Appeal Details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 81795 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-10-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Next Hearing Date
08-09-2014
Assessment Year
2009-2010
Appeal Filed On
04-04-2014
Judgement Text
PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI C.M.GARG, J.M. ITA NO: 1 998 /DEL/201 4 AY : - 200 9 - 10 ACTIS ADVISERS PVT. LTD. VS. ACIT, CIRCLE 1(1) MIRA, THE CORPORATE SUITES, BLOCK D NEW DELHI GROUND FLOOR, 1 & 2 ISHWAR NAGAR NEW DELHI PAN: AA A C C 5281 G (APPELLANT) (RESPONDENT) APPELLANT BY : DR.RAKESH GUPTA, ADV. SHRI ROHAN KHARE, ADV. RESPONDENT BY : SH. PEEYUSH JAIN, CIT, D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE AO PASSED U/S 143(3) R.W.S.144C OF THE INCOME TAX ACT, 1961. THE AO PASSED THE IMPUGNED ORDER ON 28.2.2014, IN PURSUANCE TO THE ORDER OF THE DRP - I, NEW DELHI DT. 19.12.2013. THE GROUNDS OF APPEAL ARE AS FOLLOWS: 1. THE ASSESSMENT ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, C IRCLE I (I), NEW DELHI [LEARNED ASSESSING OFFICER ('LD. AO')] PURSUANT TO DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') IS BAD IN LAW. 2. THE HON'BLE DRP AND THE LD. AO (FOLLOWING THE DIRECTIONS OF THE HON'BLE DRP), ERRED BOTH ON THE FACTS AND IN LAW, IN CONFIRMING THE ADDITION TO THE EXTENT OF RS. 94,516,662 TO THE INCOME OF THE APPELLANT [OUT OF THE TOTAL ADDITION OF RS. 122,087,265 AS PROPOSED BY THE LEARNED TRANSFER PRICING OFFICER - I (I), N EW DELHI (HEREINAFTER REFERRED TO AS 'LD. TPO')/ LD. AO IN ITS DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 144C] BY HOLDING THAT ITS INTERNATIONAL TRANSACTION PERTAINING TO PROVISI ON OF NON - BINDING FINANCIAL ADVISORY AND CONSULTANCY SERVICES DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE PRESCRIBED UNDER THE INCOME TAX ACT, 1961 ('THE ACT'). ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 2 OF 11 3. ON FACTS AND IN LAW, THE HON'BLE DRP, LD. AO AND LD. TPO ERRED IN DISREGARDING THE ASSESSEE'S USE OF MULTIPLE YEAR/ PRIOR YEARS' DATA IN CONTRAVENTION OF THE PROVISION OF SECTION 92C OF THE ACT READ WITH RULE 10 B AND RULE 10 D (4) OF THE INCOME TAX RULES, 1962 ('RULES'). 4. ON FACTS AND IN LAW, THE HON'BLE DRP, LD. AO AND LD. TPO ERRED IN DISREGARD ING THE DOCTRINE OF IMPOSSIBILITY OF PERFORMANCE IN CONTRAVENING SECTION 92 D OF THE ACT READ WITH RULE 10D (4) OF THE RULES, WHICH MANDATE THE USE OF CONTEMPORANEOUS DATA FOR THE DETERMINATION OF ALP OF INTERNATIONAL TRANSACTIONS. 5. ON FACTS AND IN LAW, T HE HON'BLE DRP AND LD. AO ERRED IN CONFIRMING THE ACTION OF THE AND LD. TPO OF MODIFYING ADDING THE SELECTION FILTERS APPLIED BY THE APPELLANT IN ITS TP DOCUMENTATION AND ARBITRARILY REJECTING THE COMPARABLE COMPANIES IDENTIFIED IN THE TP DOCUMENTATION MAI NTAINED BY THE APPELLANT AND THE ONES IDENTIFIED IN THE FRESH SEARCH CARRIED OUT BY THE APPELLANT DURING THE TP ASSESSMENT PROCEEDINGS. 6. ON FACTS AND IN LAW, THE HON'BLE DRP AND LD. AO ERRED IN REJECTING CYBER MEDIA RESEARCH LIMITED AS A COMPARABLE COM PANY CITING THE REASONS OF INCOMPARABILITY, COMPLETELY IGNORING THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE TO THE APPELLANT AND DISREGARDING VARIOUS JUDICIAL PRONOUNCEMENTS WHICH UPHOLD THIS COMPANY AS A COMPARABLE IN RESPECT OF THE FINANCIAL ADVISORY AN D CONSULTANCY SERVICES PERFORMED BY THE TESTED PARTY SUCH AS THE APPELLANT. 7. ON FACTS AND IN LAW, THE HON'BLE DRP, LD. AO AND LD. TPO ERRED IN SELECTION OF MOTILAL OSWAL INVESTMENT ADVISORS LTD. AS A COMPARABLE COMPANY AND BY DOING SO: 7.1 IN CONTRAV ENTION OF THE SECTION 92C(3) OF THE ACT READ WITH RULE 108(2) OF THE RULES, ERRED IN INCLUDING THIS COMPANY WHICH IS NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED AND IGNORING JUDICIAL PRONOUNCEMENTS IN THIS REGARD; 7.2 ERRED IN SELECTING THIS COMPANY HAVING HIGHLY VOLATILE MARGINS ACROSS PAST YEARS, THUS IGNORING JUDICIAL PRONOUNCEMENTS IN THIS REGARD INCLUDING THE ONE IN THE APPELLANT'S OWN CASE FOR PRIOR ASSESSMENT YEARS; 7.3 ERRED IN SELECTING TH IS COMPANY WITH EXTREME RESULTS, IN THE FINAL COMPARABLES' SET FOR BENCHMARKING A LOW RISK CAPTIVE UNIT SUCH AS THE APPELLANT. 8. WITHOUT PREJUDICE TO GROUND 7, ON FACTS AND IN LAW, THE LD. AO AND LD. TPO MADE COMPUTATIONAL ERRORS IN CALCULATING THE WOR KING CAPITAL ADJUSTED MARGIN OF MOTILAL OSWAL INVESTMENT ADVISORS LTD. DESPITE AND IN CONTRARY TO THE CLEAR DIRECTIONS GIVEN BY THE HON'BLE DRP. 9. ON FACTS AND IN LAW, THE HON'BLE DRP, LD. AO AND LD. TPO ERRED IN NOT ALLOWING A RISK ADJUSTMENT UNDER RUL E 10B(I)(E) FOR DETERMINATION OF THE ALP TO ACCOUNT FOR THE DIFFERENCE IN THE RISK PROFILE OF THE APPELLANT, A LOW - RISK SERVICE PROVIDER, AND OF THE COMPARABLE COMPANIES, THAT ARE FULL - FLEDGED RISK BEARING ENTREPRENEURS; 10. ON FACTS AND IN LAW, THE HON' BLE DRP, LD. AO AND LD. TPO ERRED IN TREATING THE REIMBURSEMENT OF EXPENSES RECEIVED FROM AE AS PART OF THE 'NON - BINDING FINANCIAL ADVISORY AND CONSULTANCY SERVICES' TRANSACTION OF THE APPELLANT AND RE - COMPUTING THE PROFIT LEVEL INDICATOR CPLI') AFTER CONS IDERING SUCH REIMBURSEMENTS AS PART OF THE OPERATING REVENUE AND OPERATING COST. 11. ON FACTS AND IN LAW, THE HON'BLE DRP, LD. AO AND LD. TPO ERRED IN NOT PROVIDING THE BENEFIT OF (+/ - ) 5 PERCENT RANGE MENTIONED IN PROVISO TO SECTION 92C(2) OF THE ACT W HILE COMPUTING THE ALP. ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 3 OF 11 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)( C) OF THE ACT. 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO ERRED IN LEVYING INTEREST UNDER SECTION 2348 AND 234C OF THE ACT. 14. ON FACTS AND IN LAW THE LD. AO MADE COMPUTATIONAL ERRORS IN CALCULATING THE INTEREST UNDER SECTION 2348 AND 234C OF THE ACT. THE ABOVE 'GROUNDS OF APPEAL' ARE ALL INDEPENDENT AND WITHOUT PREJUDICE TO ONE AND ANOTHER. THE APPELLANT ALSO CRAVES LEAVE TO S UPPLEMENT, TO CANCEL, AMEND, ADD AND/OR OTHERWISE ALTER OR MODIFY, ANY OR ALL, GROUNDS OF APPEAL STATED HEREINABOVE. 2. FACTS IN BRIEF : THE ASSESSEE IS A COMPANY AND IT FILED ITS RETURN OF INCOME DECLARING INCOME OF RS.7,12,35,854/ - . THE PROFILE OF THE ASSESSEE AND OF GROUP ARE BROUGHT OUT AT PARA 2 OF THE DRP S ORDER WHICH IS EXTRACTED FOR READY REFERENCE. 2. BUSINESS PROFILE OF GROUP & TAX PAYER AS PROVIDED BY THE TAX PAYER: PROFILE OF THE GROUP: ACTIS IS THE PARENT ORGANIZATION FOR THE BUSINE SS OF THE GROUP. ACTIS WAS ESTABLISHED IN THE YEAR 2004 AS A RESULT OF RESTRUCTURING OF CDC GROUP PLC. AS PART OF THE RESTRUCTURING EXERCISE, ACTIS WAS ESTABLISHED TO TAKE OVER ITS INVESTMENT MANAGEMENT FUNCTIONS. ACTIS IS A LIMITED LIABILITY PARTNERSHI P, THE STAKE OF WHICH IS HELD BY ITS MANAGEMENT, STAFF AND THE GOVERNMENT OF UNITED KINGDOM. ACTIS IS A LEADING PE INVESTOR IN EMERGING MARKETS AND HAS BEEN INVESTING EXCLUSIVELY IN THESE MARKETS FOR NEARLY 60 YEARS. ACTIS INVESTS IN THREE ASSET CLASSES. P.E .: ACTIS PROVIDES A VARIETY OF FUNDING SOLUTIONS FOR COMPARABLES. ACTIS PROVIDES EQUITY CAPITAL FOR BUYOUT AND GROWTH TRANSACTIONS, TYPICALLY WITH A MINIMUM INVESTMENT SIZE OF US $ 50 MILLION. INFRASTRUCTURE : ACTIS INVESTS IN INFRASTRUCTURE BUSINESS ES IN AFRICA, LATIN AMERICA AND SOUTH AND SOUTH EAST ASIA WITH A PARTICULAR FOCUS ON POWER, ROADS, PORTS AND AIRPORTS. INVESTMENT IS MADE AT ALL STAGES OF THE PROJECT LIFE, FROM PROVIDING DEVELOPMENT OR EXPANSION CAPITAL TO ACQUIRING MATURE OPERATIONAL ASS ETS. REAL ESTATE : THE ACTIS GROUP EMPLOYS TEAMS OF EXPERIENCED REAL ESTATE PROFESSIONALS WHICH ARE BASED IN JOHANNESBURG, MUMBAI AND LONDON. ACTIS INVESTS EQUITY CAPITAL IN OFFICE, RESIDENTIAL, INDUSTRIAL, HOTEL AND RETAIL PROJECTS IN AFRICA AND INDIA. INTERNATIONAL VENTURE CAPITAL MANAGEMENT LIMITED ('IVCM')IVCM IS A PRIVATE COMPANY LIMITED BY SHARES INCORPORATED IN MAURITIUS AS A SUBSIDIARY OF ACTIS LLP. THE MAIN OBJECT OF IVCM IS TO PROVIDE FUND MANAGEMENT SKILLS TO VENTURE CAPITAL FUNDS REQUIRING S PECIALIST ASSISTANCE IN THE INVESTMENT FIELD. IVCM OBTAINS THE INFORMATION AND ADVICE FROM ACTIS INDIA TO DETERMINE THE ECONOMIC VIABILITY OF INVESTMENTS AND BASED ON THE INFORMATION AND ANALYSIS PERFORMED BY ACTIS INDIA, IVCM INVESTS THE FUNDS OF SOUTH ASIAN REGION FUND ('SARF') IN INDIAN COMPANIES. ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 4 OF 11 PROFILE OF THE TAXPAYER: ACTIS INDIA (FORMERLY KNOWN AS CDC ADVISERS PRIVATE LIMITED) WAS INCORPORATED AS A PRIVATE LIMITED COMPANY IN INDIA ON MARCH 26, 1998. THE PRIMARY OBJECTIVE OF ACTIS INDIA IS TO P ROVIDE INVESTMENT ADVISORY SERVICES TO ITS AES (PRIMARILY ACTIS) WHICH INCLUDES IDENTIFYING AND EVALUATING INVESTMENT AND DISPOSITION OPPORTUNITIES IN INDIA. THE SERVICES/ FUNCTIONS PERFORMED BY ACTIS INDIA IN THIS REGARD ARE SUBJECT TO AGREEMENT ENTERED B ETWEEN AES AND ACTIS INDIA. UNDER THE AGREEMENT, ACTIS INDIA SHALL, INTER - ALIA: A) IDENTIFY, CREATE, EVALUATE, SCREEN, REVIEW, CONDUCT DUE - DILIGENCE, CARRY OUT INVESTMENT ANALYSIS AND RESEARCH, REPORT ON NEW OPPORTUNITIES FOR THE POSSIBLE INVESTMENT BY T HE FUNDS MANAGED BY THE AE, AND ADVISE ON SUCH PARTICULAR FACTORS RELATING THERETO AS ACTIS INDIA CONSIDERS RELEVANT FOR CONSIDERATION BY THE AE; B) IDENTIFY, CREATE, EVALUATE, SCREEN, REVIEW, CONDUCT DUE DILIGENCE, CARRY OUT INVESTMENT ANALYSIS AND RES EARCH, REPORT ON NEW OPPORTUNITIES FOR THE POSSIBLE DISPOSAL OF AN INVESTMENT AND ADVISE ON SUCH PARTICULAR FACTORS RELATING THERETO AS ACTIS INDIA CONSIDERS RELEVANT FOR CONSIDERATION BY THE AE; C) IN ITS CAPACITY AS ADVISOR, RECOMMEND FOR CONSIDERATION BY THE AE FROM TIME TO TIME, THE PURCHASE OR SALE OF PARTICULAR INVESTMENTS OR PROPOSED INVESTMENTS, AND RECOMMEND TO THE AE FROM TIME TO TIME REGARDING THE AMOUNT AND THE TERMS FOR THE PROPOSED P URCHASE/ SALE; D) MONITOR AND EVALUATE THE PROGRESS OF ALL INVESTMENTS AND REPORT ON SUCH PROGRESS TO AE AS ACTIS INDIA MAY CONSIDER APPROPRIATE; E) ADVISE IN RELATION TO ANY GUARANTEES, INDEMNITIES, COVENANTS, OR UNDERTAKINGS IN FAVOUR OF THIRD PARTIE S AS MAY BE GIVEN BY THE FUNDS MANAGED BY THE AE IN CONNECTION WITH OR FOR THE PURPOSES OF THE ACQUISITIONS, HOLDING OR DISPOSAL OF ANY INVESTMENT; F) ADVISE AND REPORT TO AE, ON ANY RIGHTS EXERCISABLE IN RELATION TO ANY INVESTMENT; G) PROVIDE SUCH OT HER SERVICES TO THE AE AS MAY REASONABLY BE REQUIRED IN ORDER TO PRESERVE AND PROMOTE THE INTERESTS OF THE FUNDS MANAGED BY THE GROUP; AND H) ADVISE ON THE NEGOTIATIONS OF THE TERMS OF ANY PURCHASE OR SALE OF AN INVESTMENT OR PROPOSED INVESTMENT. ACTIS IN DIA ALSO RENDERS THE FOLLOWING SERVICES: I) GIVE PROMPT NOTICE OF ANY PROPOSED CHANGES IN THE NATURE OF SCOPE OF INVESTMENT OPPORTUNITIES OR THE BUSINESS OF OPERATIONS OF THE GROUP AND OF ANY EVENT OR CONDITION WHICH MIGHT MATERIALLY AND ADVERSELY AFFECT THE CARRYING ON OF GROUP'S BUSINESS OR OPERATIONS; AND J) GIVE PROMPT NOTICE OF ANY LITIGATION OR ADMINISTRATIVE PROCEEDINGS BEFORE ANY COURT OR ARBITRAL BODY OR OTHER AUTHORITY, WHICH MIGHT MATERIALLY AND ADVERSELY AFFECT ACTIS INDIA OR THE INVESTMENTS MANAGED BY THE GROUP . ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 5 OF 11 2.1. THERE IS NO DISPUTE ON THE CHARACTERIZATION OF THE TRANSACTIONS OR ON THE MOST APPROPRIATE METHOD (MAM) TO BE ADOPTED IN THIS CASE. T H E O N L Y ISSUE DISPUTED BEFORE US IS ON THE INCLUSION OF M/S MOTHILAL OSWAL INVESTMENT ADVISORS (P) LTD. (MOIA PVT.LTD. FOR SHORT) AS A C O M P A R A B L E BY THE TPO AND A L S O THE EXCLUSION OF A COMPARABLE CITED BY THE ASSESSEE I.E. CYBER MEDIA RESEARCH LTD . , N OW KNOWN AS IDC BY THE TPO. AS REGARDS OTHER ISSUES, THEY ARE EITHER NOT PRESSE D, GENERAL OR CONSEQUENTIAL IN NATURE. 