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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
The aforesaid cross–appeals arise out of the assessment order passed under section 143(3) r/w section 144C(13) of the Income–tax
2 General Atlantic Pvt. Ltd.
Act, 1961 (for short "the Act") in pursuance to the directions of the Dispute Resolution Panel (DRP) for the assessment year 2011–12.
Though, in grounds no.1 to 8, the assessee has raised various issues relating to the transfer pricing adjustment made by the Transfer Pricing Officer (TPO) and partly upheld by the DRP, however, at the time of hearing, the learned Authorised Representative, Shri Porus Kaka, appearing for the assessee restricted his argument to rejection / selection of some of the comparables as raised in grounds no.3 and 5. Similarly, the only ground raised by the Revenue is with regard to exclusion by the DRP of Motilal Oswal Investment Advisors Ltd., as a comparable selected by the Transfer Pricing Officer. In view of the aforesaid, we will restrict ourselves to adjudicating the issues relating to selection / rejection of certain comparables as disputed before us by both the parties.
Brief facts relating to the issue in dispute are, the assessee an Indian company is engaged in the business of providing non–binding investment advisor services to its Associated Enterprise (A.E) General Atlantic Service Corporation, USA. For the purpose of provisions of such services, the assessee has entered into an agreement with its A.E. on 31st October 2002, which was updated on 31st March 2010. For providing non–binding investment advisory service, the assessee is 3 General Atlantic Pvt. Ltd.
remunerated by its A.E. at cost plus 18% mark–up. In the relevant previous year, the assessee earned operating income of ` 51,88,60,615 from the international transactions relating to provisions of non–binding investment advisory services. The assessee bench marked the international transaction with its A.E. adopting Transaction Net Margin Method (TNMM) as the most appropriate method by selecting itself as tested party. After searching the data bases, the assessee selected five companies as comparable and by considering the weighted average of three financial years of the comparables at 18.38% found the margin shown by it at 18.18% to be at arm’s length requiring no further adjustment to the price charged to A.E. In the course of proceeding, when the Transfer Pricing Officer called upon the assessee to submit margin computation of comparables on single year basis, the assessee furnished the margin of comparables on single year basis which worked out to mean margin of 13.76%. The Transfer Pricing Officer after calling for various details from the assessee found that the skill set employed by the assessee consisted of highly qualified employees considering the pay package given to them which according to the Transfer Pricing Officer is not the case with the comparables selected by the assessee. Pointing out various deficiencies in the comparability analysis done by the assessee the Transfer Pricing Officer ultimately selected the comparables as under:–
4 General Atlantic Pvt. Ltd. i) ICRA Online Ltd. 21.63% ii) Motilal Oswal Investment Advisory Pvt. Ltd. 82.29% iii) Ladderup Corporate Advisory Pvt. Ltd. 52.43% Average Mean 52.12%
In view of the difference between the average margin of the comparables and margin shown by the assessee, the Transfer Pricing Officer worked out upward adjustment of ` 14,40,06,104 to the arm's length price shown by eth assessee. As a consequence of adjustment worked out by the Transfer Pricing Officer, the Assessing Officer framed the draft assessment order adding the transfer pricing adjustment proposed by the Transfer Pricing Officer. The assessee objected to the draft assessment order before the DRP.
The DRP after considering the submissions of the assessee upheld the Transfer Pricing Officer’s decision in rejecting the comparables selected by the assessee. However, accepting assessee’s objection, the DRP excluded Motilal Oswal Investment Advisory Pvt. Ltd. from the list of comparables selected by the Transfer Pricing Officer.
