The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed the Revenue’s appeal, holding that companies with significant differences in function, outsourcing model, size, brand value and nature of services cannot automatically be treated as comparable for transfer pricing purposes.
The bench of Satbeer Singh Godara (Judicial Member) and Manish Agarwal (Accountant Member) upheld the taxpayer’s eligibility for deduction under Section 10A of the Income Tax Act, 1961, relying on the CBDT notification covering specified IT-enabled services and earlier decisions of the jurisdictional High Court.
The dispute arose from an assessment in which the Transfer Pricing Officer proposed an adjustment of ₹87.72 lakh in respect of international transactions under the IT-enabled services (ITES) segment.
Buy Now: 80+ Income Tax Judgments | E-Magazine July 2026
The Assessing Officer also proposed a ₹1.06 crore disallowance from the deduction claimed under Section 10A. The resulting assessed income was determined at ₹4.68 crore against the returned income of approximately ₹2.74 crore.
The CIT(A), following earlier decisions in the taxpayer’s own case, deleted both additions. The Revenue challenged that relief before the ITAT.
The first issue before the Tribunal was whether the comparable companies selected by the TPO were sufficiently comparable with the taxpayer’s ITES/BPO activities.
The Revenue challenged the CIT(A)’s decision to exclude certain companies and include another company while determining the final set of comparables for benchmarking the arm’s length price.
The Tribunal examined the individual companies on the basis of their business activities and the factual differences between them.
The Tribunal upheld the exclusion of Eclerx Services Ltd., noting that the company had outsourced most of its services.
The Tribunal observed that the assets and resources deployed by an entity outsourcing its services—including human resources, infrastructure and intangibles—could differ from those of an entity providing services predominantly through its own employees.
Since the taxpayer primarily rendered services through its own employees and had not outsourced its services, the Tribunal found Eclerx unsuitable as a comparable.
The Tribunal also upheld the exclusion of TCS E Serve Ltd. and Infosys BPO Ltd.
The CIT(A) had excluded the companies after considering their substantially larger scale and high brand value compared with the taxpayer.
The ITAT noted that the Revenue had not controverted these factual findings and therefore upheld their exclusion from the comparable set.
The Tribunal further upheld the exclusion of Acropetal Technologies Ltd. (Segment) on the ground of functional dissimilarity.
The company was found to be engaged in engineering design services constituting Knowledge Process Outsourcing (KPO), whereas the taxpayer was engaged in BPO activities.
The Tribunal held that the functional difference had not been controverted before it and therefore found no error in excluding the company from the comparable set.
The Tribunal also upheld the inclusion of Informed Technologies India Ltd. in the final set of comparables.
The company had been included by the taxpayer in its transfer pricing study but was excluded by the TPO. The Tribunal noted that the same issue had arisen in preceding assessment years and that the Revenue had not challenged the earlier CIT(A) decision accepting the company as a comparable.
Applying the principle of consistency, the ITAT confirmed its inclusion.
The Tribunal ultimately dismissed the Revenue’s first ground challenging deletion of the ₹87.72 lakh transfer pricing adjustment.
The second major issue concerned the disallowance of ₹1,06,80,887 from the Section 10A deduction.
The taxpayer operated units registered under the Software Technology Park of India (STPI) scheme and provided services to customers in the United States in the financial services sector.
The taxpayer relied upon CBDT Notification No. S.O. 890(E), dated September 26, 2000, issued in relation to Explanation 2(b) to Section 10A.
The Tribunal noted that the notification specifically covered a range of IT-enabled activities within the relevant definition, including back-office operations, call centres, data processing, insurance claim processing, medical transcription, payroll, revenue accounting, support centres and website services, among other activities.
The ITAT relied upon the earlier decision of the jurisdictional Delhi High Court concerning the same issue.
The High Court had considered whether call-centre services provided to principals could qualify for Section 10A treatment. It noted that the CBDT notification expressly included call centres among the activities covered by Explanation 2(b).
The High Court had consequently found no substantial question of law and dismissed the Revenue’s appeal.
The Tribunal further recorded that identical disallowances for AYs 2007-08 and 2008-09 had been deleted by the Tribunal and those decisions had been upheld by the jurisdictional High Court.
Since there had been no change in the circumstances, the ITAT applied the principle of consistency and upheld the deletion of the Section 10A disallowance.
The Delhi ITAT ultimately dismissed the Revenue’s appeal in full.
The Tribunal sustained the deletion of the ₹87.72 lakh transfer pricing adjustment as well as the ₹1.06 crore Section 10A disallowance.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
Read More: STPI’s SOFTEX Certification and NoC Charges Taxable as Business Support Services: CESTAT
