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TMI Blog2019 (2) TMI 1733X X X X Extracts X X X X X X X X Extracts X X X X ..... f payment made to Stock Exchanges towards non compliance of clearing house trade, client code modification, etc. - ITA No. 1428/Mum/2017 - - - Dated:- 22-2-2019 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER For the Appellant : Shri Madhur Agarwal For the Respondent : Shri Anand Mohan ORDER PER SAKTIJIT DEY, J.M. Aforesaid appeal has been filed by the assessee challenging the assessment order dated 31st January 2017, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short the Act ), in pursuance to the directions of the Dispute Resolution Panel 1 (DRP), Mumbai, for the assessment year 2012 13. 2. In ground no.1, the assessee has challenged the addition made on account of transfer pricing adjustment amounting to ₹ 7,09,72,772, to the arm s length price of international transaction with the Associated Enterprise (AE) pertaining to the provision of non binding investment advisory and support service. 3. Brief facts are, the assessee, an Indian company, is a wholly owned subsidiary of Goldman Sachs (Mauritius) LLC. The assessee is condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP on various grounds, including, selection/rejection of comparables, however, the DRP rejected the objections of the assessee. Therefore, in terms of the directions of the DRP, the Assessing Officer passed the impugned assessment order. 4. The learned Authorised Representative appearing for the assessee submitted, if the comparable selected by the Transfer Pricing Officer viz., Ladderup Corporate Advisory Pvt. Ltd. is excluded and any one of the comparables selected by the assessee is included, assessee s profit margin will be within the range of 5%. Hence, no further adjustment to the arm s length price would be required. He submitted, in that event, other grounds raised by the assessee challenging the transfer pricing adjustment would become academic. Proceeding further, he submitted, Ladderup Corporate Advisory Pvt. Ltd. cannot be considered as a comparable to a non binding investment advisory service provider, since; it is basically engaged in merchant banking activities, hence, functionally different from the assessee. He submitted, in various judicial precedents, it has been held that this company being engaged in merchant banking activity cannot be treated as a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA no. 968/Mum./2014; viii) CIT v/s Temasek Holdings Advisors India Pvt. Ltd., ITA no. 1051 of 2014; and ix) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.4203/Mum./2012 and ITA no.6504/Mum./2012. 6. He submitted the Transfer Pricing Officer himself has accepted this company as a comparable in assessee s own case for the assessment year 2013 14 and 2014 15. Thus, he submitted, this company being functionally similar should be included as comparable. 7. The learned Departmental Representative submitted, insofar as the comparability of Ladderup Corporate Advisory Pvt. Ltd. is concerned, he would like to rely upon the observations of the learned DRP and the Transfer Pricing Officer. 8. Insofar as the inclusion of the Informed Technologies Ltd. is concerned, drawing our attention to the observations of the Transfer Pricing Officer, he submitted, this company being in the business of ITES is functionally different from the assessee, hence, not comparable. He submitted, in case of a number of other assessees the Tribunal has rejected this company as comparable for various reasons. He further submitted, in assessee s own case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Since, this decision of the Co ordinate Bench is for the very same assessment year, it will squarely apply to the facts of the present appeal also. Even, the other decisions cited by the learned Authorised Representative also express similar view. In view of the aforesaid, we hold that Ladderup Corporate Advisory Pvt. Ltd. cannot be treated as a comparable to the assessee. 10. Insofar as Informed Technologies India Ltd. is concerned, it is one of the comparables selected by the assessee. However, the Transfer Pricing Officer and the DRP rejected the aforesaid comparable primarily on the ground that it is functionally different from the assessee as it is engaged in the provision of ITES. On a perusal of facts on record it is noticed that the nature of service provided by this company is akin to the investment advisory services provided by the assessee. While examining the comparability of the aforesaid company for the very same assessment year in case of Goldman Sachs Asset Management India Pvt. Ltd. (supra), which like the assessee is also providing non binding investment advisory service, the Tribunal in ITA no.1427/ Mum./2014, dated 31st August 2018, has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Ltd. is included and Excel Infoways Ltd. selected by the Transfer Pricing Officer is excluded, assessee s profit margin would be within the acceptable range of the average profit margin of the rest of the comparables. 13. Brief facts are, the assessee while benchmarking the international transaction relating to ITES segment adopted TNMM as the most appropriate method with operating profit/operating cost (OP/OC) as the Profit Level Indicator (PLI). The assessee selected ten comparables with average mean margin of 16.61%. Since the margin shown by the assessee at 16.00% is within the acceptable range, the price charged for the international transaction was claimed to be at arm s length. The Transfer Pricing Officer, however, did not accept the transfer pricing study report of the assessee. Out of the 10 comparables selected, the Transfer Pricing Officer rejected six comparables while accepting four. In addition, the Transfer Pricing Officer selected four more comparables including Excel Infoways Ltd. The arithmetic mean of the comparables at 26.31% being higher than the profit margin shown by the assessee at 16.00%, the Transfer Pricing Officer made an upward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, he submitted, this is the last year of operation of the BPO segment of the company, hence, it does not satisfy the requirement of a going concern. In this financial year, the BPO segment has been closed down, hence, it cannot be treated as a comparable. Further, he submitted, the employee cost of this company is substantially low which indicates that the company made to be outsourcing some of its activities, hence, the business model of the company is different from the assessee. Thus, he submitted, it cannot be treated as comparable. In support, he relied upon the following decisions: i) Baxter India Pvt. Ltd. v/s ACIT, [2017] 85 taxmann.com 285 (Del.); ii) ACIT v/s Maersk Global Service Centre India Pvt. Ltd. Ors., ITA no.944/Mum./2016, etc., dated 19.04.2018; iii) Emerson Climate Technologies India Pvt. Ltd. v/s DCIT Ors., ITA no.359/Pun./2016, etc., dated 25.04.2018; and iv) PCIT v/s Allscripts India Pvt. Ltd., [2016] 72 taxmann.com 305 (Guj.). 16. The learned Departmental Representative heavily relying upon the observations of the Transfer Pricing Officer submitted, since Excel Infoways Ltd. has cleared all filters applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as comparable. Similarly, in case of Emerson Climate Technologies India Pvt. Ltd. (supra), the Tribunal taking note of the fact that the BPO segment of the company was closed down in financial year 2011 12 held that it cannot be treated as comparable. Further, the Bench observed that the employee cost of the company being very low it cannot be treated as comparable. In our view, the aforesaid observation of the Tribunal in the decisions referred to above are very much relevant for deciding the comparability of this company and squarely applies to the facts of the present appeal. In view of the aforesaid, we hold that this company cannot be treated as comparable to the assessee, hence, should be excluded. As regards R. Systems Ltd., we have noticed that before the Transfer Pricing Officer and the DRP, the assessee has furnished audited quarterly financial results of the company from which the financial results of the company for the previous year relating to the assessment year under dispute can easily be ascertained. Therefore, the contention of the learned Departmental Representative that the rejection of R. Systems Ltd. by applying different financial year filter is valid, canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved, identical dispute came up for consideration before the Tribunal in assessee s own case in assessment year 2009 10 in ITA no.222/Mum./2014, dated 30th November 2015. The Tribunal, while deciding the issue held that as per the decision of the Tribunal, Bangalore Bench, in Biocon Ltd. v/s DCIT, [2013] 144 ITD 21 (Bang.), ESOP cost is allowable as deduction. Accordingly, the Tribunal allowed the deduction claimed by the assessee. The same view was reiterated by the Tribunal while deciding assessee s appeal on identical issue in the assessment year 2011 12 in ITA no.927 and 902/ Mum./2016, dated 11th January 2017. The facts being identical, respectfully following the consistent view of the Tribunal in assessee s own case, as referred to above, we allow assessee s claim by deleting the disallowance made by the Assessing Officer. Ground raised is allowed. 23. In ground no.4, the assessee has challenged the disallowance of ₹ 19,99,644, paid to the Stock Exchanges for non confirmation of clearing house trade, client code modification, etc. In the course of assessment proceedings, the Assessing Officer while examining the deduction claimed of ₹ 19,99,644, towards pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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