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2018 (8) TMI 1902 - AT - Income TaxTP adjustment - transaction pertaining to provision of non-binding investment advisory services by the Appellant to its overseas associated enterprise (AE) using Transactional Net Margin Method (TNMM) as the most appropriate method - comparable selection - HELD THAT - Assessee is rendering investment advisory services to its associated enterprise thus companies thus companies functionally dissimilar with that of assessee need to be deselected from final list. Since we have accepted the plea of the assessee for exclusion of Ladderup Corporate Advisory Pvt. Ltd. and inclusion of Informed Technologies India Ltd. as a comparable, considering the aforesaid submissions, there does not remain a need to adjudicate on the other pleas for inclusion of the other two concerns, namely, ICRA Management Consulting Services Ltd. and IDC (India) Ltd. In view of the aforesaid, we direct the Assessing Officer to recompute the arm s length price of the international transactions of providing investment advisory services, as per our aforesaid directions. Disallowance u/s 14A - HELD THAT - As per the learned representative, in the absence of any receipt of exempt dividend income during the year under consideration, the disallowance u/s 14A of the Act is not merited. The aforesaid proposition of the assessee is fully supported by the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT . Insofar as the fact-position of absence of any exempt income is concerned, the ld. CIT-DR has also not controverted the same and, therefore disallowance u/s 14A of the Act is directed to be deleted.
Issues Involved:
1. Upward transfer pricing adjustment of ?2,94,32,651. 2. Disallowance of ?30,09,500 under section 14A of the Income Tax Act. 3. Initiation of penalty proceedings under section 271(1)(c) of the Act. Detailed Analysis: 1. Upward Transfer Pricing Adjustment of ?2,94,32,651: The primary issue revolves around the upward transfer pricing adjustment made by the Assessing Officer (AO) by re-computing the arm's length price (ALP) of the international transaction pertaining to non-binding investment advisory services provided by the assessee to its overseas associated enterprise (AE). The AO used the Transactional Net Margin Method (TNMM) as the most appropriate method. - Rejection of Documentation: The AO rejected the documentation maintained by the assessee for the international transaction without providing cogent reasons. - Non-sharing of Search Process: The Transfer Pricing Officer (TPO) did not share the search process conducted to arrive at the final set of comparable companies. - Selection of Comparables: The TPO identified a new comparable company, Ladderup Corporate Advisory Private Limited, which was functionally dissimilar to the non-binding investment advisory services provided by the assessee. Ladderup Corporate Advisory Private Limited earned super-normal profits (38.38%) during the FY 2011-12, which was not comparable to the assessee's services. - Rejection of Assessee's Comparables: The TPO rejected the comparables selected by the assessee, including ICRA Management Consulting Services Limited, Cyber Media Research Limited, Informed Technologies Limited, and Integrated Capital Services Limited. - Use of Data: The AO relied on single-year data (FY ended 31 March 2012) instead of contemporaneous and multiple-year data available at the time of filing the return of income. The tribunal found that the nature of services rendered by the assessee was non-binding investment advisory services, which were distinct from the services provided by Ladderup Corporate Advisory Pvt. Ltd., a company engaged in merchant banking activities. The tribunal upheld the assessee's plea to exclude Ladderup Corporate Advisory Pvt. Ltd. from the list of comparables and directed the inclusion of Informed Technologies India Ltd. as a good comparable. 2. Disallowance of ?30,09,500 under Section 14A: The issue pertains to the disallowance made under section 14A read with rule 8D(iii) of the Income-tax Rules, 1962, on strategic investments made by the assessee in Benchmark Asset Management Company Private Limited (BAMC). - Objective of Investment: The assessee contended that the primary objective of the investment in BAMC was to have a controlling stake and to further its business interests, not to earn exempt income in the form of dividends. - Administrative Expenditure: The assessee argued that no administrative expenditure was incurred for holding or monitoring the said investment. The tribunal noted that the assessee did not receive any exempt dividend income during the year under consideration. Based on the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs CIT, the tribunal directed the deletion of the disallowance under section 14A. 3. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee raised a grievance regarding the initiation of penalty proceedings under section 271(1)(c) of the Act. However, the tribunal's decision on the primary issues rendered this point moot, as the appeal of the assessee was allowed in its entirety. Conclusion: The tribunal allowed the appeal of the assessee, directing the exclusion of Ladderup Corporate Advisory Pvt. Ltd. from the list of comparables and the inclusion of Informed Technologies India Ltd. Additionally, the tribunal deleted the disallowance under section 14A based on the absence of exempt income during the year under consideration. Consequently, the initiation of penalty proceedings under section 271(1)(c) was not addressed separately. The order was pronounced in the open court on 31st August 2018.
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