THE PR. COMMISSIONER OF INCOME-TAX vs M/S. YOKOGAWA INDIA LTD.,

Court
Karnataka High Court

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ITA No. 88 of 2024


CNR: KAHC010035892024




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. 88 OF 2024

BETWEEN:

1. THE PR. COMMISSIONER
OF INCOME-TAX
TH
5 FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANGALA,
BENGALURU-560 095.

2. THE DEPUTY COMMISSIONER
OF INCOME TAX
ND
CIRCLE-7(1)(1), 2 FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANGALA,
BENGALURU-560095.
…APPELLANTS
(BY SRI. E.I. SANMATHI, ADV.)

AND:








Digitally signed by
NANJUNDACHARI
Location: High
Court of Karnataka
M/S. YOKOGAWA INDIA LTD.,
PLOT NO.96,
ELECTRONIC CITY COMPLEX,
HOSUR ROAD, BANGALORE-560 100
PAN: AAACY 0840P
…RESPONDENT
(BY SRI. NAGESWAR RAO D. D., ADV.)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT
1961, ARISING OUT OF ORDER DATED 17/05/2023 PASSED IN
IT(TP)A NO.849/BANG/2022 FOR THE ASSESSMENT YEAR 2017-
2018, PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS OF
LAW STATED THEREIN; II. ALLOW THE APPEAL AND SET
ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE
TRIBUNAL, BENGALURU IN IT(TP)A NO.849/BANG/2022 DATED

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ITA No. 88 of 2024


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17/05/2023 FOR ASSESSMENT YEAR 2017-2018 ANNEXURE-A AND
CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED
BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1),
BENGALURU AND ETC.

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
17.05.2023 in IT(TP)A No.849/Bang/2022 passed by the
Income Tax Appellate Tribunal ‘A’ Bench: Bangalore for
the assessment year ‘2017-18’, wherein, the appeal filed
by the assessee was allowed in part and some of the
comparables were remanded back to the TPO for
reconsideration of the same and some of the comparables
selected by the TPO were directed to be excluded.

2. Heard learned counsel Sri. E I Sanmathi for the
Revenue and Sri.Nageshwar Rao D.D., learned counsel for
the assessee. Perused the entire appeal papers.

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ITA No. 88 of 2024


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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 on considering
various judgments of the Hon’ble Apex Court in the matter
of Transfer Pricing 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),
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.


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(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%
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.


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(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 selection of comparables,
ordinarily remain findings of fact and do not

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warrant interference unless shown to be
contrary to the Act or vitiated by perversity.”

4. The main issue sought to be raised by the
Revenue in this appeal pertains to exclusion and inclusion
of some of the comparables by the Tribunal. We have
carefully perused the impugned Order passed by the
Tribunal. It is noticed that insofar as the comparables of
the assessee excluded by the TPO are concerned, the
Tribunal has arrived at the finding that the TPO has not
assigned any reasons for rejecting the comparables and
has simply stated that these companies are involved in
manufacturing different products. Thus, the Tribunal has
remanded the matter back to the TPO for verification of
the FAR of the comparables with that of the assessee and
if found comparable as per the filters applied by the TPO,
to consider the same for inclusion. The Revenue cannot be
said to be aggrieved with this portion of the Order in
remanding the matter back to the TPO.

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5. With regard to the comparables selected by the
TPO, insofar as M/s Annanya Interface & Controls Pvt.
Ltd. and Dembla Valves Ltd. , are concerned, the
Tribunal has recorded a factual finding that the
manufacturing activities undertaken by M/s Annanya
Interface & Controls Pvt. Ltd.and Dembla Valves
Ltd. , cannot be compared to the assessee and that they
are functionally dissimilar and hence, excluded the same.
The learned counsel for the Revenue has not been able to
point out any documents which would disprove the
aforesaid finding. 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.The learned
counsel for the Revenue has failed to point out the
perversity in the finding of the Tribunal in excluding M/s

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Annanya Interface & Controls Pvt. Ltd. and Dembla
Valves Ltd .

6. Insofar as Abak Elcerofab Engg Pvt. Ltd., is
concerned, the comparable was remanded back to the TPO
since it was not discernible as to what the manufacturing
activity of Abak Elcerofab Engg Pvt. Ltd. is. With regard
to Limitorque India Ltd., Flowserve India Controls
Pvt. Ltd., and Koso India Ltd . are concerned, these
comparables as well were remanded back to the TPO to
verify the RPT filter and apply it at the threshold of 15%.
As stated above, a Coordinate bench of this Court in SAP
Labs India (P) Ltd. (supra) has held that 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. Be that as it
may. The Tribunal has not rejected the aforesaid
comparables, but has merely remanded the matter back to

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the TPO to verify the RPT filter and apply it at the
threshold of 15%. The Revenue cannot be said to be
aggrieved with the aforesaid finding. The learned counsel
for the Revenue has failed to point out the perversity or
any incorrect factual finding by the Tribunal in the
impugned Order.

7. Thus, in terms of the decision of the Coordinate
bench in SAP Labs India (P) Ltd. (supra), we are of the
considered opinion that no substantial question of law
would arise for consideration in this appeal and hence,
appeal is rejected .


Sd/-
(S.G.PANDIT)
JUDGE


Sd/-
(DR.CHILLAKUR SUMALATHA)
JUDGE

NC
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