Transfer pricing comparability turns on turnover filter, with high-turnover companies excluded and disputed comparables remanded.

For transfer pricing benchmarking, materially high-turnover companies are not reliable comparables for a small-sized enterprise, and a turnover-based size filter may justify their exclusion. Applying that principle, companies with several-hundred-crore turnover were excluded where the assessee's turnover was about Rs. 20 crore. Two other comparables were sent back for fresh examination because objections on functional dissimilarity, related-party transactions and margin computation remained to be reconsidered. The transfer pricing exercise was therefore partly adjusted in the assessee's favour through exclusion of unsuitable comparables and remand of disputed comparables for reassessment.

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Issues: (i) Whether companies having very high turnover could be retained as comparables for transfer pricing purposes despite the assessee being a small-sized company; (ii) Whether two comparables required fresh examination on the objections raised by the assessee.

Issue (i): Whether companies having very high turnover could be retained as comparables for transfer pricing purposes despite the assessee being a small-sized company.

Analysis: The assessee's turnover was about Rs. 20 crore, whereas the selected comparables had turnovers running into several hundred crores. The Court applied the turnover-based size filter recognised in prior decisions and held that small companies cannot be compared with large companies for benchmarking purposes.

Conclusion: The high-turnover comparables were directed to be excluded in favour of the assessee.

Issue (ii): Whether two comparables required fresh examination on the objections raised by the assessee.

Analysis: The two comparables had earlier been remitted in another matter for consideration of objections relating to functional dissimilarity, related-party transactions, and margin computation. Following that approach, the Court found it appropriate to send them back for fresh examination on the assessee's objections.

Conclusion: The two comparables were restored to the file of the Assessing Officer and Transfer Pricing Officer for reconsideration in favour of the assessee.

Final Conclusion: The transfer pricing dispute was partly resolved in the assessee's favour, with exclusion of certain high-turnover comparables and remand of the remaining challenged comparables for fresh adjudication.

Ratio Decidendi: For transfer pricing benchmarking, materially high-turnover companies are not reliable comparables for a small-sized enterprise, and comparables raising unresolved functional or filter objections may be remanded for fresh examination.

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