Transfer Pricing | Entities Operating On Economic Upscale Can't Be Included As 'Comparables' Of Those Working On Cost-Plus Pricing: Delhi HC

The Delhi High Court ruled that entities operating on an economic upscale cannot be included as comparables for those working on a cost-plus pricing basis in transfer pricing cases. The case involved Cadence Designs, which operates on a cost-plus pricing model, and the inclusion of TCS E-Serve International Ltd., TCS E-Serve, and Infosys BPO Limited as comparables. The court found that these companies command high profits due to their brand value and incur significant expenditures on brand building, unlike Cadence. The court ordered the exclusion of these companies from the list of comparables, emphasizing that entities with high profit margins and brand value should not be compared with those operating on a cost-plus basis. This ruling provides clarity on the selection of comparables in transfer pricing cases.