2018 (11) TMI 1769 - AT - Income Tax

Tribunal Directs Inclusion of Comparable, Excludes Others in Transfer Pricing Case

The Tribunal directed the Assessing Officer to include Cyber Media Research Ltd. as a comparable for determining the arm's length price, citing functional ... TP Adjustment - selection / rejection of certain comparables while determining the Arm’s Length Price (ALP) of the international transaction with Associated Enterprise (AE) - HELD THAT:- CYBER MEDIA RESEARCH LTD. (Formerly, IDC (INDIA) LTD.) company is a comparable to an investment advisory service provider. LADDER–UP CORPORATE ADVISORY PVT. LTD. is registered as Category–1 Merchant Banking Company with SEBI and is engaged in merchant banking services w.e.f. July 2010. Considering the aforesaid factual aspect, the Co–ordinate Bench in the decisions cited by the learned Authorised Representative for the assessee has held that this company cannot be a comparable to a company engaged in the activity of investment advisory services. Since, the aforesaid decisions are for the very same assessment year and no distinguishing fact in the present appeal was brought to our notice by the learned Departmental Representative, respectfully following the consistent view of the Tribunal, we hold that this company cannot be treated as comparable to the assessee. MOTILAL OSWAL PRIVATE EQUITY ADVISORS PVT. LTD. Company has four business verticals, however, the segmental details are not available in the annual report. Further, in case of Temasek Holding Advisors India Pvt. Ltd. [2017 (8) TMI 1490 - ITAT MUMBAI] the Tribunal, while considering the comparability of the aforesaid company to an investment advisory services provider held that this company cannot be a comparable due to differences in functional profile. MOTILAL OSWAL INVESTMENT ADVISORS LTD. is engaged in the business of investment banking, merchant banking, merger and acquisition, private equity syndication, etc., which are no way similar to the assessee’s activities of non–binding investment advisory services. In a number of decisions including decisions relating to the impugned assessment year, as referred to above, the Tribunal has held that this company cannot be a comparable to an investment advisory service provider. Therefore, considering the overall facts and circumstances of the case, we hold that this company cannot be a comparable to the assessee. Accordingly, we uphold the decision of the DRP on this issue. Allowance of assessee’s claim of payment of bonus to share holder directors - HELD THAT:- Tribunal while deciding the issue in [2015 (4) TMI 795 - ITAT MUMBAI] allowed assessee’s claim towards payment of bonus to Directors following the decision of the Hon'ble Supreme Court in Shahzada Nand & Sons [1977 (4) TMI 4 - SUPREME COURT] . Notably, the aforesaid decision of the Tribunal was challenged by the Department in an appeal filed before the Hon'ble Jurisdictional High Court. The Hon'ble High Court while deciding Revenue’s appeal in [2018 (8) TMI 384 - BOMBAY HIGH COURT] upholding the decision of the Tribunal on the issue. No dissimilarity in facts having been brought to our notice by the learned Departmental Representative for the impugned assessment year, respectfully following the decision of the Co–ordinate Bench and Hon'ble Jurisdictional High Court in assessee’s own case as referred to above, we uphold the order of the DRP on this issue. Ground raised is dismissed. Issues Involved:1. Selection/Rejection of Comparables for Determining Arm's Length Price (ALP).2. Allowance of Assessee’s Claim of Payment of Bonus to Shareholder Directors.Detailed Analysis:1. Selection/Rejection of Comparables for Determining Arm's Length Price (ALP):Cyber Media Research Ltd. (formerly IDC (India) Ltd.):The Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) rejected this company as a comparable on the grounds of functional dissimilarity, noting it was not engaged in providing investment advisory services and was involved in the sale of products. The assessee argued that various Tribunal decisions for the same assessment year had accepted this company as a comparable for investment advisory services. The Tribunal, referencing past decisions, including General Atlantic Pvt. Ltd. and AGM India Advisors Pvt. Ltd., directed the Assessing Officer to include Cyber Media Research Ltd. as a comparable, acknowledging its functional similarity to the assessee.Ladder-up Corporate Advisory Pvt. Ltd.:This company was selected by the TPO and retained by the DRP. The assessee objected, claiming the company was functionally different as it was a merchant/investment banking company. The Tribunal, citing decisions like General Atlantic Pvt. Ltd. and Temasek Holdings Advisors India Pvt. Ltd., concluded that Ladder-up Corporate Advisory Pvt. Ltd. could not be treated as comparable due to its distinct functional profile as a merchant banker.Motilal Oswal Private Equity Advisors Pvt. Ltd.:The TPO selected this company, and the DRP upheld this selection. The assessee contended that the company had multiple business verticals without segmental data, making it functionally different. The Tribunal, referencing decisions such as Temasek Holdings Advisors India Pvt. Ltd. and Well Fargo Real Estate Advisors Pvt. Ltd., determined that Motilal Oswal Private Equity Advisors Pvt. Ltd. could not be considered comparable due to its diverse business activities and lack of segmental data.Motilal Oswal Investment Advisors Ltd.:Though selected by the TPO, the DRP excluded this company, considering it a merchant banker. The Revenue challenged this exclusion. The Tribunal upheld the DRP’s decision, noting that the company’s activities in investment banking, merchant banking, mergers and acquisitions, and private equity syndication were not similar to the assessee’s non-binding investment advisory services. The Tribunal referenced decisions in cases like AGM India Advisors Pvt. Ltd. and Goldman Sachs (I) Securities Pvt. Ltd. to support this conclusion.2. Allowance of Assessee’s Claim of Payment of Bonus to Shareholder Directors:During the assessment proceedings, the Assessing Officer disallowed a portion of the bonus paid to shareholder directors, invoking section 36(1)(ii) of the Income Tax Act. The Officer argued that the bonus was paid to avoid overall tax liability, suggesting it should have been distributed as dividends. The DRP, however, deleted the disallowance, referencing the Tribunal's decision in the assessee’s case for the assessment year 2009-10, which was upheld by the Hon'ble Supreme Court in Shahzada Nand & Sons v/s CIT. The Tribunal, noting that the issue was covered by the Tribunal and Hon'ble Jurisdictional High Court’s decisions in the assessee’s own case, upheld the DRP’s decision to allow the bonus payment.Conclusion:The Tribunal directed the Assessing Officer to recompute the arm's length price of the international transaction following the observations made. The assessee’s appeal was allowed, and the Revenue’s appeal was dismissed.