Karnataka HC Rejects Revenue Bid To Include Accel, KALS, Lucid And Tata Elxsi In Huawei India’s Transfer-Pricing Comparables

01Facts

The Assessee, a software-development and related-services company, filed its return for AY 2006–07 declaring nil taxable income after claiming a deduction under Section 10A of the Income Tax Act, 1961.

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Following a reference to the Transfer Pricing Officer (TPO), a transfer-pricing adjustment of ₹10,82,34,382 was proposed.

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The Assessee challenged the resulting assessment before the ITAT, which excluded certain companies from the comparable set.

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The High Court initially dismissed the Revenue’s appeal, but the Supreme Court subsequently remanded it for fresh consideration of the transfer-pricing issues.

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The Revenue’s appeal challenged the exclusion of comparables, use of a 15% related-party transaction (RPT) filter, and the treatment of expenses for the Section 10A deduction.

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02Issues

i.Whether the ITAT erred in excluding Accel Transmatic Ltd., KALS Information Systems Ltd., Lucid Software Ltd., and Tata Elxsi Ltd. as comparables

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ii.Whether the ITAT erred in excluding Accel Transmatic Ltd. and KALS Information Systems Ltd. on functional-difference grounds

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iii.Whether the ITAT erred in applying a 15% RPT filter

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iv.Whether the ITAT erred in excluding Lucid Software Ltd. as a comparable

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v.Whether expenses excluded from export turnover must also be excluded from total turnover when computing the Section 10A deduction

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03Law Applied

Section 260A of the Income Tax Act permits an appeal to the High Court on a substantial question of law; the High Court’s consideration here was confined, following the Supreme Court’s remand, to transfer-pricing issues.

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The Court applied Section 92CA in the context of the transfer-pricing adjustment and treated the exclusion of the identified comparables as covered by The Commissioner of Income Tax and Another v. M/s Logica Private Ltd., ITA No. 338/2013, decided on 28 October 2026.

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It treated the 15% RPT-filter issue as covered by SAP Labs India (P) Ltd. v. Income Tax Officer, ITA No. 10/2011, decided on 28 August 2026.

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The Section 10A issue was outside the scope of the remand.

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Provisions in the judgment · 5

Income Tax Act, 1961 Section 260ASection 143Section 144CSection 10ASection 92CA

04Reasoning

The Court found that the questions concerning exclusion of the four companies, including the specific challenges to Accel Transmatic, KALS Information Systems, and Lucid Software, were governed by its decision in Logica Private Ltd.

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It likewise considered the challenge to the 15% RPT filter covered by SAP Labs.

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The Section 10A question did not require determination because the Supreme Court’s remand was limited to transfer-pricing issues.

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Accordingly, the Revenue’s grounds disclosed no substantial question of law for consideration.

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