Income Tax Appellate Tribunal - Mumbai
Blackstone Advisors India P.Ltd, ... vs Dcit Cir 6(1), Mumbai on 4 January, 2017
आयकर अपीलीय अिधकरण, अिधकरण, मुबं ई " के " खंडपीठ Income-tax Appellate Tribunal -"K"Bench Mumbai ,,लेखा सद य एवं, शि जीत डे, याियक सद य सव ी राजे Before S/Shri Rajendra,Accountant Member and Saktijit Dey,Judicial Member आयकर अपील सं/ ITA No.1582/Mum/2014 : िनधा रण वष /Assessment Year-2009-10 M/s. Blackstone Advisors India Private DCIT-2(1)(1) Limited,5th Floor, Express Towers, Circle-6(1), Room No.506, Vs. Nariman Point,Mumbai-400 021. Aayakar Bhavan, MK Road, Churchgate PAN:AACCB 7376 D Mumbai-400 020.
(Appellant) (Respondent)
Revenue by: Shri N.K. Chand -CIT
Assessee by: S/Shri Porus Kaka & Divesh Chawla
सुनवाई क तारीख / Date of Hearing: 18.10.2016
घोषणा क तारीख / Date of Pronouncement: 04.01.2017
आयकर अिधिनयम,1961 की धारा 254(1)के अ
ग त आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
लेखा सद , राजे के अनुसार/ PER Rajendra A.M.-
Challenging the order dated 15.1.14 of the Assessing Officer (A.O.) completed u/s. 143(3) r.w.s. 144C(13) pursuant to the directions of the DRP- dated 18.12.2013, the assessee has filed the present appeal.Assessee-company,engaged in investment advisory services,filed its return of income on 29.9.09,declaring total income of Rs. 3.21 crores.The Authorised Representative(AR)of the assessee stated that the company was not interested in pursuing grounds no.14 to 17.Hence,same stand dismissed as not pressed. During the course of assessment proceedings,the International Transaction (IT.s)entered into by the assessee ,were referred by the AO to the Transfer pricing Officer (TPO)for determination of Arms-length-Price (ALP).After receiving the order of the TPO,the AO made an upward adjustment of Rs. 14.60 crores in draft order.The assessee filed its objection before the Dispute Resolution Panel(DRP).However,the DRP upheld the order of the AO/ TPO.As a result the AO complet -ed the assessment,determining the income of the assessee at Rs.17.81 crores.
2.Effective Ground of appeal(GOA-1to13)is about the adjustment made with regard to ALP of the IT.s.During the TP proceedings,the TPO found that the assessee was rendering advisory services to Private firms and real estate firms,that it had used TNMM for bench - marking IT.s and had applied net cost plus as Profit Level Indictor (PLI)separately,that net cost plus margin of PE funds services was shown at 8.01%, and that of RE fund was shown at 20.55%, that the mean PLI of the comparables was computed at 10%, that for determining the mean PLI it had used three years data of seven companies namely i.)Credible Management 1582/M/14-Blackstone Advisors and Consultants,ii.)CRISIL Risk and Infrastructure Solutions Ltd.,iii.)Future Capital Advisors Ltd.,iv.)ICRA Management Consulting Services Ltd. v.)IDC India Ltd.,vii.)IDFC Investment Advisors Ltd. and vii.)Meclai Financial and Commercial Services Ltd., that at the time of TP study financial results for the AY.-2009-10 were not available in case of companies at Sl.No.1 and 7.The TPO accepted the two comparable of the assessee namely Future Capital Advisors Ltd.(FCAL)and IDFC Investment Advisors Ltd.(IDFC)and rejected the remaining 5 comparables.He further identified two more comparables namely Motilal Oswal Investment Advisory Pvt. Ltd.(MOIAPL)and Brescon Corporate Advisors Pvt.Ltd . (BCAPL).These comparables were selected from the assessee's own case for the earlier AY. i.e.2008-09 wherein the TPO had selected them.The assessee filed objections with regard to inclusion of MOIAPL and BCAPL.After dealing with the objections of the assessee ,the TPO selected four comparables and on the basis of single-year-data mean PLI was determined at
55. 38%.Applying the same,he suggested upward-adjustment of Rs.14,60,07,783/- for the ITs.
