Xander Advisors India Pvt. Ltd., New Delhi v. ACIT, New Delhi

ITA 5840/DEL/2012 | 2008-2009
Pronouncement Date: 07-11-2014 | Result: Partly Allowed

Appeal Details

RSA Number 584020114 RSA 2012
Assessee PAN AAACX0403B
Bench Delhi
Appeal Number ITA 5840/DEL/2012
Duration Of Justice 1 year(s) 11 month(s) 18 day(s)
Appellant Xander Advisors India Pvt. Ltd., New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 07-11-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 07-11-2014
Date Of Final Hearing 03-11-2014
Next Hearing Date 03-11-2014
Assessment Year 2008-2009
Appeal Filed On 19-11-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL AM AND SHRI I.C. SUDHIR JM ITA NO.5840/DEL/2012 ASSESSMENT YEAR : 2008-09 XANDER ADVISORS INDIA PVT. LTD. 111 THE TAJ PALACE SARDAR PATEL MARG NEW DELHI. PAN : AAACX0403B VS. AC IT CIRCLE-18(1) NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : S/ SHRI MUKESH BHUTANI VISHAL KALRA & MS VRINDA TULSHAN ADVOCATES DEPARTMENT BY : S/ S HRI YOGESH VERMA CIT AND N.K. CHAND CIT ORDER PER R.S. SYAL AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDE R PASSED BY THE ASSESSING OFFICER (AO) ON 03.09.2012 U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT 1961 ITA NO.5840/DEL/2012 2 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2008-09. 2. THE ONLY ISSUE CONTESTED IN THIS APPEAL BY THE L D. AR QUA THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTM ENT IS SELECTION OF THREE COMPANIES AS COMPARABLE. BRIEFL Y STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS INC ORPORATED IN AUGUST 2005 FOR RENDERING ADVISORY SERVICES IN RELATION TO THE REAL ESTATE AND INFRASTRUCTURE SECTOR IN INDIA. DURING THE YEAR IN QUESTION IT ENTERED INTO INTERNATIONAL TRA NSACTION OF PROVISION OF INVESTMENT ADVISORY SERVICES WORTH `98 90 66 951/- TO XANDER INVESTMENT MANAGEMENT LT D. MAURITIUS ITS ASSOCIATED ENTERPRISE. FUNCTIONAL PROFILE OF THE ASSESSEE AS SET OUT BY THE TRANSFER PRICING OFFICE R (TPO) ON PAGE 2 OF HIS ORDER DIVULGES THAT THE ASSESSEE MAI NTAINS AN ADVISORY RELATIONSHIP WITH ITS AE BY SOURCING AND EVALUATING POTENTIAL INVESTMENT OPPORTUNITIES IN INDIA. SUCH OPPORTUNITIES ARE SOURCED BY THE ASSESSEE THROUGH D IRECT PROPRIETARY RELATIONSHIP INTERMEDIARIES ELECTRONI C MEDIA AND ITA NO.5840/DEL/2012 3 MAGAZINES ETC. ONCE A POTENTIAL INVESTMENT OPPORT UNITY IS SOURCED THE BROAD CONTOURS ARE DISCUSSED WITH ITS AE. ON THE BASIS OF SUCH DISCUSSION THE ASSESSEE IS DIREC TED TO EITHER PURSUE THE PROPOSAL OR REJECT THE SAME. IF THE OPPORTUNITY IS TO BE PURSUED A DETAILED RESEARCH E XERCISE IS CONDUCTED SPREADING OVER PRIMARY RESEARCH INCLUDING SITE VISITS FOR UNDERSTANDING DEMAND-SUPPLY SCENARIOS BENCHMARKING OF EXISTING PROJECTS VIS-A-VIS THE OPPORTUNITY GAUGING COMPETITION ETC. TO SECONDARY RESEARCH AND THEREAFTER ENGAGING IN DISCUSSIONS WITH THE INDIAN COUNTERPARTS IN JOINT VENTURE