SPARKLES DHANDHO ADVISORS P LTD, MUMBAI V. ITO 3(1)(2), MUMBAI

ITA 1047/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0982 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 02-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 18-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESHPANDE
• Assessee Lawyers: DHANESH BATNA
• Keywords: Transfer pricing; International transaction

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL KBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH SOOD, JUDICIAL MEMBER ./I.T.A./1047/MUM/2015, /ASSESSMENT YEAR: 2010-11 M/S.SPARKLES DHANDHO ADVISORS PVT. LTD, (FORMERLY KNOWN AS BATTERY VENTURES INDIA MANAGEMENT COMPANY PVT. LTD.,) C/O.9, SHREE MANGAL C H S, NANEPADA ROAD, MULUND (EAST), MUMBAI 400 081. PAN: AADCB5605Q VS. INCOME TAX OFFICER-3(1)(2), MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAURABH DESHPANDE, DR ASSESSEE BY: SHRI DHANESH BATNA / DATE OF HEARING: 11/10/2017 / DATE OF PRONOUNCEMENT:03/01/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - IN THIS RECALLED MATTER,THE TRIBUNAL HAD PASSED TH E ORIGINAL ORDER ON 30/12/2015.VIDE ITS ORDER, DATED 10/06/2015,THE TRIBUNAL PASSED AN ORDER, ADJU DICATING THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE, AS UNDER. CONSIDERING THE CONFUSION CREATED IN THE SAID PETR A 9 OF THE IMPUGNED ORDER, TO BRING TRANSPARENCY AND CLARITY, WE FIND IT APPROPRIATE TO REMAND THIS MATTER TO THE FILE OF THE AO TO EXAMINE WHETHER IC RA IS A GOOD COMPARABLE OR NOT. FOR THIS LIMITED PURPOSE WE RECALL THE MATTER AND DIRECT THE REGISTRY TO FIX THE APPEAL FO R HEARING IN REGULAR COURSE AND INFORMED THE SAME TO BOTH PARTIES. 2. EFFECTIVE GROUND OF APPEAL IN THIS MATTER,RAISED BY THE ASSESSEE READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN UPHOLDING THE ACTION OF THE AO/TPO O F INCLUDING MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE LIMITED, IDFC INVESTMENT ADVISORS LIMITED AND ICRA ONLINE LTD AS COMPARABLE COMPANIES FOR DETERMINING THE ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF PROVISON OF INVESTMENT ADVISORY SERVICES AND THEREBY MAKING AN ADJUSTMENT OF RS. 69,78,474/- TO THE SAID INTERNATIONAL TRANSCTION OF PROVISION OF INVESTMENT ADVISORY SERVICES. FACTS OF THE CASE: 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF NON-BIN DING INVESTMENT ADVISORY SERVICES AND RECORDED INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE (AE) AT MAURITIUS AND THE VALUE OF THE TRANSACTION IS RS. 4.19 CRORES.IT APPLIED TRANS ACTIONAL NET MARGIN METHOD (TNMM) IN ITS M/S.SPARKLES DHANDHO ADVISORS PVT. LTD 2 TRANSFER PRICING(TP)STUDIES.THE ASSESSEE IDENTIFIED SIX COMPARABLE COMPANIES, WHOSE AVERAGE ARITHMETIC MEAN WAS 15.68% AGAINST THE ASSESSEES M ARGIN OF 25.42%.IT CLAIMED THAT THE ARMS LENGTH PRICE(ALP) OF THE TRANSACTIONS IS IN THE ACC EPTED RANGE. DURING THE TP STUDIES BEFORE THE TPO, FUTURE CAPITAL HOLDING LTD WAS CONSIDERED ACCE PTABLE OUT OF THE SIX COMPARABLES SELECTED BY THE ASSESSEE. IN ADDITION, THE TPO PROPOSED TO I NCLUDE THREE OTHER COMPARABLES NAMELY, (I) MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE LTD; (II) IDFC INVESTMENT ADVISORS LTD AND (III) ICRA ONLINE LTD.REJECTING THE ASSESSEES OPPOSITION FOR EXCLUSION OF THE SAID THREE COMPARABLES, TPO PROCEEDED TO CONSIDER THE SAME FOR DETERMINING THE ALP AND DETERMINED THE ARITHMETIC MEAN OF THE SIX COMPARABLES 39.97% AND SUGGESTED TH E ADJUSTMENT TO THE TUNE OF RS. 69,78, 474/-.AFTER PROCEEDINGS BEFORE THE DRP, AO MADE AN ASSESSMENT VIDE HIS ORDER DATED 31.1.2015 AND MADE THE ADDITION.AGGRIEVED WITH THE SAME, ASSE SSEE FILED AN APPEAL BEFORE THE TRIBUNAL.THE TRIBUNAL HELD THAT MOTILAL OSWAL INVESTMENT ADVISOR S PRIVATE LTD; (II) IDFC INVESTMENT ADVISORS LTD WERE NOT VALID COMPARABLES FOR BENCHMA RKING THE IT.S.WITH REGARD TO ICRA ONLINE (ICRA-O)THE MATTER HAS BEEN RECALLED,AS STATED EARL IER. 4 .BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)CONTEND ED THAT ICRA-O WAS NOT ENGAGED IN NON- BINDING ADVISORY SERVICES,THAT IN THE CASES OF AGM INDIAN ADVISORS(P.)LTD(ITA.S/4757AND 4801/2015),ARISIAG PARTNERS(I) PRIVATE LTD.(ITA/840 /MUM/2015),MOUNT KELLET CAPITAL MANAGE- MENT INDIA PRIVATE LIMITED(ITA/887/MUM/2015)THE TRI BUNAL HAS HELD THAT A COMPANY CARRYING OUT MERCHANT-BANKING-ACTIVITIES COULD NOT BE ACCEPT ED AS VALID COMPARABLE TO A COMPANY PROVIDING NON-BINDING INVESTMENT ADVISORY SERVICES, THAT PROFILE OF ICRA-O,FOR THE YEAR UNDER APPEAL,CLEARLY PROVED THAT IT WAS NOT ENGAGED IN PR OVIDING NON-BINDING INVESTMENT ADVISORY SERVICES.THE DEPARTMENTAL REPRESENTATIVE(DR)LEFT TH E ISSUE TO THE DISCRETION OF THE BENCH. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING THE APPEALS IN THE CASES OF AGM INDIAN ADV ISORS (P.)LTD,ARISIAG PARTNERS(I)PRIVATE LTD.,MOUNT KELLET CAPITAL MANAGEMENT INDIA PRIVATE LIMITED (SUPRA), THE TRIBUNAL HAS DISCUSSED AND DELIBERATED UPON THE ISSUE OF INCLUSION OF ICRA -OAS A VALID COMPARABLE AND HAS HELD THAT IT WAS NOT A GOOD COMPARABLE AS FAR AS NON-BINDING ADV ISORY SERVICES ARE CONCERNED.WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER OF T HE TRIBUNAL IN THE CASE OF AGM INDIAN ADVISORS (P.) LTD.(SUPRA)AND IT READS AS UNDER: 6.C.WITH REGARD TO ICRA-O,THE DR SUBMITTED THAT THE ACTIVITIES PERFORMED BY IT WERE ANALYTICAL IN NATURE WHICH HELPED IN TAKING FINANCIAL DECISIONS A ND THEREFORE WERE AKIN TO INVESTMENT ADVISORY M/S.SPARKLES DHANDHO ADVISORS PVT. LTD 3 SERVICES.HE REFERRED TO PAGE 489 OF THE PAPER BOOK FOR THE PURPOSE OF DEMONSTRATING THE SCOPE OF OUTSOURCED SERVICES RENDERED BY IT.HE ALSO REFERRED TO PAGE 500 OF THE PAPER BOOK WHICH SHOWED THAT THE INCOME EARNED BY ICRA-O WAS FROM FEE BASED SERVICES AND HENCE IT COULD BE CONSIDERED AS COMPARABLE TO THE INVESTMENT ADVISORY SERVICES.T HE AR CONTENDED THAT ICRA-O DID NOT PROVIDE ANY ADVISORY OR CONSULTANCY SERVICES AT ALL , THAT IT WAS ENGAGED IN THREE BUSINESS LINES NAMELY OUTSOURCED SERVICES,INFORMATION SERVICES AND SOFTWARE PRODUCTS AND SERVICES, THAT ICRA- ONLINE DID NOT PROVIDE ANY ADVISORY/CONSULTANCY SER VICES,THAT THE SERVICES PROVIDED BY IT ONLY SUCH SERVICES AND HENCE COULD NOT BE CONSIDERED A V ALID COMPARABLE,THAT AS A COMPANY PROVIDING MEDICAL TRANSCRIPTION SERVICES CANNOT BE COMPARED T O A COMPANY RUNNING HOSPITALS,THAT ICRA-O PROVIDING ANALYTICAL SUPPORT COULD NOT BE COMPARED WITH THE ASSESSEE WHICH RENDERED ADVISORY/CONSULTANCY SERVICES,THAT THE KPO BUSINESS SEGMENT CONSISTED OF VARIOUS ACTIVITIES OTHER THAN RESEARCH AND ANALYTICS LIKE DATA EXTRACTION, A GGREGATION,ELECTRONIC CONVERSION OF FINANCIAL STATEMENTS,VALIDATION AND ANALYSIS,ACCOUN TING AND FINANCE WHICH WERE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE'S ACTIVITY OF RENDER ING NON-BINDING INVESTMENT ADVISORY SERVICES, THAT THE ANNUAL REPORT OF THE COMPANY DID NOT PROVI DE ANY SEGMENTATION OR BIFURCATION OF THE KPO SEGMENT INTO RESEARCH AND ANALYTICS SERVICES VI S-A-VIS ANY OTHER SERVICES, THAT PAGE 489 OF THE PB DID NOT PROVIDE ANY DESCRIPTION OF ACTIVITIE S PERFORMED UNDER THE CAPTION 'OUTSOURCED SERVICES',THAT ON THAT COUNT ALONE THE COMPANY DESE RVED TO BE REJECTED,HE REFERRED TO THE WEB SITE OF ICRA-O WHICH READS AS UNDER: 'KNOWLEDGE PRO CESS OUTSOURCING (KPO):THE KNOWLEDGE PROCESS OUTSOURCING (KPO) DIVISION AT ICRON PROVIDE S FINANCIAL AND ANALYTICAL SERVICES AND SUPPORT TO CLIENTS IN THE AREAS OF DATA EXTRACTION, AGGREGATION, ELECTRONIC CONVERSION OF FINANCIAL STATEMENTS, VALIDATION AND ANALYSIS, ACCO UNTING AND FINANCE, RESEARCH AND ANALYTICS. THIS FORMS A VITAL INPUT FOR THE DECISION SUPPORT S YSTEM FOR OUR CLIENTS AND COMPLEMENTS THEIR CUSTOMER- DELIVERY CAPABILITIES. INFORMATION SERVIC ES AND TECHNOLOGY SOLUTIONS: INFORMATION SERVICES AND TECHNOLOGY SOLUTIONS DIVISION HAD BEEN A LEADING SERVICE PROVIDER FOR INVESTMENT AND ADVISORY INDUSTRY THROUGH ITS INNOVATIVE TECHNO LOGY SOLUTIONS POWERED BY ITS PROPRIETARY RESEARCH AND A COMPREHENSIVE INDUSTRY DATA. OUR TEC HNOLOGY SOLUTION INCLUDES RESEARCH APPLICATIONS,PORTFOLIO TRACKING SOLUTIONS AND TRANS ACTION MANAGEMENT & BACK OFFICE SOLUTIONS WHICH CATER TO DIVERSE INDUSTRY PARTICIPANTS RANGIN G FROM FUND MANAGERS, PRODUCT MANAGERS, RESEARCH ANALYSTS TO FONT END SALES TEAM, WEALTH MA NAGERS, FINANCIAL PLANNERS AND IF AS. OUR ANALYSTS HELP DISTRIBUTORS, BANKS AND AMCS FORMULAT E AND DELIVER VARIOUS ANALYTICAL REPORTS ON FUND PERFORMANCE, EVENT UPDATES AND ECONOMIC OUTLOO K' XXXX 7.WE FIND THAT THE ASSESSEE OBJECTED TO THE INCLUSI ON OF ICRA-O AND IDFC ON THE GROUND THAT THE TPO HAD APPLIED NO SCIENTIFIC METHOD IN ARRIVING AT THE SAID TWO COMPANIES,THAT THE COMPANIES HAD BEEN CHERRY- PICKED BY THE TPO AND HE HAD NOT F URNISHED THE PROCESS APPLIED BY WHICH HE HAD COME TO SELECT THE SAID TWO COMPANIES,THAT SUCH AN APPROACH TO SELECT COMPARABLES WAS IMPRESSIBLE IN LAW AND ON THAT COUNT ALONE THE SAID TWO COMPANIES SHOULD BE REJECTED,THAT THE FAA HAD REJECTED ICRA-O AS COMPARABLE TO INVESTMENT ADVISORY SERVICES RENDERED BY THE ASSESSEE AND HAD STATED ASSESSEE'S KNOWLEDGE PROCES S OUTSOURCING DIVISION PROVIDED FINANCIAL AND ANALYTICAL SERVICES AND SUPPORT TO CLIENTS IN T HE AREAS OF DATA EXTRACTION, AGGREGATION,ELECTRONICCONVERSION OF FINANCIAL STATE MENTS, VALIDATION AND ANALYSIS, ACCOUNTING AND FINANCE, RESEARCH AND ANALYTICS,THAT THE COMPAN Y WAS NOT ENGAGED IN INVESTMENT ADVISORY OR CONSULTANCY SERVICES,THAT THE AO WAS DIRECTED TO EXCLUDE ICRA-O FROM THE FINAL SET OF COMPARABLE COMPANIES, THAT HE HAD HELD THAT IT WAS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE.CHARGING OF FEES BY ICRA-O DID NOT MEAN TH AT IT WAS A VALID COMPARABLE TO THE ASSESSEE.AS PER THE SETTLED PRINCIPLES OF TP FOR A COMPANY TO BE TREATED AS A VALID COMPARABLE THE FUNCTIONS PERFORMED,ASSETS EMPLOYED AND RISKS ASSUM ED HAVE TO BE COMPARABLE AND NOT NOMENCLATURES IN THE ANNUAL ACCOUNTS.WE WOULD LIKE TO REFER TO PG.507 OF THE PB IN CASE OF ICRA-O AND IT READS AS UNDER: 'ICRA ONLINE LIMITED IS A LEADING INFORMATION SERVICES, OUTSOURCING AND TECHNOLOGY SOLUTIONS PROVIDER AND C ATERS FOR SOME OF THE BIGGEST NAMES IN THE M/S.SPARKLES DHANDHO ADVISORS PVT. LTD 4 FINANCIAL SERVICES SECTOR IN(INDIA) AND ABROAD, WHI CH IS A TESTIMONY TO ITS PRODUCT QUALITY, COMMITMENT AND CREDIBILITY'. FROM THE ABOVE DESCRIP TION IT IS CLEAR THAT ICRA-O OPERATED IN TWO STRATEGIC LINES OF BUSINESS,I.E.KNOWLEDGE PROCESS O UTSOURCING AND INFORMATION SERVICES AND TECHNOLOGY SOLUTIONS,WITH A LIST OF REPUTED GLOBAL AND DOMESTIC CLIENTS. NOTE C(III)ON PG.507 OF THE PB ALSO PROVES THAT THE ACTIVITIES PERFORMED BY THE COMPANY UNDER THE BUSINESS LINE 'OUTSOURCED SERVICES' WERE IN THE NATURE OF 'MAINTE NANCE AND MANAGEMENT OF DATA' AND THEREFORE CANNOT BE COMPARED WITH THE ASSESSEE. XXXX CONSIDERING THE ABOVE DISCUSSION,WE ARE OF THE OPIN ION THAT THE ORDER OF THE FAA TO EXCLUDE BOTH THE COMPARABLES DOES NOT SUFFER FROM ANY LEGAL OR F ACTUAL INFIRMITY. SO,CONFIRMING HIS ORDER WE DECIDE THE ISSUE AGAINST THE AO. CONSIDERING THE ABOVE, WE HOLD THAT ICRA-O IS NOT A VALID COMPARABLE FOR DETERMINING THE ALP OF THE IT.S ENTERED INTO AT ASSESSEE FOR THE YEAR U NDER APPEAL.REVERSING THE ORDER OF THE DRP,WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS AL LOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY, 2018. 03 , 201 8 SD/- SD/- /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :03.01.2018. S.GANGADHARA RAO, SR.PS./JV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.