Transfer-pricing comparable selection is factual and warrants interference only if the Tribunal’s findings are perverse.

In brief

The question

1. Whether the Tribunal’s exclusion of Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd. as functionally dissimilar comparables gave rise to a substantial question of law.

The court held

The High Court held that the Tribunal’s findings and remand directions raised no substantial question of law.

It also directed

It rejected the Revenue’s appeal.

01Facts

The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the ITAT Bengaluru’s order for assessment year 2017–18.

p. 2

The Tribunal had partly allowed the assessee’s appeal, excluding certain comparables selected by the TPO and remanding other comparables for reconsideration.

p. 2

The Revenue challenged the Tribunal’s treatment of those comparables.

pp. 2–3

The High Court considered its Coordinate Bench’s decision in SAP Labs India (P) Ltd. v. Income Tax Officer, which addressed transfer-pricing principles in comparable circumstances.

pp. 3–6

02Issues

i.1. Whether the Tribunal’s exclusion of Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd. as functionally dissimilar comparables gave rise to a substantial question of law.

p. 7

ii.2. Whether the Tribunal’s directions to reconsider other comparables, including by verifying the applicable RPT filter, disclosed any perversity or other error warranting interference under Section 260A.

pp. 8–9

03Law Applied

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

pp. 3–6

Chapter X of the Act provides the statutory framework for determining the arm’s-length price, while Section 92C(3) governs the circumstances in which the TPO may interfere with the taxpayer’s determination.

pp. 3–6

Rule 10B requires comparability to be assessed by reference to relevant factors, including functions performed, assets employed and risks assumed.

pp. 3–6

Relying on SAP Labs India (P) Ltd. v. Income Tax Officer (judgment dated 28 August 2026), the Court stated that comparable selection or exclusion is ordinarily a factual, data-driven exercise; an RPT threshold of 15% is ordinarily preferable, while a higher threshold requires a specific finding that sufficient comparables meeting the lower threshold are unavailable.

pp. 3–6, 8

Provisions in the judgment · 3

Income Tax Act, 1961 Section 260ASection 92CSection 92C

04Reasoning

The Tribunal found that the TPO had not given reasons for rejecting certain assessee-proposed comparables and remanded those matters for verification of functional, asset and risk comparability.

p. 6

The High Court observed that the Revenue was not aggrieved by that remand.

p. 6

As to Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd., the Tribunal had made a factual finding that their manufacturing activities were functionally dissimilar, and the Revenue identified no material disproving that finding or showing perversity.

pp. 7–8

The Tribunal had also remanded Abak Elcerofab Engg Pvt. Ltd. for clarification of its manufacturing activity and directed verification of the 15% RPT threshold for Limitorque India Ltd., Flowserve India Controls Pvt. Ltd. and Koso India Ltd.

pp. 8–9

Since those comparables were not finally rejected and the Revenue demonstrated no error in the remand directions, the Court found no basis for interference.

pp. 8–9