Transfer-pricing comparable selection is fact-driven and warrants interference only for perversity.

The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the Income Tax Appellate Tribunal’s order dated 4 March 2020 concerning the respondent-assessee’s transfer-pricing assessment for AY 2006–07

The appeal challenged the Tribunal’s treatment of comparables, including its direction to exclude Infosys Ltd., Tata Elxsi Ltd., Persistent Systems Ltd., KALS Information Systems Ltd., Aztec Software Ltd. and Bodhtree Consulting Ltd.

The High Court considered the appeal in light of its recent decision in SAP Labs India Pvt. Ltd. v. Income Tax Officer

1. Whether the Tribunal’s approach to selecting or excluding comparables was contrary to Rule 10B of the Income-tax Rules, 1962, or otherwise legally impermissible

2. Whether the Tribunal’s exclusion of the identified companies was perverse because it failed to accept the Transfer Pricing Officer’s findings

3. Whether the Tribunal was justified in excluding Infosys Ltd., Persistent Systems Ltd. and Tata Elxsi Ltd. on the ground of high turnover, including in view of the Revenue’s contention concerning brand value and profit margins

Chapter X of the Income-tax Act, 1961 provides the statutory framework for determining the arm’s-length price (ALP); under Section 92C(3), the Transfer Pricing Officer may interfere with the taxpayer’s determination only when the statutory conditions are met.

Rule 10B governs the comparability analysis.

As stated in SAP Labs India Pvt. Ltd. v. Income Tax Officer, comparable selection or exclusion is a fact- and data-driven exercise that must comply with Rule 10B; the TPO cannot replace the taxpayer’s comparables merely with a standard departmental set, and must justify substituted comparables.

The Court also relied on Principal Commissioner of Income Tax-I v. Barclays Technology Centre India Pvt. Ltd., 409 ITR 108 (Bom), in addressing the exclusion of Bodhtree Consulting Ltd.

Applying SAP Labs, the Court treated the Tribunal’s comparable selection as a factual determination subject to Rule 10B, rather than accepting the Revenue’s contention that the Tribunal had impermissibly disregarded the TPO’s analysis.

It noted that the Tribunal had given reasons for its conclusions and that the Revenue had not shown those findings to be perverse or contrary to law.

On Bodhtree Consulting Ltd., the Court considered the issue answered by Barclays Technology Centre.

The Revenue therefore failed to establish a basis for interference under Section 260A.

dismissed the Revenue’s appeal.