TaxTMI 
TaxTMI 
2026 (9) TMI 25
X X X X Extracts X X X X
X X X X Extracts X X X X
....osing an upward adjustment amounting to INR 6,11,64,466 to the value of international transaction pertaining to provision of software development support services to its associated enterprise ('AE') and INR 17,50,90,181 to the value of international transaction pertaining to sales and marketing support services to AE by rejecting the analysis undertaken by the Appellant in its transfer pricing documentation. Final assessment order barred by limitation 2. erred in not appreciating that the time limit prescribed under section 153 is the outer time limit for passing the final assessment order and hence, the final assessment order dated 31 July 2022 is time barred and liable to be quashed Final assessment order is invalid 3. erred in contravening the provisions of section 144B of the Income-tax Act, 1961 ("the Act") by passing the final assessment order u/s Section 143(3) r.w.s 144C(13) of the dated 31 July 2022 by Jurisdictional Assessing Officer (ACIT, Circle 14(1)(2) Mumbai) and not by the National Faceless Assessment Centre, thereby making the entire assessment proceedings as void-ab-initio and is liable to be quashed. Rejection ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entities with the Appellant's captive operations without making any risk adjustment on account of differences between the functional and risk profile of comparable companies vis-à-vis the risk profile of the Appellant for software development support service segment. Erroneous computation of weighted average unadjusted operating margins for some comparables pertaining to Software development service segment 9. erred in computing weighted average unadjusted operating margins in relation to the following comparable companies pertaining to provision of software development services segment: * Nihilent Limited * CG-VAK Software and Exports Limited Non granting of working capital adjustment to operating margins of comparable companies pertaining to software development support service 10. erred by not granting working capital adjustment to operating margins of comparable companies for software development services segment; II. Sales and marketing support services Inappropriate rejection of certain companies identified as comparable by the Appellant 11. erred by rejecting the following companies f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... claim under section 40A(7) relating to gratuity 16. erred in not considering the amount of gratuity of INR 21,80,661 incrementally claimed as deductible under section 40A(7) on payment basis as deductible expense as it relates to payment discharged by the transferee entity (for business sold in past), which had been disallowed by the Appellant in the past and not claimed as deduction by the transferee entity. Erroneous disallowance of claim under section 43B relating to leave encashment. 17. erred in not considering the amount of leave encashment of INR 9,12,470 incrementally claimed as deductible under section 43B respectively on payment basis as deductible expense as it relates to payment discharged by the transferee entity (for business sold in past), which had been disallowed by the Appellant in the past and not claimed as deduction by the transferee entity. Erroneous grant of interest under section 244A of the Act 18. erred in granting consequential interest on income tax refund due to adjustments made to income as per Ground 16 and 17 above. Erroneous levy of interest under section 234B of the Act 19. erred in le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d marketing support and technical support services to its associated enterprises ('AEs'). During the year under consideration, the assessee entered into International Transactions with its Associated Enterprises within the meaning of Section 92B of the IT Act. Accordingly, a reference u/s 92CA(1) of the Act was made to the TPO for determination of Arm's Length Price with reference to all the international transactions report in Form No. 3CEB filed by the assessee. 3.2 Thereupon, the Transfer Pricing Officer ACIT TP 3(1) (1), Mumbai passed an order dated 28.07.2021 u/s 92CA(3) of the Act for computation of Arm's Length Price in relation to International Transactions and determined Transfer Pricing adjustment of Rs. 15,46,41,985/-. 3.3 As per the provisions of section 92CA(4) of the Act, it is mandatory for the Assessing Officer to compute the total income of the assessee in conformity with Arm's Length Price as determined by the Transfer Pricing Officer. In view of the same and as finalized by the TPO, an addition of Rs. 15,46,41,985/-was proposed to the total income of the assessee and a draft assessment order was passed by Assessing Officer u/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment 6,11,64,466 As discussed above the adjustment on account of Provision of software development support services is revised to Rs 6,11,64,466/- after giving effect to the directions of the Ld. DRP. 5. Provision of Sales And Marketing Support And Technical Support Services. 