2018 (7) TMI 2106 - AT - Income Tax

TP Adjustment - international transaction of provision of Investment Advisory Services by the Appellant - comparable selection - HELD THAT - Assessee is engaged in provision of non-binding investment advisory services thus companies functionally dissimilar with that of assessee need to be deselected from final list.

Summary

Issues Involved:
1. Transfer Pricing Adjustment of ?81,80,657/- for Investment Advisory Services.
2. Inclusion and/or exclusion of certain comparables in the final set of comparables.
3. Granting the range benefit of 5% under the second proviso to section 92C(2) of the Act.

Detailed Analysis:

1. Transfer Pricing Adjustment of ?81,80,657/-:
The appellant company, engaged in non-binding investment advisory services, challenged the addition of ?81,80,657/- made by the Transfer Pricing Officer (TPO) for the Assessment Year (A.Y.) 2011-12. The TPO had determined the Arm’s Length Price (ALP) of the international transaction with the appellant’s Associate Enterprise (AE) based on the Transactional Net Margin Method (TNMM). The TPO selected comparables with an average margin of 59.98%, against the appellant’s margin of 22%, leading to a significant adjustment. The Dispute Resolution Panel (DRP) upheld the TPO’s adjustment, resulting in the appellant’s appeal.

2. Inclusion and/or Exclusion of Certain Comparables:
The appellant contested the inclusion and exclusion of specific comparables in determining the ALP.

Exclusion of Ladderup Corporate Advisory Private Limited:
The appellant argued that Ladderup Corporate Advisory Private Limited should be excluded as it was functionally dissimilar, being involved in equity investments, business and equity valuations, and project financing, unlike the appellant’s non-binding investment advisory services. The Tribunal accepted this argument, referencing similar cases where Ladderup was excluded due to its distinct functional profile, such as Avenue Asia Advisors (P) Ltd. vs. DCIT and Temasek Holdings Advisors (I)(P.) Ltd. vs. DCIT.

Inclusion of Cyber Media Research Ltd.:
The appellant sought the inclusion of Cyber Media Research Ltd. (formerly IDC (India) Ltd.), which the TPO had excluded, citing functional dissimilarity. The appellant referenced decisions like CIT vs. Carlyle India Advisors (P.) Ltd. and CIT v. General Atlantic (P.) Ltd., where Cyber Media Research Ltd. was deemed a good comparable for investment advisory services. The Tribunal agreed with the appellant, noting that Cyber Media Research Ltd. had been accepted as a comparable in similar cases and for the same assessment year.

Exclusion of Primary Real Estate Advisors Private Limited:
The appellant argued for the inclusion of Primary Real Estate Advisors Private Limited, claiming its services were similar to investment advisory services. However, the TPO and DRP excluded it, noting its focus on real estate investment advisory, which was qualitatively different from the appellant’s services. The Tribunal upheld this exclusion, agreeing with the lower authorities’ assessment of functional dissimilarity.

3. Granting the Range Benefit of 5%:
The appellant raised an additional ground, seeking the benefit of the 5% range under the second proviso to section 92C(2) of the Act. Both parties agreed that this issue should be considered by the Assessing Officer as per the law. The Tribunal directed the Assessing Officer to address this claim accordingly.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, directing the Assessing Officer to re-determine the ALP considering the Tribunal’s directions on the inclusion and exclusion of comparables and to consider the appellant's claim for the 5% range benefit as per the law. The decision was pronounced in the open court on 27th July 2018.