HITACHI SOLUTIONS INDIA PVT. LTD.,CHENNAI V. ACIT, CORPORATE CIRCLE-1(1), CHENNAI

CO 84/CHNY/2025

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The case involves an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals), Chennai, which favored the Assessee, M/s. Hitachi Solutions India Pvt. Ltd. The primary issues were the classification of amortization of goodwill as a non-operating expense and the exclusion of certain companies from the list of comparables for transfer pricing purposes. The Tribunal referenced previous decisions in the Assessee's own case and similar cases to support its findings.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 830720 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-01-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: misc
• Appeal Filed On: 24-10-2025
• Other Referred Cases: IT(TP)A No.17/Chny/2024, IT(TP)A.No.38/Chny/2024, Ingram Micro India SSC (P.) Ltd [2024] 159 taxmann.com 109 (Mumbai  Trib.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SADDIK AHMED; J. C.I.T
• Assessee Lawyers: FUNCTIONALLY DIFFERENT; FUNCTIONALLY DIFFERENT; FUNCTIONALLY DIFFERENT; DARPAN KIRPALANI; VIRTUAL
• Keywords: Transfer pricing; International transaction; Business expenditure; Depreciation
• Section: 115JB

Judgement Text

"आयकर अपील य अ धकरण,‘डी’ यायपीठ,चे नई IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D’ BENCH, CHENNAI \u0014ी मनु क ुमार ग\u0018र, या\u0019यक सद य एवं \u0014ी एस. आर. रघुनाथा, लेखा सद य क े सम# BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER IT(TP)A No.: 27/CHNY/2025 & C.O.No.84/Chny/2025 (in IT(TP)A No.: 27/CHNY/2025) \u0019नधा$रण वष$ / Assessment Year: 2020-21 Assistant Commissioner of Income Tax, Corporate Circle- 1(1), Chennai. Vs. M/s. Hitachi Solutions India Pvt. Ltd., Block 5, 10th Floor, DLF IT Park, 1/124, Shivaji Gardens, Mount Poonamallee Road, Ramapuram, Chennai – 600 089. (अपीलाथ&/Appellant) [PAN: AAACZ-1544-R] ('(यथ&/Respondent/ Cross Objector ) अपीलाथ& क) ओर से/Assessee by : Shri. Darpan Kirpalani, Advocate (Virtual) '(यथ& क) ओर से/Department by : Shri. Saddik Ahmed, J.C.I.T. सुनवाई क) तार ख/Date of Hearing : 18.12.2025 घोषणा क) तार ख/Date of Pronouncement : 19.01.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM: The Revenue has filed appeal in IT(TP)A No.27/Chny/2025 and the Assessee has filed cross objection in CO.No.84/Chny/2025 against the order of learned Commissioner of Income Tax (Appeals), Chennai (in short “ld.CIT(A)”) dated 17.06.2025, arising out of the assessment order passed by the assessment Unit, NFAC, (in short “AO”) u/s.143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter the ‘the Act’) for the assessment year (A.Y.) 2020- 21 dated 17.06.2025 . Since, facts are identical and issues are common, for the Printed from counselvise.com :-2-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 sake of convenience, the appeal filed by the revenue and cross objection of assessee are being heard together and disposed of, by this consolidated order. 2. The Revenue has raised the following grounds of appeal: A. Whether the ld.CIT(A) was right in holding that the amortisation of depreciation should be considered as non-operating expense for computing the margin of the Assessee. B. Whether the ld.CIT(A) was right in excluding comparable companies M/s.Nihilent Limited and M/s.Cybage Software Private Ltd. and M/s.Daffodil Software Private Ltd. 3. The facts in brief are that M/s.Hitachi Solutions India Private Limited, (herein called as \"Assessee\") company incorporated in India. It is a subsidiary of Hitachi Solutions America Limited. It provides IT services to its AEs. For the Assessment Year (‘AY’) 2020-21, the assessee filed its return of income on 15.02.2021, declaring Rs.9,76,73,920/- taxable income under the normal provisions of the Act and book profits of Rs.8,26,66,613/- as per the provisions of Section 115JB of the Act. Accordingly, Rs.1,12,39,008/- tax liability was determined under the provisions of section 115JB of the Act. 4. A reference was made u/s.92CA(1) of the Act to the Deputy Commissioner of Income-tax, Transfer Pricing Officer, Corporate Circle - 2(1), Chennai (“Transfer Pricing Officer” or “TPO”) for determination of the arm’s length price (“ALP”) of the international transactions entered into by the assessee with its Associated Enterprise (“AE”) dated 27.01.2022. The TPO disregard the submissions filed by the assessee and passed the impugned Transfer Pricing (‘TP’) order on 31.05.2023 proposing a total adjustment of Rs.9,75,29,719/-. 