2018 (6) TMI 1680 - AT - Income Tax

Transfer pricing adjustment eliminated by ITAT Mumbai; ruling on comparables favors Motilal Oswal Investment Advisors.

M/s. IIML Assets Advisors Ltd., Formerly known as Saffron Asset Advisors Pvt. Ltd.,) Versus The Deputy Commissioner of Income-Tax Circle – 7 (2), Mumbai

M/s. IIML Assets Advisors Ltd., Formerly known as Saffron Asset Advisors Pvt. Ltd.,) Versus The Deputy Commissioner of Income-Tax Circle – 7 (2), Mumbai - ... Issues:Transfer pricing adjustment based on selection of comparables in international transactions under Transactional Net Margin Method.Analysis:The appeal was filed against the order of CIT(A)-56, Mumbai for A.Y. 2010-11 related to the order passed u/s.143(3) r.w.s.144C of the IT Act. The assessee, engaged in providing non-binding investment advisory services to associated enterprises, benchmarked its international transaction under the Transactional Net Margin Method. The assessee selected certain comparables for its transfer pricing study report, showing an operating profit to cost ratio of 25.34%, while the comparable selected by the AO had an average margin of 4.02%, resulting in a transfer pricing adjustment of Rs. 3,14,40,626. The CIT(A) confirmed the AO's action, leading to the further appeal before the ITAT.The main contention raised by the assessee was that accepting its comparables and rejecting the one selected by the TPO would eliminate the need for a transfer pricing adjustment, as the assessee's PLI would remain higher than the average PLI of the remaining comparables. The assessee cited various judicial pronouncements supporting the selection of ICRA Management Consulting Services Ltd. and IDC (India) Limited as comparables due to their engagement in advisory and consultancy services, being functionally comparable with the assessee's company.Upon considering the rival contentions and reviewing the orders of the lower authorities, the ITAT found ICRA Management Consulting Services Ltd. and IDC (India) Limited to be suitable comparables based on judicial pronouncements supporting their eligibility for comparison. In contrast, Motilal Oswal Investment Advisors Limited, selected by the TPO, was deemed not comparable as it was engaged in investment banking/merchant banking activities. Rejecting Motilal Oswal Investment Advisors Limited from the list of comparables led to the arithmetic mean of PLI falling within the prescribed range, resulting in no transfer pricing adjustment required.Therefore, the ITAT allowed the appeal in part, indicating that by rejecting Motilal Oswal Investment Advisors Limited as a comparable, the need for a transfer pricing adjustment was eliminated. The judgment was pronounced on 20/06/2018 by the ITAT Mumbai.