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The case involves the Assistant Commissioner of Income Tax, Circle-9(1) as the appellant and FIS Global Business Solution India (P) Ltd. as the respondent. The dispute centered on the Transfer Pricing adjustments made by the TPO, which were contested by the assessee. The CIT(A) had earlier deleted the adjustments, which the Revenue appealed against. The Tribunal examined the selection and exclusion of comparables in the Transfer Pricing analysis and the appropriateness of the adjustments made. The Tribunal's decision involved a detailed examination of the functional and financial similarities of the comparables used in the Transfer Pricing analysis.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 772099 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
25-08-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Assessment Year
2009-2010
Judgement Text
" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I’: NEW DELHI BEFORE SHRI SUDHIR PAREEK, JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No.372/Del/2018, A.Y. 2009-10 Asst. Commissioner of Income Tax, Circle-9(1), Room No.403, CR Building, IP Estate New Delhi Vs. FIS Global Business Solution India (P) Ltd. [formerly known as E- Funds International India (P) Ltd.] S-405 (LGF), Greater Kailash Part-II, New Delhi PAN: AAACH2815H (Appellant) (Respondent) C.O. No. 64/Del/2018 (Arising out of ITA No.372/Del/2018, A.Y. 2009-10) FIS Global Business Solution India (P) Ltd. [formerly known as E-Funds International India (P) Ltd.] S-405 (LGF), Greater Kailash Part-II New Delhi-110048 PAN: AAACH2815H Vs. Asst. Commissioner of Income Tax, Circle-9(1), Room No.403, CR Building, IP Estate, New Delhi (Appellant) (Respondent) Revenue by Shri Dharm Veer Singh, CIT(DR) Assessee by Sh. Vishal Kalra, Advocate, Sh. Anki Sahani, Advocate, Sh. Yishu Goel, AR, Sh. Anil Kumar, Advocate Date of Hearing 28/05/2025 Date of Pronouncement 25/08/2025 Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 2 ORDER PER BENCH: Common grounds and facts arise in the above captioned appeal of the Revenue and Cross Objection (‘CO’) of the assessee; therefore, the appeal and CO were heard together and are being disposed off by this common order. 2. The above captioned appeal and CO pertaining to Assessment Year (‘AY’) 2009-10 arise against the order dated 31.10.2017 of the Commissioner of Income Tax (Appeals)-44, New Delhi [‘CIT(A)’] respectively. 3. Grounds taken by the Revenue and assessee in the above captioned appeal & CO raise the sole issue that whether the Ld. CIT(A) is justified on facts and in law in deleting the ALP adjustment of Rs.27,89,94,914/- and excluding & or including certain comparables by applying additional & modified filters, which resulted upward adjustment? 4. The relevant facts giving rise to the appeal and CO are that the assessee; FIS Global Business Solutions India Private Limited (earlier known as ‘eFunds International India Private Limited’) is engaged in providing software development services and IT enabled services to its Associated Enterprises (eFunds corporation US). The assessee’s business consists of two segments: (i) Software Development Services (SDS) (ii) IT enabled services(ITeS) Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 3 The ITeS consists of three type services; viz, (i) Financial Shared Services (‘FSS’), (ii) Data Entry Services (‘DES’) and (iii) Call Center Services (‘CCS’). The Associated Enterprises (‘AE’); eFunds Corporation is a US based company engaged in business of providing integrated information, payment and technology solutions to its customer, which are financial service providers, retailers, network & gateway remarketers and e-commerce providers. 4.1 During the relevant year, the assessee has entered into the following international transactions with its AEs: S.No. Nature of the International Transactions Amount (in INR) 1. Provision of software development services 72,15,59,571/- 2. Provision of ITeS/BPO services 132,97,31,270/- 3. Interest received (Loan with interest rate @6.25%) 98,62,851/- 4. Interest received (Loan with interest rate @6.00%) 1,14,50,676/- 4.2 The Assessing Officer (‘AO’) made reference to the Transfer Pricing Officer (‘TPO’) for benchmarking the above-mentioned international transactions with its AEs. The assessee has adopted the Transactional Net Margin Method (‘TNMM’) on segmental basis as the most appropriate method for both segments i.e. SDS and ITeS and Operating Profit by Operating Cost as the Profit Level Indicator (‘PLI’), which, in principle, has been accepted by the AO/TPO for benchmarking the assessee’s international transactions with its AE. However, the TPO has included and or excluded certain comparables by applying different/modified filters and vide his order dated January 16, 2013, made an adjustment of INR 27,89,94,914 as under: Segment Adjustment (in INR) Software Development Services segment 7,66,04,198 Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 4 ITES segment 16,34,48,653 Interest on loan to AE 3,89,42,063 Total 27,89,94,914 4.3 Thereafter, the AO passed the final assessment order on March 18, 2013, in conformity with the TPO’s order and also made disallowance of INR 60,00,000 out of foreign travelling expenses. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who vide order dated October 31, 2017 deleted the entire disallowance of INR 60,00,000 out of foreign travelling expenses and granted substantial relief with respect to transfer pricing adjustment. In view of the same, on giving effect to CIT(A)'s order, transfer pricing addition was also reduced to NIL by the TPO vide order dated December 26, 2017. Aggrieved with the order of the Ld. CIT(A), the Revenue preferred this appeal with respect to transfer pricing addition and the assessee filed CO against this appeal. 4.4 The TPO selected 9 comparables for SDS Segment consisting of 3 comparables out of the assessee's TP Study and 6 new comparables chosen after modifying filters for selection of comparables. 