Transfer pricing comparables must be functionally comparable; amalgamated or unsuitable entities were excluded from benchmarking.

A company undergoing amalgamation was treated as an unreliable transfer pricing comparable because the extraordinary event affected comparability. The remaining entities were also excluded where their activities were functionally different from the assessee's software development and support services, and one lacked relevant financials. Following the earlier coordinate bench view in the same assessee's case, the impugned comparables were removed from the benchmarking set, requiring recomputation of the arm's length price and granting relief on the transfer pricing adjustment.

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Issues: Whether the selected comparables were liable to be excluded for determining the arm's length price of the assessee's software development and support services.

Analysis: One comparable was found to have undergone an amalgamation with effect from 01.04.2015, constituting an extraordinary event and making it an unreliable comparable. The remaining comparables were also held to be unsuitable on the basis of their differing nature of activities and, in one case, absence of relevant financials. Judicial consistency was followed in adopting the earlier coordinate bench view on the same assessee's case.

Conclusion: The impugned comparables were directed to be excluded from the comparable set, resulting in relief to the assessee on the transfer pricing issue.

Final Conclusion: The transfer pricing adjustment was required to be recomputed after removing the disapproved comparables, and the appeal succeeded to that extent.

Ratio Decidendi: A company undergoing an amalgamation or otherwise lacking functional comparability cannot be retained as a reliable comparable for transfer pricing benchmarking.

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