GENERAL ATLANTIC P.LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 1019/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2726 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 14-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 13-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI N K CHAND
• Keywords: Related party transaction; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Wholly owned subsidiary; Arm length price
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER / I .TA NO.1019/MUM/2014 ( / ASSESSMENT YEAR:2009-10 M/S. GENERAL ATLANTIC PVT. LTD., LEVEL 19, BIRLA AURORA, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400 030 / VS. THE DCIT-3(1), AAYAKAR BHAVAN, MUMBAI-400 020 ./ ./ PAN/GIR NO. : AABCG 7917Q ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI PORUS KAKA / RESPONDENT BY: SHRI SHRI N.K. CHAND / DATE OF HEARING :2.11.2015 !' / DATE OF PRONOUNCEMENT :06.11.2015 #$ / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18.12.2013 MADE U/S. 143(3) R.W. SECTION 144C (13) OF THE ACT. 2. THE ASSESSEE HAS RAISED 5 SUBSTANTIVE GROUNDS OF APPEAL. WITH GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE ADDIT IONS MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. ITA. NO. 1019/M/2014 2 2.1. THE MAIN CONTENTION OF THE ASSESSEE IS THAT T HE REVENUE AUTHORITIES HAVE FAILED TO UNDERSTAND AND APPRECIAT E THE FUNCTIONS PERFORMED , ASSETS EMPLOYED AND RISKS ASSUMED BY TH E ASSESSEE AND ITS ASSOCIATED ENTERPRISES, THEREBY COMPARING COMPA NIES ENGAGED IN INVESTMENT BANKING, MERCHANT BANKING, SECURITIES BR OKING, FUND MANAGEMENT, PORTFOLIO MANAGEMENT ETC. WITH THE ASSE SSEE. 2.2. RIVAL CONTENTIONS WERE HEARD AT LENGTH. WE HA VE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND WIT H THE ASSISTANCE OF THE LD. SENIOR COUNSEL, WE HAVE CONSIDERED THE R ELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. 2.3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY REGISTERED IN INDIA AND BELONGS TO THE GENE RAL ATLANTIC GROUP WHICH IS A PRIVATE EQUITY INVESTMENT FIRM. T HE ASSESSEE IS PROVIDING PRIVATE EQUITY INVESTMENT ADVISORY SERVIC ES TO ITS AE WHICH IS GENERAL ATLANTIC SERVICE CORPORATION USA (GASC L LC) A DELAWARE LIMITED LIABILITY COMPANY. GASC LLC IS ENGAGED BY G A IN PROVIDING MANAGEMENT SERVICES TO ITS AFFILIATED LIMITED PARTN ERSHIPS GLOBALLY. 2.4. THE ASSESSEE IS WHOLLY OWNED SUBSIDIARY OF GAS C LLC BASED IN INDIA AND PROVIDING INFORMATION ON INDUSTRIES ALONG WITH INFORMATION IN RELATION TO POTENTIAL TARGETS LOCATED IN INDIAN JURISDICTIONAL TO ITS AE GASC LLC, AS PER THE SERVICE AGREEMENT DATED 31 .10.2002 ENTERED INTO BETWEEN THE PARTIES. 