DECISION MINDS INDIA PVT. LTD.,BANGALORE V. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

ITTPA 67/CHNY/2024

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The case involves Decision Minds India P. Ltd., which appealed against the final assessment order passed by the Deputy Commissioner of Income Tax under the Income-tax Act, 1961. The appeal primarily contested the transfer pricing adjustments made in respect of software development services provided to its Associated Enterprises and the initiation of penalty proceedings. The Income Tax Appellate Tribunal examined the comparables used by the Transfer Pricing Officer and the adjustments made, leading to a decision to remand the case for a fresh assessment with specific directions on the selection of comparables and verification of certain financial adjustments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 773116 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 2 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2021-2022
• Appeal Filed On: 22-10-2024
• Other Referred Cases: Kumaran Systems (P.) Ltd. v. DCIT, Information Evolution India Pvt. Ltd. v. DCIT, Genesys Telecom Labs India Pvt. Ltd. v. DCIT, Autodesk India (P) Ltd. v. DCIT, Yahoo Software Development India Private Limited v. JCIT, Infineon Technologies India (P.) Limited v. DCIT, PCIT v. Mentor Graphics (India) Private Limited, Sprinklr India Pvt. Ltd. v. ACIT, Infor (India) Private Limited v. ACIT, Etisalat Software Solutions (P.) Ltd. v. DCIT, PCIT v. Agnity India Technologies (P.) Ltd., PCIT v. Global Logic India Limited
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REVENUE; PROFITABILITY FROM SOFTWARE DEVELOPMENT SERVICES; ARV SREENIVASAN
• Assessee Lawyers: TANMAYEE RAJKUMAR
• Keywords: Opportunity of being heard; Transfer pricing; International transaction; Depreciation; Gift; Principle of natural justice; Initiation of penalty proceedings; Related party transaction; Working capital adjustments
• Section: 143(3)

Judgement Text

"आयकर अपीलीय अिधकरण, ’डी’’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI माननीय ी मनु क ुमार िग\u000fर, \u0010ाियक सद\u0013 एवं माननीय ी एस.आर.रघुनाथा ,लेखा सद\u0013 क े सम । BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.67/Chny/2024 िनधा\u0005रण वष\u0005/Assessment Year: 2021-22 Decision Minds India P. Ltd., Unit No.G03, Ground Floor, C2 Block Brigade Properties Pvt. Ltd SEZ, Brookfields, Kundalahalli S.O. Banglore North, Banglore-560037, Karnataka, India. v. DCIT, Corporate Circle 1(1), 121, NH Road, Nugambakkam, Chennai-34. [PAN: AAFCD1791H] (अपीलाथ\u000e/Appellant) (\u000f\u0010यथ\u000e/Respondent) अपीलाथ\u000e क\u0012 ओर से/ Appellant by : Ms.Tanmayee Rajkumar, Advocate. \u000f\u0010यथ\u000e क\u0012 ओर से /Respondent by : Mr.ARV Sreenivasan, CIT सुनवाईक\u0012तारीख/Date of Hearing : 30.06.2025 घोषणाक\u0012तारीख /Date of Pronouncement : 24.09.2025 आदेश / O R D E R PER MANU KUMAR GIRI, JM: This appeal is filed by the Assessee against the final assessment order dated 23.08.2024 passed under Section 143(3) r.w.s. 144C(13) read with section 144B of the Income-tax Act, 1961 (“the Act”) by the Deputy Commissioner of Income Tax, pursuant to the directions issued by the Dispute Resolution Panel (“DRP”) under Section 144C(5) of the Act, for the Assessment Year 2021–22. 2. The assessee has raised the following grounds of Appeal: 1. On the facts and circumstance of the case and in law, the order issued by the Assessment Unit/Verification Unit/Technical Unit/Review Unit, Income Tax Department Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 2 :: National Faceless Assessment Centre [('Assessing Officer') or ('Ld. AO')), is bad on facts and in law, and is in violation of the principles of natural justice. The Ld. DRP erred in confirming the same. 2 On the facts and circumstance of the case and in law, the Ld. AO has erred in making a reference to the Deputy Commissioner Of Income Tax DC/ACIT TP 1(2) (1) Bangalore ['Ld. TPO'], inter alia, since he has not recorded an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case. Accordingly, the order passed by the Ld. TPO/Ld. AO is without jurisdiction. The Ld. DRP erred in confirming the same. 3. On the facts and circumstance of the case and in law, the order passed by the Ld. AO is without jurisdiction, inter alia, insofar as it purports to give effect to an invalid order of the Ld. TPO/Ld. AO. 4. On the facts and circumstance of the case and in law, the Ld. AO/Ld. TPO erred in arbitrarily rejecting the transfer pricing analysis carried out by the Appellant which was consistent with the Indian Transfer Pricing Regulations (\"Indian Regulations\") prescribed under the Act and Income-tax Rules, 1962 (\"the Rules\"). The Ld. DRP erred in confirming the same. 5. On the facts and circumstance of the case and in law, the Ld. AO/Ld. TPO erred on facts and in law in conducting a fresh benchmarking analysis using \"non- contemporaneous\" data and substituting the Appellant's analysis with the fresh benchmarking analysis on his own conjectures and surmises. Thereby accepting Great Software Laboratory Pvt Ltd., Nihilent Ltd, Larsen & Toubro Infotech Ltd, Wipro Ltd., Net4Nuts Ltd., Tata Elxsi Pvt. Ltd., Infosys Ltd., Aptus Software Labs Pvt Ltd, TCS, Consilient Technologies Pvt Ltd, and Cybage software Pvt. Ltd. The Ld. DRP erred in confirming the same. 6. On the facts and circumstance of the case and in law, the Ld. AO/Ld. TPO has erred in law in using data, which was not contemporaneous, and which was not available in the public domain at the time of conducting the transfer pricing study by the Assessee. The Ld. DRP erred in confirming the same. 7. On the facts and circumstance of the case and in law, the Ld. AO/Ld. TPO erred in rejecting certain comparable companies arrived at in the Transfer Pricing Study viz. Yudiz Solutions Private Limited, Infomile Technologies Ltd and R Systems International Ltd, without considering the functional and risk analysis of the Appellant. The Ld. DRP erred in confirming the same. 8. On the facts and circumstance of the case and in law, the Ld. AO/Ld. TPO erred in law in applying arbitrary filters to arrive at a fresh set of companies as comparables to the Appellant, without establishing functional comparability. The Ld. DRP erred in confirming the same. 9. On the facts and circumstance of the case and in law, the Ld. AO/ Ld. TPO erred in fact and law in not allowing necessary economic adjustments like working capital adjustments, depreciation adjustments and risk adjustments. The Ld. DRP erred in confirming the same. 10. On the facts and circumstance of the case and in law, the Ld. AO/ Ld. TPO erred in fact and law in recharacterizing delayed receivables and imputing interest thereon. The Ld. DRP erred in confirming the same. 11. On the facts and circumstance of the case and in law, the Ld. AO erred in initiating penalty proceedings u/s 270A and u/s 271AA(1) of the Act. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 3 :: 12. The above grounds are independent and with prejudices to one another. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of the hearing of appeal, so as to enable the Hon’ble Income Tax Appellate Tribunal to decide this appeal according to law. 3. The issue arising for consideration in the above appeal pertains to: (i) Transfer Pricing adjustment (“TP adjustment”) of Rs. 1,34,63,828/- in respect of software development services provided by the Appellant to its Associated Enterprises (“AE”) and TP adjustment towards interest on outstanding trade receivables amounting to Rs. 5,23,378/- on delayed receivables; (ii) Erroneous initiation of penalty proceedings under Section 270A and under Section 271AA(1) of the Income-tax Act, 1961 (“the Act”). 4. BRIEF FACTS OF THE CASE ARE AS UNDER: The Assessee was incorporated on 28.11.2014 and is primarily engaged in providing software development support services to its AEs in Data and Analytics, Cloud, AI/ML, Intelligent Automation, MDM, Data Governance, Visualisation, BigData, Product Development. During the previous year relevant to the assessment year (AY) 2021–22, the Assessee had entered into international transactions of rendering SWD services to its Associated Enterprises (‘AEs’ in short) for a total consideration of Rs.18,10,21,383/-. Upon a reference being made by the Assessing Officer (‘AO’ in short) to the Transfer Pricing Officer (“TPO”), the TPO vide an order dated 05.10.2023 determined an adjustment of Rs.1,39,87,206/-. Initially a draft assessment order dated 19.10.2023 came to be passed in which the said TP adjustment was incorporated. Aggrieved, the Assessee filed objections before the Dispute Resolution Panel (“DRP”), which came to be rejected in toto vide its directions dated 26.07.2024. Thereafter, the Assessing Officer passed the final assessment order dated 23.08.2024 in which the said TP adjustment was incorporated. Aggrieved by the final assessment order, the Assessee has preferred the above appeal before us. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 4 :: I. SUBMISSIONS OF THE ASSESSEE ON TRANSFER PRICING ADJUSTMENT: A. DETAILS OF THE ASSESSEE’S INTERNATIONAL TRANSACTIONS: Sl. No. Particulars Amount in Rs. Outcome of the TP Order 1 Provision of SWD services 18,10,21,383/- Adjustment of Rs. 1,34,63,828/-. B. ANALYSIS OF THE TP STUDY OF THE ASSESSEE AND THE TPO: B.1. Net mark-up on cost as computed by the Assessee: Operating Income Rs. 18,10,21,282/- Operating Cost* Rs. 15,54,91,851/- Operating Profit (Op. Income – Op. Cost) Rs. 2,55,29,532/- Operating/Net mark-up (OP/TC) 16.42% B.2. Net mark-up on cost earned by the Appellant as computed by the TPO: Operating Income Rs. 18,10,21,282/- Operating Cost* Rs. 15,54,76,226/- Operating Profit (Op. Income – Op. Cost) Rs. 2,55,45,157/- Operating/Net mark-up (OP/TC) 16.43% B.3. Comparison of the TP studies done by the Assessee and TPO: Particulars Appellant TPO Methodology adopted TNMM TNMM Profit Level Indicator (PLI) OP/OC OP/OC Database used Ace-TP Prowess and Ace-TP Comparables selected 7 18 Period for which data used FY 2018-19 to FY 2020-21 2018-19 to FY 2020-21 B.4. Filters applied by Assessee in its TP study: Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 5 :: Sl No. Description 1. Companies having no data or invalid data for FY 2020-21 and FY 2019-20 - rejected. 2. Companies having sales less than 1 Crore - rejected 3. Companies having other operating income (service income) / sales less than 50% in latest available year - rejected 4. Companies with wages and salary less than 25 percent to the turnover – selected 5. Companies having zero/ negative net worth – rejected 6. Companies having export sales / sales less than 50% in latest available year - rejected 7. Companies engaged in non-comparable functions/services - rejected 8. Companies having related party transactions in excess of 25% of sales – rejected B.5. Comparables selected by Appellant and their arithmetic mean: Sl. No. Name of the company Weighted Average NCP (in %) 1. Yudiz Solutions Private Limited 3.80% 2. Evoke Technologies Private Limited 5.63% 3. Infomile Technologies Limited 5.94% 4. R Systems International Ltd. - seg 15.56% 5. Mindtree Limited 16.07% 6. Sagarsoft (India) Limited 16.81% 7. CG-VAK Software & Exports Ltd 29.09% 35th Percentile 5.94 Median 13.27 65th Percentile 16.07 Out of the 7 comparables selected by the Assessee, the TPO accepted 4 comparables viz. Evoke Technologies Pvt Ltd, Mindtree Limited, Sagarsoft (India) Limited, and, CG-VAK Software & Exports Ltd, and rejected the other 3 comparables. B.6. Filters applied by the TPO: Sl. No. Description 1. Companies whose data is not available for FY 2020-21 - excluded. 2. Companies having different financial year ending (i.e., not March 31, 2021) or data of the company does not fall within 12-month period i.e., 01-04-2020 to 31-03-2021 – excluded. 3. Companies whose revenue was less than Rs. 1 crore - excluded. 4. Companies whose software development service revenue is less than 75% of their total operating revenues - excluded. 5. Companies with related party transactions exceeding 25% of sales or purchases - excluded. 6. Companies having export service revenue less than 75% of sales – excluded. 7. Companies with employee costs less than 25% of the turnover - excluded. 8. Companies having persistent losses (any two out of three financial years) - excluded. 9. Companies who have net worth <0 have been excluded. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 6 :: B.7. Comparables selected by TPO and their arithmetic mean: Sl.No. Name of the company Weighted Average (in %) 1. Hurix Systems Pvt. Ltd. 4.57% 2. Evoke Technologies Ltd. 7.45% 3. Indianic Infotech Ltd. 10.44% 4. Orion India Systems Ltd. 15.00% 5. Mindtree Ltd. 17.24% 6. Sagarsoft (India) Ltd. 17.98% 7. Great Software Laboratory Pvt. Ltd. 19.95% 8. Nihilent Ltd. 20.89% 9. Larsen & Toubro Infotech Ltd. 24.68% 10. Wipro Ltd. 25.49% 11. Net4Nuts Ltd. 26.87% 12. TATA Elxsi Pvt. Ltd. 32.14% 13. Infosys Ltd. 33.54% 14. CG-VAK Software & Exports Ltd. 33.76% 15. Aptus Software Labs Pvt. Ltd. 37.83% 16. TATA Consultancy Services Ltd. 38.46% 17. Consilient Technologies Pvt. Ltd. 51.47% 18. Cybage Software Pvt. Ltd. 51.98% 35th Percentile 19.95% Median 25.09% 65th Percentile 32.14% B.8. Computation of arm’s length price by the TPO and the adjustment made: Taxpayers operating revenue Rs. 18,10,21,383/- Taxpayer operating cost Rs. 15,54,76,226/- Taxpayers operating profit Rs. 2,55,45,157/- Taxpayers PLI 16.43% 35th Percentile Margin of comparables set 19.95% Adjustment required (if PLI<35th Percentile) Yes Median margin of comparable set 25.09% Arm’s length price Rs. 19,44,85,211/- Price received Rs. 18,10,21,383/- Shortfall being adjustment u/s. 92CA Rs. 1,34,63,828/- C. DIRECTIONS ISSUED BY THE DRP: The ld.DRP rejected the contentions of the Assessee in toto and affirmed the adjustment determined by the TPO Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 7 :: D. LIST OF COMPARABLES POST THE DRP’S DIRECTIONS: On giving effect to the above directions issued by the DRP, the final list of comparables as per the final assessment order dated 26.06.20224 giving effect to the DRP directions is as under: Sl. No. Name of the Company 1. Hurix Systems Pvt. Ltd. 2. Evoke Technologies Ltd. 3. Indianic Infotech Ltd. 4. Orion India Systems Ltd. 14.14% 5. Mindtree Ltd. 6. Sagarsoft (India) Ltd. 7. Great Software Laboratory Pvt. Ltd. 8. Nihilent Ltd. 9. Larsen & Toubro Infotech Ltd. 10. Wipro Ltd. 11. Net4Nuts Ltd. 12. Tata Elxsi Pvt. Ltd. 13. Infosys Ltd. 14. CG-VAK Software & Exports Ltd. 15. Aptus Software Labs Pvt. Ltd. 16. Tata Consultancy Services Ltd. 17. Consilient Technologies Pvt. Ltd. 18. Cybage Software Pvt. Ltd. E. FINAL ASSESSMENT ORDER: The AO passed the final assessment order in line with the directions of the DRP, in terms of which, the TP adjustment stood at Rs. 1,39,87,206/- F. BRIEFLY, THE GROUNDS OF THE APPEAL PRESSED BEFORE US: a. The TPO/DRP erred in not excluding companies such as Great Software Laboratory Pvt Ltd., Nihilent Ltd., Larsen & Toubro Infotech Ltd., Wipro Ltd., Net4Nuts Ltd., Tata Elxsi Pvt. Ltd., Infosys Ltd., Aptus Software Labs Pvt Ltd, Tata Consultancy Service Limtied, Consilient Technologies Pvt Ltd, and Cybage software Pvt. Ltd. despite being functionally dissimilar to the Appellant. (Ground No. 5) Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 8 :: b. The TPO/DRP erred in not excluding Mindtree Ltd., from the final list of the comparables despite the same not being comparable to the Appellant. (Ground No.5a) c. The TPO/DRP erred in not including Yudiz Solutions Private Limited, Infomile Technologies Ltd and R Systems International Ltd, in the final list of comparables despite being functionally comparable to the Appellant. (Ground No. 7) d. The TPO/DRP erred in not applying an appropriate upper limit to reject companies having high turnover. (Ground No. 8a) G. ASSESSEE’S SUBMISSIONS: Ground No. 8(a): Application of upper turnover filter The ld. counsel submitted that the TPO erred in not applying a cap on upper limit on the turnover/service revenue while selecting the companies comparable to the Assessee. In this regard, it is submitted by the ld. counsel that application of turnover filter is a relevant criterion in choosing comparable companies. The ld. counsel submitted that the difference in the scale of operations have a direct impact on the profitability. In terms of the concept of ‘economies of scale’, an increase in the size and scale of the operations lead to a decrease in the long run average cost of each unit or each service project delivered, and therefore, the per unit fixed cost of a small-scale company would be much higher than of a medium/large size organisation. The ld. counsel submitted that the turnover of the Assessee from rendering SWD services is Rs.18.10 crores. This being so, the TPO ought to have applied the upper turnover filter while selecting companies comparable to the Assessee. The ld. Counsel placed reliance on the decision of this Tribunal in the case of Kumaran Systems (P.) Ltd. v. DCIT (reported in [2021] 131 taxmann.com 156 (Chennai - Trib.), Information Evolution India Pvt. Ltd. v. DCIT (order dated 26.05.2025 passed in IT(TP)A No. 94/CHNY/2024) for the assessment year 2021-22 and Genesys Telecom Labs India Pvt. Ltd. v. DCIT (order dated 28.11.2024 passed in IT(TP)A No. 38/CHNY/2024). Further reliance Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 9 :: is placed on the decision of the Tribunal - Bangalore Bench in Autodesk India (P) Ltd. V. DCIT (reported in (2018) 96 taxmann.com 263 (Bang Trib)). He further stated that upon application of the turnover filter, the following companies would be excluded: Name of Comparable Turnover in Cr. (Rs.) 1 – 200 crores 1/10th – 10 times (1.8 crores to 180 crores) Great Software Laboratory Pvt. Limited 265.2 X X Nihilent Limited 335.7 X X Larsen & Toubro Infotech Limited 11,578 X X Wipro Limited 50,638 X X Tata Elxsi Limited 1,828.4 X X Infosys Limited 86,191 X X Tata Consultancy Services 1,36,391 X X Cybage Software Private Limited 1,142.6 X X Mindtree Ltd. 7,996.4 X X Evoke Technology Ltd. 197.54 √ X Hurix Systems Pvt Ltd. 87.85 √ √ Sagarsoft (India) Ltd. 41.02 √ √ CG-VAK Software & Exports Ltd. 29.88 √ √ Orion India Systems Pvt. Ltd. 152.32 √ √ Indianic Infotech Ltd. 36.21 √ √ Net4Nuts Ltd. 2.32 √ √ Consilient Technologies Pvt Ltd. 3.85 √ √ Aptus Software Labs Pvt. Ltd. 5.66 √ X Ground No. 5 in the appeal: Vide this ground, the Assessee is seeking exclusion of the following companies: a. Nihilent Ltd, b. Larsen & Toubro Infotech Ltd, c. Wipro Ltd., Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 10 :: d. Net4Nuts Ltd., e. Tata Elxsi Pvt. Ltd., f. Infosys Ltd., g. Aptus Software Labs Pvt Ltd, h. Tata Consultancy Services Ltd., i. Consilient Technologies Pvt Ltd, j. Cybage software Pvt. Ltd., k. Mindtree Ltd., l. CG-VAK Software & Exports Ltd. 1. Great Software Laboratory Pvt. Ltd. Functionally different: It is submitted that Great Software is engaged in providing product engineering services which is distinct from a captive software development service provided by the Appellant. The Company provides product engineering and development, performance engineering, legacy product modernization, open-source engineering etc. Lack of segmental details: It is submitted that the company is providing diversified activities for which no segmental details are available. Detailed submissions are placed by the assessee at pages 204, 210-211, 246 of the paper book. 2. Mindtree Limited (“Mindtree”): Functionally different: Mindtree is an international Information Technology consulting and implementation company that delivers business solutions through global software development. The Company is structured into four industry verticals – Retail, CPG and Manufacturing (RCM), Banking, Financial Services and Insurance (BFSI), Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 11 :: Technology, Media and Services (TMS) and Travel and Hospitality (TH). The Company offers services in the areas of agile, analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, digital business, independent testing, infrastructure management services, product engineering and SAP services. Considering the above, it is quite evident that services rendered by Mindtree is engaged in rendering diversified services viz. development, engineering, maintenance, consulting, testing, IT Infrastructure support, etc. Lack of segmental information: Despite rendering varied services, the Company does not report relevant segmental information in the audited financial in order to understand and compare the profitability earned from each of the category of services. Instead of service wise segmental information, segmental information relating to industry verticals is provided. In the absence of revenue from profits from various services, it cannot be verified if the Company has earned 75% if its revenue from IT services. Therefore, due to non-availability of relevant segmental information for comparability purpose, Mindtree cannot be considered as a comparable company. Research & Development activities: Mindtree is also engaged in undertaking R&D activities which drives its business operations and boosts its profitability. The Company undertakes R&D activities with respect to (i) Emerging technologies such as Artificial Intelligence, Robotic Process Automation & Bots, Blockchain, Augmented Reality and Virtual Reality, Emerging Architecture Patterns and Technologies; (ii) Solutions for Verticals such as BFSI, Retail, CPG & Manufacturing, Travel, Transport and Hospitality; (iii) Solutions for Service Lines such as Data Science & Engineering, Cloud; (iv) Digital Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 12 :: Pumpkin to Inspire & Ideate for Disruptive Ideas; and (v) Technology Research & Academia Collaboration. During the year, Mindtree has spent over Rs. 338 million on the aforementioned R&D activities. It is submitted that these R&D activities benefitting Mindtree in terms of new opportunities, brand positioning and new service lines. Considering this is much to the contrast of the Appellant’s services wherein the Appellant is not required to undertake R&D activities, Mindtree ought to be rejected as comparable. Presence of non-routine intangibles & brand value: Mindtree has presence of high-value, significant and non-routine self-generated intangible assets, brand value and IP which drive its business and impacts its profitability. Such magnitude of intangible assets indicates that intangible assets are driver of business activities of the Company and have a material impact on its profits. It is also submitted that owning of such significant value of intangible assets renders a definitive business advantage to Mindtree which is not available to the Appellant. Further it is submitted that the Appellant does not own any such significant or non-routine intangible assets like that of Mindtree. Significant onsite operations: Mindtree earns onsite business revenue as well, contrary to the Appellant which is offshore services provider. Having onsite business revenue streams boosts the profitability as compared to an offshore service provider and therefore, due to this difference in the business model, Mindtree ought not to be compared with the Appellant. It is submitted that 55% of the revenue is generated from onsite. Further, it is submitted that the Mindtree has incurred branch office expenses amount to Rs. 36,421 million during the year. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 13 :: Reliance is placed on the decision of this Tribunal in the case of Yahoo Software Development India Private Limited v. JCIT (Order dated 28.02.2020 passed by this Tribunal in ITA No. 2365/Bang/2019 for the assessment year 2014-15) (Paras 41 - 42 of the order), wherein the Company was excluded from the final list of comparables for having high percentage of onsite revenue. In view of the above, it is submitted that Mindtree ought to be excluded from the final list of comparables. 3. Nihilent Technologies Limited (“Nihilent”): Functionally different: Nihilent provides a broad spectrum of services, which includes business consulting in the area of enterprise transformation, change management and performance management, rendering software services, related IT services, and sale of traded software. From the website of the Company, it is evident that the Company renders a host of other services under the board category of services mentioned in the annual report, including brands and marketing transformation, platform and technology transformation, design thinking, data science and analytics etc. The ld. counsel submitted that in terms of Rule 10TA of the Income-tax Rules, 1961, analytics related services have been classified under KPO services under the safe harbor rules. Therefore, it is submitted that Nihilent provides high-end KPO services which is not comparable to a routine software development services provider, such as the Assessee. Significant Research and Development activities and intellectual properties: The ld. counsel submitted that Nihilent undertakes R&D activities to enhance its delivery capabilities. On account of R&D activities, Nihilent has developed in- Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 14 :: house proprietary frameworks and methodologies that assist in providing services. T&D activities of Nihilent has led to development of intellectual properties viz., proprietary change management