4.5 For ITeS Segment, the TPO selected 6 comparables consisting of 3 comparables out of the assessee's TP Study, 2 new comparables chosen after modifying filters for selection of comparables and 1 comparable proposed by the assessee during proceedings before the TPO. 5. The controversy involved in this appeal and CO relates to the adjustment made into the returned income on the basis of TPO’s order. Vide Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 5 Ground No.1, the Revenue has challenged the Ld. CIT(A)’s deletion of the adjustment of INR 27,89,94,914/- as under: Software development segment (Adjustment of INR 7,66,04,198) ITES segment (Adjustment of INR 16,34,48,653) Interest on loan to AE (Adjustment of INR 3,89,42,063) SDS (Adjustment of INR 7,66,04,198): The Ld. CIT(A), vide his order dated October 31, 2017, excluded following comparables from the SDS Segment: (i) Bodhiree Consulting Ltd., (ii) Comp U-learn Tech India Ltd., (iii) Infosys Ltd., (iv) LGS Global Ltd. and (v) Sonata Software Ltd. and included Thinksoft Global Services Ltd. The Revenue has challenged exclusion of above 5 comparables and inclusion of one comparable; Thinksoft Global Services Ltd. Vide CO, the assessee, in nutshell, has challenged the Revenue’s grounds and prayed for upholding the impugned order. (i) Bodhiree Consulting Ltd.: 6. The Ld. CIT-DR submitted that Bodhiree Consulting Ltd. was engaged in software development services. He contended that the abnormal profit margin should not be the sole reason to exclude any comparable. He defended the TPO order and placed reliance on the decisions in the cases of Chryscapital Investment Advisors (India) Pvt. Ltd. [2015] 56 taxmann.com 417 (Del. High Court) and Steria India Pvt. Ltd. [2021] 123 taxmann.com 264 (Delhi Trb.). Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 6 7. Per contra, the Ld. Counsel contended that Bodhitree Consulting Ltd. had been rightly excluded from the list of comparables on the reasoning of abnormal profit. The Ld. Counsel submitted that this comparable was having different revenue recognition. This comparable had recognized its receipt/ revenue on fixed price project model. This comparable had recognized revenue after the development of the software and not at the time of booking of corresponding expenses and or in between the development of the software; whereas the assessee had followed the cost-plus revenue model with matching expenses every year. Further, the Ld. Counsel submitted that this comparable had abnormal profit margin as under: FY 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Profit (OP/OC) (%) 25.24 14.66 80.63 20.86 64.04 34.19 (-) 4.46 The Ld. Counsel further submitted that the profit (OP/OC) of this comparable was 3.34% and (-) 11.00% in FY 2011-12 and 2012-13 respectively. With the help of above details, the Ld. Counsel submitted that this comparable had been rightly rejected by the Ld. CIT(A) as this data was not analyzed by the TPO. To buttress the arguments, the Ld. Counsel submitted that this comparable, during the relevant year, had growth of 55% in terms of revenue and 250% in terms of profit as compared to preceding year. Further, the Ld. Counsel submitted that this comparable was engaged in providing open and end-to-end web solutions, off shoring data management, data warehousing, software consultancy, design & development solutions using latest technology. Further, the Ld. Counsel with the help of website details of this comparable Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 7 submitted that this comparable also used to provide product engineering, analytics, cloud services and enterprise services. Hence, this comparable was functionally different as the above works did not fall exclusively in SDS segment. Further, there was no segmental data available. The Ld. Counsel placed reliance on the decisions in the cases of Mentor Graphics (India) Ltd. 469 ITR 524 (Del), Fiserv India Pvt. Ltd. 92taxmann471 (Del), Barclays Technology Centre India (P) Ltd. 409 ITR 138 (Bom) and Allscripts India (P) Ltd. 288 CTR 675 (Guj). 8. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this comparable has been rightly rejected by the Ld. CIT(A) as this comparable is not a suitable comparable on the reasoning functional dissimilarities, abnormal profit and different revenue recognition model. We have taken note of the fact that the revenue recognition model of this comparable has resulted variation in profit margin from (-) 11 % to 80% as evident from the above table. In view of these distinguishable parameters, we are of the considered opinion that this comparable is not a suitable comparable. We thus, hold that the Ld. CIT(A) is justified in excluding this comparable from the final set of comparables. We therefore, decline to interfere with the finding of the Ld. CIT(A) in respect of this comparable. (ii) Comp U-learn Tech India Ltd.: Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 8 9. The Ld. CIT-DR, placing emphasis on the schedule 12 of P & L account of this comparable extracted on page 26 of the TPO’s order, submitted that this comparable was not mainly engaged in software development services. Its major revenue has come only from Call Centre. Only 4% revenue from others. It passed all the filters. He contended that the Ld. CIT(A) had erred in holding that this comparable engaged in product development; hence, the same was not a suitable comparable. The Ld. CIT-DR, emphasizing the Rule 10(B)(3) of Income Tax Rules, argued that an uncontrolled transaction should be comparable if differences between comparables did not have any material impact on the profit margins. Here, the assessee had failed to demonstrate that how the software development had material impact on the profitability of this comparable. He contended that none two comparables could be 100% similar. Some variations were bound to be there; such as buyers & sellers, quantum of expenditure under various heads, location, time, number of employees, assets, liabilities and what not. 10. Per contra, the Ld. Counsel reiterated the relevant part of the impugned order and argued for exclusion of this comparable from the list of final comparables for the simple reasoning of functional dissimilarities. Further, it was contended that the segmental data were not available. The Ld. Counsel placed reliance on the Tribunal order in the case of Ivy Comptech Pvt. Ltd. ITA No. 222/Hyd/2015 (Hyderabad) wherein this comparables was excluded from the list of final comparables. Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 9 11. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. CIT-DR that none of two comparables on this earth will be 100% similar. Undisputedly, more than 95% of revenue of this comparable is from SDS only. Approximately, 4% comes from software development. The case law relied upon by the Ld. Counsel, being factually different, is not relevant here. The Ld. Counsel did not demonstrate any factual inaccuracy in the schedule 12 of P & L account of this comparable extracted on page 26 of the TPO’s order. Further, it is worth mentioning here that the Ld. Counsel has not brought any material on the record to contradict the finding of the AO/TPO. In view of the above, we hold that the Ld. CIT(A) is not justified in excluding this comparable from the final set of comparables. We therefore, set aside the finding of the Ld. CIT(A) in respect of this comparable and direct the AO/TPO to include this comparable in final set comparables. Accordingly, Comp-U-Learn Tech India Ltd. is held validly included in the list of final comparables by the AO/TPO. (iii) Infosys Ltd. (earlier known as Infosys Technologies Ltd.): 12. The Ld. CIT-DR prayed for inclusion of Infosys. He submitted that high turnover or brand value could not be the reason for exclusion of this comparable as the assessee had failed to demonstrate that how the brand name, high R & D expenditure had impacted the margins of Infosys. The Ld. CIT-DR, emphasizing the Rule 10(B)(3) of Income Tax Rules, argued that an uncontrolled transaction should be comparable if differences between Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 10 comparables did not have any material impact on the profit margins. To buttress his submission, the Ld. CIT-DR placed reliance on the decision of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P) Ltd. [2015] 56 taxmann.com 417 wherein it had been observed that huge profit or huge turnover, ipso facto did not lead to exclusion of a comparable. Further, he also placed reliance on the decisions of the ITAT in the cases of Willis Processing Services (I) (P.) Ltd. [2013] 30 taxmann.com 350 (Mum.), Deloitte Consulting India (P.) Ltd. [2011] 12 taxmann.com 500 (Hyd.) and Capgemini India (P.) Ltd. [2013] 33 taxmann.com (Mum.) to submit that the order of the AO/TPO was justified in this regard. 13. On the other hand, the Ld. Counsel argued that the Ld. CIT(A) was justified in excluding this comparable on the following reasoning: a. Incomparable size and scale: A giant company having 250 times revenue that that of the assessee, engaged into diversified business of consulting, software product development, etc. b. Product Company. Its substantial revenue was from sale of proprietary products like Finacle, Infosys Acticedesk, while the assessee’s revenue was from software development services to AE, a captive service provider. c. High Brand Valued at INR 32,345 crores, a market leader and a Giant Company. d. Huge expenditure on R & D. During the relevant year, the Infosys got 2 patent approved by US and 200 patent application pending for approval. Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 11 On the other hand, the assessee was not in R & D and any patent of its own. The R & D expenditure of Infosys was more than 300% of the assessee’s turnover. 14. In support of the above submission for exclusion of Infosys, the Ld. Counsel drew our attention to the relevant pages of the Paper Book (PB). He placed reliance on the decisions of the Hon'ble Delhi High Court in the cases of Fiserv India (P) Ltd. [2018] 92 taxmann.com 471, Agnity India Technologies (I) Ltd. [2013] 36 taxmann.com 289, Amerprise India (P) Ltd. ITA No.461/2016, New River Software Services Pvt. Ltd. [2017] 85 taxmann.com 302 and Microsofi India (R& D) (P) Ltd. [2023] 153 taxmann.com 199, where Infosys was excluded on similar grounds. The Ld. Counsel also drew our attention to the decision of the Tribunal in assessee’s own case for AYs 2007- 08 and 2008-09 (ITA No. 5939/Del/2012 and ITA No. 2387/Del/2014) wherein this comparable was excluded. He submitted that facts of this year were not different than those of AYs 2007-08 and 2008-09; therefore, this comparable should be excluded. Further, reliance was also placed on the decisions in the cases of Agilent Technologies (International) Pvt. Ltd. [2022] 97 ITR (T) 326 (Delhi Trb.), Steria India Pvt. Ltd. [2021] 123 taxmann.com 264 (Delhi Trb.). The Ld. Counsel further drew our attention to the fact that Infosys Ltd. was excluded by the Ld. CIT(A) in AY 2008-09 on similar grounds. 15. The Ld. Counsel further submitted that the Ld. CIT-DR had misconstrued the Rule 10(B)(3) of the Income Tax Rules as this Rule did not impose an onus upon an assessee to show that a difference had a material Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 12 bearing on the margins. The language used in this Rule \"likely to have a material bearing\", clearly meant thereby that as long as there was a difference between the comparable, which likely might have a material bearing on the margins, such comparable would have to be excluded. The Ld. Counsel further submitted that the decision of Hon'ble Delhi High Court in Chryscapital (supra) had been subsequently considered by the Hon'ble Delhi High Court in the cases of Sanvih Info Group (P.) Ltd. [2019] 108 taxmann.com 655 and Symphony Marketing Solutions India (P) Ltd. [2020] 113 taxmann.com 77, wherein the Hon'ble High Court had clarified that giant corporations like Infosys could not be compared to a company like the assessee. In response to the Tribunal decisions relied upon by the Ld. CIT-DR, the Ld. Counsel submitted that these decisions did not reflect the correct position of law and had been rendered prior to the decision of the Hon'ble Delhi High Court in the case of Agnity India Technologies (P) Ltd. (supra). Hence, these decisions had no binding precedent here. 16. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this comparable, in view of the decision of the Hon'ble Delhi High Court in the cases of Agnity India Technologies (P) Ltd. (supra), Sanvih Info Group (P.) Ltd. (supra) and Symphony Marketing Solutions India (P) Ltd. (supra) and the Tribunal decision in the assessee’s own cases of AYs 2007-08 and 2008-09, is not a suitable comparable. We therefore, following the reasoning given by this Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 13 Tribunal in the assessee’s own cases of AYs 2007-08 and 2008-09, hold that the Ld. CIT(A) is justified in excluding Infosys Ltd. from the final set of comparables. We therefore, decline to interfere with the finding of the Ld. CIT(A) in respect of this comparable. (iv) LGS Global Ltd.: 17. The Ld. CIT-DR prayed for inclusion of this comparable. He submitted that this comparable was functionally similar and its intangible assets including goodwill had not materially impacted its profitability. The Ld. CIT- DR, emphasizing the Rule 10(B)(3) of Income Tax Rules, argued that an uncontrolled transaction should be comparable if differences between comparables did not have any material impact on the profitability. He further submitted that the Ld. CIT(A)’s order was non-speaking on this comparable as it failed to demonstrate that how the different revenue recognition model had impacted the profitability of this comparable. The Ld. CIT-DR placed reliance on the decision 18. The Ld. Counsel, on the other hand, contended that this comparable was functionally dissimilar as it was engaged in different types of activities; such as, software product development, professional services, SDS, etc. Further, this comparable was engaged in providing consulting services, infrastructure management services, BPO services, testing services, custom development, enterprise application integration, enterprise system solutions (pages 297 and 299 of the PB). The Ld. Counsel further submitted that this comparable had different revenue recognition model as it recognized revenue Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 14 on fixed price project model and not on time booking basis i.e. revenue had been recognized only after development of software (page 338 of the PB) and not prior to that. Whereas the assessee had recognized the revenue on accrual basis with matching cost. Therefore, this comparable had raised monthly invoices to account for the cost incurred so far. It was further contended that the different revenue recognition model resulted in drastic variation in operating margins. Hence, this comparable was rightly excluded by the Ld. CIT(A) from the list of final comparables. It was further submitted that it had significant intangible assets of INR 16.95 crores i.e. more than 64% of its net fixed assets as against the assessee which had no intangible assets (page 334 of the PB) This comparable had developed various processes, techniques such as \"EQUIP\" (Enabling Quality and Improving Processes). This comparable had goodwill, which accounted for 10% of net fixed assets. (pages 196-199 of PB) 19. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of both; the Ld. CIT-DR and the Ld. Counsel. Before us, it has not been demonstrated by the Ld. Counsel that how different revenue recognition model has impacted the profitability over the years and in particular of the relevant year as we are of the considered view that continuity of such revenue recognition model over the years will not have material impact unless there is abrupt variation in time period of project vis- à-vis the cost and revenue of projects because sustainability of such comparable for long time in business will get adversely affected accordingly. Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 15 Further, as far as this comparable is concerned, the finding in impugned order in this regard is not well-reasoned. Considering the above arguments/ contentions/submissions, facts in entirety of this comparable and without offering any comment on merit of this comparable, we deem it fit to set aside the finding of the Ld. CIT(A) in this regard and remit the matter back to the file of the AO & TPO for deciding the issue of inclusion or exclusion of this comparable afresh, in accordance with law, after providing adequate opportunity of being heard to the appellant assessee. Ordered accordingly. The appellant assessee, no doubt, shall cooperate in remitted assessment proceedings. (v) Sonata Software Ltd.: 20. The Ld. CIT-DR prayed for inclusion of this comparable. He submitted that this comparable was functionally similar and passed RPT filters. However, the Ld. CIT(A) had erred in holding that it was functionally dissimilar. The Ld. CIT-DR drew our attention to various pages of the PB to emphasize that the investment made by this comparable in Dubai company had not have any material impact on its profitability as Dubai company was a separate standalone company whose financials did not get consolidated with this comparable. He drew our attention to the Rule 10(B)(3) of Income Tax Rules. He further submitted that the Ld. CIT(A)’s order was non-speaking on this comparable as it failed to demonstrate that how this comparable was functionally dissimilar. Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 16 21. Per contra, the Ld. Counsel contended that this comparable was functionally dissimilar as it was engaged in different types of activities; such as, IT consulting services, product engineering services, Application development, Application management services, infrastructure management, managed testing, etc. (page 381 of the PB). The Ld. Counsel further submitted that not all the above mentioned activities were SDS. Further, segmental data were not available in annual report/public domain. It was further submitted that this comparable had made investment in Dubai company, which impacted its growth significantly. This comparable, unlike the assessee, had significant R & D expenditure, which had material impact on its profitability. 22. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of both; the Ld. CIT-DR and the Ld. Counsel. Before us, the Ld. Counsel, with the help of financials of this comparable has tried to make out a case that this comparable does not pass the RPT filters. This needs further verification/examination by the TPO. Considering the above arguments/contentions/submissions, facts in entirety of this comparable and without offering any comment on merit of this comparable, we deem it fit to set aside the finding of the Ld. CIT(A) in this regard and remit the matter back to the file of the AO & TPO for deciding the issue of inclusion or exclusion of this comparable afresh, in accordance with law, after providing adequate opportunity of being heard to the appellant assessee. Ordered accordingly. The appellant assessee, no doubt, shall Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 17 cooperate in remitted assessment proceedings. Further, we direct the AO/TPO to examine the issue of functional similarities and impact of R & D on profitability of this comparable as well. Since accounts of Dubai company does not get incorporated in financials of the assessee, we therefore, of the considered view that Dubai company has not had material impact on profitability of the assessee. (vi) Thinksoft Global Services Ltd.: 23. The Ld. CIT-DR prayed for exclusion of this comparable on the reasoning of functional dissimilarities and different business model. He submitted that this comparable was not functionally similar as it was engaged in the software validation and not a software developer. However, the Ld. CIT(A) had erred in holding that it was functionally similar as software validation service was a part of software development. The Ld. CIT-DR drew our attention to page 555 of the PB to emphasize that this comparable was engaged in software testing and had different business model. He further submitted that the Ld. CIT(A)’s order failed to demonstrate that how this comparable was functionally similar and had same business model. 24. The Ld. Counsel, on the other hand, contended that this comparable was functionally similar as the software validation and it provided software services globally to banking and financial institutions. Reliance was placed on the decisions in the cases of Steria (India) Ltd. [2021] 123 taxmann.com 264 (Del. Trib.), Netlink Software Pvt. Ltd. [2020] 113 taxmann.com 591 (Del. Trib.) and TIBCO Software India Pvt. Ltd. [2015] 170 TTJ 432 (Pune Trib.). Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 18 25. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. CIT-DR. The issue here is whether the validation and testing of software is equivalent to the software development services or it’s a part of it. We are of the considered view that the compass of software development services is much bigger than the validation and testing of software as the same is embedded and a stage at the fag end of the process of software development. Definitely, it cannot be construed with the bigger process of software development. Even the Ld. CIT(A) has held that it is a part and parcel of software development services. Considering the facts in entirety of this comparable and process of software development, we are of the firm view this comparable has been rightly excluded from the final list comparables on the reasoning of functional dissimilarities. We therefore, set aside the finding of the Ld. CIT(A) in this regard and direct the AO & TPO for exclusion of this comparable. Ordered accordingly. ITeS segment (Adjustment of INR 16,34,48,653): 26. In ITeS Segment, the TPO selected 3 new comparables; namely, Eclerx Services Ltd., Corul Hub Ltd. (earlier known as Vishal Information Technologies Ltd.) and Cosmic Global Ltd. (Cosmic Global Ltd. as one of the comparables was given by the assessee during the course of proceedings before the TPO). The above-mentioned three comparables were challenged before the Ld. CIT(A), who, vide order dated October 31, 2017, excluded all three comparables from the ITeS Segment. The Revenue has challenged Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 19 exclusion of these three comparables; whereas, the assessee, vide CO, has not only challenged the grounds raised by the Revenue but also prayed for upholding of the impugned order. (i) Eclerx Services Ltd. 27. The Ld. CIT-DR argued vehemently for inclusion of this comparable and supported the order of the TPO. On our specific query, the Ld. CIT-DR did not bring any material on the record to demonstrate factual difference between the case of preceding year and the case in hand. 28. At the outset, the Ld. Counsel submitted that Eclerx should be excluded from the list of final comparables because it was functionally different being engaged in providing KPO services such as data analytics, operation management services and audit reconciliation services. The Ld. CIT(A), placing reliance on the decision of the Hon’ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. 377 ITR 533, excluded this comparable on the following reasoning: a) Functional dissimilarities: This comparable provides data analytics, and data process solutions, whereas the assessee has provided ITeS services in the nature of financial shared services, data entry and call center services. b) Abnormal growth of this comparable on account of extra ordinary events. Due to acquisition in the earlier year, this comparable has shown goodwill for the first time in the books of the relevant year. c) Significant advertisement expenses. Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 20 29. The Ld. Counsel, placing emphasis on the services rendered by this comparable, it was a Knowledge Process Outsourcing (KPO) which provided data analytics and data process solutions using proprietary processes and scalable offshore delivery model. It was India’s first listed KPO on BSE and NSE. It provided unique blend of consulting services and process re- engineering and automation. Further, he contended that the assessee’s functions were different as it was a Business Process Outsourcing (BPO). Thus, it was contended that this comparable was functionally dissimilar and the Ld. CIT(A) was justified in excluding this comparable. The Ld. Counsel also drew our attention to the decision of the Tribunal in assessee’s own case for AYs 2007-08 and 2008-09 (ITA No. 5939/Del/2012 and ITA No. 2387/Del/2014) wherein this comparable was excluded. He submitted that facts of this year were not different than those of AYs 2007-08 and 2008-09; therefore, this comparable should be excluded. 