ACUMEN FUND ADVISORY SERVICES INDIA P.LTD, MUMBAI V. DCIT 2(1), MUMBAI

ITA 143/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79364 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 13-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BEN CH, MUMBAI JH JH JH JH VKJ VKJVKJ VKJ- -- - LH LHLH LH- -- - 'KEKZ 'KEKZ 'KEKZ 'KEKZ] YS[KK LNL; ] YS[KK LNL; ] YS[KK LNL; ] YS[KK LNL; ,OA ,OA ,OA ,OA JH FOT; IKY JKO U;KF;D LNL; DS LE{K JH FOT; IKY JKO U;KF;D LNL; DS LE{K JH FOT; IKY JKO U;KF;D LNL; DS LE{K JH FOT; IKY JKO U;KF;D LNL; DS LE{K BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIJYA PAL LRAO, JUDICIAL MEMBER VK;DJ VIHY LA[;K / ITA NO.143/MUM/2014 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2009-10 ACUMEN FUND ADVISORY SERVICES INDIA PRIVATE LIMITED, 203, DHEERAJ PLAZA, HILL ROAD, BANDRA WEST, MUMBAI 400 050. VS. DEPUTY COMMISSIONER OF INCOME TAX 2(1)ROOM NO.561, 5 TH FLOOR, AAYAKAR BHAVAN, CHURCHGATE, M.K. MARG,L MUMBAI - 400020 PAN:-AAFCA662A APPELLANT RESPONDENT ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI VIJAY MEHTA REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI RAJESH RANJAN PRASAD CIT (DR) ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 6.11.2013 PASSED U/S 143(3) R.W.S 144C(13) PURSUAN T TO THE DIRECTION OF DRP U/S 144C(5) OF THE INCOME TAX ACT FOR THE A.Y. 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- DATE OF HEARING 27.06.2014 DATE OF PRONOUNCEMENT 04.07.2014 ACUMEN FUND ADVISORY 2 | P A G E GROUND NO 1: RELATING TO TRANSFER PRICING ADJUSTME NT OF RS. 53,51,953/- FOR INVESTMENT ADVISORY SERVICES RENDER ED TO THE OVERSEAS ASSOCIATED ENTERPRISE BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), MUMBAI ( HEREINAFTER REFERRED TO AS THE 'AO') GROSSLY ERRED, IN CONFORMITY WITH THE DIRECTI ONS OF HON'BLE DISPUTE RESOLUTION PANEL ('DRP'), MUMBAI UNDER SECTION 144C(13) OF THE INCOME TAX ACT, 1961 ('THE ACT') IN MAKING TRANSFER PRICING ADJUSTMENT OF RS. 53,51,9531- IN RESPECT OF INVESTMENT ADVISORY SERVICES RENDERED BY APPELLANT TO ITS OVERSEAS ASSOCIATED ENTERPRISE ('AE'). THE APPELLANT HUMBLY SUBMITS THA T NO TRANSFER PRICING ADJUSTMENT IS WARRANTED IN ITS CASE AND WISHES TO RAISE THE FO LLOWING GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1.1 THE HON'BLE DRPI LD. TRANSFER PRICING OFFICER ( 'TPO') /LD. AO ERRED IN LAW AND IN FACTS BY WRONGLY REJECTING THE SYSTEMATIC BENCHM ARKING ANALYSIS CARRIED OUT BY THE APPELLANT. FURTHER, THE LD. TPO ERRED IN CHERRY PICKING COMPARABLE COMPANY I.E. MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD. ('MOIAPL ') WITH HIGH MARGINS WITHOUT ADOPTING ANY SEARCH PROCESS. 1.2 THE HON'BLE DRP 1 LD. TPO 1 LD. AO ERRED IN REQ UIRING THE APPELLANT TO USE LATEST YEAR DATA FOR COMPARABLE COMPANIES WHEN THE TRANSFER PRICING REGULATIONS REQUIRES DOCUMENTATION TO BE CONTEMPORANEOUS. 1.3 THE HON'BLE DRP/ LD. TPO / LD. AO ERRED IN LAW AND IN FACTS BY REJECTING FUNCTIONALLY SIMILAR SELECTED BY APPELLANT ON ADHOC AND ARBITRARY BASIS CITING FOLLWONG REASONS FUNCTIONAL DISSMILARITY DIFFERENT ACCOUNTING YEAR AS COMPARED TO APPELLAN T NON-DETAILED SEGMENTAL ACCOUNTS OF THE COMPARABLE COMPANIES UNAVAILABILITY OF SEGMENTAL ACCOUNTS OF COMPARABL E COMPANIES 1.4 THE HON'BLE DRP/ LD. TPO / LD. AO ERRED GROSSLY IN BOTH FACTS & IN LAW IN CONFIRMING THE ACCEPTANCE OF MOIAPL AS A COMPARABLE COMPANY DESPITE THE FOLLOWING PERTINENT POINTS BROUGHT OUT BY THE APPEL LANT IN SUPPORT OF REJECTING MOIAPL: MOIAPL IS ENGAGED IN INVESTMENT BANKING ACTIVITIE S WHICH IS SIGNIFICANTLY DIFFERENT FROM THE NON-BINDING INVESTMENT ADVISORY SERVICES R ENDERED BY APPELLANT TO ITS AE. MOIAPL'S EMPLOYEE COST RATIO IS SIGNIFICANTLY LOW ER WHEN COMPARED WITH OTHER COMPARABLE COMPANIES IN THE FINAL SET. THE SALES TURNOVER OF MOIAPL IS SIGNIFICANTLY HIG H AS COMPARED TO APPELLANT AND ALSO COMPARABLE COMPANIES IN THE FINAL SET. THEREBY IT ENJOYS BETTER ECONOMIES OF SCALE AS COMPARED TO APPELLANT. ACUMEN FUND ADVISORY 3 | P A G E THE ANALYSIS OF FINANCIAL RESULTS OF MOIAPL OVER A PERIOD OF 5 YEARS CLEARLY SUGGESTS THAT THE COMPANY IS HIGH RISK TAKING ENTER PRISE WHEREAS ON THE OTHER HAND THE APPELLANT IS A RISK FREE ENTITY WHICH IS GUARAN TEED A MINIMUM OF22% NET PROFIT ON ITS OPERATING COSTS. MOIAPL STANDS REJECTED BY APPLYING ONE OF LD. TPO 'S OWN FI.LTER CRITERION WHERE HE REJECTED ONE OF THE APPELLANT'S COMPARABLE COMPA NY NAMELY IDFC INVESTMENT ADVISORS LTD ON THE BASIS OF DROP IN SALES YEAR ON YEAR. IT IS PERTINENT TO NOTE THAT THERE HAS BEEN A SIGNIFICANT DROP IN SALES TURNOVER OF MOIAPL YEAR ON YEAR (RS. 45.23 CRORE IN A Y 09-10 COMPARED TO RS. 62.77 CROR E IN A Y 08-09). MOIAPL HAS SIGNIFICANTLY LOW EXPORT EARNINGS WHER E AS APPELLANT'S ENTIRE EARNING IS FROM EXPORTS. 1.5 THE HON'BLE DRP / LD. TPO / LD. AO HAS ERRED IN REJECTING 2 COMPARABLE COMPANIES SELECTED BY APPELLANT NAMELY CRISIL RISK INFRASTRUCTURE SOLUTIONS LTD AND IDFC INVESTMENT ADVISORS LTD. EVEN THOUGH REVENUE S CHEDULE DISPLAY'S INCOME FROM 'ADVISORY' ACTIVITIES AND ACCORDINGLY SHOULD C ONSIDERED AS COMPARABLE COMPANY IN THE FINAL SET OF COMPARABLE. 1.6 THE HON'BLE DRP / LD. TPO / LD. AO HAS ERRED IN NOT CONSIDERING THE FACT THAT APPELLANT IS SUPPORTING ITS PARENT COMPANY IN ACHIE VING THE GROUP'S PHILANTHROPIC OBJECTIVE AND THAT AE EARNS NOMINAL RETURNS. ACCORD INGLY, IT WOULD BE CHALLENGING TO REMUNERATE APPELLANT AT PAR WITH COMPANIES OPERATIN G WITH SOLE OBJECTIVE OF PROFIT. 1.7 THE HON'BLE DRP / LD. TPO / LD. AO HAS ERRED GR OSSLY IN FACTS BY CONSIDERING THAT AE IS ALONE CARRYING OUT THE PHILANTHROPIC WOR K AND THE APPELLANT DOES NOT PLAY AN IMPORTANT ROLE IN ACHIEVING GROUP'S PHILANTHROPI C OBJECTIVE. IT IS PERTINENT TO NOTE THAT SOLE OBJECTIVE OF EXISTENCE OF THE APPELLANT I S TO SUPPORT ITS AE IN ACHIEVING THE GROUP'S PHILANTHROPIC OBJECTIVE WHICH IS EVIDENT FR OM THE FACT THAT THE APPELLANT OPERATES AS CAPTIVE SERVICE PROVIDER TO ITS AE. 1.8 THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN NOT APPRECIATING THE NEED FOR ADJUSTMENTS REQUIRED TO THE MARGINS OF COMPARABLE C OMPANIES ON ACCOUNT OF DIFFERENCES IN VARIOUS FACTORS SUCH AS DIFFERENCES IN FUNCTIONS PERFORMED, RISK ASSUMED, ACCOUNTING POLICIES ETC. 1.9 THE HON'BLE DRP / LD. TPO / LD. AO HAS ERRED IN NOT CONSIDERING THE NEED TO ACCOUNT FOR WORKING CAPITAL ADJUSTMENT FOR THE PURP OSE OF REMOVING IMPACT OF DIFFERENCES IN LEVEL OF PAYABLES AND RECEIVABLES. GROUND 2: PENALTY PROCEEDINGS THE HON'BLE DRP / LD. TPO / LD. AO ERRED IN LAW AND IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. ACUMEN FUND ADVISORY 4 | P A G E 2. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESS MENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ENTERED INTO INTERN ATIONAL TRANSACTIONS WITH ITS AE, M/S ACUMEN FUND INC., WHICH IS A NON RESIDENT. ACCO RDINGLY THE ASSESSING OFFICER MADE A REFERENCE U/S 92CA(1) OF INCOME TAX ACT TO T HE TPO FOR COMPUTATION OF ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTI ONS. THE ASSESSEE HAS APPLIED TNMM AS THE MOST APPROPRIATE METHOD AND OPERATING MARGIN TO SALES AS PLI FOR DETERMINATION OF ALP IN RESPECT OF ITS INTERNATION AL TRANSACTION BY SELECTING EIGHT COMPARABLES. THE MEAN MARGIN ARRIVED AT BY THE ASSE SSEE AT 18.60% IN COMPARISON TO THE ASSESSEES OPERATING MARGIN AT 23 .29%, ACCORDINGLY THE ASSESSEE CLAIMED THAT ITS INTERNATIONAL TRANSACTION S ARE AT ARMS LENGTH PRICE. THE TPO NOTED THAT THE ASSESSEE HAS USED MULTI YEAR DAT A AND NOT THE CURRENT YEAR DATA. THE TPO HAS ALSO REJECTED FIVE OF COMPARABLES OUT OF EIGHT SELECTED BY THE ASSESSEE THEREBY ACCEPTED THREE COMPARABLES SELECT ED BY THE ASSESSEE. THE TPO THEN ADDED ONE MORE COMPARABLE NAMELY M/S MOTI LAL OSWAL INVESTMENT ADVISOR PVT. LTD. AND COMPUTED THE MEAN MARGIN BY A PPLYING PLI OP/OC AT 39.44% IN COMPARISON TO THE ASSESSEES MARGIN AT 23.29%. A CCORDINGLY THE TPO MADE AN ADJUSTMENT OF RS. 53,51,953/-. AFTER RECEIVING THE ORDER OF THE TPO WITH THE RECOMMENDATION OF AN UPWARD ADJUSTMENT OF RS. 53,51 ,953/-, THE ASSESSING OFFICER PREPARED A DRAFT ASSESSMENT ORDER DATED 30.01.2013 AGAINST WHICH THE ASSESSEE FILED OBJECTION BEFORE THE DRP BUT COULD NOT SUCCEE D. 3. THUS THE MAIN GRIEVANCE OF THE ASSESSEE IS INCLU SION OF M/S MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD. AS COMPARABLE FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 4. BEFURE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY M/S MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD IS I N THE BUSINESS OF MERCHANT BANKING AND ALSO HAVING DIVERSIFIED OPERATIONS INCL UDING