Pr. Commissioner Of Income Tax - 6,R v. M/S. Eight Roads Investment Advisors Pvt. Ltd.(Formerly Known As Fil Capital Advisors Indiapvt. Ltd.)

Ajay IN THE 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, 5[th] Floor, Aayakar Bhavan,M.K. Road, Mumbai - 400 020. ...Appellant Versus M/s. Eight Roads Investment Advisors Pvt. Ltd.(Formerly known as FIL Capital Advisors IndiaPvt. Ltd.), 304, 3[rd] Floor, Tower – A,Peninsula Business Park, G.K. Marg,Lower Parel, Mumbai – 400 013. ...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 the Respondent. CORAM : UJJAL BHUYAN, & MILIND N. JADHAV, JJ. RESERVED ON : 24[th] January 2020. PRONOUNCED ON : 27[th] February 2020. JUDGMENT (PER MILIND N. JADHAV, J.) :- 1.This appeal has been preferred under Section 260A of theIncome Tax Act 1961 (for short ‘the said Act’) for the assessment year 2010 –2011, against the order dated 25[th] October 2016 passed by the Income TaxAppellate Tribunal “K” Bench, Mumbai (hereinafter referred to as“Tribunal”). 2. The respondent / assessee entered into an international transaction of non-binding investment advisory services with its AssociateEnterprises (for short ‘A.E.’) and earned revenue of Rs.25.83 crores duringthe assessment year 2010 - 2011. The assessee for the purpose of benchmarking the transaction adopted Transnational Net Margin Method (for short“TNMM”) as an appropriate method under the provisions of Section 92C ofthe Act and identified seven comparable companies as comparables with theirthree years average weighted margin of 18.23% and operating margin being at19.67% for the purpose of claiming the international transaction to be at arm’slength. 2.1The Assessing Officer (for short “AO”) framed a draftassessment order dated 26[th] February 2014 making an upward revision oftransfer pricing adjustment of Rs.4,96,42,540.00. The assessee approachedthe Dispute Resolution Panel (for short “DRP”) against the draft assessmentorder with its objections. The DRP vide order dated 7[th] October 2014 rejectedthe contentions and objections raised by the assessee in relation to upwardrevision of transfer pricing adjustment and directed the AO to finalize thedraft assessment, resulting in passing of the impugned assessment order. TheAO / Transfer Pricing Officer (for short “TPO”) by his final order dated 31[st]October 2014 rejected the transfer pricing study of the assessee on the basis ofvarious defects and deficiencies and rejected six out of seven comparablesselected by the assessee while retaining one comparable on the basis of singleyear data. However in the said order the TPO proceeded and selected six newcomparable companies as comparables with an arithmetic mean of 42.66% of Ajay operating margin. The TPO applied the aforesaid arithmetic mean to beoperating cost of the assessee and determined the arm’s length price ofRs.30,79,92,412.00 as against the international transaction price ofRs.25,83,49,872.00 resulting in a short fall of Rs.4,96,42,540.00. This shortfall was treated as transfer pricing by the TPO. 3.The above order was assailed by the assessee before theTribunal. Tribunal by the impugned order dated 25[th] October 2016 allowedthe appeal filed by the assessee in elaborate detail with respect to selection ofeach comparable company by the TPO and DRP and directed the AO / TPO todetermine the arm’s length price afresh in terms of fresh directions given bythe Tribunal in respect of each comparable company. Being aggrieved by theorder passed by the Tribunal the revenue is in appeal before us. 4.The revenue has projected the following substantial questions oflaw :- 3.The above order was assailed by the assessee before theTribunal. Tribunal by the impugned order dated 25[th] October 2016 allowedthe appeal filed by the assessee in elaborate detail with respect to selection ofeach comparable company by the TPO and DRP and directed the AO / TPO todetermine the arm’s length price afresh in terms of fresh directions given bythe Tribunal in respect of each comparable company. Being aggrieved by theorder passed by the Tribunal the revenue is in appeal before us. 4.The revenue has projected the following substantial questions oflaw :- “6.1 “Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing to excludefor functionally comparable companies from the list ofcomparables selected by the TPO viz. M/s IDFC InvestmentAdvisors Pvt. Ltd, M/s ICRA Online Ltd., M/s Motilal OswalInvestment Advisors Pvt. Ltd. and M/s Kshitij InvestmentAdvisory Co.Ltd., on the ground of functional dissimilarity ?” 6.2“Whether on the facts and circumstances of the case and in Law, the Hon’ble ITAT was justified in directing to considerfour companies viz. M/s ICRA Management ConsultingServices Pvt. Ltd., M/s IDC India Limited, M/s InformedTechnology Ltd. and M/s Kinetic Trust Ltd. as comparableeven though these companies are not functionally comparableto that of the assessee ?” 6.3“Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing not toconsider M/s IDFC Investment Advisors Ltd as a comparable,without appreciating the fact that the said company hasearned Rs.13.42 crores from Investment Advisory Services outof total revenue of Rs.26.29 crores ?” 6.4“Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing not toconsider M/s ICRA Online Ltd. as a comparable withoutappreciating the fact that TPO has used segmental results of“outsourced services” of the said company for comparativelypurpose and that segment is functionally similar to that ofassessee ?” 