Income Tax Appellate Tribunal – Delhi
Chryscapital Investment … vs Acit, New Delhi on 17 May, 2019 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: BENCH “I-2” NEW DELHI BEFORE SRI R.K.PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA No. 458/Del/2016 A.Y. 2011-12 ChrysCapital Investment Advisors ( India) Vs. ACIT, Circle 6(1)
Pvt.Ltd.) New Delhi
Suite 101, The Oberoi
Dr.Zakir Hussian Marg
New Delhi 110 003 PAN: AABCC4609H (Appellant) (Respondent) Appellant by: Sh. Vikas Srivastava, Adv. Sh. Mayank Aggarwal, Adv. Ms. Rashi Gupta, C.A. Respondent by: Sh. H.K.Choudhary, CIT, DR Date of hearing : 19/02/2019 Date of Pronouncement : 17/05/2019 ORDER

PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against final
assessment order dated 30/11/15 passed under section 143 (3)
read with section 144C of the Income Tax Act, 1961 (the Act) by ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
Ld.Dy.CIT, Transfer Pricing Officer 1 (2) (1), New Delhi, for
assessment year 2011-12, on following grounds of appeal: “1. The order dated November 30, 2015, passed by the Learned
Assistant Commissioner of Income Tax, Circle 6(1), New Delhi
(hereinafter referred as ‘Ld.AO’) under section 143(3) read with
section 144C of the Income Tax Act, 1961 (hereinafter referred as ‘the
Act’) is bad in law and on the facts and circumstances of the case.
2. The Ld. AO as well as the Learned Transfer Pricing Officer (“Ld.
TPO”) and the Hon’ble Dispute Resolution Panel (‘Hon’ble DRP’) have
erred in law as well as facts of the case in not accepting the Arm’s
Length Price (hereinafter referred as ‘ALP’) determined by the
appellant.
3. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in determining the
ALP on the basis of data for Financial Year (‘FY1) 2010-11 only and
ignoring the data for two ‘ prior financial years i.e. FY 2009-10 and
FY 2008-09.
4. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in treating the
foreign exchange gains as non-operating in nature while computing
the operating margin of the appellant.
5. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in applying the
filter of rejecting companies having more than 25% of the related
party transactions in an incorrect manner i.e. sales as well as
expenditure combined as a percentage of the sales.
6. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in rejecting the
quantitative filters adopted by the appellant, and adopting 2 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
inappropriate quantitative filters for carrying out a fresh
comparability analysis.
7. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in arbitrarily
rejecting certain companies selected by the appellant as comparables
and in accepting certain companies which are not comparable to the
appellant, while determining ALP.
8. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in considering the
reimbursement of expenses as part of operating revenue and
operating expenses / for the purpose of determining ALP.
9. The Ld. AO as well as Ld. TPO has erred in not allowing risk
adjustments in the case of Brescon Corporate Advisors Limited and
Keynote Corporate Services Limited ignoring the order of the Hon’ble
High Court of Delhi in the case of the appellant for the AY 2008-09
and ignoring the specific directions given by the Hon’ble DRP.
10. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in not allowing
any risk adjustments to the appellant as it is remunerated on a cost
plus mark-up basis.
11. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in re-
characterizing the delay in receiving the advisory fees by the
appellant as deemed loan given by it to associated enterprises and
making an adjustment on account of interest receivable on such
delayed receipts.
12. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in making
additions on the basis of notional interest by comparing it with LIBOR
ignoring that the said comparison is none of the 5 prescribed methods
under the Indian transfer pricing regulations.

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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
13. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in ignoring the
judicial pronouncements relied upon by the appellant.
14. The Ld. AO has erred in initiating penalty proceedings under
section 271(1)(c) of the Act.
15. The above grounds of appeals are independent and without
prejudice to one another.
16. The appellant craves leave to add / withdraw / amend any
ground of appeal at 1/ the time of hearing.”
2. Brief facts of the case are as under:
Assessee filed its return of income on 28/11/11, declaring total
income of Rs.11,95,43,841/-. The case was selected for scrutiny
and notice under section 143 (2) of the Act was issued.
Subsequently questionnaire was also issued along with notice
under section 142 (1) of the Act. Ld.AO observed that assessee is
engaged in business of rendering financial research and advisory
services.
2.1. Ld.AO observed that assessee has entered into international
transaction with its associated enterprise (AE), and accordingly a
reference was made to Transfer Pricing Officer (TPO) under section
92CA(3) for computing arm’s length price of international
transactions.
2.2. Upon receipt of reference, Ld.TPO issued notice under section
92C and representatives of assessee appeared before him from time
to time and filed requisite details as called for.
