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TMI Blog2017 (3) TMI 1660X X X X Extracts X X X X X X X X Extracts X X X X ..... mber & Shri Manoj Kumar Aggarwal, Accountant Member Appellant By : Shri Nishant Thakkar Respondent By : Mrs. Malathi Shridharan, CIT DR ORDER Amit Shukla, Judicial Member: The aforesaid appeal has been filed by the assessee against final assessment order dated 06.09.2010, passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961, by the Assessing Officer in pursuance of direction given by the Dispute Resolution Panel (DRP), vide order dated 12.08.2010, for the A.Y. 2006-07. 2. In the grounds of appeals, the assessee has raised as much as nine grounds and one additional ground. At the outset, the learned counsel for the assessee, Shri Nishant Thakkar, submitted that ground nos. 2, 3, 6 and 7 are not pressed and, therefore, same are being dismissed as not pressed. 3. Effectively, now the following grounds have been pressed:- "1. In computing the Arm's Length Price(ALP) for the transactions pertaining to investment advisory services at ₹ 27,147,213 after adopting profit level indicator of 27.18% as against 18.91% as adopted by the Appellant and consequently making an upward adjustment of ₹ 2,5999,882 4. In adopting a different comparable set of comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lobal Markets (India) Limited 1.70% 6 Securities Capital Investments (India) Limited -42.09% 7 Sumedha Fiscal Services Limited 45.00% 8 SREI Capital Markets Limited 8.44% Arithmetic mean 18.91% 5. The learned TPO rejected the assessee's entire search process and conducted a fresh search of comparables and identified eight comparable companies on the basis of the data of F Y 2005-06. The said comparable companies with their operating margin were as under: Sr. No. Name of the companies Operating margin considering on FY 2005-06 1 Centrum Capital Limited 37.92% 2 Keynote Corporate Services Limited 68.87% 3 Sumedha Fiscal Services Limited 23.50% 4 SREI Capital Markets Limited 14.53% 5 M/s. Chartered Capital & Investment Limited 34.34% 6 M/s. Edelweiss Capital Limited 79.47% 7 IDC (India) Limited 14.58% 8 M/s. L & T Capital Co. Ltd. 45.59% Arithmetic mean 39.85% Accordingly, TP adjustment of ₹ 53,04,358/- was made. 6. The DRP, after considering the objections raised by the assessee on the basis of the material placed on record, rejected three comparables selected by the TPO and accepted M/s. Keynote Corporate Services Limited by consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision in law that if one comparable is selected by the assessee during the course of search process, then comparative analysis cannot be done or that more than one comparables are to be necessarily taken as comparables; and secondly, once the TPO has rejected the entire search process of the assessee, then comparables selected by the TPO needs to be properly analyzed and assessee has all the right to challenge the inclusion or exclusion of such comparables. In support, he relied upon the order dated 18.01.2013 of the Mumbai Benches of this Tribunal in the case of Petro Araldite Private Limited vs. DCIT in ITA No. 6217/Mum/2012 for A.Y 2008-09. 10. We have heard the rival submissions, perused the relevant findings given in the impugned orders as well as the material placed on record. The assessee is engaged in providing non-binding investment advisory services to its AE. It makes investment recommendations to its AE and AE has the right to make the final investment decision. In other words, the advisory given by the assessee is non-binding. The nature of activities performed by the assessee for its AE as stated in the TP study report are illustrated as under:- a) Identificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y identifying potential comparables having similar functions that can stand the test of FAR analysis (i.e., functions performed, assets employed and risks assumed). The assessee is required to identify the comparables after carrying out proper search and undertaking FAR analysis. However, if the same has not been done properly then it has to stand the scrutiny of the taxing authorities. If, on a deep examination, it is found that the comparables chosen by the assessee do not stand the test of FAR analysis, requirement of the statutory provisions and correct selection of most appropriate methods, the same can be rejected. At the same time, if during the course of transfer pricing proceedings, if the assessee points out the cogent reasons and gives proper analysis as to why the comparables chosen by it were not correct, it cannot be said that the assessee is out rightly precluded from raising such objections. The ultimate aim of the transfer pricing provisions is to determine the appropriate ALP, which can be done only by bench marking with the proper comparables based on FAR analysis and under the prescribed methods. If in the course of the proceedings, it is found that certain comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion of various comparables as objected by the assessee before us:- (i) Centrum Capital Limited:- The learned counsel before us had stated that this company is mainly engaged in providing 'merchant banking' activities and the main income stream of the said company is syndication fees, brokerage, commission and income from trading in bonds hence this company cannot be comparable to the assessee company which is engaged in providing non-binding investment advisory services. Moreover, in the case of Carlyle India Advisors Private Limited vs. ACIT (supra), this Tribunal has rejected the said comparable on the ground that it is engaged in the business of merchant banking and cannot be considered as comparable with companies rendering investment advisory services. Further this company was also found to be incomparable with investment advisory services by this Tribunal in the case of General Atlantic Private Limited. After considering the rival submissions and on perusal of the material available before us, we find that it is an undisputed fact that M/s. Centrum Capital Limited is mainly into 'merchant banking' activities and its main income is from syndication fees, brokerage and comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic Private Limited (supra). (iv) Sumedha Fiscal Services Limited: This Company is too engaged in providing merchant banking activities. The operations of the company involve loan syndication and project consultancy services. Again, this Company has been found to be incomparable by this Tribunal in the case of Carlyle India Advisors Private Limited vs. ACIT and General Atlantic Private Limited (supra). Our decision with regard to the aforesaid comparables will also apply here and accordingly, we reject the comparable company for the purpose of comparative analysis. 13. Accordingly, all the four comparables as finally selected by the DRP are hereby rejected and they cannot be taken in the list of comparables. 14. Lastly, coming to the learned CIT-DR's argument that, if there is only one comparable left, then it would not be proper to benchmark the margin as the factors of comparative analysis will not throw fruitful result. However, we are unable to appreciate the learned CIT DR's contentions. First of all, Rule 10B(1)(e)(ii) envisages that net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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