6.5“Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing not toconsider M/s Motilal Oswal Investment Advisors Pvt. Ltd. asa comparable without appreciating the fresh facts brought onrecord by the TPO in respect of functions performed andassets employed by the said company u/s 133 (6) such asemployee profile and income received from top clients of thesaid company ?” 6.6“Whether on the facts and in the circumstances of thecase and in Law, the Hon’ble ITAT was justified in directingnot to consider M/s Kshitij Investment Advisory Co. Ltd. as acomparable on account of peculiar economic circumstancesarising as a result of realignment with another company,simply relying on the decision of Hon’ble ITAT in the case ofCarlyle India Advisors Pvt. Ltd., ITA No.1040/Mum/2015 andAGM Advisors India Pvt. Ltd., ITA No.4757/Mum/2015,without appreciating the fact that the realignment has notresulted in any change of activity of the business of the saidcompany ?” 6.7“Whether on the facts and in the circumstances of thecase and in Law, the Hon’ble ITAT was justified in directingnot to consider M/s Kshitij Investment Advisory Co. Ltd. as acomparable without appreciating the fresh facts brought onrecord by the TPO in respect of functions performed andassets employed by the said company u/s 133 (6) such asemployee profile and income received from top clients of thesaid company ?” 6.8“Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing toconsider M/s ICRA Management Consulting Services Pvt.Ltd. as a comparable without appreciating the fact that thesaid company is not into Investment Advisory services and theassessee company has also itself submitted in the course of TPproceedings that the functions performed by this company arenot exactly similar to the assessee company ?” 6.8“Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing toconsider M/s ICRA Management Consulting Services Pvt.Ltd. as a comparable without appreciating the fact that thesaid company is not into Investment Advisory services and theassessee company has also itself submitted in the course of TPproceedings that the functions performed by this company arenot exactly similar to the assessee company ?” 6.9“Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing toconsider M/s ICRA Management Consulting Services Pvt.Ltd. as a comparable without appreciating the fresh factsbrought on record by the TPO in respect of functionsperformed and assets employed by the said company u/s 133(6) to substantiate that the services provided to top ten clientsof the said companies and its employee profile are differentfrom that of assessee during the year under consideration ?” 6.10 “Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing toconsider M/s IDC India Ltd. as a comparable withoutappreciating the fact that the said company is not intoInvestment Advisory Services and the assessee company hasalso itself submitted in the course of TP proceedings that thefunctions performed by this company are not exactly similarto the Assessee company ?” 6.11 “Whether on the facts and circumstances of the case andin Law, the Hon’ble ITAT was justified in directing toconsider M/s Informed Technology Ltd. as a comparablewithout appreciating the fact that the said company is notinto Investment Advisory Services and the assessee companyhas also itself submitted in the course of TP proceedings thatthe functions performed by this company are not exactlysimilar to the Assessee company ?” 6.12 “Whether on the facts and circumstances of the case and in Law, the Hon’ble ITAT was justified in directing toconsider M/s Kinetic Trust Ltd. as a comparable withoutappreciating the fact that the said company is not intoInvestment Advisory Services and its turnover is less thanRs.1 crore ?” 5.We may now advert to the relevant facts necessary forappreciating the controversy in question :- 5.1.The assessee company filed return of income on 11.10.2010declaring a total income of Rs.7,00,51,101/- for the assessment year 2010 –2011. The case of the assessee was selected for scrutiny and statutory noticeunder Section 143 (2) of the Act was issued, also notice under Section 142(1), inter alia, calling for various details in connection with scrutinyassessment proceedings. The assessee company through its authorizedrepresentative furnished the details called for. Thereafter the AO discussedthe case. Reference was made to the TPO for computation of arm’s lengthprice in relation to the international transaction. The TPO by his draft orderdated 26[th] February 2014 reported an upward adjustment of Rs.4,96,42,540.00in respect of the value of the international transaction made by the assesseewith its Associate Enterprises (A.E.) with regard to arm’s length price. Theassessee was given a fair chance to explain as to why the addition should notbe made on the transfer pricing adjustment of Rs.4,96,42,540.00. The TPOafter hearing the assessee passed order under Section 92CA (iii) of the saidAct making an upward adjustment to the tune of Rs.4,96,42,540.00. 5.2.The assessee chose the following seven comparable companiesfor the purposes of bench marking :- The TPO after considering various aspects of the comparablecompanies rejected six out of the aforesaid seven comparables chosen by theassessee. The TPO accepted only one company which was Future CapitalInvestment Advisors Limited and after undertaking a further detailed analysisof the entire matrix of acceptance and rejection based on profit and operatingmargin proposed to include five fresh / new comparables as under :- 5.2.The assessee chose the following seven comparable companiesfor the purposes of bench marking :- The TPO after considering various aspects of the comparablecompanies rejected six out of the aforesaid seven comparables chosen by theassessee. The TPO accepted only one company which was Future CapitalInvestment Advisors Limited and after undertaking a further detailed analysisof the entire matrix of acceptance and rejection based on profit and operatingmargin proposed to include five fresh / new comparables as under :- The TPO included the above five comparable companies in theset of comparables and thus finalised a set of six comparables for the purposeof bench marking the international transaction of the assessee. The TPO considered the financial data and annual reports of the six comparables for thefinancial year 2009 - 2010 as per Rule 10B(4) and with the arithmetic meanof their operating margin being at 42.66% arrived at an upward adjustment ofRs.4,96,42,540.00 in his order. 5.3.The assessee filed its objection against the order of TPO beforethe DRP, III, Mumbai. Before the DRP assessee summarized that it hadentered into an international transaction with its A.E. to provide investmentadvisory services of Rs.25.83 crores. The assessee for the purpose of benchmarking the international transaction had chosen TNMM as the mostappropriate method and identified seven comparable companies with theirthree years average weighted margin of 18.23% and operating profit marginbeing 19.67%, for providing investment advisory services to be at arm’slength. 5.4.The DRP considered the submissions of the assessee citingfunctional details as also related party transactions in the case of comparableswhich were rejected by the TPO and returned a finding that for the reasonsgiven by the TPO in his draft order which were in substantial detail regardingnon submission of financials and other details of the A.E., rejected thecomparables adopted by the assessee and included the new comparablessuggested by the TPO. DRP held that draft order passed by the TPO wassustainable and did not require any interference in the bench marking done by Ajay ITXA-1125-17.doc the TPO. Accordingly, AO vide his final order dated 31[st] October 2014completed the assessment in terms of order dated 07[th] October 2014 passed bythe Dispute Resolution Panel (DRP) – III, Mumbai. 5.5.The assessee approached the Tribunal against the order of theDRP. The Tribunal after a thorough analysis of each comparable offered thefollowing reasons for inclusion of the six rejected comparables which wereexcluded by the TPO and DRP. For the sake of completeness, we would liketo dwelve into the scrutiny and reasons given by the Tribunal in respect ofeach of the comparables which came to be included by the Tribunal ascomparables. NEW COMPARABLES SELECTED BY TPO / DRP WHICH WEREREJECTED BY TRIBUNAL 5.6IDFC INVESTMENT ADVISORS PVT. LTD. Before the Tribunal the assessee objected to the selection of thiscompany as a comparable by the TPO on the ground that the said companywas primarily engaged in providing Portfolio Management Services (PMS).The assessee submitted that PMS and investment banking services werefunctionally different from investment advisory services undertaken by theassessee. The assessee company was an investment advisory servicecompany as stated in its annual report in relation to IDFC which was actuallya PMS. The assessee submitted that, functions performed by this company Ajay NEW COMPARABLES SELECTED BY TPO / DRP WHICH WEREREJECTED BY TRIBUNAL 5.6IDFC INVESTMENT ADVISORS PVT. LTD. Before the Tribunal the assessee objected to the selection of thiscompany as a comparable by the TPO on the ground that the said companywas primarily engaged in providing Portfolio Management Services (PMS).The assessee submitted that PMS and investment banking services werefunctionally different from investment advisory services undertaken by theassessee. The assessee company was an investment advisory servicecompany as stated in its annual report in relation to IDFC which was actuallya PMS. The assessee submitted that, functions performed by this company Ajay such as investment and brokerage were performed by an Investment Advisor(IA). After a detailed scrutiny of the profit and loss account of this company,it was revealed that this company was engaged in a number of activities asreported by the revenue under one segment. Unlike the assessee, thefunctions performed, assets employed and risks undertaken by this companywere totally different than the functions performed by the assessee company.Therefore it could not be treated as a comparable. In support of the abovepropositions to challenge the inclusion of IDFC Investment Advisors Pvt. Ltdas comparable by the TPO / DRP, assessee relied upon the followingjudgments. “i) AGM India Advisors Pvt. Ltd. v/s DCIT, ITAno.4757/Mum./2015, A.Y. 2010-11, order dated 18[th] May2016; ii)Carlyle India Advisors Pvt. Ltd. ITAno.1040/Mum./2015, A.Y. 2010-11, order dated 18.11.2015; iii)Bain Capital Advisors (India) Pvt. Ltd. v/s DCIT, ITAno.413/Mum./2015, A.Y. 2010-11, order dated 15.5.2015; iv)Sparkles Dhandho Advisors P. Ltd. v/s ITO, ITAno.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, ITAno.7638/Mum./2011 order dated 17.5.2013; vii)Goldman Sachs India Securities Pvt. Ltd. v/s CIT, 69taxmann.com 19;” Ajay The Tribunal after considering the submissions and morespecifically findings expressed by the Tribunal, Mumbai Bench in the case ofAGM India Advisors Pvt. Ltd. (supra) concluded that as seen in the case ofCarlyle India Advisors Pvt. Ltd. (supra) after perusing the annual report ofthis company, the Tribunal had arrived at a finding that the said company wasengaged in providing PMC and such services were fee based and the saidcompany had earned revenue from different segments such as portfoliomanagement fee, performance fee, advisory fee etc. On this basis, theTribunal arrived at a finding that in the above scenario, where a company wasremunerated on cost plus basis, it was risk insulated and therefore, onapplication of FAR analysis, it could be compared with other companies ifthere is any difference in its functions. The Tribunal refered to theobservation of the Hon’ble High Court in the case of General Atlantic PvtLtd. (supra) while approving the view expressed in Carlyle India AdvisorsPvt. Ltd. (supra), rejected this company i.e. IDFC Investment Advorse Pvt.Ltd as a comparable. 5.7ICRA Online Limited (Segmental) The assessee objected to the selection of this company as acomparable selected by the TPO as this company had three lines of businessverticals viz. Outsource Service, Information Service and Software Products /Service. The assessee submitted that the financials of this company did notindicate the kind of service rendered by the outsource service segment and its Ajay 5.7ICRA Online Limited (Segmental) The assessee objected to the selection of this company as acomparable selected by the TPO as this company had three lines of businessverticals viz. Outsource Service, Information Service and Software Products /Service. The assessee submitted that the financials of this company did notindicate the kind of service rendered by the outsource service segment and its Ajay annual report was silent thereon. The assessee submitted that informationprovided on the web site of this company showed that it had two strategiclines of business namely Knowledge Process Outsourcing (KPO) andInformation Service and Technology Solutions. The assessee submitted thatperformance of the aforesaid activities made this company financiallydifferent from the assessee and hence, it could in no way be treated ascomparable with the assessee company. The Tribunal on perusal of theinformation submitted in the annual report of this company as well as itsfinancials, returned a finding that the functions undertaken by this companywere totally different from the assessee company and therefore the companyfailed in the FAR analysis itself. Thus, the Tribunal rejected this company i.e.ICRA Online Limited (Segmental) as a comparable. 5.8Motilal Oswal Investment Advisors Pvt. Ltd. (MOIAPL) The assessee objected to this company as a comparable selectedby theTPO as it derived its business verticals from equity capital market,mergers and acquisition, private equity syndication and structural debts. Theassessee submitted that as per this company’s annual report, the companyadvised Indian Corporates on cross border acquisitions and this company wasa SEBI regulated merchant Banker which provided investment bankingservices in the nature of acquisition equity placements, IPOs, syndication, etc.and had undertaken activities as lead manager / arranger / sole book runneretc. for various portfolios and earned investment banking fee for the same. Ajay The assessee therefore submitted that, this company was not comparable to anon-binding investment advisory and related service provider like theassessee. The Tribunal after going through the annual report of this companyreturned a finding that, this company was functionally different from theassessee because of the functions performed, assets employed and riskundertaken and failed in the FAR analysis. Thus, the Tribunal rejected thiscompany i.e. MOIAPL as a comparable. 5.9Kshitij Investment Advisory Company Limited The assessee objected to this company as a comparable selectedby the TPO as this company had entered into an agreement with anothercompany namely Everstone Investment Advisors Pvt. Ltd. to realign itsinvestment advisory activities with effect from 01[st] January 2010 and as aresult of such joint venture, its entire business was restructured. The assesseesubmitted that, the profit and loss account of this company for the financialyear 2010 – 2011 revealed that no revenue was earned from investmentadvisory business. The assessee submitted that this company had operatedonly for nine months during the financial year 2009 - 2010 and hence couldnot be compared to the assessee. The Tribunal after considering the materialavailable on record and the decisions in Carlyle India Advisors Pvt. Ltd(supra) followed by AGM India Advisors Pvt. Ltd. (supra) returned a findingthat this company could not be treated as a comparable. The Tribunal basedits finding on the decisions given in the aforesaid two cases, in respect of this 14 of 58 Ajay company pertaining to the very same assessment year and followed thedecisions of the co-ordinate bench in excluding this company from the list ofcomparables. 6.The assessee had suggested the following companies ascomparables which were originally rejected by the TPO / DRP, but wereaccepted by the Tribunal as comparables after a detailed scrutiny.6.1ICRA Management Consulting Service Pvt. Ltd. 14 of 58 Ajay company pertaining to the very same assessment year and followed thedecisions of the co-ordinate bench in excluding this company from the list ofcomparables. 