Facts of the Case

The present appeal was filed by the Income Tax Department challenging the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2014–15.

The ITAT had:

  • Directed exclusion of Aditya Birla Capital Advisors Pvt. Ltd. (ABCL) as a comparable entity; and
  • Deleted transfer pricing adjustment made on account of alleged interest on receivables.

The Revenue contended that ABCL performed similar functions as the assessee and that receivables constituted an international transaction under Section 92B.

Issues Involved

  1. Whether exclusion of Aditya Birla Capital Advisors Pvt. Ltd. as a comparable was justified?
  2. Whether delay in receivables constitutes an international transaction warranting transfer pricing adjustment under Section 92B?

Petitioner’s (Revenue’s) Arguments

  • ABCL was engaged in financial advisory and management services involving data analysis similar to the assessee’s functions.
  • ITAT erred in excluding ABCL as a comparable.
  • Outstanding receivables and deferred payments qualify as “international transactions” under Section 92B.
  • Interest on delayed receivables should be imputed as transfer pricing adjustment.

Respondent’s (Assessee’s) Arguments

  • ABCL’s functions as an investment advisor/fund manager are materially different from the assessee’s research and information services.
  • The issue of comparability is already covered in favour of the assessee by earlier Delhi High Court judgments.
  • No outstanding receivables existed; rather, payments were received in advance.
  • Transfer Pricing Officer selectively considered delayed invoices while ignoring advance payments.
  • Weighted average recovery period was negative, indicating no delay.
  • The assessee was a debt-free company with no borrowings.

Court’s Findings / Order

1. On Comparable Selection

  • The issue of exclusion of ABCL is already settled in favour of the assessee in earlier judgments.
  • ABCL, being a fund manager with a distinct functional and risk profile, cannot be compared with the assessee.

2. On Interest on Receivables

  • Transfer pricing adjustment cannot be made on a one-sided basis by considering only delayed receivables and ignoring advance payments.
  • The assessee had received substantial advances exceeding delayed receivables.
  • Therefore, there were effectively no outstanding receivables warranting adjustment.

3. Final Decision

  • No substantial question of law arose.
  • Appeal of the Revenue was dismissed.

Important Clarifications

  • Notional interest on receivables cannot be computed selectively without considering the entire transaction cycle.
  • Advance payments must be factored into transfer pricing analysis.
  • The question of applicability of transfer pricing adjustment to a debt-free company was left open.

Sections Involve

  • Section 92B of the Income Tax Act, 1961
  • Transfer Pricing Provisions relating to International Transactions

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:3282-DB/MMH12102021ITA1462020_220802.pdf

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