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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 ..... taken by the assessee during the year. The TPO, during the course of TP assessment proceedings, noted that the assessee had entered into the following international transactions with its AE during the year:- S.No. Type of International transaction Method Selected Total value of transaction (Rs.) MAM PLI i. Provision of rating support services TNMM OP/OC 72,737,844 ii. Availing of services TNMM OP/OC 1,205,798 iii. Reimbursement of expenses to AEs TNMM OP/OC 16,240,953 iv. Provision of support services TNMM OP/OC 103,130,435 3. From the various details furnished by the assessee, he noted that The McGraw Hill Companies Inc., USA is the major shareholder holding 9,999 shares which is 99.99% of the total percentage of shareholding. Standard & Poor's India LLC is holding only one share which amounts to 0.01% of the total shareholding. 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. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference between ALP and Price charged by assessee 7641028 Percentage of sales made to AEs to total revenue (Rs. 103130435/Rs. 103130435*100) 100.00% Proportionate Difference for which adjustment is required to be made 7641028 RATING SUPPORT SERVICES S.No. Company Name OP/OC(%) Working Capital adjusted OP/OC (%) i. Almondz Global Securities Limited 17.45 17.69 ii. IM + Capitals Ltd. 92.01 81.86 iii. ICRA Management Consulting Services Ltd. 15.71 10.14 iv. Ladderup Corporate Advisory Pvt. Ltd. 53.09 49.41 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 72,737,845 International Transaction 72,737,844 5% of Price charged in international transaction 3636892 Difference between ALP and Price charged by assessee 15,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 documentation requirements. Ground No. 4 The learned AO / TPO / DRP have erred in rejecting certain comparable companies identified by the appellant by applying inappropriate comparability criteria such as a. Different accounting year; b. Employee cost lesser than 25 percent of total cost; and c. Diminishing revenues Ground No. 5 The learned TPO/ AO/ DRP have erred in wrongly rejecting certain companies from and adding certain companies to the final set of comparables for the impugned transaction on an ad-hoc basis, thereby resorting to cherry picking of comparable to determine ALP thereof. Ground No. 6 The learned TPO/ AO/ DRP have erred in selecting certain companies (which are earning supernormal profits) as comparable to the appellant to benchmark the impugned transaction. Ground No. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial and management consultancy. Referring to page 9 of the annual report, he drew the attention of the Bench to segment information and submitted that the same reveals that the aforesaid comparable was into financial and management consultancy and, therefore, it is functionally different. Referring to the decision of the Hon'ble Delhi High Court in the case of M/s Mckinsey Knowledge Centre India Pvt. Ltd., vide ITA No.461/2017 and batch of other appeal, order dated 9th August, 2018, he submitted that the Hon'ble High Court has upheld the decision of the Tribunal in excluding this company from the list of comparables on the ground that this company provides a one stop financial advisory and fund raising solutions in investment banking, capital markets, wealth management, project finance and growth stage investing. Referring to the following decisions, he submitted that Ladderup Corporate Advisory Private Limited was excluded from the list of comparables on the ground that this company is engaged in merchant banking/investment banking and is a registered merchant banker with SEBI:- i) Blackstone Advisors India Private Limited (ITA No.928/Mum/2016 and ITA No.1370/Mum/2016) (A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lyle India Advisors Private Limited (ITA No.7367/Mum/2012 (A.Y. 2008-09); iii) ITAT Delhi in case of D.E. Shaw India Advisory Services Pvt. Ltd. Vs. DCIT, ITA No.1681/Del/2015 dated 04.09.2017; iv) ITAT Mumbai in ACIT vs. Blackstone Advisors India Pvt. Ltd., ITA no.928 & 1370/Mum/2016 dated 30.11.2018; and v) ITAT Mumbai in Carlyle India Advisors Private Limited (ITA No.2410 & 2506/Mum/2017 dated 20.11.2018. 12. He submitted that if the above two comparables are excluded from the list of comparables, the entire adjustment stands deleted and, therefore, the other arguments become academic at this stage. 13. The ld. DR, on the other hand, heavily relied on the orders of the AO/TPO/DRP. He submitted that none of the comparables selected either by the assessee or the Revenue provide exactly for rating services, therefore, on account of mere difference of functionality, none of the comparables should be excluded. He submitted that the TPO has selected the comparables on his understanding as there are different functionality permissible under TNMM. Therefore, if on a minor difference of functionality any comparable is being excluded, then, the TPO should be given a chance to exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the TPO on the ground that it is functionally similar as it is engaged in providing financial and management consultancy services. However, in our opinion, this company should be excluded from the list of comparables on account of different functionality. A perusal of the details filed by the assessee shows that Ladderup Corporate Advisory Private Limited operates as an investment banking firm 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 which is absolutely different from the activities of the assessee company. A perusal of Schedule 11 of the Profit & Loss Account of Ladderup Corporate Advisory Private Limited shows that the main source of finance of the said comparable was by way of financial management and consultancy fees. We, therefore, find merit in the argument of the ld. Counsel for the assessee that the activities of this company was undoubtedly different from the activities of the assessee which was not into the business of financial and management consultancy fees. Further, a perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espite the aforesaid multiple sectors/verticals of operations, we find 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. 18.1 We find the Delhi Bench of the Tribunal is the case of D.E. Shaw India Advisory Services Pvt. Ltd. (supra) while excluding Motilal Oswal Investment Advisors Private Limited has observed as under:- "(iii) Motilal Oswal Investment Advisors Pvt. Ltd. In the case of this company, it is the assessee's assertion that this company earns revenue from equity and derivatives, investment banking, mergers and acquisitions, portfolio management services, private wealth managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment advisory services where core functions is to give advice for making the investments in diversified fields. A company which is engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of the function as a Merchant Banker, then the entire functions and transactions affects the generation of revenue and margins. Such functions are entirely different from investment advisory services. Mere classification of revenue as 'advisory fees' will not put the company in a comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd (supra), it has been held that, the merchant banking functions are entirely different from investment advisory services and this decision of the Tribunal has been upheld by the Hon'ble Bombay High Court. Thus, in view of plethora of judicial decisions as referred to by Ld. Counsel and in view of functional differences as discussed as above, we hold that Motilal Oswal cannot be put into the comparability list and is directed to be excluded." 10.4 The department also could not bring any new fact on record which could controvert the assertion made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion of these three entities (M/s Brescon Advisors &Holdings Ltd.; Keynote Corporate Services Ltd. and Motilal Oswal Investment Advisors Pvt. Ltd.). This Court is of the opinion that the exercise of inclusion or exclusion of the comparables per se does not involve a question of law unless the approach of any of the Revenue authorities or the Tribunal, is unreasonable or excludes some relevant factors or takes into account relevant factors, extraneous to Rule 10B, IOC and 10D of the Income Tax Rules. For the above reasons, this Court is satisfied that there is no merit in these appeals which are accordingly dismissed." 20. The various other decisions relied on by the ld. Counsel for the assessee also support his case to the proposition that Motilal Oswal Investment Advisors Private Limited should be excluded from the list of comparables on account of different functionality. We, therefore, direct the AO/TPO to exclude Motilal Oswal Investment Advisors Private Limited from the list of comparables. Since the assessee did not argue the various other grounds being academic in nature, therefore, these grounds are not being adjudicated. 21. In the result, the appeal filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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