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TMI Blog2013 (1) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... t to participate in the actual decision making - Comparables selected by assessee are correct - Decided in favor of assessee Held that:- As regards to the adjustment of +/-5% can be made when some real and accurate effect of such differences are brought on record - assessee has not properly quantified the alleged adjustments on account of differences in asset employed and risk assumed - Decided against the assessee - ITA No. 8914/Mum/2010 - - - Dated:- 31-1-2013 - P. M. Jagtap ( Accountant Member ) And Vijay Pal Rao ( Judicial Member) For the Petitioner : Porus Kaka For the Respondent : Ajeet Kumar Jain, Sasmild Misra ORDER Vijay Pal Rao ( Judicial Member) This appeal by the assessee is directed against the assessment order dt 13.10.2010 passed u/s 143(3) r.w.s 144C(13) of the I T Act in pursuant to the directions of the Dispute Resolution Panel (DRP) passed u/s 144(5) of the I T Act for the AY 2006-07. 2. The assessee has raised he following grounds in this appeal: Based on the facts and circumstances of the case, the Appellant respectfully submits that the learned Deputy Commissioner of Income-tax, Circle 3 (1), Mumbai ( DCIT ) along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the DRP erred in first requesting and then failing to consider the revised benchmarking analysis undertaken by the Appellant in the Impugned Direction 9. That the order of the DRP is against the principles of natural justice as the DRP erred in disregarding the request of the Appellant to examine the authorized representatives of the comparable companies to understand their business model, strategy and other relevant factors to distinguish them from the Appellant s business 10. That the order of the DRP is against the principles of natural justice as the Appellant was denied an opportunity to examine I cross-examine necessary persons 11. That DRP grossly erred, both in law and on facts of the case, in holding that the TPO could conduct a fresh comparability analysis at the time of assessment, using data which is not contemporaneous as per Rule 1 OD(4) of the Income Tax Rules, 1962 12. That the learned DCIT along with the DRP erred in arriving at a presumption that the Appellant was exposed to a risk in the form of a single customer risk 13. That the DRP erred in law in failing to grant the benefit of +/- 5 per cent variance as per proviso to section 92C(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consultancy Services 14,75,18,590 2 Reimbursement of expense 89,77,378 CUP 3 Recovery of expens incurred 74,273 CUP 4 Receipt of share application money 6,00,00,000 CUP Total 21,65,70,241 3.4 In the TP report, the assessee has explained its services to be similar to a support provider rather than a marketing agent looking out for investment opportunities. The assessee has finally selected 7 comparables for benchmarking of its international transactions by adopting the TNMM as the most appropriate method and submitted that the assessee earned mark up on its operating cost at 13.11% with respect to the services rendered to its AE in comparison to the arithmetic mean of the operating profit (OP/TC) of the comparables at 10.67%. Thus, the assessee claimed that its margin with respect to the services rendered is at arms length price, which is more than the bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Sr counsel has submitted that the TPO has grossly erred in comparing the assessee with the investment/merchant banking. The assessee s activity of investment advisory services to its AE is without any involvement of actual investment funding, marketing or risk in the said activities. The assessee has entered into an agreement with the AE and as per the said agreement; the assessee subsidiaries are required to collect the necessary information to be provided to the AE which pertains to (i) the economic and the political conditions of the UK, Germany, Europe, and India; (ii) the information technology sectors of the economy of the UK, Germany, Europe and India; (iii) particular information technology enterprises in the UK, Germany, Europe and India; (iv) possible investment opportunities involving information technology and growth business in the UK, Germany, Europe and India ;(iv) such other matters as requested by GASC LLC. He has further submitted that the process flow of activities performed by the assessee to AE for facilitating the entire investment process is as under: 1. GASC LLC instructs GAPL India to provide information on specific industries or companies; 2. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport to GASC LLC (AE) by way of collating information and providing other research and support services. He has further emphasized that the assessee is not involved in the final decision making process and therefore, the assessee is very limited risk service provider in the nature of support services to the AE from India. 4.2 On the contrary, the business model and functionality of investment banking and merchant banking is entirely different which are directly concerned with the activity of investment deals and transactions; whereas the assessee is not concerned with such type of deal or transactions. The assessee is getting remuneration irrespective of any deal across the world. The assessee is not involved in the merger and acquisition transaction; whereas the role of investment banking and merchant banking are investment and merger/acquisition etc., The ld Sr counsel has submitted that the assesee s role is limited to furnish/provide the required information to the GASC LLC which has to take recommendatory decision and forward the same to the GA Investment committee, who has to take final decision of investment. 