Tribunal upholds Transfer Pricing method, directs revision of comparables list.

The Tribunal dismissed the challenge to the validity of reopening the assessment under Section 147 as not pressed. Regarding the Transfer Pricing Adjustment for advisory services to Associate Enterprises, the Tribunal accepted the assessee's methodology using TNMM and selected comparables, leading to a partial allowance of the appeal. The Tribunal excluded certain comparables and directed the TPO/AO to compute the arm's length price based on the final list of comparables, impacting the Transfer Pricing Adjustment.

---

---

Issues Involved:
1. Validity of reopening the assessment under Section 147.
2. Transfer Pricing Adjustment and selection of comparables for benchmarking the arm's length price (ALP) of advisory services provided to Associate Enterprises (AEs).

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The assessee challenged the validity of reopening the assessment under Section 147. However, during the hearing, the Senior Counsel did not press this ground, leading to its dismissal as not pressed.

2. Transfer Pricing Adjustment and Selection of Comparables:
The primary dispute revolved around the Transfer Pricing Adjustment of Rs. 14,11,60,326/- made to the ALP for advisory services provided to AEs. The core issue was the inclusion and exclusion of certain comparables for benchmarking the margin of ALP.

a. Assessee's Case and Methodology:
The assessee, a sub-advisor providing services to its AEs, reported international transactions totaling Rs. 41,45,59,488/-. For the sub-advisory services, the assessee used the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) and selected 8 external comparables, arriving at an average mean margin of 8.72%. The assessee's mark-up margin of 18.44% was reported to be at arm's length.

b. TPO's Analysis and Rejection of Assessee's Comparables:
The Transfer Pricing Officer (TPO) rejected the assessee's comparables, noting they were engaged in general advisory business and not fully comparable. The TPO conducted a fresh search, selecting 8 new comparables and finally choosing 4 for benchmarking, resulting in an average margin of 61.68%, leading to an upward adjustment.

c. Dispute over Specific Comparables:
The assessee contested the inclusion of Motilal Oswal Investment Advisors Pvt. Ltd. and Brescon Corporate Advisors Pvt. Ltd. and sought the inclusion of ICRA Management Consulting Services Ltd., ICRA Online Ltd., and IDC (India) Ltd.

d. Tribunal's Decision on Comparables:
- Motilal Oswal Investment Advisors Pvt. Ltd.: The Tribunal excluded this comparable, noting its diverse functions in investment banking, merchant banking, and comprehensive investment banking solutions, which are broader than the assessee's advisory services.
- Brescon Corporate Advisors Pvt. Ltd.: Similarly, this company was excluded due to its main revenue from financial restructuring, recapitalization, and debt syndication, which are not comparable to the assessee's advisory services.
- ICRA Management Consulting Services Ltd.: This company was included as a comparable due to its core competence in advisory services across various industries, aligning with the assessee's functions.

e. Impact on Other Comparables:
The Tribunal did not adjudicate on ICRA Online Ltd. and IDC (India) Ltd. as the exclusion of the TPO's two comparables and inclusion of one of the assessee's comparables rendered further decisions academic.

Conclusion:
The Tribunal directed the TPO/AO to compute the arm's length price after considering the final list of comparables, leading to a partial allowance of the assessee's appeal. The order was pronounced in the open court on 9th March 2016.

---