ILINK MULTITECH SOLUTIONS PVT. LTD.,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

आयकर अपीलीय अधिकरण, ‘डी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI श्री जॉजज जॉजज के, उपाध्यक्ष एवं श्री एस.आर.रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No. 24/Chny/2026 ननिाारण वर्ा / Assessment Year : 2022-23 Ilink Multitech Solutions Private The Deputy Commissioner of Limited, 9th Floor, Symbyont Co vs. Income-tax, Corp.Cir. 1(1) Working Space, RMZ Millennia Chennai. Business Park, Perungudi Chennai – 600 096. [PAN: AAACI8958A] (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/Appellant by : Shri. S.P.Chidambaram, Advocate प्रत्यर्थी की ओर से/Respondent by : Shri. Jenaradhanan, CIT सुनवाई की तारीख/Date of Hearing : 11.06.2026 घोर्णा की तारीख/Date of Pronouncement : 06.07.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM :

This appeal is filed by the Assessee against the Final Assessment Order dated 22.12.2025 passed u/s.143(3) r.w.s. 144C(13) r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), by the Assistant Commissioner of Income Tax, NFAC (in short “AO”) pertaining to Assessment Year (A.Y.) 2022-23.

:-2-: IT(TP)A. No:24/Chny/2026 2. The assessee has raised the following grounds of appeal:

“1. The Ld. Assessing Officer erred in passing an order without jurisdiction. contrary to law and facts, and in violation of natural justice. The Ld Assessing Officer completed the assessment and passed the order u/sec 143(3) r.w.s 144C(13)read with Section 144B of The Income Tax Act 1961 dated 22.12.2025 is bad in law.

ASM Technologies Ltd

Systango Technologies Ltd

IDS Infotech Limited

:-3-: IT(TP)A. No:24/Chny/2026 11. The Dispute Resolution Panel and consequently the Assessing officer failed to appreciate that the appellant had incurred Costs towards Merger and Acquisition, the appellant has been acquiring entities since 2018 as part of its inorganic route to support its growth.

a) Quash the assessment order passed u/s.143(3) r.w.s.144C(13) r.w.s.144B of the Income Tax Act dated 22.12.2025 and / or

b) Delete the upward adjustment of Rs.7,56,73,824/- to the revenue of the appellant and/or

c) Pass such other orders as the Hon'ble Tribunal may deem fit.”

:-4-: IT(TP)A. No:24/Chny/2026 addition of interest on trade receivables. The DRP has issued directions dated 26.11.2025 wherein it has granted partial relief to the Assessee. Subsequently, the AO passed the Final Assessment Order without granting the relief given by DRP. 4. The Assessee has raised two set of grounds of appeal viz., First in relation to jurisdictional aspect i.e. FAO is not in conformity with section 144C(13) of the Act and Second in relation to main TP adjustment in software development segment. Broadly, the grounds of appeal are as under:

a) Ground nos.1 to 5 & 14 relates to jurisdictional issue that the FAO is bad in law as it is not in conformity with DRP directions, b) Ground nos. 6 & 7 general grounds that TP study should not be rejected, c) Ground nos. 8 Assessee seeks exclusion of 3 comparable companies selected by TPO, d) Ground No. 9 Assessee seeks adoption of Upper turnover filter while selecting comparable companies, e) Ground No.10 Product development expenditure ought to be treated as non-operating in nature while computing margin of Assessee, f) Ground nos.11 & 12 Merger & Amalgamation expense should be treated as non-operating expense while computing margin of Assessee, g) Ground no 13 Audited segmental financials of Assessee should be considered, h) Ground No. 15 Assessee raised generic ground claiming economic adjustment, i) Ground No.16 Assessee pleads that in the FAO the AO has made adjustment as per original TP order and has not given effect to either the rectified TP order or the DRP direction.

