Karnataka HC Upholds Genesys International’s Exclusion As Comparable In Trident Microsystems India’s Case Over Functional Differences

In brief

The question

1. Whether the Tribunal’s direction to exclude Genesys International Corporation Ltd. on grounds of functional dissimilarity was perverse, despite the TPO’s conclusion that its functions were similar to those of the assessee

The court held

The Court answered all three substantial questions of law against the Revenue and in favour of the assessee

It also directed

It dismissed the appeal, leaving the Tribunal’s order undisturbed.

01Facts

The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the Income Tax Appellate Tribunal’s order dated 14 August 2020 for Assessment Year 2012–13, concerning the exclusion of comparables in a transfer-pricing determination

p. 2

The appeal was admitted on three substantial questions of law concerning the exclusion of Genesys International Corporation Ltd. on functional-dissimilarity grounds, the use of a turnover filter, and the Tribunal’s direction to exclude comparables

pp. 2–3

The assessee was served but unrepresented

p. 1

02Issues

i.1. Whether the Tribunal’s direction to exclude Genesys International Corporation Ltd. on grounds of functional dissimilarity was perverse, despite the TPO’s conclusion that its functions were similar to those of the assessee

pp. 2–3

ii.2. Whether the Tribunal erred in law by excluding comparables on the basis of a turnover filter, given the Revenue’s contention that turnover has no direct relationship with margins earned by software-development service companies

p. 3

iii.3. Whether the Tribunal erred in directing the exclusion of comparables despite the TPO’s alleged compliance with Rule 10B, and whether its order was perverse for disregarding material relied upon by the TPO

p. 3

03Law Applied

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

p. 2

Chapter X of the Act establishes the statutory framework for determining the arm’s-length price; Section 92C(3) governs the circumstances in which the TPO may interfere with the taxpayer’s determination, and Rule 10B governs comparability analysis

pp. 4–6

Relying on the Karnataka High Court’s decision in Sap Labs India Pvt. Ltd. v. Income Tax Officer and Others, ITA No. 10/2011 and connected appeals (28 August 2026), the Court stated that comparable selection or exclusion is a fact- and data-driven exercise that must comply with Rule 10B; an upper turnover filter of ₹200 crores may be rational where turnover and related factors materially affect comparability; and such findings ordinarily warrant appellate interference only if perversity is demonstrated

pp. 4–6

Provisions in the judgment · 2

Income Tax Act, 1961 Section 260ASection 92C

04Reasoning

Applying Sap Labs, the Court held that the Tribunal’s adoption of an upper turnover filter of ₹200 crores was rational and not arbitrary, and that the Revenue had not demonstrated perversity in the Tribunal’s decision to exclude Genesys International Corporation Ltd.

pp. 6–7

For the remaining questions, the Court considered that the Tribunal had assessed the companies’ functions, assets, and risks and had found the comparables functionally dissimilar.

pp. 7–8

The Revenue failed to show that the Tribunal had relied on irrelevant material, disregarded relevant material, or otherwise acted perversely

pp. 7–8