India - Delhi High Court Rules on American Express ITeS Comparable Selection

Summary

The High Court of Delhi, in its judgment dated May 18, 2026, addressed the application of a turnover filter in the selection of comparable companies for benchmarking information technology enabled services (ITeS) transactions under the Transactional Net Margin Method (TNMM). The Court considered the inclusion of CG Vak Software & Exports Ltd. and remanded the issue relating to Cepha Imaging Pvt. Ltd. for further examination of functional comparability.

Key points

Turnover-Based Comparable Selection

The case involved the benchmarking of ITeS transactions under TNMM for Assessment Year 2009-10. The taxpayer reported revenue of INR 782.63 crores from its Global Business Processing & Support segment and selected a set of comparable companies to support its transfer pricing analysis.

One of the disputed comparables was CG Vak Software & Exports Ltd. The Revenue challenged its inclusion on the grounds that it failed the turnover filter applied by the Transfer Pricing Officer (TPO). The High Court considered whether the Income Tax Appellate Tribunal (ITAT) had erred in directing the TPO to include the company without addressing the turnover filter and answered the issue in favor of the Revenue.

CG Vak Software & Exports Ltd.

The judgment records that the ITAT relied on information indicating that CG Vak Software & Exports Ltd. derived revenue from export activities and directed the TPO to verify the relevant information.

The High Court noted that the taxpayer’s ITeS segment reported turnover of INR 782.63 crores, while CG Vak Software & Exports Ltd. reported ITeS turnover of INR 86.10 lakhs and total turnover of INR 7.23 crores. The Court reviewed the turnover filter issue raised by the Revenue and reversed the ITAT’s direction to include the company as a comparable.

Scale of Operations as a Comparability Factor

The Court stated that the scale of operations of the tested party and a comparable company is a relevant factor in a comparability analysis. Referring to the taxpayer’s ITeS turnover of INR 782.63 crores and CG Vak Software & Exports Ltd.’s ITeS turnover of INR 86.10 lakhs, the Court noted the significant difference in scale between the entities and stated that substantial differences in turnover may warrant exclusion of a comparable.

Functional Comparability of Cepha Imaging Pvt. Ltd.

The Revenue also challenged the inclusion of Cepha Imaging Pvt. Ltd., contending that the company was engaged in e-publishing activities and was not functionally comparable to the taxpayer’s ITeS operations. The Court remanded the matter for further examination of functional comparability.

Taxpayer’s ITeS Activities

The judgment describes the taxpayer’s activities as including data management, information analysis, transaction processing support, tele-servicing support, travel-related support services, and the preparation of business reports for associated enterprises. The taxpayer operated under a cost-plus remuneration model and was characterized as bearing limited business risks.

Source
High Court of Delhi, Pr. Commissioner Of Income Tax - 1 vs M/S. American Express (India) Pvt. Ltd on 18 May, 2026 (May 18, 2026)
https://indiankanoon.org/doc/75191125/

---------------------------------------------------

Disclaimer:

This content is for general informational purposes only and does not constitute professional advice.
Information provided herein is based on publicly available sources as of the publication date and may be subject to change.

Armize consulting | Transfer Pricing