4.3 During the year under consideration, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement, assessee received a fee of cost plus 12.5% mar up, irrespective of the fact whether the overseas affiliates actually make any investments on the basis of information provided by the assessee. Therefore, the assessee has no functional, asset and business risk. The GA is distinguished within the investment community because of exclusive focus on the information technology, process outsourcing and communications industries; long term investment perspective, ability and commitment to add value to the portfolio companies. The ld Sr counsel has pointed that the TPO has also taken note that the entire activity of the GA group on a global basis; whereas the assessee s activity is limited to support services to the AE but sill the TPO has compared the assessee with the investment banking and merchant banking. The ld Sr counsel has referred various reports which prepared/presented by the assessee to its AE and submitted that these reports pertain to potential information giving presentation on Indian educational sector including market opportunity, emerging business models, potential investment opportunities of GA. 4.6 He has further pointed out that various reports on the educat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form and content of information to be provided by the assessee. All this is done through regular support from GASC LLC which provides professional support to the assessee in many areas. 4.9 The assessee has located the comparables which are in similar activity of advisory/support services whereas the TPO took the wrong comparables by selecting the investment banking and merchant banking. Even the search of comparables of the TPO is not related to the investment and advisory. The TPO s decision to select the comparables who are investment banking and merchant banking is contrary to the facts and submissions explained by the assessee. 4.10 The ld Sr counsel has thus submitted that an identical issue has been considered and decided by the Tribunal in the case of Carlyle India Advisors Private Ltd in ITA 7901/Mum/2011 vide order dated 4.4.2012. The ld Sr counsel has explained that the business model and the activity of Carlyle India Advisors Private Ltd are identical to that of the assessee as recorded by the Tribunal in the said order. He has further pointed out that in the said case, the TPO selected 8 comparables which are common to the comparables as selected by the TPO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies Ltd 19.34 6 Shanthi Sales Ltd 1.61 7 TSR Darashw Ltd 15.42 Average (Arithmetic mean) 10.57 5.1 Thus, the assessee has arrived at the operating profit mean of the comparable at 10.67% and claimed that the assessee s mark up on the operating cost at 13.11% with respect to services rendered to AE is at ALP. The TPO did not accept the comparables selected by the assessee on the ground that the activities of the assessee are akin to the investment banking and merchant banking. Accordingly, the TPO on the basis of the research contended on the keywords merchant banking/investment banking and advisory services, selected 9 comparables as under: 5.2 After considering the submissions of the assessee the TPO finally arrived at 8 comparables as under; The TPO determined the arithmetic mean of operating profits of the comparables at 39.85%. Accordingly, by comparing the ALP, being arithmetic mean operating profit of comparables with the assessee operating margin at 13% an adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment opportunities and providing related information to Carlyle Hong Kong as required. g. Provision of such other support services incidental or related to the foregoing services, as requested by Carlyle Hong Kong from time to time. Fees: In consideration for the said support services provided under the Services Agreement. Carlyle Hong Kong compensates the Assessee, a monthly service fee, which is equal to 115% of actual operating expenses (including depreciation on capital assets),incurred by and for the account of Carlyle India in connection with the provision of the said Services 5.6 t is clear from the facts as recorded by the coordinate Bench of this Tribunal in the case of Carlyle India Advisors Private Ltd (supra) that the assessee s activity of providing services is similar to the nature of services and activity of Carlyle India Advisors Private Ltd (supra). In the said case, the TPO rejected the comparables selected by the assessee except one company. The Tribunal has examined the comparables selected by the TPO and found that except one comparable, i.e. IDC India Ltd., all other comparables cannot be taken into consideration in para 27 to 30 as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessment Year 2006-07 and 2007-08 as well functions of the sole comparable company the contention of the ld DR that the comparable found for the Assessment Year 2007-08 can t be a suitable comparable for Assessment Year 2006-07 is devoid of any merit and substance. Thus, when the functional environment and other facts remain same for both the AYs then a comparable found suitable for one Assessment Year can t be rejected for the immediate precedent or subsequent year. 5.9 The assessee has claimed that assessee s operating margin is within +_5% of the comparables; therefore, no addition can be made in view of the proviso to sec. 92C(2). It is to be noted that option under the said proviso is given to the assessee to take a price, which may varies from arithmetic mean by an amount not exceed 5% of such arithmetical mean. We quote the proviso to sec. 92C(2) as exists at the relevant point of time as under: Provided that where more than one price is determined by the most appropriate method, the arm s length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may very from the arithmetical mean by an amount not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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. 5.12 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 earlier years reveal facts which could have influenced on determination of the TP in relation to the transaction being compared. 5.13 When the assessee has not made out a case taking the data for 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 in which the international transaction has been entered into. There is a rationale for using the data of the comparables pertaining to the same period during which the international transactions took place because it will rule out the effect of difference in econ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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