Transfer pricing comparables need reliable evidence and functional analysis; profit levels or missing segmental data alone are not decisive.

Acropetal Technologies Ltd. was not excluded from the comparable set merely because of higher profits or alleged SEBI-related extraordinary events, as no reliable evidence showed any material impact on the year under assessment and functional similarity remained intact. The claim to include Onward Technologies Ltd. as an additional comparable was remitted for fresh examination, because functional similarity could not be rejected only for lack of segmental data without a proper comparability analysis. The transfer pricing adjustment was therefore sustained in part, with partial relief confined to reconsideration of one comparable.

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Issues: (i) Whether Acropetal Technologies Ltd. could be excluded from the comparable set on the ground of abnormal financial results and alleged extraordinary events arising from SEBI proceedings. (ii) Whether the claim for inclusion of Onward Technologies Ltd. as an additional comparable required reconsideration.

Issue (i): Whether Acropetal Technologies Ltd. could be excluded from the comparable set on the ground of abnormal financial results and alleged extraordinary events arising from SEBI proceedings.

Analysis: Exclusion of a comparable on the basis of higher profit alone is not justified when the functional profile is otherwise similar. The party seeking exclusion must place reliable material to show that subsequent developments or regulatory proceedings had a bearing on the financial results of the relevant year. Mere reliance on newspaper reports or unsubstantiated assertions was insufficient, particularly when the company had been included in the transfer pricing documentation and no evidence showed impact on the year under assessment.

Conclusion: The exclusion of Acropetal Technologies Ltd. was rejected and the comparable was retained.

Issue (ii): Whether the claim for inclusion of Onward Technologies Ltd. as an additional comparable required reconsideration.

Analysis: Once the functional similarity of the company was acknowledged, rejection of the comparable merely because segmental data was unavailable was not adequate. The comparability exercise required a fresh examination of the functional analysis and relevant characteristics of both entities before deciding whether the company could be used as a comparable.

Conclusion: The matter was remitted for reconsideration of the claim for inclusion of Onward Technologies Ltd. as a comparable.

Final Conclusion: The transfer pricing adjustment was sustained in part, but the issue of one additional comparable was sent back for fresh consideration, resulting in only partial relief to the assessee.

Ratio Decidendi: A comparable cannot be excluded or included solely on the basis of profit levels or absence of segmental data unless the party concerned establishes the material impact of the relevant facts on the year under assessment through reliable evidence and proper functional analysis.

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