MATRIX INDIA ASSET ADVISORS P.LTD, MUMBAI V. DCIT CIR 6(3), MUMBAI

CO 75/MUM/2014

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9723 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B P K PANDA
• Keywords: Related party transaction; Transfer pricing; Rectification of order
• Section: 143(3); 92D; 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI VIJAY PAL RAO , J M ITA NO. 13 18 / MUM/20 1 4 ( ASSESSMENT YEAR : 20 0 9 - 10 ) DCIT - 6 (3), MUMBAI VS. M/S MATRIX INDIA ASSET ADVISORS PVT. LTD., CEEJAY HOUSE, 3 RD FLOOR, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400 025 PAN/GIR NO. : A A ECM 7339 P ( APPELLANT ) .. ( RESPONDENT ) AND / MUM/20 14 (ARISING OUT OF ITA NO.13 18 /MUM/2014 ( ASSESSMENT YEAR :200 9 - 10 ) M/S MATRIX INDIA ASSET ADVISORS PVT. LTD., CEEJAY HOUSE, 3 RD FLOOR, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400 025 VS. DCIT - 6(3), MUMBAI PAN/GIR NO. : A AECM 7339 P ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. B.P.K.PANDA /ASSESSEE BY : MR. NIRAJ SETH DATE OF HEARING : 2 ND JULY , 201 4 DATE OF PRONOUNCEMENT : 16/ 0 7/ 201 4 O R D E R PER R.C.SHARMA ( A .M.) : TH IS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C( 13 ) OF THE I.T. ACT, 1961 , GIVING EFFECT TO THE ORDER OF DRP PASSED U/S. 144C(5) OF THE I.T. ACT FOR A.Y.2009 - 10. ITA NO. 13 18 /1 4 & CO NO. 7 5 /14 2 2 . THE REVENUE IN ITS APPEAL IS AGGRIEVED BY THE DIRECTION OF THE DRP TO EXCLUDE THE CASE S OF (I) KLPG CAPITAL SERVICES LTD., (II) QUANTUM ADVISORS PVT. LTD. AND (III) A.R.VENTURE FUND MANAGEMENT LTD. OUT OF 9 AS COMPARABLES SELECTED BY TPO. 3 . GROUNDS TAKEN IN CROSS OBJECTION BY THE ASSESSEE READ AS UNDER : - 1. THE LEARNED ASSESSING OFFICER (' AO') I TRANSFER PRICING OFFICER ('TPO') ERRED IN PROPOSING AND THE LEARNED DISPUTE RESOLUTION PANEL ('DRP') ALSO ERRED IN CONFIRMING THE REJECTION OF THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE RESPONDENT WHICH WAS BASED ON CON TEMPORANEOUS DATA AND THE TRANSFER PRICING (TP) STUDY REPORT MAINTAINED AS PER SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME - TAX RULES, 1962 ('THE RULES) AND OTHER APPLICABLE PROVISIONS OF LAW. 2 THE LEARNED AO I TPO ERRED IN PROPOSING AND THE LEARNED DRP ALSO ERRED IN CONFIRMING THE REJECTION OF MULTIPLE YEAR DATA USED BY THE RESPONDENT AND USING SINGLE YEAR DATA TO COMPUTE THE MARGINS OF THE ALLEGED COMPARABLE COMPANIES. 3 THE LEARNED AO I TPO ERRED IN PROPOSING AND THE LEARNED DRP ALSO ERRE D IN CONFIRMING THE REJECTION OF A FEW COMPARABLE COMPANIES ARRIVED AT BY THE RESPONDENT, WHICH WERE BROADLY COMPARABLE TO NON - BINDING INVESTMENT ADVISORY SERVICES UNDERTAKEN BY THE RESPONDENT. 4 THE LEARNED AO I TPO ERRED IN PROPOSING AND THE LEARNED DR P ALSO ERRED IN CONFIRMING RANDOM SELECTION OF COMPANIES BY THE TPO, WHICH THE TPO INCORRECTLY CLAIMED TO HAVE SELECTED FROM THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE RESPONDENT ITSELF, WITHOUT ACKNOWLEDGING THE FACT THAT FEW OF THE COMPANIES NAMELY, MOT ILAL OSWAL INVESTMENT ADVISORS PVT. LTD. (,MOTILAL OSWAL'), KSHITIJ INVESTMENT ADVISORS COMPANY LIMITED ('KSHITIJ') AND FUTURE CAPITAL INVESTMENT ADVISORS LIMITED WERE NOT PART OF THE SEARCH ANALYSIS UNDERTAKEN BY THE RESPONDENT, DUE TO NONAVAILABILITY OF THE SAME IN THE PUBLIC DOMAIN AT THE TIME WHEN THE SEARCH FOR COMPARABLES HAD BEEN PERFORMED BY THE RESPONDENT. 5 THE LEARNED AO I TPO ERRED IN PROPOSING AND THE LEARNED DRP ALSO ERRED IN CONFIRMING THE RANDOM SELECTION OF CERTAIN FUNCTIONALLY NON - COMPAR ABLE COMPANIES NAMELY; MOTILAL OSWAL ITA NO. 13 18 /1 4 & CO NO. 7 5 /14 3 AND KSHITIJ WITHOUT UNDERSTANDING THE FUNCTIONAL PROFILE OF THE RESPONDENT. 6 THE LEARNED AO I TPO ERRED AND THE LEARNED DRP ALSO ERRED IN NOT ALLOWING APPROPRIATE ADJUSTMENTS TO BE MADE TO THE COMPARABLES AS IS PERMI TTED TO BE MADE VIDE RULE 10B( 1 )(E) (III) OF THE RULES. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED AO HAS FACTUALLY ERRED IN INSERTING AGAINST ITEM NO. 3B OF FORM NO. 36B AN AMOUNT OF TOTAL INCOME OF RS. 39,097,272 AS PER ORIGINAL ORDER DATED 3 0 DECEMBER 2013 INSTEAD OF AN AMOUNT OF RS. 31,195,513 AS PER THE RECTIFICATION ORDER UNDER SECTION 154 OF THE ACT ISSUED BY THE AO DATED 15 JANUARY, 2014 4 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE HAD PROVID ED NON BINDING INVESTMENT ADVISORY SERVICES TO ITS CLIENT & AE M/S MATRIX PARTNERS INDIA M ANAGEMENT, LLC PERTAINING TO INVESTMENT OPPORTUNITIES IN INDIA FOR WHICH IT RECEIVED RS. 15,09,89,027/ - , WHICH IS BASED ON NET COST PLUS MARK UP MARGIN OF 20% . THE A SSESSEE HAD BENC H MARKED ITS TRANSACTIONS WITH THE AE USING THE PROFESSIONAL NET MARGIN METHOD (TNMM) WITH NET COST PLUS MARGIN (NCP) AS THE PROFIT LEVEL INDICATOR. IN RESPECT OF THE SERVICES SO RENDERED TO THE AE, THE ASSESSEE CLAIMED THAT ITS OP/TC OF 20% WAS FAR IN EXCESS OF THE MARGIN OF THE COMPARABLES AND THE TRANSACTIONS WERE THEREFORE, CONSIDERED TO BE AT ARMS LENGTH. HOWEVER, THE TPO REJECTED THE COMPARABLES AS PROPOSED BY THE ASSESSEE AND THE TPO PROPOSED A NEW SET OF 9 COMPARABLES AND ARRIVED AT MEAN OF OP/TC OF 32.32% AND MADE THE ADJUSTMENT OF RS. 1,55,01,540/ - AS ADDITIONAL FEES RECEIVABLE FROM M/S MATRIX PARTNERS INDIA MANAGEMENT, LLC. ITA NO. 13 18 /1 4 & CO NO. 7 5 /14 4 5 . BY THE IMPUGNED ORDER, THE DRP DIRECTED FOR EXCLUSION OF ( I) KLPG CAPITAL SERVICES LTD., (II) QUANTUM ADVI SORS PVT. LTD. AND (III) A.R.VENTURE FUND MANAGEMENT LTD. , FROM 9 COMPARABLES AS SELECTED BY TPO AFTER HAVING FOLLOWING OBSERVATIONS : - KLG CAPITAL SERVICES LIMITED : THE ASSESSEE SUBMITTED THAT KLG IS A NON BANKING FINANCIAL COMPANY ('NBFC'), GOVERNED BY VARIOUS REGULATIONS AND ENGAGED IN DEALING IN SHARES, SECURITIES AND BONDS AND RENDERING OF FINANCIAL AND CONSULTANCY SERVICES. IT HAS RPT OF 41.45%, AND ABNORMALLY HIGH OPERATING PROFIT OF 85.22 %. IT ALSO RELIED ON THE DECISIONS OF MUMBAI ITAT IN THE CAS E OF TEMASEK (SUPRA), AND CARLYLE (SUPRA). WE HAVE PERUSED THE ANNUAL ACCOUNTS OF THE COMPARABLE AND ARE IN AGREEMENT WITH THE ASSESSEE THAT THIS COMPARABLE SHOULD BE EXCLUDED IN VIEW OF HIGH RPT. WE DIRECT THE AO/TPO ACCORDINGLY. QUANTUM ADVISORS PRIVATE