J.P MORGAN ADVISORS INDIA P. LTD, MUMBAI V. DCIT RG 3(2), MUMBAI

ITA 7979/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8150 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 07-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS MALATHI SHRIDHARAN
• Keywords: Transfer pricing
• Section: 92C; 143(3); 234B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.7979/MUM/2010 ASSESSMENT YEAR: 2006-07 JP MORGAN ADVISORS INDIA PRIVATE LIMITED, J P MORGAN TOWERS, OFF CST ROAD, KALINA, SANTACRUZ (EAST) MUMBAI 400 098 PAN: AABCJ4509K VS. DCIT RANGE 3(2) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NISHANT THAKKAR RESPONDENT BY : MRS. MALATHI SHRIDHARAN, CIT DR DATE OF HEARING :11.01.2017 DATE OF PRONOUNCEMENT :16 .03.2017 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST FINAL ASSESSMENT ORDER DATED 06.09.2010, PASSED U/S. 143(3) R.W.S 144C(13) OF THE INCOME TAX ACT, 1961, BY THE ASSESSI NG OFFICER IN PURSUANCE OF DIRECTION GIVEN BY THE DISPUTE RESOLUTION PANEL (DRP), VIDE ORDER DATED 12.08.2010, FOR THE A.Y. 2006-07. 2. IN THE GROUNDS OF APPEALS, THE ASSESSEE HAS RAISE D AS MUCH AS NINE GROUNDS AND ONE ADDITIONAL GROUND. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE, SHRI NISHANT THAKKAR, SUBMI TTED THAT GROUND NOS. 2, 3, 6 AND 7 ARE NOT PRESSED AND, THEREF ORE, SAME ARE BEING DISMISSED AS NOT PRESSED. 3. EFFECTIVELY, NOW THE FOLLOWING GROUNDS HAVE BEEN PRESSED:- ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 2 1. IN COMPUTING THE ARMS LENGTH PRICE(ALP) FOR T HE TRANSACTIONS PERTAINING TO INVESTMENT ADVISORY SERV ICES AT RS.27,147,213 AFTER ADOPTING PROFIT LEVEL INDICATOR OF 27.18% AS AGAINST 18.91% AS ADOPTED BY THE APPELLANT AND CONSEQUENTLY MAKING AN UPWARD ADJUSTMENT OF RS.2,5999,882 4. IN ADOPTING A DIFFERENT COMPARABLE SET OF COMPA RABLE COMPANIES TO BENCHMARK THE INVESTMENT ADVISORY SERV ICE RENDERED BY THE APPELLANT AND NOT MAKING AVAILABLE THE SEARCH PROCESS ADOPTED IN DETERMINING THE SAME; 5. IN USING INAPPROPRIATE FILTERS/CRITERIA AND KE YWORDS IN EVALUATING COMPARABLE COMPANIES; 8. IN NOT GRANTING CREDIT OF TAX DEDUCTED AT SOURCE AMOUNTING TO RS.1,222,588; AND 9. LEVYNG CONSEQUENTIAL ADDITIONAL INTEREST AMOUNTI NG TO RS.673,557 UNDER SECTION 234B OF THE ACT AND RS.17, 697 UNDER SECTION 234C OF THE ACT. THE ADDITIONAL GROUND RAISED VIDES SEPARATE PETITION R EADS AS UNDER: COMPANIES ENGAGED IN RENDERING MERCHANT BANKING/INVESTMENT BANKING SERVICES, BEING FUNCTION ALLY DIFFERENT FROM THE APPELLANT WHICH IS ENGAGED IN RE NDERING INVESTMENT ADVISORY SERVICES, OUGHT NOT BE TAKEN IN TO CONSIDERATION FOR THE PURPOSE OF DETERMINING THE AR MS LENGTH PRICE DESPITE THE FACT THAT THE APPELLANT INCLUDED SUCH COMPANIES IN ITS TRANSFER PRICING STUDY REPORT. THUS, THE ISSUES RAISED VIDE GROUND NOS. 1, 4, 5 AND ADDITIONAL GROUND RELATES TO TRANSFER PRICING ADJUSTMENT OF RS.2, 25,99,882/-. 4. BRIEF FACTS QUA THE ISSUE OF TRANSFER PRICING ADJUS TMENT ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING NON-BI NDING INVESTMENT ADVISORY SERVICES TO ITS ASSOCIATE ENTERPRIS E (AE), VIZ., J P MORGAN SECURITIES (ASIA PACIFIC) LIMITED, HONG KONG AND J P MORGAN CHASE BANK N.A. MUMBAI BRANCH. THE INTERNATIONAL TRANS ACTIONS, ADVISORY SERVICES WITH THE AE WAS REPORTED AT RS.2,4 5,47,331/- ON ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 3 WHICH IT WAS STATED THAT THE ASSESSEE HAS EARNED COST PLUS MARGIN OF 15% AS PER THE AGREEMENT. TO BENCHMARK THE SAID MARGIN, TH E ASSESSEE HAS ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD AND IN ITS TRANSFER PRICING STUDY REPORT; IT COMPUTED THE PLI BY USING THE DATA OF FINANCIAL YEARS 2003-04, 2004-05 AND 2005-06. THE ASSESSEE HAD SELECTED EIGH T COMPARABLE COMPANIES WITH ARITHMETIC MEAN OF 18.91%. ACCORDINGLY, IT WAS STATED THAT THE ASSESSEES MARGIN WAS AT ARMS LENGTH, SI NCE IT FALLS WITHIN THE RANGE OF PLUS/MINUS 5%. THE LIST OF COMPAR ABLES SELECTED BY THE ASSESSEE FOR THE PURPOSE OF BENCHMARKING THE P LI IS AS UNDER:- SR. NO. NAME OF THE COMPANIES WEIGHTED AVERAGE MARGIN AS PER TP REPORT 1 BRESCON CORPORATE ADVISORS LIMITED 65.60% 2 CENTRUM CAPITAL LIMITED 19.03% 3 KEYNOTE CORPORATE SERVICES LIMITED 33.64% 4 KHANDWALA SECURITIES LIMITED 19.95% 5 KJMC GLOBAL MARKETS (INDIA) LIMITED 1.70% 6 SECURITIES CAPITAL INVESTMENTS (INDIA) LIMITED -42.09% 7 SUMEDHA FISCAL SERVICES LIMITED 45.00% 8 SREI CAPITAL MARKETS LIMITED 8.44% ARITHMETIC MEAN 18.91% 5. THE LEARNED TPO REJECTED THE ASSESSEES ENTIRE SE ARCH PROCESS AND CONDUCTED A FRESH SEARCH OF COMPARABLES AND IDEN TIFIED EIGHT COMPARABLE COMPANIES ON THE BASIS OF THE DATA OF F Y 2005-06. THE SAID COMPARABLE COMPANIES WITH THEIR OPERATING MARGIN WERE AS UNDER: ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 4 SR. NO. NAME OF THE COMPANIES OPERATING MARGIN CONSIDERING ON FY 2005 -06 1 CENTRUM CAPITAL LIMITED 37.92% 2 KEYNOTE CORPORATE SERVICES LIMITED 68.87% 3 SUMEDHA FISCAL SERVICES LIMITED 23.50% 4 SREI CAPITAL MARKETS LIMITED 14.53% 5 M/S. CHARTERED CAPITAL & INVESTMENT LIMITED 34.34% 6 M/S. EDELWEISS CAPITAL LIMITED 79.47% 7 IDC (INDIA) LIMITED 14.58% 8 M/S. L & T CAPITAL CO. LTD. 45.59% ARITHMETIC MEAN 39.85% ACCORDINGLY, TP ADJUSTMENT OF RS.53,04,358/- WAS MADE . 6. THE DRP, AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE ON THE BASIS OF THE MATERIAL PLACED ON RECOR D, REJECTED THREE COMPARABLES SELECTED BY THE TPO AND ACCEPTED M/S. KEY NOTE CORPORATE SERVICES LIMITED BY CONSIDERING THE ARITHMETI C MEAN OF THREE YEARS DATA FOR THE F.YS 2003-04, 2004-05 AND 200 5-06. THE FINAL LIST OF COMPARABLES AFTER THE STAGE OF DRP IS AS UNDER: SR. NO. NAME OF THE COMPANIES OPERATING MARGIN CONSIDERING ON FY 2005 -06 1 CENTRUM CAPITAL LIMITED 37.92% 2 KEYNOTE CORPORATE SERVICES LIMITED 45.37% 3 SREI CAPITAL MARKETS LIMITED 14.53% 4 SUMEDHA FISCAL SERVICES LIMITED 23.50% 5 IDC INDIA LIMITED 14.58% ARITHMETIC MEAN 27.18% ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 5 7. BEFORE US, OUT OF THE AFORESAID FIVE COMPARABLES, THE ASSESSEE HAS CHALLENGED FOUR COMPARABLES. VIZ,:- A) CENTRUM CAPITAL LIMITED; B) KEYNOTE CORPORATE SERVICES LIMITED; C) SREI CAPITAL MARKETS LIMITED; AND D) SUMEDHA FISCAL SERVICES LIMITED. AT THE OUTSET, THE LEARNED COUNSEL, SHRI NISHANT THAKKA R SUBMITTED THAT ALL THESE FOUR COMPARABLES NOW STANDS COVERED BY SERIES OF TRIBUNAL DECISIONS, WHEREIN IT HAS BEEN HELD THAT THESE COMPARABLE COMPANIES CANNOT BE HELD TO BE GOOD COMPARABLE FOR B ENCHMARKING THE MARGIN OF THE COMPANY ENGAGED IN INVESTMENT ADVISOR Y SERVICES, BECAUSE THEY ARE INTO MERCHANT BANKING. THE LIST OF SU CH DECISIONS WHEREIN THESE COMPARABLE COMPANIES HAVE BEEN DISCUSS ED AND ANALYZED WERE SUBMITTED BEFORE US, ARE AS UNDER:- I. GENERAL ATLANTIC PVT. LTD. V. DCIT [ITA NO. 8914/MUM/2 010 FOR AY 2006-07] II. CARLYLE INDIA ADVISORS PRIVATE LIMITED V. ACIT [146 TTJ 521] III. J P MORGAN INDIA PRIVATE LIMITED [ITA NO.8193/MUM/201 0 FOR A.Y. 2006-07] IV. TPG CAPITAL INDIA PVT. LIMITED V. ACIT [ITA NO.880/MU M/2013 FOR A.Y. 2008-09]. 8. ON THE OTHER HAND LEARNED CIT- DR, MRS. MALATHI SHRIDHARAN, FIRST OF ALL SUBMITTED THAT, IF ALL THE FOUR COMPARABL ES ARE REJECTED THEN ONLY ONE COMPARABLE WOULD BE LEFT WHICH WOULD N OT GIVE APPROPRIATE COMPARATIVE ANALYSIS AND ESCHEWED ARMS L ENGTH RESULT. SHE FURTHER SUBMITTED THAT THESE FOUR COMPARABLES WERE AS SESSEES OWN COMPARABLES, WHICH ARE NOW BEING CHALLENGED BY THE ASSESSEE AND HENCE, THE ASSESSEES SUBMISSIONS AT THE OUTSET CAN NOT BE ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 6 ACCEPTED, BECAUSE IT AMOUNTS TO CHERRY PICKING. EVEN OTHERWISE ALSO, IF ONE GOES BY ONLY ONE COMPARABLE ONLY, I.E., IDC (INDIA) LTD., THEN ALSO IT CAN BE SEEN THAT IT IS ALSO NOT A VERY GOOD COM PARABLE. THUS, THE ENTIRE MATTER SHOULD GO BACK TO THE TPO FOR FRESH BENCHMARKING AND SEARCH OF COMPARABLES. 9. IN REJOINDER, THE LEARNED COUNSEL, OBJECTING TO THE SUBMISSIONS MADE BY THE LD. CIT-DR, SUBMITTED THAT, FIRSTLY, THERE IS NO PROVISION IN LAW THAT IF ONE COMPARABLE IS SELECTED BY THE ASSES SEE DURING THE COURSE OF SEARCH PROCESS, THEN COMPARATIVE ANALYSIS C ANNOT BE DONE OR THAT MORE THAN ONE COMPARABLES ARE TO BE NECESSARILY TAKEN AS COMPARABLES; AND SECONDLY, ONCE THE TPO HAS REJECTED THE ENTIRE SEARCH PROCESS OF THE ASSESSEE, THEN COMPARABLES SEL ECTED BY THE TPO NEEDS TO BE PROPERLY ANALYZED AND ASSESSEE HAS ALL TH E RIGHT TO CHALLENGE THE INCLUSION OR EXCLUSION OF SUCH COMPARA BLES. IN SUPPORT, HE RELIED UPON THE ORDER DATED 18.01.2013 OF THE MU MBAI BENCHES OF THIS TRIBUNAL IN THE CASE OF PETRO ARALDITE PRIVATE LIM ITED VS. DCIT IN ITA NO. 6217/MUM/2012 FOR A.Y 2008-09. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS ENGAGED IN PROVIDING NON -BINDING INVESTMENT ADVISORY SERVICES TO ITS AE. IT MAKES INVESTME NT RECOMMENDATIONS TO ITS AE AND AE HAS THE RIGHT TO MAKE THE FINAL INVESTMENT DECISION. IN OTHER WORDS, THE ADVISORY GIVEN BY THE ASSESSEE IS NON-BINDING. THE NATURE OF ACTIVITIES PERF ORMED BY THE ASSESSEE FOR ITS AE AS STATED IN THE TP STUDY REPORT ARE ILLUSTRATED AS UNDER:- A) IDENTIFICATION AND RECOMMENDATION OF INVESTMENT OPPORTUNI TIES IN INDIAN EQUITY AND DEBT SECURITIES. ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 7 B) CREDIT ANALYSIS OF IDENTIFIED INVESTMENT OPPORTUNITIES INCLUDING ANALYSIS OF FINANCIAL STATEMENTS, LOAN DOCUMENTS, BOND PROSPECTUS AND OTHER DATA SOURCES. C) VALUATION OF THE DEBT AND EQUITY OF THE INVESTEE COMPAN Y BASED ON THE AFOREMENTIONED ANALYSIS. D) ASSISTANCE AND SUPPORT IN RELATION TO ANY DUE DILIGENCE EXERCISE UNDERTAKEN BY THE INVESTORS IN RELATION TO POTENTIAL INVES TMENT OPPORTUNITIES AND MAKING RECOMMENDATIONS TO THE AES O N ANY DUE DILIGENCE FINDINGS AS MAY BE PROVIDED BY THE AES TO JPMAIPL FROM TIME TO TIME. E) ASSISTANCE WITH MONITORING AND ASSESSING THE PERFORMAN CE OF INVESTMENTS MADE BY ITS CLIENTS AND RECOMMEND NEW/ADDI TIONAL COURSES OF ACTION WITH REGARD TO INVESTMENT/RETURN FROM INVESTMENT. F) PROVISION OF SUCH OTHER SUPPORT SERVICES INCIDENTAL OR RELATED TO THE FOREGOING SERVICES, AS REQUESTED BY THE AES FROM TIME TO TIME. 11. THE ONLY ISSUE BEFORE US IS, WITH REGARD TO EXCLU SION OF FOUR COMPARABLES OUT OF FIVE COMPARABLES UPHELD BY THE DR P. BUT BEFORE DEALING WITH THE VARIOUS COMPARABLES, IT WOULD BE PE RTINENT TO ADDRESS ONE OF THE MAIN CONTENTIONS RAISED BY THE LEAR NED CIT-DR THAT, ONCE THE ASSESSEE HAS SELECTED CERTAIN COMPARAB LES IN ITS OWN TP STUDY REPORT THEN THE ASSESSEE IS PRECLUDED FROM R AISING OBJECTIONS ON SUCH COMPARABLES. WE NOTICE THAT THIS PRE CISE ISSUE HAD COME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN TH E CASE OF TATA POWER SOLAR SYSTEMS LTD., IN ITA NO. 6657/MUM/2012, W HEREIN IT FOLLOWING OBSERVATIONS IN THIS REGARD HAS BEEN MADE: - 15. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE DRP AND THE TPO AUTHORITIE S BELOW AND THE MATERIAL AVAILABLE ON RECORD. THE ONLY DISP UTE FOR OUR ADJUDICATION IS WITH REGARD TO THE EXCLUSION OF TWO COMPANIES, NAMELY, INDO WIND ENERGY LTD. AND B.F. UTILITIES LT D. AND INCLUSION OF TWO COMPARABLES VIZ. PHOTON ENERGY SYS TEMS LTD. AND RAJASTHAN ELECTRONICS AND INSTRUMENTS LTD. (SEG MENTAL). THE TPO HAS INCLUDED THESE TWO COMPARABLES (INDO WI ND ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 8 ENERGY LTD. AND B.F. UTILITIES LTD.), MAINLY, ON TH E GROUND THAT THESE COMPARABLES HAVE BEEN CHOSEN BY THE ASSESSEE ITSELF IN THE TRANSFER PRICING STUDY REPORT. UNDER THE TRANSF ER PRICING MECHANISM, A COMPARABILITY ANALYSIS HAS TO BE UNDER TAKEN FOR COMPARING THE CONTROL TRANSACTIONS WITH AN UNCO NTROLLED TRANSACTION. THIS IS ACHIEVED BY IDENTIFYING POTENT IAL COMPARABLES HAVING SIMILAR FUNCTIONS THAT CAN STAND THE TEST OF FAR ANALYSIS (I.E., FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED). THE ASSESSEE IS REQUIRED TO IDE NTIFY THE COMPARABLES AFTER CARRYING OUT PROPER SEARCH AND UN DERTAKING FAR ANALYSIS. HOWEVER, IF THE SAME HAS NOT BEEN DON E PROPERLY THEN IT HAS TO STAND THE SCRUTINY OF THE T AXING AUTHORITIES. IF, ON A DEEP EXAMINATION, IT IS FOUND THAT THE COMPARABLES CHOSEN BY THE ASSESSEE DO NOT STAND THE TEST OF FAR ANALYSIS, REQUIREMENT OF THE STATUTORY PROVISIO NS AND CORRECT SELECTION OF MOST APPROPRIATE METHODS, THE SAME CAN BE REJECTED. AT THE SAME TIME, IF DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS, IF THE ASSESSEE POINTS OUT THE COGENT REASONS AND GIVES PROPER ANALYSIS AS TO WHY THE COM PARABLES CHOSEN BY IT WERE NOT CORRECT, IT CANNOT BE SAID TH AT THE ASSESSEE IS OUT RIGHTLY PRECLUDED FROM RAISING SUCH OBJECTIONS. THE ULTIMATE AIM OF THE TRANSFER PRICING PROVISIONS IS TO DETERMINE THE APPROPRIATE ALP, WHICH CAN BE DONE ON LY BY BENCH MARKING WITH THE PROPER COMPARABLES BASED ON FAR ANALYSIS AND UNDER THE PRESCRIBED METHODS. IF IN TH E COURSE OF THE PROCEEDINGS, IT IS FOUND THAT CERTAIN COMPARABL ES DO NOT STAND THE TEST OF FUNCTIONAL ANALYSIS OR FOR SOME O THER REASONS, THEN THE SAME SHOULD BE EXCLUDED AND WE DO NOT FIND ANY REASON THAT THEY SHOULD TO BE INCLUDED SIM PLY BECAUSE THE ASSESSEE HAD INCLUDED THE SAME INITIALL Y. IF THE COGENT REASONS HAVE BEEN GIVEN BY THE ASSESSEE FOR EXCLUDING THE SAME, THE SAME SHOULD BE CONSIDERED. THE INITI AL ONUS OR DUTY IS CAST UPON THE ASSESSEE TO CARRY OUT THE SEL ECTION OF PROPER COMPARABLES BASED ON FAR ANALYSIS AND BY ADO PTING SUITABLE TRANSFER PRICING METHOD AND THEN ANALYSE I TS TRANSACTION TO SHOW THE CORRECT ARMS LENGTH RESULT . THEREAFTER, IT IS AXIOMATIC THAT THE TAXING AUTHORITIES / TPO, SHOULD SCRUTINIZE THE ASSESSEES REPORT ON ARMS LENGTH RE SULT AND THE ENTIRE PROCESS OF ARRIVING AT THE ALP, WHETHER THEY ARE BASED ON TRANSFER PRICING PRINCIPLES AND STATUTORY PROVIS IONS OR NOT. ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 9 IF HE HIMSELF FOUNDS SOME IRREGULARITY OR MISTAKE I N ANY OF THE PROCESS OR THE STEPS UNDERTAKEN, THEN HE IS BOUND T O CORRECT IN ACCORDANCE WITH THE SETTLED PRINCIPLES AND LAW. IF THE ASSESSEE POINTS OUT SOME MISTAKE OR ANY IRREGULARIT Y IN THE ARMS LENGTH RESULT, THEN IT IS INCUMBENT UPON THE TPO TO EXAMINE AND CONSIDER THE SAME AND IF THE ASSESSEES CONTENTIONS ARE FOUND TO BE CORRECT OR TENABLE, THE N HE HAS TO ACCEPT THE SAME. THERE CANNOT BE ESTOPPEL AGAINST C ORRECT PROCEDURE OF LAW AND PRINCIPLES SOLELY ON ACCOUNT O F ACQUIESCENCE OR MISTAKE OF THE ASSESSEE. THE TPO IS REQUIRED UNDER LAW TO ANALYZE EVERY COMPARABLES AND THEN ONL Y DETERMINE THE CORRECT ALP BASED ON PROPER COMPARABI LITY ANALYSIS. THUS, WE DO NOT FIND ANY MERIT IN THE CON TENTION OF THE REVENUE THAT SIMPLY BECAUSE THE ASSESSEE HAS IN CLUDED THESE TWO COMPANIES THEN THE ASSESSEE IS DEBARRED F ROM OBJECTING TO THE SAME, IF THERE ARE STRONG AND COGE NT REASONS. THIS PROPOSITION WAS ALSO UPHELD EARLIER BY THE SPECI AL BENCH IN THE CASE OF QUARK SYSTEMS P. LTD. [2010] 38 SOT 307. IN V IEW OF THE AFORESAID PROPOSITION, WE ARE UNABLE TO ACCEPT THE CON TENTION OF THE LEARNED CIT-DR THAT ASSESSEE IS PRECLUDED FROM CONTESTI NG A COMPARABLE WHICH INITIALLY FIGURED IN ITS OWN SET OF COMPARABLES, PROVIDED THE ASSESSEE GIVES A COGENT REASON FOR EXCLU SION OF CERTAIN COMPARABLES BASED ON FAR ANALYSIS AND ALSO ON THE BA SIS OF JUDICIAL PRONOUNCEMENTS. IN SUCH CASES THERE CANNOT BE ESTOPPELS ON OBJECTING THE INCLUSION/EXCLUSION OF SUCH COMPARABLES . 12. NOW WE WILL COME TO THE EXCLUSION OF VARIOUS CO MPARABLES AS OBJECTED BY THE ASSESSEE BEFORE US:- (I) CENTRUM CAPITAL LIMITED:- THE LEARNED COUNSEL BEFORE US HAD STATED THAT THIS COMPANY IS MAINLY ENGAGED IN PROVIDING MERCHANT BANKING ACTIVITIES AND THE MAIN INCOME STREAM OF THE SAID COMPANY IS SYNDICATION FEES, BROKERAGE, COMMISSION AND INCO ME FROM TRADING IN BONDS HENCE THIS COMPANY CANNOT BE COMPARABLE TO TH E ASSESSEE COMPANY WHICH IS ENGAGED IN PROVIDING NON-BINDING I NVESTMENT ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 10 ADVISORY SERVICES. MOREOVER, IN THE CASE OF CARLYLE INDIA ADVISORS PRIVATE LIMITED VS. ACIT (SUPRA), THIS TRIBUNAL HAS R EJECTED THE SAID COMPARABLE ON THE GROUND THAT IT IS ENGAGED IN THE BUSI NESS OF MERCHANT BANKING AND CANNOT BE CONSIDERED AS COMPARA BLE WITH COMPANIES RENDERING INVESTMENT ADVISORY SERVICES. FUR THER THIS COMPANY WAS ALSO FOUND TO BE INCOMPARABLE WITH INVES TMENT ADVISORY SERVICES BY THIS TRIBUNAL IN THE CASE OF G ENERAL ATLANTIC PRIVATE LIMITED. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE MATERIAL AVAILABLE BEFORE US, WE FIND THAT IT IS AN UN DISPUTED FACT THAT M/S. CENTRUM CAPITAL LIMITED IS MAINLY INTO MERCHANT BA NKING ACTIVITIES AND ITS MAIN INCOME IS FROM SYNDICATION FEE S, BROKERAGE AND COMMISSION AND INCOME FROM TRADING IN BONDS. THE FUN CTION OF MERCHANT BANKER IS ENTIRELY DIFFERENT, BECAUSE THEY AR E MAINLY INTO PORTFOLIO MANAGEMENT, CREDIT SYNDICATION, NEGOTIATING DRA FT EQUITY INVESTMENT, COUNSELING MERGER AND ACQUISITION (M&A), ETC. THESE FUNCTIONS ARE ENTIRELY DIFFERENT FROM INVESTMENT ADVIS ORY SERVICES WHERE CORE FUNCTION IS TO ADVICE ON INVESTMENTS TO BE MA DE IN DIVERSIFIED FIELDS. THIS TRIBUNAL IN THE CASE OF CAR LYLE INDIA ADVISORS PRIVATE LIMITED VS. ACIT (SUPRA) HAS HELD THAT THE FUNC TIONS OF MERCHANT BANKING ARE ENTIRELY DIFFERENT FROM THAT OF INV ESTMENT ADVISORY SERVICES AND IT HAS BEEN INFORMED BY THE LEA RNED COUNSEL THAT THIS DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY TH E HONBLE BOMBAY HIGH COURT ALSO. APART FROM THAT, THIS DECISION HAS BEEN FOLLOWED IN CATENA OF OTHER CASES BY THIS TRIBUNAL. T HUS, WE HOLD THAT CENTRUM CAPITAL LIMITED CANNOT BE HELD TO BE A GOOD COMP ARABLE FOR BENCHMARKING THE ASSESSEES MARGIN. (II)KEYNOTE CORPORATE SERVICES LIMITED: THIS COMPANY TOO IS ENGAGED IN PROVIDING MERCHANT BANKING ACTIVITIES. THE OPERATION S OF THE ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 11 COMPANY INVOLVE LEAD MANAGING IPOS, RIGHT OFFER, BUY BACK OF SHARES AND TAKEOVER, CORPORATE FINANCE AND M & A ADVISORY. I N COMPARISON, THE ASSESSEES FUNCTIONING PROFILE IS ENTIRELY DIFFER ENT, WHICH IS PROVIDING NON-BINDING ADVISORY SERVICES. THE REASON S GIVEN BY US WHILE DEALING WITH THE CENTRUM CAPITAL LIMITED AND THE DECISION OF THE TRIBUNAL IN THE CASE OF CARLYLE INDIA ADVISORS P RIVATE LIMITED VS. ACIT (SUPRA), WILL ALSO APPLY HERE AND, THEREFORE, TH IS COMPARABLE BEING INVOLVED IN MERCHANT BANKING ACTIVITIES IS REJEC TED FOR BEING INCLUDED IN THE COMPARABLE LIST. (III) SREI CAPITAL MARKETS LIMITED: - THIS COMPANY IS CARRYING OUT FULL SCALE INVESTMENT BANKING, CORPORATE ADVISORY AND PROJECT MANAGEMENT CONSULTING FIRM. THE PRIMARY INCOME EARN ED BY THIS COMPANY IS FROM MERCHANT BANKING ACTIVITIES. THE COMPA NY OPERATES UNDER A SINGLE SEGMENT, I.E., PROJECT CONSULTANCY, ME RCHANT BANKING AND UNDERWRITER SERVICES. THUS, THIS COMPANY BEING A MERCHANT BANKER CANNOT BE HELD TO BE A COMPARABLE WITH THE ASSES SEE COMPANY, WHICH IS PROVIDING NON-BINDING ADVISORY SE RVICES. MOREOVER, THIS COMPANY HAS BEEN REJECTED TO BE A GOOD COMPARABLE WITH THE COMPANIES PROVIDING INVESTMENT ADVISORY SERV ICES NOT ONLY IN THE CASE OF CARLYLE INDIA ADVISORS PRIVATE LIMITED VS. ACIT, BUT ALSO IN THE CASE OF GENERAL ATLANTIC PRIVATE LIMITED (SUPRA) . ( IV) SUMEDHA FISCAL SERVICES LIMITED: THIS COMPANY IS TOO ENGAGED IN PROVIDING MERCHANT BANKING ACTIVITIES. THE OPERATIONS OF THE COMPANY INVOLVE LOAN SYNDICATION AND PROJECT CONSU LTANCY SERVICES. AGAIN, THIS COMPANY HAS BEEN FOUND TO BE I NCOMPARABLE BY THIS TRIBUNAL IN THE CASE OF CARLYLE INDIA ADVISORS PRIVATE LIMITED VS. ACIT AND GENERAL ATLANTIC PRIVATE LIMITED (SUPRA). OUR DECISION WITH REGARD TO THE AFORESAID COMPARABLES WILL ALSO APPLY H ERE AND ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 12 ACCORDINGLY, WE REJECT THE COMPARABLE COMPANY FOR THE PURPOSE OF COMPARATIVE ANALYSIS. 13. ACCORDINGLY, ALL THE FOUR COMPARABLES AS FINALL Y SELECTED BY THE DRP ARE HEREBY REJECTED AND THEY CANNOT BE TAKEN IN TH E LIST OF COMPARABLES. 14. LASTLY, COMING TO THE LEARNED CIT-DRS ARGUMEN T THAT, IF THERE IS ONLY ONE COMPARABLE LEFT, THEN IT WOULD NOT BE PROP ER TO BENCHMARK THE MARGIN AS THE FACTORS OF COMPARATIVE ANALYSIS WILL NOT THROW FRUITFUL RESULT. HOWEVER, WE ARE UNABLE TO APPRECIATE THE LEARNED CIT DRS CONTENTIONS. FIRST OF ALL, RULE 10B(1)(E)(II) ENV ISAGES THAT NET PROFIT MARGIN REALIZED BY THE ENTERPRISE OR BY AN UNR ELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBE R OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE. HERE COMPARISON OF NET MARGIN IS DONE BETWEEN ENTERPRISE OR UNRELATED ENTERPRISE FROM A COMPARABLE TRANSACTION OR NUMBER OF COMPARABLE TRANSACTIONS, THAT IS, ONE OR MORE. THE COMPARABILITY ANALYSIS BETWEEN THE CONTROLLED TRANSACTION AND THE COMPARABLE UN CONTROLLED TRANSACTION HAS TO BE ON THE SAME BASE, I.E., EITHER CO ST INCURRED; OR SALES EFFECTED; OR ASSETS EMPLOYED; FOR DETERMINING THE PLI. THUS, THIS RULE ENVISAGES THAT THE NET PROFIT MARGIN REALISED CAN B E BENCH MARKED EITHER FROM ONE COMPARABLE UNCONTROLLED TRANSAC TION OR FROM MORE THAN ONE. FURTHER FIRST PROVISO TO SECTION 92C PROVIDES THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST AP PROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE ARITH METIC MEAN OF SAID PRICES. THUS, THE MAIN EMPHASIS UNDER THE LAW IS TO IDENTIFY COMPARABLE CASE TO BENCHMARK THE ARMS LENGTH PRICE OF THE CONTROLLED TRANSACTION. IF THERE ARE MORE THAN ONE COMP ARABLES THEN VARIOUS COMPARABILITY FACTORS CAN BE EXAMINED AND IT MAY LEAD TO A PROPER DETERMINATION OF ALP, BECAUSE MANY FACTORS AND DIFFERENCES ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 13 GETS WEED OUT BY BENCHMARKING THE MARGIN OF VARIOUS COMPARABLES. MORE THAN ONE COMPARABLE IS THOUGH DESIRABLE TO GET AP PROPRIATE ARMS LENGTH RESULTS, BUT THERE IS NO MANDATE IN THE LAW THAT ONE MAY CHOOSE MORE THAN ONE COMPARABLE ONLY. THE ONLY LIMITA TION IN CHOOSING ONE COMPARABLE WOULD BE THAT THE TOLERANCE RAN GE OF PLUS/MINUS 5% (OR 3%) AS ENVISAGED IN SECOND PROVISO TO SECTION 92C WILL NOT BE APPLICABLE. THUS, WE DO NOT SUBSCRIBE TO TH E CONTENTION RAISED BY THE LEARNED CIT (DR) THAT ONE COMPARABLE COM PANY CANNOT BE TAKEN FOR BENCHMARKING THE ARMS LENGTH PRICE OF A PARTY. ACCORDINGLY, WE DIRECT THE TPO TO BENCHMARK THE ASSESS EES MARGIN WITH ONLY ONE COMPARABLE. 15. AS REGARDS THE ISSUE RAISED IN GROUND NO.8, THE L EARNED COUNSEL HAS SUBMITTED THAT THE ASSESSEE HAS FILED A PETITION FOR R ECTIFICATION U/S. 154 BEFORE THE AO, WHICH IS STILL PENDING. ACC ORDINGLY, WE DIRECT THE AO TO DISPOSE OF THE ASSESSEES PETITION REGARDING N ON-GRANTING OF TAX AT SOURCE. 16. REGARDING GROUND NO.9, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT IT IS CONSEQUENTIAL AND ACCORDINGLY, THE SAME IS DI SMISSED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH, 2017. SD/- SD/- (MANOJ KUMAR AGGARWAL) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 16.03.2017. SA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI ITA NO.7979/MUM/2010 J P MORGAN ADVISORS INDIA PRIVATE L IMITED 14 THE CIT (A) CONCERNED, MUMBAI THE DR K BENCH //TRUE COPY// BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI