UL INDIA PRIVATE LIMITED,BANGALORE V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BANGALORE

ITTPA 829/BANG/2022

AI Insights

The case involves UL India Pvt. Ltd., which appealed against the assessment order for the Assessment Year 2018-19, which included significant transfer pricing adjustments and corporate tax disallowances. The primary issues revolved around the rejection of the company's transfer pricing documentation, the grouping of different service segments for benchmarking, and the non-deduction of tax at source on payments to a foreign entity. The Tribunal found that the TPO's approach of grouping Testing, Inspection, and Certification (TIC) services with IT Enabled Services (ITES) was not justified and that the upper turnover filter should have been applied to exclude comparables with significantly higher turnovers than UL India. The Tribunal also restored the issue of TDS disallowance back to the Assessing Officer for re-evaluation.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 841541 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 26-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 14-09-2022
• Other Referred Cases: CIT v. De Beers India Minerals Private Limited (ITA No 549 of 2007), ITA No.1136/Bang/2023, ITA No.3243/Bang/2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KETAN VED
• Keywords: Set aside; Transfer pricing; International transaction; Bad and doubtful debts; TDS; Initiation of penalty proceedings; Non-deduction of tax
• Section: 143(3); 92C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER IT(TP)A No.829/Bang/2022 Assessment Year: 2018-19 M/s. UL India Pvt. Ltd., 3rd Floor, No.24 Epip-Ii Kalyani Platina, Block – 1, Whitefield S.O. Ramagondanahalli, Bangalore – 560 066. PAN: AAACU 2468 F Vs. The Assistant Commissioner of Income Tax, Circle – 7(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri. Ketan Ved, CA Respondent by : Dr. Divya K. J, CIT(DR)(ITAT), Bangalore. Date of hearing : 13.01.2026 Date of Pronouncement : 26.02.2026 O R D E R Per Prashant Maharishi, Vice President: 1. Captioned appeal is Assessment Year 2018 – 19 against the Assessment Order passed under section 143(3) r.w.s. 144C (13) r.w.s. 144B of the Income Tax Act, 1961 (The Act), dated 18/07/2022, by the ACIT, Circle – 7(1)(1), Bangalore (the learned Assessing Officer) for Assessment Year 2018-19 wherein the total income of the assessee is assessed at Rs. 29,57,38,050/- incorporating therein the Transfer Pricing (TP) adjustment under sections 92CA of the Act of Rs. 20,22,79,977/- as per the Order under section 92CA (3) of the Act passed on 27.07.2021 by the learned DCIT (learned Transfer Pricing Officer) - 2(1)(1), Bangalore, and the corporate adjustment of Rs. 9,34,58,073/- being disallowance for non-deduction of tax at source on payment towards testing charges to the foreign entity after subjected to the Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 2 of 14 direction of the Dispute Resolution Panel (learned DRP), Bangalore – 2, passed under section 144C (5) of the Act dated 13.06.2022, against the returned income of the assessee at Rs. Nil as per return of income filed on 30.11.2018. 2. The assessee has filed the following grounds of appeal: Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer (‘learned AO’), learned Transfer Pricing Officer (‘learned TPO’) and the Honourable Dispute Resolution Panel (‘Hon’ble DRP’) erred in adjusting the transfer price by INR 20,22,79,977/- with respect to the international transaction rendered by the Appellant under section 92CA of the Income-tax Act, 1961 (“the Act”). 2. The learned AO/ learned TPO/ Hon’ble DRP erred in rejecting the Transfer Pricing (“TP”) documentation maintained by the Appellant by invoking provisions of sub-section (3) of section 92C of the Act. Rejection of segmental profit and loss account and considering entire income of the Appellant as provision of IT enabled services (“ITeS”): 3. The learned AO/ learned TPO/ Hon’ble DRP erred in rejecting the segmental profit and loss account maintained by the Appellant for the Transfer Pricing Purpose and in proposing a transfer pricing adjustment at an entity level. 4. The learned AO/ learned TPO/ Hon’ble DRP erred in not appreciating the fact that segmental profit and loss account maintained by the Appellant was accepted by TPO in the previous assessment years. 5. The learned AO/ learned TPO/ Hon’ble DRP carried in not considering the fact that main business activity of the Appellant is provision of Testing, Inspection and Certification services which amounts to 90.4% of total revenue earned by the Appellant. 6. The learned AO/ learned TPO/ Hon’ble DRP erred in treating that entire revenue of the Appellant is from provision of ITeS services to AEs even though revenue earned from provision of ITeS to AEs is only 3.5% of total revenue. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 3 of 14 7. The learned AO/ learned TPO/ Hon’ble DRP erred in disregarding the actual business segments and the Function Asset and Risk profile of the Assessee as documented in the TP study and making an inappropriate analysis based on incorrect facts. 