Karnataka High Court Upholds Transfer Pricing Comparable Exclusions in Synamedia India Case: Functional Analysis Prevails Over Industry Classification
Background and Overview
A shared industry label is not a passport to comparability. This foundational principle of transfer pricing law received fresh judicial affirmation when the Karnataka High Court decided Income Tax Appeal No. 34 of 2021 on 17 September 2026, in the matter of PCIT Vs Synamedia India Pvt. Ltd. (formerly Cisco Video Technologies India Pvt. Ltd.). The bench comprising Justice S.G. Pandit and Justice Dr. Chillakur Sumalatha upheld the Income Tax Appellate Tribunal's decision to exclude Larsen and Toubro Infotech Ltd. and Persistent Systems Ltd. from the list of comparables for Assessment Year 2013–14, ruling firmly against the Revenue on both substantial questions of law that had been framed at the time of admission.
The Revenue's challenge, mounted under Section 260A of the Income Tax Act, 1961, ultimately fell short because it could not demonstrate that the Tribunal's findings were perverse or legally erroneous. The Court's reasoning reinforces the principle that transfer pricing comparability is a substantive factual exercise — one that cannot be resolved by pointing to broad industry participation or to the satisfaction of screening filters alone.
The Dispute and Questions Framed for Examination
The Revenue approached the Karnataka High Court challenging the Tribunal's order dated 19 March 2020 passed in IT(TP)A No. 2503/Bang/2017, which had directed the exclusion of two companies from the Transfer Pricing Officer's (TPO's) final comparable set.
When the appeal was admitted on 28 July 2021, the Court framed two substantial questions of law:
"(1) Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse since Tribunal has directed Transfer Pricing Officer to exclude certain comparables without going into findings rendered by TPO which are based on valid materials and in accordance with parameters of Rule 10B(2)?
(2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in erred in excluding certain comparable from list of comparable on the ground of functional dissimilarity by following its earlier orders which has not reached finality and when the said companies satisfied qualitative and quantitative filters applied by Transfer Pricing Officer and they are functionally similar to that of assessee?"
The Revenue's central contention was that L&T Infotech and Persistent Systems satisfied both qualitative and quantitative filters applied by the TPO and were functionally similar to the assessee. It further argued that the Tribunal had relied on earlier orders that had not attained finality, making its reasoning legally suspect. The assessee, on the other hand, defended the Tribunal's reasoned factual conclusions and maintained that no basis for interference under Section 260A had been established.
Governing Framework: Chapter X as a Self-Contained Code
Before addressing the company-specific exclusions, the High Court drew upon the coordinate Bench's judgment dated 28 August 2026 in SAP Labs India Pvt. Ltd. Vs ITO — ITA No. 10/2011 and connected appeals — which had comprehensively examined the transfer pricing framework under the Income Tax Act, 1961. The Court reproduced those conclusions as the applicable legal backdrop, and they bear detailed consideration:
Key Principles Affirmed by the Coordinate Bench
Chapter X as a Complete Code: Chapter X of the Income Tax Act, 1961 constitutes a self-contained statutory code governing transfer pricing, providing a complete framework for determination of the Arm's Length Price (ALP), maintenance of documentation, and assessment of international transactions.
Initial Burden on the Assessee: The initial burden of determining the ALP and maintaining prescribed documentation rests upon the assessee. The TPO can interfere with the assessee's determination only upon satisfaction of the conditions stipulated under
Section 92C(3)of the Act.