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2017 (9) TMI 1620 - AT - Income TaxTPA - comparable selection criteria - Held that - Companies functionality dissimlar with of assessee who renders services in the nature of investment advisory services to its AE, need to be deselected from final list of comparability. Adjustment on account of interest on outstanding receivables - Held that - No in-depth analysis of the receivables has been made by the TPO. Accordingly, we deem it appropriate to restore the issue of interest on receivables in all the three years to the file of Assessing Officer/TPO for recalculating the interest on receivables in conformity with the ratio of judgment of the Hon ble Delhi High Court in the case of Kusum Health Care Pvt. Ltd. (2017 (4) TMI 1254 - DELHI HIGH COURT) Treatment to foreign exchange gain/loss as operating in nature - Held that - This issue is squarely covered in favour of the assessee by the order in the case of Ericsson India (P) Ltd vs. ACIT 2017 (3) TMI 1316 - ITAT DELHI while ruling in favour of the assessee, directed the TPO to treat the foreign exchange gain/loss as operating in nature in calculating the operating margin of the assessee as well as final comparable companies. Respectfully following the same, we set aside this issue to the file of TPO/AO to treat the foreign exchange gain/loss as operating in nature in calculating the operating margin of the assessee as well as final comparable companies.
Issues Involved:
1. Selection of comparables for benchmarking transactions involving investment advisory services. 2. Adjustment on account of interest on outstanding receivables. 3. Treatment of foreign exchange gain/loss as operating in nature. Detailed Analysis: 1. Selection of Comparables for Benchmarking Transactions Involving Investment Advisory Services: Assessment Year 2010-11: - Brescon Advisors & Holdings Ltd.: Excluded due to functional dissimilarity. The company is engaged in debt resolution, debt syndication, and financial restructuring services, which are not comparable to investment advisory services. ITAT Mumbai Bench cases (M/s Blackstone Corporate Advisors Limited, M/s Goldman Sachs (India) Securities Pvt. Ltd., and Xander Advisors India Pvt. Ltd.) support this exclusion. - Keynote Corporate Services Ltd.: Excluded as it is involved in merchant banking, issue management, investment banking solutions, mergers and acquisitions, and equity/debt placements. ITAT Mumbai Bench in Carlyle India Advisors Pvt. Ltd. confirmed this exclusion. - Motilal Oswal Investment Advisors Pvt. Ltd.: Excluded due to involvement in non-comparable activities like equity and derivatives, investment banking, mergers and acquisitions, portfolio management services, and private wealth management. ITAT Mumbai Bench in Carlyle India Advisors Pvt. Ltd. and ITAT Delhi Bench in Actis Advisers Pvt. Ltd. confirmed this exclusion. Assessment Year 2011-12: - Brescon Advisors & Holdings Ltd., Keynote Corporate Services Ltd., and Motilal Oswal Investment Advisors Pvt. Ltd.: Excluded following the same rationale as for Assessment Year 2010-11. - Axis Private Equity Limited: Excluded as it is involved in asset management services and used unreliable information for comparability. ITAT Mumbai in M/s Goldman Sachs (India) Securities Private Limited and ITAT Delhi in Avenue Asia Advisors Private Limited confirmed this exclusion. - Ajcon Global Services Limited: Excluded due to involvement in a wide range of financial services such as stock broking, commodity broking, depository services, project consultancy, equity research, loan syndication, and corporate advisory services. - Ladderup Corporate Advisory Private Limited: Excluded as it is engaged in investment banking services, corporate finance services, and corporate advisory services, and registered as a merchant banker with SEBI. - SREI Venture Capital Limited: Excluded due to involvement in fund mobilization, merchant banking, and underwriting services. - Aditya Birla Capital Advisors Private Limited: Excluded as it is engaged in asset management and investment in venture capital funds and earned supernormal profits. - Portfolio Financial Services Limited: Excluded due to involvement in debt syndication services and supernormal profits. Assessment Year 2012-13: - Keynote Corporate Services Ltd. and Brescon Corporate Advisors Ltd.: Excluded following the same rationale as for previous years. - Almondz Global Securities Ltd.: Excluded as it is involved in investment banking services and registered as a merchant banker with SEBI. ITAT Mumbai in Carlyle India Advisors Pvt. Ltd. confirmed this exclusion. 2. Adjustment on Account of Interest on Outstanding Receivables: - The TPO's approach of considering a period of 30 days for realization of receivables was not supported by a proper inquiry or analysis of the statistics over a period of time. The Hon'ble Delhi High Court in Principal Commissioner of Income Tax vs Kusum Health Care Pvt. Ltd. emphasized the need for a proper inquiry to discern a pattern indicating that receivables constitute an international transaction. The issue is restored to the file of Assessing Officer/TPO for recalculating interest on receivables in conformity with the High Court's judgment. 3. Treatment of Foreign Exchange Gain/Loss as Operating in Nature: - The ITAT Delhi Bench in Ericsson India (P) Ltd vs. Additional Commissioner of Income Tax ruled that foreign exchange gain/loss should be treated as operating in nature in calculating the operating margin of the assessee as well as final comparable companies. This issue is set aside to the file of TPO/AO to follow this directive. Conclusion: All three appeals of the assessee are partly allowed, with specific directions to exclude certain comparables, recalculate interest on receivables, and treat foreign exchange gain/loss as operating in nature. The Assessing Officer/TPO is directed to verify the working of the assessee and provide due opportunity before finalizing the margins.
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