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TMI Blog2013 (9) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... m the sub rule (4) of Rule 10B that the data of the financial year in which the international transaction has been entered into to be used for analysing comparability of uncontrolled transaction in order to determine the ALP - The proviso to sub. rule (4) of Rule 10B provides the option for considering the data relating to the period other than the financial year in which the international transaction has been entered into; but not being more than two years prior to such financial year. The proviso to sub. Rule 4 of Rule 10B does not mandate that always consider two more years' data of comparables in such analysis; but has a limited role only when the data of current year reveal some exceptional facts which could have influenced on determination of the Act in relation to the transaction being compared. - ITA No. 6315/Mum/2012 - - - Dated:- 6-2-2013 - Shri Rajendra Singh, AM And Shri Vijay Pal Rao, JM,JJ. For the Appellant : Shri Pardiwala, Madhu Agarwal For the Respondent : Ajeet Kumar Jain ORDER Per Vijay Pal Rao, JM This appeal by the assessee is directed against the assessment order dated 28.9.2012 passed u/s 143(3) r.w.s 144C(13) in pursuant to the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation services Segment) Seg. Prowess 45.91% 5 Crisil Ltd (information segment) Seg Prowess 19.23% Mean 18.80% Median 15.09% 3.2 Since the assessee's operating profit on the total cost is at 17.57%; therefore, the assessee claimed that the assessee's mark up on total cost for the year under considerations is within the range of option as per the proviso to sec 92C(2) of the I T Act and therefore, it was claimed at ALP. 3.3 Before the TPO, the assessee has selected 6 comparables for benchmarking its ALP, the details of which are given in the order of the TPO as under:- Sl.No. Name of the comparables (OP(OT) for 2007-08(%) 1 IDC India Ltd 14.82 2 Crisil Ltd -Information Segment(Research) 31.80 3 Arix Consultants P Ltd 5.32 4 Ambit Capital Pvt Ltd (Segment) -0.33 5 Quantum Advisors P Ltd 3.26 6 Indian Venture Capital Ltd 11.20 Average 11.01 Assessee's average 17.57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stone Capitals LLC., USA bought the entire share holdings of the assessee and thus, became the holding company and thereby an AE. In support of his contention, he has referred the Director's report at page 1 of the paper book as well as schedule I to balance sheet as on 31.3.2008 at page 8 of the paper book showing that the entire share holding of the assessee company is purchased by M/s Sandstone Capital LLC only in this year. The ld Sr counsel has also referred the notes on account and submitted that the assessee has disclosed the related party transactions as per AS- 18 whereby the date of acquiring the entire holdings of the assessee by M/s Sandstone Capital LLC is given as 14.3.2008 at page 17 of the Paper Book. 5.1 The ld Sr counsel has also referred the sale of services at Rs 25,98,050/-. He has further submitted that the assessee's operating profit on the international transaction is at 17.57% as against the ALP being the average of operating profit of the comparables finally selected by the assessee before the TPO at 11.01%. 5.2 At the threshold the ld Sr counsel for the assessee has submitted that the entire sales is though to one party; however, the sale after 14.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time request to perform d) Advising the investment manager in complying with any relevant statutory or legal or regulatory requirements which exist in India., etc. e) Providing relevant information as may be required in connection with net asset value calculation of investment/scrips." 5.6 Thus, the ld Sr counsel for the assessee has submitted that various functions performed by the assessee are in the nature of identify prospective investment opportunities by identifying industry growth drivers and key success factors in the economy or specific industries. Further, the analysts evaluate the prospective investment opportunities by conducting extensive economical and statistical research and obtain opinions of other professionals and consultants. Due diligence is taken in making reasonable assessment of the parties position and the financial prospects of the prospective investee companies and of qualification and expertise of their management. Based on the technical analysis, the assessee provides a final recommendation with respect to the prospective investment and disinvestment. 5.7 The assessee also prepares progress reports pertaining to the investments made by M/s Sand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 5.9. It was further submitted that the assessee has carried out search by taking into consideration the two years data; however, later on the TPO proposed to use only current year data. Since the assessee is primarily engaged in providing investment research/advisory services in the financial services space; therefore, the assessee undertook search process and selected the companies falling under the main headings of 'Financial and Leasing Services and business services'. 5.10 After setting out the comparables, the assessee has reduced its search by selecting 159 companies out of 475 resulted initially found. Finally on the basis of functional similarity and engaged in the same activities, the assessee selected 5 comparables. 5.11 Before the TPO, the assessee again selected 6 comparables in which 3 comparables namely IDC India Ltd; Crisil Ltd; and Arix Consultants Pvt Ltd are common to the original comparables along with 3 new comparables were selected by the assessee. The ld Sr counsel has submitted that the TPO has took its own comparables and only one comparable namely Crisil Ltd was common. The ld Sr counsel has submitted that the TPO himself has dropped out 6 out of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from management fee and there is no income from research. The advisory fee; though it is negligible; however, it is for portfolio advice as it is clear from the P L account of the said company at page 313 of the Paper Book. He has also referred the note no.10 of the notes on accounts at page 334 of the Paper Book and submitted that the segmental reporting disclosure as required by AS-17 by the said Fund is not applicable since the company has a single reportable business of asset management services to the schemes floated by SBI Mutual Fund. Only 10% of the revenue is from advisory services that too in the portfolio advisory services; therefore, it cannot be considered as a comparable. He has also referred the balance sheet of the fund wherein the product description was given as asset Management Company. 5.15 The ld Sr counsel has referred the objections of the assessee filed before the TPO at page 455 of the Paper Book and submitted that similar to SBI Fund Management, Deutche Asst Management India Ltd, which is taken as a comparable by the TPO is also an asset management company and therefore, it cannot be considered as a comparable to the assessee. He has referred the P L acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 5.20 On the other hand, the ld CIT-DR has relied upon the order of the TPO so far as the comparables are selected by the TPO for determining ALP. 6. We have considered the rival submissions as well as the relevant material on record with respect to the comparables selected by the TPO for making the transfer pricing adjustment in question. There is no dispute about the most appropriate method adopted by the assessee as TNMM for benchmarking of the ALP because the TPO has also adopted the same method. 6.1 The first comparable taken by the TPO is CRISL Research and Information Services Ltd. The said comparable is common as the assessee has also selected the same in its original TP study. Though CRISL Ltd is basically a rating agency; however, since the segment results relating to the research activity has been taken into consideration; therefore, the other activity being rating agency does not effect the comparability solely because of this fact. The ld Sr counsel for the assessee has pointed out that about 60% of the income of the CRISL Ltd is from the related party transactions. This is a material fact that has to be considered for the purpose of selecting the uncontrolled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables selected by the TPO is M/s Shriyam Broking Intermediary Ltd and M/s Twenty-first Century Shares Securities Ltd . From the Schedule-H forming part of P L Account of Shriyam Broking Intermediary Ltd , we find that the income from operations is only from broking activity and there is no income from advisory fee. Thus, it is clear that the said company derives income only from broking activity. 6.5 Similarly, Twenty First Century Shares Securities Ltd is also is in the business of share broking and also member of NSC of India. Thus, the main business of the said company is institutional and retail broking as it is evident from the financial accounts of the said company. The P L Account of the company clearly shows that the main income of this company is from broking. The TPO has also noted that these companies are broking houses. Hence, these two companies are entirely different in their business profiles and therefore, not functionally comparable with that of the assessee company. 6.5.1 We may note that the coordinate Bench of this Tribunal in the case of Carlyle India Advisors Pvt Ltd in ITA No. 7901/Mum/2001 vide order dated 4.4.2012 has also taken a view that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the ALP are not found as proper comparables in view of the facts as discussed above. 7. The ld Sr counsel for the assessee then took us to the reasons recorded by the TPO for rejecting the comparables selected by the assessee. 7.1. IDC India Ltd: He has pointed out that in the case of IDC India Ltd, the TPO rejected the said company on the ground that it does not offer any investment advisory services. The ld Sr Counsel has referred the P L Account as well as the audit report and submitted that IDC India Ltd is a research company, primarily dealing in research and survey services and products. It does not have any physical inventories. Therefore, the business activity of IDC India is similar to that of the assessee. Almost the entire income is from the sale and services which is from the business of marketing and research management and consultancy services. He has referred note-12 to the notes on account and submitted that the company is a single segment company in the business of market research and management consultancy and no further disclosures are required under AS-17 other than those already provided in the financial statements. Thus, it was contended that as it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the details given at page 89 of the paper book. Therefore, the said comparable may not be considered on the ground of related party transaction; though the TPO has not rejected on this ground. 9.1 On the other hand, the ld DR has submitted that the company's financial accounts are prepared on 30.6.2007; therefore, the data for the entire financial year are not available and only for 3 months data were available. Therefore, in view of the decision of the Pune Benches of the Tribunal in the case of Honeywell Automation India Ltd vs DCIT in ITA No. 4/PN/08 vide order dated 10th Feb 2009. This company may not be considered as a comparable for want of financial results for the entire year. 10. We have considered the rival submissions and relevant material on record. The TPO has rejected this comparable because the financial data for the Financial Year 2007-08 were not available in the public domain and hence, it was held that this company is not a suitable comparable. There is no dispute that the data furnished by the assessee are regarding the financial results as on 30.6.2007. Therefore, as far as the financial year 2007-08 is concerned, the data available were only for 3 months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment advisory services. The TPO has also pointed out that the financial data for the Financial Year 2007-08 is not available in the public domain and hence is not a suitable comparable. Apart from this, the TPO has also noted that the company has negligible income from the services in comparison to the total revenue of the company. The ld Sr counsel has referred the director's report and submitted that the company is providing advisory services, fund accounting and back office services to QIEF management LLC , Mauritius. He has also referred the P L accounts of the comp any and submitted that the majority of the income is from profession and consultancy fee. Therefore, the company is in the business of providing consultancy services, which is similar to the assessee. 13.1. On the other hand, the ld DR has submitted that this company is providing services only to one party namely QIEF management LLC , Mauritius. He has filed the details of the information taken from the website of the said company and submitted that the said enterprise has been shown as a related party; therefore, this cannot be considered as a proper comparable. Apart from this, the ld DR has also pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and submitted that the main business of the said company is stated as software services. Moreover, the accounts of the company are prepared on 30.6.2007 and therefore, the data for the full financial year 2007-08 were not available before the TPO. 15.3 The ld DR has further submitted that if the comparables from both the sides as selected by the assessee as well as by the TPO are not found proper, then in view of the fact that in the subsequent Assessment Year as recorded by the TPO in the show cause notice filed by the assessee, at least some comparables are found to be agreed by both the parties and therefore, this issue may be remanded to the records of the Assessing Officer for examination and reconsideration in the light of the undisputed comparables for the AY 2009-10. 15.4. In rebuttal, the ld AR has submitted that as per the notes to the financial accounts only income shown by the assessee is by way of service in market survey and therefore, the said comparables cannot be excluded on the ground as taken by the TPO though, the accounts are prepared on 30.6.2007. However, the accounts prepared as on 30.6.2008 may be considered which covers the entire financial year. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be the data relating to the Financial Year in which the international transaction has been entered into. Thus, it is manifest from the sub rule (4) of Rule 10B that the data of the financial year in which the international transaction has been entered into to be used for analysing comparability of uncontrolled transaction in order to determine the ALP. The proviso to sub. rule (4) of Rule 10B provides the option for considering the data relating to the period other than the financial year in which the international transaction has been entered into; but not being more than two years prior to such financial year. 18.1. The proviso to sub. Rule 4 of Rule 10B does not mandate that always consider two more years' data of comparables in such analysis; but has a limited role only when the data of current year reveal some exceptional facts which could have influenced on determination of the Act in relation to the transaction being compared. 18.2. When the assessee has not made out a case that taking the data of only current financial year does not present the correct and fair financial result of the comparables then there is no mistake in considering the data for the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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