ITAT: Functional Similarity Essential for Transfer Pricing Comparables; NDTV Gets Partial Relief

March 06, 2026 : The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has reiterated that for transfer pricing analysis under the Transactional Net Margin Method (TNMM), only companies that are functionally comparable to the tested party can be selected as comparables. The Tribunal held that mere broad similarity in business activities is not sufficient to ensure reliable benchmarking of international transactions.

The Bench comprising Judicial Member Madhumita Roy and Accountant Member Manish Agarwal delivered the ruling while deciding cross appeals filed by the Revenue and New Delhi Television Ltd. (NDTV) for the assessment year 2010–11.

NDTV, which operates television news channels including NDTV 24×7, NDTV India and NDTV Profit, had filed its income tax return declaring a loss of ₹20.18 crore. During scrutiny assessment, the Assessing Officer referred the company’s international transactions with its Associated Enterprises (AEs) to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP). The TPO proposed transfer pricing adjustments of ₹3.29 crore relating to business support services and corporate guarantee transactions.

Subsequently, the Assessing Officer issued a draft assessment order proposing a total income of ₹29.59 crore by making various additions, including disallowances of ESOP expenses, software expenses, Section 14A disallowance, and disallowances under Section 40(a)(ia) relating to commission and transmission charges. Following objections filed by the assessee, the Dispute Resolution Panel (DRP) granted partial relief. The final assessment order determined the total income at ₹17.06 crore, including a transfer pricing adjustment of ₹3.11 crore.

Exclusion of Functionally Dissimilar Comparables

One of the key disputes before the Tribunal concerned the selection of comparable companies for benchmarking the business support services rendered by NDTV to its AEs. The assessee had applied the TNMM and reported a profit level indicator of about 12 percent on cost, which was broadly in line with the margins of the comparables it had selected.

However, the TPO rejected several of the assessee’s comparables and introduced new companies, resulting in a higher average margin and consequent transfer pricing adjustment.

The Revenue challenged the exclusion of certain companies, particularly Global Procurement Consultants Ltd. and TSR Darashaw Ltd., from the final list of comparables.

After examining the functional profile of Global Procurement Consultants Ltd., the Tribunal noted that the company provides procurement consultancy services for projects financed by international organisations such as the World Bank. These activities involve specialised technical consultancy and procurement management services for government departments and project execution agencies.

The Tribunal held that such specialised consultancy functions are materially different from the routine business support services rendered by NDTV to its associated enterprises. Accordingly, the company could not be treated as a valid comparable.

Similarly, the Tribunal upheld the exclusion of TSR Darashaw Ltd. from the list of comparables. It observed that the company operates in distinct segments such as registrar and transfer agent services, records management, and payroll and trust fund activities. These specialised services are substantially different from the support services provided by NDTV to its AEs.

The Tribunal also noted that earlier judicial precedents had consistently held TSR Darashaw Ltd. to be functionally dissimilar from companies providing routine support services. The absence of segmental financial information further supported its exclusion.

APITCO Ltd. Not Comparable

The Tribunal also addressed the inclusion of APITCO Ltd. as a comparable. NDTV argued that APITCO provides technical consultancy and high-end advisory services and operates largely on government-backed projects.

Accepting the assessee’s contention, the Tribunal held that APITCO’s specialised consultancy services and its operational profile as a government-supported enterprise made it functionally different from NDTV, which was rendering limited-risk business support services.

The Bench emphasised that transfer pricing comparability must be assessed on the basis of functions performed, assets employed and risks assumed (FAR analysis). Inclusion of companies with significantly different functions or business models could distort the benchmarking exercise.

Other Tax Issues

Apart from transfer pricing issues, the Tribunal also dealt with several disallowances.

On the issue of Employee Stock Option Plan (ESOP) expenses, the Tribunal held that the discount on shares issued to employees under an ESOP constitutes a legitimate business expenditure. Relying on the Special Bench ruling in the case of Biocon Ltd., it observed that the discount represents an ascertained liability incurred as part of employee compensation and is allowable under Section 37(1) of the Income Tax Act.

With respect to software expenses, the Tribunal held that software used in the broadcasting industry often requires frequent upgrades and has a short useful life. Since such software does not provide an enduring benefit, the expenditure should be treated as revenue expenditure rather than capital expenditure.

The Tribunal also examined the disallowance under Section 40(a)(ia) relating to transmission and uplinking charges paid to a non-resident entity. It held that when the income of the non-resident recipient is not taxable in India, the payer cannot be required to deduct tax at source under Section 195. Consequently, no disallowance could be made under Section 40(a)(ia).

Final Outcome

After analysing the issues raised by both parties, the Tribunal concluded that the DRP had correctly excluded functionally dissimilar companies from the list of comparables. It emphasised that accurate functional comparability is crucial in determining the arm’s length price of international transactions.

Accordingly, the Tribunal dismissed the Revenue’s appeal and partly allowed the assessee’s appeal, granting NDTV partial relief from the transfer pricing adjustment.

Case Title: DCIT vs New Delhi Television Ltd.
Case No.: ITA No. 1564/Del/2016
Coram: Madhumita Roy (Judicial Member) and Manish Agarwal (Accountant Member)