The court emphasized the necessity of adequate justification for excluding comparables in transfer pricing, mandating a functional analysis as per legal provisions.

ORDER

Per Prashant Maharishi, Vice President

1. ITA No.1885/Bang/2024 is filed by the DCIT, Circle 7(1)(1), Bangalore (the assessee/appellant) and CO No 42/B/2025 filed by Zyme Solution Pvt. Ltd., [ Assessee] for the assessment year 2013-14 against the appellate order passed by the CIT(Appeals)-12, Bangalore, [ld. CIT(A)] dated 26.7.2024 wherein the appeal filed by the assessee on 21.2.2017 against the assessment order passed u/s. 143(3) r.w.s. 144C of the Income-tax Act, 1961 [the Act] dated 27.1.2017 by the ACIT, Circle 7(1)(2) [ld. AO] was allowed.

2. The Revenue is aggrieved with the same and in appeal before us on the following grounds of appeal :-

“1. Whether the Ld. CIT(A) was right in fact and in law in removing as comparables M/s Harton Communications Ltd, M/s Capgemini Business (India) Ltd., M/s Tech Mahindra Ltd and M/s Infosys BPO Ltd on functional dissimilarity.

a. Whether the Ld. CIT(A) is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas.

b. Whether the Ld. CIT(A) is right in trying to find out exact replica of the assessee for determining the Arm's length price based on such replica, even when the law and the international jurisprudence itself recognize that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method.

2. Whether the Ld. CIT(A) was right in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of Arm's length price under the income tax Act.

3. Whether the Ld. CIT(A) in imposing conditions is beyond the scope of law and business reality by rejecting all close comparables on one or the other ground, without appreciating that no two companies can ever be same.

4. Whether the Ld. CIT(A) was right in law and in fact in directing the TPO to excluding the comparables on the ground that the company fails RPT filter despite the fact that the company passes RPT filter.

5. In the facts and circumstances of the case, whether the Ld. CIT(A) is correct in holding that, M/ s Tech Mahindra Ltd., & M/ s Infosys BPO Ltd., cannot be taken as comparables holding that the size and turnover of the company are deciding factors for treating a company as a comparable relying on the decision of Hon'ble ITAT, Bangalore in the cases of M/ s ISG Novosoft Technologies Ltd. for A. Y. 2013-14 and GXS India Technology Centre Pvt. Ltd. for A. Y. 2013-14.

6. Whether the Ld. CIT(A) is correct in fact and law in disregarding the position of law that there could be difference between the enterprises compared under the TNMM method that are not likely to materially affect the price or cost charged or the profits accruing to such enterprises.

7. Whether the order of the Ld. CIT(A), relying on the decision of Hon'ble ITAT, Bangalore in the cases of M/ s ISG Novosoft Technologies Ltd. for A. Y. 2013-14 and GXS India Technology Centre Pvt. Ltd. for A.Y. 2013-14, in rejecting comparable cases by insistence on strict comparability under TNMM defeats the very purpose of the law relating to determination of ALP under Income Tax Act.”

3. The brief facts of the case show that the assessee filed return of income on 27.11.2013 at a total income of Rs.3,90,84,179 which was selected for scrutiny. The assessee is engaged in the business of providing Information Technology enable Services [ITeS] to its parent company, Zyme Solutions Inc. USA. The assessee has entered into international transaction for which reference was made to the DCIT (TP), 2(2)(2), Bangalore [ld. TPO] who pass a TP order u/s. 92CA of the Act on 7.10.2016 determining the ALP of the i