MELTWATER INDIA PRIVATE LIMITED,NEWDELHI V. NATIONAL FACELESS ASSESSMENT CENTRE, DELHI

ITTPA 5470/DEL/2024

AI Insights

Meltwater India Private Limited appealed against the final assessment order which included a significant transfer pricing adjustment to its income due to international transactions with its AEs. The Tribunal examined whether the assessee's method of applying the Berry Ratio under the TNMM was appropriate, given its role as a reseller of software licenses. The Tribunal agreed with the assessee's position that it operated in a limited-risk environment and did not add value to the software products, thus supporting the use of the Berry Ratio for calculating the ALP. The Tribunal's decision was influenced by various judicial precedents and the specific contractual and operational context of the assessee's business.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 829434 (ITAT-NEW DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 16-01-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Delhi
• Assessment Year: misc
• Appeal Filed On: 26-11-2024
• Other Referred Cases: Sumitomo Corporation India (P.) Ltd. vs CIT, Mitsubishi Corporation India (P.) Ltd. vs CIT, Adm Agro Industries Kota & Akola P. Ltd, Vs. ACIT, Circle-1(1), New Delhi, Matrix Cellular International Services (P.) Ltd., Burberry India (P.) Ltd., Loreal India (P.) Ltd., Horiba India (P.) Ltd., Alcoa India (P.) Ltd., Harman Connected Services Corporation India (P.) Ltd., Capstone Securities Analysis (P.) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROHAN SOGANI; NAMAN MALOO
• Keywords: Transfer pricing; International transaction; Depreciation; Cost of acquisition; Principle of natural justice; Arm length price
• Section: 143(3); 92; 92C; 92D

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I’: NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER IT(TP)A No.5470/Del/2024 (ASSESSMENT YEAR 2021-22) Meltwater India Private Limited, 81, National Park Lajpat Nagar-IV, Delhi-110024. PAN-AAGCM3276M Vs. National Faceless Assessment Centre, Delhi. (Appellant) (Respondent) Assessee by Shri Rohan Sogani, CA & Shri Naman Maloo, CA Department by Shri Santosh Kumar, CIT-DR Date of Hearing 04/11/2025 Date of Pronouncement 16/01/2026 O R D E R PER MANISH AGARWAL, AM: This appeal is filed by the Assessee against the final assessment order passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act (‘the Act’) dated 28.09.2024 for Assessment Year 2021-22. 2. Brief facts of the case are that assessee is engaged in the business of reseller of software license purchases from its AEs i.e. Meltwater News International Gmbh and sold to the customers which are unrelated parties. The return of income was filed by the assessee on 18.01.2022 declaring total income at Rs.2,83,320/-. The case of the assessee was selected for the reasons “Large value of international transactions in nature of Technical Service Fees” and notice u/s 143(2) of the Act was issued on Printed from counselvise.com 2 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC 28.06.2022. Thereafter a reference was made to the TPO for determination of the ‘Arm Length Price (ALP) of international transactions carried out by the assessee. The TPO vide order dated 25.10.2023 passed u/s 92CA (3) of the Act made adjustment of Rs. 3,37,57,055/- to the Arm’s Length Price with respect to international transaction carried out by the assessee with its AEs. Consequently, the AO passed the draft assessment order dt. 13.11.2023 wherein the ALP adjustment made by TPO is proposed to be added to the total income of the assessee and the total income is proposed at Rs. 3,40,40,376/-. 3. Against the draft assessment order, assessee filed objections before the Ld. Dispute Resolution Pannel (ld. DRP) wherein ld. DRP has confirmed the findings of the TPO/AO in terms of its order dated 07.08.2024 passed u/s 144C(5) of the Act, however, ld. DRP issued certain directions regarding comparables selected by TPO. Thereafter, the AO passed the final assessment order on 28.09.2024 wherein the addition of Rs.3,53,59,751/- is made towards the TP adjustments on international transactions as proposed by TPO in the order giving effect to the directions of ld. DRP. 4. Against the order of ld. DRP, assessee is in appeal before the Tribunal by taking following grounds of appeal: “1. In the facts and circumstances of the case and in law, id. DRP has erred in confirming the action of the Id. AO/TPO in making adjustment of Rs. 3.53,59,751 to the income of the assessee on account of International Transaction. The action of the id. DRP and Id. AO TPO is illegal, unjustified, arbitrary, contrary to the facts of the case. It is, therefore, prayed that the entire adjustment of Rs.3.53.59,751 made to the income of the assessee be deleted. 