QUINNOX CONSULTANCY SERVICES LIMITED,MUMBAI vs. DCIT, 3(1)(1), MUMBAI , MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL
‘J’ BENCH MUMBAI

BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER
&
MS. PADMAVATHY S, ACCOUNTANT MEMBER
Quinox Consultancy Services Limited
Unit 107, Multistoried Building
SEEPZ SEZ,Andheri (E)
Mumbai – 400096,Maharashtra
Vs. DCIT – 3(1)(1)
Aayakar Bhawan
Maharshi Karve Road
New Marine Lines
Churchgate
Mumbai – 400020
Maharashtra
PAN/GIR No.AAACI5721K
(Appellant)
..
(Respondent)

Assessee Represented by :
Ms. Karishma Phatarphekar
Shri Harsh Shah &
Shri Yash Ranglani
Revenue Represented by :
Shri Pankaj Kumar,(CIT DR)
Date of Conclusion of Hearing
:
11/02/2025
Date of Pronouncement
:
09/05/2025

आदेश / O R D E R

PER AMIT SHUKLA, JM:

The aforesaid appeal has been filed by the assessee against final Assessment order dated 12.07.2024 passed by ld. AO u/s.143(3)/144C(13)/144B of the Income Tax Act, 1961 (in short “Act”) for the A.Y. 2020-21 in pursuance of direction given by the DRP dated 03.06.2024. Quinox Consultancy Services Limited

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2. In various grounds of appeal, assessee mainly challenged the Transfer Pricing adjustment of Rs.14,18,15,259/- on provision of software development services to its AE.
3. The brief facts and background of the case are that, assessee i.e., Quinnox India is a wholly owned subsidiary of Quinnox Inc. USA. Quinox India markets, promotes and delivers a range of information technology services (software development services') including applications and systems development, management, testing and maintenance to corporate customers across India (third parties). Quinnox India also provides outsourced services, (software development services') including development, testing, and maintenance and support services, to its Associated Enterprises ("AE"). Assessee is not a captive service providers and it renders software development services to both AE's and non-AEs, which are similar in nature. Therefore, the Quinnox India is characterized as independent service provider assuming normal business risks.
4. During the year assessee has entered into following international transactions: -
Sr.
No .
Nature of Transacti on Name of the A.E. Amount (in INR)
Method of Benchm arking
1. Provision of Software
Services
Quinnox Inc. USA
83,67,47,556/- Transact ional
Net
Margin
Method.
Quinnox Limited,
UK
21,50,39,849/-
Quinnox
Consultancy FZ
LLC, Dubai
3,90,05,012/-
Total
1,09,07,92,417/-
Quinox Consultancy Services Limited

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2. Recovery of Expenses
Quinnox Inc. USA
1,88,65,857/- Transact ional
Net
Margin
Method
Quinnox Limited,
UK
1, 87,37, 546/-
Quinnox
Consultancy FZ
LLC, Dubai
1,34,193/-
Total
3,77,37,596/-
5. Assessee had benchmarked the AE segment for provision of software services to aforesaid mentioned AE’s by selecting
Transactional Net Margin Method as most appropriate method by adopting internal comparable instances i.e., internal TNMM.
Profit Level Indicator (PLI) was adopted by using Operating
Profit/Operating Cost. The PLI of AE segment was reported at 3.76% while margin of Non-AE segment was (-) 4.28%. Since the PLI in AE segment was higher than the PLI in non-AE segment, the assessee claimed that the transaction with the AE was at arm’s length. During the TP Proceedings at the instances of TPO, the assessee conducted alternate benchmarking wherein it adopted following alternatives methods to justify that the AE segment was at ALP: viz.,

Internal CUP - Since the Appellant's contracts with its AE were based on 'time & material' ('T&M') basis, it compared the AE contracts with similar contracts in the non-AE segment.
The Appellant charged an hourly rate of U 16 and GBP
13 to its AE, which resulted in a weighted average per hour rate of Rs.1,152.94. Since in the non-AE T&M contracts, the weighted average per hour rate was Rs. 934.09, the Appellant claimed that its AE segment was at arm's length

Other
Method
(Rule
10AB)
-
The Appellant corroborated the aforementioned benchmarking by adopting a 'Revenue Split approach. In the AE segment, the Quinox Consultancy Services Limited

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Appellant had substantial transactions with Quinnox US
(approx. 77%). Quinnox US was sharing around 65% of the revenue earned by it from end customers. The 35% of the revenue that Quinnox US was retaining was commensurate to the functions which it was carrying out viz. marketing, sales, customer relationship management, project management and overall supervision of the work. Third parties carrying out functions similar to Quinnox USA were earning gross margin in the range of 34.45% to 56.85%.
Accordingly, the Appellant claimed that its AE segment was at arm's length.

