9911796707
TMI Blog2016 (6) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... dercharging the Associated Enterprises in respect of rendering of investment advisory services, therefore, no adjustment could be made by invoking the provisions of Chapter X of the Act. The transfer pricing adjustment as made by the TPO in respect of investment advisory services is without jurisdiction as the preconditions mentioned in section 92C(3) of the Act have not been fulfilled in the present case. 3. The AO/TPO erred in rejecting and the DRP erred in upholding the rejection of Transactional Net Margin Method (TNMM) adopted by the Appellant as the most appropriate method for computation of arms length price in respect of investment advisory services. 4. Assuming without admitting that the AO/TPO/DRP were not satisfied with the mariner of determination of the profit linked indicator in the Appellant's case for the purposes of applying the TNMM method, they ought to have made appropriate adjustments to such working instead of rejecting the said method. 5. The AO/TPO erred in applying and the DRP erred in upholding the Comparable Uncontrolled Price (CUP) as the most appropriate method for determination of arms length price in respect of investment advisory services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and volume of two investment mandates without appreciating the scope of work involved in each investment advisory mandates." 3. As all the above grounds of appeal pertain to only one issue, i.e. arm's length price adjustment of Rs. 28,71,30,628 in respect of investment advisory fees charged by the assessee from its associated enterprises, we will take up all these grounds of appeal together. 4. The issue in appeal lies in a rather narrow compass of material facts. The assessee before us is a joint venture company owned by ICICI Bank Ltd, India (51%) and Prudential plc, UK (49%). The assessee is engaged in the business of rendering portfolio management services, mutual fund services and investment advisory services. During the relevant previous year, the assessee rendered investment advisory services to its AEs, namely Prudential Asset Management Singapore Limited- PCA India Infrastructure Equity Open Limited, PCA Securities Investment Trust Co Ltd, Taiwan and ICICI International Limited, Mauritius. The consideration for the services so rendered by the assessee was Rs. 15,74,58,152, Rs. 5,70,88,734 and Rs. 58,54,867 respectively. The consideration so received was claimed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate method) in this case. The DRP then concluded as follows: "3.1.10. There is no disagreement with the assessee's contention that the TPO does not have unfettered power to arbitrarily reject the method adopted by the assessee and replace it by another method. At the same time assessee should also not put letters on TPO by merely stating objections regarding adjustments of differences without demonstrating the exact nature of adjustments it seeks and the calculations needed for benchmarking the ALP on CUP. As regards assessee's adoption of TNMM on the basis of segmental results, it is observed that the segmental result annexed to the audited account AS-17 does not carry a separate segment of advisory services, winch is apparently bundled together with other income under the head 'others'. Moreover, purportedly un-allocable expenses are not accounted for segment nor any scientific accounting principles have been followed to compute the operating margin from the business segment for advisory services. The discrepancy in the figures pointed out by TPO also remained to be explained by the assessee. Since, the investment advisory has not been incorporated as a separate segm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. That, however, proceeds on the fallacy that the quantum of work involved in transactions being compared will be moving exactly parallel to the increase or decrease in the assets under management. The quantum of work involved in investment advisory services cannot, by any stretch of logic, be governed solely by the size of the assets under management, even though the consideration for services, as a matter of practice or convenience- rather than a scientific basis, is sometimes fixed on the basis of assets under management. It is also a common practice that when AUM size is small, and the market is less competitive, the fees in percentage terms will be higher, and when AUM size is big, and the market is more competitive, the fees in percentage terms will be lower. The exercise of ascertaining the arm's length price, simplictor on the basis of the fees in percentage terms with non AEs and without having regard to the other factors governing determination of price, is inappropriate and unsustainable in law. It is also important to bear in mind the fact though rule 10B refers to the expression 'price', rather than the expression 'amount', the connotations of 'price' cannot extend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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