Facts of the Case

The assessee, TCK Advisers Pvt. Ltd., was engaged in providing investment advisory services to its Associated Enterprise, Trikona Advisors Mauritius Limited, under a consultancy agreement dated 01.04.2008. The assessee rendered non-binding investment recommendations, primarily in the real estate sector in India, and functioned as a back-office support entity for its AE. For Assessment Year 2010-11, 100% of the assessee’s revenue amounting to ₹13,43,38,418 was derived from export of services to its AE on a cost-plus basis, with all entrepreneurial and market risks borne by the AE.

The Transfer Pricing Officer proposed an upward adjustment, which was accepted by the Assessing Officer. On objections filed by the assessee, the Dispute Resolution Panel partially allowed the objections and directed reduction of the proposed adjustment by excluding six comparables on grounds of functional dissimilarity and failure of filters such as the 75% export turnover test. The Revenue’s appeal before the ITAT was dismissed. Aggrieved, the Revenue filed an appeal under Section 260A before the High Court.

Issues Involved

Whether the DRP and ITAT erred in excluding six comparables while determining arm’s length price under TNMM, whether application of functional similarity and export turnover filters was justified, whether such exclusion gave rise to any substantial question of law, and whether the appeal deserved dismissal on account of delay in re-filing.

Appellant’s Arguments

The Revenue contended that the DRP wrongly excluded six comparables which were allegedly functionally similar and that the TPO had correctly applied filters and TNMM. It was argued that insisting on strict comparability standards defeated the object of transfer pricing provisions and that the 75% export turnover filter was arbitrary and incorrectly applied.

Respondent’s Arguments

The assessee submitted that the DRP had given detailed and cogent reasons for excluding each of the six comparables, highlighting their functional dissimilarity, risk profile, capital intensity and domestic-oriented operations. It was argued that the Revenue failed to specifically assail the DRP’s factual findings and that the ITAT rightly declined to interfere. It was further contended that the appeal was also barred by unexplained delay.

Court Order / Findings

The Delhi High Court examined the detailed reasoning recorded by the DRP for excluding Ajcon Global Services Ltd., Brescon Corporate Advisors Ltd., Karvy Investors Services Ltd., Kshitij Investment Advisory Co. Ltd., Motilal Oswal Investment Advisors Pvt. Ltd. and Pushpak Financial Services Ltd. The Court noted that the DRP had applied functional analysis, risk profile comparison, capital deployment, nature of activities and the 75% export turnover filter in accordance with Rule 10B. The ITAT accepted these findings, holding them to be factual in nature.

The Court held that the Revenue failed to demonstrate any perversity in the findings of the DRP and ITAT. It observed that selection or exclusion of comparables is essentially a question of fact and does not ordinarily give rise to a substantial question of law under Section 260A. The Court also noted that there was a delay of 1285 days in re-filing the appeal, for which no justifiable explanation was provided.

Important Clarification

The Court clarified that where the DRP and ITAT have concurrently recorded well-reasoned factual findings on functional dissimilarity and comparability under transfer pricing provisions, the High Court will not interfere under Section 260A. Selection of comparables, absent perversity, remains a pure question of fact.

Final Outcome

The appeal filed by the Revenue was dismissed both on merits and on account of unexplained delay in re-filing. The orders of the DRP and the ITAT excluding the six comparables and deleting the transfer pricing adjustment for Assessment Year 2010-11 were upheld.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769502994_COMMISSIONEROFINCOMETAX7DELHIVsTCKADVISERSPVT.LTD.pdf

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