TaxTMI 
TaxTMI 
2025 (10) TMI 908
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....RP) erred in confirming the addition proposed by the Learned Assessing Officer (Ld. AG) Learned Transfer Pricing Officer (Ld. TPO) of INR 3.354.09.319/- to the income of the Appellant The Appellant prays that the assessment proceedings be held as bad in law and as such deserve to be quashed. Transfer Pricing Adjustment in relation to provision of software development services 2. On the facts and in the circumstances of the case, and in law, Ld. AO/Ld. TPO following the directions of Ld. DRP, erred in confirming the addition of INR 3,94,09,319/- to the total income of the Appellant by holding that the international transaction in relation to provision of software development services by the Appellant is not at arm's length price as envisaged under the income-tax Act, 1951 (The Act) The Appellant prays that the Lo. TPO be directed to accept the book value of the aforesaid international transactions as the arm's length price and accordingly, the Transfer Pricing (TP) adjustment ought to be deleted 3. On the facts and in the circumstances of the case, and in law, the Lid. AD/ Ld. TPO, following the directions of Ld. DRP, erred in dis....
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....in law, Ld. AO/ Ld. TPO, following the directions of Ld. DRP, have erred in considering Magnasoft Consulting India Private Limited as a comparable company to the Appellant even though it does not pass the related party transactions ('RPT) filter of RPT to Sales less than 25%. The Appellant prays that Magnasoft Consulting India Private Limited be rejected as a comparable company. 8. On the facts and in the circumstances of the case, and in law, Ld. AO/Ld. TPO, following the directions of Ld. DRP, have erred in considering R Systems International Limited as a comparable company to the Appellant even though it follows different financial year vis-a-vis that of the Appellant. The Appellant prays that R Systems International Limited be rejected as a comparable company. 9. On the facts and in the circumstances of the case and in law, Ld. AO/Ld. TPO, following the directions of Ld. DRP, have erred in not granting the economic adjustment with respect to differences on account of risk assumed and differences in functional profile between the comparables companies vis-à-vis the Appellant while determining the arm's length price of the impugn....
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....nt craves leave to add, alter, amend, substitute or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing so as to enable the Hon'ble Tribunal members to decide these according to the law. 3. The brief facts of the case are that the assessee, a firm, filed its return of income on 29/11/2018 declaring income of Rs. 70,14,30,160/-, which was later revised on 29/03/2019 at Rs. 70,15,57,590/-. During the year under consideration, the assessee had entered into international transactions which were reported in Form 3CEB. The matter was referred to the Transfer Pricing Officer who, after examining the transactions, held that the profit level indicator of the assessee was not within the arm's length range. Accordingly, an upward adjustment of Rs. 3,94,09,319/- was proposed. Another issue examined during the scrutiny was the substantial mismatch between the closing written down value (WDV) of assets in the preceding year and the opening WDV in the current year. The assessee submitted that the difference arose on account of the conversion of Allscripts India Pvt. Ltd....
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....fer Pricing Officer rejected certain comparables selected by the assessee, he introduced additional comparables, and arrived at a final set of twelve comparables with a margin range of 15.91% to 16.50% and a median of 16.29%. Based on this, a transfer pricing adjustment of Rs. 3,94,09,319/- was made. The Dispute Resolution Panel upheld the adjustment, leading to the present appeal before this Tribunal. The counsel submitted that certain comparables introduced by the TPO ought to be excluded as they were functionally different and not comparable to the assessee, which is a captive software service provider. With respect to Kellton Tech Solutions Ltd. (a comparable adopted by the Transfer Pricing Officer Officer), it was submitted that this company is a product-based company engaged in development of its own proprietary software, namely the IoT-enabled artificial intelligence platform called "Optima." The assessee pointed out that Kellton derives significant revenues from hardware and maintenance services, constituting nearly 40% of its total revenue, and also carried inventory and consumed material during the relevant year. These features clearly show that it is engaged in diversifi....
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....ia (R&D) (P.) Ltd. [2023] 153 taxmann.com 200 (SC). Based on these authorities, it was prayed that Magnasoft Consulting India Pvt. Ltd. also be excluded from the final list of comparables. As regards Interglobe Technology Quotient Ltd. (a third comparable adopted by the Transfer Pricing Officer Officer), the counsel submitted that it is functionally different as it operates as a distributor of "Travelport," a global technology company engaged in the travel commerce industry. The financials of Interglobe show that nearly 99% of its revenue is derived from Travelport, and its entire business model revolves around distribution of travel technology products. The company had only one segment, namely travel technology, which is incomparable to captive software development services. Moreover, Interglobe's employee cost was merely around 6% of its revenue, while for the assessee, employee cost accounted for more than 65% of its revenue, which demonstrates that there was a fundamental difference in business models. The services provided by Interglobe were thus in the nature of distribution services and not software development services. In support of this contention, reliance was placed on ....
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.... assessee, which is a simple captive software service provider. The Hon'ble Delhi Tribunal in Global Logic India (P.) Ltd. v. DCIT [2022] 134 taxmann.com 25 (Delhi - Trib.) and in Headstrong Services (India) (P.) Ltd. v. DCIT [2016] 68 taxmann.com 363 (Delhi - Trib.) has held that companies engaged in product development or those affected by extraordinary events like acquisitions cannot be compared with captive software service providers. In the light of these precedents, we are of the view that Kellton Tech Solutions Ltd. is required to be excluded. Coming to Magnasoft Consulting India Pvt. Ltd., we observe that the financials show that it is engaged primarily in wholesale trading of packaged software and also in providing geospatial services, with inventories, purchase of stock-in-trade, and no segmental reporting. Its principal description in the annual return is "Wholesale Trade Services - Packaged Software." This evidently shows that the company is functionally different from the assessee, which provides only software development services to its AE. The Hon'ble Delhi High Court in Microsoft India (R&D) (P.) Ltd. v. DCIT [2023] 153 taxmann.com 199 (Delhi) has held that companie....
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....ts before us, we are of the considered view that Kellton Tech Solutions Ltd., Magnasoft Consulting India Pvt. Ltd., and Interglobe Technology Quotient Ltd. are functionally not comparable to the assessee and must be excluded from the final list of comparables. On such exclusion, the operating margin of the assessee at 15.25% falls within the permissible arm's length range under section 92C of the Act. Consequently, no transfer pricing adjustment survives. 9. In the result, the addition of Rs. 3,94,09,319/- made on account of transfer pricing adjustment is directed to be deleted. 10. The appeal of the assessee is allowed with respect to Grounds 2 to 9 relating to transfer pricing adjustments. 11. Ground Number 10: Deduction u/s 10AA of the Act 12. With respect to this ground of appeal, it is seen that while passing the assessment order, the Assessing Officer computed the total income at a figure of Rs. 74,09,66,910/- (at Page 13 of the Assessment Order), however, in the computation sheet prepared by the Assessing Officer, the total income of the assessee was computed at a figure of Rs. 75,44,66,910/- and no deduction under Section 10AA of the Act was granted to the asses....