TaxTMI 
TaxTMI 
2026 (8) TMI 1165
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act (DIN : ITBA/DRP/M/144C(5)/2025-26/1083025244(1)) . The AO had earlier issued draft assessment order dated 12.02.2025 u/s. 144C(1) of the Act, wherein the AO proposed an addition of Rs. 2,98,56,937/- on account of ALP adjustment u/s 92C as proposed by ld. TPO in its Transfer pricing order dated 29.01.2025 passed u/s 92CA(3), which were subjected to challenge by the assessee by filing objection before the ld. DRP which culminated into an order passed by ld. DRP dated 26.11.2025 u/s 144C(5) of the Act. TPO passed order giving effect to the directions of ld. DRP, vide order dated 12.12.2025. 2. The Grounds of appeal raised by the assessee in Memo of Appeal filled with Income Tax Appellate Tribunal, New Delhi in IT(TP) A No. 8/Del/2026, reads as under: - "Based on the facts and circumstances of the case, the Appellant respectfully craves leave to prefer an appeal against the order dated 17 December 2025 passed under section 143(3) read with section 144C(13) read with section 144B of the Act by the Assessment Unit, Income-Tax Department ('learned assessing officer') in pursuance to the directions of the Hon'ble Dispute Resolution Panel 2, Delhi ['Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... certified by an independent chartered accountant: 6. erred in arbitrarily rejecting the Appellant's segmental accounts certified by an independent chartered accountant and instead allocating the operating expenses on revenue basis in each segment without any cogent basis; Provision of software development services - Rs. 1,09,21,325 7. erred in making the impugned transfer pricing adjustment of Rs. 1,09,21,325 in respect of provision of software development services rendered to its AE; 8. failed to appreciate that the Appellant's margins of 10.84% as computed by the learned transfer pricing officer fits within the arm's length range of 5.70% (35 percentile) to 21.62% (65th percentile) and therefore, no transfer pricing adjustment ought to have been made; 9. without prejudice to the above, erred in arbitrarily rejecting the Appellant's comparable company. Great Software Laboratory Private Limited, as being functionally dissimilar to the Appellant without providing any cogent reasoning: 10. without prejudice to the above, ought to have appreciated that the companies viz. Caliber Technologies Private Limited, Global....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were not included in the Appellant's initial search without appreciating that the same formed part of the initial search and therefore, the comparable companies ought to have been included the list of comparables, 20. ought to have appreciated that the companies viz. Vitae International Accounting Services Private Limited and Tech Mahindra Business Services Limited, are not comparable to the Appellant and therefore, ought to have been excluded from the list of comparables: 21. erred in incorrectly computing the operating margins of the comparable companies viz., CES Limited Microland Limited, I Services India Pvt Ltd. and Sundaram Business Services Limited; Non-granting of risk adjustment to the Appellant: 22. erred in not granting suitable adjustments to account for difference in the risk profile of the Appellant vis-à-vis the comparable companies; F. Other grounds of appeal: Levy of interest under section 234A of the Act-Rs 58.272. 23. erred in levying interest under section 234A of the amounting to Rs. 58,272, Excess levy of interest under section 234B of the Act-Rs 27,34,466 24 erred in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ology Enabled Services 9,68,70,030/- 3.1 The TPO observed that the assessee has selected itself as tested party, and has applied TNMM as the most appropriate method for computing PLI(OP/OC), wherein margin of 15% was computed by the assessee, which was taken by the assessee to be at Arms Length Price wrt International Transactions entered into by the assessee with its AE. The TPO observed that the assessee has computed its margin incorrectly, and the TPO recomputed margin of the assessee being PLI(OP/OC) at 10.84% instead of 15% computed by the assessee. The TPO apportioned operating expenses according to Revenue. The TPO observed that the assessee has income majorly from three segments viz. 'Provision of Software Development Services', 'Provision of Online Advertising Support Services' and 'Provision of Information Technology Enabled Services'. The TPO also rejected the economic analysis undertaken by the assessee. The TPO also modified some of the search filters adopted by the assessee. The assessee objected and requested TPO to treat Foreign Exchange gains/loss as well income from sale of Scrips granted under the 'Services Export from India Scheme (SEIS)' as part of operat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in one comparable namely 'Virinchi Limited' selected by the assessee was rejected, while no new comparables were added by the TPO. The TPO computed Median margin of these ten comparables to be 19.50%, with 35th Percentile margin of 15% of these comparables and 65th Percentile of 22%. The Median PLI being OP/OC of the comparables were taken to be 19.50%, while the assessee margin(PLI) was 10.84%, which led to the TP addition of Rs. 94,17,037/- (amount wrongly proposed as Rs. 97,17,037/- in the order while computing income) being proposed by TPO under this segment by way of adjustment to the ALP of the International Transaction entered into by the assessee with its AE with respect to 'Provision of ITES' segment. The AO accordingly passed draft assessment order. Aggrieved, the assessee filed objections before ld. DRP, who was pleased to dispose of the objections raised by the assessee vide its detailed orders dated 26th November, 2025, wherein some relief was granted by ld. DRP. The TPO passed order giving effect order consequent to the ld. DRP directions, vide order dated 12th December, 2025, wherein additions proposed pursuant to directions of ld. DRP, are as under: S. No. Des....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., thus, the authorities erred in making TP adjustment in this segment . It is contended that the assessee applied TNMM method as MAM with itself being tested party to compute PLI(OP/OC) which method is accepted by ld. TPO, wherein TPO computed PLI of 10.84% of the assessee, while PLI(OP/OC) of the comparables in this segment namely 'Provision of Software Development Services' were computed at 5.70% with 35th percentile and 21.62% with 65th percentile, with median of 17.82%, pursuant to directions of ld. DRP in the order giving effect . There were eleven comparables finally selected by ld. TPO in this segment, pursuant to ld. DRP directions. It is submitted that even if aforesaid computations of TPO pursuant to ld. DRP directions are accepted, the assessee's PLI(OP/OC) as computed by ld. TPO falls within tolerable range as is statutorily provided u/s 92C of the 1961 Act read with Rule 10CA of the Income-tax Rules, 1962, and hence no TP adjustment to ALP of international transactions entered into by the assessee with its AE wrt 'Provision of Software Development Services' Segment is warranted. We have observed that the assessee raised this issue with ld. DRP, and the ld. DRP rejected....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epted, the assessee's PLI falls within tolerable range of +/- 3% as is provided u/s 92C of the 1961 Act read with Rule 10CA(7) of the 1962 Rules, and hence no TP adjustment to ALP of international transactions entered into by the assessee with its AE wrt 'Provision of Online Advertisement Support Services' Segment is warranted. The TPO finally selected five comparables pursuant to ld. DRP directions. We have observed that the assessee raised this issue with ld. DRP, and the ld. DRP rejected the contentions of the assessee without specifying the reasons for such rejections, and decision of TPO was upheld by ld. DRP to this effect wherein TPO in its order dated 29.01.2025 did not consider the allowability of tolerable range. The ld. DRP did not pass a speaking order. Five companies were finally selected as comparables pursuant to ld. DRP directions. Since, there are less than six comparables selected, Rule 10CA(4) to (6) of the 1962 Rules are not applicable. Rule 10CA(7) of the 1962 Rules is applicable read with Section 92C of the 1961 Act. The arithmetic mean of the PLI of the comparables viz. 13.41% is to be compared with PLI of the assessee viz. 10.84%.. The operating cost of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (ITA No. 453 of 2024, dated 22.08.2024), Hon'ble Delhi High Court judgment and order in the case of Rampgreen Solutions Private Limited in ITA No. 340/2016 dated 27th May, 2016, and also decisions of Tribunal, to support its contentions. We are in agreement with the contentions of the assessee, however, the same need verification. We are remitting the matter to TPO to verify the contentions of the assessee that these foreign exchange gains/losses have arisen wrt on revenue field wrt invoice raised for rendering of ITES segment, and accordingly treat the same as operating income while computing PLI of the assessee, and further in order to bring parity and to avoid distortion, accordingly it is also required to adjust PLI of the comparables. We order accordingly. 5.6.2 Income from sale of Scrips granted under 'Services Export from India' Scheme of Government of India The ld. Counsel for the assessee submitted that income arising from sale of scrips granted under 'Services Export from India Scheme' of Government of India are part of the operating income, while authorities below have treated the same as non-operating in nature while computing PLI(OP/OC) of the assessee with resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers adopted by the assessee. The TPO did not specify any reasons for rejection of 'Virinchi Limited'. The assessee raised its objection before ld. DRP. The assessee contended that 'Virinchi Limited' is functionally comparable. The segmental information is available. The said company 'Virinchi Limited' is engaged in sale of IT products and rendering of ITES services. It was submitted that 'Virinchi Limited' passed all the filters applied by TPO. Prayers were made to include 'Virinchi Limited' as comparable. The ld. DRP observed that 'Virinchi Limited' is into sale of IT products, and hence TPO rightly rejected 'Virinchi Limited' as comparable. Before us, the ld. Counsel for the assessee prayed for inclusion of 'Virinchi Limited' as comparable for computing ALP of International Transactions wrt ITES segment. It was submitted that the assessee is captive service provider to its AE being parent company in USA. The assessee has placed on record audited accounts of 'Virinchi Limited' for the year ended 31st March, 2022(Page 703-724/PB). We have observed that the said company is an IT products & Services Company offering customized solutions . It is observed that the said company is engag....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... search filters while passing the TP order, which also possibly justify assessee to offer fresh comparables which meets modified search filters adopted by TPO. The contentions of the assessee's wrt their inclusion as comparables for computing ALP of the international transactions entered into by the assessee wrt ITES segment, requires verification and inquiry, before arriving at the decision. Thus, we are remitting matter before ld. TPO to decide the same in accordance with our aforesaid directions. The ld. TPO is directed to pass speaking order with respect thereto on merits in accordance with law, after granting opportunity of being heard in accordance with principles of natural justice .The findings of ld. DRP are set aside. We order accordingly. 5.6.5 Exclusion of Vitae International Accounting Services Private Limited and Tech Mahindra Business Services Limited The assessee is seeking exclusion of Vitae International Accounting Services Private Limited and Tech Mahindra Business Services Limited as comparables in ITES segment, albeit the same were part of TPSR submitted by the assessee itself. Thus, these two comparables were selected by the assessee itself in its TPSR s....