PRIVATE PLACING OF EQUITY, DEBT AND CONVERTIBLE INSTRUMENTS COVERING INTERNATI ONAL & DOMESTIC CAPITAL MARKETS, MERGERS & ACQUISITIONS ADVISORY AND RESTRUCTURING A DVISORY & IMPLEMENTATIONS, ACUMEN FUND ADVISORY 5 | P A G E THEREFORE, THIS COMPANY IS FUNCTIONALLY NOT COMPARA BLE WITH THE BUSINESS OF THE ASSESSEE. HE HAS REFERRED THE BUSINESS PROFILE OF T HE ASSESSEES COMPANY AS WELL AS THE BUSINESS PROFILE OF MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD AND SUBMITTED THAT THERE IS NO MATCH OR SIMILARITY IN THE BUSINES S ACTIVITY AND SERVICES OF THE ASSESSEE AND MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF CO-OR DINATE BENCH OF THIS TRIBUNAL DATED 7.2.2014 IN THE CASE OF M/S CARLYLE INDIA ADV ISORS PVT LTD. VS. DCIT IN ITA NO. 7367/MUM/2012 AND SUBMITTED THAT THE TRIBUNAL W HILE DECIDING THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS HELD THAT MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD IS REGISTERED WITH THE SEBI AS A MERCHANT BANKE R. THOUGH THE COMPANY HAS SHOWN THE INCOME FROM OPERATION AS ADVISORY FEE HOW EVER, IT IS ADMITTEDLY A COMPANY ENGAGED IN DIVERSIFIED ACTIVITIES OF TAKEOV ER, ACQUISITION, DISINVESTMENT ETC. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO REF ERRED THE DIRECTORS REPORT OF MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD AND SUBMI TTED THAT THERE IS NO CHANGE IN THE FUNCTIONS AND BUSINESS CARRIED OUT BY THE COMPA NY IN THE YEAR UNDER CONSIDERATION IN COMPARISON TO THE A.Y. 2008-09 WHI CH WAS EXAMINED AND ANALYZED BY THE CO-ORDINATE BENCH IN THE CASE OF CARLYLE IND IA ADVISORS PVT. LTD. THUS THE LD. COUNSEL HAS SUBMITTED THAT IF M/S MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD. IS EXCLUDED FROM THE SET OF COMPARABLES THEN THE MEAN MARGIN OF THE REMAINING FOUR COMPANIES COMES TO 24.99% IN COMPARISON TO THE ASSE SSEES MARGIN AT 23.29% AND THEREBY THE ASSESSEES MARGINS ARE WITHIN +/- 5 % RANGE OF THE MEAN MARGIN AND CONSEQUENTLY NO ADJUSTMENT IS CALLED. FOR. 5. ON THE OTHER HAND , THE LD. DR HAS SUBMITTED THA T IN THE CASE OF M/S CARLYLE INDIA ADVISORS PRIVATE LTD, THE TRIBUNAL HAS CONSID ERED THE FUNCTIONAL REPORTS OF THE A.Y. 2008-09 WHEREIN THE COMPANYS REVENUE WERE MAI NLY FROM CROSS BOARDER MERGER AND ACQUISISITON ACTIVITY AND RELATED FINANC IAL SOLUTION. THEREFORE, THE DECISION OF CO-ORDINATE BENCH OF TRIBUNAL IN RESPEC T OF ASSESSMENT YEAR 2008-09 IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CO NSIDERATION. HE HAS CONTENDED THAT M/S MOTILAL OSWAL INVESTMENT ADVISOR PVT. LT D. IS A COMPARABLE COMPANY AS IT ACUMEN FUND ADVISORY 6 | P A G E HAS SHOWN THE REVENUE FROM ADVISORY SERVICES WHICH IS SIMILAR TO THE ASSESSEES ACTIVITY. HE HAS RELIED UPON THE ORDERS OF AUTHORIT IES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS BENCH MARKED ITS INTERNATI ONAL TRANSACTIONS BY SELECTING EIGHT COMPARABLES AS UNDER:- SR. NO. COMPANY NAME FINANCIAL YEAR OPERATING PROFIT AS PERCENTAGE OF COST 1 A R VENTURE FUNDS MANAGEMENT PVT. LTD MARCH 2009 27.49% 2 CRISIL RISK INFRASTRUCTURE SOLUTIONS LTD DECEMBER 2008 38.94% 3 I CR A MANAGEMENT CONSULTING SERVICES LTD MARCH 2 008 2.26% 4 IDFC INEVESTMENT ADVISERS LTD. MARCH 2008 17.35% 5 INDIACO VENTURES LTD. MARCH 2009 1.89% 6 KOTAK MAHINDRA CAPITAL COMPANY LTD. (SEGMENT) MARCH 2009 19.24% 7 KSHITIJ INVESTMENTS ADVISORY COMPANY LTD. MARCH 2 008 19.45% 8 MOTILAL OSWAL VENTRUE CAPITAL ADVISORS A PRIVATE LTD ( NOW KNOWN AS MOTILAL OSWAL PVT EQUITY ADVISOR IS A PRIVATE LIMITED MARCH 2009 22.18% SIMPLE AVERAGE (%) 18.60% ACUMENT INDIA MARCH 2009 23.29% 7. SINCE THE ASSESSEES MARGIN WAS 23.29%, IT WAS CLAIMED BY THE ASSESSEE THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARMS LE NGTH PRICE. THE TPO REJECTED THE FIVE COMPARABLES SELECTED BY THE ASSESSEE NAMELY (I ) CRISIL RISK INFRASTRUCTURE SOLUTIONS LTD (II) I CR A MANAGEMENT CONSULTING SERVICES LTD (III) ID FC INEVESTMENT ADVISERS LTD. (IV) INDIACO VENTURES LTD. (V) KOTAK MAHINDRA CAPITAL COMPANY LTD. ACUMEN FUND ADVISORY 7 | P A G E (SEGMENT). THE TPO THEN INCLUDED ONE MORE COMPANY AS COMPARAB LE NAMELY MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD. ACCORDINGLY THE TRANSFER PRICING OFFICER HAS COMPUTED THE MEAN MARGIN OF THE FOUR COMPARABLES ON THE BASIS OF TNMM AS THE MOST APPROPRIATE METHOD AND OP/OC AS PLI AT 39.44% AS UNDER:- SR. NO. COMPANY NAME OPERATING PROFIT AS PERCENTAGE OF COST 1 A R VENTURE FUNDS MANAGEMENT PVT LTD. 27.49 2 KSHITIJ INVESTMENTS ADVISORY COMPANY LTD 25.31 3 MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD 82.77 4 MOTILAL OSWAL VENTRUE CAPITAL ADVISORS PRIVATE LTD ( NOW KNOWN AS MOTILAL OSWAL PVT EQUITY ADVISORS PRIVATE LIMITED 22.18 ARITHEMATIC MEAN 39.44 ACUMENT INDIA 23.29 8. THE TPO HAS RECOMMENDED AN UPWARD ADJUSTMENT OF RS. 53,51,953/- IN RESPECT OF ARMS LENGTH PRICE. THE GRIEVANCE OF TH E ASSESSEE IS INCLUSION OF MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD ON THE GROUND THA T THE SAID COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE . THE TPO HAS RECORDED THE BUSINESS PROFILE OF THE ASSESSEE IN PARA 4 OF ITS ORDER AS U NDER:- 4. ON GOING THROUGH THE TRANSFER PRICING STUDY REP ORT, IT IS SEEN THAT ACUMEN FUND ADVISORY SERVICES INDIA PRIVATE LIMITED (ACUME N INDIA) ENGAGED IN PROVIDING NON- BINDING INVESTMENT ADVISORY SERVICES TO ITS PARENT COMPANY. THE PARENT COMPANY I.E. ACUMEN FUND INC. IS A NON- PROFIT GLOBAL VENTURE WHICH MAKES INVESTMENTS GLOBALLY IN PROJECTS THAT H ELP SOLVE POVERTY ISSUES. ACUMEN FUND INC. INVESTS IN PROJECTS RELATED TO HEA LTH, HOUSING, WATER, ENERGY, AGRICULTURE AND SERVICES WHICH ARE AIMED AT GENERAL UPLIFTMENT/ BENEFIT OF SOCIETY AT LARGE. THE ASSESSEE COMPANY A SSISTS THE PARENT