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TMI Blog2020 (1) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... ital markets, mergers and acquisitions, private equity syndication and structured debt. no segmental data is available in the annual report. A perusal of the segment reporting shows that the company is engaged in single segment and there are no reportable business segment as per AS-17. We find the assessee company is engaged in providing high end rating support and would require skilled personnel in the field of merchant banking, actuary, financial advisory, etc. The functions performed by Motilal Oswal Investment Advisors Private Limited which is into merchant banking activities, in our opinion, cannot be compared to the functions of the assessee whose functions are strictly limited to that of providing rating support services. - ITA No.6808/Del/2015 - - - Dated:- 2-1-2020 - Shri R.K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Assessee : Shri Ved Jain, Advocate, Shri Rishabh Jain, CA And Shri Himanshu Aggarwal, CA For the Revenue : Ms Nidhi Sharma, Sr. DR ORDER PER R.K. PANDA, AM:- This appeal filed by the assessee is directed against the order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding. From the various details furnished by the assessee, the TPO further noted that the assessee has benchmarked the international transactions relating to provision of support services by considering them in the nature of software development services using TNMM as the most appropriate method with OP/OC as PLI. He noted that the assessee has worked out profit margin of 3.17% after working capital adjustment in respect of comparables as against 15% in its own case relating to provision of rating support services. Further, the assessee has worked out profit margin of 6.18% after working capital adjustment in respect of comparables as against 10% in its own case in respect of provision of other support services. The TPO rejected the economic analysis done by the assessee and worked out adjusted profit margin of 39.17% in respect of provision of rating support services and an adjusted margin of 18.15% in respect of provision of other support services and accordingly made addition of ₹ 1,52,87,598/- in case of Other support services and an addition of ₹ 76,41,028/- in respect of rating support services, the details of which are as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.20% 8.80% xiv. Acropetal Technologies Ltd. (Seg.) 22.06% 14.87% xv. Mindtree Ltd. (Seg.) 10.29% 4.75% xvi. Sankhya Infotech Limited (Seg.) 26.20% 17.66% xvii. Tata Elxsi Ltd. (Seg.) 12.94% 6.87% xviii. Thirdware Sol (Seg) 18.30% 13.07% xix. Zylog Systems Limited 28.74% 21.09% Average 23.82% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Motilal Oswal Investment Advisors Pvt. Ltd. 82.61 78.42 vi. SREI Capital Markets Ltd. 5.96 -2.53 Average 44.47% 39.17% 48.2 Accordingly, the arm s length price of the international transaction related to Rating Support Services is computed as below: Particulars Amount (INR) Operating Cost 63,250,300 Arm s length margin (%) 39.17% Arm s length margin (Rs.) 24775143 Arm s length price 88,025,443 Price charged by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w: Ground No. 1 The learned AO / TPO / DRP have erred in making an adjustment of INR 7,450,885 to the total income of the appellant in respect of international transaction pertaining to provision of rating support services by the appellant to its associated enterprises ( AEs ) (hereinafter referred to as impugned transaction ). Ground No. 2 The learned AO / TPO / DRP have erred in not accepting the economic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ( the Rules ), and modifying the same for the determination of the Arm s Length Price ( ALP ) of the appellant s impugned transaction to hold that the same is not at arm s length. Ground No. 3 The learned AO / TPO / DRP have erred in: a. Not accepting the use of multiple year data, as adopted by the appellant in TP documentation; and b. Determining the arm s length margins / prices using data pertaining only to financial Year ( FY ) 2010-11, which was not available to the appellant at the time of complying with the Indian TP do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in providing financial management consultancy services. He submitted that this company should be rejected from the list of comparables since it is functionally different. He submitted that from a perusal of the website it can be seen that Ladderup Corporate Advisory Private Limited operates as an investment banking firm. This company is a fast growing boutique investment banking firm formed in 2007 offering high-quality investment banking, corporate finance and corporate advisory services to clients in the mid-market space. It is also a category 1 merchant banker registered with SEBI and requires a separate license to operate. This shows that it is absolutely different from the assessee. Referring to page 14 of the annual report of the said company, the ld counsel drew the attention of the Bench to Schedule 11 of the Profit Loss Account and submitted that the same reveals that the main source of income of the said comparable was by way of financial and management consultancy fees and, thus, was entirely different from the activities of the assessee which was not into the business of financial and management consultancy. Referring to page 9 of the annual report, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd acquisitions, private equity syndication and structured debt. He submitted that despite the aforesaid multiple sectors/verticals of operations, no segmental data is available in the annual report. Referring to clause 1.14 Segment reporting, he drew the attention of the Bench to the report of the auditors which reads as under:- 1.14 Segment Reporting: The Company is engaged in single segment and there are no separate reportable segments as defined in AS-17. 