Income Tax Appellate Tribunal - Mumbai
Warburg Pincus India P. Ltd, Mumbai vs Asst Cit 3(3), Mumbai on 13 January, 2017
आयकर अपीऱीय अधिकरण, मुंबई न्यायपीठ ' के' मुंबई
IN THE INCOME TAX APPELLATE TRIBUNAL
"K" BENCH, MUMBAI
श्री राजेंद्र, ऱेखा सदस्य एवुं श्री शक्तिजीि दे , न्याययक सदस्य के समक्ष
BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
आयकर अपीऱ सं. / ITA no. 6981/Mum./2012
(निर्धारण वषा / Assessment Year : 2008-09)
Warburg Pincus India Pvt. Ltd.
7th Floor, Express Towers
................ Appellant
Nariman Point, Mumbai 400 021
PAN - AAACW5205E
v/s
Asstt. Commissioner of Income Tax
Circle-3(3), Aayakar Bhawan ................ Respondent
101, M.K. Road, Mumbai 400 020
आयकर अपीऱ सं. / ITA no. 1717/Mum./2014
(निर्धारण वषा / Assessment Year : 2009-10)
Warburg Pincus India Pvt. Ltd.
7th Floor, Express Towers
................ Appellant
Nariman Point, Mumbai 400 021
PAN - AAACW5205E
v/s
Asstt. Commissioner of Income Tax
Circle-3(3), Aayakar Bhawan ................ Respondent
101, M.K. Road, Mumbai 400 020
निर्धाररती की ओर से / Assessee by : Shri Porus Kaka a/w
Shri Manish Kanth
रधजस्व की ओर से / Revenue by : Shri N.K. Chand
सि
ु वधई की तधरीख / आदे श घोषणध की तधरीख /
Date of Hearing - 18.10.2016 Date of Order - 13.01.2017
2
Warburg Pincus India Pvt. Ltd.
आदे श / ORDER
शक्तिजीि दे , न्याययक सदस्य के द्वारा /
PER SAKTIJIT DEY, J.M.
Captioned appeals at the instance of the assessee are directed against order passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short "the Act"), in pursuance to the direction of the Dispute Resolution Panel-II, (DRP), Mumbai, for the assessment year 2009-10 and 2009-10.
ITA no.6989/Mum./2012 - A.Y. 2008-09
2. Brief facts are, the assessee an Indian company is a subsidiary of Warburg Pincus LLC, USA, and is engaged in providing investment advisory services to its Associated Enterprise (A.E). In the previous year relevant to the assessment year under dispute, the assessee had entered into international transaction with its A.E. and earned revenue of ` 62,24,67,829, towards provision of investment advisory services. The assessee had bench marked the arm's length price of the international transaction by adopting TNMM as the most appropriate method with OP/OC as the PLI by considering itself as a tested party. Assessee had undertaken a search analysis in the data bases and short listed five companies as comparables with average margin of 18.80%. As the margin of the assessee shown at 20.33% is higher to the 3 Warburg Pincus India Pvt. Ltd.
average margin of the comparables, the price charged to the A.E. towards international transaction was stated to be at arm's length. The Transfer Pricing Officer to whom the Assessing Officer had made a reference to determine the arm's length price, however, did not agree with the transfer pricing analysis made by the assessee. After rejecting the transfer pricing study report of the assessee, the Assessing Officer proposed a new set of eleven comparables with average arithmetic mean of 70.33% for the purpose of bench marking the arm's length price. Though, the assessee objected to the comparables selected by the Assessing Officer and rejection of its own comparables, however, the Transfer Pricing Officer rejecting the objections of the assessee finally selected the following six comparables with average of 75.23%.
Sr. Name of Comparable PLI (OP/TC) %
no.
1. CRISIL Research Segment 45.42
2. SBI Fund Management Pvt. Ltd. 114.70
3. ICRA Ltd. 102.08
4. Deutche Asset Management India Ltd. 10.18
5. Siyaram Broking Intermediary Ltd. 112.21
st
6. 21 Century Shares & Securities Ltd. 66.84
Arithmetic Mean 75.23
PLI of assessee 20.33
3. By applying the arithmetic mean of 75.23% of the comparables to the operating cost, the Assessing Officer determined the arm's length price at ` 38,91,55,305, and the difference between the arm's 4 Warburg Pincus India Pvt. Ltd.
length price so determined and operating profit shown by the assessee of ` 10,51,80,437, working out to ` 28,39,74,868, was treated as transfer pricing adjustment. On the basis of the order passed by the Transfer Pricing Officer, the Assessing Officer passed draft assessment order proposing addition of transfer pricing adjustment made by the Transfer Pricing Officer. Against the draft assessment order so passed, the assessee filed objections before the DRP raising multiple grounds including selection / rejection of comparables, however, the DRP did not find merit in any of the objections raised by the assessee. Accordingly, in terms of the directions of the DRP, the impugned assessment order was passed. Though, the assessee has raised a number of grounds challenging the transfer pricing adjustment, however, at the time of hearing, the learned Authorised Representative confined his argument to the issue of selection / rejection of comparables. Hence, herein after, we will deal with this issue only:-
ICRA LIMITED
4. The learned Authorised Representative objecting to selection of this comparable submitted, this company basically is a credit rating agency and is listed in NSE / BSE. He submitted, company has three reportable segments i.e., rating services, information services and BPO 5 Warburg Pincus India Pvt. Ltd.
services. He submitted, only segment which could be taken as a comparable to the assessee is information service segments. However, this particular segment during the relevant previous year suffered loss. He submitted, in the relevant previous year, the company had not reported any income from BPO service and 99.28% of the revenue earned by the company is from rating service alone. In this context, the learned Authorised Representative drew the attention of the Bench to the Profit & Loss account of the company at Page-185 of the paper book. He, therefore, submitted, this company being only engaged in credit rating service, is functionally different, hence, cannot be treated as comparable to the assessee. He submitted, after considering the objections of the assessee in assessment year 2009-10, the Transfer Pricing Officer himself has excluded the company from being treated as a comparable in assessee's own case. He, therefore, pleaded for excluding this company from the list of comparable. In support of such contention, learned Authorised Representative relied upon the following decisions:-
i) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.);
ii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.); and
iii) DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.).6
Warburg Pincus India Pvt. Ltd.
5. Learned Departmental Representative, however, relying upon the observations of the Transfer Pricing Officer submitted, if a comparable is within accept / reject matrix, there is no reason to exclude the same from being treated as a comparable. He submitted, as the Transfer Pricing Officer has found the aforesaid company to be carrying out some functions as the assessee, it has rightly been treated as a comparable.
6. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the Profit & Loss account of the company, a copy of which is at Page-185 of the paper book, we have noted major part of income is from rating service and from the segmental information available in the annual report, it is noticed that as far as information service division is concerned, the company has reported loss. It is further noticed, when the aforesaid company was proposed as a comparable in A.Y. 2009-10, the assessee raised similar objections and the Transfer Pricing Officer after considering the submissions of the assessee having found merit in the same did not consider it as a comparable due to functional dissimilarity. We may also observed, in case of Sandstone Capital Advisors Pvt. Ltd. (supra), the Tribunal, Mumbai Bench, while considering the issue of comparability of this company in a case relating to the very same assessment year has held 7 Warburg Pincus India Pvt. Ltd.
the aforesaid company is not comparable primarily for the reason that segment results of the company is a loss and almost the entire income is from rating service. In the case of Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.), which is also for the very same assessment year, the Tribunal rejected this company having found it to be a credit rating agency. Thus, in view of the aforesaid, we hold that this company cannot be treated as comparable to the assessee.
DEUTSCHE ASSET MANAGEMENT INDIA LTD.
7. Objecting to the inclusion of this company, the learned Authorised Representative submitted, it is involved in investment management services and provides portfolio management service. In this context, the learned Authorised Representative drew our attention to the director's report at Page-339 of the paper book and notes to accounts of the company. Learned Authorised Representative submitted, the company operates in mutual fund industry and has received awards for managing Deutsche mutual fund and is investment manager to the fund. He submitted, the company earns 57.76% of its revenue from investment management fees. He submitted, the balance income earned is in the nature of investment advisory and other misc. income. However, there are no recognisable segments 8 Warburg Pincus India Pvt. Ltd.
provided in the annual report to identify the different sources of income. He submitted, the company has also high related party transaction of 134.53% which makes it un-comparable. He submitted, in assessee's own case, though, the Transfer Pricing Officer proposed this company as a comparable, however, after considering assessee's objection that RPT is more than 125% eventually rejected company as a comparable. He, therefore, submitted, this company cannot be treated as comparable. In this context, he relied upon the following decisions:-
i) DCIT v/s Warburg Pincus India P. Ltd., ITA no.3840/Mum./2009, A.Y. 2005-06, etc., order dated 29.7.2016;
ii) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.);
iii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.);
iv) DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.);
v) General Atlantic Pvt. Ltd. v/s DCIT, [2013] 32 taxmann.com (Trib.) 178 (Mum.);
vi) Carlyle India Advisors Pvt. Ltd. v/s ACIT, [2012] 17 ITR (Trib.) 24 (Mum.);
8. Learned Departmental Representative, however, relying upon the observations of the Transfer Pricing Officer and the DRP, justified the inclusion of this company.
9
Warburg Pincus India Pvt. Ltd.
9. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the financial statement of this company, it is noticed that major part of the revenue earned by this company is from investment fee and no segmental details are available in respect of income earned from other activities. It is to be noted that in assessee's own case for assessment year 2009-10, the Transfer Pricing Officer himself excluded this company as comparable having found that the RPT is more than 125%. It is the contention of the assessee that in the impugned assessment year also RPT is equally high at 134.53%. Considering the aforesaid factors, the Tribunal, Mumbai Bench, in case of Sandstone Capital Advisors Pvt. Ltd. (supra), in an order passed for the very same assessment year, has excluded this company as a comparable. The same view was expressed in case of Temasek Holdings Advisors India Pvt. Ltd. (supra) for the very same assessment year. In view of the above, we exclude this company as a comparable.
SHRIYAM BROKING INTERMEDIARY LTD.
10. Objecting to this selection of this company (wrongly mentioned as "Siyaram" by the Transfer Pricing Officer), the learned Authorised Representative submitted, this company is purely engaged in broking 10 Warburg Pincus India Pvt. Ltd.
activities and 100% of revenue earned is from brokerage fee. Referring to the Schedule-L on notes to account of the company forming part of the annual report of the company, the learned Authorised Representative submitted, the company operates in a single segments i.e., broking activities. He submitted, the balance sheet abstracts and companies general business profile states the service description has share / stock broking service / merchant banking. He submitted, considering the aforesaid facts, the Transfer Pricing Officer in assessee's own case for assessment year 2009-10, though, had proposed the company as a comparable, however, after considering assessee's submissions had excluded it from the final set of comparable. In support of such contention, learned Authorised Representative relied upon the following decisions:-
i) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.);
ii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.);
iii) DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.);
iv) General Atlantic Pvt. Ltd. v/s DCIT, [2013] 32 taxmann.com (Trib.) 178 (Mum.);
v) Carlyle India Advisors Pvt. Ltd. v/s ACIT, [2012] 17 ITR (Trib.) 24 (Mum.);
11. Learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 11
Warburg Pincus India Pvt. Ltd.
12. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. It is seen, the Transfer Pricing Officer himself in the assessment year 2009-10 after considering the fact that 68% of the revenue is generated from share broking services had excluded this company as a comparable. The assessee has stated in the impugned assessment year 100% of the revenue earned by the company is from share broking business. That being the case, we are of the view that the company cannot be treated as a comparable. We may further note that in the case of Sandstone Capital Advisors Pvt. Ltd. (supra) and Temasek Holdings Advisors India Pvt. Ltd. (supra), the Tribunal, Mumbai Bench, while considering the comparability of this company for the very same assessment year had excluded it having found that the revenue earned is only from broking activity. In view of the aforesaid, we direct the Transfer Pricing Officer to exclude this company as a comparable.
21ST CENTURY SHARE AND SECURITIES LTD.
13. The learned Authorised Representative objecting to the inclusion of this company submitted, as 74.11% of the revenue earned is from broking activities, the company cannot be treated as a comparable. He submitted, for the very same reason, the Transfer Pricing Officer 12 Warburg Pincus India Pvt. Ltd.
excluded this company from final set of comparable in assessee's own case for assessment year 2009-10. In support of such contention, assessee relied upon the following decisions:-
i) DCIT v/s Warburg Pincus India P. Ltd., ITA no.3840/Mum./ 2009, A.Y. 2005-06, etc., order dated 29.7.2016;
ii) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.);
iii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.);
iv) DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.);
v) General Atlantic Pvt. Ltd. v/s DCIT, [2013] 32 taxmann.com (Trib.) 178 (Mum.);
vi) Carlyle India Advisors Pvt. Ltd. v/s ACIT, [2012] 17 ITR (Trib.) 24 (Mum.);
14. Learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
15. Having heard the submissions of the parties and perused the material on record, we are of the considered opinion that this company cannot be treated as comparable for the very same reason on which Shriyam Broking Intermediary Ltd. was excluded as comparable. We have noted, the Tribunal, Mumbai Bench, had excluded the company expressing similar view in the following cases which are for the very same assessment year.
13
Warburg Pincus India Pvt. Ltd.
i) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.); and
ii) Temasek Holdings Advisors India Pvt. Ltd. (supra).
16. Accordingly, we direct exclusion of this company from the list of comparables.
SBI FUND MANAGEMENT PVT. LTD.
17. Objecting to inclusion of this company, the learned Authorised Representative submitted, the company is primarily engaged in asset management activities, as it manages off-shore fund and provides portfolio management service. In this context, he referred to the director's report of the company as submitted in the paper book. He submitted, the company earns 84.31% of its revenue from management fee and balance income is earned from portfolio advisory fees, income from investments and other misc. income. He submitted, the Transfer Pricing Officer, though, had proposed the company as a comparable in assessee's own case for the assessment year 2009-10, however, for the aforesaid reasons, he eventually excluded it from final set of comparable. He, therefore, pleaded for exclusion of this company. In support, he relied upon the following decisions:-
i) DCIT v/s Warburg Pincus India P. Ltd., ITA no.3840/Mum./ 2009, A.Y. 2005-06, etc., order dated 29.7.2016;14
Warburg Pincus India Pvt. Ltd.
ii) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.);
iii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.); and
iv) Carlyle India Advisors Pvt. Ltd. [2013] 357 ITR 584 (Bom.).
18. Learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
19. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. From the annual report of the company, it is noticed that the company has reported only one segment i.e., asset management services. It is further noticed that 84.31% of its income was earned from management fees. It is also a fact on record that while proposing the aforesaid company as a comparable in assessee's own case for the assessment year 2009-10, the Transfer Pricing Officer having found that 77.87% of its revenue is from management fees earned from its own mutual fund applying the RPT filter excluded it from the final list of comparables. Thus, for the very same reason, the company cannot be a comparable in the impugned assessment year also.
20. Further, in the case of Sandstone Capital Advisors Pvt. Ltd. (supra), the Tribunal, Mumbai Bench, having found that almost entire receipts of the company are from management fees has excluded this 15 Warburg Pincus India Pvt. Ltd.
company as a comparable while considering the issue in assessment year 2008-09. In view of the aforesaid, since in the impugned assessment year the revenue earned from asset management service is 84.31% the company is not treated as a comparable to the assessee.
CRISIL LIMITED
21. The learned Authorised Representative objecting inclusion of this company submitted, it has three reportable segments i.e., rating, research and advisory services. It was submitted, the company earns 46% of its income from research and 51% from rating services. Only a nominal 3.43% income is earned from advisory services. He submitted, the company has related party transaction of 60.50%. In this context, he referred to the annual report of the company. He submitted, in the relevant previous year, there was business re- structuring as its advisory services segment was transferred to a subsidiary and further two wholly owned subsidiary were merged into the company. He submitted, the assessee in its transfer pricing study had included this company as a comparable on the basis of multiple year data relating to information segment. However, the information segment was discontinued from January 2007. He submitted, the information and advisory segment of the company was rejected in 16 Warburg Pincus India Pvt. Ltd.
assessee's own case for assessment year 2005-06 by the Transfer Pricing Officer, DRP and the Tribunal. Whereas, it was accepted by the Transfer Pricing Officer and the DRP in assessment year 2006-07. He, therefore, submitted, the company should be excluded from the list of comparable. In support of such contention, he relied upon the decision of the Tribunal in Sandstone Capital Advisors Pvt. Ltd. (supra).
i) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.); and
ii) IIML Asset Advisors Ltd. v/s ACIT, [2013] 33 taxmann.com 297 (Mum.).
22. Learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.
23. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. The fundamental reasons for which the assessee wants exclusion of this company are, it has no revenue from information and advisory segment and is a predominantly rating agency. Further contention is, the RPT at 60.50% is more than the threshold limit of 25%. It is noticed, in case of Sandstone Capital Advisors Pvt. Ltd. (supra), the Tribunal, Mumbai Bench, after considering the submissions of the assessee that RPT is more than 60% of income had directed the Assessing Officer to examine this fact and exclude the 17 Warburg Pincus India Pvt. Ltd.
company as comparable if assessee's claim is found to be correct. Following the aforesaid decision of the co-ordinate bench, we direct the Assessing Officer to examine the RPT of the comparable which is stated to be 60.50%. If the aforesaid statement of the assessee is found to be correct, this company cannot be treated as comparable. This issue is restored to the file of the Assessing Officer for fresh consideration after providing due opportunity of hearing to the assessee.
IDC INDIA LIMITED
24. Learned Authorised Representative objecting to rejection of this company as a comparable submitted, this company, since, is engaged in research, consulting and investment advisory services, the assessee had selected it as a comparable. Learned Authorised Representative referring to the functional profile of the company as mentioned in the annual report submitted, the company operates in a single segment i.e., market research and management consultancy. Learned Authorised Representative submitted, the company is a respected source for marketing intelligence and consulting services as per the director's report. Referring to the Balance Sheet extract of the company, the learned Authorised Representative submitted, the business profile mentioned therein clearly demonstrate that it is 18 Warburg Pincus India Pvt. Ltd.
functionally similar to the assessee. The learned Authorised Representative submitted, in various decisions of the Tribunal and the Hon'ble Jurisdictional High Court this company is treated as a comparable to assessee providing investment advisory services. In this context, he relied upon the following decisions:-
i) Sandstone Capital Advisors Pvt. Ltd. v/s ACIT, [2013] 32 taxmann.com 216 (Mum.);
ii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.);
iii) DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.);
iv) General Atlantic Pvt. Ltd. v/s DCIT, [2013] 32 taxmann.com (Trib.) 178 (Mum.);
v) Carlyle India Advisors Pvt. Ltd. v/s ACIT, [2012] 17 ITR (Trib.) 24 (Mum.);
vi) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010-11, order dated 25.2.2016; &
vii) AGM India Advisors (P) Ltd. v/s DCIT, [2016] 70 taxmann.
com 219 (Mum.).
25. Learned Departmental Representative on the other hand objecting to the inclusion of this company as a comparable submitted, IDC India Ltd. is a product company, hence, cannot be considered as functionally similar to the assessee. In this context, he relied upon the decision of the Tribunal, Mumbai Bench, in Tevapharm Pvt. Ltd. v/s ACIT, [2012] 18 taxmann.com 148 (Mum.).
19
Warburg Pincus India Pvt. Ltd.
26. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the functional profile of IDC India Ltd., as mentioned in the annual report, we have noted that the company operates in a single segment i.e., market research and management consulting. It needs to be observed, in case of General Atlantic Pvt. Ltd. v/s DCIT, [2013] 32 taxmann.com 178 (Mum.), the Tribunal, Mumbai Bench, following another decision of the same Bench has found IDC India Ltd. as a comparable to an investment advisory service provider. The aforesaid decision of the Tribunal, Mumbai Bench, has been upheld by the Hon'ble Jurisdictional High Court in CIT v/s General Atlantic Pvt. Ltd., [2016] 68 taxmann.com 88 (Bom.). Similarly, the Tribunal, Mumbai Bench, in Sandstone Capital Advisors Pvt. Ltd. (supra), has found IDC India Ltd. to be functionally similar to an investment advisory service provider, hence, comparable. The same view has been expressed in Temasek Holding Advisory India Pvt. Ltd., ITA no.6504/Mum./ 2012 and Carlyle India Advisory Pvt. Ltd. v/s DCIT, [2014] 43 taxmann.com 184 (Mum.). As these decisions are for the very same assessment year, in our considered opinion, IDC India Ltd., has to be treated as a comparable to the assessee following the consistent view of the Tribunal in the decisions referred to above. As far as contention of the learned Departmental Representative that IDC 20 Warburg Pincus India Pvt. Ltd.
India Ltd. is functionally different as it is a product company we find that in case of Tevapharm Pvt. Ltd. (supra), there is no finding by the Tribunal that this company is a product company. On the contrary, the Tribunal having found that IDC India Ltd. is engaged in providing market research and survey services has held it as not comparable to the assessee in that case which is providing contract research, business development, pharma and technical and contract testing services. In view of the aforesaid factual position, we do not find merit in the submissions of the learned Departmental Representative. In view of the aforesaid, we direct the Assessing Officer to compute arm's length price of the international transaction keeping in view our observations herein above.
27. Before parting, we may observe, in the course of hearing, the learned Authorised Representative has propounded that in assessment year 2006-07, the assessee had shown a margin of cost plus 17% and the DRP has granted relief to the assessee. He submitted, in assessment year 2007-08, margin shown by the assessee at cost plus 17.5% was accepted by the Transfer Pricing Officer himself. Learned Authorised Representative submitted, the assessee had entered into advance pricing agreement (APA) under section 92CC of the Act with CBDT on 24th November 2015, wherein, the arm's length price of international transaction relating to investment advisory services 21 Warburg Pincus India Pvt. Ltd.
provided to the A.E. has been accepted at operating profit margin of not less than 20%. He, therefore, submitted, in view of the APA, the margin shown by the assessee in the impugned assessment year at 20.33% should be considered at arm's length.
28. Learned Departmental Representative vehemently objecting to the aforesaid contention of the learned Authorised Representative had submitted that transfer pricing is not a gross profit issue. Therefore, there is no basis for accepting the margins of the assessee at a particular percentage, hence, nothing will turn on APA.
29. Having considered the submissions of the parties, we are of the view that no conclusive finding on this issue is required to be given in view of our decision on the comparables. Suffice to say, though, APA may not be of a binding nature, but, certainly it has a persuasive value. Since no other argument has been advanced by the parties on any other issues, grounds raised on other issues, except, on the issue of comparables are deemed to have not been pressed, hence, dismissed.
30. In the result assessee's appeal is partly allowed.
ITA no.1717/Mum./2014 - A.Y. 2009-10
31. The only issue relating to transfer pricing adjustment is in respect of selection / rejection of comparables. Before we decide the issue, it is necessary to deal with the facts.
22
Warburg Pincus India Pvt. Ltd.
32. In the impugned assessment year, the assessee had reported international transaction towards provisions of investment advisory services at ` 102,99,68,234. Adopting transactional net margin method (TNMM) as most appropriate method with operating profit to total cost as the PLI, the assessee conducted a search process in the data bases and selected seven companies as comparable. The margin shown by the assessee at 19.03% being higher than the average margin of the selected comparables, the arm's length price of the international transaction was stated to be at arm's length. The Assessing Officer, however, rejected transfer pricing study of the assessee as well as comparable selected, inter-alia, on the ground that the assessee has used multiple year data. After rejecting the transfer pricing study of the assessee, the Assessing Officer proposed 10 comparables and after considering the objections of the assessee, the final set of comparables retained by the Transfer Pricing Officer with arithmetic mean of 58.52% are as under:-
Sr. PLI =
Name of Company OP/OT (%)
no.
1. Motilal Oswal Investment 82.44
Advisors P. Ltd.
2. Future Capital Investment 23.40
Advisors Ltd.
3. Integrated Capital Services 69.72
Ltd.
Arithmatic Mean Margin 58.52
23
Warburg Pincus India Pvt. Ltd.
33. By applying the arithmetic mean to the operating cost, the Transfer Pricing Officer determined the arm's length price of the operating cost at ` 102,99,68,234 and the resultant shortfall of ` 34,16,50,457 was considered as transfer pricing adjustment under section 92CA. In accordance with the order passed by the Transfer Pricing Officer, the Assessing Officer passed draft assessment order proposing the addition on account of transfer pricing adjustment. Though, the assessee raised objections against the draft assessment order before the DRP, however, DRP rejected objections of the assessee and in pursuance to the direction of the DRP, the impugned assessment order was passed.
34. Learned Authorised Representative confined his argument to selection / rejection of following comparables:-
INTEGRATED CAPITAL SERVICES LTD.
35. Learned Authorised Representative objecting to the selection of this company as a comparable submitted, it is engaged in providing investment banking services, advisory in mergers and acquisitions and re-construction of business. In this context, learned Authorised Representative referred to the director's report forming part of the annual report of the company. He submitted, the company is also engaged in business and debt re-restructuring. He submitted, as per 24 Warburg Pincus India Pvt. Ltd.
the information available in the annual report, the company operates in a single segment of business advisory and consulting services. He further submitted, the sales turnover of this company at ` 1.48 crore is less than 1.5% of the assessee's turnover. In this context, he drew the attention of the bench to the Profit & Loss account of the company. He, therefore, submitted the company should be excluded as a comparable. In support of such contention, he relied upon the following decisions:-
i) DCIT v/s Warburg Pincus India P. Ltd., ITA no.3840/Mum./ 2009, A.Y. 2005-06, etc., order dated 29.7.2016;
ii) New Silk Route Advisors Pvt. Ltd. v/s DCIT, [2015] 55 taxmann.com 540 (Mum.);
iii) Q-India Investment Advisors P. Ltd. v/s DCIT, ITA no.923/ Mum./2015, order dated 24.4.2015;
viii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010-11, order dated 25.2.2016; &
iv) Goldman Sachs India Securities Pvt. Ltd. v/s DCIT, ITA no.222/Mum./2014, A.Y. 2009-10, order dated 30.11.2015.
36. Learned Departmental Representative, however, justified the inclusion of the company as a comparable relying upon the observations of the Transfer Pricing Officer / DRP.
37. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. From the functional profile of this company, as mentioned in the 25 Warburg Pincus India Pvt. Ltd.
annual report and other related documents, it is noticed that the company is engaged in providing investment banking services, advisory in mergers and acquisitions and re-construction of business. Taking note of the aforesaid fact, the Tribunal, Mumbai Bench, in Goldman Sachs India Securities Pvt. Ltd. v/s DCIT, ITA no.222/Mum./2014, order dated 30th November 2015, has excluded this company from being treated as a comparable to investment advisory service provider. This decision is for the very same assessment year i.e., A.Y. 2009-10. Though, the other decisions relied upon by the learned Authorised Representative are for different assessment year, however, the material fact on the basis of which this company was excluded as a comparable are virtually the same, Therefore, respectfully following the consistent view of the Tribunal, we exclude this company as a comparable.
MOTILAL OSWAL INVESTMENT ADVISORS PVT. LTD.
38. Learned Authorised Representative objecting to the inclusion of this company as a comparable submitted, it is registered with SEBI as a merchant banker, hence, it cannot be considered as a comparable to the assessee. In this context, learned Authorised Representative relied upon the following decisions:-
i) DCIT v/s Warburg Pincus India P. Ltd., ITA no.3840/Mum./ 2009, A.Y. 2005-06, etc., order dated 29.7.2016;26
Warburg Pincus India Pvt. Ltd.
ii) Carlyle India Advisors P. Ltd. v/s DCIT, [2014] 49 taxmann.
com 476 (Trib.)
iii) Acumen Fund Advisory Services India Pvt. Ltd. v/s DCIT, [2014] 50 taxmann.com 317 (Mum.);
iv) Bain Capital Advisors India P. Ltd. v/s DCIT, ITA no.1360/ Mum./2014, A.Y. 2009-10, order dated 5.1.2015;
v) DCIT v/s Arisaig Partners India P. Ltd., ITA no.1083/Mum./ 2014, etc., order dated 25.3.2015;
vi) Goldman Sachs India Securities Pvt. Ltd. v/s DCIT, ITA no.222/Mum./2014, A.Y. 2009-10, order dated 30.11.2015.
vii) Carlyle India Advisory Pvt. Ltd. v/s DCIT, [2014] 43 taxmann.com 184 (Mum.);
viii) M/s. Blackstone Advisors India P. Ltd. v/s DCIT, ITA no.319/ Mum./2014, order dated 9.3.2016;
ix) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010-11, order dated 25.2.2016;
x) Bain Capital Advisors India P. Ltd. v/s DCIT, ITA no.413/Mum./2015, A.Y. 2010-11, order dated 15.5.2015;
xi) Q-India Investment Advisors P. Ltd. v/s DCIT, ITA no.923/ Mum./2015, order dated 24.4.2015;
xii) Carlyle India Advisory Pvt. Ltd. v/s ACIT, [2016] 68 taxmann.com (Trib.) 14 (Mum.);
xiii) NVP Venture Capital India Pvt. Ltd. v/s DCIT, [2015] 58 taxmann.com (Trib.) 87 (Mum.); &
xiv) AGM India Advisors (P) Ltd. v/s DCIT, [2016] 70 taxmann.
com 219 (Mum.).
39. Learned Departmental Representative, however, justified selection of this company as a comparable.
40. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied 27 Warburg Pincus India Pvt. Ltd.
upon. It is evident from the annual report of the company as well as other material facts, this company is a merchant banker. In case of Goldman Sachs Securities Pvt. Ltd. (supra), the co-ordinate bench of the Tribunal having taken note of the aforesaid factual position has held that this company cannot be a comparable to an investment advisory service provider. In fact, in a plethora of decisions of the Tribunal cited before us, the consistent view is this company being engaged in merchant banking and investment business, cannot be a comparable to investment advisory services. Respectfully following the consistent view of the Tribunal as expressed in the aforesaid decisions, a number of which pertained to the impugned assessment year, we exclude Motilal Oswal Inv. Advisors P. Ltd. from being treated as comparable.
ICRA MANAGEMENT CONSULTING SERVICES LTD.
41. Objecting to rejection of this company as a comparable, learned Authorised Representative submitted, this company provides consulting corporate and regulatory support analysis and strategies, etc., to clients. Referring to Schedule-12 on notes to accounts forming part of annual report of the company, learned Authorised Representative submitted, the company operates in a single segment i.e., consulting services. He, therefore submitted, company being 28 Warburg Pincus India Pvt. Ltd.
functionally similar to assessee should be accepted as a comparable. In support of such contention, he relied upon the following decisions:-
i) DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.);
ii) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2013] 27 ITR (Trib.) 125 (Mum.); and
iii) M/s. Blackstone Advisors India P. Ltd. v/s DCIT, ITA no.1581/ Mum./2014, order dated 9.3.2016;
iv) Bobst India P. Ltd. v/s DCIT, [2015] 63 taxmann.com 339 (Pune);
v) TIBCO Software India P. Ltd. v/s DCIT, [2015] 56 taxmann.
com 91 (Pune);
vi) Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010-11, order dated 25.2.2016;
vii) AGM India Advisors (P) Ltd. v/s DCIT, [2016] 70 taxmann.
com 219 (Mum.).
42. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Though, the Transfer Pricing Officer and the DRP have excluded this company observing that it is not functionally similar to the assessee, however, on a perusal of the annual report of the company we have noticed that it is basically engaged in consulting services. The Tribunal, Mumbai Bench, in DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.), while considering comparability of this company in the very same assessment year i.e., assessment year 2009-10, having found that the 29 Warburg Pincus India Pvt. Ltd.
company is offering consultation services in the area of strategy, risk management, operations, improvement, regulatory economics and translations advisory and its entire revenue is generated from consultation fee has concluded that the company is giving consultation in various types of industries through investment advisory, hence, found it to be a good comparable. In the other decisions relied upon by the learned A.R. expressing more or less similar view, the company has been treated as comparable. In view of the aforesaid, we direct the Assessing Officer to include this company as a comparable.
IDC INDIA LIMITED
43. In view of our observations in appeal being ITA no.6981/Mum./ 2012 and also the fact that in case of DCIT v/s Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, [2014] 47 ITR (Trib.) 311 (Mum.), the company has been accepted as a comparable to an investment advisory service provider of the very same assessment year i.e., for the assessment year 2009-10, we direct the Assessing Officer to include this company as a comparable. The Transfer Pricing Officer is directed to compute the arm's length price keeping in view observations made us herein above in respect of various comparables.
44. Since no argument has been advanced by the parties on any other issues, the grounds raised on other issues, except, the issue of comparables are deemed to have not been pressed, hence, dismissed. 30
Warburg Pincus India Pvt. Ltd.
45. The only other issue surviving for consideration in this appeal as raised in grounds no.11 and 12, is in relation to addition of an amount of ` 6,98,123.
46. Brief facts are, during the assessment proceedings, the Assessing Officer found that the assessee has incurred expenditure of ` 76,48,947, through credit card maintained with American Express Banking Corporation. However, as per the individual transaction statement (ITS) generated from the system certain discrepancies were found in relation to the payments made, therefore, the assessee was called upon to reconcile the difference. In response, it was submitted, assessee has made payment of ` 59,47,300 to American Express Banking Corporation towards credit card bills. The A.O., therefore, concluded that the assessee could not reconcile the difference of ` 17,01,647, accordingly, proposed the addition of the said amount.
47. The DRP after considering the submissions of the assessee having found that the assessee did not get sufficient opportunity to reconcile the dates before the Assessing Officer directed the Assessing Officer to delete the addition to the extent of reconcile after proper verification. In the final assessment order in compliance to the direction of the DRP, the A.O. restricted the addition to ` 6,98,123. 31
Warburg Pincus India Pvt. Ltd.
48. Learned Authorised Representative at the time of hearing submitted, for the smallness of the addition and low tax effect, the assessee would prefer not to press this ground.
49. In view of the submissions of the learned Authorised Representative, the ground is dismissed as "not pressed".
50. In the result, both the appeals are partly allowed.
Order pronounced in the open Court on 13.01.2017 Sd/- Sd/-
राजेंद्र, शक्तिजीि दे ,
ऱेखा सदस्य न्याययक सदस्य
RAJENDRA SAKTIJIT DEY
ACCOUNTANT MEMBER JUDICIAL MEMBER
मुंबई MUMBAI, ददनाुंक DATED: 13.01.2017
आदे श की प्रनतलऱपप अग्रेपषत / Copy of the order forwarded to:
(1) निर्धाररती / The Assessee;
(2) रधजस्व / The Revenue;
(3) आयकर आयुक्त(अपीऱ) / The CIT(A);
(4) आयकर आयुक्त / The CIT, Mumbai City concerned; (5) पवभधगीय प्रनतनिधर्, आयकर अपीऱीय अधर्करण, मुंबई / The DR, ITAT, Mumbai; (6) गधर्ा फधईऱ / Guard file.
सत्यधपपत प्रनत / True Copy आदे शधिुसधर / By Order प्रदीप जे. चौर्री / Pradeep J. Chowdhury वररष्ठ निजी सधचव / Sr. Private Secretary उप / सहधयक पंजीकधर / (Dy./Asstt. Registrar) आयकर अपीऱीय अधर्करण, मुंबई / ITAT, Mumbai