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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�, राजे� के अनुसार/ PER Rajendra A.M.- Challenging the orders dated 11/12/2014 of the AO passed in persuance of the directions of the Dispute Resolution Penal(DRP)dtd.28.10. 2014,the Assessee has filed present appeal.It is wholly owned subsidiary of Arisaig Partners (Asia) Pte Ltd.,headquartered in Singapore.It filed its return of income on 05.10.2010,declaring total income of Rs.2.63 crores.During the assessment proceedings,the Assessing Officer(AO)made a reference to the Transfer Pricing Officer(TPO)to determine the Arm’s length price(ALP)of the IT.s.,who made an adjustment of Rs.1,83,86,942/-.After receiving the order of the TPO,the AO issued a draft assessment order to the assessee and same was challenged before the DRP.After considering the directions of the DRP,the AO completed the assessment u/s.143(3) r.w.s. 144C(13) of the Act,determining its income at Rs.4.47 crores.
2.Effective ground of appeal deals with inclusion of certain comparables for determining the ALP of the IT.s.During the TP proceedings,the TPO find that the assessee was engaged in the business of providing non-binding investment advisory,that it had received Rs. 15.85 crores from its AE as advisory fee,that it bench-marked the IT.s.by adopting the TNMM as most appropriate method and claimed that it's operating margin PLI (OP/TC)at 25.42%% was at arm's length in comparison to the mean average margin of five comparables selected by the assessee arrived at 21.18%.The TPO directed the assessee to explain as to how the cost plus 25.42% markup was arrived at and to file details regarding the total revenue earned by the AE for which services were rendered by the assessee, percentage of revenue retained by the 1
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AE after paying the assessee alongwith the justification. As per the AO the assessee stated that there was no specific request for advice from the AE and it would collect information from list of companies identified by the AE.s, that details called for were not submitted by the assessee.The TPO held that in absence of the same the FAR analysis of the assessee was incomplete,the assessee failed to produce necessary documentation to justify the true nature of transaction within the meaning of Rule 10D(1).He,therefore, proceeded independently to benchmark the IT.s in the final analysis. He accepted three comparables proposed by the assessee. In addition to it he required the assessee to show as to why three more comparables namely Motilal Oswal investment Advisors Pvt. Ltd.(MOIAPL), IDFC Investment Advisors Ltd.(IDFC)and ICRA Online Ltd.(ICRA-O)should not be included in the final list of comparables as they were functionally similar.
2.1.After considering the submission/objections of the assessee in regard to inclusion of the above three additional comparables, he arrived at average PLI at 39.97%. Finally an adjustment of Rs.1.83 crores was made. After receiving the draft order from Assessing Officer, the assessee filed objections before the DRP and contested against the inclusion of the above mentioned three comparables. The DRP , with regard to MOIAPL stated that the income from operations of that company was from advisory services, that the comparable company was not engaged in portfolio management services as alleged by the assessee , that the argument regarding super normal profit was not acceptable in view of the decision delivered in the case of Maersk Global Centres (India) Pvt. Ltd. (ITA7466/M/2012), that the TPO/Assessing Officer were justified in including it in the list of comparables. About IDFC, the assessee had argued that segmental information was not available in that case, and that it was engaged in portfolio management services, the DRP observed that as per annual report of AY 2010-11 IDFC had entered into investment segment, that there was no logic in the argument of the assessee that segmental information was not available. In the case of ICRA – O the assessee had contended that it was not functionally comparable as the company as well, as its outsourced service segment were engaged in providing diversified services.The DRP held that the outsource service segment was almost similar in nature so far as functional aspect of service were concerned, that the segment dealt with research and analysis related to financial sector, that the advisory were provided on the basis of validation and analysis, that it was a comparable activity, that a talent pool of financial professionals and investment advisors were required,that even if such services had been outsourced the nature of the 840/M/15(Arisaig Partners) activity would not change,that the TPO had rightly included ICRA-O in the list of the comparables.
