Transfer Pricing | Comparables With Non-Export Operations Can't Be Benchmarked Against Export-Only Assessee: Delhi High Court

The Delhi High Court has made it clear that companies engaged in activities beyond export services cannot be treated as functionally comparable to an assessee providing export-only services.A Division Bench of Justices V. Kameswar Rao and Vinod Kumar thus upheld exclusion of such entities for the purpose of transfer pricing analysis qua an assessee engaged in providing investment advisory services to its Associated Enterprises (AE) in Mauritus.The Court was dealing with the Income Tax Department's appeal against the findings of the Dispute Resolution Panel (DRP), which had excluded certain comparables on the ground of functional dissimilarity.For context, the assessee was engaged to provide investment advisory services to Trikona (AE) as single client and accordingly 100% of its revenue was derived from the export of services and there was no domestic revenue.The Transfer Pricing Officer had recommended upward adjustment of Rs. 3,33,32,572/- on account of transfer pricing. The Assessing Officer (AO) accepted the recommendations leading to objections being filed by the assessee before the Dispute Resolution Panel, which partially allowed the plea and directed the AO to reduce the addition of Rs. 6,67,02,130/-.The Income Tax Department thus preferred this appeal, contending that the DRP had erred by excluding six comparables.Rejecting the Revenue's challenge, the High Court agreed with DRP that functional similarity is the cornerstone of comparability analysis under transfer pricing law. In the case at hand, it noted that functional dissimilarity of the six comparables had not been contradicted by the Revenue.“...the DRP, whose conclusions, we have reproduced above 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,” it noted.The Court further observed that while assessee's income is 100% from exports, on the other hand the export income of the comparable entity was only 49%.Additionally, in view of 1,285 days delay, the Revenue's appeal was dismissed.Appearance: Mr. Puneet Rai, SSC, Mr. Gibran, JSC and Mr. Ashvini Kumar and Mr. Rishabh Nangia, Advs. for AppellantCase title: Pr. Commissioner Of Income Tax -7, Delhi M/S TCK Advisers Pvt. Ltd. Case no.: ITA 778/2025Click here to read order

Transfer Pricing | Comparables With Non-Export Operations Can't Be Benchmarked Against Export-Only Assessee: Delhi High Court

Kapil Dhyani

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