Learned Authorised Representative submitted, ICRA Management Consulting Services Ltd. is functionally similar to the assessee as it is engaged in providing consultancy services in the area of strategy, risk management, process consulting transaction advisory, policy and 5 General Atlantic Pvt. Ltd.
regulation and development consulting. He submitted, this company has a single segment of providing consultancy services. Referring to the annual report of the company, the learned Authorised Representative submitted that the services rendered by the company are broadly similar to the assessee. He submitted, for this reason, ICRA Management Consulting Services Ltd. has been accepted as a good comparable in case of companies engaged in investment advisory services. In support of such contention, he relied upon the following decisions:– i) CIT v/s Temasek Holdings Advisors India Pvt. Ltd., of 2014, (Bom.); ii) CIT v/s Temasek Holdings Advisors India Pvt. Ltd., ITA no. 359/2015, (Bom.); iii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, 67 taxmann.com 221 (Mum.); iv) DCIT v/s Temasek Holdings Advisors Pvt. Ltd., 47 taxmann.com 311 (Mum.); v) Temasek Holdings Advisors India Pv t. Ltd. v/s DCIT, 38 taxmann.com 80 (Mum.); vi) Blakstone Advisors India Pvt. Ltd. v/s DCIT, 69 taxmann.com 193; vii) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.537/ Mum./2016; and viii) AGM Advisors Pvt. Ltd. v/s DCIT, 70 taxmann.com 219 (Mum.).
6 General Atlantic Pvt. Ltd.
Learned Authorised Representative submitted, even in assessee’s own case for assessment year 2009–10, the DRP has accepted this company as a comparable. So far as the IDC (India) Ltd., is concerned, the learned Authorised Representative submitted that this company is functionally similar to the assessee and has been accepted as a good comparable in case of companies providing non–binding investment advisory services. In support of such contention, he relied upon the following decisions:–
i) General Atlantic Pvt. Ltd. v/s DCIT, 32 taxmann.com 178; ii) CIT v/s General Atlantic Pvt. Ltd., 68 taxmann.com 88; iii) General Atlantic Pvt. Ltd. v/s CIT, 36 taxmann.com 44; iv) CIT v/s General Atlantic Pvt. Ltd., ITA no.251/Mum./2014; v) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.537/Mum./ 2016; vi) AGM India Advisors Pvt. Ltd. v/s DCIT, 70 taxmann.com 219; vii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, 87 taxmann.com; viii) CIT v/s Carlyle India Advisors Pvt. Ltd., 32 taxmann.com 23; ix) Carlyle India Advisors Pvt. Ltd. v/s DCIT, 43 taxmann.com 184; x) TPG Capital India Pvt. Ltd. v/s DCIT, 79 taxmann.com 101; xi) Warburg Pincus India Pvt. Ltd. v/s DCIT, ITA no.1612/Mum./ 2015; xii) Warburg Pincus India Pvt. Ltd. v/s ACIT, 78 taxmann.com 273;
7 General Atlantic Pvt. Ltd. xiii) CIT v/s Temasek Holdings Advisors India Pvt. Ltd., of 2014; xiv) CIT v/s Temasek Holdings Advisors India Pvt. Ltd., ITA no. 359 of 2015; xv) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, 67 taxmann.com 221; xvi) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, 38 taxmann.com 80; and xvii) DCIT v/s Temasek Holdings Advisors Pvt. Ltd., 47 taxmann.com 311.
Learned Authorised Representative submitted, in assessee’s own case for assessment year 2006–07 while dismissing the Revenue’s appeal, the Hon'ble Jurisdictional High Court has upheld the decision of the Tribunal in accepting IDC (India) Ltd. as a comparable on the reasoning that Carlyle India, wherein IDC (India) Ltd. was found to be a comparable, is functionally similar to the assessee. Learned Authorised Representative submitted, even in assessee’s own case for assessment year 2009–10, the DRP has accepted IDC India Ltd. as a comparable to the assessee. He submitted, in view of the judicial precedents on the issue, IDC India Ltd. should be treated as a comparable to the assessee. So far as selection of Ladderup Corporate Advisory Pvt. Ltd. is concerned, the learned Authorised Representative submitted, the company being a merchant banker cannot be treated as a comparable to the assessee. In support of such contention, he relied upon the following decisions:–
8 General Atlantic Pvt. Ltd. i) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, 87 taxmann.com 168; and ii) McKinsey Knowledge Centre Pvt. Ltd. v/s DCIT, 77 taxmann.com 164 (Del.).
