AI Drafter 
TaxTMI 
TaxTMI 
2026 (4) TMI 1765
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....e case of the assessee was selected for scrutiny and since the assessee was carried out international transactions with its AE, a reference was made to the Transfer Pricing Officer (TPO) u/s 92CA of the Act. The TPO made transfer price adjustments of Rs. 4,13,32,187/- towards software development services provided by the assessee to its AE. Thereafter, the AO passed draft assessment order dated 26.08.2023 u/s 144C(1) of the Act wherein he has proposed the additions on account of TP adjustment made by the TPO besides the other income offered in the modified return. Accordingly, total income of the assessee was proposed to be assessed at Rs. 52,42,24,672/-. Against the said order assessee filed objections before the ld. DRP who vide order dated 21.05.2024 disposed-off the objections by giving certain directions to AO/TPO. The TPO than pass the order giving effect and TP adjustment as made earlier was reduced to Rs. 2,67,19,413/. Thereafter, the AO passed the final assessment order dated 28.06.2024 wherein total income was assessed at Rs. 49,75,05,259/- by making addition on account of TP adjustment to the income declared in the modified return of income filed by the assessee. 3. A....
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....to the functional profile of the Appellant. The AO/DRP further erred in upholding the action of the TPO. 7. That on the facts and circumstances of the case and in law, the AO/TPO/DRP have erred by erroneous rejection of comparable companies selected by the Appellant in its TP documentation even though they are functionally comparable to the Appellant and clears all the filters acceptable to the Appellant and to the TPO on various erroneous grounds. 7.1. That on the facts and circumstances and in law, the AO/TPO/DRP have erred in arbitrarily rejecting DCIS Dot Com Solutions India Private Limited and Rheal Software Limited as comparable companies for benchmarking the international transaction pertaining to provision of SDS. 8. That on the facts and circumstances of the case and in law, the AO/TPO/DRP have erred by erroneous inclusion of comparable companies which are functionally dissimilar to the Appellant and fails certain quantitative filters applied by the Appellant. Further, the additional comparable companies have been cherry picked by the TPO without any benchmarking analysis and valid search criteria 8.1. That on the facts and circumstances....
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...., 2348 and 234C of the Act. Incorrect levy of penalty u/s 270A of the Act 16. That on the facts and circumstances of the case and in law, the AO has erred both in facts and in law in initiating penalty proceedings under section 270A of the Act. Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to add, alter, vary, omit, substitute, or amend the above grounds of appeal, at any time before, or at, the time of hearing of the appeal." 4. Grounds of appeal No. 1 & 2 are general in nature thus not adjudicated. 5. Grounds of Appeal No. 4, 5, 11 and 12 are not pressed thus are dismissed. 6. In Grounds of Appeal No. 3 & 6 to 10, the assessee has challenged the transfer pricing adjustments of Rs. 2,67,19,413/- made under Software Development Services by including certain comparables and excluding certain comparables from the final set of comparables. The assessee further challenged the action of AO/TPO of treating the foreign exchange fluctuation gains as non-operating item and further not allowing the risk adjustment as claimed by the assessee. ....
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....or this reliance is placed on the various judgments of the Coordinate Benches of Tribunal which are tabulated as under: * Genesys Telecom Labs India Pvt. Ltd. v. DCIT: /IT(TP)A No.: 38/CHNY/2024 (AY 2020-21) * Daido India (P.) Ltd. vs. DCIT [2025] 176 taxmann.com 716 (Delhi - Trib.) * Nokia Solutions and Networks India (P.) Ltd. vs. ACIT [2024] 160 taxmann.com 729 (Delhi - Trib.) * DCIT v. Marubeni India (P.) Ltd.: [2023] 146 taxmann.com 98 (Delhi - Trib.) * Imsofer Manufacturing India (P.) Ltd. v. DCIT: [2020] 121 taxmann.com 209 (Delhi - Trib.) * Escorts Ltd. v. DCIT: [2022] 138 taxmann.com 138 (Delhi - Trib.) * DCIT vs. Nomura Structured Finance Services (P.) 138 Ltd. [2022] taxmann.com 169 (Mumbai - Trib.) * KBACE Technologies Pvt. Ltd. v. DCIT: ITA No.3189/Bang/2018 * Mindteck India Ltd. v. DCIT: IT(TP)A No.252/Bang/2021 * ISG Novasoft Technologies Ltd. v. DCIT: IT(TP)A No. 804/Bang/2022 * Swiss Re Global Business Solutions India (P.) Ltd. v. Addl. ITO: [2022] 137 taxmann.com 417 (Bangalore). * Affinity Express India Pvt. Ltd. v. DCIT: ITA No. 106/PN/2012. 9. On the o....
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....mation for software development services are not applicable. Another reason stated for the exclusion of this company is that the turnover of Mind Tree was Rs. 77643 million which is almost 37 times of the turnover of the assessee company. One more aspect which is contended by ld. AR for the exclusion of Mind Tree is that it owned goodwill of Rs. 1180 millions which is much higher as compared to the assessee. Ld. AR therefore prayed for the exclusion of this company from the final set of comparable and also placed reliance on the various judgments wherein the company Mind Tree was excluded in the final set of comparables. 13. Another company which the Ld. AR requested for exclusion is M/s Nihilent Limited which is included in the final set of Comparable by the AO / TPO on the ground that it is functionally not comparable since it is engaged in the diversified activities such as consulting, enterprise and digital transformation services which are at all a comparable with the assessee. Nihilent is engaged in wide range of activity which includes business consulting in the area of enterprise transformation etc. Another reason for exclusion is that in the case of Nihilent, segmental ....
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....rom the sale of software to the total income of the companies. Thus, in the absence of segmental information provided by the companies in respect of the software services, the aforesaid companies have been excluded from the list of the comparables. We do not find any perversity in the approach adopted by the learned ITAT which would call for our inference. The third comparable viz Wipro Technology Services Limited has been held to be disqualified under Rule 10B(1)(e)(ii), to become a comparable for uncontrolled transaction for the purposes of inclusion in the final list of comparables. The rationale for exclusion has been upheld by this court in Principal Commissioner of Income Tax-7 v. Open Solutions Software Services Pvt. Ltd." 7.2 Mr Bhatia does not dispute the fact that the respondent/assessee is in the business of providing software development services. The two comparables i.e., Wipro Technologies Services Ltd. and Infosys Ltd. are in the business of not only software development services but also in the sale of software products. 8. Clearly, since according to the Tribunal the segmental information was not available, the comparables were ordered to be exclu....
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....ervice agreement between the Associated Enterprise (AE) and the Assessee stated that for the specified products and services provided by the Assessee, it "shall raise invoices on Ameriprise USA on the basis of a cost plus pricing methodology." The ITAT was therefore right in holding that the AO was not justified in considering the foreign exchange loss as a non-operating cost." 4. Consequently, we find that the appeal fails to raise any substantial question of law. It shall, consequently, stand dismissed. 18. On the other hand, ld. CIT DR supports the order of the TPO/AO and submits that foreign exchange fluctuation gain or loss is not is pertained to regular business activity and thus non-operating in nature. He therefore prayed that the AO /TPO has rightly treated the same non-operating item for working the PLI. 19. Heard the contention of both the parties. It is observed that the TPO has treated the foreign exchange fluctuation gain as non operating item but fact remained that foreign exchange fluctuations gains / losses are suffered at the time of realization from the debtors out of the sales / services made to them and therefore, they are having direct relation ....