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Dotgo Private Limited, an Indian subsidiary of Dotgo Systems Inc., USA, appealed against the final assessment order for the assessment year 2021-22, which included an upward adjustment of Rs. 3,07,91,859/- to their income. The adjustments were made following the Transfer Pricing Officer's (TPO) rejection of the assessee's segmental reporting and selection of comparables, and inclusion of notional interest on outstanding receivables. The Tribunal examined issues such as the exclusion of marketing costs and bank charges from operating costs, the justification of segmental reporting, and the selection of comparables for benchmarking the arm's length price of international transactions.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 714659 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax (Transfer Pricing) Appeal
Pronouncement Date
05-08-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Assessment Year
2021-2022
Judgement Text
"IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER IT(TP)A No. 2096/Bang/2024 Assessment Year: 2021-22 Dotgo Private Limited, Eastland Citadel, #102, Ground and Mezzanine Floor, Hosur Main Road, Sadduguntepalya, Madiwala Check Post, Koramangala, Bangalore – 560 029. PAN – AACCK 7204 K Vs. The Dy. Commissioner of Income Tax, Circle – 2(1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri Akkal Dudhwewala and Ms. Vidhi Ladia, CA’s Revenue by : Shri Vilas V Shinde, CIT(DR) Date of hearing : 02.06.2025 Date of Pronouncement : 05.08.2025 R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This appeal is filed by the assessee against the final assessment order dated 19.09.2024 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961, pursuant to the directions issued by the Dispute Resolution Panel-1, Bangalore under section 144C(5) of the Act, for the assessment year 2021-22. 2. The assessee, Dotgo Private Limited, is an Indian company and a wholly owned subsidiary of Dotgo Systems Inc., USA. It is engaged in Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 2 of 25 . providing software development services to its Associated Enterprises (AEs). During the relevant financial year, the assessee rendered services to its AEs, Kirusa Inc. and Dotgo Systems Inc., both based in the United States. The assessee raised invoices aggregating to Rs.10,23,09,289/- only in the year under consideration to both the AEs only. The transactions were reported in Form 3CEB and benchmarked using the Transactional Net Margin Method (TNMM), with Operating Profit to Operating Cost (OP/OC) as the Profit Level Indicator (PLI). The assessee treated both AEs as separate segments and accordingly prepared AE- wise segmental results, reporting a margin of 15% for each. However, the segment report attached in Factual Paperbook - I, Page 218, reflects a margin of only 7.99%. The assessee while calculating its ALP has treated certain cost as unconnected to the international transaction carried out with its ALP and accordingly excluded the same while calculating its PLI. The details of such costs, which are under dispute, include salaries claimed as sales and marketing expenditures amounting to Rs.72,85,857/- and bank charges amounting to Rs.42,653/- only. 3. In addition, the assessee claimed to have applied appropriate filters, which resulted in the selection of 14 comparables that were allegedly functionally similar. According to the assessee’s computation, the percentile range of these comparables stood between 3.18% and 13.43%, which was compared against the assessee’s PLI of 7.99%. Based on this, the assessee claimed that its international transaction was at arm's length. 4. The case was referred to the TPO under section 92CA(1) of the Act. The TPO rejected the segmentation prepared by the assessee on the ground that the assessee operates in a single segment, namely Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 3 of 25 . software development. The TPO further reasoned that segmental accounts should reflect distinct business segments, such as software development and information technology enabled services, rather than segmentation based solely on customers. Consequently, the TPO held that the AE-wise segmentation lacked a functional basis. Similarly, the TPO considered the costs of Rs. 72,85,857/- and Rs. 42,635/- claimed by the assessee, as unrelated to the international transaction with the AE while computing the assessee's Profit Level Indicator (PLI), that these were random operating or non-operating items. Additionally, the TPO rejected the assessee’s claim for excluding bank charges, stating that such charges were not among the exclusions listed under Rule 10TA(j) of the Rules. Accordingly, a consolidated margin of the assessee -0.20% as PLI was computed after including both direct and indirect costs. 4.1 Similarly, the TPO was not satisfied with the comparables selected by the assessee, as detailed in the TP report. He accepted 3 comparables and rejected 11 on the grounds that they did not appear in his search filter and lacked functional similarity. The TPO also added 15 new comparables, resulting in a PLI range of 19.35% to 32.14%, with a median of 25.09%, as against the assessee’s revised PLI computed by the TPO at -0.2%. As a result, an upward ALP adjustment of Rs. 2,59,22,193/- only was made. 4.2 Additionally, the TPO treated outstanding receivables as a separate international transaction and computed notional interest of Rs. 1,15,21,558/- using the SBI PLR, citing absence of reconciliation or proof of settlement. Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 4 of 25 . 5. The assessee raised objections before the ld. DRP. The ld. DRP upheld the adjustment made by the TPO with respect to international transaction carried out by the assessee relating to software development activity. 6. However, the learned DRP with respect to interest on the outstanding receivables directed to adopt the LIBOR considering the location of the AEs which resulted in the reduction of interest adjustment to Rs. 48,69,666/-, while upholding the primary adjustment. 7. In the final order passed by the AO, the total transfer pricing adjustment stood at Rs. 3,07,91,859/-, comprising Rs. 2,59,22,193/- towards software development services and Rs. 48,69,666/- towards notional interest. 8. Aggrieved by the order/direction of the AO and ld. DRP, the assessee has preferred this appeal before the Tribunal. 9. Assessment order barred by limitation – The ld. AR did not press Ground 1, hence it is dismissed as not pressed. 10. The Ld. AR before us filed a paper book running from pages 1 to 146, along with a chart and written submissions comprising 7 and 9 pages respectively. In respect of the exclusion of costs amounting to Rs.72,85,857/- and Rs.42,635/-, representing marketing and bank charges respectively, the Ld. AR contended that these expenditures should be excluded from the operating cost for the purpose of computing the PLI, as Rs.72,85,857/- pertains to marketing expenses and Rs.42,635/- to bank charges which relate to non-operating cost. Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 5 of 25 . 10.1 Likewise, the ld. AR with respect to the inclusion and exclusion of the comparables agreed for the inclusion of certain comparables adopted by the TPO as well as agreed for the exclusion of certain comparables suggested by the TPO. The list of such comparables stand as: i. Hurix Systems Pvt Ltd ii. Indianic Infotech iii. Athena Global Technologies iv. KSolves India Ltd, v. Orchasp Ltd. vi. GSS Infotech 10.2 The list of the comparables which were not disputed by the assessee for the inclusion stand as under: i. Hurix Systems Pvt Ltd ii. Indianic Infotech 10.3 The list of the comparables which were not disputed by the assessee for the exclusion stand as under: i. Athena Global Technologies ii. KSolves India Ltd. iii. Orchasp Ltd. iv. GSS Infotech 10.4 As such it was submitted by the learned AR that the assessee is not pressing the inclusion and the exclusion of the comparables discussed above. Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 6 of 25 . 10.5 The learned AR further submitted that there are comparables adopted by the TPO having turnover exceeding Rs. 200 crores whereas the turnover of the assessee stands at Rs. 10 crores approx. only. Accordingly, the learned AR submitted that the companies having turnover exceeding Rs. 200 crores should not be taken into consideration while choosing the comparables. The list of such companies stands as under: i. Great Software Lab. Pvt Ltd ii. Nihilent Ltd, iii. Mindtree Ltd. iv. Larsen & Toubro Infotech Lld. v. Wipro Ltd. vi. Tata Elxsi Pvt. Ltd. vii. Infosys Ltd. viii. Tata Consultancy Services ix. Cybage Software Pvt Ltd 10.6 The learned AR for exclusion of the comparables listed above have relied on certain judicial pronouncements namely PCIT Vs. Swiss Re Global Business Solutions India (P.) Ltd. (96 taxmann.com 643) [Kar HC] [Pg 11 to 18 of the Legal PB] DCIT VS Analog Devices India Pvt. Ltd. (ITA No 454/2015) [Kar HC] [Pg 19 to 33 of the Legal PB] ⁃ CIT VS. Pentair Water India (P.) Ltd. (69 taxmann.com 180) [Bom HC] [Pg 34 to 37 of the Legal PB] ⁃ PCIT Vs. Future First Info. Services Pvt. Ltd. (ITA No. 56/2022) [Mad HC] [Pg 38 to 49 of the Legal PB] ⁃ Sun Tec Business Solutions P. Ltd. Vs. ACIT (IT(TP) No. 01/Coch/2021) [ITAT Coch] [Pg 50 to 61 of the Legal PB] ⁃ Continental Automotive Components (India) (P) Ltd. Vs. DCIT (167 taxmann.com 433) [ITAT Bang] [Pg 62 to 68 of the Legal PB] ⁃ Marvell India Pvt. Ltd. Vs. DCIT Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 7 of 25 . (IT(TP)A Ño. 115/Bang/2023) [ITAT Bang] [Pg 69 to 83 of the Legal PB] ⁃ Comer Industries India (P.) Ltd. Vs. DCIT (150 taxmann com 180) [TAT Bang] Motorola Mobility India (P) Ltd ys. DCIT (147 taxmann.com 444) [TAT Bang] ⁃ Verifone India Technology (P.) Ltd. Vs. NFAC (150 taxmann.com 466) [ITAT Bang] V UCB India (P) Ltd vs. ACIT (73 taxmann.com 389) [ITAT Bang] IG Infotect (India) (P) Ltd Vs. ACIT (153 taxmann.com 684) [ITAT Bang] Triology E-Business Software Ind (P.) Ltd v. DCIT (127 taxmann.com 255) [ITAT Bang] ⁃ Marlabs Innovations (P.) Ltd. vs DCIT (149 taxmann.com 477) [ITAT Bang] reported in Appendix-1. 10.7 The learned AR also submitted that there are certain comparables selected by the TPO are functionally dissimilar to the activities of the assessee. Accordingly, these companies should not be taken into consideration while choosing the comparables. The list of such companies stands as under: i. Orion India Systems. ii. Net4Nuts Ltd. iii. Aptus Software Labs Pvt. Ltd. iv. Consilient Technologies 10.8 The Ld. AR for exclusion of the comparables listed above have relied on certain judicial pronouncements namely, The Hon'ble Delhi High Court in the case of PCIT vs. Mentor Graphics (India) (P.) Ltd. (156 taxmann.com 268), The Hon'ble Delhi High Court in the case of PCIT vs. Freescale Semiconductor India(P.) Ltd 169 taxmann.com 48, The Hon'ble ITAT, Mumbai in the case of Varian Medical Systems International (India) (P.) Ltd. Vs. DCIT (158 taxmann.com 84, Hon’ble ITAT, Bangalore in Citrix R&D India (P) Ltd vs. DCIT Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 8 of 25 . (145 taxmann.com 579), Hon'ble ITÁT, Bangalore in the case of NTT Data Information Processing Services in (P.) Ltd vs. DCIT (154 taxmann.com 460), Hon'ble Delhi High Court in the case of PCIT ys. Freescale Semiconductor India (P.) Ltd (169 taxmann.com 48) reported in Appendix-1. 10.9 The learned AR in view of the above finally prayed to take the PLI of the companies as detailed under: i. Sagarsoft (India) Ltd. ii. Evoke Technologies Pvt. Ltd. iii. CG-VAK Software & Exports Ltd. iv. Rate Gain Travel Technologies Ltd. v. Toxsl Technologies Pvt. Ltd. vi. CES Ltd. vii. Infomile Technologies Ltd. viii. Bennett Technologies Pvt. Ltd. ix. Macrosoft IT Solutions India Private Limited x. Kireeti Soft Technologies Pvt. Ltd. xi. Hurix Systems Pvt. Ltd. xii. Indianic Infotech 11. On the other hand, the ld. DR before us vehemently supported the order of the authorities below. 12. We have considered the materials on record, including the transfer pricing documentation, FAR analysis, TPO’s benchmarking, DRP directions, and the submissions of the assessee/ ld. DR. The facts of the dispute have already been elaborated in the preceding paragraph and therefore we are not inclined to repeat the same for the sake of brevity Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 9 of 25 . and convenience. From the preceding discussion, the following issues arise for our consideration. i. Whether there is any requirement for making any of upward adjustments for the interest on the outstanding receivables from the AEs in the given facts and circumstances. ii. Whether the marketing cost and the bank charges should be excluded while calculating the PLI of the assessee in the given facts and circumstances. iii. Whether the segmental reports prepared by the assessee to calculate the PLI is justifiable in the given facts and circumstances. iv. Whether the comparables excluded and included by the TPO while determining the ALP of the international transactions carried out by the assessee is in the light of settled judicial pronouncement. 12.1 Regarding the Notional Interest on the outstanding receivables from the AE, we note that the assessee recorded advances from its Associated Enterprises (AEs) and trade receivables as separate items in its financials. These advances were, in effect, were representing the advances for software development (SWD) services. The funds received were meant to settle with the outstanding receivables with the AE. The details of the same is enclosed on page 280 in the Factual paper book-1. 12.2 In this case, even after such offset, the books still reflected a balance payable (advances from the AE), indicating there were not any outstanding receivables as alleged by the Revenue. As such advances were part of an integrated transaction with the outstanding receivables. The doctrine of substance over form enables tax authorities to examine economic reality, not just book entries. Under Section 92(1) of the Income Tax Act, income from international transactions must be Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 10 of 25 . determined at arm’s length, based on the substance of the transaction. The assessee treated the receipt as an advance, but in substance it was a settlement of intra-group receivables. Mutual set-off between the same parties is commercially logical. Intercompany agreements and documentation corroborated this. Since no receivable remained at the close of the year, the basis for charging notional interest was absent. Notional interest arises only where an outstanding receivable or benefit exists. In its absence, the TPO’s adjustment lacked legal and factual basis and was therefore untenable. Marketing