2018 (11) TMI 1117 - AT - Income Tax

TPA - comparable selection - functionally similarity - Held that - The assessee is engaged in the business of rendering non-binding investment advisory services to its associated enterprises in respect of unlisted Indian equities. The services provided, inter-alia, include identifying and analysing potential investment opportunities; evaluating and making recommendations to the associated enterprise with respect to investment opportunities; making recommendations to the associate enterprise with respect to specified investments; and, any other advisory services as may be required from time to time. As assessee had pleaded for inclusion of IDC (India) Ltd as well as Informed Technologies Ltd. However, a pertinent plea was raised to the effect that once M/s Ladderup Corporate Advisory Private Limited is excluded and ICRA Management Consulting services Ltd., is included, the resultant margin of the comparables shall compare favourably with the margin of the assessee. Since we have accepted the pleas of the assessee for exclusion of M/s Ladderup Corporate Advisory Private Limited and inclusion of ICRA Management Consulting Services Ltd, the necessity for adjudication of the other pleas for inclusion of IDC (India) Ltd., and Informed Technologies Ltd has been rendered academic and is obviated. Thus, for the aforesaid reasons we do not deal any further. we hereby direct the Assessing Officer to re-determine the total income of the assessee, keeping in view our aforesaid decision. Before parting, we may also put on record another point made by the assessee. The Ld. Representative submitted a chart showing operating margins declared by the assessee from A.Y 2010-11 to A.Y 2015-16. It is pointed out that in the A.Y 2010-11 the margin was 20%, in A.Y 2012-13 the margin was 18.60%, in A.Y 2013-14 the margin was 17.21%, in A.Y 2014-15 the margin was 17.27% and in A.Y 2015-16 the margin was 20%. The aforesaid is sought to be presented to show that the current years margin of 17.41% is quite comparable and is also otherwise justified and does not require any interference. We do not find any reason to adjudicate on this aspect, since we have already adjudicated the specific points raised by the assessee regarding the determination of ALP of the instant international transaction.

Summary

Issues Involved:
1. Re-computation of arm’s length price (ALP) for non-binding investment advisory services.
2. Rejection and selection of comparable companies for transfer pricing.
3. Incorrect computation of interest under Section 234D.
4. Incorrect computation of interest receivable under Section 244A.

Detailed Analysis:

1. Re-computation of Arm’s Length Price (ALP) for Non-binding Investment Advisory Services:

The primary issue in this appeal is the addition of ?6,47,24,374/- made by the Assessing Officer (AO) while determining the ALP of the international transactions entered by the assessee with its associate enterprise. The assessee, engaged in providing non-binding investment advisory services, received a consideration of ?21,70,60,516/- for these services, which constituted an ‘international transaction’ under Sec. 92B of the Act. The AO referred the matter to the Transfer Pricing Officer (TPO), who proposed an adjustment of ?9,22,89,891/-. After objections from the assessee, the Dispute Resolution Panel (DRP) re-determined the adjustment at ?6,47,24,374/-.

2. Rejection and Selection of Comparable Companies for Transfer Pricing:

The assessee contested the inclusion and exclusion of certain comparables used by the TPO for determining the ALP:

- Inclusion of Ladderup Corporate Advisory Private Limited: The assessee argued that Ladderup Corporate Advisory Private Limited is functionally incomparable. The Tribunal noted that this company is engaged in merchant banking/investment banking, which is different from the non-binding investment advisory services provided by the assessee. The Tribunal cited precedents where Ladderup was excluded as a comparable for similar services, and thus directed its exclusion.

- Exclusion of ICRA Online Ltd: The income-tax authorities excluded ICRA Online Ltd on the grounds of functional incomparability, as it provides consultancy services related to software, KPO, and ITES. The Tribunal upheld this exclusion based on a precedent where ICRA Online Ltd was found not comparable to non-binding investment advisory services.

- Exclusion of Integrated Capital Services Limited: This company was excluded due to its involvement in mergers, acquisitions, and speculation business, which the Tribunal upheld based on a precedent involving a similar assessee.

- Inclusion of ICRA Management Consulting Services Ltd: The Tribunal found that this company had been accepted as a comparable in previous years and directed its inclusion, noting no material change in its functional profile.

3. Incorrect Computation of Interest under Section 234D:

The assessee raised an issue regarding the incorrect computation of interest levied under Section 234D of the Act. However, the Tribunal did not specifically address this issue in the detailed analysis provided.

4. Incorrect Computation of Interest Receivable under Section 244A:

Similarly, the issue of incorrect computation of interest receivable under Section 244A was raised but not specifically addressed in the detailed analysis provided by the Tribunal.

Conclusion:

The Tribunal directed the exclusion of Ladderup Corporate Advisory Private Limited and the inclusion of ICRA Management Consulting Services Ltd in the final set of comparables. The necessity for adjudication of other comparables was rendered academic due to these adjustments. The AO was directed to re-determine the total income of the assessee in light of these decisions. The appeal of the assessee was allowed, and the order was pronounced in the open court on 16.11.2018.