2020 (4) TMI 615 - AT - Income Tax

TP Adjustment - comparable selection - functional dissimilarity - HELD THAT - Ladderup Corporate Advisory Pvt. Ltd. - As decided in SUN-ARES INDIA REAL ESTATE PRIVATE LTD. 2018 (2) TMI 1950 - ITAT MUMBAI exclusion of Ladderup as is not functionally comparable with the entity engaged in providing non-binding Investment Advisory Services as like Assessee. Motilal Oswal Investment Advisors Pvt.Ltd. is engaged in Merchant Banking Advisory activities is functionally different from the assessee whose activities are purely non-binding investment advisory services. We do not find any merit in the appeal by Revenue. The directions of the DRP in excluding Motilal from the list of comparables are upheld and the appeal of the Revenue is dismissed.

Summary

Issues:
1. Exclusion/Inclusion of comparables in Transfer Pricing assessment.

Analysis:
The judgment by the Appellate Tribunal ITAT Mumbai involved cross-appeals by the assessee and the Revenue against the assessment order under the Income Tax Act, 1961. The primary issue revolved around the selection of comparables for benchmarking international transactions by the assessee engaged in Investment Advisory Services. The assessee had chosen TNMM as the most appropriate method with OP/OC as its PLI. Initially, the TPO rejected all six comparables selected by the assessee and introduced two fresh comparables, namely Motilal Oswal Investment Advisory Pvt. Ltd. and Ladderup Corporate Advisory Pvt. Ltd. This led to adjustments being made by the TPO, resulting in a dispute that went to the DRP. The DRP directed the exclusion of Motilal but retained Ladderup as a comparable, leading to the appeals by both parties.

Regarding Ladderup, the assessee contended that it should be excluded as a comparable, citing previous Tribunal decisions that highlighted the functional differences between Ladderup, engaged in merchant banking, and the assessee providing non-binding investment advisory services. The Tribunal agreed with the assessee's arguments, following precedents and directing the exclusion of Ladderup from the list of comparables.

In the case of Motilal, the assessee argued that it was engaged in Merchant Banking Advisory Services, unlike the assessee providing non-binding investment advisory services. The Tribunal upheld the exclusion of Motilal from comparables, citing consistent decisions by various Tribunal benches that found Motilal functionally different from the assessee. The judgment concluded by allowing the assessee's appeal and dismissing the Revenue's appeal, affirming the directions of the DRP regarding the exclusion/inclusion of comparables in the Transfer Pricing assessment.

In summary, the Tribunal's judgment focused on the functional dissimilarities between the comparables and the assessee's business activities, leading to the exclusion of Ladderup and Motilal from the list of comparables. The decision highlighted the importance of selecting comparables that are functionally similar to the entity being benchmarked in Transfer Pricing assessments, ensuring a fair and accurate determination of arm's length prices.