Expenditure 13. The assessee contended that it had incurred expenditure totaling Rs.72,85,857/- in relation to marketing activities undertaken for the purpose of securing business opportunities within India. Such expenditure comprised remuneration packages, including salaries and ancillary emoluments, disbursed to sales and marketing personnel engaged in the aforementioned commercial development activities. The assessee contended that the initiatives undertaken during the relevant assessment year yielded tangible outcomes in subsequent years. In substantiation of this claim, the assessee submitted various email correspondences and invoices purporting to demonstrate the nexus between the earlier efforts and the later benefits. These are placed on pages 162 to 175 of the factual paper book-1. 13.1 It is important to note that marketing expenses incurred to generate revenue from within India cannot be classified as operating costs for services provided to Associated Enterprises (AEs) based in the USA. The mere assertion by the Ld. TPO that these expenses are Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 11 of 25 . operating costs for services rendered to AEs is not sufficient to counter the facts and evidence presented by the assessee. The assessee has submitted audited segmental accounts, clearly distinguishing between operating and non-operating expenses, along with separate ledgers showing salaries marked as “S&M” (Sales and Marketing), demonstrating that these were specifically for domestic sales and marketing efforts. Moreover, incurring advertising expenses to obtain work from one’s own AE is both commercially and legally unjustifiable, as such entities are generally under common control and do not require market solicitation. The copies of invoices and emails submitted by the assessee further support these claims and weaken the position of the TPO. Additionally, the order of the TPO and the Ld. DRP’s justification lacks detailed reasoning and is merely based on opinion, without any concrete evidence. In light of the above, the expenditure of Rs.72,85,857/- is rightly classified as advertising/promotional expenses incurred for generating business in India. Furthermore, the learned DR did not provide any reason for rejecting the contention of the assessee that the marketing expenses were incurred to obtain the business from the non- AE. It is relevant to refer the relevant portion of the learned DRP which is reproduced as under: “However, the Panel is of the opinion that any expense incurred for business purposes have to be treated as operating in nature whether they yield income in the current year or in the later years. Hence this contention of the assessee has no merits and rejected” 13.2 from the above finding of the learned DRP, there remains no confusion that the impugned cost was incurred by the assessee for generating the business within India which is also evident from the fact that the business was generated but in the later year. As such, there Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 12 of 25 . was no infirmity pointed out by the learned DRP in the contention raised by the assessee. Hence, in view of the detailed discussion discussed above, the marketing cost cannot be treated as operating costs related to the provision of services to the assessee’s AEs in the USA. Hence, the same has to be excluded while calculating the PLI of the assessee with respect to the international transactions carried out by the assessee with the AEs. Bank Charges 14. Rule 10TA(j) of the Income-tax Rules does not expressly exclude bank charges from the definition of operating expenses. The Rule defines operating costs as “costs incurred in the previous year by the assessee in relation to the international transaction during the course of its normal operations.” This phrase introduces a necessary interpretive threshold: the expense must have a demonstrable connection to the international transaction to be considered admissible. 14.1 This linkage requirement forms the foundation of the Rule’s application. Merely incurring an expense is insufficient unless it bears a substantive relationship with the international transaction. The test is whether the expense arises from or is connected to that transaction in a meaningful, operational sense. 14.2 In interpreting what qualifies as a “related cost,” a narrow approach is necessary. The term should be confined to expenses that have a direct nexus with the transaction. Expanding the scope to include indirect or broadly associated costs would undermine the precision Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 13 of 25 . intended by the Rule. Only indirect costs expressly listed in the Rule may be included by way of exception. 14.3 As for bank charges, their classification as operational costs depends on the specific facts. Certain charges such as Letter of Credit (LC) issuance fees, SWIFT or wire transfer charges for cross-border payments or receipts, and bank guarantee fees tied to contractual performance can be linked directly to international transactions and may be treated as operating expenses. 14.4 However, general bank charges like account maintenance fees, annual ledger costs, or similar recurring expenses, which lack a specific nexus to any international transaction, should be excluded from operational cost computation. Therefore, bank charges must be assessed on a case-by-case basis rather than being accepted or rejected in totality. 14.5 In the present case, the assessee has submitted segmental accounts, digitally signed by a Chartered Accountant, that distinctly classify bank charges into operational and non-operational components. This categorization supports the view that only charges directly linked to the transaction should be treated as operating costs. Since the amount of Rs. 42,635 is non-operating in nature, it should not be included in the computation of the Profit Level Indicator (PLI). Therefore, the action of the TPO in this regard is not valid, and the assessee’s view is upheld. Segment 15. The assessee, having provided software development services to its Associated Enterprises, both incorporated in the United States of Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 14 of 25 . America, claimed distinct segmental classifications for each AE. However, the Ld. TPO rejected the segmentation, contending that it lacked a coherent and rational basis, thereby deeming the division inappropriate for the purposes of transfer pricing analysis. 15.1 Indeed, modern organizations often use segmentation as a key strategy. They divide their structure based on different factors. These can include product types, job functions, locations, business units, or legal rules. This helps companies to work more efficiently. It also makes better use of resources and ensures that they follow laws and regulations. Segmentation allows each part of the company to focus on its specific goals. 15.2 However, in the present case, the claim of the assessee for segmentation has no clear strategic reason. The segments are created within the same geographical area and offer the same kind of services. This goes against the basic idea of meaningful segmentation. It seems to be an artificial setup, with no real differences in operations, costs, or marketing. Likewise, this structure may not meet regulatory standards for clear and accurate financial reporting. Regulators expect segments to show real economic differences—such as different risks, resources, or performance drivers. When segments don’t reflect these real differences, they may not only be illogical but they might also break the rules of having presentation of segmental reporting. It appears that the main reason for creating these segments was to reduce the share of costs used in calculating Profit Level Indicators (PLIs). Without these segments, and assuming that services were only provided to related companies (Associated Enterprises) during the year, a larger portion of the total costs would need to be included in the PLI calculation. This Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 15 of 25 . would lower the PLI. So, it seems the segmentation was done mainly to lessen the financial impact of including all relevant costs. This is not a valid reason. Moreover, the PLI calculated by the assessee for each segment was the same. Therefore, the assessee’s ground on this matter is rejected. It has no merit. Comparables rejection and addition 16. This issue relates to the rejection/selection of comparables by the TPO, Out of the fourteen (14) comparables selected by the assessee, the Ld. TPO has accepted three (3) comparables (with relevant year modification) viz., i. M/s Sagarsofit (India) Ltd, ii. M/s Evoke Technologies Pvt Ltd., iii. M/s CG-VAK Software & Exports Ltd; 16.1 And rejected eleven (11) of them. Further, the Ld. TPO has included fifteen (15) comparables for the purpose of benchmarking. 17. With regard to four (4) comparables included by the assessee but rejected by the TPO out of remaining 11 comparables viz., i. M/s Athena Global Technologies, ii. KSolves India Ltd, iii. Orchasp Ltd., iv. GSS Infotech; 17.1 The assessee does not wish to press for exclusion of the same and thus the contention of assessee is hereby rejected. Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 16 of 25 . 18. So far as five (5) comparables are concerned included by the assessee and rejected by the TPO i.e. i. Rate Gain Travel Technologies Ltd. ii. Toxsl Technologies Pvt, Ltd., iii. CES Ltd. (Segment Data of IT Services), iv. Infomile Technologies Ltd and v. Bennett Technologies Pvt. Ltd; 18.1 The assessee had provided the audited financials and functional profile of these comparables, and further raised that it was not the case that Ld. TPO did not find these comparables to be functionally dissimilar. All these comparables met the filters/criteria of the TPO. The Ld. TPO however rejected the same on the ground that it did not feature in his search result. Reliance in this regard is placed on the following decisions wherein the coordinate benches of the ITAT, Bangalore decided the issue favouring assessee. 1. Autodesk India (P.) Ltd. Vs. ACIT (150 taxmann.com 78) [ITAT Bang] [Pg 1 to 4 of the Legal PB] 2. ContinuServe Softech India (P.) Ltd v. ITO (145 taxmann.com 239) [ITAT Bang] 3. Deliverhealth Solutions India (P.) Ltd. Vs. JCIT (157 taxmann.com 703) [ITAT Bang] 4. Microchip Technology (India) /(P.) Ltd. Vs. DCIT (147 taxmann.com 373) [ITAT Bang] 5. Continental Automotive Components India Pvt. Ltd. Vs. DCIT (155 taxmann.com 449) [ITAT Bang] Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 17 of 25 . 18.2 In view of the above, we hold that the reasoning provided by the Ld. TPO for rejecting the comparables is not valid. In transfer pricing analysis, the comparables should be excluded only when there is a lack of functional similarity. In this case, no such dissimilarity has been established. If comparables are functionally relatable, they cannot be dismissed solely because they do not appear in the results of a revised benchmarking search using specific filters. 18.3 While it is permissible for the TPO to use updated financial data in a fresh benchmarking exercise, the mere fact that a comparable does not appear in the filtered search output is not sufficient ground for exclusion. The focus must remain on whether the comparable meets the required functional, asset, and risk (FAR) criteria. Accordingly, the five comparables in question are directed to be included for computing the Profit Level Indicator (PLI) after necessary verification as per law for determining the arm’s length price of the international transaction. 19. With regard the following two 2 comparables identified by the assessee and rejected by the Ld. TPO. In this regard the assessee submitted that both these comparables were indeed functionally comparable and thus ought to be included viz.; (i) Macrosoft Solutions India Private Limited. The assessee enclosed functional profile and relevant extracts of audited financials of this company claiming that it clearly shows that, this company is engaged in the business of software development, website development and maintenance and other ancillary services. The assessee also claimed that revenue derived by this company comprises of export of SWD services. Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 18 of 25 . Whereas the Ld. TPO in this regard observed that the company failed FAR analysis and its annual report mentions that the company was into software development, authoring of presentations, development and maintainence of website and related services. 19.1 The audited financial statements in this regard show that revenue from the export of services constitutes more than 99% of the total revenue. It is also to be noted that one of the search filters applied by the TPO was to exclude companies whose revenue from the export of services is less than 75% of their total revenue. Hence, the view of the TPO in rejecting this comparable is not valid. (ii) M/s Kireeti Soft Technologies Ltd. - The assessee has additionally submitted the relevant extracts from the website of the company separately at the time of hearing as well claiming the company to be a leading software development company, engaged in developing mobile applications and providing innovative and customized software solutions hence claiming it to be functionally comparable. The assessee relied on the following case of Hon'ble ITAT, Bangalore in the case of Arm Embedded Technologies Pvt Ltd vs. ITO (126 taxmann.com 296). TPO however rejected the comparable on the ground of functional dissimilarity. 19.2 In line with Factual PB-II (pages 107 to 108), relevant extracts from the website, and the ruling of the Hon'ble ITAT, Bangalore in the case of Arms Embedded Technologies Pvt. Ltd. vs ITO (126 taxmann.com 296) [Pg 9 of Legal PB], it is established that M/s Kireeti Soft Technologies Ltd. is engaged in the business of software development services. In the aforementioned case, the Hon’ble Tribunal Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 19 of 25 . found M/s Kireeti Soft Technologies Ltd. functionally comparable, passing the export turnover filter, and noted it to be engaged in software and information technology services. The relevant extracts of the judgment are reproduced as under: “(iv) Kireeti Soft Technologies Ltd. - The company is functionally comparable as it passes export turnover filter. The company is operating in one segment which is software and information technology services.” 19.3 We found there is functional comparability in respect of assessee’s profile. Hence, the opinion of the TPO is not valid. Comparables added by TPO 20. Coming to the fifteen (15) comparable identified and added by the Ld. TPO; the assessee submits that the inclusion of two (2) comparables i.e. M/s Hurix Systems Pvt Ltd & M/s Indianic Infotech are not being disputed 21. In respect of nine (9) comparables viz., i. Great Software Lab. Pvt Ltd, ii. Nihilent Ltd, iii. Mindtree Ltd, iv. Larsen & Toubro Infotech Lld., v. Wipro Ltd, vi. Tata Elxsi Pvt. Lld., vii. Infosys Ltd, viii. Tata Consultancy Services, Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 20 of 25 . ix. Cybage Software Pvt Ltd ; 21.2 The assessee submitted that these companies failed the upper turnover filter test, which the lower authorities refused to apply stating further that a newly incorporated company having turnover of only Rs.10.23 crores and therefore it is wholly inappropriate to compare the same with giant software companies having diversified services, valuable intangibles and better margins. Reliance in this regard was placed on the following decisions wherein the application of upper turnover filter was adopted; Hon'ble Tribunal in the following cases rejected such comparables. Continental Automotive Components (India) (P) Ltd. Vs. DCIT (167 taxmann.com 433) [ITAT Bang] [Pg 62 to 68 of the Legal PB] Marvell India Pvt. Ltd. Vs. DCIT (IT(TP)A No. 115/Bang/2023) [ITAT Bang] [Pg 69 to 83 of the Legal PB] Sun Tec Business Solutions P. Ltd. Vs. ACIT (IT(TP) No. 01/Coch/2021) [ITAT Coch] [Pg 50 to 61 of the Legal PB] 21.3 In view of the turnover Filter as discussed above, the TPO’s failure to apply an upper turnover filter is not justified. The absence of such a filter, despite applying a lower limit, leads to inconsistency and affects the reliability of the comparability analysis. 22. The remaining four (4) comparables were claimed by the assessee to be not functionally similar to the assessee company and Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 21 of 25 . should therefore be required to be rejected. Assessee further claimed that these companies were engaged in diversified businesses and thus not comparable to the assessee. Reliance in this regard was placed on the decision of the Hon'ble Delhi High Court in the case of PCIT vs. Freescale Semiconductor India (P.) Ltd (169 taxmann.com 48) [Refer Pg 91 of the Legal PB] 23. Orion India Systems - On perusal of the functional profile enclosed at Pages 114 to 116 of the Factual PB-ll, it shall be observed that, this company is engaged in the business of providing technology solutions such as cloud services, mobility, system integration; business solutions such as BPTO business solution, business inteligence, strategic outsourcing and application development. This company is therefore engaged in a diversified business of providing business and technology solutions and not in the development of software. This company which is engaged in the business of providing BPO & KPO services is vastly different from the assessee company who is only providing captive SWD services to its AEs. This company is thus not functionally comparable. 23.1 Reference in this regard is made to the decision of the Hon'ble Delhi High Court in the case of PCIT vs. Mentor Graphics (India) (P.) Ltd. (156 taxmann.com 268) [Refer Page 86 of Legal PB] wherein it has been categorically held that a company providing KPO services cannot be said to be comparable with a company providing SWD services. The claim of the assessee in this regard is valid as a company providing BPO/KPO services be compared with a company providing SWD services. The Hon’ble Delhi High court also held similar opinion, hence Orion India Systems cannot be said to be functionally comparable. Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 22 of 25 . 24. Net4Nuts Ltd. The functional profile of this company is enclosed at Page 121 of the Factual PB-II. Perusal of the same reveals that, this company is engaged in the business of providing enterprise- wide solutions across multiple industries, ERP, cloud computing, custom software development, off-shore engineering services, designing, architecting developing and maintenance of high availability software products / solutions, mobile value-added services. The provision of such diversified services differs greatly from the SWD services provided by this company is thus not functionally comparable to that with assessee’s business. 25. Useful reference may be made to the decision of the Hon'ble ITAT, Mumbai in the case of Varian Medical Systems International (India) (P.) Ltd. Vs. DCIT (158 taxmann.com 84) [Refer Pg 102 of Legal PB] wherein it was held that, a company providing diversified services including enterprise solutions and IT enabled services, viz., cloud computing cannot be said to be comparable with the assessee providing SWD services to its AE 26. Aptus Software Labs Pvt. Ltd. The assessee has enclosed the functional profile of this company at Pages 122 to 125 of the Factual PB- l/. It shall be observed that, this company is engaged in several diversified businesses which vastly differ from those of the assessee, i.e. infrastructure management, cloud computing, content management systems, network operations center, quality assurance services such as functional testing, security testing, performance scalability reliability testing, test automation. The provision of such services differs greatly Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 23 of 25 . from the software development services provided by the assessee company. This company is thus not functionally comparable 26.1 Reliance in this regard is placed on the decision of the Hon'ble ITAT, Bangalore in the case of Citrix R&D India (P.) Ltd vs. DCIT (145 taxmann.com 579) [Refer Pg 112 & 113 of Legal PB] wherein it has been held that the company engaged in diversified business segments including testing and quality assurance services cannot be held as a comparable for a company which is a captive service provider providing SWD services to its AEs. Similarly, the Hon'ble ITAT Bangalore in the case of NTT Data Information Processing Services (P.) Ltd vs. DCIT (154 taxmann.com 460) [Refer Pg 123 & 124 of the Legal PB] also excluded a company providing software testing and QA services in the final list of comparables in the case of an assessee company providing SWD services to its AEs. 27. Consilient Technologies - Upon going through the functional profile of this company which is enclosed at Page 126 of the Factual PB- ll, it shall be noted that, this company is engaged in providing optimized software algorithms involved in voice, data, fax, solutions of speech processing, digital communication and video signal processing, high performance loud-based solutions, performance optimization services. Thus, it is not exclusively into software development and the provision of its services is diversified than the SWD services provided by the assessee. This company is thus not functionally comparable. 27.1 In view of the above detailed discussion, we direct the TPO to work out the PLI of the assessee, select the comparables as discussed Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 24 of 25 . above and workout the arm length price of the assessee with respect to the international transactions carried out by the assessee with its AE. Hence, the ground of appeal of the assessee is hereby partly allowed. 27.2 The issue raised by the assessee in ground No. 3 relates whether the corporate tax should be levied at 25% or 22% as specified under section 115BAA of the Act. 27.3 At the time of hearing, the ld. AR before us prayed to issue a direction to the AO for levying corporate tax in pursuance to the provisions of section 115BBA of the Act. On the contrary, the Ld. DR did not raise any objection if such a direction is issued to the AO for levying the tax after necessary verification. In view of the above and after considering the arguments from both the sides, we direct the AO to levy corporate tax as per the provisions of section 115BBA of the Act after necessary verification as per the provisions of law. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes. 28. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in court on 5th day of August, 2025 Sd/- Sd/- (PRAKASH CHAND YADAV) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 5th August, 2025 / vms / Printed from counselvise.com IT(TP)A No.2096/Bang/2024 Page 25 of 25 . Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "
Other Referred Cases
PCIT Vs. Swiss Re Global Business Solutions India (P.) Ltd., DCIT VS Analog Devices India Pvt. Ltd., CIT VS. Pentair Water India (P.) Ltd., PCIT Vs. Future First Info. Services Pvt. Ltd., Sun Tec Business Solutions P. Ltd. Vs. ACIT, Continental Automotive Components (India) (P) Ltd. Vs. DCIT, Marvell India Pvt. Ltd. Vs. DCIT, Comer Industries India (P.) Ltd. Vs. DCIT, Motorola Mobility India (P) Ltd vs. DCIT, Verifone India Technology (P.) Ltd. Vs. NFAC, UCB India (P) Ltd vs. ACIT, IG Infotect (India) (P) Ltd Vs. ACIT, Triology E-Business Software Ind (P.) Ltd v. DCIT, Marlabs Innovations (P.) Ltd. vs DCIT, Autodesk India (P.) Ltd. Vs. ACIT, ContinuServe Softech India (P.) Ltd v. ITO, Deliverhealth Solutions India (P.) Ltd. Vs. JCIT, Microchip Technology (India) /(P.) Ltd. Vs. DCIT, Continental Automotive Components India Pvt. Ltd. Vs. DCIT, Arm Embedded Technologies Pvt Ltd vs. ITO, PCIT vs. Mentor Graphics (India) (P.) Ltd., PCIT vs. Freescale Semiconductor India(P.) Ltd, Citrix R&D India (P) Ltd vs. DCIT, NTT Data Information Processing Services in (P.) Ltd vs. DCIT, Varian Medical Systems International (India) (P.) Ltd. Vs. DCIT
Laws Referred To
Income-tax Act, 1961
Consultation on Entity Formation
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Tax Holiday Secrets for Startups
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Guide to Charitable Trusts: Formation, Benefits, and Compliance
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Letter of Indemnity - Registering as Representative Assessee for Deceased
Mehul₹0
Social Media Brand Kit
₹100
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