2015 (4) TMI 1011 - AT - Income Tax

Adjustment made in the international transaction undertaken by the assessee with its associated enterprises - selection of comparables - Held that - In view of the above observations regarding nature of business carried on by Motilal Oswal and the judicial pronouncements it is crystal clear that in addition to investment advisory services in which assessee was involved M/s Motilal Oswal Investment Advisory Pvt. Ltd. was engaged in diversified activities and registered with SEBI as a merchant banker. Thus M/s Motilal Oswal Investment Advisory Pvt. Ltd. is functionally different from the assessee. Accordingly we direct the AO to exclude M/s Motilal Oswal Investment Advisory Pvt. Ltd. form the list of comparables. ICSL is functionally dissimilar therefore it should be excluded from the list of comparables. From the record we also found that while computing arms length margin the AO has independently considered weighted margin of M/s Future Capital Investment Advisory ltd. at 20.35% instead of single year margin of 15.71%. To this effect a letter was already given to the AO vide submission dated 10.10.2012. After exclusion of two comparables namely M/s Motilal Oswal and Integrated Capital the only comparable remains is Future Capital Investment having margin of 15.71%. Since the margin of comparable which is left out remains at 15.71% as against margin of 19.70% earned by the assessee on provision of investment advisory services which is more than the margin of 15.71% no transfer pricing adjustment is warranted while computing arms length price. - Decided in favour of assessee

Summary

Issues involved:
Adjustment of international transaction in investment advisory services.

Analysis:
1. The appellant contested the adjustment made by the AO in the international transaction of investment advisory services. The AO adjusted Rs. 2,63,18,222 based on comparables, leading to the appeal against the CIT(A) order.

2. The appellant argued that M/s Motilal Oswal Investment Advisory Pvt. Ltd. was functionally different from the assessee, engaged in various activities beyond investment advisory. Several tribunal decisions supported this claim.

3. The respondent contended that including M/s Motilal Oswal Investment Advisory Pvt. Ltd. for the arm's length price calculation was justified as they also provided investment advisory services.

4. The tribunal reviewed the arguments and previous decisions. It found that M/s Motilal Oswal Investment Advisory Pvt. Ltd. engaged in diverse activities beyond investment advisory, as per its annual report and judicial pronouncements. Thus, it directed the AO to exclude it from comparables.

5. Further, the tribunal noted that the appellant's services were non-binding investment advisory support, while Integrated Capital Services Ltd. was involved in advisory and consultancy services for mergers and acquisitions, indicating functional dissimilarity.

6. The appellant highlighted errors in the computation of net cost plus margin of Integrated Capital Services Ltd. and the incorrect consideration of margin for Future Capital Investment Advisory Ltd. The tribunal agreed to exclude Integrated Capital Services Ltd. and rectify the margin calculation.

7. After excluding M/s Motilal Oswal and Integrated Capital, only Future Capital Investment remained as a comparable with a margin of 15.71%. Since this margin was lower than the appellant's margin of 19.70%, no transfer pricing adjustment was warranted, leading to the allowance of the appeal.