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TMI Blog2015 (12) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... mission and brokerage. Integrated Capital Services Ltd. be excluded as be excluded as this company is rendering advisory and consultancy services in the area or merger acquisition and reconstruction of business. Khandwala Securities Limited be rejected as this company as comparable on the ground that its income is very akin as security and stock brokers. Axis Private Equity Ltd., the related party transactions are more than 90%. Moreover, the principle product/services of the company as per balance sheet abstract show that it is into the asset management services. Thus, it can be safely concluded that this company has functionally different from the assessee. Therefore, it would be better to exclude this company from the final list of comparables. Computation of deduction u/s. 10A - assessee was asked to explain why 50% of the telecommunication expenses should not be excluded from export turnover for inclusion of deduction u/s. 10A - Held that:- Respectfully following the ratio laid down in the case of CIT Vs Gem Plus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT ] we direct the AO to exclude the telecommunication expenses from total turnover also. - Decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements evidencing the payment, we do not find any reason/logic in making the additions. The AO is directed to delete the same - Decided in favour of assessee - I.TA No. 222/Mum/2014 - - - Dated:- 30-11-2015 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri P.J. Pardiwala For The Respondent : Shri N.K. Chand ORDER PER N.K. BILLAIYA, AM: This appeal by the assessee is preferred against the assessment order dated 27.11.2013 made u/s. 143(3) r.w. Section 144C(13 of the Act. 2. The assessee was incorporated in March 2006 for the purpose of inter alia undertaking securities broking, investment banking, underwriting and other financial services business in India. The assessee is a wholly owned subsidiary of Goldman Sachs(Mauritius) LLC. 3. The assessee filed its return of income on 30.9.2009 declaring total income at ₹ 230,09,17,720/-. Subsequently, the assessee filed a revised return on 31.3.2011 declaring the same total income while claiming additional claim of TDS. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between these two services except for the fact that the advisory services in respect of listed securities is more of a stationery activity wherein the sub advisors need not resort to activities such as due diligence of investment opportunities , interaction with the portfolio companies, formulation and evaluation of strategies for investment, support in connection with the negotiations and the other logistics related support. 3.2. The TPO further observed that the basic difference between the two activities is not related to the functional aspect of the advisory services being provided but the manner in which services are being provided. 3.3. The TPO found that the assessee has used entity wise margin for the purpose of benchmarking and has selected TNMM as the most appropriate method with NCM(Operating profit/operating 4 ITA. No. 222/M/2014 cost) as the PLI. In the TP Study Report, it was found that the assessee has taken 18 comparables ( 9 in respect of advisory for Indian equities and 10 in respect of strategic investments in which one company is common. 3.4. TPO noticed that the assessee has used 3 years weighted average of the comparable as the benchmark, drawing supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry services: For Investment advisory - listed Particulars Margins Opening Costs 9 5,836,769 Markup of 62.50% as discussed 59,897,980 Less Markup offered by the assessee @ 18.75% 17,965,378 Adjustment 41,932,602 For Investment advisory -unlisted Particulars Margins Opening Costs 366,810,717 Markup of 62.50% as discussed 229,256,698 Less Markup offered by the assessee @ 26.42% 96,926,033 Adjustment 132,330,665 Accordingly, a TP adjustment of ₹ 17,42,63,267/- was made. 4. The assessee carried the matter before the DRP. It was strongly contended that the TPO has grossly erred in rejecting the separate functional analysis, search process adopted and documentation maintained by the assessee for the transactions. It was further argued that the TPO was wrong in treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting margins of the assessee would be in the range of 5% from the arithmetic mean. The Ld. Counsel drew our attention to the decision of the Tribunal in assessee s own case for A.Y. 2007-08 in ITA No. 7724/M/2011. It is the say of the Ld. Counsel that since the DRP has drawn support from the findings given in earlier assessment years and the order of the DRP has been reversed from the Tribunal, the same view should also be taken for the year under consideration. 7. Per contra, the Ld. Departmental Representative strongly relied upon the findings of the Revenue authorities. It is the say of the Ld. DR that the comparables selected by the TPO and confirmed by the DRP are functionally comparable with that of the assessee as the comparable companies and the assessee are doing research and thereafter giving advisories. It is the say of the DR that even though the advisors are being given on different issues but the fact of the matter is that after doing research both are giving advised therefore, they are good comparables. Referring to the decision of the Hon ble High Court of Kerala 211 ITR 635, the Ld. DR vehemently submitted that the intelligent analysis has to be made and one sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices by the Co-ordinate Benches in the case of Arisaig Partners India Pvt. Ltd in ITA No. 1083/M/2014 wherein the Co-ordinate Bench at para-15 has