ACIT 1(3)(1), MUMBAI vs. SANDSTONE CAPITAL ADIVSORS P.LTD, MUMBAI

The solitary issue in dispute in the present appeal relates to rejection of Motilal Oswal Investment Advisors Pvt. Ltd. selected by the Transfer Pricing Officer as a comparable.

Brief facts are, the assessee is an Indian Company. As stated by the Assessing Officer, assessee is engaged in the business of financial advisory services and in the relevant previous year, it has entered into international transaction relating to provision of investment sub– advisory services to its overseas Associated Enterprise (AE). For the assessment year under dispute, the assessee filed its return of income on 28th November 2011 declaring total income of ` 1,34,43,182. During the assessment proceedings, the Assessing Officer on examining the transfer pricing study report submitted by the assessee found that the assessee has earned a mark–up of 20.38% on the cost incurred towards provision of investments of advisory services to the AE. He noticed that the assessee has adopted Transactional Net Margin Method (TNMM) for bench marking the arm's length price of the international transaction with AE. For the purpose of bench marking the international transaction, the assessee has selected four comparables with average margin of 14.59%. The margin shown by the assessee @ 20.38% being higher to the average margin of the comparable companies, the price charged to the AE for provision of investment sub–advisory services was claimed to be at arm's length. The Assessing Officer after perusing the transfer pricing study report of the assessee observed that the comparative analysis undertaken by the assessee suffered from deficiencies including selection of 3 Sandstone Capital Advisors Pvt. Ltd. functionally different companies as comparables. Further, the Assessing Officer was of the view that Motilal Oswal Investment Advisory Pvt. Ltd. being functionally similar to the assessee should have been selected as a comparable. Accordingly, he called upon the assessee to show cause as to why the transfer pricing study report should not be rejected. Though, the assessee filed its submissions justifying computation of arm's length price in the transfer pricing study, however, the Assessing Officer rejected the submissions of the assessee. Out of the four comparables selected by the assessee, the Assessing Officer rejected Cyber Media Research Ltd. (IDC India) and Future Capital Investment Advisors Ltd. finding them to be functionally different from the assessee. Proceeding further, the Assessing Officer selected Motilal Oswal Advisory Pvt. Ltd. as a comparable in addition to IIML Asset Advisors Ltd. and Future Capital Holdings Ltd. selected by the assessee. Since, the arithmetic mean of the three comparables selected by the Assessing Officer worked out to 38.38%, the arm's length price of the transaction with the A.E. was determined @ ` 8,54,43,244, as against the price charged by the assessee at ` 7,43,28,625. The resultant difference of ` 1,11,14,619, was treated as the transfer pricing adjustment and added to the income of the assessee. Being aggrieved of such addition made by the Assessing Officer the assessee preferred appeal before the first appellate authority.

The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record found that Motilal Oswal Investment Advisors Pvt. Ltd. is functionally different from the assessee as it is involved in multifarious activities including Merchant Banking and the segmental details are not available. Accordingly, he held that this company cannot be treated as comparable. After exclusion of Motilal Oswal Investment Advisors Pvt. Ltd., since, the average margin of the rest of the two comparables selected by the Assessing Officer was 17% compared to the margin shown by the assessee of more than 20%, the learned Commissioner (Appeals) held that no adjustment to the arm's length price shown by the assessee is required to be made. Accordingly, he deleted the addition made by the Assessing Officer on account of transfer pricing adjustment.

When the appeal was called for hearing, no one was present on behalf of the assessee to represent the case. Even, there is no letter filed by the assessee seeking adjournment. Considering the nature of dispute, we proceed to dispose of the appeal ex parte qua the assessee after hearing the learned Departmental Representative.

The learned Departmental Representative relied upon the observations of the Assessing Officer.

We have heard learned Departmental Representative and perused materials on record. Though, the Assessing Officer selected Motilal Oswal Investment Advisors Pvt. Ltd., stating that it is functionally similar to the assessee, however, he himself has observed that this company is engaged in various activities including merchant banking / investment banking also. Notably, in course of hearing of appeal, the learned Commissioner (Appeals) has examined in detail the functionality of this company by analysing the documentary evidences available on record. On verifying the material on record, he has found that the company is into diversified activities including merchant banking / investment banking concerning private placement of equity, debt and convertible instrument covering international and domestic market, mergers and acquisitions, advisory and re– structuring advisory and implementation. Further, the company also offers services like private wealth management, asset management and commodities. From the documentary evidences produced by the assessee, he found that though the income stream in the audited account is shown to be from advisory services, however, the nature of the services is entirely different. Further, in response to a letter from the assessee the Chief Executive Officer of Motilal Oswal has stated that the company is in merchant banking and investment banking and is not engaged in providing investment research and advisory services.

In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 31.08.2018