DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BANGALORE vs. MS ZYME SOLUTION PRIVATE LIMITED, BANGALORE

Per Prashant Maharishi, Vice President 1. ITA No.1885/Bang/2024 is filed by the DCIT, Circle 7(1)(1), Bangalore (the assessee/appellant) and CO No 42/B/2025 filed by Zyme Solution Pvt. Ltd., [ Assessee] for the assessment year 2013-14 against the appellate order passed by the CIT(Appeals)-12, Bangalore, [ld. CIT(A)] dated 26.7.2024 wherein the appeal filed by the assessee on 21.2.2017 against the assessment order passed u/s. 143(3) r.w.s. 144C of the Income-tax Act, 1961 [the Act] dated 27.1.2017 by the ACIT, Circle 7(1)(2) [ld. AO] was allowed. 2. The Revenue is aggrieved with the same and in appeal before us on the following grounds of appeal :- “1. Whether the Ld. CIT(A) was right in fact and in law in removing as comparables M/s Harton Communications Ltd, M/s Capgemini Business (India) Ltd., M/s Tech Mahindra Ltd and M/s Infosys BPO Ltd on functional dissimilarity. a. Whether the Ld. CIT(A) is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas. b. Whether the Ld. CIT(A) is right in trying to find out exact replica of the assessee for determining the Arm's length price based on such replica, even when the law and the international jurisprudence itself recognize that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method. 2. Whether the Ld. CIT(A) was right in law in demanding comparability standards that may itself defeat the purpose of law

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relating to determination of Arm's length price under the income tax Act.
3. Whether the Ld. CIT(A) in imposing conditions is beyond the scope of law and business reality by rejecting all close comparables on one or the other ground, without appreciating that no two companies can ever be same.
4. Whether the Ld. CIT(A) was right in law and in fact in directing the TPO to excluding the comparables on the ground that the company fails RPT filter despite the fact that the company passes
RPT filter.
5. In the facts and circumstances of the case, whether the Ld.
CIT(A) is correct in holding that, M/ s Tech Mahindra Ltd., & M/
s Infosys BPO Ltd., cannot be taken as comparables holding that the size and turnover of the company are deciding factors for treating a company as a comparable relying on the decision of Hon'ble ITAT, Bangalore in the cases of M/ s ISG Novosoft
Technologies Ltd. for A. Y. 2013-14 and GXS India Technology
Centre Pvt. Ltd. for A. Y. 2013-14. 6. Whether the Ld. CIT(A) is correct in fact and law in disregarding the position of law that there could be difference between the enterprises compared under the TNMM method that are not likely to materially affect the price or cost charged or the profits accruing to such enterprises.
7. Whether the order of the Ld. CIT(A), relying on the decision of Hon'ble ITAT, Bangalore in the cases of M/ s ISG Novosoft
Technologies Ltd. for A. Y. 2013-14 and GXS India Technology
Centre Pvt. Ltd. for A.Y. 2013-14, in rejecting comparable cases by insistence on strict comparability under TNMM defeats the very purpose of the law relating to determination of ALP under Income Tax Act.”
3. The brief facts of the case show that the assessee filed return of income on 27.11.2013 at a total income of Rs.3,90,84,179 which was selected for scrutiny. The assessee is engaged in the business of providing
Information Technology enable Services [ITeS] to its parent company,

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Zyme Solutions Inc. USA. The assessee has entered into international transaction for which reference was made to the DCIT (TP), 2(2)(2),
Bangalore [ld. TPO] who pass a TP order u/s. 92CA of the Act on 7.10.2016 determining the ALP of the international transaction of Rs.2,87,20,804. Based on this, assessment order was passed u/s.
143(3) r.w.s. 144C(13) of the Act determining the total income of the assessee at Rs.6,78,06,461. The Assessee preferred appeal before ld
CIT (A) who decided about exclusion of three comparables selected by ld TPO in favour of assessee and did not decided any of the issues about inclusion of comparable of the assessee, therefore these cross appeals. Therefore the only issue in this appeal is the TP adjustment.
4. The assessee has entered into international transaction of Rs.35,60,90,650 with its AE, Zyme Solutions Inc., USA for providing services support of data management services in the nature of ITeS.
Assessee is remunerated on Cost plus 10% mark-up. The functions performed by the assessee is with respect to ITeS of strategic management, marketing, product design & development, performance of services, procurement functions, etc. The assessee in its TP Study
Report (TPSR) computed the margins of the assessee at 10.01% and set of comparable companies margin was determined at 2.73% on Operating Cost without working capital adjustment. Assessee submits that it is at arm’s length.
5. The ld. TPO examined the TPSR wherein after examination same was rejected and a fresh analysis was carried out. He computed the margins

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of the assessee of OP/OC at 10.36%, selected 9 comparable companies and computed the margin at 20.64%. Adjustment of 1.41% was made to the margins of the comparable and final margin was derived at 19.23% making an adjustment of Rs.2,87,20,804. Accordingly the draft assessment order was passed on 15.11.2016 and as the assessee did not file objection before the ld. DRP, the final assessment order was passed on 27.1.2017. 6. The assessee preferred appeal before the ld. CIT(A) wherein the assessee challenged the selection of comparables which is decided in para 5 of the appellate order. With respect to the exclusion of Harton
Communications Ltd., he deleted the inclusion of the same by the TPO following the decision in the case of ISG Novosoft Technologies Ltd.
dated 29.4.2019. Regarding exclusion of Capgemini Business (India)
Ltd., he accepted the submission of the assessee following the above decision of the ITAT once again. With respect to the exclusion of Tech
Mahindra Ltd. he referred to the decision of ITAT in the case of GXS
India Technology Centre Pvt. Ltd. dated 29.4.2019. With respect to exclusion of Infosys BPO Ltd. he excluded on the basis of the decision.
Accordingly he excluded the above 3 comparables on the basis of some other decisions.
7. The ld. AO is aggrieved. The ld. DR, Shri N. Balusamy, submitted that there is no reason given by the ld. CIT(A) while excluding the above comparable companies. The ld. CIT(A) has relied upon the exclusion in some other decisions to exclude these companies.

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assessee. For each of the exclusion, the ld. CIT(A) has mechanically directed its exclusion relying upon some other decisions of the coordinate Bench. The provisions of the Act and the Rule clearly says that if the comparability analysis, Functions, Assets & Risk (FAR) are required to be seen. Even the ld. CIT(A) did not care to mention what are the functions of the assessee and what are the functions of those entities in whose cases, decisions have been rendered by the coordinate
Benches are comparable at all. Therefore we do not approve the order passed by the ld CIT (A) which is not in conformity with the provisions of the law.
11. However it has come to our notice that in the paperbook the assessee has submitted the annual report of Tech Mahindra Ltd., Capgemini
Business (India) Ltd. and also substantiated the turnover of Infosys
BPO Ltd. These are high turnover companies which cannot be compared with the assessee company whose turnover is merely
Rs.35.60 crores. As the facts are available before us, we direct the ld.
TPO to exclude the above comparable companies for comparability analysis.
12. With respect to Harton Communications Ltd. the facts are required to be investigated and verified whether it is comparable or not and the ld.
CIT(A) has not given any finding on the same, therefore, to that extent, we restore the appeal of the ld. AO back to the file of the ld. CIT(A).
13. In the CO of the assessee, the only argument of the assessee is that the argument of the assessee is not at all dealt with, with respect to the ITA No.1885 & CO 42/Bang/2024
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inclusion of certain comparables. Not giving a finding on the ground of appeal raised by the assessee before the ld. CIT(A), in the absence of adequate information available before us, it deserves to be restored back to the file of the ld. CIT(A).
14. Accordingly the appeal of the ld. AO and the CO of the assessee are partly allowed,
Pronounced in the open court on this 19th day of December, 2025. ( KESHAV DUBEY )
VICE PRESIDENT

Bangalore,
Dated, the 19th December, 2025. /Desai S Murthy /

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By order