LIMITED : THE ASSESSEE SUBMITTED THAT QUANTUM IS A SEBI REGISTERED PORTFOLIO MANAGER, MANAGING PORTFOLIOS FOR INDIVIDUAL INDIANS, NRL'S AN F II S. IT IS CLAIMED THAT IT HAS RELATED PARTY TRANSA CTIONS TO THE EXTENT OF 65.39% OF TOTAL TURNOVER. WE HAVE CONSIDE RED THE ASSESSEE'S SUBMISSION AND FIND THAT THE RP T IN THIS YEAR IS MORE THAN 25%. ACCORDINGLY, THE TPO IS DIRECTED TO BE EXCLUDE IS COMPANY AS COMPARABLE. A R VENTURE FUND MANAGEMENT LIMITED : THE ASSESSEE SUBMITTED THAT RELATED PARTY TRANSACTIONS CONSTI TUTE 53.76% OF TOTAL TURNOVER. WE HAVE CONSIDERED THE ASSES SEES SUBMISSION AND FIND THAT THE RPT IN THIS YEAR IS MORE THAN 25%. ACCORDINGL Y IS DIRECTED TO BE EXCLUDE D THIS COMPANY AS COMPARABLE. 6 . AGAINST THE ABOVE ORDER OF DRP, THE REVENUE IS IN FURTHE R APPEAL BEFORE US. 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS AUTHORITIES BELOW AND FOUND THAT REVENUE IS AGGRIEVED FOR THE EXCLUSION OF THE 3 COMPARABLES AS DISCUSSED ABOVE OUT OF TOTAL 9 COMPARABLES CHOSEN BY TPO FOR ARR IVING AT ARMS LENGTH PRICE. THE DRP WHILE EXCLUDING THESE THREE COMPARABLES HAVE CLEARLY GIVEN A FINDING TO THE EFFECT THAT RELATED PARTY T RANSACTIONS WERE MORE THAN 25% ITA NO. 13 18 /1 4 & CO NO. 7 5 /14 5 IN RESPECT OF ALL TRANSACTIONS ENTERED INTO WITH THESE THREE COMPARABLES NAMELY KLC C APITAL SERVICES LIMITED, QUANTUM ADVISORS PRIVATE LIMITED AND AR VENTURE FUND MANAGEMENT LIMITED. IN CASE OF KLC CAPITAL SERVICES LIMITED, THE RELATED PARTY TRANSACTION (RPT) WAS FOUND TO BE 41.45% AND THEREBY EARNING ABNORMALLY HIGH OPERATING PROFIT OF 8 5.22%. QUANTUM ADVISORS PRIVATE LIMITED WAS FOUND TO HAVE RELATED PARTY TRANSACTION TO THE EXTENT OF 65.39% OF TOTAL TURNOVER AND IN CASE OF AR VENTURE FUND MANAGEMENT LIMITED , THE RELATED PARTY TRANSACTIONS WERE FOUND TO BE 53.76% OF TOTAL TURNOVER . IN RE SPECT OF CHOOSING THE COMPARABLES HAVING HIGH RELATED PARTY TRANSACTIONS, THE ISSUE HAS BEEN DEALT BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF WILLIS PROCESSING SERVICES (I) (P) LTD. VS. DCIT, REPORTED IN [2013] 57 SOT 339 , WHEREIN IT WAS OBSERV ED THAT COMPARABLES HAVING TRANSACTIONS WITH RELATED PART Y ABOVE 25% SHOULD BE IGNORED . RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL AND ALSO KEEPING IN VIEW THE FINDINGS RECORDED BY THE DRP WITH REGARD TO PERCENTAGE OF RELATED PARTY TRANS ACTIONS, WHICH HAS NOT BEEN CONTROVERTED BY THE LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD, WE DO NOT FIND ANY REASON TO INTERFERE IN THE DIRECTION ISSUED BY THE DRP. 8 . AS WE HAVE ALREADY UPHELD THE ORDER OF DRP WITH RESPECT TO EXCLUSION OF 3 COMPARABLES, WE ARE NOT GOING TO DECIDE THE CROSS OBJECTION RAISED BY THE ASSESSEE, WHICH HAS BECOME INFRUCTUOUS. ITA NO. 13 18 /1 4 & CO NO. 7 5 /14 6 9 . IN THE RESULT, BOTH APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH JU LY , 201 4 . 16 TH JU LY ,2014 SD/ - SD/ - ( ) ( VIJAY PAL RAO ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED /0 7 /2014 /PKM , PS COPY OF THE ORDER FORWARDED T O : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//