SUN-ARES INDIA REAL ESTATE P.LTD,MUMBAI vs. DCIT 14(3)(2), MUMBAI

The captioned appeal by assessee for Assessment Year [AY] 2011- 2012 assails final assessment order dated 05/01/2016 of Ld. Deputy SUN-Ares India Real Estate Private Ltd. Assessment Year 2011-12 Commissioner of Income Tax-Circle 14(3)(2) [DCIT] passed u/s 143(3) read with Section 144C(13) of the Income Tax Act, 1961 primarily qua transfer pricing adjustment made by lower authorities. 2.1 Briefly stated, the assessee being resident corporate assessee engaged in investment advisory services has been assessed at Rs.783.36 Lacs after transfer pricing [TP] adjustment of Rs.527.54 Lacs as against returned income of Rs.255.81 Lacs filed by the assessee on 16/11/2011. 2.2 Since transfer pricing issues were involved, a reference u/s 92CA(1) was made to Transfer Pricing Officer [TPO] on 14/11/2013 for determination of Arm’s Length Price [ALP] of international transactions. The TPO, vide order dated 27/01/2015, proposed an upward TP adjustment of Rs.736.40 Lacs which was incorporated in the draft assessment order passed u/s 144C dated 13/03/2015 and sent to Dispute Resolution Penal [DRP] for its directions. The assessee raised objection before DRP and after considering the same, DRP finalized its directions vide order dated 14/12/2015. Finally, pursuant to the said directions, assessment was completed u/s 143(3) read with Section 144C(13) on 05/01/2016 wherein TP adjustment of Rs.527.54 Lacs have been made. Aggrieved, the assessee is in further appeal before us. 2.3 The brief background of the international transaction carried out by the assessee during impugned AY is that it has rendered investment advisory services with respect to Real Estate market in India to its Associated Enterprises [AE] namely Sun Apollo Management LLC, Mauritius SUN-Ares India Real Estate Private Ltd. Assessment Year 2011-12 amounting to Rs.16.07 Crores and benchmarked the same using Transactional Net Margin Method [TNMM] and selected Operating Profit / Cost [OP/PC] as its Profit Level Indicator [PLI]. In its TP study, the assessee arrived at a mark-up of 16% as against three years’ weighted average mean of 8.5% of three comparables namely ICRA Management Consulting Services Ltd., ICRA online Ltd. & IDC (India) Ltd. and therefore, contended that no TP adjustment was required to be made. However, Ld. TPO while rejecting assessee’s three comparables, alternatively suggested four comparables, which after considering assessee’s submissions were finally reduced to two i.e. Ladderup Corporate Advisory Services Ltd. [LCASL] & Motilal Oswal Investment Advisory Pvt. Ltd. [MOIAPL]. The Ld. TPO computed arithmetic mean of the two comparables @67.33% as against assessee’s adjusted mark up of 14.76%. Accordingly, applying the mark up of 67.33% to the assessee’s operating cost of Rs.14 crores, the ALP of the transaction was computed at Rs.23.43 crores as against Rs.16.07 crores being reflected by the assessee which led to an upward TP adjustment of Rs.7.36 Crores. 2.4 The assessee, before Ld. DRP contested the adjustment by justifying the three comparables selected by the assessee and at the same time assailed the two new comparables selected by the Ld. TPO by drawing attention, inter-alia, to the functional comparability of the comparables. However, Ld. DRP while upholding the rejection of assessee’s three comparables and rejecting one comparable selected by TPO viz. MOIAPL SUN-Ares India Real Estate Private Ltd. Assessment Year 2011-12 finally upheld the acceptance of one comparable namely Ladderup Corporate Advisory Services Ltd. [in short ‘Ladderup’]. The stand of Ld. DRP has reduced the final TP adjustment to Rs.527.54 Lacs, against which the assessee is in further appeal before us. As far as the revenue is concerned, it has accepted the verdict of Ld. DRP and has not contested the same any further.

The Ld. Authorized Representative for Assessee [AR] primarily stressed the point that the three comparables selected by the assessee were functionally similar to the functions being performed by the assessee and therefore most appropriate one as against the final comparable selected by Ld. TPO which was not functionally similar. Reliance has been placed on certain judicial pronouncements as placed in the paper-book for exclusion / inclusion of the comparables in question. Per Contra, Ld. Departmental Representative [DR] justified the selection of the final comparable and contended that if assessee’s comparables were to be accepted then revenue’s comparable was also acceptable since they all were functionally similar. Reliance has been placed on the order of this Tribunal rendered in AGM India Advisors Pvt. Ltd. Vs DCIT [79 Taxmann.com 86]. 4.1 We have carefully heard the rival contentions and perused relevant material on record including the decisions cited by respective representatives for exclusion / inclusion of the comparable. First of all, both sides converge on the point that the assessee was engaged in providing SUN-Ares India Real Estate Private Ltd. Assessment Year 2011-12 investment advisory services of non-binding in nature. The fact is not in dispute before the lower authorities. On this backdrop, we find that so far as the selection of final comparable namely Ladderup is concerned, this Tribunal in the case of Temasek Holding Advisors India P. Ltd. Vs. DCIT [87 Taxmann.com 168] for identical Assessment year observed that Ladderup was registered as Category-1 Merchant Banker with SEBI and was engaged in rendering merchant banking services w.e.f. 01/07/2010 which fact was duly substantiated by the website of the company as well as its Annual Reports and therefore, not functionally comparable with an entity which was engaged in the business of rendering non-binding investment advisory services. The ratio of this decision has subsequently been followed in recent decision of the Tribunal rendered in Wells Fargo Real Estate Advisors Private Ltd. Vs DCIT [ITA No. 1520/M/2016 17/01/2018]. We also find that the reliance of the revenue on the case of AGM India Advisors Pvt. Ltd. Vs DCIT [supra] was misplaced since no findings regarding this comparable has been given by the Tribunal in that order since the assessee came within the range of +/-5% even with inclusion of this comparable. Therefore, finding identical facts in the present case and respectfully following the judicial precedent, we direct exclusion of this comparable from final analysis. 4.2 Regarding acceptance of assessee’s comparable namely ICRA Management Consulting Ltd. & IDC Ltd., Ld. AR rightly placed reliance on the decision of this Tribunal rendered in AGM India Advisors Pvt. Ltd. Vs SUN-Ares India Real Estate Private Ltd. Assessment Year 2011-12 DCIT [79 Taxmann.com 86] for identical AY wherein this Tribunal has found both these comparable functionally similar to an assessee carrying out investment advisory services. Respectfully following the same, we direct for inclusion of these two comparables. 4.3 So far as the selection of ICRA online Ltd. by the assessee is concerned, Ld. AR has only stressed the point that this comparable has been accepted by the revenue in subsequent year and therefore, the same was an appropriate comparable. However, Ld. AR could not adduce any material to show functional similarity / comparability between the two entities and therefore, we are not inclined to accept the contention of the assessee in this regard. 4.4 At this juncture, we find that if the two comparables selected by the assessee and upheld by us in paragraph 4.2 are included and the comparable namely Ladderup selected by the revenue is excluded, the assessee’s adjusted margin of 14.76% as computed by the revenue well exceeds the margin of the comparables on the basis of single year data. The stated fact, in itself, makes the other contentions raised by assessee, merely academic in nature and therefore, we do not find any necessity to delve into the same. Therefore, the matter is restored back to the file of Ld. AO to compare the margins / PLI of the assessee vis-à-vis margins / PLI of the two comparables and re-compute the total income of the assessee in terms of our above order.