Relief for Goldman Sachs: ITAT Deletes ₹19.8 lakh TP Adjustment u/s 92CA as Margins Exceeds Comparables [Read Order]

Goldman Sachs (India) Securities Pvt. Ltd.,appellant-assessee,was a wholly owned subsidiary of GSIA Holding Pte. Limited and registered as a stockbroker with Securities and Exchange Board ofIndia (SEBI). It also held a merchant banking license and provided securities underwriting, corporate finance, and ITeS services to group companies through its Bangalore branch.

For A.Y. 2021-22, it filed its return of income on 25.02.2022, declaring ₹372.79 crore. The case was selected for scrutiny, and the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO), who, on 09.10.2023, proposed a transfer pricing adjustment of ₹14.84 crore.

The AO incorporated this in the draft order dated 20.12.2023. Based on Dispute Resolution Panel (DRP) directions, the AO passed the final assessment order on 24.10.2024, assessing the income at ₹408.92 crore. Aggrieved, the assessee filed the present appeal.

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The issue raised by the assessee pertained to a transfer pricing adjustment on non-binding investment advisory and support services provided to its associated enterprises.

The facts on this issue were that during the year, the assessee provided non-binding investment advisory and support services to its associated enterprises for strategic investments in India and earned advisory fees of ₹9.10 crore at a 22% mark-up.

It benchmarked the transaction using Transactional Net Margin Method (TNMM) with operating profits to operating costs (OP/OC ) as the Profit Level Indicator (PLI), selecting six comparables with a median margin of 2.19%. Since its margin was 22%, it claimed the transaction was at arm’s length.

The TPO, in order dated 09.10.2023, rejected four comparables and selected two with an average margin of 7.93%. He also noted that certain key personnel participated in carried interest plans of the Goldman Sachs Group.

Though the assessee stated this was a personal arrangement between employees and the group, the TPO, based on earlier APA data, added ₹90 lakh as carried interest to the cost base and computed a transfer pricing adjustment of ₹19.80 lakh.

The DRP upheld the TPO’s view and included the carried interest in the cost base. Aggrieved, the assessee appealed.

The two member bench comprising Sandeep Singh Karhail (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) considered the submissions of both sides and examined the material on record. Based on discussions with the assessee’s employees during APA proceedings in earlier years, it was noted that these employees had earned carried interest from the GS Group ranging from about ₹1.5 crore to ₹5 crore.

Following the approach adopted in earlier years, the TPO concluded that ₹90 lakh was received during the year under consideration. Treating this as part of the cost base for investment advisory services and given that the assessee was compensated on a cost-plus basis, the TPO computed a transfer pricing adjustment of ₹19.80 lakh.

The assessee contended that the carried interest was a personal arrangement between its employees and the GS Group, with no contractual or financial involvement of the assessee.

It argued that the carried interest was not part of its operating costs, was not recorded in its accounts, and related to employees’ personal investments, often in global funds unrelated to India-specific advisory work.

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The tribunal found that apart from information gathered during earlier APA proceedings, there was no material to show that employees had received carried interest during the relevant year.

It observed that the assessee was already reimbursed on a cost-plus 22% basis, and the TPO’s approach merely increased operating costs without adjusting revenue, which would still result in a 22% margin.

Even if the ₹90 lakh was treated as both additional cost and revenue, the margin remained significantly higher than the 7.93% average margin of comparable companies.

Accordingly, the tribunal held that there was no basis to sustain the transfer pricing adjustment for the non-binding investment advisory services transaction and allowed the assessee’s appeal on this issue.

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