2020 (6) TMI 300 - HC - Income Tax

Tribunal excludes dissimilar comparable, High Court upholds decision on functional similarity for investment advisory services

Principal Commissioner of Income Tax-14 Versus AGM India Advisors Pvt. Ltd.

The Tribunal excluded Motilal Oswal Investment Advisors Pvt. Ltd. as a comparable due to functional dissimilarity, while including ICRA Management ... TP Adjustment - Comparability - substantial question of law or fact - Tribunal after exhaustive analysis came to the conclusion that Motilal Oswal was not functionally similar to that of the assessee whereas ICRA and IDC were found to be functionally similar - HELD THAT:- Whether two entities are functionally similar or not and consequently whether one should be treated as a comparable of the other is a question of fact. The answer arrived at to such question would be a finding of fact. Unless such answer is vitiated by perversity, no substantial question of law can be said to arise therefrom. In the context of international transactions and the resultant transfer pricing analysis to determine Arm’s Length Price. In the case of Principal Commisioner of Income Tax Vs. M/s. Softbrands India Pvt. Ltd. [2018 (6) TMI 1327 - KARNATAKA HIGH COURT] held that it is not open to either the assessee or the Revenue to invoke the jurisdiction of the High Court under Section 260-A of the Act merely because the Tribunal comes to reverse or modify the findings given by the Transfer Pricing Officer and / or by the Dispute Resolution Panel leaving out certain comparables or adding certain comparables for determining the Arm’s Length Price in the hands of the assessee. Unless perversity in the finding(s) of the Tribunal is established, an appeal under Section 260-A of the Act should not be entertained as no substantial question of law can be said to arise therefrom. Also in M/s. Eight Roads Investment Pvt. Ltd. [2019 (2) TMI 1806 - BOMBAY HIGH COURT] declined to entertain an appeal by the Revenue under Section 260A of the Act raising similar questions of exclusion and inclusion of comparables. No substantial question of law arises from the impugned order of the Tribunal. - Decided against revenue. Issues Involved:1. Exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. as a comparable.2. Inclusion of ICRA Management Consulting Services Ltd. as a comparable.3. Inclusion of IDC (India) Ltd. as a comparable.Detailed Analysis:I. Exclusion of Motilal Oswal Investment Advisors Pvt. Ltd. as a Comparable:The Tribunal examined the job profile and activities undertaken by Motilal Oswal Investment Advisors Pvt. Ltd. vis-a-vis the assessee. It was found that while the assessee was rendering investment advisory services specifically related to real estate business, Motilal Oswal was a merchant banker. The Tribunal concluded that Motilal Oswal was functionally dissimilar to the assessee and thus liable to be excluded from the final set of comparables. This decision was based on the Tribunal’s earlier rulings where Motilal Oswal was consistently excluded due to its different functional profile.II. Inclusion of ICRA Management Consulting Services Ltd. as a Comparable:The Tribunal found that ICRA Management Consulting Services Ltd. was consistently held to be a valid comparable for investment advisory companies. It was noted that ICRA provided consultancy services in diverse areas with core competence in advisory services across various industries. The Tribunal emphasized that ICRA was purely an advisory service rendering company, making it functionally similar to the assessee. Following the rule of consistency, the Tribunal directed the inclusion of ICRA in the final list of valid comparables.III. Inclusion of IDC (India) Ltd. as a Comparable:The Tribunal rendered a categorical finding that IDC (India) Ltd. was not a product company but a research company primarily dealing in research and survey services. These activities were found to be similar to the functions and activities performed by the assessee in rendering investment advisory services. The Tribunal had previously accepted IDC as a valid comparable, and this consistency was maintained in the current case. Consequently, IDC was included in the final set of comparables.Conclusion:The Tribunal conducted an exhaustive analysis and concluded that Motilal Oswal was not functionally similar to the assessee, whereas ICRA and IDC were functionally similar. Therefore, Motilal Oswal was excluded, and ICRA and IDC were included in the final set of comparables. The High Court held that the determination of functional similarity and the inclusion or exclusion of comparables are questions of fact. Unless the findings of the Tribunal are vitiated by perversity, no substantial question of law arises. As such, the appeal filed by the Revenue was dismissed, with no substantial question of law found to merit consideration.