Learned Departmental Representative relying upon the written submissions filed by him submitted that comparables have to be selected keeping in view provisions of rule 10(B)(2) with reference to specific characteristic of the services provided, the functions performed, taking into account assets employed and the risk assumed by the respective parties. Learned Departmental Representative submitted, ICRA Management Consulting Services Ltd. is not comparable to the assessee on account of difference in skill set. He submitted, the average salary per employee in case of ICRA Management Consulting Services Ltd. is much lesser than the average salary in case of employees of the assessee which reflects low value addition in the functions performed. The learned Departmental Representative submitted, apart from difference in skill set the company cannot be considered as a comparable due to substantial sub–contracting work, fluctuating profit over the years, owning of intangibles. He submitted, due to the difference in functionality, the company cannot be considered as a comparable. In support of such contention, he relied upon the decision of the Hon'ble Delhi High Court
9 General Atlantic Pvt. Ltd. in Ramp Green Solutions Pvt. Ltd. v/s CIT, [2015] 60 taxmann.com 355 (Del.).
Insofar as IDC India Ltd. is concerned, the learned Departmental Representative relying upon the observations of the Transfer Pricing Officer and the DRP submitted that the company cannot be considered as a comparable due to substantial difference in character of service provided, assets employed and functions performed. He submitted, this company is engaged in offering advice on market strategy and tactics, e–journal, IDC tracker products, etc. He submitted, this company has been rejected as a comparable in case of Actis Advisors Pvt. Ltd. v/s ACIT, 55 taxmann.com 485 (Del.).
So far as Ladderup Corporate Advisory Pvt. Ltd. is concerned, the learned Departmental Representative submitted that the company is providing functional corporate advisory services, hence, functionally similar to the assessee. Therefore, it has been rightly included as a comparable. Arguing against the exclusion of Motilal Oswal Investment Advisors Ltd., learned Departmental Representative referring to the observations of the Transfer Pricing Officer submitted that the company being a good comparable should not be rejected.
In the rejoinder, the learned Authorised Representative submitted that ICRA Management Consulting Services Ltd. and IDC
10 General Atlantic Pvt. Ltd.
(India) Ltd. were excluded by the Transfer Pricing Officer / DRP only on the ground of difference in skill set. He submitted, at this stage, the learned Departmental Representative cannot substitute the reasoning of Transfer Pricing Officer / DRP by making fresh argument on the functionality of the comparables which have never been examined at any stage.
So far as comparability of Motilal Oswal Investment Advisors Ltd. is concerned, the learned Authorised Representative strongly supporting the decision of the DRP submitted that the issue is no more res integra in view of a number of decision of the Tribunal on the comparability of this company.
We have heard rival submissions and perused material available on record. Insofar as ICRA Management Consulting Services Ltd. is concerned, the Transfer Pricing Officer has rejected it as a comparable basically on the reasoning that unlike the assessee this company is providing management consulting service. One more reason by the Transfer Pricing Officer to exclude this company is difference in skill set of employees. However, we find nothing new in the argument of the Department as upon consideration of the very same argument, this company has been found to be a comparable to a non–binding investment advisory service provider. It is relevant to observe, in case
11 General Atlantic Pvt. Ltd. of AGM India Advisors Pvt. Ltd. v/s DCIT, [2017] 79 taxmann.com 86 which is for the very same assessment year, the Tribunal after considering argument advanced by the Department regarding difference in skill set held that ICRA Management Consultancy Services is a valid comparable to a company providing non–binding investment advisory services. It is also relevant to note, in assessee’s own case for assessment year 2009–10, this company has been accepted as a comparable by the DRP. Even otherwise also, the observations of the Transfer Pricing Officer on difference in skill set between the assessee and the comparable company appears to be not on the basis of proper analysis of fact and more on assumption and presumption. As regards other functional differences of this comparable pointed by the learned Departmental Representative, it needs to be mentioned, neither Transfer Pricing Officer nor DRP have deliberated on those aspects. Since these issues raised by the learned Departmental Representative are completely new issues and never raised at any stage earlier, we do not consider it appropriate to deal with them as it requires verification of fresh facts. Therefore, respectfully following the decisions of the Tribunal cited before us by the learned Authorised Representative, we direct the Assessing Officer to accept this company as a comparable.
Insofar as IDC (India) Ltd. is concerned, it is observed, in assessee’s own case for assessment year 2006–07, the Tribunal
12 General Atlantic Pvt. Ltd. accepted this company as a comparable which was upheld by the Hon'ble Jurisdictional High Court while dismissing the appeal filed by the assessee. While upholding the decision of the Tribunal, the Hon'ble Jurisdictional High Court observed that since the non–binding advisory service provided by the assessee is similar to the service provided by Carlyle India Ltd., wherein, IDC (India) Ltd. is accepted as a comparable there is no reason to defer with the decision of the Tribunal. It is necessary to observe, in case of other assessees engaged in providing non–binding investment advisory services akin to the assessee for the very same assessment year, the Tribunal has held that IDC (India) Ltd. is a good comparable. In this context, we refer to the decisions of the Tribunal in case of AGM India Advisory Pvt. Ltd. (supra) and Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, 87 taxmann.com 168 (Mum.). Moreover, in assessee’s own case in the earlier assessment years, this company having been found to be functionally similar was accepted as a comparable. In view of the aforesaid, we direct the Assessing Officer to include this company as a comparable.
Insofar as Ladderup Corporate Advisory Pvt. Ltd. is concerned, it is seen that the comparability of this company to an investment advisory service provider came up for consideration before the Tribunal, Mumbai Bench, in Temasek Holding Advisors India Pvt. Ltd.
13 General Atlantic Pvt. Ltd.
(supra). The Bench after considering the submissions of the parties having found that the company is registered as a Category–1 Merchant Banking Company with SEBI and is engaged in Merchant Banking service w.e.f. July 2010 held that the company cannot be treated as comparable to non–binding investments advisory provider. Respectfully following the aforesaid decision of the Co–ordinate Bench, we exclude this company from the list of comparables.
As far as Motilal Oswal Investment Advisors Ltd. is concerned, different Benches of the Tribunal including Mumbai Benches have decided against including this company as a comparable to an investment advisory service provider. In fact in the case of AGM India Advisory Pvt. Ltd. (supra), which is for the very same assessment year, the Tribunal has excluded this company as a comparable finding that it is engaged in four different business verticals such as equity capital markets, merger and acquisition, profit equity syndications and structure debts. The Tribunal found that company’s core competence is in the field of merchant banking. Considering the aforesaid aspects, the Tribunal held that this company cannot be treated as comparable to an investment advisory service provider. Respectfully following the consistent view of the different Benches of the Tribunal, we uphold the decision of the DRP on this issue.
14 General Atlantic Pvt. Ltd.
It is relevant to observe, in the course of hearing, the learned Authorised Representative has submitted before us that on inclusion of ICRA Management Consulting Services Ltd., IDC (India) Ltd. and exclusion of Ladderup Corporate Advisory Pvt. Ltd. and Motilal Oswal Investment Advisors Ltd., assessee’s margin will fall within +/– 5% of the average margin of the remaining comparables. In view of the aforesaid submissions of the assessee, the issue relating to comparability of Crisil Rest and Infrastructure Solutions Ltd. being of mere academic nature is not required to be deliberated upon. Grounds raised by the assessee are partly allowed and ground raised by the Department is dismissed.
Grounds no.9 and 10 being pre–mature at this stage of proceedings are not required to be adjudicated upon.
In the result, assessee’s appeal is partly allowed and Revenu’s appeal is dismissed. Order pronounced in the open Court on 21.02.2018