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Facts
The assessee, a wholly owned subsidiary, provides ITES and IT services to its AEs on a cost-plus basis. The TPO/AO made transfer pricing adjustments for ITES and IT services, holding that these international transactions were not at arm's length. The Ld. CIT(A) partly allowed the appeal.
Held
The Tribunal found merit in the assessee's contentions regarding the exclusion of several comparable companies. Upon excluding these comparables, the operating profit margins of the remaining companies aligned with the assessee's declared margins, indicating arm's length transactions.
Key Issues
Whether the transfer pricing adjustments made by the AO/TPO, based on the selected comparable companies, were justified, and whether certain companies should have been excluded from the comparable set.
Sections Cited
250, 143(3), 144C(3), 92D, 10D, 92C(1), 92C(2), 10B(4), 271(1)(c), 274, 92C, 10C, 92CA(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRIANIKESH BANERJEE & SHRI GIRISH AGRAWAL
O R D E R PER: ANIKESH BANERJEE (JM):
Instant appeal of the assessee was filed against the order of the Learned Commissioner of Income-tax (Appeals)-56, Mumbai *for brevity, ‘Ld.CIT(A)’+ passed under section 250 of the Income-tax Act, 1961 (for brevity the “Act”) for Assessment Year 2014-15, date of order 19/09/2024. The impugned order was emanated from the order of the Learned Assistant Commissioner of Income-tax,
2 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd Circle 10(1)(1), Mumbai (for brevity the “Ld. AO”), passed under section 143(3) read with section 144C(3) of the Act, date of order 19/01/2018. 2. The assessee has taken the following ground of appeal: - “The grounds hereinafter taken by the Appellant are without prejudice to one another:
1:0 On the facts and in the circumstances of the case, and in law, the learned Assistant Commissioner of Income Tax Mumbai (the 'AO') erred in making an addition of Rs. 13,10,59,610 to the total income and assessing the total income of the Appellant for the captioned AY at Rs. 25,37,46,510.
Transfer pricing issues:
2:0 Transfer Pricing Adjustment of Rs. 10,14,93,918 in relation to the international transaction of receipt from production services ['ITeS services'):
2:1 The AO/Learned Transfer Pricing Officer (the 'TPO') / Learned Commissioner of Income Tax Appeals [the 'CIT (A)] have erred on the facts of the case and in law in making an upward adjustment of Rs. 10,14,93,918 to the total income of the Appellant by holding that the international transaction relating to ITeS services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length.
2:2 The learned AO/TPO/CIT (A) erred on facts and in law in disregarding the benchmarking analysis conducted by the Appellant based on the contemporaneous data in the Transfer pricing study report ('TP Study Report') maintained as per Section 92D of the Income Act 1962 (the 'Act') read with Rule 10D of the Income-tax Rules, 1962 ('the Rules').
2:3 The AO/ΤΡΟ / CIT (A) have erred in rejecting the economic analysis and methodical search process undertaken by the Appellant to identify comparable companies providing services similar to the ITeS services rendered by the Appellant.
3 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd
2:4 The AO/TPO / CIT (A) has determined the arm's length price of the Appellant's international transactions without undertaking any scientific search process in violation of sections 92C(1) and 92C(2) and resorting to cherry picking of comparable companies.
2:5 The ΑΟ/ΤΡΟ / CIT (A) erred in law and in facts of the case in applying inappropriate qualitative and quantitative criteria for accepting/rejecting companies.
2:6 The AO/TPO/CIT (A) erred in applying an inappropriate filter of including companies having export earnings less than 75% of total turnover.
2:7 The AO/ TPO/ CIT (A) has resorted to the use of single year data of the alleged comparable companies instead of multiple year data, as permissible under Rule 10B(4) of the Rules. 2:8 The AO/TPO/CIT (A) have erred in rejecting companies having different FY ending or whose data does not fall within the 12 month period of 1 April 2013 to 31 March 2014.
2:9 The AO/ TPO/ CIT (A) erred in incorrect application of filter for related party transactions.
2:10 The AO/ TPO/ CIT (A) erred in disregarding the contention of the Appellant to undertake economic adjustments for working capital and market risk.
2:11 The AO/ TPO / CIT (A) have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. i. ACE BPO Services Pvt Ltd ii. Allsec Technologies Ltd iii. Caliber Point Business Solutions iv. Cosmic Global Limited v. e4e Healthcare Business Services Pvt. Ltd vi. ICRA Techno Analytics Limited vii. Informed Technologies India Limited vii. Microgenetics Systems Ltd
4 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd
2:12 The AO/TPO/CIT (A) erred on facts in arriving at a new set of comparable companies by adding following companies: i. Omega Healthcare Management services Pvt Ltd. ii. Excel Infoways Limited iii. Genesys International Corporation Ltd iv. IRIS Business Services Limited v. Crossdomain Solutions Private Limited vi. MPS Limited vii. Microland Limited viii. eClerx Services Limited
3:0 Transfer Pricing Adjustment of Rs. 2,95,65,692 in relation to the international transaction of receipt from software development services ["IT services"]:
3:1 The AO/TPO/ CIT (A) have erred on the facts of the case and in law in making an upward adjustment of Rs. 2,95,65,692 to the total income of the Appellant by holding that the international transaction relating to IT services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length.
3:2 The AO/TPO/ CIT (A) erred on facts and in law in disregarding the benchmarking analysis conducted by the Appellant based on the contemporaneous data in the Transfer pricing study report (TP Study Report) maintained as per section 92D of the Act read with Rule 100 of the Rules. 3:3 The AO/TPO/CIT (A) have erred in rejecting the economic analysis and methodical search process undertaken by the Appellant to identify comparable companies providing services similar to the IT services rendered by the Appellant.
3:4 The AO / TPO CIT (A) has determined the arm's length price of the Appellant's international transactions without undertaking any scientific search process in violation of sections 92C(1) and 92C(2) and resorting to cherry picking of comparable companies.
5 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd
3:5 The AO/TPO/CIT (A) erred in law and in facts of the case in applying inappropriate qualitative and quantitative criteria for accepting/rejecting companies.
3:6 The AO/TPO/CIT (A) erred in applying an inappropriate filter of including companies having export earnings less than 75% of total turnover.
3:7 The AO/ TPO/ CIT (A) has resorted to the use of single year data of the alleged comparable companies instead of multiple year data, as permissible under Rule 10B(4) of the Rules.
3:8 The AO/TPO/CIT (A) have erred in rejecting companies having different FY ending or whose data does not fall within the 12 month period of 1 April 2013 to 31 March 2014.
3:9 The AO/ TPO/ CIT (A) erred in incorrect application of filter for related party transactions.
3:10 The AO/ TPO/ CIT (A) erred in disregarding the contention of the Appellant to undertake economic adjustments for working capital and market risk.
3:11 The AO/ TPO / CIT (A) have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report: i. Akshay Software Technologies Limited ii. CG-Vak Software & Exports Ltd iii. E-zest Solution Limited iv. Helios & Matheson Technologies Limited v. Mindtree Ltd Seg vi. R Systems International Ltd. vii. Tata Elxsi Ltd.
3:12 The AO/TPO/CIT (A) erred on facts in arriving at a new set of comparable companies by adding following companies: i. Aspire Systems (India) Private Limited - Software Segment
6 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd
4:0 Re:General
4:1 On the facts and circumstances of the case, and in law, the AO erred in initiating penalty proceedings under section 271(1)(c) r.w.s. 274 of the Act.
4:2 The Appellant craves leave to add, alter, amend and/or substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.”
2. The brief facts of the case are that the assessee is a wholly owned subsidiary of HERE Singapore Limited. The primary services rendered by assessee to its Associated Enterprises (AEs) are production service (ITES), Software Development Service (IT) and promotion services and support services. The assessee company is engaged in business of developing marketing, licensing and distribution of MAP and related allocation-based data, software and services for use in mobile invocation and other invocations and GIS applications and devices in India.The assessee e-filed its return of income for the year ended 31/03/2014 on 26/11/2014, declaring total income of Rs. 12,26,86,900/-. The assessee’s case was taken for scrutiny and the matter referred to the TPO related to transaction with AE. Finally, the draft assessment order under section 143(3) read with section 144C(1) of the Act was passed on 11/12/2017 proposing to assess total income of assessee for the impugned assessment year at R.25,37,46,510/-. The said order was duly served on the assessee. In response to that the assessee vide letter dated 08/01/2018 informed that the company wishes to exercise its option to appeal before the Ld. CIT(A) instead of Dispute Resolution Panel (DRP). Finally,
7 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd the issues involved in the proposed variations are finalized and the additions made by the TPO in relation to the receipts of ITES and IT are as follows: - Sr.No. International Amount as Arm’s length price Proposed transfer Transactions disclosed in Form as determined by pricing Adjustment 3CEB (Rs.) the ld.TPO (Rs.) (Rs.) 1. Receipt from ITES 69,98,60,154 80,13,54,688 10,14,93,918 2. Receipt from IT 40,44,84,879 42,40,50,571 2,95,65,692 Total 110,43,45,033 123,54,04,643 13,10,59,610 Finally, the Ld.AO passed the final order in impugned assessment order under section 143(3) read with section 144C(3) on 19/01/2018 and made the additions as recommended by the TPO. The aggrieved assessee filed an appeal before the Ld. CIT(A). the Ld.CIT(A) partly allowed the appeal of the assessee. Further aggrieved, the assessee filed appeal before the Tribunal.