6.The assessee had suggested the following companies ascomparables which were originally rejected by the TPO / DRP, but wereaccepted by the Tribunal as comparables after a detailed scrutiny.6.1ICRA Management Consulting Service Pvt. Ltd. This company was rejected by the TPO / DRP as comparable.This company offered consulting / advisory services through differentbusiness groups and practice areas pertaining to strategy, risk management,operations improvement, corporate advisory etc. On the basis of the profitand loss account statement of this company, the assessee submitted that thiscompany derived its revenue from consulting fees. It was the assessee’s casethat the functions performed by this company with respect to managementconsultancy service involved analysis of business and operations of acompany, its profitability, operational efficiency, future outlook, etc. based onwhich consultancy or advise is given to the management of a company. Suchfunctions were similar to that of a non-binding investment advisory andrelated services rendered by the assessee. The assessee submitted that thiscompany had undertaken activities in other fields like business andoperations, geographic research discussing the regulations laid out in the bio-generics globally, market research in respect of various products, business and operation analysis and therefore, this company ought to have been accepted asa comparable in the assessee’s own case by the TRO / DRP. The case of theDR was that this company operated in various verticals as also conducted itsbusiness through various practice divisions such as Government andinfrastructure practice, energy practice, banking and financial service,corporate advisor practice etc. The assessee however on the basis ofdocumentary evidence which were placed on record submitted that the serviceprovided by this company covered a wide spectrum of activities which wereessentially advisory service. Hence, this company could be determined as acomparabale. The Tribunal considered these submissions and in view of theabove, following the decisions of the co-ordinate bench in the case of AGMIndia Advisor Pvt. Ltd. (supra) and in the decision of Temasec HoldingsAdvisors India Pvt. Ltd. (supra) included this company as a comparable. 6.2IDC India Limited This company was rejected by the TPO / DRP as comparable.This company was engaged in the business and research and certificateglobally, it was provider of market intelligence advisory services and eventsfor information technology, telecom and consumer technology markets. Theassessee submitted that, this company was engaged in research and surveyfunctions which were functionally comparable to advisory support servicesrendered by the assessee. The assessee submitted that, in the assessee’s owncase for the assessment year 2009 – 2010, this company had been accepted as Ajay a comparable by the TPO / DRP and therefore there was no reason to excludethe same in the related assessment year. The Tribunal after considering thematerials available on record with reference to this company rejected thesubmission of the DR for exclusion, by referring to a similar submissionmade by the department in the case of Temasec Holdings Advisors India Pvt.Ltd. (supra) and relying upon the co-ordinate bench decision in the case ofAGM India Advisors Pvt. Ltd. (supra) included this company as comparable. 6.3Informed Technologies Limited Ajay a comparable by the TPO / DRP and therefore there was no reason to excludethe same in the related assessment year. The Tribunal after considering thematerials available on record with reference to this company rejected thesubmission of the DR for exclusion, by referring to a similar submissionmade by the department in the case of Temasec Holdings Advisors India Pvt.Ltd. (supra) and relying upon the co-ordinate bench decision in the case ofAGM India Advisors Pvt. Ltd. (supra) included this company as comparable. 6.3Informed Technologies Limited This company was rejected by the TPO / DRP as comparable.This company collected and analysed data on financial fundamentals,corporate governance, director / executive compensation and capital marketand this was similar to work done by the assessee who was involved in dataanalysis of potential clients, analyzing market conditions, conducting researchin various sectors, markets, companies etc. After perusal of the annual reportof the company and relying on the decisions passed in the case of TemasekHoldings Advisors India Pvt. Ltd. (supra), the Tribunal held that since theTPO / DRP had accepted it as a comparable in the assessee’s own case forassessment year 2009 – 2010, this company should not be excluded from thelist of comparables. 6.4 Kinetic Trust Limited This company was rejected by the TPO / DRP as comparable. Ajay On the basis of annual report of this company, the fact of this company wasaccepted as a comparable to the asssessee by the TRO / DRP for theassessment year 2009 – 2010 was considered by the Tribunal. Referring tothe decision of Temasek Holdings Advisors India Pvt. Ltd. (supra), as also thedecision of the Tribunal, Delhi Bench, in Nortel Network India Pvt. Ltd.(supra) which was affirmed by the Delhi High Court in Nortel Network IndiaPvt. Ltd., ITA No.3043/2015, the issue of application of “Turnover filter” wasanalysed and the Tribunal concluded that if this company was functionallysimilar, only because of low turnover filter it could not be rejected. TheTribunal included this company as a comparable. 6.5The Tribunal by the impugned order directed the AO / TPO todetermine the arm’s length price afresh in terms of the directions contained inthe order. 7.We have perused and considered the draft assessment orderdated 26[th] February 2014, the assessment order under Section 143 (3) of theAct dated 31[st] October 2014, DRP order under Section 144C(1) of the Actdated 07[th] October 2014, and the Tribunal’s order dated 25[th] October 2016with the assistance of Shri. Malhotra and Shri. Thakkar appearing on behalf ofthe respective parties. 8.At the outset, we would like to state that, the findings arrived atby the Tribunal are entirely one of facts and the revenue has failed to show as 18 of 58 Ajay to how the said findings are perverse in any manner whatsoever. Delhi HighCourt in Pr. CIT v. WSP Consultants India Pvt. Ltd. reported (2018) 253Taxman 58/ (2017) 87 taxmann.com 266 (Delhi) observed thus : “10. Any inclusion or exclusion of comparables per se cannotbe treated as a question of law unless it is demonstrated to theCourt that the Tribunal or any other lower authority took intoaccount irrelevant consideration or excluded relevant factorsin the ALP determination that impact significantly.” Though the revenue says that the questions projected inparagraph Nos.6.1 to 6.12 are not just questions of law but substantialquestions of law, the assessee disagrees with the same and submits that theTribunal’s order has been rendered on purely factual questions which areconsistent with the materials placed on record and hence, in the submission ofthe assessee, the appeal deserves to be dismissed. “10. Any inclusion or exclusion of comparables per se cannotbe treated as a question of law unless it is demonstrated to theCourt that the Tribunal or any other lower authority took intoaccount irrelevant consideration or excluded relevant factorsin the ALP determination that impact significantly.” Though the revenue says that the questions projected inparagraph Nos.6.1 to 6.12 are not just questions of law but substantialquestions of law, the assessee disagrees with the same and submits that theTribunal’s order has been rendered on purely factual questions which areconsistent with the materials placed on record and hence, in the submission ofthe assessee, the appeal deserves to be dismissed. 9.We would state that before the Tribunal one of the principalsubmissions was that in the assessee’s own case similar questions had beendealt with for the previous assessment year in respect of the same comparableand therefore, heavy reliance was placed on the earlier order of the Tribunalin the assessee’s own case for accepting the comparables (which wereexcluded in the present year). 10. At this stage, we would like to refer to the judgment passed by Ajay the Karnataka High Court in I.T.A. No.536 of 2015 along with I.T.A. No.537of 2015, in the case of Principal Commissioner of Income Tax v/s. M/s.Softbrands India Pvt. Ltd., delivered on 25[th] June 2018, which has been reliedupon by the assessee. The special provisions relating to Avoidance of Tax inChapter X of the Act comprising of Sections 92 to 94 - B with regard toassessment to be done for computation of income from internationaltransactions on the principles of arm’s length price and perspective ofinternational trade and transactions are enumerated in paragraph Nos.3 to 6therein which read thus : “3.The Indian Income Tax Act, 1961 contains SpecialProvisions relating to Avoidance of Tax in Chapter X of theAct comprising of Sections 92 to 94-B with regard toassessment to be done for computation of income frominternational transactions on the principles of ‘Arm’s LengthPrice’ (ALP) and the relevant Rules for computation of suchincome under the aforesaid provisions of Chapter X areenacted in the form of Rule 10-A to 10-E in the Income TaxRules, 1962. Perspective of International Trade and Transactions: 4.With the ever increasing international Trade andtransactions, particularly, in the Software Industries andBangalore, being the Silicon Valley of India where many big,small and medium size Software Industries have their Officesand Units in this Software Industry, and Bengaluru is a hub ofthis Service Industry and essentially the Indian Companieshave business linkages with large Companies spread worldwide particularly in the Western Hemisphere of theGlobe. 5. The implementation of the Tax laws in this field in asmooth, clear and quick manner is of utmost importance tobuild an image of an efficient Tax Administration both atDepartmental level and in Judicial Courts so that theeconomic activity in such borderless trade thrives and enuresto the benefit of the Indian economy at large and SoftwareIndustry in particular. worldwide particularly in the Western Hemisphere of theGlobe. 5. The implementation of the Tax laws in this field in asmooth, clear and quick manner is of utmost importance tobuild an image of an efficient Tax Administration both atDepartmental level and in Judicial Courts so that theeconomic activity in such borderless trade thrives and enuresto the benefit of the Indian economy at large and SoftwareIndustry in particular. 6.While the special provisions have been made forcomputation of ‘Arm’s Length Price’ to arrive at a fairassessment of income taxable in the hands of the IndianResident Companies and these special provisions also providefor an elaborate and in-depth analysis of huge data of thecomparable cases of other similarly situated Companies toarrive at a fair ‘Arm’s Length Price’ and for that, SpecialCells and designated Authorities have been created under theIncome Tax Act, 1961, but still retaining the normal provisionsfor assessments of appeals in the Indian Income Tax Act aboutthe remedial Forums or the appeal mechanisms and theIncome Tax Appellate Tribunal constituted under Section 253of the Act continues to be the final fact finding body under theAct even with regard to the assessments of the internationaltransactions under the Special Chapter X as aforesaid and theappeal to the Constitutional Courts as provided in Section260-A to High Court and Section 261 to the Hon’ble SupremeCourt are applicable to these special assessments underChapter X as well.” 11.Now we would like to refer to the findings, reasons, analysis andscrutiny under taken / given by the Tribunal in its order for excluding thecomparables suggested by the TPO on the touchstone of comparability tomatch with the functions performed by the assessee. 11.1Paragraph Nos. 4 and 5 of the Tribunal’s order pertaining toexclusion of IDFC Investment Advisors Pvt. Ltd. reads thus : “4.We have considered the submissions of the parties andperused the material available on record in the light of thedecisions relied upon. On a perusal of the annual report ofthis company, it is very much clear that the company isengaged in providing PMS and such service is fee based. Thatapart, reference to the Profit & Loss account does indicatethat the company, though, has earned revenue from differentsegments such as portfolio management fee, performance fee,advisory fee, etc., but the segmental details are not availableFurther, we have also noted from the annual report of thecompany that it has made investment and also incurredbrokerage expenses. If we compare the assessee’s activitieswith the comparable, it could be seen that the assessee is onlyproviding advisory service to its A.E. which is non–binding innature, therefore, is totally different from the functionsperformed by IDFC. Considering the aforesaid aspect, theTribunal, Mumbai Bench, in Carlyle India Advisors Pvt. Ltd.(supra), has held that this company is not comparable to aninvestment advisor service provider. Same view has also beenexpressed by the Tribunal, Mumbai Bench, in AGM IndiaAdvisors Pvt. Ltd. v/s DCIT, ITA no.4757/Mum./2015, A.Y. 2010–11, order dated 18[th] May 2016, and 7 FIL CapitalAdvisors India Pvt. Ltd. other decisions of the Tribunal,Mumbai Bench, relied upon by the learned Sr. Counsel. TheBench in the case of AGM Advisors India Pvt. Ltd. (supra),ultimately concluded as under:– 2010–11, order dated 18[th] May 2016, and 7 FIL CapitalAdvisors India Pvt. Ltd. other decisions of the Tribunal,Mumbai Bench, relied upon by the learned Sr. Counsel. TheBench in the case of AGM Advisors India Pvt. Ltd. (supra),ultimately concluded as under:– “7. We find that the assessee objected to the inclusion ofICRA–0 and IDFC on the ground that the TPO had applied noscientific method in arriving at the said two companies thatthe companies had been cherry – picked by the TPO and hehad not furnished the process applied by which he had cometo select the said two companies, that such an approach toselect comparables was impressible in law and on that countalone the said two companies should be rejected, that theFIRST APPELLATE AUTHORITY had rejected ICRA–O ascomparable on investment advisory servies rendered by theassessee and had stated assessee’s knowledge processoutsourcing division provided financial and analyticalservices and support of clients in the areas of Data Extraction,Aggregation, Electronic Conversion of Financial Statements,Validation and Analysis, Accounting and Finance, Researchand Analytics, that the company was not engaged ininvestment advisory or consultancy services, that the A.O. wasdirected to exclude ICRA–O from the final set of comparablecompanies, that he had held that it was functionally notcomparable to the assessee. Charging of fees by ICRA–O didnot mean that it was a valid comparable to the assessee. Asper the settled principles of TP for a company to be treated asa valid comparable the functions performed, assets employedand risks assumed have to be comparable and notnomenclatures in the annual accounts. We would like to refer to Pg.507 of the PB in case of ICRA–O and it reads as under:–“ICRA Online Limited is a leading information services,outsourcing and technology solutions provider and caters forsome of the biggest names in the financial services sector in(India) and abroad, which is a testimony to its product quality,commitment and credibility.” From the above description it is clear that ICRA–Ooperated in two strategic lines of business, i.e., knowledgeprocess outsourcing and information services and technologysolutions, with a list of reputed global and domestic clients.Note c (iii) on Pg.507 of the PB also proves that the activitiesperformed by the company under the business line“Outsourced Services” were in the nature of “maintenanceand management of data” and therefore cannot be comparedwith the assessee. As far as IDFC is concerned, we would liketo mention that a portfolio manager is a body corporate whopursuant to a contract or arrangement with the client wouldadvises or direct or undertake on behalf of the client–whetheras a discretionary portfolio manager or otherwise. FARanalysis of a portfolio manager cannot be compared with anassessee engaged in the business of providing investmentadvisory services. The Tribunal has in the cases discussed atparagraph 6.d.a. held that IDFC was not a valid comparable.Considering the above discussion, we are of the option thatthe order of the FIRST APPELLATE AUTHORITY andexclude both the comparables does not suffer from any legalor factual infirmity. So, confirming his order, we decide theissue against the AO.” 5.It is also relevant to observe, the Hon'ble JurisdictionalHigh Court in General Atlantic Pvt. Ltd. (supra), whileapproving the view expressed in Carlyle India Advisors Pvt.Ltd. (supra) has observed that where a company isremunerated on cost plus basis, it is risk insulated, therefore,on application of FAR, it cannot be compared with othercompanies if there is any difference. Therefore, respectfullyfollowing the decision of the co–ordinate bench of theTribunal referred to above as well as the principle laid downby the Hon'ble Jurisdictional High Court, we reject thiscompany as a comparable.” 11.2Paragraph No.8 of the Tribunal’s order pertaining to exclusion ofICRA Online Limited reads thus : 5.It is also relevant to observe, the Hon'ble JurisdictionalHigh Court in General Atlantic Pvt. Ltd. (supra), whileapproving the view expressed in Carlyle India Advisors Pvt.Ltd. (supra) has observed that where a company isremunerated on cost plus basis, it is risk insulated, therefore,on application of FAR, it cannot be compared with othercompanies if there is any difference. Therefore, respectfullyfollowing the decision of the co–ordinate bench of theTribunal referred to above as well as the principle laid downby the Hon'ble Jurisdictional High Court, we reject thiscompany as a comparable.” 11.2Paragraph No.8 of the Tribunal’s order pertaining to exclusion ofICRA Online Limited reads thus : “8.We have considered the submissions of the parties andperused the material available on record in the light of thedecisions relied upon. On a perusal of the informationsubmitted in the annual report of this company as well as itsfinancials, we have noted that the functions undertaken by thecompany are totally different from the assessee. Therefore, thecompany fails in the FAR analysis itself. For this reason, in thecases relied upon by the learned Sr. Counsel, the Tribunal hasheld the aforesaid company not comparable to an investmentadvisory service provider. In this context, we refer to theobservations of the Tribunal in AGM India Advisors Pvt. Ltd.(supra) reproduced in Para–4 herein above. Accordingly, wehold that this company is not comparable to the assessee.” 11.3Paragraph Nos.12 and 13 of the Tribunal’s order pertaining toexclusion of Motilal Oswal Investment Advisors Pvt. Ltd. (MOIAPL) readsthus : “12. We have considered the submissions of the parties andperused the material available on record in the light of thedecisions relied upon. Having gone through the annual reportof MOIAPL, we have noted that the company is engaged in anumber of activities including investment banking activities.Thus, the company is functionally different from the assesseebecause of functions performed, assets employed and riskundertaken. Therefore, it fails in the FAR analysis itself. It ispertinent to observe, in case of Temasec Holding AdvisorsIndia Pvt. Ltd. (supra), Mumbai Bench of the Tribunal, afterconsidering almost similar argument put forward by theparties excluded this company as a comparable to a non–binding investment advisory service provider holding asunder :– “25. This comparable has been included by the TPO andwhile including the said comparable he has observed that itsincome is only from Advisory fees during the year and it isperforming advisory services in that field of investment likeassessee. Before us, Ld. CIT DR arguing for its inclusionsubmitted that, if the ICRA Management Services can beincluded for having revenue from advisory services then onsame analogy this company should also be given the sametreatment. From the perusal of the directors’ report, it is seenthat this company derives its business income from fourdifferent business verticals, i.e., equity capital markets,merger and acquisitions, profit equity syndications and “25. This comparable has been included by the TPO andwhile including the said comparable he has observed that itsincome is only from Advisory fees during the year and it isperforming advisory services in that field of investment likeassessee. Before us, Ld. CIT DR arguing for its inclusionsubmitted that, if the ICRA Management Services can beincluded for having revenue from advisory services then onsame analogy this company should also be given the sametreatment. From the perusal of the directors’ report, it is seenthat this company derives its business income from fourdifferent business verticals, i.e., equity capital markets,merger and acquisitions, profit equity syndications and structured debt. It also given advises on cross boarderacquisition. Its core competence is in the field of merchantbanking. It also provides comprehensive investment bankingsolutions and transaction expertise covering privateplacement of equity, debt and convertible instruments ininternational and domestic capital markets, monitoringmergers and acquisitions and advising M&A as professionaland restructuring advisory and implementations. It is alsoinvolved in various professional activities of the merchantbanking. A merchant banker provides capital to companies inthe form of share ownership