ALTICO CAPITAL INDIA P.LTD, MUMBAI V. ADDL CIT RG 3(1), MUMBAI

ITA 4851/MUM/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3009 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 31-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HUSSAIN ANSARI
• Assessee Lawyers: FAROOKH V IRANI
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI G. MANJUNATHA , ACCOUNTANT MEMBER ITA NO. 4851 / MUM . /201 5 ( ASSESSMENT YEAR : 20 09 10 ) CLEARWATER CAPITAL PARTNERS INDIA PVT. LTD. (EARLIER KNOWN AS ALTICO CAPITAL INDIA PVT. LTD. ) 7 TH FLOOR MUDRA HOUSE , OPP. GRAND HYATT SANTACRUZ (E) MUMBAI 400 055 PAN AACCC3064F . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 3(1), MUMBAI . RESPONDENT ASSESSEE BY : SHRI FAROOKH V. IRANI REVENUE BY : SHRI AKHTAR HUSSAIN ANSARI DATE OF HEARING 29.01.2020 DATE OF ORDER 13.03.2020 O R D E R PER SAKTIJIT DEY. J.M. THE CAPTIONED APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 30 TH APRIL 2015, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 55 , MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 20 09 10 . 2 ALTICO CAPITAL INDIA PVT. LTD. 2. T H OUGH , THE ASSESSEE HAS RAISED AS MANY AS EIGHT GROUNDS OF APPEAL CONTESTING THE ADDITION MADE OF ` 77.09.785 ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT, HOWEVER, THE DISPUTE IS BASICALLY CONFINED TO SELECTION/ REJECTION OF CERTAIN COMPARABLES. BEFORE WE PROCEED TO DEAL WITH THE SPECIFIC DISPUTE RAISED BEFORE US, IT IS NECESSARY TO BRIEFLY NARRATE THE RELEVANT FACT S RELATING TO THE ISSUE IN DISPUTE. 3. BRIEF FACTS ARE, THE ASSESSEE IS A RESIDENT COMPANY AND PART OF CLEARWATER CAPITAL PARTNERS (CCP GROUP) , WHICH IS AN INVESTMENT FIRM FOUNDED IN THE YEAR 2001. THE ASSESSEE IS A SUBSIDIARY OF CCP CYPRUS AND IS BASICALLY ENGAGED IN PROVIDING INVESTMENT SUB ADVISORY SERVICE S T O ITS ASSOCIATED ENTERPRISES (A E) CCP, SINGAPORE. DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE PROVIDED NON BINDING INVEST MENT ADVISORY SERVICES TO ITS AE AND RECEIVED AN AMOUNT OF ` 4,44,15,472. I N THE TRANSFER PRICING S TUDY REPORT, THE ASSESSEE BENCH MARKED THE A FORESAID TRANSACTION WITH THE AE BY ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD . THE ASSESSEE SELECTED TEN COMPANIES AS COMPARABLE S WITH AVERAGE MARGIN OF 16.19% AS AGAINST ITS OWN MARGIN OF 20%. THUS, THE TRANSACTION WITH AE WAS CLAIMED TO BE AT ARM'S LENGTH. THE TRANSFER PRICING OFFICER, HOWEVER, POINTED OUT VARIOUS DEFECTS AND DEFICIENCY IN THE TRANSFER PRICING STUDY REPORT AS WELL AS SELECTION OF COMPAR ABLES. AFTER REJECTING 3 ALTICO CAPITAL INDIA PVT. LTD. THE TRANSFER PRICING STUDY REPORT AS WELL AS MOST OF THE COMPA RABLES SELECTED BY THE ASSESSEE, THE TRANSFER PRICING OFFICER PROCEEDED TO SELECT FRESH COMPARABLES. THOUGH, OF COURSE, HE ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD. IN THE PROCESS, THE TRANSFER PRICING OFFICER SELECTED THREE COMPARABLES VIZ. (I) ICRA ONLINE LTD., (II) IDC INDIA LTD. AND (III) INTEGRATED CAPITAL SERVICES LTD., WITH ARITHMETIC MEAN OF 40.83%. APPLYING THE ARITHMETIC MEAN OF THE COMPARABLES TO THE OPERATIN G COST, HE DETERMINE D THE ARMS LENGTH PRICE OF THE SERVICE PROVIDED AT ` 5,21,25,257, AS AGAINST THE AMOUNT RECEIVED BY THE ASSESSEE OF ` 4,44,15,472. DUE TO THE DIFFERENCE IN OPERATING INCOME, AN UPWARD ADJUSTMENT OF ` 77,09,785, WAS MADE TO THE ARMS LENGTH PRICE OF INTER NATIONAL TRANSACTION WITH THE A E. THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER WAS ADDED TO THE INCOME OF THE ASSESSEE WHILE FRAMING THE ASSESSMENT ORDER. THE ASSESSEE CONTESTED THE AFORESAI D ADDITION BY FILING THE APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. L EARNED COMMISSIONER (APPEALS), HOWEVER, UPHELD THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER. 5. SHRI FAROOKH V. IRANI, LEARNED COUNSEL FOR THE ASSESSEE CONFINED HIS SUBMISSIONS TO SELECTION/ REJECTION OF THREE COMPARABLES . HEREAFTER, WE WILL BE DEALING WITH THESE COMPARABLES . 4 ALTICO CAPITAL INDIA PVT. LTD. I) ICRA MANAGEMENT CONSULTING SERVICE S LTD. 6. OBJECTING TO THE REJECTION OF THIS COMPANY, THE LEARNED COUNSEL SUBMITTED , THE COMPANY IS FUNCTIONALLY SIMILAR TO THE ASSESSEE, HENCE, THERE IS NO REASON TO REJECT THIS COMPANY. HE SUBMITTED , 75% OF THE REVENUE EARNED BY THE COMPANY IS FROM CONSULTING FEES WHICH IS SUGGESTIVE OF THE FACT THAT IT IS PROVIDING ADVISORY SERVICES, HENCE, IS FUNCTIONALLY SIMILAR TO THE ASS ESSEE. THUS, HE SUBMITTED , THIS COMPANY SHOULD BE INCLUDED AS A COMPARABLE. IN SUPPORT, HE RELIED UPON THE FOLLOWING DECISIONS: I) ALTICO CAPITAL INDIA PVT. LTD. V/S DCIT, ITA NO.5142/MUM./ 2017, DATED 10.01.2020 ; II) WARBURG PINCUS INDIA PVT. LTD. V/S ACIT, ITA NO.6981/ MUM./2012, DATED 13.01.2017; III) 3I INDIA PVT. LTD. V/S DCIT, IT(TP)A NO.1292/MUM./2014, DATED 30.09.2019; IV) TPG CAPITAL INDIA PVT. LTD. V/S DCIT, [2017] 79 TAXMANN.COM 101 (MUM.)(TRIB.); V) CIT V/S TEMASEK HOLDINGS ADVISORS INDIA PVT. LTD., ITA NO. 359 OF 2015, DATED 11.07.2017; VI) DCIT V/S TEMASEK HOLDING ADVISORS PVT. LTD., ITA NO . 968/MUM./2014, DATED 27.06.2014; VII) CIT V/S TEMASEK HOLDINGS ADVISORS INDIA PVT. LTD., ITA NO. 1051 OF 2014, DATED 17.11.2016; VIII) TEMASEK H OLDINGS ADVISORS INDIA PVT. LTD. V/S DCIT, [2013] 38 TAXMANN.COM 80 (MUM.)(TRIB.); 5 ALTICO CAPITAL INDIA PVT. LTD. IX) TAMASEK HOLDINGS ADVISORS INDIA PVT. LTD. V/S DCIT, ITA NO.776/MUM./2015, DATED 25.02.2016. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATI ONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIGHT OF THE DECISIONS RELIED UPON AND PERUSED THE MATERIAL ON RECORD. IT IS OBSERVED , THE COMPARABI LITY OF THIS COMPANY WITH A NON BIND ING INVESTMENT ADVISORY SERVICE PROVIDER HAS COME UP FOR CONSIDERATION NOT ONLY BEFORE THE TRIBUNAL, BUT EVEN BEFORE THE HON'BLE JURISDICTIONAL HIGH COUR T. AFTER ANALYZING THE FUNCTION, ASSET AND RISK (FAR) OF THIS COMPANY, THE TRIBUNAL FOUND THAT THE SERVICE PROVIDED BY THIS COMPANY IS AKIN TO THE SERVICE PROVIDED BY AN INVESTMENT ADVISORY SERVICE PROVIDER. THEREFORE, THIS COMPANY HAS BEEN FOUND TO BE A GOOD COMPARABLE. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR TH E ASSESSEE, AS REFERRED TO ABOVE, CLEARLY SUPPORT THIS VIEW. IN FACT, IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11, THOUGH THIS COMPANY WAS REJECTED BY THE T PO , HOWEVER, LEARNED COMMISSIONER (A PPEALS ) HAVING FOUND THIS COMPANY TO BE FUNCTIONALLY SIMIL AR , ACCEPTED IT AS A COMPARABLE. T HIS IS EVIDENT FROM THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.5142/MUM./2017, DATED 10 TH JANUARY 2010. THEREFORE, RESPECTFULLY FOLLOWING THE OBSERVATIONS MADE IN THE JUDICIAL PRECEDENT S REFERRED TO 6 ALTICO CAPITAL INDIA PVT. LTD. ABOVE, WE HOLD THAT THI S COMPANY BEING A GOOD COMPARABLE HAS TO BE RETAINED. II) INFORMED TECHNOLOGIES LTD. 9. OBJECTING TO REJECTION OF THIS COMPANY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THIS COMPANY PROVIDES SERVICES RELATING TO ANALYSIS OF DATA ON FINANCIALS, FUNDAM ENTALS, CORPORATE GOVERNANCE, DIRECTOR / EXECUTIVE COMPENSATION AND CAPITAL MARKET. IN O THER WORDS, IT OFFERS A RANGE OF DATA MANAGEMENT SERVICES TO THE FINANCIAL SECTOR. THEREFORE, IT IS COMPARABLE TO AN INVESTMENT ADVISORY SERVICE PROVIDER. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I) J.P. MORGAN ADVISORS INDIA PVT. LTD. V/S DCIT, ITA NO. 990/MUM./2014, DATED 19.06.2019; II) PCIT V/S TEMASEK HOLDINGS ADVISORS INDIA PVT. LTD., ITA NO. 304/2017, DATED 16.04.2019; III) FIL CAPITAL ADVISORS INDIA P. LTD. V/S DCIT, ITA NO. 7403/MUM./2014, DATED 25.10.2016 IV) M/S. GUGGENHEIM CAPITAL MANAGEMENT (ASIA) PVT. LTD. V/S ACIT, ITA NO.423/MUM./2016, ETC., DATED 20.02.2019. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE REL IED UPON THE OBSE RVATIONS OF LEARNED COMMISSIONER (APPEALS). 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE MATERIAL PLACED BEFORE US, IT APPEARS THAT THE 7 ALTICO CAPITAL INDIA PVT. LTD. SERVICES PROVIDED BY THIS COMPANY ARE IN THE NATURE OF ADVISORY SERVICES. T HE ASSESSEE IS ALSO PROVIDING ADVISORY SERV ICES TO ITS A E. THAT BEING THE CASE, THE COMPANY APPEARS TO BE FUNCTIONALLY SIMILAR TO THE ASSESSEE. IN FACT, IN VARIOUS DECISIONS CITED BEFORE US, SOME OF WHICH RELATE TO THE IMPUGNED ASSESSMENT YEAR, THE TRIBUNAL A S WELL AS THE HON'BLE JURISDICTIONAL HIGH COUR T HAS HELD THAT THIS COMPANY IS FUNCTIONALLY SIMILAR TO AN INVESTMENT ADVISORY SERVICE PROVIDER. THEREFORE, FOLLOWING THE CONSISTENT VIEW EXPRESSED IN RELATION TO THIS COMPANY IN THE JUDICIAL PRECEDENTS REFERRE D TO ABOVE, WE DIRECT THE ASSESSING OFFICER TO INCLUDE THIS COMPANY AS A COMPARABLE. III) INTEGRATED CAPITAL SERVICES LTD. 12. OBJECTING TO SELECTION OF THIS COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THOUGH , IN THE TRANSFER PRICING STUDY REPORT, THE ASSESSEE DUE TO LACK OF PR OPER INFORMATION/ AVAILABILITY OF DATA IN THE PUBLIC DOMAIN RELATING TO THIS COMPANY HAD INCLUDED IT AS A COMPARABLE, H OWEVER, THE TRANSFER PRICING OFFICER IN THE SHOW CAUSE NOTICE ISSUED BY HIM IN THE COURSE OF PROCEEDINGS HAS STATED THAT THIS COMPANY NOT BEING FUNCTIONALLY SIMILAR CANNOT BE CONSIDERED AS A COMPARABLE. HE SUBMITTED , IN VARIOUS DECISIONS ALSO THIS COMPANY HAVING BEEN FOUND TO BE FUNCTIONAL DISSIMILAR HAS BEEN REJECTED. THUS , HE SUBMITTED , THE COMPANY CANNOT BE TREATED AS COMPARABLE. THE 8 ALTICO CAPITAL INDIA PVT. LTD. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , EVEN IN ASSESSEES OWN CASE, THE TRANSFER PRICING OFFICER HAS REJECTED THIS COMPANY AS A COMPARABLE IN ASSESSMENT YEAR S 2010 11 AND 2011 12. FURTHE R, HE SUBMITTED , EVEN IF THE ASSESSEE HAD SELECTED THIS COMPANY AS A COMPARABLE DUE TO INSUFFICIENT DATA AVAILABLE, HOWEVER, SUBSEQUENTLY, IF IT IS FOUND THAT THE COMPANY IS NOT FUNCTIONALLY SIMILARTHE ASSESSEE CANNOT BE DEBARRED FROM OBJECTING TO THE COMP ARABLE. IN THIS CONTEXT, HE RELIED UPON THE FOLLOWING DECISIONS: I) WARBURG PINCUS INDIA PVT. LTD. V/S ACIT, ITA NO.6981/ MUM./2012, DATED 13.01.2017; II) PCIT V/S GOLDMAN SACHS (I) SECURITIES PVT. LTD., ITA NO.30 OF 2017, DATED 10.06.2019; III) GOLDM AN SACHS (I) SECURITIES PVT. LTD. V/S DCIT, ITA NO. 222/MUM./2014, DATED 30.11.2015; IV) NEW SILK ROUTE ADVISORS PVT. LTD. V/S DCIT, [2015] 55 TAXMANN.COM 540 (MUM.)(TRIB.); V) TAMASEK HOLDINGS ADVISORS INDIA PVT. LTD. V/S DCIT, ITA NO. 776/MUM./2015, DA TED 25.02.2016; VI) Q INDIA INVESTMENT ADVISORS PVT. LTD. V/S DCIT, ITA NO. 923/MUM./2015, DATED 24.04.2015. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 9 ALTICO CAPITAL INDIA PVT. LTD. 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RE CORD. NO DOUBT, THE ASSESSEE HAD SELECTED THIS COMPANY AS A COMPARABLE. HOWEVER, FROM THE SHOW CAUSE NOTICE ISSUED BY THE TRANSFER PRICING OFFICER HIMSELF, IT BECOMES VERY CLEAR THAT HE HIMSEL F CONSIDERS THE COMPANY AS FUNCTIONALLY DIS SIMILAR TO THE ASSESSEE , HENCE, NOT COMPARABLE, THOUGH, IN THE FINAL ANALYSIS HE HAD SELECTED THE COMPANY AS A COMPARABLE. IT IS FURTHER RELEVANT TO OBSERVE , IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 11 AND 2 011 12, THE TRANSFER PRICING OFFICER HAS REJECTED THIS COMPANY AS A COMPARABLE. IN FACT, IN CASE OF WARBURG PINCUS INDIA PVT. LTD. (SUPRA), THE TRIBUNAL, MUMBAI BENCH, HAS REJECTED THIS COMPANY FROM BEING TREATED AS A COMPARABLE TO AN INVESTMENT ADVISORY S ERVICE PROVIDER. THE OTHER DECISIONS RELIED UPON BY THE LEARNED AUTHORISE D REPRESENTATIVE ALSO CLEARLY HO LD THAT THIS COMPANY CANNOT BE TREATED AS A COMPARABLE TO INVESTMENT ADVISORY SERVICE PROVIDER. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFIC ER TO EXCLUDE THIS COMPANY. 15. IN THE COURSE OF HEARING, IT WAS SUBMITTED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT WITH THE INCLUSION OF THE ICRA MANAGEMENT CONSULTANCY SERVICES PVT. LTD., AND INFORMATION TECHNOLOGIES PVT. LTD. AND EXCLUSION O F INTEGRATED TECHNOLOGIES LTD., ASSESSEES MARGIN WOULD BE WITHIN THE 5% RANGE OF THE RAISED OF THE 10 ALTICO CAPITAL INDIA PVT. LTD. COMPARABLE REQUIRING NO FURTHER ADJUSTMENT. IN VIEW OF THE AFORESAID, WE DO NOT INTEND TO DEAL WITH ANY OTHER ISSUE RAISED IN THE PRESENT APPEAL , SAVE AND EXCEPT , THE ISSUE RELATING TO THE COMPARABLES DEALT BY US HEREIN BEFORE. 16. IN THE RESULT, APPEAL IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN C OURT ON 13.03.2020 SD/ - G. MANJUNATHA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMB AI, DATED: 13.03.2020 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI