CONTROL RISKS INDIA PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

Date of Hearing 30.06.2016 Date of Pronouncement 28.09.2016 ORDER

PER DIVA SINGH, JM

1. “That the assessing officer erred on facts and in law in completing the assessment under section 144C read with section 143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 2,89,58,299 as against income of Rs.39,43,589 returned by the appellant.

2. That the AO/TPO erred on facts and in law in making an addition of Rs. 2,44,78,815 allegedly on account of difference in the arm's length price of the 'international transactions' on the basis of the order passed under section 92CA(3) of the Act by the TPO.

I.T.A .No.-1098/Del/2016 2.1 That the DRP/AO erred on facts and in law in arbitrarily holding that the appellant is engaged in providing 'financial advisory services' and also erred in comparing the appellant with the companies, viz., Apitco Ltd. Pushpak Financial Services Ltd., TSR Darashaw Limited, which are engaged in the business of stock broking and trading of shares. 2.2. The DRP/AO erred on facts and in law in disregarding the benchmarking analysis undertaken by the appellant applying internal TNMM in the Transfer Pricing Documentation allegedly holding that: (i) The segmental analysis/profitability undertaken by the appellant in the Transfer Pricing Documentation is not appearing in the audited financial statement (ii) The internal TNMM, applied by the appellant, is a sort of CUP and accordingly, strictly comparability is required for applying CUP method (iii)The services provided to the associated enterprises and non- associated enterprises are not identical. (iv)The details of services and billing structure of the associated enterprises and non-associated enterprises is not provided by the appellant 2.3. That the DRP/AO erred on facts and in law in rejecting the following companies for undertaking benchmarking analysis applying TNMM allegedly holding them to be functionally not comparable to the appellant for benchmarking analysis: (i) Knight Watch Security Ltd. (ii) Bombay Intelligence Security (India) Ltd. (iii) Central Investigation & Security Services Ltd 2.4. That the DRP/AO erred on facts and in law in including the following companies in the set of comparable companies for the purpose of undertaking benchmarking analysis applying TNMM not appreciating that they were functionally not comparable to the appellant: (i) Apitco Ltd. (ii) Ladderup Corporate Advisory Pvt. Ltd. (iii) Pushpak Financial Services Ltd (iv) TSR Darashaw Ltd. 2.5 That the DRP/AO erred on facts and in law in selecting TSR Darashaw Ltd. as comparable not appreciating the fact that the annual report of the company for the financial year 2010-11 is not available in public domain. 2.6 That the DRP/AO erred on facts and in law in selecting Pushpak Financial Services Ltd. as comparable not appreciating the fact that company is not satisfying the filter of employee cost applied by the TPO. 2.7. That the DRP/AO erred on facts and in law in considering Apitco Ltd. as comparable not appreciating that the information with respect to related party transactions is not available in the annual report of the company and accordingly, not satisfying the filter of related party transactions applied by the TPO. 2.8. That the DRP/AO erred on facts and in law in not allowing appropriate risk adjustment to establish comparability on account of the appellant being a low- risk-bearing captive service provider as opposed to the comparable companies who were independent comparable companies.

I.T.A .No.-1098/Del/2016 2.9 Without prejudice that the assessing officer/TPO erred on facts and in law in incorrectly computing the transfer pricing adjustment at Rs. 2,29,27,042 as against the correct adjustment of Rs. 1,95,41,928.

3. That the DRP/AO erred on facts and in law in disallowing an amount of Rs.5,35,894 being interest on late deposit of TDS holding the same to be not an allowable expenditure.

4. That the assessing officer erred on facts and in law in levying interest under Section 234B of the Act. The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal.”

2. Referring to the facts, qua the issues raised the Ld.AR stated that though he is confident that as per settled legal principles and judicial precedent the assessee is confident of its success in regard to its prayer in Ground Nos. 2.3 and 2.4. However, the request for admitting fresh evidences in regard to which application under Rule 29 is on record and prayer for remand in view of the prayer in Ground No.2.2 it was submitted that following the judicial precedent, the issue in order to correctly characterise the taxpayer may be restored to the TPO. Referring to the arguments advanced in 2010 – 11 assessment year in it was his submission that although herein also considering the precedent available, the comparables selected will need to be excluded as not only the comparable selected suffer on account of the fact that some of them unlike the taxpayer in the present proceedings, are engaged in financial trading activities but even otherwise qua some of them either the employee cost filter or the RPT filter is not satisfied and in some instances adjustments would be required to be made qua the comparable. The taxpayer in the present proceedings it was submitted is a low risk bearing captive service provider. Thus, it was argued that even though the assessee is confident of its success in the prayer for exclusion and inclusion of comparable selected however such a prayer is not being made as it would not be appropriate in view of the fact that proper characterization of the tax payer is a continuing issue and the tax payer