held that this company 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. Similar view was taken by the Tribunal in the case of Wells Fargo Real Estate Advisors Pvt. Ltd in ITA No. 1093/M/2014 wherein the Tribunal at para-6 of its order has held that Motilal Oswal Investment Advisors Pvt. Ltd. was carrying on business of mergers and acquisitions and other related activities and is also a merchant banker. Drawing support from the decision of the Co-ordinate Bench given in the case of Carlyle India Advisors Pvt. Ltd. in ITA No. 2200/M/2011, it was held that Motilal Oswal Investment Advisors Pvt. Ltd., is functionally not comparable with an investment advisory company. In the case of Bain Capital Advisors (India) Pvt. Ltd in ITA No. 1360/M/2014, the Co-Ordinate Bench of the Tribunal are taking a consistent view that Motilal Oswal Investment Advisors Pvt. Ltd. has to be excluded from comparables on the plea that it was engaged in diversified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal in the case of Stream International Services Pvt. Ltd in ITA No. 8997/M/2010 has directed the exclusion of this company from the list of comparables. Respectfully following the findings/observations of the Co-ordinate Benches (supra), we direct the TPO for the exclusion of this company for the final list of comparables. 4. Integrated Capital Services Ltd. The only reason for including this company in the final set of comparables is that the DRP was of the strong view that the assessee itself has adopted this company as comparable though during the course of the proceedings before the DRP, the assessee requested for the rejection of this company as comparable. The DRP did not accept this contention since the assessee had not taken any ground relating rejection of this comparable. This reasoning given by the DRP cannot be accepted. The Co-ordinate Bench in the case of Stream International Services Pvt. Ltd in ITA No. 8997/M/2010 has clearly laid down the principle that there can be no escape from the proposition that the assessee is entitled to argue atleast before the appellate authorities that a wrong stand taken at the time of filing the return of income sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry akin as security and stock brokers. Though the TPO changed his view and included this company in the final list of comparable, the Co-ordinate Bench accordingly directed for the exclusion of this company. This order of the Tribunal was confirmed by the Hon ble High Court of Bombay vide Income Tax Appeal L. No. 1286 of 2012 dt. 22.2.2013. Respectfully following the observation/findings of the Co-ordinate Bench, we direct the TPO for the exclusion of this company from the final list of comparables. 6. Axis Private Equity Ltd. This company is engaged in managing directly or indirectly investments, mutual funds, venture, capital funds of share funds, pension funds, provident funds, insurance funds or any other funds and to promote manage and carry on any venture capital funds operation. This company acts as investment manager of Axis infrastructure fund. Out of its gross income of ₹ 11.45 crores, 11.28% has come from management fee i.e. from Axis Infrastructure fund. We also find that Axis Bank Ltd., owns 100% of the paid up capital of the company. In our considered opinion, the related party transactions are more than 90%. Moreover, the principle product/services o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee drew our attention to the decision of the Hon ble High Court of Bombay in the case of CIT Vs Gem Plus Jewellery 330 ITR 175. 11.4. Per contra, the Ld. Departmental Representative could not bring any distinguishing decision in favour of the Revenue. 11.5. We have given a thoughtful consideration to the facts qua the decision of the Hon ble High Court of Bombay (supra). Respectfully following the ratio laid down by the Hon ble High Court of Bombay, we direct the AO to exclude the telecommunication expenses from total turnover also. Ground No. 3 4 are treated as allowed for statistical purpose. 12. Ground No. 5 6 relate to the grievance related to ESOP cost. 12.1. The AO has considered this issue at para-6 of his order. While scrutinizing the return of income, the AO found that the employee costs include the cost of restrictive stock unit and stock option s plant under the Goldman Sachs Group Inc. amended and Restated Stock Incentive Plan, which is being charged to the profit and loss accounts over the period of vesting. The assessee was asked to submit the copies of the said agreement and the details of such expenditure. The assessee filed a detaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such a case the explanation to Sec. 37 would not apply. Accordingly question (C) raised by the revenue cannot be entertained. Respectfully following the ratio laid down by the Hon ble High Court (supra), we direct the AO to delete the impugned additions. Ground No. 7 is accordingly allowed. 14. Ground No. 8 relates to non-allowance of deduction on the ground that bonus expense amounting to ₹ 1,11,48,316/- are not actually paid. 14.1. This issue has been considered by the AO at para-9 of his order wherein the AO observed that an amount of ₹ 1,11,48,316/- is adjusted during the year which pertains to bonus of employees of other group companies. The assessee was asked to justify its claim. The ssessee filed a detailed reply vide letter dated 18.2.2013 by which the assessee explained that in A.Y. 2008-09, the assessee has disallowed bonus amounting to ₹ 36,46,21,050/- payable to employees as the same was not paid on or before the due date of filing the return of income. The said amount was paid on A.Y. 2009- 10 and the same is claimed as de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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