Transfer pricing comparability turns on functional similarity, reliable segmental data and matching revenue profiles; dissimilar service models were excluded.

Transfer pricing comparability requires meaningful functional similarity, reliable revenue profile data and clear segmental information. Axis Integrated System Limited was excluded because its liaison and consultancy-style regulatory services were functionally different from marketing support services, while Killick Agencies and Marketing Limited was excluded because it acted as a foreign principal agent, earned commission and service income without segmental bifurcation, and had significant royalty expenditure. Spectrum Business Solutions Limited was also excluded because its internet marketing and admin support model, including virtual assistant and research services, was not sufficiently comparable to the assessee's market intelligence and sales support functions. The comparables set was therefore adjusted by exclusion of the disputed companies.

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Issues: (i) whether Axis Integrated System Limited and Killick Agencies and Marketing Limited were rightly excluded as comparables in the transfer pricing analysis; (ii) whether Spectrum Business Solutions Limited was liable to be included as a comparable for the assessee's marketing support services segment.

Issue (i): whether Axis Integrated System Limited and Killick Agencies and Marketing Limited were rightly excluded as comparables in the transfer pricing analysis.

Analysis: Axis Integrated System Limited was found to be engaged in liaison and consultancy-type activities, including DGFT, customs, excise and service tax related services, which were functionally different from the assessee's marketing support services. Killick Agencies and Marketing Limited was found to act as an agent for foreign principals, to derive income from commission and services without segmental bifurcation, and to have significant royalty expenditure, making it functionally dissimilar and lacking reliable segmental comparability. The Court followed earlier coordinate bench decisions applying functional comparability principles and the need for comparable businesses with reliable segmental data.

Conclusion: The exclusion of Axis Integrated System Limited and Killick Agencies and Marketing Limited was upheld, in favour of the assessee.

Issue (ii): whether Spectrum Business Solutions Limited was liable to be included as a comparable for the assessee's marketing support services segment.

Analysis: Spectrum Business Solutions Limited was treated as an internet marketing and admin support service provider engaged in virtual assistant, research and management services, whereas the assessee's segment involved gathering market data, analysing competitive positions, identifying opportunities, and providing sales and post-sales support. The Court also noted material differences in employee cost ratios and the absence of functional similarity sufficient to support comparability.

Conclusion: Spectrum Business Solutions Limited was rightly excluded from the comparables set, and the request for its inclusion was rejected.

Final Conclusion: The transfer pricing comparables were reworked only to the extent of excluding the two disputed comparables, while the assessee's plea for adding Spectrum Business Solutions Limited was declined, resulting in a partial success for the assessee.

Ratio Decidendi: A company can be treated as a transfer pricing comparable only if its functions, revenue profile and segmental data establish meaningful functional comparability with the tested party; materially different business models and lack of segmental clarity justify exclusion.

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