Appeal allowed for statistical purposes, objection upheld, matter remitted for further examination. Decision pronounced on 31st March 2016.

The appeal was allowed for statistical purposes, with the Tribunal upholding the objection in principle and remitting the matter to the Transfer Pricing Officer (TPO) for further examination of the segmental accounts. The decision was pronounced in the open court on 31st March 2016.

---

---

Issues Involved:
1. Correctness of arm’s length price adjustment of Rs. 28,71,30,628 in respect of investment advisory fees charged to the associated enterprises.

Issue-wise Detailed Analysis:

1. Correctness of Arm’s Length Price Adjustment:
The appeal challenges the order dated 30th October 2012 passed by the Assessing Officer (AO) concerning the assessment year 2008-09, specifically focusing on the arm’s length price (ALP) adjustment of Rs. 28,71,30,628 related to investment advisory fees charged to associated enterprises (AEs).

2. Rejection of Transactional Net Margin Method (TNMM):
The AO and Transfer Pricing Officer (TPO) rejected the TNMM adopted by the assessee, which was based on operating EBIT as a percentage of sales. The TPO pointed out infirmities in the segmental working and noted the discrepancy in fees charged to AEs (0.51%) versus non-AEs (0.77%).

3. Adoption of Comparable Uncontrolled Price (CUP) Method:
The TPO adopted the CUP method, considering it the most appropriate for determining the ALP. The internal CUP was based on fees charged to Bourse Securities, Trinidad, and Taib Bank EC, Bahrain. The TPO set the internal CUP rate at 0.78% and proposed an adjustment of Rs. 28,71,30,628.

4. Dispute Resolution Panel (DRP) Confirmation:
The DRP upheld the TPO’s decision, emphasizing that the assessee’s compensation model, based on a percentage of fund size, differed from the typical cost-plus basis used by other service providers. The DRP concluded that TNMM was not the most appropriate method in this case due to the lack of a separate segment for advisory services in the published accounts and the unacceptability of the allocation methods used.

5. Tribunal’s Analysis and Decision:
The Tribunal noted that the CUP method has an inherent edge but requires a comparable uncontrolled transaction. The significant difference in the volume of business between AEs and non-AEs rendered the fees in percentage terms incomparable. The Tribunal rejected the internal CUP method due to the lack of comparability and found the DRP’s justification for rejecting TNMM unconvincing. The Tribunal emphasized that TNMM should be accepted unless specific defects are identified.

6. Remittance to TPO:
The Tribunal remitted the matter to the TPO for a de novo adjudication on the correctness of the segmental accounts, directing the TPO to issue a speaking order and provide the assessee with another opportunity for a hearing.

Conclusion:
The appeal was allowed for statistical purposes, with the Tribunal upholding the objection in principle and remitting the matter to the TPO for further examination of the segmental accounts. The decision was pronounced in the open court on 31st March 2016.

---