The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in HCL Technologies Ltd. vs. ACIT on April 15, 2026, delivered a detailed ruling on transfer pricing adjustments, Section 10A deductions, and the treatment of outstanding liabilities under Section 41(1) of the Income-tax Act, 1961. A Bench comprising Judicial Member Vikas Awasthy and Accountant Member Brajesh Kumar Singh partly allowed the appeals filed by HCL Technologies for AYs 2006-07 and 2007-08 and remanded certain issues for fresh verification.

The dispute primarily related to transfer pricing adjustments in respect of software development services rendered by HCL Technologies to its associated enterprises. The assessee also challenged the exclusion of telecommunication charges, travel expenses and insurance expenses from export turnover while computing deduction under Section 10A. In addition, the Assessing Officer had treated certain old outstanding sundry creditors amounting to approximately Rs. 60.80 lakhs as ceased liabilities under Section 41(1).

The Tribunal reiterated that any expense excluded from “Export Turnover” must also be excluded from “Total Turnover” while computing the deduction under Section 10A. Before the Tribunal, HCL Technologies argued that the transfer pricing comparables selected by the TPO included companies that were functionally different and had abnormal profit margins. It further contended that the Revenue authorities had incorrectly computed the Section 10A deduction by excluding certain expenses only from export turnover and not from total turnover.

The Tribunal followed the ratio laid down by the Supreme Court in HCL Technologies Ltd and held that parity has to be maintained between export turnover and total turnover. It was observed that excluding expenses only from export turnover would distort the formula prescribed under Section 10A.

On the transfer pricing issue, the ITAT directed the AO to re-examine the comparables and exclude companies that were functionally dissimilar or had extraordinary financial results affecting comparability analysis. The Bench observed that companies having “extreme financial results” or functional dissimilarities cannot be adopted as valid comparables for benchmarking software development services.

With respect to the addition under Section 41(1), the assessee submitted that several liabilities had either been paid subsequently or already written back and offered to tax in later years. The Tribunal found merit in the contention and restored the matter to the Assessing Officer for fresh verification of payment records and write-back entries. Thus, the ITAT partly allowed the appeals and remanded the transfer pricing and outstanding liability issues to the Assessing Officer/TPO for fresh adjudication in accordance with the law.

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