TaxTMI 
TaxTMI 
2026 (8) TMI 671
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the case. 2. The Ld. DRP/AO have erred in rejecting the transfer pricing study of the Company and further erred in conducting a separate benchmarking exercise without appreciating the facts and circumstances of the Assessee company. 3. The Ld. DRP/AO are not justified in law in considering wrong comparables and consequently arriving at a high operating profit margin of 26.01% as a ratio of OP/OC. 4. The Ld. DRP/AO are not justified in law in making an adjustment u/s 92CA of Rs. 3,69,77,938/- to the price received by the appellant. 5. The Ld. TPO, while including the Companies as comparables has erred in applying the appropriate filters. 6. Without prejudice to the above grounds, the Ld DRP/AO erred in selecting the below mentioned companies as comparables which are in real inappropriate on the basis of functional dissimilarity, super profit, high turnover or other similar inappropriate filter etc. 1 Harbinger Systems Pvt Ltd 2 Evoke Technologies Ltd 3 Mindtree Ltd 4 Sagarsoft (India) Ltd 5 I D S Infotech 6 Great Software Laboratory Pvt Ltd 7 Nihilent Limited 8 LTIMindtree (Formerly L&T Inf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed Enterprise, Solix Technologies, Inc., for providing software development services for an amount of Rs. 14,76,42,073/-. The assessee has benchmarked the international transactions in respect of software development services provided to its Associated Enterprise (for short "AE") by applying Transactional Net Margin Method (TNMM) as the Most Appropriate Method. The Operating Profit to Operating Cost ratio has been taken as Profit Level Indicator. The assessee has selected three companies as comparables for software development services on the basis of search conducted in Prowessiq and Capitaline database and claimed that transactions with its AE are at Arm's Length Price. 4. The case was selected for scrutiny and during the course of assessment proceedings, a reference under section 92CA(1) of the Act, has been made to the Transfer Pricing Officer ("TPO") for determination of arm's length price in respect of international transactions of the assessee. During the TP proceedings, the learned TPO rejected TP analysis of the assessee on the ground that the assessee has adopted certain incorrect filters. Further, the learned TPO has conducted fresh TP study by applying variou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....BI short-term deposit rate and credit period. Similarly, the assessee has also challenged additions made by the A.O. towards notional interest charged on loans and advances to group concerns. 7. The learned DRP, vide its directions dated 10.09.2024, issued under section 144C(5) of the Act, rejected the explanation furnished by the assessee in respect of selection of comparables and also rejected the arguments of the assessee on the issue of inclusion of comparables on the ground that any company cannot be excluded or included on the basis of turnover and for the purpose of benchmarking analysis, what is to be considered is the functions, assets employed and risk involved in the transactions between the assessee and AE., and therefore, when the assessee has applied TNMM as the Most Appropriate Method, it is resistant to minor differences in product comparability and therefore, the arguments of the assessee that companies having higher turnover should be excluded by applying turnover filter is incorrect. 8. The learned DRP had also concurred with the findings of the learned TPO in respect of TP adjustment on interest receivable on trade receivables from AE by holding that the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bosoft Technologies Ltd., KSolves, Cybage Software Pvt. Ltd., Aptus Software Labs, Consilient Technologies and Ezee Technosys, are not comparable with the assessee company, because the above companies fail turnover filter, if we apply 10 times lower side or 10 times upper side of the assessee company and therefore, the above companies should be excluded from the list of comparables for the purpose of computing TP adjustment of international transactions of the assessee company with its AE. In this regard, he relied upon the following judicial precedents : 1) M/s. Barracuda Networks India (P.) Ltd. vs. DCIT, IT(TP) Appeal No. 229 (Bang) of 2021. 2) M/s. Comer Industries India (P.) Ltd., (2023) 150 Taxmann.com 180 (Bangalore - Trib). 3) Radisys India Private Limited vs. ITO. 4) Clinsisia Labs Private Limited, (TS-247-ITAT-2024). 5) iMedX Information Services Private Limited vs. Deputy Commissioner of Income Tax (2023). 6) M/s. OrangeScape Technologies Private Limited, (TS-347-ITAT-2025 (CHNY)-TP). 7) Wipro GE Healthcare (P.) Ltd. v. Deputy Commissioner of Income-tax. 12. The learned counsel for the assessee further sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its AE on cost plus mark-up basis, whereas the above companies are engaged in diversified activities and providing software development services to various verticals of industries and therefore, the arguments that these companies cannot be considered for the purpose of TP analysis, is incorrect because software development services is one activity, but may be in different verticals of industry and therefore, going by the software development services provided to different verticals of industry, it cannot be said that the functions performed by the above companies are different from the assessee company. Therefore, he submitted that the A.O. and the learned TPO has rightly considered the objections filed by the assessee while rejecting the arguments and therefore, the order of the DRP should be upheld. 15. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The assessee had challenged inclusion of 15 comparables, out of which 10 comparables were challenged on turnover filter, 4 comparables on FAR analysis and one comparable on export filter. The assessee had sought to exclude 10 comparables on turnover fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee company, then the companies selected by the learned TPO, including Evoke Technologies Ltd., Mindtree Ltd., Great Software Laboratory Pvt. Ltd., Nihilent Limited, LTIMindtree (Formerly L&T Infotech), Wipro Limited, Tata Elxsi Limited, Infosys Limited, Robosoft Technologies Ltd. and Cybage Software Pvt. Ltd., are outside the list of final set of comparables selected by the learned TPO. This principle is also consistently accepted by the Tribunal in a number of cases where the high turnover companies have been excluded by applying 10 times higher or lower side of the turnover of the companies. Therefore, we direct the learned A.O./TPO to exclude the following 10 companies from the list of final set of comparables : 1. Evoke Technologies Ltd., 2. Mindtree Ltd., 3. Great Software Laboratory Pvt. Ltd., 4. Nihilent Limited, 5. LTIMindtree (Formerly L&T Infotech), 6. Wipro Limited, 7. Tata Elxsi Limited, 8. Infosys Limited, 9. Robosoft Technologies Ltd. 10. Cybage Software Pvt. Ltd. 17. Coming back to the remaining four comparables agitated by the learned counsel for the assessee on the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned TPO has not analyzed the FAR analysis by considering the nature of services rendered by the above companies when compared to the assessee company. The learned TPO had also accepted that the FAR analysis of the above companies is similar to the assessee company without providing any details as to how the revenue generated from the above companies are similar to the assessee company. Therefore, in our considered view, in respect of these four companies, i.e., Net4Nuts, Systango Technologies Ltd., KSolves and Aptus Software Labs, a fresh look is required from the learned TPO in light of various objections raised by the assessee, including difference in FAR analysis of the above companies when compared to the assessee company. Thus, we set aside the issue of FAR analysis of these four companies to the file of the learned TPO and direct the learned TPO to reconsider the above companies after considering the objections filed by the assessee and also decide whether the above companies pass all filters required to be applied for selection of a company for the purpose of benchmarking analysis. 19. The next issue that came up for our consideration from ground No. 7 of the assessee&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ables. Therefore, we direct the learned TPO to include G S S Infotech Limited for the purpose of TP analysis. As regards Cadsys (India) Ltd., the learned TPO has not provided any details, which is evident from para 12.1.3 of the TPO order, where the learned TPO has extracted a para in the annual report and observed that the company's sales service income is greater than 75%. Since the learned TPO has rejected the above company without assigning any reasons, in our considered view, the issue needs to be set aside to the file of the learned TPO to carry out further verification in light of the annual report of the above company and the FAR analysis of the assessee. Thus, we direct the learned TPO to re-examine the claim of the assessee in light of relevant annual reports, if any, filed to justify its case. 23. The next issue that came up for our consideration from ground Nos. 8 and 9 of the assessee's appeal is TP adjustment of Rs. 17,27,321/- on outstanding trade receivables from AE. 24. The learned counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the ITAT, Hyderabad Bench in the case of Mylan Laboratories Priva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al interest @ 12% by relying upon the provisions of section 186(7) of the Companies Act, 2013. Further, as per section 186(7), no loan shall be given under section 186 of the Companies Act, 2013 at a rate of interest lower than the prevailing yield of one-year, three-year, five-year or ten-year Government security closest to the tenure of the loan. 29. It was the argument of the learned counsel for the assessee that loan has been given to M/s. Tiebeam Technologies Pvt. Ltd., out of interest-free funds and the assessee has not debited any interest for the year under consideration, and therefore, the question of disallowance of interest on loans given to group entities does not arise. 30. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The assessee has advanced loans and advances to Tiebeam Technologies Pvt. Ltd., for Rs. 4,71,00,000/- without any interest, and said loan has been given out of interest-free funds available with the assessee company. Further, interest-free loans has been given out of commercial expediency, and the assessee and the group concerns are engaged in similar line of activitie....