PRINCIPAL COMMISSIONER OF INCOME TAX -5 vs M/S NUANCE TRANSCRIPTION SERVICES INDIA PVT LTD

- 1 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
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. 82 OF 2021
BETWEEN:
1. PRINCIPAL COMMISSIONER
OF INCOME TAX -5
BMTC COMPLEX,
KORAMANGALA,
BENGALURU.
2. THE DEPUTY COMMISSIONER
OF INCOME TAX,
CIRCLE-12(2), BANGALORE.
…APPELLANTS
(BY SRI. E. I. SANMATHI, ADVOCATE)
Digitally signed
by AASEEFA
PARVEEN
Location: HIGH
COURT OF
KARNATAKA
AND:
M/S. NUANCE TRANSCRIPTION
SERVICES INDIA PVT LTD.,
(FORMERLY KNOWN AS
FOCUSMT INDIA PVT LTD)
NO.72/32, 10, GREEN LEAF
LAYOTU, GROUND FLOOR
80 FEET PERIPHERAL ROAD,
4TH BLOCK, KORAMANGALA,
BANGALORE - 560 034.
PAN - AAACF3465F
…RESPONDENT

- 2 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
(BY SRI. P.D. ANKUR, ADVOCATE FOR
SRI.K.R.VASUDEVAN, ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A
OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED
09.08.2019 PASSED IN IT(TP)A NO.1609/BANG/2012, FOR THE
ASSESSMENT YEAR 2008-2009 PRAYING TO DECIDE THE
FOREGOING QUESTIONS 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 09.08.2019 PASSED BY THE INCOME TAX
APPELLATE TRIBUNAL, A BENCH, BENGALURU, IN APPEAL
PROCEEDINGS NO. IT(TP)A NO.1609/BANG/2012, (ANNEXURE-
A) FOR THE ASSESSMENT YEAR 2008-2009 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

- 3 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
ORAL JUDGMENT
(PER: HON'BLE MR. JUSTICE S.G.PANDIT)
Heard learned counsel Sri.E.I.Sanmathi for the
appellants-Revenue and learned counsel Ms.Ankur.P.D for
learned counsel Sri.K.R.Vasudevan for the respondent-
Assessee. Perused the entire appeal papers.
2. The above appeal filed under Section 260A of
the Income Tax Act, 1961 is directed against the order
dated 09.08.2019 in IT(TP)A No.1609/Bang/2012 passed
by the Income Tax Appellate Tribunal, Bengaluru (for short
ITAT) for the assessment year 2008-2009 was admitted
by this Court on 13.09.2022 to hear the following
substantial questions of law:
(1) "Whether, on the facts and in the circumstances of
the case and law, the Tribunal was right in
rejecting certain comparables on the grounds of
functional dissimilarity ignoring the evidence
brought on record by the Transfer Pricing officer?
(2) Whether on the facts and circumstances of the
case and in law, the Tribunal was right in law in
rejecting certain comparables by ignoring
parameters of analysis prescribed under Rule 10B,
which are exhaustive and if so, whether it is legally

- 4 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
permissible to bypass the same partially or by
implication?
(3) Whether on the facts and circumstances of the
case and in law, the Tribunal was right in
excluding certain comparables on the basis of high
margins without showing how these factors fall
within the scope of factors specified in Rule 10B(2)
of the Income Tax Rules, 1962?
(4) Whether on the facts and circumstances of the
case the Tribunal is right in law in directing the
TPO that if forex gain/loss is arising in respect of
turnover of the present year, then such gain or
loss should be considered for TP analysis without
appreciating the fact that foreign exchange loss or
gain through attributable to operating activity is
not derived by the operating activity and as such,
the same cannot be included in turnover?
(5) Whether on the facts and circumstances of the
case and in law, the Tribunal was right in not
acknowledging that there is no direct relationship
between brand value and the margin earned by
the company, brand may generate the revenue of
the company but does not increase the profit
margin?
(6) Whether on the facts and circumstances of the
case and in law, the Tribunal was right in directing
the TPO to selectively apply the filters against the
transfer pricing principles to cherry pick the
comparable or selectively remove the comparable
from a common set of comparables arrived by
adopting the uniform filters?
3. The above appeal relates to transfer pricing
issue and the appellant-Revenue has questioned the
exclusion of comparables such as Genesys International
Corporation Limited, Mold-Tek Technologies Limited,

- 5 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
Eclerx Services Limited, Coral Hubs Limited, Acropetal
Technologies Limited, Infosys BPO Limited, Wipro Limited,
Accentia Technologies Limited contending that the
exclusion is contrary to Rule 10B of the IT Rules. Before
examining the questions raised by the appellate-Revenue
it is to be noted that the Co-ordinate Bench of this Court
on considering the various decisions of the Hon'ble Apex
Court in the matter of transfer pricing in ITA No.10/2011
and connected appeals in Sap Labs India Private
Limited vs. The Income Tax Officer , has recorded its
conclusion, which reads as follows:
(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

- 6 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
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.
(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

- 7 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
do not warrant interference unless shown to be
contrary to the Act or vitiated by perversity.
4. The above decision makes it clear that the
selection or exclusion of comparables is essentially a
factual and data driven exercise and TPO cannot reject the
tax payers comparables merely to substitute them with a
standard departmental set. Such determination must
strictly conform to the requirements of Rule 10B of the
Rules.
5. The respondent-Assessee is engaged in the
business of providing services characterized as IT enabled
services and their products and services are mainly
medical transcription services, BPO services etc.,
6. The Tribunal, on considering the business
profile of the respondent-Assessee as well as the eight
comparables i.e., i) Mold-Tek Technologies Ltd, ii) Eclerx
Services Ltd., iii) Coral Hubs Ltd., iv)Acropetal
Technologies Ltd., v) Infosys BPO Ltd., vi) Wipro Ltd.,

- 8 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
vii) Accentia Technologies Ltd., viii) Genesys International
Corporation Ltd., was of the opinion that the business and
activities carried on by the comparable companies are
entirely different and cannot be compared with the
respondent-Assessee company. The Tribunal placing
reliance on its decision in GLOBAL E:BUSINESS
OPERATIONS (P.) LTD. VS DEPUTY COMMISSIONER OF
INCOME-TAX [2015] 63 TAXMANN.COM 282
reported in
(BANGALORE-TRIB.), recorded its finding to exclude those
eight comparables. The appellants-Revenue has failed to
point out any perversity or material, to arrive at conclusion
that those eight companies are comparable to the
respondent-Assessee company. The appellants-Revenue is
also not in a position to point out as to whether the
Tribunal took into consideration either irrelevant material
or excluded relevant material while arriving at the said
conclusion. When the appellants have failed to point out
perversity based on material on record, we are not inclined
to interfere with the order passed by the Tribunal.

- 9 -
HC-KAR
NC: 2026:KHC:58349-DB
ITA No. 82 of 2021
CNR: KAHC010094832020
7. Insofar as substantial Question Nos.4 to 6 are
concerned, the Tribunal has remanded the matter to the
Transfer Pricing Officer (for short 'TPO') for fresh
consideration. Therefore, considering those questions at
this stage would not arise.
8. In the above circumstances, substantial
questions Nos.1 to 3 are answered against the appellants-
Revenue and in favour of respondent-Assessee, the
substantial Questions Nos.4 to 6 would not arise for
consideration in view of the matter being remanded to the
TPO.
With the above, the appeal stands disposed of .
Sd/-
(S.G.PANDIT)
JUDGE
Sd/-
(DR.CHILLAKUR SUMALATHA)
JUDGE
NS,DS
CT:TSM
List No.: 1 Sl No.: 4