CONCUR TECHNOLOGIES (INDIA) PRIVATE LIMITED,BANGALORE V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(2)(1), BANGALORE

ITA 2550/BANG/2024

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Concur Technologies (India) Private Ltd. appealed against the assessment order for the assessment year 2021-22, which was based on the directions of the Dispute Resolution Panel and involved significant adjustments to the arm's-length price of international transactions with associated enterprises. The main issues revolved around the rejection of certain comparable companies in the transfer pricing study, the application of the upper turnover filter, and the treatment of interest on overdue receivables. The Tribunal found merit in the assessee's arguments regarding the application of the upper turnover filter and directed a recomputation of the arm's-length price.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 784993 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Appeal Filed On: 24-12-2024
• Other Referred Cases: Autodesk India Private Limited vs. ITAT, Continental Automotive Components India Private Limited vs. ITAT, TiVo Tax Private Limited vs. ITAT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: CHAVALI NARAYAN
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts; Notional interest; Related party transaction; Working capital adjustments
• Section: 144

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No.2550/Bang/2024 Assessment year : 2021-22 Concur Technologies (India) Private Ltd., No.65/2, Bagmane Laurel, Bangalore North, Bangalore – 560 093. PAN: AAECC 3891N Vs. The Assistant Commissioner of Income Tax, Circle 2(2)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Chavali Narayan, CA Respondent by : Dr Divya K J, CIT(DR)(ITAT), Bengaluru. Date of hearing : 20.08.2025 Date of Pronouncement : 11.11.2025 O R D E R Per Prashant Maharishi, Vice President 1. ITA No. 2550/Bang/2024 is filed by Concur Technologies (India) Private Limited for assessment year 2021 – 22 against the assessment order passed by the Assessment Unit on 25 October 2024 under section 144 read with section 144C (13) read with section 144B of the Income Tax Act, 1961 (the Act) pursuant to the direction issued by the Dispute Resolution Panel, Bangalore (the learned DRP) on 17 September 2024 under section 144C (5) of the Act wherein the total income of Printed from counselvise.com ITA No.2550/Bang/2024 Page 2 of 20 the assessee was determined at ₹ 46,00,90,995/– as against the returned income of ₹ 333,324,140/–. 2. The assessee has raised following grounds of appeal:- “ That on the facts and circumstances of the case and in law: General grounds 1. The impugned order of the learned AO pursuant to the directions of the Honorable DRP, erred in assessing the total income at INR 460,090,995 as against the returned income of INR 333,324,140 reported by the Appellant. 2. The learned AO/ TPO erred in law and in facts in making an addition of INR 126,766,855 to the total income of the Appellant on account of adjustment in the arm's length price (\"ALP\") for international transactions entered by the Appellant with its associated enterprises (\"AEs\") as follows: 2.1. INR 18,049,387 in respect of provision of information technology (\"IT\") support services/ software development (\"SWD\") services ; 2.2. INR 105,40',201 in respect of provision of IT enabled services (\"ITeS\"); 2.3. INR 2,815,469 in respect of provision of marketing support services (\"MSS\"); and 2.4. I NR 500,298 in respect of interest on delayed receivables. Grounds relating to transfer pricing (\"TP matter) 3. The learned TPO/ AO erred, in law and in facts, by rejecting comparable companies forming part of the TP study report as well as certain additional comparable companies as they do not appear in TPO's search matrix. 4. The learned TPO/ AO erred in law and in facts by not accepting the economic analysis undertaken by the Appellant in accordance with the Printed from counselvise.com ITA No.2550/Bang/2024 Page 3 of 20 Act and the corresponding Rules, conducting a fresh economic analysis for the determination of the ALP and holding that the Appellant's impugned international transactions are not at arm's length. 5. The learned TPC/ AO erred in law and in facts by erroneously treating 'rates and taxes, bad debts, provision for bad debts, interest on lease liability' as non-operating in nature while computing the operating margins of tested party and comparable companies. 