ACIT, New Delhi V. M/s. Wolfensohn India Advisors Pvt. Ltd., New Delhi

ITA 705/DEL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0073 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 09-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-2 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.705/DEL/2016 ASSESSMENT YEAR: 2011-12 ACIT, CIRCLE-27(2), NEW DELHI. VS. WOLFENSOHN INDIA ADVISORS PVT. LTD., 10 TH FLOOR, RHS TAJ MAHAL HOTEL, NUMBER ONE MANSINGH ROAD, NEW DELHI. PAN: AAACW7876K (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI SARABJEET SINGH, SR. DR DATE OF HEARING : 04.12.2018 DATE OF PRONOUNCEMENT : 06.12.2018 ORDER PER R.K. PANDA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 16.11.2015 PASSED U/S 144C(5) OF THE IT ACT BY THE DRP. 2. THIS APPEAL WAS FIXED FOR HEARING ON 11 TH OCTOBER, 2018. HOWEVER, THE NOTICE ISSUED THROUGH REGISTERED POST WAS RETURNED BY THE POSTAL AUTHORITIES UNSERVED. ACCORDINGLY, NOTICE WAS SERVED THROUGH THE INCOME-T AX DEPARTMENT FIXING THE HEARING OF THE APPEAL FOR 4 TH DECEMBER, 2018. ALTHOUGH THE NOTICE WAS DULY SERV ED ON THE ITA NO.705/DEL/2016 2 ASSESSEE THROUGH THE INCOME-TAX DEPARTMENT, NONE AP PEARED ON BEHALF OF THE ASSESSEE. THEREFORE, THIS APPEAL IS BEING DECIDED ON THE BASI S OF THE MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE LD. DR. 3. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE, WOLFENSOHN INDIA ADVISORS PRIVATE LIMITED (WIAPL) IS ENGAGED IN THE BUSINES S OF PROVIDING ADVISORY SERVICES RELATED TO INVESTMENT OPPORTUNITIES IN INDIA TO ITS ULTIMATE HOLDING COMPANY NAMELY WOLFENSOHN FUND MANAGEMENT LP (WFM). THE ADVISORY SERVICES RENDERED INCLUDE PREPARATION OF INVESTMENT RELATED INFORMATION REPOR TS, REPORTS ON DUE DILIGENCE CONDUCTED, PROVIDING NON-BINDING ADVICE ON POTENTIA L INVESTMENTS AND RELATED SERVICES. THE RETURN OF INCOME IN RESPECT OF AY 20 11-12 WAS FILED BY THE ASSESSEE COMPANY ON 29.09.2011 DECLARING TOTAL INCOME OF RS 68,81,128. DURING PERIOD UNDER CONSIDERATION, THE ASSESSEE REPORTED FOLLOWING INTE RNATIONAL TRANSACTIONS:- NATURE OF TRANSACTION METHOD AMOUNT (RS.) PROVISION OF INVESTMENT ADVISORY SERVICES TNMM 5,28,37,854 REIMBURSEMENT OF EXPENSES CUP 17,96,954 4. IN ITS TP STUDY REPORT, THE ASSESSEE SELECTED TH E TNMM, WITH OP/OC AS THE PROFIT LEVEL INDICATOR (PLI), TO BE THE MOST APPR OPRIATE METHOD FOR ASCERTAINING THE ARMS LENGTH PRICE (ALP). THE ASSESSEE WORKED OUT AVERAGE PROFIT MARGIN OF 10.94% IN CASE OF 5 COMPARABLES SELECTED BY IT AS AGAINST MARGIN OF 15.0% IN ITS OWN CASE. THE A.O. REFERRED THE MATTER TO THE TPO U/S 92CA OF THE ACT FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASS ESSEE. IN RESPONSE TO THE NOTICE ISSUED BY THE TPO, THE ASSESSEE APPEARED BEFORE HIM AND FILED THE NECESSARY DETAILS. ITA NO.705/DEL/2016 3 HOWEVER, THE TPO REJECTED THE ECONOMIC ANALYSIS DON E BY THE ASSESSEE AND SELECTED HIS OWN SET OF COMPARABLES AND WORKED OUT THE MARGI N AT 44.47% AND, ACCORDINGLY, MADE AN UPWARD ADJUSTMENT OF RS.1,35,40,303/-. 4.1 THE ASSESSEE APPROACHED THE DRP CHALLENGING THE TP ADJUSTMENT MADE BY THE TPO. IT WAS ARGUED THAT THE TPO HAS ACCEPTED THE T WO FUNCTIONALLY DISSIMILAR COMPANIES, NAMELY, MOTILAL OSWAL INVESTMENT ADVISOR S PRIVATE LTD. AND IM+CAPITAL WITHOUT ANALYZING THE COMPARABILITY OF THEIR FUNCTI ONS AND RISKS IN COMPARISON WITH THOSE OF THE ASSESSEE COMPANY. RELYING ON VARIOUS DECISIONS, IT WAS ARGUED THAT THESE TWO COMPARABLES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 4.2 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE DRP DIRECTED THE TPO TO EXCLUDE MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE L TD. AND IM+CAPITAL FROM THE FINAL SET OF COMPARABLES. SO FAR AS THE DIRECTION OF THE DRP TO EXCLUDE THE TWO COMPARABLES ARE CONCERNED, THE FINDING OF THE DRP A RE AS UNDER:- DRP HAS DULY CONSIDERED SUBMISSIONS OF THE ASSESS EE. THE ASSESSEE HAS CHALLENGED ACTION OF TPO OF TAKING MOTILAL OSWAL IN VESTMENT ADVISORS PRIVATE LIMITED AND IM+CAPITAL AS COMPARABLES. THE MAIN ARGUMENT OF THE ASSESSEE IS THAT THESE TWO COMPANIES ARE REGISTERED WITH SEBI AS MERCHANT BANKING COMPANIES. TPO HAS SAID THAT THESE COMPANIE S ARE FUNCTIONALLY COMPARABLES. HOWEVER, IT IS ALSO NOTED THAT TPO HAS REJECTED BIRLA CAPITAL FINANCIAL SERVICES LTD. TAKEN AS COMPARABLE BY THE ASSESSEE ON THE GROUND THAT IT IS MERCHANT BANKER. THE PANEL IS OF CONSIDERED V IEW THAT THESE TWO COMPANIES BEING MERCHANT BANKING COMPANIES ARE NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND HENCE NEED TO BE REJ ECTED AS COMPARABLES. THE OBJECTION IS ACCORDINGLY ALLOWED. 5. THE DRP FURTHER DIRECTED THE ASSESSING OFFICER T O RE-VERIFY THE RPT COMPUTATION OF ALMONDZ GLOBAL (SEG) AND MOTILAL OSW AL INVST. ADVISORS PVT. LTD. ITA NO.705/DEL/2016 4 6. AGGRIEVED WITH SUCH ORDER OF THE DRP, THE REVENU E IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE DRP-2 ERRED IN DIRECTING THE A.O. TO COMPLETE THE ASSESSMENT AS PER OBSERVATIONS MADE BY DRP IN THE ORDER WHICH RESULTING IN REDUCING THE ADDITION TO RS.36,98,674/ - IN PLACE OF ORIGINAL RECOMMENDED ALP OF RS.1,35,40,303/- FOR THE INTERNATIONAL TRANS ACTIONS UNDERTAKEN THE ASSESSEE COMPANY WITH ITS ASSOCIATE/PARENT ENTERPRISE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DRP-II ERRED IN DIRECTING TPO TO EXCLUDE BELOW MENTIONED COMPANIES FROM THE FINAL SET OF COMPARABLES : I) IM + CAPITAL II) MOTILAL OSWAL INVT. ADVISORS P LTD., 3. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIG HT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE O R DURING THE HEARING OF THIS APPEAL. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THE ORDER OF THE DRP IS VERY CRYPTIC AND THEY HAVE NOT CONSIDERED THE VARIOUS ISSUES RAISED BY THE TPO WHILE EXCLUDING THE ABOVE TWO COMPANIES AS COMPARABLES. THE LD. DRP HAS NOT PASSED A SPEAKING ORDER WHILE E XCLUDING THE ABOVE TWO COMPANIES FROM THE LIST OF COMPARABLES AS ADOPTED B Y THE TPO. WE, THEREFORE, DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE D RP WITH A DIRECTION TO PASS A SPEAKING ORDER ON THE ISSUE OF SELECTION OF THE ABOVE TWO CO MPARABLES AS PER FACT AND LAW. NEEDLESS TO SAY, THE DRP SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.705/DEL/2016 5 8. IN THE RESULT, THE APPEAL FILED BY THE REV ENUE IS ALLOWED FOR STATISTICAL PURPOSES. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 0 6.12.2018. SD/- SD/- (BEENA A. PILLAI) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMFBER DATED:06 TH DECEMBER, 2018 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI