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TMI Blog2015 (6) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... in international transactions as well, the AO referred the case for determination of ALP on international transactions, to the TPO, who suggested an adjustment of Rs. 6,25,29,197/- on the following segments : Business Support Services Rs. 1,60,45,600 Brokerage Services Rs. 99,49,597 Investment advisory services Rs. 3,65,34,000 Total Rs. 6,25,29,197 4. The matter was referred to before the DRP, who sustained the proposals made by the TPO u/s 92CA(3). 5. Hence the instant appeal. 6. Ground no. 1 is not pressed, hence it is rejected. 7. Ground no. 2 is against the upward TP adjustment of Rs. 1,60,45,600/- pertaining to business support services rendered to its AEs. The difference, as per the AR, arose because of rejection of one the comparable selected by the assessee, i.e. Capital Trust Ltd. (Capital Trust) by the TPO, which according to the TPO, a loss making concern, and inclusion of Spanco Telesystems and Solutions Limited (Spanco), by the TPO. 8. In the course of hearing before us, the AR vehemently argued that the TPO erred in rejecting Capital Trust as comparable, as the nature of business is exactly the same, as that of the business. He also submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculars Margins from BSS% Operating Costs 25,57,35,470 Add: Mark-up of 16.09% as discussed 4,11,47,837 Less: Amount already offered to tax by the assesse 2,51,02,237 Adjustment 1,60,45,600 11. Thus, according to the AR, the TPO accepted all the comparables but excluded Capital Trust and included Spanco. 12. According to the AR, the exclusion of Capital Trust by the TPO, being loss making, was inconsistent with the norms as well as against the judicial pronouncements. According to the AR, Capital Trust was loss making only for the last two years, but was not a persistent loss making comparable, as is evident from the details filed in the TP study, wherein in 2005, Capital Trust had operating profits of 27.25%. He, therefore, submitted that the TPO had erred in excluding the comparable. He also pointed out that exclusion of Capital Trust was not on the basis of different business segment, which could have had the bearing on the exclusion, but was because of a single line non speaking exclusion on operating loss. 13. The AR referred to the description of its business, which is as, "The company offers consultancy services to Foreign Banks, not having their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt relied on by the assessee's counsel in Quark Systems Pvt. Ltd. (32 TTJ 1) (Chd.)(SB) supports the assessee's counsel arguments. Being so, for proper comparables these three companies viz., items at 11, 13 and 14 are to be included in the comparables if their loss is on account of normal business reasons and segmental turnover is above Rs. 1 crore. This view of ours is also supported by the order of the Tribunal Delhi Bench in the case of Sapient Corporation Pvt. Ltd. (15 ITR (Trib) 285), Genisys Integrating Systems India Pvt. Ltd. (15 ITR (Trib) 475) (Bangalore Bench) wherein held that when companies which are loss making are excluded from comparables, then super profit making companies are also to be excluded from the comparables for determining the ALP. Being so, in our opinion, the Assessing Officer has to recalculate the ALP after excluding only the data of the companies which have losses due to extraordinary reasons. In other words, if there is loss in ordinary course of business which is normal/nominal cannot be excluded from the comparables. However, we make it clear that if there is any abnormal loss or if there is continuous loss year by year, in such situation that com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of services rendered by the comparable were exactly on the similar lines, as that of the assessee, though, during the year, it was in loss, cannot be disqualified as not a legitimate comparable. We are well supported by the decision, cited by the AR, in the case of Brigade Global (supra), relevant portion of which has already been reproduced earlier in the order, we hold that the assessee had rightly taken Capital Trust as a valid comparable and the revenue authorities erred in excluding the same. 20. Apropos the inclusion of Spanco as a comparable, we find that the TPO/DRP were incorrect, because as per the results seen in the case of Spanco, they pertain to BPO segment only, as against the business of the assessee, which provides need based business support services in connection with business activities in the area of financial services carried out by the AEs. 21. Since both these business segments cannot be equated, we hold that the revenue authorities erred in taking the financials of Spanco as a comparable case. 22. Since we have reversed both the decisions of TPO/DRP on the impugned comparables, we do not find any reason to sustain the addition made, which we de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the TPO, the assessee provided details of transactions with comparables in both the categories, i.e. foreign owned brokers and Indian owned brokers Details of transaction entered by GSIMI with foreign owned brokers during the period January 1, 2007 to March 31, 2007 Name of the brokers Total turnover Brokerage amount Brokerage % CITI GROUP GLOBAL MKT. INDIA PVT. LTD. 894,942,818 2,389,492 0.0027 CLSA INDIA LIMITED 2,386,445,298 5,110,740 0.0021 DSP MERRILL LYNCH LTD 972,039,526 1,894,719 0.0019 J P MORGAN STANLEY SECURITES LTD 1,792,955,766 4,057,203 0.0023 J.P. MORGAN INDIA PRIVATE LIMITED 238,438,753 636,345 0.0027 MAN FINANCIAL SIFY SECURITIES INIDA PVT LTD 314,705,643 560,296 0.0018 UBS SECURITIES INDIA PRIVATE LIMITED 1,025,741,649 2,610,139 0.0025 Sub total 7,625,269,454 17,258,934 0.0023 Details of transaction entered by GSIMI with Indian owned brokers during the period January 1, 2007 to March 31, 2007 Name of the brokers Total turnover Brokerage amount Brokerage % BATLIVALA AND KARANI SECURITIES INDIA PVT. LTD 2,314,842,173 3,165,536 0.0014 BRICS SECURITIES LTD 665,915,080 1,088,199 0.0016 EDELWESS CAPITAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egime, therefore, according to us, the adoption of CUP was the most appropriate method, adopted by the assessee to benchmark its ALP. We do not find anything contrary in the conduct and management of the business of the comparable with that of the assessee. 33. We have also referred to the subsequent years study, wherein the average commission is at 19.86 basis charges with AEs and at 20.42 basis points with third parties, which is well within the range as per the proviso. 34. In these circumstances, we are of the considered opinion that no adjustment is required to be made. The addition of Rs. 99,499,597 is therefore deleted. 35. The ground is, therefore, allowed. 36. Ground no. 4 pertains to adjustment of Rs. 36,534,000/- pertaining to: (a) investment advisory Services in respect of Listed Indian companies (b) investment advisory /support services in respect of strategic (unlisted) investments. 37. In the course of TP proceedings, the area of difference of bench marking of the comparables was with regard to the nature of business conducted by the assessee and comparables furnished by the TPO. In the year under consideration, the assessee submitted before the TPO that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in India having a bearing on investment opportunities; * Interact with portfolio companies information desired by the recipient from time to time; * Assist in undertaking due diligence of investment opportunities and submit report and recommendations; * Assist in performance review of portfolio Companies, recommend the plans for managerial and business support and furnishing the recipient such information as may be required for monitoring the portfolio companies; * Advisory on the timing, considerations, terms mode and manner of investments and/or disinvestments;" 39. The TPO, on the other hand selected the following as comparables S. No. Company Name 1 Centrum Capital Ltd. 2 Chartered Capital & Investment Ltd. 3 Edelweiss Capital Ltd. 4 Keynote Corporate Services 5 L&T Capital Co. Ltd. 6 SREI Capital Markets Ltd. 7 Sumedhia Fiscal Services Ltd. 40. The basic point of difference between TP study as submitted by the assessee and adoption of comparables by the TPO were that there was a functional difference between the conduct of business of the assessee and the comparables adopted by the TPO. The AR pointed out that the comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X
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