3.Before us,the Authorised Representative(AR) argued that MOIAPL,IDFC and ICRA-O were functionally different,that MOIPAL was a merchant banker,that IFDC and ICRA-O were not providing advisory services.He relied upon the case AGM India Advisors Private Limited, the Tribunal(ITA.s./4757&4801/Mum/2015-AY.2010-11,dtd.18.05.2016),wherein all the three comparables were excluded.The Departmental Represnetative(DR)supported the order of the DRP and stated that the TPO had considered one of the segmen -ts,namely outsourced services for the purpose of benchmarking in the case of ICRA-O, that he had not considered the entity level margin of the comparable, that the order of the Tribunal in the case of Carlyle was distinguishable on facts, that neither the assessee nor the TPO had adopted the filter of 75% revenue from the service as adapted in the case of Carlyle, that even if the criteria or filter of 75% revenue from services was applied it would not affect the filter, that services of ICRA-O were being used by AMC.s /Mutual Funds,that the comparable provided analytical services in equity/research which were similar to function of the assessee.
4.We have heard the rival submissions and perused the material before us.We find that while deciding the Appeal/CO filed by the AO and the assessee,for the AY. 2009-10(ITA/ 1083/ Mum/2014 & CO 62 of 2014,dtd.25. 03.2015),the Tribunal had dealt with the comparability of MOIAPL as under: “11. The grievance of the assessee is regarding the inclusion of Motilal Oswal Investments Advisors Pvt. Ltd for the purpose of determining the arm's length price. 12.We have heard the Ld. AR as well as Ld. OR and considered the relevant material on record. The Ld. Authorized Representative of the assessee has pointed out that the company Motilal Oswal Investments Advisors Pvt. Ltd. is not functionally comparable with the assessee .In support of his contention he has relied upon the decision of this Tribunal in the case of Carlyle India Advisors Private Limited Vs. DCIT (supra) as well as in the case of Acumen Fund Advisory Services India Private Limited Vs. DClT (ITA No. 143/Mum/2014).
On the other hand, the Ld. DR has relied upon the orders of TPO and DRP 14. At the outset, we note that the Tribunal in the case of Carlyle India Advisors Private Limited Vs. DCIT (supra), has examined the functional comparability of Motilal Oswal Investments Advisors Pvt. Ltd in para 8 and 9 as under.- "
We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. It is an undisputed fact that the assessee is engaged in the business of rendering investment advisory and related support services to its principal Carlyle Hong Kong. The dispute raised in 6 ground no.4 relates to whether (i) KLG Capital Services Ltd (KLG); (ii) KJMC Corporate Advisors (India) Limited (KJMC) and (iii) Motilal Oswal Investment Advisors Pvt Ltd (MOIAPL) are functionally comparable cases or not considering the decision of the Tribunal as well as the judgment of the Bombay High Court relied upon by the assessee. Regarding MOIAPL, assessee relied heavily on the order of the 840/M/15(Arisaig Partners)
Tribunal in its own case for the AY 2008-2009, a copy of which is placed at page 282 of the paper book. On perusal of the said order of the Tribunal, we find that it is decided in favour of the assessee vide (AY 2008-2009), dated 7.2.2014. On perusal of para 12 of the said order of the Tribunal, which contains the operational part, we find the same is relevant and the Tribunal has given its finding under the facts which are similar to that of the AY under consideration.The MOIAPL, which has engaged in the business of merchant banking is not a good comparable for determining the ALP. Relevant contents of the said para 12 are reproduced here for the sake of completeness of this order which read as under: “12. …………..The only dispute is whether Motilal Oswal Investment Advisors Pvt Ltd can be considered as a comparable for determination of ALP. A perusal of three comparables considered by the TPO shows that M/s. Future Capital Investment Advisors Ltd., has operating profit at 21.79% whereas OPM of Motilal Oswal Investment Advisors Pvt. Ltd is 72.33%. The comparables used by the TPO themselves are showing extreme OPM. A perusal of the Director‟s report of Motilal Oswal Investment Advisors Pvt Ltd shows that during the year under consideration, the said company has completed 23 assignments successfully as against 14 completed in the immediately preceding year. A close look at the financial statements of the said company show that the income from operations have been shown only as advisory fees whereas it is admittedly an undisputed facts that the said company is engaged in diversified activities. Segmental reporting is not available. Profit and loss account appears to be only of consolidated accounts. The said company is registered with SEBI as a merchant banker and the Director’s report show that it is into takeover, acquisitions, disinvestments etc. In the absence of specific data it is not possible to make comparison. It can therefore, be safely said that the said company being into merchant banking and cannot be considered as a comparable. We, accordingly, direct the AO not to consider Motilal Oswal Investment Advisors Pvt Ltd as a comparable for determination of ALP………….” 9.Considering the above, we direct the AO to exclude the MOIAPL from the list of the comparables for determination of ALP of the said transaction.
