2018 (1) TMI 239 - AT - Income Tax

Tribunal decision: Inclusion of comparables, exclusion of Ladderup, reconsideration of CRISIL & ICRA

Temasek Holdings Advisors India Private Limited Versus Income Tax Officer Circle- 14 (3) (1), Mumbai

Temasek Holdings Advisors India Private Limited Versus Income Tax Officer Circle- 14 (3) (1), Mumbai - TMI Issues Involved:1. Upward adjustment in determining the arm's length price (ALP) of international transactions.2. Rejection of comparables selected by the assessee.3. Selection of new comparables by the Transfer Pricing Officer (TPO).4. Use of contemporaneous data versus multiple-year data.5. Functional comparability of selected companies.6. Procedural fairness and opportunity of being heard.Detailed Analysis:1. Upward Adjustment in Determining the ALP:The primary issue was the upward adjustment of INR 62,254,019 made by the Assessing Officer (A.O) based on the directions of the Dispute Resolution Panel (DRP) in determining the arm's length price (ALP) for the international transaction of non-binding investment advisory services provided by the appellant to its associated enterprise. The A.O., guided by the TPO's report, proposed an upward transfer pricing adjustment of INR 6,22,54,019/-.2. Rejection of Comparables Selected by the Assessee:The assessee had benchmarked its international transactions using the Transactional Net Margin Method (TNMM) and selected comparables such as ICRA Management Consulting Services Limited and Informed Technologies Limited. However, the TPO rejected these comparables, which was upheld by the DRP. The Tribunal found that the exclusion of these comparables was not justified as they were accepted in previous years and directed their inclusion in the final list of comparables.3. Selection of New Comparables by the TPO:The TPO included new comparables like Ladderup Corporate Advisory Private Limited, CRISIL Limited, and ICRA Techno Analytics Limited. The Tribunal observed that Ladderup Corporate Advisory Private Limited was functionally incomparable as it was engaged in merchant banking activities. Thus, it directed the exclusion of this company from the final list of comparables. Regarding CRISIL Limited and ICRA Techno Analytics Limited, the Tribunal noted procedural lapses, such as the lack of opportunity for the assessee to be heard and the significant related party transactions (RPT) in the case of CRISIL Limited, and restored these issues to the file of the AO/TPO for reconsideration.4. Use of Contemporaneous Data versus Multiple-Year Data:The TPO used single-year data for the financial year 2011-12, rejecting the multiple-year data approach adopted by the assessee. The Tribunal noted that this approach was consistent with Rule 10D, which requires contemporaneous data, and did not find fault with the TPO's methodology.5. Functional Comparability of Selected Companies:The Tribunal examined the functional comparability of the selected companies. It concluded that ICRA Management Consulting Services Limited and Informed Technologies Limited were functionally comparable to the assessee and should be included. Conversely, Ladderup Corporate Advisory Private Limited, being engaged in merchant banking, was not functionally comparable and was excluded. The Tribunal directed the AO/TPO to reassess the inclusion of CRISIL Limited and ICRA Techno Analytics Limited, considering functional comparability and procedural fairness.6. Procedural Fairness and Opportunity of Being Heard:The Tribunal emphasized the importance of procedural fairness, noting that the TPO had not afforded the assessee an opportunity to be heard regarding the inclusion of certain comparables. The Tribunal directed the AO/TPO to provide the assessee with a reasonable opportunity to present its case on the inclusion of CRISIL Limited and ICRA Techno Analytics Limited.Conclusion:The Tribunal partly allowed the appeal, directing the inclusion of ICRA Management Consulting Services Limited and Informed Technologies Limited in the final list of comparables and the exclusion of Ladderup Corporate Advisory Private Limited. It restored the issues regarding CRISIL Limited and ICRA Techno Analytics Limited to the AO/TPO for reconsideration, ensuring procedural fairness and an opportunity for the assessee to be heard.