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2016 (2) TMI 1197 - AT - Income TaxTPA - comparable selection criteria - Addition of 3% markup additionally made over and above the comparative margin arrived - Held that - The assessee is a Private Limited Company incorporated in India and is 100% subsidiary of Tamasek Holdings Private Limited, Singapore (THPL). Assessee vide agreement dated 1st April 2004 with THPL agreed to provide Investment Advisory Services. While rendering these services, the assessee provides investment recommendation in India to THPL, whereas the later retains the right of the use of investment advice or information. Hence the advisory services provided by the assessee were in the nature of non binding advisory services for which assessee was compensated with cost plus markup. The profitability derived from uncontrolled party engaged in similar line of business activity under similar circumstances, is the measure of arm s length results. If cost or sale is used as the base, then profitability depends largely upon the functions performed, therefore, in such a situation closer functionality is required preferably to an appropriate business segment or transaction. Addition of 3% markup additionally made over and above the comparative margin arrived - additional mark-up applied by the TPO is without any FAR analysis or without any benchmarking exercise with any comparables and more importantly without any analysis of assessee s own facts. The assessee is providing non-binding investment advisory services to its AE and such services as highlighted by Ld. Counsel include; identifying and analyzing potential investment opportunities, evaluating and making recommendations to THPL with respect to specified investments. The monitoring functions performed by the assessee are part and parcel of the portfolio advisory services rendered by it because, the activities carried out by the assessee while undertaking portfolio monitoring activities include analysis of the latest development in the industry, ongoing performance of the industries and providing necessary information to its AE from time to time. This aspect has been noted by the ITAT, Mumbai Bench in the case of Carlyle India Advisors (P.) Ltd. (2013 (4) TMI 486 - BOMBAY HIGH COURT) and in other decisions cited above by the Ld. Counsel. Thus, we hold that no such addition or adjustment on account of extra markup can be made. Accordingly, we direct to delete the addition.
Issues Involved:
1. Transfer Pricing Adjustment 2. Exclusion and Inclusion of Comparable Companies 3. Additional Mark-up by TPO Detailed Analysis: 1. Transfer Pricing Adjustment: The appeal was filed by the assessee against the Final Assessment Order for the assessment year 2010-11, challenging the Transfer Pricing Adjustment of Rs. 9,41,19,278/- in the determination of Arm's Length Price (ALP) for investment advisory services provided to its associate enterprise (AE). The assessee's margin was 21.4%, whereas the Transfer Pricing Officer (TPO) determined a mark-up margin of 37.51%. 2. Exclusion and Inclusion of Comparable Companies: The assessee contested the exclusion of five comparable companies and the inclusion of one by the TPO and the Dispute Resolution Panel (DRP). - ICRA Management Consultancy Services Ltd. (Rejected by TPO): - The assessee argued that ICRA provides consultancy services in various sectors similar to its own advisory services. This comparable was accepted in earlier years by the Tribunal. - The Tribunal held that ICRA should be included as it provides consultancy services in diverse areas, and there was no material change from earlier years. - Kinetic Trust Ltd. (Rejected by TPO): - The TPO rejected it based on its low turnover and NBFC registration. - The Tribunal noted that the company is engaged in corporate consultancy services and financial services, and turnover alone cannot be a criterion for rejection. It was accepted as a comparable in earlier years. - IDC India Ltd. (Rejected by DRP): - The DRP rejected this comparable without giving the assessee an opportunity to be heard. - The Tribunal directed its inclusion, noting that it was accepted in earlier years and by the TPO in other cases. - Future Capital Investment Advisors Ltd. (Rejected by DRP): - The DRP rejected this comparable without hearing the assessee. - The Tribunal included this comparable, noting its primary engagement in investment advisory services. - Integrated Capital Services Ltd. (Rejected by TPO): - The Tribunal upheld the rejection based on previous decisions where it was not considered a good comparable for investment advisory services. - Motilal Oswal Investment Advisors Pvt. Ltd. (Included by TPO): - The TPO included this company, stating it provides high-quality strategic and financial services similar to the assessee. - The Tribunal excluded it, noting that Motilal Oswal operates in different business verticals like merchant banking, which are not comparable to the assessee's investment advisory services. 3. Additional Mark-up by TPO: The TPO added a further mark-up of 3% over the comparative margin, arguing that the assessee provided additional portfolio management services. - The Tribunal found this addition untenable, noting that the monitoring activities were part of the investment advisory services and no additional functions were performed. The Tribunal directed the deletion of the additional mark-up. Conclusion: The appeal was allowed in part, directing the inclusion of ICRA Management Consultancy Services Ltd., Kinetic Trust Ltd., IDC India Ltd., and Future Capital Investment Advisors Ltd. as comparables, and the exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. The additional mark-up of 3% added by the TPO was also deleted.
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