External TNMM - The Appellant also corroborated its arm's length conclusion concerning the AE segment based on external
TNMM by identifying
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comparables companies, whose margins were in the range of 3.24% to 9.46%. Since Appellant's margin in the AE segment was 3.76%, the Appellant demonstrated that its AE segment was at arm's length.
6. The Ld. TPO after examining the TP study report, copy of agreements and other details has noted the following facts: -
“(i)
On perusal of the agreement with the third parties and the Master Service agreement signed by the assessee with AE dated 01.05.2017, the following facts are evident:-
(ii)
The nature of services provided and the nature in which the services are provided are different and not comparable.
(iii)
The nature in which the fees are determined for each such service is varied and different. As per the clause 3 of the agreement with the AE in US and UK, it is agreed that for the services rendered on time and material basis, the assessee will charge fee at the rate of GBP 13 per hour per resource and US $16 accordingly. However, with respect to the Non
AE, the assessee has different rate card for each designation of employee. Thus the rate charged by the assessee to the AE and the Non AE for the services provided are not comparable.
Quinox Consultancy Services Limited

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(iv)
As per the master service agreement, the assessee has been granted by the AE the license to use the intellectual properties of AE and vice versa and the same such grants are not possible in a third party situation. Considering the above facts, the segmental margins of AE and Non AE as relied by the assessee for benchmarking is not acceptable.
(v)
Further, the turnover of the Non AE segment is only
34.03 crore as compared with the AE segment turnover which is Rs. 109.07 crore. The Non- AE revenues are both from domestic clients and foreign clients.
(vi)
The APA agreement relied upon pertains to FY 2013-
14 to FY 2017-18 and the critical assumptions agreed is only relevant for that year. Therefore, the submission on benchmarking based on segmental margins of AE and Non AE relying upon APA agreed for previous years is not acceptable.
The APA renewal for the relevant year is pending.”
7. Thus he observed that the bench marking done by the assessee by adopting Internal TNMM is not acceptable.
8. He also rejected the Internal CUP as well as other method adopted by the assessee as an alternative benchmarking analyses. The sum and substance, the reasons given by the TPO to reject the assessee benchmarking methods on the following: - i.
Nature of services under both segments was different.
ii.
Pricing mechanism in both segments was different.
iii.
Element of license of intellectual property by the AE to the Appellant and vice-versa, was absent in non-AE transactions.
iv.
Turnover in the non-AE segment was lower as compared to the AE segment.
v.
Non-AE segment and AE segment are not comparable on account of geographical and economic factors, since 50% of the non-AE
Quinox Consultancy Services Limited

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segment revenue was from domestic client's whereas in the AE segment the entire revenue was from exports.
vi.
The Appellant had earned an exceptionally low margin of 3.76% in the AE segment whereas the safe harbour rules prescribes margin of 18% for concerning S activities in the range of 100 Crores to 200
Crores.
vii.
Even though the internal TNMM approach was in line with the previous APA, however the same ought not to be followed since the current APA was pending.
viii.
Since internal CUP was rejected by the Appellant's in its TP study, adoption of internal TNMM was not acceptable.
Further, the TPO rejected the Appellant's alternative benchmarking using internal CUP due to the following reasons:

