2016 (5) TMI 1335 - AT - Income Tax

TPA - comparable - Held that - Assessee is engaged in providing non-binding investment advisory services to its Associated Enterprise(AE)-Apollo Management L. P.. Companies dis-simalar with that of assessee or functionally different need to be rejected by final list of comparable.

Summary

Issues Involved:
1. Determination of Arm’s Length Price (ALP) for international transactions.
2. Selection of comparable companies for Transfer Pricing (TP) analysis.
3. Inclusion and exclusion of specific companies as comparables.
4. Re-computation of TP adjustment.
5. Consequential issues related to interest and penalties.

Issue-wise Detailed Analysis:

1. Determination of Arm’s Length Price (ALP) for international transactions:
The assessee provided non-binding investment advisory services to its Associated Enterprise (AE) and declared an income of ?2.89 Crores. The Assessing Officer (AO) determined the income at ?5.71 Crores after referring the international transactions to the Transfer Pricing Officer (TPO) to determine the ALP. The TPO found the assessee had a cost-plus margin of 20% and used the Transactional Net Margin Method (TNMM) as the most appropriate method.

2. Selection of comparable companies for Transfer Pricing (TP) analysis:
The TPO was not convinced with the four comparables selected by the assessee and chose seven different comparables, leading to an adjustment of ?2,81,89,114/-. The First Appellate Authority (FAA) deliberated upon various comparables and made specific inclusions and exclusions.

3. Inclusion and exclusion of specific companies as comparables:
- ICRA Management Consulting Services Limited (ICRA): The FAA included ICRA as a comparable, referring to the Tribunal's decision in the case of Tamasek Holdings Advisors (I) P. Ltd., which considered ICRA a valid comparable for investment advisory services.
- IDC (India) Limited (IDCL): The FAA included IDCL as a comparable, relying on previous Tribunal decisions, noting that IDCL’s functions were sufficiently comparable to the assessee’s services.
- Kshitij Investment Advisory Co. Ltd. (KIACL): The FAA included KIACL, stating it earned income from investment advisory fees, despite the assessee's objections regarding business realignment.
- ICRA Online Ltd. (ICRA-O): The FAA excluded ICRA-O, noting its activities were in knowledge process outsourcing and not comparable to the assessee's investment advisory services.
- Motilal Oswal Investment Advisors Pvt. Ltd. (MOIAPL): The FAA included MOIAPL, despite the assessee's argument that it was engaged in investment banking services and earned supernormal profits.
- IDFC Investment Advisors Ltd. (IDFCL): The FAA excluded IDFCL, noting it was engaged in portfolio management services, which were distinct from investment advisory support.

4. Re-computation of TP adjustment:
The FAA prepared a final set of comparables with a revised margin and recomputed the TP adjustment at ?1.47 Crores. The final set included:
- Future Capital Investment Advisors Ltd.
- Future Capital Holdings Ltd. (Segment-Investment advisory)
- ICRA Management Consulting Services Limited
- IDC (India) Limited
- Kshitij Investment Advisory Co. Ltd.
- Motilal Oswal Investment Advisors Pvt. Ltd.
- Mecklai Financial & Commercial Services Limited

5. Consequential issues related to interest and penalties:
The remaining grounds dealing with interest under section 234B and concealment penalty were deemed consequential in nature.

Separate Judgments:
The Tribunal followed previous decisions in similar cases, such as Carlyle India Advisors Pvt. Ltd. and Temasek Holdings Advisors (I) P. Ltd., to determine the inclusion or exclusion of comparables. The Tribunal emphasized consistency in accepting or rejecting comparables unless there were material changes in facts or circumstances.

Conclusion:
The appeal filed by the assessee was allowed, leading to the exclusion of KIACL and MOIAPL from the list of comparables. The appeal of the AO was dismissed, confirming the FAA's inclusion of ICRA and IDCL and exclusion of ICRA-O and IDFCL. The Tribunal upheld the principle of consistency and relied on previous decisions to ensure fair and accurate TP adjustments.