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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 ..... r 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. 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. 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. - Decided in favour of assessee. Upward adjustment pertaining to brokerage services provided by the assessee to its AEs - Held that:- The assessee had offered list of comparables which had matched its business profile, both with, foreign owned brokers and Indian owned brokers, who were conducting that business through a common channel and according to us, each broker in either category was giving its performance in an uncontrolled regime, therefore, according to us, the adoption of CUP was the most appropriate method, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. The assessee company is a 100% subsidiary of GS (Mauritius) LLC, based in Mauritius. The assessee company was incorporated on 01.09.2006, and is in the core business of the group, i.e. securities broking, merchant banking and financial advisory services to its clients. 3. Since the assessee was engaged in transactions, which, resulted 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 ₹ 6,25,29,197/- on the following segments : Business Support Services ₹ 1,60,45,600 Brokerage Services ₹ 99,49,597 Investment advisory services ₹ 3,65,34,000 Total ₹ 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 ₹ 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % Crisil Limited 21.41% Cyber Media Events Limited 8.43% Educational Consultants (India) Limited 10.64% ICRA Management Consulting Services Ltd. 15.23% IDC (India) Limited 15.33% NTPC Electric Supply Co. Ltd. 16.78% Arithmetic mean 16.09% Accordingly, the adjustment to be made in respect of this transaction is as under: Particulars 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able adjustment has to be made to set off the difference to make the transaction commercially comparable. Upon careful consideration of the assessee's counsel plea, we find ourselves in agreement with the assessee's contention that only abnormal loss making companies are to be taken out from the comparables. The judgement 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 ₹ 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, Capital Trust was in the red and not because the nature of business had any variance with that of the assessee. When we look into the business segment of Capital Trust, we find that in the foreign consultancy segment, which we are concerned with, in the year 2004-05, it had OP/OC at 27.25%. Since the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in case of related parties is ₹ 36,262,364,261 the AO made an adjustment of ₹ 9,949,597 at 0.0003 basis charges of brokerage received from related parties. 27. This issue was taken before the DRP, who confirmed the action of the TPO. 28. Before us, the AR submitted that in the submissions before 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list of comparables which had matched its business profile, both with, foreign owned brokers and Indian owned brokers, who were conducting that business through a common channel and according to us, each broker in either category was giving its performance in an uncontrolled regime, 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 ₹ 99,499,597 is therefore deleted. 35. The ground is, therefore, allowed. 36. Ground no. 4 pertains to adjustment of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and analyzing potential investment opportunities in India and informing the AEs of these opportunities. • Monitoring the investments made by the AEs in India. • Identifying, screening and investigating sectors of the India economy for investment opportunities; • Advise in relation to the economic and political developments 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 Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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