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2021 (6) TMI 5 - AT - Income TaxTP Adjustment - DRP fixing the assessee s arms length margin at 42.40% for its international transactions - Comparable selection - Exclusion of Motilal Oswal Private Equity Advisory Private Limited - HELD THAT - We find that the assessee company before us, provides non-binding and non discretionary investment advisory and other related services to its AEs and the Funds in relation to investments made by the Funds situated in overseas location. From the perusal of various functions performed by the assessee company which are detailed hereinabove, we find that the functions performed by the aforesaid comparable company is functionally dissimilar with that of the assessee company. Hence in view of the same and also by respectfully following the said decision of this tribunal in the case of Bain Capital Advisors(India) Ltd 2019 (6) TMI 1622 - ITAT MUMBAI we direct the ld. TPO / ld AO to exclude Motilal Oswal Private Equity Advisory Private Limited in the final list of comparables for working out the arithmetic mean margin of the comparables. Exclusion of Ladderup Corporate Advisory Pvt Ltd - We find that the assessee company before us, provides non-binding and non discretionary investment advisory and other related services to its AEs and the Funds in relation to investments made by the Funds situated in overseas location. From the perusal of various functions performed by the assessee company which are detailed hereinabove, we find that the functions performed by the aforesaid comparable company is functionally dissimilar with that of the assessee company. Hence direct the ld TPO / ld AO to exclude Ladderup Corporate Advisory Pvt Ltd in the final list of comparables for working out the arithmetic mean margin of the comparables. Inclusion of Cyber Media Research Limited - AR before us submitted that the same rate may be applied for other two AEs also. We find that the ld DR vehemently raised objection to this argment advanced by the ld AR by stating that APA rate could be adopted only when mechanism provided in Rule 10B of the Rules fails. We find that this aspect of the issue need not be gone into by us at this stage in view of our aforesaid decision taken on the exclusion of 2 comparables and inclusion of 1 comparable supra. Accordingly, the issue raised by the assessee with regard to APA rates and objection raised by the ld DR are left open and we refrain to give any opinion in that regard. Accordingly, we direct the ld TPO / ld AO to recompute the arithmetic mean margin of the comparable companies after excluding Motilal Oswal Private Equity Advisory Private Limited and Ladderup Corporate Advisory Pvt Ltd and after including Cyber Media Research Limited from the final list of comparables retained after directions of ld DRP. Accordingly, the Ground No. 1.3. with regard to these comparables alone, raised by the assessee is allowed.
Issues Involved:
1. Justification of the Dispute Resolution Panel (DRP) in fixing the assessee’s arm’s length margin at 42.40% for its international transactions. 2. Exclusion of Motilal Oswal Private Equity Advisory Private Limited as a comparable. 3. Exclusion of Ladderup Corporate Advisory Pvt Ltd as a comparable. 4. Inclusion of Cyber Media Research Limited as a comparable. 5. Application of Advance Pricing Agreement (APA) rates to other Associated Enterprises (AEs). 6. Chargeability of interest under sections 234B and 234C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Justification of the DRP in Fixing Arm's Length Margin at 42.40%: The core issue in this appeal was whether the DRP was justified in setting the assessee’s arm’s length margin at 42.40% for its international transactions. The assessee, engaged in providing non-binding investment advisory and research services to its AEs, had initially determined its arm’s length margin using the Transaction Net Margin Method (TNMM) with a margin of 16.16%. The Transfer Pricing Officer (TPO) adjusted this to 55.67%, which the DRP subsequently reduced to 42.40%. 2. Exclusion of Motilal Oswal Private Equity Advisory Private Limited: The assessee argued for the exclusion of Motilal Oswal Private Equity Advisory Private Limited on the grounds of functional dissimilarity. The Tribunal referred to previous decisions, including the case of Bain Capital Advisors (India) Ltd vs. ACIT, where it was held that Motilal Oswal was not functionally comparable to an entity providing non-binding investment advisory services. The Tribunal concluded that Motilal Oswal should be excluded from the list of comparables. 3. Exclusion of Ladderup Corporate Advisory Pvt Ltd: Similarly, the assessee sought the exclusion of Ladderup Corporate Advisory Pvt Ltd, citing its engagement in merchant banking and financial advisory services, which were not comparable to the assessee’s non-binding investment advisory services. The Tribunal, referencing prior rulings such as New Silk Route Advisors Pvt. Ltd. vs. ACIT, agreed that Ladderup Corporate Advisory Pvt Ltd was not functionally comparable and should be excluded. 4. Inclusion of Cyber Media Research Limited: The assessee argued for the inclusion of Cyber Media Research Limited, which had been accepted as a comparable in the previous assessment year (2010-11). The Tribunal noted that there were no changes in the functions performed by Cyber Media Research Limited between the assessment years 2010-11 and 2011-12. Therefore, it directed the inclusion of Cyber Media Research Limited in the final list of comparables. 5. Application of APA Rates to Other AEs: The assessee also mentioned that an APA had been reached with the Central Board of Direct Taxes (CBDT) for transactions with two of its AEs, setting the arm’s length price at Cost plus 20%. The assessee requested that this rate be applied to other AEs as well. However, the Tribunal refrained from addressing this issue, considering it unnecessary given the decisions on the comparables. 6. Chargeability of Interest under Sections 234B and 234C: The assessee raised an issue regarding the chargeability of interest under sections 234B and 234C of the Income Tax Act. The Tribunal noted that this matter was consequential and did not require specific adjudication. Conclusion: The Tribunal directed the TPO/AO to recompute the arithmetic mean margin of the comparable companies after excluding Motilal Oswal Private Equity Advisory Private Limited and Ladderup Corporate Advisory Pvt Ltd, and including Cyber Media Research Limited. The appeal of the assessee was allowed, and the matter of APA rates was left open without any opinion. The chargeability of interest under sections 234B and 234C was deemed consequential.
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