A controlled transaction cannot be benchmarked against another controlled transaction (TP)

Brief Facts of the case-

• The assessee company was engaged in the business of providing investment advisory and marketing support services.
• During the year under consideration, the assessee company provided advisory services to its Associated Enterprises (“AEs”) named Deutsche Asset Management (Asia) Limited (in short “DAMAL”), Singapore.
• In consideration for providing such advisory services, DAMAL has given 50% shares of the fees received by it to the assessee.
• The TPO rejected the bench marking method applied by the assessee viz. TNMM with net cost plus margin.
• The TPO noticed that the assessee has received share of 70% of the fees from another AE, Germany for providing liaisoning/marketing support services to it.
• The TPO further held that the assessee should have taken share of 70% of fees for advisory services provided to DAMAL also.
• Accordingly, he proposed adjustment of Rs. 1.50 crores to the income returned by the assessee.
• The ld. DRP deleted the transfer pricing adjustment proposed by the TPO. The department is in appeal now.

Contention of Assessee

• TPO has proposed adjustment by using a controlled transaction entered between the assessee and its AE in Germany to benchmark another controlled transaction entered into by the assessee with its AEs at Singapore. Since the amount received is only an advance in hands of the company, the same was not shown as income.
• The advisory services provided to DAMAL, Singapore are functionally different from the liasioning/marketing support services provided to another AE located in Germany.
• A favorable judgment was given by ITAT in an identical adjustment made in the assessee’s own case in A.Y. 2006-07 holding that the fee received by the assessee for providing marketing and liasioning services cannot be equated with the advisory services given to an investment manager.
• In the subsequent years, the TPO has accepted the fact that the services provided to AEs located in Singapore and Germany are different and accordingly did not propose any adjustment in assessment years 2010-11 and 2011-12.

Contention of the revenue

TPO held that the method applied by the assessee company was not acceptable. The TPO further held that the assessee should have taken share of 70% of fees for advisory services provided to DAMAL also.

Held by Respective Court

The facts and circumstances of the issue are identical with the issue in AY 2006-07 wherein the ITAT had given a finding that the services provided to AE, Singapore cannot be equated with the kind of services provided to AE, Germany. Thus by following the order passed by the Tribunal in the hands of the assessee for AY 2006-07, we uphold the order of ld. DRP on this issue. Accordingly, the appeal filed by department is dismissed.