SUN-ARES INDIA REAL ESTATE P.LTD, MUMBAI V. DCIT 14(3)(2), MUMBAI

ITA 621/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0625 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 08-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR LD
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

ITA NO.621/MUM/2016 SUN-ARES INDIA REAL ESTATE PRIVATE LTD. ASSESSMENT YEAR 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.621/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) SUN - ARES INDIA REAL ESTATE PRIVATE LTD. (FORMERLY KNOWN AS SUN AREA REAL ESTATE PVT LTD.) SUITE F9B, GRAND HYATT PLAZA SANTA CRUZ (EAST), MUMBAI 400 055 / VS. DEPUTY COMMISSION ER O F INCOME TAX-CIRCLE 14(3)(2) AAYKAR BHAVAN MAHARISHI KARVE ROAD MUMBAI 400 020 ./ ./ PAN/GIR NO.AAKCS-2045-J ( ! /APPELLANT ) : ( '# ! / RESPONDENT ) REVENUE BY : JAYANT KUMAR, LD. CIT DR ASSESSEE BY : KETAN VED, LD. AR / DATE OF HEARING : 30/01/2018 / DATE OF PRONOUNCEMENT : 09 /02/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2011- 2012 ASSAILS FINAL ASSESSMENT ORDER DATED 05/01/201 6 OF LD. DEPUTY 2 ITA NO.621/MUM/2016 SUN-ARES INDIA REAL ESTATE PRIVATE LTD. ASSESSMENT YEAR 2011-12 COMMISSIONER OF INCOME TAX-CIRCLE 14(3)(2) [DCIT] P ASSED U/S 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 PRIMARILY QUA TRANSFER PRICING ADJUSTMENT MADE BY LOWER AUTHORITIES. 2.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN INVESTMENT ADVISORY SERVICES HAS BEEN ASSESSED AT RS.783.36 LACS AFTER TRANSFER PRICING [TP] ADJUSTMENT OF RS.527.54 LACS AS AGAINST RETURNED INCOME OF RS.255.81 LACS FILED BY THE ASSE SSEE ON 16/11/2011. 2.2 SINCE TRANSFER PRICING ISSUES WERE INVOLVED, A REFERENCE U/S 92CA(1) WAS MADE TO TRANSFER PRICING OFFICER [TPO] ON 14/11/2013 FOR DETERMINATION OF ARMS LENGTH PRICE [ALP] OF INTERNATIONAL TRANSACTIONS. THE TPO, VIDE ORDER DATED 27/01/2015, PROPOSED AN UPWARD TP ADJUSTMENT OF RS.736.40 LACS WHICH WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER PASSED U/S 144C DATED 13/03/2015 AND SENT TO DISPUTE RESOLUTION PENAL [DRP] FOR ITS DIRECTIONS. THE ASSESSEE RAISED OBJECTION BEFORE DR P AND AFTER CONSIDERING THE SAME, DRP FINALIZED ITS DIRECTIONS VIDE ORDER D ATED 14/12/2015. FINALLY, PURSUANT TO THE SAID DIRECTIONS, ASSESSMENT WAS COM PLETED U/S 143(3) READ WITH SECTION 144C(13) ON 05/01/2016 WHEREIN TP ADJUSTMENT OF RS.527.54 LACS HAVE BEEN MADE. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 2.3 THE BRIEF BACKGROUND OF THE INTERNATIONAL TRANS ACTION CARRIED OUT BY THE ASSESSEE DURING IMPUGNED AY IS THAT IT HAS RENDERED INVESTMENT ADVISORY SERVICES WITH RESPECT TO REAL ESTATE MARKET IN INDIA TO ITS ASSOCIATED ENTERPRISES [AE] NAMELY SUN APOLLO MANAGEMENT LLC, MAURITIUS 3 ITA NO.621/MUM/2016 SUN-ARES INDIA REAL ESTATE PRIVATE LTD. ASSESSMENT YEAR 2011-12 AMOUNTING TO RS.16.07 CRORES AND BENCHMARKED THE SA ME USING TRANSACTIONAL NET MARGIN METHOD [TNMM] AND SELECTED OPERATING PROFIT / COST [OP/PC] AS ITS PROFIT LEVEL INDICATOR [PLI] . IN ITS TP STUDY, THE ASSESSEE ARRIVED AT A MARK-UP OF 16% AS AGAINST THR EE YEARS WEIGHTED AVERAGE MEAN OF 8.5% OF THREE COMPARABLES NAMELY ICRA MANAGEMENT CONSULTING SERVICES LTD., ICRA ONLINE LTD. & IDC (I NDIA) LTD. AND THEREFORE, CONTENDED THAT NO TP ADJUSTMENT WAS REQUIRED TO BE MADE. HOWEVER, LD. TPO WHILE REJECTING ASSESSEES THREE COMPARABLES, A LTERNATIVELY SUGGESTED FOUR COMPARABLES, WHICH AFTER CONSIDERING ASSESSEE S SUBMISSIONS WERE FINALLY REDUCED TO TWO I.E. LADDERUP CORPORATE ADVISORY SERVICES LTD. [LCASL] & MOTILAL OSWAL INVESTMENT ADVISORY PVT. LT D. [MOIAPL] . THE LD. TPO COMPUTED ARITHMETIC MEAN OF THE TWO COMPARABLES @67.33% AS AGAINST ASSESSEES ADJUSTED MARK UP OF 14.76%. ACCO RDINGLY, APPLYING THE MARK UP OF 67.33% TO THE ASSESSEES OPERATING COST OF RS.14 CRORES, THE ALP OF THE TRANSACTION WAS COMPUTED AT RS.23.43 CRORES AS AGAINST RS.16.07 CRORES BEING REFLECTED BY THE ASSESSEE WHI CH LED TO AN UPWARD TP ADJUSTMENT OF RS.7.36 CRORES. 2.4 THE ASSESSEE, BEFORE LD. DRP CONTESTED THE ADJU STMENT BY JUSTIFYING THE THREE COMPARABLES SELECTED BY THE ASSESSEE AND AT THE SAME TIME ASSAILED THE TWO NEW COMPARABLES SELECTED BY THE LD . TPO BY DRAWING ATTENTION, INTER-ALIA, TO THE FUNCTIONAL COMPARABILITY OF THE COMPARABLES. HOWEVER, LD. DRP WHILE UPHOLDING THE REJECTION OF A SSESSEES THREE COMPARABLES AND REJECTING ONE COMPARABLE SELECTED B Y TPO VIZ. MOIAPL 4 ITA NO.621/MUM/2016 SUN-ARES INDIA REAL ESTATE PRIVATE LTD. ASSESSMENT YEAR 2011-12 FINALLY UPHELD THE ACCEPTANCE OF ONE COMPARABLE NAM ELY LADDERUP CORPORATE ADVISORY SERVICES LTD. [IN SHORT LADDER UP]. THE STAND OF LD. DRP HAS REDUCED THE FINAL TP ADJUSTMENT TO RS.527.5 4 LACS, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. AS FAR AS THE REVENUE IS CONCERNED, IT HAS ACCEPTED THE VERDICT OF LD. DRP A ND HAS NOT CONTESTED THE SAME ANY FURTHER. 3. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR] PRIMARILY STRESSED THE POINT THAT THE THREE COMPARABLES SELEC TED BY THE ASSESSEE WERE FUNCTIONALLY SIMILAR TO THE FUNCTIONS BEING PE RFORMED BY THE ASSESSEE AND THEREFORE MOST APPROPRIATE ONE AS AGAINST THE F INAL COMPARABLE SELECTED BY LD. TPO WHICH WAS NOT FUNCTIONALLY SIMI LAR. RELIANCE HAS BEEN PLACED ON CERTAIN JUDICIAL PRONOUNCEMENTS AS PLACED IN THE PAPER-BOOK FOR EXCLUSION / INCLUSION OF THE COMPARABLES IN QUESTIO N. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE [DR] JUSTIFIED THE SELE CTION OF THE FINAL COMPARABLE AND CONTENDED THAT IF ASSESSEES COMPARA BLES WERE TO BE ACCEPTED THEN REVENUES COMPARABLE WAS ALSO ACCEPTA BLE SINCE THEY ALL WERE FUNCTIONALLY SIMILAR. RELIANCE HAS BEEN PLACED ON THE ORDER OF THIS TRIBUNAL RENDERED IN AGM INDIA ADVISORS PVT. LTD. VS DCIT [79 TAXMANN.COM 86]. 4.1 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING THE DECISIONS CITED BY RESPECTIVE REPRESENTATIVES FOR EXCLUSION / INCLUSION OF THE CO MPARABLE. FIRST OF ALL, BOTH SIDES CONVERGE ON THE POINT THAT THE ASSESSEE WAS E NGAGED IN PROVIDING 5 ITA NO.621/MUM/2016 SUN-ARES INDIA REAL ESTATE PRIVATE LTD. ASSESSMENT YEAR 2011-12 INVESTMENT ADVISORY SERVICES OF NON-BINDING IN NATU RE. THE FACT IS NOT IN DISPUTE BEFORE THE LOWER AUTHORITIES. ON THIS BACKD ROP, WE FIND THAT SO FAR AS THE SELECTION OF FINAL COMPARABLE NAMELY LADDERUP IS CONCERNED, THIS TRIBUNAL IN THE CASE OF TEMASEK HOLDING ADVISORS INDIA P. LTD. VS. DCIT [87 TAXMANN.COM 168 ] FOR IDENTICAL ASSESSMENT YEAR OBSERVED THAT LADDERUP WAS REGISTERED AS CATEGORY-1 MERCHANT BANKER WITH SEBI AND WAS ENGAGED IN RENDERING MERCHANT BANKING SERVICES W.E.F. 01/07/2010 WHICH FACT WAS DULY SUBSTANTIATED BY THE WEBSITE OF THE COMPANY AS WELL AS ITS ANNUAL REPORTS AND THEREFORE, NOT FUNCTIONALLY COMPARABLE WITH AN ENTITY WHICH WAS ENGAGED IN THE BUSINESS OF RENDERING NON-BINDING INVESTMENT ADVISORY SERVICES . THE RATIO OF THIS DECISION HAS SUBSEQUENTLY BEEN FOLLOWED IN RECENT DECISION OF THE TRIBUNAL RENDERED IN WELLS FARGO REAL ESTATE ADVISORS PRIVATE LTD. VS DCIT [ITA NO. 1520/M/2016 17/01/2018] . WE ALSO FIND THAT THE RELIANCE OF THE REVENUE ON THE CASE O F AGM INDIA ADVISORS PVT. LTD. VS DCIT [SUPRA] WAS MISPLACED SINCE NO FINDINGS REGARDING THIS COMPARABLE HAS BEEN GIVEN BY THE TRIBUNAL IN THAT O RDER SINCE THE ASSESSEE CAME WITHIN THE RANGE OF +/-5% EVEN WITH INCLUSION OF THIS COMPARABLE. THEREFORE, FINDING IDENTICAL FACTS IN THE PRESENT C ASE AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT, WE DIRECT EXCLUSI ON OF THIS COMPARABLE FROM FINAL ANALYSIS. 4.2 REGARDING ACCEPTANCE OF ASSESSEES COMPARABLE N AMELY ICRA MANAGEMENT CONSULTING LTD. & IDC LTD. , LD. AR RIGHTLY PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL RENDERED IN AGM INDIA ADVISORS PVT. LTD. VS 6 ITA NO.621/MUM/2016 SUN-ARES INDIA REAL ESTATE PRIVATE LTD. ASSESSMENT YEAR 2011-12 DCIT [79 TAXMANN.COM 86] FOR IDENTICAL AY WHEREIN THIS TRIBUNAL HAS FOUND BOTH THESE COMPARABLE FUNCTIONALLY SIMILAR TO AN AS SESSEE CARRYING OUT INVESTMENT ADVISORY SERVICES. RESPECTFULLY FOLLOWIN G THE SAME, WE DIRECT FOR INCLUSION OF THESE TWO COMPARABLES. 4.3 SO FAR AS THE SELECTION OF ICRA ONLINE LTD. BY THE ASSESSEE IS CONCERNED, LD. AR HAS ONLY STRESSED THE POINT THAT THIS COMPARABLE HAS BEEN ACCEPTED BY THE REVENUE IN SUBSEQUENT YEAR AND THEREFORE, THE SAME WAS AN APPROPRIATE COMPARABLE. HOWEVER, LD. AR COUL D NOT ADDUCE ANY MATERIAL TO SHOW FUNCTIONAL SIMILARITY / COMPARABIL ITY BETWEEN THE TWO ENTITIES AND THEREFORE, WE ARE NOT INCLINED TO ACCE PT THE CONTENTION OF THE ASSESSEE IN THIS REGARD. 4.4 AT THIS JUNCTURE, WE FIND THAT IF THE TWO COMPA RABLES SELECTED BY THE ASSESSEE AND UPHELD BY US IN PARAGRAPH 4.2 ARE INCL UDED AND THE COMPARABLE NAMELY LADDERUP SELECTED BY THE REVENUE IS EXCLUDED, THE ASSESSEES ADJUSTED MARGIN OF 14.76% AS COMPUTED BY THE REVENUE WELL EXCEEDS THE MARGIN OF THE COMPARABLES ON THE BASIS OF SINGLE YEAR DATA. THE STATED FACT, IN ITSELF, MAKES THE OTHER CONTENT IONS RAISED BY ASSESSEE, MERELY ACADEMIC IN NATURE AND THEREFORE, WE DO NOT FIND ANY NECESSITY TO DELVE INTO THE SAME. THEREFORE, THE MATTER IS RESTO RED BACK TO THE FILE OF LD. AO TO COMPARE THE MARGINS / PLI OF THE ASSESSEE VIS--VIS MARGINS / PLI OF THE TWO COMPARABLES AND RE-COMPUTE THE TOTAL INCOME OF THE ASSESSEE IN TERMS OF OUR ABOVE ORDER. 7 ITA NO.621/MUM/2016 SUN-ARES INDIA REAL ESTATE PRIVATE LTD. ASSESSMENT YEAR 2011-12 5. RESULTANTLY, THE ASSESSEES APPEAL STANDS ALLOWE D IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH FEBRUARY, 2018. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 09 .02.2018 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. '+ , + , / DR, ITAT, MUMBAI 6. ,- / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI