Excluding Functionally Dissimilar Comparables Under Section 92C in Transfer Pricing Disputes

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....The ITAT held that several companies selected by the TPO as comparables were functionally dissimilar to the assessee, which manufactures non-core two-wheeler components. Companies engaged in core auto components manufacturing or with significantly different business profiles, including varied product lines, extensive R&D, or export activities, were excluded as inappropriate comparables. Persistent loss-making status was not a ground for exclusion where functional similarity existed, as in the case of Auto Line Industries. Consequently, the tribunal directed the exclusion of unsuitable comparables from the transfer pricing analysis and allowed the assessee's appeal, emphasizing adherence to the principle of functional comparability under the TNMM method.....