2.3. Ld.TPO from TP documentation observed that, assessee is
engaged in performing following services for ChrysCapital 4 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
Management Companies being ChrysCapital Management Company
III, LLQ; ChrysCapital Management Company, IV LLC; ChrysCapital
Management Company, V LLC (being associated enterprises) :
 collection and dissemination of financial information of prospective entities;
 setting up meetings with officials of concerned entities to obtain relevant information;  obtaining relevant background information of such entity;  advising the management companies of investment and disposition opportunities;  investigation and advise on structuring potential investment and exit opportunities; and  other services in relation to the above services.
2.4. Ld.TPO observed that, associated enterprises are engaged in
business of managing private equity funds and they are basically
investment funds where general focus is on investment in
incubation ventures. Ld.TPO observed that, assessee is required to
make AEs aware about investment/disinvestment opportunities,
however, ultimate decision of whether to use or not to use such
recommendations of assessee lies exclusively with AEs.
He observed that during year, assessee undertook following
international transactions, which was recorded in Form 3 CEB, filed
by assessee.
Sl. Description of the transaction Value in Rs. Method
No.
1. Payment of fees by CMC-III 2,42,53,815 TNMM
2. Payment of fees by CMC-IV 14,54,86,331 TNMM
3. Payment of fees by CMC-V 31,52,35,631 TNMM 5 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd. 4. Reimbursement of expenses from 2,34,064 No separate analysis CMC-III has been done
5. Reimbursement of expenses from 6,65,991 No separate analysis CMC-III has been done
6. Reimbursement of expenses from 1,12,04,298 No separate analysis CMC-III has been done 2.5. Assessee used TNMM as most appropriate method to arrive at
arm’s length price. Assessee computed its operating margin at
25.84%, where four (4) comparables selected by assessee earned
average margin of 6.28% by using PLI as OP/OC. Assessee thus
held international transaction undertaken by it with its associated
enterprises to be at arm’s length.
2.6. Ld.TPO while analysing arm’s length price of international
transactions entered into by assessee with its AE’s, rejected
comparables selected by assessee by applying various filters and
considered following 13 comparables which had average margin of
43.01%. Ld.TPO thus proposed adjustment of Rs.13,79,85,005/-.
S.No. Comparables OP/OC (%)
1. Aditya Birla Capital Advisors Pvt.Ltd. 38.50%
2. Ajcon Global Services Ltd. 29.22%
3. Axis Private Equity Ltd. 39.74%
4. Ladderup Corporate Advisory Pvt.ltd. 51.10%
5. Portfolio Financial Services Ltd. 32.63%
6. SREI Venture Capital Ltd. 12.26%
7. Motilal Oswal Investment Advisors Pvt.Ltd. 82.60%
8. IM+Capital (Brescon Corporate Advisors Ltd.) 92.00%
9. Keynote Corporate Services Ltd. 123.00%
10. ICRA Management Consultant Services Ltd. 15.71%
11. Cyber Media Research Ltd. 10.72%
12. IDFC Investment Advisors Ltd. 8.34% 6 ITA No. 458/Del/16 AY:2011-12
ChrysCapital Investment Advisors (India) Pvt.Ltd.
13. Khandwala Securities Ltd. 23.31% AVG. 43.01% 2.7. Further, assessee claimed working capital adjustment
which was rejected by Ld.TPO. Ld.TPO considered reimbursement
expenses to assessee from its AE’s to be operating expenditure and
reimbursement as part of operating revenue. Ld.TPO also computed
interest on receivables, by applying Safe Harbour Rules, and made
addition of Rs.2,14,403/-.
3. Aggrieved by adjustment proposed by Ld.TPO, assessee raised
objections before DRP, who upheld adjustments proposed by Ld.
TPO.
4. Upon receipt of DRP directions, Ld. AO passed final impugned
order, against which, assessee is in appeal before us now.
5. Ld.Counsel submitted that Ground No. 1-3 are general in
nature and therefore do not require any adjudication.
6. Ground No. 4 has been raised by assessee against treating
foreign exchange gains as non-operating in nature while computing
operating margin of assessee.
6.1. Ld.Counsel submitted that assessee received its fees in
foreign exchange, and thus foreign exchange gain/loss derived by it
is in relation to such advisory fees, and is directly linked to
business activity. He submitted that authorities below have
incorrectly relied on Safe Harbour Rules, which is applicable from
assessment year 2013-14 onwards. It was submitted that exchange
fluctuation income/expenses is an integral part of sales made or 7 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
expense incurred by assessee during course of its business and
accordingly should be considered as operating income/expense. It
was further submitted that application of TNMM involves
comparison of net profit i.e. operating profit margin, being ratio of
operating profit to sales as an indicator of total return of business
activity of tested party, viz., assessee and comparable uncontrolled
entities.
Reliance was placed on following decisions:  Pr.CIT vs Ameriprise India Pvt. Ltd., reported in  Fiserv India (P.) Ltd. v. ITO [2015] 60 taxmann.com 48 (Delhi –
Trib.)  Techbooks International (P.) Ltd. v. Asstt. CIT [2014] 45 taxmann.com 528 (Delhi);
 SAP Labs India (P.) Ltd. v. Asstt. CIT (2010) 8 Taxmann.com 207 (BAG)  Trilogy E Business Software India (P.) Ltd. v. Dy. CIT (2011) 12 taxmann.com 464
6.2. It has been submitted that in aforestated decisions and many
more passed by various Benches of Tribunal & Hon’ble High
Courts, foreign exchange fluctuation has been considered as
operating item, while computing operating profit. Ld.CITDR however
supported action of DRP and Ld.TPO in treating foreign exchange
fluctuation as non-operating item.
6.3. Ld.CIT DR placed reliance on orders of authorities below.
7. We have perused submissions advanced by both sides in light of
records placed before us.

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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
8. We find merit in contention raised on behalf of assessee about
inclusion of foreign exchange gain/loss in operating revenue/costs
of assessee as well as that of comparables. When we advert to
nature of such foreign exchange gain earned by assessee, it has not
been controverted by Ld.CIT DR that same is in relation to trading
items emanating from international transactions. If foreign
exchange gain/loss directly results from trading items, we fail to
appreciate as to how such foreign exchange fluctuation loss can be
considered as non-operating.
8.1. Special Bench of this Tribunal in ACIT v. Prakash I.
Shah reported in (2008) 115 ITD 167 (Mum) (SB) held that, gain
due to fluctuations in foreign exchange rate emanating from exports
is integral part and cannot be differentiated from export proceeds
simply on ground that foreign currency rate has increased
subsequent to sale but prior to realization. It went on to add that
when goods are exported and invoice is raised in currency of
country where such goods are sold and subsequently when amount
is realized in that foreign currency and then converted into Indian
rupees, entire amount is relatable to exports. In fact, it is only
translation of invoice value from foreign currency to Indian rupees.
The Special bench further held that exchange rate gain or loss
cannot have a different character from transaction to which it
pertains. The Bench found fallacy in submission made on behalf of
Revenue that, exchange rate difference should be detached from
exports, and be considered as an independent transaction. Special
Bench further held that such exchange rate fluctuation gain/loss 9 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
arising from exports cannot be viewed differently from sale
proceeds.
8.2. Further, in terms of Rule 10B(1)(e), of Rules for purpose of
undertaking benchmarking analysis applying TNMM, net profit from
international transaction is to be considered and there is no scope
for arbitrarily excluding any item of income or expense for purpose
of making comparison of net profit from such international
transaction with that of unrelated parties. Reference in this regard
is made to OECD Guidelines on transfer pricing, wherein, it has
been held that foreign exchange gains and losses should be
included or excluded for determination of net profit that depends on
whether, foreign exchange gain or losses are of a trading nature and
whether or not tested party is responsible for them.
8.3. Respectfully following decisions referred hereinabove, we are
of considered opinion that foreign exchange gain deserves to be
treated as operating item for computing net profit of assessee.
8.4. Accordingly this ground raised by assessee stands allowed.
9. Ground No. 5 has been raised by assessee in respect of
method of computing percentage of related party transaction.
9.1. Ld.Counsel submitted that, Ld.TPO computed percentage of
RPT by using sales, as well as expenditure collectively as percentage
of sales. Ld.Counsel submitted that in order to compute percentage
of RPT, sales should be compared with sales and expenses should
be compared with expenses.
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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
9.2. He placed reliance upon decision of this Tribunal, in case of
American Express India private limited vs JCIT, reported in (2014) 44
Taxmann.com 389.
9.3. On the contrary Ld. CIT DR placed reliance upon submissions
as under:
“Hon’ble ITAT in assessee’s case for A.Y. 2009-10 in ITA No.
4294/Del/2014 in para 13 has relied on the decision of Hon’ble
Pune-Trib. in the case of Sun Guard Solution (India) Pvt. Ltd. vs DDIT
(Intl. Tax – l)-(2014) 51 Taxmann.com 339 where Hon’ble Tribunal has
held that TPO has considered only related party revenue as
numerator and operating revenue and expenses i.e. sum as
denominator which resulted into distorted picture. It is a case specific
finding where TPO in numerator has taken only RPT revenue only
and not RPT expenses. It is submitted that the rationale for taking
denominator for sum of operating revenue and expense is that
numerator of RPT should also contain RPT revenue and expense.
Otherwise if we consider only related party operating revenue in
numerator and total revenue in denominator then, relevance of
related party expense will loose sight of, which will effect the
neutrality of a comparable. Therefore in general in all case RPT is
computed taking numerator as well as denominator Related Party
Revenue and expense as numerator and total revenue and expense
as denominator. Therefore general computation of RPT should not be
facts of this case.”
10. We have perused submissions advanced by both sides in light
of records placed before us.

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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
10.1. For purposes of computing RPT percentage, one should
know and analyze what all items will form part of numerator and
denominator in arriving at RPT percentage. This is very important
in a case where a company has entered into purchase and/or sale
transaction with related party. The question that arises is, whether
total of RPT purchase and sales needs to be clubbed and then
divided by total turnover, or only RPT purchases needs to be divided
by total purchases and similarly RPT sales needs to be divided by
total sales.
10.2. This issue has been addressed by this Tribunal in case of
Nokia India (P) Ltd vs DCIT reported in (2014) 52 Taxmann.com 492,
wherein, this Tribunal observed as under:
“17. Now, we take up the second argument of the composition of
numerator and denominator. Ratio of the RPTs represents the
proportion of transactions with the associated enterprises (numerator)
vis-a-vis the total of transactions (denominator). In order to decide
that what should constitute the contents of numerator and
denominator for the purposes of finding out the percentage of RPTs, it
is relevant to note the logic behind applying this filter. It is manifest
that the aim of the transfer pricing regime is to ensure that the
international transactions are recorded at arm’s length price. This is
done under the TNMM by comparing the profit earned from the
international transaction with that earned by the comparable
independent parties in an uncontrolled situation. Thus, while
choosing comparables, it must be ensured that the profit earned by
them correctly reflects true profit as is earned by an enterprise from
an independent third party. If such a chosen company, though
functionally comparable, has also entered into international
transactions beyond a particular percentage with the related parties,
it is quite possible that its overall profit may have been distorted due
to such transactions rendering it as incomparable. That is why, this
filter is applied to make certain that a company sought to be 12 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
considered as comparable should have its profit uninfluenced by the
impact of the related party transactions.
18. In view of the foregoing discussion, it is manifest that the
transactions which do not impact the profitability, such as loan given
or taken or other items finding place in the balance sheet, can have
no place either in the numerator or the denominator of this formula.
However, any income or expenditure resulting/relating from/to or
likely to result/relate from/to such items of assets or liabilities,
should not be confused with the per se international transactions
finding place in the balance sheet of the company calling for
exclusion.
19. The numerator of this formula consists of all the related party
transactions of a company sought to be chosen as comparable which
affect the profit earned directly from operations. If, however a related
party transaction is of such a nature which does not directly affect or
insignificantly affects the profit earned from the bare profit producing
activity, then it should not be taken into consideration. The reason for
the exclusion of such related party transactions from the numerator is
that they have not at all or very insignificantly affected the operating
profit of such a company, which is the driving force for the purposes
of making a comparison under the TNMM. To cite an example, the
RPT of rent paid by a company which is engaged in the business of
trading or manufacturing cannot constitute a part of the numerator,
because transaction of rent payment has no direct bearing on the
trading or manufacturing activity.
20. Now, we take up the contents of the denominator of this formula.
The percentage of numerator to denominator can be calculated only
when the contents of a part representing the RPT of a particular
nature is seen with reference to the contents of whole of that nature.
Both the numerator and denominator have to have the same nature
of contents.”

10.3. Further Hon’ble High Court in assessee’s own case for
assessment year 2008-09, vide order dated 12/03/18 in ITA No.
286/2018 has observed as under:
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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
“With respect to the inclusion of Moti Lal Oswal Investment Advisers
Pvt.Ltd, the tribunal was of the opinion that for application of
appropriate filter (of 25% profits as threshold) the entity had to be
excluded since it returned more than that percentage of total
expenditure. The revenue’s complaint is that in doing so the ITAT
appears to have ignored that in respect of other transactions, the
formula adopted that is percentage of related parties transaction
(being sales to related parties plus expenses paid to such parties over
sales turnover) was not adopted only in the case of this entity (Motilal
was investment advisers private limited). The ITAT appears to have
adopted the formula of percentage of RPT being equal to expenses
paid to related parties divided by total expenditure multiplied by
hundred, only in the case of this entity. While doing so the ITAT
followed its previous ruling in SunGard solutions (India) (P) Ltd vs
Dy.DIT, (2014) 51 taxman.com 339 (Pune). This court is of the opinion
that adopting one procedures for only one entity and adopting
another for all other entities or comparables, can lead to a distorted
picture. In these given circumstances this issue too is remanded to
the ITAT for fresh consideration.”
10.4. It is observed that Ld.TPO while analysing comparablity of
assessee with comparables for exclusion/inclusion of companies,
computed RPT by applying ratio of sales as well as expenditure
combined, off sales. In our considered opinion, based on above
reproduced observations by Hon’ble High Court in assessee’s own
case, a consistent approach regarding components to be included in 14 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
numerator and denominator of the ratio must be adopted in case of
all comparables. As held by this Tribunal in case of Nokia India Pvt.
Ltd vs DCIT (supra), transactions which do not impact profitability,
that finds place in balance sheet should not be included, either in
numerator or denominator of this formula. However any income or
expenditure relating/relating from/to or likely to result/relate
from/to such items of sets or liabilities, should not be confused
with per se international transaction, finding place in balance sheet
of the company calling for its inclusion/exclusion. In the considered
view the issue that would rightly determined the said date of
related party transaction of a comparable would be percentage of
related party transaction sale to the total sales.
10.5. In such circumstances, we deem it proper to restore this
issue to file of Ld.TPO/AO to re-adjudicate comparables by applying
formula being percentage of related party transactions of sales to
total sales. Needless to say that, functional similarities must be
made out between comparables vis-a-vis assessee.
10.6. Accordingly this ground raised by assessee stands
allowed for statistical purposes.
11. Ground No. 6 has been raised by assessee regarding
quantitative filters adopted by Ld.TPO to exclude comparables. It
has been submitted that Ld. TPO/AO has applied turnover filters by
increasing the filter from 3 crores to Rs. 5 crore. Ld.TPO has applied
different year ending filter and persistent loss/diminishing revenue
filter for excluding certain comparables from the list. It has been
submitted that Ld.TPO applied turnover less than Rs. 5 crore, 15 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
instead of Rs.3 crore, without any upper cap, thereby including
companies having huge turnovers, and excluding certain
comparables which were less than 5 crores.
11.1. It has been submitted by Ld.Counsel that Ld.TPO has
wrongly used different year ending filter.
11.1. Ld.Counsel submitted that assessee applied turnover filter
of less than Rs.3 crores, being 1/5th of total turnover of assessee.
He placed reliance upon following decisions of Coordinate benches
of this Tribunal:
 Nokia India Pvt. Ltd., Vs DCIT (2014) 52 Taxmann.com 492;  DCIT vs M/s Quark Systems Pvt.Ltd (2010) TIOL-31-ITAT CHD-SB;
11.2. It has also been submitted that Ld.TPO used different year
ending filter for rejecting certain comparables that were best suited
to assessee and rejected certain comparables on ground of
persistent loss filter and diminishing revenue filter. It has been
submitted that application of diminishing revenue filter or
persistent loss filter is contrary to the filter applied by Ld.TPO by
including comparables which has extraordinary profit margin. He
submitted that in the event comparables that are functionally
comparable with assessee are excluded on ground that these are
loss-making companies or have diminishing revenue, then
companies that made extraordinary profit margin should also be
excluded.
11.3. Ld.CIT DR submitted that in decisions relied upon by Ld.
Counsel hereinabove, comparable has been claimed to be excluded 16 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
on account of non-application of upper filter. It has been submitted
that the turnover filter has not been arbitrarily applied as
contended by Ld. Counsel. He submitted that comparables that
has been alleged by assessee for its inclusion for example SREI has
a turnover of 4.71 crores whereas in transfer pricing study
companies having turnover of less than 3 crores were rejected by
assessee itself as such companies were held to be engaged in low
sale operations vis-a-vis that of assessee.
11.4. Ld. CIT DR placed reliance upon following decisions:  Sony India Pvt. Ltd. vs DCIT reported in 114 ITD 448 (del)  ITO vs. CRM services India Pvt. Ltd. reported in (2011) 14 taxmann.com 96  Exion M Company India Pvt. Ltd. reported in (2011) 15 taxmann.com 353 (Mum)  11.5. Ld. CIT DR submitted that Hon’ble Delhi High Court in assessee’s own case for assessment year 2008-09 has held that profit/loss, cannot be a criteria for rejection of comparables reported in (2015) 232 taxman 20.
11.6. It has been submitted that quantitative filters applied by Ld.
TPO should be upheld.
12. We have perused submissions advanced by both sides in light
of records placed before us.
13. The Transfer Pricing Officer himself having rejected loss
making companies as comparables, there must also be an upper
limit. A big company would be in a position to bargain the price and
attract more customers. It would also have a broad base of skilled 17 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
employees able to give better output. A small company may not
have these benefits and therefore, turnover also would come down
reducing profit margin. Thus, for purpose of classification of
companies on basis of net sales or turnover, a reasonable
classification has to be made. The turnover filter is important and
assessee having turnover of about Rs.20 crores, companies having
turnover of Rs. 1 crore to Rs. 200 crores should be taken into
consideration for purpose of comparability analysis. On this basis,
the TPO is directed to exclude comparable companies having
turnover of more than Rs. 200 crores.
13.1. Ld.Counsel has further argued that entities earning “super
normal” or “abnormal” profits should be excluded from list of
comparables. In support, he relied on several rulings of various
Benches of the ITAT. These are Adobe Systems India (P.)
Ltd. (Supra); Teva India (P.) Ltd. (Supra); Sapient Corpn. (P.)
Ltd. (Supra); Maersk Global Services Centre (India) (P.) Ltd.
(Supra); Symantec Software Solutions (P.) Ltd. (Supra) and a Division
Bench ruling of this Court in Agnity India Technologies (P.) Ltd.
(Supra). Besides, this Court notices that a similar reasoning – of
applying what is known as the “turnover” filter or the exclusion of “superprofit” making companies reasoning was applied
in Continuous Computing India (P.) Ltd. v. ITO [2012] 52 SOT 45
(URO)/21 taxmann.com 137 (Bang.); Centillium India (P.) Ltd. v. Dy.
CIT [2012] 23 taxmann.com 34/53 SOT 145 (Bang.) and Addl
CIT v. Frost and Sullivan India (P.) Ltd sic (supra).
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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
13.2. The revenue has on the other hand, relied on contrary views
in Actis Advisers (P.) Ltd. v. Dy. CIT [2011] 10 taxmann.com 24
(Delhi); 24/7 Customer.Com. (P.) Ltd. v. Dy. CIT [2012] 28
taxmann.com 258/[2013] 140 ITD 344 (Bang.) and Willis Processing
Services (I) (P.) Ltd. v. Dy. CIT [2013] 30 taxmann.com 350/57 SOT
339 (Mum.). Such views are echoed in Trilogy E-Business Software
India (P.) Ltd. v. Dy. CIT [2013] 29 taxmann.com 310/140 ITD 540
(Bang.) and Stream International Services (P.) Ltd. v. Asstt. DIT
(International Taxation) [2013] 31 taxmann.com 227/141 ITD 492
(Mum.).
13.3. It is observed that Hon’ble Delhi High Court in assessee’s
own case for assessment year 2008-09 has dealt with this plea and
has held that, mere fact that an entity makes high/extremely high
profits/losses does not, ipso facto, lead to its exclusion from list of
comparables for purposes of determination of ALP. In such
circumstances, an enquiry under Rule 10B(3) ought to be carried
out, to determine, as to whether, material differences between
assessee and comparable could be eliminated. If such differences
can be eliminated, the entity should be included as a comparable.
Further, while determining comparability of transactions, multiple
year data can only be included in the manner provided in Rule
10B(4). As a general rule, it is not open to assessee to rely upon
previous year’s data.
13.4. We are accordingly inclined to set aside this issue back to
Ld. TPO/AO for applying the quantitative filters as has been
indicated hereinabove for election of comparables. Needless to say 19 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
that FAR analysis of comparables vis-a-vis assessee must be strictly
adhered to for final selection of comparables.
13.5. Accordingly, this ground raised by assessee stands
allowed for statistical purposes.
14. Ground No. 7 has been raised by assessee in respect of
arbitrarily rejecting certain companies selected by assessee as
comparables and accepting certain companies which according to
assessee were not comparable for determining arm’s length price of
international transaction.
14.1. Before starting the compatibility analysis, it is sine qua non
to understand functions performed by assessee, assets owned and
risk assumed, for providing services to its AE.
Functions:
In TP study Ld.TPO observed that, assessee provides identical
advisory services to CMC-III, CMC-IV and CMC-V being its AEs. The
services rendered by assessee includes:
 collection and dissemination of financial information of prospective entities;
 setting up meetings with officials of concerned entities to obtain relevant information;
 obtaining relevant background information of such entity is;  advising CMC of investment and disposition opportunities;  investigation and advise on structuring potential investment and exist opportunities; and  other services in relation to above services.
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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
14.2. In the process of providing aforestated services, assessee
maintains database regarding consultancy services being major
activity that provides access to industry specific and sector specific
data. Thus assessee is required to maintain various database as it
is required to analyse data and provide consultancy services to its
AE. It has been observed by Ld. TPO that assessee collects data
from various sources to carry out research activities for purposes of
and evaluating investment opportunities in India related to industry
and sector identification from multiple sources.
14.3. Assessee is to provide market research by systematically
gathering recording and analysing general market conditions which
would include identification and subsequent in-depth analysis of
potential investment opportunities. These reports are then
subsequently appraised to AE’s for carrying out
investment/disinvestment opportunities. The final decision to carry
out investment/disinvestment is taken by the AE’s.
(A) Assets owned:
The types of assets that is employed for carrying out aforestated
functions by assessee is basically employees being human capital,
office equipment and machinery like computer furniture and other
equipment etc.
(B) Risks assumed:
It has been observed by Ld.TPO that assessee undertakes several
operational layer risks like market risk. It has been observed that
assessee is not free from risk of losing business entirely or losing
volume of business. It is also observed that assessee only have a 21 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
single customer and therefore is dependent heavily on its AE’s.
Thus it can be concluded that assessee was undertaking various
risk while providing advisory services to its AE’s. It was not
operating in a risk-free environment.
14.4. Based upon above FAR analysis we shall now undertake
compatibility of comparables objected for inclusion by assessee.
15. Ld.Counsel submitted that Ld.TPO erred in including following
comparables which were not functionally similar with that of
assessee.
 Axis Private Equity Ltd.,  Ladderup Corporate Advisory Private Limited  Motilal Oatwal Investment Advisors Pvt.Ltd  IM+ Capitals Ltd (formerly known as Brescon Corporate Advisory Limited)  Keynote Corporate Services Ltd Motilal Oatwal Investment Advisors Pvt.Ltd
It has been submitted that assessee objected for inclusion of Motilal
Oatwal Investment Advisors Pvt.Ltd., due to substantial RPT filter.
It is also submitted by Ld.CIT DR in his submission that said
company has been excluded in assessee’s own case for assessment
year 2009-10.
16. We have perused the same and are of opinion that assessee
has objected ratio adopted by Ld.TPO for determining RPT in case
of comparable which has already been set aside to Ld. AO with
appropriate direction for reconsideration while deciding ground No. 22 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
5 hereinabove. We accordingly direct Ld.TPO to carry out
computation of RPT as per formula indicated hereinabove. Needless
to say that functional profile of comparable for year under
consideration with that of assessee must also be analysed once
again by giving proper opportunity to assessee.
16.1. Accordingly this comparable is set aside to Ld.TPO for re-
computation of RPT in respect of this comparable.
17. IM+ Capitals Ltd (formerly known as Brescon Corporate
Advisory Limited) And Keynote Corporate Services Ltd.,
It is observed that Hon’ble Delhi High Court in assessee’s own case
for assessment year 2008-09 had directed DRP to carry out
comparablity analysis in case of these 2 companies by observing as
under:
42…………..As regards Khandwala Securities and Brescon, the
matter is remitted to the DRP to carry out the analysis under rule
10B(3) and determine whether the material differences arising out of
their exceptionally high profits can be eliminated. If not, the said
entities cannot be included as comparables. For Keynote, firstly,
enquiry is to be carried out by the DRP, preceding the analysis under
rule 10B(3), as to its functional similarity with the assessee;
thereafter, the exercise of determining if there are material
differences on account of exceptionally high profits which are capable
of elimination has to be carried out.”
17.1. We direct Ld. TPO to follow analysis carried out by DRP as
has been conducted for assessment year 2008-09 for determining 23 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
whether these company could be included in the list of comparables
or not.
17.2. Accordingly we set aside these comparables to Ld.TPO.
17.3. It has been submitted by Ld.Counsel that it does not wish to
object the comparables Ladderup Corporate Advisory Pvt. Ltd and
Portfolio Financial Services Ltd.
17.4. Accordingly we hold these 2 comparables to be retained in
the final list.
18. The only comparable now that is left is in respect of Axis
Private Equity Ltd.,
18.1. Assessee objects for inclusion of this comparable due to
difference in functional profile. It has been submitted that this
company is engaged in managing directly or indirectly investments,
mutual funds, venture capital funds and share funds, pension
funds, provident fund, insurance funds or any other funds and to
promote manage and carry out any venture capital fund operation.
Ld. CIT DR submitted that assessee is also carrying out advising
the management companies of fund investment and disposition
opportunities. He submitted that assessee focuses on investment in
companies either located in orbit significant business activity in
Indian subcontinent. Ld. CIT DR thus submitted that the company
is carrying out with similar functions as that of assessee and
should be retained as a comparable.
19. We have perused submissions advanced by both sides in light
of records placed before us.
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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
19.1. In our considered opinion functions performed by assessee
is similar to that performed by this company. It is observed that
this company is into advising management companies of fund
investment and disposition opportunities which is what assessee is
also doing in present case. We therefore hold this company to be a
comparable and direct Ld. AO to include it in the finalist.
19.2. Accordingly this ground along with Ground No. 9 raised
by assessee stands allowed partly as discussed hereinabove.
20. In regards to Ground No. 8 Ld.Counsel submitted that
assessee do not wish to press this ground.
Accordingly this ground raised by assessee stands dismissed as
not pressed.
21. Ground No.10 is in respect of risk adjustment disallowed to
assessee.
21.1. At the outset Ld. CIT DR admits to risk/working capital
adjustment to be granted to assessee as DRP has directed Ld.TPO
to provide the same. It has also been submitted that in preceding
assessment years working capital adjustment was allowed by Ld.
TPO himself which has been placed on record before us.
21.2. We therefore direct Ld. AO to provide risk adjustments to
comparables while computing ALP of international transaction.
Assessee is directed to provide details of risk profiles of comparable
companies.
21.3. Accordingly this ground raised by assessee stands
allowed.
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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
22. Ground No.11-12 are in respect of re-characterising delayed
advisory fees received by assessee as deemed loan, given to AE by
assessee and accordingly proposing an adjustment on account of
interest on receivables on such delayed payments.
22.1. From balance sheet it can be seen that receivables for
invoices raised by assessee has not been received as per service
agreement with AE. Ld.TPO accordingly re-characterised delayed
payment of advisory fees as deemed loan to AE by assessee and
charged interest on receivables at arm’s length beyond a period of
30 days. Ld.TPO applied CUP for benchmarking transaction of
receivables. During DRP proceedings assessee was called upon to
show time period within which payment is to be made by ADB or
which credit period has also been mentioned or invoices where
period of payment would be mentioned. Assessee replied to query
raised by stating that as respective service agreement is between
AE and assessee, no specific collections period has been mentioned.
Under such circumstances DRP upheld action of Ld.TPO in
charging interest for delayed payments beyond 30 days of invoice.
23. Aggrieved by such observations, Ld.Counsel submitted that
method applied by Ld.TPO is not prescribed method under section
92C. He further submitted that even if adjustment is required to be
made, same should be made on basis of LIBOR.
Ld. Counsel placed reliance upon decision of Hon’ble Delhi High
Court in case of Cotton Naturals India Pvt.Ltd. vs CIT reported in 231
Taxmann 401.
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ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
23.1. Ld.CIT DR on the contrary, supported the view taken by
authorities below.
29. We have perused submissions advanced by both sides in light
of records placed before us.
29.1. It is observed that details of invoices raised and payments
received thereupon with outstanding receivables has been
reproduced in order passed by Ld.TPO at page 128-130. It is
observed that certain payment has not been received at all which
Ld. AO has considered for computing interest at 11.69% p.a.
29.2. Hon’ble High Court in case of Cotton Naturals (supra) has
observed as under:
“43. Normally there would be a difference between the lending
rate and borrowing rate in each country. Some authors and writers
suggest that the average or mid-point between the two should be
taken. However, others like Klaus Vogel, have suggested that
economic purpose and substance of the debt-claim or debt for which
granting of credit calls for the lending rate would be determinative.
Thus, in case of a capital investment, the borrowing rate will apply,
whereas in case of credit allowed to a customer on sale of goods, the
lending rate would apply. We do not deem it necessary to enter into
this controversy and express our view as regards the same.
29.3. In present case of assessee, receivables are outstanding
due to excess credit allowed to AE on sale of services. Accordingly
as per view expressed by Hon’ble Delhi High Court hereinabove,
lending rate would be applicable. We are accordingly setting aside
this issue to Ld. AO to verify lending rate during year under 27 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd.
consideration for computing interest on outstanding receivables
beyond a period of 30 days.
Accordingly this ground raised by assessee stands allowed for
statistical purposes.
30. Ground No. 13, 15-16 have been stated to be general in
nature and therefore do not require any adjudication.
30.1. Ground No. 14 is premature in nature.
30.2. Accordingly these grounds do not call for any
adjudication.
31. In the result appeal filed by assessee stands allowed for
statistical purposes.
Order pronounced in the open court on 17th May,2019.
Sd/- Sd/- (R.K.PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dt. 17th May, 2019
*gmv 28 ITA No. 458/Del/16 AY:2011-12
ChrysCapital Investment Advisors (India) Pvt.Ltd.
Copy forwarded to: –
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
– TRUE COPY –

By Order, ASSISTANT REGISTRAR ITAT Delhi Benches 29 ITA No. 458/Del/16 AY:2011-12 ChrysCapital Investment Advisors (India) Pvt.Ltd. Date
Draft dictated on Dragon 16.5.19
Draft placed before author 16.5.19
Draft proposed & placed before the second 16.5.19
member
Draft discussed/approved by Second Member. 17.5.19
Approved Draft comes to the Sr.PS/PS 17.5.19
Kept for pronouncement on 17.5.19 &
Order uploaded on :
File sent to the Bench Clerk
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.
30

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