Karnataka HC Upholds ITAT’s Exclusion Of Infosys BPO, TCS E-Serve From Comparables For Low-End ITES Firm

In brief

The question

1. Whether the Tribunal was justified in directing the exclusion of Infosys BPO Ltd. and TCS E-Serve Ltd. as functionally dissimilar comparables.

The court held

The High Court answered the substantial questions of law in favour of the assessee and against the Revenue.

It also directed

It found no basis to interfere with the Tribunal’s exclusion of Infosys BPO Ltd. and TCS E-Serve Ltd. or its treatment of foreign-exchange fluctuation gain or loss as operating in nature.

The appeal was dismissed.

01Facts

The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the ITAT Bengaluru’s order for Assessment Year 2012–13.

¶ 1

The Tribunal had directed the exclusion of Infosys BPO Ltd. and TCS E-Serve Ltd. from the comparables used to determine the assessee’s arm’s length price (ALP), and had treated foreign-exchange fluctuation gain or loss as operating in nature.

¶ 1, 4

The assessee provided low-end ITES, including accounting and transaction processing, back-office operations, and customer-support services to associated enterprises.

¶ 8

02Issues

i.1. Whether the Tribunal was justified in directing the exclusion of Infosys BPO Ltd. and TCS E-Serve Ltd. as functionally dissimilar comparables.

¶ 2(i)

ii.2. Whether the Tribunal’s exclusion of those companies, on grounds of functional dissimilarity and brand value, was perverse for failure to consider the TPO’s findings and material.

¶ 2(ii)

iii.3. Whether the Tribunal’s direction to treat foreign-exchange fluctuation gain or loss as operating in nature warranted interference.

¶ 4, 11

03Law Applied

Section 260A of the Income-tax Act provides for appeals to the High Court on substantial questions of law.

Chapter X of the Act and Rule 10B govern the determination of ALP and the comparability analysis; under the principles cited from SAP Labs India Private Limited v. Income Tax Officer (ITA No. 10/2011 and connected appeals, decided 28 August 2026), the selection or exclusion of comparables is a fact- and data-driven exercise, and the Tribunal’s findings ordinarily warrant no interference unless perverse or contrary to the Act and Rules.

¶ 8, 10

Foreign-exchange gain or loss is operating in nature to the extent it relates to the business for which the ALP is determined.

¶ 11

Provisions in the judgment · 2

Income Tax Act, 1961 Section 260ASection 92C

04Reasoning

The assessee performed low-end ITES functions, whereas Infosys BPO and TCS E-Serve provided broader integrated outsourcing, consultancy, strategic transformation and KPO services, and operated across diverse business segments.

¶ 8

On that functional comparison, the High Court held that the Tribunal had a proper factual basis to exclude the two companies.

¶ 9

The Revenue did not show that the Tribunal had relied on irrelevant material, disregarded relevant material, or otherwise reached a perverse conclusion.

¶ 9–10

As to foreign-exchange fluctuations, the Revenue did not establish that the Tribunal’s treatment was contrary to law or perverse on the facts.

¶ 11

05Holding

The High Court answered the substantial questions of law in favour of the assessee and against the Revenue.

¶ 9–12

It found no basis to interfere with the Tribunal’s exclusion of Infosys BPO Ltd. and TCS E-Serve Ltd. or its treatment of foreign-exchange fluctuation gain or loss as operating in nature.

¶ 9–12

The appeal was dismissed.

¶ 12

LawLens.Karnataka High Court

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