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TMI Blog2018 (1) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 253 of the Incometax Act, 1961 (Act) against the order dated 30 January 2017 passed by the Income-tax Officer, Circle - 14(3)(1), Mumbai (hereinafter referred to as the 'learned AO') under section 143(3) read with section 144C(13) of the Act in pursuance of the directions issued by the Dispute Resolution Panel - 2, Mumbai (Hon'ble DRP). Ground 1 On the facts and in the circumstances of the case and in law, the learned AO based on the directions of the Hon'ble DRP, erred in making an upward adjustment of INR 62,254,019 in determining the arm's length price (ALP) of the international transaction pertaining to the provision of non-binding investment advisory services by the Appellant to its Associated Enterprise. Ground 2 On the facts and in the circumstances of the case and in law, the learned A.O based on the directions of the Hon'ble DRP, failed to appreciate that the ALP as determined by the Appellant by applying the prescribed method in accordance with subsection (1) and (2) of section 92C of the Act, should have been accepted since the pre-condition in section 92C(3) of the Act, before the Deputy Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Appellant when in fact the said companies are functionally not comparable to the Appellant. Further the learned A.O has not provided an opportunity of being heard to the Appellant regarding the comparability of these companies additionally included by the learned AO; and c. In computing the incorrect operating margin of Ladderup Corporate Advisory Private Limited, ICRA Techno Analytics Limited and CRISIL Limited, and in not sharing the basis of computation of arriving at the operating margins of the said comparable companies. Ground 5 On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in concluding that the Appellant is engaged in rendering, nondiscretionary portfolio management/ investment management services. Ground 6 The learned AO, based on the directions of the Hon'ble DRP erred, on facts and in law, in rejecting the use of contemporaneous and multiple year data available for computing the ALP as on the date of filing the return of income and relying only on single year data (i.e. for the year ended 31 March 2012) for the purpose of determining the ALP. In this regard, since the comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IDC(India) Limited 11.66% -30.51% ICRA Management Consulting Services Limited. 7.60% 6.94% ICRA Online Limited. 30.65% 16.64% Informed Technologies Limited. 15.10% 8.26% Integrated Capital Services Limited. -2.92% -1.98% Arithmetic Mean 13.21% - 0.13% 4. The A.O during the course of the assessment proceedings made a reference under Section 92CA(1) to the Transfer Pricing Officer (for short TPO ) for computation of Arm s Length Price ( ALP ) in respect of the Investment Advisory Services rendered by the assessee company, viz. Temasek Holdings Advisory India Pvt. Ltd. ( THAIPL ) to its holding company, viz. Temasek Holdings Pvt. Ltd., Singapore ( THPL ). The TPO not being persuaded to subscribe to the contention of the assessee that multiple year averages were to be used for the purpose of benchmarking the ALP, thus being guided by Rule 10D, which as per hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/-. 5. The A.O. after receiving the report of the TPO passed a Draft Assessment Order u/s 143(3) r.w.s 144C(1), dated 14/03/2016 and proposed to assess the income of the assessee company at ₹ 14,79,82,45-/-. The assessee being aggrieved with the variations proposed by the AO in the Draft assessment order filed objections with the Dispute Resolution Panel-2, Mumbai (for short DRP ). 6. The DRP vide its directions passed u/s 144C(5) of the Act, dismissed the objections which were raised by the assessee against the TP adjustments made by the TPO. The DRP after deliberating on the contentions of the assessee as regards the rejection of the comparables selected by the assessee, viz. (i) ICRA Managing Consulting Services Ltd; (ii) ICRA Online Ltd; (iii) Informed Technologies Ltd; (iv) Integrated Capital Services Ltd; and (v) IDC (India) Ltd., observed that as the rejection of all of the said comparables by the TPO in the immediately preceding year, viz. A.Y 2011-12 was upheld by his predecessor, therefore, for the said reason declined to interfere with the order of the TPO. That as regards the challenge thrown by the assessee to the inclusion of certain comparables in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons recorded by his predecessor in the immediately preceding year, viz. A.Y 2011-12. It was submitted by the ld. A.R that the TPO instead of deliberating on the facts of the case in the backdrop of the submissions of the assessee, had rather adopted a convenient approach by transposing the order passed by his predecessor for the immediately preceding year in the order for the year under consideration. The ld. A.R adverting to the rejection of the comparables selected by the assessee in its TP study report for benchmarking its international transactions pertaining to provision of Investment advisory services rendered to its AE, submitted that the exclusion of the comparables selected by the assessee was upheld by the DRP by merely the observations of his predecessor in the case of the assessee for A.Y 2011-12. The ld. A.R submitted that the exclusion of two comparables, viz (i) ICRA management Consultancy Services Ltd.; and (ii) Informed Technologies Ltd. had been set aside by the Tribunal while disposing of the appeal of the assessee for. A.Y 2011-12, viz. Temasek Holdings Advisors India Pvt. Ltd Vs. DCIT (ITA No. 477/Mum/2016 and AY 2011-12), dated 11.08.2017 . It was submitted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fording of an opportunity of being heard by the TPO, while selecting ICRA Techno Analytics as a comparable was raised before the DRP, took us through Page 42- Para 10.156 of the objections, which duly substantiated his aforesaid contention. It was submitted by the ld. A.R that despite the fact that the failure on the part of the TPO to allow an opportunity of being heard to the assessee while including the aforesaid comparables, viz. (i). CRISIL; and (ii). ICRA Techno Analytics was specifically raised before the DRP, however, the said objection of the assessee was not disposed. The ld. A.R drew our attention to Page 18 - Para 10.25 of the objections filed before the DRP, and submitted that the assessee had further averred before the DRP that the TPO had merely relied on the order passed by his predecessor for A.Y 2011-12 and had failed to conduct any fresh analysis for the year under consideration. The ld. A.R further took us through the relevant pages of the order passed by the DRP. Per contra, the ld. Departmental Representative (for short D.R ) relied on the order passed by the ITAT, Delhi in the case of the Motorola Solution India (P) Ltd., Vs. ACITCircle- 2(2014) 48 taxman.co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had merely gone by the said very reason and upheld the rejection of the said comparable during the year under consideration. We find that the rejection of the aforesaid comparable by the AO/TPO in A.Y. 2010-11 had been set aside by the Tribunal in the case of the assessee, reported as Temasek Holding Advisors India Private Limited Vs. DCIT, Circle 14(3)(1), Mumbai, vide order dated 25.02.2016 , wherein the Tribunal had categorically held that the aforesaid company, viz. ICRA Management Consultancy Services Limited was a good comparable and had directed the inclusion of the same in the list of the final comparables. We are of the considered view that now when the order of the AO/TPO in the case of the assessee for the immediately preceding year, viz. A.Y. 2010-11, therein excluding the aforesaid comparable, viz. ICRA Management Consultancy Services Limited had been set aside by the Tribunal, therefore the rejection of the said comparable, viz. ICRA Management Consultancy Services Limited by the A.O during the year under consideration pursuant to the direction of the DRP, wherein the latter had merely followed the order of his predecessor so passed in the case of the assessee for. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the exclusion of the other relevant factors for drawing of adverse inferences in the case of a service entity, as margins in the latter case are not dependent on the scale or size of operations. Thus in the backdrop of our aforesaid observations, we are of the considered view that now when the comparable, viz. Informed Technologies Limited had been considered as a good comparable qua the functions performed by the assessee in A.Y. 2009-10 and A.Y. 2010-11, therefore in the absence of any material change, there is no reason as to why the same is to be rejected as a comparable during the year under consideration. We thus in the backdrop of our aforesaid observations are of the considered view that the aforesaid comparable, viz. Informed Technologies Limited had rightly been selected by the assessee as a comparable, and thus set aside the order of the AO/TPO, and direct that the same be included in the final list of the comparables. We thus being of the considered view that as both of the aforesaid comparables, viz (i) ICRA management Consultancy Services Ltd.; and (ii) Informed Technologies Ltd. had been held by the Tribunal to be good comparables while disposing of the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of both the parties, perused the orders of the lower authorities and the material placed on record before us. We have given a thoughtful consideration to the facts of the case and therein find that the aforesaid comparable, viz. Ladderup Corporate Advisory Pvt. Limited is registered as a category one merchant banking with SEBI and is engaged in rendering merchant banking services w.e.f July 2010, which factual position stands duly substantiated from the perusal of the web portal extracts of the aforesaid company. We further find that as per the Annual report‟ the aforesaid comparable is engaged in only one segment, which includes merchant banking. We thus in the backdrop of the very fact that the aforesaid comparable is engaged in the merchant banking/investment banking and other similar activities, are of the considered view that the same cannot be considered as functionally comparable to the assessee company which is engaged in the business of rendering non binding investment advisory services. We are further not impressed by the averrment of the Ld. D.R who by referring to the observations recorded by the coordinate bench of the Tribunal in the case of Avenue Asia (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, direct the AO/TPO to exclude the same from the final list of comparables. 12. We now advert to the remaining two comparables, viz. (i) ICRA Techno Analytics Ltd., (Segment-Professional services); and (ii) CRISIL Ltd. (Segment Research Services) which were selected by the TPO as comparables and included in the final list of the comparable for determining the ALP of the international transactions of the assessee. Before us, the ld. A.R had submitted that as in the case of CRISIL Ltd., the related party transactions (for short RPT ) were to the extent of 47.1%, therefore, the same could not have been taken as a comparable by the TPO. We find that the ld. A.R had submitted before us that though the said fact was specifically raised in the objections filed with the DRP, however, the latter had failed to consider the same while passing the order. We find substantial force in the aforesaid contention of the assessee and find that a perusal of Page 41 - Para 10.151 of the objection filed by the assessee before the DRP reveals that the assessee had assailed the inclusion of the said comparable on the ground that as it had significant RPT of 47.1% during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded any opportunity of being heard by the TPO at the time of including the said comparable, viz. ICRA Techno Analytics Ltd. in the final list of comparables. It was further submitted by the ld. A.R that though the assessee had specifically objected to non affording of an opportunity of being heard at the time of inclusion of the aforesaid comparable, viz. ICRA Techno Analytics Ltd in the final list of comparables before the DRP, however, the latter failing to take cognizance of the said objection of the assessee had allowed such serious infirmity on the part of the TPO to perpetuate. We have perused the objections raised by the assessee before the DRP and find that though a specific objection of having been divested of an opportunity of being heard at the time of inclusion of ICRA Techno Analytics Ltd as a comparable was raised by the assessee before him (Page 42- Para 10.156 of the objections), but however, the same had not been considered by the DRP while passing the order. We are of the considered view that in all fairness, now when the assessee was never afforded an opportunity of being heard at the time of inclusion of the aforesaid comparable by the TPO and the objection of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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