THE PR. COMMISSIONER OF INCOME-TAX vs. M/S. YOKOGAWA INDIA LTD.,

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ITA/88/2024HC KarnatakaKAHC01003589202408 October 2026Bench: S.G.PANDIT,CHILLAKUR SUMALATHA9 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises for consideration in this appeal. Regarding the comparables excluded by the TPO, the Tribunal rightly remanded the matter back to the TPO for verification of their FAR with that of the assessee, as the TPO had not provided sufficient reasons for rejection. The Revenue was not aggrieved by this remand. Concerning M/s Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd., the Tribunal's factual finding of functional dissimilarity was supported by the record, and the Revenue failed to demonstrate perversity. For Abak Elcerofab Engg Pvt. Ltd., the remand was due to unclear manufacturing activity. For Limitorque India Ltd., Flowserve India Controls Pvt. Ltd., and Koso India Ltd., the Tribunal remanded the matter to verify the RPT filter at 15%, which is a rational approach. The Court relied on its coordinate bench's decision in SAP Labs India (P) Ltd. v. Income Tax Officer, which held that the selection or exclusion of comparables is a factual and data-driven exercise and that the TPO cannot arbitrarily substitute comparables. The Revenue failed to point out any perversity or incorrect factual findings by the Tribunal. Therefore, the appeal was rejected.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income-tax and the Deputy Commissioner of Income-tax, appealed against an order dated May 17, 2023, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The ITAT's order, in IT(TP)A No. 849/Bang/2022 for Assessment Year 2017-2018, had partially allowed the assessee's appeal. The ITAT had remanded some comparables back to the Transfer Pricing Officer (TPO) for reconsideration and directed the exclusion of certain comparables selected by the TPO. The appeal was filed under Section 260-A of the Income Tax Act, 1961, challenging the ITAT's order and seeking to confirm the orders of the Dispute Resolution Panel (DRP) and the Deputy Commissioner of Income-tax.

What were the issues?

1. Whether the Tribunal erred in remanding the matter back to the TPO for verification of the FAR of the assessee's comparables, which were excluded by the TPO on the ground of manufacturing different products, when the TPO had not assigned specific reasons for rejection? - Assessee's Contention: Not recorded. - Revenue's Contention: The Revenue is not aggrieved by this portion of the order as it involves remand for verification. 2. Whether the Tribunal erred in excluding comparables M/s Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd. based on a factual finding that their manufacturing activities were functionally dissimilar to the assessee's, and whether the Revenue has demonstrated perversity in this finding? - Assessee's Contention: Not recorded. - Revenue's Contention: The Revenue failed to point out perversity in the Tribunal's finding of functional dissimilarity. 3. Whether the Tribunal erred in remanding the comparables Abak Elcerofab Engg Pvt. Ltd., Limitorque India Ltd., Flowserve India Controls Pvt. Ltd., and Koso India Ltd. back to the TPO for verification of the RPT filter and application at a 15% threshold, and whether the Revenue has demonstrated perversity or incorrect factual findings in this regard? - Assessee's Contention: Not recorded. - Revenue's Contention: The Revenue is not aggrieved by this remand and failed to point out perversity or incorrect factual findings.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 92C,Section 92C(3),Section 10B

AI-generated summary — verify with the full judgment below

HC-KAR IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8TH DAY OF OCTOBER, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA INCOME TAX APPEAL NO. 88 OF 2024 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME-TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095.

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560095. …APPELLANTS (BY SRI. E.I. SANMATHI, ADV.)

AND: M/S. YOKOGAWA INDIA LTD., PLOT NO.96, ELECTRONIC CITY COMPLEX, HOSUR ROAD, BANGALORE-560 100 PAN: AAACY 0840P …RESPONDENT (BY SRI. NAGESWAR RAO D. D., ADV.)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 17/05/2023 PASSED IN IT(TP)A NO.849/BANG/2022 FOR THE ASSESSMENT YEAR 2017- 2018, PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO.849/BANG/2022 DATED

Digitally signed by NANJUNDACHARI Location: High Court of Karnataka HC-KAR 17/05/2023 FOR ASSESSMENT YEAR 2017-2018 ANNEXURE-A AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BENGALURU AND ETC.

THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR. JUSTICE S.G.PANDIT AND HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA

ORAL JUDGMENT

(PER: HON'BLE MR. JUSTICE S.G.PANDIT)

This appeal is filed by the Revenue under section 260A of the Income Tax Act,1961 assailing the order dated 17.05.2023 in IT(TP)A No.849/Bang/2022 passed by the Income Tax Appellate Tribunal ‘A’ Bench: Bangalore for the assessment year ‘2017-18’, wherein, the appeal filed by the assessee was allowed in part and some of the comparables were remanded back to the TPO for reconsideration of the same and some of the comparables selected by the TPO were directed to be excluded.

2.

Heard learned counsel Sri. E I Sanmathi for the Revenue and Sri.Nageshwar Rao D.D., learned counsel for the assessee. Perused the entire appeal papers.

HC-KAR

3.

A Coordinate bench of this Court in ITA No.10/2011and connected appeals in SAP Labs India (P) Ltd. V. Income Tax Officer vide judgment dated 28.08.2026, in an identical fact situation on considering various judgments of the Hon’ble Apex Court in the matter of Transfer Pricing has, on a detailed discussion recorded its conclusion as follows: “E. CONCLUSION

(i) The Court concludes that Chapter X of the Income-tax Act, 1961 constitutes a self- contained code governing transfer pricing, providing a complete statutory framework for determination of the Arm's Length Price (ALP), maintenance of documentation, and assessment of international transactions.

(ii) The initial burden of determining the ALP and maintaining the prescribed documentation rests upon the taxpayer, while the Transfer Pricing Officer can interfere with the taxpayer's determination only upon satisfaction of the conditions stipulated under Section 92C(3) of the Act.

HC-KAR (iii) The selection or exclusion of comparables is essentially a factual and data-driven exercise, and the TPO cannot reject the taxpayer's comparables merely to substitute them with a standard departmental set. Such determination must strictly conform to the requirements of Rule 10B of the Rules.

(iv) The Tribunal's adoption of an upper turnover filter of Rs.200 crores is rational and legally sustainable, as turnover, brand value, economies of scale, bargaining power and ownership of intangibles materially influence comparability and profitability.

(v) An RPT filter of 15% is ordinarily preferable, though a higher threshold of 20% or 25% may be adopted only upon recording a specific finding that sufficient comparable companies satisfying the lower threshold are unavailable.

(vi) Foreign exchange gain or loss can be treated as an operating item only when it has a direct nexus with the international transaction. Where such nexus is absent, it cannot form part of the operating revenue or operating cost.

HC-KAR (vii) The burden of proof varies according to the nature of the dispute. While the taxpayer bears the initial burden of substantiating the ALP, once the TPO rejects the taxpayer's determination and substitutes comparables, the burden shifts to the TPO to justify such inclusion or exclusion.

(viii) There is no legal prohibition against inclusion or exclusion of comparables at the appellate stage, provided the subsequently relied upon data is reliable and the proposed comparables satisfy the requirements of the Act and the Rules.

(ix) The tolerance of ±5% prescribed under Section 92C of the Act is merely a permissible variation and not a standard deduction, and transfer pricing adjustment becomes necessary whenever the variation exceeds the prescribed statutory limit.

(x) Working Capital Adjustment is a comparability adjustment and not a selection filter, and its grant depends entirely upon the facts of each case. Findings on such adjustment, like the selection of comparables, ordinarily remain findings of fact and do not HC-KAR warrant interference unless shown to be contrary to the Act or vitiated by perversity.”

4.

The main issue sought to be raised by the Revenue in this appeal pertains to exclusion and inclusion of some of the comparables by the Tribunal. We have carefully perused the impugned Order passed by the Tribunal. It is noticed that insofar as the comparables of the assessee excluded by the TPO are concerned, the Tribunal has arrived at the finding that the TPO has not assigned any reasons for rejecting the comparables and has simply stated that these companies are involved in manufacturing different products. Thus, the Tribunal has remanded the matter back to the TPO for verification of the FAR of the comparables with that of the assessee and if found comparable as per the filters applied by the TPO, to consider the same for inclusion. The Revenue cannot be said to be aggrieved with this portion of the Order in remanding the matter back to the TPO.

HC-KAR

5.

With regard to the comparables selected by the TPO, insofar as M/s Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd., are concerned, the Tribunal has recorded a factual finding that the manufacturing activities undertaken by M/s Annanya Interface & Controls Pvt. Ltd.and Dembla Valves Ltd., cannot be compared to the assessee and that they are functionally dissimilar and hence, excluded the same. The learned counsel for the Revenue has not been able to point out any documents which would disprove the aforesaid finding. The Coordinate bench of this Court in SAP Labs India (P) Ltd.(supra) has held that the selection or exclusion of comparables is essentially a factual and data-driven exercise, and the TPO cannot reject the taxpayer's comparables merely to substitute them with a standard departmental set.The learned counsel for the Revenue has failed to point out the perversity in the finding of the Tribunal in excluding M/s HC-KAR Annanya Interface & Controls Pvt. Ltd. and Dembla Valves Ltd.

6.

Insofar as Abak Elcerofab Engg Pvt. Ltd., is concerned, the comparable was remanded back to the TPO since it was not discernible as to what the manufacturing activity of Abak Elcerofab Engg Pvt. Ltd. is. With regard to Limitorque India Ltd., Flowserve India Controls Pvt. Ltd., and Koso India Ltd. are concerned, these comparables as well were remanded back to the TPO to verify the RPT filter and apply it at the threshold of 15%. As stated above, a Coordinate bench of this Court in SAP Labs India (P) Ltd. (supra) has held that an RPT filter of 15% is ordinarily preferable, though a higher threshold of 20% or 25% may be adopted only upon recording a specific finding that sufficient comparable companies satisfying the lower threshold are unavailable. Be that as it may. The Tribunal has not rejected the aforesaid comparables, but has merely remanded the matter back to HC-KAR the TPO to verify the RPT filter and apply it at the threshold of 15%. The Revenue cannot be said to be aggrieved with the aforesaid finding. The learned counsel for the Revenue has failed to point out the perversity or any incorrect factual finding by the Tribunal in the impugned Order.

7.

Thus, in terms of the decision of the Coordinate bench in SAP Labs India (P) Ltd. (supra), we are of the considered opinion that no substantial question of law would arise for consideration in this appeal and hence, appeal is rejected.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (DR.CHILLAKUR SUMALATHA) JUDGE

NC CT:bms: List No.: 1 Sl No.: 6

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