2015 (11) TMI 1506 - AT - Income Tax

Additions made on account of Transfer pricing adjustment - Held that - It is an undisputed fact that the assessee is engaged in the business of investment advisory, therefore, the comparables relating to merchant banking cannot be accepted. Chartered Capital & Investment Ltd be excluded as comparable as this company is totally functioning on different platform and cannot be used as comparable. Edelweiss Capital Ltd. company is also functionally not comparable. Sumedha Fiscal Services Ltd. company is also functionally not comparable with the assessee as The investment service provide by this company are in the field of Stock Broking, Depository services, Commodity Broking and Currency Derivatives Broking and Corporate services are for equity placement, Financial Restructuring, Merchant Banking and also Mergers and Takeovers. This company has earned income from fee based activities like Loan Syndication and Project Consultancy Services at ₹ 787.63 lacs. Motilal Oswal Investment Advisors Pvt. Ltd. company also cannot be included in the final list of comparable firstly because it is doing business on a different filed and secondly and more importantly the related party transaction is more than 50%. Disallowance of foreign travel expenditure - Held that - The details of expenditure which are exhibited at pages 6,7 & 8 of the assessment order. We find that the details are complete and exhaustive. The AO has not understood the nature of expenditure qua the business of the assessee. As mentioned elsewhere, the assessee is an Investment Advisory Company and for the purpose of its advisory business, it has to meet various clients across the globe for which travelling is must. It is an error to say that assessee was soliciting/seeking potential investors by taking these foreign visits. The findings of the AO are clearly erroneous on the facts of the case and the DRP further fell into error by confirming the same. We, therefore direct the AO to delete the impugned disallowance - Decided in favour of assessee Incorrect adjustment on account of refund not received - Held that - We restore this issue to the file of the AO. The AO is directed to furnish the complete adjustment sheets to the assessee explaining how the refund was adjusted after giving a reasonable opportunity of being heard to the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Transfer Pricing Adjustment
2. Disallowance of Foreign Travel Expenditure
3. Incorrect Adjustment on Account of Refund Not Received
4. Levy of Interest under Section 234D of the Act
5. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act

Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee challenged the additions made on account of Transfer Pricing adjustment, contending that the Revenue authorities failed to appreciate the functions performed, assets employed, and risks assumed by the assessee and its Associated Enterprises (AE). The assessee, a private equity investment advisory firm, provided services to its AE, General Atlantic Service Corporation USA (GASC LLC). The Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) selected comparables that the assessee argued were functionally different, primarily engaged in investment banking and merchant banking. The Tribunal noted that investment advisory and merchant banking are fundamentally different functions, as evidenced by definitions from Investopedia and Wikipedia. Consequently, the Tribunal directed the exclusion of certain companies (Chartered Capital & Investment Ltd., Edelweiss Capital Ltd., Sumedha Fiscal Services Ltd., and Motilal Oswal Investment Advisors Pvt. Ltd.) from the final list of comparables, instructing the Assessing Officer (AO) to re-evaluate the issue afresh.

2. Disallowance of Foreign Travel Expenditure:
The AO disallowed Rs. 24,36,150/- of foreign travel expenditure, arguing that meetings with potential investees were not "for the purpose of business." The Tribunal found that the AO had not properly understood the nature of the expenditure in relation to the assessee's investment advisory business, which necessitates global travel for client meetings. The Tribunal deemed the AO's findings erroneous and directed the deletion of the disallowance.

3. Incorrect Adjustment on Account of Refund Not Received:
The Tribunal restored this issue to the AO, directing them to provide complete adjustment sheets to the assessee, explaining how the refund was adjusted, and ensuring a reasonable opportunity for the assessee to be heard.

4. Levy of Interest under Section 234D of the Act:
The Tribunal noted that the levy of interest under Section 234D is mandatory but consequential. The AO was directed to levy interest as per the provisions of the law.

5. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act:
The Tribunal deemed this grievance premature and requiring no adjudication at this stage.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes, with specific directions given to the AO to address the issues raised comprehensively and in accordance with the law. The order was pronounced in the open court on 6th November 2015.