M/s D.E. Shaw India Advisory Services Pvt. Ltd., New Delhi V. JCIT, New Delhi

ITA 75/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4575 (ITAT-DELHI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 06-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 04-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Question of law; Wholly owned subsidiary; Notional interest
• Section: 92C; 143(3); 92D; 92B; 234B; 133(6); 80G; 148; 12; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1681/DEL/2015 AY: 20 10-11 ITA NO.1018/DEL/2016 AY: 20 11-12 ITA NO.75/DEL/2017 AY: 20 12-13 D.E. SHAW INDIA ADVISORY SERVICES PVT. LTD., V S DCIT, E-20, 1 ST & 2 ND FLOOR, CIRCLE 7(1), MAIN MARKET, HAUZ KHAS, NEW DELHI. NEW DELHI-110016 (PAN: AABCE6097P) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KAPIL HIRANI, CA SHRI SURESH TOLA NI, ADV. SHRI DARPAN KIRP ALANI RESPONDENT BY : SHRI T.M. SHIVAKUMAR, CIT ( DR) PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ALL THESE APPEALS HAVE BEEN PREFERRED BY THE A SSESSEE AGAINST THE ORDERS GIVING EFFECT TO THE DIRECTIONS GIVEN BY THE HONBLE DISPUTE RESOLUTION PANEL-IV (DRP), NEW DELHI. AS TH E GROUNDS ARE ALMOST IDENTICAL IN ALL THREE APPEALS, THESE ARE BE ING DISPOSED OF THROUGH THIS COMMON ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, D. E. SHAW INDIA ADVISORY SERVICES PRIVATE LIMITED (D. E. SHAW INDIA ), IS A ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 2 COMPANY INCORPORATED IN INDIA AS A PRIVATE LIMITED COMPANY, WITH ITS REGISTERED OFFICE IN NEW DELHI. IT IS A WHOLLY OWNED SUBSIDIARY OF D. E. SHAW & CO. (MAURITIUS). D. E. SHAW INDIA R ENDERS SERVICES IN THE NATURE OF INVESTMENT ADVISORY SERVI CES TO ITS AE (D. E. SHAW & CO. MAURITIUS). THE YEAR WISE FACTS ARE A S UNDER - 2.1 ITA 1681/DEL/2015 AY 10-11: FOR THIS YEAR, THE RETURN OF INCOME WAS FILED AT A TOTAL INCOME OF RS.149,821,815/-. THE TRANSFER PRICING OFFICER (TPO) MADE AN UPWARD ADJUSTMENT OF RS. 241,095,763/- ON ACCOUNT O F ADVISORY AND CONSULTANCY SERVICES AND RS. 28,516,238/- ON AC COUNT OF RECEIVABLES, THUS MAKING A TOTAL ADJUSTMENT OF RS. 2,69,612,001/-. THE ASSESSEE APPROACHED THE HONBL E DRP WHO GAVE PARTIAL RELIEF AND DIRECTED THE AO/TPO TO ALLO W WORKING CAPITAL ADJUSTMENT, THEREBY REDUCING THE TRANSFER P RICING (TP) ADJUSTMENT TO RS. 175,168,000/-. HOWEVER, THE HON BLE DRP DID NOT GRANT ANY RELIEF IN RESPECT OF THE RECEIVABLES. 2.1.1 IN THIS YEAR, THE ASSESSEE HAD SELECTED SEV EN COMPARABLES FOR BENCHMARKING IN RESPECT OF TRANSACTIONS INVOLVI NG INVESTMENT ADVISORY SERVICES IN ITS TRANSFER PRICING DOCUMENTA TION AND THE TPO REJECTED FOUR COMPARABLES OUT OF THE SAME AND A DDED SIX NEW COMPARABLES IN THE FINAL SET OF COMPARABLES. T HE FINAL LIST OF ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 3 COMPARABLES AFTER THE DIRECTIONS OF THE HONBLE DRP ARE NINE WHICH ARE AS UNDER:- S.NO. CO COMPARABLE COMPANIES ADJUSTED OP/TC ORIGINAL TP STUDY / ADDED BY TPO 1. IM + IM + CAPITAL (BRESCON CORPORATE ADVISORS LIMITED) 83.74% ADDED BY TPO 2. CYB CYBER MEDIA RESEARCH LIMITED 11.53% ORIGINAL TP STUDY 3. FUTU FUTURE CAPITAL INVESTMENTS 14.17% ORIGINAL TP STUDY 4. ICR ICRA MANAGEMENT CONSULTING SERVICES LIMITED (-) 3.98% ORIGINAL TP STUDY 5. KAR KARVY INVESTOR SERVICES LIMITED 20.94% ADDED BY TPO 6 KEY KEYNOTE CORPORATE SERVICES LIMITED 82.69% , ADDED BY TPO 7 KSHI KSHITIJ INVESTMENT ADVISORY SERVICES LIMITED 36.79% ADDED BY TPO 8. MOTILALOSWAL INVESTMENT ADVISORS PRIVATE LIMITED 95.87% ADDED BY TPO 9 LADDERUP CORPORATE ADVISORY PRIVATE LIMITED 9.61% ADDED BY TPO AVE AVERAGE 39.04% 2.1.2 OUT OF THESE COMPARABLES, THE ASSESSEE IS ACCEPTING CYBER MEDIA RESEARCH LIMITED, FUTURE CAPITAL INVEST MENTS AND ICRA MANAGEMENT CONSULTING SERVICES LTD. BUT IS CON TESTING THE REMAINING FIVE COMPARABLES. THE FOLLOWING GROUNDS H AVE BEEN RAISED IN THIS YEARS APPEAL:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 7(1), NEW DELH I (HEREINAFTER REFERRED TO AS 'THE LEARNED AO') PURSU ANT TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL - IV (HEREINAFTER REFERRED TO AS 'THE HON'BLE DRP') UNDE R SECTION 143(3) READ WITH SECTION 144C OF THE ACT, IS A VITI ATED ORDER HAVING BEEN PASSED IN VIOLATION OF PRINCIPLES OF NA TURAL ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 4 JUSTICE AND IS OTHERWISE ARBITRARY AND IS THUS BAD IN LAW AND VOID AB-INITIO. 2. THAT THE HON'BLE DRP IS BAD IN LAW TO THE EXTEN T THE SAME ARE PREJUDICIAL TO THE APPELLANT. 3. THAT THE LEARNED AO/ LEARNED TRANSFER PRICING O FFICER ('TPO') HAS ERRED ON FACTS AND IN LAW IN MAKING THE TRANSFER PRICING ADJUSTMENT OF INR 203,684,238 IN RESPECT OF THE INTERNATIONAL TRANSACTION RELATING TO THE PROVISION OF FINANCIAL AND INVESTMENT ADVISORY SERVICES TO THE ASSOCIATED ENTERPRISES ('AES') UNDERTAKEN BY THE APPELLANT. 3.1 THAT THE LEARNED TPO ERRED, ON FACTS AND IN LA W, IN REJECTING THE ECONOMIC ANALYSIS IN THE DOCUMENTATIO N FILED BY THE APPELLANT IN TERMS OF SECTION92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('THE RULES' ) AND PROCEEDED TO MAKE A TRANSFER PRICING ADDITION BASED ON RE- DETERMINATION OF THE ARM'S LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION. 3.2 THAT THE LEARNED TPO ERRED, ON FACTS AND IN LAW , IN CHANGING THE FILTERS APPLIED BY THE APPELLANT FOR S ELECTIONOF THE APPROPRIATE COMPARABLE COMPANIES FOR DETERMINAT ION OF THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION USING THE TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOS T APPROPRIATE METHOD IN THE DOCUMENTATION MAINTAINED UNDER SECTION 92D OF THE ACT READ WITH RULE 10D OF THE RU LES. 3.3 THAT THE LEARNED TPO ERRED, ON FACTS AND IN L AW, IN USING SINGLE YEAR FINANCIAL DATA (I.E. DATA FOR FY 2009-10 ONLY) AS AGAINST MULTIPLE YEAR FINANCIAL DATA USED BY THE APPELLANT FOR DETERMINATION OF THE ARMS LENGTH PRI CE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION O F FINANCIAL AND INVESTMENT ADVISORY SERVICES. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 5 3.4 THAT THE LEARNED TPO ERRED, ON FACTS AND IN LA W, IN REJECTING CERTAIN COMPANIES SELECTED AS COMPARABLE ON THE GROUND THAT IT HAD DIFFERENT FINANCIAL YEAR END. 3.5 THAT THE LEARNED TPO ERRED, ON FACTS AND IN LA W, IN APPLYING LOWER TURNOVERFILTER OF INR 5 CRORE TO REJ ECT ICRA ONLINE LIMITED, INFORMED TECHNOLOGIES INDIA LIMITED , INTEGRATED SERVICES PRIVATE LIMITED AND KINETIC TRU ST LIMITED WHICH ARE OTHERWISE COMPARABLE FOR THE INTERNATIONA L TRANSACTION PERTAINING TO PROVISION OF FINANCIAL AN D INVESTMENT ADVISORY SERVICES. WITHOUT PREJUDICE, TH E LEARNED TPO ERRED ON FACTS AND IN LAW IN NOT APPLYING AN UP PER TURNOVER FILTER. 3.6 THAT THE LEARNED TPO ERRED IN SELECTING BRESCO N ADVISORS HOLDING LIMITED, KARVY INVESTOR SERVICES L IMITED, KEYNOTE CORPORATE SERVICES LIMITED, MOTILAL OSWAL INVESTMENTADVISORS PRIVATE LIMITED AND KSHITIJ INVE STMENT ADVISORY COMPANY LIMITED AS COMPARABLES WITHOUT APPRECIATING THAT THESE COMPARABLES ARE ENGAGED IN MERCHANT BANKING SERVICES, SECURITY AND STOCK BROKI NG SERVICES, LOAN SYNDICATION/ DEBT SYNDICATION AND PR OJECT CONSULTANCY SERVICES, INVESTMENT BANKING SERVICES, INSTITUTIONAL EQUITIES, INSURANCE BROKERAGE, ASSET MANAGEMENT AND WEALTH MANAGEMENT, MERGER AND ACQUISITION ADVISORY, ESOP ADVISORY, EQUITY/ DEBT PLACEMENTS AND RESTRUCTURING, SYNDICATION OF FINANC E, PORTFOLIO MANAGEMENT AND MUTUAL FUND DISTRIBUTION A ND DO NOT SATISFY THE FUNCTIONAL, ASSETS AND RISKS ('FAR' ) ANALYSIS TEST VIS-A-VIS THE APPELLANT IN RELATION TO THE INT ERNATIONAL TRANSACTION PERTAINING TO PROVISION OF FINANCIAL AN D INVESTMENT ADVISORY SERVICES. 3.7 THAT THE LEARNED TPO ERRED IN SELECTING CERTAI N COMPANIES AS COMPARABLES WITHOUT APPRECIATING THAT THESE COMPANIES HAVE DISPLAYED EXCEPTIONAL PROFIT DURING THE RELEVANT FINANCIAL YEAR (I.E. FY 2009-10) UNDER CON SIDERATION ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 6 WHICH WAS ON ACCOUNT OF EXCEPTIONAL CIRCUMSTANCES A ND DID NOT PORTRAY THE CORRECT OPERATIONAL PROFITABILITY I N THE INDUSTRY. 3.8 THE LEARNED AO/ LEARNED TPO HAVE ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, BY FAILING TO INCLUDE FOREIGN EXCHANGE GAINS/ LOSSES AND BANK CHARGES AS AN OPERATING INCOME/ EXPENDITURE WHILE COMPUTING THE OPERATING MARGINS OF THE APPELLANT AND THE COMPARAB LE COMPANIES. 3.9 THAT THE LEARNED TPO ERRED, ON FACTS AND IN LA W, BY NOT MAKING APPROPRIATE ADJUSTMENT FOR RISK DIFFERENCES BETWEEN THE APPELLANT AND THE SELECTED COMPARABLE COMPANIES IN THE ARM'S LENGTH PRICE SO DETERMINED FOR THE INTERNATIO NAL TRANSACTION PERTAINING TO PROVISION OF FINANCIAL AN D INVESTMENT ADVISORY SERVICES, AS THE APPELLANT IS REMUNERATED ON COST PLUS BASIS FOR IMPUGNED TRANSAC TIONS AND BEARS MINIMAL RISK. 3.10 THAT THE LEARNED TPO ERRED IN NOT ALLOWING T HE BENEFIT OF DOWNWARD ADJUSTMENT OF 5%, AS PROVIDED IN THE PR OVISO TO SECTION 92C OF THE ACT, FROM THE ARM'S LENGTH PR ICE DETERMINED FOR THE IMPUGNED TRANSACTION. 4. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP HAVE E RRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, IN MAKING THE TRANSFER PRICING ADJUSTMENT OF INR 28,51 6,238 BY ERRONEOUSLY RE-CHARACTERIZING THE OUTSTANDING RE CEIVABLES FROM AE OF THE APPELLANT AS UNSECURED LOAN AND CHAR GING INTEREST ON ALLEGED DELAYED PAYMENT IN COLLECTION O F RECEIVABLES. 4.1.THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP HAVE ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, IN CHARGING ARBITRARY INTEREST RATE WHILE DETERMINING THE NOTIONAL INTEREST TO BE CHARGED FROM THE ALLEGED DE LAY IN COLLECTION OF RECEIVABLES. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 7 5. THE LEARNED AO/ DRP HAVE ERRED ON FACTS, ON THE CIRCUMSTANCES OF THE CASE AND IN LAW BY ALLEGING TH AT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF I NCOME, THEREBY PROPOSING TO INITIATE PENALTY PROCEEDINGS U NDER SECTION 271(L)(C) OF THE ACT. 6. THE LEARNED AO ERRED, ON FACTS AND IN LAW, BY P ROPOSING TO LEVY CONSEQUENTIAL INTEREST UNDER SECTION 234B A ND 234C OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMI T OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL . 2.2 ITA NO.1018/DEL/2016 AY 2011-12: IN THIS APPEAL FOR ASSESSMENT YEAR 2011-12, THE RETURN OF INCOME WAS FILED AT A TOTAL INCOME OF RS. 96,703,42 0/-. THE TPO MADE AN UPWARD ADJUSTMENT OF RS. 166,613,797/- ON A CCOUNT OF ADVISORY AND CONSULTANCY SERVICES, RS. 13,031,164/- ON ACCOUNT OF RECEIVABLES AND RS. 49,66,653/- ON ACCOUNT OF BU Y BACK OF SHARES. ON THE ASSESSEE APPROACHING THE HONBLE DR P, THE HONBLE DRP GAVE PARTIAL RELIEF TO THE ASSESSEE BY DIRECTING THE ASSESSING OFFICER TO ALLOW WORKING CAPITAL ADJUSTME NT THEREBY REDUCING THE TP ADJUSTMENT TO RS. 89,112,587/-. TH E HONBLE DRP ALSO DIRECTED THE ADJUSTMENT IN RESPECT OF BUY BACK OF SHARES TO BE DELETED. HOWEVER, THE HONBLE DRP DID NOT GRANT ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 8 ANY RELIEF IN RESPECT OF RECEIVABLES. IN THIS ASSE SSMENT YEAR, THE ASSESSEE HAD SELECTED EIGHT COMPARABLES TO BENCHMAR K THE TRANSACTION INVOLVING INVESTMENT ADVISORY SERVICES IN ITS TP DOCUMENTATION. TPO REJECTED SIX OF THE COMPARABLES AND ONLY RETAINED TWO AND THEREAFTER, ADDED TEN NEW COMPARAB LES. THE FINAL LIST OF COMPARABLES AFTER THE HONBLE DRP DIR ECTIONS ARE 12 AS UNDER:- S. COMPARABLE COMPANIES ADJUSTED OP/ TC ORIGINAL TP STUDY NO. I ADDED BY TPO 1 A . K . CA P ITA L SER V ICES LIMITED -75.08% ADDED BY TPO 2 ADIT Y A BIRLA CAPITAL ADVISORS PRIVATE LTD. 41 . 65% ADDED BY TPO LIMITED 3 AJCON GLOB A L SER V ICES LIMITED 10.56 % ADDED BY TPO 4 A X IS PRI V AT E EQUITY LIMITED 30.36% ADDED BY TPO 5 CYBER MEDIA RESEARCH LIMITED (IDC 8.81% ORIGINAL TP STUDY (INDIA) LIMITED) 6 ICRA MANAGEMENT CONSULTING SERVICES 9 . 21% ORIGINAL TP STUDY LIMITED 7 1M + CAPIT A L ( B R ESCON CORPORATE ADVISORS 83.81% ADDED BY TPO LIMITED ) 8 KE Y NOTE CORPORATE SERVICES LIMITED 123.99% ADDED BY TPO 9 LADDERUP CORPORATE ADVISORY PRIVATE 49 . 44% ADDED LIMITED 10 MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE 78.51% ADDED BY TPO LIMITED 11 PORTFOLIO FINANCIAL SERVICES LIMITED 32.14% ADDED BY TPO 1 2 SREI VENTURE CAPITAL LIMITED 6.66 % ADDED BY TPO A V ERAGE 33.34 % ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 9 2.2.1 THE ASSESSEE IS ACCEPTING ONLY TWO COMPARAB LES VIZ. CYBER MEDIA RESEARCH LTD AND ICRA MANAGEMENT CONSULTING S ERVICES LTD AND IS CONTESTING THE REMAINING TEN COMPARABLES . THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 7(1), N EW DELHI (HEREINAFTER REFERRED TO AS 'THE LEARNED AO') PURSUANT TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL - IV (HEREINAFTER REFERRED TO AS 'THE HON'BLE DRP') U NDER SECTION 143(3) READ WITH SECTION 144C(5) OF THE ACT , IS A VITIATED ORDER HAVING BEEN PASSED IN VIOLATION OF P RINCIPLES OF NATURAL JUSTICE AND IS OTHERWISE ARBITRARY AND I S THUS BAD IN LAW AND VOID AB-INITIO. 2. THAT THE HON'BLE DRP IS BAD IN LAW TO THE EXTEN T THE SAME ARE PREJUDICIAL TO THE APPELLANT. 3. THAT THE LEARNED AO/ LEARNED TRANSFER PRICING O FFICER ('TPO') HAS ERRED ON FACTS AND IN LAW IN MAKING THE TRANSFER PRICING ADJUSTMENT OF INR 89,112,587 IN RE SPECT OF THE INTERNATIONAL TRANSACTION RELATING TO THE PROVI SION OF FINANCIAL AND INVESTMENT ADVISORY SERVICES TO THE ASSOCIATED ENTERPRISES ('AES') UNDERTAKEN BY THE APPELLANT. 3.1 THAT THE LEARNED TPO ERRED, ON FACTS AND IN LA W, IN REJECTING THE ECONOMIC ANALYSIS IN THE DOCUMENTATIO N FILED BY THE APPELLANT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('THE R ULES') AND PROCEEDED TO MAKE A TRANSFER PRICING ADDITION B ASED ON RE-DETERMINATION OF THE ARM'S LENGTH PRICE OF TH E INTERNATIONAL TRANSACTION. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 10 3.2 THAT THE LEARNED TPO ERRED, IN LAW AND ON FACTS IN USING SINGLE YEAR FINANCIAL DATA (I.E. DATA FOR FY 2010-11 ONLY) AS AGAINST MULTIPLE YEAR FINANCIAL DATA USED BY THE APPELLANT FOR DETERMINATION OF THE ARM'S LENGTH PRICE OF THE INTER NATIONAL TRANSACTION PERTAINING TO PROVISION OF INVESTMENT ADVISORY SERVICES. 3.3 THAT THE LD. TPO ERRED, ON FACTS AND IN LAW, IN APPLYING LOWER TURNOVER FILTER OF INR 5 CRORE TO REJECT INFORMED TECHNOLOGIES LIMITED AND INTEGRATED CAPITA L SERVICES LIMITED WHICH ARE OTHERWISE COMPARABLE FOR THE INVESTMENT ADVISORY SERVICES PROVIDED BY THE APPELL ANT TO ITS AES. WITHOUT PREJUDICE, THE LD. TPO ERRED ON F ACTS AND IN LAW, IN NOT APPLYING AN UPPER TURNOVER FILTER TO REJECT COMPANIES HAVING SIGNIFICANTLY HIGHER TURNOVER VIS- A-VIS THE APPELLANT. 3.4 THAT THE LEARNED TPO ERRED, ON THE FACTS AND IN LAW, IN REJECTING ICRA ONLINE LIMITED AS COMPARABLE FOR PR OVISION OF INVESTMENT ADVISORY SERVICES TO AES WITHOUT APPR ECIATING THE FACT THAT THE SERVICES P ROVIDED BY ICRA ONLINE ARE SIMILAR TO THE INVESTMENT ADVISORY SERVICES RENDER ED BY THE APPELLANT AND PASSES ALL THE QUANTITATIVE FILTERS A PPLIED BY THE LEARNED TPO. 3.5. THAT THE LEARNED TPO HAS ERRED, ON THE FACTS AND IN LAW, IN SELECTING 1M + CAPITALS (FORMERLY BRESCON CORPORATE ADVISORS LIMITED), KEYNOTE CORPORATE SERV ICES LIMITED, LADDERUP CORPORATE ADVISORY PRIVATE LIMITE D, MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE LIMITED, S REI VENTURE CAPITAL LIMITED, ADITYA BIRLA CAPITAL ADVIS ORS PRIVATE LIMITED, AJCON GLOBAL SERVICES LIMITED, AXI S PRIVATE EQUITY LIMITED AND PORTFOLIO FINANCIAL SERVICES LIMITED AS COMPARABLE WITHOUT APPRECIATING THAT THESE COMPARABLE ARE ENGAGED IN MERCHANT BANKING SERVICES, SECURITY AND STOCK BROKI NG SERVICES, LOAN SYNDICATION/ DEBT SYNDICATION AND PR OJECT CONSULTANCY SERVICES, INVESTMENT BANKING SERVICES, INSTITUTIONAL EQUITIES, INSURANCE BROKERAGE, ASSET MANAGEMENT AND WEALTH MANAGEMENT, MERGER AND ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 11 ACQUISITION ADVISORY, ESOP ADVISORY, EQUITY/DEBT PLACEMENTS AND RESTRUCTURING, SYNDICATION OF FINANC E, PORTFOLIO MANAGEMENT AND MUTUAL FUND DISTRIBUTION AND DO NOT SATISFY THE FUNCTIONAL, ASSETS AND RISKS ('FAR' ) ANALYSIS TEST VIS-A-VIS THE APPELLANT IN RELATION T O THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION O F INVESTMENT ADVISORY SERVICES. 3.6 THAT THE LEARNED TPO HAVE ERRED, ON THE FA CTS AND IN LAW, IN SELECTING CERTAIN COMPANIES AS COMPARABLE S WITHOUT APPRECIATING THAT THESE COMPANIES HAVE DISPLAYED EXCEPTIONAL PROFIT DURING THE RELEVAN T FINANCIAL YEAR (I.E. FY 2010-11) UNDER CONSIDERATION WHICH WAS ON ACCOUNT OF EXCEPTIONAL CIRCUMSTANCES AND DID NOT PORTRAY THE CORRECT OPERATIONAL PROFITABILITY IN THE IND USTRY. 3.7 THE LEARNED TPO/ HON'BLE DRP HAVE ERRED, ON THE FACTS AND IN LAW, BY FAILING TO INCLUDE FOREIGN EXCHANGE GAINS/ LOSSES AND BANK CHARGES AS AN OPERATING INCOME/ EXPENDITURE WHILE COMPUTING THE OPERATING MARGINS O F THE APPELLANT AND THE COMPARABLE COMPANIES FOR THE APPLICATION OF THE TNMM. 3.8. THAT THE LEARNED TPO/ HON'BLE DRP ERRED, ON FACTS AND IN LAW, BY NOT MAKING APPROPRIATE ADJUSTMENT FOR RI SK DIFFERENCES BETWEEN THE APPELLANT AND THE SELECTED COMPARABLE COMPANIES IN THE ARM'S LENGTH PRICE SO DETERMINED FOR THE INTERNATIONAL TRANSACTION PERTA INING TO PROVISION OF INVESTMENT ADVISORY SERVICES, AS THE A PPELLANT IS REMUNERATED ON COST PLUS BASIS FOR IMPUGNED TRANSACTION AND BEARS MINIMAL RISK. 3.9. THAT THE LEARNED TPO HAVE ERRED, ON THE FA CTS AND IN LAW, IN NOT ALLOWING THE BENEFIT OF DOWNWARD ADJUST MENT OF 5%, AS PROVIDED IN THE PROVISO TO SECTION 92C OF TH E ACT, FROM THE ARM'S LENGTH PRICE DETERMINED FOR THE IMPU GNED TRANSACTION. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 12 4. THAT THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP HA VE ERRED, ON THE FACTS AND IN LAW, IN MAKING THE TRANS FER PRICING ADJUSTMENT OF INR 1,30,31,164 BY ERRONEOUSL Y RE- CHARACTERIZING THE OUTSTANDING RECEIVABLES FROM AE OF THE APPELLANT AS UNSECURED LOAN AND COMPUTING NOTIONAL INTEREST ON ALLEGED DELAYS IN REALIZATION OF PAYMEN T FROM THE AES AGAINST THE INVOICES RAISED FOR INVESTMENT ADVISORY SERVICES. 4.1. THAT THE LEARNED AO/ LEARNED TPO/ HON'BLE DR P HAVE ERRED, ON THE FACTS AND IN LAW,, IN APPLYING ARBITR ARY INTEREST RATE OF 11.69 PERCENT WHILE DETERMINING TH E NOTIONAL INTEREST ON THE ALLEGED DELAYS IN COLLECTI ON OF RECEIVABLES FROM THE AES. 5. THAT THE LEARNED AO HAVE ERRED, ON THE FACTS A ND IN LAW, IN NOT GRANTING DEDUCTION UNDER SECTION 80G OF THE ACT FOR DONATIONS MADE TO FOUNDATIONS DULY REGISTERED U NDER SECTION 80G OF THE ACT. 6. THAT THE LEARNED AO/ HON'BLE DRP HAVE ERRED, ON THE FACTS AND IN LAW, ON THE CIRCUMSTANCES OF THE CASE AND IN LAW BY ALLEGING THAT THE APPELLANT HAS FURNISHED IN ACCURATE PARTICULARS OF INCOME, THEREBY PROPOSING TO INITIAT E PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, THE LEARNED AO HAVE ERRED, ON THE FACTS AND IN LAW, BY LEVYING THE INTEREST UNDER SECTION 234A, WITHOUT APPRECIATING T HAT THE RETURN OF INCOME WAS DULY FILED IN TIME BY THE APPE LLANT. 7. THAT THE LEARNED AO ERRED, ON FACTS AND IN LAW, BY PROPOSING TO LEVY CONSEQUENTIAL INTEREST UNDER SECT ION 234B AND 234D OF THE ACT MECHANICALLY AND WITHOUT RECORD ING ANY SATISFACTION FOR ITS INITIATION. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 13 2.3 ITA 75/DEL/2017 AY 2012-13: IN THIS APPEAL PERTAINING TO ASSESSMENT YEAR 2 012-13, THE RETURN OF INCOME WAS FILED AT AN INCOME OF RS. 102, 52,0420/-. THE TPO MADE AN ADJUSTMENT ON ACCOUNT OF FINANCIAL AND INVESTMENT ADVISORY SERVICES AMOUNTING TO RS. 54,70 2,378/- AND RS. 12,791,796/- ON ACCOUNT OF RECEIVABLES, THEREBY MAKING A TOTAL UPWARD ADJUSTMENT OF RS. 67,494,174/- BUT ON THE ASSESSEE APPROACHING THE HON'BLE DRP, THE HON'BLE DRP DID NO T GRANT ANY RELIEF IN RESPECT OF PROVISION OF FINANCIAL AND INV ESTMENT ADVISORY SERVICES BUT GAVE PARTIAL RELIEF TO THE ASSESSEE BY DIRECTING THE ASSESSING OFFICER TO ADOPT SBI BASE RATE ON 30 TH JUNE OF THE RELEVANT PREVIOUS YEAR PLUS 300 BASIS POINTS IN RES PECT OF THE RECEIVABLES AND ALSO DIRECTED THE ASSESSING OFFICER TO LIMIT THE PERIOD UNDER CONSIDERATION TO ASSESSMENT YEAR 2012- 13. CONSEQUENT TO THE DIRECTIONS OF THE HON'BLE DRP, TH E TP ADJUSTMENT STOOD AT RS. 16,699,310/-. IN THIS YEAR , THE ASSESSEE HAD SELECTED 5 COMPARABLES TO BENCHMARK THE TRANSAC TION INVOLVING PROVISION OF INVESTMENT ITS TP DOCUMENTA TION OUT OF WHICH 4 COMPARABLES WERE REQUIRED BY THE TPO AND TH EREAFTER ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 14 THE TPO ADDED 6 NEW COMPARABLES FOR THE FINAL SET O F COMPARABLES. THE FINAL SET OF COMPARABLE COMPANIES AFTER THE HON'BLE DRPS DIRECTIONS ARE AS UNDER:- 2.3.1 THE ASSESSEE IS ACCEPTING ONLY ONE COMPARAB LE I.E. ICRA MANAGEMENT CONSULTING SERVICES LTD AND IS CONTESTIN G THE REMAINING SIX COMPARABLES. THE GROUNDS RAISED BY TH E ASSESSEE IN THIS YEARS APPEAL READ AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED JOINT COMMISSIONER OF INCOME-TAX, SPECIAL R ANGE S. NO. COMPARABLE COMPANIES ADJUSTED OP/ TC ORIGINAL TP STUDY / ADDED BY TPO 1 ADITYA BIRLA CAPITAL ADVISORS PRIVATE LIMITED 34.02% ADDED BY TPO 2 AJCON GLOBAL SERVICES LIMITED 14.76% ADDED BY TPO 3 ALMONDZ GLOBAL SECURITIES LIMITED (SEGMENTAL) 35.75% ADDED BY TPO 4 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 2.37% ORIGINAL TP STUDY 5 IM + CAPITAL (BRESCON CORPORATE ADVISORS LIMITED) 19.91% ADDED BY TPO 6 KEYNOTE CORPORATE SERVICES LIMITED 62.42% ADDED BY TPO 7 LADDERUP CORPORATE ADVISORY PRIVATE LIMITED 33.85% ADDED BY TPO AVERAGE 29.01% ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 15 - 3, NEW DELHI (HEREINAFTER REFERRED TO AS 'THE LEA RNED AO') PURSUANT TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL - I (HEREINAFTER REFERRED TO AS 'T HE HON'BLE DRP') UNDER SECTION 144C(5) OF THE ACT, IS A VITIAT ED ORDER HAVING BEEN PASSED IN VIOLATION OF PRINCIPLES OF NA TURAL JUSTICE AND IS OTHERWISE ARBITRARY AND IS THUS BAD IN LAW AND VOID AB-INITIO. 2. THAT THE HON'BLE DRP DIRECTIONS ARE BAD IN LAW TO THE EXTENT THE SAME ARE PREJUDICIAL TO THE APPELLAN T. 3. THAT THE LEARNED AO HAS ERRED ON FACTS AND IN LAW IN MAKING THE TRANSFER PRICING ADJUSTMENT OF INR 71,401,688 IN RESPECT OF THE INTERNATIONAL TRANSACT IONS. 4. THAT THE LEARNED AO/ LEARNED TRANSFER PRICI NG OFFICER ('TPO') HAVE ERRED ON FACTS AND IN LAW IN M AKING THE TRANSFER PRICING ADJUSTMENT OF INR 54,702,378 I N RESPECT OF THE INTERNATIONAL TRANSACTION RELATING T O THE PROVISION OF INVESTMENT ADVISORY SERVICES TO THE ASSOCIATED ENTERPRISES ('AES') UNDERTAKEN BY THE APPELLANT. 4.1. THAT THE LEARNED TPO ERRED, ON FACTS AND IN LAW, IN REJECTING THE ECONOMIC ANALYSIS IN THE DOCUMENTATIO N FILED BY THE APPELLANT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('THE R ULES') AND PROCEEDED TO MAKE THE TRANSFER PRICING ADDITION BASED ON RE-DETERMINATION OF THE ARM'S LENGTH PRICE OF THE / INTERNATIONAL TRANSACTION. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 16 4.2. THAT THE LEARNED TPO ERRED, IN LAW AND ON FA CTS, IN USING SINGLE YEAR FINANCIAL DATA (I.E. DATA FOR FY 2011-12 ONLY) AS AGAINST MULTIPLE YEAR FINANCIAL DATA USED BY THE APPELLANT FOR DETERMINATION OF THE ARM'S LENGTH PRI CE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISI ON OF INVESTMENT ADVISORY SERVICES. 4.3. THAT THE LEARNED TPO ERRED, ON FACTS AND IN LAW, IN APPLYING LOWER TURNOVER FILTER OF INR 1 CRORE FOR R EJECTING THE INDEPENDENT COMPANIES. WITHOUT PREJUDICE, THE LEARNED TPO ERRED, ON FACTS AND IN LAW, IN NOT APPL YING AN UPPER TURNOVER FILTER TO REJECT COMPANIES HAVING SIGNIFICANTLY HIGHER TURNOVER VIS-A-VIS THE APPELLA NT. 4.4 THAT THE LEARNED TPO/ HONBLE DRP ERRED, ON T HE FACTS AND IN LAW, IN REJECTING INFORMED TECHNOLOGIE S LIMITED, INTEGRATED CAPITAL SERVICES LIMITED, ICRA ONLINE LIMITED AND CYBER MEDIA RESEARCH & SERVICES LIMITED (FORMERLY IDC (INDIA) LIMITED) AS COMPARABLES FOR PROVISION OF INVESTMENT ADVISORY SERVICES TO AE WIT HOUT APPRECIATING THE FACT THAT THE SERVICES PROVIDED BY THESE COMPANIES ARE SIMILAR TO THE FUNCTIONAL PROFILE OF THE APPELLANT. 4.5 THAT LEARNED TPO/ HONBLE DRP HAVE ERRED, ON T HE FACTS AND IN LAW, IN REJECTING CYBER MEDIA RESEARCH & SERVICES LIMITED BY ERRONEOUSLY OBSERVING THAT IT I S INCURRING PERSISTENT LOSSES. 4.6 THAT LEARNED TPO/ HONBLE DRP HAVE ERRED, ON THE FACTS AND IN LAW, IN SELECTING IM + CAPITALS (FORME RLY BRESCON CORPORATE ADVISORS LIMITED), KEYNOTE CORPOR ATE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 17 SERVICES LIMITED, LADDERUP CORPORATE ADVISORY PRIVA TE LIMITED, ADITYA BIRLA CAPITAL ADVISORS PRIVATE LIMI TED, AJCON GLOBAL SERVICES LIMITED AND ALMONDZ GLOBAL SERVICES LIMITED AS COMPARABLES WITHOUT APPRECIATIN G THAT THESE COMPANIES ARE ENGAGED IN MERCHANT BANKIN G SERVICES, SECURITY AND STOCK BROKING SERVICES, LOAN SYNDICATION/ DEBT SYNDICATION AND PROJECT CONSULTAN CY SERVICES, INVESTMENT BANKING SERVICES, INSTITUTIONA L EQUITIES, INSURANCE BROKERAGE, ASSET MANAGEMENT AND WEALTH MANAGEMENT, MERGER AND ACQUISITION ADVISORY, ESOP ADVISORY, EQUITY/ DEBT PLACEMENTS AND RESTRUCTURING, SYNDICATION OF FINANCE, PORTFOLIO MANAGEMENT AND MUTUAL FUND DISTRIBUTION AND DO NOT SATISFY THE FUNCTIONAL, ASSETS AND RISKS (FAR) AN ALYSIS TEST VIS-A-VIS THE APPELLANT IN RELATION TO THE INT ERNATIONAL TRANSACTION PERTAINING TO PROVISION OF INVESTMENT A DVISORY SERVICES. 4.7 THAT THE LEARNED TPO HAS ERRED, ON THE FACTS AND IN LAW, IN SELECTING CERTAIN COMPANIES AS COMPARABLES WITHOUT APPRECIATING THAT THESE COMPANIES HAVE DISPLAYED EXCEPTIONAL PROFIT DURING THE RELEVANT FI NANCIAL YEAR (I.E. FY 2011-12) UNDER CONSIDERATION ON ACCOU NT OF EXCEPTIONAL CIRCUMSTANCES AND DID NOT PORTRAY THE C ORRECT OPERATIONAL PROFITABILITY IN THE INDUSTRY. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 18 4.8 THE LEARNED TPO/ HONBLE DRP HAVE ERRED, ON TH E FACTS AND IN LAW, BY FAILING TO INCLUDE FOREIGN EXC HANGE GAINS/ LOSSES AND BANK CHARGES AS AN OPERATING INCO ME/ EXPENDITURE WHILE COMPUTING THE OPERATING MARGINS O F THE APPELLANT AND THE COMPARABLE COMPANIES FOR THE APPLICATION OF THE TRANSACTIONAL NET MARGIN METHOD (TNMM'). 4.9. THAT THE LEARNED TPO/ HON'BLE DRP ERRED, ON FACTS AND IN LAW, BY NOT MAKING APPROPRIATE ADJUSTMENT FO R RISK DIFFERENCES BETWEEN THE APPELLANT AND THE SELE CTED COMPARABLE COMPANIES IN THE ARM'S LENGTH PRICE SO DETERMINED FOR THE INTERNATIONAL TRANSACTION PERTAI NING TO PROVISION OF INVESTMENT ADVISORY SERVICES, AS THE APPELLANT IS REMUNERATED ON COST PLUS BASIS FOR IMP UGNED TRANSACTION AND BEARS MINIMAL RISK. 4.10. THAT THE LEARNED TPO HAVE ERRED, ON THE FACTS AND IN LAW, IN NOT ALLOWING THE BENEFIT OF DOWNWARD ADJUSTMENT OF 5 PERCENT, AS PROVIDED IN THE PROVISO TO SECTION 92C OF THE ACT, FROM THE ARM'S LENGTH PRICE DETERMINED FOR THE IMPUGNED TRANSACTION. 5. THAT THE LEARNED AO/ LEARNED TPO/ HON'BLE D RP HAVE ERRED, ON THE FACTS AND IN LAW, IN MAKING THE TRANSFER PRICING ADJUSTMENT OF INR 1,66,99,310 BY ERRONEOUSLY RE-CHARACTERIZING THE OUTSTANDING RECEI VABLES FROM AES OF THE APPELLANT AS UNSECURED LOAN AND COMPUTING NOTIONAL INTEREST ON ALLEGED DELAYS IN REALIZATION OF PAYMENT FROM THE AES AGAINST THE INV OICES RAISED FOR PROVISION OF INVESTMENT ADVISORY SERVICE S. 5.1. THAT THE LEARNED TPO/ HON'BLE DRP HAVE ERRED , ON THE FACTS AND IN LAW, IN APPLYING ARBITRARY INTERES T RATE OF 12.25 PERCENT WHILE DETERMINING THE NOTIONAL INTERE ST ON THE ALLEGED DELAYS IN COLLECTION OF RECEIVABLES FRO M THE AES AGAINST THE INVOICES RAISED FOR THE PROVISION O F INVESTMENT ADVISORY SERVICES. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 19 5.2. WITHOUT PREJUDICE, THE LEARNED TPO/ HON'BLE DRP HAVE ERRED, ON THE FACTS AND IN LAW, IN CONSIDERING THE SBI BASE RATE INSTEAD OF LONDON INTERBANK OFFERED R ATE ('LIBOR') WHILE CALCULATING NOTIONAL INTEREST ON AL LEGED DELAYS IN REALIZATION OF PAYMENT FROM THE AES AS TH E INVOICES WERE RAISED ON THE AES IN FOREIGN CURRENCY I.E. USD. 5.3. THAT THE LEARNED TPO HAS ERRED, ON THE FACTS AND IN LAW, AND HAS GROSSLY VIOLATED THE PRINCIPLE OF NATU RAL JUSTICE BY NOT PROVIDING A SUITABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT BY ISSUING SHOW CAUSE NOTICE BEFORE MAKING THE ADJUSTMENT IN RELATION TO THE NOT IONAL INTEREST ON OUTSTANDING RECEIVABLES. 6. THAT THE LEARNED AO/ HON'BLE DRP HAVE ERRED , ON THE FACTS AND IN LAW, ON THE CIRCUMSTANCES OF THE C ASE AND IN LAW BY ALLEGING THAT THE APPELLANT HAS FURNI SHED INACCURATE PARTICULARS OF INCOME, THEREBY PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C ) OF THE ACT. 7. THE LEARNED AO ERRED, ON FACTS AND IN LAW, BY PROPOSING TO LEVY CONSEQUENTIAL INTEREST UNDER SECT ION 234B AND 234C OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMI T OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE LD. AR SUBMITTED THAT AS FAR AS I.T.A. NO. 1681/DEL/2015 FOR AY 2010-11 WAS CONCERNED, THE ASS ESSEE WAS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 20 CONTESTING 5 COMPARABLES. THE DETAILED ARGUMENTS I N RESPECT OF 5 COMPARABLES ARE AS UNDER:- I) BRESCON CORPORATE ADVISORS & HOLDINGS LTD. LD. AR SUBMITTED THAT THIS COMPANY WAS FUNCTIO NALLY DISSIMILAR AS THIS COMPANY WAS INTO DEBT RESOLUTION AND DEBT SYNDICATION ACTIVITIES. LD. AR DREW OUR ATTENTION TO PAGES 32-34 OF THE ANNUAL REPORT OF BRESCON CORPORATE ADVISORS & HOLDINGS LTD. IN SUPPORT OF HIS CONTENTION. IT WAS SUBMITTE D THAT THIS COMPANY FOLLOWED A DIFFERENT METHOD FOR REVENUE REC OGNITION AS THIS COMPANY RECOGNISED ITS REVENUE FROM DEBT RESOL UTION, DEBT SYNDICATION AND FINANCIAL RESTRUCTURING SERVICES ON THE BASIS OF ACHIEVEMENT OF PRESCRIBED MILESTONE AS RELEVANT TO EACH MANDATE OR PROPORTIONATE COMPLETION METHOD WHEREAS THE ASSE SSEE WAS INTO INVESTMENT ADVISORY SERVICES AND RECEIVED REVE NUE ACCORDING TO COST PLUS METHOD. LD. AR ALSO RELIED ON THE ORD ER OF THE ITAT MUMBAI BENCH IN M/S BLACKSTONE CORPORATE ADVISORS L IMITED IN I.T.A. NO. 1581/MUM/2014 FOR ASSESSMENT YEAR 2008-0 9 WHEREIN M/S BRESCON CORPORATE ADVISORS LIMITED WAS EXCLUDED ON ACCOUNT OF HAVING FUNCTIONAL DISSIMILARITY WITH A COMPANY PROVIDING INVESTMENT ADVISORY SERVICES. LD. AR ALS O RELIED ON ANOTHER ORDER OF THE ITAT MUMBAI BENCH IN THE CASE OF M/S ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 21 GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD. VS DCIT IN I.T.A. NO. 222/MUM/2014 FOR ASSESSMENT YEAR 2009-10 WHEREIN M/ S BRESCON CORPORATE ADVISORS LIMITED WAS EXCLUDED ON THE GROUND THAT IT WAS ENGAGED IN DEBT RESOLUTION, DEBT SYNDIC ATION AND FINANCIAL RESTRUCTURING ADVISORY SERVICES WHICH WER E FUNCTIONALLY NOT COMPARABLE TO INVESTMENT ADVISORY SERVICES. RE LIANCE WAS ALSO PLACED ON AN ORDER OF THE ITAT DELHI BENCH IN THE CASE OF XANDER ADVISORS INDIA PVT. LTD. IN I.T.A. NO. 5840/ DEL/2012 FOR ASSESSMENT YEAR 2008-09 WHEREIN M/S BRESCON CORPORA TE ADVISORS LIMITED HAD BEEN EXCLUDED ON THE GROUND TH AT MERCHANT BANKING CONCERN CANNOT BE COMPARED TO INVESTMENT AD VISORY SERVICES. RELIANCE WAS ALSO PLACED ON THE CASES OF TEMASEK HOLDINGS ADVISORY(I) PRIVATE LIMITED IN ITA NO. 420 3/MUM/2012 FOR ASSESSMENT YEAR 2007-08 AND TPG CAPITAL INDIA P VT. LTD. IN I.T.A. NO. 880/MUM/2013 FOR ASSESSMENT YEAR 2008-09 WHEREIN M/S BRESCON CORPORATE ADVISORS LIMITED HAD BEEN EXC LUDED BY THE ITAT ON ACCOUNT OF FUNCTIONAL DISSIMILARITY. II) KEYNOTE CORPORATE SERVICES LIMITED LD. AR SUBMITTED THAT THIS COMPARABLE HAD EARNED T HE ENTIRE REVENUE FROM NON-COMPARABLE ACTIVITIES LIKE MERCHAN T BANKING, ISSUE MANAGEMENT AND INVESTMENT BANKING SOLUTIONS, MERGERS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 22 AND ACQUISITION, EQUITY/DEBT PLACEMENT AND RESTRUCT URING. LD. AR REFERRED TO PAGE 96 OF THE ANNUAL REPORT COMPEND IUM IN SUPPORT OF HIS CONTENTION. LD. AR ALSO SUBMITTED T HAT KEYNOTE WAS REGISTERED AS A MERCHANT BANKER WITH SEBI AND W AS THEREFORE NOT COMPARABLE WITH THE ASSESSEE COMPANY. LD AR PLACED RELIANCE ON THE ORDER OF THE ITAT MUMBAI BEN CH IN CARLYLE INDIA ADVISORS PVT. LTD. IN I.T.A. NO. 7901/MUMBAI/ 11 FOR ASSESSMENT YEAR 2007-08 WHEREIN IT HAD BEEN HELD TH AT KEYNOTE CORPORATE SERVICES LIMITED WAS INTO MERCHANT BANKIN G AND HENCE COULD NOT BE CONSIDERED AS A COMPARABLE TO IN VESTMENT ADVISORY RELATED COMPANY. LD. AR ALSO SUBMITTED TH AT THE HON'BLE BOMBAY HIGH COURT HAD AFFIRMED THIS ORDER O F THE ITAT MUMBAI IN CARLYLE INDIA ADVISORS PVT. LTD. VS CIT I N I.T.A. NO. 1286/2012. III) MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE LIM ITED LD. AR SUBMITTED THAT THIS COMPANY HAD EARNED THE ENTIRE REVENUE FROM NON-COMPARABLE ACTIVITIES LIKE EQUITY AND DERIVATIVES, INVESTMENT BANKING, MERGERS AND ACQUIS ITIONS, PORTFOLIO MANAGEMENT SERVICES, PRIVATE WEALTH MANAG EMENT AND SYNDICATES AND STRUCTURED DEBT. LD. AR REFERRED TO PAGE 103 OF THE COMPENDIUM OF ANNUAL REPORTS TO SUBSTANTIATE HI S ARGUMENT. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 23 LD. AR ALSO PLACED RELIANCE ON THE ORDER OF ITAT DE LHI IN THE CASE OF ACTIS ADVISERS PVT. LTD. VS ACIT IN I.T.A. NO. 1998/DEL/2014 FOR ASSESSMENT YEAR 2009-10 IN SUPPORT OF HIS CONTE NTION THAT THIS COMPARABLE HAD BEEN EXCLUDED ON ACCOUNT FUNCTI ONAL DISSIMILARITY WITH A COMPANY WHICH HAD BEEN PROVIDI NG INVESTMENT ADVISORY SERVICES. IT WAS SUBMITTED THA T ITAT DELHI BENCH WHILE DELETING MOTILAL INVESTMENT ADVISORY IN THE CASE OF ACTIS ADVISERS PVT. LTD. HAD RELIED UPON THE ORDER OF THE ITAT MUMBAI BENCH IN THE CASE OF CARLYLE INDIA ADVISORS PVT. LTD. (SUPRA). IV) KARVY INVESTORS SERVICES LTD. LD. AR SUBMITTED THAT THIS COMPANY HAD EARNED 70% OF ITS REVENUE FROM PROVIDING MANAGEMENT, MARKETING AND UNDERWRITING SERVICES RELATED TO PUBLIC ISSUES MANA GED BY IT. IT WAS ALSO SUBMITTED THAT THIS COMPANY ALSO PROVIDED MERCHANT BANKING SERVICES, MERGERS AND ACQUISITIONS, EQUITY PRIVATE PLACEMENTS AND MANAGEMENT CONSULTANCY AND OTHER COR PORATE ADVISORY SERVICES AND THEREFORE, IT WAS FUNCTIONALL Y DIFFERENT FROM THE ASSESSEE COMPANY. OUR ATTENTION WAS DRAWN TO P AGE 63 AND 68 OF THE ANNUAL REPORT COMPENDIUM IN SUPPORT OF TH E CONTENTION. IT WAS ALSO SUBMITTED THAT THIS COMPAN Y HAS NOT ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 24 BEEN INCLUDED BY THE TPO IN THE SUBSEQUENT TWO ASSE SSMENT YEARS. THE LD. AR ALSO SUBMITTED THAT THE COMPAN Y WAS ALSO REGISTERED AS MERCHANT BANKER WITH SEBI. LD AR A LSO SUBMITTED THAT THERE WAS NO SPECIFIC CASE LAW ON WHICH HE WAS RELYING IN SUPPORT OF THE PLEA FOR EXCLUSION OF THIS COMPARABL E BUT WAS RELYING ON THE GENERAL PRINCIPLES REGARDING COMPARA BILITY OF A MERCHANT BANKING ENTERPRISES WITH A COMPANY PROVIDI NG INVESTMENT ADVISORY. V) KSHITIJ INVESTMENT ADVISORY SERVICES LTD. LD. AR SUBMITTED THAT THIS COMPANY EARNED REVENUES FROM CORPORATE AND CONSUMER LENDING AND INSURANCE ADVISO RY SERVICES AND WAS ACCORDINGLY FUNCTIONALLY DISSIMILAR. LD. A R REFERRED TO PAGE 152 OF THE ANNUAL REPORT COMPENDIUM IN SUPPORT OF HIS CONTENTION. IT WAS ALSO SUBMITTED THAT THE TPO HAD NOT CONSIDERED THIS COMPANY AS A COMPARABLE IN SUBSEQUE NT ASSESSMENT YEARS. IT WAS ALSO SUBMITTED THAT DURIN G THE YEAR UNDER CONSIDERATION, THIS COMPANY HAD REALIGNED ITS BUSINESS TO EVERSTONE INVESTMENT ADVISORS PVT. LTD. AND ACCORDI NGLY THE IMPACT OF THE SAME WAS SEEN IN ASSESSMENT YEAR 2011 -12 WHEREIN THE COMPANY HAD EARNED INCOME ONLY FROM OTH ER SOURCES AND NIL INCOME FROM INVESTMENT ADVISORY ACTIVITIES. LD. AR ALSO ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 25 SUBMITTED THAT HE WAS RELYING ON GENERAL PRINCIPLES REGARDING FUNCTIONAL DISSIMILARITY BETWEEN MERCHANT BANKING S ERVICES AND INVESTMENT ADVISORY SERVICES. 3.1 LD. AR ALSO SUBMITTED THAT IF M/S BRESCON ADVIS ORS AND HOLDINGS LIMITED, MOTILAL OSWAL INVESTMENT ADVISORS PRIVATE LIMITED AND KEYNOTE CORPORATE SERVICES LIMITED WERE EXCLUDED FROM THE FINAL SET OF COMPARABLES, THEN THE TRANSAC TION UNDERTAKEN BY THE ASSESSEE WOULD BECOME AT ARMS LE NGTH AND THEREAFTER THE OTHER TWO COMPARABLES NEED NOT BE CO NSIDERED. LD. AR ALSO SUBMITTED THAT THESE 3 COMPARABLES SHOULD N OT ONLY BE EXCLUDED ON THE GROUND OF BEING FUNCTIONALLY DIFFER ENT BUT ALSO ON THE GROUND OF HAVING EARNED SUPERNORMAL PROFITS. I T WAS SUBMITTED THAT M/S BRESCON CORPORATE ADVISORS LIMIT ED HAD EARNED PROFIT OF MORE THAN 80% AND MOTILAL OSWAL HA D EARNED PROFIT OF MORE THAN 90% WHICH WAS ABNORMALLY HIGH. LD. AR SUBMITTED THAT IT WAS A SETTLED LAW THAT COMPARABLE COMPANIES EARNING EXTRAORDINARY PROFITS SHOULD NOT BE TAKEN A S A COMPARABLE. FOR THIS PROPOSITION, THE LD. AR RELIE D ON E-GAIN COMMUNICATION PVT. LTD. VS ITO REPORTED IN 118 ITD (PUNE) 243, PHILIPS SOFTWARE PVT. LTD. VS ACIT 119 TTJ (BANG) 7 21, ADOBE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 26 SYSTEMS INDIA PVT. LTD. VS ACIT 138 TTJ (DEL) 122 A ND DCIT VS QUARK SYSTEMS (P) LTD. 132 TTJ (CHANDIGARH) (SB-1). 3.2 ON THE SECOND ISSUE REGARDING ADJUSTMENT ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES, THE LD. AR SUB MITTED OUTSTANDING RECEIVABLES WAS NOT A SEPARATE INTERNAT IONAL TRANSACTION AND THE EARLY OR THE LATE REALISATION O F PROCEEDS WAS ONLY INSTRUMENTAL TO THE MAIN INTERNATIONAL TRANSAC TION I.E. PROVISION OF FINANCIAL AND INVESTMENT ADVISORY SERV ICES. IT WAS SUBMITTED THAT RECEIVABLES WAS NOT A SEPARATE TRANS ACTION IN ITSELF AND ONCE ARMS LENGTH PRICE WAS DETERMINED I N RESPECT OF SERVICE TRANSACTION, IT SHOULD BE DEEMED TO COVER A LL ELEMENTS OF SUCH TRANSACTION. 3.3 LD. AR ALSO FILED DETAILED SUBMISSIONS IN RESPE CT OF THIS GROUND WHICH ARE REPRODUCED AS UNDER:- OUTSTANDING RECEIVABLES IS NOT A SEPARATE INTERNATI ONAL TRANSACTION EARLY OR LATE REALIZATION OF SERVICE PROCEED S IS INCIDENTAL TO THE MAIN INTERNATIONAL TRANSACTION VIZ. PROVISION O F FINANCIAL AND INVESTMENT ADVISORY SERVICES, AND NOT A SEPARAT E TRANSACTION IN ITSELF - ONCE ALP DETERMINED IN RESP ECT OF SERVICE TRANSACTION, IT WOULD BE DEEMED TO COVER AL L ELEMENTS AND CONSEQUENCES OF SUCH TRANSACTION. APPELLANT HAS PLACED RELIANCE ON: ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 27 PEGASYSTEMS WORLDWIDE INDIA PRIVATE LIMITED (ITANO.1758/HYD/2014) DET NORSKE VERITAS A/S (ITA NO.200/MUM/2014) M/S. AVNET INDIA PVT. LTD. VS DCIT (IT(TP)A NO. 757(BANG)/2011); DCIT VS. INDO AMERICAN JEWELLERY LTD. [2012] 18 TAXMANN.COM 303; NIMBUS COMMUNICATIONS (ITA NO. 6597/MUM/2009) ; EVONIK DEGUSSA INDIA PRIVATE LIMITED (ITA NO . 7653/MUM/2011); AND BAUSCH & LOMB EYECARE (INDIA) PRIVATE LIMITED (ITA NO. 6580/DEL/2013). 2. OUTSTANDING RECEIVABLES CANNOT BE RECHARACTERIZ ED AS A LOAN. THE TPO HAS NOT BROUGHT ANY MATERIAL ON RECOR D TO SUGGEST THAT THIS IS A LOAN AND THEREFORE INTEREST IS TO BE CHARGED. THE TPO RE-CHARACTERIZED THE WHOLE TRANSACTION PERTAINI NG TO PROVISION OF SERVICE AS THAT OF A LOAN WHICH IS NOT PERMISSIBLE WITHOUT ANY MATERIALS OR EVIDENCE SUGGESTING THAT S UCH TRANSACTION IS A LOAN. RELIANCE PLACED ON: ESSAR STEEL ORISSA LTD. VS. ACIT (ITA 2289/MU M/2014) 3. ACCOUNT RECEIVABLES ARISING FROM AN INTERNATIONA L TRANSACTION ARE CLOSELY LINKED TO THE MAIN TRANSACT ION AND AS SUCH SHOULD BE BENCHMARKED USING A COMBINED TRANSAC TION APPROACH. THE TRANSACTION SHOULD BE CONSIDERED AS BEIN G 'CLOSELY LINKED' TO THE MAIN TRANSACTION AS PER RULE 10A (D) OF THE RULES AND SHOULD BE BENCHMARKED USING A COMBINED TRANSACTION. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 28 RELIANCE PLACED ON: KUSUM HEALTHCARE PVT. LTD. (ITA 6814/DEL/201 4) CONFIRMED BY DELHI HIGH COURT IN ITA NO. 765/2016 GOLDSTAR JEWELLERY LIMITED (ITA 6570/MUM/201 2) TALLY SOLUTIONS PVT. LTD. VS. ACIT- IT(TP) A.NO. 1364/BANG/2011 YASH JEWELLERY PVT. LTD. VS. DCIT- (2016) 66 TAXMA NN.COM 216 (MUM) 4. THE LD. TPO HAS FAILED TO CHOOSE A METHOD THAT IS MANDATORILY PRESCRIBED UNDER SECTION 92C (1) OF THE ACT WHILE DETERMINING INTEREST FOR OUTSTANDING RECEIVABLES MA KING THE ADDITION BAD IN LAW AND LIABLE TO BE DELETED. RELIANCE PLACED ON: NIMBUS COMMUNICATIONS LTD. VS. ACIT (2010) 13 2 TTJ 351 (MUMBAI) 5. THE APPELLANT FURTHER SUBMITS THAT ANY SEPARATE ADJUSTMENT ON THE PRETEXT OF OUTSTANDING RECEIVABLE S WHILE ACCEPTING THE TRANSFER PRICE OF THE UNDERLYING TRAN SACTION IS UNJUSTIFIED. RELIANCE PLACED ON: KUSUM HEALTHCARE PVT. LTD. (ITA 6814/DEL/2014) CON FIRMED BY DELHI HIGH COURT IN ITA NO. 765/2016 6. ONCE WORKING CAPITAL ADJUSTMENT HAS BEEN MADE, NO SEPARATE ADJUSTMENT IS WARRANTED ON ACCOUNT INTERES T ON OUTSTANDING RECEIVABLES. THE WORKING CAPITAL ADJUST MENT HAVING ALREADY BEEN MADE IN THE PRESENT CASE NO SEP ARATE ADJUSTMENT IS WARRANTED ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES. RELIANCE PLACED ON: KUSUM HEALTHCARE PVT. LTD. (ITA 6814/DEL/2014) CO NFIRMED BY DELHI HIGH COURT IN ITA NO. 765/2016. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 29 DELL INTERNATIONAL SERVICES INDIA PVT. LTD. VS. J CIT (ITA 308/BANG/2015) 7. TP ADJUSTMENT CANNOT BE MADE ON HYPOTHETICAL AN D NOTIONAL BASIS UNTIL AND UNLESS THERE IS SOME MATER IAL ON RECORD THAT THERE HAS BEEN UNDER CHARGING OF REAL I NCOME. RELIANCE PLACED ON: EVONIK DEGUSSA INDIA (P) LTD VS ACIT (2013) 151TT J (MUM) 1 8. INTER-COMPANY AGREEMENT DOES NOT PROVIDE FOR A NY FIXED PAYMENT PERIOD WITH WHICH AES ARE REQUIRED TO MAKE PAYMENT. HENCE, ASSUMPTION OF TPO THAT DELAYED PAYM ENT BEYOND 30 DAYS ARE IN THE NATURE OF LOAN ADVANCED T O AES IS ALLEGED AND ERRONEOUS IN NATURE. APPELLANT HAS PLAC ED RELIANCE ON: LINDAS INDIA PVT. LTD VS. ACIT - 3(2) MUMBAI (ITA NO. 2024/MUM/2007 SONY INDIA PRIVATE LIMITED (2008) 114 ITD 448 ABHISHEK AUTO INDUSTRIES LIMITED (2010) (136 TTJ 5 30) CIT VS. EKL APPLIANCES LIMITED (2012) (345 I TR 241) 9. THE APPELLANT FOLLOWS A CONSISTENT POLICY WITH RESPECT TO THE RECEIVABLES AND PAYABLES FROM/ TO THE AES. ACCO RDINGLY, NO INTEREST IS CHARGED OR PAID BY THE APPELLANT WIT H RESPECT TO OUTSTANDING PAYABLE/ RECEIVABLE WITH AES. THE AVER AGE TIME TAKEN BY THE APPELLANT WHILE MAKING PAYMENT TO AES (I.E. 160 DAYS) IS MORE THAN AVERAGE TIME TAKEN BY THE AE S IN MAKING PAYMENT TO THE APPELLANT (I.E. 121 DAYS). 10. FURTHER, THE AVERAGE REALISATION PERIOD IN CAS E OF RECEIPT OF PAYMENT FROM D.E. SHAW & CO., MAURITIUS HAS BEEN ONLY 64 DAYS. HENCE THE OVERALL POSITION HAS BEEN IN TH E FAVOUR OF THE APPELLANT. THE APPELLANT THUS IN LIGHT OF THE ABOVE SUBMISSION PRAYS BEFORE YOUR HONOURS THAT THE ADJUSTMENT MADE ON ACC OUNT OF ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 30 NOTIONAL INTEREST ON OUTSTANDING RECEIVABLES OUGHT TO BE DELETED IN THE INTEREST OF NATURAL JUSTICE. WITHOUT PREJUDICE TO THE APPELLANTS CONTENTION ABO VE, IN CASE IT IS HELD THAT ADJUSTMENT ON ACCOUNT OF INTEREST O N OUTSTANDING RECEIVABLES IS WARRANTED THEN THE APPEL LANT FURTHER SUBMITS AS UNDER:- 11. THE APPELLANT WITHOUT PREJUDICE SUBMITS THAT I N CASE IT IS HELD THAT INTEREST ON OUTSTANDING RECEIVABLES IS WA RRANTED THEN INTEREST ON NET OUTSTANDING RECEIVABLES FROM A E'S (RECEIVABLES - PAYABLES) OUGHT TO BE CALCULATED IN THE INTEREST OF NATURAL JUSTICE. 12. WITHOUT PREJUDICE TO APPELLANT'S CONTENTION TH AT THERE IS NO DELAYS IN RECEIPT OF PAYMENT FROM AES, EVEN IF O NE WERE DETERMINE THE ALLEGED DELAYS, THEN THE SAME SHOULD BE DETERMINED BASED ON THE AVERAGE REALIZATION PERIOD WITHIN WHICH INDEPENDENT COMPANIES SELECTED BY THE TPO FOR TNMM HAS RECEIVED PAYMENT FROM THEIR CUSTOMERS AND SAME SHOULD BE COMPARED WITH THE AVERAGE REALIZATION PERIOD OF THE APPELLANT. 13. AVERAGE REALIZATION PERIOD OF COMPARABLE COMPA NIES IS 106 DAYS VIS-A-VIS121 DAYS IN CASE OF THE APPELLANT . 14. ACCORDINGLY, THE CALCULATION OF INTEREST ACCR UING TO THE APPELLANT, IF ANY, SHOULD START AFTER 106 DAYS (I.E . ARM'S LENGTH CREDIT PERIOD) FROM THE DATE OF RAISING OF I NVOICE INSTEAD OF 30 DAYS PRESENTLY CONSIDERED BY THE TPO WITHOUT ANY BASIS AND WHEN NO FIXED PAYMENT PERIOD HAS BEEN MENTIONED IN THE INTER-COMPANY AGREEMENT (REFER PAG E 125 OF THE MAIN APPEAL). 15. IN CASE OF THE APPELLANT, THE RECEIVABLES WERE OUTSTANDING ONLY FOR A SHORT PERIOD OF TIME. HOWEVE R, THE TPO HAS TAKEN INTEREST RATE APPLICABLE IN CASE OF 'BB' RATED BOND FOR 5 YEARS. IT IS A COMMONLY UNDERSTOOD PRINCIPLE THAT THE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 31 LONGER THE DURATION OF FUNDING/ LOAN PROVIDED, THE HIGHER IS THE INTEREST RATE CHARGED, SINCE IN SUCH CASES, THE RISK OF CREDIT DEFAULT TENDS TO BE HIGHER. IN THIS REGARD, THE APPELLANT PLACES RELIANCE ON FOLLOWING RULINGS: INTERVET INDIA PRIVATE LIMITED (2010) (39 SOT 93); AND E-GAIN COMMUNICATIONS PRIVATE LIMITED (2008) (23 SO T 385). 16. FURTHER FOR UNDERTAKING COMPARABILITY ANALYSIS , THE TPO HAS CONDUCTED ENQUIRIES FROM CRISIL BY EXERCISING P OWERS UNDER SECTION 133(6) OF THE ACT AND HAS PROPOSED TO USE THE RATES PROVIDED BY CRISIL AND ADJUSTMENTS SUGGESTED BY FIMMDA TO ARRIVE AT THE ARM'S LENGTH RATE OF INTERE ST. HOWEVER, THE APPELLANT WISHES TO HIGHLIGHT THAT USE OF SUCH INFORMATION IS INAPPROPRIATE SINCE THE SAME IS NOT AUTHENTIC AND RELIABLE TO BE USED FOR THE PURPOSES OF COMPARA BILITY ANALYSIS. IN THIS REGARD, THE APPELLANT PLACES RELI ANCE ON FOLLOWING RULINGS: AZTEC SOFTWARE AND TECHNOLOGY LIMITED (2007) (107 ITD 141); AND GENISYS INTERGRATING SYSTEMS INDIA PRIVATE LIMITED (2012) (15 ITR 475). 17. SINCE THE BILLING BY THE APPELLANT TO AES WAS DONE IN FOREIGN CURRENCY AND THE AMOUNT IS ALSO RECEIVED IN FOREIGN CURRENCY, THE APPROPRIATE RATE FOR DETERMINATION OF INTEREST WOULD BE LONDON INTER BANK OFFERED RATE ('LIBOR') S UBJECT TO REASONABLE ADJUSTMENTS FOR TENOR AGAINST THE INTERE ST RATE APPLICABLE ON RUPEE DENOMINATED BORROWINGS CONSIDER ED BY THE TPO. IN THIS REGARD, RELIANCE IN PLACED ON THE FOLLOWING RULINGS: TRANSPORT CORPORATION OF INDIA LIMITED (ITANO.117/H YD/2016); AGILISYS IT SERVICES INDIA PRIVATE LTD.(ITA NO.1136 /MUM/2014); M/S. S.B. & T INTERNATIONAL LIMITED (ITA NO. 1054/M UM/2015); INDEGENELIFESYSTEMS PRIVATE LIMITED (ITA NO. 1504/ BANG/2012); AND TECH MAHINDRA LIMITED (ITA NO. 1176/MUM/2010) ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 32 18. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT FURTHER SUBMITS THAT THE TPO AND THE HON'BLE DRP HAVE MADE COMPUTATIONAL ERRORS WHILE CALCULATING THE ADJUSTME NT TOWARDS INTEREST ON OUTSTANDING RECEIVABLES. IN CAS E IT IS HELD THAT THE ADJUSTMENT TOWARDS INTEREST ON OUTSTANDING RECEIVABLES IS WARRANTED, THE CORRECT AMOUNT OUGHT TO BE CONSIDERED IN THE INTEREST OF NATURAL JUSTICE. 3.4 THE LD. AUTHORISED REPRESENTATIVE SUBMITTE D THAT SIMILAR ISSUE WAS ALSO BEING AGITATED IN APPEAL FOR ASSESSM ENT YEAR 2011-12 AND 2012-13 WITH THE DIFFERENCE THAT IN ASS ESSMENT YEAR 2011-12, THE TPO HAD CONSIDERED ONLY NET OUTST ANDING RECEIVABLES I.E. RECEIVABLES MINUS PAYABLES WHEREAS IN ASSESSMENT YEARS 2010-11 AND 2012-13, THE TPO HAD T AKEN THE GROSS AMOUNT OF RECEIVABLES. IT WAS ALSO SUBMITTED THAT THE AVERAGE REALISATION PERIOD OF COMPARABLE COMPANIES WAS 106 DAYS WHEREAS IT WAS 121 DAYS IN THE CASE OF THE ASS ESSEE AND, THEREFORE, THE DIFFERENCE FOR THE PURPOSE OF ADJUST MENT CAN ONLY BE 15 DAYS (121-106) AND NOT 30 DAYS AS CALCULATED BY THE TPO. 3.5 LD. AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT ONE OF THE COMPARABLES M/S LADDERUP CORPORATE ADVISORY PVT . LTD. WAS NOT BEING SPECIFICALLY CONTESTED IN THIS ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2010-11 BUT THE SAME WAS RELEVANT F OR THE SUBSEQUENT TWO ASSESSMENT YEARS I.E. ASSESSMENT YEA R 2011-12 AND 2012-13 AND THE SAME WILL BE INCLUDED IN ARGUME NTS FOR ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 33 THOSE TWO ASSESSMENT YEARS. IT WAS ALSO SUBMITTED THAT THE REGISTRATION OF THIS COMPARABLE WAS A MERCHANT BANK ER WITH SEBI. 3.6 LD. AUTHORISED REPRESENTATIVE ALSO SUBMITTED T HAT THE AUTHORITIES BELOW HAD ERRED IN NOT CALCULATING FORE IGN EXCHANGE GAINS/LOSSES AND BANK CHARGES AS OPERATING INCOME/E XPENDITURE WHILE COMPUTING THE OPERATING MARGINS OF THE ASSESS EE AND THE COMPARABLE COMPANIES. LD. AUTHORISED REPRESENTATIV E PLACED RELIANCE ON THE ORDER OF THE ITAT DELHI BENCH IN ST -ERICSON INDIA PVT. LTD. VS ACIT IN I.T.A. NO. 1672/DEL/2014 FOR T HE PROPOSITION THAT FOREIGN EXCHANGE GAIN/LOSS IS TO BE TREATED AS OPERATING IN NATURE IN CALCULATING THE OPERATING MARGIN OF THE A SSESSEE AS WELL AS COMPARABLE COMPANIES. 3.7 LD. AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT GROUND 3.2, 3.3, 3.4 AND 3.5 WERE NOT BEING PRESSED BY THE ASSESSEE. 4. IN RESPONSE, THE LD. CIT DR SUBMITTED THAT T HE TAXPAYER WAS SEEKING EXCLUSION OF 5 COMPARABLES ON STRICT FU NCTIONAL COMPARABILITY. IT WAS SUBMITTED THAT THE TPO HAD S ELECTED THE COMPARABLE FOR BENCHMARKING ON THE BASIS OF A BROAD FUNCTIONAL SIMILARITY. IT WAS SUBMITTED THAT THE TPO AS WELL AS THE TAXPAYER, ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 34 IN THE TRANSFER PRICING STUDY, HAD SELECTED TNMM AS THE MOST APPROPRIATE METHOD AND UNDER TNMM, THE PARAMETERS F OR COMPARABILITY ANALYSIS ARE BROADLY RELAXED AND ONLY A BROAD SIMILARITY OF THE FUNCTIONS IS REQUIRED. IT WAS AL SO SUBMITTED THAT AS PER THE MANDATE OF SECTION 92(1) OF THE INCOME T AX ACT, CHERRY-PICKING BY EITHER OF THE PARTIES IN RESPECT OF THE COMPARABLES WAS NOT ACCEPTABLE. LD. CIT DR ALSO SU BMITTED THAT EVEN THE COMPARABLES WHICH HAD NOT BEEN OBJECTED TO BY THE ASSESSEE WOULD NOT FALL INTO STRICT FUNCTIONAL SIMI LARITY TEST BUT THE SAME HAD BEEN ACCEPTED BY THE ASSESSEE AND, THE REFORE, IT WAS VERY MUCH EVIDENT THAT THE ASSESSEE WAS CHOOSIN G COMPARABLES WHICH WERE ONLY SUITING ITS PURPOSE. I T WAS ALSO SUBMITTED BY THE LD. CIT DR THAT IF ALL COMPARABLES WERE TO BE EXCLUDED A DE NOVO BENCHMARKING EXERCISE WOULD BE REQUIRED. LD. CIT DR READ OUT EXTENSIVELY FROM THE ORDER OF T HE TPO AND VEHEMENTLY ARGUED THAT THE FINAL LIST OF COMPARABLE S AS SELECTED BY THE TPO SHOULD NOT BE DISTURBED. 4.1 ON THE ISSUE OF INTEREST ON RECEIVABLES, THE L D. CIT DR PLACED RELIANCE ON THE ORDER OF ITAT DELHI BENCH IN MCKINSEY KNOWLEDGE CENTRE PVT LTD VS. DCIT IN ITA NO 154/DEL /2016. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 35 4.2 ON THE ISSUE RELATING TO FOREIGN EXCHANGE GAIN /LOSS, THE LD. CIT DR FAIRLY AGREED THAT THE SAME NEEDED TO BE EXC LUDED OR INCLUDED IN BOTH THE AE AS WELL AS NON-AES. 4.3 LD. CIT DR ALSO FILED WRITTEN SUBMISSIONS WHIC H ARE BEING PRODUCED HERE-IN-UNDER:- I. IN THE PRESENT APPEAL THE TAXPAYER IS SEEKING EXCLUSION OF 5 COMPARABLES ON STRICT FUNCTIONAL COMPARABILITY - THOUGH THE SAME WAS NOT DONE NEITHER IN THE TP STUDY NOR B Y THE TPO. THE TPO HAS SELECTED THE COMPARABLES FOR BENCHMARKING THE TRANSACTION ON BROAD FUNCTIONAL SI MILARITY BETWEEN THE FUNCTIONS PERFORMED BY THE TAXPAYER AND THE COMPARABLES. II. OBJECTIONS OF TAXPAYER: THE TAXPAYER IS NOW OBJECTING THAT THE SERVICES PROVIDED BY THE SAID 5 (OUT OF 9) COMPANIES ARE NOT COMPARABLE TO THE 'INVESTMENT ADVISORY SEVI CES' THAT IS BEING PROVIDE BY THE TAXPAYER. BRESCON IS BEING SOUGHT TO BE EXCLUDED ON THE GROUND THAT IT IS PROVIDING DEBT SY NDICATION SERVICES. KARVY IS SOUGHT TO BE EXCLUDED ON THE GROUND THAT IT IS PROVIDING MANAGEMENT, MARKETING AND RELATED SERV ICES. KEYNOTE IS SOUGHT TO BE EXCLUDED ON THE GROUND THAT IT IS PROVIDING ADVISORY SERVICES IN MERGERS AND ACQUISIT ION, MERCHANT BANKING, ISSUE MANAGEMENT AND DEBT / EQUIT Y PLACEMENTS AND RESTRUCTURING SERVICES. MOTILAL IS B EING SOUGHT TO BE EXCLUDED ON THE GROUND OF NON-COMPARABLE SERV ICES LIKE EQUITY AND DERIVATIVES, INVESTMENT BANKING / MERGER S AND ACQUISITION, PORTFOLIO MANAGEMENT SERVICES AND PRIV ATE WEALTH MANAGEMENT SERVICES . KSHITIJ IS BEING SOUGHT TO BE EXCLUDED ON THE GROUND OF RE-ALIGNMENT OF BUSINESS AND NON-C OMPARABLE SERVICES, NAMELY, CORPORATE AND CONSUMER LENDING AN D INSURANCE ADVISORY SERVICES. III. APPROACH OF TPO AND TP STUDY: ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 36 A. THE TPO HAS SELECTED THE COMPARABLES FOR BENCHM ARKING THE TRANSACTION ON BROAD FUNCTIONAL SIMILARITY BETWEEN THE SERVICES PROVIDED BY THE TAXPAYER AND THE COMPARABL ES. HE HAS MENTIONED, AT MANY PLACES IN HIS ORDER, THAT TH E TPO AND THE TAXPAYER (AS WELL IN THE TRANSFER PRICING STUDY ) HAVE SELECTED TNMM AS THE MOST APPROPRIATE METHOD (MAM) AND UNDER THE TNMM THE COMPARABILITY (PARAMETERS) ARE R ELATIVELY RELAXED AND ONLY BROAD SIMILARITY OF FUNCTIONS IS R EQUIRED.( FOR EXAMPLE MAY PI SEE OBSERVATIONS OF TPO AT P.112 OF APPEAL SET AND INTERNAL PAGES 87 & 88 UNDER THE HEADING 'C OMMENTS OF TPO' SECOND PARA THEREIN). B. TPO HAS ALSO NOT EXCLUDED THE COMPARABLES WITH UN-USUAL EVENTS DURING THE YEAR ( FIRST SENTENCE IN THE OBSE RVATIONS OF TPO AT P.L 12 OF APPEAL SET AND INTERNAL PAGES 87 & 88 UNDER THE HEADING COMMENTS OF TPO). C. TPO HAS NOT GOT INTO THE VERTICALS OF THE COMPA RABLES AS WAS ALSO DONE BY THE TAXPAYER. HE HAS SELECTED THE COMPARABLES WHICH ARE BROADLY ENGAGED IN THE FIELD OF 'INVESTMENT ADVISORY SERVICES'. (FOR EXAMPLE SEE TH E PARAGRAPH JUST ABOVE POINT NO.14 AT PAGE- 113 OF AP PEAL SET AND INTERNAL PAGE 88 OF TPO'S ORDER IN THIS REGARD) . D. TPO HAS GONE FOR BROAD FUNCTIONAL COMPARABILITY AS IS EVIDENT IN ALL OF HIS COMMENTS AGAINST THE TAXPAYER S OBJECTIONS REPRODUCED IN THE TP ORDER. FOR EXAMPLE HE HAS TREATED 'CORPORATE FINANCIAL ADVISORY SERVICES AS BROADLY SIMILAR TO THE FINANCIAL ADVISORY SERVICES BEING GI VEN BY THE TAXPAYER, (MAY PI SEE FIRST PARA UNDER THE HEADING 'COMMENTS OF TPO' AT PAGE 110 OF APPEAL SET AND INTERNAL PAGE 85 OF TPO'S ORDER). E. SIMILARLY IF ONE LOOKS AT THE JUSTIFICATION GIV EN BY TAXPAYER FOR INCLUSION OF INTEGRATED CAPITAL SERVICES LTD' AT PAGE 88 OF ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 37 THE APPEAL SET (INTERNAL PAGE 3 OF TPO ORDER) WE CA N SEE THAT ALL OF THE FOLLOWING SERVICES RENDERED BY THAT ENTI TY WERE PROPOSED BY THE TAXPAYER AS COMPARABLE SERVICES(TPO REJECTED THIS ENTITY ON TURNOVER FILTER). THIS ONLY REINFORCES THE FACT THAT THE TAXPAYER AND THE TPO HAVE TREATED VAR IOUS FUNCTIONS IN THE FINANCIAL SECTOR AS COMPARABLE TO THE FUNCTIONAL PROFILE OF THE ASSESSEE: ADVISORY, COMPLIANCE & REPRESENTATION SERVICES TO ON-GOING / NEW BUSINESS SETTING UP BUSINESS IN INDIA BY OVERSEAS ENTERPRIS ES ECONOMIC LEGISLATIONS, INCLUDING COMPANY LAW, DIRE CT /INDIRECT TAXES AGREEMENTS & CONTRACTS, INCLUDING JOINT VENTURE, T ECHNICAL KNOW HOW/ COLLABORATION DUE DILIGENCE FOR BUSINESS INVESTMENT/ COMBINATION BUSINESS CONSOLIDATION /RESTRUCTURING SERVICES ADVISING, IDENTIFYING & IMPLEMENTING STRATEGIC ALLI ANCE/S & ACQUISITIVE EXPANSIONS/S STRUCTURING AMALGAMATION / MERGER & DE-MERGER COMPLYING WITH STATUTORY PROCEDURES, OBTAINING APP ROVALS / CONSENTS OF AUTHORITIES NEGOTIATIONS, TO FACILITATE ACQUISITION/TAKEOVER O F BUSINESS/ES IV. IF ONE GOES BY STRICT FUNCTIONAL COMPARABILITY THE ALP DETERMINATION / BENCHMARKING OF TRANSACTION NEEDS T O BE REDONE DE NOVO. SINCE STRICT COMPARABILITY CRITERIA IS BEING EMPLOYED NOW EVEN THE COMPARABLES NOT NOW CONTESTED BY THE TAXPAYER, CANNOT BE GOOD COMPARABLES FOR THE FOLLOW ING REASONS; I. CYBER MEDIA RESEARCH LTD (FORMALLY IDG [INDIA] L TD) I. IS A PROVIDER OF MANAGEMENT CONSULTANCY SERVICES WHOSE BUSINESS HAS BEEN DESCRIBED BY IT IN ITS ANNUAL REP ORT AS 'MANAGEMENT CONSULTING. (SCH-17 AT LAST PAGE OF AN NUAL REPORT). FURTHER, P&L A/C REVEALS THAT THE COMPANY HAS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 38 EARNED ITS INCOME FROM 'SALES AND SERVICES'. AS PER THE NOTES TO ACCOUNTS UNDER THE REVENUE RECOGNISITON HEADING (SCH-14 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES) IT IS STATED THAT 'THE TURNOVER INCLUDES GROSS VALUE OF GOODS AND SER VICES AND SERVICE TAX.' THE AUDITORS HAVE ALSO COMMENTED THAT THE COMPANY DEALS IN PRODUCTS AS UNDER IN THE ANNEXURE TO THE AUDITOR'S REPORT AT POINT NO.(II) (II) THE COMPANY IS A RESEARCH COMPANY, PRIMARILY DEALING IN RESEARCH AND SURVEY SERVICES AND PRODUCTS. II. EVEN THOUGH THE COMPANY EARNS ITS REVENUE FROM SALE OF CERTAIN GOODS, THERE IS NO SEGMENTAL RESULTS AVAILA BLE SEPARATING THE INCOME FROM SALE OF GOODS AND PROVIS ION OF SERVICES AS THE COMPANY HAS TREATED THE ABOVE BUSIN ESS AS SINGLE SEGMENT NAMELY 'MARKET RESEARCH AND MANAGEME NT CONSULTANCY'. (PI SEE POINT NO.13 ON PAGE 19 OF AR UNDER SCH- 16). IT MAY BE NOTED HERE THAT THE FINANCIAL ADVISO RY SERVICES IS (STRICTLY SPEAKING) DIFFERENT FROM 'MANAGEMENT C ONSULTANCY' OR 'MARKET RESEARCH FUNCTIONS. IN THIS SCENARIO, T HE SAID COMPANY NEEDS TO BE EXCLUDED IF WE GO BY THE STRICT FUNCTIONAL COMPARABILITY AND BY THE POSITION OF LAW ON THE SUB JECT OF NON- AVAILABILITY OF SEGMENTAL DETAILS AS A DISQUALIFICA TION FOR TAKING A COMPANY AS COMPARABLE. 2. LADDERUP CORPORATE ADVISORY PRIVATE LIMITED I. IS ENGAGED IN FEE BASED LOAN SYNDICATION, PRIVAT E EQUITY AND OTHER SIMILAR SERVICES WHICH ACCORDING TO THE STRIC T COMPARABILITY CRITERIA ADVOCATED BY THE ASSESSEE IS NOT COMPARABLE TO 'INVESTMENT ADVISORY FUNTIONS' CARRIE D OUT BY THE TAXPAYER. AS PER THE CONSOLIDATED ANNUAL REPORT OF THE PARENT COMPANY THE FOLLOWING FACTS HAVE BEEN MENTIONED ABO UT LADDERUP CORPORATE ADVISORY PRIVATE LIMITED (PAGE-2 OF ANNUAL REPORT CONSOLIDATED OF LADDERCUP FINANCE LTD ): IN FY 2009-10 YOUR COMPANY'S SUBSIDIARY COMPANY LADDERUP CORPORATE ADVISORY PRIVATE LIMITED (LCAPL) WHICH IS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 39 ENGAGED IN THE FEE BASED SERVICES HAS SUCCESSFULLY COMPLETED VARIOUS BIG TICKET LOAN SYNDICATION, PRIVATE EQUITY AND CORPORATE ADVISORY TRANSACTIONS. FURTHER LADDERUP CORPORATE ADVISORY PRIVATE LIMITED HAS RECEIVED MERCHANT BANK ING REGISTRATION FROM SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) AND SHALL NOW BE ABLE TO SERVE CLIENTS IN TH E SERVICES RELATED TO CAPITAL MARKET TRANSACTIONS LIKE QIP, OP EN OFFERS, BUY BACK OFFERS, IPO, EPO, RIGHT ISSUES, VALUATIONS , ETC. WHICH WILL FURTHER ESTABLISH ITS PRESENCE IN EQUITY CAPIT AL MARKET. II. THE ANNUAL REPORT OF LADDCRCUP FINANCE LTD, UND ER THE HEADING BUSINESS PERFORMANCE INCLUDING SUBSIDIARIES OF LADDERUP FINANCE LIMITED FOUND AT PAGE -20 OF THE ANNUAL REPORT STATES AS UNDER: LADDERUP CORPORATE ADVISORY PRIVATE LIMITED (LCAPL) , A SUBSIDIARY OF YOUR COMPANY IS ENGAGED IN FEE BASED ADVISORY SERVICES TO ITS CLIENTS. LCAPL HAS MAINTAINED ITS F OCUS ON FEE BASED BIG TICKET TRANSACTIONS AND WILL CONTINUE TO FOCUS ON THE SAME BECAUSE OF THE INCREASED OPPORTUNITIES IN THE SPACE OF DEBT SYNDICATION, PRIVATE EQUITY, M&A AND CORPORATE ADVISORY PARTICULARLY IN SECTORS LIKE POWER, INFRASTRUCTURE, ENGINEERING, SERVICES AND MANUFACTURING. THE COMPANY HAS PIPELIN E OF RUNNING MANDATES IN THE DEBT, PRIVATE EQUITY AND M& A SPACE WHICH ON COMPLETION WILL ADD TO THE TOPLINE OF THE COMPANY. FURTHER LCAPL HAS RECEIVED THE MERCHANT BANKING REG ISTRATION FROM SECURITIES AND EXCHANGE BOARD OF INDIA [SEBI] AND SHALL NOW BE ABLE TO SERVE CLIENTS IN SERVICES RELATED TO CAPITAL MARKET TRANSACTIONS LIKE QIP, OPEN OFFERS, BUY BACK OFFERS, IPO, EPO, RIGHT ISSUES, VALUATIONS ETC. WHICH WILL FURTHER ESTABLISH ITS PRESENCE IN THE EQUITY CAPITAL MARKET SEGMENT. LCAPL HAS ALSO SETUP A BUSINESS DEVELOPMENT AND MAR KET INTELLIGENCE CELL WHICH WILL FOCUS ON GETTING LEADS AND MANDATES FOR THE COMPANY. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 40 SINCE THE COMPANY IS GROWING IN TERMS OF SIZE AND M ANPOWER, IT HAS SHIFTED TO A BIGGER OFFICE SPACE IN BANDRA, MUMBAI. IN ORDER TO FURTHER ENHANCE ITS PRESENCE IN TIER I AND TIER II CITIES LCAPL HAS APPOINTED GROWTH PARTNERS AT VARIO US LOCATIONS IN INDIA TO SOURCE BUSINESS FOR THE COMPA NY. THIS ARRANGEMENT WILL FURTHER EXPAND ITS BUSINESS HORIZO NS. 3. ICRA MANAGEMENT CONSULTING SERVICES LIMITED (IMACS) III. AGAIN STRICTLY SPEAKING IS NOT INTO INVESTMENT ADVISORY SERVICES BUT IS INTO MANAGEMENT CONSULTANCY BUSINES S. THE FUNCTIONAL PROFILE OF THE COMPANY, PROVIDED AT PAGE -5 OF ITS PARENT COMPANY IS RELEVANT AND REPRODUCED HEREIN BE LOW: IV. THE COMPANY IS INTO MANAGEMENT CONSULTANCY AND IT EXECUTED OVER 1000 CONSULTING PROJECTS THAT ARE MAN AGEMENT CONSULTANCY PROJECTS (AND NOT INVESTMENT ADVISORY S ERVICES) IN THE FOLLOWING PRACTICE AREAS (SECTORS). THE SAME IS EVIDENT FROM THE DIRECTOR'S REPORT (PAGE 119-120 OF COMBINED ANN UAL REPORT OF ICRA). GOVERNMENT AND INFRASTRUCTURE PRACTICESIGNIFICANT GROWTH IN MULTILATERAL/BILATERAL AGENCY FUNDED WORK. ENERGY PRACTICECONSOLIDATION AND GROWTH BANKING AND FINANCIAL SERVICESON THE ROAD TO RECO VERY CORPORATE ADVISORY PRACTICEA PERIOD OF DIVERSIFIC ATION AND DEEPENING RELATIONSHIPS V. THE RELEVANT PORTIONS ARE REPRODUCED BELOW: GOVERNMENT AND INFRASTRUCTURE PRACTICESIGNIFICANT GROWTH IN MULTILATERAL/BILATERAL AGENCY FUNDED WORK. YOUR COMPANY WITNESSED STEADY GROWTH IN ALL THE THR EE VERTICALS, VIZ., DEVELOPMENT CONSULTING, TRANSPORTA TION, AND URBAN INFRASTRUCTURE, DURING THE YEAR UNDER REVIEW. YOUR COMPANY HAS MADE SUBSTANTIAL PROGRESS IN CONSULTING PROJECTS THAT INVOLVE THE CONCEPT OF PUBLIC-PRIVATE PARTNERSHIP (PPP) BETWEEN GOVERNMENT AND PRIVATE INVESTORS. YOU R COMPANY HAS BEEN A THOUGHT-LEADER IN THE WATER SECT OR, ESPECIALLY IN THE AREAS OF IMPLEMENTING PPP TRANSAC TIONS, AND ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 41 HAS PARTICIPATED IN VARIOUS INTERNATIONAL FORUMS SU CH AS THE WORLD WATER WEEK OF THE STOCKHOLM INTERNATIONAL WAT ER INSTITUTE, THE INSTITUTE OF WATER POLICY AT SINGAPO RE, AND AN INTERNAL SEMINAR ORGANISED BY THE ASIAN DEVELOPMENT BANK, MANILA. THE TRACK RECORD OF YOUR COMPANY IN WORKING WITH CLIENTS SUCH AS GTZ, KFW, THE WORLD BANK, AND UNICE F STANDS TESTIMONY TO THE CAPABILITIES OF YOUR COMPAN Y IN THESE SECTORS. DURING THE YEAR UNDER REVIEW, YOUR COMPANY PARTNERED ECORYS NETHERLANDS, B.V. IN MULTIPLE PROJ ECTS, INCLUDING IN THE PREPARATION OF AN INTEGRATED TRANS PORT POLICY FOR PUNJAB, AND ANOTHER PROJECT INVOLVING A REVIEW OF HIGHWAY AGENCIES IN SOUTH ASIA. YOUR COMPANY WAS ALSO ENGAG ED IN DIVERSE MANDATES RELATED TO THE FORMULATION OF SANI TATION PLANS FOR SEVERAL CITIES, FEASIBILITY STUDIES FOR S ETTING UP FUNDS FOR URBAN DEVELOPMENT, AND IN TRANSACTION ADVISORY MANDATES FOR SETTING UP PPP PROJECTS FOR WATER SUPPLY IN SEV ERAL CITIES. YOUR COMPANY ALSO COMPLETED A FEASIBILITY STUDY FOR ESTABLISHING AN ECONOMIC DEVELOPMENT ZONE IN TANZAN IA, AND CARRIED OUT AN ASSESSMENT OF THE INVESTMENT CLIMATE S OF SEVERAL STATES IN INDIA FOR MULTILATERAL AGENCIES. VI. IT ALSO EARNS ITS INCOME FROM 'SUBSCRIPTION SER VICES' FROM THE PRODUCTS IT HAS DEVELOPED. SO IT IS A PRODUCT COMPA NY- THE SEGMENTAL DETAILS OF THIS STREAM OF BUSINESS ARE NO T AVAILABLE. RELEVANT PORTION OF ANNUAL REPORT ARE AS UNDER: B) REVENUE RECOGNITION:- I) INCOME FROM CONSULTING SERVICES IS. II) THE DIVIDEND INCOME, IF ANY,.. III) INCOME FROM INFORMATION SERVICES IS RECOGNISED IN THE YEAR IN WHICH SUCH ASSIGNMENTS ARE CARRIED OUT. INCOME F ROM SUBSCRIPTION TO INFORMATION PRODUCTS IS RECOGNISED ON TIME PROPORTION BASIS EXCEPT WHEN THE SUBSCRIPTION AMOUN T IS LESS THAN RS. 5,000 P.A. WHICH IS RECOGNISED IN FULL IN THE YEAR IT IS RECEIVED. 1) CAPITAL WORK IN PROGRESS:- (PAGE 137 OF ANNUAL R EPORT) A) CAPITAL WORK IN PROGRESS IN THE PREVIOUS YEAR REPR ESENTS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 42 EXPENDITURE INCURRED ON DEVELOPMENT OF VARIOUS SOFT WARES USED FOR LICENSING, WHICH ARE UNDER DEVELOPMENT, AT THE END OF THE ACCOUNTING YEAR. ON COMPLETION OF SUCH SOFTWARE , THE COST INCURRED IS CAPITALIZED AS 'INTANGIBLE ASSETS'. B) SOFTWARES, DEVELOPED IN HOUSE AND HAVING COMMERCIA L USAGE ARE CAPITALISED AS SOFTWARES AND SHOWN UNDER 'INTANGIBLE ASSETS. THESE ARE AMORTISED OVER A PER IOD OF 5 YEARS. VII. THE DEPRECIATION SCHEDULE CONTAINS THE INTANGIBLE OWNED BY THE COMPANY NAMELY IMACS' RISK SCORER & IMACS' C -CUBE (MAY PI SEE PAGE 131 OF ANNUAL REPORT). VIII. SOME OF ITS FUNCTIONS DO RELATE TO MARKET ANALYSIS , BUT THERE ARE NO SEGMENTAL DETAILS AVAILABLE. THE NOTES TO ACCOUNTS (POINT NO.12 ON PAGE 140 OF ANNUAL REPORT) READS AS UNDER: 12. IN ACCORDANCE WITH THE ACCOUNTING STANDARD - 17 , 'SEGMENT REPORTING' ISSUED AS PER THE COMPANIES (AC COUNTING STANDARDS] RULES, 2006, THE COMPANY'S BUSINESS SEGM ENT IS CONSULTING SERVICES AND IT HAS NO OTHER PRIMARY REP ORTABLE SEGMENTS. ACCORDINGLY, THE SEGMENT REVENUE, SEGMENT RESULTS, TOTAL CARRYING AMOUNT OF SEGMENT ASSETS & SEGMENT L IABILITY, TOTAL COST INCURRED TO ACQUIRE SEGMENT ASSET AND TO TAL AMOUNT OF CHARGE FOR DEPRECIATION DURING THE YEAR ENDED MA RCH 31, 2010, IS AS REFLECTED IN THE FINANCIAL STATEMENTS A S OF AND FOR THE YEAR ENDED MARCH 31,2010. THE QUANTUM OF EXPORT SERVICES RENDERED ON-SITE ARE LESS THAN 10% OF THE TOTAL REVENUE. HENCE, GEOGRAPHICAL SEGMENT IS CONSIDERED AS ONE SEGMENT. 4. FUTURE CAP INV I. IN THIS COMPANY THERE HAS BEEN AN REALIGNMENT O F BUSINESS' AS IS EVIDENT FROM ITS ANNUAL REPORT AND HENCE IS N OT A GOOD COMPARABLE. THE COMPANY HAS HANDED OVER ITS 'ADVISO RY SERVICES BUSINESS TO ANOTHER COMPANY BY NAME EVERS TONE INVESTMENT ADVISORS PVT LTD AND THE AGREEMENT IS EF FECTIVE FROM 1 ST JAN 2010 AS PER THE ANNUAL REPORT (PAGE 33 OF ANNUAL REPORT) - PARA 13 OF NOTES TO ACCOUNTS (SCH- 14). THE COMPANY WAS NO MORE INTO INVESTMENT ADVISORY BUSINE SS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 43 W.E.F. 1 ST JAN 2010. RELEVANT PORTION OF THE ANNUAL REPORT (PAGE-4 AND 34) IS REPRODUCED BELOW: RE-ALIGNMENT OF INVESTMENT ADVISORY BUSINESS OF THE COMPANY DURING THE YEAR UNDER REVIEW, THE COMPANY AND ITS H OLDING COMPANY VIZ. FUTURE CAPITAL HOLDINGS LIMITED (FCH) ENTERED INTO APPROPRIATE AGREEMENTS WITH EVERSTONE INVESTME NT ADVISORS PRIVATE LIMITED, TO REALIGN ITS INVESTMENT ADVISORY ACTIVITIES WITH A VIEW OF HAVING A FOCUSED AND DEDI CATED APPROACH TO THE INVESTMENT ADVISORY BUSINESS. THE REALIGNMENT OF THE INVESTMENT ADVISORY ACTIVITIES O F THE COMPANY HAS BEEN EFFECTIVE FROM JANUARY 1,2010. 13. THE BOARD OF DIRECTORS AT THEIR MEETING HELD ON DECEMBER 11. 2009. APPROVED THE REALIGNMENT OF THE INVESTMEN T ADVISORY ACTIVITIES OF THE COMPANY. THE COMPANY HAS ENTERED INTO APPROPRIATE AGREEMENTS WITH EVERSTONE INVESTME NT ADVISORS PRIVATE LIMITED ( ELAPL'), TO REALIGN ITS INVESTMENT ADVISORY ACTIVITIES WITH A VIEW TO HAVING A FOCUSED AND DEDICATED APPROACH TO THE INVESTMENT ADVISORY BUSIN ESS. THE REALIGNMENT AGREEMENT IS EFFECTIVE FROM JANUARY 1, 2010 WHEREIN, EIAPL SHALL, IN PLACE OF THE COMPANY: A. RENDER ALL THE INVESTMENT ADVISORY SERVICES TO INDI VISION CAPITAL MANAGEMENT (TCW): B. ENJOY ALL THE RIGHTS IN TERM OF THE INVESTMENT ADVI SORY AGREEMENT {'IAA) ENTERED INTO WITH ICM: C. ASSUME, AGREES AND FULFILLS ALL DUTIES AND OBLIGATI ONS CONFERRED OR IMPOSED UNDER THE TERMS OF IAA D. PURSUANT TO THE ABOVE AGREEMENT THE COMPANY SHALL R ECEIVE A CONSIDERATION OF RE 38,000,000. 13. THE BOARD OF DIRECTORS AT THEIR MEETING HELD ON DECEMBER 11, 2009, APPROVED THE REALIGNMENT OF THE INVESTMEN T ADVISORY ACTIVITIES OF THE COMPANY. THE COMPANY HAS ENTERED INTO APPROPRIATE AGREEMENTS WITH EVERSTONE INVESTME NT ADVISORS PRIVATE LIMITED (ELAPL'), TO REALIGN ITS INVESTMENT ADVISORY ACTIVITIES WITH A VIEW TO HAVING A FOCUSED AND ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 44 DEDICATED APPROACH TO THE INVESTMENT ADVISORY BUSIN ESS. THE REALIGNMENT AGREEMENT IS EFFECTIVE FROM JANUARY 1, 2010 WHEREIN, EIAPL SHALL, IN PLACE OF THE COMPANY: A. RENDER ALL THE INVESTMENT ADVISORY SERVICES TO IND IVISION CAPITAL MANAGEMENT (ICW); B. ENJOY AIL THE RIGHTS IN TERM OF THE INVESTMENT ADV ISORY AGREEMENT ('IAA') ENTERED INTO WITH ICM C. ASSUME, AGREES AND FULFILL ALL DUTIES AND OBLIGATI ONS CONFERRED OR IMPOSED UNDER THE TERMS OF IAA D. PURSUANT TO THE ABOVE AGREEMENT THE COMPANY SHALL R ECEIVE A CONSIDERATION OF RS 38,000,000. II. IN SUPPORT OF THE PROPOSITION THAT THE COMPARABLES WHICH MEET THE SAME CRITERIA AS POINTED OUT IN CASE OF CO MPARABLES SOUGHT TO BE EXCLUDED MAY ALSO BE EXCLUDED AS OTHER WISE THE WHOLE BENCHMARKING PROCESS WOULD REMAIN FAULTY. THE CLAIM OF ASSESSEE IS THAT THE WRONG COMPARABLES ON THE BASIS OF BROAD FUNCTIONAL SIMILARITY HAVE BEEN INCL UDED IN THE BENCHMARKING PROCESS. IF THAT IS SO, THE PRINCIPLE / CRITERIA SHOULD BE APPLIED UNIFORMLY ACROSS THE WHOLE SET OF COMPARABLES. CHERRY PICKING IS NOT PERMISSIBLE BOTH BY THE ASSESSEE AND BY THE TP0. ONLY THEN, THE BENCHMARKIN G WOULD BE AS PER THE PRESENT UNDERSTANDING OF THE LAW. ONL Y THEN IT WOULD RESULT IN CORRECT ASSESSMENT OF INCOME RELATI NG TO THE 'INTERNATIONAL TRANSACTIONS', (MANDATED BY S.92(1) OF IT ACT) III. IT IS SUBMITTED THAT THE FOLLOWING OBSERVATIONS HO NBLE SPECIAL BENCH OF ITAT IN THE CASE OF AZTEC SOFTWARE AND TECHNOLOGY VS ACIT (2007) 294 ITR 32 (BANG) SUPPORT S THE ABOVE PROPOSITION: 133..HAVING REGARD TO THE PURPOSE OF THE LEGISLA TION AND APPLICATION OF SIMILAR ENACTMENT WORLD OVER, IT MUS T FURTHER BE HELD THAT ADJUSTMENTS MADE ON ACCOUNT OF ALP BY TAX AUTHORITIES CAN BE DELETED IN APPEAL ONLY IF THE AP PELLATE AUTHORITIES ARE SATISFIED AND RECORDS A FINDING THA T ALP SUBMITTED BY THE ASSESSEE IS FAIR AND REASONABLE. M ERELY BY FINDING FAULTS WITH THE TRANSFER PRICE DETERMINED B Y THE REVENUE AUTHORITIES (A.O. / TPO], ADDITION ON ACCOU NT OF 'ADJUSTMENTS' CANNOT BE DELETED. THIS IS BECAUSE TH E MANDATE OF SECTION 92(1) IS THAT IN EVERY CASE OF INTERNATI ONAL ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 45 TRANSACTION, INCOME HAS TO BE DETERMINED HAVING REG ARD TO ALP. THEREFORE, UNLESS ALP FURNISHED BY THE TAXPAYE R IS SPECIFICALLY ACCEPTED, THE APPELLATE AUTHORITIES ON THE BASIS OF MATERIAL AVAILABLE ON RECORD HAS TO DETERMINE ALP I TSELF. SUBJECT TO STATUTORY PROVISIONS, APPELLATE AUTHORIT IES CAN DIRECT LOWER REVENUE AUTHORITIES TO CARRY THIS EXERCISE IN ACCORDANCE WITH LAW. THE MATTER CANNOT BE LEFT HANGING IN BETW EEN. ALP OF INTERNATIONAL TRANSACTION HAS TO BE DETERMINED IN E VERY CASE. IV.FOR THE PROPOSITION THAT THERE IS A DUTY TO DETE RMINE THE CORRECT TAX LIABILITY IN EVERY CASE THE FOLLOWING C ASE LAWS ARE RELIED UPON: A.REQUIREMENT OF CORRECTLY DETERMINING THE TAX LIAB ILITY OF ASSESSEE: PI SEE PARA-20 OF M/S.THE RAMCO CEMENTS LIMITED V D CIT- SPL.RANGE MADURAI [2015J 55 TAXMANN.COM 79 (MADRAS) WHICH REPRODUCES THE SELECTED PARAS OF IMPORTANT DE CISIONS OF APEX COURT ON THIS MATTER.