:-5-: IT(TP)A. No:24/Chny/2026 14.64% with a median of 14.01% and thus substantiated its international transaction is at arm’s length. The TPO has accepted the most appropriate method i.e. TNMM adopted by the Assessee but proposed to reject the adjustment for ‘Product Development Expense and Merger/Amalgamation Expense’ as non-operating while computing the margin of the Assessee and arrived at a revised margin of Assessee at 5.38%. Further, the TPO rejected 11 comparable of the Assessee and undertook a fresh search and brought in 9 additional comparable companies with total of 15 comparable margins whose margins were in the range of 11.05% to 19.96% and median at 15.01% and ultimately held that the international transaction is not at arm’s length and made an adjustment of Rs.7,56,73,824/-. Subsequently, the TPO has passed a rectification order dated 01.01.2025 wherein he has reduced the quantum of TP to Rs.6,62,43,953.99. On appeal the DRP has granted certain relief but the AO passed the Final Assessment Order and made TP adjustment of Rs.7,56,73,824/- as it was in the original TP order i.e. without even considering the relief granted by the DRP nor the rectification order passed by the TPO.

:-6-: IT(TP)A. No:24/Chny/2026 and therefore the product development expenditure cannot be considered for exclusion and secondly, the TPO has stated that the expenditure was not capitalized and therefore it has to be treated as operating expense only. The DRP has observed that since the product would be helping in enhancing the income of the Assessee, the expenses incurred to develop the same should be treated as operating expense. Further, the DRP seem to have obtained a remand report from the TPO wherein the TPO has reiterated that the product has not reached finality. Accordingly, the DRP with this remand report has taken a stand that merely because a product is under development does not mean that the expenditure should be excluded.

:-7-: IT(TP)A. No:24/Chny/2026 9. The Ld.DR on the other hand vehemently argued and emphasized that the TPO and DRP have brought out categorical reasoning for not excluding product development expense from operating cost.

:-8-: IT(TP)A. No:24/Chny/2026 operational activities and hence the said expense ought to be treated as operating expense. We do not agree with reasoning of the DRP as it is contrary to their own fact finding i.e. when admittedly and undisputedly the product has future potential as it is in development stage in the subject AY, how it could be considered as operating expense in the subject AY as it does not have any correlation with the subject AY’s revenue from AE’s more so when the revenue from AE’s is actually sought to be tested whether it is at arms length or not. Apart from the above, we also note that the Assessee has furnished segmental for AE and Non-AE transactions. In the segmental reporting, the Assessee seem to have adopted a consistent stand of not allocating the product development expense to AE as well as Non-AE segment primarily because the product is still under development and as such allocating these expenses rather treating these expenses as operating will be premature. The Ld.AR had also relied on a jurisdictional Tribunal decision in the case of Sageezza India Private Limited Vs DCIT [2017] 80 taxmann.com 183 and HSI Automotive Ltd Vs DCIT in IT(TP)A.No.28/Chny/2021 dated 13.06.2025 wherein it was held that unless the product comes into existence, the development expenses cannot be treated as operating in nature while computing the margin of the Assessee. The relevant extract from the aforesaid Tribunal decisions is as under: Sageezza India Private Limited Vs DCIT (supra): “7. We have heard both the parties and perused the material on record. The assessee herein engaged in providing wide range of information technology solutions to a global clientele in a cost effective manner. In the assessment year under consideration, the assessee engaged in information technology and Engineering solutions and services include Customer Communication Management applications, specifically assessee engaged in the business of software development and carried out the job during the financial year both to the A.E and non-A.E customers. The assessee has employed an average 250 personals employeed for the services rendered of which 90 personals were recruited for future project requirements in the subsequent assessment years. Since the assessee is a software development, the main cost of the assessee is manpower cost, rent, communication expenses and travelling expenses, which normally varies in proportion to the turnover. Usually, the assessee keeps manpower more than 10% of the requirements as the additional manpower requires as and when additional orders received by

:-9-: IT(TP)A. No:24/Chny/2026 assessee and also as the assessee anticipates new job order and it was very difficult to get the new trained software personal at a short duration so as to execute the job order in time, as the training of personal requires time. In the assessment year under consideration, the assessee entered into international transactions in respect of software service with A.E viz., M/s.Saggezza Inc. and value of commercial transaction with that A.E at Rs.13,22,91,197/-. Originally, the assessee applied Transactional Net Margin Method (TNMM) as the most appropriate method to arrive the ALP by making comparison of operating profit earned during the year with the A.E viz. M/s.Saggezza Inc., USA. Later, the assessee adopted the CUP method to benchmark the transactions which was rejected by the TPO on the reason that the assessee has not furnished the relevant agreement with the Non-A.E. The ld. TPO also rejected the TP study conducted by the assessee, as the assessee had adopted three years weighted margin, which is not in compliance of with rule 10B(4), The assessee had claimed certain economic adjustments, which were not appreciated by the TPO. Even, the comparables selected by the company was rejected by the ld. TPO and proposed upward adjustments by the TPO. The TPO considered 8 comparables and their arithmetic mean worked out at 18% while computing the Profit Level Indicator (PLI). The Ld. TPO considered the employee salary cost and consultancy charges as operating cost. Against the claim of assessee, the non-operating cost, it was submitted by the assessee that these expenses were incurred towards products being developed for future use. According to Ld. TPO, the revenue from the project is generated only in future and this expenditure to be capitalized as work-in-progress. The ld. TPO has treated it as operating cost and computed the operating margin of the assessee (-) 0.81%. Thus, the TPO arrived at ALP and made upward adjustments at Rs. 2.64 crores. Now, the main contention of the ld.A.R is that impugned man power and consultancy charges are non-operating cost, it cannot be considered as work-in-progress. 7.1 The ld.D.R drew our attention is that there is no comment made in the financials of the assessee as to whether such an event has a material impact on the profitability of the year under consideration and the assessee has not filed its Director's report to verify any such comments. Hence, the TPO considered the employee salary cost and consultancy charges as part of the operating cost and PLI computed. In our opinion, this cannot be a reason to reject the claim of assessee. This impugned expenditure on employees and consultancy charges, which is not relating to the project executed and billed in the assessment year under consideration. As such, it cannot be considered as operative expenses. Further, such expenses were not incurred with reference to any specific project and it cannot be considered as work-in-progress. It is admitted that the assessee is in second year operation and comparison of financials with big undertaking, who are in pioneer in the similar kind of business, is not appropriate as the assessee was not in advantageous position as these comparables. It has to be noted that the assessee has not exercised sufficient control over the expected future benefits arising from a team of skilled staff and from training so as to consider that these items meet the identification of intangible assets. The assessee has submitted that the

:-10-: IT(TP)A. No:24/Chny/2026 employee cost has increased from 46% to 61% of the total sales during the Financial year 2011-12 while it has stabilized at 68% - 69%, with increase in volume in the subsequent years. In our opinion, the assessee's business module cannot be straightway compared with other comparables, unless the extraordinary item of expenditure excluded while comparing so as to arrive at correct margin of profit. It was brought to our notice that TPO had accepted the pricing pattern of the assessee in the succeeding assessment year namely 2013-14 & 2014-15 and there was transfer pricing adjustment in these assessment years. It is also brought to our notice that there is a steady increase in revenue generated by the assessee in the subsequent assessment year on account of new project without any change in pricing pattern of the project with the same A.E. In such circumstances, it is not appropriate to ignore the extraordinary items of expenditure in the form of employee salary cost and consultancy charges incurred by the assessee in the assessment year under consideration. Hence, we are of the opinion that an adjustment has to be given towards this, while computing the ALP as once the adjustment is made, the PLI would be higher than that of comparable arrived at 26%. In our opinion there cannot be any upward adjustment of Rs. 2.64 crores to the value of international transaction in the assessment year under consideration. Accordingly, the ground taken by the assessee is allowed.” (emphasis supplied) HSI Automotive Ltd Vs DCIT (supra) “9. The next adjustment relates to the product development expenses. According to the Ld. DRP/TPO, the product development expenses were in the nature of operating item, whereas it was the assessee’s case that these expenses were neither incurred during the year and nor were linked to its revenues and therefore it was rightly adjusted/excluded from the computation of their PLI. We find that, this identical issue was adjudicated by this Tribunal in assessee’s own case for AY 2014-15 in IT(TP) No.66/Chny/2018 dated 12.06.2024 wherein it was held as under:- “10. The assessee also seeks adjustment of product development expenses. The Ld. TPO has treated the same as operating in nature. The Ld. AR has stated that product development expenses are not incurred for this year. The expenses is incurred for extending support services rendered during the development of new model car by HMIL, the benefit of which may or may not occur and would not have any direct link with the revenue of this year. It has been submitted that this adjustment has been granted by Ld. TPO in AY 2012-13. Accepting the plea of Ld. AR, we direct Ld. TPO to consider the same. The assessee is directed to provide the data to substantiate the same.”

According to the Ld. AR, pursuant to the above directions, the TPO has allowed adjustment of the product development expenses in 2014-15. Having gone through the material placed before us and following the decision (supra), we find merit in the plea of the assessee. The TPO is directed to

:-11-: IT(TP)A. No:24/Chny/2026 consider the same in light of the view taken in earlier AYs 2012-13 & 2014-15; and the assessee is directed to provide the relevant data to substantiate the same.” (emphasis supplied) 11. Respectfully following the same and also on the basis of our factual findings, which is backed by TPO’s finding in the remand report, we hold that product development expenses cannot be considered as operating expenses. Accordingly, we direct the TPO to exclude the product development expenses from the operating cost of the Assessee while quantifying the margin of the Assessee. Therefore, this ground of appeal no.10 is allowed.

:-12-: IT(TP)A. No:24/Chny/2026 assessment, the TPO had denied the claim of the Assessee only because the invoices were not furnished but later when additional evidence was furnished before the TPO as well as the DRP, both the authorities are trying to improvise their case by making assumptions that expenses post- merger could only be for advisory and that the share purchase agreement does not state that certain personnel had to be paid extra remuneration due to merger. Further, the Ld.AR contended that vide Share purchase agreement dated 16.07.2018 the Assessee had acquired Thinking Hut IT Solutions Private Limited, India. As part of the takeover arrangement and to achieve smooth transition of the acquired entities, the Assessee had agreed to additionally compensate Mr.Uday, Navin and Nitin. For this purpose, the Assessee has also issued a special compensation letter to them. The sample emails exchanged also evidences the fact that these personnel have assisted in M&A. Further, the most important aspect is that acquisition is done in India and it is Non-AE vertical and part of expansion/growth strategy, therefore these expenses cannot be considered as operating expenses while benchmarking the international transaction with AE.

:-13-: IT(TP)A. No:24/Chny/2026 realiszation, process standardization and all these are no way connected to the AE transaction. Further these expenses are for the purpose of Due Diligence, Secretarial, Regulatory compliances, RBI related compliances, ROC work etc. These expenses seem to have been incurred for investment into business and consolidation and not linked to international transaction/arrangement with AE’s. Therefore, in our considered opinion, these expenses cannot be considered as part of the operating expenses of the Assessee while benchmarking the international transaction with AE’s as the international transaction is in relation to provision of software development. Accordingly, we direct the TPO to exclude the remaining M&A expenses of Rs.3,19,12,201/- from the operating expenses while computing the margins of the Assessee. This ground of appeal no.11 & 12 is allowed.

:-14-: IT(TP)A. No:24/Chny/2026 adopted in the instant case as the Non-AE segment is catering to domestic market whereas the AE sgment is in export market. Further, the TPO has applied export filter of 75% of export revenue while selecting external comparables and as such the Ld DR contended that if the same filter is applied to Internal TNMM, Non-AE segment which is devoid of any export sales cannot be considered for the purpose of benchmarking. The Ld DR also pointed out that both the expenses i.e. product development expenses and M&A expenses has not been allocated to both the segments i.e. AE and Non-AE, which is not correct approach.

:-15-: IT(TP)A. No:24/Chny/2026 companies margin ranging from 11.05% to 19.96% and as such the margin of Assessee is at arms length. Even if AE segmental margin of AE is considered which is at 14.86% in comparison to TPO’s set of comparable companies margin ranging from 11.05% to 19.96, the margin of the Assessee is at arms length. Accordingly, TP adjustment is deleted. 19. Since the merits of the case are decided in favour of the assessee, we have left open the grounds of appeal nos.1 to 9 and 14 to 16. 20. In the result the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the court on 06th July, 2026 at Chennai.

Sd/- Sd/- (जॉजा जॉजा के) (एस. आर. रघुनार्था) (GEORGE GEORGE K) (S. R. RAGHUNATHA) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER चेन्नई/Chennai, ददनांक/Dated, the 06th July, 2026. Devadas आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभागीय प्रनतननधि/DR 5. गाडा फाईल/GF DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.07.09 16:33:02 +05'30'