Karnataka High Court Affirms Comparable Exclusion in Synamedia Transfer Pricing Case: Revenue Must Do More Than Allege Perversity

Background and Overview

The Karnataka High Court, in PCIT Vs Synamedia India Pvt. Ltd. (Income Tax Appeal No. 22 of 2021, decided on 17/09/2026), delivered a significant ruling in the domain of transfer pricing, affirming that a challenge to the exclusion of comparable companies cannot succeed on bare allegations alone. The Revenue's appeal, which questioned the Income Tax Appellate Tribunal's decision to exclude Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd. from the transfer pricing comparables of the assessee, was dismissed because the Revenue failed to bring any concrete material before the Court to justify its position.

The judgment draws heavily from the Court's earlier decision in SAP Labs India Pvt. Ltd. Vs ITO (ITA No. 10/2011 and connected appeals, decided on 28.08.2026) and reaffirms that comparable selection under transfer pricing is fundamentally a factual and evidence-driven exercise — not a matter that courts can disturb merely on the basis of generalised allegations of error or perversity.

The Core Dispute: Which Comparables Should Apply?

The Assessee and the Assessment Year in Question

The case pertains to assessment year 2012–13 and arose from the Bangalore Tribunal's order dated 6 February 2020 in IT(TP)A No. 184/Bang/2017. The Karnataka High Court admitted the appeal on 15 April 2021 to consider three substantial questions of law concerning the validity of the Tribunal's directions to the Transfer Pricing Officer (TPO) regarding comparable selection.

What the Revenue Alleged

The Revenue raised three substantive objections before the High Court:

  1. Whether the Tribunal was justified in directing the TPO to exclude comparables that had been originally selected by the TPO after applying the statutory tests under Rule 10B of the Income-tax Rules.
  2. Whether the Tribunal's decision to treat Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd. as functionally dissimilar — by relying on a prior order without independently engaging with the TPO's material — was legally sustainable.
  3. Whether the Tribunal's order was perverse, given its alleged disregard of Rule 10B while directing inclusion or exclusion of certain companies from the comparables set.

In essence, the Revenue's position was that the Tribunal had mechanically followed an earlier decision without independently evaluating the TPO's findings or the material placed on record.

The Tribunal's Approach: Reliance on a Precedent for the Same Year

The Tribunal had placed reliance on the decision in Evolving Systems Network (India) Pvt. Ltd., IT(TP)A No. 216/Bang/2017, which also pertained to assessment year 2012–13. Following that ruling, the Tribunal excluded Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd. from a pool of ten comparable companies considered for benchmarking the assessee's international transactions.

The High Court noted that this amounted to a factual conclusion reached by the Tribunal. Crucially, the Revenue did not place on record any material demonstrating:

  • Why those two companies could not have been excluded from the comparables set;
  • How the Tribunal's finding of functional dissimilarity was contrary to the settled legal position; or
  • In what specific manner the Tribunal's order was perverse or legally flawed.

The absence of such foundational material proved fatal to the Revenue's case. An appeal under Section 260A of the Income Tax Act, 1961 lies only on substantial questions of law — and a factual finding of the Tribunal cannot be disturbed unless it is shown to be legally infirm or perverse on the record.

The Karnataka High Court's decision in Synamedia rests squarely on the principles it had already articulated in SAP Labs India Pvt. Ltd. Vs ITO (ITA No. 10/2011 and connected appeals, decided on 28.08.2026). The following conclusions from that judgment were reproduced and applied:

Transfer Pricing as a Self-Contained Code