Delhi HC Upholds DRP’s Exclusion of Non-Comparable Advisory Companies

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the ITAT’s order for Assessment Year 2010-11, which had affirmed the directions of the Dispute Resolution Panel (DRP).

The assessee, M/S TCK Advisers Pvt. Ltd., provided non-binding investment advisory services exclusively to its Associated Enterprise, Trikona Advisors Mauritius Limited, under a cost-plus model, and derived 100% of its revenue from the export of services.

During transfer pricing proceedings, the Transfer Pricing Officer proposed an upward adjustment on account of arm’s length price. The DRP, however, excluded six comparables selected by the TPO on the grounds of functional dissimilarity, higher risk profiles, capital deployment, fund-based activities, lack of segmental data, and failure to meet the 75% export turnover filter. The ITAT upheld the DRP’s findings and dismissed the Revenue’s appeal.

Issue Before HC: Whether the ITAT erred in law by affirming the DRP’s exclusion of certain comparables on grounds of functional dissimilarity and export turnover filters while determining arm’s length price under TNMM.

HC’s Decision: The Hon’ble High Court dismissed the Revenue’s appeal, holding that the DRP had given detailed and reasoned findings for excluding the six comparables based on functional dissimilarity, risk profile, capital intensity, fund-based activities, absence of segmental data, and failure to satisfy the 75% export turnover filter. The Court observed that these findings were purely factual in nature and had not been effectively contradicted by the Revenue.

Since the ITAT had merely affirmed these factual findings, no substantial question of law arose for consideration under Section 260A. The appeal was also dismissed on the ground of an unexplained delay of 1285 days in re-filling.

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