The Appellant itself had rejected internal CUP in its TP study; and 
Major revenue in the non-AE segment was from fixed price contracts and had insignificant offshore revenue whereas the entire revenue in the AE segment is from T&M contracts.
9. Thereafter the TPO carried out his own search by using
External TNMM and he arrived at 24 set-of comparables which had earned medium margin of 16.78% as per the details at Page
No. 53 and 54 of the TPO order and made the adjustment of Rs.14,18,15,289/-.
10. The DRP has upheld the TPO reasoning for rejection of internal TNMM and internal CUP benchmarking of the assessee.
It also rejected the assessee’s other method benchmarking based on the revenue split approach holding that services provided and contractual terms in the AE and Non-AE segment were completely different. Thus, DRP upheld the TPO, External TNMM benchmarking and confirmed the TPO Adjustment.
Quinox Consultancy Services Limited

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11. We have heard both the parties at length and also perused the relevant findings given in the TPO order as well as the DRP directions and also the relevant material reported before us at the time of hearing.
12. In so far as the Ground No. 1 relating to challenging the limitation of final assessment order dated 12.07.2024 has not been pressed. Therefore, the same is dismissed as not pressed.
13. Ground Nos. 2, 3 & 4 are general in nature, therefore, no separate adjudication is required.
14. In so far as Ground No. 5 relating to rejection of internal
TNMM concerned, it has been submitted on behalf of the assessee that Internal TNMM as the most appropriate method and the same was adopted for the following reasons: -.
“Functional similarity – Quinnox Indla provides software development services to both AE and Non-AE i.e., similar service and professionals involved in providing the controlled and uncontrolled services.
Similar approach was adopted in previous Quinnox India
APA - For provision of similar software development services by Quinnox India to other AEs i.e., Quinnox US and Quinnox
UK, Internal TNMM has been accepted as the Most Appropriate
Method ('MAM').”
15. On the other hand Ld. DR relying upon the TPO order submitted that internal TNMM cannot be accepted on the following reasons: - i.
Nature of services under both segments was different.
Quinox Consultancy Services Limited

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ii.
Pricing mechanism in both segments was different.
iii.
Element of license of intellectual property by the AE to the Appellant and vice-versa, was absent in non-AE transactions.
iv.
Turnover in the non-AE segment was lower as compared to the AE segment.
v.
Non-AE segment and AE segment are not comparable on account of geographical and economic factors, since 50% of the non-AE segment revenue was from domestic client's whereas in the AE segment the entire revenue was from exports.
vi.
The Appellant had earned an exceptionally low margin of 3.76% in the AE segment whereas the safe harbour rules prescribes margin of 18% for concerning S activities in the range of 100 Crores to 200 Crores.
vii.
Even though the internal TNMM approach was in line with the previous APA, however the same ought not to be followed since the current APA was pending.
viii.
Since internal CUP was rejected by the Appellant's in its TP study, adoption of internal TNMM was not acceptable.
16. From the perusal of the material placed on record, we find that at the threshold there is no difference in the services rendered in both the segments. The nature and services provided and profile of employees providing services both in AE and non-
AE segment are similar. Demonstrating this factor assessee has referred to various documents and had submitted following: -
Nature of services provided and profile of employees providing service in both the segments are similar. To demonstrate the same the Appellant had submitted the following:
Quinox Consultancy Services Limited

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Comparison of revenue earned from AEs and non-AEs from the following broad service categories:
(i)
Application and maintenance support services
(ії)
Enhancement support services
(iii) Software development and implementation services
(iv)
Testing services
(v)
Combined services
Comparison of the level of employees utilized for rendering services to AEs and non-AEs.
- Sample agreements for each category of services viz
Application and Maintenance support services,
Enhancement support services, Software development and Implementation services, Testing services and Combined services.
17. In order to apply TNMM, it is a well settled that TNMM requires comparability on broad functional level, since it tests margins at a net level which absorbs the effects of various differences. Further, the PLI based on net margin are less affected by the transactional differences and even more tolerant to some functional differences. TNMM does not require comparability of pricing mechanism that whether T & M or fixed price. While applying external TNMM, it is seen that TPO has not considered these factors and has gone broadly by functional comparison. Therefore, while applying TNMM similar parameters needs to be applied and difference in pricing mechanism cannot be reason to reject the internal TNMM.
Quinox Consultancy Services Limited

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18. Another important fact is that Intellectual property (IP) terms are similar for both AE and Non-AE and the observation of the TPO had the license to use the Intellectual Properties of AE and non-AE vice-versa is not possible in the third party agreement appears to be incorrect. This has been substantiated by comparing the similar clauses which forms part of the inter- company agreement as well as third party agreement. It is seen both AE and non-AE agreement have similar clauses concerning
Intellectual property.
19. Another factor to be kept in mind that turnover is not relevant in internal TNMM. In any case, it has been stated that AE segment satisfies the ten times turnover filters which has been applied by the TPO in external TNMM. It has been brought on record that for the purpose of comparability of the AE segment with non-AE segment, in assessee’s own case in the earlier years, APA has prescribed threshold that the revenue in non-AE segment is at least 15% of the total revenues and this has been satisfied in this year.
20. Before us, a comparison chart which has been brought year on year profit margin and sales split between the AE segment and non-AE segment, which is reproduced as under: -
Financial Year TP assessment status
AE segment
Margin
Non-AE segment
Margin
(adjusted) t Non-AE sales to total sales (%}
2017-18 (last year of APA)
No Assessment
1.08%
-4.84%
29.52%
Quinox Consultancy Services Limited

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Financial Year TP assessment status
AE segment
Margin
Non-AE segment
Margin
(adjusted) t Non-AE sales to total sales (%}
2018-19
No Assessment
4.02%
2.68%
31.08%
2019-20
Year at ITAT
3.76%
-3.39%
23.78%
2020-21
Clean order
13.18%
0.50%
17.55%
2021-22
Clean order
5.52%
4.37%
12.51%
21. Other factors which has been cited by the authorities are not relevant for the purpose of applying Internal TNMM which on facts of the present case are being discussed in the following manner: -
(i)
Geographical differences are not material
 Nearly 50% revenue of non-AE segment is from exports. Hence, there are no significant geographical differences.
 Further, for the purposes of comparability of the AE segment with non-AE segment the APA does not prescribe any export filter concerning the non-AE segment. Hence, even the APA authorities provided their imprimatur to the proposition that there are no significant geographical differences in the AE segment and the non-AE segment of the Appellant.
(ii)

Low margin as compared to safe harbour is not relevant as the Appellant is not a captive service provider on a total cost-plus basis
Quinox Consultancy Services Limited

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 Appellant is exposed to pricing pressures hence it is required to offer its services at extremely competitive rates to secure business.
 Therefore, Appellant operates as an independent services provider and operates on an hourly rate basis and charges for hours actually worked upon.
 Since it is non-AE segment and is preferred ALP.
Therefore, safe harbour is not relevant.
(iii) Internal TNMM is accepted in APA
 Assessee had entered into an APA for the period from AY 2014-15 to AY 2018-19, wherein internal TNMM was adopted the MAM.
 International transaction covered in APA - rendering IT services to US, UK, Singapore, Germany etc and for the relevant assessment year under international transaction of the Appellant is same as that covered in APA with the same parties.
 FAR as per the APA and the FAR as per the TPSR is same.
 MAM for determination of the ALP as per the APA is internal TNMM.
 Segmental information provided for the year is worked out in accordance with mechanism prescribed in the erstwhile APA.
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 The critical assumptions of the APA are fulfilled for the year under consideration. Hence, the internal TNMM as accepted in the APA ought to be accepted by the TPO since there is no change in the Appellant's business as compared to the years covered by APA.
22. Thus, we hold that internal TNMM is the most appropriate method on the facts of the assessee’s case and accordingly we accept the benchmarking of the assessee and hold that assessee’s PLI derived from AE is far better than Non-AE segment and even FAR analysis is also similar in both the segments, therefore AE transaction can be reckoned as arms lengths transaction.
23. In so far as rejection of internal CUP and other method, we are not going into these alternative methods, when we have accepted internal
TNMM as most appropriate method.
Accordingly, adjustment made by the TPO is deleted.
24. In the result, appeal of the assessee is allowed.
Order pronounced on 9th May, 2025. (PADMAVATHY S) (AMIT SHUKLA)
ACCOUNTANT MEMBER
JUDICIAL MEMBER
Mumbai; Dated 09/05/2025
Giridhar, sr.ps
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
Quinox Consultancy Services Limited

BY ORDER,

(Asstt.