Transfer pricing comparables must match the assessee's functional profile; dissimilar KPO companies cannot sustain an adjustment.

Transfer pricing adjustment was held unsustainable because the assessee's functions were back office support services and could not be re-characterised as KPO when its earlier-year profile had already been accepted. Comparables with materially different business models or KPO profiles, including Eclerx Services Ltd., Vishal Information Technologies Ltd., Crossdomain Solutions and Datamatics Financial Services, were found functionally incomparable; Datamatics Financial Services also failed the export filter. The rejection of Allsec Technologies, R Systems International Ltd. and CG Vak Software & Exports Ltd. was not supported by specific reasons, particularly where they had been accepted in earlier years and were not shown to be persistent loss-makers. The adjustment was directed to be recomputed afresh by excluding dissimilar comparables and including wrongly rejected ones.

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Issues: Whether the transfer pricing adjustment was to be sustained in light of the proper characterisation of the assessee's functions and the correct selection and exclusion of comparables.

Analysis: The assessee was engaged in back office support services and its functional profile had been accepted in earlier years. Re-characterising it as a knowledge process outsourcing provider was held to be unsustainable. Comparables having a materially different business model or KPO profile, including Eclerx Services Ltd., Vishal Information Technologies Ltd., Crossdomain Solutions and Datamatics Financial Services, were found to be functionally incomparable; Datamatics Financial Services also failed the export filter. On the other hand, the rejection of Allsec Technologies, R Systems International Ltd. and CG Vak Software & Exports Ltd. was found to be unsupported by specific reasons, especially when those companies had been accepted in earlier years and were not shown to be persistent loss-makers.

Conclusion: The transfer pricing adjustment could not be sustained on the existing comparables set, and the matter was directed to be recomputed afresh by excluding the dissimilar comparables and including the wrongly rejected ones.

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