2.5. IN THE TRANSFER PRICING REPORT, THE BUSINESS O F THE ASSESSEE COMPANY IS EXPLAINED AS UNDER: ITA. NO. 1019/M/2014 3 GENERAL ATLANTIC SERVICE COMPANY, LLC, (USA) ('GAS C LLC'), A DELAWARE LIMITED LIABILITY COMPANY, IS ENG AGED IN PROVIDING MANAGEMENT SERVICES TO ITS AFFILIATED LIM ITED PARTNERSHIPS GLOBALLY. SUCH SERVICES INCLUDE (I) AS SISTANCE IN CONNECTION WITH THE IDENTIFICATION, INVESTIGATION A ND ANALYSIS OF POTENTIAL INVESTMENTS AND THE MANAGEMENT AND DISPOS ITION OF INVESTMENTS; (II) ADMINISTRATIVE AND ACCOUNTING SER VICES; AND (III) SUCH OTHER SERVICES AS THE GENERAL ATLANTIC MAY FR OM TIME TO TIME REQUIRE IN CONNECTION WITH THE MANAGEMENT OF GENERAL ATLANTIC LIMITED. GASC IS NOT ENGAGED IN FUNDING F OR INVESTMENT BUT ASSIST GA WITH INVESTMENT DECISIONS. IN THE PROCESS OF RENDERING THE AFORESAID SERVICES, GASC LLC REQUIRES CERTAIN INFORMATION ON SPECIFIC INDUST RIES ALONG WITH THE INFORMATION IN RELATION TO POTENTIAL TARGE TS LOCATED IN VARIOUS JURISDICTIONS. FOR THE PURPOSE OF EFFECTIV ELY IDENTIFYING THE POTENTIAL INVESTMENT OPPORTUNITY, GASC LLC HAS ENTERED INTO EXCLUSIVE SERVICE AGREEMENTS WITH GENERAL ATLANTIC LIMITED ('GAL'), A WHOLLY OWNED SUBSIDIARY BASED IN UNITED KINGDOM, GENERAL ATLANTIC GMBH, A WHOLLY OWNED SUBSIDIARY BA SED IN GERMANY AND GENERAL ATLANTIC PRIVATE LIMITED (,GAPL ') WHOLLY OWNED SUBSIDIARY OF GAL BASED IN INIDA. 2.6. THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE ARE SUMMARIZED AS UNDER: SR. NO. NATURE OF TRANSACTION AMOUNT METHOD USED 1. INVESTMENT SUB- ADVISORY SERVICES 39,95,95,638 TNMM 2.7. AS PER THE TRANSFER PRICING REPORT, THE FINANC IAL ANALYSIS OF THE ASSESSEE COMPANY IS AS UNDER: TOTAL INCOME 399595638 ITA. NO. 1019/M/2014 4 TOTAL EXPENSES 354701791 OPERATING PROFIT 44893847 COST PLUS RATIO 12.66% 2.8. THE ASSESSEE CONDUCTED A SEARCH AND SELECTED T HE FOLLOWING SEVEN COMPANIES AS COMPARABLE: SR. NO. NAME OF THE COMPANY COST PLUS RATIO 1. CREDIBLE MANAGEMENT &CONSULTANTS PVT. LTD. 9.52% 2. CRISIL RISK & INFRASTRUCTURE SOLUTIONS LTD 30.65% 3. FUTURE CAPITAL INVESTMENT ADVISORS LTD 34.59% 4. ICRA MANAGEMENT CONSULTING SERVICES LTD. 4.69% 5. IDC INDIA LTD. 13.92% 6. IDFC INVESTMENT ADVISORS LTD. 30.73% 7. MECKLAI FINANCIAL & COMMERCIAL SERVICES LTD. 7.48% AVERAGE 10.02% 2.9. DURING THE COURSE OF THE TRANSFER PRICING PROC EEDINGS, THE TPO REFERRED TO THE FOLLOWING COMPARABLES WHICH WERE CO NSIDERED AND CONFIRMED BY THE DRP IN THE PREVIOUS YEARS I.E. A.Y RS 2006-07 AND 2007-08. S. NO. NAME OF THE COMPANY MARGINS 1. CENTRUM CAPITAL LTD. 35.91% 2. CHARTERED CAPITAL & INVESTMENT LTD 86.93% 3. EDELWEISS CAPITAL LTD. -61.84% ITA. NO. 1019/M/2014 5 4. KEYNOTE CORPORATE SERVICES LTD. /82.11% 5. L&T CAPITAL CO. LTD. 340.69% 6. S R E I CAPITAL MARKETS LTD. -17.57% 7. SUMEDHA FISCAL SERVICES LTD. 59.93% 8. I D C (INDIA) LTD. 9.99% AVERAGE 67.02% 2.10. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THESE C OMPANIES SHOULD NOT BE ACCEPTED DURING THE YEAR UNDER CONSIDERATION ALSO. VIDE LETTER DATED 29.10.2012, THE ASSESSEE STRONGLY OBJECTED TO THE INCLUSION OF THESE COMPANIES AS COMPARABLES STATING THAT THESE C OMPANIES ARE FUNCTIONALLY DIFFERENT BECAUSE THEY ARE DOING INVES TMENT BANKING AS WELL AS INVESTMENT ADVISORY. REBUTTING THE CLAIM O F THE ASSESSEE, THE TPO ASKED THE ASSESSEE TO JUSTIFY THE SELECTION OF COMPARABLES MADE BY IT WHEREIN THE COMPANIES ARE ALSO NOT EXCLUSIVEL Y ENGAGED IN INVESTMENT ADVISORY. THE TPO FURTHER NOTICED THAT THE ASSESSEE HAS EXCLUDED CERTAIN COMPANIES ON THE GROUND THAT THESE ARE NOT FUNCTIONALLY COMPARABLE. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE FOLLOWING COMPANIES HAVE BEEN REJECTED WHICH ARE AL SO INTO FINANCIAL ADVISORY BUSINESS. KJMC CORPORATE ADVISORS (INDIA) LTD. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. AR VENTURE FUND MANAGEMENT LTD. KLG CAPITAL SERVICES LTD. QUANTUM ADVISORS PVT. LTD. KSHITIJ INVESTMENT ADVISORY CO. LTD. BRESCON CORPORATE ADVISORS LTD.- ITA. NO. 1019/M/2014 6 2.11. THE ASSESSEE STRONGLY SUBMITTED THAT THESE COMPANIES ARE FUNCTIONALLY DIFFERENT AS THESE ARE NOT EXCLUSIVELY INVESTMENT ADVISORY SERVICES. IN SUPPORT OF ITS CLAIM, THE A SSESSEE SUBMITTED THE DIRECTORS REPORT AND FINANCIALS OF THESE COMPANIE S. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, T HE TPO REJECTED QUANTUM ADVISORS PVT. LTD AND BRESCON CORPORATE AD VISORS LTD AND FINALLY SELECTED THE FOLLOWING COMPARABLES, THE MAR GINS OF WHICH ARE WORKED OUT AS UNDER: SR. NO. NAME COST PLUS MARGINS SELECTED BY 1. CRISIL RISK & INFRASTRUCTURE SOLUTIONS LTD. 40.91% ASSESSEE 2. ICRA MANAGEMENT CONSULTING SERVICES LTD., -1.88% -DO- 3. IDFC INVESTMENT ADVISORS LTD. -55.69% -DO- 4. FUTURE CAPITAL INVESTMENT ADVISORS LTD., 23.37% COMMON 5. IDC (INDIA) LTD. 10.46% COMMON & CONFIRMED BY DRP 6. CENTRUM CAPITAL LTD 35.91% CONFIRMED BY DRP 7. CHARTERED CAPITAL & INVESTMENT LTD. 86.93% - DO - 8. EDELWEISS CAPITAL LTD. -61.84% -DO - 9. KEYNOTE CORPORATE SECURITIES LTD. 82.11% - DO - 10. L&T CAPITAL CO. LTD. 340.69% - DO - 11. SUMEDHA FISCAL SERVICES LTD. 59.93% - DO - 12. SREI CAPITAL MARKETS LTD. -17.57% - DO - 13. KJMC CORPORATE ADVISORS (INDIA) LTD. 31.03% NEW COMPARABLES FROM THE TP REPORT OF THE ASSESSEE ITA. NO. 1019/M/2014 7 14. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. 