ITAT directs exclusion of three companies from transfer pricing comparables, orders inclusion of three others for arm's length price recalculation

The ITAT Mumbai directed exclusion of three companies (MOIAPL, LCAPL, MOEPAPL) from the comparable list for transfer pricing adjustment, finding them functionally incomparable with the assessee. The decision followed binding precedent from a coordinate bench. However, three other companies (ICRA, Cyber, ITIL) were ordered to be included as comparables, being functionally similar to the assessee. The TPO/AO was directed to recalculate the arm's length price using the revised comparable set.

---

---

Issues Involved:

1. Transfer Pricing Adjustment and Arm's Length Price Determination
2. Inclusion and Exclusion of Comparable Companies
3. Interest Levy under Sections 234B, 234C, and 234D
4. Penalty Proceedings under Section 271(1)(c)

Detailed Analysis:

1. Transfer Pricing Adjustment and Arm's Length Price Determination:

The primary issue in this case revolves around the transfer pricing adjustment made by the Transfer Pricing Officer (TPO) concerning the non-binding investment advisory services provided by the assessee. The TPO made an adjustment of Rs. 7,67,24,390/- to the arm's length price of the international transactions reported by the assessee. The assessee contended that the Commissioner of Income-tax (Appeals) [CIT(A)] erred in partially upholding the TPO's adjustment, arguing that the arm's length price was appropriately determined by the assessee. The CIT(A) was criticized for not accepting the arm's length price determined by the assessee and instead relying on the TPO's determination, which allegedly did not satisfy the conditions under section 92C(3) of the Income-tax Act, 1961.

2. Inclusion and Exclusion of Comparable Companies:

A significant point of contention was the inclusion and exclusion of certain companies as comparables for determining the arm's length price. The assessee argued for the exclusion of Motilal Oswal Investment Advisors Pvt Ltd (MOIAPL), Ladder up Corporate Advisory-Private Equity Advisors Pvt Ltd (LCAPEAPL), and Motilal Oswal Private Equity Advisors Pvt Ltd (MOPEAPL) due to functional dissimilarities. The assessee also sought the inclusion of ICRA Management Consulting Services Ltd, Cyber Media Research Ltd, and Informed Technologies India Ltd as comparables, asserting their functional similarity. The Tribunal found that the three companies included by the TPO were not functionally comparable with the assessee's services and directed their exclusion. Conversely, the Tribunal directed the inclusion of the three companies proposed by the assessee, as they were deemed functionally similar.

3. Interest Levy under Sections 234B, 234C, and 234D:

The assessee challenged the levy of interest under sections 234B, 234C, and 234D of the Income-tax Act. The Tribunal did not specifically address this issue in detail within the judgment, as the primary focus was on the transfer pricing adjustments and the comparables.

4. Penalty Proceedings under Section 271(1)(c):

The initiation of penalty proceedings under section 271(1)(c) was also contested by the assessee. However, the judgment did not delve into the specifics of this issue, as the main emphasis was on resolving the transfer pricing disputes and the selection of comparables.

Conclusion:

The Tribunal ruled in favor of the assessee, allowing the appeal and directing the exclusion of the three companies initially included by the TPO and the inclusion of the three companies proposed by the assessee. The appeal by the revenue was dismissed, as the Tribunal found no contrary judgments to support the revenue's position. The Tribunal's decision was guided by the principle of ensuring functional comparability in the selection of comparables for transfer pricing purposes.

---