Functional Similarity, Turnover Differences Crucial for Comparable Selection: Delhi HC Remands Transfer Pricing Issue in American Express Case

The Delhi High Court has delivered an important ruling in transfer pricing litigation involving M/s American Express (India) Pvt. Ltd. for Assessment Year 2009–10, examining the principles governing selection and exclusion of comparable companies under the Transactional Net Margin Method (TNMM). The bench of Justice V. Kameswar Rao and Justice Vinod Kumar has partly allowed the Revenue’s appeal and held that factors such as functional similarity and substantial turnover differences cannot be ignored while determining Arm’s Length Price (ALP). The dispute arose from transfer pricing adjustments relating to American Express India’s international transactions with its associated enterprises. The company, a wholly owned subsidiary of American Express International Inc., USA, provides data management, information analysis, control activities, tele-servicing and transaction processing support services. It also undertakes back-office operations and support functions for global American Express entities. The assessee had reported international transactions amounting to approximately ₹783 crore relating to export of data processing and office support services and applied TNMM for benchmarking. During the transfer pricing assessment, disputes arose concerning the inclusion and exclusion of certain comparable companies used for determining ALP. The Revenue challenged several directions issued by the Income Tax Appellate Tribunal (ITAT). However, the High Court noted that most issues had already been settled against the Revenue by previous judicial precedents. Consequently, the Court confined itself primarily to two substantial questions: whether Cepha Imaging Pvt. Ltd. could be included as a comparable and whether CG Vak Software & Exports Ltd. was rightly included despite major turnover differences. With respect to Cepha Imaging Pvt. Ltd., the High Court observed that the ITAT had directed its inclusion after finding fault with the Transfer Pricing Officer’s conclusion that the company failed the export earnings filter. However, the Court found that the ITAT had overlooked an equally important issue — functional comparability. The Revenue argued that Cepha Imaging was engaged in e-publishing activities, whereas American Express India operated in the Information Technology Enabled Services (ITeS) segment involving data processing and support services. It relied upon CBDT Notification No. 890/2000 specifying recognized ITeS categories, where e-publishing services were not specifically included. Accepting this contention, the Court held that the ITAT ought not to have restricted itself only to the export turnover issue. According to the Court, before inclusion of a company as a comparable, the question of functional similarity also required proper examination. The Court therefore directed the TPO to reconsider whether Cepha Imaging was functionally comparable with American Express India while also considering the CBDT notification. The second major issue involved CG Vak Software & Exports Ltd. The assessee's ITeS segment turnover exceeded ₹782 crore, while CG Vak’s ITeS turnover stood at only around ₹86 lakh. The ITAT had earlier held that low turnover alone could not justify exclusion if the company was otherwise functionally comparable and had relied upon the decision in Chrys Capital. The High Court disagreed with this approach. It held that the scale of operations between the tested entity and the comparable remains a significant factor in transfer pricing analysis. The Court observed that where the tested party’s turnover is approximately 100 times higher than that of the proposed comparable, such disparity materially affects comparability. While discussing the issue, the Court relied upon previous rulings including Agnity India Technologies, Principal Global Services, and Avaya India, where courts had recognized that substantial differences in turnover, size and scale of operations can distort comparability analysis. The Court reiterated that factors such as operational scale, assets employed and business profile directly influence operating costs and margins. The Court answered both substantial questions in favour of the Revenue and against the assessee. The matter relating to Cepha Imaging was remanded for fresh examination, while the Court also held that the inclusion of CG Vak Software & Exports as a comparable was unsustainable because of the substantial turnover mismatch. Case Details Case Title: PCIT Versus M/S. American Express (India) Pvt. Ltd. Citation: JURISHOUR-1335-HC-2026(DEL) Case No.: ITA 656/2019 Date: 18.05.2026 Counsel For Petitioner: Debesh Panda, SSC Counsel For Respondent: Nageswar Rao Click Here To Read Order Read More: CJI’s Comment Gives Birth To ‘Cockroach Janta Party’: How Did It Overtake BJP on Instagram?

Functional Similarity, Turnover Differences Crucial for Comparable Selection: Delhi HC Remands Transfer Pricing Issue in American Express Case

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