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2016 (3) TMI 736 - HC - Income TaxTransfer pricing adjustment - Selection of comparable - Held that - Tribunal has on application of Function, Assets and Risk (FAR) analysis found that the functions of the respondent-assessee are similar to that of M/s. Carlyle India viz. advising its AE on the possible companies it could invest in but the final decision whether to accept the advise of the respondent-assessee or not is taken by the AE. Similarly, so far as assets are concerned, the impugned order finds that the expertise available with M/s. Carlyle India 2012 (10) TMI 884 - ITAT, MUMBAI is similar to the expertise available with the respondentassesee for the purpose of rendering advise to its AE and so far as the Risk is concerned, it is found that the consideration is received by it is on cost plus basis similar to M/s. Carlyle India Ltd. i.e. both are risk insulated. However the Tribunal had in this case also adopted only IDC (India) Ltd. as comparable as in its decision in Carlyle India (supra). It must be noted that the figures of IDC (India) Ltd. to arrive at the ALP were of the subject Assessment Year. We note that finding of the comparable to be adopted to determine the ALP as the basis of the activity conducted by the respondent assesee is essentially a finding of fact. The view taken by the Tribunal is a reasonable and possible view. No substantial questions of law.
Issues:
1. Interpretation of activities for transfer pricing assessment. 2. Comparison of activities of different entities for transfer pricing adjustment. 3. Application of Function, Assets, and Risk (FAR) analysis in transfer pricing. Issue 1: Interpretation of activities for transfer pricing assessment The case involved a dispute regarding the nature of services provided by the respondent-assessee for transfer pricing assessment under the Income Tax Act, 1961. The respondent-assessee, a company providing private Equity Investment Advisory Services, was challenged by the Revenue regarding the comparability of its activities to merchant/investment banking activities. The Assessing Officer referred the transactions to the Transfer Pricing Officer (TPO) for determining the Arms Length Price (ALP). The TPO selected comparables based on keywords related to mercantile banking/investment advisory services and made transfer pricing adjustments resulting in additional income for the respondent-assessee. Issue 2: Comparison of activities of different entities for transfer pricing adjustment The respondent-assessee challenged the transfer pricing adjustment before the Dispute Resolution Panel (DRP) and later before the Tribunal. The Tribunal, after examining the activities, found that the respondent-assessee's role was that of an investment advisor rather than a merchant/investment banker. It compared the services provided by the respondent-assessee to those provided by another entity in a similar case and determined the Arms Length Price (ALP) based on one comparable entity. The Tribunal's decision was based on a detailed analysis of the functions, assets, and risks involved in the activities of the respondent-assessee and the comparable entity. Issue 3: Application of Function, Assets, and Risk (FAR) analysis in transfer pricing The Tribunal applied the Function, Assets, and Risk (FAR) analysis to determine the comparability of activities between the respondent-assessee and the comparable entity. It found similarities in the functions, assets, and risks involved in both entities' activities, leading to the conclusion that the respondent-assessee's activities were comparable to those of the comparable entity. The Tribunal's decision was upheld by the High Court, emphasizing that the determination of comparables for transfer pricing assessment is a factual finding and the Tribunal's view was reasonable and not perverse. As a result, the appeal by the Revenue was dismissed, and no costs were awarded.
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