DCIT, New Delhi v. M/s. TCK Advisors Pvt. Ltd., New Delhi

ITA 6555/DEL/2015 | 2011-2012
Pronouncement Date: 11-11-2019 | Result: Dismissed

Appeal Details

RSA Number 655520114 RSA 2015
Bench Delhi
Appeal Number ITA 6555/DEL/2015
Duration Of Justice 3 year(s) 11 month(s) 2 day(s)
Appellant DCIT, New Delhi
Respondent M/s. TCK Advisors Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 11-11-2019
Appeal Filed By Department
Tags 6555
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 11-11-2019
Assessment Year 2011-2012
Appeal Filed On 09-12-2015
Judgment Text
1 ITA NO. 908 2555/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SH. R. K. PANDA ACCO UNTANT MEMBER AND MS SUCHITRA KAMBLE JU DICIAL MEMBER ITA NO. 908/DEL/2015 ( A.Y. 2010-11) AND ITA NO. 6555/DEL/2015 ( A.Y. 2011-12) DCIT CIRCLE-25(1) NEW DELHI (APPELLANT) VS M/S. TCK ADVISORS P. LTD. A-117 AMBEDKAR COLONY MG ROAD NEAR ANDHERIA MORE OPP. CHHATTARPUR METRO STATION NEW DELHI (RESPONDENT) APPELLANT BY SH. SANJIV SAPRA CA RESPONDENT BY MS. NIDHI SHARMA SR. DR ORDER PER SUCHITRA KAMBLE JM THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDERS DATED 28.01.2015 AND ORDER DATED 28.10.2015 PASSED BY DCI T CIRCLE 25(1) NEW DELHI FOR ASSESSMENT YEAR 2010-11 AND 2011-12 U/S 1 43(3) READ WITH SECTION 144C(4) INCOME TAX ACT 1961. 2. THE GROUNDS OF APPEAL ARE AS UNDER :- ITA NO. 908/DEL/2015 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE DRP-II ERRED IN DIRECTING TO REDUCE THE ADDITION OF RS. 6 67 02 130/- ON ACCOUNT OF PROPOSED ADDITIONS OF ARMS LENGTH PRICE OF THE INT ERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND MODIFY DATE OF HEARING 24.09.2019 DATE OF PRONOUNCEMENT 11.11.2019 2 ITA NO. 908 2555/DEL/2015 ALTER ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF APPEAL. ITA NO. 6555/DEL/2015 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DRP-II ERRED IN DIRECTING TO REDUCE THE ADDITION OF RS. 3 33 32 572/- ON ACCOUNT OF PROPOSED ADDITION OF ARMS LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DRP-II ERRED IN DIRECTING TPO TO APPLY EXPORT FILTER OF 75 % RESULTING IN EXCLUSION OF 6 MENTIONED BELOW COMPANIES FROM THE FINAL SET OF C OMPARABLES : A) ALMONDZ GLOBAL (SEG.) B) LEXCON FINANCE LTD. C)IM+CAPITALS D)LADDERP CORPORATE ADVISORY PVT. LTD. E)MOTILAL OSWAL INVST. ADVISORS PVT. F)S R E I CAPITAL MARKETS LTD. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DRP-II ERRED IN DIRECTING TPO TO INCLUDE ICRA MANAGEMENT CONSULTING SERVICES PVT. LTD IN THE LIST OF SUITABLE COMPARABLES. 4. THE APPELLANT CRAVES LEAVE OR RESERVING THE RIGHT TO AMEND MODIFY ALTER ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. BRIEF FACTS OF THE CASE FOR A.Y. 2010-11 IS TAKE N UP FIRST. THE ASSESSEE COMPANY WAS PROVIDING INVESTMENT ADVISORY SERVICES TO ITS ASSOCIATED ENTERPRISE (AE) TRIKONA ADVISORS MAURITIUS LTD. F UNDS MANAGER AS PER CONSULTANCY AGREEMENT DATED 01/04/2008 ENTERED BETW EEN THE ASSESSEE AND TRIKONA ADVISORS MAURITIUS LTD. THE ASSESSEE WA S ENGAGED TO PROVIDE INVESTMENT ADVISORY SERVICES TO TRIKONA ADVISORS MA URITIUS LTD. AS SINGLE CLIENT AND ACCORDINGLY 100% OF ITS REVENUE OF RS. 1 3 43 38 418/- WAS DERIVED FROM EXPORT OF SERVICES AND THERE WAS NO DO MESTIC REVENUE. DURING THE FINANCIAL YEAR 2009-10 ASSESSEE PROVIDED INVES TMENT ADVISORY SERVICES TO ITS AE IN THE NATURE OF INVESTMENT RECOMMENDATIO NS PRIMARILY IN REAL ESTATE SECTOR IN INDIA WHICH WERE NOT BINDING IN NA TURE AND SERVED AS BACK OFFICE FOR ITS AE. FROM THE NOTE ON FUNCTIONS / ACT IVITIES UNDERTAKEN BY THE ASSESSEE ASSESSEE ACTS AS BACK OFFICE OF TRIKONA A DVISORS MAURITIUS LTD. 3 ITA NO. 908 2555/DEL/2015 WITH CERTAIN SPECIFIC MANPOWER WITH CERTAIN SKILL S ETS IN FINANCE LEGAL ENGINEERING AND ASSET MANAGEMENT FOR PROVIDING SUCH SERVICES THE ASSESSEE CHARGED ITS AE ON COST PLUS ARRANGEMENT T HEREBY ELIMINATING ANY RISKS ON THE ASSESSEE UNLIKE OTHER COMPANIES CARRYI NG ON ADVISORY BUSINESSES LIKE INVESTMENT BANKING ETC. WORKING ON MULTIPLE CLIENTS AND THEREBY UNDERTAKING VARIOUS RISKS. IN OTHER WORDS UNDER SUCH COST PLUS ARRANGEMENT ALL THE RISKS IN THE FORM OF MARKET/BU SINESS RISK CREDIT AND COLLECTION RISK CAPACITY UTILIZATION RISK SERVICE LIABILITY RISK HUMAN RESOURCE MANAGEMENT RISK AS WELL AS FOREIGN EXCHANG E FLUCTUATION RISK WAS BORNE BY THE AE AND NOT BY THE ASSESSEE COMPANY. TH E ASSESSEE COMPANY WAS A DEBT FREE COMPANY AND ITS ENTIRE WORKING CAPI TAL REQUIREMENT WAS SUPPORTED BY ITS AE IN THE FORM OF ADVANCES AGAINST SERVICES AS PROVIDED TO THE ASSESSEE. IN SUPPORT OF ARMS LENGTH PRICE CHAR GED BY THE ASSESSEE COMPANY TO ITS AE ASSESSEE RELIED UPON TP STUDY RE PORT AS PER WHICH THE AVERAGE OPERATING MARGIN OF 17 COMPARABLE COMPANIES WORKED OUT TO 8.01% WHICH WAS BELOW THE OPERATING MARGIN OF 11.46% AS D ECLARED BY THE TESTED PARTY THEREFORE THE PRICE CHARGED BY ASSESSEE COM PANY FROM AE WAS AN ARMS LENGTH PRICE. THE TPO RECOMMENDED RS. 3 33 32 572/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE ASSESSING OFFICER SUSTAINED THE RECOMMENDATIONS OF THE TPO. THE ASSESSEE FILED OBJE CTION BEFORE THE DRP AND THE DRP VIDE DIRECTION DATED 01.12.2014 PARTLY ALLOWED THE OBJECTIONS OF THE ASSESSEE. 5. THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR SUBMITTED THAT THE DRP ERRED IN DIREC TING TO REDUCE THE ADDITION OF RS. 6 67 02 130/- ON ACCOUNT OF PROPOSE D ADDITION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. THE LD. DR SUBMITTED THAT AS REGARDS WITH THE COMPA RABLES WHICH WAS EXCLUDED BY THE DRP THE TPO HAS APPLIED PROPER FIL TER AND THEREAFTER INCLUDED THESE COMPARABLES. THEREFORE THE LD. DR S UBMITTED THAT THE TPOS ORDER SHOULD HAVE BEEN SUSTAINED AND CHALLENGED TH E DIRECTIONS OF THE DRP WHEREIN DRP DIRECTED TO EXCLUDE SIX COMPARABLES AN D RETAINED ONLY TWO COMPARABLES. IN FACT THE DRP ADMITTED IN PARA 7.1 OF THE DIRECTIONS THAT NO 4 ITA NO. 908 2555/DEL/2015 EXACT COMPARABLE IS AVAILABLE IN REALITY THE ENDEAV OR IS TO FIND OUT A COMPARABLE WHICH IS IN THE SIMILAR LINE OF BUSINESS AND HAVING SIMILAR ASSETS AND RISK PROFILES. THE LD. DR SUBMITTED THAT THESE COMPARABLE SHOULD BE RETAINED. FOLLOWING ARE THE COMPARABLES W HICH THE LD. DR AGITATED BEFORE US: (I) AJCON GLOBAL SERVICES LTD. : THE LD. DR SUBMITTED THAT THE SERVICES PROVIDED BY THIS COMPANY ARE BROADLY SIMILAR TO THE SERVICES BEING PROVIDED BY THE ASSESSEE COMPANY. THEREFORE THIS COMPANY HA S TO BE USED AS A COMPARABLE. THE LD. DR RELIED UPON THE FINDINGS OF THE TPO. (II) BRESCON CORPORATE ADVISORS GLOBAL SERVICES LTD. : SINCE THIS COMPANY IS NOT UNDERTAKING ANY FUND BASED ACTIVITIE S EARNING INCOME FOR IT HENCE IT IS A CORRECT COMPARABLE AS IT IS PROVIDIN G INTERMEDIATION AND ADVISORY SERVICES OF DEBT RESOLUTION AND RECAPITALI ZATION DEBT SYNDICATION AND OTHER CORPORATE FINANCIAL SERVICES WHICH ARE IN THE NATURE OF FINANCIAL ADVISORY SERVICES. HENCE IT IS A CORRECT COMPARABL E. THE TPO FURTHER OBSERVED THAT A TEMPORARY DIP IN REVENUE IN ONE YEA R DOES NOT MATTER IN FACT REVENUE HAD INCREASED IN FY 2008-09 AND ITS RE VENUE HAD DIPPED ONLY MARGINALLY IN FY 2009-10. THUS THE LD. DR SUBMITTE D THAT THIS COMPARABLE BE RETAINED. (III) KARVY INVESTORS SERVICES LTD. : THE LD. DR SUBMITTED THAT THIS COMPARABLE IS ALREADY REJECTED BY THE TPO. (IV) KSHITIJ INVESTMENT ADVISORY CO. LTD. : THE LD. DR SUBMITTED THAT REALIGNMENT OF THIS COMPARABLE IS ONLY IN RESPECT O F ONE CUSTOMER AND THAT TOO HAS EFFECT FOR 3 MOTHS ONLY WHICH IS 25% OF THE PERIOD. HENCE IT WILL NOT HAVE SUBSTANTIAL IMPACT. THE TPO HAS TAKEN CORRECTE D MARGIN OF 79.60 TO CHOSE IT IN FINAL LIST OF COMPARABLES. (V) MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. : THE COMPANY HAS TOTAL EQUITY OF RS. 15.98 CRORES AND DOES NOT HAVE ANY DEBT. THE TPO RIGHTLY REJECTED THE SUPERNORMAL PROFITS AND FLUCTUATING MA RGINS AND THEREFORE SELECTED AS COMPARABLE. (VI) PUSHPAK FINANCIAL SERVICES LTD. : THE TPO RIGHTLY CONSIDERED THAT 90.56% REVENUE IS FROM CONSULTANCY SERVICES SEGMENT ONLY. HENCE THE 5 ITA NO. 908 2555/DEL/2015 COMPANY HAS BEEN CONSIDERED COMPARABLE AT THE COMPA NY LEVEL AND NOT AT SEGMENTAL LEVEL. FURTHER INCOME FROM TRADING OF SH ARES AND INVESTING ACTIVITY HAS NOT BEEN TAKEN INTO ACCOUNT WHILE CALC ULATING OPERATING MARGIN (OP/OC). THERE IS NO SUBSTANTIAL DECREASE IN THIS Y EAR IN RESPECT OF THE INCOME DERIVED FROM CONSULTANCY SERVICES. THUS THI S COMPARABLE WAS RIGHTLY SELECTED IN THE FINAL LIST BY THE TPO. 7. THE LD. AR SUBMITTED THAT REVENUE HAS NOT SPECIF ICALLY CHALLENGED THE DIRECTIONS OF DRP FOR EXCLUDING THE SIX COMPANIES F ROM THE LIST OF COMPARABLE COMPANIES AND CONSEQUENTLY SUCH GROUND I S MISCONCEIVED AND THEREFORE DESERVES TO BE DISMISSED. THE LD. AR FURT HER SUBMITTED THAT THE DRP HAS GIVEN VALID REASONS FOR EXCLUDING THESE SIX COMPANIES. THE LD. AR RELIED UPON VARIOUS DECISIONS AS WELL. THE DRP VIDE ITS ORDER DATED 01.12.2014 DIRECTED THE TPO / AO TO EXCLUDE THE FOL LOWING 6 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES FOR THE PURPO SE OF COMPARING THE AVERAGE OPERATING MARGIN OF COMPARABLE COMPANIES WI TH THAT OF THE TESTED PARTY. (1) AJCON GLOBAL SERVICES LIMITED THE COMPANY IS ENGAGED IN STOCK MARKET AND DP OPERA TIONS PROVIDING CONSULTANCY AND ADVISORY SERVICES AND SECURITY TRAD ING ACTIVITIES. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PROVIDER COMPANY S INCE TOTAL DEBTORS IS ABOUT 75.58% OF TOTAL TURNOVER OF SUCH COMPANY WHE REAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0.018% OF ITS TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE THAN 17 TIMES OF C APITAL EMPLOYED OF TESTED PARTY. THIS COMPANY FAILS THE FUNCTIONAL TES T SINCE ABOUT 50% OF ITS INCOME IS EARNED FROM STOCK MARKET AND DP OPERATION S AS WELL AS PROFIT FROM SECURITIES TRADING ACTIVITIES WHEREAS THE TESTED PA RTY DOES NOT CARRY OUT OR HAVE ANY INCOME FROM SUCH TYPE OF ACTIVITIES. THIS COMPANY CARRIES ON FUND BASED ACTIVITIES ALSO AND THE THEREFORE ITS EARNING IS NOT ON ACCOUNT OF ITS PERSONNEL ONLY BUT ALSO ON ACCOUNT OF ITS CAPITAL A ND HENCE IS NOT COMPARABLE WITH THE TESTED PARTY. THIS PROPOSITION/ FILTER HAS BEEN USED BY THE TPO FOR REJECTING KARVY INVESTORS SERVICES LTD AS A COMPARABLE COMPANY BUT OMITTED TO APPLY SUCH PROPOSITION/ FILTER IN TH IS CASE. AS HELD BY 6 ITA NO. 908 2555/DEL/2015 MUMBAI ITAT IN THE CASE OF TEMASEK HORDING ADVISORS INDIA P LTD. VS. DY. CIT AJCON GLOBAL SERVICES LTD. IS NOT COMPARABLE T O THE APPELLANT (CARRYING INVESTMENT ADVISORY SERVICES) SINCE SUCH COMPANY'S MAJOR ACTIVITIES IS IN FIELD OTHER THAN FINANCIAL ADVISORY SERVICES. MOREO VER SEGMENTAL INFORMATION REGARDING FUND AND NON-FUND BASED FINANCIAL ACTIVIT IES OF THIS CO. ARE NOT AVAILABLE FROM ITS FINANCIAL STATEMENTS AND HENCE O N THIS BASIS IT CANNOT BE CONSIDERED A COMPARABLE COMPANY. AS ABOUT 50% OF TH IS COMPANYS INCOME WAS EARNED FROM STOCK MARKET AND DP OPERATIONS AS W ELL AS PROFIT FROM SECURITIES TRADING ACTIVITIES ACCORDINGLY CONSULTA NCY PROVIDED BY THIS COMPANY DOES NOT MEET THE SERVICE REVENUE FILTER OF 75% AS ADOPTED BY TPO. PERCENTAGE OF EXPORT INCOME OF THIS COMPANY IS NIL OUT OF TOTAL TURNOVER WHEREAS INCOME OF TESTED PARTY IS 100% FROM EXPORTS . ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE BASIS OF 75% EXPOR T TURNOVER FILTER. ACCORDINGLY AS PER RULE 10(B)(2) OF I.T. RULES TH IS COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. (2) BRECON CORPORATE ADVISORS LTD. (NAME OF THE CO. HAS BEEN INCORRECTLY MENTIONED BY TPO AS BRESCON ADVISORS AN D HOLDINGS LTD. : THE COMPANY IS ENGAGED IN INTERMEDIATION AND ADVISO RY SERVICES OF DEBT RESOLUTION & RE-CAPITALISATION DEBT SYNDICATION AN D OTHER CORPORATE FINANCIAL SERVICES. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PR OVIDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 32.81% OF TOTAL TURNOVER OF SUCH COMPANY WHEREAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0. 018% OF ITS TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE TH AN 10 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. THIS COMPANY FAILS THE FU NCTIONAL TEST SINCE 100% OF ITS INCOME IS EARNED FROM DEBT RESOLUTION & DEBT SYNDICATION WHEREAS THE TESTED PARTY DOES NOT CARRY OUT OR HAVE ANY INC OME FROM SUCH KIND OF OPERATIONS/ACTIVITIES. AS HELD BY MUMBAI ITAT IN TH E CASE OF TEMASEK HOLDING ADVISORS INDIA P LTD. VS. DY. CIT BRESCON CORPORATE ADVISORS LTD. IS NOT COMPARABLE TO THE APPELLANT (CARRYING INVESTMEN T ADVISORY SERVICES) SINCE SUCH CO.'S MAJOR ACTIVITIES IS IN FIELD OTHER THAN FINANCIAL ADVISORY SERVICES. AS INCOME FROM CONSULTANCY SERVICES WAS N IL AND THE ENTIRE INCOME OF RS.19 10 48 799/- WAS DERIVED FROM DEBT RESOLUTI ON AND DEBT SYNDICATION 7 ITA NO. 908 2555/DEL/2015 WHICH IS GENERALLY CHARGED AS PER SUCCESS FEE MODEL AND HENCE COMMANDS HIGHER MARGINS ON ACCOUNT OF HIGH RISK UNDERTAKEN W HEN COMPARED WITH LOW MARGIN NON-BINDING INVESTMENT ADVISORY SERVICES PRO VIDED BY THE ASSESSEE. PERCENTAGE OF EXPORT INCOME OF THIS COMPANY IS ABOU T 1% OUT OF TOTAL TURNOVER WHEREAS INCOME OF TESTED PARTY IS 100% FRO M EXPORTS. ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE BASIS OF 75% EXPORT TURNOVER FILTER. ACCORDINGLY AS PER RULE 10(B)(2) OF I.T. RULES TH IS COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES TEST . (3) KARVY INVESTORS SERVICES LTD. THIS COMPANY IS ENGAGED IN PROVIDING MERCHANT BANKI NG SERVICES IN INDIA. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PROVIDER COM PANY SINCE TOTAL DEBTORS IS ABOUT 6.68% OF TOTAL TURNOVER OF SUCH CO MPANY WHEREAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0.018% OF IT S TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE THAN 17 TI MES OF CAPITAL EMPLOYED OF TESTED PARTY. THIS COMPANY FAILS THE FU NCTIONAL TEST SINCE IT PROVIDES MERCHANT BANKING SERVICES WHEREAS THE TEST ED PARTY DOES NOT CARRY OUT OR HAVE ANY INCOME FROM THE ABOVE MENTIONED KIN D OF SERVICES/ACTIVITIES. HENCE THIS MERCHANT BANKING S ERVICES CO. CANNOT BE COMPARED WITH THE TESTED PARTY WHICH IS PROVIDING I NVESTMENT ADVISORY SERVICES AS HELD BY ITAT MUMBAI IN ACUMEN FUND ADVI SORY SERVICES INDIA (P) LTD. VS. DY. CIT. AS INCOME FROM CONSULTANCY SE RVICES WAS RS.2 09 65 732/- (I.E. ABOUT 30.57% OF THIS COMPANY 'S TOTAL INCOME OF RS.6 85 75 179/-WHICH INCLUDED OTHER ACTIVITIES AC CORDINGLY CONSULTANCY PROVIDED BY THIS COMPANY DOES NOT MEET THE SERVICE REVENUE FILTER OF 75% AS ADOPTED BY THE TPO. PERCENTAGE OF EXPORT INCOME OF THIS COMPANY IS NIL OUT OF TOTAL TURNOVER WHEREAS INCOME OF TESTED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE B ASIS OF 75% EXPORT TURNOVER TEST. THE TPO CONCLUDED THAT THIS COMPANY DOES NOT MEET THE SERVICES REVENUE FILTER AND HENCE IS NOT COMPARABLE WITH THE TESTED PARTY. HOWEVER IT APPEARS THAT WHILE COMPUTING ALP THE T PO HAS INADVERTENTLY INCLUDED THIS COMPANY AS ONE OF THE COMPARABLE COMP ANIES WITH THE TESTED 8 ITA NO. 908 2555/DEL/2015 PARTY. ACCORDINGLY AS PER RULE 10(B)(2) OF I.T. RU LES THIS COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. (4) KSHITIJ INVESTMENT ADVISORY CO. LTD. : THE COMPANY IS ENGAGED IN INVESTMENT ADVISORY ACTIV ITY. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PROVIDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 40.49% OF TOTAL TURNOVER OF SUCH COMPANY WHEREAS T HE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0.018% OF ITS TOTAL TUR NOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE THAN 8.50 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. PERCENTAGE OF EXPORT INCOME OF THIS C OMPANY IS 55% WHICH IS LESS THAN 75% OF TOTAL TURNOVER WHEREAS INCOME OF T ESTED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE BASIS OF 75% EXPORT TURNOVER TEST. ACCORDINGLY AS PER RULE 10(B )(2) OF I.T. RULES THIS COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARAB LE COMPANIES . MOREOVER THIS COMPANY HAS UNDERTAKEN MUCH HIGHER RISKS BY DE PLOYING CAPITAL OF MORE THAN 8.50 TIMES AS COMPARED WITH THE CAPITAL D EPLOYED BY THE TESTED PARTY. (5) MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. : THE COMPANY ENGAGED IN DIFFERENT BUSINESS VERTICALS VIZ. EQUITY CAPITAL MARKETS MERGERS AND ACQUISITIONS PRIVATE EQUITY S YNDICATIONS AND STRUCTURED DEBT. HIGHER RISK UNDERTAKEN BY SUCH SER VICE PROVIDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 31.03% OF TOTAL TURNOV ER OF SUCH COMPANY WHEREAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0.018% OF ITS TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE THAN 2.80 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. THIS COM PANY FAILS THE FUNCTIONAL TEST SINCE IT IS ENGAGED IN THE EQUITY CAPITAL MARK ETS MERGERS AND ACQUISITIONS PRIVATE EQUITY SYNDICATIONS AND STRUC TURED DEBT AND DERIVES WHEREAS THE TESTED PARTY DOES NOT CARRY OUT OR HAVE ANY INCOME FROM THE ABOVE TYPE OF SERVICES. PERCENTAGE OF EXPORT INCOME OF THIS COMPANY IS 49% WHICH IS LESS THAN 75% OF TOTAL TURNOVER WHEREAS IN COME OF TESTED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO B E EXCLUDED ON THE BASIS OF 75% EXPORT TURNOVER TEST/FILTER. ACCORDINGLY AS PER RULE 10(B)(2) OF I.T. 9 ITA NO. 908 2555/DEL/2015 RULES THIS COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. (6) PUSHPAK FINANCIAL SERVICES LTD. THIS COMPANY IS REGISTERED AS NBFC WITH RBI. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PROVIDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 21.07% OF TOTAL TURNOVER OF SUCH COMPANY WHEREAS THE TOTAL D EBTORS OF TESTED PARTY ARE ONLY ABOUT 0.018% OF ITS TOTAL TURNOVER. FURTHE R CAPITAL EMPLOYED OF SUCH COMPANY IS MORE THAN 17 TIMES OF CAPITAL EMPLO YED OF TESTED PARTY. THIS COMPANY FAILS THE FUNCTIONAL TEST SINCE IT IS DERIVING ITS INCOME FROM NBFC ACTIVITIES INCLUDING FROM TRADING IN SHARES/DE RIVATIVE TRANSACTIONS WHEREAS THE TESTED PARTY IS NOT AN NBFC AND ACCORDI NGLY IS NOT PERMITTED TO NOR IT CARRIES OUT OR HAS ANY INCOME FROM OPERAT IONS/ACTIVITIES THAT ARE CARRIED OUT BY NBFC. THIS CO. CARRIES ON FUND BASED ACTIVITIES ALSO AND THE THEREFORE ITS EARNING IS NOT ON ACCOUNT OF ITS PERS ONNEL ONLY BUT ALSO ON ACCOUNT OF ITS CAPITAL AND HENCE IS NOT COMPARABLE WITH THE TESTED PARTY. THIS PROPOSITION/FILTER HAS BEEN USED BY THE TPO FO R REJECTING KARVY INVESTORS SERVICES LTD AS A COMPARABLE COMPANY BUT OMITTED TO APPLY SUCH PROPOSITION/FILTER IN THIS CASE. MOREOVER SEGM ENTAL INFORMATION REGARDING FUND AND NON-FUND BASED FINANCIAL ACTIVIT IES OF THIS CO. ARE NOT AVAILABLE FROM ITS FINANCIAL STATEMENTS AND HENCE O N THIS BASIS IT CANNOT BE CONSIDERED A COMPARABLE COMPANY. PERCENTAGE OF E XPORT INCOME OF THIS COMPANY IS NIL OUT OF TOTAL TURNOVER WHEREAS INCOME OF TESTED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO B E EXCLUDED ON THE BASIS OF 75% EXPORT TURNOVER TEST/FILTER. ACCORDING LY AS PER RULE 10(B)(2) OF I.T. RULES THIS COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. AR OBJECTED THAT THERE IS NO SPECIFIC GROUND TAKEN BY THE REVENUE IN RESPECT OF CHALLENGING THE EXCLUSION OF THE COMPARABLES. BUT THE SAME IS COMING OUT FROM GROUND NO. 1 OF THE REVENUES APPEAL. THEREFORE WE REJECT THIS CONTENT ION OF THE LD. AR. NOW 10 ITA NO. 908 2555/DEL/2015 WE COME TO THE COMPARABLES WHICH WERE EXCLUDED BY T HE DRP. THE DRP HAS GIVEN THE FOLLOWING OBSERVATIONS: (I) AJCON GLOBAL SERVICES LTD. : THE ASSESSEE HAS STATED THAT THIS COMPANY IS ENGAGE D INTO STOCK MARKET AND DP OPERATIONS PROVIDING CONSULTANCY AND ADVISO RY SERVICES AND SECURITIES TRADING ACTIVITIES. 50% OF ITS INCOME CO MES FROM STOCK MARKET OPERATIONS. ON THE OTHER HAND TPO HAS STATED THAT T HIS COMPANY HAS INCOME FROM CONSULTANCY AND ADVISORY SERVICES AMOUN TING TO RS. 2.1 CR OUT OF TOTAL INCOME OF RS.4.1 CR. DRP CAREFULLY CONSIDERED THE SUBMISSION OF THE ASSE SSEE AND ORDER OF THE TPO. AROUND 50% OF THE INCOME COMES FROM STOCK MARK ET OPERATIONS IN THIS COMPANY. THERE IS NO SEGMENTAL ACCOUNTING REPORTED. THEREFORE THIS COMPANY SHOULD NOT BE TAKEN AS A COMPARABLE IN THIS CASE. (II) BRESCON CORPORATE ADVISORS GLOBAL SERVICES LTD. : THE ASSESSEE HAS OBJECTED OF THIS COMPANY BY STATIN G THAT IT PROVIDES NON- COMPARABLE SERVICES INTERMEDIATION AND ADVISORY SER VICES OF DEBT RESOLUTION AND RECAPITALISATION DEBT SYNDICATION A ND OTHER CORPORATE FINANCIAL SERVICES. DRP HAS CONSIDERED THIS OBJECTION OF THE ASSESSEE A ND FINDS THAT THIS IS IN A DIFFERENT LINE OF ACTIVITY AND THEREFORE IT SHOUL D BE EXCLUDED FROM THE SET OF COMPARABLES. (V) KARVY INVESTORS SERVICES LTD.: DRP CAREFULLY EXAMINED THE ORDER OF THE TPO. TPO HA S ACCEPTED THE ARGUMENT AND OBJECTION ON THE KARVY INVESTORS SERVI CES LTD. HE HAS STATED THAT SINCE THE EARNING OF THE COMPANY IS NOT ON A CCOUNT OF ITS PERSONNEL ONLY BUT ALSO ON ACCOUNT OF ITS CAPITAL ALSO THE C OMPANY WILL NOT BE CONSIDERED AS COMPARABLE ACCEPTING THE OBJECTION OF THE TAXPAYER (ON PAGE 64 OF THE TP ORDER). HOWEVER TPO HAS INADVERTENTLY TAKEN IT AS A COMPARABLE. THEREFORE IT SHOULD BE EXCLUDED FROM T HE LIST OF COMPARABLES. (VI) KSHITIJ INVESTMENT ADVISORY CO. LTD. : 11 ITA NO. 908 2555/DEL/2015 THIS COMPANY FAILS IN THE EXPORT TURNOVER FILTER WH ICH IS ADOPTED BY THE TPO. THIS COMPANY HAS AN EXPORT TURNOVER OF 55% OF ITS SALES. THEREFORE THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF CO MPARABLES. (VII) MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. : THIS COMPANY IS ENGAGED IN EQUITY CAPITAL MARKETS A ND PERCENTAGE OF EXPORT INCOME IN ONLY 49% OF ITS TOTAL TURNOVER. TH EREFORE THIS COMPANY SHOULD NOT BE INCLUDED IN THE LIST OF COMPARABLES. (VIII) PUSHPAK FINANCIAL SERVICES LTD. : ASSESSEE HAS STATED THAT THIS COMPANY IS ENGAGED IN TRADING OF SHARES/DERIVATIVE TRANSACTIONS FOR MULTIPLE CLIENTS . THE TPO HAS STATED THAT THE MAIN INCOME OF THIS COMPANY FROM CONSULTAN CY SERVICES WHICH IS THE SIMILAR TO THE ASSESSEE. DRP HAS CONSIDERED THE RIVAL OPINIONS. THIS COMPANY FAILS THE FUNCTIONAL TEST SINCE IT IS DERIVING ITS INCOME FROM NBFC ACTI VITIES INCLUDING FROM TRADING IN SHARES/DERIVATIVE TRANSACTIONS WHEREAS THE TESTED PARTY IS NOT AN NBFC AND ACCORDINGLY IS NOT PERMITTED TO NOR IT CARRIES OUT OR HAS ANY INCOME FROM OPERATIONS/ACTIVITIES THAT ARE CARRIED OUT BY NBFCS. FURTHER THIS COMPANY FAILS THE EXPORT FILTER OF HAVING MINI MUM REVENUE OF 75% DERIVED FROM EXPORTS AS GENERALLY FOLLOWED BY THE D EPARTMENT PARTICULARLY WHERE 100% OF THE REVENUE OF TESTED PARTY AS IN OUR CASE IS DERIVED FROM EXPORTS. IN VIEW OF THIS THIS COMPANY SHOULD NOT B E TAKEN IN THE LIST OF COMPARABLES. THUS THE DRP HAS GIVEN THE DETAILED FINDINGS AS TO WHY THESE COMPARABLES WERE EXCLUDED FROM THE FINAL LIST. BESI DES THAT THE FUNCTIONAL DISSIMILARITY OF EACH OF THE ABOVE MENTIONED COMPAR ABLE COMPANIES ARE SET OUT IN THE SUBMISSIONS OF THE LD. AR WHICH ARE NOT CONTRADICTED BY THE LD. DR DURING THE HEARING. THEREFORE WE ARE NOT INTERF ERING IN THE FINDINGS OF THE DRP. THE APPEAL OF THE REVENUE BEING ITA NO. 90 8/DEL/2015 FOR A.Y. 2010-11 IS DISMISSED. 9. NOW WE ARE TAKING UP ITA NO. 6555/DEL/2015 FOR A SSESSMENT YEAR 2011-12: 12 ITA NO. 908 2555/DEL/2015 10. THE ASSESSEE COMPANY WAS PROVIDING INVESTMENT A DVISORY SERVICES TO ITS ASSOCIATED ENTERPRISE (AE) TRIKONA ADVISORS MAU RITIUS LTD. (TAL) WHICH IS FUND MANAGER AS PER CONSULTANCY AGREEMENT DATED 01.04.2008 ENTERED BETWEEN THE ASSESSEE AND TAL. DURING THE F.Y. 2010- 11 I.E. A.Y. 2011-12 ASSESSEE PROVIDED INVESTMENT ADVISORY SERVICES TO I TS AE IN THE NATURE OF INVESTMENT RECOMMENDATIONS PRIMARILY IN REAL ESTATE SECTOR IN INDIA WHICH WERE NOT BINDING IN NATURE AND SERVED AS BACK OFFIC E FOR ITS AE. ASSESSEE WAS ENGAGED TO PROVIDE INVESTMENT ADVISORY SERVICES TO TAL AS SINGLE CLIENT AND ACCORDINGLY 100% OF ITS REVENUE OF RS. 9 29 01 576/- WAS DERIVED FROM EXPORT OF SERVICES AND THERE WAS NO DOMESTIC REVENU E. THE TPO REJECTED 12 COMPARABLE COMPANIES AS SELECTED BY THE ASSESSEE ON THE BASIS OF FUNCTIONAL DISSIMILARITY AND INSTEAD SELECTED 6 OTH ER COMPANIES AS COMPARABLE COMPANIES AND WORKED OUT THE AVERAGE OPE RATING MARGIN FOR 6 COMPARABLE COMPANIES AT 56.74%. ON THIS BASIS THE PROPOSED UPWARD ADJUSTMENT OF RS.3 33 32 572/- TO ALP WAS WORKED OU T BY THE TPO WHICH WAS ADOPTED BY THE ASSESSING OFFICER IN DRAFT ASSES SMENT ORDER U/S 144C OF THE ACT. THE DRP VIDE DIRECTION DATED 15.09.2015 DI RECTED THE TPO/AO TO EXCLUDE ALL THE 6 COMPANIES AS TAKEN BY TPO/AO FROM THE LIST OF COMPARABLE COMPANIES AND INSTEAD DIRECTED THE TPO/A O FOR CONSIDERING M/S ICRA MANAGEMENT CONSULTING SERVICES LTD. WHICH WAS ALSO CONSIDERED IN IMMEDIATE PRECEDING AY 2010-11 TO BE A SUITABLE COMPARABLE VIS--VIS THE TESTED PARTY FOR THE PURPOSE OF COMPARING THE A VERAGE OPERATING MARGIN OF SUCH COMPARABLE COMPANY WITH THAT OF THE TESTED PARTY. 11. THE LD. DR SUBMITTED THAT FOLLOWING COMPARABLES SHOULD HAVE BEEN INCLUDED BY THE DRP AS THE FUNCTIONAL ASPECT AS WEL L AS THE FILTERS APPLIED BY THE TPO WAS RIGHT: I. IM + CAPITALS (BRESCON ADVISORS & HOLDING LTD.): THE LD. DR SUBMITTED THAT THIS COMPANY IS ADVISING AND FACILIT ATING CLIENTS IN RESPECT OF THEIR EQUITY AND DEBT RAISING. THE COMPANY IS NOT T AKING ANY FUND BASED ACTIVITIES. THEREFORE THIS COMPARABLE WAS RIGHTLY I NCLUDED BY THE TPO. II. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD.: THE LD. DR SUBMITTED 13 ITA NO. 908 2555/DEL/2015 THAT THE COMPANY HAS TOTAL EQUITY OF RS. 16.77 CROR ES AND DOES NOT HAVE ANY DEBT. THIS COMPANY IS PURELY ADVISORY SERVICES COMP ANY. HENCE TPO RIGHTLY INCLUDED THIS AS COMPARABLE. III. LADDERUP CORPORATE ADVISORY PVT. LTD.: THE LD. DR SUBMITTED THAT THIS COMPARABLE IS AN ADVISORY SERVICES COMPANY AND EARNS ITS MAJOR INCOME FROM FINANCIAL & MANAGEMENT CONSULTANCY FEES . HENCE THE TPO RIGHTLY INCLUDED THIS COMPANY AS COMPARABLE. IV. SREI CAPITAL MARKETS LIMITED: THIS COMPANYS ANNUAL REPORT SHOWS THAT 87.94% REVENUE IS FROM SERVICES SEGMENT ONLY T HEREFORE THE TPO RIGHTLY INCLUDED IT AS COMPARABLE. V. LEXICON FINANCE LIMITED : THIS COMPANYS ANNUAL REPORT SHOWS THAT 87.94% REVENUE IS FROM SERVICES SEGMENT ONLY THEREF ORE THE TPO RIGHTLY INCLUDED IT AS COMPARABLE. VI. ALMONDZ GLOBAL SECURITIES LIMITED: THIS COMPANY HAS INVESTMENT ADVISORY SERVICES SEGMENT WHICH WAS RECOGNIZED BY T HE ASSESSEE AS WELL. THEREFORE THE LD. DR SUBMITTED THAT THE ASSESSEE C ANNOT OBJECT THIS COMPARABLE AS ALL THE OTHER PARAMETERS OF THE COMPA RABLE HAS BEEN FULFILLED BY THIS COMPARABLE. THUS TPO RIGHTLY INCLUDED THIS COMPARABLE. 12. FURTHER AS REGARDS TO INCLUSION OF ICRA MANAGEM ENT CONSULTING SERVICES PVT. LTD. THE LD. DR SUBMITTED THAT THE S AID COMPARABLE COMPANY WAS NOT BEFORE THE TPO AND THE DRP HAS NOT TAKEN CO GNIZANCE OF THE FUNCTIONAL ASPECT AS WELL AS THE FILTERS APPLIED BY THE TPO WHILE EXCLUDING OR INCLUDING THE COMPARABLES. THEREFORE THIS COMPARAB LE BE EXCLUDED. 13. THE LD. AR SUBMITTED THAT FROM THE NOTE ON FUNC TIONS/ACTIVITIES UNDERTAKEN BY THE ASSESSEE AS ASSESSEE COMPANY ACTS AS BACK OFFICE OF TAL WITH CERTAIN SPECIFIC MANPOWER WITH CERTAIN SKILL S ETS IN FINANCE LEGAL ENGINEERING AND ASSET MANAGEMENT. FOR PROVIDING SUC H SERVICES THE ASSESSEE CHARGED ITS AE ON COST PLUS ARRANGEMENT TH EREBY ELIMINATING ANY RISKS ON THE ASSESSEE UNLIKE OTHER COS. CARRYING ON ADVISORY BUSINESSES LIKE 14 ITA NO. 908 2555/DEL/2015 INVESTMENT BANKING ETC. WORKING ON MULTIPLE CLIENTS AND THEREBY UNDERTAKING VARIOUS RISKS. IN OTHER WORDS UNDER S UCH COST PLUS ARRANGEMENT ALL THE RISKS IN THE FORM OF MARKET/BU SINESS RISK CREDIT AND COLLECTION RISK CAPACITY UTILIZATION RISK SERVICE LIABILITY RISK HUMAN RESOURCE MANAGEMENT RISK AS WELL AS FOREIGN EXCHANG E FLUCTUATION RISK WAS BORNE BY THE AE AND NOT BY THE ASSESSEE COMPANY. FU RTHER THE ASSESSEE COMPANY WAS A DEBT FREE COMPANY AND ITS ENTIRE WORK ING CAPITAL REQUIREMENT WAS SUPPORTED BY ITS AE IN THE FORM OF ADVANCES AGAINST SERVICES AS PROVIDED TO THE ASSESSEE. IN SUPPORT OF THE ARMS LENGTH PRICE (ALP) CHARGED BY THE ASSESSEE COMPANY (TCK) TO ITS AE (TAL) THE ASSESSEE RELIED UPON TP STUDY REPORT CARRIED OUT IN IMMEDIAT E PRECEDING YEAR AND UPDATED WORKING SHEET FOR THE YEAR UNDER CONSIDERAT ION AS FILED BEFORE TPO/AO/DRP AS PER WHICH THE AVERAGE OPERATING MARG IN OF 12 COMPARABLE COMPANIES WORKED OUT TO 2.89% WHICH WAS BELOW THE O PERATING MARGIN OF 15.35% AS DECLARED BY THE TESTED PARTY. HENCE THE PRICE CHARGED BY TCK FROM TAL WAS AN ARMS LENGTH PRICE. 13. THE LD. AR SUBMITTED THAT THE ASSESSEE RELIES O N THE FINDINGS AS RECORDED BY DRP WHERE VALID REASONS ARE GIVEN FOR E XCLUDING THE 6 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES SIN CE THEY FAIL THE FUNCTIONAL TEST SERVICE REVENUE FILTER TEST AS WEL L AS EXPORT FILTER TEST. DRP HAS ALSO RECORDED A FINDING THAT THE FACTS DURING T HE YEAR UNDER CONSIDERATION ARE THOSE THAT WERE PREVAILING IN THE IMMEDIATE PRECEDING YEAR. FURTHER DRP HAS FOUND M/S ICRA MANAGEMENT CO NSULTING SERVICES LTD. TO BE A SUITABLE COMPARABLE VIS--VIS THE TEST ED PARTY AS WAS THE CASE IN THE IMMEDIATE PRECEDING YEAR. THE DETAILS OF THE CO MPARABLES ARE AS FOLLOWS: I. BRESCON CORPORATE ADVISORS LIMITED (NAME CHANGED TO BRESCON ADVISORS & HOLDINGS LTD. AND THEN AGAIN CHANGED TO IM+ CAPITALS) .: THIS COMPANY WAS FOUND TO NON-COMPARABLE BY DRP IN AY 20 10-11 ALSO. THE COMPANY IS ENGAGED IN ITERMEDIATION AND ADVISORY SE RVICES OF DEBT RESOLUTION & RE-CAPITALISATION DEBT SYNDICATION AN D OTHER CORPORATE FINANCIAL SERVICES. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PR OVIDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 56.53% OF TOTAL TURNOVER OF SUCH COMPANY WHEREAS 15 ITA NO. 908 2555/DEL/2015 THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0% OF ITS TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE TH AN 10 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. THIS COMPANY FAILS THE FU NCTIONAL TEST SINCE 100% OF ITS INCOME IS EARNED FROM DEBT RESOLUTION & DEBT SYNDICATION AND M&A ADVISORY WHEREAS THE TESTED PARTY DOES NOT CARRY OU T OR HAVE ANY INCOME FROM SUCH KIND OF OPERATIONS/ ACTIVITIES. AS HELD B Y MUMBAI ITAT IN THE CASE OF TEMASEK HOLDING ADVISORS INDIA P. LTD. VS. DY. CIT REPORTED IN 148 ITD 1 BRESCON CORPORATE ADVISORS LTD. IS NOT COMPA RABLE TO THE APPELLANT (CARRYING INVESTMENT ADVISORY SERVICES) SINCE SUCH CO.S MAJOR ACTIVITIES IS IN FIELD OTHER THAN FINANCIAL ADVISORY SERVICES. IN TH E CASE OF CARLYLE INDIA ADVISORS (P) LTD. REPORTED IN 153 ITD 400 (MUMBAI I TAT) IT HAS BEEN HELD THAT THE BUSINESS OF INVESTMENT MERCHANT BANKING CORPORATE FINANCE AND SIMILAR ACTIVITIES CANNOT BE COMPARED TO INVESTMENT ADVISORY ACTIVITIES OF THE ASSESSEE. M&A ADVISORY INCOME WAS ONLY 2.6% WHILE T HE BALANCE 97.4% INCOME WAS DERIVED FROM DEBT RESOLUTION & DEBT SYND ICATION WHICH IS GENERALLY CHARGED AS PER SUCCESS FEE MODEL AND HENC E COMMANDS HIGHER MARGINS ON ACCOUNT OF HIGH RISK UNDERTAKEN WHEN COM PARED WITH LOW MARGIN NON-BINDING INVESTMENT ADVISORY SERVICES PRO VIDED BY THE ASSESSEE. ADVISORY FEE IF ANY IS REFLECTED AS PART OF OVERA LL ONE SINGLE SEGMENT AND HENCE IN THE ABSENCE OF SEGMENT INFORMATION THIS C OMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE TESTED PARTY. PERCE NTAGE OF EXPORT INCOME OF THIS COMPANY IS NIL WHEREAS INCOME OF TESTED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE B ASIS OF 75% EXPORT TURNOVER FILTER. ACCORDINGLY AS PER RULE 10(B)(2) OF I.T. RULES THIS COMPANY WAS RIGHTLY EXCLUDED FROM THE LIST OF COMPARABLE CO MPANIES. II. MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD. : THIS COMPANY WAS FOUND TO NON-COMPARABLE BY DRP IN AY 2010-11 ALSO. THE COMPANY IS ENGAGED IN DIFFERENT BUSINESS VERTICALS VIZ. EQUITY CAPITAL MARKETS MERGERS AND ACQUISITIONS PRIVATE EQUITY SYNDICATIONS AND S TRUCTURED DEBT. HIGHER UNDERTAKEN BY SUCH SERVICE PROVIDER COMPANY SINCE T OTAL DEBTORS IS ABOUT 37.18% OF TOTAL TURNOVER OF SUCH COMPANY WHEREAS T HE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0% OF ITS TOTAL TURNOVE R. FURTHER CAPITAL 16 ITA NO. 908 2555/DEL/2015 EMPLOYED OF SUCH COMPANY IS MORE THAN 2.80 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. THIS COMPANY FAILS THE FUNCTIONAL TES T SINCE IT IS ENGAGED IN THE EQUITY CAPITAL MARKETS MERGERS AND ACQUISITIONS P RIVATE EQUITY SYNDICATIONS AND STRUCTURED DEBT AND DERIVES WHEREA S THE TESTED PARTY DOES NOT CARRY OUT OR HAVE ANY INCOME FROM THE ABOVE TYP E OF SERVICES. IN THE CASE OF CARLYLE INDIAN ADVISORS (P) LTD. REPORTED I N 153 ITD 400 (MUMBAI ITAT) IT HAS BEEN HELD THAT THE BUSINESS OF INVEST MENT MERCHANT BANKING CORPORATE FINANCE AND SIMILAR ACTIVITIES CANNOT BE COMPARED TO INVESTMENT ADVISORY ACTIVITIES OF THE ASSESSEE. ON THIS BASIS MUMBAI TRIBUNAL HELD THAT MOTILAL OSWAL INVESTMENT ADVISORS P. LTD. IS D ISSIMILAR WITH THE ASSESSEE. PERCENTAGE OF EXPORT INCOME OF THIS COMPA NY IS 15% WHICH IS LESS THAN 75% OF TOTAL TURNOVER WHEREAS INCOME OF TESTED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE BASIS OF 75% EXPORT TURNOVER TEST/FILTER. ACCORDINGLY AS PER RU LE 10(B)(2) OF I.T.RULES THIS COMPANY WAS RIGHTLY EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. III. LADDERUP CORPORATE ADVISORY PVT. LTD. : THE COMPANY IS ENGAGED IN FINANCIAL AND MANAGEMENT CONSULTANCY SERVICES INCLU DING DEBT SYNDICATION PRIVATE EQUITY DEALS ETC. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PROVIDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 35.21% OF TOT AL TURNOVER OF SUCH COMPANY WHEREAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0% OF ITS TOTAL TURNOVER. FROM SCHEDULE 16A NOTE 4 THE LD. A R POINTED OUT THAT THE FINANCIAL AND MANAGEMENT CONSULTANCY SERVICES PROVI DED BY THIS CO. ARE IN THE NATURE OF CORPORATE ADVISORY SERVICES WHICH AR E MATERIALLY DIFFERENT FROM THE TESTED PARTY ACTIVITY OF INVESTMENT ADVISORY SE RVICES. MOREOVER UNLIKE THE TESTED PARTY THIS CO. IS ALSO ENGAGED IN BUSIN ESS OF FUND BASED ACTIVITIES AND HAS MADE ITS OWN INVESTMENTS AND AS AT 31/03/20 11 IT HAD INVESTMENTS OF RS. 2.27 CRS. AS AGAINST A SHARE CAP ITAL OF RS. 29 LACS. HENCE THIS CO. FAILS THE FUNCTIONAL TEST PARTICULA RLY SINCE IT HAD USED UP ITS ENTIRE CAPITAL IN INVESTMENTS AND THEREFORE IT FAIL S THE TEST AS LAID DOWN BY TPO IN AY 2010-11. FURTHER DURING AY 2011-12 TPO HIMSELF HAS CONSIDERED SUCH TYPE OF COS. TO BE FUNCTIONALLY DIS SIMILAR. IN THE CASE OF CARLYLE INDIA ADVISORS (P) LTD. REPORTED IN 153 ITD 400 (MUMBAI ITAT) IT 17 ITA NO. 908 2555/DEL/2015 HAS BEEN HELD THAT THE BUSINESS OF INVESTMENT MERC HANT BANKING CORPORATE FINANCE AND SIMILAR ACTIVITIES CANNOT BE COMPARED T O INVESTMENT ADVISORY ACTIVITIES OF THE ASSESSEE. PERCENTAGE OF EXPORT IN COME OF THIS COMPANY IS NIL WHEREAS INCOME OF TESTED PARTY IS 100% FROM EXPORTS . ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE BASIS OF 75 % EXPO RT TURNOVER TEST/FILTER. ACCORDINGLY AS PER RULE 10(B)(2) OF I.T. RULES TH IS COMPANY WAS RIGHTLY EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. IV. SREI CAPITAL MARKETS LIMITED : THE COMPANY IS ENGAGED IN THREE BUSINESS VERTICALS I.E. (I) IPO & SEBI RELATED VERT ICAL DEALING WITH PUBLIC ISSUES DELISTING BUY-BACK OPEN OFFERS (II) PRIV ATE EQUITY AND M&A VERTICAL PRIMARILY DEALING WITH FU D RAISING FROM PRIVATE EQ UITY FUNDS ADVISORY ON MERGERS ACQUISITIONS AND DISINVESTMENTS AND (III) DEBT SYNDICATION VERTICAL. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PROVIDER COM PANY SINCE TOTAL DEBTORS IS ABOUT 59.67% OF TOTAL TURNOVER OF SUCH C OMPANY WHEREAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0% OF ITS TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE THAN 14.60 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. THIS COMPANY FAILS THE FU NCTIONAL TEST SINCE 100% OF ITS INCOME IS EARNED FROM THREE VERTICALS VIZ. I PO & SEBI RELATED VERTICAL PRIVATE EQUITY AND M&A VERTICAL AND DEBT SYNDICATIO N VERTICAL WHEREAS THE TESTED PARTY DOES NOT CARRY OUT OR HAVE ANY INCOME FROM SUCH KIND OF OPERATIONS / ACTIVITIES. AS HELD BY MUMBAI ITAT IN THE CASE OF TEMASEK HOLDING ADVISORS INDIA P. LTD. VS. DY. CIT REPORTED IN 148 ITD 1 A CO. WHOSE ACTIVITIES ARE IN THE FIELD OTHER THAN FINANC IAL CANNOT BE COMPARED TO THE ASSESSEE CARRYING INVESTMENT ADVISORY SERVICES. IN THE CASE OF CARLYLE INDIA ADVISORS (P) LTD. REPORTED IN 153 ITD 400 (MU MBAI ITAT) IT HAS BEEN HELD THAT THE BUSINESS OF INVESTMENT MERCHANT BANK ING CORPORATE FINANCE AND SIMILAR ACTIVITIES CANNOT BE COMPARED TO INVEST MENT ADVISORY ACTIVITIES OF THE ASSESSEE. ADVISORY FEE IS REFLECTED AS PART OF OVERALL ONE SINGLE SEGMENT AND HENCE IN THE ABSENCE OF SEGMENT INFORMA TION THIS CO. CANNOT BE CONSIDERED AS COMPARABLE TO THE TESTED PARTY. PE RCENTAGE OF EXPORT INCOME OF THIS COMPANY IS NIL WHEREAS INCOME OF TES TED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO BE EXCLUDED ON THE BASIS OF 75% 18 ITA NO. 908 2555/DEL/2015 EXPORT TURNOVER FILTER. ACCORDINGLY AS PER RULE 10 (B)(2) OF I T. RULES THIS COMPANY WAS RIGHTLY EXCLUDED FROM THE LIST OF COMPA RABLE COMPANIES V. LEXICON FINANCE LIMITED : THE COMPANY IS AN NBFC CO. AND IS ENGAGED IN MAKING ITS OWN INVESTMENTS ALONG WITH PR OVIDING ADVISORY AND CONSULTANCY SERVICES. HIGHER RISK UNDERTAKEN BY SUC H SERVICE PROVIDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 72.75% OF TOT AL TURNOVER OF SUCH COMPANY WHEREAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0% OF ITS TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH CO MPANY IS MORE THAN 40 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. FROM SCH EDULE 10 IT WILL BE OBSERVED THAT THIS COMPANY IS A REGISTERED NBFC AND FUNCTIONALLY DISSIMILAR. FROM THE P & L A/C IT WILL BE OBSERVED THAT IT IS PROVIDING FINANCIAL AND MANAGEMENT CONSULTANCY SERVICES WHICH ARE IN THE NATURE OF CORPORATE ADVISORY SERVICES AND THE SAME ARE MATERI ALLY DIFFERENT FROM THE TESTED PARTY'S ACTIVITY OF INVESTMENT ADVISORY SERV ICES. MOREOVER UNLIKE THE TESTED PARTY THIS CO. IS ENGAGED IN BUSINESS OF MA KING ITS OWN INVESTMENTS (FUND BASED ACTIVITIES) AND AS AT 31/03/2011 IT HA D INVESTMENTS OF RS.10.81 CRS. AS AGAINST A SHARE CAPITAL OF RS. 13. 98 CRS. MOREOVER THIS CO. HAS ONLY FOUR EMPLOYEES AS AGAINST 14 EMPLOYEES OF THE TESTED PARTY. THIS CLEARLY SHOWS THAT THIS CO. IS PRIMARILY ENGAGED IN INVESTMENT ACTIVITIES. HENCE THIS CO. FAILS THE FUNCTIONAL TEST AS LAID D OWN BY TP IN HIS ORDER IN AY 2010-11. FURTHER DURING AY 2011 -12 TPO HIMSELF HAS CONSID ERED SUCH TYPE OF COS. TO BE FUNCTIONALLY DISSIMILAR. IN THE CASE OF CARLYLE INDIA ADVISORS (P) LTD REPORTED IN 153 ITD 400 IT HAS BE EN HELD THAT THE BUSINESS OF INVESTMENT MERCHANT BANKING CORPORATE FINANCE AND SIMILAR ACTIVITIES CANNOT BE COMPARED TO INVESTMENT ADVISORY ACTIVITIE S OF THE ASSESSEE. MOREOVER IN THE ABSENCE OF SEGMENT INFORMATION BET WEEN INVESTMENT AND MANAGEMENT CONSULTANCY SERVICES THIS CO. CANNOT BE CONSIDERED AS COMPARABLE. PERCENTAGE OF EXPORT INCOME OF THIS COM PANY IS NIL WHEREAS INCOME OF TESTED PARTY IS 100% FROM EXPORTS. ACCORD INGLY THIS COMPANY IS TO BE EXCLUDED ON THE BASIS OF 75% EXPORT TURNOVER TES T/FILTER. ACCORDINGLY AS PER RULE 10(B)(2) OF I T. RULES THIS COMPANY WAS R IGHTLY EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 19 ITA NO. 908 2555/DEL/2015 VI. ALMONDZ GLOBAL SECURITIES LIMITED : THE COMPANY IS ENGAGED IN THE FOLLOWING BUSINESS SEGMENTS (I) DEBT AND EQUITY MAR KET OPERATIONS (II) CORPORATE FINANCE AND ADVISORY SERVICES (III) DISTR IBUTION OPERATIONS AND (IV) EQUITY. HIGHER RISK UNDERTAKEN BY SUCH SERVICE PROV IDER COMPANY SINCE TOTAL DEBTORS IS ABOUT 24.28% OF TOTAL TURNOVER OF SUCH COMPANY WHEREAS THE TOTAL DEBTORS OF TESTED PARTY ARE ONLY ABOUT 0% OF ITS TOTAL TURNOVER. FURTHER CAPITAL EMPLOYED OF SUCH COMPANY IS MORE TH AN 44 TIMES OF CAPITAL EMPLOYED OF TESTED PARTY. THIS COMPANY FAILS THE FU NCTIONAL TEST SINCE CORPORATE FINANCE AND ADVISORY SERVICES VERTICAL AS TAKEN BY THE TPO COMPRISES OF THE FOLLOWING ACTIVITIES I.E. MERCHANT BANKING UNDERWRITING COMMISSION CORPORATE AND INFRASTRUCTURE ADVISORY A ND LOAN SYNDICATION FEES AND ARRANGER OF DEBTS/BONDS ETC. WHEREAS THE T ESTED PARTY DOES NOT CARRY OUT OR HAVE ANY INCOME FROM SUCH KIND OF OPER ATIONS/ACTIVITIES. MOREOVER TPO IN HIS OWN ORDER HAS HELD SHARE BROKI NG & SHARE TRADING COS. TO BE DISSIMILAR WITH THE ASSESSEE. AS HELD BY MUMBAI ITAT IN THE CASE OF TEMASEK HOLDING ADVISORS INDIA P. LTD. VS. DY. C IT REPORTED IN 148 ITD 1 A CO. WHOSE ACTIVITIES ARE IN THE FIELD OTHER THAN FINANCIAL ADVISORY SERVICES CANNOT BE COMPARED TO THE ASSESSEE CARRYING INVESTM ENT ADVISORY SERVICES. IN THE CASE OF CARLYLE INDIANADVISORS (P) LTD. REPO RTED IN 153 ITD 400 (MUMBAI ITAT) IT HAS BEEN HELD THAT THE BUSINESS O F INVESTMENT MERCHANT BANKING CORPORATE FINANCE AND SIMILAR ACTIVITIES C ANNOT BE COMPARED TO INVESTMENT ADVISORY ACTIVITIES OF THE ASSESSEE. THI S COMPANY FAILS 75% REVENUE FILTER TEST AS APPLIED BY TPO IN AY 2010-1 1. THE LD. AR FURTHER POINTED OUT FROM THE P & L ACCOUNTS THAT ADVISORY A ND CONSULTANCY ACTIVITIES WAS MUCH LESS THAN 75% OF TOTAL REVENUE. PERCENTAGE OF EXPORT INCOME OF THIS COMPANY IS 0.03% WHEREAS INCOME OF T ESTED PARTY IS 100% FROM EXPORTS. ACCORDINGLY THIS COMPANY IS TO BE EXC LUDED ON THE BASIS OF 75% EXPORT TURNOVER FILTER. ACCORDINGLY AS PER RUL E 10(B)(2) OF I.T. RULES THIS COMPANY WAS RIGHTLY EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. VII. TCK ADVISERS PRIVATE LIMITED (TESTED PARTY) : COMPANY IS ENGAGED IN CONSULTANCY ADVISORY SERVICES. CAPTIVE SERVICE P ROVIDER AND NO RISK ASSUMED. AS REGARDS ASSESSMENT YEAR 2011-12 THE RE VENUE IS SUBMITTING 20 ITA NO. 908 2555/DEL/2015 THAT BY EXCLUDING ALL THE COMPARABLES FINALIZED BY THE TPO AND GIVING TOTALLY NEW COMPARABLE WITHOUT ANY DETAIL DISCUSSIONS AND W ITHOUT ANY APPLICATION OF FILTERS TAKEN INTO ACCOUNT BY THE TPO WAS RIGHTL Y EXCLUDED BY THE DRP. THE LD. AR RELIED UPON THE ORDER OF DRP. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. GROUND NO. 1 AND 4 ARE GENERAL HENCE DISMISSED. THE DRP HAS GIVEN THE FOLLOWING OBSERVATIONS: AS REGARDS OBJECTION NO 2(3) CHALLENGING THE ACTIO N OF THE TPO IN NOT APPLYING THE EXPORT FILTER WHILE SELECTING THE SIX COMPARABLE COMPANIES THE PANEL GAVE AN ANXIOUS CONSIDERATION. IT WAS NOT ICED UPON A PERUSAL OF THE FACTS OF THE CASE THAT THE SAME ISSUE FORMED THE SUBJECT MATTER OF CONSIDERATION BEFORE THE ERSTWHILE DRP IN RESPECT O F AY 2010-11. IT WAS ADJUDGED BY THE SAID DRP IN FAVOUR OF THE A BY HOL DING THAT THE TPO WAS UNWARRANTED IN IGNORING THE EXPORT FILTER WHILE SELECTING THE SAME 6 COMPANIES FIGURING DURING THE AY 2011-12. IT WAS AL SO HELD BY THEM THAT THE A BEING A COMPANY EARNING 100% OF ITS REVENUE FROM EXPORTS DESERVED TO BE COMPARED WITH COMPANIES HAVING AT LE AST 75% OF ITS INCOME FROM EXPORTS. ASIDE FROM THE ABOVE CRITERIA IT WAS ALSO HELD BY SUCH DRP THAT THE ABOVE SAID 6 COMPANIES FUNCTIONAL LY DISSIMILAR DID NOT MEET THE SERVICE REVENUE FILTER TEST. THE PRESENT PANEL WEIGHED THE FINDINGS OF THE DRP D EALING WITH THE SAME ISSUE IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR AG AINST THE FACTS OBTAINING IN THE IMPUGNED AY. THE PANEL FOUND THE FACTS TO BE THE SAME AS THOSE P REVAILING IN THE PREVIOUS YEAR. HENCE THE PANEL DOES NOT SEE ANY REA SON TO DEPART FROM THE POSITION TAKEN BY THE ERSTWHILE DRP. SINCE NO E SSENTIAL DIFFERENCE IN TERMS OF FUNCTIONS AND SERVICE FILTERS WERE NOTICED BY THE DRP IN RELATION TO THE CURRENT FY ALSO THE PANEL HAS NO HESITATION IN ALLOWING THE OBJECTION OF THE A. ACCORDINGLY OBJECTION 2(E) IS ALLOWED. THUS THE DRP HAS GIVEN THE DETAILED FINDINGS AS TO WHY THESE COMPARABLES WERE EXCLUDED FROM THE FINAL LIST. THE FUNCTIONAL DISSIMILARITY OF EACH OF THE ABOVE MENTIONED COMPARABLE COMPANIES ARE SET OUT IN THE 21 ITA NO. 908 2555/DEL/2015 SUBMISSIONS OF THE LD. AR WHICH ARE NOT CONTRADICTE D BY THE LD. DR DURING THE HEARING. BESIDES THAT THE FILTERS APPLIE D BY THE TPO HAS NOT BEEN STRICTLY FOLLOWED BY THE TPO WHILE INCLUDING T HESE COMPARABLES WHICH IS NOT PERMISSIBLE. THE DRP HAS GIVEN A DETAILED FI NDING TO THAT EXTENT. THEREFORE WE ARE NOT INTERFERING IN THE FINDINGS O F THE DRP. HENCE GROUND NO. 2 IS DISMISSED. 15. AS REGARDS TO GROUND NO 3 THE DRP OBSERVED AS UNDER: THE OBJECTION 2(F) PRESSED BY THE A WAS ANALYSED BY THE PANEL. THE A SOUGHT TO CHALLENGE THE REJECTION BY THE TPO OF M/S ICRA MANAGEMENT CONSULTING SERVICES LTD. AS A SUITABLE COMPARABLE V IS--VIS THE A. IT WAS OBSERVED BY THE PANEL THAT THE SAME ISSUE WAS AGITA TED BY THE A BEFORE THE EARLIER DRP IN RESPECT OF AY 2010-11. UPON A CO NSIDERATION OF THE ENTIRE FACTS THE SAID DRP ARRIVED AT THE CONCLUSION THAT M/S ICRA MANAGEMENT DESERVED TO BE INCLUDED IN THE LIST OF C OMPARABLES. HAVING FOUND THE FACTS PREVAILING IN THE CURRENT AY TO BE THE SAME AS THOSE DURING AY 2010-11 THE DRP FEELS COMPELLED TO FOLLO W THE FINDINGS OF THE SAID DRP. OPERATING PROFIT OVER OPERATING COST PERC ENTAGE OF ICRA MANAGEMENT CONSULTING SERVICES (P) LTD. WAS 15.79% DURING THE RELEVANT AY. THE OPERATING PROFIT OVER OPERATING COST OF THE A WAS 15.35%. THE DIFFERENCE THUS BEING WITHIN THE TOLERANCE BAND OF 5% AS LAID DOWN U/S 92C(2) PROVISO FAILS TO MAKE ANY ADVERSE IMPACT ON THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION AS FAR AS BENCHMARKING WITH THE COMPANY GOES. THUS THE DRP HAS GIVEN THE DETAILED FINDINGS AS TO WHY THIS COMPARABLE SHOULD BE INCLUDED. THE DRP HAS GIVEN A DETAILED FI NDING TO THAT EXTENT. THEREFORE WE ARE NOT INTERFERING IN THE FINDINGS O F THE DRP. HENCE GROUND NO. 3 IS DISMISSED. THE APPEAL OF THE REVENU E BEING ITA NO. 6555/DEL/2015 FOR A.Y. 2010-11 IS DISMISSED. 22 ITA NO. 908 2555/DEL/2015 16. IN RESULT BOTH THE APPEALS FILED BY THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH NOVEMBER 2019 . SD/- SD/- (R.K.PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11/11/2019 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI