AEGIS CUSTOMER SUPPORT SERVICES PVT LTD.,MUMBAI vs. DCIT, CIT-14(1)(1), MUMBAI

आदेश / ORDER PER: SHRI ANIKESH BANERJEE, (JM):

The assessee has preferred the appeal against the final assessment order dated 30.10.2025 passed under section 143(3) read with section 144C(13) read with section 144B of the Income-tax Act, 1961 [for brevity, the ‘Act’] order passed by Assessment Unit Income Tax Department [for brevity, “Ld. AO”], pursuant to the directions of the Ld. CIT (DRP-1), Mumbai-3 [for brevity, the “Ld. DRP”] dated 03/09/2025 under section 144C(5) of the Act.

“Grounds of Appeal

Ground on Validity of the Order

Adjustment of INR 6,53,45,659 pertaining to Availing of Business Support Services

Adjustment of INR 37,95,26,615 pertaining to payment of interest on Compulsorily Convertible Debentures (‘CCD’)

Initiation of penalty proceedings under section 270A of the Act

Levy of Interest under section 234B/C/D of the Act

The assessee has also raised an additional Ground No.19 seeking deduction under section 80JJAA of the Act, which, according to the assessee, was inadvertently omitted from the return of income.”

3.2. For the Assessment Year 2022-23, the assessee filed its return of income on 24.11.2022 declaring total income of Rs.3,30,17,790/-. During the year, the assessee had entered into various international transactions with its AEs. The matter was referred to the Ld. TPO under section 92CA(1) of the Act. The Ld. TPO, vide order dated 11.01.2025, proposed two principal transfer-pricing adjustments, namely, Rs.6,53,45,659/- in respect of business support services availed from the AE and Rs.37,95,26,615/- in respect of interest paid on CCDs, aggregating to Rs.44,48,72,274/-.

3.3. In relation to business support services, the assessee had availed services from Startek Inc. under four broad heads, namely, Sales and Marketing Support, Human Resources Support, Legal Support and Operational Support. The charges were allocated at cost plus a mark-up of 9%. The assessee benchmarked the transaction under TNMM with the foreign AE as the tested party. The Ld. TPO, however, rejected the benchmarking analysis and determined the ALP of the transaction at NIL by applying the Other Method.

3.4. In respect of the second adjustment, the assessee had issued CCDs to its AE, ESM Holdings Limited, carrying interest at 9.50% per annum. The Ld. TPO treated the CCDs as being in the nature of equity and consequently determined the ALP of the interest payment at NIL. The Ld. DRP upheld the transfer-pricing adjustments. The Ld. DRP further directed examination of the allowability of the expenditure under sections 36(1)(iii)/37(1) of the Act. The final assessment was accordingly completed determining total income at Rs.47,78,90,064/-. Aggrieved by the final assessment order, the assessee is in appeal before us.

Grounds Nos. 3 to 10

4.1. The Ld. AR submitted that the Ld. TPO had determined the ALP of the business support services at NIL without properly appreciating the voluminous documentary evidence furnished by the assessee. It was submitted that the assessee had furnished its TP documentation, inter-company agreement, sample invoices, management-certified cost allocation workings, benefit-test documentation and extensive supporting material in the nature of emails, presentations, policies and guidelines pertaining separately to Sales and Marketing, Human Resources, Legal and Operational Support services.

4.2. The Ld. AR further submitted that, during the appellate proceedings, the assessee filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional supporting evidence. In addition to the documents already filed, the assessee produced a review report issued by a US Certified Public Accountant certifying the break-up of charges on behalf of the AE and supporting the cost allocation.

4.3. It was submitted that the said evidence has a direct bearing on the questions relating to rendition of services, cost allocation and the basis of the charge. The assessee therefore prayed for admission of the additional evidence.

4.4. As regards Ground No.10, the Ld. AR contended that the business support services were incurred wholly and exclusively for the assessee's business. According to the assessee, the services were recurring operational services and did not result in creation of any capital asset or enduring proprietary right. Therefore, the expenditure satisfied the requirements of section 37(1) of the Act.

5.1. The Ld. DR relied upon the orders of the Ld. TPO/AO and the directions of the Ld. DRP. It was submitted that the assessee had failed to satisfactorily demonstrate the actual rendition of specific services and the benefit derived therefrom. The documents originally produced were considered insufficient to establish the services for which an independent enterprise would be willing to make payment.

5.2. In relation to the additional evidence filed before the Tribunal, the Ld. DR submitted that the same had not been examined by the Ld. TPO/AO and, therefore, if admitted, the Revenue authorities should be afforded an opportunity to examine its authenticity, relevance and effect upon the determination of the ALP.

6.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee has placed substantial documentary material relating to the alleged rendition of business support services. Further, before us, the assessee has produced additional supporting evidence, including the review report issued by the US Certified Public Accountant relating to the break-up of charges and cost allocation. The application itself records that the assessee had earlier furnished the TP documentation, inter-company agreement, invoices, benefit-test documentation and supporting material pertaining to the four categories of services.

6.2. In our considered view, the additional evidence goes to the root of the controversy regarding actual rendition of services, allocation of costs and benchmarking of the international transaction. Since this evidence was not examined by the Ld. TPO/AO, it would not be appropriate to record any finding on its evidentiary value for the first time at the appellate stage.

6.3. Accordingly, in the interest of substantial justice, the additional evidence is admitted and Ground Nos.3 to 10 are restored to the file of the Ld. AO/Ld. TPO for adjudication afresh, after considering the entire material already on record as well as the additional evidence admitted by us. The Ld. AO/Ld. TPO shall grant reasonable opportunity of being heard to the assessee and thereafter decide these issues in accordance with law. We have not expressed any opinion on the merits of these grounds.

Accordingly, Ground Nos.3 to 10 are allowed for statistical purposes.

Grounds Nos. 11 to 16

7.1. The Ld. AR submitted that the Ld. TPO fundamentally erred in recharacterising the CCDs as equity merely because they were compulsorily convertible. The assessee had issued CCDs to ESM Holdings Limited in November 2017 aggregating to Rs.399,50,17,000/-, carrying interest at 9.50% per annum. The instrument provided for conversion into equity shares within/at the end of ten years. The assessee submitted that the CCDs were unsecured debt instruments carrying fixed interest, conferred no voting rights prior to conversion and ranked ahead of equity upon liquidation.

7.2. The Ld. AR further submitted that the assessee had benchmarked the interest transaction by applying CUP as the most appropriate method. The benchmarking exercise identified 56 comparable issuances, resulting in an arm's-length range of 9% to 11% with a median of 10%. Therefore, the coupon rate of 9.50% was within the arm's-length range.

7.3. The Ld. AR contended that the Ld. TPO could not disregard the legal character of the transaction and recharacterise the CCDs as equity. Conversion into equity was merely the agreed mode of discharge of the debt and did not alter its character during the tenure of the instrument. It was further contended that the accounting treatment under Ind AS or treatment under FEMA could not, by itself, determine the character of the instrument for purposes of transfer pricing under the Act.

7.4. In respect of Ground No.16, the Ld. AR submitted that the proceeds of the CCDs were utilised for carrying on the assessee's business and operating expenditure. Therefore, interest was allowable under section 36(1)(iii) and, alternatively, under section 37(1) of the Act.

8.1. The Ld. DR relied upon the findings of the Ld. TPO and the directions of the Ld. DRP. It was submitted that the CCDs were fully and compulsorily convertible; the principal was never repayable in cash; and the conversion ratio was predetermined. Therefore, the transaction was, in substance, akin to an equity investment rather than an ordinary borrowing.

8.2. The Ld. DR further submitted that the Ld. TPO had correctly rejected the benchmarking analysis and determined the ALP of the interest payment at NIL. The Ld. DR also relied upon the alternative findings under sections 36(1)(iii) and 37(1) of the Act.

9.1. We have considered the rival submissions and perused the material placed before us. The undisputed terms of the CCD instrument show that the assessee was under an obligation to pay interest at the coupon rate of 9.50% per annum; the CCDs did not confer voting rights upon the holder prior to conversion; and the instrument recognised a debtor-creditor relationship during its subsistence. The fact that the agreed mechanism for discharge of the obligation ultimately involves conversion into equity does not, by itself, warrant disregarding the character of the instrument during the pre-conversion period.

9.2. We further find that the Ld. TPO rejected the CUP analysis primarily after treating the CCDs as equity and thereafter determined the ALP of the interest transaction at NIL. The assessment record itself records the TPO's reasoning that the CCDs were fully and compulsorily convertible and that the principal would ultimately be converted into equity, on which basis the interest benchmarking was rejected.

9.3. In these circumstances, the transfer-pricing adjustment cannot be sustained merely by substituting the character of the transaction and determining the ALP of the interest at NIL without determining the arm's- length price in accordance with the prescribed transfer-pricing framework.

9.4. Once the character of the CCDs during their subsistence is recognised and the funds are utilised for the purposes of the assessee's business, the alternative disallowance of the very same interest under sections 36(1)(iii)/37(1), founded substantially upon its treatment as equity, cannot survive on the reasoning adopted in the impugned order.

Accordingly, Ground Nos.11 to 16 are allowed.

Ground No.17 — Penalty under Section 270A

10.1. Ground No.17 challenges initiation of penalty proceedings under section 270A of the Act. Since penalty proceedings are separate proceedings and no penalty has yet crystallised for adjudication in the present appeal, the challenge is premature at this stage.

Accordingly, Ground No.17 is dismissed as premature.

Ground No.18 — Interest under Sections 234B, 234C and 234D

11.1. The levy of interest under sections 234B, 234C and 234D of the Act is consequential in nature. The Ld. AO is directed to give consequential effect in accordance with law while giving effect to this order.

Ground No.18 is accordingly disposed of as consequential.

Additional Ground No.19 — Deduction under Section 80JJAA

12.1. The Ld. AR submitted that the assessee had inadvertently omitted to claim deduction under section 80JJAA amounting to Rs.15,04,71,394/- in its return of income and had also not filed Form No.10DA within the prescribed time. However, during the assessment proceedings, vide letter dated 02.12.2024, the assessee furnished a revised computation, revised ITR-6 and manual Form No.10DA certified by a Chartered Accountant. The Ld. AO did not take cognizance of the claim. The assessee has, therefore, raised the claim by way of an additional ground before the Tribunal.

12.2. The Ld. AR relied upon the decision of the Hon'ble Madras High Court in CIT v. Abhinitha Foundation (P.) Ltd. reported in [2017] 396 ITR 251 (Mad.), wherein it was held that even where a claim does not form part of the original or revised return, the appellate authorities are competent to consider such claim where relevant material is available on record.

12.3. The Ld. AR also relied upon the judgment of the Hon'ble Bombay High Court in CIT v. Smt. Archana R. Dhanwatey reported in [1982] 136 ITR 355 (Bom.), wherein the Court recognised that the taxing authority is required to compute the total income in accordance with law and that a legitimate claim should not be rejected merely on a technical consideration that the specific claim was not earlier made.

12.4. The Ld. DR, on the other hand, relied upon the decision of the Coordinate Bench of ITAT-Mumbai in 360 One Distribution Services Ltd. v. DCIT reported in [2026] 183 taxmann.com 634 (Mumbai-Trib.), wherein the claim under section 80JJAA raised for the first time before the appellate authority was rejected in view of section 80A(5), since the deduction had not been claimed in the return of income. The Coordinate Bench specifically held that section 80A(5) disentitled the assessee from claiming deduction under section 80JJAA where no such claim had been made in the return.

12.5. We have considered the rival submissions. In the present case, the claim involves not merely the power of an appellate authority to entertain an additional legal claim, but also the factual and statutory requirements governing deduction under section 80JJAA, including Form No.10DA. The assessee has specifically pleaded that there existed circumstances resulting in impossibility of performance of the prescribed procedural requirement within the stipulated period and that the supporting material was subsequently placed before the Ld. AO during the assessment proceedings.

12.6. The Ld. DR has relied upon the decision of the Coordinate Bench in 360 One Distribution Services Ltd. (supra), wherein the claim of deduction under section 80JJAA of the Act, raised for the first time before the Ld. CIT(A), was rejected by applying section 80A(5) of the Act. However, we find that the facts of the present case are distinguishable. In 360 One Distribution Services Ltd. (supra), the assessee had neither claimed the deduction under section 80JJAA in the return of income nor raised such claim during the course of assessment proceedings; rather, the claim was made for the first time before the Ld. CIT(A). The Coordinate Bench specifically noticed that, although Form No.10DA was obtained on 30.10.2019, no material was brought on record to demonstrate what prevented the assessee from raising the claim and furnishing Form No.10DA before the Assessing Officer during the scrutiny proceedings, which concluded subsequently on 29.01.2021. In the present case, however, the assessee had raised the claim during the subsistence of the assessment proceedings itself and, vide letter dated 02.12.2024, furnished before the Ld.

AO the revised computation of income, revised ITR-6 and manually filed Form No.10DA duly certified by the Chartered Accountant. Further, the assessee has specifically raised the plea of impossibility of performance in relation to compliance with the prescribed procedural requirement, which requires examination on its own facts. Thus, the factual foundation on which the Coordinate Bench rendered its decision in 360 One Distribution Services Ltd.(supra) is materially different from the facts obtaining in the present case. Accordingly, the said decision cannot, without examination of these distinguishing facts, be applied mechanically to reject the assessee's claim under section 80JJAA of the Act.

12.7. In our considered view, this aspect requires factual examination by the Ld. AO. The competing contentions, including the applicability of section 80A(5), the statutory conditions prescribed under section 80JJAA, the evidentiary value and timing of Form No.10DA and the assessee's plea concerning impossibility of performance, have not been examined by the Ld. AO in the context of the claim now raised before us.

12.8. Accordingly, without expressing any opinion on the allowability of the deduction, Additional Ground No.19 is restored to the file of the Ld. AO for adjudication in accordance with law. The Ld. AO shall specifically examine the assessee's explanation and supporting evidence for claim of deduction u/s80JJAA within the prescribed time and shall afford a reasonable opportunity of being heard to the assessee before deciding the claim. All legal and factual contentions of both sides are kept open.

Accordingly, Additional Ground No.19 is allowed for statistical purposes.

Ground No.2 — Limitation

13.1. Ground No.2 challenges the validity of the final assessment order on the ground of limitation under section 153 of the Act. The assessee has, inter alia, referred to the subsequent legislative amendments made by the Finance Act, 2026 and has also raised contentions regarding their retrospective operation.

13.2. Considering the nature of the issue and the fact that the other substantive grounds have been adjudicated/restored as above, Ground No.2 is kept open and we refrain from recording any finding thereon in the present proceedings.

Result

• Ground No.1 is general in nature and requires no separate adjudication. • Ground No.2 is kept open. • Ground Nos.3 to 10 are restored to the file of the Ld. AO/Ld. TPO for fresh adjudication after considering the additional evidence and granting reasonable opportunity to the assessee. • Ground Nos.11 to 16 are allowed. • Ground No.17 is dismissed as premature. • Ground No.18 is consequential and the Ld. AO shall give consequential effect in accordance with law. • Additional Ground No.19 is restored to the file of the Ld. AO with a direction to afford reasonable opportunity to the assessee and specifically consider the assessee's plea and evidence relating to deduction calimed u/s 80JJAA, without being influenced by any observation on merits made herein.

Order pronounced in the open court on 06th day of October 2026.

Sd/- Sd/-

(RATNA DASGUPTA) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, िदनांक/Dated: 06/10/2026 Soumili, PS

Copy of the Order forwarded to: अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकरआयु� CIT 3. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, 4. Mumbai गाड�फाइल/Guard file. 5. ABHINAV Digitally signed by ABHINAV ANANT ANANT BY ORDER, GAVANDE Date: 2026.10.13 14:14:47 GAVANDE //True Copy// +05'30' (Asstt. Registrar), ITAT, MUMBAI