30. The Ld. Counsel submitted that the assessee had provided Back Office Support services (BPO services) like data entry services and call center services; whereas this comparable was KPO. The functional profiles, risk exposures, and economic contributions of KPO and BPO were distinct and consequentially their profitability and cost structures were also different and distinct. In support of the above arguments, the Ld. Counsel placed reliance on the decision of the Hon'ble Delhi High Court in the case of Rampgreen Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 21 Solutions (P.) Ltd. 60 taxmann.com 355. The relevant part of the said decision reads as under: \"34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centers (India) (P.) Ltd. (supra). As indicated above, the expression 'BPO' and 'KPO' are, plainly, understood in the sense that whereas, BPO does not necessarily involve advanced skills and knowledge: KPO, on the other hand, would involve employment of advanced skills and knowledge for providing services. Thus, the expression 'KPO' in common parlance is used to indicate an ITeS provider providing a completely different nature of service than any other BPO service provider. A KPO service provider would also be functionally different from other BPO service providers, inasmuch as the responsibilities undertaken, the activities performed, the quality of resources employed would be materially different. In the circumstances, we are unable to agree that broadly ITeS sector can be used for selecting comparables without making a conscious selection as to the quality and nature of the content of services. Rule 10B(2)(a) of the Income Tax Rules, 1962 mandates that the comparability of controlled and uncontrolled transactions be judged with reference to service/product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not BPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain the ALP of the service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently.\" 31. To buttress his arguments, the Ld. Counsel placed reliance on the decision of the Tribunal in the cases of Agilent Technologies (International) Pvt. Ltd. [2022] 97 ITR (T) 326 (Delhi Trb.), PTC Software (India) Pvt. Ltd. ITA No. 336/Pn/2014 (Pune Trib.) EIT Services India Pvt. Ltd. IT(TP)A No. 210/Bang/2021 (Bang. Trib.) and Hyundai Motors India Engineering Pvt. Ltd. Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 22 ITA No. 255/Hyd/14 (Hyd. Trib.). The Ld. Counsel further drew our attention to the fact that there was abnormal growth on account of amalgamation Igentica Travel Solution Ltd. Due to acquisition in the earlier year, this comparable has shown goodwill for the first time in the books of the relevant year. Its expenses on advertisement was very high. This comparable was a KPO service provider and thus, the same could not be compared to the assessee of that case. 32. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this comparable has been rightly excluded by the Ld. CIT(A) in view of the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions (P.) Ltd. (supra) and the Tribunal decision in the assessee’s own cases of AYs 2007-08 and 2008-09, is not a suitable comparable. We therefore, following the reasoning given by this Tribunal in the assessee’s own cases of AYs 2007-08 and 2008- 09, hold that the Ld. CIT(A) is justified in excluding Eclerx Services Ltd. from the final set of comparables. We therefore, decline to interfere with the finding of the Ld. CIT(A) in respect of this comparable. (ii) Coral Hub Ltd. (earlier known as Vishal Information Technologies Ltd.) 33. The Ld. CIT-DR argued vehemently for inclusion of this comparable and supported the order of the TPO. On our specific query, the Ld. CIT-DR Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 23 submitted that this comparable had been validly held valid by the Tribunal in assessee’s own case for AY 2008-09. Since there was no factual difference between the case of preceding year and the present case in hand; hence, this comparable is held to have been rightly included in final set of comparables. 34. Per contra, the Ld. Counsel submitted that Coral Hub Ltd. (Vishal Information Tech.) had different business model compared to the assessee as it had outsourced its ITeS functions to third-party vendors. The Ld. Counsel submitted that this comparable was engaged in capturing data for digitization and publishing e-book, maintaining digital library, online book store, classic book publishing, conversion of books into POD and fund accounting services. This comparable was specialized in service of publishing e-book, maintaining digital library, online book store for visually challenged/impaired persons. This comparable had incurred expenditure of INR 40.32 Crores on conversion of books into POD. The Ld. Counsel further submitted that this comparable had different business model as evident from the outsourcing expenses which was 80% of total cost. The Ld. Counsel placed reliance on following decisions in the cases of Rampgreen Solutions Pvt. Ltd. 377 ITR 533 (Del. High Court), Agilent Technologies (International) Pvt. Ltd. [2022] 97 ITR (T) 326 (Delhi Trb.), Maersk Global Centers (India) (P.) Ltd. ITA No. 2492 & 2594/Mum/2014, PTC Software (India) Pvt. Ltd. ITA No. 336/Pn/2014 (Pune Trib.) and WNS Business Consulting Services Pvt. Ltd. [2022] 139 taxmann.com 281 (Del. Trib.). It was further submitted that the assessee was a ITeS company and it had not outsourced its services. Hence, Coral Hub (Vishal Information Tech) Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 24 was not a suitable comparable. In support of this argument, the Ld. Counsel relied on the Ld. CIT(A)'s order in the assessee's own case for AY 2008-09, where the Ld. CIT(A) had excluded this company on similar ground. The Ld. Counsel submitted that this comparable had been validly excluded by the Tribunal in assessee’s own case for AY 2008-09 and there was no factual difference in the cases of two years. 35. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record, facts in entirety and case laws relied, we do find force in the argument of the Ld. Counsel that Coral Hub (Vishal Information Tech. Ltd.) is having different business model and there are functional dissimilarities. We therefore, hold that the Ld. CIT(A) is justified in excluding this comparable from the final set of comparables. We therefore, do not find any infirmity in the impugned order in respect of this comparable. Therefore, we decline to interfere with the finding of the Ld. CIT(A) in this regard. (iii) Cosmic Global Ltd.: 36. The Ld. CIT-DR submitted that this comparable [Cosmic Global Ltd.] was given as comparable by the assessee during the course of proceedings before the TPO. The same was included in the list of final comparables on agreed basis. Hence, the financials and other parameters were not examined in-depth by the TPO. Now the assessee could not take another stand before the Tribunal, argued the Ld. CIT-DR. He, placing reliance on the decisions of Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 25 the Tribunal in the cases of Capgemini India (P) Ltd. [2013] 33 taxmann.com 5 and Delloite Consulting India (P) Ltd. [2011] 12 taxmann.com 500, prayed for retaining this comparable in the list of final comparables. 37. On the other hand, the Ld. Counsel submitted that this comparable [Cosmic Global Ltd.] had functional dissimilarities. It had different business model as compared to the assessee as it had outsourced its ITeS functions to third-party vendors, which was 58% of operating cost. The Ld. Counsel submitted that this comparable was engaged in (i) medical transcription and consulting services, (ii) translation charges and (iii) Account BPO services. Further, it had abnormal profit margin. The Ld. Counsel further submitted that this comparable had different business model as evident from the outsourcing expenses which was 58% of operating cost. The Ld. Counsel placed reliance on following decisions in the cases of WNS Business Consulting Services Pvt. Ltd. [2022] 139 taxmann.com 281 (Del. Trib.), Aptara Technology (P) Ltd. [2018] 92 taxmann.com 240 (Bom.), Xchanging Technology Services India (P) Ltd. ITA No. 1897/Del/2014 (Delhi Trb.) and PTC Software (India) Pvt. Ltd. ITA No. 336/Pn/2014 (Pune Trib.). Accordingly, it was argued that this comparable was not a suitable comparable. 38. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record, facts in entirety and case laws relied upon by the Ld. CIT-DR, we do find force in the argument of the Ld. CIT-DR. Respectfully following the reasoning of these Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 26 decisions of the Tribunal in the cases of Capgemini India (P) Ltd. (supra) and Delloite Consulting India (P) Ltd. (supra), we are of the considered view that the TPO was justified in taking this comparable in the list of final comparables on agreed basis. We therefore, hold that the Ld. CIT(A) is not justified in excluding this comparable from the final set of comparables. We therefore, set aside the finding of the Ld. CIT(A) in this regard in the impugned order and direct the AO & TPO to include this comparable in final set of comparables. Ordered accordingly. Interest on loan to AE (Adjustment of INR 3,89,42,063): 39. The next issue is in respect of interest of INR 3,89,42,063 on loan advanced to AE. It is evident from the report in Form 3CEB filed by the assessee (page 471 of PB) that the assessee has advanced two loans, during the relevant year, to its subsidiary in U.K. i.e., Certegy Limited, UK amounting to GBP 10,03,90,720 and GBP 85,91,880 at interest rate of 6,00% and 6.25% respectively. The assessee has benchmarked its interest on these loans using market database Le Thomson Reuters. The assessee took UK as primary geographical area, wherein the said loans have been advanced in British Pounds and the interest rate prevailing in UK (i.e. LIBOR rates). The assessee selected TNMM as the MAM with tested party as Certegy Limited, UK and accordingly, the loan transactions were considered to be at arm's length. 40. The TPO rejected the comparability analysis conducted by the assessee and instead benchmarked the said transactions using the PLR and the Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 27 corporate bond rates prevailing in the Indian market. The TPO considered Prime Lending Rate (\"PLR') offered by the SBI for relevant year (approximately average of 12.77%) and arrived at a rate of 16% after adding basis points to factor in the risk on account of security, forex, processing fee, credit rating and loan tenure and accordingly made an addition of INR 3,89,42,063. In first appeal, the Ld. CIT(A) accepted the LIBOR rate taken by the assessee in its TP study and rejected the approach of the TPO. Accordingly, the Ld. CIT(A) deleted the addition of INR 3,89,42,063. 41. The Ld. CIT-DR argued this issue vehemently and defended the TPO’s order. 42. On the other hand, the Ld. Counsel submitted that the Revenue had already accepted interest on loan with LIBOR rates in subsequent years i.e. AY 2010-11 2011-12 and 2012-13 and facts of the present case were similar; hence, the said adjustment on this score was uncalled for. The Ld. Counsel placed reliance on the decision of the Hon’ble Supreme Court in the case of Radhasoami Satsang [1992] 193 ITR 321. Further, the reliance was placed on the following decisions: Neo Poly Pack Private Limited: [2000] 245 ITR 492 (Del HC), Apparel Export Promotion Council: [2000] 244 ITR 734 (Del HC) and Girish Mohan Ganeriwala: [2003] 260 ITR 417 (P&H HC). The Ld. Counsel drew our attention to the following observation of the Hon'ble Supreme Court in the case of Radhasoami Satsang (supra) as under: Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 28 \"We are aware of the fact that strictly speaking, res judicata does not apply in income-tax proceedings. Again each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment year has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not at all appropriate to allow the position to be changed in a subsequent year.\" 43. The Ld. Counsel, in view of the principle of consistency, prayed for upholding the impugned order on the issue of interest on loans advanced to the AE. The Ld. Counsel further contended the TPO had benchmarked the said transaction using PLR/rates prevailing in India which had not any commercial justification. It was submitted that, while benchmarking the said transaction of loan, the TPO ignored the basic fact that the said loans were denominated in GBP and not in INR. Hence, the benchmark for the said transaction would be interest rate prevailing in UK (ie. LIBOR rates), argued the Ld. Counsel. It was further submitted that the assessee had benchmarked the loan transaction using financial market database known as Thomson Reuters and all the key factors such as currency of loan, the principle amount, duration etc. were considered for the purpose of benchmarking. Further, it was submitted that the international transactions between assessee and AE in foreign currency should be judged by applying the commensal principles with regards to international transaction. Reliance was placed on the following decisions wherein LIBOR rate had been upheld to benchmark the foreign currency loans: Cotton Naturals (1) Pvt. Ltd. (TS-117-HC-2015) Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 29 Siegwerk India (P.) Ltd. (2010) 102 taxmann.com 669 (Del-Trib) Delhi Call Centers Pvt Ltd (ITA 6132/D/2014) (Del-Trib) Baba Global Ltd (2016) 70 taxmann.com 338 (Del-Trib.) Siva Industries & Holdings Ltd (2011) 46 SOT 112 (Chennai) Four Soft Ltd. (2014) 106 DTR 137 (Hyd.) Apollo Tyres Ltd. (I.T.A No.616/Coch/2011) Tooltech Global Engineering Pvt. Ltd. (TS-271-ITAT-2014(PUN)-TP) 44. The Ld. Counsel objected the use of information called under section 133(6) of the Act at the back of the assessee on the reasoning that such financial information was not otherwise available in the public domain as it violated the principle of natural justice because the assessee would have access to data solely existing in public domain not otherwise. 45. We have heard both parties, perused the material available on the record and case laws relied upon. The interest rate on a loan to an AE abroad is determined by the Arm's Length Principle, which requires the rate to be similar to what independent parties would agree to for a similar transaction. This involves identifying a relevant benchmark rate based on the loan's currency and adding a spread that reflects the borrower's creditworthiness and the specific terms & conditions of the said loan. Since the Revenue has accepted the benchmarking of interest on loan with LIBOR rates in assessee’s own case of AY 2010-11 2011-12 and 2012-13; therefore, we do not see any infirmity in the impugned order in this regard particularly when the assessee’s benchmarking on this score was accepted in AY 2010-11 2011-12 and 2012-13. Strictly principle of consistency does not apply to Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 30 preceding years. Even then facts of the present case being similar to that of AY 2010-11 2011-12 and 2012-13; we therefore, direct the AO to take the same benchmarking what has been accepted by the Revenue in subsequent three years. We therefore, do not find any infirmity in the impugned order in respect of benchmarking of interest on the loans advanced to the AE. Therefore, we decline to interfere with the finding of the Ld. CIT(A) in this regard. Working capital/Risk Adjustment: 46. The last issue is in respect of working capital adjustment. The TPO observing that the assessee was not able to explain satisfactorily the need for working capital adjustment rejected the said claim. Before us, the Ld. Counsel has submitted that the extent to which companies extend and receive credit in the form of accounts payable and receivables affects their sales and cost of sales. Hence, in case there are significant differences in working capital between the tested party, i.e. the assessee and the comparable companies, an appropriate adjustment is required for such difference to correctly determine the ALP in terms of Rule 10B(3) of the Income Tax Rules, 1962. He placed reliance on the following decisions: Sartorius Stedim India (P.) Ltd. vs ACIT [2023] 146 taxmann.com 343 (Bang. Trib.) Mentor Graphics (Noida) P Vs. Ltd. vs. DCIT (2007) 109 ITD 101 (Delhi) Capgemini India Private Limited case (ITA No.7861Mum/2011) Printed from counselvise.com ITA No.372/Del/2018 CO No.64/Del/2018 31 Marubeni-Itochu Steel India (P.) Ltd. vs. DCIT ITA No. 1716/Del/2014. 47. We have heard both parties and have perused material on the record. We are of the considered view that the working capital adjustment is mandated and is a prerequisite for determination of arm's length price in terms of Rule 10B(1)(e) and 10B(3) of the Income Tax Rules, 1962. We therefore, direct the AO to allow the working capital adjustment as done in the assessee’s own case of AY 2008-09 in accordance with the Income Tax Rules and the Act. 48. In view of the above, respective grounds of the appeal and CO get disposed off accordingly. Remaining grounds of the CO, being not pressed/consequential/general stand dismissed. 49. In the result, the appeal of the Revenue and CO of the assessee are partly allowed as above for statistical purposes. Order pronounced in open Court on 25th August, 2025 Sd/- Sd/- (SUDHIR PAREEK) (AVDHESH KUMAR MISHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25/08/2025 Binita, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT/CIT 4. CIT(Appeals) 5. CIT-DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "
Other Referred Cases
Chryscapital Investment Advisors (India) Pvt. Ltd. [2015] 56 taxmann.com 417 (Del. High Court), Steria India Pvt. Ltd. [2021] 123 taxmann.com 264 (Delhi Trb.), Mentor Graphics (India) Ltd. 469 ITR 524 (Del), Fiserv India Pvt. Ltd. 92taxmann471 (Del), Barclays Technology Centre India (P) Ltd. 409 ITR 138 (Bom), Allscripts India (P) Ltd. 288 CTR 675 (Guj), Ivy Comptech Pvt. Ltd. ITA No. 222/Hyd/2015 (Hyderabad), Maersk Global Centers (India) (P.) Ltd. ITA No. 2492 & 2594/Mum/2014, Agilent Technologies (International) Pvt. Ltd. [2022] 97 ITR (T) 326 (Delhi Trb.), Sartorius Stedim India (P.) Ltd. vs ACIT [2023] 146 taxmann.com 343 (Bang. Trib.), Capgemini India Private Limited case (ITA No.7861Mum/2011), Marubeni-Itochu Steel India (P.) Ltd. vs. DCIT ITA No. 1716/Del/2014, Radhasoami Satsang [1992] 193 ITR 321, Neo Poly Pack Private Limited: [2000] 245 ITR 492 (Del HC), Apparel Export Promotion Council: [2000] 244 ITR 734 (Del HC), Girish Mohan Ganeriwala: [2003] 260 ITR 417 (P&H HC), Cotton Naturals (1) Pvt. Ltd. (TS-117-HC-2015), Siegwerk India (P.) Ltd. (2010) 102 taxmann.com 669 (Del-Trib), Delhi Call Centers Pvt Ltd (ITA 6132/D/2014) (Del-Trib), Baba Global Ltd (2016) 70 taxmann.com 338 (Del-Trib.), Siva Industries & Holdings Ltd (2011) 46 SOT 112 (Chennai), Four Soft Ltd. (2014) 106 DTR 137 (Hyd.), Apollo Tyres Ltd. (I.T.A No.616/Coch/2011), Tooltech Global Engineering Pvt. Ltd. (TS-271-ITAT-2014(PUN)-TP)
Laws Referred To
Income Tax Act
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