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TMI Blog2022 (12) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the of the ass and has in directing to include this comparable company to benchmark the transaction of the ass and has erred in directing to include this comparable in the set of the comparables, without appreciating the fact that ICRA Management Consulting Services Ltd., is performing diversified functions including the M&A which is classified as merchant bankers which is different from investment advisors and no segmental for investment advisory are available. Whether on the Sacs of the care and in tow the learned CITA) erred in holding that M/s. Future Capital Investment Advisory Services as a comparable company benchmark the transaction of assessee and has directing to include this comparable in the set of the comparables without appreciating the fact that M/s. Future Capital Investment Advisory Services has realigned the business and has made agreements with Everstone Investment Advisors Limited to do so and has not reported any operating income in the year 2010-11 relevant to A.Y. 2011-12. 3. Whether on the facts of the case and in law the learned CIT(A) erred in Toting that M/s. Goldman Sachs India Securities Pvt. Ltd. und M/s. AGM India) Advisors Ltd. as comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to payment of interest on Fully Convertible Debentures (FCDs): 2. In upholding the transfer pricing adjustment with respect to the international transaction pertaining to payment of interest on FCDs, the learned CIT(A) has erred on the following grounds. 2.1 In rejecting the transfer pricing documentation maintained by the Appellant without considering the provisions of section 92C(3) of the Act; 2.2 In not accepting the benchmarking analysis and arm's length price (ALP) of the aforementioned international transaction as conducted/determined by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962. 2.3 In rejecting the average lending rates for advances (other than export credit) offered by commercial bank in India at which at least 60 percent of the business is conducted (as published on the website of the Reserve bank of India) adopted by the Appellant and re computing the arm's length rate by applying the average of 6 month USD LIBOR + 800 basis points, thereby upholding an upward adjustment of INR 4,57,86,528 2.4 In ignoring the principle of consistency since during the previous assessment years the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23;. Therefore, grounds pertaining to selection of comparables in appeals by both the parties are considered together. 5. In its appeal, Revenue has raised grounds challenging inclusion of M/s ICRA Management Consulting Services Ltd., M/s Future Capital Investment Advisory Services and M/s Goldman Sachs India Securities Private Limited, and exclusion of M/s Motilal Oswal Investment Advisers Ltd and M/s Ladderup Corporate Advisers Private Limited. While, assessee in its appeal, inter-alia, has raised grounds challenging exclusion of IDC (India) Ltd, Informed Technologies (India) Ltd and Integrated Capital Services Ltd. 6. The brief facts of the case, as emanating from record, are: the assessee is engaged in business of acquiring non-performing loans, other assets and providing medium to long term finance to corporate borrowers. For the year under consideration, the assessee e-filed its return of income on 29/09/2012 declaring total income of Rs.16,02,09,260. The assessee is a subsidiary of Clearwater Capital Partners (CCP) Cyprus, and was incorporated as Private Limited Company under the provisions of the Companies Act, 1956. During the year under consideration, the assessee enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid international transactions. During the transfer pricing assessment proceedings, in response to the notice, assessee provided updated margins of comparable companies using the data for the relevant assessment year. As a result, ultimately only following 4 comparable companies, having arithmetic mean margin of 11.13%, were considered by the assessee for benchmarking the international transaction pertaining to "Provision of Investment Advisory Services‟: 1) ICRA Management Consulting Services Ltd. 2) IDC (India) Ltd. 3) Informed Technologies India Ltd. 4) Integrated Capital Services Ltd. As assessee‟s profit margin was higher than the comparables‟ margin, the international transaction was claimed to be at ALP. The TPO vide order dated 27/01/2015 passed under section 92CA(3) of the Act, arrived at a set of 2 comparables (viz. Motilal Oswal Investment Advisory Private Limited and Ladderup Corporate Advisory Private Limited) after excluding all the comparables selected by the assessee, for benchmarking the international transaction pertaining to "Provision of Investment Advisory Services‟. The average OP/OC of comparables selected by TPO was compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal are treated as not pressed and are kept open for adjudication, if they arise in assessee‟s case in future. i) ICRA Management Consulting Services Ltd 11. The first comparable under dispute is ICRA Management Consulting Services Ltd for the purpose of benchmarking of international transaction pertaining to "Provision of Investment Advisory Services‟. ICRA Management Consulting Services Ltd was selected as comparable by the assessee in its transfer pricing study report on the basis that the said company offers consultancy services in area of strategy, risk management, operations improvement, regulatory economics and transaction advisory. During the proceedings before the TPO, assessee retained this comparable due to availability of single year data for benchmarking the international transaction. Vide order passed under section 92CA (3) of the Act, TPO, by referring to the data received under section 133 (6) of the Act, held that ICRA Management Consulting Services Ltd is not an appropriate comparable as the services being rendered by it are management consultancy services, which are no way related to the services rendered by the assessee. The learned CIT(A) vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the international transaction pertaining to "Provision of Investment Advisory Services‟. In appeal, learned CIT(A) granted relief to the assessee and directed inclusion of ICRA Management Consulting Services Ltd. No material has been brought on record to show that the Revenue has not accepted the findings of learned CIT(A) and has filed appeal against the said order granting relief in respect of the impugned comparable. Further, in assessment year 2009-10, ICRA Management Consulting Services Ltd was again in dispute and while adjudicating assessee‟s appeal in Clearwater Capital Partners India Private Limited vs ACIT, in ITA No. 4851/Mumbai/2015, vide order dated 13/03/2020, the coordinate bench of Tribunal observed as under: "8. We have considered rival submissions in the light of the decisions relied upon and perused the material on record. It is observed, the comparability of this company with a non binding investment advisory service provider has come up for consideration not only before the Tribunal, but even before the Hon'ble Jurisdictional High Court. After analyzing the function, asset and risk (FAR) of this company, the Tribunal found that the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of "Provision of Investment Advisory Services‟. As a result, ground No. 1 raised in Revenue‟s appeal is dismissed. ii) Informed Technologies (India) Ltd 18. The next comparable under dispute is Informed Technologies (India) Ltd. The said company was selected as comparable by the assessee in its transfer pricing study report on the basis that the company collect and analyse the data on financial fundamentals, corporate governance, director/executive compensation and capital market. During the proceedings before the TPO, assessee retained this comparable due to availability of single year data for benchmarking the international transaction. Vide order passed under section 92CA(3) of the Act, TPO rejected this company as a comparable by holding that the company calls itself as "Knowledge Process Outsourcing" company and is also engaged in IT enabled services and therefore, is not functionally comparable to the assessee. The learned CIT(A), vide impugned order dated 25/10/2017, inter-alia, upheld the conclusion reached by the TPO. Being aggrieved, assessee is in appeal before us. 19. During the course of hearing, learned counsel submitted that this comparable was direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visory Services‟. As a result, ground No. 4.1 raised in assessee‟s appeal is allowed to this extent. iii) Motilal Oswal Investment Advisers Pvt. Ltd. 22. The next comparable under dispute is Motilal Oswal Investment Advisers Pvt. Ltd. This company was included as comparable by the TPO vide order passed under section 92CA(3) of the Act on the basis that the strategic and financial advisory services rendered by this company are comparable with the high-quality, investment advisory services rendered by the assessee. In appeal, learned CIT(A) vide impugned order, following decisions of coordinate bench of Tribunal, directed exclusion of this company as the same is not comparable to the assessee. Being aggrieved, Revenue is in appeal before us. 23. During the course of hearing, learned DR by vehemently relying upon the order passed by the TPO submitted that this company is having single reportable operational income segment and it is not in investment banking/Management assets. On the other hand, learned counsel submitted that this company has been held as not comparable to a taxpayer having similar functional profile as the assessee. 24. We have considered the rival su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the above we hold that MOIAPL has to be rejected as a valid comparable from the list of the final comparables on the ground that it was engaged in merchant banking investment banking services that said fact was evident from the annual report and web site extracts of the MOIAPL that despite such dissimilarity the Accounts of the company had not provided break-up of results from the said two activities separately MOIALP has to be excluded Effective ground of appeal raised by the AO is decided against him." 27. The aforesaid decision of coordinate bench of Tribunal came up for consideration before Hon‟ble jurisdictional High Court in Pr.CIT vs AGM India Advisors Private Limited (supra), wherein the Hon‟ble court dismissed the appeal filed by the Revenue and upheld the conclusion of coordinate bench of Tribunal in aforesaid decision. 28. Since, the aforesaid judicial pronouncements are pertaining to same assessment year as involved in the present cross appeals and functional profile of the assessee in the present case is not in dispute, therefore, respectfully following the aforesaid judicial pronouncements, we upheld the findings of the learned CIT(A) in directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Goldman Sachs Asset Management (India) Pvt. Ltd. Vs ACIT, in ITA No. 502 and 835/Mum/2016, vide order dated 09/09/2020, for assessment year 2011 - 12, observed as under: "6.4 Finally, we come to the issue of comparability of Ladderup Corporate Advisory Pvt. Ltd. (in short "LCAPL‟). The TPO selected LCAPL on the ground that (i) it is engaged in the business of financial advisory services; it offers various types of services such as equity investments, business and equity valuations, project and acquisition financing, (ii) it has earned revenue of Rs.11.18 crores from the business of financial and management advisory and consulting fees. The Ld. counsel submits that as per the web portal of the company, it is engaged in rendering investment banking, capital markets, wealth management, project finance and growth stage investment. It is further stated that LCAPL is registered as Category 1 Merchant Banker with the Securities & Exchange Board of India (SEBI) and is engaged in rendering merchant banking services. Further, it is explained that as per the annual report of LCAPL for FY 2010-11, there are no reportable segments. Finally, it is stated that LCAPL is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from merchant banking advisory activities. The Tribunal further found that Ladderup Corporate Advisory Pvt. Ltd. has been excluded by the Coordinate Bench in the case of SUN Ares Real Estate Pvt. Ltd., vs. DCIT (ITA No. 621/Mum/2016) for AY 2011-12. Similar view has been taken by the Tribunal in the DCIT vs. General Atlantic Pvt. Ltd., (91 taxmann.com 406) (Mum Trib) for AY 2011-12. Thus following the above two decision of Coordinate Bench, the Tribunal directed the TPO/AO to exclude LCAPL from the list of comparables. The relevant paragraphs of the above order of Tribunal are produced below: 7. The DRP has upheld inclusion of "Ladderup‟ merely on the ground that the said company has not reported segment wise breakup of income and no income has been reported from merchant banking advisory activities. We find that the Co-ordinate Bench of the Tribunal in the case of SUN-Ares Real Estate Pvt. Ltd.(supra) has directed exclusion of "Ladderup‟ in assessment year 2011-12 as is not functionally comparable with the entity engaged in providing non-binding Investment Advisory Services. The relevant extract of the findings of Tribunal on this issue are as under:- "4.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be treated as comparable to non-binding investments advisory provider. Respectfully following the aforesaid decision of the Co-ordinate Bench, we exclude this company from the list of comparables." 8. Therefore, in view of the finding of the Tribunal excluding Ladderup from the list of comparables, in the case of companies engaged in Non-binding investment advisory services, we direct the Assessing Officer /TPO to exclude the said company from the list of comparables being functionally different. The grounds of appeal by the assessee are thus, allowed. 6.6 Facts being identical, we follow the order of the Coordinate Bench in Kitra Capital Pvt. Ltd. and Wells Fargo Real Estate Advisors Pvt. Ltd. mentioned hereinabove and direct the TPO/AO to exclude Ladderup Corporate Advisory Pvt. Ltd. from the list of comparables." 33. Since, the aforesaid judicial pronouncement is pertaining to same assessment year as involved in the present cross appeals and functional profile of the assessee in the present case is not in dispute, therefore, respectfully following the aforesaid judicial precedent, we upheld the findings of the learned CIT(A) in directing exclusion of Ladderup Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 12% amounting to Rs 15,69,82,378 on FCDs issued to its associated enterprise and same has been debited in the books of accounts. The TPO vide order passed under section 92CA(3) of the Act held that similar uncontrolled transaction would have provided FCD for lower interest and thus the international transaction representing issue of FCDs at higher interest rate is not at ALP. Accordingly, TPO computed the ALP by applying the interest calculated on the basis of 6 month average USD LIBOR + 800 basis point (i.e. 8.5% p.a.). As a result, TPO made an upward adjustment of Rs. 4,57,86,527 to the international transaction of "Payment of Interest on FCDs‟. In conformity, the Assessing Officer, inter-alia, passed the order under section 143(3) r.w.s. 144C(3) of the Act. In appeal, learned CIT(A) vide impugned order upheld the upward adjustment made by the TPO. Being aggrieved, assessee is in appeal before us. 38. During the course of hearing, learned counsel submitted that assessee is NBFC and therefore it doesn‟t qualify as an eligible borrower to raise External Commercial Borrowing. It was further submitted that LIBOR is not applicable as there is no lending/borrowing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat considering the above challenges, no bank would have ordinarily lent funds, even it is considered to lent, it would have added a significant risk premium on the rate of interest charged by them considering the fact that nothing to offer as collateral. It is submitted before us that above factors were considered while benchmarking the interest payment against the arithmetic mean of maximum interest rate at which 60 percent of the business was contracted by Indian banks. It is also submitted before us that how the Indian banks are financing the start-up companies without collateral securities. 10. We notice that the associate company invested in the assessee company by subscribing to fully convertible debentures considering the risk factors to invest in the start-up company like assessee company. It clearly indicate that it has invested only in fully convertible debentures and not regular debentures. It shows that the risk factor was already considered and mitigated to offset the risk element in investing in the assessee company, we are not in agreement with the submissions of the assessee that no Indian bank will invest in the start-up company like the assessee having the ris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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