2017 (4) TMI 1260 - AT - Income Tax

TPA - comparable selection - Held that - As the assessee is merely an investment advisor thus companies functionally dissimilar with that of assessee need to be deselected from final list. Motilal Oswal Investment Advisers Pvt. Ltd. rejected and ICRA Management Consulting Services Ltd & IDC India Ltd need to be accepted as valid comparable.

Issues Involved:
1. Enhancement of transfer pricing adjustment by the Dispute Resolution Panel (DRP).
2. Upward adjustment to the income of the appellant for non-binding investment advisory services.
3. Non-compliance with Section 92C(3) of the Income-tax Act.
4. Rejection of benchmarking analysis and comparable companies selected by the appellant.
5. Use of non-contemporaneous data and cherry-picked companies.
6. Inclusion of a fresh comparable company, Motilal Oswal Investment Advisors Pvt. Ltd.
7. Lack of step-by-step accept/reject matrix for comparable companies.
8. Incorrect rejection of certain comparable companies by DRP.
9. Deletion of companies selected by the assessee without a show cause notice.
10. Non-allowance of appropriate adjustments for differences between transactions.
11. Incorrect findings on the level of risks borne by the appellant.
12. Disregard for the use of multiple-year data.
13. Non-compliance with DRP directions by the Assessing Officer (AO).
14. Initiation of penalty proceedings under Section 274 read with Section 271(1)(c).
15. Levy of interest under Section 234B and Section 234D.

Detailed Analysis:

1. Enhancement of Transfer Pricing Adjustment by DRP:
The appellant contended that the DRP's directions to enhance the transfer pricing adjustment were contrary to Section 144C(11) of the Income-tax Act and violated principles of natural justice.

2. Upward Adjustment to Income:
The Transfer Pricing Officer (TPO) initially made an upward adjustment of ?14,78,97,525/- which was further enhanced by the AO and DRP to ?25,13,43,126/-. The appellant challenged this enhancement as erroneous.

3. Non-Compliance with Section 92C(3):
The appellant argued that the AO/TPO's order was not in accordance with Section 92C(3) of the Act, and the DRP erred in confirming this approach.

4. Rejection of Benchmarking Analysis:
The appellant claimed that the AO/TPO and DRP disregarded the benchmarking analysis, search filters, and comparable companies selected based on contemporaneous data and the transfer pricing study report as per Section 92D read with Rule 10D.

5. Use of Non-Contemporaneous Data:
The appellant alleged that the AO/TPO used non-contemporaneous data and cherry-picked companies, which was confirmed by the DRP, leading to an erroneous transfer pricing adjustment.

6. Inclusion of Fresh Comparable Company:
The inclusion of Motilal Oswal Investment Advisors Pvt. Ltd. as a comparable was contested by the appellant on the grounds that it is a SEBI-registered merchant banker, unlike the appellant who is an investment advisor. The Tribunal, following previous decisions, directed the exclusion of this company from the list of comparables.

7. Lack of Step-by-Step Accept/Reject Matrix:
The appellant argued that the AO/TPO and DRP failed to provide a step-by-step accept/reject matrix for the companies selected based on the search process.

8. Incorrect Rejection of Certain Comparable Companies:
The appellant contended that the DRP incorrectly rejected comparable companies like ICRA Management Consulting Services Limited, IDC (India) Limited, Future Capital Holdings Limited, and Future Capital Investment Advisors Limited. The Tribunal directed the inclusion of ICRA Management Consulting Services Ltd. and IDC India Ltd. in the list of comparables.

9. Deletion of Companies without Show Cause Notice:
The appellant argued that the DRP erroneously deleted Future Capital Holdings Limited and Future Capital Investment Advisors Limited without providing a show cause notice or an opportunity of being heard.

10. Non-Allowance of Appropriate Adjustments:
The appellant claimed that the AO/TPO and DRP did not allow appropriate adjustments as per Rule 10B(1)(e)(iii) for differences between international transactions and comparable uncontrolled transactions.

11. Incorrect Findings on Risk Levels:
The appellant challenged the TPO and DRP's finding that the appellant failed to show differences in risk levels compared to comparable cases, arguing that this finding was erroneous and contrary to the record.

12. Disregard for Multiple-Year Data:
The appellant argued that the AO/TPO and DRP disregarded the use of multiple-year data for preceding financial years (FY 2007-08 and FY 2008-09) as permitted under Rule 10B(4).

13. Non-Compliance with DRP Directions:
The appellant contended that the AO did not follow and comply with the DRP's directions.

14. Initiation of Penalty Proceedings:
The appellant argued that the AO erred in initiating penalty proceedings under Section 274 read with Section 271(1)(c).

15. Levy of Interest:
The appellant challenged the AO's decision to levy interest under Section 234B and Section 234D.

Conclusion:
The Tribunal, following its earlier decisions, directed the exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. and the inclusion of ICRA Management Consulting Services Ltd. and IDC India Ltd. in the list of comparables. No arguments were made on other grounds, and the remaining grounds were dismissed. The appeal was partly allowed.

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