Functionally dissimilar companies cannot be treated as comparables in transfer pricing analysis.

The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the Income Tax Appellate Tribunal’s order dated 27 September 2019 concerning assessment year 2014–15.

The dispute concerned the exclusion of Larsen & Toubro Infotech Ltd. as a comparable in determining the arm’s-length price.

LG Soft India provided software development services, including mobile application development, digital video broadcast and biometrics software; Larsen & Toubro Infotech operated across several business segments and domains, including services, industrials, telecom, banking and media.

The appeal was admitted on two substantial questions of law.

Whether the Tribunal was correct in excluding Larsen & Toubro Infotech Ltd. as a comparable on grounds of functional dissimilarity, despite its selection by the Transfer Pricing Officer under Rule 10B of the Income-tax Rules, 1962.

Whether the Tribunal bypassed the parameters prescribed under Rule 10B, rendering its order perverse.

Section 260A of the Income-tax Act, 1961, provides for an appeal to the High Court on a substantial question of law.

Rule 10B of the Income-tax Rules, 1962, governs the determination of comparability for transfer-pricing purposes; the selection or exclusion of comparables is a factual, data-driven exercise that must comply with that Rule.

Relying on SAP Labs India (P) Ltd. v. Income Tax Officer, ITA No. 10/2011 and connected appeals (Karnataka High Court, 28 August 2026), the Court reiterated that a Transfer Pricing Officer cannot substitute comparables without adhering to the statutory comparability requirements, and that factual findings on comparability warrant interference only where shown to be perverse.

Applying the comparability principles in SAP Labs, the Court considered the distinct activities of the assessee and Larsen & Toubro Infotech.

LG Soft provided software development services in specified areas, whereas Larsen & Toubro Infotech operated across multiple business segments and industry domains.

The Tribunal had found the companies functionally dissimilar. The Revenue did not demonstrate perversity in that factual finding; accordingly, the Court found no basis to interfere with the Tribunal’s exclusion of the company as a comparable.

It dismissed the Revenue’s appeal, leaving undisturbed the Tribunal’s exclusion of Larsen & Toubro Infotech Ltd. as a comparable.