TaxTMI 
TaxTMI 
2026 (3) TMI 1472
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....ernational transaction with the US based AE. 4. At the outset, we note that these grounds have been withdrawn vide order sheet entry dated 15th September 2025 in pursuance to Mutual Agreement Procedure (MAP) resolution dated 7th May 2025. 5. The ground Nos. 10 to 14 of the revised grounds of appeal pertain to TP adjustment made in relation to international transaction with the non-US based AE. 6. At the outset, we note that the assessee, through the learned AR submitted to keep this issue open. Hence, we are not adjudicating the same. 7. The ground No. 15 of the revised ground of appeal pertains to the inclusion and exclusion of comparables. 8. The necessary facts are that the assessee, a private limited company, is engaged in the business of software development services (SWD) provided to AEs as well as to non-AEs. Accordingly, the assessee prepared its financial statements considering two segments, namely AE Segment and Non-AE Segment. The assessee has benchmarked the provision of SWD services to the AEs by adopting TNMM as most appropriate method. The PLI of the AE segment was computed at 15.79%. In the transfer pricing study, the assessee identified 26 comparable....
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....include certain companies as comparables which are detailed as under: 1. Akshay Software Technology 2. Cigniti Technologies Ltd 3. Evoke Technologies Pvt Ltd 4. Calibar Point Business Solutions Limited 5. CAT Technologies Ltd 6. Helios & Mathehson Information Technologies Ltd 7. R Systems International Ltd 8. Sasken Communication Technologies Ltd 9. Thinksoft Global Services Ltd, etc 13.3 The learned DRP after due consideration accepted the assessee's contention with respect to the exclusion of M/s ICRA Techno Analytics Ltd and M/s Tech Mahindra Ltd from the list of comparables and directed the TPO to exclude the same. 13.4 However, the learned DRP rejected the assessee's contention for the exclusion of M/s Persistent Systems Ltd from the comparable. The learned panel observed that the assessee first argued that Persistent Systems owns several intangibles and therefore should not be considered comparable. The ld. DRP noted that the assessee did not bring any material to contradict the findings of the TPO. On examining the annual report of Persistent Systems, the ld. DRP observed that the intangib....
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....ication for the exclusion of the company was declined. 14.1 The learned DRP also rejected the assessee request for inclusion of certain companies in the list of comparables. The ld. DRP examined each company that the assessee wanted to include in the list of comparables. 14.2 For Akshay Software Technologies Ltd., the ld. DRP noted that the company is engaged in professional services, procurement, installation, implementation, support and maintenance of ERP products. These activities include multiple types of support functions, and the annual report does not provide any clear data showing software development as the main activity. The revenue recognition policy also refers to services, maintenance contracts and sale of software licenses. No segmental data is available to confirm that software development alone is the primary business. Since the company operates in several service segments and proper segmental results are not available, it cannot be treated as comparable to a pure software development service provider. Therefore, the assessee's request was rejected. 14.3 For Cigniti Technologies Ltd., the learned DRP agreed with the TPO that the company is engaged prima....
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....iness lines were not fully available. Since the company is involved in diversified activities and not limited to software development, and proper segmental data is missing, it was held to be not comparable. 14.9 For Thinksoft Global Services Ltd., the learned DRP noted that the company failed the RPT filter of 25%. Further, the company is engaged only in software testing and validation services, which is functionally different from software development. As such, it cannot be considered comparable and the request for inclusion was rejected. 14.10 For Spry Resources India Pvt. Ltd., the company was not part of the assessee's TP study and was proposed only during the DRP stage. The annual report showed that the company earns revenue from software development services and licensing software products. Since it is also involved in sale of software products and segmental information is not available, it was considered unsuitable as comparable. Hence, the ld. DRP rejected it. 15. Being aggrieved by the direction of the learned DRP and consequent assessment order, the assessee is in appeal before us. 16. Before us the learned AR of the assessee submitted that M/s Persistent Syst....
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....hat the presence of significant intangibles, R&D activities, IP ownership, licensing income and product-based operations make Persistent Systems functionally incomparable. The assessee does not carry out any of these functions nor does it assume such risks. Therefore, comparing the margins of an entrepreneurial product-based company with a low-risk captive unit would lead to distorted and unfair benchmarking. 16.5 In support of exclusion, the learned AR also relied on judicial precedents such as decision of this tribunal in the case of the CSG Systems International (India) Pvt Ltd reported in TS-784-ITAT-2019 and TS-14-ITAT-2021 and also places reliance on the decision of Hyderabad ITAT in case of EPAM Systems India Pvt Ltd in ITA No. 2122/Hyd/2017. 16.6 The learned AR further submitted that the following companies should be included in the comparable list. 1. Akshay Software Technologies Ltd. 16.7 The learned AR submitted that Akshay Software Technologies Ltd. is a valid comparable because the company is engaged in IT and IT- enabled software development services, which is the same line of activity as the assessee. The company's own reply to notice under section ....
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....ngs constitute 99.98% of the total operating revenue, and software development services account for 100% of revenue, which meets every filter adopted by the TPO. The TPO rejected this company only on the ground that certain data was not available in the public domain; however, the ld. AR clarified that upon review of database such as MCA, complete financial information was indeed available. The ld. AR submitted that the TPO has not demonstrated any functional difference or any failure of quantitative filters. Since Evoke Technologies Pvt. Ltd. is a pure software development service provider operating under conditions identical to the assessee, and since data is reliably available, it should be included as a comparable. The ld. AR further relied on judicial precedents including Mercedes Benz Research & Development India Pvt. Ltd. (IT(TP)A No. 1497/Bang/2017) supporting inclusion of companies engaged in similar software development activities. 16.10 The learned AR concluded that all three companies viz Akshay Software Technologies Ltd., Cigniti Technologies Ltd. and Evoke Technologies Pvt. Ltd. are functionally similar to a captive software development service provider like the as....
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....g, R&D-driven activities and platform development are all combined. Without segmental break-up, it is impossible to isolate margins attributable to pure software development services. In transfer pricing, a functionally diversified company without segmental accounts cannot be compared with a single-segment captive service provider. 18.5 Fourth, although the ld. DRP rejected arguments relating to intangibles and R&D on the ground of low percentages, we note that the existence of intangibles and the nature of activities are more important than the quantum of R&D spent. The company's model itself revolves around constant creation, ownership and exploitation of IP, which places it in an entirely different economic position. The assessee does not own or develop IP and therefore cannot be benchmarked against such an entity. 18.6 Further, we found that in identical facts and circumstances the coordinate bench of Hyderabad ITAT in case of EPAM Systems India Pvt Ltd (ITA No. 2122/Hyd/2017) held that the M/s Persistent System Ltd is not comparables to captive SWD service provider. The relevant finding of the bench is extracted as under: 10. The first company which is challenge....
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....m page 1059 of the paper book, we find that the final segmental results of each segment is not available and therefore, we are of the opinion that the TPO ought to have excluded this company from the final list of comparables. We find that in the case of PCIT vs. Cashedge India P Ltd (supra), the Hon'ble Delhi High Court vide its order dated 04/05/2016, has considered the TP study in the case of Cashedge India P Ltd for the A.Y. 2010- 11 and the comparables therein and at para 6 of its order the Hon'ble High Court has discussed the financial results of Persistent Systems Ltd and held as under: ==-- 13. In the case of Pr. CIT vs. Saxo India (P.) Ltd for the A.Y. 2011-12 the Coordinate Bench of the Tribunal at Delhi has considered the very same facts to hold that it is not a comparable company as segmental information is not available with regard to the products and services. Learned Departmental Representative has not been able to bring out any dissimilarity of facts between the A.Ys 2010-11 & 2011-12 and the assessment year before us. Therefore, respectfully following the decision of the Coordinate Bench of the Tribunal and also the decision of the Hon'ble Delhi H....
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.... Ltd. as a valid comparable for software development service providers. The relevant finding of the Tribunal in case of NXP India Pvt Ltd reads as under: 32. It was rejected by the TPO for the reason that the function of this company appears to be more in the nature of support services and I.T. enabled services. However, this company is engaged in providing professional services, implementation, support and maintenance of ERP products and other services. These are nothing but software development services, as is evident from Notes forming part of the financial statement, which is placed at paper book page No.1825. Further, the revenue from software services accounts for 99.45% of the total revenue of the company as evident from the financial statement placed on record at paper book page No.1831. Being so, we direct the TPO to consider this company as comparable to the assessee's case while selecting the comparables. 18.12 We therefore hold that Akshay Software Technologies Ltd. is functionally comparable to the assessee and should be included. 18.13 Coming to the issue of inclusion of Cigniti Technologies Ltd. The learned DRP rejected this company on the ground that ....
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.... 18.18 The financials show that export earnings constitute 99.98% of operating revenue, and 100% of the company's revenue is from software development services. These facts demonstrate that the company passes every filter applied by the TPO, including turnover and export filters. 18.19 Importantly, the learned DRP has not identified any functional difference between this company and the assessee. The rejection is based only on perceived inconsistencies, which stand adequately clarified by the assessee. When reliable financial data is available and the company is engaged purely in software development services, its exclusion leads to an incomplete comparability set. 18.20 The AR has also relied on decisions such as Mercedes Benz Research & Development India Pvt. Ltd. (IT(TP)A No. 150/Bang/2016) involving A.Y. 2011-12, where Evoke Technologies was accepted as a comparable. This strengthens the assessee's contention. We therefore hold that Evoke Technologies Pvt. Ltd. is a proper comparable and should be included. 18.21 Regarding the other companies namely Calibar Point Business Solutions Limited, CAT Technologies Ltd, Helios & Mathehson Information Technologies Ltd, R Syst....
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....ax Rule. The assessee shall cooperate and provide all required details. The AO shall grant eligible credit after such verification. Hence, the ground of appeal of the assessee is allowed for statistical purposes. 27. The revised Ground Nos. 21 and 22 of the assessee's appeal pertain to levy of interest under section 234B of the Act and initiation of penalty proceeding under section 272(1)(c) of the Act. The issues raised in these grounds are either consequential or premature to decide. Hence, we dismiss the same as infructuous. 28. In the result, the appeal of the assessee is hereby partly allowed for statistical purposes. Coming to IT(TP)A No. 2062/Bang/2017, in case of NTT Data Information Processing Services Pvt Ltd for A.Y. 2013-14 29. The assessee vide submission dated 7th November 2025 has filed revised grounds of appeal. As per the revised grounds, the assessee has raised 25 grounds of appeal, which, for the sake of brevity, are not reproduced herein. 30. The ground Nos. 1 to 12 of the revised grounds of appeal pertain to TP adjustment made in relation to international transaction with the US based AE. 31. At the outset, we note that these grounds have been....