6. The learned TP01 AO erred in law and in facts by incorrectly applying the following quantitative and qualitative filters: 6.1. Applying different accounting year filter as a comparability criterion (i.e.. rejecting companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months): (a) R Systems International Limited 6.2. Applying incorrect/ modified related party transaction filter to reject companies: (a) Tata Consultancy Services Limited 6.3. Rejecting companies reporting loss in two out of three years as persistent loss makers (a) Algonomy Software Private Limited 7. Adjustment on account of re-determination of ALP for IT support/ SWD services rendered by the Appellant to its AEs amounting to INR 18,049,887 7.1. The learned TPO/ AO erred, in law and in facts, by accepting the following companies as comparable although these companies fail the export filter: (a) Consilient Technologies Private Limited 7.2. The learned TPO/ AO erred, in law and in facts, by rejecting the following companies as comparable as they are not forming part of search matrix although these pass TPO's own filters and are functionally comparable: (a) Infomile Technologies Limited (b) Rheal Software Limited Printed from counselvise.com ITA No.2550/Bang/2024 Page 4 of 20 (c) Yudiz Solutions Private Limited 7.3. The learned TPO/ AO erred, in law and in facts, by rejecting certain functionally comparable companies additionally identified by the Appellant during the assessment proceedings, based on unreasonable comparability criteria: (a) Globant India Private Limited (forming part of TPO's search matrix) (b) Sybrant Technologies Private Limited (forming part of TPO's search matrix) (c) Algonomy Software Private Limited (forming part of TPO's search matrix) (d) Kireeti Soft Technologies Limited (forming part of TPO's search matrix) (e) Batchmaster Software Private Limited (f) Kals Information Systems Private Limited (g) Kcube Consultancy Services Private Limited (h) Orangescape Technologies Private Limited (i) Toxsl Technologies Private Limited 7.4. The learned AO / TPO erred , in law and in facts, by accepting certain companies based on unreasonable comparability criteria although these are not functionally comparable to the Appellant's functional profile: (a) Aptus Software Labs Private Limited (b) lndianic Infotech Limited (c) Infosys Limited (d) Mindtree Limited (e) Net4Nuts Limited (f) Wipro Limited (g) Consilient Technologies Private Limited (h) Tata Consultancy Services Limited 8. Adjustment on account of re-determination of ALP for ITeS activities rendered by the Appellant to its AEs amounting to INR 105,401.201 8.1. The learned TPO/ AO erred, in law and in facts, by rejecting the following companies as comparable although these pass TPO's own filters and are functionally comparable: (a) Virinchi Limited (b) Megri Soft Limited (forming part of TPO's search matrix) Printed from counselvise.com ITA No.2550/Bang/2024 Page 5 of 20 8.2. The learned TPO/ AO erred, in law and in facts, by rejecting the additional companies not forming part of the TP study report though these companies are functionally comparable and pass all the filters as applied by the TPO: (a) MAA Business Solutions Private Limited 9. Adjustment on account of re-determination of ALP for MSS services rendered by the Appellant to its AEs amounting to INR 2,815,469 9.1. The learned TPO/ AO erred, in law and in facts, by accepting the following companies as comparable although these fail TPO's own RPT filter: (a) Saatchi & Saatchi Private Limited 9.2. The learned TPO/ AO erred in law and in facts, by rejecting certain companies considered as comparable by the Assessee in the TP study report as these do not form part of the TPO's search matrix: (a) Deepali Designs & Exhibits Private Limited (b) DNA Entertainment Networks Private Limited (c) Hindustan Field Services Private Limited (d) Ketchum Sampark Private Limited (e) Touchwood Entertainment Limited 9.3. The learned TPO/ AO erred, in law and in facts, by rejecting the proposed additional companies not forming part of the TP study report although these companies are functionally comparable pass the filters as applied by the TPO: (a) Concept Public Relations India Limited (b) Crystal Hues Limited (c) Cyber Media Research & Services Limited (d) India Tourism Development Corporation Limited (e) Kestone Integrated Marketing Services Private Limited (f) PR Pundit Public Relations Private Limited 10. Adjustment on account of determination of ALP for interest on delayed receivables amounting to INR 500,298 10.1.The learned AO/ TPO erred in law and facts by re-characterizing the outstanding receivables from the associated enterprise (AEs) as loan extended to the AE and thereby erred in computing notional interest on the outstanding balance from the AE amounting to INR 500,298. While doing so, the learned AO/TPO erred by not appreciating the fact that Printed from counselvise.com ITA No.2550/Bang/2024 Page 6 of 20 the outstanding receivables from AE were purely on account of genuine business reasons and was not undertaken with any mala-fide intention to extend any indirect credit period benefit to AEs. 10.2.The learned AO/ TPO erred in law and facts by rejecting the contention of Appellant that the receivables have resulted out of international transactions undertaken by the Appellant with its AE and is subsumed within the arm's length price determination of the principal transactions itself using the transactional net margin method (\"TNMM\") as the most appropriate method in the TP study report. The learned AO/ TPO has also erred in law and facts by treating outstanding receivables as a separate international transaction as per provisions of section 928 of the Act. 10.3.Without prejudice to Appellant contentions that the outstanding receivables should not be treated as a separate international transaction, even where the learned AO/ TPO has alleged it to be separate international transaction, the learned AO/ TPO erred in law and facts by only computing the interest on trade receivable from AE and not taking into consideration trade payables or net working capital days. For AY 2021-22, Appellant's average net working capital days was 30 days as compared to comparable companies average net working capital days Is as follows: (a) IT segment - 55 days. (b) ITeS segment - 41 days. (c) MSS segment - 55 days. 10.4.Without prejudice to Appellant contentions that the outstanding receivables should not be treated as a separate international transaction, even where the learned AO/ TPO has alleged it to be separate international transaction, the learned AO/ TPO erred in law and facts by not comparing Appellants average receivables period as against the average receivables period of the comparables companies. For AY 2021-22, Appellant's average receivable period was 28 days as compared to comparable companies average receivable period is as follows: (a) IT segment — 71 days. (b) ITeS segment - 45 days. (c) MSS segment - 124 days. 10.5.The learned AO/ TPO erred in facts by not appreciating the fact that the inter-company agreement of the Appellant does not provide for any charge of interest on account of delayed receipts against the invoices raised to the AEs. Further, the learned AO/ TPO has not appreciated the Printed from counselvise.com ITA No.2550/Bang/2024 Page 7 of 20 fact that the Appellant neither charges interest on outstanding receivables from external vendors do not get charged on delayed payments to creditors. 10.6.The learned AO/ TPO erred in facts by not appreciating the fact that no interest was paid by the Appellant on third party balance payables. Therefore, Appellant is not entitled to receive any interest on the trade receivable from AE. 10.7.Without prejudice to the above, the Honourable ITAT Bench has ruled in the Appellant's own case for AY 2020-21 that the mark-up over and above the LIBOR is to be determined after taking into consideration the risk profile of the Appellant vis a vis the AEs. The Appellant being a captive service provider bears minimal risk with respect to recovery of outstanding dues. The Appellant's risk profile remains the unchanged in comparison to past years. 11. Without prejudice to the above the learned TPO/ AO erred by wrongly computing the operating margins of certain comparable companies. 12. The learned A01 TPO erred in law and facts by not granting working capital adjustment which was sought for and contended by the Appellant before the learned TPO and the Honorable DRP. 13. The learned AO/ TPO erred in law and facts by not granting risk adjustment which was sought for and contended by the Appellant before the learned TPO and the Honorable DRP. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Honorable Income-tax Appellate Tribunal, :o decide on the appeal in accordance with the law.” 3. Brief facts of the case shows that assessee is a company who filed its return of income on 12 February 2021 declaring total income of ₹ 333,324,140/–. The case of the assessee is selected for the scrutiny as the assessee company is engaged in the provision of information technology, information technology enabled services and marketing support services to its associated enterprises. Printed from counselvise.com ITA No.2550/Bang/2024 Page 8 of 20 4. As per the information furnished, the assessee has received information technology infrastructure charges of ₹ 606,445,156 and has paid 232,07,13,740/–, has also paid various other charges to its associated enterprises. The assessee has adopted the transactional net margin method as the most appropriate method for benchmarking its international transactions the reference was made to determine the arm's-length price of the international transaction. 5. The assessee is performing the functions of strategy management function such as formulation of corporate strategy, Treasury, tax, legal, regulatory affairs etc. involves decision-making on business strategy, selecting lines of business, choosing organisation structure, operating procedure, analysing an undertaking acquisition and disinvestments, responding to competitors and market forces etc. The assessee undertakes limited localisation of the promotional initiatives such as exhibitions, events and participation in trade shows. The marketing sale support services rendered to its associated enterprises includes the services of following the guidelines, procedures and rules established by its associated enterprise in rendering marketing and sales support services. While rendering marketing and sales support services, assessee utilises the literature and other material like brochure is a promotional material provided by its associated enterprises. It undertakes limited localisation of the promotional initiatives such as exit addition, he once and participation in trade shows. In software development services activity assessee based on the instructions, scope and nature of the assignments received from its associated enterprises participates into the stages of the development life cycle determine the role that assessee undertakes in the value chain. The associated enterprises performs the functions of the product conceptualisation and designing. Assessee provides back-office marketing and sales support, software development and technical support services for SAP products in India. Assessee is compensated on a cost-plus basis as per the inter-company agreement with its associated enterprises. Printed from counselvise.com ITA No.2550/Bang/2024 Page 9 of 20 6. Assessee has received a sum of ₹ 2,320,713,740 as provision of services and has paid information technology infrastructure charges of ₹ 606,445,156 accordingly the margin of the assessee was computed at 16.31% considering operating profit to operating cost. The assessee has also provided the segmental information of software development activity, information technology enabled services activity and market support services. The assessee has given segmental data where in it earns uniform margin of 16.31 % in all these activities. The assessee selected 31 company comparable for all three segments, transactional net margin method (TNMM) as the most appropriate method. The median margin of the comparable and software development segment was 5.66%, in ITeS segment of 18.87% and in market support services of 7.14% and therefore it was stated that the international transactions of the assessee are at arm's-length. 7. The learned TPO rejected the transfer pricing study report because though assessee is working in three different segments such as software development, ITeS and market support services however the assessee after providing the segmental financial for all these three segments separately, in the transfer pricing study report aggregated all these services without providing any justification. Further in the intercompany agreement, specific services are distinctly mentioned. The learned transfer pricing officer after rejection of the TPSR carried out the fresh search of comparable, also examined the 31 comparable companies selected by the assessee, further selected 15 comparable companies on prowess database and 10 comparable companies as per AceTP database, selected finally 18 comparable companies whose 35th percentile margin was 19.95%, 65th percentile margin was 32.14% and median margin was determined at 25.09%. The objection of the assessee was invited on the same, assessee objected to non-application of upper turnover filter contesting that the learned TPO should have adopted the upper limit of turnover filter while selecting the comparable companies. The learned TPO rejected the same giving a comparative table of various companies wherein despite increase in the turnover, there is no impact on the margins earned. Therefore, the learned TPO Printed from counselvise.com ITA No.2550/Bang/2024 Page 10 of 20 was of the view that increase in the turnover does not impact the margin and hence justified non-applicability of upper turnover filter. Several other filters and the comparables were challenged. The assessee also submitted that that the comparable companies selected by the assessee should also be included. The same was also rejected. Finally, the learned TPO computed a set of 18 comparable whose 35th percentile margin was 19.95%, 65th percentile margin was 32.14% and median margin was 25.09% for software development segment. 8. With respect to the market support services segment of the assessee the ld. TPO selected six comparable companies whose 35th percentile margin was 17.55%, median margin was 19.42% and 65th percentile margin was 21.3%. 9. With respect of the ITeS segment, the learned TPO selected 13 comparable companies whose 35th percentile margin was 20.90%, median margin was 22.21% and 65th percentile margin was 28.23%. 10. Accordingly, the software development segment where the margin of the assessee was computed at 16.31% the arm's-length price was considered to be 25,71,95,842 compared to actual price received by the assessee of ₹ 239,145,955/– resulting into a shortfall of Rs.1,80,49,887. 11. In market support services segment, the arm's-length price of ₹ 108,153,562 was computed against the price received of ₹ 105,338,099 resulting into a shortfall adjustment of ₹ 2,815,469. 12. In the ITeS segment the arm's-length price was considered at ₹ 2,183,693,433/– against the actual price received of ₹ 2,078,292,232 resulting into a shortfall of ₹ 105,401,201/–. 13. The learned AO/TPO further found that there is a considerable delay in receipt of the charges from its associated enterprises and therefore interest on overdue is required to be computed as overdue receivable as a separate international Printed from counselvise.com ITA No.2550/Bang/2024 Page 11 of 20 transaction. Accordingly, he found that the invoices have been raised in a foreign currency and therefore interest rate is to be charged based on markup on prevailing LIBOR rates. He computed the LIBOR rate of 5.186 percentage. With respect to 12 invoices he computed the interest on overdue receivable of ₹ 500,298/– .Accordingly, the total arm's-length price adjustments was determined at ₹ 126,766,855. As per order passed under section 92CA (3) of the act dated 25/10/2023. 14. The draft assessment order was passed on 28/12/2023 wherein the total income of the assessee was determined at 46,00,90,995/–. The assessee filed its objections before the learned dispute resolution panel. During hearing before the panel, the factual report from the transfer pricing officer was asked for and rejoinder of the assessee was also taken. Accordingly, the direction was passed on 17th of September 2024 and based on that an order giving effect by the transfer pricing officer was passed on 23rd of September 2024 wherein the assessee did not get any relief. 15. Accordingly, the assessment order under section 144 read with section 144C (13) read with section 144B of the act was passed on 25 October 2024 determining total income of the assessee at ₹ 460,090,995/–. Assessee is aggrieved with the same and is in appeal before us. 16. The assessee has submitted a detailed chart and the submissions. The software development services segment the claim of the assessee is that the turnover of the assessee in the software development segment is only ₹ 23.91 crores whereas the comparable selected by the learned transfer pricing officer are having the huge turnover and therefore non-application of upper turnover filter by the learned TPO has resulted into the unusual addition. It was submitted Mindtree Ltd. has turnover of 339.61 times, Larsen and Toubro Infotech limited has 492.97 times, Wipro Ltd has turnover of 2103.68 times, Infosys Ltd has turnover of 3500 times, Tata consultancy services Limited had 5686 times and Cyberage software private Printed from counselvise.com ITA No.2550/Bang/2024 Page 12 of 20 limited has a turnover of 47.80 times compared to the turnover of the assessee. The learned authorised representative submitted that if the upper turnover limit of 200 crores is applied, then the transfer pricing adjustment will reduce to the substantial extent. With respect to one of the comparable it was also stated that in most of the cases of this comparable they are also backed by the huge brand and assessee is a captive service provider. The assessee relied upon the decision of the coordinate benches in Autodesk India private limited (TS – 1503 – ITAT – 2018 (Bangalore) – TP), Continental automotive components India private limited (TS – 397 – ITAT – 2024 (Bangalore) – TP) and TiVo tax private limited in TS – 350 – ITAT – 2023 (Bangalore) – TP) and therefore it was submitted that if the upper turnover filter should have been applied by the learned TPO. 17. The assessee also submitted a chart stating that the learned transfer pricing officer has not included the comparable which were there in the transfer pricing study report of the assessee stating that those comparable could not be included because of the reason that they did not appear in the search matrix of the learned transfer pricing officer. He submitted that when these comparable are functionally comparable with the functions of the assessee, those should have been included. 18. In the information technology enabled services segment, assessee challenged that the assessee has suggested inclusion of virinchi India Ltd and MAA business solutions private limited both have been excluded because these companies they do not appear in the search metrics of the transfer pricing officer. The assessee further submitted that both these companies also pass all the filters. It is further submitted that in the market support segment, 11 comparable subjects selected by the assessee were also excluded as that did not appear in the search metrics of the learned transfer pricing officer. 19. Assessee also contested that R Systems International Limited is the comparable selected by the assessee in software development segment services as well as ITeS services but it is rejected for the reason that it follows a different financial year it is Printed from counselvise.com ITA No.2550/Bang/2024 Page 13 of 20 the claim of the assessee that these company should have been included as it is a listed company and quarterly audited financial results are available.. 20. In case of market support services, the assessee submitted that Saatchi & Saatchi Services Private Limited fails related party transaction filter according to the assessee it has related party transactions of 25.59% but the transfer pricing officer has rejected the same. 21. The assessee further referred to the working capital adjustment not granted by the learned transfer pricing officer and if the same is granted the financial effect of extended credit terms or delay in collection from associated enterprises would also obliterate. He further referred to the fact that comparable companies have higher No. of days outstanding. He otherwise submitted that even if the interest on overdue receivable from its associated enterprises are to be imputed, the appropriate rate should be of Euribor as the invoices are prepared in Euro. 22. The learned departmental representative vehemently supported the orders of the learned lower authorities and submitted that upper turnover filter does not impact the margins which is explained by the learned transfer pricing officer by empirical studies and further the learned dispute resolution panel has also given its own reason. There is no evidence available with the assessee that the parties which have higher turnover then the assessee has higher margins or turnover impacts the margin and therefore there is no infirmity in the order of the learned TPO. With respect to the related party filter in case of Saatchi & Saatchi services Ltd in market support segment, it was submitted that the learned transfer pricing officer has given its own reason stating that it does not fail the RPT filter. In case of interest on receivable the learned CIT DR vehemently supported the orders of the learned lower authorities. 23. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The brief fact of the case shows that the assessee is Printed from counselvise.com ITA No.2550/Bang/2024 Page 14 of 20 engaged in three different segments namely software development segment, information technology enabled services segment and market support services wherein the margins on by the assessee in all these segments are 16.31%. The respective turnover of the assessee in these three segments is ₹ 23.91 crore, Rs. 207.80 crores, and Rs. 10.53 crore. On careful perusal of the orders of the learned lower authorities it was stated that because of higher turnover, margins are not impacted and therefore assessee's argument of applying upper turnover filter is not accepted. The learned dispute resolution panel has also upheld the same. The facts clearly shows that in the software development services segment of the turnover of the assessee is ₹ 23.91 crores which has been compared with Mindtree Ltd which has a turnover of Rs. 8120 crores, Larsen and Toubro Infotech limited which has a turnover of Rs. 11,787 crores, Wipro Ltd whose turnover is Rs. 50,299 crores, Tata Elexsi limited which has a turnover of Rs. 1002 crores , Infosys Ltd whose turnover is ₹ 85,912 crores and Tata consultancy services Limited whose turnover is 1,35,963 crores and Cybaze software private limited whose turnover is 1143 crores. Apparently the higher the turnover, higher the bargaining power, higher capabilities of absorbing losses which could have been a factor to gain control over market with lesser margin. Even otherwise the reason for applying an upper turnover filter is to restrict the No. of comparable. 24. We find that the assessee has objected before the learned transfer officer for not applying upper turnover filter. The learned TPO held that in software industry, sizes have no influence on the margins earned by the companies. Economies of scale are relevant only in capital intensive companies which have substantial fixed assets in the form of plant and machinery. In the service industry, size does not matter, what matters is the human capital. He further referred to an empirical study conducted by him wherein it is indicated that margins do not show a proportionate increase with increase in the turnover. He held that turnover does not have any significance on the profit margins in software industry. He held that when the comparable companies which are otherwise functionally comparable cannot be Printed from counselvise.com ITA No.2550/Bang/2024 Page 15 of 20 excluded merely on account of high turnover particularly when the assessee has not demonstrated as to how the turnover has materially affected the profitability or comparability. Thus, the learned transfer pricing officer rejected the objection of the assessee on applicability of upper turnover filter. Thus, in comparability analysis, the learned TPO selected the comparable companies who has multi times more turnover than the assessee company. Assessee objected before the learned dispute resolution panel as per objection number five. The learned DRP also rejected the contentions while considering each of the comparable company wherein high turnover of comparable company was demonstrated by the assessee. Thus, the companies which have many folds turnover compared to the assessee were retained in comparability analysis and adjustment was made to the arm's- length price. Thus, the question is that whether higher turnover companies are comparable with companies having relatively small turnover. It is undisputed that lower turnover filter of Rs 1 Crore is accepted by assessee as well as the learned transfer pricing officer to remove insignificant companies from comparability analysis. Therefore, upper turnover filter should be applied for comparability analysis or not. If higher and lower turnover filter is applied, it truncates large number of comparable, by eliminating comparable which have fairly large turnover compared to the tested entity. Naturally, large turnover companies have economies of scale compared to lower turnover entity. Para number 3.43 in OECD Guidelines on Transfer Pricing (2022) says that in practice, both quantitative and qualitative criteria are used to include or reject potential comparable. Examples of qualitative criteria are found in product portfolios and business strategies. The most commonly observed quantitative criteria are Size criteria in terms of Sales, Assets or Number of Employees. The size of the transaction in absolute value or in proportion to the activities of the parties might affect the relative competitive positions of the buyer and seller and therefore comparability. Naturally, higher turnover multiple times also shows that comparable company has higher market share compared to the tested entity. Naturally, higher market share gives freedom of selling larger volumes even at strained margins. The various studies carried out by NASSCOM Printed from counselvise.com ITA No.2550/Bang/2024 Page 16 of 20 and Dun Bradstreet also supports it. Though such studies have compartmentalised turnover filter of Rs. 1-200 hundred crores. Naturally in transfer pricing analysis lower turnover filter and upper turnover filter cannot be fixed and how to adopt the same depends upon the facts of each case looking at the turnover of the tested entity. In fact, the purpose of applying a filter is to have a manageable level of independent business concern having broadly similar level of turnover, intangibles, employees, and other assets. Guidance notes issued by ICAI also advocates the same reasoning for adopting turnover filter. In fact, the simplest way of explaining what an arm's-length price is how independent parties price a particular transaction therefore that is how related parties should also price it. To arrive at such an arm's- length price, economies of scale should be similar/ comparable. Therefore, the upper turnover filter is necessarily required to be employed for better determination of arm's-length price. Courts have also accepted the fact that if the turnover of the comparable is multiple times compared to the turnover of the tested entity, such comparable company should be excluded from comparability analysis. Several decisions of the coordinate benches were also pressed before us wherein the upper turnover filter is upheld for comparability analysis. Further the issue before the Honourable Delhi High court in ChrysCapital [supra] relied up on by the ld. TPO was with respect to super normal profits and Not applicability of filters of Turnover. Therefore we, direct the learned transfer pricing officer to remove all these companies from comparability analysis. Though assessee has also argued that most of the above companies are also functionally dissimilar, but as those are being excluded based on turnover filter, we do not deal with the issue of functional dissimilarity of those comparable. Accordingly, we direct the learned transfer pricing officer to exclude Mindtree Ltd , Larsen and Toubro Infotech limited, Wipro Ltd, Tata Elexis Ltd, Infosys Ltd, Tata consultancy services Limited and Cybage Software Private Limited. The learned AO is directed to recompute the margin of the assessee with respect to the balance comparable and determined the arm's-length price adjustment. Printed from counselvise.com ITA No.2550/Bang/2024 Page 17 of 20 25. With respect to the claim of the assessee of the inclusion of eight comparable companies which have been refused by the learned transfer pricing officer as they did not appear in the search metrics of the learned transfer pricing officer and therefore, they cannot be included is correctly held so because of the reason that it will amount to cherry picking. There may be many such companies which are functionally comparable with the assessee but in the search matrix adopted by the learned transfer pricing officer of selecting the keywords, appropriate filters and thereafter applying the quantitative and qualitative factors to the set of comparable, cannot be disturbed by including something out of the blue in the comparability analysis. Comparability analysis is a process which cannot be tampered with which does not crosses the filters and search matrix. Otherwise, such comparability analysis will lose its sanctity. Accordingly ground No. 3 raised by the assessee does not merit any consideration. 26. Coming to the comparability analysis in case of ITeS segment the assessee has stated that when Virinchi Ltd and MAA Business Solutions Private Limited should be included. Virinchi Limited was part of the transfer pricing study report prepared by the assessee whereas the MAA Business Solutions Private Limited is an addition comparable produced during assessment proceedings. We find that Virinchi Limited is not part of the TPO search metrics and similarly is the MAA Business Solutions Private Limited was also not found place in the search matrix of the learned transfer pricing officer. As we have already held that if the comparable companies are not finding place in the search matrix of the learned transfer pricing officer where there is no allegation that the search matrix adopted by the learned transfer pricing officer is inappropriate, so far as selection of the keywords, filters, etc., the incorporation of any company stating that it is comparable and therefore it should be included amounts to cherry picking. And therefore, the contention of the assessee for inclusion of the above company as well as suggestion of further inclusion of 11 companies in the market support services segment is rejected. Printed from counselvise.com ITA No.2550/Bang/2024 Page 18 of 20 27. The next contention of the assessee is that R Systems International Limited which is part of the comparability study of the assessee as well as the learned TPO but is excluded for the simple reason that it follows a different accounting year. We find that the above company is a listed entity wherein according to clause 41 of the listing agreement with the stock exchanges, the quarterly audited results reviewed by the auditor are made public. Therefore, if the data is available in the public domain, and assessee is in a position to reconstruct the financial data for the respective financial year comparable to the assessee's financial year, to the satisfaction of the ld AO/ TPO, the same company should be included. Accordingly, we direct the assessee to substantiate before the learned AO that R Systems International Limited's financials are comparable on such reconstruction. 28. The assessee has also stated that in the market support services segment the Saatchi & Saatchi private limited fails the related party transaction filter. It is stated that Saatchi & Saatchi private limited has related party transactions to the extent of 25.59%. It is further stated that the learned transfer pricing officer has applied the RPT filter by dividing the RPT income with total turnover and RPT expenses by total expenses and if the resultant figure of either of the combination is more than 25% of the same, it is rejected. However, assessee computes the RPT filter by dividing the total of RPT income and RPT expenses by the total turnover and if the resultant figure is more than 25%, same is rejected. The claim of the assessee is that according to the transfer pricing officer this company passes the RPT filter however according to the method applied by the assessee, this company does not pass the RPT filter. However, we are also not aware that how the assessing officer/transfer pricing officer has applied the RPT filter. In view of this we restore this issue back to the file of the learned transfer pricing officer with a direction that if Saatchi & Saatchi Private Limited passes the RPT filter, then only it should be included. The application of RPT filter should also be uniformly applied. 29. The last issue raised before us is with respect to the working capital adjustment as well as adjustment on account of interest on overdue receivable from its associated Printed from counselvise.com ITA No.2550/Bang/2024 Page 19 of 20 enterprises. We find that assessee has asked for the working capital adjustment but it is denied by the learned transfer pricing officer for the reason that assessee could not show that there is a difference in the working capital employed by the assessee as well as of the comparable companies and what is the cost of such fund which is deployed in working capital. We find that it is the case of the learned transfer pricing officer where he has selected the comparable, and therefore the onus is on him to show that there is no difference in the working capital of the assessee as well as of the comparable companies. Any person who is computing the arm's- length price , is required to compute the arm's-length price of the international transactions giving the proper adjustment of working capital as well as the risk adjustment. As the comparables are selected by the learned transfer pricing officer on a particular analysis and search metrics, he is duty-bound to prove that assessee does not warrant such adjustment , otherwise he is also duty bound to grant the working capital adjustment to the assessee. If the working capital adjustment is granted to the assessee, the computation of the interest on overdue receivable from associated enterprises does not arise because it is subsumed in the adjustment of the transfer pricing of the main transaction. However, if it is found that assessee is not entitled to the working capital adjustment, then only interest on overdue receivables is required to be computed. It should be computed in the currency in which the invoices are outstanding. It is stated that the assessee is outstanding is in Euro and therefore the appropriate rate of euro is directed to be applied if in case such interest is to be imputed. 30. No other issues are pressed before us and hence, those grounds not argued before us are dismissed. Appeal of the assessee is partly allowed as indicated above. Pronounced in the open court on this 11th day of November, 2025. Sd/- Sd/- ( SOUNDARARAJAN K. ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 11th November, 2025. /Desai S Murthy / Printed from counselvise.com ITA No.2550/Bang/2024 Page 20 of 20 Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "