2013 (11) TMI 224 - AT - Income Tax

Tribunal adjusts TP ratio, rejects risk claim & +/-5% adjustment, partly allows appeal for accurate ALP determination.

General Atlantic Private Limited Versus Asstt. Commissioner of Income Tax-(OSD), Circle Mumbai 3(1),

General Atlantic Private Limited Versus Asstt. Commissioner of Income Tax-(OSD), Circle Mumbai 3(1), - [2013] 25 ITR (Trib) 389 (ITAT [Mum]) Issues Involved:1. Transfer Pricing Adjustment2. Selection of Comparable Companies3. Risk Adjustment4. Benefit of +/-5% Adjustment under Proviso to Section 92C(2)Detailed Analysis:1. Transfer Pricing Adjustment:The appeal concerns an addition of Rs. 13,10,03,941/- made to the total income of the assessee on account of Transfer Pricing (TP) adjustment by the Assessing Officer (A.O.). The assessee, a company providing investment advisory services to its holding company GASC LLC, received Rs. 26,31,02,420/- for its services. The A.O. referred the matter to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of these transactions. The TPO identified eight comparable companies and determined an average profit margin of 68.66% compared to the assessee's 12.5%, leading to the TP adjustment.2. Selection of Comparable Companies:The assessee proposed five additional comparables, which were rejected by the TPO, who relied on the eight comparables confirmed by the Dispute Resolution Panel (DRP) in the preceding year. The DRP upheld the TPO's selection, concluding that the activities of the assessee were akin to merchant and investment banking, thus justifying the comparables.3. Risk Adjustment:The assessee claimed a risk adjustment, arguing that it was a captive service provider with limited risk. The TPO and DRP rejected this claim, stating that the risk undertaken by independent enterprises was equivalent to the single customer risk assumed by the assessee. The Tribunal noted that the assessee had not provided a scientific method for quantifying the risk adjustment and that the difference between prime lending rate and bank rate was not a recognized method for such adjustments. The Tribunal also referred to previous cases where similar claims were rejected for lack of quantifiable data.4. Benefit of +/-5% Adjustment under Proviso to Section 92C(2):The assessee sought the benefit of +/-5% adjustment as per the proviso to section 92C(2). The Tribunal, following its earlier decision in the assessee's own case for A.Y. 2006-07, held that this benefit was not available since only one comparable (IDC India Ltd.) was considered. The Tribunal emphasized that the proviso applies when more than one price is determined by the most appropriate method.Conclusion:The Tribunal directed the A.O. to recompute the TP adjustment by adopting the cost-plus ratio of 15.80% of IDC (India) Limited as against 12.6% shown by the assessee. The Tribunal rejected the assessee's claim for risk adjustment and the benefit of +/-5% adjustment under the proviso to section 92C(2). The appeal was partly allowed, focusing on the accurate determination of the ALP based on the single comparable accepted.