Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Wednesday, 27 January 2016 16:34

Transfer Pricing - When functionally dissimilar the same should be excluded for benchmarking the international transactions - Mumbai Tribunal

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If a company is functionally different then it is to be excluded from the list of comparables.


1.  Assessee has challenged the action of Ld. CIT(A) in confirming the action of AO in making addition as a result of upward Transfer Pricing Adjustment

2. Main grievance of the assessee is that the AO has wrongly included one comparable namely M/s. Motilal Oswal Investment Advisors Pvt. Ltd.

3. It has been submitted that Motilal Oswal (i.e. M/s. Motilal Oswal Investment Advisors Pvt. Ltd.) is not, even, functionally comparable to the assessee company. It has been submitted that based on the Functional, Assets and Risk analysis of the assessee as documented in its Transfer Pricing Study Report, it can be concluded that the assessee company is a captive service provider with limited risk associated with carrying out such business and does not perform any decision making function and its activities are merely restricted to the provision of non-binding Investment Advisory Services under the institutions of its Associated Enterprises. The role of the company is limited to the provision of non-binding Investment Advisory Services, and thus, it assumes limited risk such as market risk, loss and investment risk, credit risk, foreign exchange risk and manpower risk. Thus, the assessee received returns having regard to its functionality and its profile

4. Motilal Oswal is not functionally comparable to the assessee company, since Motilal Oswal is an investment banking company engaged in providing investment banking solutions. It has a team of experienced bankers and is capable of providing services for various projects viz capital markets mergers and acquisition, private equity and structured debt

5. After hearing both parties Honb. Tribunal decided the matter in favour of the assessee.


In our considered opinion, functions and activities carried out by Motilal Oswal are different from the functions and activities of the assessee company. Accordingly, the risk profiles of the two are also different. It has been clearly mentioned in the annual report of Motilal Oswal that the said company is engaged in the business of merchant banking and investment, business advisory services. It is further noted by us that actually we need not labour much on this issue as various benches have already addressed this issue at great length and detail in the aforesaid precedents relied upon by the Ld. Counsel...... Thus, respectfully following the aforesaid judgments and in view of the facts brought before us. We find that Motilal Oswal is not comparable to the assessee company and the AO is directed to exclude the same from the TAXPUNDIT.ORG 11 TA Associates Advisory P. Ltd. list of comparables and re-compute the Arm’s Length Price and also the Transfer Pricing Adjustment to be made, if any after the excluding the aforesaid company. 

Cases Referred to

1. Carlyle India Advisors (P.) Ltd. v. Deputy Commissioner of Income-tax 153 ITD 400 (Mumbai - Trib.)

2. General Atlantic (P.) Ltd. v. Assistant Commissioner of Income-tax 148 ITD 429 (Mumbai - Trib.)

3. Temasek Holdings Advisors (I) (P.) Ltd. v. Deputy Commissioner of Income-tax 27 ITR(ITAT) 125 (Mumbai - Trib.)


Additional Info

Read 2531 times Last modified on Saturday, 13 February 2016 14:55
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

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