The Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that the Transfer Pricing Officer ( TPO ) cannot introduce a new adjustment in the current assessment year ( AY ) if no such adjustment was made in prior years for identical transactions, explaining the principle of consistency in transfer pricing assessments.
IQVIA Analytics Services Pvt. Ltd., formerly known as IMS Health Analytics Services Pvt. Ltd., is an assessee that provides sales and marketing analytics and business consulting services in the pharmaceutical and healthcare sectors.
The company applied the Transactional Net Margin Method ( TNMM ) to benchmark its international transactions related to Information Technology Enabled Services ( ITES ) for AY 2017-18, reporting a Profit Level Indicator (PLI) of 14.79%. The TPO rejected this computation and included notional costs related to Employee Stock Option Plans (ESOPs) and tangible/intangible assets provided by Associated Enterprises (AEs), revising the PLI downward to 3.68%, which led to a huge transfer pricing adjustment.
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The assessee’s counsel argued that these notional costs were not actual expenses and should not be included in operating costs, citing precedents where similar costs were excluded in prior years (AYs 2015-16 and 2016-17) without any transfer pricing adjustments.
The assessee also argued that the amendment under Rule 10TA of the Income Tax Rules, 2017, which includes share-based compensation in operating expenses, was not applicable as the company had not opted for Safe Harbour provisions.
The ITAT bench, comprising Waseem Ahmed (Accountant Member) and Keshav Dubey (Judicial Member), held that the TPO’s approach was inconsistent with previous assessments where no such adjustments were made.
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The tribunal explained that the principle of consistency must be maintained unless there is a substantial change in facts or law. The tribunal further clarified that since Rule 10TA applies only to taxpayers opting for Safe Harbour rules, its provisions could not be applied to the assessee. The tribunal directed the TPO to exclude the notional ESOP costs and intangible asset expenses while computing the PLI. The tribunal was allowed.
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