framework i.e., MC3, TM, 14 Signals and Design Thinking. Lack of segmental information: Though the Company provides a wide range of services, the Company has not provided segmental details between the various services provided in the financials. Significant onsite expenditure: The Company foreign expenditure which works out to be 22.22%, 31.13% and 36.43 of the total expenditure for FYs 2020-21, 2019-20 and 2018-19, respectively. Significant expenses towards subcontracting Peculiar economic circumstances: During the year, the Company acquired additional stakes in Intellect Bizware Services Private Limited and acquired Nihilent Analytics Limited. As a result of this amalgamation the financials of the Company for the year ended March 2021 are not comparable with the previous year ended March 2020. The synergies obtained through this acquisition would have an impact on the overall margin of the Company. The ld. counsel submitted that this company is consistently excluded from the final list of comparables in the cases of similarly placed assesses. Reliance in this regard is placed on the decisions of this Tribunal in the case of Infineon Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 15 :: Technologies India (P.) Limited v. DCIT (reported in [2024] 159 taxmann.com 245 (Bangalore - Trib.)) (paras 8 - 8.1) Detailed submissions in this regard are placed by the assessee at pages 204, 211- 214 and 247 of the paper book. In view of the above, the ld. counsel submitted that Nihilent ought to be excluded from the final list of comparables. 4. Larsen & Toubro Infotech Limited (“L&T”): Functionally different: It is submitted that L&T offers extensive range of IT services like application development, maintenance and outsourcing, enterprise solutions, infrastructure management services, testing, digital solutions and platform-based solutions to the clients in diverse industries such as Banking, Financial services, Insurance, Media & Entertainment, Travel, Logistics and Healthcare. The aforementioned host of services cannot be comparable to Appellant’s routine software development services. Further, the Company has made great investment in technology absorption. It operates Centres of Excellence in emerging technologies such as Big Data, Analytics, Internet of Things, Cloud, User Experience etc. This has in turn helped the Company in improving the productivity of the company. Also, the benefits are achieved in the form of product improvement, which indicates that the company is engaged in product development. Absence of segmental information: It is submitted that no relevant segmental information has been disclosed in L&T’s annual report to understand and compare the profitability from relevant service portfolio. In absence of availing of segmental information, profitability of the Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 16 :: Appellant from undertaking software development functions cannot be compared with L&T’s profitability from extensive range of IT services. Presence of intangibles and Brand value: L&T Infotech has presence of high-value, significant and non-routine self- generated intangible assets, brand value and trademarks which drive its business and impacts its profitability. The Company is constantly engaged in brand building activities. During the year under consideration, the Company has intangibles amounting to Rs.721 million, including the intangibles under development. Research & Development activities: L&T has made great investment in technology absorption. This has in turn helped the Company in improving its productivity. The Company has carried out extensive R&D in areas of latest technologies such Internet of things, Big data analytics, Mobility, Cloud, Next Generation User Experience, service automation, manufacturing execution systems etc. During the year under consideration, the Company has incurred R&D expenses amounting to Rs. 381 million. It is evident that significant investment in technology and R&D leads to increased productivity, modernization and operational synergies etc., which in turn has an impact on the revenue/ for achieving cost efficient structure and on profit margins. Scale of operations: The ld. counsel submitted that L&T ought not to be taken as comparable to the Appellant solely on account of its large size and scale of operations. Companies having such level of sales are large-sized software companies and they are likely to operate in a very different market environment and are likely to have significant intangibles and brand-name, which will directly impact their prices and Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 17 :: margins. Given the above, a large size Company such as L&T cannot be compared to a captive service provider like Appellant. Significant onsite operations: L&T has incurred significant foreign expenditure which works out to 50.94%, 53.58% and 56.12% of total expenditure incurred for FY 2020-21, 2019-20 and 2018-19, respectively. It is evident that significant portion of its services are rendered from onsite offices under an onsite model. Further, it is submitted that during the year, the company has earned 49.6% of the revenue onsite activities. The ld. counsel submitted that this company is consistently excluded from the final list of comparables in the cases of similarly placed assesses. Reliance in this regard is placed on the decision of this Tribunal in the case of Yahoo Software Development India Private Limited (Order dated 28.02.2020 passed in IT(TP)A No. 2365/Bang/2019 for the assessment year 2014-15) (para 38) and Infineon Technologies India (P.) Limited v. DCIT (reported in [2024] 159 taxmann.com 245 (Bangalore - Trib.)) (paras 11 – 12.1). Detailed submissions in this regard are placed by the assessee at page 204, 214- 218 and 247 of the paper book. In view of the above, the ld. counsel submitted that L&T ought to be excluded from the final list of comparables. 5. Wipro Limited (“Wipro”): Functionally different: Wipro is engaged in providing high end IT and IT enabled services such as Data & Analytics, AI, Applications, Cybersecurity, Consulting, Infrastructure and Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 18 :: Engineering services. The IT Segment of the Company provides range of IT services and enabled services which include digital strategy advisory, customer service centric design, technology consulting, IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, global infrastructure services, analytics services, business process services, research and development, and hardware and software designs. Wipro offers IT products pertaining to various niche and emerging technologies, it is clearly evident that the same is functionally different from Appellant which is engaged in rendering software development services to its AEs. The services rendered by Wipro are of diversified nature and each of these services require different level of technical skill sets and functions / activities and involving different level of technical complexities resulting into diverse range of profitability. The Company is involved in end-to-end product development. Lack of segmental information: The ld. counsel submitted that despite offering diverse range of IT services, no segmental financials are reported in the audited financial statements for the financial year 2020-21. In absence of availability of segmental profitability disclosures, it is submitted that profitability of the Appellant from provision of software services cannot be compared to that of Wipro which provides diverse range of high value adding IT services, which generate higher profits and returns as compared to routine software service functions performed by the Appellant. Research & Development activities: The ld. counsel submitted that significant research and development activities are performed by Wipro. Such research and development improve the process of delivering software development services and provides the Company an edge in Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 19 :: the market and a favourable position, whereas the Appellant is not into creating significant intangibles and is a limited risk services provider. From the annual report of the Company for the financial year 2020-21, it is evident that the Company is performing R&D activities to develop intangibles/software products which in turn leads to generation of revenue from sale of such intangibles. The Company has spent substantial amount in sub-contracting/ technical fees/third party application during the year under consideration. Presence of non-routine intangibles & brand value: The Company has claimed “Wipro” brand as a trusted brand in the marketplaces. Wipro Brand is a key intangible owned by the Company which provides a significant advantage to the company in respect of its business operations and help in ensuring success. During the year under consideration, the Company has spent Rs. 839 million towards marketing and brand building activities. Wipro is a market leader and has won accolades in almost every industry in which it provides services. The Company has operations in 55 countries. This indicates that the Company has global presence and the scale of operations are clearly distinct from that of a routine software development service provider. Such magnitude of intangible assets indicates that intangible assets are driver of business activities of the Company and have a material impact on its profits. It is also submitted that owning of such significant value of intangible assets renders a definitive business advantage to Wipro which is not available to the Appellant. Peculiar economic circumstances: During the financial year 2020-21, Wipro has undertaken several acquisitions and restructuring transactions, which has impacted the profitability of the company of Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 20 :: the respective years. Accordingly, given the presence of such extra-ordinary events, the financial results so arrived at could not be used for arm’s length determination purposes. Significant onsite expenditure: Wipro has incurred significant foreign expenditure which works out to 53.33, 44.46% and 45.99% of total expenditure incurred for FY 2020-21, 2019-20 and 2018-19, respectively. The ld. counsel submitted that this company is consistently excluded from the final list of comparables in the cases of similarly placed assesses. Reliance in this regard is placed on the decisions of this Tribunal in the case of Infineon Technologies India (P.) Limited v. DCIT (reported in [2024] 159 taxmann.com 245 (Bangalore - Trib.)) (paras 15 – 16.1) and the decision of the Hon’ble Delhi High Court in the case of PCIT v. Mentor Graphics (India) Private Limited (Order dated 05.09.2023 passed by the Hon’ble Delhi High Court in ITA No. 787/2019) (Para 17). Detailed submissions in this regard are placed by the assessee at pages 204, 218- 222 and 247 of the paper book. In view of the above, the ld. counsel submitted that Wipro ought to be excluded from the final list of comparables. 6. Net4Nuts Limited (“Net4Nuts”): Functionally different: Net4Nuts is engaged in the business of designing, architecting, developing and maintenance of high-availability (HA) software products / solutions as well as Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 21 :: mobile value-added services, in addition to software development activities. The Company is also engaged in diversified and high-end IT services and is earning revenue from both software services as well software products, whereas the Appellant is only engaged in provision of software services. Hence, Net4Nuts cannot be considered as comparable to Appellant. From the website of the Company, it is evident that the Company is engaged in provision of wide range of services including solutions development design, cloud development, healthcare expertise, telecom and e-commerce development and information technology services is only one of many services offering. These services are not comparable to the services rendered by the Appellant. Lack of segmental information: Net4Nuts is engaged in provision of software development services and a variety of Information & Communication Technology related services and deals in software products. The Company has only one Segment i.e., ICT related services and products and the company has not disclosed the segment financial information for revenue and profitability from software development services and software products. Therefore, due to lack of this segmental disclosure, Net4Nuts cannot be considered as comparable company to the software functions of the Appellant. Detailed submissions in this regard are placed by the assessee at pages 204, 222, 248 of the of the paper book. In view of the above, the ld. counsel submitted that Net4Nuts ought to be excluded from the final list of comparables. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 22 :: 7. Tata Elxsi Limited (“Tata Elxsi”): Functionally different: Tata Elxsi is engaged in providing services such as product design and engineering services to the consumer electronics, communications & transportation industries and systems integration and support services for enterprise customers in addition to software development services. It is also engaged in providing digital content creation for media and entertainment industry. Tata Elxsi is a fully integrated global design consultancy, creating innovative products, services, and experiences to build brands and help businesses grow. Tata Elxsi addresses the complete product development lifecycle from R&D, new product development and testing to maintenance engineering for Broadcast, Consumer Electronics, and Communications. The company operates in 2 segments, viz., (i) Systems integration & support services which caters to the domestic market and offers integrated hardware & packaged software solutions, sourced from principles; and (ii) Software development & services under which the Company undertakes diversified activities such as Product design services (i.e., design and development of hardware and software), Innovation design engineering (i.e., Mechanical design with focus on industrial design) and Visual computing labs (i.e., animation and special effects for movies and TV). Such activities can’t be equated with the routine software development services of the Appellant. No proper segmental available: From the annual report, it is evident that the software development and services segment clearly comprise of four divisions (i) Embedded Product Design (ii)Transportation (iii) Broadcast and communications (iv) Industrial Design and Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 23 :: Visualization. However, the details of income earned from each division has not been provided in the segment information given in the Annual report. Significant foreign expenditure: Tata Elxsi has incurred significant foreign expenditure which works out to 37.80%, 40.05% and 39.43% of total expenditure incurred for FY 2020-21, 2019-20 and 2018-19, respectively. The Company renders significant portion of its services from its onsite offices under an onsite model. For the year under consideration, the Company has earned 33.1% of its revenue from onsite operations. Therefore, a Company such as Tata Elxsi cannot be compared to an offshore captive software development service provider like Appellant. Research & Development activities: Tata Elxsi has incurred significant R&D expenses (approx. 2.8% of total expenditure) during the year and this has huge impact on its profitability. These activities are benefitting the Company in terms of new opportunities, brand positioning and new service lines. Presence of non-routine intangibles & brand value: As submitted above by the ld. counsel, the Company does extensive R&D which has resulted in the Company owning significant intangible assets. Tata Elxsi owns key and high value non-routine intangible assets which provides a significant advantage to the Company in respect of its business operations and impacts its profitability. The intangible assets of Tata Elxsi constitute approximately 17% of its total tangible and intangible assets which indicates the significance of these intangibles in running the business operations. Tata Elxsi being a part of TATA Group enjoys the benefits/returns associated with the TATA brand. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 24 :: Such magnitude of intangible assets indicates that intangible assets are driver of business activities of the Company and have a material impact on its profits. It is also submitted that owning of such significant value of intangible assets renders a definitive business advantage to Tata Elxsi which is not available to the Appellant. The ld. counsel submitted that this company is consistently excluded from the final list of comparables in the cases of similarly placed assesses. Reliance in this regard is placed on the decisions of this Tribunal in the case of Infineon Technologies India (P.) Limited v. DCIT (reported in [2024] 159 taxmann.com 245 (Bangalore - Trib.)) (paras 9 – 10.1), and the decision of the Hon’ble Delhi High Court in the case of PCIT v. Steria India Limited (Order dated 19.09.2017 passed by the Hon’ble Delhi High Court in ITA No. 762/2017) (para 4). Detailed submissions in this regard are placed by the assessee at pages 204, 223- 224, 248 of the paper book. In view of the above, the ld. counsel submitted that Tata Elsxi ought to be excluded from the final list of comparables. 8. Infosys Limited (“Infosys”): Functionally different: Infosys is a leading global technology services corporation which provides business consulting, technology, engineering and outsourcing services. In addition, the Company offers products in various categories such as banking suite, big data, cloud, customer service, distributive trade, micro-commerce, and sourcing and procurement. It owns products viz. Finacle, Edge Suite and many other niche products. It is evident from the annual report of the Company that the Company is engaged in product development, undertakes R&D activities and Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 25 :: holds IPR’s, it also undertakes substantial marketing activities and operates in diversified markets. On account of Infosys being engaged in sale of software products, the same is functionally different from Appellant which is engaged in rendering routine software development services to its AEs. No segmental information: Infosys provides vide variety of services including both software services and software products. However, the segmental details for the major services are not available. Industry segments for the company are primarily Financial Services (FS), Manufacturing (MFG), Retail, Consumer packaged goods and Logistics (RCL), Energy & utilities, Communication and Services (ECS), Hi-Tech and Life Sciences, Healthcare and Insurance (HILIFE). The segment details are based on industry they service and geographical segments wise and not based on the nature of revenues/activities (business segments). Research & Development activities: The ld. counsel submitted that the Company is engaged in significant R&D which has led to creation of intellectual property rights. Infosys has incurred R&D expenses amounting to Rs.508 Crores in the year under consideration. Infosys concentrates on R&D activity to a great extent for developing new functionalities and patenting innovative technologies. The amount Infosys spends on R&D activity is quite higher than even the top line of the Appellant. Given this, Infosys cannot be compared with Assessee who is purely a captive service provider rendering services only to AEs and performing no sales or R&D functions. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 26 :: Presence of non-routine intangibles & brand value: Infosys brand is a key intangible asset of the company The Company has spent Rs. 441 crores in brand building and marketing exercise. From the annual report of the Company, it can be seen that even the management of Infosys has acknowledged its brand and intellectual properties as few among of the strengths of the Company. In addition to the brand name, Infosys also owns other significant non-routine intangibles in the form of goodwill, trademarks, IP rights, etc. the aggregate net value of which amounts to Rs.77 crores as on 31.03.2021. Peculiar economic circumstances: During the financial year 2020-21, Infosys has undertaken several acquisitions and restructuring transactions, which has impacted the profitability of the company of the respective years. Accordingly, given the presence of such extra- ordinary events, the financial results so arrived at could not be used for arm’s length determination purposes. Significant Marketing and selling expenditure: The ld. counsel submitted that the Company has incurred significant expenditure in relation to sales and marketing. This can be substantiated by way of high revenue and profit margins. Infosys has incurred an amount of Rs. 288 crores towards marketing and sales expenditure. Given the same, the ld. counsel submitted that Infosys cannot be compared to the Assessee, who is low risk captive service provider to AE. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 27 :: Significant foreign expenditure: The Company has incurred significant foreign expenditure which works out to 72.66%, 72.23% and 70.44% of total expenditure incurred for FY 2020-21, 2019- 20 and 2018-19, respectively. Super normal profits: A mere analysis of the profit margin of Infosys shows the Company is making unusually high profits and the same is not reflective of the performance of the industry in which the Assessee operates. Financial Year FY 2020-21 FY 2019-20 FY 2018-19 Operating Profit/Operating Cost 36.54% 31.50% 32.35% The ld. counsel submitted that this company is consistently excluded from the final list of comparables in the cases of similarly placed assesses. Reliance in this regard is placed on the decisions of this Tribunal in the case of Yahoo Software Development India Private Limited (Order dated 28.02.2020 passed in IT(TP)A No. 2365/Bang/2019 for the assessment year 2014-15) (para 39) and Infineon Technologies India (P.) Limited v. DCIT (reported in [2024] 159 taxmann.com 245 (Bangalore - Trib.)) (paras 17 – 18.2). The ld. Counsel placed reliance on the decisions of the Hon’ble Delhi High Court in CIT v. Agnity India Technologies (P.) Ltd.(Reported in [2013] 36 taxmann.com 289 (Delhi) (Paras 5 – 8) and PCIT v. Global Logic India Limited (Order dated 11.09.2023 passed by the Hon’ble Delhi High Court in ITA No.461/2019) (paras 8 & 9). Detailed submissions in this regard are placed by the assessee at pages 204, 224- 228 and 248 of the paper book. In view of the above, the ld. counsel submitted that Infosys ought to be excluded from the final list of comparables. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 28 :: Aptus Software Labs Private Limited (“Aptus”): Functionally different: The Company is engaged in the business of product engineering. The Company provides services such as infrastructure management, network operations centre, cloud computing, engineering & QA services. These services provided by Aptus are diversified in nature and are not comparable to the Appellant’s software development services. From the Company’s website, it is evident that Aptus mainly offers Infrastructure, Cloud and Engineering services which are significantly different compared to the software development functions of the Assessee. The annual report of the Company contains insufficient disclosures about the Company’s business operations and segment operations, making it difficult to understand whether the Company is strictly providing software development services. Fails export filter: The ld. counsel submitted that the Company fails export revenue filter applied by the TPO for FY 2019-20. The detailed working of the same is provided as under: Particulars FY 2020-21 FY 2019-20 FY 2018-19 Turnover (A) Rs. 7,82,93,475/- Rs. 7,36,81,170/- Rs. 5,66,32,486/- Export Income (B) Rs. 6,95,91,271/- Rs. 1,40,59,191/- Rs. 5,09,57,561/- Percentage ((B)/(A)) 88.89% 19.08% 89.98% Reliance is placed on the decision of this Tribunal in Sprinklr India Pvt. Ltd. (order dated 11.01.2023 passed in IT(TP)A No. 713/Bang/2022). Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 29 :: Detailed submissions in this regard are placed by the assessee at pages 204, 229 and 248 of the paper book. In view of the above, the ld. counsel submitted that Aptus ought to be excluded from the final list of comparables. 9. Tata Consultancy Services (“TCS”): Functionally different: TCS is an IT services, consulting and business solutions organization which offers integrated portfolio of business, technology and engineering services and solutions. From the website of the Company, it can be seen that the Company has varied products and offerings. The Company offers a vast range of proprietary platforms and products and diverse range of high value, complex nature and new age IT services to its clients, whereas the Appellant is engaged in provision of routine software development services. From the annual report of the Company, it is evident that the TCS’s revenue comprises of consultancy services and sale of equipment and software licenses which are unlike the services offered by the Appellant who is a routine software development service provider. On account of TCS being engaged in sale of products it is clearly understood that the same is functionally different from Appellant which is engaged in rendering software development services to its AEs. Further, the Company works with diverse customers and supports them in entire lifecycle of their platform development. These high-end integrated services cannot be compared to routine IT services. Fails RPT filter: The Company fails RPT filter the year under consideration. The detailed working is provided below: Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 30 :: Particulars FY 2019-20 Turnover (A) 131306,00,00,000 RPT Income (B) 22334,00,00,000 RPT Expense (C) 12657,00,00,000 Percentage (D=(B)+(C)/(A)) 26.65% No segmental information: TCS has revenue from both software services and software products. Segment details are unavailable. Industry segments for the company are 1) Banking, Financial Services and Insurance, 2) Manufacturing, 3) Retail and Consumer Business, 4) Communication, Media and Technology and 5) Others such as Energy, Resources and Utilities, Life Sciences and Healthcare, s-Governance and Products. The segment details are based on industry they service and geographical segments wise and not based on the nature of revenues/activities (business segments). The geographic segment is based on the business outsourced from both on-site and off-shore. Supernormal profits: The ld. counsel submitted that the Company’s margin for the financial years 2018-19 and 2019-20 is 37.01% and 34.56%, whereas, for the financial year 2020-21, the Company’s margin risen to 37.26% which cannot be considered as representative of industry standards Presence of non-routine intangibles & brand value: TCS Brand is a key intangible owned by the Company which provides a significant advantage to the Company in respect of its business operations and help in ensuring success. According to Brand Finance, TCS brand valuation is at 14.9 billion dollars in FY 2021 and 13.5 billion dollars in FY 2020. It is evident from the annual report of the Company that TCS is a market leader and has won accolades Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 31 :: in almost every industry in which it provides services in. The Company has significant intangible assets namely rights under licensing agreement and software licenses. The Companies having such significant intangibles provide high and IT services to its customers which cannot be compared with Assessee. Research & Development activities: The Company has carried out extensive R&D in its core computing areas. The Company has expanded its research in new areas such as Data science, embedded systems and robotics, sensing technology, AI and 5G. From the annual report of the Company, it is evident that TCS is performing R&D activities to develop intangibles/software products which in turn leads to generation of revenue from sale of such intangibles and gives TCS a competitive edge over other market participants which is not available and is required for the Appellant to operate its business. Significant foreign expenditure: The Company has incurred significant foreign expenditure which works out to be 44.80%, 53.13% and 54.76% of the total expenditure incurred for FY 2020-21, 2019-20 and FY 2018-19. Detailed submissions in this regard are placed by the assessee at pages 204, 229- 232 and 248 of the paper book. In view of the above, the ld. counsel submitted that TCS ought to be excluded from the final list of comparables. 10. Consilient Technologies Private Limited (“Consilient”): Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 32 :: Functionally different: Consilient is engaged in the operation of diversified business which include rendering integrated VoIP solution (ATA, IP Phone, Gateways), video streaming, fax and modem servers apart from providing software component services. The Company is leading provider of licensable software products. In addition, the Company also undertakes provision of turnkey product development solutions and customization. The Company also offers various software products and solutions to enable development of products. The Company has also earned income from royalty. The offerings of the Company is different from that of the Appellant’s. In view of the same, Consilient is functionally different from the Appellant who is a routine software developer. No segmental information: Despite providing wide range of services as stated above, the Company does not have segmental information available in the annual report. Fails export filter: The Company fails the 75% export filter for the year under consideration. From the annual report of the Company, it is evident that it is not involved in any export activities. The detailed working is provided below: Particulars Amount in Rs. Sales 38,574,288 Exports 0 Exports/Sales % 0.00% Super normal profits: The ld. counsel submitted that the Company’s margin for the financial years 2018-19 and 2019-20 is 89.59% and 34.99%, whereas, for the financial year Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 33 :: 2020-21, the Company’s margin has drastically fallen down to 31.37% which indicates peculiar economic circumstances and the same does not represent industry standard. Therefore, it is submitted that without any reasonably accurate adjustment the Company cannot be selected as a Comparable. Detailed submissions in this regard are placed by the assessee at pages 204, 232- 233 and 248 of the paper book. In view of the above, the ld. counsel submitted that Consilient ought to be excluded from the final list of comparables. 11. Cybage Software Private Limited (“Cybage”): Functionally different: Cybage provides diversified services which include digital product engineering, testing & quality assurance services, specialized services, support services, architectural services, transformation services, digital services, etc. The Company also provides support services viz., BPO services such as data/content management, Order management, Data – Entry, Mapping & Cleansing, Product Enrichment, contact centre services, Remote Infrastructure management, Corporate Communications and Branding, Visual Design Graphics and Animations etc. and Information technology enabled services such as documentation. The Company’s offerings cannot be compared to the functions performed by the Appellant in its software development segment. No segmental information: In spite of having diversified services in nature of support functions, product engineering and so on, the segmental information does not provide separate details on such activities. Hence, given that Cybage Software is performing non- Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 34 :: comparable functions, it should be excluded from the final set of comparable companies. Peculiar economic circumstances: During the FY 2020-21, Cybage and its associate Company, Giftlease Technologies Private Limited has filed an application to demerge Ecommerce and Retail Sales business of Gifttease into a separate Company. Super normal profits: Cybage is a Company earning super normal profit. The weighted average margin of the Company for the year under consideration is 51.98%. The margin of this Company has been persistently abnormal and very high. This Company has been consistently excluded from the list of comparables for having abnormal margin in the cases of similarly placed assesses. Reliance in this regard is placed on the decision of the Hyderabad Bench of this Tribunal in the case of Infor (India) Private Limited v. ACIT (Order dated 19.10.2020 passed by the Hyderabad Bench of this Tribunal in ITA No. 1689/Hyd/2019) (para 6.4) and the decision of this Hon’ble Tribunal in the case of Etisalat Software Solutions (P.) Ltd. v. DCIT (reported in [2022] 144 taxmann.com 162 (Bangalore - Trib.)) (paras 15 – 19). Detailed submissions in this regard are placed by the assessee at pages 204, 233- 235 and 248 of the paper book. In view of the above, the ld. counsel submitted that Cybage ought to be excluded from the final list of comparables. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 35 :: Ground No. 7 in the appeal: Inclusion of companies In this ground, the Appellant is seeking inclusion of Yudiz Solutions Private Limited, Infomile Technologies Limited and R Systems International Limited The ld. counsel submitted that these companies were excluded by the TPO and was affirmed by the DRP, for the reason that the company does not form part of the search matrix of the TPO. In this regard, the ld. counsel submitted that a company which otherwise is comparable and passes all the filters applied by the TPO, cannot be excluded for the reason that it does not form part of the search matrix. Reliance in this regard is placed on the decision of this Tribunal in the case of Prism Networks Private Limited v. ACIT (Order dated 11.02.2022 passed by this Tribunal in IT(TP)A No. 349/Bang/2021). Detailed submissions are placed by the assessee at pages 203 and 246 of the paper book. H. FINAL LIST OF COMPARABLES: If the above submissions are accepted, the final list of comparables would be: Sl. No. Name of the Company 1. Yudiz Solutions Private Limited 2. Infomile Technologies Limited 3. R Systems International Limited 4. Hurix Systems Pvt. Ltd. 5. Evoke Technologies Ltd. 6. Indianic Infotech Ltd. 7. Orion India Systems Ltd. 8. Sagarsoft (India) Ltd. 9. CG-VAK Software & Exports Ltd. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 36 :: In the event the above submissions are accepted by this Tribunal, the margin of the Assessee would fall within the range of the 35th percentile and the 65th percentile of the dataset, and thus the adjustment is liable to be deleted. Ground No. 10 in the appeal: Interest on delayed receivables.: Not pressed by the assessee given the quantum involved. Ground No.11: Erroneous initiation of penalty proceedings under Section 270A and under Section 271AA(1) of the Act. The ld. counsel submitted that the Assessing Officer has erred in initiating penalty proceedings under Section 270A and under Section 271AA(1) of the Act. Therefore, the Assessee prayed that this Tribunal may be pleased to direct the Assessing Officer to drop the penalty proceedings. 5. Per contra, the ld. CIT-DR, while relying upon the findings of DRP and assessment order the following submissions are made. The assessee submitted an additional ground on upper turnover filter. The admission of the above additional ground was countered by the undersigned that the reason of oversight does not constitute sufficient cause. On the adoption of turnover filter the undersigned relied upon the orders of the DRP and further submitted that in view of the judgement of Hon'ble Supreme Court in the case SAP labs, the computation of ALP and the benchmarking of transactions have to be done strictly in accordance with the rules and thus this prayer is to be dismissed as the rules do not provide such filters in the absence of the assessee being able to demonstrate any material difference. Hence, he prayed that the appeals may kindly be dismissed. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 37 :: 6. We have heard the rival submissions and perused the record, paper book, written submissions, orders of the authorities below and case law citations referred. The Assessee has raised multiple grounds in this appeal. However, during the course of hearing, the primary issues pressed for adjudication are summarized as under: a. Transfer Pricing Adjustment of Rs. 1,34,63,828/- made in respect of software development services rendered to Associated Enterprises (“AEs”); b. Adjustment towards interest on outstanding trade receivables of Rs. 5,23,378/-; c. Erroneous initiation of penalty proceedings under Sections 270A and 271AA(1) of the Act. The Assessee is engaged in providing software development (“SWD”) support services to its AEs and reported international transactions amounting to Rs. 18,10,21,383/- during the previous year. The case was referred to the Transfer Pricing Officer (“TPO”) under Section 92CA of the Act. The TPO, vide order dated 05.10.2023, determined an adjustment of Rs.1,39,87,206/- by applying the Transactional Net Margin Method (“TNMM”) and selecting 18 comparables with a median margin of 25.09%. The Assessee objected to the draft assessment order before the DRP, which rejected the objections and upheld the adjustments proposed by the TPO. Consequently, the final assessment order dated 23.08.2024 was passed by the Assessing Officer (AO) incorporating the TP adjustment. The ld. Counsel submitted as under: Transfer Pricing Adjustment: • The Assessee computed its margin at 16.42% on an OP/OC basis, relying on 7 comparables with a median of 13.27%, using the Ace TP database. • The TPO adopted 18 comparables with a median margin of 25.09%, thereby making an adjustment. • The Assessee contended that several comparables included by the TPO were functionally dissimilar, operated at a much larger scale, or had extraordinary events, and thus warranted exclusion. Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 38 :: Application of Upper Turnover Filter: • It is argued by the ld. counsel that an upper turnover filter should have been applied in the selection of comparables, in line with judicial precedents, including: o Kumaran Systems (P.) Ltd. v. DCIT ([2021] 131 taxmann.com 156), o Information Evolution India Pvt. Ltd. v. DCIT (IT(TP)A No. 94/CHNY/2024), o Genesys Telecom Labs India Pvt. Ltd. v. DCIT (IT(TP)A No. 38/CHNY/2024), and o Autodesk India (P) Ltd. v. DCIT [(2018) 96 taxmann.com 263 (Bang Trib)]. • It is submitted that entities with turnover significantly higher than that of the Appellant (Rs.18.10 crore) such as Infosys, Wipro, TCS, etc., should have been excluded. Inclusion and Exclusion of Comparables: • The Appellant sought exclusion of the following comparables on grounds of functional dissimilarity and size: o Great Software Laboratory Pvt. Ltd., Nihilent Ltd., L&T Infotech Ltd., Wipro Ltd., Infosys Ltd., TCS, Tata Elxsi Ltd., Cybage Software Pvt. Ltd., Mindtree Ltd., etc. • The Appellant also sought inclusion of the following comparables: o Yudiz Solutions Pvt. Ltd., Infomile Technologies Ltd., and R Systems International Ltd., all of which were found functionally similar. 7. Based on the referred cases supra, we agree with the Assessee’s contention that turnover is a valid quantitative filter in determining comparability, especially in cases involving software development services. Entities with turnover exceeding 10 times or 10x the Assessee’s turnover are not ideal comparables. Accordingly, we direct exclusion of Infosys Ltd., Wipro Ltd., L&T Infotech Ltd., Tata Consultancy Services Ltd., Tata Elxsi Ltd., Cybage Software Pvt. Ltd., Mindtree Ltd., and other similarly large entities. We also find upon careful analysis of the FAR (Functions, Assets, Risks) profile that several entities operate in diversified service verticals or have products in addition to services, rendering them not comparable to a captive service provider. Therefore, the following are to be excluded Net4Nuts Ltd., Consilient Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 39 :: Technologies Pvt. Ltd., Aptus Software Labs Pvt. Ltd., etc.. Further, based on the profile and margins, Yudiz Solutions Pvt. Ltd., Infomile Technologies Ltd., and R Systems International Ltd. appear to be functionally comparable and should be included. Hence, in light of the above directions, the AO/TPO is directed to recompute the arm’s length margin based on the revised set of comparables after giving the Assessee an opportunity of being heard. As far as Interest on Outstanding Receivables, the adjustment of Rs. 5,23,378/- towards delayed receivables appears to be duplicative in nature, and in the absence of specific benchmarking and considering the AE relationship, we direct the AO to verify whether working capital adjustment has already factored in the delay. If found to be covered, no separate TP adjustment should be made. As regards initiation of penalty under Sections 270A and 271AA(1), the same is premature at this stage. The AO shall re-examine the matter after recomputation of the TP adjustment, and initiate penalty only if warranted under law. 8. In result, the appeal of the Assessee is partly allowed for statistical purposes. The matter is remanded back to the AO/TPO for fresh determination in accordance with law and in light of our observations. Order pronounced on the 24th day of September, 2025, in Chennai. Sd/- (एस.आर.रघुनाथा) (S. R. RAGHUNATHA) लेखा सद\u0003य/ACCOUNTANT MEMBER Sd/- (मनु क ुमार िग\u000fर) (MANU KUMAR GIRI) \u0005याियक सद\u0003य/JUDICIAL MEMBER Printed from counselvise.com ITA No.67/Chny/2025 (AY 2021-22) Decision Minds India Pvt Ltd. :: 40 :: चे ई/Chennai, दनांक/Dated: 24th September, 2025. LN/- आदेश क\u0012 \u000fितिलिप अ\"ेिषत/Copy to: 1. अपीलाथ\b/Appellant 2. थ\b/Respondent 3. आयकरआयु\u0010/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय ितिनिध/DR 5. गाड\u0019फाईल/GF Printed from counselvise.com "