Nil Transfer Pricing Adjustment Remanded and Enhanced Section 80JJAA Deduction Granted

By | July 15, 2026
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Nil Transfer Pricing Adjustment Remanded and Enhanced Section 80JJAA Deduction Granted

Nil Transfer Pricing Adjustment Remanded and Enhanced Section 80JJAA Deduction Granted

Issue

  • Issue I (Transfer Pricing): Whether a Transfer Pricing Officer (TPO) can sustain an Arm’s Length Price (ALP) of “Nil” for Global IT services once the assessee furnishes critical additional evidence on appeal to prove the rendering of services.

  • Issue II (Section 80JJAA Deduction): Whether the Assessing Officer is legally bound to verify and give full effect to the DRP’s directions to allow an enhanced Section 80JJAA deduction based on the final assessed (higher) gross total income.

Facts

  • The assessee, a company engaged in providing HR solutions, paid ₹7.64 crores to its Associated Enterprise (AE) for Global IT services.

  • The TPO computed the ALP of this payment at “Nil,” asserting that the assessee failed to provide a need-benefit analysis or documentary evidence to show services were rendered, and that the services overlapped with other IT charges. The Dispute Resolution Panel (DRP) upheld this decision.

  • On appeal, the assessee introduced vital additional evidence, including the Master Service Agreement, AE invoices, detailed cost-allocation models, and sample third-party vendor invoices to demonstrate actual service delivery.

  • Separately, the assessee claimed a deduction under Section 80JJAA for employing new workmen, which was capped by the Assessing Officer at ₹48.34 lakhs based on the gross total income declared in the original tax return.

  • The assessee appealed to the DRP, arguing it was eligible for a larger deduction of ₹9.93 crores when calculated against the enhanced gross total income assessed during tax proceedings. The DRP subsequently directed the Assessing Officer to allow the deduction in accordance with the law.

Decision

  • Matter Remanded (Transfer Pricing): Held that because the newly submitted additional evidence goes to the very root of the dispute and directly refutes the lower authorities’ primary basis for the “Nil” adjustment, the issue must be remitted back to the Assessing Officer/TPO for fresh evaluation.

  • In Favor of Assessee (Section 80JJAA): Held that the Assessing Officer is legally obligated to verify and fully implement the DRP’s directions, ensuring the Section 80JJAA deduction is updated and granted based on the final assessed income.

Key Takeaways

  • Re-evaluating “Nil” Adjustments: A “Nil” ALP adjustment cannot be sustained blindly when robust commercial documentation—such as master agreements, cost break-ups, and third-party back-to-back invoices—is provided to prove actual business utility and service execution.

  • Deductions Scale with Assessed Income: Statutory tax incentives linked to business profits, such as the Section 80JJAA employment deduction, must be adjusted upward to match any additions or increases made to the taxpayer’s gross total income during the assessment process.

IN THE ITAT CHENNAI BENCH ‘D’
Ranstad India (P.) Ltd.
v.
ACIT, LTU
Manu Kumar Giri, Judicial Member
and Ms. Padmavathy S., Accountant Member
IT(TP) Appeal No. 135 (CHNY) of 2024
[Assessment year 2021-22]
JUNE  5, 2026
Vikram Vijayaraghavan, Adv. for the Appellant. Ms. Ann Marry Baby, CIT for the Respondent.
ORDER
Padmavathy S., Accountant Member. – This appeal by the assessee is against the final order of the assessment passed by Asst. Commissioner of Income Tax, Circle-1, LTU, Chennai (in short “AO”) passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short “the Act”) dated 29.10.2024 for Assessment Year (AY) 2021-22. The assessee raised various grounds pertaining to the following issues:
• Ground No.1: Downward adjustment to AE cost on account of Global IT Services;
• Ground No.2: Erroneous aggregation of transitions for benchmarking instead of transaction by-transaction analysis;
• Ground No.3: Erroneous consideration of functionally dissimilar companies;
• Ground No.4: Erroneous computation of operating margin for comparable companies chosen by the learned A.O/TPO/Hon’ble DRP;
• Ground No.5: Erroneous computation of operating profit margin of the appellant ;
• Ground No.6: Restriction in claim of deduction applied under section 80JJAA of the Act;
• Ground No.7: Restriction of TDS Credit;
• GroundNo.8: Wrongful levy of fee u/s. 234F
• Ground No.9: Wrongful levy of interest;
• Ground No.10: Short grant of interest u/s. 244A
• Ground No.11: initiation of penalty proceedings under section 270A of the Act.
2. The assessee is a company engaged in the business of providing HR solutions including staffing, recruitment, outsourcing and consulting services. The assessee is a wholly owned subsidiary of Ranstad Asia Pacific B.V, Netherlands. The assessee filed a return of income for AY 2021-22 on 14.03.2022 declaring Nil income. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to complete the Arm’s Length Price (ALP) of the international transactions. The TPO proposed the following TP adjustments:
i. Downward adjustment to AE cost at entity level for the transitions considered – Rs. 46,37,485/-;
ii. Downward adjustment to AE cost on account of global IT services – Rs. 7,64,78,442/-.
3. The A.O passed the draft assessment order incorporating the TP adjustments. The A.O also made certain concrete additions to arrive at the assessed income at Rs. 13,92,28,760/-. Aggrieved, the assessee raised its objections before the DRP. The DRP gave partial relief to the assessee whereby the TP adjustment towards AE cost at entity level was reduced to Rs. 26,85,433/-. The assessee is in appeal against the final order of assessment passed by the A.O giving effect to the directions of the DRP.
4. The Ld. Authorized Representative (AR) of the assessee submitted that during the course of hearing submitted that ground No. 2 to 5 towards the downward adjustment to AE cost on aggregation of transactions is not pressed considering the smallness of the amount. Accordingly, these grounds are dismissed as not pressed.
Downward adjustment on account of Global IT services – Ground No.1
5. The TPO noticed that the assessee has paid a sum of Rs. 7.64 Crores towards global IT services. The TPO further noticed that the assessee has also paid a sum of Rs. 1.74 Crores towards IT charges as part of management charges. The TPO was of the view that the assessee has not produced the need benefit analysis for payment of global IT services besides in addition to the IT charges. The TPO further held that the assessee has not substantiated the payment with any documentary evidences to the effect that the payment has resulted in any tangible benefits to the assessee. Accordingly, the TPO computed the ALP at Nil. The DRP upheld the TP adjustment on similar grounds.
6. The Ld. AR made a written submission as extracted herein below:
a. Nature of Services & Benefit to Appellant: The global IT services are provided by the Randstad Technology Platform Services (‘RTPS’) department of Randstad Global IT Solutions B.V. Netherlands to various affiliated operating companies within the Randstad group.

The Global IT Services availed by RIPL India encompassed a suite of IT infrastructure and digital platform services provided by the RTPS department to all Randstad Group companies.These included, inter alia (detailed description provided in DRP Appeal in Pg 79 to 82 of ITAT Appeal docs):

– Enterprise IT Applications: Access to globally standard HR & staffing software, recruitment management systems, digital platforms (e.g. online job boards, Randstad’s career portal), data analytics tools, etc., enabling RIPL India to carry out its day-to-day business efficiently.
– IT Infrastructure & Network Services: Centralized cloud computing resources (e.g. AWS/Azure), data center hosting, leased network circuits & bandwidth (e.g. global contracts with BT for network connectivity) and telecommunications support.
– Software Licensing & Maintenance: Provision and maintenance of enterprise software licenses (e.g. Microsoft software, Cisco network security, Citrix remote access) on a group scale, giving RIPL India costeffective access to technology.
– Group IT Coordination & Support: Services like global helpdesk, cyber-security oversight, IT policy setting, vendor management, and implementation of global IT projects/updates, which improve RIPL India’s operational efficiency and ensure standardization across the Randstad network.
b. Stewardship Rebuttal: The Appellant strenuously rebuts the characterization of these charges as stewardship. The Appellant’s own IT team in India is limited in scale and does not perform these high-end functions; in fact, RIPL relies on the AE’s IT expertise and global systems to run its business efficiently, confirming these services are necessary and not duplicative of any in-house function(detailed explanation related to excluding stewardship cost is given in DRP Appeal forming part in Pg 86 & 87 of ITAT appeal docs).

Duplication Rebuttal: The Ld. TPO has erroneously concluded that the services availed by the Appellant are duplicative in nature by alleging that a sum of Rs. 1.74 crores towards IT services is already included in the Management & HQ charges, while a further Rs. 7.64 crores has been separately paid towards Global IT services (Para 7 in TP Order forming part of Pg 162-163 of the ITAT Appeal docs)

The aforesaid conclusion is factually incorrect and arises from a misunderstanding of the nature of services. The IT-related services forming part of Management & HQ services are limited to ICT strategy, governance, and corporate-level guidance (refer Para 5.1, Page 260 of the Paperbook). These are high level, strategic functions relating to group-wide direction and oversight.

In contrast, the Global IT services pertain to day-to-day operational execution, including provision and maintenance of IT infrastructure, applications, network connectivity and system support, which are directly utilized in the Appellant’s business operations.

The IT services rendered by the AEs are critical to the functioning of the Appellant, enabling smooth day-to-day operations and supporting core business activities. These services are neither routine nor duplicative but rather complement the business functions of the Appellant.

It is further relevant that the Appellant does not maintain any specialized inhouse IT team or infrastructure to perform such functions and is therefore dependent on the AEs for such services, which are essential for its operations and growth (refer detailed submissions in DRP objections at Pages 77 and 87 of the ITAT Appeal Documents).

c. Cost Base & Allocation Methodology: The Global IT service fee charged to RIPL India represents its share of the total costs incurred by the AE’s RTPS on providing IT services group-wide. The Appellant’s share was determined using allocation key of on ratio of Indian revenue to total global revenue.

The Global IT service fee is allocated to RIPL India based on ratio of RIPL India’s revenue to total global revenue of the Group as provided below (detailed workings provided in DRP Appeal forming part in Pg 92 to 97 of ITAT Appeal docs):

Particulars FY 2020 (INR) * FY 2021 (INR) ** Total Mark-up charged
Allocation of direct third-party IT costs 4,54,18,968 1,90,09,868 6,44,28,836 No mark-up
Reimbursements 4,00,351 (23,547) 3,76,804 No mark-up
Allocation of indirect costs 28,72,006 9,92,256 38,64,262 6.6% for FY 2020 and 5% for FY 2021 on the cost incurred
Depreciation on IT assets 53,84,679 19,97,547 73,82,226

 

Particulars FY 2020 (INR) * FY 2021 (INR) ** Total Mark-up charged
Interest expenses 3,82,637 43,677 4,26,314
Total IT charges 7,64,78,442

 

* FY 2020 represents a 9-month period ** FY 2021 represents 3-month period
d. Evidence of Services Rendered: To substantiate the nature and extent of services rendered, the Appellant has placed on record contemporaneous evidence in the Paper Book and additional evidence petition. This includes:
i. the Master Service Agreement for Global IT Services was submitted as annexure 3 to the submission dated 11 January 2023(Pg 275 of the Paperbook).
ii. Copy of invoices issued by the AE to RIPL India for the IT charges during FY 2020-21 were submitted as annexure 7 in the submission dated 30 MAY 2023 (Pg 240-244 of Paperbook).
iii. As part of additional evidence petition dated 10 February 2026, cost breakdowns at the AE’s end (e.g. bills from Amazon Web Services, BT, Citrix, Microsoft, TCS etc.) to demonstrate the underlying costs incurred to serve RIPL India.

The detailed break-up of the direct third-party IT cost components allocated to the Appellant by the AE for the period 1 January 2020 to 31 December 2020 is provided below (amounts in Euros):

Cost components Allocated to AEs in other countries Allocated to the Appellant* Total % allocated to the Appellant Sample invoices in annexure to additional evidence (Page Nos)
Cloud Amazon Web Services 11,643,614 411,137 12,054,750 3.41% 1-31
Google Cloud Platform 1,875,201 3 1,875,204 0.00%
Connectivi ty BT Voice 1,925,309 1,925,309 0.00%
ISP connectivity BT 1,673,858 1,673,858 0.00%
ISP connectivity other suppliers 3,544,866 3,544,866 0.00%
Network core 1,055,288 35,923 1,091,211 3.29% 32-34
Network Support BT 829,738 37,687 867,426 4.34% 35-38
Network Support other suppliers 843,906 843,906 0.00%
Licenses Citrix licenses 447,103 21,604 468,707 4.61% 39-40
Microsoft licenses 820,868 28,052 848,920 3.30% 41-43
Oracle licenses 65,010 65,010 0.00%
Other licenses 219,556 5,656 225,213 2.51%
Salesforce licenses 905 905 0.00%
Other IT costs Other IT costs 134,507 1,499 136,005 1.10%
Support IT support 3rd parties (not TCS) 5,355 5,355 0.00%
IT support TCS 22,745,202 148,979 22,894,181 0.65% 44-48
Tooling Back-up recovery / data protect. 450,237 11,672 461,909 2.53%
Cloud management / monitoring 453,674 17,460 471,134 3.71%
Cybersecurity 634,997 24,312 659,309 3.69%
Identity and Access Management 39,960 39,960 0.00%
SaaS Other 44,406 1,668 46,073 3.62%
49,453,561 745,652 50,199,212 1.49%

 

* The IT cost is allocated to RIPL India based on the ratio of RIPL India’s revenue to total revenue of user entities
iv. Sample third-party vendor invoices in respect of direct IT costs have been submitted (Pg 1-48 of the annexure to the additional evidence).The underlying costs incurred by the AE are supported through invoices from independent third-party service providers such as Amazon Web Services (AWS), Microsoft, Citrix, BT, TCS, etc., demonstrating that the services are not notional allocations. These costs span across cloud infrastructure, connectivity, software licensing, cybersecurity, IT support and tooling, which are essential for business operations. In addition, sample invoices evidencing purchase of IT assets forming part of depreciation have also been provided (Pg 49 – 123 of the annexure to the additional evidence).
The Ld. AR prayed the issue may be remitted for fresh consideration in the light of the additional evidences now submitted.
7. The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.
8. We have heard the parties, and perused the material available on record. The main ground on which the TPO has made the downward adjustment is that the assessee has not provided proper documentary evidences is to substantiate the rendering of services and the need for the services. The downward adjustment is also made for the reason that the assessee has made payments towards global IT services in addition to making payments towards IT charges which are part of managing services. From the perusal of the detailed breakup of the global IT services as extracted in the earlier part of this order, we notice that these are charges paid and allocated to the assessee towards services utilized from the third parties. We also notice that the assessee as part of additional evidences has now submitted the third party invoices to substantiate that the services are indeed rendered by third parties. The additional evidences now produced go the root of the issue and the core reason for making the adjustment by the lower authorities. For a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record. Considering that these additional evidences were not submitted before the lower authorities, we are of the view that the issue needs to be examined afresh. Accordingly, we remit the issue back to the A.O/TPO for fresh consideration. The A.O/TPO is directed to examine the additional evidences keeping in mind the nature of services rendered by the third parties and allow the claim of the assessee in accordance with law. The AO/TPO is further directed to call for any addition details/documentary evidence as may be required. The assessee is directed to furnish the details as may be called for and cooperate with the assessment/TP proceedings. It is ordered accordingly. Ground No.1 is allowed for statistical purposes only.
Deduction u/s. 80JJAA of the Act – Ground No.6
9. The assessee in the return of income has claimed deduction u/s. 80JJAA of the Act for a lesser amount to the extent of gross total income. The assessee contended before the DRP that though the assessee is eligible for deduction to the tune of Rs.9,93,43,314/-, the A.O has restricted the deduction to Rs.48,33,640/- without considering the enhanced gross total income as assessed by the A.O. We notice in this regard that the DRP has given direction to the A.O to allow the deduction as per law (page 14 para 7.1 of DRP directions). Accordingly, we direct the A.O to verify and give full effect to the DRP directions, and allow deduction under section 80JJAA as per law. Needless to say that the assessee be given a reasonable opportunity of being heard.
10. The assessee through Ground No.7 is contending the short grant of TDS. We in this regard direct the A.O to grant the credit for TDS after verification and allow the credit in accordance with law.
11. The assessee through ground No.8 is contending the levy of fee u/s.234F and through Ground No.10 is contending the short grant of interest under section 244A of the Act. With regard to levy of fee under section 234F the Ld. AR in this regard submitted that the assessee for the AY under consideration has filed the return of income on 14.03.2022 which is within the extended due date of 15.03.2022 as allowed by CBDT Circular No.1/2022 dated 11.01.2022. Accordingly, the Ld. AR argued that levy of fees u/s. 234F is not warranted. With regard to interest under section 244A the ld AR submitted that the interest has not been correctly granted and requires recomputation. Considering the submissions of the assessee we deem it fit to remit these two issues back to the AO with a direction to verify the claim of the assessee and allow the same in accordance with law.
12. Ground No.9 is with regard to interest u/s. 234B and ground No.11 is with regard to initiation of penalty proceedings u/s. 270A of the Act. Since these issues are consequential, the grounds do not warrant any separate adjudication.
13. In the result, the appeal of the assessee is partly allowed for statistical purposes.