PR. COMMISSIONER OF INCOME TAX vs M/S L G SOFT INDIA PVT LTD

Court
Karnataka High Court

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HC-KAR
NC: 2026:KHC:57055-DB
ITA No. 30 of 2021


CNR: KAHC010147312020




IN THE HIGH COURT OF KARNATAKA AT BENGALURU

TH
DATED THIS THE 8 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. 30 OF 2021

BETWEEN:

1. PR. COMMISSIONER OF INCOME TAX
INCOME TAX-4
BMTC COMPLEX, KORAMANGALA
BANGALORE.

2. THE DEPUTY COMMISSIONER OF
INCOME TAX
CIRCLE-4(1) (1)
BENGALURU.
…APPELLANTS
(BY SRI. SANMATHI E. I., ADV.)


AND:

M/S. L G SOFT INDIA PVT LTD
EMBASSY TECH SQUARE
MARATHAHALLI, SRAJAPURA ROAD,
BENGALURU-560 103
…RESPONDENT
(BY SRI. ANKUR P.D., ADV. FOR
SRI K.R. VASUDEVAN, ADV.)


THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT
1961, ARISING OUT OF ORDER DATED 27/09/2019 PASSED IN MP
NO.95/BANG/2019 ARISING OUT OF APPEAL PROCEEDINGS
NO.IT(TP)A NO.3122/BANG/2018, FOR THE ASSESSMENT YEAR
2014-2015, PRAYING TO A) DECIDE THE FOREGOING QUESTION OF
LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE









Digitally signed by
NANJUNDACHARI
Location: High
Court of
Karnataka

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FORMULATED BY THE COURT AS DEEMED FIT AND (B) SET ASIDE
THE APPELLATE ORDER DATED 27/09/2019 PASSED BY THE INCOME
TAX APPELLATE TRIBUNAL, 'C' BENCH, BENGALURU, AS SOUGHT
FOR, IN THE RESPONDENT – ASSESSEE’S CASE, IN MP
NO.95/BANG/2019 ARISING OUT OF APPEAL PROCEEDINGS NO.
IT(TP) NO.3122/BANG/2018 (ANNEXURE-A) FOR ASSESSMENT YEAR
2014-2015 AND GRANT SUCH OTHER RELIEF AS DEEMED FIT,
INTEREST OF JUSTICE.

THIS APPEAL, COMING ON FOR ADMISSION, 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 by the Revenue under section 260A
of the Income Tax Act,1961 assailing the order dated
27.09.2019 in MP No.95/Bang/2019 in IT(TP)A
No.3122/Bang/2018 passed by the Income Tax Appellate
Tribunal ‘C’ Bench, Bangalore for the assessment year
‘2014-15’.

2. The appeal was admitted on 14.07.2021 to
examine the following substantial questions of law:
“1. Whether on the facts and in the
circumstances of the case and in law, the Income

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ITA No. 30 of 2021


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Tax Appellate Tribunal (for short 'the Tribunal') is
correct in holding that M/s.Larsen and Tourbo Ltd.
cannot be taken as comparable on the ground of
functional dissimilarity though the Transfer Pricing
Officer has chosen the same as per parameters of
Rule 10B of the Income Tax Rules, 1962?

2. Whether on the facts and in the
circumstances of the case and in law, the Tribunal is
right in bypassing partially the parameters of
analysis prescribed under Rule 10B of the Income
Tax Rules, 1962 which is exhaustive and as such the
Tribunal's order can be said as perverse in nature?”

3. A Coordinate bench of this Court in ITA
No.10/2011and connected appeals in SAP Labs India (P)
Ltd. V. Income Tax Officer, vide judgment dated
28.08.2026, in an identical fact situation has, on a detailed
discussion recorded its conclusion as follows:
“E. CONCLUSION
(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),

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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.

(v) An RPT filter of 15% is ordinarily
preferable, though a higher threshold of 20%

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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

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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 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.”

4. The Coordinate bench of this Court in SAP
Labs India (P) Ltd. (supra) has held that 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. The said finding would be aptly applicable to the
facts of the present case. The issue in the present appeal
pertains to the exclusion of M/s.Larsen and Tourbo

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Infotech Ltd . for being functionally dissimilar to that of
the assessee.

5. As per the records, it is seen that the assessee is
a wholly owned subsidiary of LGE that provides software
development services in the areas such as mobile
application development, digital video broadcast and
biometrics software, etc. Whereas, M/s.Larsen and
Tourbo Infotech Ltd . is involved in three business
segments such as services cluster, industrials cluster and
telecom (product engineering services) and it also
operates in the domain of banking, financial services and
insurance, media and entertainment and travel and
logistics. Such being the fact scenario, it cannot be stated
that M/s.Larsen and Tourbo Infotech Ltd . is
functionally similar to the assessee. The Tribunal was also
of the same opinion and has recorded a factual finding
that M/s.Larsen and Tourbo Infotech Ltd. is not
functionally similar to the assessee. The learned counsel

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for the Revenue has failed to point out the perversity in
the said factual finding recorded by the Tribunal. Such
being the circumstances, we are of the considered opinion
that, in terms of the decision of the Coordinate bench in
SAP Labs India (P) Ltd. (supra), the substantial question
of law admitted in these appeals are to be answered in
favour of the assessee and against the Revenue. Hence,
the appeal filed by the Revenue is dismissed.



Sd/-
(S.G.PANDIT)
JUDGE


Sd/-
(DR.CHILLAKUR SUMALATHA)
JUDGE


NC
CT:bms
List No.: 1 Sl No.: 10