Q-India Investment Advisors P.Ltd, ... vs Assessee

सर्वश्री डी.भनभोहन, उऩाध्मऺ एवुं श्री आय.सी.शभाव, रेखा सदस्म BEFORE SHRI D. MANMOHAN, VP & SHRI R.C.SHARMA, AM आमकय अऩीर सं./ITA No.923/Mum/2015 ( नििाारण वषा / Assessment Year :2010-11) Q-India Investment Advisors Vs. DCIT, Circle-3(3), Mumbai Private Limited, A-34, 4th Floor, Navyug Niwas, Opposite Minerva Talkies, 167, Lamington Rd., Mumbai-

400007 स्थामी रेखा सं ./ जीआइआय सं ./ PAN/GIR No. : AAACQ 1309 H (अऩीराथी /Appellant) .. (प्रत्मथी / Respondent)

ननधावरयती की ओर से /Assessee by : Shri Ajeet Kumar Jain याजस्र् की ओर से /Revenue by : Shri N.Padmanaban

सुनर्ाई की तायीख / Date of Hearing : 31st March, 2015 घोषणा की तायीख/Date of Pronouncement 24th April,2015

आदे श / 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 2010-11, 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 2 ITA No.923/15

to its AE primarily with respect to the Indian market. During the course of

scrutiny 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 services 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 Arm's Length Price :

Sr. Name of company Weighted average No 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 0.71 Services Ltd. 4. ICRA Online Limited 32.89 5. IDC India Limited 12.72 6. Informed 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 more

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%. Thus, by taking 62.52%

arithmetic mean as against arithmetic mean shown by the assessee at

19.70%, the AO made an adjustment of Rs.2,63,18,222/-. 3 ITA No.923/15

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 functionally

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/2012, 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 Investment Advisory Pvt. Ltd. was also engaged in providing

investment advisory services, therefore, lower authorities were justified in

including the same for arriving at arm's length price.

7. We have considered rival contentions, carefully gone through the

orders of the authorities below and found that assessee is engaged in 4 ITA No.923/15

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 engaged

in acquisition, disinvestment, IPO, etc, whereas the assessee is engaged

in investment advisory services. In case of Carlyle India Advisors Pvt.

Ltd.(supra), the Tribunal observed that M/s Motilal Oswal Investment

Advisory Pvt. Ltd. is registered with SEBI as 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 company 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 regarding 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 5 ITA No.923/15

was involved, M/s Motilal Oswal Investment Advisory Pvt. Ltd. was

engaged in diversified activities and registered with SEBI as a merchant

banker. Thus, 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 support 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 reconstruction 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 business. 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 6 ITA No.923/15

assessee has highlighted this mistake. As per this letter, margin of ICSL

was 69.31% in the assessment year 2009-2010, whereas there was

negative margin of 4.01% 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 Future capital investment advisory ltd. (i.e. 20.35%) instead of single

year margin of 15.71%.

12. 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'

length 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.

13. 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 19.70% 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.

14. In the result, appeal of the assessee is allowed. 7 ITA No.923/15

Order pronounced in the open court on this 24/04/2015.

Sd/- Sd/-

(डी.भनभोहन) (आय.सी.शभाव) (D.MANMOHAN) (R.C.SHARMA) उऩाध्मऺ / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER

भुंफई Mumbai; ददनांक Dated 24/04/2015 प्र.कु.मभ/pkm, नन.स/ PS

आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :

1. अऩीराथी / The Appellant

2. प्रत्मथी / The Respondent.

3. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai.

4. आमकय आमुक्त / CIT

5. वर्बागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भंफ ु ई / DR, ITAT, Mumbai

6. गाडव पाईर / Guard file.

सत्मावऩत प्रनत //True Copy// आदे शािसार/ BY ORDER,

उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai