BAIN CAPITAL ADVISORS (INDIA) P.LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 413/MUM/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92545 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 16-01-2015
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts
• Section: 92C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI . . , . . , BEFORE SHRI I. P. BANSAL, J M & SHRI R.C.SHARMA , A M ./ ITA NO. 413 / MUM/20 1 5 ( / ASSESSMENT YEAR : 20 10 - 1 1 ) BAIN CAPITAL ADVISORS (INDIA) PRIVATE LIMITED, 215, 2 ND FLOOR, FREE PRESS HOUSE, FREE PRESS JOURNAL MARG, NARIMAN POINT,MUMBAI - 21 VS. DCIT, CIRCLE - 3(3), MUMBAI ./ ./ PAN/GIR NO. : A A BCS 2000 C ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI ARVIND SONDE /REVENUE BY : SHRI N.K.CHAND / DATE OF HEARING : 5 TH MARCH , 201 5 / DATE OF PRONOUNCEMENT 15 TH MAY, 2015 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF DRP, DATED 10 - 10 - 20 1 4 FOR THE ASSESSMENT YEAR 20 10 - 201 1 , IN THE MATTER OF ORDER PASSED U/S. 14 4C ( 5 ) OF THE ACT , WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTE RESOLUTION PANEL ('DRP') ERRED IN UPHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX, OSD 3(2) (' AO') / THE ADDITIONAL COMMISSIONER OF INCOME - TAX, TRANSFER PRICING - 1(3), MUMBAI OF INCLUDING MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE LIMITED AND IDFC INVESTMENT ADVISORS LIMITED AS COMPARABLE COMPANIES FOR DETERMINING THE ARM'S LENGTH PRICE OF PROVISIO N OF INVESTMENT ADVISORY SERVICES AND THEREBY MAKING AN ADJUSTM E NT OF RS. 1O,1O,77,849..TO THE SAID INTERNATIONAL TRANSACTION OF THE APPELLANT. THE APPELLANT PRAYS THAT THE AFORESAID ADJUSTMENT BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE DRP ERRED IN CONFIRMING THE ACTION OF THE AO / TPO IN NOT APPLYING ITA NO.413/15 2 MULTIPLE YEAR DATA FOR COMPARABLE COMPANIES AND USING DATA FOR THE FINANCIAL YEAR 2009 - 10 ALONE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E DRP ERRED IN CONFIRMING THE ACTION OF THE AO / TPO IN CONSIDERING PROVISION FOR BAD / DOUBTFUL DEBTS AS PART OF NON - OPERATING EXPENSES FOR COMPARABLE COMPANIES. THE APPELLANT PRAYS THAT THE LD. AO/ TPO BE DIRECTED TO INCLUDE SUCH PROVISION AS PART OF O PERATING EXPENSES. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY WAS SET UP DURING THE FINANCIAL YEAR 2008 - 09 AS A 99% OWNED SUBSIDIARY OF BAIN CAPITAL MAURITIUS, A MAURITIUS BASED PRIVATE LIMITED L IABILITY COMPANY . THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING INVESTMENT RESEARCH AND ADVISORY SERVICES TO BAIN MAURITIUS, ON A NON - EXCLUSIVE AND NON - BINDING BASIS, IN CONNECTION WITH POTENTIAL INVESTMENT OPPORTUNITIES IN INDIA. DURING THE COURSE OF ASSESSMENT, THE AO MADE REFERENCE TO THE TPO FOR COMPUTATION OF ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION..THE TPO VIDE ORDER DATED 13 - 1 - 2014 REPORTED AN AWKWARD ADJUSTMENT TO THE TUNE OF RS.10,10,77,849/ - IN RESPECT OF VALUE O F INTERNATIONAL TRANSACTION MADE BY ASSESSEE WITH ITS ASSOCIATE ENTERPRISES WITH REGARD TO ARMS LENGTH PRICE. 3. LD. AR CONTENDED THAT THE TPO WAS NOT JUSTIFIED IN INCLUDING MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE LIMITED AND IDFC INVESTMENT ADVISORS L IMITED AS COMPARABLE COMPANIES FOR DETERMINING THE ARMS LENGTH PRICE OF PROVISION OF INVESTMENT ADVISORY SERVICES. LD. AR PLACED ON RECORD ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR 2009 - 2010, WHEREIN THE TRIBUNAL H AS DIRECTED THE AO TO ITA NO.413/15 3 EXCLUDE M/S MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD FROM THE LIST OF COMPARABLES AND TO RECOMPUTE THE ADJUSTMENT TO BE MADE U/S.92C(1) OF THE I.T.ACT. 4. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CON TENDED THAT FUNCTIONS OF THE ASSESSEE ARE INVESTMENT, RESEARCH AND ADVISORY WHICH INVOLVES RESEARCH INTO FINANCE BUSINESS AND OTHER RELATED ACTIVITIES OF THE CORPORATE WHICH ARE NECESSARY TO MA KE INVESTMENT RELATED DECISIONS WHICH ARE S IMILAR TO THE FUNCTI ONS OF M/S MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD . HE FURTHER CONTENDED THAT THESE ACTIVITIES ALSO INVOLVED OF RESEARCH INTO THE FINANCE AND BUSINESS ACTIVITIES AND CORPORATE AS IN THE CASE OF INVESTMENT RESEARCH AND ADVISORY. THUS, AS PER THE LD. CITDR , THE ACTIVITIES OF THE TWO COMPANIES ARE COMPARABLE AND THE TPO AFTER DUE CONSIDERATION HAS TAKEN THE M/S MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD AS SUITABLE COMPARABLE WHILE MAKING ARMS LENGTH ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF THE ASSESSE E. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS , CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2009 - 2010 IN ITA NO.1360/M/2014, VIDE ORDER DATED 5 - 1 - 2015, WHEREIN THE TRIBUNAL HAS DIRECTED FOR EXCLUSION OF M/S MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD FROM THE LIST OF COMPARABLE COMPANIES ON THE PLEA THAT IT WAS ENGAGED IN ITA NO.413/15 4 DIVERSIFIED ACTIVITIE S WHICH ARE NOT FUNCTIONALLY COMPARABLES WITH THE ASSESSEES ACTIVITIES. THE PRECISE OBSERVATION OF THE TRIBUNAL WAS AS UNDER : - 2 . THE GRIEVANCE OF THE ASSESSEE RELATES TO COMPUTATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION IN RESPECT OF A PROVISION OF INVESTMENT ADVISORY SERVICES. 3 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ADJUSTMENT HAS BEEN MADE BY THE AO/TPO BY COMPARING ASSESSEES CASE WITH MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. 4. LD. AR PLACED ON RECORD VARIOUS DECISIONS OF TRIBUNAL, WHEREIN M/S MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. WAS EXCLUDED AS COMPARABLE AFTER HAVING FOLLOWING OBSERVATIONS : - 12. ..THE ONLY DISPUTE IS WHETHER MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD CAN BE CONSIDERED AS A COMPARA BLE FOR 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 MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD IS 72.33%. THE COMPARABLES U SED BY THE TPO THEMSELVES ARE SHOWING EXTREME OPM. A PERUSAL OF THE DIRECTOR S REPORT OF MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD SHOWS THAT DURING THE YEAR UNDER CONSIDERATION, THE SAID COMPANY HAS COMPLETED 23 ASSIGNMENTS SUCCESSFULLY AS AGAINST 14 COMP LETED 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 FACTS THAT THE SAID COMPANY IS ENGAGED I N 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 TAKEOVER, ACQUISITIONS, DISINVESTMENTS ETC. IN THE ABSENCE OF SPECIFIC DATA IT IS NOT POSSIBLE TO MAKE COMPARISON. IT CAN THEREFORE, BE SAFELY SAID THAT THE SAID COMPANY BEING INTO MERCHANT BANKING AND CANNOT BE CONSIDERED AS A COMPARABLE. WE, ACCORDINGLY, DIRECT THE AO NOT TO CONSIDER MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD AS A COMPARABLE FOR DETERMINATION OF ALP. OTHER DECISIONS RELIED UPON BY THE LEARNED AR ARE AS UNDER : - I) TEMASEK HOLDINGS ADVISORS (P) LTD.( ITA NO.4203/M/2012, DATED 30 - 8 - 2013); AND II) ACUMEN FUND ADVISORY SERVICES (I) PVT. LTD .(ITA NO.143/M/14, DATED 4 - 7 - 2014). ITA NO.413/15 5 5 . IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE VARIOUS ORDERS OF THE TRIBUNAL, AS PLACED ON RECORD, WHEREIN CONSISTENTLY MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD HAS BEEN EXCLUDED FROM COMPARABLES ON THE PLEA THAT IT WAS ENGAGED IN DIVERSIFIED ACTIVITIES, WE DIRECT THE AO TO EXCLUDE M/S MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD FROM THE COMPARABLES AND TO RECOMPUTE THE ADJUSTMENT TO BE MADE U/S.92C(1) & 92C OF THE ACT. 5. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DIRECT THE AO TO EXCLUDE M/S MOTILAL OSWAL INVESTMENT ADV ISORS PVT LTD FROM THE LIST OF COMPARABLES AND TO RECOMPUTE THE ADJUSTMENT TO BE MADE U/S.92C(1) OF THE I.T.ACT. 6. WITH REGARD TO EXCLUSION OF IDFC, CONTENTION OF LD. AR WAS THAT IT WAS A PORTFOLIO MANAGER AND REGISTERED WITH SEBI TO CARRY OUT PORTFOLIO M ANAGEMENT SERVICES PURSUANT TO THE SEBI (PORTFOLIO MANAGERS) REGULATIONS, 1993. OUR ATTENTION WAS INVITED TO THE DIRECTORS REPORT OF IDFC, ACCORDING TO WHICH IDFC HYBRID INFRASTRUCTURE PORTFOLIO (HIP) WAS THE FIRST PORTFOLIO OFFERING FOR DOMESTIC RETAIL INVESTORS UNDER THE PMS PLATFORM OF THE COMPANY. THE INVESTMENT OBJECTIVE OF HIP IS TO INVEST IN PERMITTED SECURITIES/INSTRUMENTS ISSUED BY COMPANIES OPERATING IN THE INFRASTRUCTURE SPACE, AND ENDEAVOUR TO ACHIEVE RISK ADJUSTED MEDIUM TO LONG TERM CAPITAL APPRECIATION. THE PROPOSED INVESTMENT STRATEGY WOULD BE TO PROVIDE GROWTH CAPITAL FOR BUSINESS OPPORTUNITIES ESPECIALLY TO MID - SIZED COMPANIES WITH SOUND TRACK RECORD AND REPUTATION AND RIDE THE GROWTH CURVE WITH THEM AND TO OPTIMIZE RETURNS THROUGH PORTFO LIO DIVERSIFICATION. ITA NO.413/15 6 7. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 8. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSEE IS ENGAGED IN BUSINESS OF PROVIDING INVESTMENT RESEARCH AND ADVISORY SERVICES TO BAIN MAURITIUS , ON A NON - EXCLUSIVE AND NON - BINDING BASIS, IN CONNECTION WITH POTENTIAL INVESTMENT OPPORTUNITIES IN INDIA. IDFC RENDERED PORTFOLIO MANAGEMENT SERVICES FOR HYBRID INFRASTRUCTURE PORTFOLIO, AGRICULTURE OPPORTUNITIES PORTFOLIO AND FARM FORK PORTFOLIO. IDFC IS REGISTERED AS PORTFOLIO MANAGED WITH SEBI. THUS, IDFC IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE WHICH IS ENGAGED MERELY IN NON - BINDING INVESTMENT ADVISORY SUPPORT SERVICES. SINCE IDFC IS FUNCTIONALLY DIFFERENT, WE DIRECT THE AO TO EXCLUDE THE IDFC FROM THE LIST OF COMPARABLES FOR COMPUTING ARMS LENGTH ADJUSTMENT. IN VIEW OF THE ABOVE, WE DIRECT THE AO T O RECOMPUTE THE ARMS LENGTH ADJUSTMENT AFTER EXCLUDING MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. AND IDFC FROM THE LIST OF COMPARABLES. 9 . IN THE RESULT, AP PEAL OF THE ASSESSEE IS ALLOWED IN TERMS INDICATED HEREINABOVE . ORDER PRONOUNCED IN THE OPEN COUR T ON THIS 15/05 / 201 5 . SD/ - SD/ - ( . . ) ( I. P. BANSAL ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 15/05 / 201 5 . . /PKM , . / PS ITA NO.413/15 7 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//