3. WE HAVE HEARD DR.RAKESH GUPTA, THE LD.COUNSEL ON BEHALF OF THE ASSESSEE AND SHRI PEEYUSH JAIN, LD.CIT, D.R. ON BEHALF OF THE REVENUE. 3.1 . ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON PERUSAL OF MATERIAL ON RECORD, ORDERS OF THE AUTHORITIES BELOW, CASE LAWS CITED, WE HOLD AS FOLLOWS. 4. GROUND NOS. 1, 4 AND 5 ARE GENERAL IN NATURE. 4.1. GROUND NOS. 3 AND 8 ARE DISMISSED AS NOT PRESSED . 4.2. GROUND NO.9 IS WITHDRAWN WITHOUT PREJUDICE TO THE RIGHTS OF THE ASSESSEE TO CLAIM RISK ADJUSTMENT IN FUTURE YEARS. 4.3. GROUND NO 12 IS DISMISSED AS PREMATURE. GROUND NO S. 13 & 14 ARE CONSEQUENTIAL IN NATURE. 4.4. THIS LEAVES US WITH GROUND NO 2,6,7,10 AND 11. 4.5. GROUND NO . 2 READ WITH GROUND NO S. 6 AND 7 ARE ON THE ISSUE OF SELECTION OF COMPARABLES. ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 6 OF 11 5. WE FIRST TAKE UP THE ARGUMENTS OF THE ASSESSEE THAT DRP AND THE AO HAVE ERRED IN SELECTION OF MOTILAL OSWAL INVESTMENT ADVISORS (P) LTD. , AS A COMPARABLE. THE SUBMISSIONS OF TH E ASSESSEE ON THIS ISSUE IS THAT THE FUNCTIONAL PROFILE OF M/S MOTILALA OSWAL INVESTMENT ADVISORS (P) LTD., IS NOT COMPARABLE TO THE FUNCTIONAL PROFILE OF THE ASSESSEE AND THAT IT WAS HELD SO BY THE T RIBUNAL IN THE CASE OF M/S CARLYLE INDIA ADVISORS ( P ) LT D., VS D C IT, C IRCLE 10(1) MUMBAI IN ITA NO. 7367 /MUM/2012 OF ITAT K BENCH OF THE MUMBAI TRIBUNAL VIDE ORDER DT. 07.02.2014 . 5.1. LD. DR RELIES ON THE ORDER OF THE DR P AND ALSO ON THE FUNCTIONAL PROFILE OF M/S MOTILAL OSWAL INVESTMENT ADVISORS (P) L TD., GIVEN IN THE TRANSFER PRICING REPORT. ALTERNATIVELY AND WITHOUT PREJUDICE MR.P EEYUSH JAIN ARGUED THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF AO WITH THE DIRECTION THAT SEGMENTAL DATA SHOULD BE OBTAINED AND INCOME THAT IS ATTRIBUTABLE TO THE FUNCTION S WHICH ARE NOT COMPARABLE WITH THE FUNCTIONS OF THE ASSESSEE BE ELIMINATED AND COMPARISON DONE. 5.2. DR. RAKESH GUPTHA, THE LD., COUNSEL FOR THE ASSESSEE SUBMIT S THAT SEGMENTAL DATA WAS NOT AVAILABLE AND THIS FACT WAS NOTICED BY MUMBAI K BENCH OF THE TRIBUNAL IN THE CASE OF C AR RYLE INDIA ADVISORS ( P) LTD., (SUPRA). 5.3. A COMPARISON OF THE FUNCTIONAL PROFILE OF THE ASSESSEE, WHICH IS EXTRACTED BY US IN THE EARLIER PART OF THIS ORDER DEMONSTRATE S THAT IT IS DIFFERENT FROM THE FUNCTIONAL PROFILE OF M/ S MOTILAL O SWAL INVESTMENT ADVISORS P. LTD., AT PAGE 79 OF THE PAPER BOOK COPY OF THE DIRECTORS REPORT PRESENTED ALONG WITH THE AUDITED ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 7 OF 11 ACCOUNTS OF THE COMPANY M/S MOTILAL O SWAL INVESTMENT ADVISORY P. LTD., W A S ENCLOSED. A PERUSAL OF THE SAME DEMONSTRATES THAT THE COMPANY HAD UNIQUE SUCCESS WITH ITS DELIVERY CAPABILITIES IN CROSS P R O D U C T B O R D E R ACQUISITION FOR ITS CL I E N T S . THIS IS IN ADDITION TO PROVIDING CLIENTS WITH OPTIMAL SOLUTIONS ACROSS VARIOUS PRODUCTS VIZ . CAPITAL MARKET, PRIVATE EQUITY AND MEZZANINE FINANCE. HENCE THE ARGUMENT OF THE ASSESSEE THAT THE FUNCTIONAL PROFILE OF M/S MOTILAL O SWAL INVESTMENT ADVISORS P. LTD., IS DIFFERENT FROM THE FUNCTIONAL PROFILE OF THE ASSESSEE IS C O R R E C T A N D H E N C E H A S T O B E ACCEPTED. 5.4. WE ARE SUP PORTED BY THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CAR LYLE INDIA (P) LTD., ( S UPRA) WHEREIN AT PARA 12 , PAGE 8, IT IS HELD AS UNDER : 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER A UTHORITIES AND THE LRELEVANT MATERIAL EVIDENCES BROUGHT ON RECORD AND REFERRED TO IN THE LIGHT OF RULE 18(6) OF ITAT RULES, 1963. THE ONLY DISPUTE IS WHETHER MOIA 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 PROFIT AT 21.79% WHEREAS OPM OF MOIA PVT.LTD. IS 72.33%. THE COMPARABLES USED BY THE TPO THEMSELVES ARE SHOWING EXTREME OPM. A PERUSAL OF THE DIRECTOR S REPORT OF MOIA PVT.LTD. SHOWS THAT DURING THE YEAR UNDER CONSIDERATION, THE SAID COMPANY HAS COMPELTED 23 ASSIGNMENTS SUCCESSFULLY AS AGAINST 14 COMPLETED IN THE IMMEDIATELY PRECEDING YEAR. A CLOSE LOOK AT THE FINANCIAL STATEMENTS OF THE SAID COMPANY SHOW THAT THE INCOME FROM OPERATIONS HAVE BEEN SHOWN ONLY AS ADVISORY FEES WHEREAS IT IS ADMITTEDLY AN UNDISPUTED FACT THAT THE SAID COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES . SEGMENTAL REPORTING IS NOT AVAILABLE. PROFIT AND LOSS ACCOUNT APPEARS TO BE ONLY OF CONSOLIDATED ACCOUNTS. THE SAID COMPANY IS REGISTERED WITH SEBI AS A MERCHANT BANKER AND THE DIRECTOR S REPORT SHOW THAT IT IS INTO TAKE OVER, ACQUISITIONS, DISINVESTMENTS ETC. IN THE ABSENCE OF SPECIFIC DATA IT IS NOT POSSIBLE TO MAKE COMPARISO N. IT CAN THEREFORE BE SAFELY SAID THAT THE SAID COMPANY BEING INTO MERCHANT BANKING AND CANNOT BE COSNDIERED AS A COMPARABLE. WE, ACCORDINGLY DIRECT THE AO NOT TO CONSIDER MOIA PVT.LTD. AS A COMPARABLE FOR THE DETERMINATION OF ALP AND REDETERMINE THE AL P EXCLUDING MOIA 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 ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 8 OF 11 S.92C(2) R.W.S. 92C(2A) OF THE ACT. GROUND NO. 4.1 AND GROUND NO.9 ARE ACCORDINGLY ALLOWED. 5.5. THIS DECISION IS F OLLOWED BY ANOTHER CO - O RDINATE BENCH OF THE MUMBAI TRIBU NAL ORDER IN ITA NO. 2200/MUM/2014 IN THE AY 2009 - 10 IN THE CASE OF THE SAME ASSESSEE I.E., M/S CARLYLE INDIA ADVISORS PVT.LTD. VS. DCIT VIDE ORDER DT 22 .02. 2014 . 5.6. THE ALTERNATIVE PLEA OF THE LD., DR THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE AO FOR CONSIDERING THE SEGMENTAL PROFITS IS REJECTED FOR THE REASON THAT THE CO - O RDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF CARLYLE INDIA ADVISORS PVT.LTD. HELD THAT SEGMENTAL DATA IS NOT AVAILABLE. THUS, CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL WE ALLOW GROUND NO 7 OF THE ASSESSEE AND DIRECT THE AO TO EXCLUDE M/S MOIA (P) LTD., AS A COMPARABLE . 5.7. THIS BRINGS US TO THE ISSUE WHETHER M/S CYBER INDIA R ESEARCH LTD., NOW KNOWN AS IDC LTD., WAS RIGHTLY REJECTED AS A COMPARABLE BY THE TPO/AO. 5.8. LD. COUNSEL FOR THE ASSESSEE DR. RAKESH GUPTHA SUBMITS THAT THE FUNCTIONAL PROFILE IS IDENTICAL AND PROPER REASONS WERE NOT GIVEN BY THE D RP FOR ELIMINATING THIS COMPARABLE CITED BY THE ASSESSEE. FURTHER HE SUBMITTED THAT IDC HAS BEEN ACCEPTED AS A COMPAR ABLE BY THE AO IN THE SUBSEQUENT AYS. HE SUBMIT THAT THE CO - O RIDNATE BENCH OF THE TRIBUNAL IN THE CASE OF CARLYLE INDIA ADVISORS P.LTD. HAS A L S O ACCEPTED IDC AS COMPARABLE IN CASES WHERE THE FUNCTIONAL PROFILE OF THE ASSESSEE IS INVESTMENT ADVISORY AND RELATE D SUPPORT SERVICES. ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 9 OF 11 5.9. LD. DR REFERS TO THE FUNCTIONAL PROFILE AS BROUGHT OUT BY THE D RP AT PAGE 12 OF THE ORDER AND SUBMITS THAT THIS COMPARABLE WAS RIGHTLY ELIMINATED BY THE TPO AND THIS DECISION WAS RIGHTLY UPHELD BY THE DRP. AS REGARDS TPO ACCEPTING THE COMPARABLE IN THE SUBSEQUENT YEAR AND THE CO - O RDINATE BENCH DIRECTING THE ACCEPTANCE OF THIS COMPARABLE IN THE CASE OF CARLYLE INDIA ADVISORS P.LTD., HE ARGUED THAT THESE FACTS WERE NOT BROUGHT TO THE NOTICE OF THE AUTHORITIES. 6. AFTER HEARING RIV AL CONTENTIONS WE FIND THAT AT PAGE 12 OF THE DRP S ORDER THE FUNCTIONAL PROFILE OF IDC LTD., IS NARRATED , WHICH WE EXTRACT FOR READY REFERENCE. IDC (CHANGED TO CYBER MEDIA) : AS PER PAGE 6/AR: A CTIVITIES, EFFORTS AND INITIATIVES IN RELATION TO EXPORTS: YOUR COMPANY IS REGARDED AS THE COUNTRY S MOST COMPREHENSIVE , DEPENDABLE AND RESPECTED SOURCE FOR MARKET INTELLIGENCE AND CONSULTING IN THE FIELDS OF IY, TELECOMMUNICATIONS AND CONSUMER TECHNOLOGY. YOUR COMPANY ALWAYS TAKES INITIATIVES TO SELL ITS RESEARCH REPORTS IN THE INTERNATIONAL MARKETS . AS PER PAGE 15/AR: THE COMPANY IS A RESEARCH COMPANY, PRIMARILY DEALING IN RESEARCH AND SURVEY SERVICES AND PRODUCTS. IT DOES NOT HAVE ANY PHYSICAL INVEN TORIES. THUS, PARAGRAPH 4(II) OF THE ORDER IS NOT APPLICABLE. AS PER PAGE 31/AR: 12) THE COMPANY IS A SINGLE SEGMENT COMPANY IN THE BUSINESS OF MARKET RESEARCH AND MANAGEMENT CONSULTANCY. NO FURTHER DISCLOSURES ARE REQUIRED UNDER AS - 17, OTHER THAN THO SE ALREADY PROVIDED IN THE FINANCIAL STATEMENTS . AS PER THE WEBSITE HTTP://WWW/CYBERMEDIA.CO.IN/STATIC/PRODUCTS , THE COMPANY HAS FOLLOWING PRODUCTS SINCE LONG TIME AGO: PRODUCTS: WHEN CYBER MEDIA L AUNCHED ITS FIRST PRODUCT IN 1982, DATAQUEST, A PRINT MAGAZINE ON COMPUTERS (WHICH WAS BARELY A $ 20 MILLION INDUSTRY THOSE DAYS) AND THE FIRST COMPUTER MAGAZINE, IT WAS WITH A CLEAR FOCUS WHICH WAS TO EDUCATE INDIA ABOUT TECHNOLOGY AND FACILITATE COMPUTER USERS TO LEVERAGE INFORMATION TECHNOLOGY TO BRING ABOUT PROGRESS WITHIN THE COUNTRY. DATAQUEST COMPLETES 3 DECADES THIS YEAR AND CONTINUES TO MAINTAIN SIMILAR OBJECTIVES. THOUGH THESE 3 DECADES, CYBERMEDIA HAS LAUNCHED NUMEROUS MEDIA PROPERTIES FOR THE B2B COMMUNITIES WHICH HAS MADE IT THE LARGEST SPECIALIZED MEDIA HOUSE IN THE COUNTRY. TODAY ITS OFFERINGS SPAN FROM ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 10 OF 11 MULTIPLE PRODUCTS FOR THE INFORMATION TECHNOLOGY SECTOR TO THE BIOTECHNOLOGY SECTOR, THE TELECOM SECTOR, THE OUTSOURCING SPACE THE ENTREPR ENEURS COMMUNITY AND MORE. CYBERMEDIA TODAY HAS 12 PRINT PROPERTIES, 30 ONLINE PROPERTIES AND DOES MORE THAN 150 EVENTS (IN VARIOUS FORMATS) FOR THE SPECIALIZED SECTOR. BESIDES INDIA CYBERMEDIA ALSO OPERATES IN THE FAR EAST THROUGH ITS SINGAPORE OPERATIO NS AND IN NORTH AMERICA ITS CUMULATIVE AUDIENCE REACH ACROSS ALL ITS PROPERTIES AND GEOGRAPHIES IS 1.8 MILLION. 6.1. A PERUSAL OF THE ABOVE SHOWS THAT IDC IS PRIMARILY DEALING WITH RESEARCH SURVEY SERVICES AND PRODUCTS. IT ALSO DEMONSTRATES THAT CYBER INDIA LTD. H AS LAUNCHED NUMEROUS MEDIA PROPERTIES FOR THE B2B COMMUNITIES WHICH HAS MADE IT THE LARGEST SPECIALIZED MEDIA HOUSE IN THE COUNTRY. THE OTHER FUNCTIONS PERFORMED BY IDC AND THE PROPERTIES HELD BY IDC DEMONSTRATE THAT THE FUNCTIONAL PROFILE IS TOTALLY DIFFERENT FROM THE FUNCTIONAL PROFILE OF THE ASSESSEE, WHICH IS IN THE ACTIVITY OF PROVIDING INVESTMENT ADVISORY SERVICES TO ITS A.E. IN VIEW OF THE ABOVE, WE ARE INCLINED TO UPHOLD THE ORDER OF THE TPO AS UPHELD BY THE DRP AND REJECT THIS CLAIM OF THE ASSESSEE. 6.2. COMING TO THE COORDINATE BENCH DECISIONS, WE FIND THAT THESE FACTS WERE NOT PLACED BEFORE THE BENCH. THE TPO ACCEPTING IDC AS A COMPARABLE FOR THE SUBSEQUENT AY, DOES NOT PERSUADE US TO COME TO A CONCLUSION THAT THE FUNCTIONAL PROFILE OF IDC IS SAME AS THAT OF THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY. HENCE WE REJECT GROUND NO.6 OF THE ASSESSEE BY HOLDING THAT THE TPO WAS RIGHT IN REJECTING M/S CYBER INDIA RESEARCH LTD. N OW KNOWN AS IDC AS A COMPARABLE. 7. ON GROUND NO.10 BOTH THE PARTIES AGREED THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE AO WITH A SPECIFIC DIRECTION THAT BOTH THE INCOME ARISING OUT OF REIMBURSEMENT OF EXPENSES AND THE RELATED EXPENDITURE SHOULD BOTH B E CONSIDERED WHILE COMPUTING THE PROFIT LEVEL INDICATOR (PLI). IF THE COST INCURRED BY ITA NO. 1998/DEL/2014 AY 2009 - 10 ACTIS ADVISERS PVT.LTD., NEW DELHI PAGE 11 OF 11 THE ASSESSEE IS O N L Y REIMBURSED, THERE WOULD BE NO IMPACT ON PLI . IN THE RESULT THIS GROUND IS SET ASIDE TO THE FILE OF AO. 8. GROUND NO.11 IS ON THE ISSUE OF THE TPO NOT PROVIDING THE BENEFIT IN COST + 5% RANGE MENTIONED IN THE PRO VISO TO S.92C(2) OF THE ACT WHILE COMPUTING THE ALP. AS THIS IS A STATUTORY PROVISION THE TPO IS DIRECTED TO PROVIDE THE BENEFIT OF + 5% RANGE TO THE ASSESSEE. IN THE RESULT THIS GROUND IS ALLOWED. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 1 7 T H OCTOBER ,2014. S D / - S D / - (C.M. GARG) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 1 7 T H O C T O B E R , ,2014 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR
Mehul