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order of the Assessing Officer,dated 27/11/2015,passed in pursuance of the Directions of the DRP-2,Mumbai,dtd. 27/11/2015,the assessee has filed present appeal. Assessee-company,engaged in the business of providing non-binding investment advisory services and support services to its Associated Enterprise(AE),filed its return of income on 29/11/2011,offering total income of Rs.2.58 crores.The AO completed the assessment on, 04/ 01/2016, u/s.143 (3) r.w.s.144C (13) of the Act,determining its income at Rs. 5.87 crores. 2.During the course of hearing before us,the Authorised Representative (AR)stated that first three grounds were of general nature,that the assessee was not interested in pressing Grounds of appeal no. 4 and 7.Therefore,we are not adjudicating Grounds no.1-3.Grounds no. 4 and 7 stand dismissed,as not pressed. 3.During the assessment proceedings, the AO found that the assessee has entered into International Transactions (IT.s) with its Associated Enterprises (AE).He made a reference to the Transfer Pricing Officer (TPO) to determine the arm’s length price (ALP) of the IT.s. He proposed an upward adjustment of Rs.4.89 crores,vide his order dated 27/01/2015. Accordingly, the AO issued a draft assessment order and it was challenged before the DRP. After receiving the directions of the DRP,the AO finalised the assessment, as stated earlier. 4.Effective ground of appeal (Gs.OA-5&6)is about exclusion of certain comparables and inclusion of two comparables.During the Transfer Pricing (TP) proceedings, the TPO found that the assessee had earned a net profit margin of 15.03% on operating costs, as compared to the weighted average margin of 12.59% on operating costs considering the financial data of 1
ITA/1520/M/16- Wells Fargo Real Estate Advisors Pvt.Ltd. comparable companies for the past three AY.s i.e. AY.s 2009-10,2010-11and 2011-12,that the updated margin using single year data worked out at 11.13% on operating cost, that it had used TNMM as most appropriate method, that it claimed that IT.s undertaken by it were at arm’s length. It had selected following seven comparables:- Access India Advisers Ltd.,Future Capital Investment Advisers Ltd.,ICRA Management Consulting Services Ltd., IDCI Limited , Informed Technologies Ltd., Integrated Capital Services Ltd. and Kinetic Trust Ltd. But,data for three comparables, namely Access India Advisers Ltd., Future Capital Investment Advisers Ltd. and Kinetic Trust Ltd,was not available for the year under consideration.Therefore,the stand alone margin was taken for the year under appeal.The TPO rejected all the comparables selected by the assessee and selected three new comparables to benchmark the IT.s. The summary of the margins and by comparable selected by the TPO, can be tabulised as under: SN. Name of the company Margin % 1 Motilal Oswal Advisers India Private Ltd. 82.57 2 Ladderup Corporate Advisory Private Ltd. 52.42 3 Motilal Oswal Private Equity Advisers India Private Ltd. 32.38 Arithmetic Mean 55.68 The AO issued draft order after receiving the order of the TPO. Before the DRP, the assessee made elaborate submissions and relied upon many case laws. After considering the available material, the DRP held that MOAIPL was not a valid comparable to benchmark the of the IT.s, that the TPO was justified in rejecting all the comparable selected by the assessee, that he had rightly adopted the single year data as against the three years data used by the assessee, that the comparables selected by the assessee were functionally different. 5.During the course of hearing before us,the uthorised Representative(AR)stated that the DRP was not justified in approving the rejection of the comparables selected by the assessee, that it had wrongly approved two new comparables, that the new comparables were functionally different from the assessee,that comparables selected by the assessee were rendering the similar services as provided by it,that the Tribunal had approved the comparables,selected by the assessee, for benchmarking the IT is related with non-binding investment advisory services. He relied upon the case of Temasek Holdings Advisers India Private Ltd.(ITA/477/Mum/2016-AY.2011-12,dated-11/08/2017).
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The Departmental Representative(DR)contended that IDC was a valid comparable for support service system but not for the non-binding advisory services,that Informed Technology was not in the business of providing non-binding investment advisory services,that it was providing ITE-s,(SN.15,LPB 1 pg 189),that ICRA was showing fluctuating profits,that it was rightly taken out of the list of valid comparables,(SN.18,19 of Index, PTC all scripts). About Motilal Oswal Private Equity Advisers India Private Ltd.and Ladder the DR stated that both were carrying out functions that were similar to the parent company of the assessee. 5.1.In his rejoinder the AR stated that in the AY.2009-10 there were two entities i.e.IDC and ICE(India),that India Research Media was different from IDC India,that Cyber Media Research Ltd was known as IDC(India)Ltd.(Pg.423 of the PB),that Cyber Media(India) Ltd. was in the fields of market research and management consultancy,that page 452 of the PB was about Holding company,that Informed Technology was engaged in ITE.s,that it was on the same vertical,that fluctuation in profit was not to be seen,that profit fluctuation could not be reason for rejecting any comparable,that functional comparability was to be seen and not the profit,that in the matter of AGM all the arguments of the DR were considered by the Tribunal. He referred to pages 423,451,821,823 and 843 of the paper book. 6.We have heard the rival submissions and perused the material before us.We find that the assessee is engaged in the business of providing non binding advisory services,that it has used TNMM to determine the ALP of the IT.s. entered into by it with its AE.s.,that PLI shown by it was OP/OC,that profit margin of the IT.s. for the year under consideration, on the basis of data of three AY.s,was 15.03%,that it had selected four comparables on single year basis,that the average shown by them was 11.3%,that the TPO rejected all the comparables selected by the assessee,that he selected three new comparables,that average of the new comparables was 55.68% ,that the AO made TP adjustment of Rs.4.89 crores to the total income of the assessee,as suggested by the TPO,that the DRP upheld the rejection of the comparables selected by the assessee,that it also rejected one of the comparables used by the TPO,that the margin of the two comparables was 42.4%,that in pursuance of the directions of the DRP the AO made addition of Rs.3.92 crores. 6.1.We find that in the case of Temasek Holding Advisers India Private Ltd (supra),the Tribunal had dealt with the identical facts,that Temasek was also engaged in providing non- binding investment advisory services to its AE, that it had selected the eight comparables, including the seven comparables selected by the assessee, for determining the ALP of the 3
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IT.s, that operating margin was based on multiple years, that single year margin for the AY. under consideration was 13.53%, that the TPO rejected all the comparables selected by the assessee and substituted by a set of three new comparables, that the new comparables were the same that were selected by the TPO for the matter under consideration, that the DRP confirmed the rejection made by the TPO of the comparables selected by the assessee, that it held that MOIAPL was not a valid comparable, that after receiving the order of the DRP,the AO scaled-down the TP adjustment, that the assessee objected to exclusion of the comparable selected by it as well as inclusion of two new comparables, that the representatives of both the sides made almost identical arguments before us that were made in the case of Temasek before the Tribunal,that the Tribunal decided the matter in favour of the assessee.We would like to refer the relevant portion of the order of the Tribunal, delivered in the case of Temasek (supra) and it reads as under: ( para 7-14).
“7. The ld. A.R had assailed before us the rejection of the companies selected by the assessee as comparables and substitution of the same by a set of 2 new companies, viz. M/s Ladder Up corporate Advisory Pvt. Ltd. and M/s Motilal Oswal Pvt. Equity Advisors Pvt. Ltd. by the TPO, which as observed by us hereinabove had been upheld by the DRP. That at the very outset it was averred by the ld. A.R that without pointing out any substantial variance either as regards the functionality or any other factor, the comparables cannot be shifted arbitrarily by the TPO in different years. The ld. A.R restricting himself to the exclusion of two companies selected by the assessee as comparable, viz. ICRA Management Consultancy Services Limited and Informed Technologies Limited, therein submitted that if the exclusion of the said companies as a comparable by the A.O/TPO is set aside, then the case of the assessee would be within the safe harbor of (+)/(-) 5% parameters, and in the backdrop of the said factual position no averrments would be required to be placed in context of IDC India Limited and ICRA Online Limited.
The ld. A.R assailing the rejection of M/s. ICRA Management Consultancy Services Limited by the TPO, which thereafter had been upheld by the DRP, therein drew our attention to Page No. 30 - Para 4.12 of the order of the DRP. It was submitted by the ld. A.R that the DRP had upheld the rejection of the aforesaid comparable by the TPO for the reason that his predecessor in the case of the assessee for the immediately preceding year, i.e A.Y. 2010-11, had upheld the rejection of the said comparable by the TPO. It was thus submitted by the ld. A.R that the upholding of the rejection of the aforesaid comparable, viz. ICRA Management Consultancy Services Limited during the year under consideration was only supported by the observations recorded by the DRP in respect of the said comparable in the case of the assessee for the immediately preceding year, viz. A.Y. 2010-11, and not on the basis of any new facts. The Ld. A.R referring to the aforesaid observations of the DRP submitted that the ITAT, Mumbai bench ‘K’, vide its order passed in the case of the assessee, marked as: Temasek Holding Advisors India Private Limited Vs. DCIT, Circle 14(3)(1), Mumbai, in of 2015 for A.Y. 2010-11, dated 25.02.2016, had categorically held that the aforesaid comparable, viz. ICRA Management Consultancy Services Limited was a good comparable qua the functions of the assessee, and as such had directed that it be included in the list of the final comparables. The ld. A.R drew our attention to Page no. 53 of the ‘APB’, wherein the Tribunal while disposing of the appeal of the assessee for A.Y. 2010-11 had observed as under:- “Here it is not the case where there is any unique functions materially affecting the revenue or net margins vis-à-vis the functions performed by ICRA. Hence on functional level it is a good comparable. As stated earlier, in the earlier years, the TPO has accepted ICRA to be a comparable and in later years the Tribunal in A.Ys 2008-09 & 2009-10 has held ICRA Management to be good comparable qua the functions of the assessee and there being no material change on facts, functional
ITA/1520/M/16- Wells Fargo Real Estate Advisors Pvt.Ltd. profile or any other factor in this year, then as matter of consistency, we do not want to deviate from our findings given in the earlier years. There cannot be a pick and choose of comparables every year unless there are some material difference in facts and circumstances compelling to take a different conclusion. Thus, we hold that ICRA Management is a good comparable and should be included in the list of final comparables.”
It was further submitted by the ld. A.R that in the earlier years the TPO had himself accepted ICRA Management Consultancy Services Limited as a comparable, while for in the later years, viz. A.Y. 2008-09 and 2009-10 the Tribunal had held the aforesaid company to be a good comparable. The ld. A.R in support of his aforesaid contention therein drew our attention to the observations of the coordinate bench of the Tribunal recorded in the case of the assessee for A.Y. 2007-08 and 2008-09, reported as Temasek Holding Advisors (I) Private Limited Vs. DCIT 3(3), Mumbai (2013) 38 taxmann.com 80 (Mumbai-Trib), dated 30.08.2013 (Page 26 of ‘APB’), and the order passed by the Tribunal while disposing of the appeal of the revenue, reported as DCIT, Circle 3(3), Mumbai Vs. Temasek Holding Advisors Private Limited (2014) 47 Taxamann.com 311(Mumbai-Trib) (Page No. 32-33 of ‘APB’). It was thus in the backdrop of the aforesaid factual position averred by the Ld. A.R that the A.O/TPO without placing on record any material which could go to prove that the aforesaid comparable ,viz. ICRA Management Consultancy Services Limited during the year under consideration was found to be either functionally or otherwise at variance, as in comparison to the preceding years, thus were not justified in most arbitrarily excluding it from the final list of the comparables. The ld. A.R further referring to Page 10 of the order of the TPO for the year under consideration therein submitted that the functions performed, assets used and risk taken (‘FAR’) of the aforesaid comparable as against that of the assessee company during the year under consideration was concededly the same as in the A.Y. 2010-11, and drew our attention to Page 9-10 of the TPO order for the aforesaid preceding year, i.e A.Y. 2010-11 (copy placed on record). It was thus submitted by the ld. A.R that now when the facts involved in context of the aforesaid comparable during the year under consideration were the same as against those of the immediately preceding year, viz. A.Y. 2010-11, wherein the said company had been accepted by the Tribunal as a good comparable, coupled with the fact that even in the preceding years also it was accepted as a comparable, therefore, in the absence of any substantial variance, either functionally or otherwise during the year under consideration, the said comparable could not be summarily rejected. The ld. A.R further submitted that the order of the ITAT, Mumbai in the case of the assessee for A.Y. 2008-09 wherein ICRA Management Consultancy Services Limited was held to be a good comparable, had been upheld by the Hon’ble High Court of Bombay in CIT-3 Vs. Taemask Holdings Advisors Pvt. Ltd (ITA No. 1051 0f 2014); Dt. 17.11.2016, and placed on record a copy of the order of the Hon’ble High Court. It was further averred by the ld. A.R that the ITAT, Mumbai Bench “K””, in the case of AGM India Advisors (P) Ltd. Vs. DCIT, 10(1), Mumbai (2016) 70 taxmann.com 219 (Mum), had held ICRA Management Consultancy Services Limited as a good comparable, specifically taking note of the fact that it was accepted as such by the TPO in the earlier year as well as in the succeeding year. It was averred by the ld. A.R that the Tribunal in the case of AGM India Advisors (P) Ltd. (supra) had accepted ICRA Management Consultancy Services Limited as a good comparable, after deliberating on three issues, viz. (i). Skill tests (ii). Functional Comparability and (iii). Consistency. The ld. A.R referring to the judgment of the Hon’ble High Court of Delhi in the case of Rampgreen Solution P. Ltd. , therein took us through Para 31 of the order of the Hon’ble High Court, and submitted that it was held by the High Court that a broad comparability on industry base was not to be permitted, and as such high end and low end cannot be compared. The ld. A.R took us through the relevant extracts of the order passed by the Tribunal in its case for A.Y. 2010-11, and therein averred that the Tribunal after deliberating at length had held ICRA Management Consultancy Services Limited as functionally comparable. It was submitted by the ld. A.R that there cannot be cherry picking of comparables, and unless some material difference had arisen during the year under consideration as in comparison to the earlier year, the same could not be whimsically rejected as a comparable. The ld. A.R averred that a fresh filter cannot be introduced for the first time before the Tribunal, because if that be permitted, then all the comparables put up by the TPO will be liable to be excluded. It was lastly submitted by the ld. A.R that now when the functional comparability of ICRA Management Consultancy Services Limited had duly been appreciated by the Tribunal in the case of the assessee in the earlier years, then in the backdrop of the ‘Principle of Consistency’, a different view on the same set of functional profile cannot be drawn. Per contra, Ld. Departmental Representative (for short D.R) in order to drive home his contention that ICRA Management Consultancy Services Limited could not be accepted as a comparable, therein relied on the order of the ITAT, Delhi in the case of Motorola Solution India (P) Ltd. Vs. ACIT,
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Circle-2 (2014) 48 taxmann.com 248 (Delhi-Trib), and took us through Para 143-145 of the order. The Ld. D.R further placed reliance on the order of the ITAT, Mumbai ‘K’ Bench in the case of : Maersk Global Centres (India)(P). Ltd. vs. ACIT (2014) 43 taxmann. Com. 100 (Mumbai – Trib). The ld. D.R during the course of hearing of the appeal averred that for the purpose of adjudicating the present appeal of the assessee, the earlier orders passed by the Tribunal in the assesses own case cannot be characterized as a precedent. The ld. D.R in order to drive home his aforesaid contention, relied on the following judgments of the Hon’ble Supreme Court :- (i) Dalbir Singh & Others Vs. State of Punjab (1979) 3 SCC 745 (ii). KTMTM Abdul Kayoom & Anr Vs. CIT (1962) Supp (1) SCR 518 (iii). Fida Hussain & Others Vs. Moradabad Dev. Authority (2011) 12 SCC 615 (iv). Executive Engineer, Dhenkanal Minor Irrigation Vs. N.C Budhiraja (2001) 2 SCC 721 The ld. D.R thus on the basis of material placed on record, therein submitted that ICRA Management Consultancy Services Limited could not be accepted as a comparable and had rightly been excluded by the TPO and upheld by the DRP.
We have heard the Ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material placed on record. We have given a thoughtful consideration to the facts of the case and find that the DRP as a matter of fact relying on the order passed by his predecessor in the case of the assessee for A.Y. 2010-11, wherein the rejection of the aforesaid comparable, viz. ICRA Management Consultancy Services Limited by the TPO was upheld by his predecessor, had merely gone by the said very reason and upheld the rejection of the said comparable during the year under consideration. We find that the rejection of the aforesaid comparable by the AO/TPO in A.Y. 2010-11 had been set aside by the Tribunal in the case of the assessee, reported as Temasek Holding Advisors India Private Limited Vs. DCIT, Circle 14(3)(1), Mumbai, vide order dated 25.02.2016, wherein the Tribunal had categorically held that the aforesaid company, viz. ICRA Management Consultancy Services Limited was a good comparable and had directed the inclusion of the same in the list of the final comparables. We are of the considered view that now when the order of the AO/TPO in the case of the assessee for the immediately preceding year, viz. A.Y. 2010-11, therein excluding the aforesaid comparable, viz. ICRA Management Consultancy Services Limited had been set aside by the Tribunal, therefore, the rejection of the said comparable, viz. ICRA Management Consultancy Services Limited by the A.O during the year under consideration, pursuant to the direction of the DRP, who had merely adopted the observations of his predecessor on A.Y. 2010-11, thus cannot be upheld and is liable to be vacated on the said count itself. We are further persuaded to subscribe to the contention of the ld. A.R that cherry picking of the comparables every year by the TPO, without pointing out that the facts in context of the comparables accepted in the preceding years had changed during the year under consideration, cannot be permitted. We further find that the aforesaid comparable, viz. ICRA Management Consultancy Services Limited had also been held to be a good comparable by the Tribunal in the case of the assessee for A.Y(s). 2007-08, 2008-09 and 2009-10, while for in the earlier years the TPO himself had accepted the said company as a comparable. We further find that the order of the ITAT, Mumbai in the case of the assessee for A.Y. 2008-09 wherein ICRA Management Consultancy Services Limited was held to be a good comparable, had been upheld by the Hon’ble High Court of Bombay in CIT-3 Vs. Taemask Holdings Advisors Pvt. Ltd (ITA No. 1051 0f 2014); Dt. 17.11.2016. We have given a thoughtful consideration to the contentions of the ld. D.R and are not persuaded to accept his contention that ICRA Management Consultancy Services Limited was functionally different as in comparison to the assessee before us. We have deliberated on the judgments of the Hon’ble Apex Court and find that it has been held that a decision of this court on specific facts does not operate as a precedent for future cases. We are of the considered view that there cannot be a second view on the said aspect, but then, as held by the Hon’ble Apex Court, if the court decides a certain issue for a certain set of facts, then, that issue stands determined for any other matter on the same set of facts. We are of the considered view that now when the ld. D.R had failed to establish as to how the facts involved in the present case are found to be distinguishable in context of the aforesaid comparable, viz. ICRA Management Consultancy Services Limited or the assessee in the year before us, as in comparison to those of the preceding years, therefore, the principle enunciated by the Hon’ble Apex Court in the aforesaid cases would not assist the case of the department. We rather
ITA/1520/M/16- Wells Fargo Real Estate Advisors Pvt.Ltd. are of the considered view that now when the facts in respect of the assessee or the comparables have not witnessed any change during the year under consideration, as in comparison to the earlier years, therefore, the aforesaid principle so laid down by the Hon’ble Supreme Court would go to support the contention of the assessee that in case of no change in the functional profile of the assessee or ICRA Management Consultancy Services Limited, the latter cannot be rejected as a comparable during the year under consideration. We thus in the backdrop of our aforesaid observations are of the considered view that now when ICRA Management Consultancy Services Limited had been held to be a good comparable in the case of the assessee for the preceding years by the Tribunal, and the order of the Tribunal for A.Y. 2008-09 had even been upheld by the Hon’ble High Court of Bombay while dismissing the appeal of the department for A.Y. 2008-09, therefore, we are not persuaded to accept the aforesaid contentions of the ld. D.R. Thus in the totality of the aforesaid facts, we are of the considered view that there is no reason for us to take a view divergent from that arrived at by the Tribunal in the case of the assessee for the preceding years, and thus set aside the order of the AO/TPO rejecting the aforesaid comparable and direct that the same be included in the final list of the comparables.
The ld. A.R assailing the rejection by the AO/TPO of M/s. Informed Technologies Limited which was selected by the assessee company as a comparable, therein drew our attention to Page 13 of the order of the TPO. It was submitted by the ld. A.R that the TPO being of the view that as the aforesaid comparable had received data outsourcing charges, i.e BPO income of Rs.1.75 crore and was registered with Software Technology Park India (STPI), thus it was functionally not comparable with the assessee company. It was submitted by the ld. A.R that the TPO holding a conviction that the services of the aforesaid comparable, as gathered from the ‘Annual report’, was as that of a BPO, but unlike the industry which witnessed growth year to year, the income of the aforesaid comparable had witnessed a downslide, thus doubted the veracity of the state of affairs of the said comparable and had excluded the same from the final list of the comparables. In the backdrop of the aforesaid facts it was submitted by the ld. A.R that the aforesaid comparable, viz. Informed Technologies Limited was engaged in offering a range of data Management Services to the financial sector, i.e data based development and data validation and maintenance services. It was submitted by the ld. A.R that the ‘Annual report’ of the aforesaid comparable indicated that it collected and analyzed data on financial fundamentals, corporate governance, director/executive compensation and capital market, which can be compared to the functions performed by the assessee. The assessee submitted before the DRP that ‘declining turnover’ filter may be appropriate in scale based operations rather than in a service entity, as in the latter case the margins are not dependent on the scale or size of operations. It was submitted by the assessee that a ‘declining turnover’ filter would not always increase the reliability of an analysis and hence should not be considered as a factor impacting profitability and comparability. The ld. A.R submitted before us that the TPO in his order passed in the case of the assessee for A.Y. 2009-10 and A.Y. 2010-11 had considered the aforesaid company, viz. Informed Technologies Limited as a comparable to the functions performed by the assessee. It was thus averred by the ld. A.R that now when it remains as a matter of fact that the aforesaid company, viz. Informed Technologies Limited was functionally comparable, and during the year under consideration the functions performed by it were similar to those in A.Y. 2010-11 and 2009-10, therefore, the same could not be whimsically excluded by the TPO as a comparable during the year under consideration. The ld. A.R in order to substantiate his aforesaid contention placed on record the ‘Annual report’ along with the financial statements of the aforesaid comparable, viz. Informed Technology India Pvt. Ltd. for the immediately preceding year, i.e A.Y. 2010-11. That on the other hand the ld. D.R drawing our attention to the order of the TPO and the ‘Annual report’ of the aforesaid comparable for the year under consideration (Page 262), therein averred that as the said comparable unlike the assessee was a BPO and not into the ‘Investment advisory business’, therefore, the same was functionally incomparable and had rightly been rejected by the TPO. The Ld. D.R in order to fortify his aforesaid contention, therein submitted that as stood gathered from the ‘Financial statements’ of the aforesaid comparable (Page 253 of APB), the latter unlike the assessee had paid a hefty salary aggregating to Rs. 63,64,818/- during the year under consideration. Thus in the totality of the contentions raised before us and after referring to the material placed on our record, it was submitted by the ld. D.R that the aforesaid comparable was functionally different, and had rightly been excluded by the TPO from the final list of the comparables.
11. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material produced before us. We have given a thoughtful consideration to the facts of the case and find that in the case of the assessee for the immediately preceding year, i.e A.Y. 2010-11, the aforesaid comparable had been accepted by the TPO as a good comparable, and was consequently included in the final list of comparables. We find ourselves to be in agreement with the ITA/1520/M/16- Wells Fargo Real Estate Advisors Pvt.Ltd.
contention of the ld. A.R that now when the aforesaid comparable had been accepted by the TPO in the immediately preceding year, i.e A.Y. 2010-11, therefore, without pointing out any substantial variance, either functionally or otherwise, it would be absolutely impermissible on the part of the TPO to whimsically reject the said comparable during the year under consideration. We are further persuaded to subscribe to the contention of the ld. A.R that though ‘declining turnover’ filter may be appropriate in scale based operations, but the same cannot be applied to the exclusion of the other relevant factors for drawing of adverse inferences in the case of a service entity, as margins in the latter case are not dependent on the scale or size of operations. Thus in the backdrop of our aforesaid observations, we are of the considered view that now when the comparable, viz. Informed Technologies Limited had been considered as a good comparable qua the functions performed by the assessee in A.Y. 2009-10 and A.Y. 2010-11, therefore, in the absence of any material change, there is no reason as to why the same is to be rejected as a comparable during the year under consideration. We thus in the backdrop of our aforesaid observations are not persuaded to subscribe to the contentions of the ld. D.R who had tried to impress upon us that in light of certain facts in respect of the aforesaid comparable, which were not there before the Tribunal in the preceding years, it could safely be concluded that the same was functionally different as in comparison to the assessee. We thus are of the considered view that the aforesaid comparable, viz. Informed Technologies Limited had rightly been selected by the assessee as a comparable, therefore, set aside the order of the AO/TPO and direct that the same be included in the final list of the comparables.
12. We now advert to the new comparables which had been included by the TPO in the final list of comparables. The ld. A.R strongly assailing the inclusion of M/s. Ladderup Corporate Advisory Private Limited as a comparable by the TPO, which thereafter had been upheld by the DRP, therein submitted that the aforesaid company was functionally not comparable and had wrongly been included by the TPO in the final set of comparables. The ld. A.R drew our attention to the ‘Profit and loss account’ of the said comparable (Page 322 of APB) and the ‘Schedule’ forming part of the same (Page 329), which revealed that the main source of the said comparable was by way of ‘Financial and Management Consultancy Fees’, and thus was entirely different from the activities of the assessee company which was not into the business of managing anybody’s finances. The ld. A.R further drew our attention to the ‘Cash flow’ statement of the aforesaid comparable for the year under consideration (Page 323), ‘Schedule 16’ which formed part of the accounts for the year (Page 330) and ‘Segment information’ (Page 334), which therein did go to fortify the claim of the assessee that the aforesaid comparable was into ‘Financial and Management Consultancy’. The ld. A.R further referring to the ‘Companies general business profile’ (Page 338) therein submitted that the aforesaid comaparable, viz. M/s. Ladderup Corporate Advisory Private Limited, unlike the assessee company was engaged in the business of ‘Financial and Management Consultancy’. The ld. A.R further drew our attention to the information about the aforesaid comparable as had been downloaded on 12.03.2014 from its aforesaid site, viz. www.ladderup.com/about-ladderup.htm (Page 340), which revealed that the said comparable, viz. Ladderup Corporate Advisory Private Limited was formed in 2007 as a subsidiary company of M/s. Ladderup Finance Limited, and was engaged in the business of Investment banking. It was submitted by the ld. A.R that the aforesaid downloaded extract revealed that the said comparable was formed as a separate group entity offering Investment banking, Corporate finance and Corporate advisory services. Thus in the backdrop of the aforesaid factual matrix, it was submitted by the ld. A.R that it stood revealed beyond any scope of doubt that the aforesaid comparable, viz. M/s. Ladderup Corporate Advisory Private Limited was into ‘Investment banking business’, which by no means could be compared with the ‘Investment advisory business’ as that of the assessee company. The ld. A.R relying on the order of the Tribunal so passed in the case of General Atlantic (P) Limited Vs. DCIT, Circle 3(1), Mumbai (2013) 32 Taxmann.com 178 (Mumbai Trib) (Page 85-97 of APB), which thereafter had been affirmed by the Hon’ble High Court of Bombay in the case of CIT-3, Mumbai Vs. General Atlantic (P) limited. (2016) 68 taxmann.com 88 (Page 98-101 of APB), therein submitted that pursuant to the aforesaid judgment of the Hon’ble jurisdictional High Court, the issue that an ‘Investment advisor’ cannot be compared to a ‘Merchant banker’ is no more res-integra. It was thus submitted by the Ld. A.R that now when the aforesaid comparable, viz. M/s Ladderup Corporate Advisory Private limited was functionally different as in comparison to the assessee company, therefore, it could by no means be adopted as a comparable and thus was liable to be excluded from the final list of the comparables. That on the other hand the ld. D.R submitted that as per the ‘Annual report’ of the aforesaid comparable, the latter was in the business of corporate advisory services and had received advisory fees. It was submitted by the ld. D.R that the aforesaid comparable, viz. Ladderup Corporate Advisory Services Limited had received merchant banking registration in the month of July, 2010 from SEBI, but no actual income was received from the said activity. Thus in the ITA/1520/M/16- Wells Fargo Real Estate Advisors Pvt.Ltd.
backdrop of the aforesaid facts it was submitted by the ld. D.R that the aforesaid comparable was deriving income only from advisory services, and as such if the functioning of the assessee company were pitted as against that of the aforesaid comparable, it stood revealed that the said comparable was providing advisory functions on restructuring like the assessee, as well as providing advisory services on acquisition, i.e in the manner the assessee company helped its AE in carrying out acquisitions. It was thus submitted by the ld. D.R that the functions of the aforesaid comparable, viz. Ladderup Corporate Advisory Services Limited were similar to that of the assessee company, and as such after thorough vetting and verification of the said functional comparability the same had been included in the final set of comparables by the TPO. The Ld. D.R in support of his aforesaid contention therein placed on record the copy of the order passed by a coordinate bench of the Tribunal, i.e ITAT, Delhi, in the case of Avenue Asia Advisors Private limited Vs. DCIT, Circle 2(1), New Delhi, A.Y. 2009-10, wherein the Tribunal referring to the aforesaid comparable, viz. Ladderup Corporate Advisory Services Limited, had therein held that though the aforesaid company was planning to expand its wings by venturing into merchant banking activities and broaden its horizon, which revealed that during the year it was not engaged in merchant banking activities. It was thus in the backdrop of the aforesaid facts submitted by the ld. D.R that the aforesaid comparable was not engaged in merchant banking activities during the year under consideration and had rightly been included by the TPO in the final list of the comparables.
We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material placed on record before us. We have given a thoughtful consideration to the facts of the case and find that the aforesaid comparable, viz. Ladderup Corporate Advisory Pvt. Limited is registered as a category one merchant banking with SEBI and is engaged in rendering merchant banking services w.e.f July 2010, which factual position stands duly substantiated from the perusal of the web portal extracts of the aforesaid company. We further find that as per the ‘Annual report’ the aforesaid comparable is engaged in only one segment, which includes merchant banking. We thus in the backdrop of the very fact that the aforesaid comparable is engaged in the merchant banking/investment banking and other similar activities, are of the considered view that the same cannot be considered as functionally comparable to the assessee company which is engaged in the business of rendering non binding investment advisory services. We are further not impressed by the averrment of the Ld. D.R who by referring to the observations recorded by the coordinate bench of the Tribunal in the case of Avenue Asia (supra) had therein averred that though the aforesaid comparable was planning to expand its wings by venturing into merchant banking activities and broaden its horizon, which revealed that during the year it was not engaged in merchant banking activities, had therein tried to drive home his contention that the aforesaid comparable was not involved in merchant banking activities. We are of the considered view that the aforesaid observations of the coordinate bench of the Tribunal were recorded in context of A.Y. 2009-10 involved in the case before them, while for the year before us in the present appeal is A.Y. 2011-12. Thus the case law relied upon by the Ld. D.R is distinguishable on facts, and as such for the foregoing reason would be of no assistance to him to support his aforesaid contention. That in the backdrop of the aforesaid facts as had been brought to our notice, and as such are irrebuttably supported by the records produced before us, we hold a strong conviction that now when the aforesaid comparable, viz. Ladder up Corporate Advisory Pvt. Ltd. is engaged in Merchant banking/Investment banking and other similar activities during the year under consideration, therefore, the same cannot be considered as functionally comparable to the assessee company which is engaged in rendering non binding investment advisory services. We thus are persuaded to subscribe to the contention of the ld. A.R that the aforesaid comparable, viz. Ladder up Corporate Advisory Pvt. Ltd. is functionally incomparable to the assessee company and had wrongly been included by the AO/TPO in the final list of the comparables. We thus in light of our aforesaid observations direct the AO/TPO to exclude the aforesaid comparable, viz. Ladderup Corporate Advisory Pvt. Ltd. from the final list of comparables.
The ld. A.R further assailing the inclusion of M/s. Motilal Oswal Equity Advisors Private Limited by the AO/TPO in the final set of comparables, which was upheld by the DRP, therein submitted that the aforesaid comparable operated in 4 different business vertical, i.e Financial advisory, Investment advisory, Management and Facilitation services and Identifying investment opportunities. It was averred by the ld. A.R that as no segmental data was available in the ‘Annual report’ and income from the advisory services constituted only 42.10% of the total operating income, therefore, no feasible comparison of the assessee company could be carried out as against the aforesaid comparable. It was further submitted by the ld. A.R that the TPO without placing on record the ‘Search process’ on the basis of which the aforesaid company was selected as a comparable, had therein most arbitrarily
ITA/1520/M/16- Wells Fargo Real Estate Advisors Pvt.Ltd. proceeded with and included the same in the final list of comparables. The ld. A.R in support of his aforesaid contention that the selection of a comparable by the TPO without placing on record the ‘Search process’ cannot be sustained, therein relied on the order passed by the Tribunal in the case of the assessee itself for A.Y. 2010-11, reported as Temasek Holding Advisors India Private Limited Vs. DCIT, Circle 14(3)(1) (67 taxmann.com 221) (Mumbai Trib), wherein the Tribunal had held as under:-
“Before analyzing each and every comparable, in the background of the arguments made before us and material placed on record, it is noticed that nowhere in the TPO’s order it is mentioned what selection process has been adopted for including the two comparables by the TPO. What are the criteria, key words, quantitative and qualitative filters applied for selecting the comparables. If rules provides for selection criterion of comparable, then same has to be adhered to strictly by either parties. If a particular mechanism of search process is to be done scientifically by the assessee then same applies to the TPO also, otherwise it will always create suspicion of cherry picking of the comparables by the parties. There cannot be two different standards under the law, one for the assessee and one for the TPO. So far as selection of the comparables by the TPO, nothing has been brought on record before us, that TPO has adopted any scientific method for selection of his two comparables, i.e. Motilal Oswal Investment Advisory Pvt. Ltd. and Future Capital Holdings Ltd. From the perusal of para 9.2 of the TPO’s order it appears that, he has tried to pick- up the two comparables from the accept and reject matrix of companies by the assessee during its search process. Such an approach clearly indicates cherry picking, which approach cannot be accepted.”
Alternatively, it was submitted by the ld. A.R that not only the TPO had resorted to cherry picking process while selecting the aforesaid comparable, but all the more had afforded only a one day notice to place its objections in context of the selection of the aforesaid comparable, viz. Motilal Oswal Equity Advisors Private Limited. The ld. A.R further submitted that the aforesaid company, viz. Motilal Oswal Equity Advisors Private Limited was functionally incomparable to the assessee company, and in support of his aforesaid contention relied on the ‘directors report’ placed at Page no. 343-344 of the APB, which revealed that unlike the assessee company which was engaged in the business as that of an investment advisor, the aforesaid comparable was involved in making investments in portfolio companies. Thus in nutshell, the contention of the ld. A.R was that the aforesaid comparable, viz. Motilal Oswal Equity Private Limited was an investment banker/asset manager and was managing the funds, unlike the assessee company which was engaged in the business as that of an investment advisor, and as such being functionally different thus could not be selected as a comparable. Per contra, it was submitted by the ld. D.R that the claim of the assessee that the aforesaid comparable, viz. Motilal Oswal Equity Pvt. Limited had during the year launched a fund was factually not correct. It was submitted by the ld. D.R that the ‘Annual accounts’ of the aforesaid comparable revealed that it was providing advisory services to various funds and had not launched any funds of its own. The ld. D.R referring to ‘Schedule J’ of the ‘Annual report’ of the aforementioned comparable, therein submitted that the latter during the year under consideration had an income from advisory fees of Rs. 5,30,41,908/- and a Management fee of Rs.6,69,13,428/-, on the basis of which it could safely be concluded that the said comparable, viz. Motilal Oswal Equity Pvt. Limited was functionally comparable to the assessee company and had rightly been included in the final list of the comparables by the A.O/TPO.
We have heard the ld. Authorized Representatives of the both the parties, perused the orders of the lower authorities and the material placed on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that as per the facts available on record, it stands duly substantiated from the ‘directors report’ (Page 343 of APB) that the aforesaid comparable was carrying out investments in portfolio companies. We find that a perusal of the ‘directors report’ of the aforesaid comparable reveals that during the year under consideration it had managed ‘India business excellence fund I’ and ‘India reality excellence fund I’ (IREF-I), and was further contemplating to raise IREF-II with a corpus of between Rs.500-750 crores in financial year 2012. We are of the considered view that the functional analysis of the aforesaid comparable substantially places it at a variance as against the assessee company which is engaged in the business as that of an investment advisor. We further find that from a perusal of the ‘Annual report’ of the aforesaid comparable for Financial year 2010-11, it stands revealed that the latter operates 4 different business verticals, viz.
ITA/1520/M/16- Wells Fargo Real Estate Advisors Pvt.Ltd.