A pattern worth naming for fellow practitioners: in a meaningful share of transfer pricing assessments that end up contested, the pricing methodology chosen wasn't the real problem. The benchmarking study behind it was.
This is worth sitting with, because it cuts against how a lot of transfer pricing engagements get scoped. Method selection tends to get the analytical attention — CUP versus TNMM versus PSM, which one fits the transaction profile. The comparable set that supports whichever method gets chosen often gets less scrutiny than it deserves, and that's precisely where a Transfer Pricing Officer's review tends to concentrate.
Why the Comparable Set Matters More Than the Method
A benchmarking study built on stale comparables, or a comparable set that technically matches the functional profile on paper but doesn't hold up under a closer look at actual business models, creates a specific kind of exposure: the methodology itself may be defensible, but the numbers it produces aren't, because the foundation underneath them is weak.
This shows up in practice in a few recurring ways:
Comparables pulled from a database without a fresh functional review. A comparable that was appropriate three assessment years ago doesn't automatically remain appropriate — business models shift, and a company that was a genuine functional match in FY 2022-23 may have diversified into a different revenue mix by FY 2025-26. Reusing an old comparable set without re-validating functional similarity is a common, avoidable gap.
Geographic and market comparability treated as a formality. Comparables drawn from a different economic environment, even within the same broad industry classification, introduce a variable that's easy to overlook and hard to defend once questioned directly.
Insufficient documentation of why rejected comparables were rejected. This is a subtle one. A TPO reviewing a benchmarking study often wants to see not just which comparables were included, but a clear record of which ones were considered and excluded, and why. A study that shows only the final accepted set, with no visible screening trail, reads as less rigorous Transfer Pricing Services — even if the underlying work was actually sound.
The Documentation-Litigation Feedback Loop
There's a structural point worth making to anyone treating documentation and litigation support as separate service lines, whether internally or when advising a client on how to structure their engagement: a benchmarking study prepared with an eye toward how it would need to be defended, not just how it needs to satisfy a filing requirement, is a meaningfully different document from one prepared purely for compliance.
In practice, this means building in comparability adjustments — working capital, risk profile, capacity utilisation — proactively, rather than as a retrofit once a TPO has already raised the question. It also means keeping a working file of the comparable search methodology itself, not just the final output, so that if a position is challenged eighteen months later, the reasoning behind it doesn't need to be reconstructed from memory.
A Note on the Transition Period
Firms currently preparing FY 2025-26 filings should keep in mind this is still governed by the 1961 Act framework — Form 3CEB remains the operative filing, due 30 November 2026. Form 48, under Section 172 of the Income-tax Act, 2025 and Rule 85 of the Income-tax Rules, 2026, only becomes mandatory from Tax Year 2026-27 onward. Firms should be cautious about client-facing communication that conflates these two timelines, since some commentary already in circulation reads as though Form 48 is currently in effect when it isn't yet.
Worth noting for those preparing for the transition: Form 48's structured, ID-linked format is designed to be cross-verified automatically against the tax audit report and the return itself, which raises the practical bar on internal consistency across a client's filings in a way that a narrative-format Form 3CEB never fully forced.
Where This Leaves the Benchmarking Conversation
None of this changes the underlying methodology available under Indian transfer pricing rules — the arm's length principle and the recognised methods remain as they were. What it changes is how much weight the quality of the comparable search itself should carry in how an engagement gets scoped and priced, relative to the time spent on method selection.
For practitioners handling a high volume of benchmarking work, particularly across sectors with fast-moving business models — technology and SaaS being the clearest example — this is worth building into the standard engagement checklist rather than treating as an occasional refinement.