82.44% - DO - 15. AR VENTURE FUND MANAGEMENT LTD. 27.49% - DO - 16. KLG CAPITAL SERVICES LTD. 85.22% - DO - 17. KSHITIJ INVESTMENT ADVISORY CO. LTD. 27.82% - DO - AVERAGE 46.90% 2.12. AS THE ASSESSEE HAS SHOWN MARKUP OF 12.6% ON COST, WHEREAS THE COST PLUS MARGINS OF THE COMPARABLES SELECTED F OR THE TPO COMES TO 46.90%. THE TPO COMPUTED THE ADJUSTMENT AS UNDE R: TOTAL EXPENSES 35,47,01,791/- ARM LENGTH PRICE @ 146.90% OF TOTAL COST 52,10,56,931/- INTERNATIONAL TRANSACTION @ 112.6% OF TOTAL COST 39,95,95,638/- ADJUSTMENT 12,14,61,293 2.13. FINALLY AN ADJUSTMENT OF RS. 12,14,61,293/- W AS MADE TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF CONSULTANCY SE RVICES. 3. THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP A ND STRONGLY OBJECTED TO THE SELECTION OF COMPARABLES MADE BY TH E TPO. ONCE AGAIN IT WAS STRONGLY CONTENDED THAT THE COMPARABLE S SELECTED BY THE TPO ARE FUNCTIONALLY DIFFERENT COMPANIES WHERE MAIN FUNCTION WAS THAT OF A MERCHANT BANKER WHEREAS THE ASSESSEE IS A N INVESTMENT ADVISOR. AFTER CONSIDERING THE FACTS AND THE OBJEC TIONS RAISED BY THE ASSESSEE, THE DRP DIRECTED TO ACCEPT THE FOLLOWING COMPARABLES ITA. NO. 1019/M/2014 8 WHICH ARE SIMILAR IN ACTIVITIES WITH THE ASSESSEE F OR COMPUTING ARMS LENGTH PRICE REQUIRED FOR FINALIZING THE VALUE OF I NTERNATIONAL TRANSACTIONS: SR. NO. COMPANY SELECTED BY 1. CRISIL RISK & INFRASTRUCTURE SOLUTIONS LTD. ASSESSEE 2. ICRA MANAGEMENT CONSULTING SERVICES LTD., ASSESSEE 3. IDFC INVESTMENT ADVISORS LTD. ASSESSEE 4. FUTURE CAPITAL INVESTMENT ADVISORS LTD., ASSESSEE 5. IDC (INDIA) LTD. ASSESSEE 6. CHARTERED CAPITAL & INVESTMENT LTD. TPO 7. EDELWEISS CAPITAL LTD. TPO 8. SUMEDHA FISCAL SERVICES LTD. TPO 9. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. ASSESSEE 10. AR VENTURE FUND MANAGEMENT ASSESSEE 11. KSHITIJ INVESTMENT ADVISORY ASSESSEE 3.1. FOLLOWING THE DIRECTIONS OF THE DRP, THE AO C OMPLETED THE ALP ADJUSTMENT AT RS. 3,24,66,614/-. 4. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNS EL STRONGLY OBJECTED TO THE INCLUSION OF FOLLOWING COMPANIES AS COMPARABLES. 1. CHARTERED CAPITAL & INVESTMENT LTD. 2. EDELWEISS CAPITAL LTD. 3. SUMEDHA FISCAL SERVICES LTD. 4. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD ITA. NO. 1019/M/2014 9 5.1. THE CONTENTION OF THE SENIOR LD. COUNSEL IS TH E SAME I.E. THESE COMPANIES ARE FUNCTIONALLY DIFFERENT FROM THE ASSES SEE AS THESE COMPANIES ARE INTO MERCHANT BANKING BUSINESS WHEREA S THE ASSESSEE IS ONLY AN INVESTMENT ADVISORY COMPANY. THE LD. CO UNSEL FURTHER STATED THAT IN ASSESSEES OWN CASE FOR A.YRS 2006-0 7 AND 2007-08, THREE COMPANIES MENTIONED AT ITEM NO. 1,2 & 3 ABOVE WERE EXCLUDED BY THE TRIBUNAL THEREFORE, THE SAME DESERVES TO BE EXCLUDED FOR THE YEAR UNDER CONSIDERATION