2019 (2) TMI 1817 - AT - Income Tax

Tribunal directs inclusion/exclusion of comparables for arm's length transactions

The Tribunal allowed the assessee's appeals for A.Y. 2011-12 and 2012-13, directing the inclusion and exclusion of specific comparables to ensure the ... TP Adjustment - comparable selection - Not including IDC (India) Ltd., Informed Technologies India Ltd., Pipal Research Analytics & Information Services India Pvt. Ltd., and ICRA Management Consulting Services Ltd., as comparable companies for the purpose of benchmarking the international transactions carried out by the assessee - DRP justification in including the Ladderup Corporate Advisory Pvt. Ltd. as comparable - HELD THAT:- Ladderup Corporate Advisory Pvt. Ltd., cannot be treated as a comparable to the assessee as this company cannot be a comparable to a company engaged in the activity of investment advisory services. IDC (India) Ltd. is engaged in providing non–binding investment advisory services akin to the assessee for the very same assessment year, thus is a good comparable. ICRA Management Consulting Services Ltd egarding difference in skill set held that ICRA Management Consultancy Services is a valid comparable to a company providing non– binding investment advisory services. It is also relevant to note, in assessee’s own case for assessment year 2009–10, this company has been accepted as a comparable by the DRP. Even otherwise also, the observations of the Transfer Pricing Officer on difference in skill set between the assessee and the comparable company appears to be not on the basis of proper analysis of fact and more on assumption and presumption. As regards other functional differences of this comparable pointed by the learned Departmental Representative, it needs to be mentioned, neither Transfer Pricing Officer nor DRP have deliberated on those aspects. Since these issues raised by the learned Departmental Representative are completely new issues and never raised at any stage earlier, we do not consider it appropriate to deal with them as it requires verification of fresh facts - we direct the Assessing Officer to accept this company as a comparable. Issues Involved:1. Inclusion and exclusion of comparable companies for benchmarking international transactions.2. Adjustment of Arm's Length Price (ALP) for international transactions.3. Application of the transactional net margin method (TNMM).4. Adherence to CBDT Circular No. 3/2018.Detailed Analysis:1. Inclusion and Exclusion of Comparable Companies:Ladderup Corporate Advisory Pvt. Ltd.:The Tribunal considered arguments regarding the inclusion of Ladderup Corporate Advisory Pvt. Ltd. as a comparable. The Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) had included this company, but the assessee argued it was functionally different because it engaged in merchant banking services. The Tribunal referenced several decisions, including those in the cases of Blackstone Advisors India Pvt. Ltd. and General Atlantic Pvt. Ltd., which held that merchant banking services are not comparable to investment advisory services. Consequently, the Tribunal directed the exclusion of Ladderup Corporate Advisory Pvt. Ltd. from the list of comparables.IDC (India) Ltd.:The Tribunal reviewed the inclusion of IDC (India) Ltd. as a comparable. In previous cases, such as General Atlantic Pvt. Ltd., IDC (India) Ltd. was accepted as a comparable due to functional similarities. The Tribunal upheld this inclusion, directing the Assessing Officer (AO) to include IDC (India) Ltd. for benchmarking the international transactions of the assessee.ICRA Management Consulting Services Ltd.:The Tribunal examined the inclusion of ICRA Management Consulting Services Ltd. The TPO had rejected this company, but the Tribunal noted that in similar cases, such as Blackstone Advisors India Pvt. Ltd., this company was accepted as a comparable. The Tribunal directed the AO to include ICRA Management Consulting Services Ltd. for benchmarking.2. Adjustment of Arm's Length Price (ALP):For A.Y. 2011-12, the TPO made an adjustment of Rs. 1,39,97,428 to the ALP based on the selected comparables. The Tribunal directed the inclusion of IDC (India) Ltd. and ICRA Management Consulting Services Ltd., and the exclusion of Ladderup Corporate Advisory Pvt. Ltd., which would bring the assessee within the +/- 5% range, making its transactions at arm's length.For A.Y. 2012-13, the TPO made an adjustment of Rs. 63,14,561 to the ALP. The Tribunal directed the exclusion of Ladderup Corporate Advisory Pvt. Ltd. and the inclusion of Informed Technologies India Ltd., which would also bring the assessee within the acceptable range.3. Application of TNMM:The assessee used the transactional net margin method (TNMM) as the most appropriate method for benchmarking its international transactions. The TPO and DRP had different views on the comparables, leading to adjustments. The Tribunal's directions to include and exclude specific comparables were based on ensuring functional similarity and adherence to TNMM principles.4. Adherence to CBDT Circular No. 3/2018:The revenue's appeal for A.Y. 2011-12 was dismissed based on the CBDT Circular No. 3/2018, which states that appeals with a tax effect below Rs. 20,00,000 should not be filed. The disputed issue in the revenue's appeal was Rs. 36,75,133, falling below the threshold.Conclusion:The Tribunal allowed the assessee's appeals for A.Y. 2011-12 and 2012-13, directing the inclusion and exclusion of specific comparables to ensure the transactions were at arm's length. The revenue's appeal for A.Y. 2011-12 was dismissed based on the CBDT Circular. The Tribunal's decisions were guided by previous case law and functional similarity in selecting comparables.