2018 (8) TMI 1950 - AT - Income Tax

Tribunal affirms rejection of company as comparable in transfer pricing analysis

The Tribunal upheld the decision of the Commissioner (Appeals) to dismiss the Revenue's appeal regarding the rejection of Motilal Oswal Investment ... TP Adjustment - rejection of Motilal Oswal Investment Advisors Pvt. Ltd. selected by the Transfer Pricing Officer as a comparable - HELD THAT:- Assessee is engaged in the business of financial advisory services and in the relevant previous year, it has entered into international transaction relating to provision of investment sub–advisory services to its overseas Associated Enterprise (AE). Motilal Oswal Investment Advisors Pvt. Ltd. company is into diversified activities including merchant banking / investment banking concerning private placement of equity, debt and convertible instrument covering international and domestic market, mergers and acquisitions, advisory and re–structuring advisory and implementation - also offers services like private wealth management, asset management and commodities. From the documentary evidences produced by the assessee, he found that though the income stream in the audited account is shown to be from advisory services, however, the nature of the services is entirely different. Further, in response to a letter from the assessee the Chief Executive Officer of Motilal Oswal has stated that the company is in merchant banking and investment banking and is not engaged in providing investment research and advisory services. From the audited financials, the segmental details are not forthcoming. Thus, from the aforesaid facts, it can be seen that the company is functionally different from the assessee, which according to the Assessing Officer himself is providing investment sub–advisory services. It is worth mentioning, in a number of decisions of different Benches of the Tribunal, it has been held that Motilal Oswal Investment Advisors Pvt. Ltd. cannot be treated as a comparable to an investment advisory service provider. It appears, the only reason for which the Assessing Officer selected this company as a comparable is because of its extra ordinarily high profit. Therefore, when Motilal Oswal Investment Advisors Pvt. Ltd. on the basis of material on record is found to be functionally different and which fact has not been controverted by the learned Departmental Representative through any cogent material, we do not find any valid reason to interfere with the decision of the learned Commissioner (Appeals) on this issue. Issues:1. Challenge to the rejection of a comparable company by the Transfer Pricing Officer.Analysis:The appeal was filed by the Revenue against the order passed by the Commissioner (Appeals) for the assessment year 2011-12. The main issue in dispute was the rejection of Motilal Oswal Investment Advisors Pvt. Ltd. as a comparable by the Transfer Pricing Officer. The Assessing Officer observed that the assessee had earned a mark-up of 20.38% on the cost incurred for providing investment sub-advisory services to its overseas Associated Enterprise. The Assessing Officer found deficiencies in the comparative analysis undertaken by the assessee, including the selection of functionally different companies as comparables. The Assessing Officer called upon the assessee to justify the transfer pricing study report, but ultimately rejected the submissions. The Assessing Officer selected Motilal Oswal Advisory Pvt. Ltd. as a comparable and made a transfer pricing adjustment based on this selection.The Commissioner (Appeals) examined the functionality of Motilal Oswal Investment Advisors Pvt. Ltd. and found it to be functionally different from the assessee, as it was involved in various activities, including merchant banking, for which segmental details were not available. The Commissioner (Appeals) concluded that Motilal Oswal Investment Advisors Pvt. Ltd. could not be treated as a comparable. After excluding this company, the Commissioner (Appeals) determined that no adjustment to the arm's length price shown by the assessee was required. Consequently, the addition made by the Assessing Officer on account of transfer pricing adjustment was deleted.During the appeal hearing, no one represented the assessee, and the appeal was disposed of ex parte. The Departmental Representative relied on the observations of the Assessing Officer. The Tribunal noted that Motilal Oswal Investment Advisors Pvt. Ltd. was engaged in various activities beyond investment advisory services, as highlighted in documentary evidence. The Tribunal agreed with the Commissioner (Appeals) that the company was functionally different from the assessee. Moreover, the Tribunal referenced previous decisions holding that Motilal Oswal Investment Advisors Pvt. Ltd. could not be treated as a comparable for investment advisory service providers. As the functional differences were evident and uncontroverted, the Tribunal upheld the decision of the Commissioner (Appeals) to dismiss the Revenue's appeal.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the decision regarding the rejection of Motilal Oswal Investment Advisors Pvt. Ltd. as a comparable for the transfer pricing analysis.