SITUATIONS. RESEARCH FOR VARIOUS ANALYSES AS CONDUCTED BY THE ASSESSEE ABOVE ARE PRE SENTED IN THE FORM OF AN INVESTMENT MEMO TO ITS AE FOR SUI TABLE DECISION MAKING. ONCE INVESTMENTS ARE MADE THE AS SESSEE IS REQUIRED TO PROVIDE SUPPORT SERVICES INCLUDING M AINTENANCE OF BOOKS OF ACCOUNT PREPARATION OF QUARTERLY/ANNUA L FINANCIAL STATEMENTS AND SUCH OTHER SIMILAR SUPPORT SERVICES AS MAY BE MUTUALLY AGREED UPON FROM TIME TO TIME. THE ASS ESSEE IS REMUNERATED AT ACTUAL COSTS INCURRED WITH 20% MARK- UP. THE ITA NO.5840/DEL/2012 4 TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS EMPLOYED BY THE ASSESSEE TO DEMONSTRATE THAT ITS INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH PRICE (ALP). THE ASSESSEE CHOS E 17 COMPANIES AS COMPARABLES WHICH HAVE BEEN LISTED ON PAGES 4 TO 7 OF THE TPOS ORDER. BY CONSIDERING THE ASSE SSEES SUBMISSIONS AND OTHER RELEVANT MATERIAL THE TPO R EDUCED THE NUMBER OF COMPARABLES TO 7 OUT OF THE 17 CHOSEN BY THE ASSESSEE. THESE 7 COMPANIES FINALLY CHOSEN BY THE TPO WITH THEIR PLI OF OP/TC ARE AS UNDER:- SL.NO. NAME OP/TC (%) 1. ACCESS INDIA ADVISORS LTD. 45.96% 2. BRESCON CORPORATE ADVISORS LTD. 87.4% 3. ICRA MANAGEMENT CONSULTING SERVICES LTD. 5.35% 4. IDC INDIA LTD. 13.88% 5. KHANDAWALA SECURITIES LTD. 80.79% 6. SUMEDHA FISCAL SERVICES LTD. 9.14% 7. KINETIC TRUST LTD. 3.54% AVERAGE 35.15% 3. ON THE BASIS OF THE AVERAGE OP/TC OF THE ABOVE S EVEN COMPARABLE COMPANIES AT `35.15% THE TPO PROPOSED TRANSFER PRICING ADJUSTMENT OF `1 28 37 664/-. THE AO ITA NO.5840/DEL/2012 5 PROPOSED TO MAKE ADDITION IN HIS DRAFT ORDER DATED 18.11.2011 ON ACCOUNT OF THE ABOVE REFERRED TRANSFE R PRICING ADJUSTMENT. THE ASSESSEE REMAINED UNSUCCESSFUL BEF ORE THE DISPUTE RESOLUTION PANEL (DRP). THE ADDITION VIDE THE IMPUGNED ORDER ON THIS SCORE AMOUNTING TO `1.28 CR ORE WAS MADE BY THE AO. 4. AT THE OUTSET WE WANT TO MAKE IT CLEAR THAT THE SCOPE OF THE DISPUTE IN THE PRESENT APPEAL ON THIS ISSUE AS ARGUED BY THE LD. AR IS CONFINED ONLY TO THE SELECTION OF TH REE COMPANIES AS COMPARABLE WHICH HAVE BEEN LISTED AT SERIAL NOS. 2 5 AND 6 OF THE ABOVE TABLE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT ON RECORD. BEFORE ESPOUSING THESE THREE CO MPANIES FOR ASCERTAINING THEIR COMPARABILITY WITH THE ASSES SEE WE CONSIDER IT EXPEDIENT TO HIGHLIGHT THE ARGUMENT OF THE LD. AR THAT THE ASSESSEE IS A PRIVATE EQUITY FUND AND HENC E THESE THREE COMPANIES CHOSEN BY THE TPO WHICH ARE BASICA LLY MERCHANT BANKS ARE NOT COMPARABLE. TO BOLSTER THI S ITA NO.5840/DEL/2012 6 SUBMISSION HE RELIED ON CERTAIN DECISIONS IN WHICH IT HAS BEEN SO HELD. AT THIS JUNCTURE IT IS PERTINENT TO NOTE THE DIFFERENCE BETWEEN A MERCHANT BANKER AND A PRIVATE EQUITY FUND. 6. A MERCHANT BANK APART FROM HELPING BUSINESSM EN IN RAISING FINANCE ALSO RENDERS CONSULTANCY SERVICES. IT HELPS ITS CLIENTS IN RAISING FINANCE THROUGH ISSUE OF SHARES DEBENTURES