2016 (2) TMI 503 - AT - Income Tax

Transfer pricing adjustment - selection of Motilal Oswal as comparable - Held that - functions and activities carried out by Motilal Oswal are different from the functions and activities of the assessee company. Accordingly, the risk profiles of the two are also different. It has been clearly mentioned in the annual report of Motilal Oswal that the said company is engaged in the business of merchant banking and investment, business advisory services. We find that Motilal Oswal is not comparable to the assessee company and the AO is directed to exclude the same from the list of comparables and re-compute the Arm s Length Price and also the Transfer Pricing Adjustment to be made, if any after the excluding the aforesaid company.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Challenge to the inclusion of Motilal Oswal Investment Advisors Pvt. Ltd. as a comparable for Transfer Pricing Adjustment.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal filed by the assessee was noted to be late by one day. The assessee's counsel explained that the delay was due to the unavailability of the managing director, supported by a duly sworn affidavit. The department did not raise any serious objections to the condonation of the delay. Considering the explanation and in the interest of justice, the delay was condoned, and the appeal was admitted for adjudication.

2. Challenge to the Inclusion of Motilal Oswal Investment Advisors Pvt. Ltd. as a Comparable for Transfer Pricing Adjustment:
The primary grievance of the assessee was the inclusion of Motilal Oswal Investment Advisors Pvt. Ltd. (Motilal Oswal) by the Assessing Officer (AO) as a comparable without following due procedure and without conducting a fresh search. The assessee argued that Motilal Oswal is not functionally comparable to the assessee company, which is a captive service provider offering non-binding Investment Advisory Services with limited risk.

The assessee emphasized that Motilal Oswal is an investment banking company engaged in diverse activities such as merchant banking, IPO services, and decision-making processes, unlike the assessee company, which provides advisory services restricted to the pre-investment stage. The assessee supported its argument by referencing various judicial precedents where Motilal Oswal was excluded as a comparable in similar cases.

The department's representative opposed the exclusion, arguing that the skill sets required for the functions of both companies are similar, and thus, Motilal Oswal should be considered comparable.

The tribunal reviewed the submissions and concluded that the functions and activities of Motilal Oswal are different from those of the assessee company, leading to different risk profiles. The tribunal noted that Motilal Oswal is engaged in merchant banking and investment business advisory services, which are functionally dissimilar to the non-binding advisory services provided by the assessee.

The tribunal referred to previous judgments, including the case of Lehman Brothers Advisors Pvt. Ltd., where it was held that Motilal Oswal is not a suitable comparable for companies engaged in pure advisory services. The tribunal highlighted that Motilal Oswal's diversified activities and lack of segmental reporting make it an unsuitable comparable.

In light of these findings and the judicial precedents, the tribunal directed the AO to exclude Motilal Oswal from the list of comparables and re-compute the Arm's Length Price and Transfer Pricing Adjustment, if any.

Conclusion:
The appeal was partly allowed, with the tribunal ruling in favor of the assessee on the primary issue of excluding Motilal Oswal as a comparable. Consequently, other grounds raised by the assessee were deemed academic and infructuous. The order was pronounced in the open court on 22nd January 2016.

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