Bombay High Court
Tech Mahindra Limited 2022 23 vs Assistant Commissioner Of Income Tax ... on 19 August, 2025
Author: B. P. Colabawalla
Bench: B. P. Colabawalla
2025:BHC-OS:13906-DB
1.wp(l).19289.2025.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO.19289 OF 2025
Tech Mahindra Limited .. Petitioner
Versus
Assistant Commissioner of Income Tax & Ors. .. Respondents
UTKARSH
KAKASAHEB Mr.J. D. Mistri, Senior Advocate a/w Harsh Kapadia i/b
BHALERAO Atul K. Jasani, Advocates for the Petitioner.
Digitally signed by
UTKARSH KAKASAHEB
BHALERAO
Date: 2025.08.21
11:39:10 +0530
Mr.N. C. Mohanty, Advocate for the Respondents.
CORAM : B. P. COLABAWALLA &
FIRDOSH P. POONIWALLA, JJ.
DATE : AUGUST 19, 2025
P. C.
1. This Petition challenges an order dated 2 nd April 2025
passed by Respondent No. 1 for Assessment Year 2022-23 rejecting the
Petitioner's applications dated 5th February 2025 and 14th February 2025
filed for rectifying mistakes apparent from the record evident from the
transfer pricing order dated 28th January 2025 passed under section
92CA of the Act for the said assessment year.
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2. The Petitioner is engaged in the business of providing
Information Technology ('IT') services and Information Technology
Enabled Services ('ITeS'), with 90% of its revenue from exports. It
typically provides software development and consultancy services
directly to customers. While it normally undertakes it's contractual
obligations itself, at times, it sub-contracts part of the overall work to its
subsidiaries, viz., Associated Enterprises ('AEs') worldwide. In such
cases, the AEs generally undertake onsite services and customer
relations, while the Petitioner undertakes offshore tasks
('Subcontracting services'). For providing these services, the AEs are
remunerated on a 'cost-plus' basis. The amount of subcontracting
charges/remuneration paid to it's AE's form part of the Petitioner's
overall costs.
3. Occasionally, due to business needs, similar business
arrangements are arrived at when it's AEs contract with clients for
computer services. Such arrangements are rare and account for less
than 5% of total export sales ('Provision of computer consultancy and
programming services').
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4. The Petitioner entered into various international
transactions during the subject year, including:
(i) Subcontracting services: Rs.1,14,09,29,45,754/-
(ii) Provision of computer consultancy and programming services:
Rs.24,51,45,66,628/-
(iii) Reversal of earlier-provisioned consultancy services:
Rs.1,03,25,45,445/-
(iv) Prepaid expenses for consultancy services from AEs:
Rs.2,15,82,178/-
(v) Lease rental received from AEs: Rs.6,50,85,295/-
(vi) Payment of rent to AE: Rs.10,36,129/-
5. The above transactions were aggregated for benchmarking
purposes as they are closely linked, which approach is undisputed and
accepted by Respondent No. 1. The Petitioner benchmarked the above
transactions using the "Transactional Net Margin Method" ('TNMM') at
the entity level with Operating Profit / Operating Revenue as the Profit
Level Indicator ('PLI'). Applying this, the Petitioner's margin was
claimed to be 17.59% (Operating Revenue: Rs.36,327.08 crores,
Operating Cost: Rs.29,938.50 crores, Operating Profit: Rs.6,388.58
crores). The Subcontracting charges constituted 38.11% of total
operating costs of Rs.29,938.50 crores, which costs included
transactions with AEs as well as Non-AEs. The Petitioner determined
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the arms' length margin ('ALP') range: 15.71% to 24.95% and the
median of 19.04% using 11 comparables identified by it. As the
Petitioner's margins were within the ALP range, as per the Petitioner,
the subject international transaction (subcontracting charges and other
aggregated transactions along with it) was at arms' length, and no
transfer pricing adjustment was warranted.
6. Respondent No. 1 passed the transfer pricing order under
section 92CA of the Act on 28 th January 2025. In this order, the 1 st
Respondent inter alia made transfer pricing adjustments of
Subcontracting charges and other aggregated transactions. In this
adjustment, Respondent No. 1 reworked the Petitioner's operating
margin to 16.02% identified a final set of 5 comparable companies. The
ALP margin as per the final set identified by Respondent No. 1 was
21.24%. As the Petitioner's margins (as reworked) were less than the
ALP margin as per Respondent No. 1, a transfer pricing adjustment was
made. In para 5.13 of his order, Respondent No. 1 computed an
adjustment to the total Operating Cost of the Petitioner at
Rs.18,64,10,44,116/-. This adjustment is computed by applying the
alleged reworked margins, (i.e., difference between 16.02% and 21.24%)
to the entire revenue of the Petitioner so as to derive a reworked figure
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of the Petitioner's Operating Costs, and then make adjustment of such
reworked Operating Costs when compared to the actual Operating Costs
of the Petitioner.
7. The Petitioner filed an application seeking rectification of
the mistake apparent from the record. In this application, it was
contended that irrefutably, the transfer pricing adjustment made of
Rs.18,64,10,44,116/- was on an entity level, taking into account the
entire value of the transactions, including third party (non AE)
transactions. This, according to the Petitioner, was contrary to law
including judgments pronounced by this Court. It was submitted that
any transfer pricing adjustment must be calculated only on
international transactions and not the entire turnover/costs in view of
the express language of section 92 of the Act. In it's application dated 5 th
February 2025, an indicative working was provided, wherein accepting
as proper, for the sake of argument, the working of Respondent No. 1,
the adjustment was restricted to transactions with AE's, being 38% of
the Petitioner's Operating Costs, the TP adjustment ought to have been
Rs.7,08,19,72,707/- and, thus, an erroneous adjustment had been made
by Respondent No. 1 of Rs.11,55,90,71,049/- (difference between
Rs.18,64,10,44,116/- and Rs.7,08,19,72,707/-).
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8. While the rectification application was pending, a draft
assessment order was passed under section 144C(1) of the Act on 30 th
March 2025 wherein several additions were made including the transfer
pricing adjustment proposed by Respondent No.1. This draft order
ultimately resulted in a final assessment order on 28 th May 2025 as the
Petitioner opted to take the Commissioner of Income Tax (Appeals)
('CIT(A)') route and a demand of Rs.789.59 Crores is raised.
9. Be that as it may, Respondent No. 1 however rejected the
rectification application on 2nd April 2025. The operative portion of the
impugned order is as under:
"5. The adjustment by the TPO has been made only on account
of transfer pricing issues related to international
transactions. During the TP Proceedings, as no separate
computation was provided by the Assessee showing
profitability of AE and Non-AE segment separately, it
implied that in the non-AE segment, the Assessee had
earned Arm's length profit in line with comparables and
any shortfall in Arm's Length Profit on overall basis is on
account of transaction with AE.
6. In the rectification application, the assessee has provided its
own calculation of AE profitability, which was not provided
in the course of TP proceedings. Accordingly, the same
could not be verified by the TPO. Submission of such
unaudited computation, after the completion of
proceedings, which was not subject to verification in the
course of TP proceedings is not an arithmetical mistake and
cannot be treated as mistake apparent from records, since
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the claim of assessee requires proper verification which is
not within the purview of section 154 of the Act.
7. The contention of the assessee as per the rectification
application has been carefully perused. The assessee has
also relied on the aforesaid judgement of Hon'ble Bombay
High Court, thereby raising a legal concern. It is pertinent
to note that rectification order can only be passed in the
case of a mistake apparent from record and not by relying
on case laws. However, the contentions of the assessee
made in this rectification application does not come under
the preview of 'Mistake apparent from record' as discussed
above."