3.Aggrieved by the order of the TPO and draft order of the AO, the assessee filed objection before the DRP.It was argued that the TPO had rejected the comparables selected by the assessee without understanding the facts,that it had selected the comparables on a scientific basis,that the two new comparables selected by the assessee were functionally different.The DRP held that it was necessary that the comparable selected should be functionally compar- able,that it was not necessary it should emanate from a search process,that even otherwise the comparable were selected in the AY.2008-09 out of a search process,that financials of the comparable were available to the assessee,that assessee had failed to use the current year data in respect of the comparable selected by it,that it was violation of the mandate Rule 10B(4) of the Income tax Rule, 1962,that it had incorrectly used multiple year data without justifying how such earlier year data had an influence on the ALP,that TPO had rejected two comparable on the ground of non availability of contemporaneous data and three comparables had been rejected on ground of functionality,that he had rightly rejected the five comparables selected by the assessee.With regard to BCAPL the assessee had argued that the activities of the company were debt syndication, financial restructuring and capital market services,that it had abnormal high profit,that the TPO had taken PLI of BCAPL of 169.75% as against the correct value of 116.17%.
After considering the objections of the AO,the DRP held held that on perusal of the P&L Account of MOIAPL for the year it was found that it had derived income from advisory fees 2 1582/M/14-Blackstone Advisors and not from any activity of merchant banking,that the Related Party Transaction (RPT) were less than 25%,that in several judgments the Tribunal had held that on the basis of abnormal profit comparables should not be excluded.About BCAPL it held,the principle activity of the company was providing advisory services,that it was functionally similar to the assessee. The DRP rejected the argument of abnormal profit also.Thus,the DRP rejected all the objections raised by the assessee.The AO in pursuance of the direction of the DRP,made an upward adjustment,as stated earlier.
5.During the course of hearing before us,the Authorised Representative (AR) argued that while deciding the appeal for AY.2008-09(ITA 1581/Mum/2014 dt.9.3.16),the Tribunal had dealt and decided the issue in favour of the assessee.He further relied upon the case of Carlyle India Advisors (P.) Ltd.(32 taxmann.com 23);General Atlantic P. Ltd. (68 Taxmann. com 88)with regard to inclusion of MOIAPL as comparable.He further argued that BCAPL was considered to be an invalid comparable by the Tribunal while deciding the appeal for AY.2008-09.The Departmental Representative (DR) supported the order of the DRP stated that MOIAPL was a good comaparable, that it was in advisory services,that BCAPL was providing advisory services,that comparables selected by the TPO for the last AY.for were good for the year under consideration.
6.We have heard the rival submissions and perused the material.We find that the Tribunal has dealt the identical issue while deciding the appeal for the AY.2008.09.We would like to reproduce the relevant portion of the order and it reads as under:-
"13.We have carefully considered the rival submissions, perused impugned order and material placed on record. The assessee is rendering sub-advisory services for identifying the investment opportunities to be done by the AE in India for which it is remunerated with cost plus markup.Such advisory services are purely non-binding. Being risk mitigated Investment Advisory Company,the assessee has benchmarked its margin with the companies involved in investment or corporate advisory services by adopting TNMM method as MAM. The assessee has shown mark-up margin of 18.44% over cost. In its transfer pricing exercise, it has identified 8 comparable companies, out of which, only one comparable company has been accepted by the TPO and 3 of them have been contended to be included by the assessee before us. The TPO has rejected the entire search matrix of the assessee and has finally selected 4 comparable companies; one from the assessee's list and three from his own search. Out of the three comparables chosen by the TPO from his own search, two have been disputed before us at the time of hearing as discussed above. Regarding all the comparables, the ld. Senior Counsel besides arguing on merits has pointed out that all these comparables have been analyzed in series of decisions by the Tribunal while comparing them with companies rendering Investment Advisory Services. So far as FAR analysis is concerned, same is not in dispute. We are, therefore, confining ourselves with the dispute regarding inclusion/ exclusion of the comparables as discussed above.
Motilal Oswal Investment Advisors Pvt Ltd:-3
1582/M/14-Blackstone Advisors This comparable has been included by the TPO and while including the said comparable he has observed that its income is only from Advisory fees during the year and it is performing advisory services in various field and industries including advisory services like assessee. Before us,Ld. CIT DR arguing for its inclusion submitted that, if the ICRA Management services can be included for having revenue from advisory services then on same analogy this company should also be given the same treatment. From the perusal of the directors' report, it is seen that this company derives its business income from four different business verticals, i.e. Equity capital markets, merger and acquisitions, profit equity syndications and structured debt. It also give advises on cross border acquisition. Its core competence is in the field of merchant banking.It also provides comprehensive investment banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments in international and domestic capital markets, monitoring mergers and acquisitions and advising M&A as professional and restructuring advisory and implementations. It is also involved in various professional activities of the merchant banking. A Merchant Banker provides capital to companies in the form of share ownership instead of loans. It also provides advisory on corporate matters to the companies in which they invest. The focus is on negotiated private equity investment. The wide ranges of activities include portfolio management, credit syndication, counseling on M&A, etc. This whole range of functions and activities carried out by Motilal Oswal is definitely are far wider and much different from investment advisory services where core functions is to give advice for making the investments in diversified fields. A company which is engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of the function as a Merchant Banker, then the entire functions and transactions affects the generation of revenue and margins. Such functions are entirely different from investment advisory services. Mere classification of revenue as 'advisory fees' will not put the company in a comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd (supra), it has been held that, the merchant banking functions are entirely different from investment advisory services and this decision of the Tribunal has been upheld by the Hon'ble Bombay High Court. Thus, in view of plethora of judicial decisions as referred to by Ld. Counsel and in view of functional differences as discussed as above, we hold that Motilal Oswal cannot be put into the comparability list and is directed to be excluded.
b)Brescon Corporate Advisors Pvt Ltd:-
As stated by the Ld. Senior Counsel, this company is again rendering services of merchant banker and its income is mainly from financial restructuring and recapitalization and debts syndication. Equity related advisory and M&A Advisory services are also in the capacity of a merchant banker and as a corporate advisor company its main function is to assist the companies in special situation through resolution, re-capitalization, M&M, infusion of profit, equity or direct investment.Thus, like Motilal Oswal Investment Advisory Pvt Ltd, this company also cannot be compared with companies rendering investment advisory services simplicitor. The reasoning given in the Motilal Oswal for exclusion will apply here also. The decisions relied upon by the Ld. Senior Counsel, especially in the case of Tamasek Holdings Advisors India Pvt Ltd (supra), we find that this company has been especially excluded from being considered while comparing with the companies giving investment advisory services. Accordingly,we direct the TPO/AO to exclude this company from comparability list." We find that there is no change in the facts if the facts of the AY.2008-09 are compared with the facts of the case under appeal,except for the amounts involved.All the arguments taken by the Department before us,were taken by the DR when the matter for the AY.2008-09 was argued.The Tribunal in its detailed order had held that MOIAPL and BCAPL were to be excluded from the list of the valid comparables.We see no reason not to follow the order of 4 1582/M/14-Blackstone Advisors the earlier year and direct that both the comparables i.e.MOIAPL and BCAPL cannot be included in the list of comparables of investment advisory services for the year under appeal. We further hold that the DRP was not justified in stating that comparables selected by the TPO for the earlier year would be valid for the under appeal also,even if he had not initiated a fresh search process of identifying comparables. There is no need to cite any authority to state that each and every year is a separate and independent unit and process of identifying comparables is not a mere formality.Provisions of the Act and the Income-tax Rules, 1962 (Rules) lay down a certain procedure for selection of comparables.It cannot be deviated from.Single year data is given preference over multi-year data,as it gives more accurate picture of the comparables.Only in exceptional circumstances,data for earlier years in taken in to consideration.Clearly,the scheme of TP is to decide the issue of transfer of profits from India has been framed in a manner that comparables of particular year are considered as a norm.But,surprisingly in the year under consideration the DRP endorsed the stand of the TPO that search process of earlier year can be used for current year.In our opinion,there is a basic flaw in the approach of both the authorities.The assessee is required to undertake a fresh search for every year.There is no provision in the Act/Rules that the TPO is exempt from undertaking a fresh search for every year.We find that on one hand the DRP had upheld the rejection of two of the comparables on the ground that data for the year under appeal was not available and on the other hand it approved the reliance placed by the TPO on the data for the earlier year.What prevented the TPO to refer to the data of current year of both the comparables is best known to him or the DRP.But,their approach is self contradictory.
In the earlier AY.the Tribunal has excluded MOIALP and BSALP from the list of the comparables.In the cases relied upon by the assessee i.e. Carlyle India Advisors (P.) Ltd. (supra);General Atlantic P. Ltd.(supra)MOIALP has been held to be not a valid comparable for investment advisory.Respectfully,following the above orders we decide the effective ground of appeal in favour of the assessee.
As a result appeal filed by the assessee stands partly allowed.
फलतः िनधा रती ारा दािखल क गई अपील अंशतः मंजूर क जाती है.
Order pronounced in the open court on 04th January, 2017.
आदेश क घोषणा खुले यायालय म दनांक 04 जनवरी, 2017 को क गई ।
(शि जीत डे / Saktijit Dey) (राजे / Rajendra)
Sd/- Sd/-
याियक सद य / JUDICIAL MEMBER लेखा सद
य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated : 04.01.2017.
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
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1582/M/14-Blackstone Advisors
1.Appellant /अपीलाथ 2. Respondent / !यथ
3.The concerned CIT(A)/संब% अपीलीय आयकर आयु(, 4.The concerned CIT /संब% आयकर आयु(
5.DR "K" Bench, ITAT, Mumbai /िवभागीय ितिनिध, खंडपीठ,आ.अ.)याया.मुंबई
6.Guard File/गाड फाईल स!यािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.
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