDC 5 8.81% Original TP Study (India) Limited)

ICRA Management Consulting Services 6 9.21% Original TP Study Limited 1M + Capital (Brescon Corporate Advisors 7 83.81% Added by TPO Limited) 8 Keynote Corporate Services Limited 123.99% Added by TPO

Ladderup Corporate Advisory Private 9 49.44% Added Limited

Motilal Oswal Investment Advisors Private 10 78.51% Added by TPO Limited 11 Portfolio Financial Services Limited 32.14% Added by TPO 12 SREI Venture Capital Limited 6.66% Added by TPO Average 33.34%

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 2.2.1 The assessee is accepting only two comparables viz. Cyber

Media Research Ltd and ICRA Management Consulting Services

Ltd and is contesting the remaining ten comparables. The

grounds raised by the assessee are as under:-

“1. That on the facts and circumstances of the case and in law, the order of assessment framed by the learned Deputy Commissioner of Income-tax, Circle - 7(1), New Delhi (hereinafter referred to as 'the learned AO') pursuant to the directions of the Hon'ble Dispute Resolution Panel - IV (hereinafter referred to as 'the Hon'ble DRP') under section 143(3) read with section 144C(5) of the Act, is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void ab-initio.

3.1 That the learned TPO erred, on facts and in law, in rejecting the economic analysis in the documentation filed by the Appellant in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") and proceeded to make a transfer pricing addition based on re-determination of the arm's length price of the international transaction.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

3.2 That the learned TPO erred, in law and on facts in using single year financial data (i.e. data for FY 2010-11 only) as against multiple year financial data used by the appellant for determination of the arm's length price of the international transaction pertaining to provision of investment advisory services.

3.3 That the ld. TPO erred, on facts and in law, in applying lower turnover filter of INR 5 crore to reject Informed Technologies Limited and Integrated Capital Services Limited which are otherwise comparable for the investment advisory services provided by the appellant to its AEs. Without prejudice, the ld. TPO erred on facts and in law, in not applying an upper turnover filter to reject companies having significantly higher turnover vis-a-vis the appellant.

3.4 That the learned TPO erred, on the facts and in law, in rejecting ICRA Online Limited as comparable for provision of investment advisory services to AEs without appreciating the fact that the services provided by ICRA Online are similar to the investment advisory services rendered by the Appellant and passes all the quantitative filters applied by the learned TPO.

3.5. That the learned TPO has erred, on the facts and in law, in selecting 1M + Capitals (Formerly Brescon Corporate Advisors Limited), Keynote Corporate Services Limited, Ladderup Corporate Advisory Private Limited, Motilal Oswal Investment Advisors Private Limited, S REI Venture Capital Limited, Aditya Birla Capital Advisors Private Limited, Ajcon Global Services Limited, Axis Private Equity Limited and Portfolio Financial Services Limited as comparable without appreciating that these comparable are engaged in merchant banking services, security and stock broking services, loan syndication/ debt syndication and project consultancy services, investment banking services, institutional equities, insurance brokerage, asset management and wealth management, merger and 10

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 acquisition advisory, ESOP advisory, equity/debt placements and restructuring, syndication of finance, portfolio management and mutual fund distribution and do not satisfy the functional, assets and risks ("FAR") analysis test vis-a-vis the Appellant in relation to the international transaction pertaining to provision of investment advisory services.

3.6 That the learned TPO have erred, on the facts and in law, in selecting certain companies as comparables without appreciating that these companies have displayed exceptional profit during the relevant financial year (i.e. FY 2010-11) under consideration which was on account of exceptional circumstances and did not portray the correct operational profitability in the industry.

3.7 The learned TPO/ Hon'ble DRP have erred, on the facts and in law, by failing to include foreign exchange gains/ losses and bank charges as an operating income/ expenditure while computing the operating margins of the Appellant and the comparable companies for the application of the TNMM.

3.8. That the learned TPO/ Hon'ble DRP erred, on facts and in law, by not making appropriate adjustment for risk differences between the Appellant and the selected comparable companies in the arm's length price so determined for the international transaction pertaining to provision of investment advisory services, as the Appellant is remunerated on cost plus basis for impugned transaction and bears minimal risk.

3.9. That the learned TPO have erred, on the facts and in law, in not allowing the benefit of downward adjustment of 5%, as provided in the Proviso to section 92C of the Act, from the arm's length price determined for the impugned transaction.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

2.3 ITA 75/DEL/2017 – AY 2012-13:

In this appeal pertaining to Assessment Year 2012-13, the

return of income was filed at an income of Rs. 102,52,0420/-.

The TPO made an adjustment on account of financial and

investment advisory services amounting to Rs. 54,702,378/- and

Rs. 12,791,796/- on account of receivables, thereby making a

total upward adjustment of Rs. 67,494,174/- but on the assessee

approaching the Hon'ble DRP, the Hon'ble DRP did not grant any

relief in respect of provision of financial and investment advisory

services but gave partial relief to the assessee by directing the

Assessing Officer to adopt SBI base rate on 30th June of the

relevant previous year plus 300 basis points in respect of the

receivables and also directed the Assessing Officer to limit the

period under consideration to Assessment Year 2012-13.

Consequent to the directions of the Hon'ble DRP, the TP

adjustment stood at Rs. 16,699,310/-. In this year, the assessee

had selected 5 comparables to benchmark the transaction

involving provision of investment its TP documentation out of

which 4 comparables were required by the TPO and thereafter

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

the TPO added 6 new comparables for the final set of

comparables. The final set of comparable companies after the

Hon'ble DRP’s directions are as under:-

S. Original TP Study / Comparable companies Adjusted OP/ TC No. Added by TPO Aditya Birla Capital Advisors Private 1 34.02% Added by TPO Limited 2 Ajcon Global Services Limited 14.76% Added by TPO Almondz Global Securities Limited 3 35.75% Added by TPO (Segmental) ICRA Management Consulting 4 2.37% Original TP Study Services Limited IM + Capital (Brescon Corporate 5 19.91% Added by TPO Advisors Limited) 6 62.42% Added by TPO Keynote Corporate Services Limited Ladderup Corporate Advisory Private 7 33.85% Added by TPO Limited Average 29.01%

2.3.1 The assessee is accepting only one comparable i.e. ICRA

Management Consulting Services Ltd and is contesting the

remaining six comparables. The grounds raised by the assessee

in this year’s appeal read as under:-

“1. That on the facts and circumstances of the case and in law, the order of assessment framed by the learned Joint Commissioner of Income-tax, Special Range

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 - 3, New Delhi (hereinafter referred to as 'the learned AO') pursuant to the directions of the Hon'ble Dispute Resolution Panel - I (hereinafter referred to as 'the Hon'ble DRP') under section 144C(5) of the Act, is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void ab-initio.

4.1. That the learned TPO erred, on facts and in law, in rejecting the economic analysis in the documentation filed by the Appellant in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") and proceeded to make the transfer pricing addition based on re-determination of the arm's length price of the / international transaction.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 4.2. That the learned TPO erred, in law and on facts, in using single year financial data (i.e. data for FY 2011-12 only) as against multiple year financial data used by the Appellant for determination of the arm's length price of the international transaction pertaining to provision of investment advisory services.

4.3. That the learned TPO erred, on facts and in law, in applying lower turnover filter of INR 1 crore for rejecting the independent companies. Without prejudice, the learned TPO erred, on facts and in law, in not applying an upper turnover filter to reject companies having significantly higher turnover vis-a-vis the Appellant.

4.4 That the learned TPO/ Hon’ble DRP erred, on the facts and in law, in rejecting Informed Technologies Limited, Integrated Capital Services Limited, ICRA Online Limited and Cyber Media Research & Services Limited (formerly IDC (India) Limited) as comparables for provision of investment advisory services to AE without appreciating the fact that the services provided by these companies are similar to the functional profile of the Appellant.

4.5 That learned TPO/ Hon’ble DRP have erred, on the facts and in law, in rejecting Cyber Media Research & Services Limited by erroneously observing that it is incurring persistent losses.

4.6 That learned TPO/ Hon’ble DRP have erred, on the facts and in law, in selecting IM + Capitals (Formerly Brescon Corporate Advisors Limited), Keynote Corporate

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Services Limited, Ladderup Corporate Advisory Private Limited, Aditya Birla Capital Advisors Private Limited, Ajcon Global Services Limited and Almondz Global Services Limited as comparables without appreciating that these companies are engaged in merchant banking services, security and stock broking services, loan syndication/ debt syndication and project consultancy services, investment banking services, institutional equities, insurance brokerage, asset management and wealth management, merger and acquisition advisory, ESOP advisory, equity/ debt placements and restructuring, syndication of finance, portfolio management and mutual fund distribution and do not satisfy the functional, assets and risks (“FAR”) analysis test vis-a-vis the Appellant in relation to the international transaction pertaining to provision of investment advisory services.

4.7 That the learned TPO has erred, on the facts and in law, in selecting certain companies as comparables without appreciating that these companies have displayed exceptional profit during the relevant financial year (i.e. FY 2011-12) under consideration on account of exceptional circumstances and did not portray the correct operational profitability in the industry.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 4.8 The learned TPO/ Hon’ble DRP have erred, on the facts and in law, by failing to include foreign exchange gains/ losses and bank charges as an operating income/ expenditure while computing the operating margins of the Appellant and the comparable companies for the application of the Transactional Net Margin Method (“TNMM"). 4.9. That the learned TPO/ Hon'ble DRP erred, on facts and in law, by not making appropriate adjustment for risk differences between the Appellant and the selected comparable companies in the arm's length price so determined for the international transaction pertaining to provision of investment advisory services, as the Appellant is remunerated on cost plus basis for impugned transaction and bears minimal risk. 4.10. That the learned TPO have erred, on the facts and in law, in not allowing the benefit of downward adjustment of 5 percent, as provided in the proviso to section 92C of the Act, from the arm's length price determined for the impugned transaction. 5. That the learned AO/ learned TPO/ Hon'ble DRP have erred, on the facts and in law, in making the transfer pricing adjustment of INR 1,66,99,310 by erroneously re-characterizing the outstanding receivables from AEs of the Appellant as unsecured loan and computing notional interest on alleged delays in realization of payment from the AEs against the invoices raised for provision of investment advisory services. 5.1. That the learned TPO/ Hon'ble DRP have erred, on the facts and in law, in applying arbitrary interest rate of 12.25 percent while determining the notional interest on the alleged delays in collection of receivables from the AEs against the invoices raised for the provision of investment advisory services.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 5.2. Without prejudice, the learned TPO/ Hon'ble DRP have erred, on the facts and in law, in considering the SBI base rate instead of London Interbank Offered Rate ("LIBOR") while calculating notional interest on alleged delays in realization of payment from the AEs as the invoices were raised on the AEs in foreign currency i.e. USD. 5.3. That the learned TPO has erred, on the facts and in law, and has grossly violated the principle of natural justice by not providing a suitable opportunity of being heard to the Appellant by issuing show cause notice before making the adjustment in relation to the notional interest on outstanding receivables. 6. That the learned AO/ Hon'ble DRP have erred, on the facts and in law, on the circumstances of the case and in law by alleging that the Appellant has furnished inaccurate particulars of income, thereby proposing to initiate penalty proceedings under section 271(1)(c) of the Act. 7. The learned AO erred, on facts and in law, by proposing to levy consequential interest under section 234B and 234C of the Act mechanically and without recording any satisfaction for its initiation. The above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.” 3. The Ld. AR submitted that as far as I.T.A. No.

1681/Del/2015 for AY 2010-11 was concerned, the assessee was

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 contesting 5 comparables. The detailed arguments in respect of

5 comparables are as under:-

i) Brescon Corporate Advisors & Holdings Ltd.

Ld. AR submitted that this company was functionally

dissimilar as this company was into debt resolution and debt

syndication activities. Ld. AR drew our attention to pages 32-34

of the annual report of Brescon Corporate Advisors & Holdings

Ltd. in support of his contention. It was submitted that this

company followed a different method for revenue recognition as

this company recognised its revenue from debt resolution, debt

syndication and financial restructuring services on the basis of

achievement of prescribed milestone as relevant to each mandate

or proportionate completion method whereas the assessee was

into investment advisory services and received revenue according

to Cost Plus Method. Ld. AR also relied on the order of the ITAT

Mumbai Bench in M/s Blackstone Corporate Advisors Limited in

I.T.A. No. 1581/Mum/2014 for assessment year 2008-09

wherein M/s Brescon Corporate Advisors Limited was excluded

on account of having functional dissimilarity with a company

providing investment advisory services. Ld. AR also relied on

another order of the ITAT Mumbai Bench in the case of M/s 20

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Goldman Sachs (India) Securities Pvt. Ltd. vs DCIT in I.T.A. No.

222/Mum/2014 for assessment year 2009-10 wherein M/s

Brescon Corporate Advisors Limited was excluded on the ground

that it was engaged in debt resolution, debt syndication and

financial restructuring advisory services which were functionally

not comparable to investment advisory services. Reliance was

also placed on an order of the ITAT Delhi Bench in the case of

Xander Advisors India Pvt. Ltd. in I.T.A. No. 5840/Del/2012 for

assessment year 2008-09 wherein M/s Brescon Corporate

Advisors Limited had been excluded on the ground that merchant

banking concern cannot be compared to investment advisory

services. Reliance was also placed on the cases of Temasek

Holdings Advisory(I) Private Limited in ITA No. 4203/Mum/2012

for assessment year 2007-08 and TPG Capital India Pvt. Ltd. in

I.T.A. no. 880/Mum/2013 for assessment year 2008-09 wherein

M/s Brescon Corporate Advisors Limited had been excluded by

the ITAT on account of functional dissimilarity.

ii) Keynote Corporate Services Limited

Ld. AR submitted that this comparable had earned the entire

revenue from non-comparable activities like merchant banking,

issue management and investment banking solutions, mergers 21

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 and acquisition, equity/debt placement and restructuring. Ld.

AR referred to page 96 of the annual report compendium in

support of his contention. Ld. AR also submitted that Keynote

was registered as a merchant banker with SEBI and was

therefore not comparable with the assessee company. Ld AR

placed reliance on the order of the ITAT Mumbai Bench in Carlyle

India Advisors Pvt. Ltd. in I.T.A. No. 7901/Mumbai/11 for

assessment year 2007-08 wherein it had been held that Keynote

Corporate Services Limited was into merchant banking and

hence could not be considered as a comparable to investment

advisory related company. Ld. AR also submitted that the

Hon'ble Bombay High Court had affirmed this order of the ITAT

Mumbai in Carlyle India Advisors Pvt. Ltd. vs CIT in I.T.A. No.

1286/2012.

iii) Motilal Oswal Investment Advisors Private Limited

Ld. AR submitted that this company had earned the entire

revenue from non-comparable activities like equity and

derivatives, investment banking, mergers and acquisitions,

portfolio management services, private wealth management and

syndicates and structured debt. Ld. AR referred to page 103 of

the compendium of annual reports to substantiate his argument. 22

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Ld. AR also placed reliance on the order of ITAT Delhi in the case

of Actis Advisers Pvt. Ltd. vs ACIT in I.T.A. No. 1998/Del/2014

for assessment year 2009-10 in support of his contention that

this comparable had been excluded on account functional

dissimilarity with a company which had been providing

investment advisory services. It was submitted that ITAT Delhi

Bench while deleting Motilal Investment Advisory in the case of

Actis Advisers Pvt. Ltd. had relied upon the order of the ITAT

Mumbai Bench in the case of Carlyle India Advisors Pvt. Ltd.

(supra).

iv) Karvy Investors Services Ltd.

Ld. AR submitted that this company had earned 70% of its

revenue from providing management, marketing and

underwriting services related to public issues managed by it. It

was also submitted that this company also provided merchant

banking services, mergers and acquisitions, equity private

placements and management consultancy and other corporate

advisory services and therefore, it was functionally different from

the assessee company. Our attention was drawn to page 63 and

68 of the Annual Report Compendium in support of the

contention. It was also submitted that this company has not 23

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 been included by the TPO in the subsequent two assessment

years. The ld. AR also submitted that the company was also

registered as ‘merchant banker’ with SEBI. Ld AR also submitted

that there was no specific case law on which he was relying in

support of the plea for exclusion of this comparable but was

relying on the general principles regarding comparability of a

merchant banking enterprises with a company providing

investment advisory.

v) Kshitij Investment Advisory Services Ltd.

Ld. AR submitted that this company earned revenues from

corporate and consumer lending and insurance advisory services

and was accordingly functionally dissimilar. Ld. AR referred to

page 152 of the Annual Report Compendium in support of his

contention. It was also submitted that the TPO had not

considered this company as a comparable in subsequent

assessment years. It was also submitted that during the year

under consideration, this company had realigned its business to

Everstone Investment Advisors Pvt. Ltd. and accordingly the

impact of the same was seen in assessment year 2011-12

wherein the company had earned income only from other sources

and nil income from investment advisory activities. Ld. AR also 24

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 submitted that he was relying on general principles regarding

functional dissimilarity between merchant banking services and

investment advisory services.

3.1 Ld. AR also submitted that if M/s Brescon Advisors and

Holdings Limited, Motilal Oswal Investment Advisors Private

Limited and Keynote Corporate Services Limited were excluded

from the final set of comparables, then the transaction

undertaken by the assessee would become at arm’s length and

thereafter the other two comparables need not be considered. Ld.

AR also submitted that these 3 comparables should not only be

excluded on the ground of being functionally different but also on

the ground of having earned supernormal profits. It was

submitted that M/s Brescon Corporate Advisors Limited had

earned profit of more than 80% and Motilal Oswal had earned

profit of more than 90% which was abnormally high. Ld. AR

submitted that it was a settled law that comparable companies

earning extraordinary profits should not be taken as a

comparable. For this proposition, the ld. AR relied on E-gain

Communication Pvt. Ltd. vs ITO reported in 118 ITD (Pune) 243,

Philips Software Pvt. Ltd. vs ACIT 119 TTJ (Bang) 721, Adobe

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Systems India Pvt. Ltd. vs ACIT 138 TTJ (Del) 122 and DCIT vs

Quark Systems (P) Ltd. 132 TTJ (Chandigarh) (SB-1).

3.2 On the second issue regarding adjustment on account of

interest on outstanding receivables, the ld. AR submitted

outstanding receivables was not a separate international

transaction and the early or the late realisation of proceeds was

only instrumental to the main international transaction i.e.

provision of financial and investment advisory services. It was

submitted that receivables was not a separate transaction in

itself and once Arm’s Length Price was determined in respect of

service transaction, it should be deemed to cover all elements of

such transaction.

3.3 Ld. AR also filed detailed submissions in respect of this

ground which are reproduced as under:-

“Outstanding Receivables is not a separate international transaction

Early or late realization of service proceeds is incidental to the main international transaction viz. provision of financial and investment advisory services, and not a separate transaction in itself - once ALP determined in respect of service transaction, it would be deemed to cover all elements and consequences of such transaction. Appellant has placed reliance on:

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Pegasystems Worldwide India Private Limited (ITANo.1758/Hyd/2014)

Det Norske Veritas A/S (ITA No.200/Mum/2014)

M/s. Avnet India Pvt. Ltd. Vs DCIT (IT(TP)A No. 757(Bang)/2011);

DCIT vs. Indo American Jewellery Ltd. [2012] 18 taxmann.com 303;

Nimbus Communications (ITA NO. 6597/Mum/2009);

Evonik Degussa India Private Limited (ITA NO. 7653/Mum/2011); and

Bausch & Lomb Eyecare (India) Private Limited (ITA No. 6580/DEL/2013).

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Reliance placed on: Kusum Healthcare Pvt. Ltd. (ITA 6814/Del/2014) confirmed by Delhi High Court in ITA No. 765/2016 Goldstar Jewellery Limited (ITA 6570/Mum/2012)

Tally Solutions Pvt. Ltd. Vs. ACIT- IT(TP) A.No. 1364/Bang/2011

Yash Jewellery Pvt. Ltd. Vs. DCIT- (2016) 66 taxmann.com 216 (Mum)

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Dell International Services India Pvt. Ltd. Vs. JCIT (ITA 308/Bang/2015) 7. TP adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income. Reliance placed on:

Evonik Degussa India (P) Ltd vs ACIT (2013) 151TTJ (Mum) 1

Lindas India Pvt. Ltd vs. ACIT - 3(2) Mumbai (ITA No. 2024/Mum/2007

Sony India Private Limited (2008) 114 ITD 448

Abhishek Auto Industries Limited (2010) (136 TTJ 530)

CIT vs. EKL Appliances Limited (2012) (345 ITR 241)

The appellant thus in light of the above submission prays before your honours that the adjustment made on account of 29

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 notional interest on outstanding receivables ought to be deleted in the interest of natural justice.

Without prejudice to the appellant’s contention above, in case it is held that adjustment on account of interest on outstanding receivables is warranted then the appellant further submits as under:-

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 longer the duration of funding/ loan provided, the higher is the interest rate charged, since in such cases, the risk of credit default tends to be higher. In this regard, the Appellant places reliance on following rulings: Intervet India Private Limited (2010) (39 SOT 93); and E-Gain Communications Private Limited (2008) (23 SOT 385).

Agilisys IT Services India Private Ltd.(ITA No.1136/Mum/2014); M/s. S.B. & T International Limited (ITA No. 1054/Mum/2015); IndegeneLifesystems Private Limited (ITA No. 1504/Bang/2012); and Tech Mahindra Limited (ITA NO. 1176/Mum/2010)

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 18. Without prejudice to the above, the Appellant further submits that the TPO and the Hon'ble DRP have made computational errors while calculating the adjustment towards interest on outstanding receivables. In case it is held that the adjustment towards interest on outstanding receivables is warranted, the correct amount ought to be considered in the interest of natural justice.” 3.4 The Ld. Authorised Representative submitted that similar

issue was also being agitated in appeal for Assessment Year

2011-12 and 2012-13 with the difference that in Assessment

Year 2011-12, the TPO had considered only net outstanding

receivables i.e. receivables minus payables whereas in

Assessment Years 2010-11 and 2012-13, the TPO had taken the

gross amount of receivables. It was also submitted that the

average realisation period of comparable companies was 106

days whereas it was 121 days in the case of the assessee and,

therefore, the difference for the purpose of adjustment can only

be 15 days (121-106) and not 30 days as calculated by the TPO.

3.5 Ld. Authorised Representative also submitted that one of

the comparables M/s Ladderup Corporate Advisory Pvt. Ltd. was

not being specifically contested in this Assessment Year i.e.

Assessment Year 2010-11 but the same was relevant for the

subsequent two Assessment Years i.e. Assessment Year 2011-12

and 2012-13 and the same will be included in arguments for

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 those two Assessment Years. It was also submitted that the

registration of this comparable was a merchant banker with

SEBI.

3.6 Ld. Authorised Representative also submitted that the

authorities below had erred in not calculating foreign exchange

gains/losses and bank charges as operating income/expenditure

while computing the operating margins of the assessee and the

comparable companies. Ld. Authorised Representative placed

reliance on the order of the ITAT Delhi Bench in ST-Ericson India

Pvt. Ltd. vs ACIT in I.T.A. No. 1672/Del/2014 for the proposition

that foreign exchange gain/loss is to be treated as operating in

nature in calculating the operating margin of the assessee as well

as comparable companies.

3.7 Ld. Authorised Representative also submitted that ground

3.2, 3.3, 3.4 and 3.5 were not being pressed by the assessee.

was seeking exclusion of 5 comparables on strict functional

comparability. It was submitted that the TPO had selected the

comparable for benchmarking on the basis of a broad functional

similarity. It was submitted that the TPO as well as the taxpayer,

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 in the transfer pricing study, had selected TNMM as the Most

Appropriate Method and under TNMM, the parameters for

comparability analysis are broadly relaxed and only a broad

similarity of the functions is required. It was also submitted that

as per the mandate of section 92(1) of the Income Tax Act,

cherry-picking by either of the parties in respect of the

comparables was not acceptable. Ld. CIT DR also submitted that

even the comparables which had not been objected to by the

assessee would not fall into strict functional similarity test but

the same had been accepted by the assessee and, therefore, it

was very much evident that the assessee was choosing

comparables which were only suiting its purpose. It was also

submitted by the Ld. CIT DR that if all comparables were to be

excluded a de novo benchmarking exercise would be required.

Ld. CIT DR read out extensively from the order of the TPO and

vehemently argued that the final list of comparables as selected

by the TPO should not be disturbed.

4.1 On the issue of interest on receivables, the Ld. CIT DR

placed reliance on the order of ITAT Delhi Bench in Mckinsey

Knowledge Centre Pvt Ltd Vs. DCIT in ITA No 154/Del/2016.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 4.2 On the issue relating to foreign exchange gain/loss, the Ld.

CIT DR fairly agreed that the same needed to be excluded or

included in both the AE as well as non-AEs.

4.3 Ld. CIT DR also filed written submissions which are being

produced here-in-under:-

“ I. In the present appeal the Taxpayer is seeking exclusion of 5 comparables on strict functional comparability - though the same was not done neither in the TP study nor by the TPO. The TPO has selected the comparables for benchmarking the transaction on broad functional similarity between the functions performed by the taxpayer and the comparables. II. Objections of Taxpayer: The taxpayer is now objecting that the services provided by the said 5 (out of 9) companies are not comparable to the 'investment advisory sevices' that is being provide by the Taxpayer. Brescon is being sought to be excluded on the ground that it is providing debt syndication services. Karvy is sought to be excluded on the ground that it is providing management, marketing and related services. Keynote is sought to be excluded on the ground that it is providing advisory services in mergers and acquisition, merchant banking, issue management and debt / equity placements and restructuring services. Motilal is being sought to be excluded on the ground of non-comparable services like equity and derivatives, investment banking / mergers and acquisition, portfolio management services and private wealth management services. Kshitij is being sought to be excluded on the ground of re-alignment of business and non-comparable services, namely, corporate and consumer lending and insurance advisory services.

III. Approach of TPO and TP study:

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 a. The TPO has selected the comparables for benchmarking the transaction on broad functional similarity between the services provided by the taxpayer and the comparables. He has mentioned, at many places in his order, that the TPO and the taxpayer (as well in the Transfer Pricing Study) have selected TNMM as the Most Appropriate Method (MAM) and under the TNMM the comparability (parameters) are relatively relaxed and only broad similarity of functions is required.( For example may pi see observations of TPO at P.112 of Appeal set and internal pages 87 & 88 under the heading 'Comments of TPO' second para therein).

b. TPO has also not excluded the comparables with un-usual events during the year ( first sentence in the observations of TPO at P.l 12 of Appeal set and internal pages 87 & 88 under the heading Comments of TPO).

c. TPO has not got into the verticals of the comparables as was also done by the Taxpayer. He has selected the comparables which are broadly engaged in the field of 'investment advisory services'. (For example see the paragraph just above Point No.14 at page- 113 of Appeal Set and internal page 88 of TPO's order in this regard).

d. TPO has gone for broad functional comparability as is evident in all of his comments against the Taxpayers objections reproduced in the TP order. For example he has treated 'corporate financial advisory services’ as broadly similar to the financial advisory services being given by the taxpayer, (may pi see first para under the heading 'comments of TPO' at page 110 of Appeal Set and internal page 85 of TPO's order).

e. Similarly if one looks at the justification given by taxpayer for inclusion of ‘Integrated Capital Services Ltd' at page 88 of

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 the Appeal set (internal page 3 of TPO order) we can see that all of the following services rendered by that entity were proposed by the Taxpayer as comparable services(TPO rejected this entity on turnover filter). This only reinforces the fact that the Taxpayer and the TPO have treated various functions in the financial sector as comparable to the functional profile of the Assessee:

Advisory, Compliance & Representation Services to On-going / New Business • Setting up business in India by overseas enterprises • Economic Legislations, including Company law, Direct /Indirect taxes • Agreements & Contracts, including joint venture, technical know how/ collaboration • Due diligence for business investment/ combination

Business Consolidation /Restructuring Services

• Advising, Identifying & Implementing Strategic Alliance/s & Acquisitive expansions/s • Structuring Amalgamation / Merger & De-merger • Complying with Statutory Procedures, Obtaining Approvals / Consents of Authorities • Negotiations, to facilitate acquisition/takeover of business/es

IV. If one goes by strict functional comparability the ALP determination / benchmarking of transaction needs to be redone de novo. Since strict comparability criteria is being employed now even the comparables not now contested by the Taxpayer, cannot be good comparables for the following reasons;

i. Cyber media Research Ltd (Formally IDG [India] Ltd) i. is a provider of management consultancy services whose business has been described by it in its Annual Report as "MANAGEMENT CONSULTING”. (Sch-17 at last page of Annual Report). Further, P&L A/c reveals that the company has

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

earned its income from "Sales and Services". As per the notes to Accounts under the Revenue Recognisiton heading (Sch-14 Statement of Significant Accounting Policies) it is stated that "the Turnover includes gross value of goods and services and service tax.' The auditors have also commented that the company deals in PRODUCTS as under in the Annexure to the Auditor's report at point no.(ii)

(ii) The Company is a research Company, primarily dealing in research and survey services and products.

ii. Even though the company earns its revenue from sale of certain goods, there is no segmental results available separating the income from sale of goods and provision of services as the company has treated the above business as SINGLE segment namely 'Market Research and Management consultancy'. (PI see point No.13 on page 19 of AR under Sch- 16). It may be noted here that the financial advisory services is (strictly speaking) different from 'management consultancy' or 'market research functions’. In this scenario, the said company needs to be excluded if we go by the strict functional comparability and by the position of law on the subject of non- availability of segmental details as a disqualification for taking a company as comparable.

i. is engaged in fee based loan syndication, private equity and other similar services which according to the strict comparability criteria advocated by the Assessee is not comparable to 'investment advisory funtions' carried out by the taxpayer. As per the consolidated Annual Report of the Parent company the following facts have been mentioned about Ladderup Corporate Advisory Private Limited (Page-2 of Annual Report consolidated of Laddercup Finance Ltd): In FY 2009-10 your Company's subsidiary Company Ladderup Corporate Advisory Private Limited (LCAPL) which is

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

engaged in the fee based services has successfully completed various big ticket loan syndication, private equity and corporate advisory transactions. Further Ladderup Corporate Advisory Private Limited has received Merchant Banking Registration from Securities and Exchange Board of India (SEBI) and shall now be able to serve clients in the services related to capital market transactions like QIP, Open Offers, Buy Back offers, IPO, EPO, Right Issues, valuations, etc. which will further establish its presence in equity capital market.

ii. The Annual Report of Laddcrcup Finance ltd, under the heading BUSINESS PERFORMANCE INCLUDING SUBSIDIARIES OF LADDERUP FINANCE LIMITED found at page -20 of the Annual Report states as under:

Ladderup Corporate Advisory Private Limited (LCAPL), a subsidiary of your company is engaged in fee based advisory services to its clients. LCAPL has maintained its focus on fee based big ticket transactions and will continue to focus on the same because of the increased opportunities in the space of debt syndication, private equity, M&A and corporate advisory particularly in sectors like power, infrastructure, engineering, services and manufacturing. The company has pipeline of running mandates in the Debt, Private Equity and M&A space which on completion will add to the topline of the company.

Further LCAPL has received the merchant banking registration from Securities and Exchange Board of India [SEBI] and shall now be able to serve clients in services related to capital market transactions like QIP, Open Offers, Buy Back offers, IPO, EPO, Right Issues, valuations etc. which will further establish its presence in the equity capital market segment.

LCAPL has also setup a Business Development and Market Intelligence Cell which will focus on getting leads and mandates for the company.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Since the company is growing in terms of size and manpower, it has shifted to a bigger office space in Bandra, Mumbai.

In order to further enhance its presence in Tier I and Tier II cities LCAPL has appointed growth partners at various locations in India to source business for the company. This arrangement will further expand its business horizons.

iii. again strictly speaking is not into investment advisory services but is into Management Consultancy business. The functional profile of the company, provided at page-5 of its parent company is relevant and reproduced herein below:

iv. The company is into management consultancy and it executed over 1000 consulting projects that are management consultancy projects (and not investment advisory services) in the following practice areas (sectors). The same is evident from the Director's Report (page 119-120 of combined annual report of ICRA). • Government and Infrastructure Practice—significant growth in multilateral/bilateral agency funded work. • Energy Practice—consolidation and growth • Banking and Financial Services—on the road to recovery • Corporate Advisory Practice—a period of diversification and deepening relationships v. The relevant portions are reproduced below: Government and Infrastructure Practice—significant growth in multilateral/bilateral agency funded work. Your Company witnessed steady growth in all the three verticals, viz., Development Consulting, Transportation, and Urban Infrastructure, during the year under review. Your Company has made substantial progress in consulting projects that involve the concept of Public-Private Partnership (PPP) between Government and private investors. Your Company has been a thought-leader in the Water sector, especially in the areas of implementing PPP transactions, and 40

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13

has participated in various international forums such as the World Water Week of the Stockholm International Water Institute, the Institute of Water Policy at Singapore, and an internal seminar organised by the Asian Development Bank, Manila. The track record of your Company in working with clients such as GTZ, KfW, the World Bank, and UNICEF stands testimony to the capabilities of your Company in these sectors. During the year under review, your Company partnered Ecorys Netherlands, B.V. in multiple projects, including in the preparation of an integrated transport policy for Punjab, and another project involving a review of highway agencies in South Asia. Your Company was also engaged in diverse mandates related to the formulation of sanitation plans for several cities, feasibility studies for setting up funds for urban development, and in transaction advisory mandates for setting up PPP projects for water supply in several cities. Your Company also completed a feasibility study for establishing an Economic Development Zone in Tanzania, and carried out an assessment of the investment climates of several States in India for multilateral agencies.

vi. It also earns its income from 'Subscription services' from the products it has developed. So it is a product company- the segmental details of this stream of business are not available. Relevant portion of Annual Report are as under:

b) Revenue Recognition:- i) Income from Consulting Services is……. ii) The dividend income, if any,…….. iii) Income from Information Services is recognised in the year in which such assignments are carried out. Income from Subscription to Information Products is recognised on time proportion basis except when the subscription amount is less than Rs. 5,000 p.a. which is recognised in full in the year it is received.

1) Capital Work in Progress:- (Page 137 of Annual Report) a) Capital Work in Progress in the previous year represents

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 expenditure incurred on development of various softwares used for licensing, which are under development, at the end of the accounting year. On completion of such software, the cost incurred is capitalized as "Intangible Assets". b) Softwares, developed in house and having commercial usage are capitalised as softwares and shown under "Intangible Assets”. These are amortised over a period of 5 years.

vii. The depreciation Schedule contains the intangible owned by the company namely IMaCS' Risk Scorer & IMaCS' C-Cube (may pi see Page 131 of Annual Report).

viii. Some of its functions do relate to market analysis, but there are no segmental details available. The Notes to Accounts (point no.12 on page 140 of Annual Report) reads as under:

i. In this company there has been an ‘realignment of business' as is evident from its Annual Report and hence is not a good comparable. The company has handed over its 'advisory services business’ to another company by name Everstone Investment Advisors Pvt Ltd and the Agreement is effective from 1st Jan 2010 as per the Annual Report (page 33 of Annual Report) - Para 13 of Notes to Accounts (Sch-14). The company was no more into investment advisory business 42

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 w.e.f. 1st Jan 2010. Relevant portion of the Annual Report (Page-4 and 34) is reproduced below:

RE-ALIGNMENT OF INVESTMENT ADVISORY BUSINESS OF THE COMPANY

During the year under review, the Company and its holding company viz. Future Capital Holdings Limited (FCH) entered into appropriate agreements with Everstone Investment Advisors Private Limited, to realign its investment advisory activities with a view of having a focused and dedicated approach to the Investment Advisory Business. The realignment of the investment advisory activities of the Company has been effective from January 1,2010.

a. render all the investment advisory services to Indivision Capital Management (TCW):

b. enjoy all the rights In term of the Investment Advisory Agreement {'IAA’) entered into with ICM:

c. assume, agrees and fulfills all duties and obligations conferred or imposed under the terms of IAA d. Pursuant to the above agreement the Company shall receive a consideration of Re 38,000,000.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 dedicated approach to the investment advisory business. The realignment agreement Is effective from January 1, 2010 wherein, EIAPL shall, in place of the Company:

a. render all the investment advisory services to Indivision Capital Management (‘ICW’); b. enjoy ail the rights In term of the Investment Advisory Agreement ('IAA') entered into with ICM c. assume, agrees and fulfill all duties and obligations conferred or imposed under the terms of IAA d.Pursuant to the above agreement the Company shall receive a consideration of Rs 38,000,000.

II. In support of the proposition that the comparables which meet the same criteria as pointed out in case of comparables sought to be excluded may also be excluded as otherwise the whole benchmarking process would remain faulty.

The claim of assessee is that the wrong comparables on the basis of broad functional similarity have been included in the benchmarking process. If that is so, the principle / criteria should be applied uniformly across the whole set of comparables. Cherry picking is not permissible both by the assessee and by the TP0. Only then, the benchmarking would be as per the present understanding of the law. Only then it would result in correct assessment of income relating to the 'international transactions', (mandated by S.92(1) of IT Act)

III. It is submitted that the following observations Hon’ble Special Bench of ITAT in the case of Aztec Software And Technology vs ACIT (2007) 294 ITR 32 (Bang) supports the above proposition: 133………..Having regard to the purpose of the legislation and application of similar enactment world over, it must further be held that adjustments made on account of ALP by tax authorities can be deleted in appeal only if the appellate authorities are satisfied and records a finding that ALP submitted by the assessee is fair and reasonable. Merely by finding faults with the transfer price determined by the revenue authorities (A.O. / TPO], addition on account of "adjustments" cannot be deleted. This is because the mandate of section 92(1) is that in every case of international 44

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record has to determine ALP itself. Subject to statutory provisions, Appellate authorities can direct lower revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case. IV.For the proposition that there is a duty to determine the correct tax liability in every case the following case laws are relied upon:

A.Requirement of correctly determining the tax liability of assessee: PI see para-20 of M/s.The Ramco Cements Limited v DCIT- Spl.Range Madurai [2015J 55 taxmann.com 79 (Madras) which reproduces the selected paras of important decisions of Apex Court on this matter.(said pages 1,7-9 are submitted separately). Part of the said portion is reproduced below:

"An appellate authority under the taxing enactments sits in appeal, only in a manner of speaking. What it does, functionally, is only to adjust the assessment of the appellant in accordance with the facts on the record and in accordance with the law laid down by the legislature. An appeal is a continuation of the process of assessment, and an assessment is but another name for adjustment of the tax liability to accord with the taxable event in the particular taxpayer's case. There can be no analogy or parallel between a tax appeal and an appeal, say, in civil cases. A civil appeal, like a law suit in the court of first instance out of which it arises, is really and truly an adversary proceeding, that is to say, a controversy or tussle over mutual rights and obligations between contesting litigants ranged against each other as opponents. A tax appeal is quite different. Even as the assessing authority is not the taxpayer's " opponent", in the strictly procedural sense of the term, so too the appellate authority sitting in appeal over the assessing authority's order of assessment is not strictly an arbitral tribunal deciding a contested issue between two litigants ranged on opposite sides. In a tax appeal, the appellate authority is very much committed to the assessment process. The appellate authority can itself enter the arena of 45

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 assessment, either by pursuing further investigation or causing further investigation to be done. It can do so on its own initiative, without being prodded by any of the parties. It enhance the assessment, taking advantage of the opportunity afforded by the taxpayer's appeal, even though the appeal itself has been mooted only with a view to a reduction in the assessment. These are special and exceptional attributes of the jurisdiction of a tax appellate authority. These attributes underline the truth that the appellate authority is no different, functionally and substantially, from the assessing authority itself."

B. Case law: Kapurchand Shrimal vs.CIT(1981) 131ITR 0451(SC) (copy submitted] (Para -17 on pages 5&6). Important portion is as under:

“It is, however, difficult to agree with the submission made on behalf of the assessee that the duty of the Tribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any further direction. It is well-known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute."

i. Similarity of provisions of S.25A of 1922 Act and 92(1) of 1961 Act. ii.Both are mandatory sections iii.Facts in the present case are also similar. iv. Determination of ALP is mandatory before assessing the income of the assessee. Same was the case u/s 25A. Before assessing the income, an order on status of partition of MUF was mandatory. v. Hon'ble Apex Court held ITAT could not just annul the defective order. IT had a duty to direct the AO to do it afresh as per law. B. Hukumchand Mills Ltd.K CIT [1967] 63 ITR 232 (SC) PI see par on page 4 onwards starting with the sub-heading "Civil Appeals Nos. 411 to 413 of 1965 ”

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 i. Similarity of facts in present appeal and the above case. ii.Important portion of the said judgment as under:

"Even assuming that rules 12 and 27 are not strictly applicable, we are of opinion that the Tribunal has got sufficient power under section 33(4) of the Act to entertain the argument of the department with regard to the application of paragraph 2 of the Taxation Laws Order and remand the case to the Income-tax Officer in the manner it has done. It is necessary to state that rules 12 and 27 are not exhaustive of the powers of the Appellate Tribunal, The rules are merely procedural in character and do not, in any way, circumscribe or control the power of the Tribunal under section 33(4) of the Act. We are accordingly of the opinion that the Tribunal had jurisdiction to entertain the argument of the department in this case and to direct the Income-tax Officer to find whether any depreciation was actually allowed under the Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written down value.” C. CIT v Jansampark Advertising & Marketing (P.) Ltd. [2015] 56 taxmann.com 286 [Delhi)

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 inquiry to be completed. If this were not to be done, the power under Section 148 would be rendered prone to abuse…………

"The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals)."

Assessment Year 2011-12, the Ld. Authorised Representative

submitted that ground nos. 1,2 and 3 were general, ground no.

3.2, 3.3, 3.6, 3.8, 3.9 were not being pressed. Ld. Authorised

Representative also submitted that ground no. 5 was not being

pressed due to smallness of amount. On ground no. 4 and 4.1

pertaining to interest on receivables, the Ld. Authorised

Representative submitted that this ground was identical to the

ground related to interest receivables in Assessment Year 2010- 48

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 11 and accordingly, the arguments made in respect to those

grounds were identical and were not being repeated for the sake

of brevity.

5.1 On the issue of comparables, Ld. Authorised

Representative submitted that in this year, the final set of

comparables had 3 new comparables picked up by the TPO viz.

Aditya Birla Capital Advisors Pvt. Ltd. and Axis Private Equity

Ltd. and Portfolio Financial Services Ltd. Ld. Authorised

Representative also submitted that out of the comparables being

contested, Brecson Advisors & Holdings Ltd., Keynote Corporate

Services Ltd. and Motilal Oswal Investment Advisors Pvt. Ltd.

had already been argued by the Ld. Authorised Representative in

the appeal for Assessment Year 2010-11 and the arguments

being similar, the same were not being argued again for the sake

of brevity. Ld. Authorised Representative also reiterated that if

these three comparables viz. Brecson Advisors & Holdings Ltd.,

Keynote Corporate Services Ltd. and Motilal Oswal Investment

Advisors Pvt. Ltd. were excluded from the final set of

comparables, the assessee’s transaction would be at arm’s

length. He also submitted that after exclusion of these three

comparables, an average of OP/TC of the remaining 9

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 comparables would work out to 12.64% as against the assessee’s

margin of 16.54% and therefore no further adjustment would be

required and the entire transfer pricing addition would be liable

to be deleted. On the remaining comparables being contested, the

arguments of the Ld. AR were as under-

i) Axis Private Equity Limited

Ld. AR submitted that this company was functionally

dissimilar as it was into asset management services. It was also

submitted that the TPO had used unreliable information while

including this as a comparable because he had relied on the draft

red-erring prospectus of another company Neesa Leisure Limited

to substantiate the comparability. It was also submitted that the

approach of the TPO was inconsistent as excess was included as

a comparable in this year but had been rejected in assessment

year 2010-11. It was also submitted that this company was

earning supernormal profit of 30.36%. The ld. AR also placed

reliance on the decision of ITAT Mumbai in the case of M/s

Goldman Sachs (India) Securities Private Limited vs DCIT in

I.T.A. No. 222/Mumbai/2014 and of ITAT Delhi Bench in Avenue

Asia Advisors Private Limited vs DCIT in I.T.A. 6638/Del/2013

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 wherein this company was excluded as a comparable.

ii) Ajcon Global Services Limited

Ld. AR submitted that this company was functionally

dissimilar as this company provided a whole gamut of financial

services like stock broking, commodity broking, depository

services, project consultancy, equity research, loan syndication,,

turnkey projects, corporate advisory services and merchant

banking. It was also submitted that Ajcon was not considered by

the TPO in the assessee’s own case for assessment year 2010-11.

Reliance was also placed on the decision of the Mumbai Bench in

the case of Temasek Holdings Advisors (I) Private Limited in I.T.A.

No. 5359/Mum/2009 for exclusion of this comparable.

iii) Ladderup Corporate Advisory Private Limited

It was submitted by the ld. AR that this company was also

functionally dissimilar as it was engated in investment banking

services, corporate finance services and corporate advisory

services. It was also submitted that this company was also

merchant banker with SEBI and it had shown abnormal growth

of 154.98% increase in revenue and 472.68% increase in profits.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 iv) SREI Venture Capital Limited

It was submitted by the ld. AR that this company was also

functionally dissimilar. It was submitted that this company was

also functionally dissimilar as it was into fund mobilization,

merchant banking and underwriting services and, therefore, it

should be excluded from the final set of comparables.

v) Aditya Birla Capital Advisors Private Limited

Ld. AR submitted that this company was also functionally

dissimilar as it was engaged in asset management and

investment in venture capital fund. It was further submitted that

the TPO had used a non-reliable information source to

substantiate the comparability by relying on the information as

provided in red-erring prospectors of another company Trimax IT

Infrastructure & Services Ltd. . It was also submitted that the

company had earned super normal profits of 41.65%

vi) Portfolio Financial Services Limited

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Ld. AR submitted that this company was functionally

dissimilar as it was providing debt syndication services. It was

also submitted that the Hon'ble High Court of Bombay in the

case of Carlyle India Advisors Private Limited (supra) had rejected

the companies engaged in providing debt resolution and

recapitalization, debt syndication services. It was also submitted

that the company had earned supernormal profits of 32.14%

and, therefore, the same should be excluded.

authorities and also filed written submissions in support of his

arguments which were identical to the written submissions filed

for Assessment Year 2010-11 and, therefore, the same are not

being reproduced here for the sake of brevity.

75/Del/2017 for Assessment Year 2012-13 and submitted that

ground no. 1, 2, 3, 4, 4.1 and 4.9 were general. Ground no. 4.2,

4.10 and 5.3 were not being pressed. It was also submitted that

ground no. 4.8 related to the issue of foreign exchange

gains/losses and bank charges which was identical to the earlier

two years and the arguments made by the Ld. Authorised

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Representative for Assessment Year 2010-11 would apply and

the same were not being repeated for the sake of brevity. It was

also submitted that ground nos. 5, 5.1 and 5.2 relate to interest

on receivables which were also identical to the earlier year’s

arguments and were not being repeated.

7.1 On the issue of comparables it was submitted that if

Keynote Corporate Services Ltd., Almondz Global Securities Ltd.

and Ajcon Global Services Ltd. were excluded from the final set of

comparables, then the transaction would be within 5% range.

However, at a later stage in the arguments, the Ld. AR submitted

that the ground for exclusion of Almondz Global Securities Ltd

was not being pressed. It was submitted that the arguments

relating to Keynote Corporate Services Ltd, Aditya Birla Capital

Advisors Pvt Ltd, Ladderup Corporate Advisory Pvt Ltd, Ajcon

Global Services Ltd and Brescon Corporate Advisors Ltd were

identical as argued by the Ld. Authorised Representative in the

appeal for Assessment Years 2010-11 and 2011-12 and were,

therefore, not being repeated.

Almondz Global Securities Limited (Segmental)

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Ld. AR submitted that this company was functionally dissimilar

as it was into investment banking services and was registered as

a merchant banker with SEBI. It was also submitted that it fails

related party transactions filter. It had also earned super normal

profit of 35.75%.

identical to the submissions filed for Assessment Years 2010-11

and 2011-12 and the same are not being reproduced for the sake

of brevity. Ld. CIT DR also submitted that if all the comparables

objected to by the assessee were to be excluded, nothing would

remain and a de novo selection of the comparables would have to

be done by the TPO. It was submitted that in such a case, all the

three matters should be set aside to the file of the TPO for de

novo selection of comparables.

that none of the comparables included by the TPO had

investment advisory services as it primary function. It was also

submitted that the transfer pricing study of the assessee had not

been rejected by the TPO and, further, no defects had been

pointed out by the department in the transfer pricing study and

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 the dispute related only to comparables and not to the

methodology adopted in the transfer pricing study. It was also

submitted that minor difference in functionality were acceptable

but the emphasis was on ‘minor’ and the broad similarity as

argued by the Ld. CIT DR was way off the mark. It was also

submitted that the assessee company did not provide merchant

banking services whereas many of the comparables selected by

the TPO were registered as merchant bankers. Ld. Authorised

Representative also opposed the plea of the CIT DR that the

matters be restored to the file of the TPO for a fresh adjudication.

the relevant material placed on record. First of all, we take up the

comparables being agitated by the assessee.