ALSO. 5.2. SO FAR AS THE INCLUSION OF MOTILAL OSWAL INVE STMENT ADVISORS PVT. LTD., IS CONCERNED, THE LD. COUNSEL STATED THA T FIRSTLY THIS COMPANY IS NOT AN INVESTMENT ADVISOR BUT AN INVESTM ENT BANKER AND SECONDLY ON THIS VERY GROUND, THE TRIBUNAL HAS EXCL UDED THIS COMPANY IN THE CASE OF CIT VS CARLYLE INDIA ADVISO RS (P) LTD. IN ITA NOS. 7367/M/2012 AND 2200/M/2012, BAIN CAPITAL ADVI SORS (INDIA) PVT. LTD. VS DCIT IN ITA NO. 1360/M/2014, DCIT VS ARISAIG PARTNERS INDIA PVT. LTD. IN ITA NO. 1083/M/2014, Q INDIA INV ESTMENT ADVISORS PVT. LTD. VS DCIT IN ITA NO. 923/M/2015, WELLS FAR GO REAL ESTATE ADVISORS PVT. LTD. VS DCIT IN ITA NO. 7722/M/2012. IT IS THE SAY OF THE LD. COUNSEL IF THESE COMPANIES ARE EXCLUDED FRO M THE FINAL LIST OF COMPARABLES, THE DIFFERENCE WOULD COME WITHIN THE R ANGE OF 5% AND THEREFORE NO TP ADJUSTMENT WOULD BE REQUIRED. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUBMITTED THAT SAME SKILL SET IS REQUIRED FOR INVES TMENT ADVISORY AND MERCHANT BANKING THEREFORE IT CANNOT BE SAID THAT T HESE COMPANIES ARE FUNCTIONAL NOT COMPARABLE. IT IS THE SAY OF TH E LD. DR THAT THERE IS NO ERROR IN THE SELECTION OF THE COMPARABLES AND TH E SAME SHOULD BE ACCEPTED. ITA. NO. 1019/M/2014 10 7. THE BONE OF CONTENTION IS WHETHER A MERCHANT BAN KER CAN BE COMPARED WITH AN INVESTMENT ADVISOR. IT MAY BE LIKE COMPARING APPLES WITH ORANGES. ONE MAY SAY THAT WHAT IS THE DIFFERENCE, BOTH ARE FRUITS. BUT ON SECOND THOUGHT EXCEPT THAT BOTH ARE FRUITS CAN THEY BE SAID TO BE ON THE SAME LEVEL PLAYING FIELD? THE DEFINITION OF INVESTMENT ADVISOR AS GIVEN IN INVESTOPEDIA READS A S UNDER: AS DEFINED BY THE INVESTMENT ADVISORS ACT OF 1940, ANY PERSON OR GROUP THAT MAKES INVESTMENT RECOMMENDATIO NS OR CONDUCTS SECURITIES ANALYSIS IN RETURN FOR A FEE, W HETHER THROUGH DIRECT MANAGEMENT OF CLIENT ASSETS OR VIA WRITTEN P UBLICATIONS. AN INVESTMENT ADVISOR WHO HAS SUFFICIENT ASSETS TO BE REGISTERED WITH THE SEC IS KNOWN AS A REGISTERED IN VESTMENT ADVISOR, OR RIA. INVESTMENT ADVISORS ARE PROHIBITE D FROM DISSEMINATING ADVICE KNOWN TO BE DECEITFUL OR FRAUD ULENT, AND FROM ACTING AS A PRINCIPLE ON THEIR OWN ACCOUNTS BY BUYI NG AND SELLING SECURITIES BETWEEN THEMSELVES AND A CLIENT WITHOUT PRIOR WRITTEN CONSENT. AND THE DEFINITION OF MERCHANT BANK GIVEN IN VIKI PEDIA IS AS UNDER: A MERCHANT BANK IS A FINANCIAL INSTITUTION PROVIDI NG CAPITAL TO COMPANIES IN THE FORM OF SHARE OWNERSHIP INSTEAD OF LOANS. A MERCHANT BANK ALSO PROVIDES ADVISORY ON CORPORATE M ATTERS TO THE FIRMS IN WHICH THEY INVEST. IN THE UNITED KINGDOM, THE HISTORICAL TERM MERCHANT BANK REFERS TO AN INVESTMENT BANK. 8. A SIMPLE PERUSAL OF THE ABOVE DEFINITION WOULD S HOW THAT THERE IS HUGE DIFFERENCE BETWEEN THE FUNCTIONS. NO DOUBT THAT IN BOTH THESE COMPANIES CHARTERED ACCOUNTANTS AND MBAS ARE INVOLV ED BUT THAT WOULD NOT MAKE THEIR FUNCTIONS SIMILAR AS THEY ARE WORKING IN DIFFERENT FILED WITH DIFFERENT RISKS AND REMUNERATI ON. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT ADVISORY, THEREFORE, THE COMPARABLES REL ATING TO MERCHANT BANKING CANNOT BE ACCEPTED. ITA. NO. 1019/M/2014 11 9. LET US NOW CONSIDER THE COMPARABLES STRONGLY OBJ ECTED BY THE ASSESSEE. 1. CHARTERED CAPITAL & INVESTMENT LTD. IN ITS ANNUAL REPORT, THE RELEVANT PORTION IS AT PA GE-8 OF THE PAPER BOOK. IT IS MENTIONED THAT COMPANYS BUSINES S OPERATIONS ARE INVESTMENT BANKING AND AT PAGE-9 OF THE PAPER BOOK, THERE IS AN EXHIBIT OF MANAGEMENT DISCUSSION & ANALYSIS WHICH SAYS THAT THE COMPANY IS PRIMARILY OPERATING IN THE MERCHANT BANKING INDUSTRY WHICH TOTALLY DEPENDS ON THE CAPITAL MARKET WHICH FURTHER DEPENDS ON THE OVERALL ECONOMIC CONDITION IN THE COUNTRY. UNDER THE HEAD FUND RAISING ACTIVITY BY COMPANY, IT IS MENTIONED THAT DURING THE FINANCIAL YEAR 2008-09, R S. 14,908.33 CRORES WERE MOBILIZED VIA PUBLIC ISSUE, R IGHT ISSUE & QIPS THROUGH 50 ISSUES AND UNDER THE HEAD OUTLOOK , IT IS MENTIONED THAT WE OFFER COMPREHENSIVE INVESTMENT BA NKING SOLUTIONS AND TRANSACTION EXPERTISE COVERING EQUITY OFFERINGS, DEBT AND CONVERTIBLE INSTRUMENTS COVERING INTERNATI ONAL & DOMESTIC CAPITAL MARKETS. THUS IT CAN BE CLEARLY S EEN THAT THIS COMPANY IS TOTALLY FUNCTIONING ON DIFFERENT PLATFOR M AND CANNOT BE USED AS COMPARABLE. AS MENTIONED ELSEWHERE, THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2006-07 AND 2007-08 HAS REJECTED THE INCLUSION OF THIS COMPANY. 2. EDELWEISS CAPITAL LTD. AT PAGE-51 OF THE PAPER BOOK, IT IS MENTIONED THAT THIS COMPANY IS AN INVESTMENT BANKING COMPANY ALSO PROV IDING BROKERAGE SERVICES AND PRIVATE CLIENT BROKERAGE AN D WEALTH ITA. NO. 1019/M/2014 12 MANAGEMENT AND ASSET MANAGEMENT AND ALSO PROVIDING RELATIONSHIP-BASED CUSTOMIZED FUNDING SOLUTIONS FOR CLIENT EMPOWERMENT, FOCUS ON CAPITAL MARKETS LED LOAN PROD UCTS, PROMOTER FUNDING, LOAN AGAINST SHARES, LOAN AGAINST ESOPS, IPO FINANCING ETC. ONCE AGAIN IT CAN BE SEEN THAT THIS COMPANY IS ALSO FUNCTIONALLY NOT COMPARABLE. AS MENTIONED ELSEWHERE, THE TRIBUN AL IN ASSESSEES OWN CASE IN A.YRS 2006-07 AND 2007-08 HA S REJECTED THE INCLUSION OF THIS COMPANY. 3. SUMEDHA FISCAL SERVICES LTD. AT PAGE-212 OF THE PAPER BOOK, THE PROFILE OF THIS COMPANY HAS MENTIONED WHICH SAYS THAT THIS COMPANY IS A BOUTIQU E FINANCIAL SERVICES AND ADVISORY SOLUTIONS. IT HAS PROVEN EXPE RTISE IN ANALYZING AND ADVISING ON VARIOUS BUSINESS AND FINA NCIAL MODELS. THE INVESTMENT SERVICE PROVIDE BY THIS COM PANY ARE IN THE FIELD OF STOCK BROKING, DEPOSITORY SERVICES, COMMODITY BROKING AND CURRENCY DERIVATIVES BROKING AND CORPOR ATE SERVICES ARE FOR EQUITY PLACEMENT, FINANCIAL RESTR UCTURING, MERCHANT BANKING AND ALSO MERGERS AND TAKEOVERS. TH IS COMPANY HAS EARNED INCOME FROM FEE BASED ACTIVITIES LIKE LOAN SYNDICATION AND PROJECT CONSULTANCY SERVICES AT RS. 787.63 LACS. WE HAVE FURTHER GONE THROUGH THE FINANCIALS OF THIS COMPANY ALONGWITH THE AUDITORS REPORT. WE FIND THAT THIS COMPANY IS ALSO FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE AND FOR SIMILAR REASON THE TRIBUNAL HAS EXCLUDED THIS COMPA NY FROM THE FINAL LIST OF COMPARABLES IN A.YRS 2006-07 & 20 07-08, ITA. NO. 1019/M/2014 13 4. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD AT THE VERY OUTSET, IN THE BALANCE SHEET ABSTRACT O F THIS COMPANY, IT IS SHOWN AS MERCHANT BANKING AND INVESTMENT/BUSINESS ADVISORY COMPANY. MOREOVER, DUR ING THE YEAR, THIS COMPANY HAS SHOWN RELATED PARTIES TRANSA CTION OF REIMBURSEMENT/SHARING OF EXPENSES WHICH IS 88.16%. AS THE RPT IS MORE THAN 50%, THIS COMPANY WAS ALSO EXCLUDE D BY THE TRIBUNAL IN PLETHORA OF CASES MENTIONED AT PARA-5.2 OF THIS ORDER. IN OUR CONSIDERED OPINION, THIS COMPANY ALSO CANNOT BE INCLUDED IN THE FINAL LIST OF COMPARABLE FIRSTLY BE CAUSE IT IS DOING BUSINESS ON A DIFFERENT FILED AND SECONDLY AN D MORE IMPORTANTLY THE RELATED PARTY TRANSACTION IS MORE T HAN 50%. 10. HAVING SAID ALL THAT IN RESPECT OF THE 4 COMPAN IES MENTIONED HEREINABOVE, IN OUR CONSIDERED OPINION, THESE COMPA NIES SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES, WE ACC ORDINGLY DIRECT THE AO TO EXCLUDE THESE COMPANIES FROM THE FINAL LIST O F COMPARABLES AND DECIDE THE ISSUE AFRESH AS PER THE PROVISIONS OF TH E LAW. GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSE. 11. THE SECOND GRIEVANCE RELATES TO THE DISALLOWANC E OF FOREIGN TRAVEL EXPENDITURE. 11.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS DEBITED RS. 2,32,59, 346/- AS EXPENDITURE INCURRED ON TRAVELLING, CONVEYANCE AND CAR HIRE CHARGES. THE AO FURTHER FOUND THAT THE TRAVELLING EXPENDITUR E INCLUDES FOREIGN TRAVEL EXPENDITURE. THE ASSESSEE WAS ASKED TO FURNISH THE ITA. NO. 1019/M/2014 14 DETAILS. THE ASSESSEE FILED A COMPLETE DETAILS MEN TIONING THE DATE, NAME OF THE EMPLOYEE, AIRFARE, SECTOR BETWEEN THE F LIGHTS WERE OPERATED AND THE PURPOSE OF THE TRAVEL. THE COMPLE TE DETAILS IS INCORPORATED AT PAGES-6,7 AND 8 OF THE ASSESSMENT O RDER. WITHOUT ANY FURTHER VERIFICATION, THE AO DISALLOWED THE EN TIRE EXPENDITURE STATING THAT THE MEETING OF POTENTIAL INVESTEE IS NOT A MEETING FOR THE PURPOSE OF BUSINESS, ADDITION OF RS. 24,36,150/- H AS BEEN MADE. 12. THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP BUT WITHOUT ANY SUCCESS. 13. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT THE AO HAS SIMPLY MADE THE ADDITIONS WITHOUT GOING INTO TH E MERITS OF THE CASE. IT IS THE SAY OF THE LD. SENIOR COUNSEL THAT THE AO HAS NOT UNDERSTOOD THE NATURE OF EXPENDITURE WHEN HE SAYS T HAT EXPENDITURE ON POTENTIAL INVESTEE IS NOT A BUSINESS EXPENDITURE . THE LD. COUNSEL PLEADED FOR THE DELETION OF THE ADDITION. 14. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF T HE LOWER AUTHORITIES. 15. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE DETAILS OF EXPENDITURE WHICH ARE EXHIBITED AT PAGES 6,7 & 8 OF THE ASSESSMENT ORDER. WE FIND THAT THE DETAILS ARE COMPLETE AND E XHAUSTIVE. THE AO HAS NOT UNDERSTOOD THE NATURE OF EXPENDITURE QUA TH E BUSINESS OF THE ASSESSEE. AS MENTIONED ELSEWHERE, THE ASSESSEE IS AN INVESTMENT ADVISORY COMPANY AND FOR THE PURPOSE OF ITS ADVISOR Y BUSINESS, IT HAS TO MEET VARIOUS CLIENTS ACROSS THE GLOBE FOR WHICH TRAVELLING IS MUST. IT IS AN ERROR TO SAY THAT ASSESSEE WAS SOLICITING/ SEEKING POTENTIAL INVESTORS BY TAKING THESE FOREIGN VISITS. THE FIND INGS OF THE AO ARE CLEARLY ERRONEOUS ON THE FACTS OF THE CASE AND THE DRP FURTHER FELL ITA. NO. 1019/M/2014 15 INTO ERROR BY CONFIRMING THE SAME. WE, THEREFORE D IRECT THE AO TO DELETE THE IMPUGNED DISALLOWANCE OF RS. 24,36,150/- . GROUND NO. 2 IS ACCORDINGLY ALLOWED. 16. GROUND NO. 3 RELATES TO AN INCORRECT ADJUSTMENT ON ACCOUNT OF REFUND NOT RECEIVED. 16.1. WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO FURNISH THE COMPLETE ADJUSTMENT SHEETS TO THE ASSES SEE EXPLAINING HOW THE REFUND WAS ADJUSTED AFTER GIVING A REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 3 IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSE. 17. GROUND NO. 4 RELATES TO THE LEVY OF INTEREST U/ S. 234D OF THE ACT. THE LEVY OF INTEREST IS MANDATORY THOUGH CONSEQUENT IAL. THE AO IS DIRECTED TO LEVY INTEREST AS PER THE PROVISIONS OF THE LAW. 18. GROUND NO. 5 RELATES TO THE INITIATION OF PENAL TY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. THIS GRIEVANCE IS PREM ATURE AND REQUIRES NO ADJUDICATION. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH NOVEMBER, 2015. SD/- SD/- ( SAKTIJIT DEY ) (N.K. BILLAIYA) %& # /JUDICIAL MEMBER # / ACCOUNTANT MEMBER ' ( MUMBAI; )# DATED : 6 TH NOVEMBER, 2015 . & . ./ RJ , SR. PS ITA. NO. 1019/M/2014 16 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. +,- &&./ , ./' , ' ( / DR, ITAT, MUMBAI 6. -01 2 / GUARD FILE. % / BY ORDER, + & //TRUE COPY// & / %' ( (DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI