Facts of the Case

The present appeal was filed by the Revenue before the Delhi High Court against the order dated 19.01.2023 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year (AY) 2014–15.

The Respondent/Assessee, Qualcomm India Pvt. Ltd., was engaged in:

  • Software Development Services
  • IT Enabled Services (ITES)
  • Business Support Services
  • Technical Support Services

The dispute primarily revolved around:

  1. Exclusion of three comparables:
    • Infobeans Technologies Ltd.
    • Cybercom Datamatics Information Solutions Ltd.
    • Infosys BPO Ltd.
  2. Transfer Pricing Adjustment on account of interest on receivables made by the Transfer Pricing Officer (TPO).

Issues Involved

  1. Whether the ITAT was justified in excluding the three comparables based on functional dissimilarity and risk profile.
  2. Whether adjustment on account of interest on receivables is warranted when working capital adjustment has already been granted.
  3. Whether any substantial question of law arises from the Tribunal’s findings.

Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that the ITAT erred in excluding the comparables.
  • It argued that adjustment on receivables should be made in light of the amendment to Section 92B of the Income Tax Act, 1961, which includes receivables within the scope of international transactions.

Respondent’s (Assessee’s) Arguments

  • The Assessee submitted that:
    • The excluded companies were functionally dissimilar and hence not comparable.
    • Once working capital adjustment is allowed, no separate adjustment on receivables is required.
  • Reliance was placed on the judgment of Pr. Commissioner of Income Tax-V vs Kusum Health Care Pvt. Ltd., which held that separate adjustment on receivables is not justified if working capital impact is already considered.

Court’s Findings / Order

1. Exclusion of Comparables – Justified

  • The Tribunal rightly excluded:
    • Infobeans Technologies Ltd. → engaged in diversified activities including software product sales.
    • Cybercom Datamatics → lacked segmental data and involved in technical services.
    • Infosys BPO Ltd. → high turnover, strong brand value, and different risk profile.
  • These were findings of fact, and no perversity was shown.

2. Interest on Receivables Adjustment

  • The Court upheld that:
    • Working capital adjustment already factors receivables impact.
    • Separate adjustment would distort profitability analysis.
  • Reliance placed on:
    • Pr. Commissioner of Income Tax-V vs Kusum Health Care Pvt. Ltd.
    • CIT vs EKL Appliances Ltd.

3. No Substantial Question of Law

  • The Court held that:
    • Tribunal’s findings are purely factual
    • No substantial question of law arises

Important Clarifications

  • Receivables are not automatically international transactions under Section 92B.
  • A case-by-case analysis is required to determine whether delay benefits the AE.
  • Working capital adjustment subsumes receivables impact, hence:
    • No double adjustment is permissible.
  • Functional comparability must consider:
    • Business model
    • Risk profile
    • Turnover differences

Sections Involved

  • Section 92B of the Income Tax Act, 1961 – International Transactions
  • Rule 10B of the Income Tax Rules, 1962 – Comparability Analysis
  • Transfer Pricing Provisions relating to:
    • Working Capital Adjustment
    • Interest on Receivables

Link to download the order -


https://delhihighcourt.nic.in/app/showFileJudgment/RAS18102023ITA5862023_170823.pdf

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