5. Subsequent to the order of the TPO, the AO passed a draft assessment order on 12.09.2023 u/s.144C r.w.s 92CA (3) of the Act. Subsequently, the AO has passed Final Assessment order dated 20.10.2023. Printed from counselvise.com :-3-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 6. Being aggrieved by the order of the AO, the assessee had filed an appeal with the Ld.CIT(A). Amortization of goodwill (arising out of merger) to be considered as a nonoperating expense while computing operating margins of the assessee (Ground No.1 & 2): 7. The TPO held that depreciation and amortization fall under the category of operating expenses. Depreciation is an expense that takes into account the estimated useful life of plant and equipment. Amortization works in the same way but pertains to intangible assets such as goodwill, patents and copy rights. 8. The ld.CIT(A) decided the issue in favour of the assessee holding that the goodwill arisen out of the amalgamation with effect from 01.04.2016 is an extraordinary item as it is not part of the regular operating expenditure. Further, the ld.CIT(A) relied on the decision of this Tribunal in assessee’s own case in IT(TP)A No.17/Chny/2024 dated 06.06.2025 and directed the AO/TPO to recompute the margins by treating the amortisation of goodwill as non-operating expenditure. 9. The ld.CIT(A) also directed the AO/TPO to exclude M/s.Daffodil Software Pvt. Ltd. from the list of comparables as the company is into software products and not the IT segement, by relying on the decision of this Tribunal in the case of Genesys telecom Labs India Private Ltd in IT(TP)A.No.38/Chny/2024 dated 28.11.2024. 10. The ld.CIT(A) also directed the AO/TPO to exclude M/s.Nihilent Limited from the list of comparables as the company is engaged in the diversified services and segmental results are not available, by relying on the decision of this Tribunal in the case of Ingram Micro India SSC (P.) Ltd [2024] 159 taxmann.com 109 (Mumbai – Trib.). 11. The ld.CIT(A) further directed the AO/TPO to exclude M/s.Cybage Software (P) limited from the list of comparables as the company owing to Printed from counselvise.com :-4-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 functional dissimilarity, owning of proprietary software, significant scale of operation and lack of segmental information. 12. Aggrieved by the order of the ld.CIT(A) the revenue is in appeal before us. 13. The ld.DR relied on the grounds of appeal and the orders of the TPO and prayed for reversing the order of the ld.CIT(A) by confirming the order of the AO. 14. Per contra, the ld.AR submitted that the assessee has claimed amortization of goodwill as a deduction for the purpose of computation of its margins. According to the ld.AR the amount recorded as goodwill in the books of accounts of the assessee is the excess consideration paid in relation to the assets purchased by way of the amalgamation. The difference in purchase value treated as goodwill cannot be identified to any specific characteristic or value generating intangible that can support the operations of the assessee in the future and is a result of the accounting treatment. Further, undertaking reorganization of business is not a regular activity of the assessee. Hence, the resultant goodwill is non-recurring and an extra-ordinary item of expenditure which is not incurred for the purpose of rendering the services to AEs, i.e., its operations. Accordingly, the expenses under consideration are not common business expenditures (goodwill arising out of a merger) that any third-party comparable companies would have incurred in the course of its business. 15. Further, the ld.AR stated that the services rendered by the assessee before and after the amalgamation have not undergone any change. In an independent scenario, no third-party service provider would increase the price of its services for acquiring another company without any change in its service offerings. Amortization of goodwill is exceptional cost and none of the comparable companies have such expenses. Accordingly, it is to be eliminated from the operating margin earned by the assessee so as to bring it at parity with Printed from counselvise.com :-5-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 the operating margin earned by the comparable companies. Therefore, adjusting the operating margin of the assessee to account for the difference in depreciation rates of comparable companies is warranted, given the differences between depreciation to sales ratio of assessee and comparable companies. The ld.CIT(A) by relying on the jurisdictional Tribunal decision in the Assessee’s own case has held that amortisation of goodwill ought to be treated as non- operating expense while computing the margin of the Assessee. 16. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. The present dispute is squarely covered by the jurisdictional Tribunal decision in Assessee’s own case in IT(TP)A.No.17/Chny/2024 dated 06.06.2025. We have gainfully extracted the relevant portion of the decision as under: “22. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. The present dispute is covered by the various courts and tribunals by holding it as amortization of goodwill is an abnormal item arising out of business acquisition and therefore not part of operating expenditure. Considering the present facts and judicial precedents as discussed supra, we direct the AO/TPO to grant adjustment of amortization of goodwill by excluding from operating expenditure by allowing the related grounds of appeal of the assessee.” 17. Following the above decision, we uphold the order of the ld.CIT(A) and hence the grounds of appeal raised by the revenue in this regard stands dismissed. Exclusion of comparables companies selected by the TPO (Refer grounds 3 and 4) A. Nihilent Ltd. 18. The TPO rejected the assessee’s contentions and concluded that the company is engaged in rendering software services, business consulting in the area of enterprise transformation, change and performance management and Printed from counselvise.com :-6-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 providing related IT services which is comparable to the services provided by the assessee. 19. The Ld.CIT(A) accepted the assessee’s contentions and by relying on the jurisdictional Tribunal decision in the Assessee’s own case directed the TPO to exclude this comparable company. 20. The Ld DR relied on the order of the TPO and contended that under TNMM broad functional comparability is sufficient and therefore this comparable company should be retained. 21. The ld.AR for the assessee submitted that the comparable company is: • Functionally different • Insufficient segemental information • Company has developed significant intangibles • Upper turnover filter not applied though the turnover exceeded Rs.200 crores 22. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. The present issue is squarely covered by the jurisdictional Tribunal decision in Assessee’s own case in IT(TP)A.No.17/Chny/2024 dated 06.06.2025. We have gainfully extracted the relevant portion of the decision as under: “30. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. On perusal of the financials the company we note that it is engaged in the business activity of transformation, digital transformation, brand and marketing transformation, platform and technology transformation, and data science and analytics services, which is not similar to the activities carried out by the assessee. Further, the Company’s turnover for the subject year was around Rs.280 crores and accordingly, companies with turnover greater than Rs.200 Crores are to be excluded from the comparable set. Therefore, considering the present facts and judicial precedents as discussed supra, we direct the AO/TPO to exclude this company from the comparable by allowing the related grounds of appeal of the assessee.” 23. Following the above decision, we uphold the order of the ld.CIT(A) and hence the Ground No.3 raised by the revenue in this regard stands dismissed. Printed from counselvise.com :-7-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 B. Cybage Software Pvt. Ltd 24. The TPO rejected the assessee’s contentions and concluded that the company is engaged in the software and sub-segmentation is not a necessary requirement for a comparable under TNMM. 25. The Ld.CIT(A) accepted the assessee’s contentions and by relying on the jurisdictional Tribunal decision in the Assessee’s own case directed the TPO to exclude this comparable company. 26. The Ld.DR relied on the order of the TPO and contended that under TNMM broad functional comparability is sufficient and therefore this comparable company should be retained. 27. The ld.AR for the assessee contended that the comparable company is: • Functionally different • Insufficient segemental information • Engaged in Significant R&D 28. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. The present issue is squarely covered by the jurisdictional Tribunal decision in Assessee’s own case in IT(TP)A.No.17/Chny/2024 dated 06.06.2025. We have gainfully extracted the relevant portion of the decision as under: “34. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. On perusal of the financials the company we note that it is engaged in provision of product engineering services, transformational services, support services and provides diversified digital solutions and earning supernormal profits which is an aberration from the industry. The Company earns a weighted average upwards of 55% on cost and is unrepresentative of industry trends. Further, we also note that the subject year, Cybage has a turnover greater than Rs.734 crores approx. and accordingly, companies with turnover greater than Rs.200 Crores are to be excluded from the comparable set. Therefore, considering the present facts and judicial precedents Printed from counselvise.com :-8-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 as discussed supra, we direct the AO/TPO to exclude this company from the comparable by allowing the related grounds of appeal of the assessee.” 29. Following the above decision, we uphold the order of the ld.CIT(A) and hence the Ground No.3 raised by the revenue in this regard stands dismissed. C. Daffodil Software Private Limited 30. The TPO rejected the assessee’s contentions and concluded that the company is engaged in the software and sub-segmentation is not a necessary requirement for a comparable under TNMM. 31. The Ld.CIT(A) accepted the assessee’s contentions and by relying on the jurisdictional Tribunal decision in the case of Genesys telecom Labs India Private Ltd in IT(TP)A No.38/Chny/2024 dated 28.11.2024 directed the TPO to exclude this comparable company. 32. The Ld.DR relied on the order of the TPO and contended that under TNMM broad functional comparability is sufficient and therefore this comparable company should be retained. 33. The ld.AR for the assessee contended that the comparable company is: • Functionally different • Insufficient segmental information 34. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. The present issue is squarely covered by the jurisdictional Tribunal decision in the case of Genesys telecom Labs India Private Ltd in IT(TP)A.No.38/Chny/2024 dated 28.11.2024. We have gainfully extracted the relevant portion of the decision as under: “8.2 We have heard rival submissions and perused the material on record. The financials for the year ending 31.03.2020 with regard to the company, Daffodil Software Pvt. Ltd., is placed on record. On perusal of the same, we find Daffodil Software Pvt. Ltd., is also having revenue from sale of products. We also find from notes to financial statement as on 31.03.2020 (Note 15 – Inventories and Note 21 Printed from counselvise.com :-9-: IT (TP) A. No:27/CHNY/2025 & C.O.No.84/Chny/2025 – revenue from operation) that the company, Daffodil Software Pvt. Ltd., does not have segmented details but only have broad revenue streams. Therefore, on the facts of the instance case, we are of the view that Daffodil Software Pvt. Ltd., cannot be taken as a comparable and we direct the TPO to exclude Daffodil Software Pvt. Ltd., from the list of comparables. It is ordered accordingly. Therefore, the Ground Nos.4 & 4.2 is allowed.” 35. Following the above decision, we uphold the order of the ld.CIT(A) and the Ground No.4 raised by the revenue in this regard stands dismissed. CO.84/Chny/2025: 36. Since the department appeal is dismissed, adjudication of grounds of appeal raised in the cross objection becomes academic and therefore, the CO is dismissed. 37. In the result, the appeal of the Revenue and the cross objection of the Assessee both are dismissed. Order pronounced in the open court on 19th January, 2026 at Chennai. Sd/- Sd/- (मनु क ुमार ग\u0018र) (MANU KUMAR GIRI) या\u0019यक सद य/Judicial Member (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखासद य/Accountant Member चे नई/Chennai, .दनांक/Dated, the 19th January, 2026 SP आदेश क) '\u0019त0ल1प अ2े1षत/Copy to: 1. अपीलाथ&/Appellant 2. '(यथ&/Respondent 3.आयकर आयु3त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 1वभागीय '\u0019त\u0019न ध/DR 5. गाड$ फाईल/GF Printed from counselvise.com "