ITAT Bangalore Rules Comparable Companies Cannot Be Excluded Just Because They Lack Database Presence

The Bangalore bench of the Income Tax Appellate Tribunal adjudicated an appeal for assessment year 2021-22, ruling that functionally comparable companies must not be excluded solely on the grounds of database absence. The tribunal directed modifications to the set of software comparable companies used in the transfer pricing analysis. Furthermore, the bench remanded the issue concerning interest on delayed receivables and addressed the crediting of self-assessment tax.

This ruling restricts tax authorities and transfer pricing officers from arbitrarily dropping valid comparables due to minor database retrieval gaps. It reinforces functionality as the primary test for comparability in software service sector assessments. The remand on delayed receivables and self-assessment tax gives the taxpayer another opportunity to substantiate its financial claims.

Tax consultants must review their software sector comparable filters for assessment year 2021-22 to ensure exclusions are based on functional dissimilarity rather than database limits. Finance teams should collate necessary records to present during the remanded proceedings regarding receivables interest and tax credits.