(A) Assessment Year 2010-11

10.1 The assessee has submitted that if three comparables

viz. Brescon Advisors & Holdings Ltd., Keynote Corporate

Services Ltd. and Motilal Oswal Investment Pvt. Ltd. are

excluded, the assessee will fall within the range of ±5%,

therefore, initially we proceed to adjudicate on these 3

comparables and other comparables will be taken up at a later

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 stage if the need so arises.

(i) Brescon Advisors & Holdings Ltd.

Ld. Authorised Representative has placed reliance on a

number of case laws and has argued for the exclusion of this

comparable. The ITAT Delhi Bench in the case of Xander

Advisors India Pvt. Ltd. vs ACIT in I.T.A. No. 5840/Del/2012

for Assessment Year 2008-09 has noted in Para 10 of the said

order that this company was engaged in carrying on merchant

banking and investment activities along with providing project

advisory services. The Bench has also noted that this

company had two streams of income namely fee based

financial services and other income. While excluding this

company in the case of Xander Advisors India Pvt. Ltd., the

Bench noted, “assessee’s activity, in nutshell is to tender

advice to the Manager about the avenues for making investment

in real estate and if the Manager agrees to go ahead with such

investment opportunity, then to get involved in the process of

finalisation of the deal and then provide support services,

including maintenance of books of accounts etc. on the clicking

of the deal.” The Bench also noted that no segmental data of

the advisory services being rendered by Xander was available

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 and the availability of separate data could have possibly made

it comparable with the assessee. It is also seen that this

company was excluded by the ITAT Mumbai in M/s

Blackstone Advisors India Pvt. Ltd. in I.T.A. No.

1581/Mum/2014. The Bench observed in page 12 of the

order as under:-

“b) Brescon Corporate Advisors Pvt Ltd:-

As stated by the Ld. Senior Counsel, this company is again rendering services of merchant banker and its income is mainly from financial restructuring and recapitalization and debts syndication. Equity related advisory and M&A Advisory services are also in the capacity of a merchant banker and as a corporate advisor company its main function is to assist the companies in special situation through resolution, re-capitalization, M&M, infusion of profit, equity or direct investment. Thus, like Motilal Oswal Investment Advisory Pvt. Ltd., this company also cannot be compared with companies rendering investment advisory services simplicitor. The reasoning given in the Motilal Oswal for exclusion will apply here also. The decisions relied upon by the Ld. Senior Counsel, especially in the case of Tamasek Holdings Advisors India Pvt Ltd (supra), we find that this company has been especially excluded from being considered while comparing with the companies giving investment advisory services. Accordingly, we direct the TPO/AO to exclude this company from comparability list.”

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 10.2 Thus, ITAT Mumbai Bench has reached a conclusion that

M/s Brescon Corporate Advisors Pvt. Ltd. cannot be compared

with companies rendering investment advisory services. As M/s

Brescon Corporate Advisors Pvt. Ltd. is undisputedly rendering

services of a merchant banker and its income is mainly from

financial restructuring and recapitalization and debts

syndication, it cannot be considered a comparable with the

company providing investment advisory services like the

assessee. Accordingly, we direct the TPO/Assessing Officer to

exclude this company from the final list of comparables.

(ii) Keynote Corporate Services Ltd.

It has been the assessee’s contention that this company has

earned revenue from merchant banking, investment activity,

mergers and acquisition advisory, ESOP Advisory and equity,

debt placements and restructuring. It is the assessee’s

contention that this company is functionally different and for

that purpose it has relied on the order of the ITAT Mumbai Bench

in the case of Carlyle India Advisors Pvt. Ltd. in I.T.A. No.

7901/Mum/2011. The relevant paragraph of the order of the

ITAT Mumbai is being reproduced as under:-

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 “Keynote is a full service investment banking group focused on mid market companies in India. With services that enable our clients to access Capital Markets, Corporate Finance_ Advisory, Mergers and Acquisitions Advistory, ESOP Advisory, Equity/Debt Placements and Restructuring, Keynote has emerged as a one- stop-botique for mid market companies across the country. The Company’s main revenue stream consists of Issue management fees, underwriting fees. The company’s primary segment consists of 3 main activities viz. Services, Dealing in shares and other income. Service Description:Managing of Public Issue of Securities, Underwriting, Project Appraisal, Equity Research, Capital Structuring / Re-structuring, Loan 8s Lease Syndication, Corpora Advisory Sendees, Mergers & Acquisition, Placement Sendees, Portfolio Management. Debenture Trustee, Managing /advising on International Offerings of Debt/Equity, i.e. GOR, ADR, bonds and other instruments, Private Placement of securities, Corporate Advisory Services related to Securities Market e.g. Takeovers, Acquisitions, Disinvestments etc., Advisory services for Projects, International Financial Advisory sendees. Warehousing/ Parking of Securities, Bridge Financing, Bought out Deals relating to Issue Management. Equity Research out of the above sendee can be compared with that of the Assessee’s activity but segmental data is not available. The company’s segment as reported are services, dealing in shares and other income. In the absence of specific data it is not possible to make comparison. It can therefore be safely said that that above is into Merchant Banking and cannot be considered as a comparable.” 10.3 A perusal of the above clearly establishes that Keynote

Corporate Services Ltd. is into merchant banking and accordingly

it cannot be considered as a comparable with the investment

advisory company. Respectfully applying the ratio of the ITAT

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Mumbai Bench, we direct the Assessing Officer/TPO to exclude

this company also from the final list of comparables.

(iii) Motilal Oswal Investment Advisors Pvt. Ltd.

In the case of this company, it is the assessee’s assertion

that this company earns revenue from equity and derivatives,

investment banking, mergers and acquisitions, portfolio

management services, private wealth management and

syndication and structured debt. It is seen that this company

was excluded as a comparable in the case by ITAT Mumbai

Bench in the case of Carlyle India Advisors Pvt. Ltd. (supra).

This was also followed by the ITAT Delhi Bench and this

company was excluded in the case of Actis Advisers Pvt. Ltd. vs

ACIT in I.T.A. No. 1998/Del/2014. This company was also

excluded as a comparable in the case of Ms/ Blackstone Advisors

India Pvt. Ltd. by ITAT Mumbai in I.T.A. No. 1581/Mum/2014

wherein this company was directed to be excluded in page 11 of

the order. The relevant portions are being reproduced for a ready

reference:-

“Motilal Oswal Investment Advisors Pvt Ltd:-

This comparable has been included by the TPO and while 61

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 including the said comparable he has observed that its income is only from Advisory fees during the year and it is performing advisory services in various field and industries including advisory services like assessee. Before us, Ld. CIT DR arguing for its inclusion submitted that, if the ICRA Management services can be included for having revenue from advisory services then on same analogy this company should also be given the same treatment. From the perusal of the directors’ report, it is seen that this company derives its business income from four different business verticals, i.e. Equity capital markets, merger and acquisitions, profit equity syndications and structured debt. It also give advises on cross border acquisition. Its core competence is in the field of merchant banking. It also provides comprehensive investment banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments in international and domestic capital markets, monitoring mergers and acquisitions and advising M&A as professional and restructuring advisory and implementations. It is also involved in various professional activities of the merchant banking. A Merchant Banker provides capital to companies in the form of share ownership instead of loans. It also provides advisory on corporate matters to the companies in which they invest. The focus is on negotiated private equity investment. The wide ranges of activities include portfolio management, credit syndication, counseling on M&A, etc. This whole range of functions and activities carried out by Motilal Oswal is definitely are far wider and much different from investment advisory services where core functions is to give advice for making the investments in diversified

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 fields. A company which is engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of the function as a Merchant Banker, then the entire functions and transactions affects the generation of revenue and margins. Such functions are entirely different from investment advisory services. Mere classification of revenue as ‘advisory fees’ will not put the company in a comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd (supra), it has been held that, the merchant banking functions are entirely different from investment advisory services and this decision of the Tribunal has been upheld by the Hon’ble Bombay High Court. Thus, in view of plethora of judicial decisions as referred to by Ld. Counsel and in view of functional differences as discussed as above, we hold that Motilal Oswal cannot be put into the comparability list and is directed to be excluded.”

10.4 The department also could not bring any new fact on

record which could controvert the assertion made by the Ld.

Authorised Representative except for the plea that only a broad

comparability has to be seen in case of selecting comparables.

However, we are unable to agree with the contentions of the Ld.

CIT DR as this company has been excluded on the basis of

functional dissimilarity in many cases and the department has

not been able to demonstrate with evidence, cases where this

company was accepted as a comparable in another entity 63

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 providing investment advisory services. Accordingly, we direct

the Assessing Officer/TPO to exclude this company also from the

final list of comparables. The assessee has submitted that if the

three comparables viz. M/s Brescon Corporate Advisors Pvt. Ltd.,

Motilal Oswal Investment Advisors Pvt. Ltd. and Keynote

Corporate Services Limited were excluded from the final list of

comparables. The assessee’s transaction will come within the

arm’s length. The assessee has also provided a chart in which

the adjusted OP/TC has been calculated after the exclusion of

these three comparables and it works out to 14.84% as compared

to assessee’s margin of 19.47%. As we have directed the

Assessing Officer/TPO to exclude these three comparables, we

are not adjudicating on the other comparables contested by the

assessee for Assessment Year 2010-11 and direct the Assessing

Officer/TPO to verify the working of the assessee at the time of

excluding these three comparables and working out the new

margins. The assessee will also be given proper opportunity by

the Assessing Officer /TPO while finalizing the margins.

(B) Assessment Year 2010-11

10.5 In Assessment Year 2010-11 also, the assessee has

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 submitted that if M/s Brescon Corporate Advisors Pvt. Ltd.,

Keynote Corporate Services Ltd. and Motilal Oswal Investment

Advisors Pvt. Ltd. were excluded, then the assessee’s transaction

will come within the arm’s length. It has been submitted that

after the exclusion of these three comparables, the adjusted

OP/TC works out to 12.64% whereas the assessee’s margin is

16.54%. As we have already excluded these three comparables

in the appeal for Assessment Year 2010-11 and there is no new

fact on record which has been brought by the department which

could be pleaded for inclusion of these three comparables in this

Assessment Year, following our adjudication for the Assessment

Year 2010-11, we direct the Assessing Officer/TPO to exclude

these three comparables from the final set of comparables in

Assessment Year 2011-12 also and direct the Assessing

Officer/TPO to verify the adjusted OP/TC as submitted by the

assessee before us after giving due opportunity to the assessee of

being heard.

(C) Assessment Year 2012-13

10.6 In Assessment Year 2012-13, it is seen that inclusion of

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Keynote Corporate Services Limited and Brescon Corporate

Advisors Limited have been agitated by the assessee in this year

also as in previous two Assessment Years. As these comparables

have been excluded by us in the earlier appeals for Assessment

Year 2010-11 and 2011-12 and no new fact has been brought on

record by the department during the proceedings before us for

inclusion of these comparables in this year, following our

adjudication for Assessment Years 2010-11 and 2011-12, we

direct the Assessing Officer/TPO to delete Keynote Corporate

Services and Brescon Corporate Advisors Ltd from the final set of

comparables.

10.7 During the course of the proceedings before us, Ld.

Authorised Representative has submitted that he was not

pressing for exclusion of the new comparable included by the

TPO in this year namely Ajcon Global Services Ltd.

10.8 Almondz Global Securities Ltd. - The other remaining

comparable being contested by the assessee is Almondz Global

Securities Ltd. (segmental). It is the assessee’s contention that

this company had been earning revenues from trading and

securities, merchant banking, underwriting, private equity

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 management, distribution and equity booking. Ld. Authorised

Representative has also provided us with a list of merchant

bankers registered with SEBI and has pointed out that company

is registered as a merchant banker at Sl. No. 6 of the said list of

merchant bankers. Reliance has also been placed by the

assessee on the order of the ITAT Mumbai Bench in the case of

Carlyle India Advisors Pvt. Ltd. in I.T.A. No. 1286/Mum/2012

wherein companies engaged in providing investment banking

services were held as not comparable to companies providing

investment advisory services. It is also noteworthy that this

order of ITAT Mumbai has been affirmed by the Bombay High

Court. We have already reproduced the relevant portion of the

order of the ITAT wherein the Bench has discussed and

adjudicated that the issue of exclusion of companies providing

merchant banking services. Respectfully following the same, we

direct that Almondz Global Securities Ltd. be excluded from the

final set of comparables. The assessee has submitted that if

Brescon, Keynote and Almondz Global Securities Ltd. are

excluded from the final set of comparables, the transaction will

be with the arm’s length. As we have already directed the

Assessing Officer/TPO to exclude these three companies from the

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 final set of comparables, we do not feel it necessary to adjudicate

on the remaining comparables and direct the Assessing Officer to

recomputed the adjusted margin (OP/TC) after excluding these

three companies and after giving the assessee due opportunity of

being heard.

10.9 The next issue before is the issue of adjustment on

account of interest on outstanding receivables. This issue is also

common in all the three assessment years. It has been the

submission of the assessee that the outstanding revenue is not a

separate international transaction and that the outstanding

receivables cannot be re-characterised as a loan. It has also

been submitted that TP adjustment cannot be made on a

hypothetical and notional basis unless and until there is some

material on record that there has been undercharging of real

income. It is undisputed that the assessee has been following a

consistent policy with respect to the receivables and payables

from/to the AEs. It is also seen that while making the

adjustment, TPO has not calculated the notional interest by

considering the average time taken by the AE for making the

payment to the assessee. Hon’ble Delhi High Court in the case of

Principal Commissioner of Income Tax vs Kusum Health Care 68

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Pvt. Ltd. in I.T.A. No. 765/2016 vide judgment dated 25th April,

2017 has laid down in Paras 10, 11 and 12 as under:-

“10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression ‘receivables’ does not mean that de hors the context every item of ‘receivables’ appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way.

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345ITR 241 (Delhi).

10.10 It is seen that the TPO has considered a period of 30 days

to be normal for the realization of receivables and has calculated

notional interest on period/number of days exceeding 30 days

while making the upward adjustment, however, as the Hon'ble

Delhi High Court has held in Kusum Health Care Pvt. Ltd.

(supra) that there might be a delay in calculation of money even

beyond the agreed limit due to a variety of factors which have to

be investigated on a case to case basis. The Hon'ble High Court

has also observed that the impact on the working capital of

assessee will also have to be studied. Hon'ble High Court went

on to conclude that there has to be a proper inquiry by the TPO

by analysing the statistics over a period of time to discern a

pattern which would indicate that vis-à-vis receivables for the

supplies made to AE, the arrangement reflected international

transaction intended to benefit the AE in some way. Hon'ble

High Court has also observed that if the entire focus of the

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Assessing Officer is only of one Assessment Year, the figure of

receivables in relation to that AY could hardly reflect a pattern

that would justify the TPO to reach a conclusion that the figure

of receivables beyond prescribed number of days constituted an

international transaction by itself. In the present appeals before

us, no such in-depth analysis of the receivables has been made

by the TPO. Accordingly, we deem it appropriate to restore the

issue of interest on receivables in all the three years to the file of

Assessing Officer/TPO for recalculating the interest on

receivables in conformity with the ratio of judgment of the

Hon'ble Delhi High Court in the case of Kusum Health Care Pvt.

Ltd. (supra). The assessee will be given due opportunity by the

Assessing Officer/TPO before such an adjustment is re-

calculated. This ground stands allowed for statistical purposes

in all three Assessment Years.

10.11 The only effective ground remaining to be adjudicated is

on the plea of the assessee to treat foreign exchange gain/loss as

operating in nature. This issue is squarely covered in favour of

the assessee by the order of ITAT Delhi Bench in the case of

Ericsson India (P) Ltd vs. Additional Commissioner of Income Tax

in ITA No. 1672/Del/2014 reported in 185 TTJ (Del) 738 wherein 71

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 the ITAT Delhi Bench in Para 17 of the said order, while ruling

in favour of the assessee, directed the TPO to treat the foreign

exchange gain/loss as operating in nature in calculating the

operating margin of the assessee as well as final comparable

companies. Respectfully following the same, we set aside this

issue to the file of TPO/AO to treat the foreign exchange

gain/loss as operating in nature in calculating the operating

margin of the assessee as well as final comparable companies.

Accordingly, this ground stands allowed for statistical purposes

in all the three years before us.

partly allowed in terms of our specific observations and

directions.

The order is pronounced in the open court on 4th September,

2017.

Sd/- Sd/-

(R.K. PANDA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 4th September, 2017 ‘GS’

ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 Copy forwarded to:

By Order

ASSISTANT REGISTRAR