Ajay ITXA-1125-17.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1125 OF 2017 Pr. Commissioner of Income Tax - 6, R. No. 507, 5th Floor, Aayakar Bhavan, M. K. Road, Mumbai - 400020. Appellant Versus M/s. Eight Roads Investment Advisors Pvt. Ltd. (Formerly known as FIL Capital Advisors India Pvt. Ltd.), 304, 3rd Floor, Tower A, Peninsula Business Park, G.K. Marg, Lower Parel, Mumbai 400013. Respondent Mr. A. R. Malhotra a/w. Mr. N. A. Kazi, Advocate for Appellant. Mr. Nishant Thakkar a/w. Ms. Jasmin Amalsadwala i/b. PDS Legal, Advocate for Respondent. CORAM : UJJAL BHUYAN, & MILIND N. JADHAV, JJ. RESERVED ON : 24th January 2020. PRONOUNCED ON : 27th February 2020. JUDGMENT (PER MILIND N. JADHAV, J.) :- 1. This appeal has been preferred under Section 260A of Income Tax Act 1961 (for short said Act) for assessment year 2010 2011, against order dated 25 th October 2016 passed by Income Tax Appellate Tribunal K Bench, Mumbai (hereinafter referred to as Tribunal). 2. respondent/assessee entered into international 1 of 58 Uploaded on - 27/02/2020 Downloaded on-03/03/2020 14:17:37 Ajay ITXA-1125-17.doc transaction of non-binding investment advisory services with its Associate Enterprises (for short A.E.) and earned revenue of Rs.25.83 crores during assessment year 2010 - 2011. assessee for purpose of bench marking transaction adopted Transnational Net Margin Method (for short TNMM) as appropriate method under provisions of Section 92C of Act and identified seven comparable companies as comparables with their three years average weighted margin of 18.23% and operating margin being at 19.67% for purpose of claiming international transaction to be at arm s length. 2.1 Assessing Officer (for short AO ) framed draft assessment order dated 26th February 2014 making upward revision of transfer pricing adjustment of Rs.4,96,42,540.00. assessee approached Dispute Resolution Panel (for short DRP) against draft assessment order with its objections. DRP vide order dated 7 th October 2014 rejected contentions and objections raised by assessee in relation to upward revision of transfer pricing adjustment and directed AO to finalize draft assessment, resulting in passing of impugned assessment order. AO/Transfer Pricing Officer (for short TPO) by his final order dated 31st October 2014 rejected transfer pricing study of assessee on basis of various defects and deficiencies and rejected six out of seven comparables selected by assessee while retaining one comparable on basis of single year data. However in said order TPO proceeded and selected six new comparable companies as comparables with arithmetic mean of 42.66% of 2 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc operating margin. TPO applied aforesaid arithmetic mean to be operating cost of assessee and determined arm's length price of Rs.30,79,92,412.00 as against international transaction price of Rs.25,83,49,872.00 resulting in short fall of Rs.4,96,42,540.00. This short fall was treated as transfer pricing by TPO. 3. above order was assailed by assessee before Tribunal. Tribunal by impugned order dated 25th October 2016 allowed appeal filed by assessee in elaborate detail with respect to selection of each comparable company by TPO and DRP and directed AO/TPO to determine arm's length price afresh in terms of fresh directions given by Tribunal in respect of each comparable company. Being aggrieved by order passed by Tribunal revenue is in appeal before us. 4. revenue has projected following substantial questions of law :- 6.1 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing to exclude for functionally comparable companies from list of comparables selected by TPO viz. M/s IDFC Investment Advisors Pvt. Ltd, M/s ICRA Online Ltd., M/s Motilal Oswal Investment Advisors Pvt. Ltd. and M/s Kshitij Investment Advisory Co. Ltd., on ground of functional dissimilarity? 6.2 Whether on facts and circumstances of case and 3 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc in Law, Honble ITAT was justified in directing to consider four companies viz. M/s ICRA Management Consulting Services Pvt. Ltd., M/s IDC India Limited, M/s Informed Technology Ltd. and M/s Kinetic Trust Ltd. as comparable even though these companies are not functionally comparable to that of assessee ? 6.3 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing not to consider M/s IDFC Investment Advisors Ltd as comparable, without appreciating fact that said company has earned Rs.13.42 crores from Investment Advisory Services out of total revenue of Rs.26.29 crores ? 6.4 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing not to consider M/s ICRA Online Ltd. as comparable without appreciating fact that TPO has used segmental results of outsourced services of said company for comparatively purpose and that segment is functionally similar to that of assessee? 6.5 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing not to consider M/s Motilal Oswal Investment Advisors Pvt. Ltd. as comparable without appreciating fresh facts brought on record by TPO in respect of functions performed and assets employed by said company u/s 133 (6) such as employee profile and income received from top clients of said company? 4 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 6.6 Whether on facts and in circumstances of case and in Law, Honble ITAT was justified in directing not to consider M/s Kshitij Investment Advisory Co. Ltd. as comparable on account of peculiar economic circumstances arising as result of realignment with another company, simply relying on decision of Honble ITAT in case of Carlyle India Advisors Pvt. Ltd., ITA No.1040/Mum/2015 and AGM Advisors India Pvt. Ltd., ITA No.4757/Mum/2015, without appreciating fact that realignment has not resulted in any change of activity of business of said company ? 6.7 Whether on facts and in circumstances of case and in Law, Honble ITAT was justified in directing not to consider M/s Kshitij Investment Advisory Co. Ltd. as comparable without appreciating fresh facts brought on record by TPO in respect of functions performed and assets employed by said company u/s 133 (6) such as employee profile and income received from top clients of said company? 6.8 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing to consider M/s ICRA Management Consulting Services Pvt. Ltd. as comparable without appreciating fact that said company is not into Investment Advisory services and assessee company has also itself submitted in course of TP proceedings that functions performed by this company are not exactly similar to assessee company? 5 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 6.9 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing to consider M/s ICRA Management Consulting Services Pvt. Ltd. as comparable without appreciating fresh facts brought on record by TPO in respect of functions performed and assets employed by said company u/s 133 (6) to substantiate that services provided to top ten clients of said companies and its employee profile are different from that of assessee during year under consideration ? 6.10 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing to consider M/s IDC India Ltd. as comparable without appreciating fact that said company is not into Investment Advisory Services and assessee company has also itself submitted in course of TP proceedings that functions performed by this company are not exactly similar to Assessee company? 6.11 Whether on facts and circumstances of case and in Law, Honble ITAT was justified in directing to consider M/s Informed Technology Ltd. as comparable without appreciating fact that said company is not into Investment Advisory Services and assessee company has also itself submitted in course of TP proceedings that functions performed by this company are not exactly similar to Assessee company? 6.12 Whether on facts and circumstances of case and 6 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc in Law, Honble ITAT was justified in directing to consider M/s Kinetic Trust Ltd. as comparable without appreciating fact that said company is not into Investment Advisory Services and its turnover is less than Rs.1 crore ? 5. We may now advert to relevant facts necessary for appreciating controversy in question :- 5.1. assessee company filed return of income on 11.10.2010 declaring total income of Rs.7,00,51,101/- for assessment year 2010 2011. case of assessee was selected for scrutiny and statutory notice under Section 143(2) of Act was issued, also notice under Section 142(1), inter alia, calling for various details in connection with scrutiny assessment proceedings. assessee company through its authorized representative furnished details called for. Thereafter AO discussed case. Reference was made to TPO for computation of arm s length price in relation to international transaction. TPO by his draft order dated 26th February 2014 reported upward adjustment of Rs.4,96,42,540.00 in respect of value of international transaction made by assessee with its Associate Enterprises (A.E.) with regard to arm s length price. assessee was given fair chance to explain as to why addition should not be made on transfer pricing adjustment of Rs.4,96,42,540.00. TPO after hearing assessee passed order under Section 92CA (iii) of said Act making upward adjustment to tune of Rs.4,96,42,540.00. 7 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 5.2. assessee chose following seven comparable companies for purposes of bench marking :- S. No. Name of Company 1 Access India Advisors Limited 2 Future Capital Investment Advisors Limited 3 ICRA Management Consulting Services Limited 4 IDC (India) Limited 5 Informed Technologies Limited 6 Integrated Capital Services Limited 7 Kinetic Trust Limited TPO after considering various aspects of comparable companies rejected six out of aforesaid seven comparables chosen by assessee. TPO accepted only one company which was Future Capital Investment Advisors Limited and after undertaking further detailed analysis of entire matrix of acceptance and rejection based on profit and operating margin proposed to include five fresh / new comparables as under :- S. No. Name of Company 1 Future Capital Holdings Limited (Segmental) 2 ICRA Online Limited (Segmental) 3 IDFC Investment Advisors Private Limited 4 Kshitij Investment Advisors Limited 5 Motilal Oswal Investment Advisors Private Limited TPO included above five comparable companies in set of comparables and thus finalised set of six comparables for purpose of bench marking international transaction of assessee. TPO 8 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc considered financial data and annual reports of six comparables for financial year 2009 - 2010 as per Rule 10B(4) and with arithmetic mean of their operating margin being at 42.66% arrived at upward adjustment of Rs.4,96,42,540.00 in his order. 5.3. assessee filed its objection against order of TPO before DRP, III, Mumbai. Before DRP assessee summarized that it had entered into international transaction with its A.E. to provide investment advisory services of Rs.25.83 crores. assessee for purpose of bench marking international transaction had chosen TNMM as most appropriate method and identified seven comparable companies with their three years average weighted margin of 18.23% and operating profit margin being 19.67%, for providing investment advisory services to be at arm s length. 5.4. DRP considered submissions of assessee citing functional details as also related party transactions in case of comparables which were rejected by TPO and returned finding that for reasons given by TPO in his draft order which were in substantial detail regarding non submission of financials and other details of A.E., rejected comparables adopted by assessee and included new comparables suggested by TPO. DRP held that draft order passed by TPO was sustainable and did not require any interference in bench marking done by 9 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc TPO. Accordingly, AO vide his final order dated 31 st October 2014 completed assessment in terms of order dated 07 th October 2014 passed by Dispute Resolution Panel (DRP) III, Mumbai. 5.5. assessee approached Tribunal against order of DRP. Tribunal after thorough analysis of each comparable offered following reasons for inclusion of six rejected comparables which were excluded by TPO and DRP. For sake of completeness, we would like to dwelve into scrutiny and reasons given by Tribunal in respect of each of comparables which came to be included by Tribunal as comparables. NEW COMPARABLES SELECTED BY TPO/DRP WHICH WERE REJECTED BY TRIBUNAL 5.6 IDFC INVESTMENT ADVISORS PVT. LTD. Before Tribunal assessee objected to selection of this company as comparable by TPO on ground that said company was primarily engaged in providing Portfolio Management Services (PMS). assessee submitted that PMS and investment banking services were functionally different from investment advisory services undertaken by assessee. assessee company was investment advisory service company as stated in its annual report in relation to IDFC which was actually PMS. assessee submitted that, functions performed by this company 10 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc such as investment and brokerage were performed by Investment Advisor (IA). After detailed scrutiny of profit and loss account of this company, it was revealed that this company was engaged in number of activities as reported by revenue under one segment. Unlike assessee, functions performed, assets employed and risks undertaken by this company were totally different than functions performed by assessee company. Therefore it could not be treated as comparable. In support of above propositions to challenge inclusion of IDFC Investment Advisors Pvt. Ltd as comparable by TPO / DRP, assessee relied upon following judgments. i) AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./2015, A.Y. 2010-11, order dated 18th May 2016; ii) Carlyle India Advisors Pvt. Ltd. ITA no.1040/Mum./2015, A.Y. 2010-11, order dated 18.11.2015; iii) Bain Capital Advisors (India) Pvt. Ltd. v/s DCIT, ITA no.413/Mum./2015, A.Y. 2010-11, order dated 15.5.2015; iv) Sparkles Dhandho Advisors P. Ltd. v/s ITO, ITA no.1047/ Mum./2015, order dated 31.12.2015; v) CIT v/s Carlyle India Advisors Pvt. Ltd., 32 taxmann. Com 23, A.Y. 2007-08; vi) General Atlantic Pvt. Ltd. v/s ACIT, ITA no.7638/Mum./2011 order dated 17.5.2013; vii) Goldman Sachs India Securities Pvt. Ltd. v/s CIT, 69 taxmann.com 19; 11 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc Tribunal after considering submissions and more specifically findings expressed by Tribunal, Mumbai Bench in case of AGM India Advisors Pvt. Ltd. (supra) concluded that as seen in case of Carlyle India Advisors Pvt. Ltd. (supra) after perusing annual report of this company, Tribunal had arrived at finding that said company was engaged in providing PMC and such services were fee based and said company had earned revenue from different segments such as portfolio management fee, performance fee, advisory fee etc. On this basis, Tribunal arrived at finding that in above scenario, where company was remunerated on cost plus basis, it was risk insulated and therefore, on application of FAR analysis, it could be compared with other companies if there is any difference in its functions. Tribunal refered to observation of Honble High Court in case of General Atlantic Pvt Ltd. (supra) while approving view expressed in Carlyle India Advisors Pvt. Ltd. (supra), rejected this company i.e. IDFC Investment Advorse Pvt. Ltd as comparable. 5.7 ICRA Online Limited (Segmental) assessee objected to selection of this company as comparable selected by TPO as this company had three lines of business verticals viz. Outsource Service, Information Service and Software Products / Service. assessee submitted that financials of this company did not indicate kind of service rendered by outsource service segment and its 12 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc annual report was silent thereon. assessee submitted that information provided on web site of this company showed that it had two strategic lines of business namely Knowledge Process Outsourcing (KPO) and Information Service and Technology Solutions. assessee submitted that performance of aforesaid activities made this company financially different from assessee and hence, it could in no way be treated as comparable with assessee company. Tribunal on perusal of information submitted in annual report of this company as well as its financials, returned finding that functions undertaken by this company were totally different from assessee company and therefore company failed in FAR analysis itself. Thus, Tribunal rejected this company i.e. ICRA Online Limited (Segmental) as comparable. 5.8 Motilal Oswal Investment Advisors Pvt. Ltd. (MOIAPL) assessee objected to this company as comparable selected by TPO as it derived its business verticals from equity capital market, mergers and acquisition, private equity syndication and structural debts. assessee submitted that as per this company s annual report, company advised Indian Corporates on cross border acquisitions and this company was SEBI regulated merchant Banker which provided investment banking services in nature of acquisition equity placements, IPOs, syndication, etc. and had undertaken activities as lead manager/arranger/sole book runner etc. for various portfolios and earned investment banking fee for same. 13 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc assessee therefore submitted that, this company was not comparable to non-binding investment advisory and related service provider like assessee. Tribunal after going through annual report of this company returned finding that, this company was functionally different from assessee because of functions performed, assets employed and risk undertaken and failed in FAR analysis. Thus, Tribunal rejected this company i.e. MOIAPL as comparable. 5.9 Kshitij Investment Advisory Company Limited assessee objected to this company as comparable selected by TPO as this company had entered into agreement with another company namely Everstone Investment Advisors Pvt. Ltd. to realign its investment advisory activities with effect from 01 st January 2010 and as result of such joint venture, its entire business was restructured. assessee submitted that, profit and loss account of this company for financial year 2010 2011 revealed that no revenue was earned from investment advisory business. assessee submitted that this company had operated only for nine months during financial year 2009 - 2010 and hence could not be compared to assessee. Tribunal after considering material available on record and decisions in Carlyle India Advisors Pvt. Ltd (supra) followed by AGM India Advisors Pvt. Ltd. (supra) returned finding that this company could not be treated as comparable. Tribunal based its finding on decisions given in aforesaid two cases, in respect of this 14 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc company pertaining to very same assessment year and followed decisions of co-ordinate bench in excluding this company from list of comparables. 6. assessee had suggested following companies as comparables which were originally rejected by TPO/DRP, but were accepted by Tribunal as comparables after detailed scrutiny. 6.1 ICRA Management Consulting Service Pvt. Ltd. This company was rejected by TPO/DRP as comparable. This company offered consulting / advisory services through different business groups and practice areas pertaining to strategy, risk management, operations improvement, corporate advisory etc. On basis of profit and loss account statement of this company, assessee submitted that this company derived its revenue from consulting fees. It was assessee s case that functions performed by this company with respect to management consultancy service involved analysis of business and operations of company, its profitability, operational efficiency, future outlook, etc. based on which consultancy or advise is given to management of company. Such functions were similar to that of non-binding investment advisory and related services rendered by assessee. assessee submitted that this company had undertaken activities in other fields like business and operations, geographic research discussing regulations laid out in bio- generics globally, market research in respect of various products, business and 15 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc operation analysis and therefore, this company ought to have been accepted as comparable in assessee's own case by TRO/DRP. case of DR was that this company operated in various verticals as also conducted its business through various practice divisions such as Government and infrastructure practice, energy practice, banking and financial service, corporate advisor practice etc. assessee however on basis of documentary evidence which were placed on record submitted that service provided by this company covered wide spectrum of activities which were essentially advisory service. Hence, this company could be determined as comparabale. Tribunal considered these submissions and in view of above, following decisions of co-ordinate bench in case of AGM India Advisor Pvt. Ltd. (supra) and in decision of Temasec Holdings Advisors India Pvt. Ltd. (supra) included this company as comparable. 6.2 IDC India Limited This company was rejected by TPO/DRP as comparable. This company was engaged in business and research and certificate globally, it was provider of market intelligence advisory services and events for information technology, telecom and consumer technology markets. assessee submitted that, this company was engaged in research and survey functions which were functionally comparable to advisory support services rendered by assessee. assessee submitted that, in assessee s own case for assessment year 2009 2010, this company had been accepted as 16 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc comparable by TPO/DRP and therefore there was no reason to exclude same in related assessment year. Tribunal after considering materials available on record with reference to this company rejected submission of DR for exclusion, by referring to similar submission made by department in case of Temasec Holdings Advisors India Pvt. Ltd. (supra) and relying upon co-ordinate bench decision in case of AGM India Advisors Pvt. Ltd. (supra) included this company as comparable. 6.3 Informed Technologies Limited This company was rejected by TPO/DRP as comparable. This company collected and analysed data on financial fundamentals, corporate governance, director/executive compensation and capital market and this was similar to work done by assessee who was involved in data analysis of potential clients, analyzing market conditions, conducting research in various sectors, markets, companies etc. After perusal of annual report of company and relying on decisions passed in case of Temasek Holdings Advisors India Pvt. Ltd. (supra), Tribunal held that since TPO/DRP had accepted it as comparable in assessee s own case for assessment year 2009 2010, this company should not be excluded from list of comparables. 6.4 Kinetic Trust Limited This company was rejected by TPO / DRP as comparable. 17 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc On basis of annual report of this company, fact of this company was accepted as comparable to asssessee by TRO/DRP for assessment year 2009 2010 was considered by Tribunal. Referring to decision of Temasek Holdings Advisors India Pvt. Ltd. (supra), as also decision of Tribunal, Delhi Bench, in Nortel Network India Pvt. Ltd. (supra) which was affirmed by Delhi High Court in Nortel Network India Pvt. Ltd., ITA No.3043/2015, issue of application of Turnover filter was analysed and Tribunal concluded that if this company was functionally similar, only because of low turnover filter it could not be rejected. Tribunal included this company as comparable. 6.5 Tribunal by impugned order directed AO / TPO to determine arm s length price afresh in terms of directions contained in order. 7. We have perused and considered draft assessment order dated 26th February 2014, assessment order under Section 143 (3) of Act dated 31st October 2014, DRP order under Section 144C(1) of Act dated 07th October 2014, and Tribunal s order dated 25 th October 2016 with assistance of Shri. Malhotra and Shri. Thakkar appearing on behalf of respective parties. 8. At outset, we would like to state that, findings arrived at by Tribunal are entirely one of facts and revenue has failed to show as 18 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc to how said findings are perverse in any manner whatsoever. Delhi High Court in Pr. CIT v. WSP Consultants India Pvt. Ltd. reported (2018) 253 Taxman 58/ (2017) 87 taxmann.com 266 (Delhi) observed thus : 10. Any inclusion or exclusion of comparables per se cannot be treated as question of law unless it is demonstrated to Court that Tribunal or any other lower authority took into account irrelevant consideration or excluded relevant factors in ALP determination that impact significantly. Though revenue says that questions projected in paragraph Nos.6.1 to 6.12 are not just questions of law but substantial questions of law, assessee disagrees with same and submits that Tribunal s order has been rendered on purely factual questions which are consistent with materials placed on record and hence, in submission of assessee, appeal deserves to be dismissed. 9. We would state that before Tribunal one of principal submissions was that in assessee s own case similar questions had been dealt with for previous assessment year in respect of same comparable and therefore, heavy reliance was placed on earlier order of Tribunal in assessee s own case for accepting comparables (which were excluded in present year). 10. At this stage, we would like to refer to judgment passed by 19 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc Karnataka High Court in I.T.A. No.536 of 2015 along with I.T.A. No.537 of 2015, in case of Principal Commissioner of Income Tax v/s. M/s. Softbrands India Pvt. Ltd., delivered on 25 th June 2018, which has been relied upon by assessee. special provisions relating to Avoidance of Tax in Chapter X of Act comprising of Sections 92 to 94 - B with regard to assessment to be done for computation of income from international transactions on principles of arm s length price and perspective of international trade and transactions are enumerated in paragraph Nos.3 to 6 therein which read thus : 3. Indian Income Tax Act, 1961 contains Special Provisions relating to Avoidance of Tax in Chapter X of Act comprising of Sections 92 to 94-B with regard to assessment to be done for computation of income from international transactions on principles of Arm s Length Price (ALP) and relevant Rules for computation of such income under aforesaid provisions of Chapter X are enacted in form of Rule 10-A to 10-E in Income Tax Rules, 1962. Perspective of International Trade and Transactions: 4. With ever increasing international Trade and transactions, particularly, in Software Industries and Bangalore, being Silicon Valley of India where many big, small and medium size Software Industries have their Offices and Units in this Software Industry, and Bengaluru is hub of this Service Industry and essentially Indian Companies have business linkages with large Companies spread 20 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc worldwide particularly in Western Hemisphere of Globe. 5. implementation of Tax laws in this field in smooth, clear and quick manner is of utmost importance to build image of efficient Tax Administration both at Departmental level and in Judicial Courts so that economic activity in such borderless trade thrives and enures to benefit of Indian economy at large and Software Industry in particular. 6. While special provisions have been made for computation of Arm s Length Price to arrive at fair assessment of income taxable in hands of Indian Resident Companies and these special provisions also provide for elaborate and in-depth analysis of huge data of comparable cases of other similarly situated Companies to arrive at fair Arm s Length Price and for that, Special Cells and designated Authorities have been created under Income Tax Act, 1961, but still retaining normal provisions for assessments of appeals in Indian Income Tax Act about remedial Forums or appeal mechanisms and Income Tax Appellate Tribunal constituted under Section 253 of Act continues to be final fact finding body under Act even with regard to assessments of international transactions under Special Chapter X as aforesaid and appeal to Constitutional Courts as provided in Section 260-A to High Court and Section 261 to Honble Supreme Court are applicable to these special assessments under Chapter X as well. 21 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 11. Now we would like to refer to findings, reasons, analysis and scrutiny under taken / given by Tribunal in its order for excluding comparables suggested by TPO on touchstone of comparability to match with functions performed by assessee. 11.1 Paragraph Nos. 4 and 5 of Tribunal s order pertaining to exclusion of IDFC Investment Advisors Pvt. Ltd. reads thus : 4. We have considered submissions of parties and perused material available on record in light of decisions relied upon. On perusal of annual report of this company, it is very much clear that company is engaged in providing PMS and such service is fee based. That apart, reference to Profit & Loss account does indicate that company, though, has earned revenue from different segments such as portfolio management fee, performance fee, advisory fee, etc., but segmental details are not available Further, we have also noted from annual report of company that it has made investment and also incurred brokerage expenses. If we compare assessee s activities with comparable, it could be seen that assessee is only providing advisory service to its A.E. which is non binding in nature, therefore, is totally different from functions performed by IDFC. Considering aforesaid aspect, Tribunal, Mumbai Bench, in Carlyle India Advisors Pvt. Ltd. (supra), has held that this company is not comparable to investment advisor service provider. Same view has also been expressed by Tribunal, Mumbai Bench, in AGM India Advisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./2015, A.Y. 22 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 2010 11, order dated 18th May 2016, and 7 FIL Capital Advisors India Pvt. Ltd. other decisions of Tribunal, Mumbai Bench, relied upon by learned Sr. Counsel. Bench in case of AGM Advisors India Pvt. Ltd. (supra), ultimately concluded as under: 7. We find that assessee objected to inclusion of ICRA 0 and IDFC on ground that TPO had applied no scientific method in arriving at said two companies that companies had been cherry picked by TPO and he had not furnished process applied by which he had come to select said two companies, that such approach to select comparables was impressible in law and on that count alone said two companies should be rejected, that FIRST APPELLATE AUTHORITY had rejected ICRA O as comparable on investment advisory servies rendered by assessee and had stated assessee s knowledge process outsourcing division provided financial and analytical services and support of clients in areas of Data Extraction, Aggregation, Electronic Conversion of Financial Statements, Validation and Analysis, Accounting and Finance, Research and Analytics, that company was not engaged in investment advisory or consultancy services, that A.O. was directed to exclude ICRA O from final set of comparable companies, that he had held that it was functionally not comparable to assessee. Charging of fees by ICRA O did not mean that it was valid comparable to assessee. As per settled principles of TP for company to be treated as valid comparable functions performed, assets employed and risks assumed have to be comparable and not nomenclatures in annual accounts. We would like to refer 23 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc to Pg.507 of PB in case of ICRA O and it reads as under: ICRA Online Limited is leading information services, outsourcing and technology solutions provider and caters for some of biggest names in financial services sector in (India) and abroad, which is testimony to its product quality, commitment and credibility. From above description it is clear that ICRA O operated in two strategic lines of business, i.e., knowledge process outsourcing and information services and technology solutions, with list of reputed global and domestic clients. Note c (iii) on Pg.507 of PB also proves that activities performed by company under business line Outsourced Services were in nature of maintenance and management of data and therefore cannot be compared with assessee. As far as IDFC is concerned, we would like to mention that portfolio manager is body corporate who pursuant to contract or arrangement with client would advises or direct or undertake on behalf of client whether as discretionary portfolio manager or otherwise. FAR analysis of portfolio manager cannot be compared with assessee engaged in business of providing investment advisory services. Tribunal has in cases discussed at paragraph 6.d.a. held that IDFC was not valid comparable. Considering above discussion, we are of option that order of FIRST APPELLATE AUTHORITY and exclude both comparables does not suffer from any legal or factual infirmity. So, confirming his order, we decide issue against AO. 24 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 5. It is also relevant to observe, Hon'ble Jurisdictional High Court in General Atlantic Pvt. Ltd. (supra), while approving view expressed in Carlyle India Advisors Pvt. Ltd. (supra) has observed that where company is remunerated on cost plus basis, it is risk insulated, therefore, on application of FAR, it cannot be compared with other companies if there is any difference. Therefore, respectfully following decision of co ordinate bench of Tribunal referred to above as well as principle laid down by Hon'ble Jurisdictional High Court, we reject this company as comparable. 11.2 Paragraph No.8 of Tribunal s order pertaining to exclusion of ICRA Online Limited reads thus : 8. We have considered submissions of parties and perused material available on record in light of decisions relied upon. On perusal of information submitted in annual report of this company as well as its financials, we have noted that functions undertaken by company are totally different from assessee. Therefore, company fails in FAR analysis itself. For this reason, in cases relied upon by learned Sr. Counsel, Tribunal has held aforesaid company not comparable to investment advisory service provider. In this context, we refer to observations of Tribunal in AGM India Advisors Pvt. Ltd. (supra) reproduced in Para 4 herein above. Accordingly, we hold that this company is not comparable to assessee. 25 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 11.3 Paragraph Nos.12 and 13 of Tribunal s order pertaining to exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. (MOIAPL) reads thus : 12. We have considered submissions of parties and perused material available on record in light of decisions relied upon. Having gone through annual report of MOIAPL, we have noted that company is engaged in number of activities including investment banking activities. Thus, company is functionally different from assessee because of functions performed, assets employed and risk undertaken. Therefore, it fails in FAR analysis itself. It is pertinent to observe, in case of Temasec Holding Advisors India Pvt. Ltd. (supra), Mumbai Bench of Tribunal, after considering almost similar argument put forward by parties excluded this company as comparable to non binding investment advisory service provider holding as under : 25. This comparable has been included by TPO and while including said comparable he has observed that its income is only from Advisory fees during year and it is performing advisory services in that field of investment like assessee. Before us, Ld. CIT DR arguing for its inclusion submitted that, if ICRA Management Services can be included for having revenue from advisory services then on same analogy this company should also be given same treatment. From perusal of 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 26 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc structured debt. It also given advises on cross boarder acquisition. Its core competence is in 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 merchant banking. merchant banker provides capital to companies in form of share ownership instead of loans. It also provides advisory on corporate matters to companies in which they invest. focus is on negotiated private equity investment. wide range 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 advices for making investments in diversified fields. company which is engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of function of merchant banker, then entire functions and transactions affects generation of revenue and margins. Such functions are entirely different from investment advisory services. Mere classification of revenue as advisory fees will not put company in comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd. (supra), it has been held that, merchant banking functions are entirely different from investment advisory services and this decision of Tribunal 27 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc has been upheld by Hon'ble Jurisdictional High Court. Thus, in view of plethora of functional differences as discussed as above, we hold that Motilal Oswal cannot be put into comparability list and is directed to be excluded. 13. Following aforesaid decision, Tribunal, Mumbai Bench, expressed similar view in case of AGM India Advisors Pv.t Ltd. (supra). In fact, in host of other decisions cited by learned Sr. Counsel, Tribunal has held MOIAPL not to be comparable to company involved in investment advisory service as it is Investment Banker. Hon'ble Jurisdictional High Court also in decisions relied upon by learned Sr. Counsel, held that company engaged in investment banking activity cannot be compared to company providing investment advisory services. Respectfully following view taken by Hon'ble Jurisdictional High Court as well as different Benches of Tribunal, we exclude this company from list of comparables. 11.4 Paragraph Nos.16 and 17 of Tribunal s order pertaining to exclusion of Kshitij Investment Advisory Company Limited reads thus : 16. We have considered submissions of parties and perused material available on record in light of decisions relied upon. fact that there is restructuring of business of comparable as result of realignment with another company is evident from annual report of company. Considering aforesaid aspect, Tribunal, Mumbai Bench, in Carlyle India Advisors Pvt. Ltd. ITA no.1040/Mum./2015, order dated 18 th November 2015 (supra) for very same assessment year held that this 28 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc company cannot be treated as comparable on account of peculiar economic circumstances arising out of its realignment. Relevant observation of Tribunal is extracted hereunder for sake of convenience: 22. We have carefully considered rival stands on issue of exclusion of Kshitij Investment Advisory Co. Ltd. from final set of comparables. first and foremost resistance articulated by Revenue to oppose exclusion of said concern from final set of comparables is fact that such concern was included by assessee itself as comparable in its transfer pricing study. As per Revenue, since said concern has been adopted by assessee as comparable, it is impermissible for assessee to raise plea asking for its exclusion in process of determination of average margins under TNM method. In our considered opinion, proposition being canvassed by Revenue is not absolute, but it has to be considered in facts and circumstances of each case. No doubt in situation of type before us, burden lies on assessee to justify exclusion of Kshitij Investment Advisory Co. Ltd., considering fact that initially assessee had taken it as good comparable. Our aforesaid approach is founded on well accepted proposition that in course of determination of correct tax liability, it is impermissible for Revenue to take advantage of ignorance or mistake of assessee in offering certain amount as income, which is more than legally due amount. Notably, there cannot be estoppel against statute and it is trite law that no tax can be levied or collected from subject except by authority of 29 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc law. We may hasten to add here that we are not staying that on each and every aspect of assessment declared in return of income, assessee is entitled to turn around and argue differently before income tax authorities; rather, there has to be justifiable reasons shown by assessee, duly supported by law or facts, whereby change in stand is marited. In present case, what assessee is claiming is that there has been restructuring / realingment of investment advisory business being carried out by Kshitij Investment Advisory Co. Ltd. which has impacted financial results thereby rendering said concern as unfit comparable. proposition being canvassed by assessee is supported by decision of Hyderabad Bench of Tribunal in case of Capital IQ Information System (India) Pv.t Ltd. (supra). In fact, it is quite well understood that in year where realignment / restructuring of business takes place, such