CLOUD SOFTWARE GROUP INDIA PRIVATE LIMITED,BENGALURU V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2)(1), BENGALURU

SA 61/BANG/2025

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Cloud Software Group India Private Limited filed a stay petition against the Deputy Commissioner of Income Tax concerning an outstanding demand of Rs.17,71,56,911 due to a Transfer Pricing Adjustment. The Tribunal considered various factors including the comparability of companies used for the Transfer Pricing Adjustment, the timeliness of the assessment order, and the financial circumstances of the assessee including substantial pre-paid taxes and a refund for the same year. The Tribunal found a prima facie case in favor of the assessee, leading to the decision to stay the recovery of the demand.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712257 (ITAT-BANGALORE)
• Appeal Type: Stay Application
• Pronouncement Date: 01-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: CIT v. Roca Bathroom Products Pvt. Ltd., (2021) 127 taxmann.com 332, Orion Security Solutions P. Ltd. v. DCIT in W.P.(C) 11789 / 2023 dated 05.09.023, Pentair Water India Pvt Ltd [TS-566-HC-2015(BOM)- TP]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Application of stay

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “C,” BANGALORE Before Shri Prashant Maharishi, Hon’ble Vice President & Shri Keshav Dubey, Hon’ble Judicial Member S.A. No. 61/Bang/2025 [Arising out of ITA No.1485/Bang/2024 (A.Y.2020-21)] Cloud Software Group India Private Limited No. 33, Prestige Dynasty Ulsoor Road, Bangalore – 560042 PAN: AABCN3639C vs. Dy. Commissioner of Income Tax Circle – 2(2)(1) Bengaluru (Applicant) (Respondent) Assessee Represented by: Ms. Tanmayee Rajkumar, Advocate Ms. Mayuri KV, Advocate Ms. Mansa Ananthan, Advocate Department Represented by: Sri N. Balusamy, JCIT Date of Hearing:01.08.2025 Date of Pronouncement 01.08.2025 O R D E R Per Prashant Maharishi, Vice President: 1. Cloud Software Group India Private Limited, [assessee applicant/petitioner] has preferred this stay petition in ITA No. 1485/Bang/2025 for the A.Y. 2020-21 seeking direction to the Ld. AO to keep the recovery of outstanding demand of Rs.17,71,56,911/- in abeyance, till disposal of appeal. The Grounds of stay are mentioned in Appendix–X(e). Printed from counselvise.com 2 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 2 2. The applicant company is engaged in business of providing software development services and Information Technology enabled services. On filing of the return of income at Rs.72,51,02,730/- resulted into a final assessment order dated 12.06.2024 wherein total income of the assessee was assessed at Rs.142,15,86,823/- and consequent demand of Rs.22,21,56,910/- was raised. 3. The outstanding demand has arisen on account of the Transfer Pricing Adjustment upheld by the Ld. Dispute Resolution Panel (Ld.DRP”) to the extent of Rs.69,64,84,093/- out of Transfer Pricing Adjustment proposed by the Transfer Pricing Officer of Rs.91,42,88,234/-. 4. The main argument for seeking stay of demand is that, according to the notice of demand passed under section 156 of the Income Tax Act, 1961 (“the Act”) dated 12.06.2024 of Rs.22,21,56,910/-, assessee has already deposited a sum of Rs.4,50,00,000/- vide Printed from counselvise.com 3 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 3 challan dated 25.07.2025 which is more than the 20% of the outstanding demand of Rs.22,21,56,910/-. 5. On the issue of limitations, it was stated that the order is barred by limitation. The assessment order is dated 12.06.2024 whereas in terms of provisions of section 153 of the Act it should have been passed on or before 30.09.2023. The issue of the assessment order being barred by limitation as stated, is covered in favor of the assessee by the decision of the Hon’ble Madras High Court in the case of CIT v. Roca Bathroom Products Pvt. Ltd., (2021) 127 taxmann.com 332. 6. On the merits of the case, it was submitted that there is an adjustment of Rs.58,38,56,462/- on the turnover of Rs.633 Crores determining Arm’s Length Price of the international transactions. It was submitted that the assessee has adopted the Transactional Net Margin Method, selecting 15 comparable, havingan average margin of 14.84% Printed from counselvise.com 4 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 4 whereas the margin of the assessee was computed at 10.44% and this was claimed to be at arm’s length. The Ld.TPO accepted the most appropriate method but selected 18 comparable whose margin was 23.5% and ultimately it resulted in an adjustment of Rs.58 Crores after direction of the Ld.DRP. 7. It was submitted that in the comparability analysis, companies like L&T, Infotech, Wipro Limited, Infosys Limited and TCS Limited were considered whose turnover is Rs.50 thousand Crores to Rs.1031 thousands Crores. These comparable having brand value and looking at their giant turnover could not have been taken as comparable. 8. In the case of ITES segment on a turnover of Rs.175 Crores assessee adopted the Transactional Net Margin Method, selected 16 comparable whose median margin is 10.87% whereas the margin of the assessee was computed at 13.21% and in TPSR it was stated to be at arm’s length. The Ld.TPO accepted the most Printed from counselvise.com 5 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 5 appropriate method but selected 17 comparable computed their margin at 23.56% and made adjustment after the direction of the Ld.DRP at Rs.11 Crores. The Ld.AR submitted that identically, in case of the assessee in earlier years two comparable companies were held to be not comparable, these same comparable are also part of the comparable set of the Ld.TPO. It was submitted that there is no difference in the facts and circumstances of the case for this year. 9. It was further submitted that being a COVID Year, assessee filed the return of income on 06.01.2021, the due date of the return was stated to be extended by a press note to 31.01.2021 and thus 234AInterest should not have been levied. 10. It is also the claim of the Ld.AR that assessee has the pre-paid taxes to the extent of Rs.21.36 crores and the difference between the assessed net tax and returned net tax liability is Rs.17.53 Crores, 20% of which Printed from counselvise.com 6 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 6 comes to Rs.3.50 Crores and the assessee has refund available for the same year of Rs.3.11 Crores. Therefore, combining the tax paid on 25.07.2025 of Rs.4.5 Crores, the assessee has already paid tax of Rs. 7.61 Crores,which being 43% of the net tax liability of Rs.17.53 crores and therefore relying on the decision of the Hon’ble Delhi Court in the case of Orion Security Solutions P. Ltd. v. DCIT in W.P.(C) 11789 / 2023 dated 05.09.023 the assessee deserves the stay. 11. The Ld. Departmental Representative objected to the stay petition. 12. We have carefully considered the rival contentions, and the assessment order passed by the Ld. Ld. AO. The facts of the case shows that the addition is made in the hands of the assessee in software development segment of Rs.58.38 Crores by the Transfer Pricing Officer and upheld by the Ld.DRP is on the ground of comparing the companies such as L&T, Infotech, Wipro, Infosys and TCS which are giantso far as the Printed from counselvise.com 7 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 7 turnover of the assessee is concerned and also having a huge established brand name in software segment. The decision of the Hon’ble Delhi Court in the case of Pentair Water India Pvt Ltd [TS-566-HC-2015(BOM)- TP] has categorically concluded that the huge turnover companies could notbe compared with the small turnover companies, but in each case, it should be looked at with respect to the turnover of the assessee. In the present case the turnover of these companies is in the range of Rs. 50 thousand crores to Rs. 1 lakh 31 crores, naturally prima facie, it seems that those are not comparable with the assessee’s software development segment. 13. Further in the ITESSegment the assessee has stated the two comparable are held excluded in earlier assessment of the assessee, which may be the case, but for this year it needs tobe tested. Further, looking at the issue at the stageof stay, the primefacie case of the assessee is strong. Printed from counselvise.com 8 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 8 14. Further, the assessee has challenged the assessment order stating it to be time barred, is covered in favor of the assessee,at present by the decision of the Hon’ble Madras High Court. 15. In view of all the above facts, thebalance of convenience lies in favor of the assessee. 16. Nextly, as claimed by the assessee that sum of Rs.4.50 crores has already been paid, despite filing of the return of income in time, but still levying the interest under section 234A of the Act, subject to verification, whether it is subject to payment of interest or not, the interest of the revenue would be safeguarded because on the above adjustment as discussed above, the tax demand would come down substantially. 17. Further the ground of limitation raised by the assessee is at present not argued by the revenue, awaiting the decision of the Hon’ble Supreme Court, Printed from counselvise.com 9 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 9 but the assessee cannot be put to a disadvantage of not granting the stay, at least. 18. The appeal of the assessee fixed for hearing on 03.09.2025. 19. Thus, we direct the Ld. AO to keep the recovery of outstanding demand due of tax of Rs.17,71,56,911/- in abeyance, till disposal of appeal or 180 days from the date of this order, whichever is earlier, subject to the condition that assessee will not seek an adjournment for unreasonable reasons. In the result, the Stay Petition is allowed. Order pronounced in the open court on 1st August 2025. Sd/- (KESHAV DUBEY) JUDICIAL MEMBER Sd/- (PRASHANT MAHARISHI) VICE PRESIDENT Bangalore; Dated: 01st August 2025 Giridhar, Sr.PS Printed from counselvise.com 10 S.A. No. 61/Bang/2025 Cloud Software Group India Private Limited 10 Copy to: 1. The Applicant. 2. The Respondent. 3. The CIT(A) Concerned. 4. The DCIT concerned. 5. The Sr. DR, ITAT, Bangalore. 6. Guard File. Asst.Registrar ITAT, Bangalore Printed from counselvise.com "