TaxTMI 
TaxTMI 
2026 (9) TMI 605
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.... section 143(2) and section 142(1) of the Act were issued and served on the assessee. Since the assessee entered into large-value international transactions with its associated enterprises, reference under section 92CA(1) of the Act was made to the Transfer Pricing Officer ("TPO") for determination of the arm's length price of the international transactions entered into by the assessee. After considering the submissions filed by the assessee, the TPO, vide order dated 10.01.2025 passed under section 92CA(3) of the Act, made a total transfer pricing adjustment of Rs. 84,42,00,456/-, as follows: - SI. No Description Adjustment u/s 92CA (In Rs. ) 1 Provisions of Software Development and support Services 18,05,86,001 2 Provisions of enabled services 1,52,25,134 3 Distribution Segment 64,83,71,465 4 Interest on delayed receivables 17,856 Total adjustment u/s 92CA 84,42,00,456 3. In conformity, the Assessing Officer ("AO") passed the draft assessment order dated 18.03.2025 under section 144C(1) of the Act, incorporating the transfer pricing adjustment proposed by the TPO. The learned DRP, vide its directions issued under sec....
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....utation of Appellant's margin: 5. erred in disregarding Appellant's margins for each segment and re-computing the same by treating the finance cost, rate and taxes, bad debts written off, CSR, provision for doubtful deposit, Misc. Expenses and provision for doubtful debts as non-operating expenses and again excluding the same from operating expense without appreciating the fact that the Appellant has suo-moto excluded the same while computing operating expense for each segment; Rejection of economic analysis undertaken by the Appellant and re-computation of arm's length price 6. erred in rejecting economic analysis undertaken by the Appellant which was in accordance with section 92C of the Act read with rule 10B of the Income- Income-tax Rules, 1962 ('the Rules') and undertaking a fresh benchmarking analysis to substantiate arm's length nature of the international transactions entered into with its AEs; 7. erred in introducing / modifying following additional filters to reject comparable companies identified by the Appellant in its TP study: * Different accounting year ending; * Use of filter to reject co....
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.... Technologies Ltd. i) Systango Technologies Ltd j) Tata Elxsi Ltd k) Robosoft Technologies Pvt Ltd l) I D S Infotech Ltd. m) C G-V A K Software Exports Ltd n) Cybage Software Pnt Ltd 13. erred in not allowing the Appellant the benefit of the working capital adjustment which is required to be undertaken in its case to account for the difference in working capital levels between the comparable companies and the Appellant; Transfer Pricing adjustment in ITES Segment amounting to Rs. 1,52,25,134 14. erred in rejecting the following comparable company to the Appellant on the grounds that this did not form part of the Id. TPO's search matrix, without appreciating the fact that it is functionally comparable to the business of the Appellant and is passing all filters that the Id. TPO has adopted: a) Datamatic Business Solutions Limited ('Datamatic') b) MAA Business Solutions Private Limited ('MAA') c) Vitae International Accounting Services Private Limited ('Vitae') 15. erred in rejecting the comparable Microland Ltd. ('Microland') on the ....
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..... Mac Health Care (India) Pvt. Ltd. b. Das Distributors Pvt. Ltd. c. Yash Distributors Pvt. Ltd. d. Neelkanth Drugs Pvt. Ltd. e. Farmachem Life Pvt. Ltd. f. Lucky Pharmaceuticals Pvt. Ltd. g. Knoll Healthcare Pvt. Ltd. h. Aquatic Remedies Ltd. i. Minova Life Sciences Pvt. Ltd. j.Abil Chempharma Pvt. Ltd. k. Solumiks Herbaceuticals Ltd. l. Systopic Laboratories Pvt. Ltd. m. Entod Pharmaceuticals Ltd. n. Invision Medi Sciences Pvt. Ltd. o. Dr. Roshan Lal Aggarwal & Sons Pvt. Ltd. р. Biomedicare India Pvt. Ltd. r. Medicross Pharma-Chem Ltd. 22. erred in including the following TPO comparable companies on the grounds that these were a part of the Id. TPO's search matrix, without appreciating that they are not functionally comparable to the business of the Appellant: a. Microlyn Healthcare Pvt. Ltd. b. Modern Science Apparatus Pvt. Ltd. 23. without prejudice to the above, erred in ignoring that the variation proposed does not exceed 3% of the transaction valuee as provided under proviso to Section 92....
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....ordingly, Ground No. 2 raised by the assessee is dismissed. 5. During the hearing, the learned Authorised Representative ("learned AR") submitted that the AO, while passing the final assessment order, did not completely comply with the directions issued by the learned DRP. The learned AR submitted that in this regard the assessee has filed a rectification application before the AO, which is currently pending consideration. From the perusal of the rectification application dated 21.01.2026 filed by the assessee, we find that the assessee has sought the rectification of the final assessment order in respect of the transfer pricing adjustments on account of the international transaction of "Provision of Software Development Services" and interest on delayed trade receivables. Accordingly, we direct the AO to compute the transfer pricing adjustments, if any, after considering the assessee's rectification application dated 21.01.2026 and our findings in this order. We order accordingly. As a result, Ground No. 3 raised in assessee's appeal is allowed for statistical purposes. 6. Ground No. 4 raised in assessee's appeal is general in nature. Therefore, the same needs no separate ad....
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....pplying the arm's length margin, i.e. 23.87%, proposed an adjustment of Rs. 18,05,86,001/- in respect of the international transaction of "Provision of Software Development Services", vide order passed under section 92CA(3) of the Act. 11. The learned DRP, vide its directions issued under section 144C(13) of the Act, partially agreed with the objections filed by the assessee and directed the TPO to exclude/include certain companies as comparable for benchmarking the international transaction of "Provision of Software Development Services". In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment order. 12. During the hearing, the learned AR submitted that if 4 companies, i.e. Tata Elxsi Limited, Systango Technologies Ltd., Cybage Software Pvt. Ltd. and Apttus Software Private Limited, selected by the TPO are directed to be excluded, then the international transaction of "Provision of Software Development Services" shall be at arm's length and the entire transfer pricing adjustment made in respect thereof shall be deleted. 13. Accordingly, in view of the submissions made by the learned AR, we have confined our findings in resp....
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....eir instructions, which are based on the guidelines received from the third-party customers. Further, in the Transfer Pricing Study Report, it is provided that the assessee assists the group in Digital Science Transformation by rendering support in integrating software into the instruments manufactured by the group. From the risk analysis provided in the Transfer Pricing Study Report in respect of the international transaction of "Provision of Software Development Services", we find that the assessee is exposed only to service liability risk and manpower risk, as it is responsible only for providing the services to the associated enterprises. Therefore, having considered the functions performed, assets employed and risks assumed by the assessee in relation to the international transaction of "Provision of Software Development Services", we are of the considered view that the assessee provides software development services to its associated enterprises as per the instructions. 17. Having arrived at the aforesaid conclusion, we shall now deal with the companies sought to be excluded as comparable by the assessee for benchmarking the international transaction of "Provision of Softw....
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....s, as well as system integration and support services for enterprise customers. This company also provides digital content creation for the media and entertainment industry. From the perusal of the Annual Report, it is further evident that this company claims to earn revenue from the sale of distinct internally developed software and manufactured systems, as well as third-party software. However, we find that despite earning revenue of Rs. 17.04 crore from the sale of traded goods, this company has identified only two business segments in its financial statements, i.e., software development and services, and system integration and support services. Thus, we find that there are no clear segmental bifurcations of the revenue earned from software development services. Therefore, in the absence of relevant segmental information of Tata Elxsi Limited, we are of the considered view that this company cannot be considered as comparable to the assessee for benchmarking the international transaction of "Provision of Software Development Services". Accordingly, we direct the AO/TPO to exclude Tata Elxsi Limited as a comparable for benchmarking the international transaction of "Provision of So....
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....nual report, in this regard, is reproduced as follows: - 24. Therefore, from the aforesaid details, it is evident that Systango Technologies Ltd. is engaged in computer programming and software development services. The learned AR, during the hearing, placed reliance upon the website extracts of Systango Technologies Ltd., in support of his contention that this company is engaged in application development, software services, blockchain, cloud engineering, data engineering, computer programming, consultancy and related services. Further, it was submitted that this company is also offering staff augmentation services. The learned AR also contended that there is no segmental information regarding the revenue earned from various services provided by this company. However, from the perusal of the Annual Report of Systango Technologies Ltd., as noted in the foregoing paragraphs, it is evident that this company has earned 100% of its revenue from software services, website, web application development and mobile application development. Thus, there is no mention of any other services being rendered by Systango Technologies Ltd. as claimed by the learned AR. It is pertinent to note tha....
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....es. Accordingly, we do not find any infirmity in the findings of the lower authorities in considering Systango Technologies Ltd. as comparable to the assessee for benchmarking the international transaction of "Provision of Software Development Services", and thus the same are upheld. (c) Cybage Software Pvt. Ltd. 26. The next company which is sought to be excluded by the assessee is Cybage Software Pvt. Ltd. This company was considered as comparable by the TPO for benchmarking the international transaction of "Provision of Software Development Services", vide order passed under section 92CA(3) of the Act, on the basis that this company is earning its revenue from software development services. The TPO also rejected the contentions of the assessee regarding the presence of intangibles and marketing expenses on the basis that the same may not have any significant impact on the margin of the company. The learned DRP, vide its directions, rejected the objections filed by the assessee after taking into consideration the reply of this company in response to the notice issued under section 133(6) of the Act. Being aggrieved, the assessee has sought the exclusion of this company as c....
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.... there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Revenue from contracts priced on time and material basis are recognised when services are rendered and related costs are incurred. ii) For E-commerce business, Revenue from contracts with customers is recognised when the entity satisfies a performance obligation by delivering a promised goods or service to customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment but excluding taxes or duties collected on behalf of the government and net of returns and allowances, trade discounts and volume rebates. 29. Further, the revenue from operations has been declared as follows in the financial statements of this company: - NOTE 25: REVENUE FROM OPERATIONS Rs in lacs Particulars For the year ended March 31, 2022 For the year ended March 31, 2021 Sale of services {refer note 2(8)} ....
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....l not be considered. The learned DRP, vide its directions, affirm the findings of the TPO in respect of this company. Being aggrieved, the assessee has sought the exclusion of this company as comparable for benchmarking the international transaction of "Provision of Software Development Services". 33. During the hearing, the learned AR submitted that this company is a capital service provider and fails the RPT filter. By referring to the financial statements for the financial years 2020-21, 2021-22 and 2022-23, the learned AR submitted that the related party transaction details for the year under consideration are not correctly reported in the financial statements for the year under consideration. The submissions of the assessee, in this regard, are reproduced as follows: - d) Apttus Software Private Limited ('Apttus') The Appellant wishes to submit that Apttus cannot be considered to be a comparable for the reasons mentioned below: * Company should be rejected due to significant RPTs As per the information available in the financial statements of prior periods FY 2020-21, FY 2019-20 as well as immediate subsequent year FY 2022-23, it ....
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....rporation Apttus Corporation Country of incorporation or residence of related party UNITED STATES UNITED STATES Description of nature of related party relationship Holding company Holding company Description of nature of transactions with related party Sale of services Sale of services Related party transactions |Abstract] Revenue from rendering of services related party transactions 164.56,11,675 162.98.69.446 Revenue from rendering of services related party transactions, percentage 9000.000 9900.00% Relevant extracts from page 63 of the financial statements for FY 2022-23 Disclosure of relationship and transactions between related parties [Table] Unless otherwise specified, all monetary values are in INR-(1) Categories of related parties [Axis] 1 01/04/2022 to 31/03/2023 01/04/2021 to 31/03/2022 Disclosure of relationship and transactions between related parties [Abstract] Disclosure of relationship and transactions between related parties [Lineltems] Name of related party Apttus Corporation Apttus Corporation Country of....
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....nternational transaction of "Provision of ITeS". As the assessee's operating margin of 15.52% on operating cost was within the 35th and 65th percentile range of weighted average operating margin of the comparable companies, i.e. 12.87% to 16.88%, with a median of 15.99%, the assessee claimed that the international transaction of "Provision of ITeS" is at arm's length price. 38. During the transfer pricing assessment proceedings, the TPO, by applying additional filters, arrived at a final set of 13 companies, which were considered as comparable to the assessee for benchmarking the international transaction of "Provision of ITeS". Since the 35th and 65th percentile range of weighted average operating margin of 13 companies considered as comparable by the TPO ranged between 18.74% to 33.63%, with a median of 25.86%, the TPO by applying the arm's length margin, i.e. 25.86%, proposed an adjustment of Rs. 1,52,25,134/- in respect of the international transaction of "Provision of ITeS", vide order passed under section 92CA(3) of the Act. 39. The learned DRP, inter alia, rejected the objections filed by the assessee. In conformity with the directions issued by the learned DRP, the AO....
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....ingapore); ► Registering customer accounts; ► Web interface of the orders to the Invitrogen ERP system in order to facilitate order processing; ► Process market sample orders; ► Process sale samples order; ► Update information on the problems faced during digital orders; ► Contact customers via email with regard to any issues on purchase orders; ► Answer presales queries such as availability of products; ► Answer post sales queries such as usage of product or for trouble shooting; and ► Quality audits on orders." 44. Thus, from the functional profile of the assessee as recorded in the Transfer Pricing Study Report, it is evident that in respect of the international transaction of "Provision of ITeS", the assessee is rendering services such as preparation and updation of data sheets, procuring approval for shipment, label management for products, addressing customer's queries, processing market sample orders, updation of information, contacting customers, etc. 45. Having noted the functions performed by the assessee in respect of the internatio....
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....tion are relevant for determining the comparability of this company with the assessee. There is no evidence on record to show that the website extracts placed reliance upon by the assessee pertain to the year under consideration. As regards the contention of the assessee that this company should be rejected owing to the extraordinary event during the year under consideration, we find that MYBMS Software Pvt Ltd merged with this company with effect from 01/04/2019 and this fact has also been mentioned in the Annual Report for the financial year 2019-20. Thus, we are of the considered view that the impact of the merger on the overall margin of the company, if any, can only be in the year of the merger, i.e. financial year 2019-20, and not in the year under consideration. 49. Insofar as the decision of the Coordinate Bench of the Tribunal placed reliance upon by the learned AR, from the careful perusal of the same, at the outset, we find that the decision does not pertain to the year under consideration. Therefore, in the absence of the contemporaneous data to support the contention that Savitriya Technologies Pvt. Ltd. is engaged in activities other than those mentioned in the Ann....
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....service, which are keen to IT-enabled Services provided by the assessee. The learned DRP, vide its directions, rejected the objections filed by the assessee and upheld the findings of the TPO in respect of comparability of this company with the assessee. Being aggrieved, the assessee has sought exclusion of this company as a comparable for benchmarking the international transaction of the international transaction of "Provision of ITeS". 53. During the hearing, the learned AR submitted that Sagacious Research Pvt. Ltd. is engaged in the business of providing intellectual property rights services to international customers as well as domestic customers, which is not comparable to the services provided by the assessee to its associated enterprises. Accordingly, the learned AR submitted that this company is not comparable to the assessee. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities in respect of this company. 54. We have considered the submissions of both sides and perused the material available on record. From the perusal of the Annual Report of Sagacious Research Pvt. Ltd. for the year under consideration, forming part of ....
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.... etc. Thus, it is evident that the assessee is rendering diverse services to its associated enterprises, which are broader in scope than the provision of BPO services by this company. Therefore, we are of the considered view that even though the functions performed by TTEC India Customer Solutions Pvt. Ltd. are in the nature of IT-enabled Services, the same cannot be said to be comparable to the wide range of services provided by the assessee. Accordingly, without going into any other submission made by the learned AR, we are of the considered view that TTEC India Customer Solutions Pvt. Ltd. is not functionally comparable to the assessee. Thus, we direct the AO/TPO to exclude TTEC India Customer Solutions Pvt. Ltd. for benchmarking the international transaction of "Provision of ITeS". 57. To sum up, we direct Sutherland Global Services Pvt. Ltd., Sagacious Research Pvt. Ltd. and TTEC India Customer Solutions Pvt. Ltd., to be excluded while benchmarking the international transaction of "Provision of ITeS". While the findings of the AO/TPO to consider Savitriya Technologies Pvt. Ltd. as comparable for benchmarking the international transaction of "Provision of ITeS" are upheld. ....
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....rdingly, Grounds No. 14 - 20, raised in assessee's appeal, are partly allowed. 63. Grounds No. 21 - 23, raised in assessee's appeal, pertain to the transfer pricing adjustment in relation to the Distribution Segment. 64. During the hearing, the learned AR submitted that as the variation between the arm's length price as determined under section 92C of the Act and the transaction value does not exceed 3% of the transaction value, the international transaction in respect of the Distribution Segment should be regarded at arm's length price. In this regard, the learned AR placed reliance on the Notification dated 28.06.2022 issued by the Department of Revenue, Ministry of Finance, Government of India, which provides that, in cases other than wholesale trading, the tolerance band shall be 3%. The learned AR submitted that the assessee does not satisfy the conditions for being a wholesale trader, as the purchase cost of finished goods is less than 80% of the total cost and the ratio of average month-closing inventory to sales is more than 10%. 65. Having considered the submissions and perused the material available on record, including the Notification dated 28.06.2022 issued by....