a) Assessee was providing voice base customer care services, i.e., BPO to its Associated Enterprises (‘AE’).
b) The Assessing Officer (‘AO’) made certain additions to transactions with AE on basis of comparables chosen by TPO.
c) Assessee argued that two companies chosen by TPO were not comparable as such companies were basically providing knowledge process outsourcing (KPO) services.
1) As per Rule 10B(2)(a) of income-tax Rules, 1962 the comparability of the transactions should be judged with reference to service/product characteristics.
2) The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services could not be a ground to benchmark transactions of BPO service provider with the transactions of KPO services providers.
3) A KPO includes involvement of advance skills normally; the services provided may include analytical services, market research, legal research, engineering and design services, intellectual management etc. On the other hand, Voice Call Centers are normally involved in customer support and processing of routine data.
4) Comparability analysis by TNMM method may be less sensitive to certain dissimilarities between the tested party and the comparables. However, that could not be the consideration for diluting the standards of selecting comparable transactions/entities. A higher product and functional similarity would strengthen the efficacy of the method in ascertaining a reliable Arm’s length Price. Therefore, as far as possible, the comparables must be selected keeping in view the comparability factors as specified.
5) Thus, where the tested party was not a KPO service provider, an entity rendering KPO services could not be considered as a comparable for the purposes of Transfer Pricing analysis. – RAMPGREEN SOLUTIONS (P.) LTD. V. CIT -  60 taxmann.com 355 (Delhi)