11. He submitted that the company is engaged in providing high end rating support and would require skilled personnel in the field of merchant banking actuary, financial advisory, etc. The functions performed by Motilal Oswal Investment Advisors Private Limited which is into merchant banking activities cannot be compared to the assessee whose functions are strictly limited to that of providing rating support services. Referring to the following decisions, he submitted that Motilal Oswal Investment Advisors Private Limited was excluded from the list of comparables on account of functional dissimilarity:- i) Carlyle India Advisors Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the parties. We find the assessee, in the instant case, is engaged in providing rating support services and other support services to its AEs. It functions as a risk mitigated contract service provider. During the current assessment year, the assessee has undertaken the international transactions with its AEs, the details of which are given at para 2 of this order. We find the TPO, in the instant case, suggested an upward adjustment of ₹ 2,29,28,626/- to the ALP of the international transaction being provision of rating support services at ₹ 1,52,87,598/- and other support services at ₹ 76,41,028/-. We find the DRP directed the TPO/AO to delete the addition in respect of provision of support services of ₹ 76,41,028/- and the Revenue is not in appeal before the Tribunal. So far as the adjustment on account of provision of rating support services is concerned, it is the submission of the ld. Counsel for the assessee that if Ladderup Corporate Advisory Private Limited and Motilal Oswal Investment Advisors Private Limited are excluded from the list of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, capital markets, wealth management, project finance and growth stage investment. The Mumbai Bench of the Tribunal in the case of Blackstone Advisors India Private Limted (supra), Temasek Holdings Advisors India Pvt. Ltd. (supra) and Wells Fargo Real Estate Advisors Pvt. Ltd. (supra) has excluded Ladderup Corporate Advisory Private Limited from the list of comparables on the ground that the above company is engaged in merchant banking/investment banking and is a registered merchant banker with SEBI. In view of the above discussion, we are of the considered opinion that Ladderup Corporate Advisory Private Limited should be excluded from the list of comparables on account of functional dissimilarity. 17. Now, coming to the inclusion of Motilal Oswal Investment Advisors Private Limited, we find the TPO included the above comparable on the ground that it is functionally similar as it is engaged in providing advisory on merchant banking, equity placement, mergers and acquisition, restructuring, etc. However, in our opinion, this company also should be excluded from the list of comparables on account of different functionality. From the copy of the Director s Report, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Advisory fees during the year and it is performing advisory services in various field and industries including advisory services like assessee. Before us, Ld. CIT DR arguing for its inclusion submitted that, if the ICRA Management services can be included for having revenue from advisory services then on same analogy this company should also be given the same treatment. From the perusal of the directors report, it is seen that this company derives its business income from four different business verticals, i.e. Equity capital markets, merger and acquisitions, profit equity syndications and structured debt. It also give advises on cross border acquisition. Its core competence is in the field of merchant banking. It also provides comprehensive investment banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments in international and domestic capital markets, monitoring mergers and acquisitions and advising M A as professional and restructuring advisory and implementations. It is also involved in various professional activities of the merchant banking. A Merchant Banker provides capital to companies in the form of share owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note Corporate Services Limited were excluded from the final list of comparables. The assessee s transaction will come within the arm s length. The assessee has also provided a chart in which the adjusted OP/TC has been calculated after the exclusion of these three comparables and it works out to 14.84% as compared to assessee s margin of 19.47%. As we have directed the Assessing Officer/TPO to exclude these three comparables, we are not adjudicating on the other comparables contested by the assessee for Assessment Year 2010-11 and direct the Assessing Officer/TPO to verify the working of the assessee at the time of excluding these three comparables and working out the new margins. The assessee will also be given proper opportunity by the Assessing Officer /TPO while finalizing the margins. 19. We find on appeal by the Revenue, the Hon ble Delhi High Court has upheld the order of the Tribunal and dismissed the appeal of the Revenue by observing as under:- Having carefully considered the submissions of the Revenue, this Court is of the opinion that no substantial question of law arises in this case. What the Revenue urges here is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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