SYSVINE TECHNOLOGIES PVT. LTD.,CHENNAI vs. ITO, CORPORATE WARD-6(3), CHENNAI

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ITTPA 98/CHNY/2024Status: DisposedITAT Chennai26 September 2025AY 2021-228 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found merit in the assessee's submission that segmented financials excluding product-related costs of the HPCR product should be considered for determining the Arm's Length Price (ALP) of international transactions with the AE. It noted that the assessee was developing a new product under R&D for domestic transactions only, and argued that these costs should be excluded from ALP determination for international transactions. Since these additional evidences were not submitted before the AO/TPO, the Tribunal decided to remand the matter to the AO/TPO to determine the transfer pricing adjustment afresh, considering the additional evidences and excluding product-related costs. Regarding the disallowance of Rs. 6,19,220/-, the Tribunal found merit in the assessee's submission that a donation of Rs. 5,50,000/- was made to trusts approved under Section 80G(5) and directed the AO to allow deduction under Section 80G in respect of this donation after due verification, even though the assessee had not claimed it in the return. The issue of whether only the AE segment should be considered and the AE's operating margin were implicitly addressed by the remand for fresh determination of TP adjustment. The issue of whether product development expenses should be excluded was decided in favor of the assessee, leading to the remand.

What were the facts?

The assessee, Sysvine Technologies Pvt. Ltd., filed its return of income for AY 2021-22 declaring a total income of Rs. 38,28,930/-. The case was selected for scrutiny, and a reference was made to the Transfer Pricing Officer (TPO) regarding international transactions with its Associated Enterprise (AE). The TPO proposed an adjustment of Rs. 3,21,82,738/- by applying the Transactional Net Margin Method (TNMM) with a Profit Level Indicator (PLI) of 27.1%, against the assessee's PLI of 2.96%. The Assessing Officer (AO) passed a draft assessment order incorporating this adjustment and disallowing Rs. 6,19,220/- for donations, gifts, and CSR activities. The Dispute Resolution Panel (DRP) dismissed the assessee's objections, and the AO passed the final assessment order. The assessee appealed to the ITAT.

What were the issues?

1. Whether the Transfer Pricing Officer (TPO) erred in not considering only the Associated Enterprise (AE) segment of the appellant for determining the Arm's Length Price (ALP) of international transactions? (Question of law and fact, concerning Section 92C of the Income-tax Act, 1961). 2. Whether product development expenses, being in the nature of research and development (R&D), should be excluded when computing the Profit Level Indicator (PLI) of the appellant for ALP determination? (Question of law and fact, concerning Section 92C of the Income-tax Act, 1961). 3. Whether the TPO failed to appreciate that the AE to whom the appellant rendered services had an operating margin of only 3.41%? (Question of fact, concerning Section 92C of the Income-tax Act, 1961). 4. Whether the disallowance of Rs. 6,19,220/- for donations, gifts, and CSR expenses was justified? (Question of law and fact, concerning Section 37 of the Income-tax Act, 1961). Assessee's contentions: - Only the AE segment should be considered for ALP determination. - Product development expenses (R&D) for a new in-house product (HPCR) should be excluded from PLI computation for international transactions. - The AE had a low operating margin of 3.41%. - A donation of Rs. 5,50,000/- made to trusts approved under Section 80G(5) should be allowed as a deduction. - Submitted additional evidence including segmental financials and R&D cost breakup. Revenue's contentions: - Assessee had ample opportunity before the TPO and DRP; additional evidence should not be admitted. - Addition made by AO may be confirmed.

Which sections of the Income-tax Act were involved?

Section 92C,Section 92CA,Section 143(3),Section 144C,Section 80G,Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI SS VISWANETHRA RAVI & SHRI JAGADISH

Hearing: 06.08.2025Pronounced: 26.09.2025

आदेश / O R D E R

PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2021-22 arises out of final assessment order dated 20.09.2024 passed by Ld. Assessing Officer (AO) u/s.143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (hereinafter “the Act”) pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru (hereinafter “the DRP”) u/s 143(3) r.w.s 144C(1) of the Act dated 07.11.2016.

IT(TP)A No.98/Chny/2024 Sysvine Technologies Pvt. Ltd. :- 2 -:

2.

The assessee is an Indian company engaged in the business of

providing software development and allied services. The assessee

company filed its return of income on 07.01.2022, declaring a total

income of Rs. 38,28,930/-. The case was selected for scrutiny, and a

reference was made to the Transfer Pricing Officer (TPO) under

Section 92C(1) of the Act on the basis of international transactions

reported in Form 3CEB. The TPO passed an order under Section

92CA(3) of the Act, proposing a total adjustment of Rs.3,21,82,738/- in

respect of international transactions amounting to Rs.13,77,76,911/-

with its Associated Enterprise (AE), by applying the Transactional Net

Margin Method (TNMM) as the most appropriate method and adopting

a Profit Level Indicator (PLI) of 27.1% for comparable companies,

against the assessee's PLI of 2.96%. The Assessing Officer (A.O)

subsequently passed a draft assessment order under Section 144C(1)

of the Act, proposing the addition of Rs. 3,21,82,738/- towards upward

adjustment of international transactions and disallowance of expenses

amounting to Rs. 6,19,220/- claimed by the assessee for donations,

gifts, and CSR activities. Aggrieved by the draft assessment, the

assessee filed objection before the Hon'ble Dispute Resolution Panel

(DRP). The Hon'ble DRP, through its directions under Section 143(3)

IT(TP)A No.98/Chny/2024 Sysvine Technologies Pvt. Ltd. :- 3 -: r.w.s 144C(13) of the Act, dated 06.09.2024, dismissed the objections

raised by the assessee. Consequently, the A.O passed the final

assessment order under Section 143(3) r.w.s 144C(13) of the Act,

assessing the total income of the assessee at Rs. 3,66,30,888/- as

proposed in the draft assessment order. The assessee is now in

appeal before us.

3.

The Ld. Authorized Representative (A.R) of the assessee has

submitted that the assessee has challenged the upward adjustment of

Rs. 3,21,82,738/- to the revenue and the disallowance of Rs.

6,19,220/- in respect of donations, gifts, and CSR expenses and now

has filed the following additional grounds of appeal:

“Ground No.14: For that only the AE segment of the appellant ought to have been considered for the purposes of determination of Arm's Length Price of international transactions. Ground No.15: For that without prejudice, even otherwise the product development expenses being in the nature of research and development would have to be excluded to compute the PLI of the appellant. Ground No.16: For that the Transfer Pricing Officer failed to appreciate that the AE to whom the appellant rendered services had an operating margin of only 3.41%.”

4.

The Ld. A.R has also submitted additional evidences in the form

of segmental financials and break up details of Non-AE segment

IT(TP)A No.98/Chny/2024 Sysvine Technologies Pvt. Ltd. :- 4 -: expenditure of the assessee company in 34 pages and requested to

be admitted, citing the decisions of CIT v. Text Hundred India (P) Ltd.

[2013] 351 ITR 57 (Delhi) and CIT v. Indian Express (Madurai) (P) Ltd.

[1983] 140 ITR 705 (Madras). The Ld A.R has submitted that the TPO

had adopted the PLI (OP/OC) of comparable companies at 27.01%, as

against assessee’s PLI at 2.96%, resulting in an upward adjustment of

Rs.3,21,82,738/-. The Ld A.R has submitted that the assessee

company has been developing a new product, a SaaS platform called

HPCR (HealthPractice.Care), in various phases since February 2019.

This product was an in-house invention, and still under the research

and development phase, and solely built for use in respect of non-AE

transactions (i.e., domestic transactions). The Ld. A.R submitted that

since the HPCR was still in its initial R&D stage, it would be

appropriate to exclude the product-related costs when determining the

ALP of international transactions with the AE. The Ld. A.R submitted

that during the year under consideration, the assessee was unaware

that segmented financials could be prepared to determine the ALP of

international transactions. As such, it would be fair to exclude product-

related costs for determining the ALP of international transactions with

the AE. The A.R also submitted additional evidence, showing the PLI

of 27.22% after excluding product-related costs, which would then be

IT(TP)A No.98/Chny/2024 Sysvine Technologies Pvt. Ltd. :- 5 -: comparable to the PLI of the comparable companies. The A.R

requested that these evidences be admitted and that the TP

adjustment be reconsidered accordingly.

5.

On the other hand, the Ld. Departmental Representative (D.R)

argued that the assessee was provided ample opportunity before both

the TPO and the Hon'ble DRP, and therefore, the additional evidences

should not be admitted at this stage and addition made by A.O may be

confirmed.

6.

We have heard the rival submissions and perused the materials

available on record. The assessee has reported international

transactions amounting to Rs.13,77,76,911/- for provision of software

development services with its AE in Form 3CEB, and stated it to be at

armed length by adopting the cost-plus method. However, the TPO

applied the TNMM as most appropriate method and computed PLI

(OP/OC) of 27.01% of comparable companies as against the

assessee's PLI of 2.96%, making upward adjustment of

Rs.3,21,82,738/-.

7.

The Ld A.R has submitted that the assessee was in the process

of developing a new product, HPCR, which was still under R&D and

IT(TP)A No.98/Chny/2024 Sysvine Technologies Pvt. Ltd. :- 6 -: meant for domestic transactions only. Therefore, the A.R argued that

product-related costs should be excluded from the ALP determination

for international transactions. The assessee has also submitted

segmental financials, certified by a Chartered Accountant, along with a

breakup of salary costs for employees working exclusively on non-AE

transactions and a detailed note on the in-house product development

work. The Ld. A.R has claimed that after excluding product-related

costs, the PLI would be 27.22%, comparable with the PLI of the

comparable companies. We find merit in Ld. AR’s submission that

segmented financial excluding the product related costs of HPCR

product need to be considered for determination of Arm’s Length Price

of International transaction by the assessee company with its AE in fair

manner. As these additional evidences were not submitted by the

assessee before the A.O/TPO, it would be appropriate to remand the

matter to the A.O/TPO to determine the TP adjustment afresh,

considering the additional evidences and excluding product-related

costs.

8.

The assessee has also challenged the disallowance of

Rs.6,19,220/- in respect of gifts, donations, and CSR expenses. The

A.O has disallowed the above expenditure as not incurred wholly for

IT(TP)A No.98/Chny/2024 Sysvine Technologies Pvt. Ltd. :- 7 -: the business purposes. However, the A.O has also noted that donation of Rs 5.50 Lakh was made to the trusts which are approved under 80G(5) of the Act, but since assessee has not made claim of deduction u/s 80G of the Act in the return of income, the same is not being allowed. The Ld. A.R submitted that donation of Rs.5,50,000/- was made by the assessee, which is eligible for deduction u/s. 80G of the Act, and therefore, the A.O should have allowed the deduction u/s. 80G of the Act, in case same was disallowed as not wholly for business purpose. We find merit in submission of Ld AR, and therefore direct the A.O to allow the deduction u/s 80G in respect of donation of Rs 5,50,000 after due verification.

9.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on 26th day of September, 2025 at Chennai.

Sd/- Sd/- (जगदीश) (यस यस िव�ने� रिव) (Jagadish) (SS Viswanethra Ravi) सद�य / Judicial Member लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य चे�नई/Chennai, �दनांक/Dated: 26th September, 2025. EDN/-

IT(TP)A No.98/Chny/2024 Sysvine Technologies Pvt. Ltd. :- 8 -: आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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