The issue for consideration was whether Motilal Oswal Investment Advisor, engaged in merchant banking activity can be compared with Assessee engaged in investment advisory services.
Facts:
For AY 2009-10, the assessee rendered investment advisory services to its AE. The assessee applied TNMM as the MAM and arrived at mean margin of 18.60% (PLI=OP/OR) by selecting eight comparables. The international transactions were concluded to be at ALP as assessee’s operating margin was 23.29%. The TPO rejected five out of eight comparables and added one more comparable namely ‘ Motilal Oswal Investment Advisor Pvt. Ltd ‘. The mean margin was computed at 39.44 %. Accordingly, the TP adjustment was made, which was confirmed by DRP.
Decision:
The ITAT noted that the majority of transactions completed by ‘Motilal Oswal’ were in the field of investment banking transactions comprising private placing of equity, syndication of project debt by taking of equity shares, acquisition, initial public offer (IPO), open offer and sponsor etc. The ITAT, relying on the decision of Carlyle India Advisors (P.) Ltd. v. Dy. CIT [2014] 43 taxmann.com 184 (Mum.) held that the company is not functionally comparable with the business of the assessee, which is engaged in investment advisory services.