It was found that the said company namely Motilal Oswal Investment Advisors Pvt Ltd is engaged in the business of Merchant Banking and, therefore, is not a good comparable of a company providing investment advisory services to the AE. We further note that that in case of Acumen Fund Advisory Services India Private Limited Vs. DCIT (supra), the Tribunal while following the order in case of Carlyle India Advisors Private Limited Vs. DCIT (supra), has held that the said company is not functionally comparable with the business of investment advisory services.
In view of the findings of the Tribunal in the above said decision in the case of Carlyle India Advisors Private Limited Vs. DCIT (supra), as well as Acumen Fund Advisory Services India Private Limited Vs. DCIT (supra), we are of the view that the company Motilal Oswal Investment Advisors Pvt. Ltd is primarily in the business of Merchant Banking and, therefore, is not functionally comparable with the business of the assessee being investment advisory to its AE. Accordingly, we delete Motilal Oswal Investment Advisors Pvt. Ltd from the list of comparables selected by the TPO and direct the Assessing Officer/ TPO to recomputed the arm's length price on the basis of the remaining comparables.” Respectfully following the order of the Tribunal in assessee’s own case for the earlier AY., we hold that MOIAPL should be excluded from the list of valid comparables.
As far as remaining two other comparables i.e.IFDC and ICRA-O,are concerned,we find that in the matter of AGM (supra),the Tribunal has dealt their comparability visa vis non binding advisory services,as under:
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“In the case of Carlyle India Advisors India Pvt. Ltd (supra), for the AY. 2010-11,the Tribunal has held that IDFC should not be included in the list of comparables,while considering the matters of the entities engaged in providing non-binding-advisory services.We would like to reproduce the relevant portion of the order of the Tribunal: 17.We have carefully considered the rival submissions on this aspect. A perusal of the Directors report of IDFC Investment Advisors Ltd for the instant year reveals that it is registered as a Portfolio manager with SEBI whereby it is carrying out Portfolio Management Services envisaged under the SEBI (Portfolio Managers) Regulations, 1993. The detailed activities enumerated in the Directors Report show that it was offering Portfolio Management Services for the domestic retail investors in different fields.The aforesaid clearly establishes that it is engaged in managing of funds in its portfolio management platform. In fact, in notes to the accounts, annexed to the Annual Financial Statements, the narration about the nature of operations being carried out is quite significant. At page 506 of the Paper Book is placed a note on the nature of operations of the said concern which enumerates that IDFC Investment Advisors Limited does undertake investment advisory services for evaluating investment opportunities and to monitor the investments in Indian companies and that it had entered into an Investment Advisory Agreement with India Infrastructure Opportunities Fund Ltd. So however, it is also noticed that said concern receives 'advisory fee' computed on the basis of net assets of the fund plus a performance fee. The narration of business operations contained in the notes to accounts clearly establishes a distinction between the business model being pursued by the said concern and the assessee for rendering investment advisory related support services to its associate enterprise. The earnings of IDFC Investment Advisors Limited, though titled as 'advisory fee', are indeed computed on the basis of amount of fund deployed by the investee fund plus a performance fee whereas the assessee is being compensated on cost plus fixed markup basis. On account of this difference in the business model of IDFC Investment Advisors Limited, it would not be appropriate to compare assessee’s international transaction of Provision of investment related support services to its associate enterprise with that of the IDFC Investment Advisors Limited. Before us, the Ld, Representative for the assessee had also relied upon the decision of Mumbai Bench of Tribunal in the case of Bain Capital Advisors (India) Private Ltd. Vs. DCIT in Mum/2015 order dated 15.5.2015, wherein for the instant assessment year itself, IDFC Investment Advisors Limited has been held to be incomparable with an assessee who is engaged in providing non-binding investment advisory related support services only. In our considered opinion, the decision of the Tribunal in the case of Bain Capital Advisors (India) Private Ltd (supra) also supports the plea of the assessee for exclusion of IDFC Investment Advisors Limited from the final set of comparables. In view of the aforesaid discussion, in our view, IDPC Investment Advisors Limited deserves to be 5
840/M/15(Arisaig Partners) excluded from the final set of comparables for the purposes of computing arm's length price of assessee's international transaction of Provision of investment advisory related support services to associate enterprise. Thus, on this aspect also, assessee succeeds.” 5.2.We would also like to quote the relevant portion of the order of the Tribunal in the case of Sparlkes Dhando Advisors Pvt. Ltd. (ITA/1047/M/2015-AY.2010-11,dt.31.12.2015),wherein the Tribunal has excluded MOIALP and IDFC from the list of the comparables.The relevant portion of the Tribunal order reads as follow: XXXXXXXXX “7.Regarding IDFC,it is demonstrated before us that the said company is engaged in rendering of services as Portfolio Manager, whose functions are intimately different from that of the functions of non-binding advisory services rendered by the assessee to its AEs. The fact of rejection of the same as a good comparable to a case of similar services as in the case of the assessee, assessee was also demonstrated by relying on the decision of the Tribunal in the case of Bain Capital Advisors (India) Private Limited (supra). After hearing both the parties and on perusal of the said decision of the Tribunal in the case of Bain Capital Advisors (India) Private Limited (supra), order dated 15.5.2015, we find the para 8 is relevant in this regard and for the sake of completeness of this order the same is extracted as under:- “8.We have considered rival contentions and found that assessee is engaged in business of providing investment research and advisory services to Bain Mauritius, on a non-exclusive and non-binding basis, in connection with potential investment opportunities in India. IDFC rendered Portfolio Management services for hybrid infrastructure portfolio, agriculture opportunities portfolio and farm fork portfolio. IDFC is registered as portfolio manager with SEBI.Thus, IDFC is functionally different from the assessee which is engaged merely in non-binding investment advisory support services. Since, IDFC is functionally different, we direct the AO to exclude the IDFC from the list of comparables for computing arm’s length adjustment.” In view of the above, we direct the AO to re-compute the arms length adjustment after excluding IDFC from the list of comparables.” XXXXXXXXXXXX “7.We find that the assessee objected to the inclusion of ICRA-O and IDFC on the ground that the TPO had applied no scientific method in arriving at the said two companies,that the companies had been cherry- picked by the TPO and he had not furnished the process applied by which he had come to select the said two companies,that such an approach to select comparables was impressible in law and on that count alone the said two companies should be rejected,that the FAA had rejected ICRA-O as comparable to investment advisory services
840/M/15(Arisaig Partners) rendered by the assessee and had stated assessee's knowledge process outsourcing division provided financial and analytical services and support to clients in the areas of Data Extraction,Aggregation,ElectronicConversion of Financial Statements,Validation and Analysis,Accounting and Finance, Research and Analytics,that the company was not engaged in investment advisory or consultancy services,that the AO was directed to exclude ICRA-O from the final set of comparable companies, that he had held that it was functionally not comparable to the assessee.Charging of fees by ICRA-O did not mean that it was a valid comparable to the assessee.As per the settled principles of TP for a company to be treated as a valid comparable the Functions performed,Assets employed and Risks assumed have to be comparable and not nomenclatures in the Annual Accounts.We would like to refer to Pg.507 of the PB in case of ICRA-O and it reads as under: "ICRA Online Limited is a leading information services, outsourcing and technology solutions provider and caters for some of the biggest names in the financial services sector in(India) and abroad, which is a testimony to its product quality, commitment and credibility". From the above description it is clear that ICRA-O operated in two strategic lines of business,i.e.knowledge Process Outsourcing and information Services and Technology Solutions,with a list of reputed global and domestic clients. Note c(iii)on Pg.507 of the PB also proves that the activities performed by the Company under the business line "Outsourced Services" were in the nature of "maintenance and management of data" and therefore cannot be compared with the assessee..….” In light of the above discussion,we are of the opinion that the TPO/DRP was not justified in including MOIAPL,IDFC and ICRA-O as valid comparables for determining the ALP of the IT.s.,entered in to by the assessee during the year under consideration.Therefore, we direct the AO to exclude above mentioned three comparables from the final list.Effective ground of appeal is decided in favour of the assessee.
As a result, appeal filed by the assessee stands allowed. फलतः िनधा�रती �ारा दािखल क� गई अपील मंजूर क� जाती है. Order pronounced in the open court on 11th November, 2016. आदेश क� घोषणा खुले #यायालय म% &दनांक 11 नवंबर, 2016 को क� गई । Sd/- Sd/- (शि�जीत डे शि�जीत डे शि�जीत डे / Saktijit Dey) (राजे�� / Rajendra) शि�जीत डे �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; &दनांकDated : 11. 11.2016. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ) 2. Respondent /*+यथ) 7
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