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TMI Blog2017 (10) TMI 1521X X X X Extracts X X X X X X X X Extracts X X X X ..... considered a good comparables. We are of the opinion that the DRP had rightly held that IDCL was a valid comparable for benchmarking investment advisory services. So, confirming its order, we decide the effective ground of appeal against the AO. Exclusion of FCHL from the final list - If the principle is adopted for working out the RPT, it would be less than 25% and thus can be considered a valid comparable. So, Reversing the order of the TPO/AO, we decide the first effective ground of appeal in favour of the assessee. Inclusion of MOIAPL as a comparable company - MOIAPL is into merchant banking, and therefore, is functionally different to that of the assessee which is engaged in the business of non-binding advisory services. Therefore, in our opinion, the assessee is engaged in the function of non-binding advisory services whereas MOIAPL is into the merchant banking, capital markets, finance markets etc. Therefore, we find the MOIAPL is functionally dissimilar and therefore, the same should be excluded for benchmarking the international transactions. Accordingly, AO / TPO is directed to exclude the same. Whether single comparable can be adopted to test the validity of ALP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores. ITA/342/Mum/2014: 3. Solitary ground of appeal, raised by the AO, is about direction of the DRP to consider IDC Ltd. (ICDL)as a valid comparable. During the TP proceedings, the TPO found that for computing the ALP, the assessee had adopted Transactional Net Margin method ('TNMM'), that the operating profit to operating cost(OP/OC)was taken as PLI, that the Assessee itself was the tested party, that seven companies were taken as comparables, that last three years' data was used, that the assessee justified the arm's length nature of the controlled transaction of 'advisory and support services' with reference to the OP/OC ratio, realised by seven comparables namely-Future Capital Holding Ltd. (FCHL), ICRA Management Consulting Services Ltd. (ICRA), ICRA Online Ltd. (ICRA Online), ICRA Techno Analytics Ltd. (ICRA Techno), IDC(India)Ltd. (IDCL)and KPIT Cummins Global Business Solution (KPIT). Arithmetic Mean of the comparables was 5. 81% and it was claimed that IT. s were at arm's length. The TPO called for further details from the assessee and rejected all the comparables selected by the assessee holding that that it had omitted a crucial phrase "Investment advisory se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the RPT the Depart - mental authorities had taken RPT% as RPT expenses +RPT Income/Total Income. He referred to Pg. 22 of the PB wherein working of RPT was given and stated that it was 11. 46 %. He argued that RPT percentage was much below the 25% filter. He referred to the case of PTC Software(India) Pvt. Ltd. (ITA/1605/PN/2011 dtd. )and stated that the Hon'ble Bombay High Court had upheld the order of the Tribunal. (ITAX No. 732 of 2014). With regard to MOIAPL, he stated that it was excluded from the list of valid comparables by the Tribunal, while deciding appeal for earlier year (ITA/7722/Mum/2012 dtd. 30/09/2015. ). He relied upon the cases of Carlyle India Advisors(P. )Ltd. (49 taxmann. com. 476). Referring to the annual report of IDCL, he stated that the TPO had computed the margin of the comparable at 13. 70% as against correct margin of 10. 46%, that a rectification application in that regard was filed before the AO by the assessee. He contended that DRP had approved two comparables IDCL and MOIAPL, that if MOIAPL was to be excluded only one comparable would be left to determine the ALP, that even one comparable can be used to benchmark the ALP of the IT. s. He rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Carlyle India Advisory Pvt. Ltd. (ITA(L)No. 1286 of 2012)the Hon'ble Bombay High Court has held that IDCL was a valid comparable for benchmarking investment advisory, as it was carrying out research/ consultancy activities. In the matters of General Atlantic Private Limited(ITA/8914/ Mum/ 2010)and Sandstone Capital Advisors Pvt. Ltd. (ITA/6315/ Mum/2012), the Tribunal has held that, for comparing investment advisory services, IDCL was to be considered a good comparables. Considering the above, we are of the opinion that the DRP had rightly held that IDCL was a valid comparable for benchmarking investment advisory services. So, confirming its order, we decide the effective ground of appeal against the AO. ITA No. 595/Mum/2014 7. First effective ground of appeal, raised by the assessee, is about exclusion of FCHL from the final list of the comparables. The fact and the arguments advanced by the representatives of both the sides have been discussed in the earlier part of our order. 7. 1. We find that the calculation of RPT by the TPO/DRP is not supported by the established norms of TP adjustments. In the case of PTC Software (India)Pvt. Ltd. (supra)the Tribunal has deliberat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties of ₹ 36. 89 crores against total sales of ₹ 131. 27 crores and it had incurred RPT expenses of nil against total expenses of ₹ 107. 58 crores. He computed the percentage of RPT to the total transactions at 15. 40% by the following method: RPT sales divided by (total sales + total expenses) multiplied by 100 i. e. , ₹ 36. 89 crores divided by (₹ 131. 27 + ₹ 107. 58) multiplied by 100. 13. Ostensibly, the aforesaid calculation results in RPTs of 15. 40% which is below the filter of 25% adopted by the TPO and accordingly, it was not excluded. However, it is quite evident that the denominator of ₹ 238. 85 crores adopted by the TPO is wrong in as much as it includes total expenses also whereas as per TPO's own observations, there are no RPT expenses. The numerator comprises of only the sales to related parties and no RPT expenses. Therefore, the adoption of the denominator, i. e. , the base, by considering total sales plus total expenses in the present case 7 where there is no RPT expenses would lead to a misleading result. If the denominator is restricted to the total sales in the present case, as there are only RPT sales, the result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the option of the denominator by considering total sales + total expenses when there are no RPT expenses would lead to misleading results. The denominator was restricted to only total sales and the result would be the RPT are at 28. 10%. -i. e. in excess of 25% filter and, therefore, is excludable from the list of comparables. (c) Mr. Suresh Kumar, learned Counsel for the Revenue reiterates the findings in the order of the TPO. No reasons are forthcoming from the Revenue as to what exactly is its grievance with regard to the findings of the Tribunal in case of M/s. FCS Software Ltd. (d) We find that this is a purely factual determination and the RPTs have to be considered in the context of total transactions and not by a conversion formula as adopted by the Assessing Officer. In fact, as recorded in the impugned order of the Tribunal, the determination of percentage of RPT as adopted by it is similar to the method adopted by the TPO in the earlier assessment years. It may be noted that an identical method as directed in the case of M/s. FCS Software Ltd. was also done in case of M/s. Compucom Ltd. by the Tribunal. However, the Revenue has made no grievance in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from operations have been shown only as advisory fees whereas it is admittedly an undisputed facts that the said company is engaged in diversified activities. Segmental reporting is not available. Profit and loss account appears to be only of consolidated accounts. The said company is registered with SEBI as a merchant banker and the Director‟s report show that it is into takeover acquisitions, disinvestments etc. In the absence of specific data it is not possible to make comparison. It can therefore be safely said that the said company being into merchant banking and cannot be considered as a comparable. We, accordingly, direct the AO not to consider Motilal Oswal Investment Advisors Pvt Ltd as a comparable for the determination of ALP and redetermine the Arm‟s Length Price excluding Motilal Oswal Investment Advisors Pvt Ltd [ as per the findings] and including M/s. IDC [as per the directions of the DRP] i the light of the provisions of section 92C(2) r. w. s 92C(2A) of the Act. Ground no. 4. 1 and ground no. 9 are accordingly allowed. " 6. The contents of above extracted para highlights the fact that the MOIAPL is into merchant banking, and therefore, is functi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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