TaxTMI 
TaxTMI 
2026 (10) TMI 344
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....e has raised the following grounds of appeal: General Grounds 1. The Ld. TPO, Ld. AO and Ld. DRP (herein collectively referred as 'lower authorities') erred in finalizing an order of assessment which suffers from legal defects such as but not limited to being passed in violation of principles of natural justice, contrary to the provisions of the Act, barred by limitation, is devoid of merits and are contrary to facts on record and applicable law and has been completed without adequate inquiries and as such is liable to be quashed. 2. The lower authorities erred in passing orders with improper transfer pricing adjustment, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, rejection of transfer pricing study, application of inappropriate filters, conduction of fresh comparability analysis, selection of allegedly comparable companies and cherry picking of comparable companies. Jurisdictional Grounds 3. The final assessment order under section 143(3) r.w.s. 144C (13) read with section 144B of the Act dated January 9, 2026 ('impugned order') ....
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....turnover filter and after misapplication of export filter and related party transaction filter. 11. The margins of the comparable companies, as computed by the Lower Authorities, are erroneous and suffer from various infirmities, including but not limited to arithmetical inaccuracies, erroneous classification of operating and non-operating items and such others. 12. The lower authorities erred in treating income from foreign exchange fluctuation ('forex gain') as non-operating in nature, while determining the margin of the Appellant. 13. The lower authorities erred in not providing an appropriate working capital adjustment for determining the arm's length price of the Appellant's international transactions. 14. The lower authorities erred in not providing an appropriate adjustment towards risk differential between the Appellant vis-à-vis the comparable companies. Miscellaneous 15. The Ld. AO erred in levying interest under Section 234A, 234B, & 234C of the Act. The Appellant prays that appropriate relief be granted. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the gro....
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....g officer rejected the transfer pricing study report, challenged certain filters, and thereafter carried out a fresh search on the prowess database using the keyword computer software and software services of consultancy. The nine comparables of the assessee were tested, and a final set of 24 comparables was reached. A show cause notice was issued to the assessee, and after considering the objections, a comparable set of 22 comparables was reached, with a median margin of 23%, a 35th percentile margin of 19.01, and a 65th percentile margin of 32.72%. The arm's-length price of the international transaction of Rs. 958,300,002 102,40,00,000 was computed, resulting in a shortfall of 6,56,73,330. Consequently, the draft assessment order was passed on 17 March 2025, determining the total income of the assessee at Rs. 324,727,100. This was challenged before the learned dispute resolution panel, which passed its direction on 24 December 2025, and consequently the final assessment order was passed on 9 January 2026, wherein the variation to the arm's-length price was retained. Thus, the assessee is aggrieved. 07. The learned authorised representative, Shri Ashik Shah, Chartered Accountan....
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....ver is Rs. 95.83 crores, all comparable companies selected by the learned transfer pricing officer with turnover exceeding Rs. 200 crores should be excluded. This is argued in support of ground No. 10 of the appeal. He further submitted a chart showing the turnover of all 22 comparables and stated that Happy Minds Technology, with turnover of Rs. 1033 crores; Tata Elxis Ltd, with turnover of Rs. 2430 crores; Robosoft Technologies Ltd, with turnover of Rs. 270.66 crores; and Cybage Software Private Limited, with turnover of Rs. 1444 crores, deserve to be excluded. He submitted that the upper turnover band of Rs. 200 crores should apply in all cases. He referred to several judicial precedents to support his argument. 09. Although the assessee has raised approximately 15 grounds of appeal, the learned authorised representative argued only grounds No. 3 and No. 10 of the appeal. 10. Smt. Divya K.J., learned CIT-DR, submitted that the Transfer Pricing Officer had recorded valid reasons for rejecting the transfer pricing study prepared by the assessee. She contended that the assessee's claim that companies with turnover above Rs.200 crores should be excluded merely because the asse....
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....ssessment order under section 144C(1) of the Income-tax Act was thereafter issued to the assessee on 17.03.2025, proposing incorporation of the transfer pricing adjustment and granting 30 days' time to either file objections before the Hon'ble DRP or accept the proposed variations. The assessee vide dated 15.04.2025 filed objections before the Hon'ble DRP-1, Bangalore-2. After considering the submissions of the assessee and examining the order of the TPO as well as the material available on record, the Hon'ble DRP has, vide its order dated 24.12.2025 (DIN: ITBA/DRP/F/144C(5)/2025-26/1084033944(1) rejected all objections raised by the assessee and upheld in entirety the transfer pricing adjustment proposed by the TPO." 15. Ld. DRP held as under :- "5.2.77.22 Hence, considering on this standalone ground of 'brand' alone, the panel does not hold M/s. Infosys to be a comparable to the taxpayer. Hence the TPO is directed to remove the comparable M/s. Infosys from the final list of comparables. 5.2.77.23 M/s. Tata Consultancy Services: It was ranked as the second most valuable IT services brand worldwide by Brand Finance. It is ranked at No. 45 as the most valuable b....
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....mited, Tata Consultancy Services Limited, LTIMindtree Limited, and other companies from the comparable set. 17. It is therefore evident that the learned DRP granted relief to the assessee by directing the exclusion of certain comparables. 18. However, the learned Assessing Officer recorded in the final assessment order that the learned DRP had rejected all objections and upheld the transfer pricing adjustment in its entirety. This finding is contrary to the DRP's directions. The Assessing Officer did not refer to the learned Transfer Pricing Officer to give effect to those directions and instead retained the adjustment by ignoring them. We therefore hold that there is a clear violation of section 144C (13) of the Act, as the final assessment order was not passed in conformity with the binding directions of the learned Dispute Resolution Panel. 19. The Hon'ble Karnataka High Court considered an identical issue in Flextronics Technologies (India) Private Limited (2023) 459 ITR 493. In paragraph 8 of that decision, the Court held that, where the Assessing Officer's order is not in conformity with the directions issued under section 144C of the Income-tax Act, no objection can....