2. In the facts and circumstances of the case and in law, Id. DRP has erred in confirming the action of the Id. AO/TPO in rejecting OP/VAE as the PLI of assessee company under TNMM method and selecting OP/OR as the PLI Printed from counselvise.com 3 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC without understanding the nature of business of assessee and calculating it's own margin 2 without any basis. The action of the Id. DRP and Id. AO-TPO is illegal, unjustified, and arbitrary, contrary to the facts of the case. Relief may please be granted by accepting the benchmarking working as done by the assessee and thereby deleting the entire adjustment made to the income of the assessee 3. In the facts and circumstances of the case and in law, Id. DRP has erred in confirming the action of the Id. AO/TPO for carrying out benchmarking analysis with companies that were not comparable with the functioning of assessee and rejecting the comparables provided by assessee. The action of the Id. DRP and Id. AO/TPO is illegal, unjustified, and arbitrary, contrary to the facts of the case. Relief may please be granted by accepting the benchmarking working as done by the assessee and thereby deleting the entire adjustment made to the income of the assessee. 4. Without prejudice to above and in the facts and circumstances of the case and in law, Id. DRP has erred in confirming the action of the Id. AO/TPO by including the cost of software and still considering assessee as \"Marketing support service provider instead of \"Trader of Software\". The action of the Id DRP and Id. AO/TPO is illegal, unjustified, and arbitrary, contrary to the facts of the case. Relief may please be granted by accepting the benchmarking working as done by the assessee and thereby deleting the entire adjustment made to the income of the assessee. 5. In the facts and circumstances of the case and in law, ld. DRP has erred in not providing specific directions to the Id. TPO/AO, as required under Section 144C, and leaving it to the Id. TPO to ascertain the comparable companies. The action of the Id. DRP is illegal, unjustified, and arbitrary, contrary to the legal position as set out in Section 144C of the Income Tax Act, 1961.” 5. Since all the grounds of appeal taken by assessee are with respect to single issue of transfer pricing adjustment on the transaction with its AEs on the purchases of software, therefore, they are taken together for consideration. The ld. AR for the assessee submits that the assessee sold subscriptions of Meltwater Software License which includes online news-monitoring services, media-analysis and trend-detection tools, and related news-feed products, developed by its AE which handles marketing, sales, and supports. Ld. AR submits that assessee is working as a reseller and is very low risk provider as it has not made any value addition to the product purchased. Ld. Printed from counselvise.com 4 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC AR submits that assessee company has taken Transaction Net Margin Method (TNMM) as most appropriate method (MAM) and further applied Berry Ratio as the profit level indicator (PLI). However, before the DRP, assessee alternatively contended that Resale Price Method (RPM) could was also the most appropriate method, for the sole reason that the assessee operates purely as a limited-risk distributor of software licenses. The Ld. AR submits that the assessee earned gross margin of 38.26% on the license sold in India. The Ld. AR submits that once the assessee is working in limited risk environment and resale the products developed by its AEs without any value addition, RPM is MAM. Ld. AR submits that DRP has failed to understand the business module of the assessee where it has sold the product, i.e. the software developed by its AE and wrongly observed that the assessee is providing marketing services to its AE and software is only medium used for marketing. Ld. AR placed reliance on various judicial pronouncements which are forming part of the written submission reproduced herein below. 6. Alternatively, ld. AR submits that if the TNMM is held as MAM, the Berry ratio as PLI should be taken since assessee is low value-added, stripped-down distributors which was rejected by the AO/TPO because license fee paid by the assessee should be included in operating expense. Ld. AR submits that in distribution activities, assessee earns profit to cover running and administrative costs with some mark-up. It is thus submitted by ld. AR that the assessee is working under very limited risk environment and therefore, Berry ratio is the most appropriate method for PLI which deserves to be accepted. Further, reliance was placed on the judgement of Sumitomo Corporation India (P.) Ltd. vs CIT reported in [2016] 71 taxmann.com 290 (Delhi) and of the co-ordinate bench in the case of Mitsubishi Printed from counselvise.com 5 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Corporation India (P.) Ltd. vs CIT reported in [2014] 50 taxmann.com 379 (ITAI, Delhi). Ld. AR also filed written submission which is reproduced as under: Printed from counselvise.com 6 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 7 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 8 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 9 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 10 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 11 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 12 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 13 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC 7. On the other hand, the Ld. CIT-DR vehemently supported the order of TPO and DRP and submits that the RPM has not been challenged in the grounds of appeal by the assessee thus it should be taken as MAM. He also filed written submissions in support of the arguments which read as under: “During the course of hearing in respect of above-mentioned appeal, arguments were made by the undersigned that the orders of lower authorities (TPO, AO and DRP) were justified and should be upheld by the Hon'ble ITAT. As desired by the Hon'ble Bench, the following written submission is made in the matter, which may kindly be taken into consideration for the purpose of deciding the instant appeal. Ground No. 1: The Ld. DRP erred in confirming the action of the Ld. AO/TPO in making adjustment of Rs.3,53,59,751/- on account of international transaction. Ground No. 2: The Ld. DRP erred in confirming the action of the Ld. AO/TPO in rejecting OP/VAE as the PLI under TNMM and selecting OP/OR as the PLI. Printed from counselvise.com 14 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Ground No. 3: The Ld. DRP erred in confirming the action of the Ld. AO/TPO for carrying out bench marking analysis with companies that were not comparable with the functioning of the assessee and rejecting the comparables provided by the assessee. Ground No. 4: The Ld. DRP erred in confirming the action of the Ld. AO/TPO by including the cost of software and still considering the assessee as marketing support service provider instead of trader of software. Ground No. 5: The Ld. DRP erred in not providing specific directions to the Ld. AO/TPO as required u/s 144C and leaving it to the Ld. AO/TPO to ascertain the comparable companies. 1.1 As argued by the undersigned, the assessee's contentions are without merit and substance. The undersigned strongly rely upon the orders of the TPO, AO and DRP in this regard. 1.2 On the issue of OP/VAE as the PLI under TNMM applied by the assessee, the TPO has discussed at length the reasons for rejection of OP/VAE as the PLI in her show cause notice on page 2-6 of her order dated 25.10.2023. The TPO has discussed that the assessee has entered into a \"Value Added Reseller Agreement\" with its foreign AE (Switzerland based) detailing terms of services and payment of subscription fees. Article 2 details the services to be provided by the assessee and Article 5 mentions the fee arrangement between the two entities. Section 5.01 of Article 5 of the Agreement is as below: \"Section 5.01 Subscription Fee. In consideration for the subscriptions granted under this Agreement, Meltwater Seller (i.e. the assessee) shall pay to Meltwater Swiss a fee, which shall be equal to the excess, if any, of Meltwater Seller's annual Net Revenue less: (a) Meltwater Seller's Direct Costs and Indirect Costs attributable to such Net Revenue, and (b) If relevant, an operating profit of four percent (4%) of Net Revenue. For the avoidance of doubt, be no event, will Meltwater Swiss make any payment to Meltwater Seller as a result of this Agreement. (Emphasis supplied) From the fee arrangement, it is seen that the maximum revenue that can be earned by the assessee is set at 4% (fixed) while the rest of revenue (minus some costs) being given as subscription fee to the foreign AE. There is neither any rationale of setting the assessee's return at 4% nor is there any effort to ensure that the assessee's return margin should be at arm's length. Also, the agreement submitted by the assessee is not dated, neither in the beginning or at the signature page. Thus, there is absolutely no effort to ensure that the 4% margin to be earned by Printed from counselvise.com 15 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC the assessee should be at arm's length on a year-to-year basis. It would appear that the assessee's margin has been set arbitrarily. 1.3 The assessee has calculated its margin creatively by taking 4% margin as profit and dividing it by cost without taking the VAR subscription fee in the cost base. However, such margin calculation does not reflect the financial situation of the assessee correctly as payment of VAR fee has to be in the cost base to check the true margin of the assessee and compare it with comparables. Also, the assessee has not adjusted margins of the comparables in a similar way to make them truly comparable as these comparables may not work on VARIC subscription models. This is in violation of rule 10B(1)(e) of the Income-tax Rules, 1962. 1.4 As regards rejection of certain comparables taken by the assessee, the TPO has given detailed reasons in her show cause notice on page 7-9 and at para 13 on page 16-18 of her order which includes rebuttal of the assessee's contentions. Inclusion of certain comparables by the TPO has been discussed at length at para 14 on page 18-20 of her order which includes rebuttal of the assessee's contentions and in her show cause notice on page 9-10. 1.5 The assessee's contention of incorrect understanding of its business has been dealt with by the TPO at para 9 and 10 on page 14-15 of her order. As discussed above in para 1.2 above, as per the assessee's own agreement (Value Added Reseller Agreement), VAR fee is calculated based upon assessee's direct and indirect costs and a fixed margin of 4% that should be supposedly earned by the assessee. From the above, it is clear that subscription fee/VAR fee is core part of the assessee's business as it is an expense on its account while the foreign AE leaves it with a fixed margin 4% at maximum in whatever scenario. The assessee has got no incentive to work harder or better since the foreign AE is draining out all its profit by subscription fee/VAR fee tied to its other expenses, thereby making VAR fee/subscription fee an essential part of the assessee's own operating expenses. Further, the assessee has to bear it in its normal course of business and can never refuse this obligation. Support is also derived from Rule 10TA(j) of the Income-tax Rules, 1962 which defines \"operating expense as the costs incurred in the previous year by the assessee in relation to the international transaction during the course of its normal operations. 