ITAT Bangalore Transfer Pricing 2026 | Brand Companies Excluded

What Happened?

The Income Tax Appellate Tribunal (ITAT) Bangalore has recently ruled that high-brand value companies cannot be treated as comparable companies for transfer pricing (TP) purposes. This decision, delivered in November 2026, affects how taxpayers identify and select comparable companies under the transfer pricing regulations in India. The Tribunal held that companies with exceptional brand value, market dominance, and pricing power are fundamentally different from ordinary businesses and should be excluded from TP comparable databases.

Background & Legal Context

Transfer pricing is governed under Section 92 of the Income Tax Act, 2025 (earlier Section 92 of the 1961 Act). The primary principle requires that transactions between related parties must be at arm's length price — the price that would be charged between independent parties under comparable circumstances.

To determine the arm's length price, taxpayers rely on the Comparable Uncontrolled Price (CUP) method and other methodologies specified under Section 92C of the IT Act 2025. The critical challenge in applying these methods is identifying truly comparable companies.

• Section 92(1): Defines international transactions and specified domestic transactions requiring TP documentation
• Section 92C: Prescribes methods for determining arm's length price (CUP, Cost Plus, Resale Price, Profit Split, and Transactional Net Margin Method)
• Section 92F: Mandates TP documentation requirements for AY 2025-26 onwards

The ITAT's decision stems from the interpretation that brand value creates intangible differentiation. Companies with exceptional brands (like luxury goods makers, tech giants, or FMCG leaders) command pricing power that ordinary comparable companies do not possess. This premium positioning makes them structurally different from the related party being benchmarked.

Under the Transfer Pricing Regulations under Rule 10A and Rule 10B of the Income Tax Rules, 1962, taxpayers are required to apply the Most Appropriate Method (MAM) and identify comparables based on functional similarity, contractual terms, economic circumstances, and business strategies. The ITAT has now clarified that brand value and market dominance must be additional filters when selecting comparables.

What Does This Mean for You?

For Exporters & Import Companies:

• If your company imports or exports goods/services to related parties abroad, your TP analysis will now face stricter scrutiny during assessment
• You cannot blindly use companies with strong brands as comparables just because they operate in the same industry
• Your TP study must now explicitly document why high-brand companies are excluded from the comparable set

For IT Companies & Service Exporters:

• The ruling impacts software development, BPO, and KPO service providers who benchmark TP margins against global IT firms
• Global IT majors often have brand premiums built into their pricing models — they cannot be treated as comparables for your analysis
• You must identify mid-tier or regional IT service providers with similar operational models as comparables

For Pharmaceutical Companies:

• Pharma companies with strong brand portfolios or exclusive patents command pricing power unavailable to generic manufacturers
• These branded pharma firms cannot now be included in the comparable company database
• Your benchmarking must focus on generic or mid-tier pharma companies with similar operational structures

For Manufacturing Entities:

• If you are a contract manufacturer selling to global brand-holding parent companies, this ruling protects your position
• Your TP margins cannot be benchmarked against luxury manufacturers or branded product makers
• This ruling supports contract manufacturers in arguing for higher margins aligned with their comparable peer group

For Assessment Years AY 2025-26 and AY 2026-27:

Transfer Pricing Officers (TPOs) during assessment proceedings will now likely:

• Specifically ask why certain high-brand companies were excluded from your comparables
• Challenge your comparable company selection if you have not documented brand value differentials
• Demand additional TP documentation explaining functional differences between your company and comparables

What Should You Do Now?

Immediate Actions for AY 2025-26:

• Review Your Transfer Pricing Study: If your TP study for AY 2025-26 is already filed or under finalization, examine whether you have included any high-brand companies as comparables. If yes, document the justification or consider amending your study.
• Document Brand Value Differentials: Create a detailed analysis showing why certain companies are excluded based on brand value, market position, pricing power, and customer perception. Use third-party brand valuation reports if available (Interbrand, Forbes, etc.).
• Revise Comparable Company Database: Work with your Transfer Pricing advisor to rebuild your comparable company list, filtering out companies with exceptional brand value. Focus on:
  • Companies with similar functional profiles
  • Mid-tier players in the same industry
  • Regional competitors with comparable market reach
  • Companies without premium brand positioning
• Strengthen Your TP Documentation: Under Section 92F of IT Act 2025, your TP documentation must now include:
  • Explicit explanation of exclusion criteria for high-brand companies
  • Industry analysis showing brand value impact on pricing
  • Functional analysis tables highlighting differences between your company and excluded comparables
  • References to this ITAT ruling and how it applies to your business
• File Advance Pricing Agreement (APA): If your company has recurring TP disputes or deals with complex pricing, consider filing for an Advance Pricing Agreement (APA) under Section 92CD. The mutual APA process allows you to get pre-approval for your TP methodology from the Tax Department and corresponding foreign tax authorities.
• Be Prepared for Assessments: For Assessment Year 2025-26 onwards, expect TPOs to scrutinize your comparable company selection more carefully. Maintain robust supporting documentation including:
  • Industry reports on brand value and pricing power
  • Justification for each comparable company selected
  • Details of how each company was found and why it meets your selection criteria

Key Takeaways

• ITAT Bangalore's November 2026 ruling excludes high-brand companies from TP comparables: Companies with exceptional brand value, market dominance, and pricing power cannot be treated as arm's length comparables, as they operate under fundamentally different economic circumstances.
• Section 92 and Section 92C of IT Act 2025 now require explicit brand value analysis: When selecting comparable companies for transfer pricing, you must document brand value differentials and justify the exclusion of branded companies from your comparable set.
• Practical impact on AY 2025-26 and beyond: Exporters, IT service providers, pharma companies, and manufacturers must rebuild their TP comparables excluding brand-premium players and focus on functionally similar mid-tier competitors.
• Your TP documentation must now be more detailed: Under Section 92F of IT Act 2025, documentation must explicitly explain brand value differentials, include industry analysis, and reference this ITAT ruling to strengthen your position during assessment.
• Transfer Pricing Officers will use this ruling to challenge comparable selections: For AY 2025-26 onwards, expect higher scrutiny on your comparable company database during assessment. Be prepared with supporting documentation, industry reports, and functional analysis to defend your selections.

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