Transfer-pricing comparable exclusions warrant no interference absent demonstrated perversity.

The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the ITAT Bengaluru’s order for assessment year 2013–14.

The Tribunal had excluded Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd. from the comparables used in the transfer-pricing analysis.

It found that the assessee’s contribution to the software-development lifecycle was limited compared with Larsen & Toubro Infotech, and that the assessee’s services were not comparable to those of Persistent Systems.

The High Court admitted the appeal to consider two substantial questions of law concerning the Tribunal’s exclusion of comparables.

1. Whether the Tribunal’s direction to exclude certain comparables was perverse, having regard to the TPO’s findings and the parameters under Rule 10B of the Income-tax Rules, 1962.

2. Whether the Tribunal erred in excluding comparables on functional-dissimilarity grounds, including by relying on its earlier orders, when the TPO considered the companies functionally similar and compliant with its filters.

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

Chapter X of the Act and Rule 10B of the Income-tax Rules govern transfer pricing and the determination of the arm’s-length price; the selection or exclusion of comparables is a fact- and data-dependent exercise that must satisfy Rule 10B.

Relying on a coordinate Bench’s decision in ITA No. 10 of 2011 and connected appeals, the Court noted that comparability findings ordinarily remain factual and warrant interference only if shown to be contrary to law or vitiated by perversity.

The Tribunal had compared the assessee’s functions with those of Larsen & Toubro Infotech and found that the assessee’s contribution to software development was materially more limited; it also gave reasons for finding Persistent Systems’ services incomparable with the assessee’s.

The High Court treated these as reasoned factual findings.

The Revenue did not produce cogent material establishing perversity or demonstrate that the exclusions contravened the applicable legal principles.

Accordingly, no substantial basis was shown for disturbing the Tribunal’s comparability findings.

Finding no ground to interfere with the Tribunal’s order, it disposed of the appeal.