1.6 The assessee's contention of making VAR/subscription fee a pass-through cost fails because assessee is adding value to this fee. The way VAR fee/subscription fee is computed as per section 5.01 of the agreement (VAR fee/subscription fee assessee's revenue minus direct and indirect costs of the assessee minus 4% of revenue as fixed return margin of the assessee), as discussed above in para 1.2 and para 1.5, it cannot be said to be a pass-through cost by any stretch of imagination. Printed from counselvise.com 16 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC 1.7 The assessee's contention of using of Berry ratio (OP/VAE) is also not acceptable due to the fact that VAR fee/subscription fee is an essential part of the assesee's operating expense, as discussed above. The TPO has made OP/OR as the PLI because revenue of the assessee is unrelated to its AE. 1.8 As per section 2.03 under Article 2 of the Agreement, Value Added Reseller Services provided by the assessee are as below: \"Section 2.03 Value Added Reseller Services, Value added reseller services provided by Meltwater Seller (i.e. the assessee) include, but are not limited to: (a) Target research, solicitation and initial contact with prospective cutomers; (b) Prepare and perform sales presentations as necessary; (c) Market research and advertising as necessary; (d) Prepares sales quotation and pricing negotiation; (e) Negotiate and enter into subscription contracts with customers; (f) Deliver Meltwater Products and related technology and documentation; (g) Deliver all other deliverables in accordance with subscription contracts; (h) Invoice customers accordingly; (1) Collect all Accounts Receivables; (1) Support customers for the use and integration of the Meltwater Products; (k) Provide telephone support as required to customers; and (1) Provide any additional services as may be requested by customers. (Emphasis supplied) 1.9 The DRP has dealt with the assessee's contention that VAR fee should not be part of operating expense at paras 5, 6 7 and 8 on page 11-12 of its order dated 31.08.2024. The DRP in para 6 on page 12 of its order has held that a reference to rule 10TA(j) of the Income-tax Rules, 1962 which defines \"operating expense\" is the most proximate source for the guidance on the issue. The DRP has further held that it has been rightly observed by the TPO that VAR fee is directly related to operations of the assessee and it is required to be treated as operating in nature. Further, on the basis of merit also, cost of software license (VAR fee) incurred by the assessee is required to be treated as operating in nature, since without the software license the assessee would not have been able to provide services to its customers. 1.10 On the issue of rejection of certain comparables given by the assessee, the DRP directed the TPO to address contentions of the assessee and give speaking remarks in the final order (page 14 of the DRP order). In pursuance of the DRP's directions, the TPO vide its order dated 26.09.2024 has given an elaborate finding on rejection of certain comparables given by the assessee on page 2-4 of her order. Printed from counselvise.com 17 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC 1.11 On the issue of certain new comparables selected by the TPO, the DRP directed the TPO to address contentions of the assessee and give speaking remarks in the final order (page 16 of the DRP order). The DRP also accepted employee cost filter of 50% as proposed by the assessee. In pursuance of the DRP's directions, the TPO vide its order dated 26.09.2024 has given an elaborate finding on re-determination of the employee cost filter at 50% on page 4-8 of her order. Also, in pursuance of the DRP's directions, the TPO vide its order dated 26.09.2024 has given an elaborate finding on new comparables selected by her on page 8-11 of her order. 1.12 The assessee's contention of treating it as \"Trader of Software\" instead of \"Marketing Support Service Provider\" which was raised as Ground No. 7 before the DRP has been dealt with by the DRP at para 7.7.1(2) on page 17 of its order wherein the DRP has held that including software in the base cost does not make it trader of software since software is a medium through which the assessee is performing its functions of marketing services. The DRP has further held that medium required to perform a function does not itself become the function. 1.13 During the hearing, the assessee relied upon certain case laws in its support. However, as argued by the undersigned, those case laws are clearly distinguishable on facts as they pertain to pure traders without any value addition and are not applicable to the assessee. The instant case of the assessee is not of a pure trader. The assessee itself calls it a \"value added reseller\" and the same term is also used for the assessee in the contractual document \"Value Added Reseller Agreement\" with its foreign AE. It has entered into a \"Value Added Reseller Agreement\" with its Switzerland based AE wherein \"Value Added Reseller Services\" provided by the assessee have been defined under section 2.03 under Article 2 of the Agreement. The \"Value Added Reseller Services\", as defined under section 2.03 of the Agreement, have been discussed in the above para 1.8. Considering the nature of services provided by the assessee as highlighted in the aforesaid para 1.8, the assessee cannot be termed as a pure trader by any stretch of imagination. 8. The Ld. AR vide its letter dated 05.11.2025 filed rejoinder to the submissions made by Ld. CIT DR which reads as under: Printed from counselvise.com 18 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 19 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Printed from counselvise.com 20 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC 9. The ld. CIT DR in its submission has also made reply on the rejoinder filed by the assessee which is reproduced as under: 1.14 The assessee has submitted a 'rejoinder to submission of Ld. DR' dated 05.11.2025 and its copy was provided to the undersigned today only i.e. on 10.11.2025. It appears from the rejoinder that the arguments of the undersigned were not properly understood by the assessee. The undersigned had argued that as per the \"Value Added Reseller Agreement\" of the assessee with its foreign AE including the name of the agreement as such, the nature of services provided by the assessee and the way of working out of VAR fee/subscription fee, the assessee is clearly u \"Value Added Reseller\". As per the rejoinder that is received today, the assessee has raised two contentions (1) the assessee raised the plea for adoption of the Resale Price Method (RPM) before the DRP, (2) the assessee's nomenclature as \"Value Added Reseller\" is purely titular and does not, in any manner, reflect the functional characterization of the assessee. These contentions are rebutted in the following paras 1.15 and 1.16. 1.15 As far as the first contention of the assessee is concerned, as argued by the undersigned. a perusal of the Ground No. 7 which has been relied upon by the Printed from counselvise.com 21 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC assessee in support of its claim, does not show that the assessee raised the ground of RPM before the DRP. The Gerund No. 7 as enumerated in the DRP's order is reproduced hereunder: \"On facts and in law, without prejudice, if the VAR Fees is considered to be as Operating Expense then the assessee can be classified as the \"Trader of Software\" instead of \"Marketing Support Service Provider\" Accordingly, the Id. AO/Ld. TPO should consider the comparables related to Trading of Software instead of Marketing Support Service. As the assessee did not raise the ground of RPM before the lower authorities, the undersigned strongly objects to the same at this stage. Any consideration of this ground/claim at this stage would be violation of the principles of natural justice to the lower authorities. It is requested that the Hon'ble ITAT may dismiss this ground/claim accordingly. Without prejudice to this, the rebuttal of the assessee's contention regarding \"Trader of Software\" has been discussed elaborately in the aforesaid paras 1.12 and 1.13. Further, considering the functional analysis of the assessee, TNMM is the most appropriate method with OP/OR as the PLI which has been discussed at length in the aforesaid paras. Therefore, even on merits also, the assessee's claim of adoption of RPM as the most appropriate method is baseless and without any substance. It is also relevant to highlight that by advocating RPM as the most appropriate method, the assessee is questioning its own TP documentation (including TP Study Report where the assessee itself adopted TNMM as the most appropriate method) maintained u/s 92D of the Act. The assessee's contention to apply RPM is essentially a cherry-picking exercise and a self-serving argument. 1.16 Coming to the second contention that the assessee's nomenclature as \"Value Added Reseller\" is purely titular and does not, in any manner, reflect the functional characterization of the assessee. As argued by the undersigned, if it is purely titular, why such a nomenclature was agreed by the assessee in a contractual document/legal document \"Value Added Reseller Agreement\" with its foreign AE? Further, \"Value Added Reseller Services\" provided by the assessee have been defined under section 2.03 under Article 2 of the Agreement. The \"Value Added Reseller Services\", as defined under section 2.03 of the Agreement, have been discussed elaborately in the aforesaid para 1.8. Considering the nature of services provided by the assessee as highlighted in the aforesaid para 1.8, and the discussion made by the TPO and DRP regarding the assessee's functions as mentioned above, the assessee is rightly termed as \"Value Added Reseller\" and it correctly reflects the functional characterization of the assessee. 