COMPANY BY RENDERING FOLLOWING SERVICES: PRE-INVESTMENT ADVISORY SERVICES WHICH INCLUDE DU E-DILIGENCE ON POTENTIAL INVESTEE COMPANIES, GENERATION OF DEAL FLOW, CASE R EPRESENTATION, INVESTMENT ACUMEN FUND ADVISORY 8 | P A G E STRUCTURE DESIGN, FUND RAISING EFFORT WITHIN INDIA, MAINTAINING CONTACTS WITH THE DONORS, ETC. POST-INVESTMENT ADVISORY SERVICES WHICH INCLUDE A SSISTING COMPANIES THAT RECEIVE INVESTMENTS FROM ACUMEN FUND INC. WITH BUSI NESS PLANNING PROCESS, GIVING STRATEGIC AND TACTICAL ADVICE TO COMPANIES R ECEIVING ACUMEN FUND INC. INVESTMENT IN ACHIEVING BUSINESS OBJECTIVES, MONITO RING AND EVALUATION OF SOCIAL AND FINANCIAL RETURNS TO ACUMEN FUND INC. ET C. 9. THE BUSINESS PROFILE OF THE MOTILAL OSWAL INVEST MENT ADVISOR PVT. LTD STATED IN THE DIRECTORS REPORT FOR THE F.Y. ENDED ON 31 ST MARCH 2009 RELEVANT TO THE A.Y UNDER CONSIDERATION. THE RELEVANT PART OF THE OPERA TIONS OF THE SAID COMPANY GIVEN IN THE DIRECTORS REPORT IS AS UNDER:- THE COMPANY COMPLETED ITS THIRD FINANCIAL YEAR SIN CE INCEPTION AND IS NOW ON A CUMULATIVE BASIS 45 TRANSACTIONS OLD. THE COMP ANY HAS A WELL GROOMED AND EXPERIENCED MANAGEMENT AND EXECUTION TEAM WHICH HAS DISPLAYED ITS CAPABILITY ACROSS PRODUCTS AND IN DIFFERENT BUSINES S ENVIRONMENTS. THE MARKET FOR INVESTMENT BANKING BUSINESS WAS VERY CHA LLENGING IN 2008-09 OWING TO FALL IN ACTIVITY IN CAPITAL MARKET AND CRE DIT CRISIS. THE SITUATION CONTINUED FOR MOST PART OF THE YEAR LEADING TO DELA YED DECISION MAKING BY CORPORATES AND FUND PROVIDERS. THE DEAL CLOSURES TO OK LONGER THAN USUAL AND HAS THEREFORE IMPACTED THE REVENUE FOR THE YEAR. HO WEVER, THE CAPITAL MARKET SITUATION ALSO PROVIDED THE COMPANY WITH AN OPPORTU NITY TO ENGAGE ITS CLIENTS WITH NEW PRODUCTS LIKE BUYBACK AND DELISTING. A STABLE GOVERNMENT AT CENTRE AS AN OUTCOME OF NATI ONAL ELECTIONS, 2009 WILL PROVIDE FILLIP TO THE MARKET PLACE AND MORE IMPORTA NTLY, TO THE SPONSORS/ ENTREPRENEURS/CORPORATES IN INDIA WITH AN ENVIRONME NT TO PLAN FOR CAPITAL EXPENDITURE AND BUSINESS GROWTH. THIS SHOULD TRANSL ATE INTO MORE PRIMARY ISSUANCES AND INORGANIC GROWTH POSSIBILITIES FOR TH E DOMESTIC CORPORATES AND THE COMPANY EXPECTS TO PLAYA LEADING ROLE WITH INCR EASED MARKET SHARE IN THIS PART OF THE BUSINESS. THE EXECUTION TEAM OF TH E COMPANY IS VERY EXPERIENCED AND CAPABLE OF PROVIDING OUR CLIENTS WI TH THE MOST OPTIMAL SOLUTIONS ACROSS VARIOUS PRODUCTS VIZ CAPITAL MARKE TS, PRIVATE EQUITY AND MEZZANINE FINANCE. A BETTER ACCESS TO CAPITAL WOULD ALSO LEAD TO RESURGENCE OF ACTIVITY IN ACQUISITION BY OUR CLIENTS IN ORDER TO STRENGTHEN THEIR BUSINESS POSITION ON A GLOBAL PLATFORM. THE COMPANY HAS HAD UNIQUE SUCCESS WITH ITS DELIVERY CAPABILITIES IN CROSS BORDER ACQUISITION F OR ITS CLIENTS IN INDIA. ACUMEN FUND ADVISORY 9 | P A G E 10. THE SAID COMPANY HAS COMPLETED ITS THIRD FINANC IAL YEAR SINCE INCEPTION AND 45 TRANSACTIONS IN THE FIELD OF TAKEOVER, ACQUISITI ON, DISINVESTMENT. THE PRIMARY ACTIVITY OF M/S MOTILAL OSWAL INVESTMENT ADVISOR PV T. LTD. DURING THE YEAR WAS IN THE FIELD OF CAPITAL MARKET, PRIVATE EQUITY AND MEZZANI NE FINANCE AS WELL AS ACQUISITION MERGERS AND THE CROSS BOARDER ACQUISITION FOR ITS C LIENTS IN INDIA. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO FILED THE OTHER DETAILS OF BUSINESS ACTIVITY OF THE SAID COMPANY REGARDING INVESTMENT BANKING, CORPORATE FIN ANCE ADVISORY WHEREIN THE SAID COMPANY HAS ACTED AS SOLE ARRANGER, STRATEGIC AND FINANCIAL ADVISOR, SOLE BOOK RUNNING LEAD MANAGER, MERCHANT BANKER AND ARRANGER ETC. WE NOTE THAT THE MAJORITY OF TRANSACTIONS COMPLETED BY MOTILAL OSWAL INVESTME NT ADVISOR PVT. LTD. ARE IN THE FILED OF INVESTMENT BANKING TRANSACTIONS COMPRISING PRIVATE PLACING OF EQUITY, SYNDICATION OF PROJECT DEBT BY TAKING OF EQUITY SHA RES, ACQUISITION, INITIAL PUBLIC OFFER (IPO), OPEN OFFER AND SPONSOR ETC. THE CO-ORDINAT E BENCH OF THIS TRIBUNAL IN THE CASE OF M/S CARLYLE INDIA ADVISORS PVT LTD. VS. DCI T (SUPRA) VIDE ITS ORDER DATED 7.02.2014 HAS ALSO ANALYZED THE BUSINESS PROFILE OF MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD. ANG GIVEN ITS FINDING IN PARA 12 AS UNDER:- WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCES BROUGHT ON RECORD AND REFERRED TO IN THE LIGHT OF RULE 18(6) OF THE I NCOME TAX APPELLATE TRIBUNAL RULES, 1963. THE ONLY DISPUTE IS WHETHER MOTILAL OS WAL INVESTMENT ADVISORS PVT. LTD. CAN BE CONSIDERED AS A COMPARABLE FOR THE DETERMINATION OF ALP. A PERUSAL OF THREE COMPARABLES CONSIDERED BY THE TPO SHOWS THAT M/S. FUTURE CAPITAL INVESTMENT ADVISORS LTD., HAS OPERATING PRO FIT AT 21.79% WHEREAS OPM OF MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. IS 72.33%. THE COMPARABLES USED BY THE TPOTHEMSELVES ARE SHOWING E XTREME OPM. A PERUSAL OF THE DIRECTORS REPORT OF MOTILAL OSWAL I NVESTMENT ADVISORS PVT. LTD. SHOWS THAT DURING THE YEAR UNDER CONSIDERATION, THE SAID COMPANY HAS COMPLETED 23 ASSIGNMENTS SUCCESSFULLY AS AGAINST 14 COMPLETED IN THE IMMEDIATELY PRECEDING YEAR. A CLOSE LOOK AT THE FIN ANCIAL STATEMENTS OF THE SAID COMPANY SHOW THAT THE INCOME FROM OPERATIONS H AVE BEEN SHOWN ONLY AS ADVISORY FEES WHEREAS IT IS ADMITTEDLY AN UNDISP UTED FACTS THAT THE SAID COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES. SEGME NTAL REPORTING IS NOT AVAILABLE. PROFIT AND LOSS ACCOUNT APPEARS TO BE ON LY OF CONSOLIDATED ACCOUNTS.THE SAID COMPANY IS REGISTERED WITH SEBI A S A MERCHANT BANKER AND THE DIRECTORS REPORT SHOW THAT IT IS INTO TAKE OVER , ACQUISITIONS, ACUMEN FUND ADVISORY 10 | P A G E DISINVESTMENTS ETC. IN THE ABSENCE OF SPECIFIC DATA IT IS NOT POSSIBLE TO MAKE COMPARISON. IT CAN THEREFORE BE SAFELY SAID THAT TH E SAID COMPANY BEING INTO MERCHANT BANKING AND CANNOT