2022 (9) TMI 602 - HC - Income Tax

TP Adjustment - comparable selection - Whether Tribunal was right by holding that M/s. Integrated Capital Services Ltd. and M/s. Motilal Oswal Investment Advisors Pvt. Ltd. are to be excluded and M/s. ICRA Management Consulting Services Ltd. and M/s. IDC Ltd. are to be included as comparables? - HELD THAT - Whether Integrated Capital Services Ltd. and Motilal Oswal Investment Advisors Pvt. Ltd., which are engaged in providing investment banking services, could be declared as comparable to a company which was providing investment advisory services is no longer res-integra. As in the case of Carlyle India Advisors (P.) Ltd. 2013 (4) TMI 486 - BOMBAY HIGH COURT as already held that the case of an investment advisor or sub-advisory cannot be compared with a merchant banker or investment banker. This view was reiterated in the case Blackstone Advisors India (P.) Ltd. 2019 (10) TMI 1509 - SC ORDER Thus Integrated Capital Services Ltd. and Motilal Oswal Investment Advisors Pvt. Ltd cannot at all be held as comparables with the assessee company. For IDC India Limited - As this Court in Commissioner of Income-tax-3, Mumbai Vs. General Atlantic (P.) Ltd. . 2016 (3) TMI 736 - BOMBAY HIGH COURT the Tribunal adopted only IDC India Ltd. as comparable. The Tribunal had adopted IDC India Limited, which was common between the Revenue and the assessee, as comparable to determine the Arm s Length Price, while rejecting the other eight comparables selected by the Revenue. The decision of the Tribunal was challenged by the Revenue in appeal, which was dismissed in Carlyle India Advisors (P.) Ltd. 2013 (4) TMI 486 - BOMBAY HIGH COURT . ICRA Management Consulting Services Ltd. - Tribunal relied upon the decision of the Temasek Holdings Advisors India Private Limite d 2014 (11) TMI 483 - ITAT MUMBAI and held that the same to be a good comparable in view of the fact that it was offering consultation services in the area of strategy, risk management and operations regulatory economics and translations Advisory and that its entire revenue was being generated from consultation fees. Respondent relied upon an order 2022 (3) TMI 1421 - BOMBAY HIGH COURT in the case of the assessee, in which a similar issue was raised and rejected and the appeal dismissed. We are of the view that no interference is warranted in the order passed by the Tribunal.

Issues:
1. Selection of comparables for transfer pricing adjustment.
2. Application of FAR analysis by the Transfer Pricing Officer.
3. Rejection of objections by the Dispute Resolution Panel.
4. Judicial precedents on comparability of companies.
5. Consideration of consultation services company as a comparable.

Analysis:

1. Selection of Comparables for Transfer Pricing Adjustment:
The appeal under section 260A of the Income Tax Act, 1961 challenged the order passed by the Income Tax Appellate Tribunal regarding the selection of comparables for determining the Arm's Length Price. The Tribunal excluded certain companies like Integrated Capital Services Ltd. and Motilal Oswal Investment Advisors Pvt. Ltd. and included others based on functional dissimilarities. The Tribunal directed the Transfer Pricing Officer to consider specific comparables for computation, leading to an adjustment in the total income.

2. Application of FAR Analysis by the Transfer Pricing Officer:
The Transfer Pricing Officer conducted a Functional Analysis Report (FAR) to determine comparability. The Tribunal, however, disagreed with the TPO's analysis and excluded certain companies based on their core business activities, such as investment banking services. The Tribunal's decision was influenced by the functional dissimilarities between the assessee company providing investment advisory services and the excluded companies engaged in different financial services.

3. Rejection of Objections by the Dispute Resolution Panel:
After objections were raised against the draft assessment order, they were presented before the Dispute Resolution Panel-II, Mumbai. Despite the objections, the final assessment order was passed, resulting in a substantial adjustment to the total income under section 92CA(3) of the Act. The rejection of objections by the DRP led to the continuation of the transfer pricing adjustment.

4. Judicial Precedents on Comparability of Companies:
The Tribunal's decision was supported by judicial precedents emphasizing the importance of comparing companies with similar business activities. Citing cases like Commissioner of Income-tax Vs. Carlyle India Advisors and Principal Commissioner of Income-tax Vs. Blackstone Advisors India, the Tribunal excluded companies engaged in investment banking services from being considered comparable to an investment advisory service provider.

5. Consideration of Consultation Services Company as a Comparable:
The Tribunal's decision to include ICRA Management Consulting Services Ltd. as a comparable was based on its revenue generation from consultation services in strategy, risk management, operations, and regulatory economics. This decision was supported by the Tribunal's reliance on previous cases like Temasek Holdings Advisors India Pvt. Ltd. vs. DCIT. The Tribunal's decision was upheld, dismissing the appeal and emphasizing the comparability of companies based on their core business activities.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of selecting comparables based on functional similarities and core business activities to determine the Arm's Length Price for transfer pricing adjustments. The judgment highlighted the significance of judicial precedents in guiding the selection of comparables and ensuring consistency in transfer pricing assessments.

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