The Ld.AR argued that the assessee is a wholly owned subsidiary of HERE Singapore Limited. The assessee was incorporated on 28/01/2008 under the Indian Companies Act, 1956 and started its operations in April 2009. In argument the Ld. AR stated that the assessee is compensated on a cost plus arm's length mark-up for rendering of ITES and IT services. Based on the functional analysis, the assessee can be characterized as a limited risk captive service provider in relation to its said services rendered to its AE.A detailed and systematic search process was adopted by the assessee in the Transfer pricing study report ('TP Study Report') which was submitted vide submission dated 17/01/2017. During the year, the assessee earned a Net cost plus ('NCP') mark-up of 15.35 percent from rendering of ITES to its AE. The three years weighted average NCP mark-up earned by 9 independent comparable companies performing functions
8 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd broadlylike the services rendered by the assessee had an arithmetical mean of 13.51 percent. Since the NCP margin earned by the assessee was higher than the weighted average NCP margin earned by comparable companies i.e. 13.51 percent, the said international transaction of the assessee with its AE was considered to be consistent with the arm's length standard from the perspective of Indian transfer pricing regulations.
During the course of the assessment proceedings the Id. TPO vide show cause notice dated 12/10/2017, asked the assessee to show-cause and explain why the set of comparable companies selected by the Id. TPO in his order for AY 2012-13 and AY 2011-12, including the comparable companies which were not rejected by the Ld. TPO in these years, should not be accepted to benchmark the transaction pertaining to provision of ITES services for AY 2014-15 also. The above comparable companies were analysed and a submission was made before the Ld. TPO, that even after considering all the companies from the previous two AY's TP order's no adjustment to the arm's length markup for ITES services was warranted. Further to this, the Id. TPO issued a second show-cause notice dated 24/10/2017, again asking the assessee to explain why some additional companies proposed by him should not be accepted as comparables to benchmark the transaction pertaining to provision of ITES services. Both the above two list of comparable companies proposed by the ld. TPO in the two show-cause notices were not selected by following a methodical search and were selected on an ad-hoc basis. In response to above, the assessee submitted a 9 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd detailed reasoning, as to why the companies proposed to be selected by Id. TPO were not comparable to the functions performed by the Appellant.
On receipt from IT, a detailed and systematic search process was adopted by the assessee in the TP study report ('TPSR') which was submitted on dated 17/01/2017. During the year, the assessee earned a Net cost plus ('NCP') mark-up of 15 percent from rendering of IT services to its AE. The three years weighted average NCP mark-up earned by 12 independent companies performing functions broadly like the services rendered by the assessee had an arithmetical mean of 14.17 percent. Since the NCP margin earned by the assessee was higher than the weighted average NCP margin earned by comparable companies i.e. 14.17 percent, the said international transaction of the assessee with its AE was considered to be consistent with the arm's length standard from the perspective of Indian transfer pricing regulations.
During the course of the assessment proceedings the Id. TPO vide show cause notice dated 12/10/2017, asked the assessee to explain why the set of comparable companies selected by the Id. TPO in AY 2012-13 and AY 2011-12, including the comparable companies which were not rejected by the Id. TPO in these years, should not be accepted to benchmark the transaction pertaining to provision of IT services for AY 2014-15 also. The above comparable companies were analysed and a submission was made before the Id. TPO, that even after considering all the companies from the previous two AY's TP order's no adjustment to the arm's length markup for IT services was warranted. Further to 10 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd this, the Id. TPO issued a second show-cause notice dated 24/10/2017, again asking the assessee to explain why some additional companies proposed by him should not be accepted as comparables to benchmark the transaction pertaining to provision of IT services. Both the above two list of comparable companies proposed by the TPO in the two show-cause notices were not selected by following a methodical search and were selected on an ad-hoc basis.
In response to above, the assessee submitted a detailed reasoning, as to why the companies selected by Id. TPO were not comparable to the functions performed by the Appellant. The Ld. AR argued that the assessee had carried out a methodical and detailed economic analysis and search in accordance with the provisions of the law. The assessee had undertaken the preparation of TP Study Report using the databases PROWESS and CAPITALINE PLUS. The Ld. AR submitted that it had made reasonable efforts as provided in Section 92C of the Act read with Rule 10C of the Rules to identify independent comparable companies for benchmarking its international transactions. Because of the lack of sufficient data for FY 2013-14, the assessee had used the multiple year data which was in accordance with proviso to Rule 10B(4) of the Rules. The assessee wishes to submit that there is no non-compliance in the manner in which it has undertaken the analysis and that the assessee has complied with all requirements as per Section 92, Section 92C, Section 92D, Section 92E, rule 108, 10C, 10D, 10E for computing its income having regard to ALP, and maintaining necessary information and documentation for determination of ALP. This was done as per procedures outlined and in good faith to comply with all the provisions of law and 11 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd to provide a true and fair analysis that was undertaken with fair and prudent business intent. Accordingly, the assessee submits that no reasons exist to disregard it’s search process and set of comparable companies selected by the assessee considering the fact that the assessee has determined the ALP in compliance with the guidelines provided for in the Act and the Rules.
Related to the comparables, the Ld.AR argued and prayed for exclusion of following comparable which are as follows: - 8.1. MPS Ltd. The observation of the Ld. CIT(A) is reproduced as below:- “6.6 MPS Limited: As per the Appellant, this company is not functionally comparable, segmental data not available. The Appellant has relied on the following case law_ E-Clinical Works India Pvt Ltd (AY 2014-15) FIS Solutions Software (India) Private Limited [Formerly known as SunGard Solutions (India) Private Limited] (AY 2014-15) 6.7 The Appellant has relied on the above cases wherein the Appellants were providing low end ITES services, However, the Appellant is engaged in the business of developing, marketing, licensing and distribution of map and related location-based data, software and services for use in mobile navigation systems and other navigation and GIS applications and devices in India. The Appellant is unable to distinguish as to how MPS Limited is not comparable to the Appellant. Further, as MPS Limited is into one segment, no segmental information has been provided in the financial statements. Considering this company accepted by the TPO is not disturbed.”
The Ld. AR respectfully relied on ruling of the coordinate bench of ITAT-Mumbai in assessee’s own case bearing of order 17/03/2025, the details of which are as under: - “MPS Ltd.
15. The next comparable challenged by the assessee is MPS Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that 12 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd this company is carrying out activities which are functionally similar to the assessee and also qualifies all the filters. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company is engaged in various activities without availability of relevant segmental information. The assessee further submitted that this company undertakes extensive R&D activity and is also engaged in developing cloud-based publishing platforms. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to “Receipt from Production Services”. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities and submitted that data digitalisation is the primary activity of this company and no R&D expenditure was incurred.
We have considered the submissions of both sides and perused the material available on record. From the perusal of relevant extracts of the annual report of MPS Ltd., as reproduced on page 736 of the paper book, we find that MPS Ltd. provides publishing services relating to typesetting of books and journals, composing of yellow page advertisements and catalogues, data coding, conversion, indexing, editing, editorial services, software development, maintenance and support to global publishers. As regards the segmental information, the company claims that it operates in one business segment of providing publishing solutions, viz. typesetting and data digitalisation services and the same is considered to constitute a single segment in the context of primary segment reporting. Further, this company has claimed to have developed an end-to-end cloud-based publishing platform, MPS DigiCore, which addresses the need for an integrated workflow. Further, this company also has a product named MPS Digitrak, which it claims to be a production tracking system developed by MPS Ltd. This company also claims to have developed other solutions through its R&D activities. Therefore, from the details of this company as available in its annual report, it is evident that this company is not merely a provider of typesetting and data digitalisation services, but also offers various
13 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd products through extensive R&D activities carried out by it, as noted on page 737 of the paper book. Hence, we are of the considered view that this company cannot be said to be functionally comparable to the assessee, since despite having revenue earnings from multiple streams, it does not have the relevant segmental information for the benchmarking analysis. Accordingly, we direct the TPO/AO to exclude MPS Ltd. while benchmarking the international transaction pertaining to “Receipt from Production Services”. 8.2.Iris Business Services Limited: The observation of the Ld. CIT(A) is reproduced aa follows: - “6.4. Iris Business Services Limited: -As per the Appellant, this company is not functionally comparable and margin working was not provided. The Appellant has relied on the following case law:- PubMatic India Private Limited [ITA No. 655/PUN/2017] [AY 2012-13]- NortonLifeLock Software Solutions Private Ltd [I.T.A. No. 7347/Mum/2017] for AY 2013- 14- Emerson Electric Company (India) Private Limited- [ITA No.6098/Mum/20 18 &ITA.No.531/Mu m/2018] for AY 2014-15 & AY 2013-14 6.5 The case laws relied upon are for rejection of Info beans Systems PL(IT segment company below) and Cyber Infrastructure PL. The comparable name is different from the comparable selected by the TPO. Further the Appellant has been comparing data of FY 12-13 with FY 13-14 which is the year under consideration. Further, as long as company satisfies the filter adopted by the TPO which are not in dispute by the Appellant, this company accepted by the TPO is not disturbed.”
The Ld. AR respectfully relied on ruling of the coordinate bench of ITAT-Mumbai in assessee’s own case bearing date of order 17/03/2025. the details of which are as under: - “(iii) IRIS Business Services Ltd.
The next comparable challenged by the assessee is IRIS Business Services Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on 14 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd the basis that this company is carrying out activities which are functionally similar to the assessee and this company also qualifies all the filters. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company is functionally not comparable. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to “Receipt from Production Services”. Being aggrieved, the assessee has challenged the inclusion of this company as comparable.
During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities.
We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of IRIS Business Services Ltd. for the year under consideration, forming part of the annual report paper book from pages 1-106, we find that this company is engaged in the business of supply of software and providing software related services. As per the profit and loss account, the revenue from sale of products is declared at INR 37,66,834 and the revenue from the sale of services is declared at INR 61,96,19,344. However, there is no further sub-classification of the revenue earned from various segments, which the company has recognised, as noted on page 86 of the paper book, i.e., the revenue from services rendered in connection with the advertisement and data conversion, sale of software/software licenses, subscription income, development or customisation of software, hosting and maintenance contracts. Since this company is earning revenue from various streams, in the absence of relevant segmental information, it cannot be said to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude IRIS Business Services Ltd. while benchmarking the international transaction pertaining to “Receipt from Production Services”.” 8.3. Omega Healthcare The relevant part of the appellate order is reproduced as below: -
15 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd “6.16. Omega Healthcare, e4e Healthcare Business Services Pvt. Ltd: As per the Appellant the above companies fails RPT filter. Considering the submission made by the Appellant, the AO may verify the RPT working and to remove if it fails RP7 filter (>25% of total income).”
Here, the Ld.AR respectfully relied on the following observations of the coordinate bench of ITAT Mumbai for A.Y. 2013-14 in assessee’s own case in date of order 17/03/2025. The relevant paragraph is reproduced as below: - “23. As regards the objections raised by the assessee that Omega Healthcare Management Services Pvt. Ltd. fails RPT filter, from the perusal of the annual report of Omega Healthcare Management Services Pvt. Ltd., forming part of the paper book from pages 107-196, we find that the entire revenue from product or services amounting to INR 139,10,73,488 was earned from the transaction with related party. Thus, it is evident that this company fails the filter of RPT more than 25% of the operating revenue applied by the TPO. Accordingly, we direct the TPO/AO to exclude Omega Healthcare Management Services Pvt. Ltd. while benchmarking the international transaction pertaining to “Receipt from Production Services”.
To sum up, we direct that the four companies, i.e., Excel Infoways Ltd., IRIS Business Services Ltd., MPS Ltd. and Omega Healthcare Management Services Pvt. Ltd., be excluded while benchmarking the international transaction pertaining to “Receipt from Production Services”. Ground No.2 raised in assessee’s appeal is decided accordingly.”
8.4. ICRA Techno Analytics: - The relevant part of the appellate order is reproduced as below: - “6.15 ICRA Techno Analytics: As per the Appellant this company Fails RPT filter. However, after perusal of the RIPT working & can be observed that the Appellant has compared the RPT Income and expenses transaction with only Total revenue. Instead of that the Appellant should have compared the RPT with Total Expenses + Total Revenue. The items selected in numerator should have been Included in the denominator. Further, the Appellant has considered the capital
16 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd account transaction such as loan, issue of share capital in RPT working.Considering the above flaws in RPT working the company accepted by the TPO is not disturbed. The Ld. AR made detailed arguments on why ICRA should not be included as a comparable were made before the Ld. CIT(A) as the comparable fails Related Party Transaction ('RPT') filter ICRA has related party transactions of 26.74% on total revenues. Further, this comparable was rejected by TPO in assessee's own case in AY 2012-13 and AY 2013-14. the Ld.AR respectfully relied on the following observations of the coordinate bench of ITAT Mumbai, K- Bench in M/s Emerson Electric Company (India) Private Ltd vs. ACIT-9(2)(2), Mumbai bearing ITANo. 6908& 531/Mum/2018 date of order 14/06/2019. The relevant paragraph is reproduced as below: - “13.4. Exclusion of Nihilent Analytics Ltd., (Formerly know as ICRA Techno Analytics Ltd.) – Margin of 43.79% We find that assessee had argued that this comparable has got related party transactions more than 25% and range of services includes software development and consultancy, engineering design services, web development and hosting, business analytics and BPO services. It was also pleaded that there is no information about the export revenue earned by the said company. It was further pleaded that the said company is also engaged in sale of software products. The ld. TPO however, observed that export revenue of this comparable is 25.51 Crores out of total sales of Rs.27.94 Crores, therefore, passing the export filter applied by him. He observed that sales of products during the year was nil. Since the company is engaged in software development and consultation, engineering design services, web development and hosting, they are similar to IT services company and accordingly comparable with that of the assessee. The ld. DRP called for a remand report from the ld. TPO to ascertain the exact percentage of related party transactions. The ld. DRP observed that related party transactions as well as ratio of this comparable worked out to 26%. The ld. DRP observed that while RPT ratio of 25% has been found to be a correct filter for ensuring the arm’s length comparability in order
17 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd to ensure comparability, it would be proper if a float of +/- 1% is allowed. Accordingly, it directed the ld. TPO to reverify the computation of the assessee and include the comparable after the RPT is found to be in excess of the prescribed filter. The ld. TPO again verified the workings of the assessee and observed as under: On verification of the annual report of the company it is seen that a) Services rendered related parties is -Rs.6.22 Crores b) Reimbursement of expenses by related parties - Rs.0.6 Crores c) Reimbursement of expenses to related services - Rs.0.4 Crores Hence, RPT divided by sales is (service rendered to related parties + reimbursement of expenses by related parties) divided by sales(Rs.6.22 Crores +.6 Crores)÷27.9 x 100 = 24.4%. The ld. TPO observed that the assessee had taken both reimbursements paid to and received from related parties while calculating the RPT ratio and accordingly objected that the same is above 25%. 13.4.1. The ld. TPO did not agree to this computation made by the assessee and accordingly held that since the RPT transaction are not more than 25%, the said company is a good comparable. We find under various filters applied by the ld. TPO for benchmarking the international transactions, one such filter applied thereon is with “companies with related party transactions less than 25% of the revenues are selected.” Under this caption, the ld.TPO had also observed that related party transactions on revenue and expenditure side were considered for applying this criterion. This is the filter and credential applied by the ld. TPO, then it is incumbent on the part of the ld. TPO to consider all the aforesaid three transactions together while arriving at the RPT ratio i.e., a) Services rendered related parties is -Rs.6.22 Crores b) Reimbursement of expenses by related parties - Rs.0.6 Crores c) Reimbursement of expenses to related services - Rs.0.4 Crores 13.4.2. If all the aforesaid three transactions are considered then the RPT to sales ratio works out to 25.88% which fails the RPT filter applied by the ld. TPO. Hence, the same deserves to be excluded on this count itself. In view of this, no opinion herein is given with regard to functional
18 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd dissimilarities between this comparable and the assessee company which was argued by the ld. AR before us.” 8.5. eClerx Services Limited: - The relevant part of the appellate order is reproduced as below: - 6.12 eClerx Services Limited ('eClerx'):- The Appellant has relied on its own case law for AY 2011- 12 and mentioned that it is functionally not comparable, super normal profits and absence of segmental data. The Appellant has further relied on following case law:- Hyundai Motor India Engineering Private Limited (AY 2014-15) 6.13 In Appellants own case the Hon'ble ITAT has merely relied on the DRP's rejection of company without analyzing the functions carried out by the eClerx s company. The year under consideration is AY 2014-15 and the year relied upon was AY 2010-11. Further, Appellants contention is that e-clerx has been providing knowledge and Business Process Outsourcing (KPO/BPO) services. If one compare the services by the Appellant which is engaged in the business of developing, marketing, licensing and distribution of map and related location-based data, software and services for use in mobile navigation systerns and other navigation and GIS applications and devices in India with appx 62% cost is employee cost the Appellant is not less than KPO/BPO service provider. 6.14 Further, in respect of Hyundai case law the nature of business of that Appellant was difference from that of e-Clerx and therefore it was not comparable. Considering above this company accepted by the TPO is not disturbed.” Here, the Ld.AR respectfully relied on the following observations of the coordinate bench of ITAT Mumbai for A.Y. 2010-11 in assessee’s own case in date of order 22/02/2019. The relevant paragraph is reproduced as below: - “5.1. We find in respect of Eclerex Services Ltd., the Ld. DRP had granted relief to the assessee by placing reliance on the decision of Hon'ble Delhi High Court and Mumbai Special Bench of this Tribunal as stated supra. The only argument of Ld. DR in this regard is that the SLP filed by the 19 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd revenue against the decision of Hon'ble Delhi High Court is admitted by the Hon'ble Supreme Court and the same is pending. We find that as on date, the issue has already been decided by the Hon'ble Delhi High Court in favour of the assessee, wherein, Eclerex Services Ltd., has been stated to be engaged in the business of KPO and not BPO and hence, the same cannot be considered as a comparable with the assessee. Accordingly, ground No 1 raised by the revenue is dismissed. 5.2. With regard to inclusion of Accentia Technology Ltd., we find that the Ld. DRP had granted relief to the assessee on the ground that segmental results are not available with regard to different activities carried out by the said comparable. Accordingly, we do not find any infirmity in the said action of the Ld. DRP. The Ld. DR before us could not controvert the findings of the Ld. DRP before us by adducing fresh evidences on record contrary to the findings of the Ld. DRP. Accordingly, ground No.2 raised by the revenue is dismissed.”
Ground no.3 :Adjustment on Rs. 2,95,65,692/- related “IT services”
The TPO selected the case as comparable to benchmark the international transactions pertaining to ITES and IT Services on the basis of the company selected by the TPO in TP order for A.Ys. 2012-13 & 2013-14 without following methodical benchmarking analysis as suggested in the transfer pricing provision. The assessee had receipts from software development services (IT services) and assessee has taken MAM as TNMM and the OP /OC ratio is not disputed by the TPO. The margin of the assessee was 15.01% for this ITES. But the transfer pricing adjustment made as compared to the order under section 92CA(3) amount to Rs.2,95,65,692/- for the I.T. services segment. Finally, in final assessment order, said addition was made and the same was confirmed in appeal. Related to this company as comparable, the assessee prayed for deletion of two comparables, viz. Thirdware Solution Ltd, and Infobeans Technology Ltd and 20 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd considering this, the operating margin was coming as same as declared by the assessee. In the argument, the Ld.AR submitted as follows:- Infobeans Technology Ltd 9.1. The observation of the Ld. CIT(A) is reproduced as follows:- “6.20 Infobeans Technology Ltd.:- As per the Appellant, this company is not functionally comparable, intangibles, absence of segmental data and hence not comparable. The Appellant has relied on the following case law:- Alcatel Lucent India Ltd (AY 2014-15) Kony IT Services Private Limited (AY 2014-15) Qualcomm India Pvt Ltd ITA No.8177/Del/2018 (AY 2014-15) 6.20.1 The Appellant has relied on the above case wherein the Appellants were engaged in the business different from that of the comparable companies selected by the TPO. In the present case the Appellant and the comparable is into provision of IT services which are functionally comparable to the Appellant. Considering this company accepted by the TPO is not disturbed.” the Ld.AR respectfully relied on the following observations of the coordinate bench of ITAT Mumbai, K- Bench in M/s Emerson Electric Company (India) Private Ltd vs. ACIT-9(2)(2), Mumbai bearing ITANo. 6908 & 531/Mum/2018 date of order 14/06/2019. The relevant paragraph is reproduced as below: - “13.2. Exclusion of Infobeans Systems India Pvt. Ltd – Margin of 48.97% With regard to this comparable, assessee has pleaded before the ld. TPO that the said company is engaged in diversified activities such as automation engineering services, ServiceNow implementation, big data, UI and UX customised software, data mining, data modelling, statistical analysis, machine learning techniques etc., whereas the assessee herein was engaged only in routine software development services. The ld. TPO however, did not heed to the contentions of the assessee and included the same as a comparable. The ld. DRP held that the said comparable has got only one segment i.e., sale of software and accordingly the same is comparable with the assessee. We find from the financial statements of the said comparable
21 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd that it had derived revenue from sale of software (export) to the tune of Rs.32,96,59,883/- which is enclosed in page 1069 of the paper book. We also find from note No.27 in page 1069 of the paper book which is notes forming part of the financial statements for the year ending 31/03/2014, the said company under the caption “earnings in foreign exchange” had reflected export of goods / services calculated on FOB basis to the tune of Rs.32,96,59,883/-. We find that there is no segmental break-up available with regard to sale of software and revenue derived from the software development services in order to make it comparable with the assessee herein in IT segment. We find that reliance in this regard had been rightly placed by the ld. AR on the co-ordinate bench decision of Pune Tribunal in the case of Pubmatic India Pvt. Ltd., in for A.Y.2012-13 order dated 09/03/2018 wherein it was held as under:- “18. We have heard the rival contentions and perused the record. The first aspect is the functional comparability of concern which has been finally selected to be comparable. In respect of Infobeans Systems Pvt. Ltd., the financials of said concern clearly reflect that in addition to providing software development services to its associated enterprises, it had also earned foreign exchange from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises. Applying the same set of reasoning as in the paras hereinabove, we hold that Infobeans Systems Pvt. Ltd. is not comparable to the assessee” We hold that in the absence of segmental data and respectfully following the aforesaid decision of Pune Tribunal, we direct the ld. TPO to exclude this company from the list of comparables.” 9.2. Thirdware Solutions Ltd In argument the Ld. AR stated that the comparable is functionally distinguishable. The same view was taken by the coordinate bench-K of ITAT-Mumbai in case of Lionbridge Technologies Pvt Ltd vs. ACIT 15(2)(1), Mumbai bearing date of pronouncement 02/08/2019. The relevant paragraphs are reproduced as below:-
22 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd “(d) Thirdware Solutions Ltd. The assessee claims that the company is into high end software development and functionally not similar. Further the company has its product sales reported and IPs in the accounts, hence the said comparable need to be rejected. It is noted that merely because the company has some product sales and IP's, one cannot reject the comparable. Hence, the claim of the assessee is rejected.”
Now in appeal before us, learned Counsel of the assessee has confined his argument towards following comparable: - i) ThirdwareSolutionsLtd.: - Learned Counsel of the assessee contended that exclusion of Thirdware Solutions as a comparable has been accepted by the ITAT in its order for A.Y. 2013- 14. For the same reasoning learned counsel contended that this comparable should not be considered as a valid comparable.”
The Ld. DR vehemently argued that the set of comparable in question had been furnished by the assessee itself, particularly highlighting two comparables submitted by the assessee before the Ld. TPO. In the course of arguments, the Ld. DR opposed the assessee's plea for exclusion of five comparables from the analysis, contending that such exclusion would unduly narrow the scope of the comparability study. In support of his contention, the Ld. DR placed reliance on the judgment of the Hon’ble Bombay High Court in CIT-7 vs. Tata Power Solar Systems Ltd. [77 taxmann.com 326], wherein the relevant extract reads as under: “3(d). We find that the impugned order of the Tribunal held that a party is not legally precluded from withdrawing a company from its list of comparables, provided such inclusion was due to an error and the company is, in fact, not comparable. The Transfer Pricing mechanism mandates that comparability analysis be conducted between like entities and between controlled and uncontrolled transactions. This necessitates a proper FAR (Functions, Assets and Risks) analysis. Furthermore, the assessee’s submission of comparables is not conclusive; it is the duty of 23 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd theTPO to verify and determine which companies are truly comparable. The Tribunal, based on a FAR analysis, rightly held that M/s. Indowind Energy Ltd. and B.F. Utilities Ltd. were not comparable as they operate in the wind energy sector, while the respondent-assessee is engaged in the solar energy sector.” With regard to the inclusion of ICRA as a comparable, the Ld. DR urged for its inclusion. However, in respect of IRIS and MPS, the Ld. DR fully supported the findings of the TPO. In his argument on Ground No. 3, the Ld. DR asserted that the assessee is engaged in rendering low-end software services and drew attention to page 11 of the TPO’s order, where it was observed that Thirdware Solutions Ltd. is functionally comparable to the assessee. In all other respects, the Ld. DR relied entirely on the order passed by the Ld. CIT(A).
We have carefully considered the rival contentions advanced by both the parties, perused the orders of the authorities below, the detailed submissions made by the assessee, and the judicial precedents cited in support of their respective stands. It is evident from the record that the assessee is a wholly owned subsidiary of HERE Singapore Ltd., engaged in providing Information Technology Enabled Services (ITES) and Software Development Services (IT Services) to its AEs on a cost-plus basis, operating as a captive service provider with minimal risk. The assessee conducted a detailed economic analysis supported by a TP Study Report and selected comparables following the requirements under Section 92C and Rule 10B of the Rules.
12. The primary grievance of the assessee relates to the inclusion and exclusion of certain comparables by the TPO, which was upheld by the Ld. CIT(A) while determining the ALP of the international transactions. It is the assessee’s
24 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd consistent submission that many of the companies included by the Ld. TPO are functionally not comparable or fail key filters such as RPT, absence of segmental data, supernormal profits, or engagement in diversified activities, as supported by decisions of various coordinate benches of ITAT.
We find merit in the contentions of the assessee with respect to the following comparables:
MPS Ltd is engaged in activities involving significant R&D and has developed proprietary cloud-based platforms. It does not provide segmental data for its various streams of revenue. Respectfully following the order of the coordinate bench in assessee’s own case in dated 17.03.2025, we direct its exclusion. IRIS Business Services Ltd. earns revenue from multiple service lines such as advertisement, software development, data conversion, hosting, and subscriptions, without furnishing segmental revenue bifurcation. In absence of segmental information, and following judicial precedent in assessee’s own case, it is liable to be excluded. Omega Healthcare Management Services Pvt. Ltd. derives the entirety of its revenue from related parties, thereby failing the RPT filter of 25%. The coordinate bench in assessee’s own case (ITA No. 5919/Mum/2024) has already directed its exclusion. ICRA Techno Analytics Ltd., now Nihilent Analytics Ltd., has related party transactions exceeding 25% of total revenue. Moreover, it is engaged in 25 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd multiple service lines with limited segmental information. Therefore, following settled judicial precedent, we direct its exclusion. eClerx Services Ltd. is engaged in KPO, functionally distinct from the assessee’s routine ITES profile. The ITAT-Mumbai benches have consistently held this to be not comparable to low-end ITES providers. We accordingly direct its exclusion.
On the IT Services segment, the assessee seeks exclusion of:
Infobeans Technologies Ltd. which derives income from both software product sales and development services without providing segmental bifurcation. The ITAT-Pune Bench in Pubmatic India Pvt. Ltd. order dated 09/03/2018 and the ITAT-Mumbai Bench in Emerson Electric Company (India) Pvt Ltd. (supra) have directed exclusion of this company. We concur. Thirdware Solutions Ltd. engaged in high-end software development and sale of software products and IPs, is functionally distinct. Following the coordinate bench ruling in Lionbridge Technologies Pvt. Ltd. (supra), we direct its exclusion.
Upon exclusion of the above comparables, the operating profit margins of the remaining comparables align with the margins declared by the assessee, thereby demonstrating that the international transactions undertaken by the assessee were at arm’s length.The ruling of the ITAT, Mumbai, in the assessee’s own case was not available at the time of preparation of the Transfer Pricing Study or during the proceedings before the Ld. CIT(A). The issues concerning the exclusion
26 ITA 5918/Mum/2024 Here Solutions India Pvt Ltd of comparables now stand well settled. In view of the binding nature of judicial discipline, the decision of the coordinate bench, being of higher judicial authority, is squarely applicable to the assessee’s case. Accordingly, the transfer pricing adjustments of Rs.10,14,93,918/- under the ITES segment and Rs.2,95,65,692/- under the IT segment are unsustainable.
16. In light of the above, we direct the Ld. AO to recompute the ALP after excluding the above-mentioned comparables. Consequently, the additions made under Section 92CA(3) and confirmed by the Ld. CIT(A) stand deleted.
17. As regards the initiation of penalty proceedings in ground no-4 under Section 271(1)(c), since the quantum additions have been deleted, the grounds raised on penalty become infructuous and are accordingly dismissed as academic.