Tribunal directs adjustments to comparables, dismisses penalty grounds. Arm's Length Price to be determined.

The Tribunal allowed the appeal in part, directing the AO/TPO to exclude certain comparables due to functional dissimilarity and related party transactions and include others initially rejected. The Tribunal directed the determination of the Arm's Length Price accordingly. The grounds related to penalty proceedings and interest levy were dismissed as premature or consequential. The appeal was pronounced on 08/02/2017.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Arm's Length Price (ALP) Determination
3. Rejection of Comparables
4. Addition of New Comparables
5. Condonation of Delay
6. Levy of Interest under Section 234B and 234C
7. Initiation of Penalty Proceedings under Section 271(1)(c)

Detailed Analysis:

1. Transfer Pricing Adjustment:
The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the action of the Deputy Commissioner of Income-tax (AO) and the Transfer Pricing Officer (TPO) in making an addition of Rs. 7,17,85,793/- by way of transfer pricing adjustment, alleging the non-binding investment advisory services transaction of the appellant was not at arm's length as per Sections 92C(1) and 92C(2) of the Income Tax Act, 1961 read with Rule 10B of the Income-tax Rules, 1962.

2. Arm's Length Price (ALP) Determination:
The CIT(A) supported the AO's decision to refer to the TPO for determining the ALP, despite the appellant's contention that none of the conditions under section 92C(3) were satisfied. The TPO rejected four comparables selected by the appellant and added five new comparables, concluding that the average profit margin (OP/OC) of the eight comparables was 42.94%, leading to the adjustment.

3. Rejection of Comparables:
The TPO rejected four comparables provided by the appellant due to dissimilar business profiles or being loss-making entities. The CIT(A) upheld this rejection, agreeing that the comparables were not functionally similar, had significant related party transactions, or were loss-making.

4. Addition of New Comparables:
The TPO added five new comparables, which the CIT(A) upheld, stating that the TPO's process was detailed and considered the appellant's objections. The appellant contested the inclusion of these comparables, arguing they were not functionally similar.

5. Condonation of Delay:
The appeal involved a delay of 38 days. The delay was attributed to a bona fide mistake by the office of the appellant, as supported by an affidavit and acknowledgment from the office of the Departmental Representative. The Tribunal condoned the delay, considering it was not due to any lapses on the appellant's part.

6. Levy of Interest under Section 234B and 234C:
The CIT(A) upheld the AO/TPO's action of levying interest under Section 234B and Section 234C. The appellant sought suitable directions to delete or reduce the interest.

7. Initiation of Penalty Proceedings under Section 271(1)(c):
The CIT(A) upheld the initiation of penalty proceedings under Section 271(1)(c), which the appellant contested.

Judgment:
The Tribunal found substantial force in the appellant's contentions regarding the rejection and addition of comparables. It directed the exclusion of certain comparables selected by the TPO, such as Crisil Ltd., ICRA Ltd., SBI Fund Management Ltd., Sundaram Asset Management Ltd., and Deutche Asset Management India Ltd., due to functional dissimilarity and significant related party transactions. The Tribunal also directed the inclusion of comparables like Future Capital Holding, ICRA Management Consulting Services Ltd., KPIT Cummins Global Business Solution Ltd., and IDC India Ltd., which were initially rejected by the TPO.

The Tribunal allowed the appeal in part, directing the AO/TPO to give consequential effect and determine the ALP accordingly. The grounds related to the initiation of penalty proceedings and levy of interest were dismissed as premature or consequential. The appeal was pronounced in the open court on 08/02/2017.

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