BANK LOANS ETC. FROM THE DOMESTIC AND INTERNATION AL MARKET. THE TERM MERCHANT BANKER HAS BEEN DEFINED IN THE R ULE 2 (E) OF SEBI (MERCHANT BANKERS) RULES 1922 TO MEAN : ANY PERSON WHO IS ENGAGED IN THE BUSINESS OF ISSUE MANA GEMENT EITHER BY MAKING ARRANGEMENTS REGARDING SELLING BU YING OR SUBSCRIBING TO SECURITIES AS MANAGER CONSULTANT A DVISER OF RENDERING CORPORATE ADVISORY SERVICE IN RELATION TO SUCH ISSUE MANAGEMENT. ITS ACTIVITIES ALSO INCLUDE PROJECT CO UNSELING CORPORATE COUNSELING IN AREAS OF CAPITAL RESTRUCTUR ING AMALGAMATIONS MERGERS TAKEOVERS DISCOUNTING AND REDISCOUNTING OF SHORT TERM PAPERS IN MONEY MARKET AND ITA NO.5840/DEL/2012 7 ACTING AS BROKERS IN STOCK EXCHANGE AND ADVISERS ON PORT FOLIO MANAGEMENT. ON THE OTHER HAND A PRIVATE EQUITY FI RM ALSO KNOWN AS A PRIVATE EQUITY FUND (HEREINAFTER ALSO CA LLED THE PE FUND) IS A GROUP OF INVESTORS WHICH COLLECT S MONEY FROM WEALTHY INDIVIDUALS OR INSTITUTIONS ETC. FOR THE PU RPOSES OF INVESTING IN OR BUYING COMPANIES. PE FUND IS MANAG ED BY A FUND MANAGER. THUS PE FUND IS OVERALL RESPONSIB LE FOR MANAGING THE MONEY TAKEN FROM ITS INVESTORS. PE FU ND OVERSEES ITS DAY-TO-DAY OPERATIONS INCLUDING MAKING INVESTMENT DECISIONS AND MANAGING THE ACQUIRED COMP ANIES WHICH AFTER ACQUISITION ARE KNOWN AS PORTFOLIO CO MPANIES. PE FUNDS EARN INCOME BY CHARGING AN ANNUAL MANAGEMENT FEE AS SOME PERCENTAGE OF THE MONEY UNDER THEIR MANAGEM ENT AND THEN SOME PERCENTAGE OF THE PROFITS WHEN THEY S ELL PORTFOLIO COMPANIES. SIMPLY PUT WHEREAS A MERCHAN T BANKING IS A CAPITAL RAISING/ ADVISORY SERVICE A P RIVATE EQUITY IS AN INVESTMENT BUSINESS. TO PUT SUCCINCTLY PE FU NDS ARE INVESTORS AND NOT ADVISORS. ITA NO.5840/DEL/2012 8 7. TURNING TO FACTS OF THE INSTANT CASE AS STAT ED BY THE LD. AR AND THOSE CULLED OUT FROM THE MATERIAL ON RECORD THE POSITION WHICH EMERGES IS THAT THERE ARE THREE INVE STORS. XANDER MASTER FUND A MAURITIUS LIMITED LIABILITY C OMPANY (FUND) IS RESPONSIBLE FOR PRIVATE EQUITY INVESTMEN T. IT APPOINTED XANDER INVESTMENT MANAGEMENT LTD. MAURIT IUS (MANAGER) FOR PROVIDING OVERALL INVESTMENT ADVICE. THE MANAGER SUB-CONTRACTED SPECIFIC ACTIVITIES TO THE A SSESSEE (INDIAN SUB-ADVISOR). THE MANAGER AND THE INDIAN SU B- ADVISOR ENTERED INTO AN AGREEMENT ON 10.10.2005 UN DER WHICH THE ASSESSEE (INDIAN SUB-ADVISOR) UNDERTOOK T O PROVIDE GENERAL ADVISORY SERVICES TO THE MANAGER IN RELATIO N TO REAL ESTATE SECTOR IN INDIA. SUCH SERVICES AS DISCUSSED ABOVE INCLUDE PROVIDING FEEDBACK TO THE MANAGER IN RELATI ON TO THE REAL ESTATE INVESTMENT OPPORTUNITIES IN INDIA; IDEN TIFYING THE POTENTIAL VENDORS; NEGOTIATING WITH THE VENDORS AS AN AGENT OF THE MANAGER FINALIZING DEALS IF THE MANAGER IS SATISFIED AND; TO PROVIDE ACTUAL SUPPORT SERVICES IF THE IN VESTMENT IS MADE BY THE MANAGER. IN THIS THREE-TIER HIERARCHY XANDER ITA NO.5840/DEL/2012 9 MASTER FUND IS THE PE FUND XANDER