Delhi High Court
Pr. Commissioner Of Income Tax-06 vs M/S Mckinsey Knowledge Centre ... on 12 October, 2021
$~51
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 146/2020
PR. COMMISSIONER OF INCOME TAX-06 ..... Appellant
Through Mr.Ruchir Bhatia, Advocate
versus
M/S MCKINSEY KNOWLEDGE
CENTRE INDIA (P) LTD ..... Respondent
Through Mr. Porus Kaka, Senior Advocate
with Mr. Harpreet Singh Ajmani and
Mr. Divesh Chawla, Advocates.
% Date of decision: 12th October, 2021.
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
HON'BLE MR. JUSTICE NAVIN CHAWLA
MANMOHAN, J. (Oral)
The hearing has been conducted through video conferencing.
1. Present appeal has been filed by the Department challenging the
judgment and order dated 16th September, 2019 passed by t h e In come Tax
Appellate Tribunal (hereinafter referred to as 'ITAT') in ITA
No.7348/DEL/2018 for Assessment Year 2014-2015.
2. The appellant in the present appeal has sought framing of the
following questions of law:-
1. Whether the order of ITAT was perverse on fact s direct ing t o
exclude Aditya Birla Capital Advisors Pvt. Ltd. as this
company performs similar functions as that of the assessee?
Digitally Signed By:JASWANT
SINGH RAWAT
Signing Date:13.10.2021
21:21:02
2. Whether the order of ITAT was perverse on fact direct ing t o
delete adjustments made on account of interest on receivables?
3. Mr.Ruchir Bhatia, learned counsel for the appellant, submits t hat t he
ITAT erred in excluding Aditya Birla Capital Advisors Pvt. Lt d, (for sh ort
'ABCL') as a comparable since it is engaged in providing financial advisory
services and management services which require procurement an d an alysis
of data, and final result, which is similar to the function performed by t h e
assessee company.
4. He further submits that the ITAT has erred in deleting transfer pricing
adjustment made on account of interest on receivables. He submits that t he
ITAT has failed to appreciate that deferred payment or receivable or any
other debt arising during the course of business money is held to be an
'international transaction' within the meaning of Section 92B(1) of the
Income Tax Act, 1961 (hereinafter referred to as 'the Act').
5. He also submits that the ITAT has failed to appreciate t hat Sect ion
92B of the Act makes it evident that an arrangement between two
Associated Enterprises (for short 'AE') for allocation or apportionment of or
any contribution to, any cost or expense incurred or to be incurred in
connection with a benefit, service or facility provided or t o be provided t o
any one or more of such enterprises is an international transaction.
6. Per contra, Mr.Porus Kaka, learned senior counsel for the respondent,
states that the activity of advising investment m anagement performed by
Aditya Birla Capital Advisors is quite distinct from the services provided by
the assessee under the transaction of research and information services. He
emphasises that the first proposed question of law is covered again st t he
Digitally Signed By:JASWANT
SINGH RAWAT
Signing Date:13.10.2021
21:21:02
Department by the judgments of this Court in ITAs No. 461/2017, ITA
526/2017, ITA 590/2017 and ITA 82/2018.
7. As regards the second proposed question of law, without prejudice t o
the argument that outstanding receivables are not an "international
transaction", learned senior counsel for respondent submits that t here were
no outstanding receivables itself in the present case.
8. He points out that during the Transfer Pricing Proceedings, the
respondent had filed a chart containing details of money received
corresponding to invoices raised on AEs.
9. He contends that the Transfer Pricing Officer while making the
adjustment on account of the delay in receiving t he outstanding h as on ly
considered invoices/receivables paid beyond sixty days for making a
notional interest adjustment ignoring payments/receivables made in
advance. He states that if the adjustment is to be computed for in terest, t he
same should be computed considering the weighted average of all
receivables. He points out that the weighted average period of recovery days
works out to negative twenty-two days.
10. He emphasises that the Tribunal after noting the st atement sh owing
the respondent has received more in advance than outstanding and the
financial statements of the respondent verified the balance sh eet an d n oted
that the respondent is a debt-free company. Therefore, according to h im, in
such circumstances, the respondent does not have any borrowing for its
business activity and is a debt-free company.
11. Having heard learned counsel for the parties, this Court is of the view
that the first proposed question of law by the Department is squarely
covered in favour of the respondent-assessee vide this Court's order dat ed
Digitally Signed By:JASWANT
SINGH RAWAT
Signing Date:13.10.2021
21:21:02
9th August, 2018 in ITAs No.590/2017 and 82/2018 for Assessm ent Year
2011-12 and Assessment Year 2012-13 wherein this Cou rt h ad dism issed
the appeal filed by Income Tax Department/appellant on t he exclusion of
ABCL from the list of comparables, as functions performed by ABCL as a
fund manager were wholly different from that of t h e respondent and also
with a totally different risk profile.
12. This Court is also of the opinion that under no transfer pricing n orm,
principle or evaluation of any "benefit" can there be a one-sided adjustment
taking into account delayed invoices while at the same time ignoring
invoices/payment received in advance. Consequently, factually there can be
no notional computation of 'delayed receivables' only ignoring the
receivables received in advance.
13. A perusal of paper book reveals that most of the invoices/receivables
had been paid significantly in advance. When the period for which the
amounts of receivables received in advanced enjoyed by t h e respondent is
seen vis-a-vis the amount receivable beyond sixty days, it is apparen t t hat
the respondent has received significantly more advance rather than
outstanding receivable beyond sixty days.
14. Consequently, on the facts and circumstances of the case, the notional
interest relating to alleged delayed payments in collecting receivables from
the AEs is uncalled for as in fact, there are no outstanding receivables as t h e
amount received in advance far outweigh the amount received late.
15. The question as to whether in a given case transfer pricing adjustment
on 'delayed receivables', could apply even to a debt-free company or n ot ,
hence does not arise on facts and is left open.
Digitally Signed By:JASWANT
SINGH RAWAT
Signing Date:13.10.2021
21:21:02
16. Keeping in view the aforesaid conclusions, this Court is of t h e view
that no substantial question of law arises in the present case. Accordingly,
present appeal is dismissed.
17. The order be uploaded on the website forthwith. Copy of the order be
also forwarded to the learned counsel through e-mail.
MANMOHAN, J
NAVIN CHAWLA, J
OCTOBER 12, 2021
js
Digitally Signed By:JASWANT
SINGH RAWAT
Signing Date:13.10.2021
21:21:02
