SIGULER GUFF INDIA ADVISERS P.LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 403/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1257 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 16-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PORUS KAIKA
• Keywords: Business income; Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 403/MUM/2015 (ASSESSMENT YEAR: 2010-11) M/S. SIGULER GU FF INDIA VS. DCIT, CIRCLE (3)(3) ADVISERS P VT . LTD. SUITE F8B, GRAND HAYATT PLAZA, SANTACRUS (E) MUMBAI 400055 AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 PAN AAMCS7072F APPELLANT RESPONDENT APPELLANT BY: SHRI PORUS KAIKA & SHRI DIVESH CHAWLA RESPONDENT BY: SHRI ARVIND KUMAR DATE OF HEARING: 12.04.2017 DATE OF PRONOUNCEMENT: 21.04.2017 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 15, MUMBAI DATED 31.10.2014 FOR A.Y. 2010-11. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING INVESTMENT ADVISORY SERVICES, FILED ITS RETURN OF I NCOME FOR A.Y. 2010-11 DECLARING INCOME OF ` 70,19,150/-. THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (I N SHORT 'THE ACT') AND THE CASE WAS TAKEN UP FOR SCRUTINY. IN THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED FR OM THE T.P. STUDY FOR THE YEAR UNDER CONSIDERATION, THAT THE ASSESSEE EAR NS REMUNERATION OF COST PLUS 15% MARK UP FOR PROVISION OF INVESTMENT ADVISO RY SERVICES, INTER ALIA, TO ITS PARENT COMPANY, SIGULER GUFF GLOBAL LLC. ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 2 2.2 THE AO OBSERVED THAT THE ASSESSEE IN ITS T.P. S TUDY HAS ADOPTED TNMM AS THE MOST APPROPRIATE METHOD (MAM) AND SELEC TED THE FOLLOWING COMPARABLES FOR JUSTIFICATION OF THE ARMS LENGTH PR ICE (ALP) OF ITS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AE): - SR. NO. NAME OF THE COMPANY WEIGHTED AVERAGE OPERATING MARGIN ON OPERATING COSTS (%) 2010 1 FUTURE CAPITAL HOLDING LTD. 5.52 2 FUTURE CAPITAL INVESTMENT ADVISORS LTD. 20.35 3 ICRA MANAGEMENT CONSULTING SERVICES LTD. 0.71 4 ICRA ONLINE LIMITED 32.89 5 IDC INDIA LIMITED 12.72 6 INFORMED TECHNOLOGIES LIMITED 11.62 ARITHMETIC MEAN 13.97 THE ASSESSEES MARGIN @15% BEING HIGHER THAN THOSE OF THE COMPARABLE AT 13.97%, IT ASSUMED ITS INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH. 2.3 THE AO ON EXAMINATION OF THE ASSESSEES T.P. ST UDY WAS OF THE VIEW THAT THE COMPARABILITY ANALYSIS WAS DEFICIENT ON CE RTAIN COUNTS AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE CALLING FOR CER TAIN DETAILS, INTER ALIA, REGARDING THE CHOICE OF COMPARABLES ADOPTED BY IT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO ADOPTED THE FOL LOWING THREE COMPARABLES, THEREBY REJECTING ALL COMPARABLES ADOP TED BY THE ASSESSEE EXCEPT ONE AND INCLUDING TWO NEW COMPARABLES CHOSEN BY HIM: - SR. NO. NAME OF THE COMPANY OP/OC 1 MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. 97.89 2 FUTURE CAPITAL INVESTMENT ADVISORS LTD. 15.71 3 INTEGRATED CAPITAL SERVICES LTD. 69.31 ARITHMETIC MEAN 60.97 ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 3 2.4 THE AO, THEN ADOPTING THE MARGIN OF THE THREE C OMPARABLES AS PER HIS CHOICE @60.97%, MADE A T.P. ADJUSTMENT OF ` 1,90,93,859/- UNDER SECTION 92C(3) OF THE ACT TO THE ALP OF INTERNATIONAL TRANS ACTIONS OF THE ASSESSEE IN RESPECT OF PROVISIONS OF INVESTMENT ADVISORY SERVIC ES. THE ASSESSMENT WAS ACCORDINGLY COMPLETED UNDER SECTION 143(3) OF THE A CT VIDE ORDER DATED 04.03.2013, WHEREIN THE INCOME OF THE ASSESSEE UNDE R NORMAL PROVISIONS WAS DETERMINED AT ` 2,61,13,010/-; IN VIEW OF THE T.P. ADJUSTMENT UNDER SECTION 92C(3) OF THE ACT AMOUNTING TO ` 1,90,83,859/-. 3. AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 04.03.20 13 FOR A.Y. 2010-11, THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A)-15, MUMBAI, WHICH WAS DISMISSED VIDE THE IMPUGNED ORDER DATED 3 1.10.2014. 4. AGGRIEVED BY THE ORDER OF THE CIT(A)-15, MUMBAI DAT ED 31.10.2014 FOR A.Y. 2010-11 DISMISSING ITS APPEAL THE ASSESSEE HAS PREFERRED THIS APPEAL RAISING THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) - 15 ('THE LEA RNED CIT(A)'), ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISS IONER OF INCOME TAX, CIRCLE 3(3) ('THE LEARNED AO'), OF INCLUDING TWO ADDITIONAL COMPARABLES, INTEGRATED CA PITAL SERVICES LTD. AND MOTILAL OSWAI INVESTMENT ADVISORS PVT. LTD. ON AN ARBITRARY BASIS WITHOUT UNDERTAKING A SEARCH PROCESS, WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE APPELL ANT; AND REJECTING CERTAIN COMPANIES ENGAGED IN SIMILAR LINE OF BUSINESS AS THAT OF THE APPELLANT AND WHICH WERE SE LECTED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT, 2. FOR DETERMINING THE ARM'S LENGTH PRICE OF PROVIS ION OF INVESTMENT ADVISORY SERVICES AND THEREBY MAKING AN ADJUSTMENT OF RS.1,90,93,859 TO THE SAID INTERNATIONAL TRANSACTIO N OF THE APPELLANT. THE APPELLANT PRAYS THAT THE AFORESAID ADJUSTMENT BE DELETED. 3. THE LEARNED AO/CIT(A) FAILED TO UNDERSTAND AND A PPRECIATE THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED BY THE APPELLANT AND ITS AES, THEREBY COMPARING COMPANIES ENGAGED IN MERCHANT BANKING, INVESTMENT BANKING, FUND MANAGEME NT, FINANCIAL RESTRUCTURING AND DEBT SYNDICATION ETC. W ITH THE APPELLANT, 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO ERRED IN NOT ACCEPTING THE ECONOMIC ANAL YSIS ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 4 UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME-TAX ACT, 1961 ('THE ACT') READ WITH THE INCOME-TAX RULES, 1962 ('THE RULES'). THE LEARNED AO ERRED, IN LAW AND IN FACTS, BY DETERMINING THE ARM'S LENGTH MARGIN/ PRIC E BY USING DATA FOR FINANCIAL YEAR 2009-10 TO THE EXCLUSION OF PRIOR YEARS' DATA [AS CONTEMPLATED UNDER RULE 1OB(4) OF THE RULE S] WHICH WAS CONSIDERED BY THE APPELLANT IN THE TRANSFER PRI CING DOCUMENTATION. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO ERRED IN HOLDING THAT THE PRICE CHARGED BY THE APPELLANT TOWARDS PROVISION OF INVESTMENT ADVISORY SERVICES WAS NOT DETERMINED IN ACCORDANCE WITH PROVISIONS OF SEC TIONS 92C(1) AND (2) OF THE ACT AND CONSEQUENTLY NOT APPRECIATIN G THE FACT THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE CASE. 6. THE LEARNED AO/CIT(A) GROSSLY ERRED IN DISREGARD ING THE PRINCIPLES LAID DOWN BY THE HONBLE JURISDICTIONAL INCOME-TAX APPELLATE TRIBUNAL IN SELECTING COMPARABLE IN THE C ASE OF INVESTMENT ADVISORY SERVICES. 7. THE LEARNED AO / CIT(A) ERRED IN CONSIDERING COM PANIES HAVING ABNORMALLY HIGH PROFIT MARGIN AS COMPARABLE TO THE APPELLANT. 5.1 IN THE COURSE OF PROCEEDINGS BEFORE US, THE LEA RNED SENIOR COUNSEL FOR THE ASSESSEE SUBMITS THAT IN THIS APPEAL THE AS SESSEE WOULD BE MAINLY URGING GROUND NO. 1CHALLENGING: - (A) THE INCLUSION OF THE FOLLOWING TWO COMPANIES AS COMPARABLES BY THE AO: (I) MOTILAL OSWAL INVESTMENT ADVISORS P. LTD. (II) INTEGRATED CAPITAL SERVICES LTD. (B) THE EXCLUSION OF THE FOLLOWING TWO COMPANIES FR OM THE ASSESSEES LIST OF COMPARABLES BY THE AO: (I) IDC INDIA LIMITED (II) ICRA MANAGEMENT CONSULTING SERVICES. 5.1.2 IN RESPECT OF THE OTHER GROUNDS 2 TO 7 (SUPRA ) IT WAS SUBMITTED THAT, THOUGH THE SAME HAVE BEEN RAISED, THEY ARE NOT BEIN G PRESSED BEFORE THE BENCH. 6.1 THE ASSESSEE COMPANY WAS SET UP ON 30.12.2008 A S A SUBSIDIARY OF SIGULER GUFF LLC TO PROVIDE INVESTMENT RESEARCH INF ORMATION, DUE DILIGENCE AND OTHER AUXILIARY ADVISORY/FINANCIAL SERVICES IN RESPECT OF POTENTIAL ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 5 INVESTMENT OPPORTUNITIES IN INDIA. IT HAS ENTERED I NTO A SUB-ADVISORY SERVICE AGREEMENT WITH SIGULER GUFF LLC FOR PROVIDING SUCH SERVICES. BEFORE US, THE LEARNED A.R. OF THE ASSESSEE SUBMITS THAT WHILE SEL ECTING COMPARABLES THE ASSESSEE, AFTER A SCIENTIFIC AND QUALITATIVE ANALYS IS, HAS MAINLY SELECTED COMPANIES WHICH WERE ENGAGED IN THE RENDERING OF SE RVICES SIMILAR TO CORPORATE ADVISORY SERVICES, STRATEGIC ADVISORY SER VICES, ETC. THE ASSESSEE HAS SPECIFICALLY EXCLUDED COMPANIES WHICH ARE RENDE RING SERVICES AS MERCHANT BANKERS REGISTERED WITH SEBI, ASSET MANAGE MENT COMPANIES, ETC. FOR THE REASON THAT THEIR FUNCTIONAL RISK PROFILE I S AT WIDE VARIANCE WITH THAT OF THE ASSESSEE, WHICH MERELY PROVIDES NON-BINDING ADVISORY SERVICES TO ITS AE. IT IS SUBMITTED THAT THE AO HAS REJECTED ALL BU T ONE OF THE COMPARABLE COMPANIES SELECTED IN THE ASSESSEES T.P. STUDY (SU PRA) AND INCLUDED TWO OF HIS OWN COMPARABLES (SUPRA) WITHOUT SPECIFYING THE METHOD AND PROCESS BY WHICH HE HAS UNDERTAKEN THE SEARCH PROCESS FOR IDEN TIFYING COMPARABLE COMPANIES. 6.2 IN THE ORDER OF ASSESSMENT, AS PER THE SHOW CAU SE NOTICE ISSUED, THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY, INTE R ALIA, FIVE OF THE SIX COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE, WHICH INCLUDES; (I) IDC INDIA LIMITED, AND (2) ICR MANAGEMENT CONSULTANCY SERVICE S LTD. SHOULD NOT BE EXCLUDED FROM THE LIST OF COMPARABLES AND WHY TWO C OMPANIES OF THE AOS CHOICE NAMELY; (I) MOTILAL OSWAL INVESTMENT ADVISOR S P. LTD. AND (II) INTEGRATED CAPITAL SERVICES LTD. BE NOT INCLUDED IN THE LIST O F COMPARABLES. AFTER CONSIDERING THE ASSESSEES REPLY, THE AO REJECTED T HE ASSESSEES CONTENTIONS AND PROCEEDED TO INCLUDE IN THE LIST OF COMPARABLES THE TWO COMPANIES OF HIS CHOICE NAMELY; M/S. MOTILAL OSWAL INVESTMENT ADVISO RS P. LTD. AND M/S. INTEGRATED CAPITAL SERVICES LTD. THE RELEVANT FACTS , ARGUMENTS, ETC. OF BOTH PARTIES IN RESPECT OF THE AFORESAID FOUR COMPARABLE COMPANIES, WHICH ARE THE DISPUTE BEFORE US, ARE CONSIDERED HEREUNDER IN SERI ATUM. A. ASSESSEES PRAYER FOR EXCLUSION OF COMPARABLES I NCLUDED BY AO 7. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. 7.1 THIS COMPANY HAS BEEN INCLUDED IN THE LIST OF COMPARABLES BY THE TPO AS HE OBSERVED THAT ITS INCOME IS ONLY FROM ADV ISORY SERVICES IN THE ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 6 FIELD OF INVESTMENT JUST LIKE THE ASSESSEE. THE IN CLUSION OF THIS COMPANY AS A COMPARABLE WAS UPHELD BY THE CIT(A). ACCORDING TO THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE, WHILE THE ASSESSEE IN THE CASE ON HAND, WHO IS PROVIDING INVESTMENT ADVISORY SERVICES FOR INVESTME NTS IN INDIA TO ITS AE, THIS COMPANYS CORE COMPETENCE IS IN THE FIELD OF M ERCHANT BANKING REQUIRING SEBI REGISTRATION. REFERRING TO THE ANNUA L REPORT FOR F.Y. 2009- 10 AND DIRECTORS REPORT (PLACED AT PAGES 522 TO 545 OF PAPER BOOK) IT CAN BE SEEN THAT THIS COMPANY DERIVES ITS BUSINESS INCO ME FROM FOUR DIFFERENT BUSINESS VERTICALS, I.E. EQUITY CAPITAL MARKETS, ME RGERS AND ACQUISITIONS, PRIVATE EQUITY SYNDICATIONS AND STRUCTURED DEBT. IT ALSO PROVIDES ADVICE ON CROSS BORDER ACQUISITIONS, COMPREHENSIVE INVESTMENT BANKING SOLUTIONS AND TRANSACTION EXPERTISE COVERING PRIVATE PLACEMEN T OF EQUITY, DEBT AND CONVERTIBLE INSTRUMENTS IN INTERNATIONAL AND DOMEST IC CAPITAL MARKETS, MONITORING AND ADVISING ON MERGERS AND ACQUISITION AS PROFESSIONAL AND RESTRUCTURING ADVISORY AND IMPLEMENTATIONS. IT IS A LSO INVOLVED IN VARIOUS PROFESSIONAL ACTIVITIES OF MERCHANT BANKING LIKE PR OVIDING CAPITAL TO COMPANIES IN THE FORM OF SHARE OWNERSHIP INSTEAD OF LOANS, PROVIDING ADVISORY ON CORPORATE MATTERS TO COMPANIES INCLUDIN G PORTFOLIO MANAGEMENT, AUDIT SYNDICATION, COUNSELLING ON M&A E TC. IT IS CONTENDED THAT THE ENTIRE GAMUT OF FUNCTIONS AND ACTIVITIES C ONDUCTED BY THIS COMPANY ARE CERTAINLY FAR WIDER AND FUNCTIONALLY DI FFERENT FROM THE INVESTMENT ADVISORY SERVICES PROVIDED BY THE ASSESS EE IN THE CASE ON HAND; WHERE THE MAIN FUNCTION IS TO GIVE ADVICE TO ITS CL IENTS FOR MAKING INVESTMENT IN DIVERSIFIED FIELDS ON A COST PLUS 15% MARK UP. THUS IT IS CLEAR THAT THE WIDE GAMUT OF FUNCTIONS AND TRANSACT IONS PROVIDED BY MOTILAL OSWAL INVESTMENT ADVISOR P. LTD. IS FAR WID ER AND DIFFERENT FROM THAT OF THE ASSESSEE IN THE CASE ON HAND AND RENDER IT NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. IT IS CONTENDED THAT MERE CLASSIFICATION OF REVENUE AS ADVISORY FEES WILL NO T PLACE THE COMPANY AS COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND, IN THE ABSENCE OF FUNCTIONAL AND TRANSACTIONAL SIMILARITY. IT WAS SUB MITTED BY THE LEARNED SENIOR COUNSEL THAT THE FOLLOWING JUDICIAL PRONOUNC EMENTS OF THE HON'BLE COURTS/TRIBUNALS, INTER ALIA, HAVE HELD THAT MOTILA L OSWAL INVESTMENT ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 7 ADVISORS P. LTD. CANNOT BE HELD TO BE A COMPARABLE COMPANY WITH THOSE PROVIDING INVESTMENT ADVISORY SERVICES: - (I) TEMASEK HOLDING ADVISORS (I) P. LTD. VS. DCIT ( ITA NO. 776/MUM/2013 DATED 25.02.2016 FOR A.Y. 2010-11) (II) CARLYLE INDIA ADVISORS P. LTD. VS. ADDL. CIT ( 43 TAXMANN.COM 184) (MUMBAI TRIB) (III) CARLYLE INDIA ADVISORS P. LTD. VS. DCIT (49 T AXMANN.COM 476) (MUMBAI TRIB) (IV) Q INDIA INVESTMENT ADVISORS PVT. LTD. VS. DCIT (ITA NO. 923/MUM/2015 FOR A.Y. 2010-11) (V) NVP VENTURE CAPITAL INDIA PVT. LTD. VS. DCIT (I TA NO. 1564/MUM2015 FOR A.Y. 2010-11) (VI) BAIN CAPITAL ADVISORS (I) P. LTD. VS DCIT (ITA NO. 413/MUM/2015 FOR A.Y. 2010-11) 7.2 PER CONTRA, THE LEARNED D.R. FOR REVENUE SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW IN INCLUDING MOTILAL OSWAL INVEST MENT ADVISORS P. LTD. IN THE FINAL SET OF COMPARABLES. 7.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED (SUPRA). THIS COMPANY, MOTILAL OSWAL INVESTME NT ADVISORS P. LTD. WAS INCLUDED BY THE AO IN THE LIST OF COMPARABLES ON TH E GROUND THAT IT IS ENGAGED IN ADVISORY SERVICES LIKE THE ASSESSEE. ON A PERUSAL OF THE DIRECTORS REPORT IT IS SEEN THAT THIS COMPANY DERIV ES ITS BUSINESS INCOME FROM FOUR DIFFERENT BUSINESS VERTICALS, I.E. EQUITY CAPITAL MARKET, M&A, PROFIT EQUITY SYNDICATION AND STRUCTURED DEBT. IT A LSO PROVIDES COMPREHENSIVE INVESTMENT BANKING SOLUTIONS AND TRAN SACTION EXPERTISE IN PRIVATE PLACEMENT OF EQUITY, DEBT AND CONVERTIBLE I NVESTMENTS IN INTERNATIONAL AND DOMESTIC MARKETS, MONITORING OF M ERGERS AND ACQUISITIONS, ETC. ITS CORE COMPETENCE IS IN MERCHA NT BANKING ENCOMPASSING ITS VARIOUS ACTIVITIES LIKE PROVIDING CAPITAL TO COMPANIES IN THE FORM OF SHARE OWNERSHIP INSTEAD OF LOANS, PROVI DES ADVISORY ON CORPORATE MATTERS TO THE COMPANIES IN WHICH THEY IN VEST, ACTIVITIES INCLUDING PORTFOLIO MANAGEMENT, CREDIT SYNDICATION, COUNSELLING ON M&A, ETC. FROM THE ABOVE, IT IS EVIDENT THAT THE GAMUT O F FUNCTIONS AND ACTIVITIES ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 8 PROVIDED AND CARRIED OUT BY MOTILAL OSWAL INVESTMEN T AND ADVISORY PVT. LTD. ARE DEFINITELY FAR WIDER AND FUNCTIONALLY VERY DIFFERENT FROM INVESTMENT ADVISORY SERVICES PROVIDED BY THE ASSESSEE IN THE C ASE ON HAND WHOSE CORE COMPETENCE IS ONLY TO GIVE ADVICE FOR MAKING INVEST MENTS IN DIVERSIFIED FIELDS. IN THE CASE OF CARLYLE INDIA ADVISORS (P) L TD. (SUPRA) A COORDINATE BENCH OF THIS TRIBUNAL HAS HELD THAT MERCHANT BANKI NG FUNCTIONS ARE ENTIRELY DIFFERENT FROM INVESTMENT ADVISORY SERVICE S; WHICH DECISION HAS BEEN UPHELD BY THE HON'BLE HIGH COURT OF BOMBAY. 7.3.2 WE FIND THAT SIMILAR VIEW WAS TAKEN BY A COOR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TEMASEK HOLDINGS ADVISORS ( I) P. LTD. IN ITA NO. 776/MUM/2015 DATED 25.02.2016 ALSO FOR A.Y. 2010-11 WHEREIN WHILE EXCLUDING MOTILAL OSWAL INVESTMENT ADVISORY PVT. LT D. AT PARA 25 THEREOF HELD THAT ITS MERCHANT BANKING FUNCTION BEING ENTIR ELY DIFFERENT FROM INVESTMENT ADVISORY SERVICES IT IS TO BE EXCLUDED F ROM THE LIST OF COMPARABLE TO ASSESSEES OFFERING ONLY INVESTMENT A DVISORY SERVICES. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE CASE OF TEMASEK HOLDING ADVISORY (I) PVT. LTD. (SUPRA) WHIC H IS ALSO RENDERED FOR A.Y. 2010-11, THE YEAR UNDER CONSIDERATION IN THE C ASE ON HAND, WE DIRECT THE AO TO EXCLUDE MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. FROM THE LIST OF COMPARABLES TO THE ASSESSEE IN THE CASE ON HAND WHO IS ONLY OFFERING NON BINDING INVESTMENT ADVISORY SERVICES. 8. INTEGRATED CAPITAL SERVICES LTD. 8.1 THE COMPANY WAS SELECTED AND INCLUDED IN THE F INAL SET OF COMPARABLES BY THE AO ON THE GROUND THAT IT IS ENGA GED IN PROVIDING CONSULTANCY AND ADVISORY SERVICES. ACCORDING TO THE LEARNED SENIOR COUNSEL, COORDINATE BENCHES IN THE CASES OF Q INDIA INVESTMENT ADVISORS PVT. LTD. IN ITA NO. 923/MUM/2015 DATED 24.04.2015 AND TEMASEK HOLDING ADVISORS (I) P. LTD. IN ITA NO. 776/MUM/201 5 DATED 24.02.2016, BOTH RENDERED FOR A.Y. 2010-11, THE YEAR UNDER CONS IDERATION IN THE CASE ON HAND, EXCLUDED THIS COMPANY FROM THE LIST OF COM PARABLES AS IT WAS HELD TO BE FUNCTIONALLY DIFFERENT SINCE IT PROVIDES CONSULTANCY SERVICES IN THE FIELD OF RECONSTRUCTION OF BUSINESS, M&A, ETC. WHICH CANNOT BE HELD TO ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 9 BE FUNCTIONALLY COMPARABLE WITH THE ASSESSEE IN THE CASE ON HAND, WHO PROVIDES ONLY NON-BINDING INVESTMENT ADVISORY SERVI CES. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THIS COMPANY BE EXCLUDE D FROM THE LIST OF COMPARABLES TO THE ASSESSEE IN THE CASE ON HAND. 8.2 PER CONTRA, THE LEARNED D.R. FOR REVENUE SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW IN INCLUDING THIS COMPANY IN THE FINAL LIST OF COMPARABLES TO THE ASSESSEE IN THE CASE ON HAND. 8.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE COORDINATE BENCH OF THIS TR IBUNAL IN THE CASE OF Q INDIA INVESTMENT ADVISORS P. LTD. IN ITS ORDER IN I TA NO. 923/MUM/2015 DATED 24.04.2015 FOR A.Y. 2010-11 (I.E. THE YEAR UN DER CONSIDERATION IN THE CASE ON HAND) OBSERVING THAT M/S. INTEGRATED CAPITA L SERVICES LTD. PROVIDES CONSULTANCY SERVICES IN THE FIELD OF RECON STRUCTION OF BUSINESS, M&A, ETC. IT WAS FUNCTIONALLY DIFFERENT FROM A COMP ANY PROVIDING ONLY NON- BINDING INVESTMENT ADVISORY SERVICES AND THEREFORE EXCLUDED IT FROM THE LIST OF COMPARABLES. AT PARAS 10 TO 12 OF ITS ORDER THE COORDINATE BENCH HELD AS UNDER: - 10. FROM THE RECORD WE FOUND THAT THE ASSESSEE IS E NGAGED IN PROVIDING NON-BINDING INVESTMENT ADVISORY SUPPORT S ERVICES TO ITS AE PRIMARILY WITH RESPECT TO THE INDIAN MARKET. SERVIC ES RENDERED BY ASSESSEE ARE IN THE NATURE OF SUPPORT SERVICES AND ARE RENDERED IN ACCORDANCE WITH SCOPE AND REQUIREMENTS AS COMMUNICA TED BY ITS AE. HOWEVER, M/S INTEGRATED CAPITAL SERVICES LTD. IS FO UND TO BE ENGAGED IN RENDERING ADVISORY AND CONSULTANCY SERVICES IN T HE AREA OF MERGER ACQUISITION AND RECONSTRUCTION OF BUSINESS. AS PER ITS DIRECTORS REPORT FOR THE YEAR ENDING 31-3-2010 RELEVANT TO ASSESSMEN T YEAR 2010- 2011 UNDER CONSIDERATION, IT WAS RENDERING ADVISORY AND CONSULTING SERVICES IN THE AREA OF THE MERGER ACQUISITION AND RECONSTRUCTION OF BUSINESS. NO SEGMENTAL ACCOUNTS WERE THERE SO AS TO FIND OUT MARGIN IN THE ADVISORY SERVICES. 11. LD. AR ALSO DREW OUR ATTENTION TO THE ERRONEOUS COMPUTATION OF NET COST PLUS MARGIN OF M/S INTEGRATED CAPITAL SERV ICES LTD. AT 69.31%, WHICH WAS RELATED TO THE ASSESSMENT YEAR 20 09-2010. OUR ATTENTION WAS ALSO INVITED TO LETTER ADDRESSED TO T HE DCIT, DATED 9-12- 2014, WHEREIN ASSESSEE HAS HIGHLIGHTED THIS MISTAKE . AS PER THIS LETTER, MARGIN OF ICSL WAS 69.31% IN THE ASSESSMENT YEAR 2009- 2010, WHEREAS THERE WAS NEGATIVE MARGIN OF 4.01% IN THE ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 10 ASSESSMENT YEAR 2010-2011 UNDER CONSIDERATION. IT W AS FURTHER SUBMITTED THAT WHILE COMPUTING THE ARMS LENGTH MARG IN, THE AO HAS INDEPENDENTLY CONSIDERED THE WEIGHTED MARGIN OF FUT URE CAPITAL INVESTMENT ADVISORY LTD. (I.E. 20.35%) INSTEAD OF S INGLE YEAR MARGIN OF 15.71%. 12. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ICSL IS FUNCTIONALLY DISSIMILAR, THEREFORE, IT SHOULD BE EX CLUDED FROM THE LIST OF COMPARABLES....... 8.3.2 WE FIND THAT THE COORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF TEMASEK HOLDINGS ADVISORS (I) P. LTD. IN ITS ORDER IN ITA NO. 776/MUM/2015 DATED 25.02.2016 FOR A.Y. 2010-11, FOL LOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF Q INDIA INVE STMENT ADVISORS P. LTD. (SUPRA), HAS EXCLUDED INTEGRATED CAPITAL SERVICES L TD. FROM THE FINAL LIST OF COMPARABLES, HOLDING IT TO BE FUNCTIONALLY DIFFEREN T FROM A COMPANY OFFERING INVESTMENT ADVISORY SERVICES. 8.3.3 RESPECTFULLY FOLLOWING THE AFORESAID DECISION S OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASES OF M/S. Q INDIA INVESTMENT ADVISORS P. LTD. IN ITA NO. 923/MUM/2015 DATED 24.02.2015 AND M /S. TEMASEK HOLDING ADVISORS (I) P. LTD. IN ITA NO. 776/MUM/201 5 DATED 24.02.2016, BOTH RENDERED FOR A.Y. 2010-11 (I.E. THE ASSESSMENT YEAR UNDER CONSIDERATION IN THE CASE ON HAND) WE DIRECT THE AO TO EXCLUDE M/S. INTEGRATED CAPITAL SERVICES LTD. FROM THE FINAL LIS T OF COMPARABLES; AS IT BEING ENGAGED IN PROVIDING CONSULTANCY SERVICES IN THE FIELD OF RECONSTRUCTION OF BUSINESS, M&A, ETC. IT IS FUNCTIO NALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND WHO IS ENGAGED IN THE BUSINESS OF NON- BINDING INVESTMENT ADVISORY SERVICES. B. ASSESSEES PRAYER FOR INCLUSION ON COMPARABLES R EJECTED BY AO 9. IDC INDIA LIMITED 9.1 THIS COMPANY WAS ONE OF THE COMPARABLES CHOSEN/ ADOPTED BY THE ASSESSEE AS PER ITS T.P. STUDY. THE AO REJECTED THI S COMPANY, EXCLUDING IT FROM THE FINAL LIST OF COMPARABLES, ON THE GROUND T HAT IT WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE; BEING ENGAGED IN RESEA RCH, SURVEY AND MANAGEMENT CONSULTING SERVICES THAT ARE NOT AKIN TO THE INVESTMENT ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 11 ADVISORY SERVICES PROVIDED BY THE ASSESSEE IN THE C ASE ON HAND. ON APPEAL, THE LEARNED CIT(A) UPHELD THE AOS ORDER. 9.2.1 THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE, EXPLAINING THE PROFILE OF THIS COMPANY, M/S. IDC INDIA LIMITED, SUBMITTED THA T IT IS PRIMARILY ENGAGED IN THE BUSINESS OF MARKET RESEARCH AND SURV EY SERVICES AND WHILE RENDERING SUCH INVESTMENT ADVISORY SERVICES IT ANAL YSES FINANCIAL DATA OF POTENTIAL CLIENTS, ANALYSING MARKET CONDITIONS, CON DUCTING RESEARCH ON VARIOUS SECTORS, MARKETS, COMPANIES, ETC. IT WAS SU BMITTED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CARLYLE IN DIA ADVISORS PVT. LTD. (2013) (32 TAXMANN.COM 33) (BOMBAY) HAD UPHELD THE INCLUSION OF M/S. IDC INDIA LIMITED AS FUNCTIONALLY COMPARABLE TO THE FUNCTIONS PERFORMED BY AN INVESTMENT ADVISORY SERVICE PROVIDER. RELIANC E WAS ALSO PLACED ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF GENERAL ATLANTIC P. LTD. (2013) 32 TAXMANN.COM 178 (MUM-TRIB) AND TEMASEK HO LDING ADVISORS (I) P. LTD. IN ITA NO. 776/MUM/2015 DATED 25.02.2016 FO R A.Y. 2010-11 WHERE THIS COMPANY M/S. IDC INDIA LIMITED WAS HELD TO BE A GOOD COMPARABLE TO COMPANIES RENDERING INVESTMENT ADVISO RY SERVICES. 9.3 PER CONTRA, THE LEARNED D.R. FOR REVENUE SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW IN EXCLUDING THIS COMPANY, M/S. I DC INDIA LIMITED FROM THE FINAL LIST OF COMPARABLES OF THE ASSESSEE IN TH E CASE ON HAND. 9.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED AND RELIED ON. WE FIND THAT THE COORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF TEMASEK HOLDINGS ADVISORS INDIA P. LTD. IN ITA NO. 776/MUM/2015 DATED 25.02.2016 HAS OBSERVED THAT THI S COMPANY, M/S. IDC INDIA LIMITED IS A GOOD COMPARABLE TO THOSE COM PANIES ENGAGED IN INVESTMENT ADVISORY SERVICES SINCE IT IS ALSO ENGAG ED IN ADVISORY AND CONSULTANCY SERVICES FOR THE PURPOSE OF INVESTMENT MADE IN VARIOUS SECTORS. IN COMING TO THIS FINDING, THE COORDINATE BENCH HAS PLACED RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CARLYLE INDIA ADVISORS PVT. LTD. (SUPRA) WHICH HAS UPHELD THE DEC ISION OF THE COORDINATE BENCH IN THE SAME CASE REPORTED IN (2013) 43 TAXMAN N.COM 184 (MUM-TRIB) ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 12 WHEREIN IT WAS HELD THAT THIS COMPANY M/S. IDC INDI A LIMITED IS A GOOD COMPARABLE WITH COMPANIES RENDERING INVESTMENT ADVI SORY SERVICES. THE COORDINATE BENCH IN THE CASE OF TEMASEK HOLDINGS AD VISORS INDIA P. LTD. (SUPRA) RENDERED FOR A.Y. 2010-11; THE ASSESSMENT Y EAR UNDER CONSIDERATION IN THE CASE ON HAND, AT PARA 22 THEREOF HELD AS UND ER: - 22. THIS COMPARABLE THOUGH ACCEPTED BY THE TPO AS A GOOD COMPARABLE, HOWEVER, THE DRP HAS ADDITIONALLY REJEC TED THIS COMPARABLE. IN ASSESSMENT YEAR 2008-09, THE TRIBUNA L HAS HELD TO BE A GOOD COMPARABLE, FIRSTLY, ON THE GROUND THAT THIS COMPANY IS ALSO ENGAGED IN THE ADVISORY AND CONSULTANCY SERVICES FO R THE PURPOSE OF INVESTMENT MADE IN VARIOUS SECTORS AND SECONDLY, IT HAS BEEN FOUND TO BE GOOD COMPARABLE BY THE TPO IN THE ASSESSMENT YEAR 2007-08 AND 2009-10. ONCE COMPANY HAS BEEN HELD TO BE GOOD COMPARABLE CONSISTENTLY FOR THREE YEARS THEN WITHOUT ANY CHANG E IN THE MATERIAL FACTS, IT CANNOT BE HELD THAT THIS COMPARABLE COULD BE REJECTED IN THIS YEAR. MOREOVER, IN THE CASE OF CARLYLE ADVISORY IND IA LTD., ITAT MUMBAI BENCH, REPORTED IN 43 TAXMAN.COM 184, THE TR IBUNAL HELD THAT THIS COMPANY IS A GOOD COMPARABLE WITH THE COM PANIES RENDERING INVESTMENT ADVISORY SERVICES. THIS DECISION OF THE CARLYLE ADVISORS HAVE ALSO UPHELD BY THE HONBLE BOMBAY HIGH COURT. MOREOVER, WE HAVE ALREADY DISCUSSED THE FUNCTIONS PERFORMED BY T HE IDC INDIA LTD WHILE DEALING WITH LD. COUNSELS ARGUMENT THAT FUNC TIONS OF ADVISORY SERVICES ARE QUITE SIMILAR TO THE FUNCTIONS OF THE ASSESSEE AND, THEREFORE, WE ACCEPT THE ASSESSEES CONTENTION THAT THIS COMPARABLE CANNOT BE REJECTED. ACCORDINGLY, SAME IS DIRECTED T O BE INCLUDED IN THE COMPARABILITY LIST. 9.4.2 RESPECTFULLY FOLLOWING THE DECISION OF THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CARLYLE INDIA ADVISORS P. LTD. (2013 ) 32 TAXMAN.COM 33 (BOMBAY) AND THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF CARLYLE INDIA ADVISORS P. LTD. (SUPRA) AND TEMASEK HOLDINGS ADVISORS INDIA P. LTD. FOR A.Y. 2010-11 (SUPRA), WHEREIN THIS COMPANY, M/S . IDC INDIA LIMITED WAS HELD TO BE A GOOD COMPARABLE TO THOSE COMPANIES RENDERING INVESTMENT ADVISORY SERVICES, WE DIRECT THE AO TO I NCLUDE THIS COMPANY M/S. IDC INDIA LIMITED IN THE LIST OF COMPARABLES T O THE ASSESSEE IN THE CASE ON HAND. 10. ICRA MANAGEMENT CONSULTANCY SERVICES LTD. 10.1 AT THE OUTSET THE LEARNED SENIOR COUNSEL FOR T HE ASSESSEE HAD SUBMITTED THAT THE ASSESSEE PRAYED FOR INCLUSION OF THIS COMPANY, M/S. ITA NO. 403/MUM/2015 M/S. SIGULER GUFF INDIA ADVISORS P. LTD. 13 ICRA MANAGEMENT CONSULTANCY SERVICES LTD. IN THE LI ST OF COMPARABLES TO THE ASSESSEE. HOWEVER, IN THE COURSE OF HEARING IT WAS SUBMITTED THAT THE SAME WAS NOT BEING URGED SINCE THE OTHER THREE COMP ANIES DEALT WITH EARLIER WERE COVERED BY JUDICIAL PRONOUNCEMENTS SUC H THAT TWO WERE TO BE EXCLUDED, I.E. M/S. MOTILAL OSWAL INVESTMENT ADVISO RS P. LTD. AND M/S. INTEGRATED CAPITAL SERVICES LTD. AND THE THIRD, I.E . M/S. IDC INDIA LIMITED TO BE INCLUDED FROM THE LIST OF COMPARABLES. THEREF ORE, THE ASSESSEE WOULD FALL WITHIN THE +/- 5% MARGIN AND ITS INTERNATIONAL TRANSACTIONS WITH ITS AE WOULD BE HELD TO BE AT ARMS LENGTH. IN THESE CIRCUM STANCES, SINCE THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S WITH THE ASSESSEE WAS NOT ARGUED BEFORE US, WE HOLD THAT M/S. ICRA MANAGE MENT CONSULTANCY SERVICES LTD. IS NOT TO BE INCLUDED IN THE LIST OF COMPARABLES TO THE ASSESSEE. 11. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2010- 11 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST APRIL, 2017. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 21 ST APRIL, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -15, MUMBAI 4. THE CIT - 3, MUMBAI 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.