2018 (2) TMI 1803 - AT - Income Tax

Transfer pricing adjustment - rejection/selection of some of the comparables - functinal similarity - Held that - The assessee an Indian company is engaged in the business of providing non-binding investment advisor services to its Associated Enterprise (A.E) General Atlantic Service Corporation USA thus companies functionally dissimilar with that of assessee need to be deselected from final list. As AR has submitted before us that on inclusion of ICRA Management Consulting Services Ltd. IDC (India) Ltd. and exclusion of Ladderup Corporate Advisory Pvt. Ltd. and Motilal Oswal Investment Advisors Ltd. assessee s margin will fall within /- 5% of the average margin of the remaining comparables. In view of the aforesaid submissions of the assessee the issue relating to comparability of Crisil Rest and Infrastructure Solutions Ltd. being of mere academic nature is not required to be deliberated upon. Grounds raised by the assessee are partly allowed and ground raised by the Department is dismissed.

Issues Involved:
1. Transfer Pricing Adjustment
2. Selection/Rejection of Comparables
3. Upward Adjustment to Arm's Length Price
4. Exclusion of Motilal Oswal Investment Advisors Ltd. as a Comparable

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment:
The core issue in the cross-appeals is the transfer pricing adjustment made by the Transfer Pricing Officer (TPO) and partly upheld by the Dispute Resolution Panel (DRP). The assessee, an Indian company providing non-binding investment advisory services to its Associated Enterprise (A.E.), used the Transaction Net Margin Method (TNMM) to benchmark its international transactions. The TPO, however, found discrepancies in the comparability analysis and selected different comparables, leading to an upward adjustment of ?14,40,06,104 to the arm's length price.

2. Selection/Rejection of Comparables:
The primary contention revolves around the selection and rejection of certain comparables. The assessee argued for the inclusion of ICRA Management Consulting Services Ltd. and IDC (India) Ltd., while opposing the inclusion of Ladderup Corporate Advisory Pvt. Ltd. and Motilal Oswal Investment Advisors Ltd. The DRP upheld the TPO's rejection of the comparables selected by the assessee but excluded Motilal Oswal Investment Advisors Ltd. from the TPO's list.

3. Upward Adjustment to Arm's Length Price:
The TPO's selection of comparables led to a significant upward adjustment to the arm's length price. The average mean margin of the comparables selected by the TPO was 52.12%, significantly higher than the margin shown by the assessee at 18.18%. This discrepancy resulted in the TPO proposing an upward adjustment of ?14,40,06,104, which was included in the draft assessment order by the Assessing Officer.

4. Exclusion of Motilal Oswal Investment Advisors Ltd. as a Comparable:
The DRP excluded Motilal Oswal Investment Advisors Ltd. from the list of comparables selected by the TPO, a decision supported by the assessee. The learned Authorised Representative argued that this company is not comparable due to its involvement in multiple business verticals and core competence in merchant banking. The Tribunal upheld the DRP's decision, noting that different Benches of the Tribunal have consistently excluded this company as a comparable for investment advisory service providers.

Detailed Analysis:

Selection of ICRA Management Consulting Services Ltd.:
The assessee argued that ICRA Management Consulting Services Ltd. is functionally similar as it provides consultancy services in areas like strategy, risk management, and transaction advisory. The Tribunal noted that this company has been accepted as a comparable in similar cases and in the assessee's own case for the assessment year 2009-10. The Tribunal directed the Assessing Officer to accept this company as a comparable, rejecting the Department's argument about differences in skill set and functionality.

Selection of IDC (India) Ltd.:
The assessee contended that IDC (India) Ltd. is a good comparable for companies providing non-binding investment advisory services. The Tribunal observed that this company was accepted as a comparable in the assessee's own case for the assessment year 2006-07 and other similar cases. The Tribunal directed the Assessing Officer to include this company as a comparable, following judicial precedents.

Exclusion of Ladderup Corporate Advisory Pvt. Ltd.:
The Tribunal found that Ladderup Corporate Advisory Pvt. Ltd., being a merchant banker, is not comparable to the assessee. This decision was based on the Tribunal's earlier ruling in Temasek Holding Advisors India (P.) Ltd., where the company was excluded due to its engagement in merchant banking services. The Tribunal directed the exclusion of this company from the list of comparables.

Exclusion of Motilal Oswal Investment Advisors Ltd.:
The Tribunal upheld the DRP's decision to exclude Motilal Oswal Investment Advisors Ltd., noting that different Benches have consistently excluded this company as a comparable for investment advisory service providers. The Tribunal found that the company's involvement in various business verticals and core competence in merchant banking made it unsuitable as a comparable.

Conclusion:
The Tribunal's order resulted in the inclusion of ICRA Management Consulting Services Ltd. and IDC (India) Ltd. as comparables and the exclusion of Ladderup Corporate Advisory Pvt. Ltd. and Motilal Oswal Investment Advisors Ltd. The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal noted that with the inclusion and exclusion of the specified comparables, the assessee's margin would fall within the acceptable range, making further deliberation on other comparables unnecessary. Grounds Nos. 9 and 10 were deemed premature and not adjudicated.

← Previous Next →