Appellant
M/s. Quantum Horizons India Private Limited,
RMZ Ecospace, Block 3A, Outer Ring Road,
Bangalore – 560103
Respondent
Assistant Commissioner of Income Tax,
Circle 5(1)(1), International Taxation,
Bangalore
| Citation | 2026 Taxsansar 02 ITAT New Delhi |
| Court | Income Tax Appellate Tribunal (ITAT), Bangalore “B” Bench |
| Law | Income Tax Act, 1961 |
| Section | Section 92C – Computation of Arm’s Length Price & Section 144C – Reference to Dispute Resolution Panel (DRP) |
| In Favor Of | Assessee (M/s. Quantum Horizons India Private Limited) |
Summary of the Case
The present appeal is directed against the final assessment order passed by the Assessing Officer (AO) pursuant to the directions issued by the learned Dispute Resolution Panel (DRP), Bangalore, under Section 144C(5) of the Income Tax Act, 1961, dated November 10, 2025.
The primary controversy stems from a Transfer Pricing (TP) adjustment amounting to INR 8,20,00,000/- made by the Transfer Pricing Officer (TPO) in respect of the “Provision of Software Development Services” rendered by the Assessee to its foreign Associated Enterprise (AE). The TPO rejected the Assessee’s Economic Analysis under the Transactional Net Margin Method (TNMM) and introduced three persistent high-turnover companies as comparable entities. The Assessee filed objections, contending that these companies operate on vastly different scales, possess proprietary intellectual property, and cannot be compared to a captive, risk-mitigated service provider. The DRP, however, sustained the TPO’s selections, prompting this appeal.
Order
We have heard the detailed representations of both the learned Authorized Representative for the Assessee and the learned Departmental Representative for the Revenue, and have scrutinized the annual reports of the disputed comparable companies.
The core dispute centers on whether companies with multi-billion rupee turnovers and significant brand value can be legally compared to a captive contract-software developer operating under a cost-plus insulation model. It is a well-settled principle across a spectrum of judicial precedents that functional comparability must take precedence over mere broad industry classifications. High-turnover giants driven by distinct economic efficiencies and product IP ownership fail the basic filter tests outlined under Rule 10B of the Income Tax Rules.
Upon analyzing the profiles of the disputed entities introduced by the TPO, we find that two of the selected companies are heavily engaged in product engineering and marketing campaigns, while the third commands an uncharacteristically high profit margin owing to its proprietary software suites. Consequently, these three entities cannot be retained in the final list of comparables. The Assessing Officer/TPO is hereby directed to exclude these three entities from the benchmarking matrix and recompute the Arm’s Length Price (ALP) using only functionally aligned peers.
In the result, the appeal instituted by the Assessee stands Allowed.
Order pronounced in the open court on this 12th day of July, 2026.