year is often peculiar economic year in history of concern and in such situation, it would be in interest of justice and fair play that such concern is not treated as comparable. In fact, in principle, we do not find any disagreement on part of TPO also on this aspect. However, what TPO has stated is that in present case, realignment / restructuring is in same line of business and, therefore, such restructuring / realignment does not result in any change in activity of business. Therefore, according to Revenue, there would be no impact on financial results so as to make it incomparable with tested transactions. We have carefully considered aforesaid plea set up by Revenue and in this context, we may briefly refer to Business Review outlined in Directors Report of 30 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc said concern, placed at page 536 of paper book. It is stated therein that investment advisory business has been realigned and all employees have been transferred to Everstone Investment Advisors Pvt. Ltd. during year under consideration to Everstone Investment Advisors Pvt. Ltd. during year under consideration w.e.f. 1.1.2010. note also suggests that said concern did not enter into any non compete agreement with Everstone Investment Advisors Pvt. Ltd. but was free to pursue any activity, including activity in relation to investment advisory services. aforesaid aspect has been highlighted by Revenue to say that said concern continues to be in business of rendering investment advisory services and, therefore, restructuring does not impact comparability of concern. In our considered opinion, approach of Revenue in this context is quite flawed. Firstly, it is not disputed that activity of investment advisory services has been realighed which included transfer of all employees to Everstone Investment Advisory Pvt. Ltd. averments in Director s Report suggest that post realignment, concern is only evaluating its options to commence business operations either in some other line or in similar line of investment advisory services. What we are trying to emphasize is that there is no averment in Directors Report to suggest that said concern has actually carried out any investment advisory services post realignment w.e.f. 1.1.2010. In fact, in course of hearing before us, ld. Representative for assessee pointed out that perusal of annual report for subsequent financial year of 2010 11 showed no such operations by said concern. Therefore, 31 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc considering aforesaid fact situation, instant financial year of said concern is containing peculiar economic circumstances and same has to be taken into consideration while evaluating rationale for its inclusion as comparable. Before us, Ld. Representative also pointed out that said restructuring / realignment which has taken place w.e.f. 1.1.2010, did impact financial results inasmuch as income from operations of said concern for year under consideration reduced to Rs.17,23,10,815 from Rs.26,47,96,102 in immediately preceding year. Considering entire conspectus of facts and circumstances, in our view, assessee company is justified in asserting that Kshitij Investment Advisory Co. Ltd. deserves to be excluded from final set of comparables on account peculiar economic circumstances during year under consideration. Thus, on this aspect also, assessee succeeds. 17. Following aforesaid decision, Tribunal again in case of AGM India Advisors Pvt. Ltd. (supra) held that this company cannot be treated. As comparable as these decisions pertain to very same assessment year and facts on basis of which decisions were rendered by Tribunal remains same in case of present assessee further, as no contrary decision was brought to our notice by learned Departmental Representative, respectfully following aforesaid decisions of co ordinate bench, we exclude this company from list of comparables. 11.5 Paragraph Nos. 24 and 25 of Tribunal s order pertaining to exclusion of ICRA Management Consulting Service Pvt. Limited reads thus : 32 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 24. We have considered submissions of parties and perused material available on record in light of decisions relied upon. From documentary evidences brought on record by assessee, we have observed that assessee is also providing non binding investment advisory service in various sectors such as infrastructure, retail, telecommunication and networking equipment, health care, financial intermediaries, design and engineering related to infrastructure, media and communication. Thus, as could be seen, though, service provided by assessee covers wide spectrum of activities, however, nature of service is virtually one viz. advisory services. same is case with comparable. Though, it is alleged by learned Departmental Representative, comparable is providing service through various sectors, however, nature of service is advisory. We have also noted that absolutely similar argument was advanced by learned Departmental Representative in relation to this comparable in case of Temasec Holdings Advisors India Pvt. Ltd. (supra) in A.Y. 2010 11. Tribunal, after considering submissions of learned Departmental Representative and also proposition advanced by him in relation to principles of res judicata and decision of Kalpetta Estates Ltd. (supra) relied upon by him in this regard, ultimately treated this company as good comparable observing as under: 20. At outset, this comparable was subject matter of consideration before Tribunal in AY 2008-09 & 2009-10, wherein this company was held to be good comparable both on ground of functional similarity and in view of 33 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc principles of consistency as it was held to be good comparable by TPO in earlier years. From perusal of annual report, which is appearing from pages 156 to 187 of paper book, we find that it is essentially providing consultancy services in diversified areas, like in government sectors, infrastructure, energy, corporate advisory, banking and financial services, etc. It focuses on consultancy and advisory which is its core area and competency. revenue generation is purely from consultancy fees which is evident from profit and loss account as on 31st March 2010 (appearing at page 176 of paper book). TPO in his order has noted that its consultation or advisory operations ranges in various fields which have been tabulated by him at pages 9 to 11 of order, which according to him assessee is not performing. On perusal of directors report and also remarks of TPO, we find that ICRA Management is providing consultancy services in myriad areas ranging from development, transportation, urban infrastructure, energy sector, banking and financial services and advising cross border M&A transaction etc. Some other observation made by TPO is that ICRA has participated in various international forums, partnered with foreign company in multiple projects and has very big client base unlike assessee. However all these facts do not affect core competency and functions of said company, which is advisory, because in all fields it is rendering only advisory and consultancy services. whole revenue is again from consultancy/advisory fees. In instant case also, assessee is providing Investment Advisory Services to its AE in diverse industries like, infrastructure, telecom, media, 34 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc banking etc. to enable AE to take decision for making investments. functions of consultancy/advisory have to be seen as its core competence area and not in field in which such consultancy is given. Under TNMM, one has to see transaction undertaken are comparable or not and whether any adjustment is required to obtain reliable result, because under TNMM net margin are less affected by transactional differences and is more tolerant to some minor functional differences between controlled and uncontrolled transactions. However, if any unique function or property significantly affects operating costs or net margin or has bearing in generation of revenue itself, then it cannot be considered to be fit comparable for benchmarking net margins. Here it is not case where there is any unique functions materially affecting revenue or net margins vis- -vis functions performed by ICRA. Hence on functional level it is good comparable. As stated earlier, in earlier years, Transfer Pricing Officer has accepted ICRA to be comparable and in later years Tribunal in AY 2008-09 & 2009-10 has held ICRA Management to be good comparable qua functions of assessee and there being no material change on facts, functional profile or any other factor in this year, then as matter of consistency, we do not want do deviate from our findings given in earlier years. There cannot be pick and choose of comparables every year unless there are some material difference in facts and circumstances compelling to take different conclusion. Thus, we hold that ICRA Management is good comparable and should be included in list of final comparables. 35 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 25. Again, in case AGM India Advisor Pvt. Ltd. (supra), Tribunal, after considering almost similar argument of learned Departmental Representative, followed decision in Temasec Holdings Advisors India Pvt. Ltd. (supra) upholding company as comparable. While doing so, bench also took note of decision relied upon by learned Departmental Representative which were also cited before us. Undisputedly, aforesaid decisions of co ordinate bench assessment year are for very same assessment 2010 11. Therefore, respectfully year i.e., following aforesaid decisions of co ordinate bench, we include this company as comparable. 11.6 Paragraph Nos.30 and 31 of Tribunal s order pertaining to exclusion of IDC India Limited reads thus : 30. We have considered submissions of parties and perused material available on record in light of decisions relied upon. On perusal of information available in website and annual report of company, we have noted that it is primarily engaged in business of market research and management consultancy. Therefore, contention of learned Departmental Representative that it is product company may not be correct. Further, we have noted that in case of Temasec Holdings Advisors India Pvt. Ltd. (supra), very same argument of IDC India Ltd. being product company and provides go to market service was advanced by learned Departmental Representative. However, rejecting such contentions of learned Departmental Representative, Tribunal included this company 36 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc as comparable holding as under: 22. This comparable though accepted by TPO as good comparable, however, DRP has additionally rejected this comparable. In assessment year 2008-09, Tribunal has held to be good comparable, firstly, on ground that this company is also engaged in advisory and consultancy services for purpose of investment made in various sectors and secondly, it has been found to be good comparable by TPO in assessment year 2007-08 and 2009-10. Once company has been held to be good comparable consistently for three years then without any change in material facts, it cannot be held that this comparable could be rejected in this year. Moreover, in case of Carlyle Advisory India Ltd., ITAT Mumbai Bench, reported in 43 taxman.com 184, Tribunal held that this company is good comparable with companies rendering investment advisory services. This decision of Carlyle Advisors have also upheld by Honble Bombay High Court. Moreover, we have already discussed functions performed by IDC India Ltd while dealing with Ld. Counsel s argument that functions of advisory services are quite similar to functions of assessee and, therefore, we accept assessee s contention that this comparable cannot be rejected. Accordingly, same is directed to be included in comparability list. 31. In case of AGM India Advisors Pvt. Ltd. (supra), co ordinate bench after considering very same argument advanced by learned Departmental Representative and following decision rendered in Temasec Holdings Advisors 37 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc India Pvt. Ltd. (supra), held that company is good comparable. While doing so, Tribunal had given categorical finding that IDC India Ltd. is not product company. Since aforesaid decisions of Tribunal are for very same assessment year, they will squarely apply to facts of present case. Moreover, we have noted fact that in assessee s own case for assessment year 2009 10, this company has been accepted as comparable by Transfer Pricing Officer / DRP. That being case, we do not see any justifiable reason for excluding this company. As far as decision rendered in case of Tevapharm Pvt. Ltd. (supra), after carefully reading said order, we have noted that nowhere Tribunal has held that IDC India Ltd. is product company. On contrary, it was excluded since Tribunal found it functionally dissimilar to that assessee. decision of Actis Advisors Pvt. Ltd. (supra) is also factually distinguishable, hence, would not be apply. Therefore, respectfully following decisions of Co ordinate Bench of Tribunal referred to above, we hold that IDC India Ltd. is comparable to assessee. 11.7 Paragraph Nos.35 and 36 of Tribunal s order pertaining to exclusion of Informed Technologies Limited reads thus : 35. We have considered submissions of parties and perused material available on record in light of decisions relied upon. On perusal of material on record, we have noted that this company is basically engaged in providing data management service to financial sector. Considering aforesaid fact, Tribunal in Temasek 38 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc Holdings Advisors (I) Pvt. Ltd. (supra), while including company as comparable has observed as under: (v) Informed Technologies Ltd. This company mostly offers range of data management services to financial sector in USA. It collects and analyses data of financial fundamentals, corporate governance and capital market. It outsource services i.e., BPO services consisting of financial data base and back office activities for research and advisory reports. Thus, data outsourcing charges are mostly related to analysing of data based on which advise is given for investment purpose in India. Moreover, this company has been accepted by TPO in year 2009 10. Thus, it is good comparable. 36. We do not find any material difference between facts in assessee s case and in case of Temasek Holdings Advisors (I) Pvt. Ltd. (supra) on basis of which Tribunal included it as comparable. Moreover, there is no dispute that Transfer Pricing Officer has accepted this company as comparable in assessee s own case for assessment year 2009 10. That being case, in our considered opinion, company should be treated as comparable to assessee. 11.8 Paragraph Nos.41 and 42 of Tribunal s order pertaining to exclusion of Kinetic Trust Limited reads thus : 41. We have considered submissions of parties and perused material available on record in light of decisions relied upon. major thrust of argument of 39 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc learned Departmental Representative for excluding this company is on account of its low turnover. However, as it appears from material on record, though, in show cause notice Transfer Pricing Officer proposed to apply low turnover filter of less than Rs. 1 crore, following same logic, he should have applied high turnover filter. Further, in order passed under section 92CA(3), Transfer Pricing Officer has not emphasized filter finally applied by him and selection process undertaken, therefore, it cannot be said with any degree of certainty that he applied low turnover filter. Even, assuming that such filter was applied, following same logic, he should have applied high turnover filter to exclude companies. We have further noted that Tribunal, Delhi Bench, in Mckinsey Knowledge Centre India Pvt. Ltd. (supra) has held that if company is functionally similar, only because of its low turnover, it cannot be rejected if such turnover filter was not applied either by assessee or by Transfer Pricing Officer. aforesaid observations of Tribunal, Delhi Bench, was affirmed by Hon'ble Delhi High Court in its judgment referred to above. It is also noteworthy that in case of Temasek Holdings Advisors India Pvt. Ltd. v/s DCIT, ITA no.776/Mum./2015, A.Y. 2010 11, order dated 25 th February 2016, co ordinate bench after considering virtually identical argument advanced by Department accepted this company as comparable. relevant observations of Bench is reproduced hereunder for sake of convenience: (ii) Kinetic Trust Ltd. (Rejected by TPO):-Mr. Porus Kaka, submitted that TPO has observed that in annual 40 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc report of Kinetic Trust, does not specify that said company is engaged in investment advisory; further said company is NBFC registered with RBI; and lastly, its turnover is only Rs. 20 lakhs. To counter this TPO s observation, Mr. Kaka pointed out that firstly, Directors report for financial year 2009-10 specifically mentions that company has concentrated on its main activity of corporate consultancy services and financial services. This is evident from Directors report given at page 193 of paper book. Merely because said company is NBFC, same does not change nature of activities undertaken by company i.e., Consultancy Services. Secondly, while selecting list of comparables in search criteria, assessee has not considered turnover criteria as one of factor in determining or streamlining selection of companies. It has not cherry picked comparables by inserting any kind of lower or higher turnover filter. reliance placed by TPO on decision of Tribunal in case of Trilogy E Business Software P Ltd vs DCIT (ITA No.1054/Bang/2011) is not correct as Tribunal's decision was based on facts and in that context it has highlighted importance to apply turnover over filter ranging between Rs.1 crore to Rs.200 crores. said decision does not implicate that range of Rs.1 crore to Rs.200 crores is to be applied essentially in all cases. Thus, decision of said Tribunal cannot be applied to facts of present case. On contrary in case of Nortel Networks India P Ltd, reported in [2014] 44 taxman.com 46 Delhi Tribunal has held that, if functional profile of comparable is same with that of assessee then, it cannot be excluded from list of 41 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc comparables merely for reason of low turnover. He submitted that said decision of Tribunal has been now been upheld by Honble High Court vide order dated 24.02.2015 in ITA No. 3043/2015, wherein, Honble High Court observed that, whether turnover filter is appropriate one and applicable, cannot be answered in abstract and is entirely fact dependent. Lastly, Tribunal in assessee s own case for assessment year 2008-09 & 2009-10 has accepted Kinetic Trust Ltd as comparable company so far as functions performed by assessee. Ld. TPO in utter disregard to Tribunal s order has stated that said decision of ITAT cannot be accepted, because finding was given on ground that TPO has accepted this comparable in earlier years. This cannot be ground for rejection, rather Kinetic Trust Ltd is to be included as comparable company following judicial precedence and consistency in view of Tribunal orders for two consecutive earlier years. 42. Facts on basis of which co ordinate bench in Temasek Holdings Advisors India Pvt. Ltd. (supra) accepted this company as comparable are more or less similar to facts involved in case of present assessee as undisputedly in assessment year 2009 10, Transfer Pricing Officer / DRP have accepted this company as comparable. Thus, applying rule of consistency as well as following decisions referred to above, we direct Assessing Officer / Transfer Pricing Officer to include this company as comparable. In view of aforesaid, we direct Assessing Officer / Transfer Pricing Officer to determine arm's 42 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc length price afresh in terms of observations made by us herein above. 12. In view of above detailed reproduction of reasonings given by Tribunal we find that, while undertaking exercise to arrive at arm s length price which is essentially matter of estimate of fair value which Indian Company had paid or had received from its Associate Enterprise (A.E.), such exercise is required to be undertaken by TPO on basis of facts and figures relating to comparable cases of other similarly placed entities, whose relevant data is available in public domain. As per provisions of Act and Rules, assessee company is required to furnish its own Transfer Pricing Analysis and list of chosen comparables which may or may not be agreed to by Revenue Authorities and they would introduce some more comparables rejecting comparables given by assessee company by applying certain filters like Related Party Transactions (RPT) filter, turnover filter, export earnings filter, employee cost filter, etc to bring them within comparable range of cases of such comparables and generally there would be tug of war between assessee and revenue in such situation. We would state that assessee company would normally choose comparables, whose operating profit margins are less or only little more than assessee, but revenue would bring in comparables with higher profit margins. TPO, may in case of assessee introduce and suggest comparables whose operating margins 43 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc are higher than assessee company so as to make transfer pricing adjustments in declared income of assessee, resulting in fetching of more revenue. From aforesaid quoted paragraphs from Tribunal s order, it is evident that, individual cases of such comparables have been juxtaposed with functionality of assessee considered, analyzed and discussed by Tribunal in respect of comparables which were excluded by TPO as also in case of those comparables which were included by TPO. It is quite common to note that, while some comparables are found to be appropriate and really comparable to facts of assessee company, some are not and it would ultimately result in whether correct filters have been properly applied or not or whether most appropriate method of determination of arm s length price has been adopted or not to make fair and reasonable transfer pricing adjustments in hands of assessee. However, entire exercise of making transfer pricing adjustments on basis of comparables is nothing but matter of estimate of broad and fair guess-work of authorities based on factual relevant materials brought before authorities i.e. TPO, DRP and Tribunal, which are fact finding authorities. 13. We would also like to quote paragraph Nos.16 to 22 from judgment in case of Principal Commissioner of Income Tax and another Vs. M/s. Softbrands India Pvt. Ltd. (supra), which refers to comparative analyses of Section 260A of said Act and Sections 100 and 103 of 44 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc Code of Civil Procedure in order to justify what would be substantial question of law in such case : 16. We would analyze provisions of Section 260-A of Act in little more detail but we are of firm opinion that entry into High Court under Section 260-A of Act is locked with words "Substantial questions of law" and key to open that lock to maintain such appeal can only be perversity of findings of Tribunal in these type of cases and perversity in findings not only averred by appellant before this Court but, established on basis of cogent material which was available before Authorities below including Tribunal and findings arrived at by Tribunal can be so held to be perverse within well settled parameters for determining same as perverse. It is not allowed to either of parties, i.e. Assessee or Revenue to invoke jurisdiction of this Court under Section 260-A of Act merely because Tribunal comes to reverse or modify findings given by lower Authority, viz. Transfer Pricing Officer (TPO) or Dispute Resolution Panel (DRP) which comprises of three Commissioners and Revenue or assessee may feel dissatisfied, because of reversal or modification of such findings by Tribunal resulting in leaving out of certain comparables or adding on of certain comparables for determining 'Arm's Length Price' in hands of Assessee Company. 17. Unless such perversity in findings of Tribunal is established we are of opinion that appeals under Section 260-A of Act cannot and should not be entertained 45 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc at instance of either of parties and present cases before us, we find that Tribunal has given cogent reasons and detailed findings upon discussing each case of comparable corporate properly and therefore, we find ourselves unable to call such findings of Tribunal perverse in any manner so as to require our interference under Section 260-A of Act. 18. We now take up analysis of Section 260- of Act which we have already said is in pari materia with Sections 100 and 103 of Civil Procedure Code. 19. said provisions are quoted below for ready reference and comparison. Section 260-A of Income Tax Act, 1961 reads as under: "260A - Appeal to High Court: (1) appeal shall lie to High Court from every order passed in appeal by Appellate Tribunal [before date of establishment of National Tax Tribunal], if High Court is satisfied that case involves substantial question of law. (2) [The [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner or assessee aggrieved by any order passed by Appellate Tribunal may file appeal to High Court and such appeal under this sub-section shall be-] (a) filed within one hundred and twenty days from date 46 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc on which order appealed against is [received by assessee or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner]; (b) (c) in form of memorandum or appeal precisely stating therein substantial question of law involved. [(2A) High Court may admit appeal after expiry of period of one hundred and twenty days referred to in Clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing same within that period.] (3) Where High Court is satisfied that substantial question of law is involved in any case, it shall formulate that question. (4) appeal shall be heard only on question so formulated, and respondents shall, at hearing of appeal, be allowed to argue that case does not involve such question: Provided that nothing in this sub- section shall be deemed to take away or abridge power of Court to hear, for reasons to be recorded, appeal on any other substantial question of law not formulated by it, if it is satisfied that case involves such question. (5) High Court shall decide question of law so formulated and deliver such judgment thereon containing grounds on which such decision is founded and may award such cost as it deems fit. 47 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc (6) High Court may determine any issue which - (a) has not been determined by Appellate Tribunal; or (b) has been wrongly determined by Appellate Tribunal, by reason of decision on such question of law as is referred to in sub-section (1). [(7) Save as otherwise provided in this Act, provisions of Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to High Court shall, as far as may be, apply in case of appeals under this Section.] Sections 100 and 103 of Code of Civil Procedure, 1908 read thus: "Section 100 - Second Appeal. (1) Save as otherwise expressly provided in body of this Code or by any other law for time being in force, appeal shall lie to High Court from every decree passed in appeal by any Court subordinate to High Court, if High Court is satisfied that case involves substantial question of law. (2) appeal may lie under this section from appellate decree passed ex- parte. (3) In appeal under this section, memorandum of appeal shall precisely state substantial question of law involved in appeal. (4) Where High Court is satisfied that substantial question of law is involved in any case, it shall formulate question. (5) appeal shall be heard on question so formulated 48 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc and respondent shall, at hearing of appeal, be allowed to argue that case does not involve such question: Provided that nothing in this sub- section shall be deemed to take away or abridge power of Court to hear, for reasons to be recorded, appeal on any other substantial question of law, not formulated by it, if it is satisfied that case involves such question." Section 103 - Power of High Court to determine issues of fact - In any second appeal, High Court may, if evidence on record is sufficient, determine any issue necessary for disposal of appeal, - (a) which has not been determined by lower Appellate Court or both by Court of first instance and lower Appellate Court, or (b) which has been wrongly determined by such Court or Courts by reason of decision on such question of law as is referred to in section 100." What is Substantial Question of Law? 20. From bare comparison of provisions quoted above and as discussed in various judgments of Constitutional Courts, which we will refer in brief herein below, it is clear that Scheme of both Section 260-A in Income Tax Act, 1961 and Section 100 r/w. Section 103 of Code of Civil Procedure are in pari materia and in same terms. 49 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 21. existence of substantial question of law is sine qua non for maintaining appeal before High Court. While appeal to High Court under Section 260-A of Act may be First appeal in sense from order of final fact finding by Tribunal under Income Tax Act, whereas Second Appeal on substantial question of law before High Court under Section 100 would lie against Judgment and Decree of first Appellate Court disposing of appeal against Judgment and Decree of Trial Court, but nonetheless it is third round of consideration at level of High Court, where facts and law both have been screened, discussed and analyzed by Authorities or Courts below and therefore tenor and color of words "substantial question of law" in both these enactments remains same. 22. High Court has power to not only formulate substantial questions of law and rather it has duty to do so and can also frame additional substantial questions of law at later stage, if such substantial question of law is involved in appeal before it under these provisions and appeal should be heard and decided only on such substantial questions of law after allowing parties to address their arguments on same. extended power given to High Courts to decide even issue under Sub- section (6) of Section 260-A of Income Tax Act, which is in pari materia with Section 103 of Civil Procedure Code and which says that High Courts may determine any issue which (a)has not been determined by Tribunal or (b) has been wrongly determined by Tribunal, can be so determined by High Court, only if High Court comes to conclusion that 'by 50 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc reason of decision on substantial question of law rendered by it', such determination of issue of fact also would be necessary and incidental to answer given by it to substantial question of law arising and formulated by it. 14. Section 92-A defines Associated Enterprise (A.E.) in relation to another enterprise to mean enterprise which participates directly or indirectly, or through one or more intermediaries, in management or control or capital of other enterprise by holding not less than 26% of voting power in other enterprise and satisfies other criteria as stated in Section 92-A of Act. 14.1. Relevant portion of Section 92-B of Act reads thus : international transaction means transaction between two or more associated enterprises, either or both of whom are non-residents, in nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having bearing on profits, income, losses or assets of such enterprises, and shall include mutual agreement or arrangement between two or more associated enterprises for allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with benefit, service or facility provided or to be provided to any one or more of such enterprises. 51 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 14.2. Section 92-C (1) of Act reads thus : (1) arm's length price in relation to international transaction (or specified domestic transaction) shall be determined by any of following methods, being most appropriate method, having regard to nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as Board may prescribe, namely : (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transnational net margin method; (f) such other method as may be prescribed by Board. 14.3. Section 92-CA deals with reference to Transfer Pricing Officer where assessee has entered into international transaction specified domestic transaction and Assessing Officer considers it necessary or expedient, he may with previous approval of Principal Commissioner or Commissioner refer computation of arm s length price in relation to said international transaction or specified domestic transaction to Transfer Pricing Officer. 14.4. Section 92-F (ii) of Act defines arm s length price and reads thus :- (ii) arm s length price means price which is applied or proposed to be applied in transaction between persons other 52 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc than associated enterprises, in uncontrolled conditions; 15. In case before us TNMM method appears to have been most popular and widely adopted method for determining Arm s Length Price in which operating profit margin of comparable companies are considered by authorities and applied to case of assessee to determine Arm s Length Price to make transfer pricing adjustments. Rules 10-A, 10-AB, 10-B, 10-C and 10-CA of Income Tax Rules, 1962 prescribe manner for working out Arm s Length Price under prescribed methods. From aforesaid scheme of assessment, it is clear that process of determination of Arm s Length Price has to be undertaken by Expert Wing of Income Tax Department which is manned by TPO and at higher level by collegium of three Commissioners in form of DRP whose orders are appealable before Appellate Tribunal. In above backdrop, in so far as present case is concerned TPO had rejected six comparable companies chosen by assessee for bench marking namely i) Access India Advisors Limited; ii) ICRA Management Consulting Services Limited; iii) IDC (India) Limited; iv) Informed Technologies Limited; v) Integrated Capital Services Limited and vi) Kinetic Trust Limited. Transfer Pricing Officer (TPO) only accepted one company as comparable company being Future Capital Investment Advisors Limited but undertook further detailed analyses and proposed to include following five more companies as comparables namely i) Future Capital Holdings Limited 53 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc (Segmental); ii) ICRA Online Limited (Segmental); iii) IDFC Investment Advisors Private Limited; iv) Kshitij Investment Advisors Limited and v) Motilal Oswal Investment Advisors Private Limited. 16. submissions advanced on behalf of respective parties are mostly based upon filters which have been applied which are essentially related to turnover filter, comparable entities being functional entities, higher transfer pricing adjustments, transfer pricing analyses and profits declared by companies. We have quoted specific findings given by Tribunal and would therefore, not like to dwelve deeper or reiterate same. We would however like to say that Tribunal has considered case of each comparable company and discussed parameters of comparables for purposes of including same as comparable and / or excluding same as comparable on basis of functionality of said companies in public domain. We find that such detailed exercise having been undertaken by Tribunal qua each and every comparable company, reasons given by Tribunal cannot be faulted with in respect of comparable companies. Tribunal has referred to and relied upon order passed by this Court in case of Principal Commissioner of Income Tax - 14 Vs. Temasek Holdings Advisors India Pvt. Ltd. in Income Tax Appeal No.304 of 2017 delivered on 16 th April 2019, wherein following substantial questions of law were framed. (a) Whether on facts and in circumstances of case, 54 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc Tribunal is correct in law in directing Assessing Officer to include ICRA Management Consultancy Services Ltd., Kinetic Trust Limited in set of comparable companies while determining TP adjustment of international transaction ? (b) Whether on facts and in circumstances of case, Tribunal is correct in law in striking down additional markup margin of 3% to average PLI of comparable companies selected by TPO ? 17. In said order, this Court after referring to another order dated 17th November 2016 passed in Income Tax Appeal No.1051 of 2014 dismissed revenue s appeal raising objection to Tribunal s decision to include ICRA Management Consultancy Services Ltd. and Kinetic Trust Limited which were both rejected by TPO. So also in present case, comparables suggested by assessee which were excluded by TPO / DRP were in fact adopted as comparables by TPO for financial year 2009 - 2010 in case of assessee itself. This aspect was also considered in aforesaid order. 18. assessee has placed before us copy of judgment delivered by this Court in case of Principal Commissioner of Income Tax - 3 V/s. M/s. Bain Capital and Advisors (I) P. Ltd. in Income Tax Appeal No.541 of 2016, dated 24th November 2018, wherein revenue had urged following question for consideration. Whether on facts and in circumstances of case 55 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc and in law, Tribunal was justified in holding that Motilal Oswal Investment Advisors Pvt. Ltd. and M/s. IDFC Ltd. were not comparables for purpose of Rule 10B of Income Tax Rules ? 19. This Court after due consideration dismissed appeal of revenue holding that no substantial question of law arose from order of Tribunal. 20. On thorough consideration we find that rational for inclusion of six comparables excluded by TPO have been dealt with in extensive detail by Tribunal and we are in agreement with reasons recorded by Tribunal. Further reasons given for inclusion of five new comparables by TPO have been decidedly set aside by Tribunal on basis of decisions rendered by this Court either in case of assessee itself and / or in other cases after proper consideration. 21. At this stage we would like to refer to paragraph No.54 in judgment of Principal Commissioner of Income Tax Vs. M/s. Softbrands India Pvt. Ltd. (supra), which reads thus : 54. procedure of assessment under Chapter X relating to international transactions as indicated above is already lengthy one and involves multiple Authorities of Department. huge, cumbersome and tenacious exercise of Transfer Pricing Analysis has to be undertaken by 56 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc Corporate Entities who have to comply with various provisions of Act and Rules with huge Data Bank and in first instance they have to satisfy that profits or income from transactions declared by them is at 'Arm's length' which analysis is invariably put to test and inquiry by Authorities of Department and through process of Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) and Tribunal at various stages, assessee has cumbersome task of compliance and it has to satisfy Authorities that what has been declared by them is true and fair disclosure and much of Transfer Pricing Adjustments is not required but Tax Authorities have their own view on other side and effort on part of Tax Revenue Authorities is always to extract more and more revenue. This process of making huge Transfer Pricing Adjustments results in multi- layer litigation at multiple Fora. After lengthy process of same, matter reaches Tribunal which also takes its own time to decide such appeals. In course of this dispute resolution, much has already been lost in form of time, man-hours and money, besides giving adverse picture of sluggish Dispute Resolution process through these channels. If appeals under Section 260-A of Act were to be lightly entertained by High Court against findings of Tribunal, without putting it to strict scrutiny of existence of substantial questions of law, it is likely to open flood-gates for this litigation to spill over on dockets of High Courts and up to Supreme Court, where such further delay may further cause serious damage to demand of expeditious judicial dispensation in such cases. 57 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Ajay ITXA-1125-17.doc 22. From above, it is clear that appeal filed under Section 260A of said Act is required to be entertained only on substantial question of law arising out of order of Tribunal, keeping in mind that we can not disturb findings of fact under Section 260A of said Act unless such findings are shown to be ex-facie perverse and unsustainable and exhibit total non-application of mind. We are therefore of considered opinion that present appeal filed by Revenue does not give rise to any substantial question of law. appeal filed by Revenue is found to be devoid of merit and same is liable to be dismissed. 23. In view of above findings, appeal filed by Revenue is therefore dismissed with no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN,J.) 58 of 58 Uploaded on - 27/02/2020 Downloaded on - 03/03/2020 14:17:37 Pr. Commissioner of Income-tax-6, Mumbai v. Eight Roads Investment Advisors Pvt. Ltd. (Formerly known as FIL Capital Advisors India Pvt. Ltd.)