5.1 Revised dataset of the Comparable Companies following the order of DRP: S No Name of the company Weighted Average% OP/OC 1 Concept Public Relations India Ltd. 11.21 2 India Tourism Development Corporation Ltd. 12.97 3 PR Pundit public Relations Pvt. Ltd. 15.43 4 ICRA Management Consulting Services Ltd. 66.79 Arithmetic Mean 26.6 As the OP/OC margin earned by assessee of 7.23% is less than the arithmetic mean of the comparable companies, the transaction of assessee is held to be not at arm's length. Accordingly, the TP adjustment is revised as under: PARTICULARS INR Operating Revenue 95,53,61,731 Operating Cost 89,29,32,000 Operating Profit 6,24,29,731 ALP Median% 26.60% ALP revenue 113,04,51,912 Shortfall/TP Adjustment 17,50,90,181 As discu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....143(3) r.w.s 144C(13) of the Income Tax Act, 1961 at an income of Rs. 49,38,00,117/-. Give credit for taxes paid after due verification. Interest is being charged u/s 234A, 2348, 234C & 234D as per the Act. Tax computation is as per ITNS 150A, which forms integral part of this order. Demand notice is being issued accordingly. Penalty proceedings u/s 270A of the Act are initiated separately for under reporting of income and Penalty proceedings u/s 271AA of the Act are initiated separately for non-maintenance of records and documents as per Rule 10D of the IT Rules. 5. Being aggrieved by the aforesaid adjustments made in the final assessment order, the assessee has preferred an appeal before the Tribunal, which is under consideration in the present proceedings. 6. At the outset, the learned Counsel for the assessee (in short, "Ld. AR") submitted a ground-wise summary chart, setting out the comparables/issues, the reasons recorded by the TPO/DRP for their acceptance or rejection, the assessee's contentions for acceptance or rejection thereof, and the relevant judicial precedents relied upon in support of its contentions,The same are dealt with and adjudicated as under: 7. Gro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplications (Refer page 980, 986) Profit and loss for the AY 2018-19 (Refer page 1001) Revenue form operations note which specifies revenue is from Software development charges (Refer page 1010) The company has not disclosed any accounting policy for inventories since the company is engaged in development and implementation of customized softwares (Refer page 1003) Segment reporting The company has given the geographic segmental profitability since the company is engaged into only 1 business segment i.e. income from software services and products. Segment reporting is shown under note 2.26 (Refer page 1013) Marveric Systems Limited Functionally comparable Maveric is engaged in rendering software testing, computer programming services which is a part of broader software development life cycle ('SDLC'). Further, as per the revenue recognition policy documented in the financials, the company is engaged in software testing services, which is part of SDLC. (DRP submission - refer page 121 to 124 of appeal memo), (TP submission - refer page 758 to 761 of FPB 1) Complete copy of annual rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2018-19 as a good comparable company. 4. Evoke Technologies Pvt Ltd. Accepted by the TPO as a comparable company in AY 2018-19 as a valid comparable company. 5. Kireeti Soft Technologies Ltd. Accepted by the TPO as a comparable company in AY 2016-17 as a valid comparable company. 6. Maveric Systems Limited: Accepted by the TPO as a comparable company in AY 2018-19 as a valid comparable company. 7. Akshay Software Technologies Limited: Accepted by the TPO as a comparable company in AY 2016-17 as a valid comparable company." Varian Medical System International (India) Private Limited in ITA No. 510/Mumbai/2022 "12.1 Evoke Technologies Pvt. Ltd.: The ld. AR of the assessee submitted that this company may be included as comparable as it is functionally similar to assessee company and accepted in earlier years as comparable. He submitted that as per Directors report, there is no change in nature of business and engaged in IT decision and development services. He submitted that in assessee's own case ADP (P.) Ltd. (supra) the coordinate bench included this company as comparable for determining ALP. 12.4 We observe that this co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Limited. 12.3 The learned Departmental Representative, on the other hand, supported the action of the learned TPO and submitted that the aforesaid companies are functionally comparable with the assessee and, therefore, their inclusion in the set of comparables is justified. 12.4 In support of its contention regarding the exclusion of the aforesaid companies, the learned AR placed reliance upon various judicial pronouncements, including decisions rendered by the coordinate Benches of the Tribunal. The relevant decisions relied upon by the assessee are considered company-wise as under: Nihilent Limited 12.5 In support of exclusion of Nihilent Limited, reliance was placed on the decision of the coordinate Bench in Ingram Micro India SSC Private Limited, ITA No. 1320/Mum/2021, order dated 29.01.2024, wherein the Tribunal, after considering the nature of activities undertaken by the assessee and Nihilent Limited, observed as under: "11. We have considered the arguments of both the parties and given our thoughtful consideration to the documents on record. Regarding the first company Nihilent Limited, we find that, this company deals in Enterprise transformation and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he very same assessment year. In view of the aforesaid, we hold that Infobean Technologies Ltd. cannot be considered as a comparable." Cybage Software Private Limited 12.7 As regards Cybage Software Private Limited, reliance was placed on the decision of the Bangalore Bench of the Tribunal in Wipro GE Healthcare (P.) Ltd. [(2023) 154 taxmann.com 97 (Bangalore-Trib.)], pertaining to AY 2018-19. In the said decision, the Tribunal considered the objection of the assessee that Cybage Software Private Limited was functionally dissimilar, did not have appropriate segmental information and was primarily engaged in onsite services and product development/R&D activities. The Tribunal, following the decision of the Pune Bench in Optiva India Technologies (P.) Ltd., directed exclusion of Cybage Software Private Limited from the set of comparables. The relevant observations, as relied upon by the learned AR, read as under: "Cybage Software 17.1 The assessee contends that this company is mainly Onsite service provider whereas the assessee is offsite service provider and therefore, functionally different. Further, there is incorrect reporting figures which are unreliab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nctional comparability criteria vis-à-vis the assessee's Software Development Support Services segment. Accordingly, Nihilent Limited, Infobeans Technologies Private Limited and Cybage Software Private Limited are directed to be excluded from the final set of comparables. 12.14 Ground No. 6 of the assessee's appeal is accordingly allowed. 13. Ground No. 7 - Inappropriate Inclusion of SQS India BFSI Limited as a Comparable 13.1 Ground No. 7 of the assessee's appeal is directed against the inclusion of SQS India BFSI Limited as a comparable for benchmarking the international transactions pertaining to the Software Development Support Services segment for AY 2018-19. 13.2 The learned AR submitted that the related party transactions ("RPT") of SQS India BFSI Limited constitute 74.56% of its operating revenue. It was contended that the said percentage is substantially in excess of the 25% RPT filter applied by the assessee as well as by the learned TPO for determining the comparability of companies. Accordingly, it was submitted that SQS India BFSI Limited could not be retained as a comparable. 13.3 The learned AR further submitted that the aforesaid issue had alre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee neither claimed such adjustment in the TP study report nor furnished the detailed working justifying the adjustment. Whereas, learned DRP rejected assessee's claim relying upon their decision in assessment year 2012-13. It is observed, in written submissions filed before the assessing officer, assessee had furnished working of working capital adjustment. As it appears, the TPO has not properly looked into the working furnished by the assessee. Though, in assessment year 2012-13, the DRP had rejected assessee's claim of working capital adjustment; however, the ground raised by the assessee before the Tribunal on the issue became academic as the assessee otherwise got the desired relief. Pertinently, while deciding allowability of working capital adjustment in assessee's own case in assessment year 2005-06, the Tribunal has held that such adjustment is allowable. In View In view of the aforesaid, we restore the issue to the AO for re-examining the working of working capital adjustment furnished by the assessee and decide the issue accordingly. Insofar as risk adjustment is concerned, both the TPO and learned DRP have rejected assessee's claim alleging that no....