BE CONSIDERED AS A COMP ARABLE. WE, ACCORDINGLY DIRECT THE AO NOT TO CONSIDER MOTILAL O SWAL INVESTMENT ADVISORS PVT. LTD. AS A COMPARABLE FOR THE DETERMINATION OF ALP AND REDETERMINE THE ARMS LENGTH PRICE EXCLUDING MOTILAL OSWAL INVESTME NT ADVISORS PVT. LTD. [ AS PER OUR FINDINGS ] AND INCLUDING M/S. IDC [ AS PER THE DIRECTIONS OF THE DRP ] IN THE LIGHT OF THE PROVISIONS OF SEC. 92C(2) R.W. SECTION 92C(2A) OF THE ACT. GROUND NO. 4.1 AND GROUND NO. 9 ARE ACCORDINGLY ALL OWED. 11. IT IS CLEAR FROM THE ORDER OF THIS TRIBUNAL IN THE CASE OF M/S CARLYLE INDIA ADVISORS PVT LTD. VS. DCIT (SUPRA) THAT M/S MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD. COMPLETED 23 TRANSACTIONS IN THE SAID YEAR IN THE SAME FIELD OF ACQUISITION, DISINVESTMENT, IPO ETC. WE FIND THAT THE SIMILAR BU SINESS ACTIVITY WAS CARRIED OUT DURING THE YEAR UNDER CONSIDERATION, THEREFORE, HAV ING CONSIDERED THE BUSINESS PROFILE OF THE ASSESSEE AS WELL AS M/S MOTILAL OSWA L INVESTMENT ADVISOR PVT. LTD., WE FIND THAT THE SAID COMPANY IS NOT FUNCTIONALLY C OMPARABLE WITH THE BUSINESS OF THE ASSESSEE AND, THEREFORE, CANNOT BE REGARDED AS GOOD COMPARABLE FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE IN R ESPECT OF INTERNATIONAL TRANSACTION OF THE ASSESSEE. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THE SAID COMPANY FROM THE SET OF COMPARABLE S. THE ASSESSEE HAS FILED THE REVISED MARGINS OF THE COMPARABLES AS UNDER:- SR. NO. NAME OF THE COMPARABLE OPERATING MARGIN ON COST (%) APPELLANT 23.29% 1 A R VENTURE FUNDS MGMT. PVT. LTD. 27.49% 2 KSHITIJ INVESTMENTS ADVISORY CO. LTD. 25.31% 3 MOTILAL OSWAL VENTURE CAPITAL ADVISORS PVT. LTD. 22.18% AVERAGE 24.99% ACUMEN FUND ADVISORY 11 | P A G E 12. THE DETAILS OF COMPARABLES ARE NOT IN DISPUTE A S THE SAME HAVE ALSO BEEN CONSIDERED BY THE TPO IN THE SET OF FOUR COMPARABLE S FROM WHICH, WE FIND THAT MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD. IS NOT A GOOD COMPARABLE, THEREFORE, THE MEAN MARGIN OF THE REMAINING THREE COMPARABLE COMES TO 24.99% IN COMPARISON TO THE ASSESSEES MARGIN OF 23.29%. SINCE THE ASSESSEE S MARGIN IS WITHIN THE TOLERANCE RANGE OF +/- 5% OF THE MEAN MARGIN, THERE FORE, NO ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING IS REQUIRED IN RESPECT OF INTER NATIONAL TRANSACTION OF THE ASSESSEE. 13. THE OTHER GROUNDS RAISED BY THE ASSESSEE BECOM E ACADEMIC IN VIEW OF OUR FINDING IN RESPECT OF THE COMPARABLE INCLUDED BY T PO NAMELY M/S MOTILAL OSWAL INVESTMENT ADVISOR PVT. LTD., ACCORDINGLY WE DO NOT PROPOSE TO DECIDE THE OTHER GROUNDS OF THE APPEAL RAISED BY THE ASSESSEE. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED .. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 0 4-7-2014 SD/- SD/- ( R .C. SHARMA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 04-7 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI