Q-INDIA INVESTMENT ADVISORS P.LTD, MUMBAI V. CIT(A)-15, MUMBAI

ITA 923/MUM/2015

• Counselvise Citation: 92319914 RSA 2015
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2015
• Appeal Filed By: Assessee
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2015
• Court: TRIBUNAL
• Department Lawyers: N PADMANABAN
• Assessee Lawyers: AJEET KUMAR JAIN
• Keywords: Business income; Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI . , . . , BEFORE SHRI D. MANMOHAN, VP & SHRI R.C.SHARMA , A M ./ ITA NO. 923 / MUM/20 1 5 ( / ASSESSMENT YEAR : 20 10 - 11 ) Q - INDIA INVESTMENT ADVISORS PRIVATE LIMITED, A - 34, 4 TH FLOOR, NAVYUG NIWAS, OPPOSITE MINERVA TALKIES, 167, LAMINGTON RD., MUMBAI - 400007 VS. DCIT, CIRCLE - 3(3), MUMBAI ./ ./ PAN/GIR NO. : A A AC Q 1309 H ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI AJEET KUMAR JAIN /REVENUE BY : SHRI N.PADMANABAN / DATE OF HEARING : 31 ST MARCH , 201 5 / DATE OF PRONOUNCEMENT 24 TH APRIL ,2015 / O R D E R PER R.C.SHARMA (A.M) : THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE ORDER OF CIT(A), DATED 7 - 11 - 2014 FOR THE ASSESSMENT YEAR 20 10 - 11 , IN THE MATTER OF ORDER PASSED U /S.143(3) R.W.S.250 OF THE ACT . 2. THE ONLY GRIEVANCE OF ASSESSEE RELATES TO AN ADJUSTMENT OF RS. 2,63,18,222/ - MADE BY THE AO IN THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF TIGER IRON ORE AND IS ENGAGED IN PROVIDING NON - BINDING INVESTMENT ADVISORY SUPPORT SERVICES ITA NO. 923 / 1 5 2 TO ITS AE PRIMARILY WITH RESPECT TO THE INDIAN MARKET. DURING THE COURSE OF SCR UTINY ASSESSMENT, THE AO MADE ADJUSTMENT OF RS.2,63,16,222/ - IN RESPECT OF INTERNATIONAL TRANSACTION OF PROVISION OF INVESTMENT ADVISORY SERVICES. THE AO NOTED THAT AS PER THE TRANSFER PRICING STUDY REPORT (TPSR), THE ASSESSEE HAS PROVIDED SUB - ADVISORY SER VICES TO ITS AE DURING F.Y.2009 - 10. THE ASSESSEE EARNED A MARK - UP OF 19.70% ON PROVISION OF INVESTMENT ADVISORY SERVICES. THE ASSESSEE ADOPTED TNMM METHOD WITH FOLLOWING COMPARABLE FOR THE JUSTIFICATION OF ARMS LENGTH PRICE : SR. NO NAME OF COMPANY WEIGHT ED AVERAGE OPERATION MARGIN ON OPERATING COSTS(%) 2010 1. FUTURE CAPITAL HOLDINGS LTD. 5.52 2. FUTURE CAPITAL INVESTMENT ADVISORS LTD. 20.35 3. ICRA MANAGEMENT CONSULTING SERVICES LTD. 0.71 4. ICRA ONLINE LIMITED 32.89 5. IDC INDIA LIMITED 12.72 6. I NFORMED TECHNOLOGIES LIMITED 11.62 ARITHMETIC MEAN 13.97 OUT OF THE ABOVE SIX COMPARABLES, THE AO RETAINED ONLY ONE COMPARABLE, NAMELY, FUTURE CAPITAL INVESTMENT ADVISORS LTD. AND REJECTED THE REMAINING FIVE COMPARABLES. HOWEVER, THE AO INCLUDED TWO MO RE COMPARABLES, NAMELY M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. AND INTEGRATED CAPITAL SERVICES LTD. ON THE BASIS OF THESE THREE COMPARABLES, THE AO ARRIVED AT ARITHMETIC MEAN OF 62.52%. T HUS, BY TAKING 62.52% ARITHMETIC MEAN AS AGAINST ARITHMETIC M EAN SHOWN BY THE ASSESSEE AT 19.70 %, T HE AO MADE AN ADJUSTMENT OF RS.2,63,18,222/ - . ITA NO. 923 / 1 5 3 4. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE ACTION OF THE AO, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IT WAS ARGUED BY LD. AR THAT ASSESSEE IS ENGAGED IN PROVIDING NON - BINDING INVESTMENT ADVISORY SUPPORT SERVICES, WHEREAS M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. IS INVOLVED IN INVESTMENT, BANKING ACQUISITION, DISINVESTMENT, IPO ETC. AS PER LD. AR, M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY. HE PLACED ON RECORD VARIOUS DECISION OF THE MUMBAI TRIBUNAL, WHEREIN M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. WAS EXCLUDED FROM THE LIST OF COMPARABLES ON THE PLEA THAT IT WAS NOT FUNCTIONAL LY COMPARABLE. FOLLOWING DECISIONS WERE PLACED ON RECORD : - I) ACUMEN FUND ADVISORY, ITA NO.143/MUM/2014 , DATED 4 - 7 - 2014; II) BAIN CAPITAL ADVISORS (INDIA) PVT. LTD., ITA NO.1360/MUM/2014; DATED 5 - 1 - 2015; III) CARLYLE INDIA ADVISORS PVT. LTD., ITA NO. 7367 /MUM/201 2 , DATED 7 - 2 - 2014; IV) CARLYLE INDIA ADVISORS PVT. LTD., ITA NO.2200/MUM/2014, DATED 22 - 8 - 2014; AND V) ACTIS ADVISERS PVT. LTD., ITA NO.1998/DEL/2014, DATED 17 - 10 - 2014 6. ON THE OTHER HAND, IT WAS THE CONTENTION OF LD. DR THAT M/S MOTILAL OSWAL I NVESTMENT ADVISORY PVT. LTD. WAS ALSO ENGAGED IN PROVIDING INVESTMENT ADVISORY SERVICES, THEREFORE, LOWER AUTHORITIES WERE JUSTIFIED IN INCLUDING THE SAME FOR ARRIVING AT ARMS LENGTH PRICE. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT ASSESSEE IS ENGAGED IN ITA NO. 923 / 1 5 4 RENDERING INVESTMENT ADVISORY SERVICES TO ITS AE. AS PER FINDING RECORDED IN VARIOUS JUDICIAL PRONOUNCEMENTS IN ABOVE REFERRED CASES, M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. HAS BEEN EXCLUDED FROM THE LIST OF COMPARABLES ON THE PLEA THAT IT IS ENGAGED IN DIVERSIFIED ACTIVITIES. IN THE CASE OF ACUMEN FUND ADVISORY SERVICES (I) PVT. LTD. (SUPRA) , THE TRIBUNAL OBSERVED THAT M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. IS ENGAG ED IN ACQUISITION, DISINVESTMENT, IPO, ETC, WHEREAS THE ASSESSEE IS ENGAGED IN INVESTMENT ADVISORY SERVICES. I N CASE OF CARLYLE INDIA ADVISORS PVT. LTD. (SUPRA) , THE TRIBUNAL OBSERVED THAT M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. IS REGISTERED WITH S EBI A S MERCHANT BANKER AND IS ENGAGED IN DIVERSIFIED ACTIVITIES, ACQUISITION, DISINVESTMENT, IPO ETC. 8. AS PER THE ANNUAL REPORT OF M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. FOR THE YEAR ENDING ON 31 - 3 - 2010 RELEVANT ASSESSMENT YEAR 2010 - 2011, THE C OMPANY DERIVES ITS BUSINESS INCOME FROM FOUR DIFFERENT BUSINESS VERTICALS VIZ. EQUITY CAPITAL MARKETS, MERGERS & ACQUISITIONS, PRIVATE EQUITY SYNDICATIONS AND STRUCTURED DEBT. THE INCOME SOURCE ACROSS THE FOUR PRODUCTS WAS MORE OR LESS EVENLY BALANCED. THE COMPANY CONTINUES TO PERFORM WELL ON ADVISING INDIAN CORPORATE ON CROSS BORDER ACQUISITIONS. THE PRIVATE EQUITY BUSINESS OVER THE LAST THREE YEARS HAS ALSO RESULTED IN A GOOD PIPELINE OF IPOS IN THE COMING YEAR. 9. IN VIEW OF THE ABOVE OBSERVATIONS REGAR DING NATURE OF BUSINESS CARRIED ON BY MOTILAL OSWAL AND THE JUDICIAL PRONOUNCEMENTS, IT IS CRYSTAL CLEAR THAT IN ADDITION TO INVESTMENT ADVISORY SERVICES IN WHICH ASSESSEE ITA NO. 923 / 1 5 5 WAS INVOLVED, M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. WAS ENGAG ED IN DIVERSI FIED ACTIVITIES AND REGISTERED WITH SEBI AS A MERCHANT BANKER. T HUS, M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO TO EXCLUDE M/S MOTILAL OSWAL INVESTMENT ADVISORY PVT. LTD. FORM THE LIST OF COMPARABLES. 10 . FROM THE RECORD WE FOUND THAT THE ASSESSEE IS ENGAGED IN PROVIDING NON - BINDING INVESTMENT ADVISORY SUPPORT SERVICES TO ITS AE PRIMARILY WITH RESPECT TO THE INDIAN MARKET. SERVICES RENDERED BY ASSESSEE ARE IN THE NATURE OF SUP PORT SERVICES AND ARE RENDERED IN ACCORDANCE WITH SCOPE AND REQUIREMENTS AS COMMUNICATED BY ITS AE. HOWEVER, M/S INTEGRATED CAPITAL SERVICES LTD. IS FOUND TO BE ENGAGED IN RENDERING ADVISORY AND CONSULTANCY SERVICES IN THE AREA OF MERGER ACQUISITION AND RE CONSTRUCTION OF BUSINESS. AS PER ITS DIRECTORS REPORT FOR THE YEAR ENDING 31 - 3 - 2010 RELEVANT TO ASSESSMENT YEAR 2010 - 2011 UNDER CONSIDERATION, IT WAS RENDERING ADVISORY AND CONSULTING SERVICES IN THE AREA OF THE MERGER ACQUISITION AND RECONSTRUCTION OF BUS INESS. NO SEGMENTAL ACCOUNTS WERE THERE SO AS TO FIND OUT MARGIN IN THE ADVISORY SERVICES. 11 . LD. AR ALSO DREW OUR ATTENTION TO THE ERRONEOUS COMPUTATION OF NET COST PLUS MARGIN OF M/S INTEGRATED CAPITAL SERVICES LTD. AT 69.31%, WHICH WAS RELATED TO THE ASSESSMENT YEAR 2009 - 2010. OUR ATTENTION WAS ALSO INVITED TO LETTER ADDRESSED TO THE DCIT, DATED 9 - 12 - 2014, WHEREIN ITA NO. 923 / 1 5 6 ASSESSEE HAS HIGHLIGHTED THIS MISTAKE. AS PER THIS LETTER, MARGIN OF ICSL WAS 69.31% IN THE ASSESSMENT YEAR 2009 - 2010, WHEREAS THERE WAS NEG ATIVE MARGIN OF 4 .0 1% IN THE ASSESSMENT YEAR 2010 - 2011 UNDER CONSIDERATION . IT WAS FURTHER SUBMITTED THAT WHILE COMPUTING THE ARMS LENGTH MARGIN, THE AO HAS INDEPENDENTLY CONSIDERED THE WEIGHTED MARGIN OF F UTURE CAPITAL INVESTMENT ADVISORY LTD. (I.E. 20.35 %) INSTEAD OF SINGLE YEAR MARGIN OF 15.71%. 1 2 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ICSL IS FUNCTIONALLY DISSIMILAR, THEREFORE, IT SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. FROM THE RECORD WE ALSO FOUND THAT WHILE COMPUTING ARMS LE NGTH MARGIN, THE AO HAS INDEPENDENTLY CONSIDERED WEIGHTED MARGIN OF M/S FUTURE CAPITAL INVESTMENT ADVISORY LTD. AT 20.35% INSTEAD OF SINGLE YEAR MARGIN OF 15.71%. TO THIS EFFECT, A LETTER WAS ALREADY GIVEN TO THE AO VIDE SUBMISSION DATED 10.10.2012. 1 3 . AFTER EXCLUSION OF TWO COMPARABLES NAMELY M/S MOTILAL OSWAL AND INTEGRATED CAPITAL, THE ONLY COMPARABLE REMAINS IS FUTURE CAPITAL INVESTMENT HAVING MARGIN OF 15.71%. SINCE THE MARGIN OF COMPARABLE WHICH IS LEFT OUT REMAINS AT 15.71% AS AGAINST MARGIN OF 19 .7 0 % EARNED BY THE ASSESSEE ON PROVISION OF INVESTMENT ADVISORY SERVICES, WHICH IS MORE THAN THE MARGIN OF 15.71%, NO TRANSFER PRICING ADJUSTMENT IS WARRANTED WHILE COMPUTING ARMS LENGTH PRICE. 1 4 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 923 / 1 5 7 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24/04 / 201 5 . SD/ - SD/ - ( . ) ( D.MANMOHAN ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 24/04 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6 . / GUARD FILE. //TRUE COPY//