2017 (1) TMI 1453 - AT - Income Tax

TPA - comparable selection - Held that - Assessee is engaged in providing investment advisory services to its Associated Enterprise (A.E), thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparable.

Summary

Issues Involved:
1. Selection/Rejection of Comparables
2. Transfer Pricing Adjustment
3. Discrepancies in Credit Card Expenditure

Issue-wise Detailed Analysis:

1. Selection/Rejection of Comparables:

ICRA Limited:
The assessee objected to the inclusion of ICRA Limited as a comparable, arguing that it primarily functions as a credit rating agency, with 99.28% of its revenue from rating services. The Transfer Pricing Officer (TPO) had excluded this company in the previous assessment year due to functional dissimilarity. The Tribunal agreed, citing previous decisions where ICRA Limited was excluded because its segment results showed losses and it was primarily a credit rating agency.

Deutsche Asset Management India Ltd.:
The assessee argued against this company's inclusion, stating it provides investment management services with high related party transactions (RPT) of 134.53%. The Tribunal noted that the TPO had excluded this company in the previous assessment year due to similar reasons and upheld its exclusion for the current year as well.

Shriyam Broking Intermediary Ltd.:
The assessee contended that this company is engaged solely in broking activities, generating 100% of its revenue from brokerage fees. The Tribunal observed that the TPO had excluded this company in the previous assessment year for similar reasons and directed its exclusion.

21st Century Share and Securities Ltd.:
The assessee objected to this company's inclusion, noting that 74.11% of its revenue came from broking activities. The Tribunal, citing previous decisions, excluded this company from the list of comparables due to its primary engagement in broking activities.

SBI Fund Management Pvt. Ltd.:
The assessee argued that this company primarily engages in asset management activities, earning 84.31% of its revenue from management fees. The Tribunal noted that the TPO had excluded this company in the previous assessment year due to similar reasons and upheld its exclusion.

CRISIL Limited:
The assessee objected to this company's inclusion, stating it has significant related party transactions (60.50%) and primarily earns income from rating services. The Tribunal directed the Assessing Officer (AO) to verify the RPT and exclude the company if the RPT exceeds the threshold limit.

IDC India Limited:
The assessee argued for the inclusion of this company, stating it is engaged in research, consulting, and investment advisory services. The Tribunal, citing consistent views in previous decisions, directed the AO to include IDC India Limited as a comparable.

2. Transfer Pricing Adjustment:
For the assessment year 2008-09, the TPO rejected the assessee's transfer pricing study and proposed a new set of comparables, resulting in a transfer pricing adjustment of ?28,39,74,868. The Tribunal, after considering the objections, directed the exclusion of certain comparables and inclusion of others, thereby impacting the final transfer pricing adjustment.

For the assessment year 2009-10, the TPO proposed 10 comparables, resulting in a transfer pricing adjustment of ?34,16,50,457. The Tribunal directed the exclusion of certain comparables and inclusion of others, instructing the AO to recompute the arm's length price accordingly.

3. Discrepancies in Credit Card Expenditure:
The AO found discrepancies in the assessee's credit card expenditure, proposing an addition of ?17,01,647. The DRP directed the AO to verify and reconcile the differences, resulting in a reduced addition of ?6,98,123. The assessee chose not to press this ground due to the smallness of the amount, and the Tribunal dismissed it as "not pressed."

Conclusion:
The Tribunal's decision involved detailed scrutiny of the selection and rejection of comparables, resulting in directions to exclude certain companies and include others based on functional dissimilarity and related party transactions. The Tribunal also addressed discrepancies in credit card expenditure, resulting in a reduced addition. The appeals were partly allowed, with specific directions for recomputation of the arm's length price.