CARYLE INDIA ADVISORS P.LTD, MUMBAI V. DCIT CIR 10(1), MUMBAI

ITA 7367/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75472 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 03-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Keywords: Transfer pricing; International transaction
• Section: 92C; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K B ENCH, MUMBAI . . , , !'# , $ % BEFORE SHRI I.P. BANSAL, JM AND SHRI N.K. BILLAI YA, AM ./ I.T.A. NO.7367/MUM/2012 ( & & & & / ASSESSMENT YEAR : 2008-09 M/S. CARLYLE INDIA ADVISORS PVT. LTD., 1 ST FLOOR, QUADRANT A, THE IL&FS CENTRE, PLOT C-22, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. THE DCIT, CIRCLE-10(1), MUMBAI ' $ ./ () ./ PAN/GIR NO. : AABCC4522F ( '* / APPELLANT ) .. ( +,'* / RESPONDENT ) '* - / APPELLANT BY: SHRI VISHAL KALRA +,'* . - / RESPONDENT BY: SHRI AJEET KUMAR JAIN . /0$ / DATE OF HEARING : 03.02.2014 12& . /0$ / DATE OF PRONOUNCEMENT :07.02.2014 3 / O R D E R PER N.K. BILLAIYA, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DT. 10.10.2012 PASSED U/S. 143(3) R.W. S 144C(13) OF THE ACT PASSE D BY THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 10(1), MUMBAI FO R THE ASSESSMENT YEAR 2008-09. ITA NO. 7367/M/2012 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER: THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD AO ERRED IN ASSESSING THE INCOME OF THE APPELLAN T UNDER THE NORMAL PROVISIONS OF THE ACT AT RS 15,93,95,480 AS AGAINST RETURNED INCOME OF RS 7,35,95,578 BASED ON THE DIRECTIONS RECEIVED FROM HONBLE DISPUTE RESOLUTION PANEL (DRP) UPHOLDING THE ADJUSTMENT TO THE TRANSFER PR ICE PROPOSED BY THE LEARNED TRANSFER PRICING OFFICER ( LD TPO). 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD AO/ TPO ERRED IN PROPOSING AND THE HONBLE DRP F URTHER ERRED IN UPHOLDING AN ADJUSTMENT OF RS 8,55,51,779 IN RESPECT OF THE INTERNATIONAL TRANSACTION PERTAINING TO INVE STMENT ADVISORY, ALLEGING THAT THE SAME TO BE NOT AT ARMS LENGTH IN TERMS OF THE PROVISIONS OF SECTIONS 92C(1) AND 92C( 2) OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES,1962 (THE RULES). 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD AO/ DRP/ TPO HAVE ERRED BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE IN ACC ORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 (RULES) FOR THE DETERMINATION OF THE ARMS LENGTH PRICE AND MAKING MODIFICATIONS TO THIS ANALY SIS IN A SUBJECTIVE, ARBITRARY, INCONSISTENT MANNER AND THE LD TPO HAS FURTHER ERRED IN UNDERTAKING A FRESH SEARCH USI NG INCORRECT SEARCH FILTERS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD AO/ DRP/ TPO HAVE ERRED IN ARBITRARY SELECTI ON OF COMPARABLES BASED ON INCORRECT APPRECIATION OF FUNC TIONAL, ASSET AND RISK PROFILE OF THE APPELLANT. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD AO/ DRP/ TPO HAVE ERRED IN HOLDING THAT MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. IS A COMPARABLE IGNORING (A) THE FUNCTIONAL PROFILE OF THE APPELLAN T, WHICH HAS BEEN ACCEPTED BY LD DRP/ TPO IN THIS YEAR AND THE H ONBLE TRIBUNAL IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR AND (B) THAT THE SAID COMPANY IS A SEBI REGISTERED MERCHANT BANKER, THUS NOT A COMPARABLE. ITA NO. 7367/M/2012 3 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD AO/ DRP HAVE ERRED IN UPHOLDING THE ACTION O F THE LD TPO TO REPLACE THE FILTERS ADOPTED BY THE APPELLANT WITH SUBJECTIVE AND ARBITRARY FILTERS BASIS THE BEST JUD GMENT OF THE LD TPO. 5.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD AO/ DRP/ TPO HAVE ERRED IN REJECTING COMPARABLES NAMELY (A) ARIX CONSULTANTS PVT LTD AND (B) INDIAN VENTURE CAPITAL PVT LTD APPLYING SUBJECTIVE FILTER OF TURNOVER BELOW ONE CRORE. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD AO/ TPO HAVE ERRED IN NOT FOLLOWING THE DIRE CTIONS OF HONBLE DRP TO INCLUDE IDC (INDIA) LTD IN THE FINAL SET OF COMPARABLES FOR COMPUTING THE ARMS LENGTH PRICE. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD AO/ DRP/ TPO HAVE ERRED IN REJECTING THE TRA NSFER PRICING DOCUMENTATION PREPARED BY THE APPELLANT IN THE MANNER AS REQUIRED UNDER THE PROVISIONS OF THE ACT AND THE RULES. 7.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO/ DRP/TPO HAVE ERRED BY CONCLUDING TH AT THE DATA USED BY THE APPELLANT FOR THE TRANSFER PRICING STUDY WAS NOT CONTEMPORANEOUS. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO/ DRP/ TPO HAVE ERRED BY REJECTING TH E USAGE OF MULTIPLE YEAR DATA BY THE APPELLANT. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD AO/ DRP/ TPO HAVE ERRED IN NOT PROVIDIN G THE BENEFIT OF 5 PERCENT RANGE TO THE APPELLANT AS ENVI SAGED UNDER PROVISO TO SECTION 92C(2) OF THE ACT. 3. SO FAR AS GROUND NO. 1 & 2 ARE CONCERNED, THEY A RE OF GENERAL IN NATURE AND NEED NO SEPARATE ADJUDICATION. ITA NO. 7367/M/2012 4 4. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED B EFORE US THAT THE ASSESSEE IS NOT PRESSING GROUND NOS. 3, 4, 5, 5.1, 7, 7.1 & 8. THESE GROUNDS ARE ACCORDINGLY DISMISSED AS NOT PRESSED. ACCORDINGLY GRIEVANCE RAISED BY THE ASSESSEE VIDE GROUND NO. 4.1, 6 AND 9 SURVIVE. 5. THE ASSESSEE IS A COMPANY PRIMARILY ENGAGED IN T HE BUSINESS OF PROVIDING INVESTMENT ADVISOR AND RELATED SUPPORT S ERVICES TO CARLYLE HONG KONG. IN THIS APPEAL, WE ARE CONCERNED WITH T HE DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNAT IONAL TRANSACTION I.E. RENDERING OF INVESTMENT ADVISOR AND RELATED SUPPORT SERVICE BY THE ASSESSEE TO CARLYLE HONG KONG WHICH IS ADMITTEDLY A N ASSOCIATED ENTERPRISES (AE) OF THE ASSESSEE. SINCE THE ASSESS EE ENTERED INTO AN INTERNATIONAL TRANSACTION WITH THE AE, THE PROVISIO NS OF SEC. 92C OF THE ACT WERE APPLICABLE. THE ASSESSEE IN SUPPORT OF IT S CLAIM FILED A TRANSFER PRICING REPORT IN WHICH THE ASSESSEE HAS DESCRIBED THE NATURE OF THE SERVICES RENDERED BY IT. FOLLOWING ARE THE DETAILS OF THE INTERNATIONAL TRANSACTIONS AS PER THE 3CEB REPORT AND TP DOCUMENT ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES DURING THE YEAR 2007-08. NATURE OF TRANSACTION AMOUNT (RS.) INVESTMENT ADVISORY RELATED SUPPORT SERVICES 41,49,37,418/- REIMBURSEMENT OF TRAVEL EXPENSES 56,458/- FINANCIALS OF THE TAXPAYER FOR THE F.Y. 2007-08 THE ABRIDGED FINANCIAL RESULTS FOR THE FINANCIAL Y EAR 2007-08 ARE AS FOLLOWS: ITA NO. 7367/M/2012 5 DESCRIPTION AMOUNT (RS.) OPERATING REVENUES 41,49,37,418/- OPERATING EXPENSES 36,20,69,881/- OPERATING PROFIT 5,28,67,537/- OP/TC(PLI) 14.69% 6. THE ASSESSEE ARRIVED AT THE FOLLOWING COMPARAB LES: S. NO. NAME OF THE COMPANY DATA SOURCE AVERAGE PLI 1. CRISIL RESEARCH & INFORMATION SERVICES LTD. (MERGED) P 6.45% 2. ARIX CONSULTANTS PVT. LTD. P 7.32% 3. IDC (INDIA) LTD. P 15.09% 4. CRISIL LTD (INFORMATION SEGMENT) P-SEG 19.23% MEAN 12.02% THE ABOVE ANALYSIS SHOWS THAT THE MEAN RETURN ON T OTAL COST OF COMPARABLE COMPANIES IS 12.02%. SINCE, PRICES OF I NTERNATIONAL TRANSACTIONS OF CARLYLE INDIA THAT ACHIEVE A RETURN OF 14.60% WHICH IS MORE THAN 12.02%, IT MEETS WITH THE ARMS LENGTH STANDARD REQUIRED UNDER THE INDIAN REGULATIONS. 7. THE TPO REJECTED THE COMPARABLES OF THE ASSESSEE AND FOLLOWING COMPANIES WERE TREATED AS FINAL COMPARABLES BY THE TPO. S. NO. NAME OF THE COMPANY OPERATING REVENUES OPERATING COST OPERATING PROFIT OP/TC 1. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. 628.50 364.70 263.8 72.33% ITA NO. 7367/M/2012 6 2. FUTURE CAPITAL HOLDINGS LTD.(SEGMENT INVESTMENT ADVISORY) 173.76 144.13 29.63 20.57% 3. FUTURE CAPITAL INVESTMENT ADVISORS LTD 158.05 129.77 28.28 21.79% ARITHMETICAL MEAN MARGIN 38.23% 8. THE OBJECTIONS WERE RAISED BEFORE THE DRP. THE DRP CONSIDERED THE OBJECTIONS OF THE ASSESSEE AND DIRECTED/HELD AS UNDER: IT IS SEEN THAT ALL THE COMPARABLES OF THE ASSES SEE HAVE BEEN DEALT WITH BY THE TPO. THE TPO HAS GIVEN HIS R EASONS TO EXCLUDE CRISIL, ARIX AND QUANTUM ADVISORS ON ACCOUN T OF DIFFERENT ACCOUNTING YEARS. WE HAVE DEALT WITH THIS FILTER IN PARAS SUPRA. ARIX AND INDIAN VENTURE CAPITAL LIMITED HAVE BEEN R EJECTED BECAUSE OF TURNOVER BELOW RS. I CRORE, WHICH FILTER HAS ALSO BEEN FOUND ACCEPTABLE BY US. PG. 29 OF THE TPOS ORDER DISCUSSES THE REJECTION O F IDC. THE ASSESSEE SUBMITS THAT IDC WAS FOUND COMPARABLE IN ITS CASE IN Y 2007-08 BY THE HONBLE ITAT. WE HAVE CONSIDERED THE FAR OF IDC AND FIND THAT IT CAN BE CONSIDERED A COMPARABLE FOR THE YEAR UNDER CONSIDERATION AS WELL WE FIND THAT THE REASON S GIVEN FOR SELECTION OF MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. AND ITS FINANCIALS INDICATE THAT THIS COMPANY ALSO IS ENGAG ED IN PROVIDING ADVISORY SERVICES. MOREOVER, TO THE EXTENT OF COMPO SITE ACCOUNTING, BOTH IDC AND MOTILAL OSWAL ANTE ARE SIMILAR. BOTH T HE COMPANIES ARE CONSIDERED COMPARABLES. THE ASSESSEE HAS RAISED THE ISSUE OF APPLICATION OF PROVISO TO S.92C (2) AND STATED THAT THE LEARNED AO/TPO HAS ER RED BY NOT PROVIDING THE BENEFIT OF 5 PERCENT RANGE TO THE ASS ESSEE AS ENVISAGED UNDER PROVISO TO SECTION 92C(2) OF THE AC T. WE FIND THAT THE POSITION OF LAW IS CLEAR IN VIEW OF THE INSERTI ON OF S.92C (2A) IN THE FINANCE ACT, 2012 WITH EFFECT FROM 1.4.2002. NO FURTHER COMMENT IS CALLED FOR. ITA NO. 7367/M/2012 7 9. A PERUSAL OF THE AFORESTATED DIRECTIONS OF THE D RP CLEARLY SHOWS THAT THE DRP HAS DIRECTED THE AO TO CONSIDER IDC AS A COMPARABLE CASE. BY DIRECTING SO, THE DRP HAS FOLLOWED THE FINDINGS OF THE TRIBUNAL FOR A.Y. 2007-08 IN ITA NO. 7901/MUM/2011. THE FINDING S OF THE TRIBUNAL IS ALSO FOUND CONFIRMED BY THE HONBLE JURISDICTION AL HIGH COURT IN INCOME TAX APPEAL (L) NO. 1286 OF 2012. WE ACCORDI NGLY DIRECT THE AO TO FOLLOW THE DIRECTIONS OF THE DRP SO FAR AS INCLU SION OF IDC AS A COMPARABLE CASE FOR THE DETERMINATION OF ALP IS CON CERNED. GROUND NO. 6 IS ACCORDINGLY ALLOWED. 10. THIS LEAVES US WITH ONLY SURVIVING GRIEVANCE OF THE ASSESSEE IS THAT THE REVENUE AUTHORITIES HAVE ERRED IN INCLUDING M/ S. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. AS A COMPARABLE CASE FOR THE DETERMINATION OF ARMS LENGTH PRICE (ALP). THE LD. COUNSEL FOR T HE ASSESSEE STRONGLY CONTENDED THAT THE ABOVE STATED COMPANY HAS A DIVER SIFIED BUSINESS THEREFORE THE PROFIT OF THE SAID COMPANY CANNOT BE TAKEN AS A BENCHMARK FOR THE DETERMINATION OF ALP. TO SUBSTANTIATE HIS CLAIM, THE LD. COUNSEL DREW OUR ATTENTION TO THE DIRECTORS REPORT OF MOTI LAL OSWAL INVESTMENT ADVISORS PVT. LTD. AND POINTED OUT THAT THE COMPANY S REVENUE WERE MAINLY FROM CROSS BORDER MERGER AND ACQUISITION ACT IVITY AND THE RELATED FINANCING SOLUTIONS WERE THE LARGEST CONTRIBUTOR TO THE REVENUE MIX DURING THE YEAR. THE LD. COUNSEL FURTHER POINTED OUT THAT THE SAID COMPANY WAS ALSO IN QIP BUSINESS. THE SAID COMPANY WAS ALSO AB LE TO ORIGINATE AND STRUCTURE HIGH QUALITY DEALS IN PRIVATE EQUITY BUSI NESS. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEES BUSINESS IS ONLY RE LATED TO INVESTMENT ADVISOR TO ITS AE. SINCE THE BUSINESS OF MOTILAL O SWAL INVESTMENT ADVISORS PVT. LTD. IS EXTREMELY DIVERSIFIED IN NATU RE, THE SAME CANNOT BE CONSIDERED AS COMPARABLE FOR THE DETERMINATION OF T HE ALP. THE LD. COUNSEL FURTHER STATED THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE HAS BEEN ITA NO. 7367/M/2012 8 ACCEPTED BY THE DRP/TPO AND ALSO BY THE TRIBUNAL IN THE IMMEDIATELY PRECEDING YEAR WHEREAS M/S. MOTILAL OSWAL INVESTMEN T ADVISORS PVT. LTD. IS A SEBI REGISTERED MERCHANT BANKING CO. AND HENCE NOT A COMPARABLE. 11. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE REFERRED TO THE FINANCIAL STATEMENTS OF MOTILAL OSWAL INVESTMENT AD VISORS PVT. LTD. AND SUBMITTED THAT UNDER THE HEAD INCOME FROM OPERATI ONS, THE COMPANIES MAIN REVENUE WAS FROM ADVISORY FEES. IT IS THE SA Y OF THE LD. DR THAT EVEN MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. IS GENERATING REVENUE FROM ADVISORY FEES. OUT OF THE TOTAL REVENUE OF 63 .74 CRORES, ADVISORY FEES CONTRIBUTED TO 62.77 CRORES. MEANING THEREBY THAT, 98% OF THE INCOME OF MOTILAL OSWAL INVESTMENT ADVISORS PVT. LT D. IS CONTRIBUTED BY ADVISORY FEES. THE LD. DR STRONGLY SUBMITTED THAT MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. IS A GOOD COMPARABLE AND THEREFORE HAS BEEN RIGHTLY CONSIDERED BY THE TPO. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVAN T MATERIAL EVIDENCES BROUGHT ON RECORD AND REFERRED TO IN THE LIGHT OF RULE 18(6) OF THE INCOME TAX APPELLATE TRIBUNAL RULES, 1963. THE ONLY DISPU TE IS WHETHER MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. CAN BE CONSIDER ED AS A COMPARABLE FOR THE DETERMINATION OF ALP. A PERUSAL OF THREE C OMPARABLES CONSIDERED BY THE TPO SHOWS THAT M/S. FUTURE CAPITAL INVESTMEN T ADVISORS LTD., HAS OPERATING PROFIT AT 21.79% WHEREAS OPM OF MOTILAL O SWAL INVESTMENT ADVISORS PVT. LTD. IS 72.33%. THE COMPARABLES USED BY THE TPO THEMSELVES ARE SHOWING EXTREME OPM. A PERUSAL OF T HE DIRECTORS REPORT OF MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. SHOW S THAT DURING THE YEAR UNDER CONSIDERATION, THE SAID COMPANY HAS COMP LETED 23 ITA NO. 7367/M/2012 9 ASSIGNMENTS SUCCESSFULLY AS AGAINST 14 COMPLETED IN THE IMMEDIATELY PRECEDING YEAR. A CLOSE LOOK AT THE FINANCIAL STAT EMENTS OF THE SAID COMPANY SHOW THAT THE INCOME FROM OPERATIONS HAVE B EEN SHOWN ONLY AS ADVISORY FEES WHEREAS IT IS ADMITTEDLY AN UNDISPUTE D FACTS THAT THE SAID COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES. SEGME NTAL REPORTING IS NOT AVAILABLE. PROFIT AND LOSS ACCOUNT APPEARS TO BE O NLY OF CONSOLIDATED ACCOUNTS. THE SAID COMPANY IS REGISTERED WITH SEBI AS A MERCHANT BANKER AND THE DIRECTORS REPORT SHOW THAT IT IS INTO TAKE OVER , ACQUISITIONS, DISINVESTMENTS ETC. IN THE ABSENCE OF SPECIFIC DAT A IT IS NOT POSSIBLE TO MAKE COMPARISON. IT CAN THEREFORE BE SAFELY SAID T HAT THE SAID COMPANY BEING INTO MERCHANT BANKING AND CANNOT BE CONSIDERE D AS A COMPARABLE. WE, ACCORDINGLY DIRECT THE AO NOT TO CONSIDER MOTIL AL OSWAL INVESTMENT ADVISORS PVT. LTD. AS A COMPARABLE FOR THE DETERMIN ATION OF ALP AND REDETERMINE THE ARMS LENGTH PRICE EXCLUDING MOTILA L OSWAL INVESTMENT ADVISORS PVT. LTD. [ AS PER OUR FINDINGS ] AND INCL UDING M/S. IDC [ AS PER THE DIRECTIONS OF THE DRP ] IN THE LIGHT OF THE PRO VISIONS OF SEC. 92C(2) R.W. SECTION 92C(2A) OF THE ACT. GROUND NO. 4.1 AN D GROUND NO. 9 ARE ACCORDINGLY ALLOWED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY, 2014 . 3 . 2& $ 4 567.2.2014 2 . = SD/- SD/- (I.P BANSAL ) (N.K. BILLAIYA) /JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 5 DATED 7.2.2014 . . ./ RJ , SR. PS ITA NO. 7367/M/2012 10 3 . +/ > &/ 3 . +/ > &/ 3 . +/ > &/ 3 . +/ > &/ / COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. @= +/ , , / DR, ITAT, MUMBAI 6. =A B / GUARD FILE. 3 3 3 3 / BY ORDER, , / +/ //TRUE COPY// C CC C / D ( D ( D ( D ( (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI