SSNC FINTECH SERVICES INDIA PRIVATE LIMITED,HYDERABAD V. DCIT., CIRCLE 8(1), HYDERABAD

ITA 916/HYD/2024

AI Insights

The case involves SSNC Fin Tech Services India Private Limited, which appealed against the Final Assessment Order passed by the Assessing Officer under various sections of the Income Tax Act, 1961, following the directions of the Disputes Resolution Panel (DRP). The primary contention was regarding the Transfer Pricing (TP) adjustment made by the Transfer Pricing Officer (TPO), which added INR 2,70,56,964 to the appellant's income, asserting that the international transactions with its Associated Enterprises (AEs) were not at arm's length. The Tribunal examined the comparability analysis used by the TPO and the DRP, particularly the inclusion of Infosys Limited as a comparable company, and found it inappropriate due to significant functional and financial differences.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706032 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: misc
• Other Referred Cases: ADP Pvt. Ltd., DCIT [2022] 135 taxmann.com 44 [Hyd.-Trib.], Kony India P Ltd. Vs. DCIT, Kony IT Services P Ltd. Vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B.BALAKRISHNA
• Assessee Lawyers: KETAN K. VED
• Keywords: Revenue expenditure; Transfer pricing; International transaction; Depreciation; Cost of acquisition; Capital expenditure; Share purchase agreement; Scheme of amalgamation; Related party transaction

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “A” BENCH: HYDERABAD BEFORE SHRI MANJUNATHA G, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA.No.916/Hyd./2024 Assessment Year 2020-2021 SSNC Fin Tech Services India Private Limited, Hyderabad – 500 032 PAN AAACI7097L vs. The DCIT, Circle-8(1), Hyderabad – 500 094. Telangana. (Appellant) (Respondent) For Assessee : CA, Ketan K. Ved For Revenue : Shri B. Bala Krishna, CIT-DR Date of Hearing : 26.06.2025 Date of Pronouncement : 03.07.2025 ORDER PER MANJUNATHA G. : This appeal has been filed by the assessee company against the Final Assessment Order dated 19.07.2024 passed by the Assessing Officer u/sec.143(3) r.w.s.144C(13) r.w.s.144B of the Income Tax Act, 1961 [in short “the Act”] in pursuance to the Directions dated 14.06.2024 of the Disputes Resolution Panel-1, Bengaluru, passed u/sec.144C(5) of the Income Tax Act, 1961. 2 ITA.No.916/Hyd./2024 2. The assessee has raised the following grounds in the instant appeal : “The grounds hereinafter taken by the Appellant are without prejudice to one another: 1:0 Erroneous levy of income-tax and interest thereon 1:1 On the facts and in the circumstances of the case, and in law, the Assistant Commissioner of Income Tax Bangalore ('the Ld. AO') erred in making an addition of INR 2,70,56,964 to the total income and assessing the total income of the Appellant for the captioned AY at INR 46,39,27,300. TRANSFER PRICING ISSUES: 2 : 0 Transfer Pricing Adjustment of INR 2,70,56,964 in relation to the international transaction of Provision of Information Technology (IT) services [\"IT services\"]: 2 : 1 The Id. AO/TPO/DRP have erred on the facts of the case and in law in making an upward adjustment of INR 2,70,56,964 to the total income of the Appellant by holding that the international transaction relating to IT services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length. 3 ITA.No.916/Hyd./2024 2 : 2. The Id. AO/TPO/ DRP erred in facts of the case and in law in disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing (TP) study report maintained as per section 920 of the Income Tax Act, 1961 ('the Act') read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') and thereby erred in rejecting the TP documentation maintained by the Appellant. 2 : 3. The AO/ TPO / DRP have erred in rejecting the economic analysis and methodical search process undertaken by the Appellant to identify comparable companies providing services similar to the IT services rendered by the Appellant. 2 : 4. The AO/TPO/DRP have erred in undertaking a fresh search at the time of transfer pricing assessment thereby disregarding the use of contemporaneous data and modifying/ applying additional search filters to arrive at a fresh set of alleged comparable companies to the provision of IT services rendered by the Appellant. 2 : 5. The Id. AO/ TPO / DRP erred in law and in facts of the case in applying inappropriate qualitative and quantitative criteria for accepting / rejecting companies. 4 ITA.No.916/Hyd./2024 2 : 6. The Id. AO/TPO/DRP erred in applying an inappropriate filter of rejecting companies having export earnings less than 75% of total turnover. 2 : 7. The Id. AO/TPO/DRP erred in law and in facts of the case in applying filter of rejecting companies having software development service income less than 75% of total turnover. 2 : 8. Further, the Id. AO/TPO/ DRP erred in law and in facts of the case modifying the filter of extra- ordinary events and rejecting the filter of inadequate business segment information. 2 : 9. The Id. AO/TPO/DRP erred in selecting the companies only if the data pertaining to FY 2019-20 is available in the public databases. 2 : 10. The Id. AO/TPO/DRP have erred in rejecting companies having different FY ending or whose data does not fall within the 12 month period of 1 April 2019 to 31 March 2020 and failed to appreciate that disregarding companies that have a FY ending other than March 2020 would lead to having a limited set of comparable companies and would have bearing on the comparability analysis. 5 ITA.No.916/Hyd./2024 2 : 11. The Id. AO/ TPO/ DRP erred in rejecting companies having losses for two out of three years and rejecting the filter of rejecting companies with abnormal margins in the years of study. 2 : 12. The Id. AO/TPO/ DRP erred in applying the filter of selecting companies having Related party transactions of less than 25 percent (either of revenues or of expenses). 2 : 13. The Id. AO/TPO/ DRP erred in disregarding the contention of the assessee to undertake economic adjustments for working capital, accounting depreciation and market risk. 2 : 14. The Id. AO/TPO/DRP have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. i. DCIS Dot Com Solutions India Pvt Ltd. ii. Qualitykiosk Technologies Pvt Ltd. iii. Inteq Software Pvt Ltd. iv. Kcube Consultancy Services Pvt Ltd. v. Rheal Software Ltd. vi. Sasken Technologies Ltd. vii. Happiest Minds Technologies Pvt Ltd – Seg. viii. Clover Infotech Private Limited. ix. Bhilwara Infotechnology Ltd (Software & IT related services). 6 ITA.No.916/Hyd./2024 x. x. CES Ltd. (IT Services) 2 : 15. The Ld. AO/TPO/DRP erred on facts in arriving at a new set of comparable companies by adding following companies which have an entirely different functionally and risk profile and are not comparable to the Appellant with respect to provision of IT services : i. Robosoft Technologies Ltd. ii. Daffodil Software Pvt Ltd. iii. Larsen & Toubro Infotech Ltd. iv. Great Software Laboratory Pvt. Ltd. v. Sagarsoft (India) Ltd. vi. Virinchi Ltd. vii. Mindtree Ltd. viii. Nihilent Ltd. ix. Wipro Ltd. x. Infosys Ltd. xi. xi. Cybage Software Pvt. Ltd. 2 : 16. Without prejudice to the above contentions, the learned AO/TPO/DRP have erred in incorrectly computing net cost plus margins of companies selected as comparable for the purpose of provision of IT services. 7 ITA.No.916/Hyd./2024 2 : 17. The AO/TPO/DRP erred in law and in facts of the case in cherry picking companies having high operating margins. 3:0 Re.: General: 3 : 1. On the facts and circumstances of the case, and in law, the Ld. AO erred in initiating penalty proceedings under section 270A r.w.s. 274 of the Act. 3 : 2. The Appellant craves leave to add, alter, amend and/or substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.” 3. Briefly stated facts of the case are that, the appellant-company viz., SSNC Fin Tech Services India Private Limited [Formerly known as “DST Worldwide Services India Private Limited] is engaged in provision of IT Services [in short “ITS”] and provision of IT Enabled Services [in short “ITES”] to it’s AEs as per the agreements entered into by it with its AEs. The appellant-company has filed it’s return of income for the assessment year 2020-2021 on 12.02.2021 declaring total income of Rs.43,68,70,340/-. The appellant- company has also filed Form-3CEB and reported various 8 ITA.No.916/Hyd./2024 international transactions including provision of ITS and ITES. The appellant-company is a captive service provider to it’s AE on cost plus basis as per the agreement entered into by it with it’s AEs. The appellant-company has carried-out TP analysis documents by adopting Transactional Net Margin Method [in short “TNMM”] as Most Appropriate Method [in short “MAM”]. The appellant-company has computed Profit Level Indicator [in short “PLI”] considering Operating Profit/Operating Cost [in short OP/OC] at 18.31%. The appellant-company has selected 18 comparable companies with 35th percentile at 6.26% and 65th percentile at 17.01% with Median of 12.82% and claimed that, the transactions with it’s AEs is at Arms Length Price [in short “ALP”]. 3.1. During the course of assessment proceedings, a reference u/sec.92CA of the Income Tax Act, 1961 was made to the Transfer Pricing Officer [in short “TPO”] to determine the ALP of the international transactions of the assessee with it’s AEs. During the course of TP proceedings, the TPO after considering the relevant TP analysis 9 ITA.No.916/Hyd./2024 documents submitted by the appellant-company, has rejected the TP documentation and has conducted a fresh TP study by applying certain filters. The TPO has selected final set of 18 comparables with 35th percentile at 19.41% and 65th percentile at 23.18% with Median of 21.43% and proposed TP adjustment of Rs.4,96,40,670/- towards provision of Software Development Services [in short “SDS”]. 3.2. The Assessing Officer has passed Draft Assessment Order u/sec.144C(1) of the Income Tax Act, 1961 on 26.09.2023 and proposed TP adjustment of Rs.4,96,40,670/- as proposed by the TPO in terms of order u/sec.92CA(3) of the Income Tax Act, 1961. Aggrieved by the Draft Assessment Order, the appellant-company has filed it’s objections before the DRP-1, Bengaluru. The DRP- 1, Bengaluru vide it’s Directions dated 14.06.2024 issued u/sec.144C(5) of the Income Tax Act, 1961, retained 18 comparables with 35th percentile at 18.65% and 65th percentile at 22.87% with Median of 20.01%. Pursuant to the Directions of the DRP, the Assessing Officer has passed the Final Assessment Order u/sec.143(3) r.w.s.144C(13) 10 ITA.No.916/Hyd./2024 r.w.s.144B of the Income Tax Act, 1961 vide order dated 19.07.2024 and made TP adjustment of Rs.2,70,56,964/- towards international transactions of the assessee with it’s AEs in Software Development Segment. 4. Aggrieved by the Final Assessment Order passed by the Assessing Officer, the appellant-company is now in appeal before the Tribunal. 5. CA, Ketan K. Ved, Learned Counsel for the Assessee submitted that, appellant-company seeks to exclude Infosys Limited from the list of final set of comparables retained by the Assessing Officer in pursuance to the Directions of the DRP. If we exclude Infosys Limited, then, the PLI of comparables is within the tolerance range and thus, the adjustment made by the TPO does not survive. Learned Counsel for the Assessee further, referring to various documents including functional profile of the appellant-company when compared to the functional profile of the Infosys Limited submitted that, Infosys Limited is functionally dissimilar which is having diversified business operations in software development segment itself. Further, 11 ITA.No.916/Hyd./2024 there is no segmental information in the annual reports. It has significant brand presence which is a contributing factor for operating margin of the company. Infosys Limited carries huge intellectual property led solutions and also incurred substantial amount of R & D activities. Further, it is into sale of licenses of software products. Therefore, the above company cannot be compared with the appellant- company which is a captive service provider to it’s AEs. In this regard, he relied upon the decision of ITAT, Hyderabad Bench in appellant-company’s own case for the assessment year 2014-2015 in ITA.No.2234/Hyd./2018. The Counsel for the Assessee has also relied upon the decision of ITAT, Hyderabad Bench in the case of ADP Pvt. Ltd., DCIT [2022] 135 taxmann.com 44 [Hyd.-Trib.]. 6. Sri B. Bala Krishna, learned CIT-DR, on the other hand, supporting the order of the DRP submitted that, Infosys Limited passed all filters applied by the TPO. Further, when TNMM is selected for benchmarking analysis, it has resistance to minor differences and further, when we consider 35th percentile and 65th percentile, it takes care of 12 ITA.No.916/Hyd./2024 various aspects including difference in comparability analysis and other factors. Brand value does not relevant for computation of PLI. The DRP has given a categorical finding in light of arguments of the Counsel for the Assessee that, Infosys Limited is functionally comparable to the appellant- company and it passed all filters applied by the TPO. Therefore, he submitted that, selective inclusion or exclusion of any comparable on the basis of certain events, gives distorted figures or defeat the very purpose of provisions of sec.92C of the of the Income Tax Act, 1961. Therefore, he submitted that, there is no merit in the arguments of the assessee and thus, the reasons given by the DRP to include Infosys Limited should be upheld. 7. We have heard both the parties, perused the material on record and the orders of the authorities below. The appellant-company is a captive service provider to it’s AEs on cost plus basis as per the agreement entered into by it with it’s AEs. The appellant-company provides software development services to it’s AEs on cost plus basis, whereas, Infosys Limited being a giant software developer 13 ITA.No.916/Hyd./2024 provides software development services to multi- dimensional industries including banks, manufacturing etc. Further, Infosys Limited is having huge brand value which is definitely impacts the operating margins of any company. Further, the Company has incurred substantial expenditure for marketing and R & D, whereas, the said expenditure is absent in the case of the appellant-company. Therefore, in our considered view, Infosys Limited cannot be a good comparable to the appellant-company which is engaged in software development services to it’s AEs on cost plus basis. Further, Infosys Limited has been considered to be not comparable to the appellant-company in appellant- company’s own case for the assessment year 2014-2015 in ITA.No.2234/Hyd./2018 (supra), where under identical set of facts, Infosys Limited has been excluded from the list of final set of comparables. The relevant findings of the Tribunal are as under : “4.4. Coming to ground no.4, the companies which the assessee is seeking exclusion are: i. Infosys Ltd. ii. Persistent Systems Ltd. 14 ITA.No.916/Hyd./2024 iii. e-Infochips Ltd. iv. Infobeans Technologies Ltd. v. Thirdware Solutions Limited The Ld. Counsel for the assessee submitted that in the case of Kony India P Ltd. Vs. DCIT for the very same AY 2014-15, the above companies have been held to be functionally not comparable to the Kony India Pvt.Ltd. which is also engaged in the business of providing Software Development Services to it’s A.E. like assessee company. He, therefore, placed reliance on the decision of the Coordinate Bench of this Tribunal in the case of : i. M/s Kony India Private Ltd. Vs. DCIT (ITA No. 2305/H/18 – AY 2014-15); ad ii. Kony IT Services P Ltd. Vs. DCIT (ITA 2304/H/2018 - AY 2014-15) and prayed for exclusion of the above 5 companies from the final list of comparables. 5. Ld. DR on the other hand supported the orders of the authorities below. 6. Having regard to rival contentions and material placed on record, we find that the assessee is into providing Software Development Services and M/s Kony India Private Ltd. was also into similar business of providing Software Development Services to it’s AE, we also find that the TPO has taken the very same 12 companies as comparables in the case of Kony India Ltd. Since the relevant AY is also 2014-15, the facts and 15 ITA.No.916/Hyd./2024 circumstances under which those companies have been held to be not comparable to M/s. Kony India Private Limited are also the same, the said decision is also applicable to the case before us. 6.1. In view of the same, respectfully following the decision of Coordinate Bench of this Tribunal to which one of us (i.e. J.M.) is a signatory, we direct the exclusion of above mentioned companies from the final list of comparables. For the sake of ready reference, the relevant paragraphs from the order of this Tribunal are reproduced hereunder:- “9. We have heard the rival submissions and carefully perused the materials on record. From the paper book furnished by the assessee as well as the arguments advanced by the Ld.AR, we find merit in his contention because of the following reasons:- (i) E-Infochips Limited:- (a) As per the annual report of M/s. E-Infochips Limited for the period 1/4/2013 to 31/3/2014 (Page No.98 of the paper book-Volume-II) it is evident that the company is primarily engaged in software development, IT Enables Services and product-based company. Further, no segmental details are available in the Annual Report. While as the assessee’s company’s only activity is Captive Software Development Services. Extraction from page-98 of PB-II “The company is primarily engaged in Software Development and IT Enable Services and products which is considered the only reportable business segment as per Accounting Standard-AS 17 Segment Reporting prescribed in Companies Accounting standards notified under Section 211(3C) (Which continues to be applicable in terms of General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate affairs in respect of Section 133 of the companies Act, 1961.” 16 ITA.No.916/Hyd./2024 (b) The company also manufactures products such as electronic boards and printer circuits by importing raw materials and holding inventory, as apparent from Page No. 119 of the PB-II. The assessee company is not engaged into any activity of producing physical goods. Page No. 119 of the PB-II (c) The company has also incurred expenses in R & D and therefore generated intangible assets as apparent from page no. 65 & 121 of PB-II, while as the assessee company is not involved in any R & D activity. In the case of the assessee company neither such expenses are incurred, or any intangibles are acquired during the relevant period. Extraction from page no. 65 of PB-II 17 ITA.No.916/Hyd./2024 Extraction from page No.121, PB-II: (d) The company has also earned revenue from Information Technology consultancy of Rs. 29.07 Crs as apparent from page no.123 of PB-II. However, the assessee company have not earned any income from information technology consultancy activities. Extraction from page No.123 of PB-II : 10. Considering the nature of activities carried out by M/s. E- infochips Limited discussed hereinabove and since the assessee company is primarily engaged in custom-built mobile platform, applications and software support and maintenance related services 18 ITA.No.916/Hyd./2024 to M/s. Kony Group of Companies, we are of the view that M/s. E- infochips Limited cannot be considered as a comparable company because of the reasons stated hereinabove. (ii) Thirdware Solutions Limited: (a) As argued by the Ld. AR it is evident from the Annual Report (page No.235 of PB-II) that the company has derived revenue from sale of products amounting to Rs. 206.75 Crs. Further, there is no revenue from sale of services during the previous year. The assessee has also purchased stock amounting to Rs. 40.21 Crs. While as the assessee company is not engaged into any activity of producing physical goods. page No.235 of PB-II (b) It is also apparent that the company is receiving revenue from various streams and none of them were pertaining to software development services. As apparent from page 237 of PB-II, the company has received Revenue from training and subscription amounting to Rs. 59.32 lakhs and sale of licenses Rs.7.98 lakhs. The assessee company is only engaged in ITES. 19 ITA.No.916/Hyd./2024 Extraction from page no.237 of PB-II: (c) It is also apparent from page no. 217 of PB-II that the company has not disclosed segmental details between software development services and products. The relevant portion is extracted herein below for reference:- “34) Segment Reporting The company’s cooperation comprises of software development, implementation and support services. Primary segmental reporting is based on geographical areas viz., Domestic = India (Products & Services) and International = Rest of the world (Exports- software services). In primary segment, revenue and all expenses, which relates to a particular geographical segment, are reported. Fixed Assets, Current Assets, Loans and Advances, Current Liabilities and provisions are classified based on specific geographical segment’s business. The company maintains separate books of account for the reported segments. Wherever the costs are directly identifiable with the reported segment, it has been booked to that segment. Wherever common expenses are incurred, those expenses have already been conside3red for allocation and relevant entries in the books of account have been passed. Hence there are no un-allocable expenses. Further, cash, investment (net of provision) and bank balances are reported at the enterprise level. Current assets and current liabilities relating to the specific business segments are identified and reported. Those, 20 ITA.No.916/Hyd./2024 which are not identifiable, are reported as common assets /liabilities.” (d) As disclosed in the annual account it is also apparent that the company has acquired intangibles during the year. Relevant portion of page 210 of PB-II is extracted hereinbelow for reference:- “d) Intangible Assets and Amortization Acquired intangible assets relating to software purchased for company’s internal use are capitalised at the cost of acquisition and is amortised on the straight line method over its estimated useful life of three years, as perceived by the management or useful life of asset as per contract whichever is earlier. Depreciation on intangible assets is calculated on pro- rata basis with reference to date of addition over its useful life of three years, as perceived by the management or useful life of asset as per contract, whichever is earlier. The intangible assets acquired b the respective units of Thirdware Solution Limited are used in relation to the operation / services by the respective units only. Intangible assets internally developed by the company are capitalised at the total cost attributable towards the development of the product and is amortised on the straight- line method over its estimated useful life of three years, as perceived by the management.” 10.1. In the case of the assessee company neither such expenses are incurred, or any intangibles are acquired during the relevant period. 11. Since the assessee company is primarily engaged in custom-built mobile applications and software support and maintenance related services to M/s. Kony Group of Companies, we are of the considered view that M/s. Third-ware Solutions Limited cannot be considered as a comparable company because of the reasons stated hereinabove. 21 ITA.No.916/Hyd./2024 (i) M/s. Infobeans Technologies Limited: - (a) From the Annual Report Page No.276 of the PB-II it is apparent that the assessee has also been engaged in sale of goods along with rendering of services because the turnover is reported on export of goods / services calculated on FOB basis. (b) The company also has MODVAT deposits and sales tax deposit. (c) Therefore, the company is functionally dissimilar to the assessee company. (d) For reference the relevant portion of the Annual Report enclosed in paper book-II, page no.276 is extracted hereinbelow: Note-27 EARNINGS IN FOREIGN EXCHANGE a. Export of goods / services calculated on F.O.B basis 329,659883 216,854,891 Total 329,659883 216,854,891 LONG TERM LOANS & ADVANCES Security Deposit – Secured considered Good Telephone Deposit Other Deposit Custom Deposit Deposit with MPPKVVCL Sales Tax Deposit (Kotak FDR) Deposit (M-VAT) M.P.S.E.D.C. Ltd 9,400 9,153 10,000 140,850 10,000 25,000 10,121,460 9,400 3,500 10,000 73,150 - 25,000 - Total 10,325,863 121,050 11.1. Since, the company is functionally dissimilar it cannot be compared with the assessee company for the purpose of TP adjustment. (iv) M/s. Infosys Limited: (a) From the profitability reported in the P & L Account (Page No. 324, 349 and 357 of PB-II) it is evident that the company had 22 ITA.No.916/Hyd./2024 undergone extraordinary events as stated by the Ld. AR and this acquisition had substantial impact on the profitability of the company during the previous year. Extraction from Page 324 “Lodestone Holding AG On October 22,2012. Infosys acquired 100%of the outstanding share capital of Lodestone Holding AG, a global management consultancy firm headquartered in Zurich, Switzerland. The acquisition was executed through a share purchase agreement for an upfront cash consideration of 1,187 crore and a deferred consideration of up to Rs. 608 crore. During the year, we invested in our subsidiaries, for the purpose of operations and expansion, as follows : Subsidiary In foreign currency Crore Infosys Americas,Inc. USD O.1 million 1 Lodestone Holding AG CHF 20 million 136 Infosys Public Services,Inc. USD 12.5 million 75 Edgeverve Systems Limited 1 (1) On April 15,2014,the Board of Directors of Infosys authorized the Company to execute a Business Transfer Agreement and related documents with Edgeverve (Refer to Note 2.10.2 of the standalone financials). 23 ITA.No.916/Hyd./2024 Refer to statement pursuant to Section 212 of the Companies Act,1956 for the summary financial performance of our subsidiaries. The audited financial statements and related information of subsidiaries will be available on our website,www.infosys.com.” Extraction from page 349 of PB-II 2.10.1 Investment in Lodestone Holding AG On October 22, 2012, Infosys acquired 100% of the outstanding share capital of Lodestone Holding AG, a global management consultancy firm headquartered in Zurich, Switzerland. The acquisition was executed through a share purchase agreement for an upfront cash consideration of Rs. 1,87 crore and a deferred consideration of up to Rs. 608 Cr. The deferred consideration is payable to the selling shareholders of Lodestone on the third anniversary of the acquisition date and is contingent upon their continued employment for a period of three years. The investment in Lodestone has been recorded at the acquisition cost and the deferred consideration is being recognized on a proportionate basis over a period of three years from the date of acquisition. An amount of Rs. 228 Crore and Rs. 85 Cr representing the proportionate charge of the deferred consideration has been recognized as an expense during the years ended March 31, 2014 and March 31, 2013 respectively.” 24 ITA.No.916/Hyd./2024 Extraction from Page 357 of PB-II 2.26 Merger of Infosys Consulting India Limited The Honorable High Court of Karnataka sanctioned the scheme of amalgamation of Infosys Consulting India Limited (ICIL) with Infosys Limited with an effective date of August 23, 2013 and an appointed date of January 12, 2012 ICIL was a wholly-owned subsidiary of Infosys Limited and was engaged in software-related consultancy services. The merger of ICIL into Infosys Limited has been accounted for under pooling of interest method referred to in Accounting Standard 14. Accounting for Amalgamation (AS-14). All the assets and liabilities of ICIL on an after the appointed date and prior to the effective date have been transferred to Infosys Limited on a going concern basis. As ICIL was a wholly-owned subsidiary of Infosys Limited, no shares have been allotted to the shareholders upon the scheme becoming effective. 11.2. However, in the case of the assessee company there are no such events leading to super profits. (b) The company has a bumper turnover of Rs. 42,531 Crs which cannot be compared with the turnover of the assessee company which is only Rs. 163 Crs. (c) The company has recognised Intellectual property rights (IPRs) for Rs. 59 Crs as evident from Page 348 of PB-II. Extraction from Page 348 of PB-II 25 ITA.No.916/Hyd./2024 2.8 Fixed assets in ` crore, except as otherwise stated Particulars Original cost Depreciation and amortization Net book value As at April 1, 2013 Additions / Adjustments during the year Deductions / Retirement during the year As at March 31, 2014 As at April 1, 2013 For the year Deductions / Adjustments during the year As at March 31, 2014 As at March 31, 2014 As at March 31, 2013 Tangible assets : Land : Freehold 492 290 1 781 – – – – 781 492 Leasehold 348 1 – 349 4,878 – – – – 1,754 349 3,124 348 Buildings (1)(2) 4,053 825 – 1,467 287 – 2,586 Plant and equipment (2) 779 312 1 1,090 547 125 1 671 419 232 Office equipment (2) 276 117 – 393 159 56 – 215 178 117 Computer equipment (2)(3) 1,525 672 19 2,178 1,053 520 19 1,554 624 472 Furniture and fixtures (2) 518 161 – 679 345 96 – 441 238 173 Vehicles 10 3 – 13 5 2 – 7 6 5 8,001 2,381 21 10,361 3,576 1,086 20 4,642 5,719 4,425 Intangible assets : Intellectual Property Rights 59 – – 59 31 15 – 46 13 28 59 – – 59 31 15 – 46 13 28 Total 8,060 2,381 21 10,420 3,607 1,101 20 4,688 5,732 4,453 Previous year (4) 7,173 1,422 535 8,060 3,112 956 461 3,607 4,453 (1) Buildings include ` 250/- being the value of 5 shares of ` 50/- each in Mittal Towers Premises Co- operative Society Limited. (2) Includes certain assets provided on cancellable operating lease to Infosys BPO, a subsidiary. (3) Includes computer equipment having gross book value of ` 1 crore (net book value Nil) transferred from Infosys Consulting India Limited (Refer note 2.26). (4) During the years ended March 31, 2014 and March 31, 2013, certain assets which were old and not in use having gross book value of Nil and ` 521 crore respectively In the case of assessee company there is no accretion of such kind of assets. (d) The company has spent huge amount on R & D Activities amounting to Rs.261 Crs during the previous year and also have filed 79 patterns in its name as pointed by the Ld. AR and apparent from the PB-II, page No.304 and 311. 26 ITA.No.916/Hyd./2024 Extraction from Page 304 of PB-II “Our research and development efforts focus on the twin goals of improving productivity and quality of our services, alongside working towards technology driven innovation and differentiation that will deliver greater value to our clients. At Infosys Labs, Service innovation is being achieved through enhanced automation, optimization, prevention and effective collaboration among described teams. Infosys Labs has established a set of service innovation groups focused on enhancing quality and productivity of six dominant Infosys services-Business Process Outsourcing; Infrastructure Management Services; Independent Validation Services; Application Development and Maintenance including Large Deals; Consulting and Systems Integration; and Modernization. These groups work on service platforms with a focus on automation, optimization, consolidation, and on enhancing the effectiveness of contextual collaboration for distributed teams. Under its Client Innovation umbrella, Infosys Labs has established six Centres of Excellence (CoE), namely Modernization, Advanced Analytics, Security and Dependability, Advanced Mobility, Experience, and Innovation Co-Creation. The CoEs work towards establishing technology-based client innovation and differentiation through the establishment of Client Innovation Centres, publishing focused technology points of view, implementing proofs of concepts driven by our 27 ITA.No.916/Hyd./2024 focus on client value, and conducting client workshops. Additionally, we have set up innovation centres with a number of our clients, university partners, and industry research consortia to drive co-creation. Infosys Labs focuses on developing significant new intellectual property to enhance the productivity and quality of our services while enabling differentiation in client offerings. During fiscal year 2014, Inlosys Labs filed 79 unique patent applications in the United States Patent and Trademark Office(USPTO),the Indian Patent Office and other jurisdictions. On a standalone basis, our research and development expenses for fiscal years 2014, 2013 and 2012 were Rs. 873 crore, Rs. 907 crore and Rs. 655 crore, respectively.” Extraction from Page 311 of PB-II “Research and development expenditure The R&D centers of the Company (Finacle and Infosys Labs) located at Bangalore, Bhubaneswar, Chandigarh, Chennai, Pune, Hyderabad, Mysore and Thiruvananthapuram have been accorded approval for weighted deduction by the Department of Scientific and Industrial Research (DSIR) effective November 23, 2011. The eligible R&D revenue and capital expenditure on a standalone basis are Rs 261 crore and Nil respectively for the year ended March 31, 2014 and Rs. 247 crore and Rs. 3 crore respectively for the year ended March 31, 2013. On a standalone basis, the total R&D expenditure, including eligible R&D expenditure 28 ITA.No.916/Hyd./2024 discussed above for fiscal years 2014 and 2013 is as follows: in ` crore 2014 2013 Revenue expenditure 873 – 873 2.0% 907 Capital expenditure 6 Total 913 R&D expenditure / total revenue (%) 2.5% (e) It is also apparent from page No.326 of PB-II that the company has incurred huge selling and marketing expenses of Rs. 2,390 Crs. Extraction from Page 326 of PB-II III Results of operations The function-wise classification of the Standalone Statement of Profit and Loss is as follows: in crore Year ended March 31 2014 % 2013 % Income from software services and products 44,341 100.0 36,765 100.0 Software development expenses 26,738 60.3 21,662 58.9 Gross profit 17,603 39.7 15,103 41.1 Selling and marketing expenses 2,390 5.4 1,870 5.1 General and administration expenses 2,686 6.0 2,218 6.0 5.076 11.4 4,088 11.1 Operating profit before depreciation 12,527 28.3 11,015 30.0 29 ITA.No.916/Hyd./2024 While as in the case of the assessee company no such expenses have been incurred as it is catering only to its parent company. 12. Considering the above-mentioned factors, we are of the considered view that M/s. Infosys Limited is not a comparable company with respect to the assessee company for TP Adjustments.” 8. In this view of the matter and considering the facts and circumstances of the case and also by following the decision of ITAT, Hyderabad Bench, Hyderabad in appellant-company’s own case for the assessment year 2014-2015 (supra), we direct the Assessing Officer to exclude Infosys Limited from the list of final set of comparables for the purpose of computing ALP of international transactions of the appellant-company with it’s AEs. 9. At the time of hearing, CA, Ketan K. Ved, Learned Counsel for the Assessee referring to grounds of appeal filed by the assessee along with Form No.36 submitted that, except ground no.2 : 15 [x], the appellant-company does not wish to argue other grounds. Therefore, the same may be 30 ITA.No.916/Hyd./2024 dismissed as not pressed, for which, Shri B. Bala Krishna, learned CIT-DR for the Revenue, has not raised any objection. Therefore, except ground no. 2 : 15 [x], all other grounds raised by the assessee in the instant appeal have been dismissed as not pressed. 10. In the result, appeal of the Assessee is partly allowed. Order pronounced in the open Court on 03.07.2025. Sd/- Sd/- [RAVISH SOOD] [MANJUNATHA G] JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 03rd July, 2025 VBP Copy to 1. SSNC Fin Tech Services India Private Limited, Survey No.109, 110, 111-2Q City, 5th Floor, Nanakramguda Village, Gachibowli, Hyderabad – 500 032. Telangana. 2. The DCIT, Circle-8(1), Signature Towers, 9th Floor, Opp. Botanical Gardens Road, Whitefields, Kondapur, Hyderabad – 500 -084. Telangana. 3. The Disputes Resolution Panel-1, Kendriya Sadan, 4th Floor, C-Wing, Bengaluru – 560 034. 4. The Pr. CIT, Hyderabad. 5. The DR, ITAT “A” Bench, Hyderabad. 6. Guard File. //By Order// //True Copy// "