10. Counsel for the Petitioner states that out of abundant
caution and in order to safeguard against limitation, an appeal before
the CIT(A) has been filed by the Petitioner after lodging the present
Petition. In the said Appeal, the Petitioner has challenged all the
additions made in the final assessment order including the aforesaid
transfer pricing adjustment of Rs.1864,10,44,116/-. Moreover, an
application for stay of recovery of demand filed by the Petitioner before
the Respondent No. 2 (i.e., the jurisdictional assessing officer) has been
disposed of by an order dated 30 th July 2025, wherein the AO has
granted stay subject to payment of 20% of the total demand of
Rs.789,59,56,430/- till disposal of the appeal by the CIT(A). A further
application for stay of recovery of demand has been filed by the
Petitioner with the jurisdictional Principal Commissioner of Income
Tax-2, Mumbai which has not been disposed of as yet.
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11. Counsel for the Petitioner submitted that the impugned
transfer pricing adjustment has clearly been computed on the entire
entity-level turnover/costs, including transactions with unrelated third
parties (non AEs), which is impermissible as it is in direct contravention
of section 92, which mandates that adjustments be confined strictly to
'international transactions', as well as binding decisions of various High
Courts. According to him, all the reasoning/arguments of Respondent
No. 1 set out in the impugned order, have been considered and rejected
in various judgments of this Court. He specifically pointed the judgment
in (i) CIT v. Alstom Projects India Limited (Income Tax Appeal No. 362
of 2014 dated 14th September 2016) and (ii) CIT v. Goldstar Jewellery
Design (P.) Ltd. [2016] 388 ITR 510. According to Counsel, an order
passed ignoring the judgment of a jurisdictional High Court is a 'mistake
apparent on the record' and, rectifiable. As Respondent No. 1 failed to
rectify his order, the present petition ought to be allowed.
12. Counsel for the Respondent however defends the action of
the Revenue. It is contended that an appeal lies from the impugned
order, which has been passed under section 154 of the Act in accordance
with the Petitioner's application, and further that Respondent No. 1 had
correctly worked out the adjustment on international transactions
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undertaken between the Petitioner and it's AEs, and therefore no
interference by this Hon'ble Court was called for.
13. Having heard the rival contentions, we, prima facie, find
force in the contentions of the Petitioner. The adjustment made by the
1st Respondent is clearly not restricted to the international transactions
alone, but is based upon and applied to the entire turnover/operating
costs of the Petitioner. This is contrary to well settled law and several
judgments passed by this Court including Alstom Projects (supra) and
Goldstar Jewellery (supra). However, considering the fact that a
statutory appeal has been filed by the Petitioner, and these contentions
can be urged therein, and also the well settled principle that pending an
appeal, recovery of demand by taking a view contrary to that of a
jurisdictional High Court, is not appropriate, we deem it just and proper
to dispose of the present petition with the following order:-
(i) The Petitioner may urge all contentions available to it in
law before the CIT(A) in the Appeal so filed by it, including
those raised in the present Petition.
(ii) We request the CIT(A) to dispose of the Appeal in
accordance with law, as expeditiously as possible and
preferably within a period of 12 months from the date of
this order.
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(iii) Until this Appeal is disposed of, and for a period of four
weeks thereafter, the Revenue shall not recover the taxes
and interest arising as a result of the excess impugned
transfer pricing adjustment of Rs.11,55,90,71,049/- or such
other figure as may be correctly computed.
(iv) No further proceedings shall be taken against the
Petitioner on the issue of the excess transfer pricing
adjustment impugned in the present Petition until disposal
of the Appeal filed by the Petitioner before the CIT(A) and
for a period of 4 weeks thereafter.
(v) Insofar as the demand arising from other additions made
in the final assessment order dated 28th May 2025, the
Petitioner's stay application presently pending before the
jurisdictional Principal Commissioner of Income Tax-2,
Mumbai be disposed of by him in accordance with law.
14. The above Writ Petition is disposed of in the aforesaid
terms. However, there shall be no order as to costs.
15. This order will be digitally signed by the Private Secretary/
Personal Assistant of this Court. All concerned will act on production by
fax or email of a digitally signed copy of this order.
[FIRDOSH P. POONIWALLA, J.] [B. P. COLABAWALLA, J.]
AUGUST 19, 2025
Utkarsh
