ACIT 1(3)(1), MUMBAI V. SANDSTONE CAPITAL ADIVSORS P.LTD, MUMBAI

ITA 7067/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1679 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJIT PAL SINGH DAIA
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI M ANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO. 7067 / MUM/2016 ( ASSESSMENT YEAR : 20 11 12 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1 (3)( 1 ), MUMBAI . APPELLANT V/S SANDSTONE CAPITAL ADVISORS PVT. LTD. GROUND FLOOR, REGUS FORT, ISMAIL BLDG. D.N. ROAD, FLORA FOUNTAIN FORT, MUMBAI 400 001 PAN AAICS8031L . RESPONDENT REVENUE BY : SHRI AJIT PAL SINGH DAIA ASSESSEE BY : NONE DATE OF HEARING 29 .0 8 .2018 DATE OF ORDER 31.08.2018 O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE CHALLENGING THE ORDER DATED 16 TH AUGUST 2016 , PASSED BY THE L EARNED COMMISSIONER (APPEALS) 58 , MUMBAI, FOR ASSESSMENT YEAR 20 11 12 . 2 . T HE SOLITARY ISSUE IN DISPUTE IN THE PRESENT APPEAL RELATES TO REJECTION OF MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. SELECTED BY THE TRANSFER PRICING OFFICER AS A COMPARABLE. 2 SANDSTONE CAPITAL ADVISORS PVT. LTD. 3 . B RIEF FACTS ARE, THE ASSESSEE IS AN INDIAN COMPANY. AS STATED BY THE ASSESSING OFFICER, ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCIAL ADVISORY SERVICES AND IN THE RELEVANT PREVIOUS YEAR, IT HAS ENTERED INTO INTERNATIONAL TR ANSACTION RELATING TO PROVISION OF INVESTMENT SUB ADVISORY SERVICES TO ITS OVERSEAS ASSOCIAT ED ENT ERPRISE (A E). FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28 TH NOVEMBER 2011 DECLARING TOTAL INCOME OF ` 1,34,43,182. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ON EXAMINING THE TRANSFER PRICING STU DY REPORT SUBMITTED BY THE ASSESSEE FOUND THAT THE ASSESSEE HAS EARNED A MARK UP OF 20.38% ON THE COST INCURRED TOWARDS PROVISION OF INVESTMENT S OF ADVISORY SERVICES TO THE A E. HE NOTICED THAT THE ASSESSEE HAS ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR BENCH MARKING THE ARM'S LENGTH PRICE OF THE I NTERNATIONAL TRANSACTION WITH A E. FOR THE PURPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTION, THE ASSESSEE HAS SELECTED FOUR COMPARABLE S WITH AVERAGE MARGIN OF 14.59%. THE MARGIN SHOWN BY THE ASSESSEE @ 20.38% BEING HIGHER TO THE AVERAGE MARGIN OF THE COMPARABLE COMPANIES, THE PRICE CHARGED TO THE AE FOR PROVISION OF INVESTMENT SUB ADVISORY SERVICES W AS CLAIMED TO BE AT ARM'S LENGTH. THE ASSESSING OFFICER AFTER PERUSING THE TRANSFER PRICING STUDY REPORT OF THE ASSESSEE OBSERVED THAT THE COMPARATIVE ANALYSIS UNDERTAKEN BY THE ASSESSEE SUFFERED FROM DEFICIENCIES INCLUDING SELECTI ON OF 3 SANDSTONE CAPITAL ADVISORS PVT. LTD. FUNCTIONALLY DIFFERENT COMPAN IES AS COMPARABLE S . FURTHER, THE ASSESSING OFFICER WAS OF THE VIEW THAT MOTILAL OSWAL INVESTMEN T ADVISORY PVT. LTD. BEING FUNCTIONALLY SIMILAR TO THE ASSESSEE SHOULD HAVE BEEN SELECTED AS A COMPARABLE. ACCORDINGLY, HE CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE TRANSFER PRICING STUDY REPORT SHOULD NOT BE REJECTED. THOUGH, THE ASSESSEE FILED ITS SUBMISSIONS JUSTIFYING COMPUTATION OF ARM'S LENGTH PRICE IN THE TRANSFER PRICING STUDY, HOWEVER, THE ASSESSING OFFICER REJECTED THE SUBMISSIONS OF THE ASSESSEE. OUT OF THE FOUR COMPARABLE S SELECTED BY THE ASSESSEE, THE ASSESSING OFFICER REJECTED CYBER MEDIA RESEARCH LTD. (IDC INDIA) AND FUTURE CAPITAL INVESTMENT ADVISORS LTD. FINDING THEM TO BE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. PROCEEDING FURTHER, THE ASSESSING OFFICER SELECTED MOTILAL OSWAL ADVISORY PVT. LTD. AS A COMPARABLE IN ADDITION TO IIM L ASSET ADVISORS LTD. AND FUTURE CAPITAL HOLDINGS LTD. SELECTED BY THE ASSESSEE. SINCE , THE ARITHMETIC MEAN OF THE THREE COMPARABLE S SELECTED BY THE ASSESSING OFFICER WORKED OUT TO 38.38% , THE ARM'S LENGTH PRICE OF THE TRANSACTION WITH THE A.E. WAS DETERMI NED @ ` 8,54,43,244, AS AGAINST THE PRICE CHARGED BY THE ASSESSEE AT ` 7,43,28,625. THE RESULTANT DIFFERENCE OF ` 1,11,14,619, WAS TREATED AS THE TRANSFER PRICING ADJUSTMENT AND ADDED TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED OF SUCH ADDITION MADE BY THE ASSESSING OFFICER THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 SANDSTONE CAPITAL ADVISORS PVT. LTD. 4 . T HE LEARNED COMMISSION ER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD FOUND THAT MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT IS INVOLVED IN MULTIFARIOUS ACTIVITIES IN CLUDING MERCHANT BANKING AND THE SEGMENTAL DETAILS ARE NOT AVAILABLE. ACCORDINGLY, HE HELD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. AFTER EXCLUSION OF MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD., SINCE , THE AVERAGE MARGIN OF THE REST OF THE TWO C OMPARABLES SELECTED BY THE ASSESSING OFFICER WAS 17 % COMPARED TO THE MARGIN SHOWN BY THE ASSESSEE OF MORE THAN 20%, THE LEARNED COMMISSIONER (APPEALS) HELD THAT NO ADJUSTMENT TO THE ARM'S LENGTH PRICE SHOWN BY THE ASSESSEE IS REQUIRED TO BE MADE. ACCORDING LY, HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 5 . WHEN THE APPEAL WAS CALLED FOR HEARING, NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE TO REPRESENT THE CASE. EVEN , THERE IS NO LETTER FILED BY THE ASSESSEE SEEKING ADJOURNMENT. CONSIDERING THE NATURE OF DISPUTE, WE PROCEED TO DISPOSE OF THE APPEAL EX PARTE QUA THE ASSESSEE AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER. 5 SANDSTONE CAPITAL ADVISORS PVT. LTD. 7 . WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED MATERIALS ON RECORD. THOUGH, THE ASSESSING OFFICER SELECTED MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD., STATING THAT IT IS FUNCTIONALLY SIMILAR TO THE ASSESSEE, HOWEVER, HE HIMSELF HAS OBSERVED T HAT THIS COMPANY IS ENGAGED IN VARIOUS ACTIVITIES INCLUDING MERCHANT BANKING / INVESTMENT BANKING ALSO. NOTABLY, IN COURSE OF HEARING OF APPEAL, THE LEARNED COMMISSIONER (APPEALS) HAS EXAMINED IN DETAIL THE FUNCTIONALITY OF THIS COMPA NY BY ANALYSING THE DOCUMENTARY EVIDENCES AVAILABLE ON RECORD. ON VERIFYING THE MATERIAL ON RECORD, HE HAS FOUND TH AT THE COMPANY IS INTO DIVERSIFIED ACTIVITIES INCLUDING MERCHANT BANKING / INVESTMENT BANKING CONCERNING PRIVATE PLACEMENT OF EQUITY, DEBT AN D CONVERTIBLE INSTRUMENT COVERING INTERNATIONAL AND DOMESTIC MARKET, MERGERS AND ACQUISITIONS, ADVISORY AND RE STRUCTURING ADVISORY AND IMPLEMENTATION. FURTHER , THE COMPANY ALSO OFFERS SERVICES LIKE PRIVATE WEALTH MANAGEMENT, ASSET MANAGEMENT AND COMMODITI ES. FROM THE DOCUMENTARY EVIDENCES PRODUCED BY THE ASSESSEE, HE FOUND THAT THOUGH THE INCOME STREAM IN THE AUDITED ACCOUNT IS SHOWN TO BE FROM ADVISORY SERVICES, HOWEVER, THE NATURE OF THE SERVICES IS ENTIRELY DIFFERENT. FURTHER, IN RESPONSE TO A LETTER FR OM THE ASSESSEE THE CHIEF EXECUTIVE OFFICER OF MOTILAL OSWAL HAS STATED THAT THE COMPANY IS IN MERCHANT BANKING AND INVESTMENT BANKING AND IS NOT ENGAGED IN PROVIDING INVESTMENT RESEARCH AND ADVISORY SERVICES. 6 SANDSTONE CAPITAL ADVISORS PVT. LTD. FURTHER, FROM THE AUDITED FINANCIALS, THE SEGM ENTAL DETAILS ARE NOT FORTHCOMING. THUS, FROM THE AFORESAID FACTS, IT CAN BE SEEN THAT THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE , WHICH ACCORDING TO THE ASSESSING OFFICER HIMSELF IS PROVIDING INVESTMENT SUB ADVISORY SERVICES. IT IS WORTH MENT IONING, IN A NUMBER OF DECISIONS OF DIFFERENT BENCHES OF THE TRIBUNAL, IT HAS BEEN HELD THAT MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. CANNOT BE TREATED AS A COMPARABLE TO AN INVESTMENT ADVISORY SERVICE PROVIDER. IT APPEARS, THE ONLY REASON FOR WHICH THE ASSESSING OFFICER SELECTED THIS COMPANY AS A COMPARABLE IS BECAUSE OF ITS EXTRA ORDINARILY HIGH PROFIT. THEREFORE, WHEN MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. ON THE BASIS OF MATERIAL ON RECORD IS FOUND TO BE FUNCTIONALLY DIFFERENT AND WHICH FACT HAS NOT BEEN CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THROUGH ANY COGENT MATERIAL, WE DO NOT FIND ANY VALID REASON TO INTERFERE WITH THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. ACCORDINGLY, WE UPHOLD THE DECISION OF THE LE ARNED COMMISSIONER (APPEALS) BY DISMISSING THE GROUND RAISED. 8 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2018 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 31.08.2018 7 SANDSTONE CAPITAL ADVISORS PVT. LTD. 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 (SR. PRIVATE SECRETARY) ITAT, MUMBAI