INVESTMENT MANAGEMENT LTD. MAURITIUS IS THE MANAGER AND TH E ASSESSEE IS SIMPLY SUB-ADVISOR TO THE MANAGER. F ROM AN OVERVIEW OF THE NATURE OF ACTIVITIES DISCUSSED ABOV E IT IS NOTICED THAT THE CONTENTION OF THE LD. AR THAT THE ASSESSEE ACTED AS A PE FUND IN INDIA IS NOT TENABLE. THE MA NAGER SUB- CONTRACTED SPECIFIC ACTIVITIES TO THE ASSESSEE WHI CH WERE IN THE NATURE OF ADVISORY TO HIM. BY NO STRETCH OF IM AGINATION THE ASSESSEE CAN BE DESCRIBED AS PE FUND WHO IN P RESENT FACTS IS XANDER MASTER FUND. THE NAME BY WHICH A TRANSACTION IS COINED IS NOT DECISIVE OF ITS CHARAC TER. IT IS THE REAL NATURE OF A TRANSACTION WHICH IS ALWAYS RELEVA NT AND CONCLUSIVE. A BARE PERUSAL OF THE NATURE OF ACTIVI TIES CARRIED OUT BY THE ASSESSEE IN THE EXTANT INTERNATIONAL TRA NSACTION ABUNDANTLY PROVES THAT THESE ARE NOT THAT OF A PE F UND. EX CONSEQUENTI THE DECISIONS CITED BY THE LD. AR SEEKING TO CANVASS THE EXCLUSION OF THREE COMPANIES ON THE STR ENGTH OF THE ASSESSE IN THOSE CASES ACTING AS PE FUNDS DO N OT ADVANCE HIS CASE ANY FURTHER. AS SUCH WE ARE DESI STING FROM ITA NO.5840/DEL/2012 10 CONSIDERING SUCH DECISIONS WHICH WERE RENDERED DRA WING DISTINCTION BETWEEN A MERCHANT BANKER AND A PE FUND AND HOLDING THAT A MERCHANT BANKER CANNOT BE CONSIDERED AS COMPARABLE TO A PE FUND. BE THAT AS IT MAY A COMPA NY CANNOT BE CONSIDERED AS COMPARABLE OR INCOMPARABLE ON THE GENERALITY OF MERE DESCRIPTION OF ITS OVERALL CATEG ORY. THIS ASSUMES MORE SIGNIFICANCE WHEN A COMPANY IS OTHERWI SE ENTITLED TO PURSUE SEVERAL LINES OF ACTIVITIES. ONE NEEDS TO VERIFY THE NATURE OF ACTIVITY ACTUALLY CARRIED ON F OR DECIDING ITS COMPARABILITY OR OTHERWISE. NO NOMENCLATURE CAN SUPERIMPOSE THE REAL CHARACTER OF A TRANSACTION. 8. NOW WE WILL TAKE UP THESE THREE COMPANIES ON E BY ONE FOR ASCERTAINING THEIR COMPARABILITY. AT THIS STAGE IT IS SIGNIFICANT TO MENTION THAT THE ASSESSEE INCLUDED T HESE THREE COMPANIES IN ITS LIST OF COMPARABLES AND THE TPO SI MPLY ACCEPTED THEM AS COMPARABLE. THE ASSESSEE IS NOW AS SAILING THEIR WRONGFUL SUO MOTU INCLUSION IN THE LIST OF COMPARABLES. ITA NO.5840/DEL/2012 11 BRESCON CORPORATE ADVISORS LTD: 9. THE ASSESSEE REQUESTED THE TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES BY STATING THAT IT WAS A MERCHANT BANKING COMPANY WITH ITS MAIN SOURCE OF INCOME FROM RECAPITALIZATION ADVISORY AND DEBT SYNDICATION. TH E TPO DID NOT ACCEPT THIS ARGUMENT ON THE GROUND THAT THE SEA RCH CRITERIA INCLUDED COMPANIES PROVIDING INVESTMENT AD VISORY SERVICES AND THERE WAS NO NEED TO GO INTO FURTHER V ERTICALS. 10. WE HAVE PERUSED THE ANNUAL ACCOUNTS OF THIS COMPANY A COPY OF WHICH HAS BEEN PLACED ON RECORD. THIS CO MPANY IS ENGAGED IN CARRYING ON MERCHANT BANKING AND INVESTM ENT ACTIVITIES ALONG WITH PROVIDING PROJECT ADVISORY SE RVICES. A LOOK AT THE ANNUAL ACCOUNTS OF BRESCON CORPORATE AD VISORS LTD. INDICATES THAT IT HAS TWO STREAMS OF INCOME N AMELY FEE BASED FINANCIAL SERVICES AND OTHER INCOME. DETA ILS OF THE REVENUE UNDER FEE BASED FINANCIAL SERVICES IS GIV EN AT PAGE 324 OF THE PAPER BOOK WHICH IS AS UNDER:- ITA NO.5840/DEL/2012 12 FINANCIAL RESTRUCTURING & RECAPITALISATION ` 10.00 CRORE SYNDICATION OF DEBT `2.18 CRORE EQUITY RELATED ADVISORY/M&A ADVISORY `2.03 CRORE DUE DELIGENCE ADVISORY TO ARCIL NIL TOTAL `14.2 3 CRORE THE SECOND STREAM OF ITS INCOME TOTALING `6.04 CROR E INCLUDES DIVIDEND INTEREST RECEIVED PROFIT/LOSS ON SALE OF INVESTMENTS AND PROFIT/LOSS ARISING OUT OF DEALING IN SHARES AN D SECURITIES. A CLOSE LOOK AT THE COMPOSITION OF THE GROSS REVENU E FROM FEE BASED FINANCIAL SERVICES TRANSPIRES THAT SOME COMPONENT OF EQUITY RELATED ADVISORY/M&A ADVISORY PRIMA FACIE PARTLY RESEMBLES WITH THE SERVICES RENDERED BY THE ASSESSEE. THE LD. DR HIMSELF CANDIDLY ACCEPTED AN D RIGHTLY SO THAT THE OTHER COMPONENTS OF THIS STREAM OF TH E REVENUE ARE OF NO MATCH WITH THAT OF THE ASSESSEE. NOW TH E QUESTION ARISES AS TO WHETHER BRESCON CORPORATE ADVISORS LTD . UNDER THESE CIRCUMSTANCES CAN BE CONSIDERED AS COMPARABLE ? AT THIS STAGE IT IS PERTINENT TO MENTION THAT THE GRO SS REVENUE OF THIS COMPANY AMOUNTS TO `20.27 CRORE AND THERE IS N O ITA NO.5840/DEL/2012 13 SEGMENTAL DATA AVAILABLE EITHER IN RESPECT OF NET P ROFIT FROM FEE BASED FINANCIAL SERVICES OR OTHER INCOME. AS OTHER INCOME ALSO INCLUDES INCOME FROM INVESTMENT ACTIVI TY BEING PROFIT/LOSS ON SALE OF INVESTMENT AND DEALING IN SH ARES AND SECURITIES THE IMPACT OF SUCH PROFIT/LOSS ON THE O VERALL NET PROFIT OF THE COMPANY ON ENTITY LEVEL CANNOT BE D ETERMINED. EVEN THOUGH SOME COMPONENT OF EQUITY RELATED ADVISORY/M&A ADVISORY WITH THE GROSS REVENUE OF ` 2.03 CRORE PARTLY RESEMBLES WITH THE ASSESSEE STILL IN THE ABSENCE OF ANY SEGMENTAL DATA OF SUCH COMPOSITION THERE CA N BE NO VALID COMPARISON. REVENUE FROM THIS COMPONENT ACCO UNTS FOR AROUND 10% OF THE TOTAL GROSS REVENUE OF THIS C OMPANY AND IF WE FURTHER EXAMINE THIS 10% COMPONENT IN ITS ELF IT TURNS OUT THAT THE SAME ALSO INCLUDES M&A ADVISORY WHICH IS OBVIOUSLY NOT AKIN TO THE SERVICES RENDERED BY THE ASSESSEE. THE ASSESSEES ACTIVITY IN A NUTSHELL IS TO TEND ER ADVICE TO THE MANAGER ABOUT THE AVENUES FOR MAKING INVESTMENT IN REAL ESTATE AND IF THE MANGER AGREES TO GO AHEAD WITH SUCH INVESTMENT OPPORTUNITY THEN TO GET INVOLVED IN TH E PROCESS ITA NO.5840/DEL/2012 14 OF FINALIZATION OF THE DEAL AND THEN PROVIDE SUPPOR T SERVICES INCLUDING MAINTENANCE OF BOOKS OF ACCOUNT ETC. ON THE CLICKING OF THE DEAL. TAKING A HOLISTIC VIEW OF TH E FACTUAL MATRIX WE DO NOT FIND ANY RATIONALITY IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES SINCE NO SEGMENT AL DATA OF THE ADVISORY SERVICES BY THIS COMPANY IS AVAILAB LE WHICH COMPONENT IS VERY SMALL VIS-A-VIS THE ENTITY LEVEL OPERATIONS. AVAILABILITY OF SEPARATE DATA OF THIS SEGMENT COULD HAVE POSSIBLY MADE IT COMPARABLE WITH THE ASSESSEE. THIS COMPANY IS THEREFORE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. KHANDAWALA SECURITIES LTD. 11. NEXT COMES KHANDAWALA SECURITIES LTD. THE ASSE SSEE CONTENDED BEFORE THE TPO THAT THIS COMPANY WAS ENGA GED IN MERCHANT BANKING ACTIVITIES AND HENCE SHOULD BE EXC LUDED FROM THE LIST OF COMPARABLES. THE TPO REPELLED THI S CONTENTION BY OBSERVING THAT THIS COMPANY WAS PROVI DING INTER ALIA CORPORATE ADVISORY SERVICES RELATING TO REAL ESTA TE ITA NO.5840/DEL/2012 15 AND INFRASTRUCTURE. THAT IS HOW THIS COMPANY FOUND ITS WAY IN THE LIST OF COMPARABLES DRAWN BY THE TPO. 12. WE HAVE GONE THROUGH THE ANNUAL ACCOUNTS OF THI S COMPANY WHICH ARE AVAILABLE IN THE PAPER BOOK. A PERUSAL OF ITS PROFIT & LOSS ACCOUNT TRANSPIRES THAT ITS INCOM E COMPRISES OF BROKERAGE AMOUNTING TO `7.96 CRORE CORPORATE AD VISORY SERVICES AMOUNTING TO `8.32 CRORE INCOME FROM CAPI TAL MARKET OPERATIONS AT `56.75 LAC AND PROFIT ON SALE OF LONG- TERM INVESTMENTS AT `4.81 LAC. APART FROM THESE I T HAS OTHER INCOMES AMOUNTING TO `1.10 CRORE WHICH ARE IN THE NATURE OF INTEREST ON FIXED DEPOSITS AND DIVIDENDS ETC. IT CAN BE OBSERVED FROM THE BIFURCATION OF THE GROSS REVENUE OF THIS COMPANY THAT BROKERAGE COMPONENT IS 44.21% WHEREAS CORPORATE ADVISORY SERVICES ACCOUNT FOR 46.23% OF T OTAL GROSS REVENUE. THE MOST CRUCIAL FACTOR IS THAT THE ACCOU NTS OF THIS COMPANY ARE AGAIN AVAILABLE ON ENTITY LEVEL ALONE. IT GOES WITHOUT SAYING THAT THE BROKERAGE INCOME IS TOTALLY ALIEN TO THE ASSESSEES COMPOSITION OF INCOME. IF THERE IS S OME ITA NO.5840/DEL/2012 16 COMMONALITY THAT CAN BE TRACED TO THE INCOME FROM CORPORATE ADVISORY SERVICES WHICH ACCOUNTS FOR 4 6.23% OF THE GROSS REVENUE. THERE IS NO DATA OF NET INCOME OF THIS COMPONENT ON SEGMENT LEVEL EXCEPT FOR ITS GROSS RE VENUE. WHEN WE FURTHER EXAMINE THE BREAK-UP OF CORPORATE ADVISORY SERVICES WHICH IS AVAILABLE AT PAGE 369 OF THE PAPER BOOK IT COMES TO THE FORE THAT IT INCLUDES E QUITY CAPITAL MARKETS TRANSACTION EXECUTION MERGERS AND ACQUISIT IONS ADVISORY CAPITAL RAISING ADVISORY AND TRANSACTION EXECUTION RELATING TO STRUCTURED FINANCE REAL ESTATE AND INF RASTRUCTURE. THUS OUT OF TOTAL OF 46% OF THE GROSS REVENUES OF THIS COMPANY LYING UNDER THE OVERALL CORPORATE ADVISORY SERVICES DIVISION IT IS MANIFEST THAT ONLY SOME OF THE ACT IVITIES UNDERTAKEN BY IT BEAR SOME SIMILARITY TO THOSE CARR IED ON BY THE ASSESSEE. HOWEVER IF ONE MAY HAVE TO ANSWER IT AS COMPARABLE OR INCOMPARABLE IN TOTALITY WE CANT TE RM IT AS COMPARABLE BECAUSE OF THE ABSENCE OF ANY BIFURCATIO N OF THE INCOME FROM ADVISORY SERVICES IN THIS OVERALL SEGME NT. THE FACT THAT APART FROM ENTITY LEVEL NO DETAILS OF TH IS OVERALL ITA NO.5840/DEL/2012 17 SEGMENT OF CORPORATE ADVISORY SERVICES ARE AVAILA BLE FURTHER CEMENTS OUR VIEWPOINT. ON THE OVERALL PERS PECTIVE THIS COMPANY ON AN ENTITY LEVEL CANNOT BE CONSIDERE D AS COMPARABLE WITH THE ASSESSEE BECAUSE OF LACK OF ANY SEGMENTAL DATA. WE THEREFORE ORDER FOR THE EXCLU SION OF THIS COMPANY FROM THE LIST OF COMPARABLES. SUMEDHA FISCAL SERVICES LTD . 13. THE ASSESSEE ARGUED BEFORE THE TPO THAT THIS CO MPANY COULD NOT BE CONSIDERED AS COMPARABLE BECAUSE ITS S EGMENT FOR CONSULTANCY SERVICES ALSO INCLUDED INCOME FROM MERCHANT BANKING ACTIVITY. THE TPO REJECTED THIS CONTENTION BY HOLDING THAT IT WAS PROVIDING ADVISORY SERVICES WHICH INCLU DED LOANS SYNDICATION EQUITY PLACEMENT AND PROJECT CONSULTAN CY SERVICES. 14. WE FIND FROM THE ANNUAL ACCOUNTS OF THIS COMPAN Y THAT IT HAS SEGMENTAL DATA. ITS INCOME FROM OPERATIONS IS TO THE TUNE OF `7.58 CRORE WHICH HAS TWO COMPONENTS NAME LY INCOME FROM LOAN SYNDICATION & CONSULTANCY SERVICE S ITA NO.5840/DEL/2012 18 AMOUNTING TO `4.47 CRORE AND INCOME FROM CAPITAL M ARKET OPERATION AMOUNTING TO `3.11 CRORE. PAGE 436 OF T HE PAPER BOOK DIVULGES THAT THE COMPONENT TITLED AS LOAN SY NDICATION AND CONSULTANCY SERVICES COMPRISES LOAN SYNDICATI ON MERCHANT BANKING RESTRUCTURING & OTHER RELATED ADV ISORY SERVICES. OBVIOUSLY THE CONSULTANCY SERVICES OF THIS COMPANY TO SOME EXTENT CAN BE CHARACTERIZED AS COMPARABLE WITH THE ASSESSEE COMPANY. HOWEVER IT C AN BE OBSERVED THAT ALBEIT THE SEGMENTAL DATA IS AVAILABLE BUT SUCH SEGMENT WITH THE CAPTION CONSULTANCY SERVICES ALS O ENCOMPASSES LOAN SYNDICATION MERCHANT BANKING RESTRUCTURING AND OTHER RELATED ADVISORY SERVICES A PART FROM CONSULTANCY SERVICES. THE COMPOSITION OF CONSULTAN CY SERVICES SIMPLICITER IN THIS OVERALL SEGMENT WHICH IS AKIN TO THAT OF THE ASSESSEE IS NOT ASCERTAINABLE. SINCE T HE ADVISORY SERVICES ARE NOT SEPARATELY IDENTIFIABLE FROM THIS BROADER SEGMENT OF CONSULTANCY SERVICES WE HOLD THAT THE O VERALL CONSULTANCY SEGMENT OF THIS COMPANY CANNOT BE CONSI DERED ITA NO.5840/DEL/2012 19 AS COMPARABLE WITH THE ASSESSEE. WE THEREFORE OR DER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMP ARABLES. 15. BEFORE PARTING WITH THIS ISSUE WE WOULD LIKE T O DEAL WITH THE CONTENTION RAISED ON BEHALF OF THE REVENUE THAT SINCE THESE THREE COMPANIES WERE ORIGINALLY CONSIDERED BY THE ASSESSEE AS COMPARABLE IT SHOULD NOT BE ALLOWED TO RESILE FROM ITS EARLIER STAND BY DEMANDING THEIR EXCLUSION . IN OUR CONSIDERED OPINION THIS CONTENTION DESERVES TO BE JETTISONED. JUST LIKE A SITUATION IN WHICH THE ASSESSEE CHOOSES A COMPANY AS COMPARABLE WHICH CAN BE EXCLUDED BY THE TPO ON FINDING IT AS INCOMPARABLE THERE CAN BE NO FETTERS ON THE ASSESSEE REQUESTING FOR THE EXCLUSION OF A COMPANY ORIGINAL LY CONSIDERED BY IT COMPARABLE BY INADVERTENCE. AFTER ALL IT IS FOR THE TPO TO EXAMINE AND EVALUATE SUCH CONTENTION AND THEN DECIDE ABOUT ITS COMPARABILITY ON MERITS. TO FORECLOSE THE RAISING OF SUCH A CONTENTION BY THE ASSESSEE FO R FURTHER APPRAISAL AT THE TPOS END IS IMPERMISSIBLE. THE D EPARTMENT CANNOT APPROBATE AND REPROBATE AT THE SAME TIME. T HE ITA NO.5840/DEL/2012 20 SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. QUARK SYSTEMS (P) LTD. (2010) 132 TTJ (CHD) (SB) HAS ALLOWED THE ASSESSEE TO CLAIM EXCLUSION OF CERTAIN COMPANIES FROM THE LIST OF COMPARABLES WHICH WERE INADVERTENTLY INCLUDED BY IT IN ITS TRANSFER PRICING STUDY. WE THEREFORE REJECT THIS CONTENTION ADVANCED ON BEHALF OF THE REVENUE. 16. TO SUM UP WE DIRECT THE EXCLUSION OF THE AF ORE REFERRED THREE COMPANIES FROM THE LIST OF COMPARABLES. THE I MPUGNED ORDER IS SET ASIDE PRO TANTO AND THE MATTER IS SENT BACK TO THE TPO/AO FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION BY CONSIDERING THE REMAINING FOUR COMPA NIES AS COMPARABLE. IT IS MADE CLEAR THAT ON ALL OTHER ASPE CTS THE ORDER OF THE TPO IS FINAL AND UNCHANGED. 17. THE ONLY OTHER GROUND ARGUED BY THE LD. AR IS A GAINST THE DISALLOWANCE OF `2 48 589/- MADE BY THE AO U/S 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES 1962. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE EARNED DI VIDEND INCOME FROM MUTUAL FUNDS TO THE TUNE OF `10.32 LAC WHICH ITA NO.5840/DEL/2012 21 WAS CLAIMED AS EXEMPT. THE AO ON PERUSAL OF THE B ALANCE SHEET OBSERVED THAT THE ASSESSEE MADE INVESTMENTS DURING THE YEAR TO THE EXTENT OF `9.95 CRORE. IT WAS OPIN ED THAT THE PROVISIONS OF SECTION 14A WERE ATTRACTED IN THIS CA SE INASMUCH AS THE ASSESSEE HAD INCURRED SOME EXPENDIT URE FOR MAKING INVESTMENT WHICH WAS NOT OFFERED FOR DISALL OWANCE. APPLYING THE MANDATE OF RULE 8D(2)(III) THE AO WOR KED OUT DISALLOWANCE AT 0.5% OF THE AVERAGE VALUE OF INVEST MENT AS ON THE FIRST AND LAST DAYS OF THE PREVIOUS YEAR W HICH RESULTED INTO AN ADDITION OF `2.48 LAC. THE ASSESSEE IS AGGR IEVED AGAINST THIS ADDITION. 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD IT IS SEEN THAT THE AS SESSEE EARNED EXEMPT INCOME AND DID NOT OFFER ANY DISALLOW ANCE U/S 14A. THE AO RECORDED PROPER SATISFACTION THAT THE PROVISIONS OF SECTION 14A WERE ATTRACTED AS THE ASSESSEE HAD I NCURRED SOME EXPENDITURE FOR MAKING INVESTMENT WHICH WAS N OT OFFERED FOR DISALLOWANCE. THE HONBLE JURISDICTION AL HIGH ITA NO.5840/DEL/2012 22 COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (2012) 347 ITR 272 (DEL) HAS HELD THAT THE PROVISIONS OF SECTION 14A ARE ATTRACTED IN SUCH SITUATIONS. AS THE ASSESSMEN T YEAR UNDER CONSIDERATION IS 2008-09 OBVIOUSLY THE PRES CRIPTION OF RULE 8D WOULD APPLY. IN OUR CONSIDERED OPINION TH E AO WAS FULLY JUSTIFIED IN MAKING DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D AT 0.5% OF THE AVERAGE VALUE OF INVESTMENTS. TH IS GROUND IS NOT ALLOWED. 19. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.11.201 4. SD/- SD/- [I.C. SUDHIR] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT M EMBER DATED 07 TH NOVEMBER 2014. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT AR ITAT NEW DELHI.