I.T.A .No.-1098/Del/2016 cannot be said to have accepted wrong characertization in the earlier years hence the prayer that for the purposes of characterization, the issue be restored to the TPO in the facts of the present case also. Herein also it was submitted the TPO at internal page 2 para 3 appreciates by reproducing from the Transfer Pricing Report that the taxpayer offers a comprehensive range of consultancy services that assist clients to manage political, security, operational integrity risk at every stage of an investment however while carrying out the selection process of comparable companies he again selects “Pushpak Financial Services”; “TRS Darashaw” etc companies who admittedly are engaged in actual share trading and investment accordingly the issue herein also may be restored. Prayer for admitting fresh evidence in the facts of the present case was also justified on the basis of the following decisions namely CIT vs Text Hundred India Pvt. Ltd. 239 CTR 263 (Delhi High Court); CIT Vs. Hewlett Packard India: 314 ITR 55 (Del HC); CIT Vs. Chandra Kant Sahu Bhai: 202 Taxman 262 (Del HC); CIT Vs. Betterways Finance:

ITA 995 of 2009 (Del HC); Jatia Investment Co V. CIT: 206 ITR 718 (Cal Hon'ble HC); Electra (Jaipur) Ltd. Vs. IAC: 26 ITD 236 (Del ITAT); and Y.W.C. A of India Vs. IAC: 29 ITD 620 (Del ITAT).

It is seen that the prayer for fresh evidence and remand is not opposed by the Revenue.

I.T.A .No.-1098/Del/2016 We find that though the TPO in para 1 and 3 of his order has extracted the activities as under:-

4.1. However, thereafter he concluded in para 5.1 internal page 13 that “As per the TP report submitted, taxpayer is engaged in providing investment and other financial advisory to its AE ………………….”

4.2. Accordingly as a result of the above wrong characterization, the consequential steps of selection of comparable companies engaged in trading in shares; share transfer services etc. suffers from foundational fundamental errors and mistakes. We note that in the functional profile as per the transfer pricing study placed on record, the assessee has been described as under (internal pages 5 to 8 of the TPO’s order) :-

4.3. FUNCTIONAL PROFILE The assessee’s Transfer Pricing Study gives the following details about the functions performed by the assessee:-

D. Functions performed 4.7. CRIPL provides consultancy services to a number of large multinational based groups and governments. The diagram below provides an overview of the consulting function and the way in which services are delivered to clients......

4.8 Investigations Investigations are further categorized into: Business Intelligence and Investigation Page 5 of 9

I.T.A .No.-1098/Del/2016 4.9 Hidden agendas am easily derail the best plans and reputations can be damaged. Therefore businesses need to be fully aware of a wide spectrum of risks. Business intelligence and due diligence represent both essential risk management and a significant source, of competitive advantage. 4.10 Control Risk certified Fraud Examiners and investigators that can highlight the risks in financial security or accounting systems, and identify the culprit to an evidential standard of proof during or after the event. The following are the service provided under Business Intelligence.:

(a) Due Diligence (b) Anti-money Laundering compliance and investigations (c) Forensic accounting services (d) Asset tracing and recovery (e) Brand protection/ anti-counterfeiting consultancy (f) Political and security risk analysis Fraud Investigation & Prevention 4.11. Control Risks provides tin' expert professional advice that companies need to withstand crises, and emerge stronger from the experience with better preventive measures. Service includes: a. Corporate Investigations b. Forensic accounting c. Litigation support d. Audio forensics e. Video forensics f. Court presentation g. Document capture h Crime scene reconstruction i. PDA analysis j. Mobile phone analysis k. Cell site analysis

4.12 Crisis and Security Consultancy These are further divided into: Security Management and Consultancy

4.13 No two organizational entities are alike and that a whole host of issues such as nature of their business, profile of employees and the geographical spread of their assets, uniquely determine their level of exposure. Further, company success is underpinned by its assets and protecting than in hostile and complex business environments is vital to the competitive advantage of any commercial entity. 4.14 Control Risk advice organizations on developing and implementing an overall corporate security strategy and also advice on how to reduce the risks to their most valuable assets - people, reputation, information and physical assets.

Crisis Management 4.15 Protecting organization's reputation, environment, key business assets, employees and other stake holders is an ongoing challenge especially in the face of extreme,, complex and constantly changing risks. Page 6 of 9

I.T.A .No.-1098/Del/2016 4.16 Control Risks crisis management consultants identify the threats and risks to the organization. It support in developing and implementing systems and strategies to manage crises. It also designs and run stimulation to rigorously test plans and prepares people.

Response 4.17 There are certain crises that no business, no matter how resilient, can be expected to deal with on its own. Like handling crises such as kidnap-far ransom, hostage-inking, political detention or extortion requires the utmost sensitivity. 4.18 Control Risks net exclusively as advisors, analyzing the situation and guiding clients in handling communications with all those involved and explaining the likely sequence of events. It also provide post-incident support to victims 4.19 However, these services are exclusively provided by CRGPIL in London and not by any other subsidiary company. If project is received by Subsidiary Company then, the same will be forwarded to CRGHL.

Global Risk Analysis 4.20 'The information contained within the newly branded Control Risks Global Risk Analysis business is utilized to produce bespoke political and security environment risk analysis reports for clients.

Business Ethics and Anti-corruption 4.21 Control risks' anti-corruption practice is the scope and depth of expertise within its global team. It provides clients with integrity information which is required by them before entering into new markets or embarking on new business relationships.

Outsourced security management 4.22 Large multinationals, governments and NGOs have operations which are. often in risky or hostile environments such as Iraq or the Niger Delta. Whether the cause of risk is political, social, criminal or military, Control Risks Group has the experience and expertise to deliver solutions to these organizations. It is with this background that the functional similarity of comparable is required to be examined.”

Accordingly considering the judicial precedent and the material available on record, in the light of the submissions of the parties before the Bench, we deem it appropriate to admit the fresh evidences filed. These evidences have been discussed in detail and are identical Page 7 of 9

I.T.A .No.-1098/Del/2016 to what has been filed in TIA No.979/Del/2015 in order dated 27.09.2016. The evidences have been considered to be relevant and crucial for determining the issues as it elaborates and supports the original claims of the tax payer. Accordingly following the judicial precedent the evidences are admitted. Since the evidences have to be considered for the first time again following the precedent these are remitted to the TPO with the direction to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

4. Disallowance of late deposit of TDS

4.1. “During the course of assessment proceedings, the AR of the assessee company was asked to show cause as to why not late deposit of TDS amounting to Rs.5,35,884/- to be added the income. In response to the same, the AR of the assessee company submitted its reply vide its letter dated 27.02.2015, wherein stating that in the assessment year under consideration i.e. assessment year 2011-12, the assessee has paid an amount of Rs.5,35,894/- on account of interest on late deposit of TDS and that the said amount does not merit disallowance.

4.2. The submission of assessee had been considered but found not tenable as expenses on account of interest on late deposit of TDS is not an allowable expenditure as per the provision of the Act. Accordingly, an amount of Rs.5,35,894/- was disallowed and added to the income of the assessee company.

4.3. in this case a draft of the proposed order of assessment was passed on 31.12.2014 and sent to the assessee. The assessee filed objections before the Dispute Resolution panel (DRP) against the variation proposed to be made in the draft order. The Dispute Resolution panel has rejected the objections of the assessee and upheld the addition made by the AO vide order dated 23.12.2015.

4.4. In compliance of the directions of the Hon'ble DRP, the addition amounting to Rs.5,35,894/- is being mode on account of ALP. (Addition : Rs.5,35.894/-) For the above mentioned reasons, I am satisfied that assessee company concealed the income/filed in accurate particulars, hence penalty proceedings u/s 271(1)(c) of the I. T. Act are initiated. Page 8 of 9

I.T.A .No.-1098/Del/2016 As per the directions of the Hon'ble DRP, a copy of the directions of the DRP dated 23.12.2015 and also the order of the TPO dated 14.01.2016 are placed as annexures to be read as a part of this order.''

The order is pronounced in the open court on 28th September 2016.