2015 (12) TMI 1664 - AT - Income Tax

TPA - selection of comparable - Held that - Motilal Oswal Investment Advisors Pvt Ltd is held as a merchant banker and investment banker which is functionally not similar to that of function of non-binding advisory services. Therefore after hearing both the parties in this regard we are of the opinion that Motilal Oswal Investment Advisors Pvt Ltd is not a good comparable in this case. Accordingly AO is directed to exclude the same from the comparables. IDFC company is engaged in rendering of services as Portfolio Manager whose functions are intimately different from that of the functions of non-binding advisory services rendered by the assessee to its AEs. The services rendered by the ICRA are more akin to ITeS activities and not the non-binding advisory services. We find merit in the argument of the Ld Counsel for the assessee. Further Ld Counsel also brought our attention to the fact that the TPO / AO collected some information u/s 133(6) of the Act and made use of the same at the back of the assessee without supplying copies to the assessee. We find merit in the arguments of the Ld Counsel for the assessee that the said information shares with the assessee before they are made use by the TPO / AO. For this limited purpose we remand this issue to the file of the AO / TPO to re-examine the functions of the said company in depth after supplying the information so collected by them u/s 133(6) of the Act.

Summary

Issues:
1. Inclusion of certain companies as comparable for determining arm's length price.
2. Use of multiple year data for comparable companies in transfer pricing studies.

Issue 1: Inclusion of Comparable Companies
The appellant challenged the inclusion of Motilal Oswal Investment Advisors Private Limited, IDFC Investment Advisors Limited, and ICRA online Ltd as comparable companies for determining the arm's length price of international transactions of investment advisory services. The appellant argued that these companies were not functionally similar to the appellant, engaged in non-binding investment advisory services. The Tribunal analyzed the functions of these companies and found that Motilal Oswal Investment Advisors Pvt Ltd was engaged in merchant banking and investment banking, functionally different from the appellant. The Tribunal directed the exclusion of Motilal Oswal Investment Advisors Pvt Ltd as a comparable. Similarly, IDFC was engaged in portfolio management services, functionally different from the appellant, and was also directed to be excluded. The Tribunal found ICRA to be providing services more akin to ITeS activities, functionally dissimilar to the appellant, and remanded the issue back to the AO for further examination after supplying relevant information to the appellant.

Issue 2: Use of Multiple Year Data
The appellant contested the decision of the DRP/TPO not to apply multiple year data for comparable companies and instead use data for the financial year 2009-2010 alone. However, the Tribunal dismissed this issue as an academic exercise, considering that if the three comparables included by the TPO were excluded, the appellant's arm's length price would be accepted without any change. Therefore, the Tribunal deemed the adjudication of this issue at that point as unnecessary.

In summary, the Tribunal partially allowed the appeal of the assessee concerning the inclusion of certain companies as comparables for determining the arm's length price of international transactions. The Tribunal directed the exclusion of Motilal Oswal Investment Advisors Pvt Ltd, IDFC Investment Advisors Limited, and remanded the issue regarding ICRA back to the AO for further examination. The Tribunal dismissed the issue of using multiple year data for comparables as academic, given the outcome of the first issue.