2015 (9) TMI 948 - AT - Income Tax

Transfer pricing adjustment - computation of the arm s length price of the International Transaction in respect of a provision of Investment Advisory Services - selection of comparables - Held that - As respectfully following the order of the Tribunal in assessee s own case in the immediately preceding assessment year 2009-2010, we direct the AO to exclude M/s Motilal Oswal Investment Advisors Pvt Ltd from the list of comparables and to recompute the adjustment to be made u/s.92C(1) of the I. T. Act. Assessee is engaged in business of providing investment research and advisory services to Bain Mauritius, on a non-exclusive and non-binding basis, in connection with potential investment opportunities in India. IDFC rendered portfolio management services for hybrid infrastructure portfolio, agriculture opportunities portfolio and farm fork portfolio. IDFC is registered as portfolio managed with SEBI. Thus, IDFC is functionally different from the assessee which is engaged merely in non-binding investment advisory support services. since IDFC is functionally different, we direct the AO to exclude the IDFC from the list of comparables for computing arms length adjustment. In view of the above, we direct the AO to recompute the arms length adjustment after excluding Motilal Oswal Investment Advisory Pvt. Ltd. and IDFC from the list of comparables. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Inclusion of companies as comparable for determining arm's length price.
2. Application of multiple year data for comparable companies.
3. Treatment of provision for bad/doubtful debts as part of operating expenses.

Issue 1: Inclusion of companies as comparable:
The appeal was against the DRP's order upholding the inclusion of Motilal Oswal Investment Advisors Private Limited and IDFC Investment Advisors Limited as comparable companies for determining the arm's length price of investment advisory services. The assessee argued against this inclusion, citing a previous Tribunal order excluding Motilal Oswal from comparables due to its diversified activities. The Tribunal agreed with the assessee, directing the AO to exclude Motilal Oswal and IDFC from the list of comparables for re-computation of the adjustment.

Issue 2: Application of multiple year data:
The DRP confirmed the AO/TPO's decision not to apply multiple year data for comparable companies, using data only for the financial year 2009-10. The Tribunal did not address this issue specifically in the judgment, focusing instead on the inclusion of companies as comparables. Therefore, no further analysis or decision was provided on this issue in the judgment.

Issue 3: Treatment of provision for bad/doubtful debts:
The DRP upheld the treatment of provision for bad/doubtful debts as non-operating expenses for comparable companies. The assessee requested the provision to be considered as part of operating expenses. However, the judgment did not address this issue specifically, as the focus was on the inclusion of companies as comparables. Therefore, no detailed analysis or decision was provided on this issue in the judgment.

In conclusion, the Tribunal allowed the appeal of the assessee by directing the exclusion of Motilal Oswal Investment Advisors Private Limited and IDFC Investment Advisors Limited from the list of comparables for computing the arm's length adjustment. The judgment did not delve into the issues related to the application of multiple year data for comparables or the treatment of provision for bad/doubtful debts.