PRINCIPAL COMMISSIONER OF INCOME TAX vs M/s. TRIDENT MICROSYSTEMS INDIA PVT LTD

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HC-KAR
NC: 2026:KHC:58389-DB
ITA No. 249 of 2021
CNR: KAHC010096662021
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 15 DAY OF OCTOBER, 2026
PRESENT
THE HON'BLE MR. JUSTICE S.G.PANDIT
AND
THE HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA
INCOME TAX APPEAL NO. 249 OF 2021
BETWEEN:
1.
PRINCIPAL COMMISSIONER OF INCOME TAX
BMTC COMPLEX,
KORAMANGALA,
BENGALURU.
2. THE DEPUTY INCOME TAX OFFICER
CIRCLE 7(1)(1), BANGALORE.
…APPELLANTS
(BY SRI. E.I. SANMATHI, ADVOCATE)
AND:
Digitally signed
by AASEEFA
PARVEEN
Location: HIGH
COURT OF
KARNATAKA
M/s. TRIDENT MICROSYSTEMS INDIA
PVT. LTD.,
NO. 2924, THIRD FLOOR,
14TH CROSS, K R ROAD,
BSK II STAGE,
BANGALORE-560070
PAN :AADCN1384L
…RESPONDENT
(RESPONDENT SERVED-UNREPRESENTED)
THIS ITA / INCOME TAX APPEAL IS FILED UNDER
SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF
ORDER DATED 14/08/2020 PASSED IN IT(TP)A NO.
2234/BANG/2016, FOR THE ASSESSMENT YEAR 2012-2013
(ANNEXURE-A) PRAYING TO

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NC: 2026:KHC:58389-DB
ITA No. 249 of 2021
CNR: KAHC010096662021
DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH
OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE
HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE
APPELLATE ORDER DATED 14/08/2020 PASSED BY THE
INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU,
IN APPEAL PROCEEDINGS NO. IT(TP)A NO. 2234/BANG/2016
(ANNEXURE-A) FOR THE ASSESSMENT YEAR 2012-2013 AS
SOUGHT FOR IN THIS APPEAL.
THIS APPEAL, COMING ON FOR HEARING, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.G.PANDIT
and
HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA
ORAL JUDGMENT
(PER: HON'BLE MR. JUSTICE S.G.PANDIT)
This appeal is filed under Section 260A of the ITA
Act, 1961 is directed against 14.08.2020 in IT(TP)A
No.2234/BANG/2016 passed by the Income Tax Appellate
Tribunal, 'A' Bench, Bangalore for the assessment year
2012-13.
2. The above appeal was admitted for hearing on
the following Substantial Questions of Law by order dated
19.02.2025:
"1. Whether on facts and the circumstances of
the case and in law, Tribunal's order can be said as

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HC-KAR
NC: 2026:KHC:58389-DB
ITA No. 249 of 2021
CNR: KAHC010096662021
perverse in nature as Tribunal has directed Transfer
Pricing officer to exclude M/s.Genesys International
Corporation Ltd on the ground of functional
dissimilarity though the Transfer Pricing Officer after
application of required tests rightly held that
comparable-company's functions are similar to that
of assessee?
2. Whether on the facts and in the circumstances
of the case, the Tribunal is not justified in law in not
appreciating that there is no direct relationship
between turnover of comparable and the margin
earned by the companies engaged in Software
Development Services and as such excluding of
comparable-companies on ground of turnover filter is
unwarranted?
3. Whether on the facts and in the circumstances
of the case, the Tribunal is right in law in directing
Transfer Pricing Officer to exclude comparable's
when TPO has satisfied all required tests set out in
Rule 10B and as such, the order passed by Tribunal
is perverse as Tribunal has ignored the materials
brought on record by TPO?"
3. The above appeal relates to transfer pricing
and particularly exclusion of comparables as directed by
the ITAT.
4. In the matter of transfer pricing, the Co-
ordinate Bench of this Court in ITA No.10/2011 and
connected appeals between the Sap Labs India Private

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HC-KAR
NC: 2026:KHC:58389-DB
ITA No. 249 of 2021
CNR: KAHC010096662021
Limited and The Income Tax Officer and others, by
judgment dated 28.08.2026 on considering the relevant
judgments of the Hon'ble Apex, has recorded the following
findings:
i. The Court concludes that Chapter X of the
Income-tax Act, 1961 constitutes a self-
contained code governing transfer pricing,
providing a complete statutory framework
for determination of the Arm's Length Price
(ALP), maintenance of documentation, and
assessment of international transactions.
ii. The initial burden of determining the ALP
and maintaining the prescribed
documentation rests upon the taxpayer,
while the Transfer Pricing Officer can
interfere with the taxpayer's determination
only upon satisfaction of the conditions
stipulated under Section 92C(3) of the Act.
iii. The selection or exclusion of comparables is
essentially a factual and data-driven
exercise, and the TPO cannot reject the
taxpayer's comparables merely to substitute
them with a standard departmental set.
Such determination must strictly conform to
the requirements of Rule 10B of the Rules.
iv. The Tribunal's adoption of an upper
turnover filter of Rs.200 crores is rational
and legally sustainable, as turnover, brand
value, economies of scale, bargaining power
and ownership of intangibles materially
influence comparability and profitability.

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ITA No. 249 of 2021
CNR: KAHC010096662021
v. An RPT filter of 15% is ordinarily preferable,
though a higher threshold of 20% or 25%
may be adopted only upon recording a
specific finding that sufficient comparable
companies satisfying the lower threshold
are unavailable.
vi. Foreign exchange gain or loss can be
treated as an operating item only when it
has a direct nexus with the international
transaction. Where such nexus is absent, it
cannot form part of the operating revenue
or operating cost.
vii. The burden of proof varies according to the
nature of the dispute. While the taxpayer
bears the initial burden of substantiating the
ALP, once the TPO rejects the taxpayer's
determination and substitutes comparables,
the burden shifts to the TPO to justify such
inclusion or exclusion.
viii. There is no legal prohibition against
inclusion or exclusion of comparables at the
appellate stage, provided the subsequently
relied upon data is reliable and the proposed
comparables satisfy the requirements of the
Act and the Rules.
ix. The tolerance of ±5% prescribed under
Section 92C of the Act is merely a
permissible variation and not a standard
deduction, and transfer pricing adjustment
becomes necessary whenever the variation
exceeds the prescribed statutory limit.
x. Working Capital Adjustment is a
comparability adjustment and not a
selection filter, and its grant depends
entirely upon the facts of each case.
Findings on such adjustment, like the

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ITA No. 249 of 2021
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selection of comparables, ordinarily remain
findings of fact and do not warrant
interference unless shown to be contrary to
the Act or vitiated by perversity.
5. In so far as Substantial Question of Law No.1,
the same is covered by the decision of the Co-ordinate
Bench in Sap Labs ( supra) . The Co-ordinate Bench has
held that in the absence of any statutory prescription
fixing either a lower or an upper turnover limit, the
adoption by the Tribunal of an upper turnover filter of
Rs.200 crores cannot be said to be arbitrary. On the
contrary, the said criteria is founded on a rational and
logical basis. Such a determination being essentially a
finding of fact, cannot be interfered with unless perversity
is specifically prayed and demonstrated. In the instant
case, the appellants-Revenue has failed to demonstrate
the perversity and how the Assessee-Genesys
International Corporation Limited performs similar function
as that of the respondent-Assessee. Therefore, the said

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ITA No. 249 of 2021
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question is answered against the appellants-Revenue and
in favour of the respondent-Assessee.
6. Insofar as Substantial Questions of Law Nos.2
and 3, with regard to exclusion of comparables, is also
covered by the decision in Sap labs supra . It is specifically
held that the selection or exclusion of comparables is
essentially a factual and data driven exercise, and that
TPO cannot reject the taxpayer's comparables merely to
substitute them with a standard departmental set. Such
determination must strictly comply to the requirements of
Rule 10B of the Rules. The Tribunal on taking note of the
functionality of the comparable companies and the
respondent-Assessee company and also taking note of the
functions, assets and risks assumed by the comparable
companies as well as the respondent-Assessee company,
has rightly come to the conclusion that comparables are
functionally dissimilar and rightly directed exclusion of
those comparables. The appellants-Revenue has failed to

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ITA No. 249 of 2021
CNR: KAHC010096662021
point out any perversity in the order of the Tribunal.
Moreover, the appellants have not pointed out considering
either irrelevant material or excluding relevant material
while passing the impugned order.
7. Thus, the Substantial Questions of Law are
answered against the appellants-Revenue and in favour of
the respondent-Assessee. Accordingly, the appeal stands
dismissed
.
Sd/-
(S.G.PANDIT)
JUDGE
Sd/-
(DR.CHILLAKUR SUMALATHA)
JUDGE
DS
CT:TSM
List No.: 1 Sl No.: 10