PR COMMISSIONER OF INCOME TAX - 2 vs. M/S GLOBAL E BUSINESS OPERATIONS PVT LTD

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ITA/230/2021HC KarnatakaKAHC01023360202108 October 2026Bench: S.G.PANDIT,CHILLAKUR SUMALATHA11 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was justified in directing the exclusion of Infosys BPO Ltd. and TCS E-Serve Ltd. from the list of comparable companies. The Court noted that the assessee company is engaged in low-end ITES services, specifically backend accounting, transaction processing, back office operations, and customer support for associated enterprises. In contrast, Infosys BPO Ltd. and TCS E-Serve Ltd. provide integrated IT and business process outsourcing solutions, consultancy, management, strategic transformation services, and knowledge process outsourcing (KPO) services, catering to diverse business segments globally and earning significant revenues from product development and sale of licenses. The Court found a material difference in the functionality of the assessee and the proposed comparables, deeming the Tribunal's finding to be factual and not perverse. The Court also upheld the Tribunal's direction to treat foreign exchange fluctuation gain/loss as operating in nature, stating that the Revenue had not established how this direction was contrary to law or perverse. The Court relied on its previous decision in SAP LABS INDIA PRIVATE LIMITED vs. THE INCOME TAX OFFICER, which emphasized that the selection or exclusion of comparables is a factual and data-driven exercise that ordinarily does not warrant interference unless vitiated by perversity. The Revenue failed to demonstrate any perversity or reliance on irrelevant material. The appeal was dismissed.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax and the Assistant Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, challenging an order dated December 4, 2020, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to Assessment Year 2012-13 and concerns the determination of the Arm's Length Price (ALP) for international transactions of the assessee, M/s. Global E-Business Operations Pvt. Ltd. The core dispute revolves around the ITAT's direction to exclude Infosys BPO Ltd. and TCS E-Service Ltd. from the list of comparable companies used for transfer pricing analysis, and its direction to treat foreign exchange fluctuations as operating in nature. The Revenue contends that the ITAT erred in excluding these comparables based on functional differences and brand value, despite the Transfer Pricing Officer (TPO) having applied qualitative and quantitative tests.

What were the issues?

1. Whether the Tribunal was right in directing the exclusion of Infosys BPO Ltd. and TCS E-Services Ltd. from the list of comparables, holding them to be functionally different and considering brand value, when the TPO had selected proper comparables using qualitative and quantitative tests, and the selection depended on assessee-specific data analysis? 2. Whether the Tribunal's order was perverse, directing the exclusion of comparables on grounds of functional dissimilarity and brand value without examining the TPO's findings and the materials on record, which were within the parameters of Rule 10B of the Act? Assessee's Contentions: The assessee argued that the Tribunal rightly directed the exclusion of Infosys BPO Ltd. and TCS E-Service Ltd. due to functional dissimilarity. The assessee, engaged in ITES services like worldwide accounting and transaction processing, back office operations, and customer support for associated enterprises, cannot be compared with Infosys BPO Ltd., which provides integrated IT and business process outsourcing solutions, consultancy, management, strategic transformation services, and KPO services, catering to diverse business segments globally and earning revenue from product development and licenses. Revenue's Contentions: The Revenue contended that the Tribunal failed to appreciate the material on record and erroneously concluded that Infosys BPO Ltd. and TCS E-Service Ltd. did not perform similar functions. The Revenue argued that the Tribunal's finding of perversity in excluding these companies was incorrect, as the TPO had properly selected comparables based on specific facts and parameters of Rule 10B.

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. 230 OF 2021 BETWEEN:

1.

PR. COMMISSIONER OF INCOME TAX - 2 BMTC COMPLEX, KORAMANGALA BANGALORE.

2.

THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3(1)(2) BMTC COMPLEX, KORAMANGALA, BENGALURU. …APPELLANTS (BY SRI. SANMATHI E. I., ADV.)

AND:

M/S. GLOBAL E- BUSINESS OPERATIONS PVT. LTD., 2ND FLOOR, KALYANI PLATINA PHASE-II, BUILDING SURVEY NO.16 AND 24 OF KUNDALAHALLI VILLAGE K R PURAM HOBLI BANGALORE-560066. …RESPONDENT (BY SRI. T SOORYANARAYANA, SR. COUNSEL FOR MS. TANMAYEE RAJKUMAR, ADV.)

THIS APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 04.12.2020 PASSED IN IT(TP)A NO.725/BANG/2017, FOR THE ASSESSMENT YEAR 2012- 2013, PRAYING TO 1. DECIDE THE FOREGOING QUESTION OF LAW

Digitally signed by NANJUNDACHARI Location: High Court of Karnataka HC-KAR AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE COURT AS DEEMED FIT AND 2) SET ASIDE THE APPELLATE ORDER DATED 04.12.2020 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT- ASSESSEE’S CASE, IN APPEAL PROCEEDINGS NO.IT(TP)A NO.725/BANG/2017 (ANNEXURE-A) FOR A.Y.2012-2013 AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, INTEREST OF JUSTICE.

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)

1.

The revenue is in appeal under Section 260-A of the Income-Tax Act, 1961 (for short, hereinafter referred to as the 'IT Act') questioning the order dated 04.12.2020 passed by the Income Tax Appellate Tribunal "A" Bench, Bengaluru in IT(TP) No.725/Bang/2017 (Annexure-A) for the assessment year 2012-13.

2.

The above appeal was admitted for hearing on 04.02.2022 on the following substantial questions of law:

"i) Whether the Tribunal was right in directing Infosys BPO Ltd, TCS E Services Ltd as comparables to be excluded from list of comparables by holding that HC-KAR said companies are functionally different and on the basis of brand value even when the TPO has chosen proper comparable by applying qualitative and quantitative tests and when selection of comparable in a case depends in transfer pricing on assessee specific data analysis and the transfer pricing officer has passed order on the basis of specific facts on record in the case of the assessee?

ii) Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature as Tribunal has directed TPO to exclude comparables on the ground of functional dissimilarity and brand value without examining findings rendered by TPO and materials brought on record by TPO which are in parameters of Rule 10B of the Act?

3.

Heard the learned counsel, Sri.E.I.Sanmathi, learned counsel appearing for the appellant-revenue and the learned Senior Counsel, Sri.T.Sooryanarayana appearing for the respondent-assessee. Perused the entire writ papers.

4.

The subject matter of the above appeal relates to transfer pricing and determination of Arm's Length price of the international transaction entered into by the respondent-assessee. The appellant-revenue questions the direction of the Tribunal to exclude Infosys BPO HC-KAR Limited and TCS E-Service Limited from the list of comparables and also direction of the Tribunal to treat foreign exchange fluctuations, gains/loss as operating in nature.

5.

Learned counsel appearing for the appellant- revenue, Sri.E.I.Sanmathi would submit that the Tribunal failed to appreciate the material on record and without properly appreciating the material on record has erroneously come to the conclusion that the above two Companies would not performed similar functions to that of assessee. Further, learned counsel would submit that the finding of the Tribunal is perverse insofar as it excluded the above two Companies from the list of comparable companies.

6.

Per contra, learned Senior Counsel, Sri.T.Sooryanarayana appearing for the respondent- assessee would submit that the Tribunal rightly directed exclusion of Infosys BPO Limited and TCS E-Service HC-KAR Limited on comparison of functionality of both comparable companies as well as respondent-assessee company.

7.

Learned counsel would submit that comparison of functionality would depend on the brand value and other hosts of considerations. Learned Senior Counsel for the respondent-assessee would submit that the respondent-assessee company is engaged in ITES Services and undertakes HP's worldwide accounting and transaction processing work, provision of back office operation and customer support services to various associated enterprises. Therefore, the functionality of the assessee company canot be compared with Infosys BPO Limited. Hence, he would pray for dismissal of the appeal.

8.

A Co-ordinate Bench of this Court in the case of SAP LABS INDIA PRIVATE LIMITED VS. THE INCOME TAX OFFICER in ITA.No.10/2011 and Connected Appeals dated 28.08.2026 on considering the decision of the Hon’ble Apex Court in the matter of transfer pricing and in the HC-KAR matter of determining the arms length price, after detailed discussion has come to the following 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.

(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 HC-KAR 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.

(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 HC-KAR 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 warrant interference unless shown to be contrary to the Act or vitiated by perversity.”

From the material on record, it is gathered that the respondent/assessee company is engaged in providing low-end ITES services, specially backend accounting and transaction processing, back office operations, and customer support services to its associated enterprises. Whereas, the comparable companies which is directed to be excluded i.e., M/s. Infosys BPO Ltd., and M/s. TCS E- Serve Ltd., are the companies engaged in providing integrated IT and business process outsourcing solutions, consultancy, management, strategic transformation services and knowledge process outsourcing (KPO)

HC-KAR services. They cater to diverse business segments, operate globally, earning significant revenues from the product development and sale of licences and subscriptions. Therefore, taking note of the above functionality and comparing the functionality with the respondent/assessee company with the companies directed to be deleted from comparables, the Tribunal has rightly come to the conclusion that those companies are not comparable and there is a material difference between two companies. The above finding is a factual finding and we do not find any perversity in the findings recorded by the Tribunal.

9.

The Tribunal on meticulous examination of the functional profile of the assessee and the proposed comparable companies has rightly come to the conclusion that M/s. Infosys BPO Ltd., and M/s. TCS E-serve Ltd., are not comparables for determining the arms length price.

10.

The Co-ordinate Bench of this Court in SAP LABS INDIA PRIVATE LIMITED (supra) has made it clear that HC-KAR selection or exclusion of comparables is a factual and data-driven exercise, and such findings ordinarily do not warrant interference unless vitiated by perversity. The appellant/Revenue has failed to demonstrate any perversity in the findings of the Tribunal. The appellant/Revenue has also failed to point out taking any irrelevant material or excluding any relevant material while the Tribunal coming to its conclusion that above stated two companies are not comparable with the functionality of respondent/assessee company.

11.

The Tribunal has directed to treat foreign exchange fluctuation gain/loss ted as operating in nature. In the facts and circumstances of the present case, the Revenue has not established how this direction is contrary to law or perverse. The principle that foreign exchange fluctuation gain or loss to the extent it relates to the business for which the arms length price is determined, is operating in nature, is well established and its application HC-KAR by the Tribunal in the facts and circumstances of the present case would not require any interference.

12.

For the reasons recorded above, the appeal stands dismissed by answering the substantial questions of law in favour of the respondent/assessee and against the appellant/Revenue.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (DR.CHILLAKUR SUMALATHA) JUDGE

NC/DH CT:bms List No.: 1 Sl No.: 17

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