(SAID PAGES 1,7-9 ARE SUB MITTED SEPARATELY). PART OF THE SAID PORTION IS REPRODUCED BELOW: 'AN APPELLATE AUTHORITY UNDER THE TAXING ENACTMENTS SITS IN APPEAL, ONLY IN A MANNER OF SPEAKING. WHAT IT DOES, FUNCTIONALLY, IS ONLY TO ADJUST THE ASSESSMENT OF T HE APPELLANT IN ACCORDANCE WITH THE FACTS ON THE RECORD AND IN A CCORDANCE WITH THE LAW LAID DOWN BY THE LEGISLATURE. AN APPEA L IS A CONTINUATION OF THE PROCESS OF ASSESSMENT, AND AN A SSESSMENT IS BUT ANOTHER NAME FOR ADJUSTMENT OF THE TAX LIABI LITY TO ACCORD WITH THE TAXABLE EVENT IN THE PARTICULAR TAX PAYER'S CASE. THERE CAN BE NO ANALOGY OR PARALLEL BETWEEN A TAX A PPEAL AND AN APPEAL, SAY, IN CIVIL CASES. A CIVIL APPEAL, LIK E A LAW SUIT IN THE COURT OF FIRST INSTANCE OUT OF WHICH IT ARISES, IS REALLY AND TRULY AN ADVERSARY PROCEEDING, THAT IS TO SAY, A CO NTROVERSY OR TUSSLE OVER MUTUAL RIGHTS AND OBLIGATIONS BETWEEN C ONTESTING LITIGANTS RANGED AGAINST EACH OTHER AS OPPONENTS. A TAX APPEAL IS QUITE DIFFERENT. EVEN AS THE ASSESSING AUTHORITY IS NOT THE TAXPAYER'S ' OPPONENT', IN THE STRICTLY PROCEDURAL SENSE OF THE TERM, SO TOO THE APPELLATE AUTHORITY SITTING IN APP EAL OVER THE ASSESSING AUTHORITY'S ORDER OF ASSESSMENT IS NOT ST RICTLY AN ARBITRAL TRIBUNAL DECIDING A CONTESTED ISSUE BETWEE N TWO LITIGANTS RANGED ON OPPOSITE SIDES. IN A TAX APPEAL , THE APPELLATE AUTHORITY IS VERY MUCH COMMITTED TO THE A SSESSMENT PROCESS. THE APPELLATE AUTHORITY CAN ITSELF ENTER T HE ARENA OF ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 46 ASSESSMENT, EITHER BY PURSUING FURTHER INVESTIGATIO N OR CAUSING FURTHER INVESTIGATION TO BE DONE. IT CAN DO SO ON ITS OWN INITIATIVE, WITHOUT BEING PRODDED BY ANY OF THE PARTIES. IT ENHANCE THE ASSESSMENT, TAKING ADVANTAGE OF THE OPP ORTUNITY AFFORDED BY THE TAXPAYER'S APPEAL, EVEN THOUGH THE APPEAL ITSELF HAS BEEN MOOTED ONLY WITH A VIEW TO A REDUCT ION IN THE ASSESSMENT. THESE ARE SPECIAL AND EXCEPTIONAL ATTRI BUTES OF THE JURISDICTION OF A TAX APPELLATE AUTHORITY. THES E ATTRIBUTES UNDERLINE THE TRUTH THAT THE APPELLATE AUTHORITY IS NO DIFFERENT, FUNCTIONALLY AND SUBSTANTIALLY, FROM THE ASSESSING AUTHORITY ITSELF.' B. CASE LAW: KAPURCHAND SHRIMAL VS.CIT(1981) 131ITR 0451(SC) (COPY SUBMITTED] (PARA -17 ON PAGES 5&6). IMPORTANT PORTION IS AS UNDER: IT IS, HOWEVER, DIFFICULT TO AGREE WITH THE SUBMIS SION MADE ON BEHALF OF THE ASSESSEE THAT THE DUTY OF THE TRIBUNA L ENDS WITH MAKING A DECLARATION THAT THE ASSESSMENTS ARE ILLEG AL AND IT HAS NO DUTY TO ISSUE ANY FURTHER DIRECTION. IT IS W ELL-KNOWN THAT AN APPELLATE AUTHORITY HAS THE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERRORS IN THE PROCEEDINGS UNDER APPEAL AND TO ISSUE, IF NECESSARY, APPROPRIATE DIRECTIONS TO T HE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED TO D ISPOSE OF THE WHOLE OR ANY PART OF THE MATTER AFRESH UNLESS F ORBIDDEN FROM DOING SO BY THE STATUTE.' I. SIMILARITY OF PROVISIONS OF S.25A OF 1922 ACT AND 92(1) OF 1961 ACT. II. BOTH ARE MANDATORY SECTIONS III. FACTS IN THE PRESENT CASE ARE ALSO SIMILAR. IV. DETERMINATION OF ALP IS MANDATORY BEFORE ASSESSING THE INCOME OF THE ASSESSEE. SAME WAS THE CASE U/S 25A. BEFORE ASSESSING THE INCOME, AN ORDER ON STATUS OF PARTITI ON OF MUF WAS MANDATORY. V. HON'BLE APEX COURT HELD ITAT COULD NOT JUST ANNUL THE DEFECTIVE ORDER. IT HAD A DUTY TO DIRECT THE AO TO DO IT AFRESH AS PER LAW. B. HUKUMCHAND MILLS LTD.K CIT [1967] 63 ITR 232 (SC ) PI SEE PAR ON PAGE 4 ONWARDS STARTING WITH THE SUB-HEADING 'CIVIL APPEALS NOS. 411 TO 413 OF 1965 ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 47 I. SIMILARITY OF FACTS IN PRESENT APPEAL AND THE ABOVE CASE. II. IMPORTANT PORTION OF THE SAID JUDGMENT AS UNDER: 'EVEN ASSUMING THAT RULES 12 AND 27 ARE NOT STRICTL Y APPLICABLE, WE ARE OF OPINION THAT THE TRIBUNAL HAS GOT SUFFICIENT POWER UNDER SECTION 33(4) OF THE ACT TO ENTERTAIN THE ARGUMENT OF THE DEPARTMENT WITH REGARD TO THE APPLI CATION OF PARAGRAPH 2 OF THE TAXATION LAWS ORDER AND REMAND T HE CASE TO THE INCOME-TAX OFFICER IN THE MANNER IT HAS DONE . IT IS NECESSARY TO STATE THAT RULES 12 AND 27 ARE NOT EXH AUSTIVE OF THE POWERS OF THE APPELLATE TRIBUNAL, THE RULES ARE MERELY PROCEDURAL IN CHARACTER AND DO NOT, IN ANY WAY, CIR CUMSCRIBE OR CONTROL THE POWER OF THE TRIBUNAL UNDER SECTION 33(4) OF THE ACT. WE ARE ACCORDINGLY OF THE OPINION THAT THE TRI BUNAL HAD JURISDICTION TO ENTERTAIN THE ARGUMENT OF THE DEPAR TMENT IN THIS CASE AND TO DIRECT THE INCOME-TAX OFFICER TO FIND W HETHER ANY DEPRECIATION WAS ACTUALLY ALLOWED UNDER THE INDUSTR IAL TAX RULES AND WHETHER SUCH DEPRECIATION SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTING THE WRIT TEN DOWN VALUE. C. CIT V JANSAMPARK ADVERTISING & MARKETING (P.) LT D. [2015] 56 TAXMANN.COM 286 [DELHI) 35. ASSESSMENT PROCEEDINGS UNDER THE INCOME TAX ACT ARE NOT A GAME OF HIDE AND SEEK. THE INQUIRY IN THE WAKE OF A NOTICE UNDER SECTION 148 IS NOT AN EMPTY FORMALITY. IT MUS T BE EFFECTIVE AND WITH A SENSE OF PURPOSE. THERE IS AN ELABORATE PROCEDURE SET OUT WHICH REQUIRES SCRUPULOUS ADHEREN CE AND FOLLOWED UP ON. IN THE HIERARCHY OF THE AUTHORITIES , THE AO IS PLACED AT THE BOTTOM RUNG. THE TWO LAYERS OF APPEAL S, BEFORE THE MATTER ENGAGES THE APPELLATE JURISDICTION OF TH IS COURT, ARE AUTHORITIES VESTED WITH THE JURISDICTION, POWER AND OBLIGATION TO REACH APPROPRIATE FINDINGS ON FACTS. NOTICEABLY, IT IS ONLY THE APPEAL TO THE HIGH COURT, UNDER SECTION 260-A, WHIC H IS RESTRICTED TO CONSIDERATION OF 'SUBSTANTIAL QUESTIO N OF LAW', IF ANY ARISING. AS WOULD BE SEEN FROM THE DISCUSSION T HAT FOLLOWS, THE OBLIGATION TO MAKE PROPER INQUIRY AND REACH FINDING ON FACTS DOES NOT END WITH THE AO. THIS OBL IGATION MOVES UPWARDS TO CIT (APPEALS), AND ALSO ITAT, SHOU LD IT COME TO THEIR NOTICE THAT THERE HAS BEEN DEFAULT IN SUCH RESPECT ON THE PART OF THE AO. IN SUCH EVENT, IT IS THEY WH O ARE DUTY BOUND TO EITHER THEMSELVES PROPERLY INQUIRE OR CAUS E SUCH ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 48 INQUIRY TO BE COMPLETED. IF THIS WERE NOT TO BE DON E, THE POWER UNDER SECTION 148 WOULD BE RENDERED PRONE TO ABUSE 38. THE PROVISION OF APPEAL, BEFORE THE CIT (APPEAL S) AND THEN BEFORE THE ITAT, IS MADE MORE AS A CHECK ON THE ABU SE OF POWER AND AUTHORITY BY THE AO. WHILST IT IS TRUE TH AT IT IS THE OBLIGATION OF THE AO TO CONDUCT PROPER SCRUTINY OF THE MATERIAL, GIVEN THE FACT THAT THE TWO APPELLATE AUTHORITIES A BOVE ARE ALSO FORUMS FOR FACT-FINDING, IN THE EVENT OF AO FAILING TO DISCHARGE HIS FUNCTIONS PROPERLY, THE OBLIGATION TO CONDUCT P ROPER INQUIRY ON FACTS WOULD NATURALLY SHIFT TO THE DOOR OF THE S AID APPELLATE AUTHORITY. FOR SUCH PURPOSES, WE ONLY NEED TO POINT OUT ONE STEP IN THE PROCEDURE IN APPEAL AS PRESCRIBED IN SE CTION 250 OF THE INCOME TAX ACT WHEREIN, BESIDES IT BEING OBLIGA TORY FOR THE RIGHT OF HEARING TO BE AFFORDED NOT ONLY TO THE ASS ESSEE BUT ALSO THE AO, THE FIRST APPELLATE AUTHORITY IS GIVEN THE LIBERTY TO MAKE, OR CAUSE TO BE MADE, 'FURTHER INQUIRY', IN TE RMS OF SUB- SECTION (4) WHICH READS AS UNDER: 'THE COMMISSIONER (APPEALS) MAY, BEFORE DISPOSING O F ANY APPEAL, MAKE SUCH FURTHER INQUIRY AS HE THINKS FIT, OR MAY DIRECT THE ASSESSING OFFICER TO MAKE FURTHER INQUIR Y AND REPORT THE RESULT OF THE SAME TO THE COMMISSIONER (APPEALS ).' 5. ADVANCING HIS ARGUMENTS IN ITA NO. 1018/DEL/20 16 FOR ASSESSMENT YEAR 2011-12, THE LD. AUTHORISED REPRESE NTATIVE SUBMITTED THAT GROUND NOS. 1,2 AND 3 WERE GENERAL, GROUND NO. 3.2, 3.3, 3.6, 3.8, 3.9 WERE NOT BEING PRESSED. LD . AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT GROUND NO. 5 WAS NOT BEING PRESSED DUE TO SMALLNESS OF AMOUNT. ON GROUND NO. 4 AND 4.1 PERTAINING TO INTEREST ON RECEIVABLES, THE LD. AUTH ORISED REPRESENTATIVE SUBMITTED THAT THIS GROUND WAS IDENT ICAL TO THE GROUND RELATED TO INTEREST RECEIVABLES IN ASSESSMEN T YEAR 2010- ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 49 11 AND ACCORDINGLY, THE ARGUMENTS MADE IN RESPECT T O THOSE GROUNDS WERE IDENTICAL AND WERE NOT BEING REPEATED FOR THE SAKE OF BREVITY. 5.1 ON THE ISSUE OF COMPARABLES, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN THIS YEAR, THE FIN AL SET OF COMPARABLES HAD 3 NEW COMPARABLES PICKED UP BY THE TPO VIZ. ADITYA BIRLA CAPITAL ADVISORS PVT. LTD. AND AXIS PR IVATE EQUITY LTD. AND PORTFOLIO FINANCIAL SERVICES LTD. LD. AUT HORISED REPRESENTATIVE ALSO SUBMITTED THAT OUT OF THE COMPA RABLES BEING CONTESTED, BRECSON ADVISORS & HOLDINGS LTD., KEYNOT E CORPORATE SERVICES LTD. AND MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. HAD ALREADY BEEN ARGUED BY THE LD. AUTHORISED REPRE SENTATIVE IN THE APPEAL FOR ASSESSMENT YEAR 2010-11 AND THE ARGU MENTS BEING SIMILAR, THE SAME WERE NOT BEING ARGUED AGAIN FOR THE SAKE OF BREVITY. LD. AUTHORISED REPRESENTATIVE ALSO REI TERATED THAT IF THESE THREE COMPARABLES VIZ. BRECSON ADVISORS & HOL DINGS LTD., KEYNOTE CORPORATE SERVICES LTD. AND MOTILAL OSWAL I NVESTMENT ADVISORS PVT. LTD. WERE EXCLUDED FROM THE FINAL SET OF COMPARABLES, THE ASSESSEES TRANSACTION WOULD BE AT ARMS LENGTH. HE ALSO SUBMITTED THAT AFTER EXCLUSION OF THESE THREE COMPARABLES, AN AVERAGE OF OP/TC OF THE REMAINING 9 ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 50 COMPARABLES WOULD WORK OUT TO 12.64% AS AGAINST THE ASSESSEES MARGIN OF 16.54% AND THEREFORE NO FURTHER ADJUSTMEN T WOULD BE REQUIRED AND THE ENTIRE TRANSFER PRICING ADDITION W OULD BE LIABLE TO BE DELETED. ON THE REMAINING COMPARABLES BEING C ONTESTED, THE ARGUMENTS OF THE LD. AR WERE AS UNDER- I) AXIS PRIVATE EQUITY LIMITED LD. AR SUBMITTED THAT THIS COMPANY WAS FUNCTIO NALLY DISSIMILAR AS IT WAS INTO ASSET MANAGEMENT SERVICES . IT WAS ALSO SUBMITTED THAT THE TPO HAD USED UNRELIABLE INFORMAT ION WHILE INCLUDING THIS AS A COMPARABLE BECAUSE HE HAD RELIE D ON THE DRAFT RED-ERRING PROSPECTUS OF ANOTHER COMPANY NEESA LEIS URE LIMITED TO SUBSTANTIATE THE COMPARABILITY. IT WAS ALSO SUB MITTED THAT THE APPROACH OF THE TPO WAS INCONSISTENT AS EXCESS WAS INCLUDED AS A COMPARABLE IN THIS YEAR BUT HAD BEEN REJECTED IN ASSESSMENT YEAR 2010-11. IT WAS ALSO SUBMITTED THAT THIS COMP ANY WAS EARNING SUPERNORMAL PROFIT OF 30.36%. THE LD. AR A LSO PLACED RELIANCE ON THE DECISION OF ITAT MUMBAI IN THE CASE OF M/S GOLDMAN SACHS (INDIA) SECURITIES PRIVATE LIMITED VS DCIT IN I.T.A. NO. 222/MUMBAI/2014 AND OF ITAT DELHI BENCH IN AVENUE ASIA ADVISORS PRIVATE LIMITED VS DCIT IN I.T.A. 663 8/DEL/2013 ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 51 WHEREIN THIS COMPANY WAS EXCLUDED AS A COMPARABLE. II) AJCON GLOBAL SERVICES LIMITED LD. AR SUBMITTED THAT THIS COMPANY WAS FUNCTIO NALLY DISSIMILAR AS THIS COMPANY PROVIDED A WHOLE GAMUT O F FINANCIAL SERVICES LIKE STOCK BROKING, COMMODITY BROKING, DEP OSITORY SERVICES, PROJECT CONSULTANCY, EQUITY RESEARCH, LOA N SYNDICATION,, TURNKEY PROJECTS, CORPORATE ADVISORY SERVICES AND M ERCHANT BANKING. IT WAS ALSO SUBMITTED THAT AJCON WAS NOT CONSIDERED BY THE TPO IN THE ASSESSEES OWN CASE FOR ASSESSMENT Y EAR 2010-11. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE MUM BAI BENCH IN THE CASE OF TEMASEK HOLDINGS ADVISORS (I) PRIVATE L IMITED IN I.T.A. NO. 5359/MUM/2009 FOR EXCLUSION OF THIS COMPARABLE. III) LADDERUP CORPORATE ADVISORY PRIVATE LIMITED IT WAS SUBMITTED BY THE LD. AR THAT THIS COMPA NY WAS ALSO FUNCTIONALLY DISSIMILAR AS IT WAS ENGATED IN INVEST MENT BANKING SERVICES, CORPORATE FINANCE SERVICES AND CORPORATE ADVISORY SERVICES. IT WAS ALSO SUBMITTED THAT THIS COMPANY WAS ALSO MERCHANT BANKER WITH SEBI AND IT HAD SHOWN ABNORMAL GROWTH OF 154.98% INCREASE IN REVENUE AND 472.68% INCREASE IN PROFITS. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 52 IV) SREI VENTURE CAPITAL LIMITED IT WAS SUBMITTED BY THE LD. AR THAT THIS COMPA NY WAS ALSO FUNCTIONALLY DISSIMILAR. IT WAS SUBMITTED THAT THI S COMPANY WAS ALSO FUNCTIONALLY DISSIMILAR AS IT WAS INTO FUND MO BILIZATION, MERCHANT BANKING AND UNDERWRITING SERVICES AND, THE REFORE, IT SHOULD BE EXCLUDED FROM THE FINAL SET OF COMPARABLE S. V) ADITYA BIRLA CAPITAL ADVISORS PRIVATE LIMITED LD. AR SUBMITTED THAT THIS COMPANY WAS ALSO FU NCTIONALLY DISSIMILAR AS IT WAS ENGAGED IN ASSET MANAGEMENT AN D INVESTMENT IN VENTURE CAPITAL FUND. IT WAS FURTHER SUBMITTED THAT THE TPO HAD USED A NON-RELIABLE INFORMATION SOURCE TO SUBSTANTIATE THE COMPARABILITY BY RELYING ON THE IN FORMATION AS PROVIDED IN RED-ERRING PROSPECTORS OF ANOTHER COMPA NY TRIMAX IT INFRASTRUCTURE & SERVICES LTD. . IT WAS ALSO SUBMI TTED THAT THE COMPANY HAD EARNED SUPER NORMAL PROFITS OF 41.65% VI) PORTFOLIO FINANCIAL SERVICES LIMITED ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 53 LD. AR SUBMITTED THAT THIS COMPANY WAS FUNCTIO NALLY DISSIMILAR AS IT WAS PROVIDING DEBT SYNDICATION SER VICES. IT WAS ALSO SUBMITTED THAT THE HON'BLE HIGH COURT OF BOMBA Y IN THE CASE OF CARLYLE INDIA ADVISORS PRIVATE LIMITED (SUP RA) HAD REJECTED THE COMPANIES ENGAGED IN PROVIDING DEBT RESOLUTION AND RECAPITALIZATION, DEBT SYNDICATION SERVICES. IT WA S ALSO SUBMITTED THAT THE COMPANY HAD EARNED SUPERNORMAL PROFITS OF 32.14% AND, THEREFORE, THE SAME SHOULD BE EXCLUDED. 6. LD. CIT DR PLACED HEAVY RELIANCE ON THE FINDIN GS OF THE LOWER AUTHORITIES AND ALSO FILED WRITTEN SUBMISSIONS IN S UPPORT OF HIS ARGUMENTS WHICH WERE IDENTICAL TO THE WRITTEN SUBMI SSIONS FILED FOR ASSESSMENT YEAR 2010-11 AND, THEREFORE, THE SAM E ARE NOT BEING REPRODUCED HERE FOR THE SAKE OF BREVITY. 7. THE LD. AR, THEREAFTER, ADVANCED HIS ARGUMENTS IN ITA 75/DEL/2017 FOR ASSESSMENT YEAR 2012-13 AND SUBMITT ED THAT GROUND NO. 1, 2, 3, 4, 4.1 AND 4.9 WERE GENERAL. G ROUND NO. 4.2, 4.10 AND 5.3 WERE NOT BEING PRESSED. IT WAS ALSO S UBMITTED THAT GROUND NO. 4.8 RELATED TO THE ISSUE OF FOREIGN EXCH ANGE GAINS/LOSSES AND BANK CHARGES WHICH WAS IDENTICAL T O THE EARLIER TWO YEARS AND THE ARGUMENTS MADE BY THE LD. AUTHORI SED ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 54 REPRESENTATIVE FOR ASSESSMENT YEAR 2010-11 WOULD AP PLY AND THE SAME WERE NOT BEING REPEATED FOR THE SAKE OF BR EVITY. IT WAS ALSO SUBMITTED THAT GROUND NOS. 5, 5.1 AND 5.2 RELA TE TO INTEREST ON RECEIVABLES WHICH WERE ALSO IDENTICAL TO THE EAR LIER YEARS ARGUMENTS AND WERE NOT BEING REPEATED. 7.1 ON THE ISSUE OF COMPARABLES IT WAS SUBMITTED THAT IF KEYNOTE CORPORATE SERVICES LTD., ALMONDZ GLOBAL SEC URITIES LTD. AND AJCON GLOBAL SERVICES LTD. WERE EXCLUDED FROM T HE FINAL SET OF COMPARABLES, THEN THE TRANSACTION WOULD BE WITHIN 5 % RANGE. HOWEVER, AT A LATER STAGE IN THE ARGUMENTS, THE LD. AR SUBMITTED THAT THE GROUND FOR EXCLUSION OF ALMONDZ GLOBAL SEC URITIES LTD WAS NOT BEING PRESSED. IT WAS SUBMITTED THAT THE AR GUMENTS RELATING TO KEYNOTE CORPORATE SERVICES LTD, ADITYA BIRLA CAPITAL ADVISORS PVT LTD, LADDERUP CORPORATE ADVISORY PVT L TD, AJCON GLOBAL SERVICES LTD AND BRESCON CORPORATE ADVISORS LTD WERE IDENTICAL AS ARGUED BY THE LD. AUTHORISED REPRESENT ATIVE IN THE APPEAL FOR ASSESSMENT YEARS 2010-11 AND 2011-12 AND WERE, THEREFORE, NOT BEING REPEATED. ALMONDZ GLOBAL SECURITIES LIMITED (SEGMENTAL) ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 55 LD. AR SUBMITTED THAT THIS COMPANY WAS FUNCTIONALLY DISSIMILAR AS IT WAS INTO INVESTMENT BANKING SERVICES AND WAS REGISTERED AS A MERCHANT BANKER WITH SEBI. IT WAS ALSO SUBMITTED THAT IT FAILS RELATED PARTY TRANSACTIONS FILTER. IT HAD ALSO EAR NED SUPER NORMAL PROFIT OF 35.75%. 8. LD. CIT DR ALSO FILED WRITTEN SUBMISSIONS WHIC H WERE IDENTICAL TO THE SUBMISSIONS FILED FOR ASSESSMENT Y EARS 2010-11 AND 2011-12 AND THE SAME ARE NOT BEING REPRODUCED F OR THE SAKE OF BREVITY. LD. CIT DR ALSO SUBMITTED THAT IF ALL THE COMPARABLES OBJECTED TO BY THE ASSESSEE WERE TO BE EXCLUDED, NO THING WOULD REMAIN AND A DE NOVO SELECTION OF THE COMPARABLES WOULD HAVE TO BE DONE BY THE TPO. IT WAS SUBMITTED THAT IN SUCH A CASE, ALL THE THREE MATTERS SHOULD BE SET ASIDE TO THE FILE OF TH E TPO FOR DE NOVO SELECTION OF COMPARABLES. 9. IN REJOINDER, THE LD. AUTHORISED REPRESENTATIV E SUBMITTED THAT NONE OF THE COMPARABLES INCLUDED BY THE TPO HA D INVESTMENT ADVISORY SERVICES AS IT PRIMARY FUNCTION . IT WAS ALSO SUBMITTED THAT THE TRANSFER PRICING STUDY OF THE AS SESSEE HAD NOT BEEN REJECTED BY THE TPO AND, FURTHER, NO DEFECTS H AD BEEN POINTED OUT BY THE DEPARTMENT IN THE TRANSFER PRICI NG STUDY AND ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 56 THE DISPUTE RELATED ONLY TO COMPARABLES AND NOT TO THE METHODOLOGY ADOPTED IN THE TRANSFER PRICING STUDY. IT WAS ALSO SUBMITTED THAT MINOR DIFFERENCE IN FUNCTIONALITY WE RE ACCEPTABLE BUT THE EMPHASIS WAS ON MINOR AND THE BROAD SIMIL ARITY AS ARGUED BY THE LD. CIT DR WAS WAY OFF THE MARK. IT WAS ALSO SUBMITTED THAT THE ASSESSEE COMPANY DID NOT PROVIDE MERCHANT BANKING SERVICES WHEREAS MANY OF THE COMPARABLES SE LECTED BY THE TPO WERE REGISTERED AS MERCHANT BANKERS. LD. A UTHORISED REPRESENTATIVE ALSO OPPOSED THE PLEA OF THE CIT DR THAT THE MATTERS BE RESTORED TO THE FILE OF THE TPO FOR A FR ESH ADJUDICATION. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. FIRST OF AL L, WE TAKE UP THE COMPARABLES BEING AGITATED BY THE ASSESSEE. (A) ASSESSMENT YEAR 2010-11 10.1 THE ASSESSEE HAS SUBMITTED THAT IF THREE COM PARABLES VIZ. BRESCON ADVISORS & HOLDINGS LTD., KEYNOTE CORP ORATE SERVICES LTD. AND MOTILAL OSWAL INVESTMENT PVT. LTD . ARE EXCLUDED, THE ASSESSEE WILL FALL WITHIN THE RANGE O F 5%, THEREFORE, INITIALLY WE PROCEED TO ADJUDICATE ON TH ESE 3 COMPARABLES AND OTHER COMPARABLES WILL BE TAKEN UP AT A LATER ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 57 STAGE IF THE NEED SO ARISES. (I) BRESCON ADVISORS & HOLDINGS LTD. LD. AUTHORISED REPRESENTATIVE HAS PLACED RELIA NCE ON A NUMBER OF CASE LAWS AND HAS ARGUED FOR THE EXCLUSIO N OF THIS COMPARABLE. THE ITAT DELHI BENCH IN THE CASE OF XA NDER ADVISORS INDIA PVT. LTD. VS ACIT IN I.T.A. NO. 5840 /DEL/2012 FOR ASSESSMENT YEAR 2008-09 HAS NOTED IN PARA 10 OF THE SAID ORDER THAT THIS COMPANY WAS ENGAGED IN CARRYING ON MERCHANT BANKING AND INVESTMENT ACTIVITIES ALONG WITH PROVID ING PROJECT ADVISORY SERVICES. THE BENCH HAS ALSO NOTED THAT T HIS COMPANY HAD TWO STREAMS OF INCOME NAMELY FEE BASED FINANCIAL SERVICES AND OTHER INCOME. WHILE EXCLUDI NG THIS COMPANY IN THE CASE OF XANDER ADVISORS INDIA PVT. L TD., THE BENCH NOTED, ASSESSEES ACTIVITY, IN NUTSHELL IS TO TENDER ADVICE TO THE MANAGER ABOUT THE AVENUES FOR MAKING INVESTMENT IN REAL ESTATE AND IF THE MANAGER AGREES TO GO AHEA D WITH SUCH INVESTMENT OPPORTUNITY, THEN TO GET INVOLVED IN THE PROCESS OF FINALISATION OF THE DEAL AND THEN PROVIDE SUPPORT S ERVICES, INCLUDING MAINTENANCE OF BOOKS OF ACCOUNTS ETC. ON THE CLICKING OF THE DEAL. THE BENCH ALSO NOTED THAT NO SEGMENTAL DATA OF THE ADVISORY SERVICES BEING RENDERED BY XANDER WAS AVAILABLE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 58 AND THE AVAILABILITY OF SEPARATE DATA COULD HAVE PO SSIBLY MADE IT COMPARABLE WITH THE ASSESSEE. IT IS ALSO SEEN T HAT THIS COMPANY WAS EXCLUDED BY THE ITAT MUMBAI IN M/S BLACKSTONE ADVISORS INDIA PVT. LTD. IN I.T.A. NO. 1581/MUM/2014. THE BENCH OBSERVED IN PAGE 12 OF TH E ORDER AS UNDER:- B) BRESCON CORPORATE ADVISORS PVT LTD:- AS STATED BY THE LD. SENIOR COUNSEL, THIS COMPANY I S AGAIN RENDERING SERVICES OF MERCHANT BANKER AND ITS INCOM E IS MAINLY FROM FINANCIAL RESTRUCTURING AND RECAPITALIZATION A ND DEBTS SYNDICATION. EQUITY RELATED ADVISORY AND M&A ADVIS ORY SERVICES ARE ALSO IN THE CAPACITY OF A MERCHANT BANKER AND A S A CORPORATE ADVISOR COMPANY ITS MAIN FUNCTION IS TO ASSIST THE COMPANIES IN SPECIAL SITUATION THROUGH RESOLUTION, RE-CAPITALIZA TION, M&M, INFUSION OF PROFIT, EQUITY OR DIRECT INVESTMENT. TH US, LIKE MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD., THIS COMPANY A LSO CANNOT BE COMPARED WITH COMPANIES RENDERING INVESTMENT ADVISO RY SERVICES SIMPLICITOR. THE REASONING GIVEN IN THE MOTILAL OSW AL FOR EXCLUSION WILL APPLY HERE ALSO. THE DECISIONS RELIED UPON BY THE LD. SENIOR COUNSEL, ESPECIALLY IN THE CASE OF TAMASEK HOLDINGS ADVISORS INDIA PVT LTD (SUPRA), WE FIND THAT THIS COMPANY HA S BEEN ESPECIALLY EXCLUDED FROM BEING CONSIDERED WHILE COM PARING WITH THE COMPANIES GIVING INVESTMENT ADVISORY SERVICES. ACCORDINGLY, WE DIRECT THE TPO/AO TO EXCLUDE THIS COMPANY FROM C OMPARABILITY LIST. ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 59 10.2 THUS, ITAT MUMBAI BENCH HAS REACHED A CONCLU SION THAT M/S BRESCON CORPORATE ADVISORS PVT. LTD. CANNOT BE COMPARED WITH COMPANIES RENDERING INVESTMENT ADVISORY SERVIC ES. AS M/S BRESCON CORPORATE ADVISORS PVT. LTD. IS UNDISPUTED LY RENDERING SERVICES OF A MERCHANT BANKER AND ITS INCOME IS MAI NLY FROM FINANCIAL RESTRUCTURING AND RECAPITALIZATION AND DE BTS SYNDICATION, IT CANNOT BE CONSIDERED A COMPARABLE W ITH THE COMPANY PROVIDING INVESTMENT ADVISORY SERVICES LIKE THE ASSESSEE. ACCORDINGLY, WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARA BLES. (II) KEYNOTE CORPORATE SERVICES LTD . IT HAS BEEN THE ASSESSEES CONTENTION THAT THIS COM PANY HAS EARNED REVENUE FROM MERCHANT BANKING, INVESTMENT AC TIVITY, MERGERS AND ACQUISITION ADVISORY, ESOP ADVISORY AND EQUITY, DEBT PLACEMENTS AND RESTRUCTURING. IT IS THE ASSES SEES CONTENTION THAT THIS COMPANY IS FUNCTIONALLY DIFFER ENT AND FOR THAT PURPOSE IT HAS RELIED ON THE ORDER OF THE ITAT MUMBAI BENCH IN THE CASE OF CARLYLE INDIA ADVISORS PVT. LTD. IN I.T.A. NO. 7901/MUM/2011. THE RELEVANT PARAGRAPH OF THE ORDER OF THE ITAT MUMBAI IS BEING REPRODUCED AS UNDER:- ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 60 KEYNOTE IS A FULL SERVICE INVESTMENT BANKING GROUP FOCUSED ON MID MARKET COMPANIES IN INDIA. WITH SERVICES THAT ENABL E OUR CLIENTS TO ACCESS CAPITAL MARKETS, CORPORATE FINANCE_ ADVISORY , MERGERS AND ACQUISITIONS ADVISTORY, ESOP ADVISORY, EQUITY/D EBT PLACEMENTS AND RESTRUCTURING, KEYNOTE HAS EMERGED A S A ONE- STOP-BOTIQUE FOR MID MARKET COMPANIES ACROSS THE CO UNTRY. THE COMPANYS MAIN REVENUE STREAM CONSISTS OF ISSUE MANAGEMENT FEES, UNDERWRITING FEES. THE COMPANYS P RIMARY SEGMENT CONSISTS OF 3 MAIN ACTIVITIES VIZ. SERVICES , DEALING IN SHARES AND OTHER INCOME. SERVICE DESCRIPTION:MANAGING OF PUBLIC ISSUE OF SEC URITIES, UNDERWRITING, PROJECT APPRAISAL, EQUITY RESEARCH, C APITAL STRUCTURING / RE-STRUCTURING, LOAN 8S LEASE SYNDICA TION, CORPORA ADVISORY SENDEES, MERGERS & ACQUISITION, PLACEMENT SENDEES, PORTFOLIO MANAGEMENT. DEBENTURE TRUSTEE, MANAGING / ADVISING ON INTERNATIONAL OFFERINGS OF DEBT/EQUITY, I.E. GOR, A DR, BONDS AND OTHER INSTRUMENTS, PRIVATE PLACEMENT OF SECURITIES, CORPORATE ADVISORY SERVICES RELATED TO SECURITIES MARKET E.G. TAKEOVERS, ACQUISITIONS, DISINVESTMENTS ETC., ADVISORY SERVICE S FOR PROJECTS, INTERNATIONAL FINANCIAL ADVISORY SENDEES. WAREHOUSI NG/ PARKING OF SECURITIES, BRIDGE FINANCING, BOUGHT OUT DEALS R ELATING TO ISSUE MANAGEMENT. EQUITY RESEARCH OUT OF THE ABOVE SENDEE CAN BE COMP ARED WITH THAT OF THE ASSESSEES ACTIVITY BUT SEGMENTAL DATA IS NOT AVAILABLE. THE COMPANYS SEGMENT AS REPORTED ARE SERVICES, DEA LING IN SHARES AND OTHER INCOME. IN THE ABSENCE OF SPECIFIC DATA IT IS NOT POSSIBLE TO MAKE COMPARISON. IT CAN THEREFORE BE SAFELY SAID THAT THAT ABOVE IS INTO MERCHANT BANKING AND CANNOT BE CONSIDERED AS A COMPARABLE. 10.3 A PERUSAL OF THE ABOVE CLEARLY ESTABLISHES TH AT KEYNOTE CORPORATE SERVICES LTD. IS INTO MERCHANT BANKING AN D ACCORDINGLY IT CANNOT BE CONSIDERED AS A COMPARABLE WITH THE IN VESTMENT ADVISORY COMPANY. RESPECTFULLY APPLYING THE RATIO OF THE ITAT ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 61 MUMBAI BENCH, WE DIRECT THE ASSESSING OFFICER/TPO T O EXCLUDE THIS COMPANY ALSO FROM THE FINAL LIST OF COMPARABLE S. (III) MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. IN THE CASE OF THIS COMPANY, IT IS THE ASSESSEES ASSERTION THAT THIS COMPANY EARNS REVENUE FROM EQUITY AND DER IVATIVES, INVESTMENT BANKING, MERGERS AND ACQUISITIONS, PORTF OLIO MANAGEMENT SERVICES, PRIVATE WEALTH MANAGEMENT AND SYNDICATION AND STRUCTURED DEBT. IT IS SEEN THAT THIS COMPANY WAS EXCLUDED AS A COMPARABLE IN THE CASE BY ITAT MU MBAI BENCH IN THE CASE OF CARLYLE INDIA ADVISORS PVT. LT D. (SUPRA). THIS WAS ALSO FOLLOWED BY THE ITAT DELHI BENCH AND THIS COMPANY WAS EXCLUDED IN THE CASE OF ACTIS ADVISERS PVT. LTD. VS ACIT IN I.T.A. NO. 1998/DEL/2014. THIS COMPANY WAS ALSO EXCLUDED AS A COMPARABLE IN THE CASE OF MS/ BLACKST ONE ADVISORS INDIA PVT. LTD. BY ITAT MUMBAI IN I.T.A. NO. 1581/M UM/2014 WHEREIN THIS COMPANY WAS DIRECTED TO BE EXCLUDED IN PAGE 11 OF THE ORDER. THE RELEVANT PORTIONS ARE BEING REPRODU CED FOR A READY REFERENCE:- MOTILAL OSWAL INVESTMENT ADVISORS PVT LTD :- THIS COMPARABLE HAS BEEN INCLUDED BY THE TPO AND WH ILE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 62 INCLUDING THE SAID COMPARABLE HE HAS OBSERVED THAT ITS INCOME IS ONLY FROM ADVISORY FEES DURING THE YEAR AND IT IS P ERFORMING ADVISORY SERVICES IN VARIOUS FIELD AND INDUSTRIES I NCLUDING ADVISORY SERVICES LIKE ASSESSEE. BEFORE US, LD. CIT DR ARGUI NG FOR ITS INCLUSION SUBMITTED THAT, IF THE ICRA MANAGEMENT SE RVICES CAN BE INCLUDED FOR HAVING REVENUE FROM ADVISORY SERVICES THEN ON SAME ANALOGY THIS COMPANY SHOULD ALSO BE GIVEN THE SAME TREATMENT. FROM THE PERUSAL OF THE DIRECTORS REPORT, IT IS SE EN THAT THIS COMPANY DERIVES ITS BUSINESS INCOME FROM FOUR DIFFE RENT BUSINESS VERTICALS, I.E. EQUITY CAPITAL MARKETS, MERGER AND ACQUISITIONS, PROFIT EQUITY SYNDICATIONS AND STRUCTURED DEBT. IT ALSO GIVE ADVISES ON CROSS BORDER ACQUISITION. ITS CORE COMPETENCE IS IN THE FIELD OF MERCHANT BANKING. IT ALSO PROVIDES COMPREHENSIVE IN VESTMENT BANKING SOLUTIONS AND TRANSACTION EXPERTISE COVERIN G PRIVATE PLACEMENT OF EQUITY, DEBT AND CONVERTIBLE INSTRUMEN TS IN INTERNATIONAL AND DOMESTIC CAPITAL MARKETS, MONITOR ING MERGERS AND ACQUISITIONS AND ADVISING M&A AS PROFESSIONAL A ND RESTRUCTURING ADVISORY AND IMPLEMENTATIONS. IT IS A LSO INVOLVED IN VARIOUS PROFESSIONAL ACTIVITIES OF THE MERCHANT BAN KING. A MERCHANT BANKER PROVIDES CAPITAL TO COMPANIES IN TH E FORM OF SHARE OWNERSHIP INSTEAD OF LOANS. IT ALSO PROVIDES ADVISORY ON CORPORATE MATTERS TO THE COMPANIES IN WHICH THEY IN VEST. THE FOCUS IS ON NEGOTIATED PRIVATE EQUITY INVESTMENT. THE WID E RANGES OF ACTIVITIES INCLUDE PORTFOLIO MANAGEMENT, CREDIT SYN DICATION, COUNSELING ON M&A, ETC. THIS WHOLE RANGE OF FUNCTIO NS AND ACTIVITIES CARRIED OUT BY MOTILAL OSWAL IS DEFINITE LY ARE FAR WIDER AND MUCH DIFFERENT FROM INVESTMENT ADVISORY SERVICE S WHERE CORE FUNCTIONS IS TO GIVE ADVICE FOR MAKING THE INVESTME NTS IN DIVERSIFIED ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 63 FIELDS. A COMPANY WHICH IS ENGAGED IN MERGER AND AC QUISITIONS, PRIVATE EQUITY SYNDICATION, LOAN/CREDIT SYNDICATION AND PERFORMING MOST OF THE FUNCTION AS A MERCHANT BANKER, THEN THE ENTIRE FUNCTIONS AND TRANSACTIONS AFFECTS THE GENERATION O F REVENUE AND MARGINS. SUCH FUNCTIONS ARE ENTIRELY DIFFERENT FROM INVESTMENT ADVISORY SERVICES. MERE CLASSIFICATION OF REVENUE A S ADVISORY FEES WILL NOT PUT THE COMPANY IN A COMPARABLE BASKET SAN S FUNCTIONAL SIMILARITY AND TRANSACTIONAL ANALYSIS. IN CASE OF C ARLYLE INDIA ADVISORS PVT. LTD (SUPRA), IT HAS BEEN HELD THAT, T HE MERCHANT BANKING FUNCTIONS ARE ENTIRELY DIFFERENT FROM INVES TMENT ADVISORY SERVICES AND THIS DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT. THUS, IN VIEW OF PLETHOR A OF JUDICIAL DECISIONS AS REFERRED TO BY LD. COUNSEL AND IN VIEW OF FUNCTIONAL DIFFERENCES AS DISCUSSED AS ABOVE, WE HOLD THAT MOT ILAL OSWAL CANNOT BE PUT INTO THE COMPARABILITY LIST AND IS DI RECTED TO BE EXCLUDED. 10.4 THE DEPARTMENT ALSO COULD NOT BRING ANY NEW FACT ON RECORD WHICH COULD CONTROVERT THE ASSERTION MADE BY THE LD. AUTHORISED REPRESENTATIVE EXCEPT FOR THE PLEA THAT ONLY A BROAD COMPARABILITY HAS TO BE SEEN IN CASE OF SELECTING C OMPARABLES. HOWEVER, WE ARE UNABLE TO AGREE WITH THE CONTENTION S OF THE LD. CIT DR AS THIS COMPANY HAS BEEN EXCLUDED ON THE BAS IS OF FUNCTIONAL DISSIMILARITY IN MANY CASES AND THE DEPA RTMENT HAS NOT BEEN ABLE TO DEMONSTRATE WITH EVIDENCE, CASES W HERE THIS COMPANY WAS ACCEPTED AS A COMPARABLE IN ANOTHER ENT ITY ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 64 PROVIDING INVESTMENT ADVISORY SERVICES. ACCORDINGL Y, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY A LSO FROM THE FINAL LIST OF COMPARABLES. THE ASSESSEE HAS SUBMIT TED THAT IF THE THREE COMPARABLES VIZ. M/S BRESCON CORPORATE ADVISO RS PVT. LTD., MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. AND KEY NOTE CORPORATE SERVICES LIMITED WERE EXCLUDED FROM THE F INAL LIST OF COMPARABLES. THE ASSESSEES TRANSACTION WILL COME WITHIN THE ARMS LENGTH. THE ASSESSEE HAS ALSO PROVIDED A CHA RT IN WHICH THE ADJUSTED OP/TC HAS BEEN CALCULATED AFTER THE EX CLUSION OF THESE THREE COMPARABLES AND IT WORKS OUT TO 14.84% AS COMPARED TO ASSESSEES MARGIN OF 19.47%. AS WE HAVE DIRECTE D THE ASSESSING OFFICER/TPO TO EXCLUDE THESE THREE COMPAR ABLES, WE ARE NOT ADJUDICATING ON THE OTHER COMPARABLES CONTE STED BY THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 AND DIRECT THE ASSESSING OFFICER/TPO TO VERIFY THE WORKING OF THE ASSESSEE A T THE TIME OF EXCLUDING THESE THREE COMPARABLES AND WORKING OUT T HE NEW MARGINS. THE ASSESSEE WILL ALSO BE GIVEN PROPER OP PORTUNITY BY THE ASSESSING OFFICER /TPO WHILE FINALIZING THE MAR GINS. (B) ASSESSMENT YEAR 2010-11 10.5 IN ASSESSMENT YEAR 2010-11 ALSO, THE ASSESSEE HAS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 65 SUBMITTED THAT IF M/S BRESCON CORPORATE ADVISORS PV T. LTD., KEYNOTE CORPORATE SERVICES LTD. AND MOTILAL OSWAL I NVESTMENT ADVISORS PVT. LTD. WERE EXCLUDED, THEN THE ASSESSEE S TRANSACTION WILL COME WITHIN THE ARMS LENGTH. IT HAS BEEN SUB MITTED THAT AFTER THE EXCLUSION OF THESE THREE COMPARABLES, THE ADJUSTED OP/TC WORKS OUT TO 12.64% WHEREAS THE ASSESSEES MA RGIN IS 16.54%. AS WE HAVE ALREADY EXCLUDED THESE THREE CO MPARABLES IN THE APPEAL FOR ASSESSMENT YEAR 2010-11 AND THERE IS NO NEW FACT ON RECORD WHICH HAS BEEN BROUGHT BY THE DEPART MENT WHICH COULD BE PLEADED FOR INCLUSION OF THESE THREE COMPA RABLES IN THIS ASSESSMENT YEAR, FOLLOWING OUR ADJUDICATION FOR THE ASSESSMENT YEAR 2010-11, WE DIRECT THE ASSESSING OFFICER/TPO T O EXCLUDE THESE THREE COMPARABLES FROM THE FINAL SET OF COMPA RABLES IN ASSESSMENT YEAR 2011-12 ALSO AND DIRECT THE ASSESSI NG OFFICER/TPO TO VERIFY THE ADJUSTED OP/TC AS SUBMITT ED BY THE ASSESSEE BEFORE US AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. (C) ASSESSMENT YEAR 2012-13 10.6 IN ASSESSMENT YEAR 2012-13, IT IS SEEN THAT I NCLUSION OF ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 66 KEYNOTE CORPORATE SERVICES LIMITED AND BRESCON CORP ORATE ADVISORS LIMITED HAVE BEEN AGITATED BY THE ASSESSE E IN THIS YEAR ALSO AS IN PREVIOUS TWO ASSESSMENT YEARS. AS THESE COMPARABLES HAVE BEEN EXCLUDED BY US IN THE EARLIER APPEALS FOR ASSESSMENT YEAR 2010-11 AND 2011-12 AND NO NEW FACT HAS BEEN B ROUGHT ON RECORD BY THE DEPARTMENT DURING THE PROCEEDINGS BEF ORE US FOR INCLUSION OF THESE COMPARABLES IN THIS YEAR, FOLLOW ING OUR ADJUDICATION FOR ASSESSMENT YEARS 2010-11 AND 2011- 12, WE DIRECT THE ASSESSING OFFICER/TPO TO DELETE KEYNOTE CORPORATE SERVICES AND BRESCON CORPORATE ADVISORS LTD FROM TH E FINAL SET OF COMPARABLES. 10.7 DURING THE COURSE OF THE PROCEEDINGS BEFORE U S, LD. AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT HE WAS NOT PRESSING FOR EXCLUSION OF THE NEW COMPARABLE INCLUD ED BY THE TPO IN THIS YEAR NAMELY AJCON GLOBAL SERVICES LTD. 10.8 ALMONDZ GLOBAL SECURITIES LTD. - THE OTHER REMAINING COMPARABLE BEING CONTESTED BY THE ASSESSEE IS ALMON DZ GLOBAL SECURITIES LTD. (SEGMENTAL). IT IS THE ASSESSEES CONTENTION THAT THIS COMPANY HAD BEEN EARNING REVENUES FROM TRADING AND SECURITIES, MERCHANT BANKING, UNDERWRITING, PRIVATE EQUITY ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 67 MANAGEMENT, DISTRIBUTION AND EQUITY BOOKING. LD. A UTHORISED REPRESENTATIVE HAS ALSO PROVIDED US WITH A LIST OF MERCHANT BANKERS REGISTERED WITH SEBI AND HAS POINTED OUT TH AT COMPANY IS REGISTERED AS A MERCHANT BANKER AT SL. NO. 6 OF THE SAID LIST OF MERCHANT BANKERS. RELIANCE HAS ALSO BEEN PLACED BY THE ASSESSEE ON THE ORDER OF THE ITAT MUMBAI BENCH IN T HE CASE OF CARLYLE INDIA ADVISORS PVT. LTD. IN I.T.A. NO. 1286 /MUM/2012 WHEREIN COMPANIES ENGAGED IN PROVIDING INVESTMENT B ANKING SERVICES WERE HELD AS NOT COMPARABLE TO COMPANIES P ROVIDING INVESTMENT ADVISORY SERVICES. IT IS ALSO NOTEWORTH Y THAT THIS ORDER OF ITAT MUMBAI HAS BEEN AFFIRMED BY THE BOMBA Y HIGH COURT. WE HAVE ALREADY REPRODUCED THE RELEVANT POR TION OF THE ORDER OF THE ITAT WHEREIN THE BENCH HAS DISCUSSED A ND ADJUDICATED THAT THE ISSUE OF EXCLUSION OF COMPANIE S PROVIDING MERCHANT BANKING SERVICES. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THAT ALMONDZ GLOBAL SECURITIES LTD. BE EXCLU DED FROM THE FINAL SET OF COMPARABLES. THE ASSESSEE HAS SUBMITT ED THAT IF BRESCON, KEYNOTE AND ALMONDZ GLOBAL SECURITIES LTD. ARE EXCLUDED FROM THE FINAL SET OF COMPARABLES, THE TRA NSACTION WILL BE WITH THE ARMS LENGTH. AS WE HAVE ALREADY DIREC TED THE ASSESSING OFFICER/TPO TO EXCLUDE THESE THREE COMPAN IES FROM THE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 68 FINAL SET OF COMPARABLES, WE DO NOT FEEL IT NECESSA RY TO ADJUDICATE ON THE REMAINING COMPARABLES AND DIRECT THE ASSESSI NG OFFICER TO RECOMPUTED THE ADJUSTED MARGIN (OP/TC) AFTER EXCLUD ING THESE THREE COMPANIES AND AFTER GIVING THE ASSESSEE DUE O PPORTUNITY OF BEING HEARD. 10.9 THE NEXT ISSUE BEFORE IS THE ISSUE OF ADJUS TMENT ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES. TH IS ISSUE IS ALSO COMMON IN ALL THE THREE ASSESSMENT YEARS. IT HAS B EEN THE SUBMISSION OF THE ASSESSEE THAT THE OUTSTANDING REV ENUE IS NOT A SEPARATE INTERNATIONAL TRANSACTION AND THAT THE OUT STANDING RECEIVABLES CANNOT BE RE-CHARACTERISED AS A LOAN. IT HAS ALSO BEEN SUBMITTED THAT TP ADJUSTMENT CANNOT BE MADE ON A HYPOTHETICAL AND NOTIONAL BASIS UNLESS AND UNTIL TH ERE IS SOME MATERIAL ON RECORD THAT THERE HAS BEEN UNDERCHARGIN G OF REAL INCOME. IT IS UNDISPUTED THAT THE ASSESSEE HAS BEE N FOLLOWING A CONSISTENT POLICY WITH RESPECT TO THE RECEIVABLES A ND PAYABLES FROM/TO THE AES. IT IS ALSO SEEN THAT WHILE MAKING THE ADJUSTMENT, TPO HAS NOT CALCULATED THE NOTIONAL INT EREST BY CONSIDERING THE AVERAGE TIME TAKEN BY THE AE FOR MA KING THE PAYMENT TO THE ASSESSEE. HONBLE DELHI HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS KUSUM HEALT H CARE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 69 PVT. LTD. IN I.T.A. NO. 765/2016 VIDE JUDGMENT DATE D 25 TH APRIL, 2017 HAS LAID DOWN IN PARAS 10, 11 AND 12 AS UNDER: - 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SU BMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUN TS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTO MATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THER E MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EV EN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WIL L HAVE TO BE INVESTIGATED ON A CASE TO CASE BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL OF THE ASSESSEE W ILL HAVE TO BE STUDIED. IN OTHER WORDS, THERE HAS TO BE A PROPER I NQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF TI ME TO DISCERN A PATTERN WHICH WOULD INDICATE THAT VIS-A-VIS THE REC EIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE A O WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THA T AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDI NG THAT THE FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUTES AN INTER NATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALR EADY FACTORED IN THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITA L AND THEREBY ON ITS PRICING/PROFITABILITY VIS-A-VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTAN DING RECEIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE-CHARACTERIS ED THE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 70 TRANSACTION. THIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DELHI). 12. CONSEQUENTLY, THE COURT IS UNABLE TO FIND ANY ERROR IN THE IMPUGNED ORDER OF THE ITAT GIVING RISE TO ANY SUBST ANTIAL QUESTION OF LAW FOR DETERMINATION. THE APPEAL IS, ACCORDINGL Y, DISMISSED. 10.10 IT IS SEEN THAT THE TPO HAS CONSIDERED A PE RIOD OF 30 DAYS TO BE NORMAL FOR THE REALIZATION OF RECEIVABLES AND HAS CALCULATED NOTIONAL INTEREST ON PERIOD/NUMBER OF DAYS EXCEEDIN G 30 DAYS WHILE MAKING THE UPWARD ADJUSTMENT, HOWEVER, AS THE HON'BLE DELHI HIGH COURT HAS HELD IN KUSUM HEALTH CARE PVT. LTD. (SUPRA) THAT THERE MIGHT BE A DELAY IN CALCULATION OF MONEY EVEN BEYOND THE AGREED LIMIT DUE TO A VARIETY OF FACTORS WHICH HAVE TO BE INVESTIGATED ON A CASE TO CASE BASIS. THE HON'BL E HIGH COURT HAS ALSO OBSERVED THAT THE IMPACT ON THE WORKING CA PITAL OF ASSESSEE WILL ALSO HAVE TO BE STUDIED. HON'BLE HIG H COURT WENT ON TO CONCLUDE THAT THERE HAS TO BE A PROPER INQUIR Y BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF TIME T O DISCERN A PATTERN WHICH WOULD INDICATE THAT VIS--VIS RECEIVA BLES FOR THE SUPPLIES MADE TO AE, THE ARRANGEMENT REFLECTED INTE RNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. HON'BLE HIGH COURT HAS ALSO OBSERVED THAT IF THE ENTIRE FOC US OF THE ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 71 ASSESSING OFFICER IS ONLY OF ONE ASSESSMENT YEAR, T HE FIGURE OF RECEIVABLES IN RELATION TO THAT AY COULD HARDLY REF LECT A PATTERN THAT WOULD JUSTIFY THE TPO TO REACH A CONCLUSION TH AT THE FIGURE OF RECEIVABLES BEYOND PRESCRIBED NUMBER OF DAYS CON STITUTED AN INTERNATIONAL TRANSACTION BY ITSELF. IN THE PRESEN T APPEALS BEFORE US, NO SUCH IN-DEPTH ANALYSIS OF THE RECEIVABLES HA S BEEN MADE BY THE TPO. ACCORDINGLY, WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE OF INTEREST ON RECEIVABLES IN ALL THE THREE Y EARS TO THE FILE OF ASSESSING OFFICER/TPO FOR RECALCULATING THE INTERES T ON RECEIVABLES IN CONFORMITY WITH THE RATIO OF JUDGMEN T OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KUSUM HEALT H CARE PVT. LTD. (SUPRA). THE ASSESSEE WILL BE GIVEN DUE OPPOR TUNITY BY THE ASSESSING OFFICER/TPO BEFORE SUCH AN ADJUSTMENT IS RE- CALCULATED. THIS GROUND STANDS ALLOWED FOR STATIST ICAL PURPOSES IN ALL THREE ASSESSMENT YEARS. 10.11 THE ONLY EFFECTIVE GROUND REMAINING TO BE A DJUDICATED IS ON THE PLEA OF THE ASSESSEE TO TREAT FOREIGN EXCHAN GE GAIN/LOSS AS OPERATING IN NATURE. THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT DELHI BENCH IN T HE CASE OF ERICSSON INDIA (P) LTD VS. ADDITIONAL COMMISSIONER OF INCOME TAX IN ITA NO. 1672/DEL/2014 REPORTED IN 185 TTJ (DEL) 738 WHEREIN ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 72 THE ITAT DELHI BENCH IN PARA 17 OF THE SAID ORDER, WHILE RULING IN FAVOUR OF THE ASSESSEE, DIRECTED THE TPO TO TREA T THE FOREIGN EXCHANGE GAIN/LOSS AS OPERATING IN NATURE IN CALCUL ATING THE OPERATING MARGIN OF THE ASSESSEE AS WELL AS FINAL C OMPARABLE COMPANIES. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THIS ISSUE TO THE FILE OF TPO/AO TO TREAT THE FOREIGN E XCHANGE GAIN/LOSS AS OPERATING IN NATURE IN CALCULATING THE OPERATING MARGIN OF THE ASSESSEE AS WELL AS FINAL COMPARABLE COMPANIES. ACCORDINGLY, THIS GROUND STANDS ALLOWED FOR STATIST ICAL PURPOSES IN ALL THE THREE YEARS BEFORE US. 11. IN THE FINAL RESULT, ALL THE THREE APPEALS OF THE ASSESSEE STAND PARTLY ALLOWED IN TERMS OF OUR SPECIFIC OBSERVATION S AND DIRECTIONS. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2017. SD/- SD/- (R.K. PANDA) (SUDHANS HU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 4 TH SEPTEMBER, 2017 GS ITA NO. 1681/DEL/2015, 1018/D/2016, 75/D/2017 ASSESSMENT YEAR: 2010-11, 11-12, 12-13 73 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSISTANT REGI STRAR