2. In view of the above, it is requested that the assessee's aforesaid grounds may be dismissed by the Hon'ble ITAT. 3. Having regard to the above, it is requested to uphold the order of the AO and the TPO and dismiss the appeal of the assessee.” Printed from counselvise.com 22 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC 10. Assessee further filed submission on the arguments and written submission filed by the ld. CIT DR which readds as under: REJOINDER TO SUBMISSION OF LD. DR “With regard to the written submission filed by the Id. Departmental Representative (DR) dt. 10.11.2025 following rejoinder may be considered: 1. It is respectfully submitted that the contentions of the Id. DFR reiterate the stand of the lower authorities. 2 On the \"Undated Agreement\" (Para 1.2 of Id. DR Submission): It is submitted that the id. DR's assertion that the \"Value Added Reseller Agreement\" submitted by the assessee is \"not dated\" is factually incorrect. The said agreement is fully executed, dated, and is available in the Paper Book at Pages 14-29 (specifically page no. 14), as referred to in the Gist of Submissions already on record. 3 On Resale Price Method (RPM) as a \"New Plea\" (Para 1.15 of Id. DR Submission): It is submitted that the assessee, in its proceedings before the Id. Dispute Resolution Panel (DRP), had alternatively pleaded for the adoption of the Resale Price Method (RPM) vide Ground No. 7 of its objections. The detailed submission, rationale, and benchmarking working for RPM were explicitly provided in Form 35A at pages 61-62 and relevant extract was also mentioned at earlier rejoinder page no.1 4 The Id. DR has erred by placing reliance on the title of the agreement (\"Value Added Reseller\") rather than its operative substance. It is a settled legal principle that substance must prevail over form. 5 The Id. DR has considered the routine sales and administrative functions listed in Section 2.03 of the agreement (e.g., \"Sales presentations\" \"Invoicing & collection\") with product \"value-addition.\" These are standard, necessary activities of any reseller or distributor, not technical services that enhance the underlying subscription/software. 6 It is reiterated that the Id. DR's functional characterization as a \"Value Added Reseller\" is fatally contradicted by the assessee's 'Asset' profile, a fact the lower authorities have consistently ignored. 6.1 The assessee's FAR analysis and audited financials confirm it \"does not own any intangibles\". All intellectual property is owned by its AE Printed from counselvise.com 23 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC 6.2 Furthermore, the assessee's fixed assets are of a minuscule amount of Rs. 4.82 Lacs. [Refer audited financials of the company as part of PB page no. 1] 7 The purchase cost of the software license (\"IC subscription fees\") is the assessee's Cost of Goods Sold, not an operating expense. This is the correct accounting and economic treatment for a distributor. Including COGS in the denominator would distort the ratio, which is designed to measure the return on operating efforts. This position is supported by judicial precedents, including Sumitomo Corporation India (P.) Ltd. 71 taxmann.com 290 (Delhi) and Mitsubishi Corporation India (P.) Ltd. 50 taxmann.com 379 (Delhi - Trib.). 8 Without prejudice to the above, the assessee's true function as a simple reseller makes RPM the most appropriate method per Rule 10B(1)(b) of the Income-tax Rules, 1962. 9 Even otherwise, it is a settled position that the Hon'ble Bench has full authority to consider and apply the Most Appropriate Method afresh, as held by the Hon'ble Delhi High Court in Matrix Cellular International Services (P.) Ltd. 90 taxmann.com 54 (Delhi). In view of the above, the lower authorities may be directed to consider the Resale Price Method (RPM) as the most appropriate method for the purpose of transfer pricing. Alternatively, if the TNMM method as originally applied by the assessee is upheld then, considering the arrangement of assessee with it's AE, being merely a low value added reseller, berry ratio may be considered to be the correct Profit Level Indicator (PLI)” 11. After considering the submissions from both the parties and perusal of the materials available on record, we find that the sole issue before us is regarding ALP adjustment of international transactions with respect to the purchase of software with its AEs. The claim of the assessee is that it is working in limited risk involvement, and therefore, TNMM should be the MAM and applied Berry ratio as PLI deserves to be accepted. From the facts, it could be seen that the assessee is selling subscriptions developed by its AE, where assessee receives orders from unrelated parties and on order-to-order basis has purchased the software and supplied it tot eh customer, thus, the assessee is a trader only. However, DRP held as the assessee provides marketing support services and the software is a medium used for Printed from counselvise.com 24 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC marketing. These observations of the DRP are incorrect so far as the business of the assessee as a trader of subscriptions of software license. In the process of sale of subscription of software license, the software is not a medium rather it is the product itself, and assessee is providing license to use it without having any access to modify or adding any value to the product i.e. software which was developed and supplied by its AE. Assessee’s income limited to the margin earned from the sale of subscription only. Under these circumstances, the Berry ratio taken by the assessee for PLI and TNMM as MAM for working out the arms’ length price should be accepted. 12. The Hon’ble Delhi High Court in the case of Sumitomo Corporation India (P.) Ltd. vs CIT (supra) while considering the application of Berry ratio has observed as under:- 45. “Traditionally, the denominator of the ratio only comprised of selling, general and administration expenses. However, the Treasury Legislation of USA also included depreciation as a part of the Operating Expenses used as a denominator in the berry ratio. As is apparent, Berry ratio has limited applicability; it can be used effectively only in cases where the value of goods have no role to play in the profits earned by an Assessee and the profits earned are directly linked with the operating expenditure incurred by the Assessee. In other words, the operating expenditure incurred by the Assessee effectively captures all functions performed and risks undertaken by the Assessee. Thus, in cases where an Assessee uses intangibles as a part of its business. Berry ratio would not be an apposite PLI as the value of such tangibles would not be captured in the operating cost and, therefore, it would not be appropriate to compute the ALP based on net profit margin having regard to the operating cost as a relevant base. Similarly, Berry ratio would not be an appropriate PLI for determining ALP in cases of Assessees who have substantial fixed assets since the value added by such assets would not be captured in Berry ratio. \"46. It can be seen from the above that the Berry ratio can be used only in very limited circumstances and the limitations that we have listed above are by no means exhaustive. There is also a view expressed that use of Berry ratio as a PLI results in indicating less than fair ALPs in tax jurisdiction where the Printed from counselvise.com 25 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC Assessees have a lower bargaining power. In the aforesaid context, in our view, the TPO had correctly reasoned that Berry ratio could not be used as a PLI in cases of Assessees which were using intangibles. However, we find that there was no cogent material for the TPO to hold that the Assessee had developed supply chain and human resources intangibles. In any event, there was no material to conclude that costs of such intangibles were not captured in the operating expenses. 47. In our prima facie view, the third reason stated by the TPO, that is, the rate of commission paid to the Assessee is based on the value of the goods, would be a valid reason to reject the use of Berry ratio because Berry ratio can only be applied where the value of the goods are not directly linked to the quantum of profits and the profits are mainly dependent on expenses incurred. The fundamental premise being that the operating expenses adequately represent all functions performed and risks undertaken. For this reason Berry ratio is effectively applied only in cases of stripped down distributors; that is, distributors that have no financial exposure and risk in respect of the goods distributed by them.” 13. The coordinate Delhi bench of Tribunal in the case of Adm Agro Industries Kota & Akola P. Ltd, Vs. ACIT, Circle-1(1), New Delhi in ITA No. 2281/Del/2022 vide order dt. 13.06.2022 under similar circumstances held the berry ratio applicable for PLI by making following observations: 22. At this stage, it is necessary to look into the relevant statutory provisions relating to determination of ALP of international transactions with AEs. Section 92 of the Act provides for computation of income having regard to the ALP of international transactions with AE. Section 92C of the Act provides the methods for computation of ALP. TNMM is one of the approved methods for computing ALP. Rule 10B(1)(e) lays down the mechanism for computation of ALP under TNMM. On a holistic reading of Rule 10B(1)(e), it becomes clear, the computational mechanism is in several steps. In the first step, the net profit margin of the enterprise (in the present case, the assessee) realised from the international transaction with AE has to be computed in relation to cost incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base. In the second step, the net profit margin realised by an enterprise (in the present case, comparables) from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. In the third step, necessary adjustments, if any, is made to the profit margin of comparables to take care of the differences that may be arising in the margin Printed from counselvise.com 26 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC of the controlled transactions, which could materially affect the amount of net profit margin in the open market. In the fourth and fifth steps, the net profit margins of the controlled and uncontrolled transactions are compared and the ALP is determined. Thus, as could be seen from the computational mechanism provided in rule 10B(1)(e), it is not rigid but flexible. The net profit margin of the assessee can be computed not only in relation to cost incurred or sales effected or assets employed, but, having regard to any other relevant base also. The expression \"any other relevant base\" is wide enough to align the computation of margin of the assessee and the comparables. 23. Thus, if we go by the provision of rule 10B(1)(e), the return on value added cost, otherwise known as berry ratio, is not completely excluded from its purview. It can be a relevant base for computing the margin. The berry ratio in simple terms means a ratio of gross profit to operating expenses. Therefore, where operating expense is considered as a relevant base, there would be no difficulty in using berry ratio as PLI in terms of Rule 10(B)(1)(e). In case of Sumitomo Corporation India Pvt. Ltd. (supra), Hon'ble jurisdictional High Court, while considering applicability of berry ratio, has observed that it can be used effectively only in cases where the value of goods have no role to play in the profit earned by a assessee and the profits earned are directly linked with the operating expenditure incurred by the assessee. The operating expenditure incurred by the assessee effectively captures the functions performed and risk undertaken by the assessee. Thus, in a case where assessee uses an intangible as a part of its business, berry ratio may not be an appropriate PLI, as the value of such intangible would not be captured in the operating cost. Similarly, berry ratio is not appropriate PLI for determining the ALP in cases where the assessee may be having substantial fixed assets since, the value added by such assets would not be captured in berry ratio. However, it can be applied where the operating expense adequately represent all functions performed and risks undertaken. Thus, the Hon'ble High Court held that berry ratio is effectively applied only in case of stripped down distributors who have no financial exposure and risk in respect of the goods distributed by them. Various other decisions cited by learned Sr. counsel lay down the ratio that Rule 10(B)(1)(e) does not completely rule out applicability of berry ratio. 24 …… 25 ….. 26. On examination of facts on record, we find that the aforesaid submissions of learned Departmental Representative are extraneous to the issue at hand. Admittedly, in the TP study report, the assessee had furnished segmental information regarding both the merchanting trades segment and physical trade segment. The TPO has also accepted the segmental analysis of the assessee. In fact, he has accepted the transactions in trading segment to be at ALP. As discussed earlier, the only variation, he has made in merchanting trades segment, is in relation to PLI of the assessee. Thus, neither the TPO nor DRP have made any adverse comment regarding the merchanting trades Printed from counselvise.com 27 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC segment. Further, when there is no allegation either by RBI or any other regulatory authority regarding merchanting trades segment of the assessee, in our view, learned Departmental Representative cannot give a new dimension to the entire issue by making allegations which are not borne out on record. At this stage, learned Departmental Representative cannot improve upon the case of the TPO or learned DRP by enlarging the scope of the appeal. Thus, considering the fact that in the PLI of the comparables, cost of goods is not included in the denominator, in our view, the same would also apply to the assessee. Hence, cost of goods cannot form part of the denominator of PLI. Accordingly, we direct the Assessing Officer to compute the ALP by applying PLI of operating profit to value added cost, excluding the cost of goods. Grounds are allowed. 14. This view is further supported by the judgement of Mitsubishi Corporation India (P.) Ltd. vs CIT (supra) and various other judgments which are relied upon by the assessee, which are tabulated as under: (i) Matrix Cellular International Services (P.) Ltd. [2018] 90 taxmann.com 54 (Delhi High Court) (ii) Burberry India (P.) Ltd. [2024] 169 taxmann.com 6 (Delhi High Court) (iii) L’Oreal India (P.) Ltd. [2015] 53 taxmann.com 432 (Bombay High Court) (iv) Horiba India (P.) Ltd. [2017] 81 taxmann.com 209 (Delhi ITAT) (v) Alcoa India (P.) Ltd. [2020] 114 taxmann.com 631 (ITAT, Delhi) (vi) Harman Connected Services Corporation India (P.) Ltd. [2022] 141 tasxmann.com 455 (ITAT Bangalore) (vii) L’oreal India (P.) Ltd. [2012] 24 taxmann.com 192 (ITAT Mumbai) (viii) Capstone Securities Analysis (P.) Ltd. [2020] 113 taxmann.com 518 (Pune-Trib.) 15. In view of the above discussion, we hold that once the assessee is making no value addition to the product sold by it i.e. the subscription of software license developed and owned by its AE and is a stripped down distributor only, therefore, Printed from counselvise.com 28 ITA No.IT(TP) A 5470 /Del/2024 Meltwater India Pvt. Ltd. vs. NFAC assessee is reseller of the software subscription and arm length price computed by taking TNMM as MAM is upheld and further held that the Berry Ratio as correct PLI. We order accordingly. With these directions, all the grounds of appeal of the assessee are allowed. 16. In the result, the appeal filed by the assessee is allowed. Order is pronounced in the Open Court 16.01. 2026. Sd/- Sd/- (MADHUMITA ROY) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:16.01.2026 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "