Income Tax Appellate Tribunal - Mumbai
Red Hat India Private Limited ,Mumbai vs Dcit, Circle 15(3)(1), Mumbai on 3 February, 2026
IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI "J" BENCH, MUMBAI
BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND
SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER
ITA No. 4065/MUM/2024 (AY:2020-21)
Red Hat India Pvt. Ltd., vs. DCIT, Circle 15(3)(1), Aayakar Bhawan,
Red Hat India Private Limited, A- Mumbai.
201, Supreme Business Park,
Supreme City, Hiranandani
Gardens, Powai, Mumbai-
400076.
PAN/GIR No: AABCR7097N
(Appellant) (Respondent)
Appellant by Shri Ajit Jain CA & Ms. Archita Singhal CA,
Nikhila Bhalla, CA
Respondent by Shri Pankaj Kumar (CIT-DR)
Date of Hearing 03.02.2026
Date of Pronouncement 30.03.2026
ORDER
PER BIJYANANDA PRUSETH, AM:
This appeal by assessee emanates from the assessment order passed under section 143(3)/ 144C(13) /144B of the Income-tax Act, 1961 (in short, the 'Act') dated 18.06.2024 in pursuance of directions of Dispute Resolution Penal (DRP) dated 24.05.2024 for assessment year (AY) 2022-23.
2. The grounds of appeal raised by the assessee are as under:
"Grounds relating to Transfer Pricing Adjustment-RS. 42,72,07,695
1. Adjustment relating to international transaction pertaining to payment of royalty and service fee (Subscription Segment) - RS. 26,10,04,914.
1.1 the Ld. AO and the The TPO (under the directions of the Hon'ble DRP) erred on facts and in law, in making an addition of RS. 26,10,04,914 to the Appellant's taxable income by incorrectly determining the arm's length price for payment of royalty and service fees under subscription segment 1 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
1.2 Ld. AO/The TPO erred on facts and in law in adopting an arbitrary and ad hoc approach and modifying the economic analysis carried out by the Appellant in the Transfer Pricing Documentation ('TP Documentation'), and introducing new filters, without providing any cogent reasons 1.3 Ld. AO/The TPO erred on facts and in law in arbitrarily rejecting various comparable companies selected by the Appellant in the TP Documentation basis the provisions of Rule 10B (2) of the Rules. 1.4 Ld. AO/The TPO erred on facts and in law in introducing new comparable companies without appreciating that such companies are functionally dissimilar to the Appellant and violated the provisions of Rule 10B (2) of the Rules.
1.5 Ld. AO/The TPO erred in computing the arm's length price based on incorrect computation of net operating profit margin of comparable. 18 Ld. AO/The TPO erred in law in not allowing working capital adjustment and other relevant adjustments as necessitated per the provisions of Rule 108(1) and Rule 100(3).
2. Adjustment relating to international transaction pertaining to payment of royalty and service fees (Service Segment)-RS. 2.57.15.737 2.1 The Ld. AO along with the The TPO (under the directions of Hon'ble DRP) erred on facts and in law, in making an addition of RS. 2.57,15,737 to the Appellant's taxable income by incorrectly determining the arm's length price for payment of royalty and servion fees under service segment 2.2 Ld. AO/The TPO erred on facts and in law in adopting an arbitrary and adhoc approach and modifying the economic analysis carried out by the Appellant in the TP Documentation and introducing new filters, without providing any cogent reasons.
2.3 Ld. AO/ The TPO erred on facts and in law in arbitrarily rejecting various comparable companies selected by the Appellant in the TP Documentation basis the provisions of Rule 108(2) of the Rules. 2.4 Ld AO/L4. TPO erred on facts and in law in introducing new comparable companies without appreciating that such companies are functionally dissimilar to the Appellant and violate the provisions of Rule 10B(2) of the Rules.
2.5 Ld. AO/The TPO erred in computing the arm's length price based on incorrect computation of net operating profit margin of comparables.
2ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
2.6 Ld. AO/The TPO erred in law in not allowing working capital adjustment and and other relevant adjustments as necessitated per the provisions of Rule 10B(1) and 1018(3).
2.7 The TPO erred in law in incorrectly computing the proportionate adjustment for the value of international transactions.
3. Adjustment relating to international transactions pertaining to provision of software development services-RS. 9,58,71,829 3.1 The Ld. AO and the The TPO (under the directions of Hon'ble DRP) erred on facts and in law, in making an adjustment of RS. 9,58,71,829 to the Appellant's taxable income by incorrectly determining the arm's length price for provision of software development services. 3.2 Ld. AO/L4. TPO erred on facts and in law in adopting an arbitrary and adhoc approach and modifying the economic analysis carried out by the Appellant in the TP Documentation and introducing new filters, without providing any cogent reasons.
3.3 14. AO/The TPO erred on facts and in law in arbitrarily rejecting various comparable companies selected by the Appellant in the TP Documentation basis the provisions of Rule 108(2) of the Rules. 3.4 L4. AO/The TPO erred on facts and in law in introducing new comparable companies without appreciating that such companies are functionally dissimilar to the Appellant and violated the provisions of Rule 10B(2) of the Rules.
3.5 14. ΑΟ/ 14. TPO erred in computing the arm's length price based on incorrect computation of net operating cost plus margin of comparables. 3.6 Ld. AO/The TPO erred in law in not allowing working capital adjustment and other relevant adjustments as necessitated per the provisions of Rule 10B(1) and Rule 10B(3).
4. Adjustment relating to international transactions pertaining to provision of IT enabled services-RS. 4.46.15.215 4.1 The Lid. AO and the L.d. TPO (under the directions of Hon'ble DILP) erred on facts and in law, in making an adjustment of RS. 4,46,15,215 to the Appellant's taxable income by incorrectly determining the arm's length price for provision of IT enabled services. 4.2 Ld. AO/ The TPO erred on facts and in law in adopting an arbitrary and ad hoc approach and modifying the economic analysis carried out by the Appellant in the TP Documentation and introducing new filters, without providing any cogent reasons.
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4.3 Ld. AO/The TPO erred on facts and in law in arbitrarily rejecting various comparable companies selected by the Appellant in the TP Documentation basis the provisions of Rule 108(2) of the Rules 4.4 Ld. AO/The TPO erred on facts and in law in introducing new comparable companies without appreciating that such companies are functionally dissimilar to the Appellant and violated the provisions of Rule 108(2) of the Rules.
4.5 Ld. AO/The TPO erred in computing the arm's length price hused on incorrect computation of net operating cost plus margin of comparables 4.6 Ld. AO/The TPO erred in law in not allowing working capital adjustment and and other relevant adjustments as necessitated per the provisions of Rule 10B(1) and Rule 10B(3).
Other grounds
5. The Ld. AO erred in short granting credit of Taxes Deducted at Source to the extent of RS. 1,14,42,352
6. The Ld.AO erred on facts and in law in levying excess interest under section 234A of the Act.
7. The Ld.AO erred on facts and in law in levying excess interest under section 234B of the Act.
8. The Ld.AO erred on facts and in law in levying excess interest under section 234C of the Act.
9. The Ld. AO erred on facts and in law in initiating penalty proceedings under Section 270A and 271AA of the Act."
3. In addition to the above, the assessee has raised the following additional grounds of appeal vide letter dated 07.10.20215.
Ground No.10:
On facts and circumstances of the case and in contrary to law, Ld. AO/ Ld. TPO erred in rejecting the claim of working capital adjustment based on conjectures and surmises which is in contradiction to the settled principles laid down by various judicial precedents. Thereby, contravening the provisions of Rule 10B(1) and Rule 10B(3) of the Rules. In doing so, grossly erred in:
• Ignoring the detailed submissions and computation of working capital adjustment filed on record by the Appellant which clearly demonstrates that differences in the Appellant's 4 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
working capital vis-à-vis comparable companies has affected its profit margin;
• Rejecting all the judicial precedents submitted by the Appellant in the above matter;
• Rejecting grant of working capital adjustment on an ad- hoc basis citing reasons such as lack of information regarding daily balances of working capital, difference in cost of capital of companies and such similar reasons; and • Not appreciating that it was beyond the power of Appellant to obtain the information which is not available in public domain. If at all the said information was critical for grant of working capital adjustment, the Ld. TPO ought to have exercised its power u/s 133(6) of the Act to obtain such details from comparable companies.
4. Facts of the case in brief, are that the assessee is a part of the Red Hat group and was held by Red Hat USA. Assessee is engaged in the business of providing "open source" software to customers worldwide. The software being "open source", Red Hat group does not specifically charge its customers for the same. Major revenue earned by the group was from its subscriptions with Red Hat Enterprise Linux as the primary source of the companies' worldwide growth plan. In the transfer pricing proceedings, the TPO observed that all the Red Hat group software products came with either an annual or multi-year service subscription that enables users of the Red Hat group products to avail various support services from Red Hat group. He noted that the Red Hat group offers several types of such subscriptions with varying levels of support services and access to bug fixes and software updates. The TPO noted that the group provides various professional services such as training, consulting and engineering services. The assessee was involved in distribution of Red Hat subscription and providing Red Hat products related training and consulting services to customers in Indian subcontinent.
5. The TPO noted that the assessee had entered into following international 5 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
transactions with its AE's during the year under consideration:
(1) Payment of royalty and service fee to Red Hat USA for subscription segment of Rs.1,98,04,31,371 benchmarked using TNMM, (2) Payment of royalty and service fee to Red Hat USA for services segment of Rs.15,89,60,720 benchmarked using TNMM, (3) Provision of software development services of Rs.1,51,13,44,799 benchmarked using TNMM, (4) Provision of IT enabled services of Rs.3,05,40,17,759 benchmarked using TNMM, (5) Reimbursement for RSU granted to employees of Rs.40,60,12,987 benchmarked using other method.
6. The TPO has made the adjustment amounting to Rs.42,72,07,695 to the value of international transactions pertaining to the following segments.
i. Payment of Royalty and Service Fees (Subscription Segment) Rs.26,10,04,914 ii. Payment of Royalty and Service Fees (Services Segment) Rs.2,57,15,737 iii. Provision of Software Development Services RS. 9,58,71,829 iv. Provision of IT enabled Services RS. 4,46,15,215. Functional profile and benchmarking methodology adopted by the assessee and the TPO may be summarized in the following paragraphs:
Payment of royalty and service fees (subscription segment)
7. The functional profile of the assessee company as reproduced by the the TPO in his order at page Nos. 3 and 4 is as under:-
"6.1.1. The AE Red Hat USA is a provider of open-source solutions for internet computing. An open source software typically grants every user free access to the source code (upgrades, updates and 6 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
bug fixes) and enables the customers to modify and customize the software to suit their requirements. Red Hat USA provides Red Hat Enterprise Linux, JBoss Enterprise Middleware & other software programs. Once an open source software is downloaded, software users may require access to modifications, additions or further enhancements and ongoing support services. The sale of 'Red Hat Subscriptions' enable the customers to avail and access the above- mentioned features and support services. The assessee Red Hat India distributes open source 'Red hat Subscriptions' to customers in India and also provides training related services to its customers. These business activities of the assessee have been classified by it into two segments i.e. 'Subscription Segment' and 'Services Segment'.
A. Subscription Segment -Red Hat India identifies customers and enters into contracts with them for sale of the subscriptions. Generally, the contracts with customers are for 1-3 years. However, in case of Government contracts, the period of the contract ranges from 7-9 years. With respect to Government contracts, even though customer identification and approval for the subscriptions is undertaken by Red Hat India, the Company does not directly enter into contracts with the Government. Red Hat India sells the subscriptions to channel partners who have been awarded the contract by the Government. Once the customer purchases subscription from the assessee, the customer needs to accept the standard enterprise agreement in place as click through the portal. As per the Enterprises Agreement, the assessee sells the Red Hat Subscriptions in India, which will entitle the customer to receive both the 'Red Hat software' and/or 'services' during the period of the subscription (generally, one or three years). The services to the customers are provided through the Global support service centres. For the purpose of sale/distribution of the Red Hat Subscriptions in India that includes both 'software' and related 'services', the assessee has entered into a 'License and Service Agreement' dated 01/04/2014 with the AE Red Hat USA. A copy of the said Agreement was provided by the assessee during the on-going proceedings. Vide the Agreement, (i) the AE Red Hat USA grants the assessee the right to use its intangible property (i.e. trademarks, trade names and domain names owned by Red Hat USA), for which the assessee is liable to pay royalty at 3% of its revenue from this 7 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
segment to the AE. (ii) Further, the AE Red Hat USA provides the services to the customers (end users) who purchased the Red Hat Subscriptions from the assessee. For this service, the AE charges the assessee service fee in such a manner that the operating profit margin of the assessee is always equal to 1.4% of the revenue in this segment."
8. The TPO observed that the assessee in its TP study benchmarked the transaction by using transactional net margin method (in short, 'TNMM') and by using operating profits to operating revenue (OP/OR) as profit level indicator (PLI). The OP/OR of the tested party, being the assessee company, was computed at 1.4%. It was noted by the TPO that the assessee used 10 comparables with an adjusted range having median (1.15%) and unadjusted median of 1.86%. The assessee, thus, considered its transaction with AE to be at arm's length. The TPO rejected 9 comparables of assessee on account of various reasons. Further, the TPO introduced 3 new companies and, thus, used set of following 4 companies with unadjusted margin of 14.38%.
Weighted average
operating margin on
Sr.No Name of the company
operating revenue
(OP/OR) (%)
1 Sonata Information Technology Limited 3.28%
2 K7 Computing Private Limited 9.10%
Virtual Galaxy Infotech Private
3 14.14%
Limited
4 Innovana Thinklabs Limited 30.99%
Mean 14.38%
The TPO also rejected the working capital and, thus, proposed an adjustment of Rs.26,10,04,914/-, being the shortfall in the revenue.
Payment of royalty and service fees (Service segment) 8 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
9. The TPO at page 4 of the order has narrated the functions of the assessee under service segment as under:
"B. Services Segment -Under the Services Segment, the assessee distributes training content to customers which primarily include Red Hat Global Learning Services (GLS) and provision of consultancy service. GLS refers to training courses designed to educate customers about Red hat Linux, including the Red hat Certified Engineer (RHCE) programme. The training and examination courseware is provided by the AE Red Hat USA. For this service, the AE charges the assessee service fee in such a manner that the operating profit margin of the assessee is always equal to 13.5% of the revenue in this segment."
10. The TPO observed that the assessee in its TP study benchmarked the transaction by using TNMM and PLI of the assessee by using OP/OR at 13.5%. He noted that the assessee used 5 comparable with adjusted arithmetic mean of (- 4.08%) and unadjusted arithmetic mean of 1.79%. The assessee thus considered its transaction with AE to be at arm's length. The TPO rejected all the comparables of assessee due to various reasons. After rejecting all the comparable selected by the assessee, he selected following 6 comparables with unadjusted margin of 24.83% :
Sr.No Name of the company Weighted average (OP/OR) (%) 1 Career Mosaic Pvt. Ltd. 6.27% People Combine Educational Initiatives 2 22.99% Pvt. Ltd.
3 Aakash Educational Services Ltd. 24.35%
4 Sarla Holdings Pvt. Ltd. 25.30%
5 Eduspark International Pvt. Ltd. 42.08%
6 Knowledgehouse Ltd. 68.38%
35th Percentile 24.35%
Median 24.83%
65th Percentile 25.30%
The TPO rejected the working capital adjustment and proposed an adjustment of Rs.2,57,15,737/-, being the shortfall in the revenue.9
ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
Provision of Software Development Service
11. For the Provision of Software Development Service, the TPO at page No.52 of the order has narrated the functions of the assessee as under:
"6.2.1. Description of the Transaction -Pursuant to the integration of the operations of Gluster India into Red Hat India, Red Hat India entered into an Agreement with Red Hat USA dated 1 April 2012, for provision of software development services. The services are primarily in connection with the products of Red Hat USA pursuant to the acquisition of Gluster. Red Hat India is remunerated for these services on a cost plus 15% mark-up basis for these services. On this basis, the assessee submitted that it received RS. 151,13,44,799/- from its AE Red Hat USA for rending such services"
Sr.No Name of the company Weighted average (OP/OC) (%) 1 Harbinger Systems Private Limited 0.35% 2 Evoke Technologies Private Limited 3.23% 3 Hurix Systems Private Limited 7.05% 4 TVS Infotech Limited 8.07% 5 Orion India Systems Private Limited 15.63% Great Software Laboratory Private 6 16.19% Limited 7 Expleo Solutions Ltd. 17.18% 8 Daffodil Software Pvt. Ltd. 21.25% 9 Comviva Technologies Ltd. 23.34% R Systems International Limited 10 23.92% (Segmental) 11 CG-VAK Software and Exports Limited 24.36% 12 Virinchi Limited (Segmental) 24.71% 13 Nihilent Ltd. 25.31% Interglobe Technology Quotient Pvt.
14 45.17% Ltd.
15 Cybage Software Pvt. Ltd. 46.66% 16 Consilient Technologies Pvt. Ltd. 55.05% 10 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
35th Percentile 16.19%
Median 22.30%
65th Percentile 24.36%
12. The TPO noted that the assessee computed its margin at 15% of the cost in the software development segment, by using TNMM as the most appropriate method. It selected 18 comparables having median of unadjusted range at 12.90% and median of adjusted range at 11.65%. The assessee, thus, considered its transaction with AE to be at arm's length. The TPO rejected 8 comparables due to various reasons. Further, he introduced 6 new companies and accordingly set of following 16 companies with unadjusted margin of 22.30%. The TPO also rejected the working capital adjustment and proposed an adjustment of Rs. 9,58,71,829/, being the shortfall in the revenue.
Provision of IT enabled services
13. For the Provision of IT enabled services, the TPO, at page Nos. 88 - 89 of the order, has narrated the functions of the assessee under ITeS segment as under:
"6.3.1. As regards provision of support services by Red Hat India to its AEs (i.e. Red Hat US and Red Hat Ireland), Red Hat India houses a team which is engaged in provision of CEE services. Customers that purchase the Red Hat Subscriptions are entitled to various support services. The AEs are responsible for providing such support services to the customer from its support centers across the globe. One of such support centers is Red Hat India's office in Pune where the CEE team provides 24/7 technical support to customers, maintains the Customer Portal (which is an online resource for customers to self analyze problems they encounter with Red Hat technology as a first level of troubleshooting) and provides customer management services. Further, certain back offices functions are centralized (to achieve overall synergies and efficiency) with certain identified entities across the world. Red Hat India houses a team which provides such centralized back office 11 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
functions for its AE in the area of accounting, financial reporting, Performance Improvement ('PI'), procurement, IT Helpdesk, etc. This team operates under the supervision, guidance and instructions of the AE.
A brief description of the nature of back office services provided by Red Hat India is given as under:
(i) Accounting: Predominantly comprises back-office support roles and operations such as consolidation, reconciliation of receivables and payables, project accounting, revenue accounting, invoicing, reporting, payroll functions etc. Further, linguistic support services are also rendered for overseas group entities.
(ii) Financial reporting: This team focuses on operations such as quota and performance management, weekly and daily financial reporting, commission analysis etc. This team analyzes data pertaining to customer purchasing patterns and work under the guidance of more experienced team members of the AE.
(iii) PI team: The performance improvement team supports the global human resource team to a very limited degree with respect to some specific activities e.g. pre on-boarding procedures related to collation of documents and personal information of the employees. The team also supports employees across Red Hat entities to organize documentation needed for Visa applications. d) Procurement: The procurement function is carried out by a small team who operate under the guidance of the Red Hat's Global Procurement team. Each team member specializes in a particular type of product procurement and interacts with certain identified vendors for procurement purposes.
These interactions are governed by the delegation of authority guidelines/ limits set and the guidelines issued by the Global Procurement team.
(iv) IT Helpdesk Team: This team provides IT infrastructure helpdesk support to employees of Group companies. These services include Infrastructure support, Application Development, Local IT Infrastructure etc. For the provision of the above mentioned services, during FY 2019-20, Red Hat India has charged its AEs a service fee which recovers the costs incurred in the provision of the above services alongwith a mark-up of 15% on costs."
14. The TPO noted that the assessee computed its margin at 15% of the cost in the ITeS segment, by using TNMM as the most appropriate method. It selected 12 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
19 comparables having median of unadjusted range at 13.41% and median of adjusted range at 12.30%. The assessee thus considered its transaction with AE to be at arm's length. The TPO rejected 7 comparable on account of various reasons. Further, he introduced 4 new companies and thus set of following 16 companies with unadjusted margin of 16.68%.
Sr.No Name of the company Weighted average (OP/OC) (%) 1 Sundaram Business Services Limited 7.11% 2 Virinchi Limited 10.35% 3 Microland Limited 10.69% 4 CES Limited 12.06% 5 Datamatics Business Solutions Limited 12.2% R Systems International Ltd.
6 16.07% (Segmental) 7 Liquidhub Analytics Pvt. Ltd. [Merged] 16.34% Tech Mahindra Business Services 8 16.6% Limited 9 E Care India Pvt. Ltd. 16.76% 10 Allsec Technologies Limited 17.97% MOL Information Processing Services (India) 11 18.9% Private Limited 12 Ultramarine & Pigments Limited 22.43% Vitae International Accounting Services 13 31.23% Private Limited 14 Amadeus India Pvt. Ltd. 51.36% 15 M P S Ltd. 52.14% TTEC Holding Ltd. (Motif India Infotech Pvt.
16 54.54%
Ltd.)
35th Percentile 16.07%
Median 16.68%
65th Percentile 18.90%
13
ITA No4065/MUM/2025/AY 2020-21
Red Hat India Pvt. Ltd.
The TPO also rejected the working capital adjustment to assessee and proposed an adjustment of Rs.4,46,15,215/-, being the shortfall in the revenue.
15. On receipt of the transfer pricing order, the AO passed the draft assessment order on 18/08/2023 proposing addition amounting to Rs. 42,72,07,695/-. On receipt of the draft assessment order, assessee preferred objections before the DRP. The DRP upheld the additions proposed by the TPO/AO vide its directions dated 24/05/2024. On receipt of the DRP directions, the AO passed the impugned order on 18/06/2024 by making total addition of Rs.42,72,07,695/. Aggrieved by the said order, assessee is in appeal before the Tribunal.
SUBSCRIPTION SEGMENT:
16. Ground No.1.1 to 1.4 The Ld. AR filed his arguments in the form of a detailed chart, where the comparables have been sought for inclusion and exclusion. The assessee is seeking exclusion of following companies: (i) K7 Computing Pvt. Ltd, (ii) Innovana Thinkables Ltd. and (iii) Virtual Galaxy Infotech Pvt. Ltd.
16.1 The assessee is also seeking inclusion of following comparables: (i) Compuage Infocom Limited, (ii) Dimension Data India Limited, (iii) Savex Technologies Pvt. Ltd., (iv) Informatics Technologies Private Limited, (v) Galaxy Office Automation Private Limited, (vi) Iris Computers Limited and (vii) Datasoft Network Solutions Private Limited. Based on the above, we shall undertake the compatibility of the companies sought for inclusion/exclusion by the assessee.
17. K7 Computing Pvt. Ltd, Virtual Galaxy Infotech Private Limited and Innovana Thinklabs Limited At the outset, the Ld.AR submitted that K7 Computing Pvt Ltd, Virtual Galaxy Infotech Private Limited and Innovana Thinklabs Limited have been 14 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
excluded by coordinate bench of this Tribunal in assessee's own case for AY 2016- 17 in ITA No. 1379/Mum/2021, for AY 2017-18 in ITA No. 801/Mum/2022 and for AY 2018-19 in ITA No. 2442/Mum/2022, by observing as under:
AY 2016-17 (ITA No. 1379/Mum/2021) "K7 Compu9ng Pvt. Ltd. (K7)
27. The assessee challenged the inclusion of this comparable on the grounds inter alia that it is into selling its own proprietary IT security product "K7 Total Security" and "K7 Enterprises Security; that K7 owns and employs plant & equipments comprising 61% of its total tangible assets; that K7 owns significant intellectual property rights comprising 91.5% of the total fixed assets; and that K7 incurred Rs. 15.75 crore on promotion i.e. 27.55% of sales during the year under consideration.
28. We have examined profile of the assessee company from its financials extracted at page A333 of the paper book wherein K7's flagship products are K7 total security and K7 Enterprise Security.
From annual report of K7 available at page A332 of the paper book it is apparent that the K7 owns and employs plant and equipment comprising 61% of its total tangible assets. Similarly, from its annual report i.e. note to the financial assets (fixed assets) available at page A332 it is proved on record that K7 owns significant intellectual property right of 91.5% of its total fixed assets. It is also apparent in the financials of K7 available at page A332 of the paper book that K7 incurred Rs. 15.75 crore on promotions which comes to 27.55% of the sale.
29. When we compare all these facts vis-à-vis assessee, we are of the considered view that assessee is a limited risk reseller having no plant and equipments, owning no intangible assets, having no expenses on promotions and is not selling its product. So K7 is not a valid comparable vis-à-vis K7, hence ordered to be excluded."
AY 2017-18 (ITA No. 801/Mum/2022) "7.1 AdmiQedly there are no factual differences in FAR of the assessee for the year under consideraSon vis-à-vis AY 2016-17. The Ld.DR has not brought anything on record to disSnguish the above observaSons of the coordinate bench of this Tribunal is assessee's 15 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
own case. RespecTully following the above view, we direct Innovana Thinkable Ltd and K7 CompuSng Pvt Ltd to be excluded from the final list.
8. Virtual Galaxy Infotech Private Limited:
The Ld.AR submiQed that, this company is funcSonally not similar, as the enSre sale proceeds are from manufactured goods. It is submiQed that, this company is engaged in manufacturing goods as per descripSon of services in the annual report. It is also submiQed that, this company deals in digital automaSc data processing machine.
8.1 The Ld.AR submiQed that, this comparable deals in soVware products, soluSons and specialised soVware services which indicates that company provides highly technical proprietary product comprising of core banking soluSon, ERP soluSons etc. this also submiQed that the company is involved in Services in the field of applicaSon development, big cartel, arSficial intelligence, mobile compuSng etc. 8.2 The Ld.AR submiQed that, the assessee on the contrary is only a reseller of subscripSon assuming limited risk. 8.3 On the contrary the Ld.DR relied on the orders passed by the authoriSes below.
We have perused the submissions advanced by both sides in the light of the records placed before us.
8.4 It is noted that this comparable deals in soVware products, soluSons. From the disclosure of general informaSon about the company and page B17, it is noted that, this company belongs to commercial industry. At page B18, it shows that this company is into automaSc data processing machine weighing less than 10 KG in the product services relates to personal computer laptop other digital automaSc data processing machine etc. 8.5 In our considered view, the company is funcSonally not similar with that of the assessee. Accordingly, the Ld.AO/TPO is directed to exclude this comparable from the finalist."
AY 2018-19 ITA No. 2442/Mum/2022 "16. We have carefully considered the rival submissions and perused the material placed on record. The assessee has placed before us the compilaSon of its annual reports together with a detailed comparaSve chart, which clearly demonstrates that its funcSonal 16 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
profile has remained consistent and unchanged over the years. It is an admiQed posiSon that there is no variaSon in the funcSons performed, assets employed, or risks assumed (FAR) by the assessee during the year under consideraSon, when compared with the AYs 2016-17 and 2017-18. This Tribunal, in assessee's own case for those years, had already examined the very same profile and comparables in depth, and rendered categorical findings. The learned Departmental RepresentaSve, has not brought on record any new facts, materials, or disSnguishing features to deviate from the earlier binding precedent of the coordinate bench. In such circumstances, judicial discipline demands that we must follow the earlier view. Accordingly, respecTully following the consistent reasoning adopted by this Tribunal in assessee's own cases for the preceding years, we hold that the same parity of treatment should be extended for the present year as well, and direct that (i) Virtual Galaxy Infotech Private Limited and (ii) K7 CompuSng Pvt. Ltd. be excluded from the final set of comparables.
17. Innovana Thinklabs Limited - Ld. AR submiQed that this company is funcSonally not similar, as the enSre sale proceeds are from manufactured goods. It is submiQed that this company is engaged in manufacturing/ developing new products as per the extracts in the annual report.Ld.AR submiQed that this comparable has developed numerous products and these products have registered their presence. The product porTolio of Innovana consists of applicaSons and soVware such as Ad-blocker, Disk Cleanup, Space Reviver, File Opener, Privacy Protector, etc.
18. We have carefully considered the submissions advanced by both parSes and examined the material placed on record in relaSon to the inclusion of Innovana Thinklabs Limited as a comparable. The assessee has vehemently contended that this company is funcSonally dissimilar, as it is engaged primarily in the manufacturing and development of soVware products, whereas the assessee's business model is confined to being a limited-risk reseller of subscripSon-based soVware, without any acSvity of product development or ownership of intellectual property. From the extracts of the annual report, it emerges that Innovana Thinklabs has developed numerous products, which have established a market presence under its brand. Its product porTolio includes a suite of applicaSons and soVware such as Ad-blocker, Disk Cleanup, Space Reviver, File Opener, and Privacy Protector. These are products innovated, developed, and maintained by the company itself. The disclosure in its management report further tesSfies to the fact that the company is in the constant pursuit of technological innovaSon, invesSng resources in developing new products which are thereaVer 17 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
registered in the market. Such a business model is wholly disSnct from that of the assessee, who does not engage in any product innovaSon, but only distributes subscripSons of pre-developed Red Hat soVware on a limited-risk basis.
The financial disclosures of Innovana Thinklabs also reinforce this disSncSon. The Profit and Loss statement reflects material consumpSon costs to the tune of ₹101,895,942, a clear indicator of manufacturing and developmental acSvity. Equally important is the fact that there are no purchases of stock-in-trade, thereby establishing that the company is not in the trading or distribuSon business. Rather, it operates as a product company, drawing value from its development acSviSes and ownership of proprietary soVware. Other disclosures in the annual report anScipate growth in future years from newly developed products with promising market prospects, underscoring its entrepreneurial and innovaSon- driven profile. Moreover, as per Form MGT-9, the principal business acSviSes of Innovana Thinklabs are described under the head ―Other computer related acSviSes,‖ including the maintenance of websites and creaSon of mulSmedia presentaSons, in addiSon to product development. Its website also proclaims its constant engagement in technological advancement and innovaSon, enlisSng a variety of proprietary products which it has designed and commercialised. Such characterisScs are emblemaSc of a product company with ownership of intangibles, and thus render it funcSonally incomparable with a limited-risk distributor like the assessee. In contrast, the assessee's role is narrowly confined to that of a reseller of subscripSons, operaSng under a limited-risk profile, without any involvement in innovaSon, product development, or creaSon of intellectual property. The assessee merely facilitates access to soVware developed by its parent company, without assuming risks or deploying resources towards R&D. To equate such a reseller with a product development company would be a distorSon of funcSonal comparability.
We also note that in earlier parts of this order we have directed the exclusion of Virtual Galaxy Infotech Pvt. Ltd. on similar grounds, namely that it was engaged in development acSviSes and therefore funcSonally dissimilar. The same reasoning applies with equal force to Innovana Thinklabs. Consistency of approach demands that we apply the same funcSonal filter, for judicial discipline requires that parity of treatment be maintained across comparables that are similarly placed. In light of the foregoing analysis, we are of the considered view that Innovana Thinklabs Limited cannot be considered as a valid comparable for benchmarking the internaSonal transacSons of the assessee. Its funcSonal profile as a 18 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
full-fledged product development and innovaSon-driven company is enSrely at variance with that of the assessee, who is merely a limited-risk reseller.
Accordingly, we direct the Ld. AO/TPO to exclude Innovana Thinklabs Limited from the final set of comparables."
18. We have heard both the parties and perused the materials on record. The Ld. AR has submitted the compilation of the annual reports together with a detailed comparative chart, which clearly demonstrates that its functional profile has remained unchanged over the years. There is no variation in the functions performed, assets employed or risks assumed (FAR) by the assessee during the year under consideration, when compared with the AYs 2016-17, 2017-18 and 2018-19. This Tribunal, in assessee's own case for the said years, examined the very same profile and comparables in depth and has given categorical findings. The Ld. DR has not brought on record any new facts, materials or distinguishing features to deviate from the earlier findings of the Tribunal on the subject issue. Accordingly, following the reasoning adopted by this Tribunal in assessee's own cases for the preceding years, we hold that the same parity of treatment needs to be extended for the present year and hence, direct that (i) K7 Computing Pvt. Ltd.,
(ii) Virtual Galaxy Infotech Private Limited and (iii) Innovana Thinklabs Limited be excluded from the final set of comparables.
19. In respect of inclusion of comparables, namely, (i) Compuage Infocom Limited, (ii) Dimension Data India Limited, (iii) Savex Technologies Pvt. Ltd., (iv) Informatics Technologies Private Limited, (v) Galaxy Office Automation Private Limited, (vi) Iris Computers Limited and (vii) Datasoft Network Solutions Private Limited, the Ld. AR submitted that, these comparables may be left academic. The Ld. CIT-DR does not have any object in on the issue. Considering the submissions, no directions are issued on respect of these companies.
19ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
Accordingly, ground Nos. 1.1 to 1.4 stand allowed for statistical purposes as indicated above.
20. Ground No 1.5 has been raised by the assessee seeking correction of errors in computing margin of comparable companies that would remain to determine arm's length margin of the transaction. We direct the Ld.AO/TPO to adopt the correct figures for computing the margins of the remaining comparable. The ground is allowed for statistical purpose.
21. Ground Nos. 1.6 and additional ground No. 10 are in respect of not granting of working capital adjustment (in short, 'WCA') claimed by the assessee, in order to iron out the differences between the comparables and the assessee for computing the margin. We find that the co-ordinate bench of this Tribunal in assessee's own case for AY 2016-17 has granted WCA to the assessee in respect of difference in working capital levels between the comparable companies and the assessee. Further, the Bench has also given categorical findings on the methodology for computing WCA. The same is reproduced below-
ITA No. 3853/Mum/2025 (AY 2016-17):"10. We have carefully considered the rival submissions, perused the material available on record, and examined the impugned order in the context of the binding direcSons issued by this Tribunal in the earlier round. At the outset, we consider it appropriate to first adjudicate Ground No. 10 relaSng to denial of working capital adjustment, as the same goes to the root of the sole surviving transfer pricing adjustment
11. It is an admiQed and undisputed posiSon that in the first round of liSgaSon, the coordinate bench of this Tribunal unequivocally held that the assessee is enStled to working capital adjustment. The Tribunal directed the learned TPO to verify the computaSon furnished by the assessee in its transfer pricing study and the detailed working capital adjusted margin computaSon, and thereaVer grant such adjustment in accordance with law. The relevant extract from the Tribunal's order, which is binding on the lower authoriSes, is reproduced hereunder.20
ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
"64.....So we are of the considered view that the assessee is enStled for working capital adjustment. The The TPO is directed to verify the computaSon furnished in transfer pricing study and detailed working capital adjusted margin computaSon furnished by the assessee and accordingly provide the working capital adjustment to the assessee in view of the seQled principle laid down by the Tribunal, in order to provide level playing field for assessee as well as comparable company.
12. Despite such clear and categorical direcSons, the lower authoriSes have once again declined to grant working capital adjustment, ciSng reasons such as non-availability of daily working capital balances, differences in cost of capital, and other generalized consideraSons. In our considered view, such an approach is wholly unsustainable. Once this Tribunal has laid down the principle and issued a specific direcSon, the lower authoriSes are duty-bound to carry it out in leQer and spirit. The objecSons raised by the TPO are neither new nor insurmountable and have repeatedly been rejected by judicial forums
13. We further note that in the assessee's own case for AY 2018-19, the coordinate bench of this Tribunal has reiterated and reinforced the principle that working capital adjustment must be granted to neutralise differences arising from varying levels of receivables, payables, and inventory between the assessee and comparable companies. The Tribunal, aVer detailed analysis, also placed reliance on the decision of the Bangalore Bench in Huawei Technologies India (P.) Ltd., wherein the methodology for compuSng working capital adjustment has been elaborately examined. The relevant observaSons are reproduced hereunder...
14. RespecTully following the binding precedents in the assessee's own case for earlier AYs, and in the absence of any disSnguishing facts brought on record by the Revenue, we hold that the assessee is clearly enStled to working capital adjustment. The insistence on impracScal parameters such as daily balances, parScularly when data is not available in the public domain, cannot be a ground to deny a legiSmate adjustment which is otherwise warranted to ensure comparability. 15. We further observe that once the working capital adjustment is granted in accordance with the methodology already furnished by the assessee and verified by the lower authoriSes, the margins of the comparable companies, as adjusted, fall within the permissible tolerance range prescribed under secSon 92C(2) of the Act...
...21
ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
17. Accordingly, Ground No. 10 raised by the assessee is allowed and the adjustment of RS. 4,23,90,382 is hereby deleted."
22. It is clear that the Tribunal permitted WCA to the assessee. The Ld. AR also submitted that this Tribunal in assessee's own case for AYs 2016-17 (first round), 2017-18 and 2018-19 had also permitted WCA to the assessee. Hence, following the above precedents and in the absence of any distinguishing feature brought on record by the Revenue, we hold that the assessee is entitled to working capital adjustment, wherever the differences in working capital materially impact the margin computation of the comparables. The assessee shall furnish the requisite details before the AO/TPO, who shall compute and grant such adjustments in accordance with law. Accordingly, grounds 1.6 and additional ground 10 raised by the assessee are allowed for statistical purpose. SERVICE SEGMENT
23. Grounds 2.1 to 2.4: The Ld. AR filed his arguments in the form of detailed chart. The assessee is seeking exclusion of following companies: (i) Career Mosaic Pvt. Ltd., (ii) People Combine Educational Initiatives Pvt. Ltd., (iii) Sarla Holdings Pvt. Ltd., (iv) Knowledgehouse Ltd., (v) Eduspark International Pvt. Ltd. and (vi) Akash Educational Services Ltd. On the other hand, it is seeking inclusion of following companies: (i) Compucom Software Ltd (segmental), (ii) LCC Infotech Limited and (iii) Attest Testing Services Ltd.
24. The Ld. AR submitted that (i) Career Mosaic Pvt. Ltd, (ii) People Combine Educational Initiatives Pvt. Ltd. and (iii) Sarla Holdings Pvt. Ltd. have been excluded by the Tribunal in assessee's own case for AY 2017-18 in ITA No. 801/Mum/2022 and for AY 2018-19 in ITA No. 2442/Mum/2022, with the following observation:
AY 2017-18 (ITA No. 801/Mum/2022) 22 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
"Sarala Holdings Pvt. Ltd.
The Ld. AR submiQed that; this company is engaged in providing educaSon in school under the name "Pathways World School"
situated at Gurugram Haryana. It is submiQed that, the revenue earned by this company from educaSonal acSviSes and running schools is not akin to providing training acSviSes and issuing cerSficaSon by the assessee etc. It is submiQed that, this company is a full-fledged entrepreneur engaged in providing educaSon by running schools at various locaSons. The Ld.AR thus prayed for this comparable to be excluded.
People Combine EducaSonal IniSaSves Pvt. Ltd.
The Ld.AR submiQed that, this company is funcSonally not similar with assessee as it provides support services to schools. It is submiQed that, this company owns its revenues from fee receipts, service incomes, sale of books, staSonery, uniform etc. Career Mosaic Pvt. Ltd.
It is submiQed that, this company, is engaged in providing services related to career counseling and placement services. It is submiQed that, as per corporate informaSon of this company in the annual report, it is engaged in providing educaSon, coaching classes for GMAT, GRE, TOEFL, IELTS. It is a submiQed that, the services rendered by this company is not similar with the training provided and cerSficaSon issued by assessee to its students under the segment. The Ld.AR thus prayed for exclusion of this comparable from the finalist.
...
G.2 AdmiQedly, these companies are engaged in running schools which is not funcSonally similar with the training and coaching acSviSes carried on by the assessee. It will not be out of place to note that, these companies have different business model of rendering educaSon which is not similar with training acSviSes carried on by the assessee. Accordingly, we direct the Ld.AO/TPO to exclude Sarala Holdings Pvt. Ltd. People Combine Educa9onal Ini9a9ves Pvt. Ltd., Career Mosaic Pvt. Ltd. And G.D.Goenka Pvt.Ltd from the final list."
AY 2018-19 (ITA No. 2442/Mum/2022) "29. We have carefully considered the submissions of the Ld. AR and perused the material placed on record. It is an admiQed posiSon that the funcSonal profile of the assessee has remained unchanged vis-
23ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
à-vis the earlier AYs, and the assessee has also furnished before us a compilaSon of annual reports along with a detailed funcSonal analysis chart of the comparables. On perusal thereof, we find that companies such as Career Mosaic Pvt. Ltd., People Combine EducaSonal IniSaSves Pvt. Ltd., Sarla Holdings Pvt. Ltd., and G.D. Goenka Pvt. Ltd. are primarily engaged in the field of educaSon, training, and allied acSviSes. Their business model revolves around rendering of educaSonal and coaching services, which is enSrely disSnct from the business model of the assessee, who is engaged in the business of soVware subscripSon resale.
The earlier coordinate benches of this Tribunal in assessee's own case have already examined these very comparables and come to the categorical conclusion that enSSes engaged in educaSon and training cannot be equated with a limited-risk soVware distributor, given the significant differences in funcSons performed, assets employed, and risks assumed. The acSviSes of such educaSon-based companies are not only different in nature, but also involve ownership of intangible assets like goodwill, brand value, and teaching methodologies, which make their margins incomparable to the assessee's business model.
It is also perSnent to note that the Ld. DR has not brought on record any new facts or material that could persuade us to depart from the earlier binding precedent. In the absence of any disSnguishing feature either in the profile of the assessee or in that of these comparables, judicial consistency mandates that the same view be followed in the present year as well.
In view of the above discussion, and respecAully following the earlier decisions of this Tribunal in assessee's own case, we direct that (i) Career Mosaic Pvt. Ltd., (ii) People Combine Educa9onal Ini9a9ves Pvt. Ltd., (iii) Sarla Holdings Pvt. Ltd., and (iv) G.D. Goenka Pvt. Ltd. be excluded from the final set of comparables."
25. We have carefully considered the rival submissions and perused the materials placed on record. The Ld. AR has filed the compilation of annual reports together with a detailed comparative chart, which clearly demonstrates that functional profile of the assessee has remained unchanged over the years. There is no variation in FAR by the assessee during the year under consideration, as compared with the AYs 2017-18 and 2018-19. The Tribunal, in assessee's own case 24 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
for those years, had examined the very same profile and comparables and has given categorical finding. The Ld. DR has not brought on record any new facts, materials, or distinguishing features to deviate from the earlier findings of the Tribunal. Hence, following the decision united supra, we direct (i) Career Mosaic Pvt. Ltd, (ii) People Combine Educational Initiatives Pvt. Ltd. and (iii) Sarla Holdings Pvt. Ltd. to be excluded from the final list.
26. Knowledgehouse Ltd.
The assessee challenged inclusion of Knowledge house Ltd. as a comparable on the grounds that it fails TPO's own turnover filter since it has less than 10% of the assessee's turnover. The Ld.AR submitted that assessee's segmental revenue for service segment is Rs.64,49,80,721/- as against Knowledgehouse's turnover of Rs.5,69,08,000/- (page B464 of Paper-book). The Ld. AR also submitted that, this company is engaged in the field of education activities through schools unlike the services rendered by the assessee. It is submitted that the business model of Knowledgehouse Ltd. revolves around rendering of educational services, which is entirely distinct from the business model of the assessee.
26.1 We have carefully considered the submission of Ld. AR and examined the materials placed on record in relation to exclusion of Knowledgehouse Ltd. The TPO has himself applied the filter of turnover and hence, he cannot go against it. It is clear from the facts on record that this comparable does not satisfy the turnover filter. Moreover, it is also seen that the company is engaged in the field of education activities through schools and hence, not a suitable comparable vis- à-vis assessee. We, accordingly, direct to exclude Knowledgehouse Ltd from the final list of comparable companies.
25ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
27. Eduspark International Pvt. Ltd.
The assessee has challenged inclusion of Eduspark International Pvt. Ltd. as a comparable on the ground that it fails the Related Party Transaction (RPT) filter of 25% of total sales. The Ld. AR submitted that company has significant related party transactions constituting of 30.19% of the total turnover, which is greater than 25% of total sales. The Ld. AR placed reliance upon the ruling of this Tribunal in the case of Toyota Kirloskar Motors Pvt. Ltd. in ITA No. 2016/Bang/2018, wherein the approach of computing RPT filter as total RPT by total turnover is accepted. Without prejudice, the Ld. AR also submitted by the Ld. AR that the company fails RPT filter basis t since the company has RPT expense to total expense ratio of 41.05%, which is more than 25%. Moreover, this company is primarily engaged in the field of education services wherein it is engaged in management and ownership of pre-primary schools and providing education facilities, hence, it is not a suitable comparable vis-à-vis assessee.
27.1 We have considered the facts of the case and the submissions of Ld. AR. When this comparable does not qualify the TPO's own RPT filter, it is not a valid comparable vis-à-vis assessee. Moreover, this company is functionally not comparable to the assessee. Hence, we direct to exclude Eduspark International Pvt. Ltd. from final set of comparables.
28. Akash Educational Services Ltd.
At the outset, Ld. AR submitted that this company is functionally not similar since it is a coaching institute, primarily engaged in test preparatory coaching. It earns sale proceeds from varied sources i.e. fee from coaching services, franchise fees and proceeds from sale of products (Distance learning programs). From page No. B738 of paper book it is shown that the company 26 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
operates centres through franchisee arrangements, wherein agreements are entered with third party franchisees to conduct and operate Aakash Centres under the "Aakash" brand. The entity also supports education channels through digital features, including recorded video lectures and integrated test and assessment via Aakash iTutor, which includes online assessment and test series via the Aakash Test Management System. It was also submitted that the said company is a nationally recognized brand in the education sector. It is a huge brand commanding higher premium in the market and hence, it is not representative of the industry. The company also deploys tangible assets constituting 57% of total sales and also owns intangibles in the nature of licenses and franchisee. Therefore, it is not comparable to the assessee. On the other hand, the Ld. CIT-DR relied on the orders passed by authorities below. 28.1 We have heard both sides and perused the materials placed before us. We find that Akash Educational Service Ltd. is primarily engaged in the field of coaching education and Franchisee and sale of products. Their business model revolves around rendering of educational and coaching services, which is separate from the business model of the assessee. This Tribunal in assessee's own case had earlier examined similar comparables and come to the conclusion that entities engaged in education services cannot be equated with a limited-risk distributor, given the significant differences in functions performed, assets employed and risks assumed. The activities of such education-based companies are not only different in nature, but also involve ownership of intangible assets, which make their margins incomparable to the assessee's business model. In light of the foregoing analysis, we are of the considered view that Akash Educational Services Ltd. is not a suitable comparable vis-à-vis assessee, hence it is ordered to be excluded.
27ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
29. Compucom Software Ltd.
The authorities below rejected this comparable on the basis that the entity is a persistent loss-making company. However, it is seen from page B784, B805 of Paper-book that this company had profit before tax (PBT) of RS. 173 Lakhs (FY 2019-20), RS. 633 Lakhs (FY 2018-19) and RS. 427 Lakhs (FY 2017-18). Thus, it is clear that this comparable is not a persistent loss-making company. It has further been pointed out by the Ld. AR that this company was accepted as a comparable by the TPO in assessee's own case for AY 2016-17 and AY 2017-18. Admittedly there is no functional dissimilarities observed by the lower authorities in respect of this comparable. Accordingly, we direct the Ld.AO/TPO to include this comparable in the finalist.
30. In respect of the comparables, LCC Infotech Limited and Attest Testing Services Ltd, the Ld. AR submitted that, these comparables may be left academic. The Ld. CIT-DR does not have any remarks of such contention. Hence, no directions are issued in respect of these companies. Accordingly, ground Nos. 2.1 to 2.4 are allowed for statistical purposes.
31. Ground No 2.5 by the assessee is regarding computation in margin of comparables that would remain to determine arm's length margin of the transaction. The AO/TPO is directed to adopt the correct figures for computing the margins of the remaining comparables.
32. Ground No. 2.6 and additional ground 10 pertains to non-granting of working capital adjustment for computing the margin of the comparables. We have already considered the issue while deciding Grounds 1.6 hereinabove. Following the same reason, we direct the AO/TPO to provide for working capital adjustment to iron out the differences between the assessee and the comparables for computing margins. Accordingly, grounds 2.6 and additional 28 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
ground no. 10 stands allowed for statistical purposes.
33. Ground No. 2.7 pertains to incorrect computation of proportionate adjustment done by The TPO/Ld. AO for the value of international transaction. The Ld. AR has submitted that the TPO has incorrectly computed the proportionate adjustment and not followed the approach agreed to in its previous years i.e., in TPO order giving effect to order passed by ITAT in assessee' case for AY 2016-17. We remit the matter back to the file AO/TPO for verification in line with the approach in previous years pursuant to the directions of the Tribunal.
PROVISION OF SOFTWARE DEVELOPMENT SERVICES
34. Ground No. 3.1-3.4 The Ld. AR has submitted his arguments in the form of the detailed chart and requested exclusion of following companies: (i) Nihilent Ltd., (ii) Consilient Technologies Pvt. Ltd., (iii) Interglobe Technology Quotient Pvt. Ltd., (iv) Comviva Technologies Ltd., (v) Cybage Software Pvt. Ltd., (vi) Daffodil Software Pvt. Ltd. The Ld. AR is also, seeking inclusion of following comparables:
(i) Maveric Systems Limited and (ii) Batchmaster Software Pvt Ltd. Based on the above, We shall have consider the compatibility of the companies sought for inclusion/exclusion by the assessee.
35. Nihilent Ltd.
At the outset, the Ld.AR submitted that, Nihilent Ltd has been excluded by coordinate of this Tribunal in assessee's own case for in ITA No. 1379/Mum/2021 (AY 2016-17), in ITA No. 801/Mum/2022 (2017-18) and in ITA No. 2442/Mum/2022 (AY 2018-19 ) by observing as under:
AY 2016-17 (ITA No. 1379/Mum/2021) "Nihilent Ltd.29
ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
46. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is funcSonally dissimilar vis-à-vis assessee. This objecSon was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analyScs, arSficial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformaSon and change management, Digital transformaSon services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a rouSne soVware development service provider working on cost + markup model, hence ordered to be excluded."
AY 2017-18 (ITA No. 801/Mum/2022) "Kellton Tech SoluSons Ltd., Nihilent Ltd.,Infobeans Technologies Ltd.
16.1 The Ld.AR submiQed that for assessment 2016-17 on similar facts Kiliton Tech SoluSons Ltd was excluded from the final list in the remand proceedings. He referred to page A 922 of the paper book in support of this submission.
16.3 The Ld.AR also placed reliance on decision of coordinate bench of this Tribunal in case of Varian Medical Systems InternaSonal (India) Pvt. Ltd. Vs. DCT to in ITA No. 510/MUM/2022 for assessment in 2017-18 for exclusion of this company. Be that as it may, as this comparable has been verified by the Ld.AO/TPO in assessee's own case based on remand by this Tribunal in assessment in 2016-17, it would be more appropriate to follow assessee's own case rather than another assessee whose FAR analysis would be different with that of assessee.
Accordingly, we direct inclusion of Aspire Systems (India) Pvt. Ltd., and Interglobe technology quoSent Pvt. Ltd. And exclusion of Kiliton Tech SoluSons Ltd., Dun & Bradstreet Technologies & Data Services Pvt.Ltd, Nihilent Ltd., Nihilent AnalyScs Ltd., Infobeans Technologies Ltd.,"
AY 2018-19 ITA No. 2442/Mum/2022 30 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
"40. We note that in earlier years, namely AYs 2016-17 and 2017- 18, this Tribunal had already examined the comparability of Nihilent Ltd., Infobeans Technologies Ltd., and Kellton Tech SoluSons Ltd., and directed their exclusion on account of funcSonal differences and failure to saSsfy the requisite filters, including the export revenue filter in the case of Kellton Tech SoluSons Ltd. The assessee has placed on record the annual reports and funcSonal charts to show that its FAR profile conSnues unchanged during the present year. On the other hand, the Revenue has not produced any fresh material or disSnguishing fact to jusSfy a departure from the seQled posiSon. In these circumstances, we see no reason to take a different view for the year under appeal. Accordingly, following the consistent approach adopted in assessee's own case, we direct that (i) Nihilent Ltd., (ii) Infobeans Technologies Ltd., and (iii) Kellton Tech SoluSons Ltd. stand excluded from the final set of comparables."
35.1 It is clear from the above that for AYs 2016-17, 2017-18 and 2018-19, the Tribunal had already examined the comparability of Nihilent Ltd. and directed its exclusion on account of functional differences. The assessee has placed on record the annual reports and functional charts to show that its FAR profile continues unchanged during the present year. On the other hand, the Ld. DR has not produced any fresh material or distinguishing fact to justify a departure from the settled position. In these circumstances, we see no reason to take a different view for the year under appeal. Accordingly, following the reasons given in assessee's own case, we direct that Nihilent Ltd. shall be excluded from the final set of comparables.
36. Consilient Technologies Pvt. Ltd.
The Ld. AR has challenged inclusion of Consilient Technologies Pvt. Ltd. (Consilient) as a comparable on the grounds that it fails TPO's own turnover filter since it has less than 10% of the assessee's turnover. It is submitted that assessee's segmental revenue for software development segment is Rs. 1,51,13,44,799/- as against Consilient's turnover of Rs. 4,27,98,682/- only (page 31 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
B933 of paper-book). The company fails TPO's own export filter of 75% since the company earns 100% of its revenue domestically as given on B975 of Paper-book. The Ld. AR also submitted that this company is engaged design and development services unlike the services rendered by the assessee. The company's services entail optimized software algorithms involved in voice, data, fax, solutions of speech processing, digital communication and video signal processing, high performance loud-based solutions, performance optimization services. Thus, it is not exclusively into software development and the provision of its services is diversified than the SWD services provided by the assessee. The assessee has, therefore, sought exclusion of company.
36.1 On the contrary, the Ld. DR relied on the orders passed by authorities below.
36.2 We have heard both parties and perused the material on record. When the TPO has himself applied the filters of turnover and export, he cannot go against it. From the records, it is clear that this comparable does not satisfy the turnover and export filter. Moreover, upon going through the functional profile of this company which is enclosed at Page B922 and A599-A601 of the paper book, it could be noted that, the company is not exclusively into software development and the provision of its services is diversified than the SWD services provided by the assessee. In light of the foregoing analysis, we are of the considered view that Consilient Technologies Pvt. Ltd. is not a suitable comparable vis-à-vis assessee and, hence, it is ordered to be excluded.
37. Comviva Technologies Ltd.
At the outset, Ld. AR submitted that this company is functionally not similar, since it earns revenue from diversified activities such as license fees with 32 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
implementation and other services (60% of total turnover), revenue sharing arrangements (11% of total turnover), annual maintenance contract services (27% of total turnover) and sale of equipment and software licenses (16% of total turnover). He also submitted that separate segment for purely software development service is not available in the annual report. On basis of annual report, it was also submitted that the company undertakes significant research and development expenditure and owns intangible assets and, therefore, ought to be rejected from the final set of comparable. On the contrary, the Ld. DR relied on the orders passed by authorities below.
37.1 We have heard the rival submissions and perused the materials placed on record. The company is engaged in diversified activities such as license fees with implementation & other services (60% of total turnover), revenue sharing arrangements (11% of total turnover), annual maintenance contract services (27% of total turnover) and Sale of equipment and software licenses (16% of total turnover). However, no separate segment for purely software development service is available in the annual report. From the extract of annual report, it also emerges that the Comviva incurs research and development expenditure of approximately 5% of total turnover which consists of activities & new innovative MVPs such as New products development; Creating new features and upgrades / version of existing products and development work by the core engineering team called as SET on the re-usable common components, engineering practices and innovative prototypes that are utilized as part / addition to products developed by the various domain specific product units instrumental in building client traction for new market capabilities including Factoreal, Yabx, MobiLytix, Mobiquity, CMS (Content) and Data Platforms. It also owns intangible assets in 33 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
the nature of copyrights, patents, intellectual property and other operating rights unlike the assessee.
37.2 In light of the above facts, we are of the considered view that Comviva Technologies Ltd. cannot be considered as a suitable comparable for benchmarking the international transaction of the assessee since its functional profile is entirely at variance with that of the assessee. Accordingly, we direct the Ld. AO/TPO to exclude Comviva Technologies Ltd. from the final set of comparables.
38. Cybage Software Pvt. Ltd.
In respect of Cybage Software Private Ltd., the Ld. AR submitted that the company is a product company and develops a platform/product ExcelShare. The company carries out product intensive engineering unlike the assessee which is a routine software development service provider. It was also submitted that company incurs significant expenses towards research and development and advertising and sales promotion and hence is not a comparable to the assessee. On the contrary, the Ld. DR relied on the orders passed by authorities below.
38.1 We have heard the rival submission and perused the material placed on record with respect to inclusion of Cybage. The company Cybage is a product company unlike the assessee which is a captive service provider providing routine software development services to its AE. Whereas, the company Cybage has developed a sophisticated data-science drawn platform ExcelShare and also incurring towards research & development and AMP related expenses unlike the Assessee. Therefore, Cybage cannot be treated as a valid comparable to the Assessee. Hence, the TPO/AO is directed to exclude said company for the list of comparables.
34ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
39. Daffodil Software Pvt. Ltd.
In respect of Daffodil Software Pvt. Ltd., the Ld. AR submitted that the company is engaged in design and development of software applications including customized and packaged software products . It also earns revenue from sale of third-party products and licenses. However, no segmental data for product and service is available in the annual report of the company hence it is not a comparable to the assessee. On the contrary, the Ld. DR relied on the orders passed by authorities below.
39.1 We have heard the rival submission and perused the materials placed on record. On perusal of annual report at page Nos. B1425 & B1431, it is seen that the company earns revenue from both products and services but does not have segmental bifurcation of revenue. Since, no segmental data of Revenue is available for Daffodil it cannot be treated as comparable. Hence, the TPO/AO is directed to exclude said company from the list of comparables.
40. Interglobe Technology Quotient Pvt Ltd.
At the outset, the Ld. AR submitted that this comparable is covered against the assessee and that the above-mentioned company has been included by the of this Tribunal in assessee's own case for AY 2017-18 in ITA No. 801/Mum/2022 by observing as under:
'...Accordingly, we direct inclusion of Aspire Systems (India) Pvt. Ltd., and Interglobe technology quo9ent Pvt. Ltd. And exclusion of Kiliton Tech SoluSons Ltd., Dun & Bradstreet Technologies & Data Services Pvt.Ltd, Nihilent Ltd., Nihilent AnalyScs Ltd., Infobeans Technologies Ltd.' 40.1 We have heard the rival submissions and perused the materials on record.
The assessee has submitted its annual reports together with a detailed comparative chart, which clearly demonstrate that its functional profile has 35 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
remained unchanged over the years. There is no variation in the functions performed, assets employed or risks assumed (FAR) by the assessee during the year under consideration, as compared with the AY 2017-18. This Tribunal, in assessee's own case for that year, had already examined the very same profile and comparable in depth and has given categorical findings. Hence, respectfully following the reasons by this Tribunal in assessee's own case for the preceding year, we hold that the same parity of treatment should be extended for the present year as well, and direct that Interglobe Technology Quotient Pvt Ltd be included in the final set of comparables.
41. Maveric Systems Limited Ld. AR while seeking inclusion of this company submitted that Maveric is engaged in software programming and testing services, which fall within the definition of software development services under Rule 10TA of the Income-Tax Rules, 1962. The company was accepted as a comparable in AY 2021-22 by the TPO himself and the assessee's FAR profile remain unchanged for the present year. The revenue has not brought any contrary material to justify exclusion. 41.1 We have considered the submission of the Ld. AR are of the view that this company is into software programming and testing, which is part of the software development activity. Accordingly, we direct AO/TPO to verify the functional profile vis-à-vis AY 2021-22, and if the FAR remains the same, include Maveric Systems Ltd. in the final list of comparables. The ground is allowed for statistical purpose.
42. Batchmaster Software Pvt Ltd The Assessee is seeking inclusion of Batchmaster Software Pvt Ltd. as a comparable on the ground that it earns RS. 22,52,40,967 out of total income of RS. 25,06,23,283 constituting 90% revenue from export of services as given on 36 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
page B1530 of the paper-book. Hence, it passes the export filter of 75% applied by the TPO.
42.1 We are of the considered view that when the TPO has himself applied the filter of export, he cannot go against it. From the records, it is clear that this comparable satisfies the export filter. Admittedly, there is no functional dissimilarities observed by the lower authorities in respect of this comparable. The authorities below rejected this comparable only on the basis that it fails export filter. In view of the above facts discussed, we hold that Batchmaster Software Pvt Ltd qualifies as a valid comparable and direct the AO/TPO to include it in the final list.
42.2 Accordingly, ground Nos. 3.1 to 3.4 stand partly allowed for statistical purposes as indicated herein above.
43. Ground No. 3.5 is raised by the assessee seeking correction of errors computation in margin of comparables that would remain to determine arms length margin of the transaction. We direct the Ld.AO/TPO to adopt the correct figures for computing the margins of the remaining comparables.
44. Ground No. 3.6 and additional ground no. 10 raised by the assessee pertains to non-granting of working capital adjustment for computing the margin of the comparables. We have already considered the issue while deciding Grounds 1.6. Applying the same reason, we direct the AO/TPO to provide for working capital adjustment to iron out the differences between the assessee and the comparables for computing margins. Accordingly, grounds 3.6 and additional ground no. 10 stands allowed for statistical purposes. PROVISION OF IT ENABLED SERVICES
45. Ground No. 4.1-4.4 The Ld.AR filed his arguments in the form of the detailed chart. The assessee is also seeking exclusion of following companies: (i) 37 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
M P S Limited, (ii) Liquidhub Analytics Pvt. Ltd., (iii) TTEC Holding Ltd. (Motif India Infotech Pvt. Ltd. and (iv) Amadeus India Pvt. Ltd. We shall now undertake the compatibility of the companies sought for exclusion by the assessee.
46. M P S Limited At the outset, the Ld.AR submitted that, M P S Limited has been excluded by this Tribunal in assessee's own case for AY 2016-17 in ITA No.1379/Mum/2021, and for AY 2017-18 in ITA No. 801/Mum/2022 by observing as under:
AY 2016-17 (ITA No. 1379/Mum/2021) "MPS Ltd. (MPS)
57. The assessee sought exclusion of MPS on the ground that MPS is funcSonally dissimilar to the assessee being into diversified business of providing publishing soluSons i.e. type se]ng and data digitalizaSon services for overseas publishers and supports internaSonal publishers through every stage of the author to reader publishing process. This company also provides digital first strategy for publishers across content producSon, enhancement and transformaSon, delivery and customer support and it is also engaged in research and development acSviSes.
58. We have perused the annual report of MPS available at page A458- A460 of the paper book which shows the diversified funcSons being performed by MPS as contended by the assessee in the preceding para which are not comparable to the assessee who is a rouSne ITES service provider working on cost + model.
59. Moreover, the co-ordinate Bench of the Tribunal in the case of Credence Resource Management (P.) Ltd. v. AssQ. CIT [IT Appeal No. 133 (PUN) of 2021, dated 18-6-2021] held that the acSviSes of MPS are akin to a IT service provider and not an ITES service provider. So we direct to exclude MPS from the final set of comparables."
AY 2017-18 (ITA No. 801/Mum/2022) "24.4 AdmiQedly, there are no factual differences in FAR of the assessee for the year under consideraSon vis-à-vis AY 2016-17. The Ld.DR has not brought anything on record to disSnguish the above observaSons of the coordinate bench of this Tribunal in assessee's own case. We therefore do not find any reason to uphold this comparable. RespecTully following the view taken by this Tribunal 38 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
in assessee's own case for AY 2016-17, we direct this comparable to be excluded from the final list."
46.1 Admittedly, there are no factual differences in FAR of the assessee for the year under consideration vis-à-vis AY 2016-17 and 2017-18. The Ld. DR has not brought anything on record to distinguish the above observations of the Tribunal in assessee's own case. Hence, following the above view, we direct M P S Limited to be excluded from final list.
47. Liquidhub Analytics Pvt. Ltd.
The Ld. AR challenged inclusion of Liquidhub Analytics Pvt. Ltd. as a comparable on the grounds that it fails the Related Party Transaction filter (RPT Filter) of 25% of total sales. The company has significant related party transaction constituting of 44.98% of the total turnover. The Ld. AR placed reliance upon the ruling of coordinate of this Tribunal in the case of Toyota Kirloskar Motors Pvt. Ltd. in ITA No. 2016/Bang/2018 wherein the approach of computing RPT filter as total RPT by total turnover was accepted. On a without prejudice basis, it was also submitted that the company fails RPT filter basis the approach adopted by The TPO since the company has RPT income to total income ratio of 31.80% which is more than 25%. The Ld. AR also submitted that this company is primarily engaged in the business of research and analytics services including data mining services and data management services. It also earns 37% of total revenue from fixed price contracts and fixed price maintenance contracts unlike the assessee, which operates on a cost-plus model. Further, the company operates on an onsite/offshore model and also incurs expenses in the nature of sub-contracting charges constituting 15% of total expenses. In contrast, the assessee's role is narrowly confined to that of providing training and certification issued by 39 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
assessee to its students under the segment. On the contrary, the Ld. DR relied on the orders passed by authorities below.
47.1 We have heard the rival submissions and find that when this comparable does not qualify the TPO's own RPT filter, it is not a valid comparable and hence, it is ordered to be excluded.
48. In respect of the comparable Amadeus India Pvt. Ltd. and TTEC Holding Ltd. (Motif India Infotech Pvt. Ltd.), the Ld. AR submitted that, this comparable may be left academic. Considering the submissions, no directions are issued in respect of these companies.
48.1 Accordingly, grounds No. 4.1 to 4.4 stands allowed for statistical purposes as indicated herein above.
49. Ground No 4.5 pertain to correction of errors computation in margin of comparables that would remain to determine arm's length margin of the transaction. We direct the AO/TPO to adopt the correct figures for computing the margins of the remaining comparables.
50. Ground No. 4.6 and additional ground no. 10 raised by the assessee are towards non-granting of working capital adjustment for computing the margin of the comparables. We have already considered the issue while deciding grounds 1.6. Applying the same reason, we direct the AO/TPO is directed to provide for working capital adjustment to iron out the differences between the assessee and the comparables for computing margins. Accordingly, grounds 4.6 and additional ground no. 10 stands allowed for statistical purposes.
51. Ground No. 5 and 6 pertains to short granting credit of taxes deducted at source (TDS) and levying of interest u/s 234A of the Act, even when return of income was filed within the due date. Interest u/s 234A of the Act is to be levied for default in furnishing the return. The AO is directed to recompute the tax 40 ITA No4065/MUM/2025/AY 2020-21 Red Hat India Pvt. Ltd.
payable / refund due to the assessee including the TDS credit and without interest u/s 234A after due verification. Consequently, ground No. 5 and 6 are allowed for statistical purposes.
52. Ground No. 7 and 8 raised by the assessee is towards challenge on levying of interest under section 234B and 234C of the Act. Levy of interest is mandatory as held by the Hon'ble Supreme Court in case of CIT vs. Anjum M.H. Ghaswala, 252 ITR 1 (SC). The AO is directed to recompute the interest after given effect to this order levy it as per law. The ground is allowed for statistical purpose.
53. Ground No. 9 is premature and consequential in nature and hence dismissed.
54. In the result, the appeal of the assessee is allowed for statistical purpose.
Order is pronounced on 30.03.2026.
Sd/- Sd/-
(PAWAN SINGH) (BIJYANANDA PRUSETH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*Aniket Chand; Sr. PS
MUMBAI
Date: 30.03.2026
Copy of the Order forwarded to:
1. The Assessee
2. The Respondent
3. The CIT(A)
4. CIT
5. DR/AR, ITAT, MUMBAI
6. Guard File
By Order
Assistant Registrar
ITAT, MUMBAI
41