Case Law Details
Brief of the case:
ITAT Mumbai held in Goldman Sachs( India) Securities Pvt. Ltd Vs The DCIT that only functionally comparable company should be compared for comparing the margin percentage of the assessee company with comparable company. So as in the above case assessee company was giving service of investment advisory services but the AO was comparing the assessee company with that companies who were totally functionally separate i.e who were functioning in investment banking, merchant banking etc but no company was giving investment advisory services. So the contention of AO to apply the margin of non-comparable company to the assessee company was wrong.
Facts of the case:
The assessee filed its return of income on 30.9.2009 declaring total income at Rs. 230,09,17,720/-. Subsequently, the assessee filed a revised return on 31.3.2011 declaring the same total income while
claiming additional claim of TDS. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. The assessee returned its income with the net margin of 26.42% but the TPO after considering some other comparable companies as per TPO applied the net margin of 62.50% and made adjustment accordingly.
Contention of the assessee :
Assessee was of the view that no lower authority had given reason for rejecting the assessee’s comparable. Moreover assessee contended that the TPO who was comparing other comparable with assessee company with higher percentage of margin was totally functionally separable. In Other words the TPO was comparing with the company who were functionally not same. If comparable were excluded the operating margins of the assessee would be in the range of ±5% from the arithmetic mean.
As the assessee was in the business of providing investment advisory services but the TPO was comparing with the company who was providing other services except investment advisory services like merchant banking services etc. So the view of TPO was wrong while making adjustment in the return of income.
Contention of the revenue:
Revenue was of the view that the comparable selected by the TPO and confirmed by the
DRP are functionally comparable with that of the assessee as the comparable companies and the assessee were doing research and thereafter giving advisories. Revenue was of the view that though the advises were being given on different issues but the fact of the matter was that after doing research both were giving advised therefore, they were good comparable.
Held by ITAT:
ITAT held after considering all the comparable companies opted by TPO in details and decided that the functions which the comparable were performing were totally different from what the assessee company was performing so the comparable of the TPO should be rejected and the adjustment made by the TPO should also be deleted.
As the assessee was rendering services of investment services but the TPO comparable were rendering merchant banking services, debt restructuring services, brokering services etc which were totally different from the services of assessee . So addition should be deleted.
Appeal of the assessee was allowed.