8. The learned AO/ learned TPO/ Hon’ble DRP erred in proposing an adjustment at an entity level and in not restricting transfer pricing adjustment to value of international transactions. ITeS segment: 9. The learned AO/ learned TPO/ Hon’ble DRP erred in rejecting the comparability analysis undertaken by the assesses and conducting a fresh search for comparable companies for the ITES Segment. 10. The learned AO/ learned TPO/ Hon’ble DRP erred in following while undertaking the fresh comparability analysis for the ITeS segment: i. The learned AO/ learned TPO/ Hon’ble DRP erred in selecting companies only if data pertaining to FY 2017-18 is available in the public database. If the data pertaining to FY 2017-18 is not available, the learned TPO/Hon’ble DRP did not proceed in selecting the company based on the financial data available as on FY 2016-17 and FY 2015- 16, even if the company is functionally similar. ii. The learned AO/ learned TPO/ Hon’ble DRP erred in rejecting companies with different FY ending. iii. The learned AO/learned TPO/Hon’ble DRP erred in applying the core service income filter of 75% to sales instead of 50%, thereby leading to a narrower set of comparable companies. iv. The learned AO/learned TPO/Hon’ble DRP erred in applying export earning filter of 75% of the total sales, leading to a narrower set of comparable companies. v. The learned AO/ learned TPO/ Hon’ble DRP erred in rejecting companies having employee cost to sales less than 25 percent. vi. The learned AO/learned TPO/Hon’ble DRP erred in inappropriately applying the persistent loss-making filter. vii. The learned AO/ learned TPO/ Hon’ble DRP erred in the methodology for computation of RPT filter. viii. The learned AO/ learned TPO/ Hon’ble DRP erred in not applying the upper limit for the sales turnover filter. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 4 of 14 ix. The learned AO/ learned TPO/ Hon’ble DRP erred in considering provision for bad and doubtful debts and bank charges as non-operating in nature. x. The learned AO/ learned TPO/ Hon’ble DRP has erred in considering foreign exchange gain/loss as operating in nature. xi. The learned AO/ learned TPO/ Hon’ble DRP has erred in not granting working capital adjustment. xii. The learned AO/ learned TPO/ Hon’ble DRP has erred in not providing market risk adjustment for determination of arm’s length price. xiii. The learned AO/ learned TPO/ Hon’ble DRP has erred by not carrying out the determination of ALP as required under section 92C of the Act read with rule 10D. xiv. The learned AO/ learned TPO/ Hon’ble DRP has erred in computing operating margin of certain comparable companies. xv. The learned AO/ learned TPO/ Hon’ble DRP has grown grossly erred in not rejecting the following companies: Infosys BPO Ltd. Manipal Digital Systems Private Limited Domex E-Data Vitae International Accounting Services Private Limited Inteq BPO Services Private Ltd. eClerx Services Ltd. MPS Limited xvi. The learned AO/ learned TPO/ Hon’ble DRP has errored in not selecting certain comparable companies which are comparable to the company. IECS Consultancy Ltd. R System International Limited xvii. The learned AO/ learned TPO/ Hon’ble DRP has erred in rejecting the additional companies sought for inclusion by the Assessee. Convergys India Services Private Limited Corporate Tax Disallowance of payments made to associated enterprise (i.e. UL LLC) under section 40(a)(i) of the Act amounting to INR 9,34,58,073 Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 5 of 14 11. The learned AO/ Hon’ble DRP has erred in not appreciating the fact that taxes have not been withheld by the Company on payments towards testing charges to UL LLC since the same does not fall under the ambit of Fees for Included Services (‘FIS’) as per the Double Tax Avoidance Agreement of India with United States of America (USA). 12. The learned AO/ Hon’ble DRP has failed to interpret the definition of FIS in the India – USA tax treaty and what falls under the ambit of FIS 13. The learned AO/ Hon’ble DRP has erred in concluding that the payments towards testing charges constitutes FTS/FIS despite the fact that such testing services provided by UL LLC do not make available any technical knowledge, experience, skills or know how as required by the India-USA tax treaty for the payment to qualify as FIS. 14. The learned AO/ Hon’ble DRP has failed to appreciate that UL LLC only provides the final result of the testing services to the Company and does not provide any suggestions, details or the methodology of testing services to the Company. 15. The learned AO/ Hon’ble DRP ought to have appreciated and followed the binding ruling of jurisdictional Karnataka High Court in the case of CIT v. De Beers India Minerals Private Limited (ITA No 549 of 2007) wherein, the Hon’ble High Court held that to satisfy ‘Make Available’ condition, the payer of the service should derive an enduring benefit. 16. The learned AO/ Hon’ble DRP erred further in holding that the payments towards testing charges constitutes Royalty which is in nature of use or right to use a design, secret formula, patent, trademark, invention, etc., and hence, liable to withholding tax under section 195 of the Act. 17. The learned AO/ Hon’ble DRP has erred in not appreciating the fact that it is at the discretion of the Company to make an application under section 195(2) of the Act when there is no income chargeable to tax. 18. The learned AO/ Hon’ble DRP has erred in not appreciating that section 195 of the Act requires withholding of taxes only if the payments are liable to tax in India. 19. Notwithstanding and without prejudice to the above, the Learned AO has erred in law by not following the directions of Hon’ble DRP, wherein the Hon’ble DRP had directed to restrict the amount of disallowance to INR 8,27,71,763 i.e. the amount was accrual during AY 2018-19. Consequential benefit of the revenue disallowed in earlier years, to be provided in the current year 20. Learning AO has erred in law by not following the directions of Hon’ble DRP, wherein the Hon’ble DRP had directed the AO to provide consequent Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 6 of 14 relief in the AY 2018-19, for the amount already disallowed by the erstwhile officer in the earlier years i.e. AY 2015-16 and AY 2016-17. Initiation of penalty proceedings under section 270A of the Act 21. The learned AO has erred in law and on facts in initiating penalty proceedings under section 270A of the Act without considering the merits of the Appellant’s case. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 3. Brief facts of the case show that UL India is primarily engaged in the business of rendering testing, Inspection and certification [in short referred to as TIC services], to its customers. It conducts inspection and audits, tests sample products, and certifies the tested product according to the prescribed guidelines and standards of its parent entity. Assessee also renders services to third party customers in India. If the assessee does not have capability, it sub- contracts its works to other Associated Enterprises (AEs) and does sub- contracting work of other AEs also. 4. Assessee also provides Information Technology Enabled Services (ITES) support services and shared services to its AEs. 5. Assessee filed its return of income on 30.11.2018 at Rs. Nil. The return of income of the assessee was taken up for scrutiny and notice under section 143(2) of the Act was issued on 26.09.2019. As assessee has entered international transactions, reference was made to the learned TPO to determine the Arm’s Length Price (ALP) of its international transactions. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 7 of 14 6. The international transactions of the assessee in dispute are rendering of information technology services, certification services and shared services. The assessee has prepared segmental profit and loss account, certification segment and shared services segment where the assessee earns margin @ 15%. The assessee also provides certification services to non-AE wherein the margin of the assessee is 4%. The overall margin of the assessee is 6%. 7. In the Transfer Pricing study Report (TPSR), the assessee benchmarked ITES services of Rs 4.5 Crs by applying the Transactional Net Margin Method (TNMM) as the Most Appropriate method and adopting the profit level indicator of OP/OC. The margin of the assessee is 15%. 8. The learned TPO grouped ITES, TIC, and Shared Services as ITES services without considering their different FAR profiles. He challenged the assessee's margin at 4.44% (Order, para 4.2) and rejected segmental margins because certain expenses (HR, finance, operations, legal, admin) were not allocated to AEs but included under non-AE costs. The assessee used seven comparables with median margin of 16.74%, arguing its 15% margin meets arm’s length requirements. 9. The learned TPO rejected the aforementioned TPSR for the reasons specified in paragraph 7 of his Order. He conducted a fresh benchmarking exercise using revised filters and ultimately identified 20 comparables. The 35th percentile margin was determined to be 13.41%, the 65th percentile margin was 23.34%, and the median margin was 21.36%. Consequently, with the assessee's margin set at 4.44%, the learned TPO issued an Order proposing an adjustment amounting to Rs. 26,17,99,780/-. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 8 of 14 10. The above adjustment was objected to before the learned DRP and after the direction, an order giving effect was passed wherein the above adjustment was restricted to Rs.20,22,79,977/-. 11. The assessee objects to the TPO's decision to combine TIC and ITES services, arguing they involve distinct functions, assets, and risks. He notes that previous TP assessments benchmarked these services separately, making the current approach incorrect. 12. The assessee argues that the learned TPO did not use the upper turnover filter. According to the assessee, its turnover in the ITES segment is only Rs. 4.53 crores, but it was compared with companies that have much larger turnovers. Out of the 20 comparable companies selected by the TPO, 11 have turnovers more than ten times higher than the assessee’s. The assessee contends these 11 companies, with turnovers ranging from Rs. 75 crores to Rs. 1150 crores should be excluded. If they are removed, the assessee’s margin would match the comparable range and there would be no transfer pricing adjustment. 13. The assessee’s second argument is that a working capital adjustment should be allowed, noting that both the TPO and DRP denied this request. 14. The learned Authorized Representative (AR) further submitted that the transfer pricing adjustment should be limited solely to the international transaction. These contentions were presented before the Dispute Resolution Panel (DRP) but were not accepted. The assessee also cited multiple judicial precedents in support of this position. 15. The facts of the corporate addition of Rs.9,34,58,073/- are on account of non- deduction of TDS under section 195 of the Act on testing charges. During Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 9 of 14 assessment proceedings, the AO found that assessee has paid an amount of Rs.9,34,58,073/- to its parent company UL LLC, US towards testing charges. It was also found that assessee has not deducted any tax under section 195 of the Act and therefore show cause notice was issued. According to the AO, the income of the US company had accrued or arisen in India since the services rendered by the US entity in the business activity of the assessee company in India. Therefore, provisions of section 9(1)(vii) of the Act are applicable and the amount represented fees for technical services. Testing the sample is a highly specialized job and therefore it involves rendering technical services to the assessee and therefore tax is required to deduct under section 195 of the Act. The learned AO was also of the view that the above payment is also falling into the nature of “royalty” as per the Income Tax Act as well as Double Taxation Agreement. He further held that royalty is taxed as per the source Rule. He further that US trademark is exhibited in all the products of the Indian customers. Therefore, the payments partake in the character of trademark. Based on the above findings, he held that testing charges paid by the assessee to his foreign entity are fees for technical services both under the Income Tax Act as well as Double Taxation Agreement. Admittedly, the assessee has not deducted any tax at source. Therefore, he disallowed the above sum. 16. On objection before the DRP, the learned DRP upheld the action of the learned AO. However, the DRP directed the AO to restrict the disallowance only to Rs.8,27,71,763/- because assessee submitted that the accrual of such payment in Assessment Year 2018-19 is only Rs.8,27,71,763/-. Despite this direction of the learned DRP, the learned AO made the disallowance of Rs.9,34,58,073/-. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 10 of 14 17. The assessee argues that the AO did not follow the DRP's direction to restrict disallowance to the amount of accrued expenditure. The assessee's rectification application remains unaddressed. According to the AR, if the AO does not comply with the DRP's directive, the order should be set aside. The AR also notes that a similar issue was remanded to the AO for Assessment Year 2012-13 in ITA No.1136/Bang/2023. 18. The learned CIT-A (learned DR) strongly endorsed the orders issued by the lower authorities. Concerning the non-application of the upper turnover filter, she argued that in the ITES segment, turnover is irrelevant as it does not affect profit margins. Consequently, she opined that there is no necessity to apply an upper turnover filter. Additionally, she asserted that the assessee has not demonstrated that the margins of these companies are influenced by their turnover. She cited specific companies, noting that although the assessee has sought their exclusion, these entities have substantial turnover yet exhibit notably low margins. The learned DR particularly referenced the case of Micro Land Ltd. 19. On the issue of Limiting adjustments to the extent of International Transaction, she argued that adjustments should be limited to international transactions, she explained that the arm's length is determined only for these transactions, so any adjustment applies solely to them. 20. She strongly supported the learned AO's decision, stating that the US entity's income is taxable in India and tax should have been deducted accordingly. Therefore, the disallowance for non-deduction of tax is justified. She also agreed that the disallowance related to expenditure accrual should follow the learned DRP's directions as instructed to the AO/TPO. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 11 of 14 21. Both parties agreed that the TPO classified all services as ITES. The AR noted that testing services make up 78.6% of assessee’s revenue, while other ITES services may differ in their FAR. The DRP argued that the TPO correctly labeled all services as ITES. 22. We have carefully considered the rival contentions and perused the Orders of the ld. TPO and Directions of learned DRP as well as the findings of the ld. AO. 23. The functional analysis of the services provided by the assessee shows that assessee renders testing, Inspection and certification services to third party customers as well as to its AEs. The assessee’s certification segment shows the domestic transaction being non-AE transaction of Rs.97.40 Crores and AE transaction of Rs.15.09 Crores. The shares services are to the tune of Rs.7.79 Crores. The ITES segment, which is 10A units, has revenue of only Rs.4.53 Cores. The total revenue of the assessee is Rs.124.81 Corres. The assessee maintains the segment wise margin. It earns 15% margin in ITES, shares services and certification services from its AE whereas on non-AE certification services of Rs.97.40 Crores, the assessee earns 4% margin. These segmental analyses were prepared by the assessee without finding out that these segmental financials are not correct. The learned TPO has merely stated that taxpayers do not charge expenses of HR, finance, legal and administrative nature from its AEs and therefore he rejects the segmental financials and determines the consolidated margin of the assessee at 4.44%. Naturally as the non-AE transactions are almost 95% of the total turnover of the assessee, the above margin was reached. However, the only dispute is with respect to the ITES segment wherein the revenue is only Rs.4,53,92,412/-. This is apparent as per paragraph Nos.5 and 6 of the order of the TPO. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 12 of 14 24. For earlier AYs TIC and ITES services were benchmarked separately, as TIC services and ITES services do not share the same FAR. The TP Order does not explain why the TIC and ITES services are being grouped together. The DRP supported the TPO's approach, treating TIC services as ITES, but did not confirm if their FARs are similar. Therefore, combining TIC and ITES services for benchmarking is not justified. 25. The issue is with respect to ITES services where the revenue of the assessee is Rs 4.53 CRs. As the TPSR of the assessee was rejected, the learned TPO carried out fresh search and finally reached at a set of 17 comparables. Out of those 17 comparables, 11 comparables were having turnover of Rs.73 to Rs.1150 Crores. Yet the learned TPO adopted the upper turnover filter. Then it is apparent that all these 11 companies as below could have been compared with the margins of the assessee: 26. When the assessee objected before the learned TPO that the comparables selected by the learned TPO have the huge turnover compared to the Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 13 of 14 assessee’s turnover challenging the economies of scale, bargaining power, etc. The learned TPO in paragraph No.17 has rejected the same. The learned TPO in paragraph No.17 has rejected the same. The learned TPO has held that in the business model like assessee have a cost plus mark up turnover is irrelevant as the turnover of the assessee increases the cost-plus markup of the assessee continues to be the same. We find that the above logic is not correct because assessee’s cost plus mark up price is compared to the uncontrolled comparable margins of the comparable companies. Comparable companies, based on their turnover size and scale, have different capabilities. Therefore, the large turnover companies compared to meagre turnover of assessee of Rs 4.53 crs, with an intent to limit the comparables are required to be excluded. Accordingly, we direct the learned TPO to exclude these 11 comparable companies selected by him. 27. The second issue raised before us is to restrict the adjustment only to the extent of revenue from AE of Rs.4,53,92,411/- is supported by the decision of the Co-ordinate Bench in assessee’s own case in ITA No.3243/Bang/2018 as well as the decision of the Hon’ble Bombay High Court reported in 171 taxamman.com 731, 394 ITR 141, 65 taxmann.com 155. Therefore, we direct the learned AO to restrict the adjustment to only international transactions. 28. Coming to the issue of disallowance under section 40(a)(i) of the Act amounting to Rs.9,34,58,073/-, we find that in assessee’s own case for Assessment Year 2012-13 in ITA No.1136/Bang/2023, the matter is restored back to the file of learned AO. Respectively following the same, we also restore this issue back to the file of AO with similar directions. 29. No other Grounds were pressed before us. Printed from counselvise.com IT(TP) A No.829/Bang/2022 Page 14 of 14 30. In the result, appeal of the assessee is partly allowed as indicated above. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (SOUNDARARAJAN K) (PRASHANT MAHARISHI) Judicial Member Vice President Bangalore, Dated: 26.02.2026. /NS/* Copy to: 1. Appellants 2. Respondent 3. DRP 4. CIT 5. CIT(A) 6. DR, ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore. Printed from counselvise.com "