Export-Only Assessees Can’t Be Benchmarked Against Comparables With Non-Export Operations: Delhi High Court Dismisses Revenue Appeal In Investment Advisory Services Dispute
Isabella Mariam
The High Court of Delhi Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar dismissed the revenue department’s appeal, affirming the exclusion of several entities proposed as comparables in a transfer pricing analysis. The dispute related to an assessee that derived all its income from export of investment advisory services, rendered on a cost-plus basis to its associated enterprise in Mauritius. The Bench found that companies engaged in stock market and depository operations, securities trading, debt resolution and syndication, merchant banking, NBFC activities, or other non-export revenue streams were not functionally comparable to an assessee providing export-only services and could also fail the export turnover threshold applied by the dispute panel. The Court declined to interfere with these factual findings and also noted an unexplained delay in re-filing.
The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961, challenging an order passed by the Income Tax Appellate Tribunal concerning the assessment year 2010–11. The dispute arose from transfer pricing adjustments proposed in respect of international transactions between the assessee and its associated enterprise.
The assessee was engaged in providing investment advisory services exclusively to its associated enterprise under a consultancy agreement and derived its entire revenue from export of services. The transactions were structured on a cost-plus basis. The Transfer Pricing Officer proposed an upward adjustment to the arm’s length price by including certain comparables. The Assessing Officer accepted the recommendation.
The assessee raised objections before the Dispute Resolution Panel, which partially allowed the objections and directed reduction of the proposed adjustment by excluding six comparables. The revenue challenged these exclusions before the Tribunal, contending that the Transfer Pricing Officer had correctly applied the filters and that the comparables were functionally similar. The Tribunal declined to interfere with the Dispute Resolution Panel’s findings, leading to the present appeal.
The Court noted that the Dispute Resolution Panel had undertaken a detailed examination of each comparable and recorded reasons for their exclusion. It observed that “the DRP has given a detailed findings as to why the six comparables be excluded from the final list.”
Addressing the revenue’s contention, the Court recorded that “the functional dissimilarity of each of above comparables has not been contradicted by the appellant/revenue.” It further stated that the Dispute Resolution Panel had analysed the nature of activities, risk profile, capital deployment, and export turnover of each comparable.
The Court noted that the assessee operated under a cost-plus arrangement and that “all risks in the form of market/business risk, credit and collection risk, capacity utilisation risk, service liability risk, human resource management risk as well as foreign exchange fluctuation risk was borne by AE and not by the assessee company.”
On the application of the export turnover filter, the Court recorded that the Dispute Resolution Panel had found that the export income of several comparables was below the prescribed threshold, whereas “income of tested party is 100% from exports.”
The Court stated that, when read meaningfully, the findings demonstrated sufficient justification for exclusion of the comparables and concluded that “the findings of the DRP, which have been accepted by the ITAT, are pure question of facts.”
The Court also took note of procedural delay, observing that there was “a delay of 1285 in refiling the appeal for which there is no justifiable explanation.”
The Court declined to accept the submissions advanced on behalf of the revenue, recording that “we are unable to accept the submission in that regard for the simple reason that the DRP… has come to a conclusion that the companies/the comparables, fail functional test as the comparables were engaged in operations other than export service undertaken by the assessee.”
“The DRP’s conclusion also includes how the comparables to be excluded on the basis of 75% export turnover test. It was concluded by the DRP that the export income of this company is 49%, which is less than 75% of total turnover, whereas income of tested parties is 100% from exports. Suffice to state, meaningfully read, the DRP has given sufficient reasons for excluding the comparables. The findings of the DRP, which have been accepted by the ITAT, are pure question of facts.”
“Additionally we are of the view that there is a delay of 1285 in refiling the appeal for which there is no justifiable explanation. We dismiss the appeal both on merits and delay.”
Advocates Representing the Parties
For the Appellant: Mr. Puneet Rai, Senior Standing Counsel; Mr. Gibran, Junior Standing Counsel; Mr. Ashvini Kumar, Advocate; Mr. Rishabh Nangia, Advocate
Case Title: PR. Commissioner of Income Tax-7, Delhi v. TCK Advisers Pvt. Ltd.
Neutral Citation: 2025: DHC:11972-DB
Case Number: ITA 778/2025
Bench: Justice V. Kameswar Rao, Justice Vinod Kumar
