Income Tax Appellate Tribunal - Hyderabad
Deputy Commissioner Of Income Tax , ... vs Charter Global Technologies Private ... on 24 April, 2026
आयकर अपील य अ धकरण, है दराबाद पीठ
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' DB-A' Bench, Hyderabad
ी वजय पाल राव, उपा य एवं
ी मधुसूदन साव डया, लेखा सद य के सम ।
Before Shri Vijay Pal Rao, Vice-President
AND
Shri Madhusudan Sawdia, Accountant Member
आ.अपी.सं /ITA No.397/Hyd/2023
(िनधारण वष /Assessment Year: 2016-17)
Dy. CIT Vs. Charter Global
Circle 1(1) Technologies Private
Hyderabad Ltd, Hyderabad
PAN:AAICS8032K
(Appellant) (Respondent)
िनधा रती ारा /Assessee by: Shri Mithilesh Sai, CA
राज व ारा /Revenue by:: Smt. B. Malathi, Sr. AR
सु न वाई की तारीख /Date of hearing:
06/04/2026
घोषणा की तारीख /Pronouncement: 24/04/2026
आदे श/ORDER
Per Madhusudan Sawdia, A.M.:
This appeal is filed by the Revenue feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-10, Hyderabad ("Ld. CIT(A)") dated 23.05.2023 for the A.Y.2016-17.
2. The Revenue has raised the following grounds of appeal:
"1) Whether on the facts and circumstances of the case, the CIT(A) is justified directing to adopt the turnover filter in the software industry when Department's stand has consistently been that turnover is not a relevant filter in the software industry.2
2) Whether on the facts and circumstances of the case, the CIT(A) is justified rejecting the following 8 companies on the ground of functional dissimilarity ignoring the fact that under TNMM method degree of functional comparability required is low as the very TNMM method is tolerant to functional differences, especially view the keeping in Range concept of 35th percentile to 65th percentile while determining the tolerance band of Arm's Length Range.
S.No. Comparable 1 Kals Information Systems Ltd 2 Rheal Software (P) Ltd 3 CG-VAK Software & Exports Ltd 4 Cimiti Technologies Ltd 5 RS Software (India) Ltd
6. Inteq Software Pt Ltd
7. Infobeans Technolosics Ltd 8 Thirdware Solutions Ltd
a) Whether on the facts and circumstances of the case, the CIT(A) is correct in rejecting M/s. Kals Information Systems Pvt. Ltd. as comparable for the taxpayer company without considering the fact that the Annual report of the comparable itself mentions that the comparable company is into business of Software services.
b) Whether on the facts and circumstances of the case, the CIT(A) is correct in rejecting M/s. Rheal Software Pvt. Ltd. as comparable for the taxpayer company without considering the fact that the Annual report of the comparable itself mentions that the comparable company is into business of Software Development and Maintenance'.
c) Whether on the facts and circumstances of the case, the CITIA) is correct in rejecting the M/s. Rheal Software Pvt, Ltd. as comparable without considering the fact that fluctuating margins do not affect the comparability analysis.
d) Whether on the facts and circumstances of the Case, the CIT(A) is correct in rejecting M/s. CG VAK- Software & Exports Ltd as comparable for the tax payer company without considering the fact -that the Annual report of the comparable itself mentions that the comparable company is into business of Software Development and maintenance.
e) Whether on the facts and circumstances of the case, the Ld. CIT (A) is correct in rejecting M/s. Ciginiti Technologies Ltd as comparable company for the without comparing the fact that the 'Software Development Services'as per Rule 10TA includes debugging of systems i.e. testing services.
f) Whether on the facts and circumstances of the Case, the CIT(A) is correct in rejecting M/s RS Software India Ltd as comparable for the taxpayer company without considering 3 the fact that the annual report. Whether on the facts and circumstances of the Case, the CIT(A) is correct, into business of software development services.
g) Whether on the facts and circumstances of the Case, the CIT(A) is correct in rejecting M/s. Inteq Software Pvt. Ltd as Comparable for the taxpayer company without considering the fact that the Annual report of the comparable itself mentions that the comparable Company is into business of Software Development Services'.
h) Whether on the facts and in the circumstance of the case the decision of the Ld. CIT (A) in rejecting M/s. Infobeans Technologies Limited for 'Software Services' segment is no perverse to the facts of the case.
i) Whether on the facts and circumstances of the case, the CIT (A) is correct in rejecting M/s. Infobeans Technologies Limited as comparable for the taxpayer company without considering the fact that the Annual report of the comparable itself mentions that the comparable company is into sale of Softwa.re services.
j) Whether on the facts and circumstances of the case, the CIT(A) is Correct in rejecting M/s. Third ware Solutions Limited as comparable for the taxpayer company without considering the fact that the Annual report of the Comparable Depicts that the revenue from core service is 87.12% of the revenue which is more than threshold limit of 15% of the turnover from software services.
3) Whether on the facts and in the circumstances of the case, the CIT(A) is correct in rejecting comparable company namely Thirdware solutions Ltd without considering the fact that the TPO has correctly computed ratio by taking the revenue account transactions (in the numerator) over total operating revenue (in the denominator) or the expense side transactions (in the numerator) over total operating expenses (in the denominator).
4) Whether on the facts and in the circumstances of the case, the CITIA) is correct in including M/s Evoke Technologies (P) Ltd without considering the fact that the TPO has correctly rejected the said company as its margins are not reliable.
5) The appellant craves leave to add, delete, substitute and amend any of the grounds of appeal before the hearing of appeal/or at the time of hearing of the appeal."
3. The brief facts of the case are that the assessee is a company engaged in the business of providing software development services. The assessee filed its return of income for the Assessment Year 2016-17 on 13.10.2016, declaring total income of Rs.81,30,340/- under the normal provisions of 4 the Income Tax Act, 1961 ("the Act") and book profit of Rs.64,80,427/- under section 115JB of the Act. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued. Since the assessee had entered into international transactions with its Associated Enterprises ("AEs"), the Learned Assessing Officer ("Ld. AO") made a reference to the Learned Transfer Pricing Officer ("Ld. TPO") for determination of Arm's Length Price ("ALP"). The Ld. TPO, vide order dated 30.10.2019 passed under section 92CA(3) of the Act, proposed an upward adjustment of Rs.5,54,40,793/- in respect of provision of software development services. Based on the said adjustment, the Ld. AO passed a draft assessment order under section 144C of the Act on 23.11.2019 proposing addition of Rs.5,54,40,793/-. The assessee did not file any objections before the Learned Dispute Resolution Panel. Consequently, the Ld. AO passed the final assessment order under section 143(3) read with section 144C(3) of the Act on 23.12.2019, making the Transfer Pricing adjustment of Rs.5,54,40,793/- and determining the total income of the assessee at Rs.6,35,71,133/- under normal provisions, while accepting the book profit under section 115JB of the Act.
4. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT (A) partly allowed the appeal of the assessee.
5. Aggrieved by the order of the Ld. CIT (A), the Revenue is in appeal before us. The Learned Departmental Representative ("Ld. DR") submitted that Ground No. 1 raised by the Revenue relates to the direction of the Ld. CIT(A) to adopt the turnover filter. In this regard, the Ld. DR invited our attention to page No. 204 of the order of the Ld. CIT(A) and submitted that the Ld. CIT(A) has directed to adopt a turnover 5 filter with a range of 10 times on both ends. It was contended that turnover is not a relevant criterion in the software development industry and, therefore, the direction of the Ld. CIT(A) is not justified. Accordingly, the Ld. DR prayed that the said direction be set aside. We find that this Tribunal, in para nos. 9 to 11 of its order in the case of Trinity Advanced Software Labs Pvt. Ltd. in ITA No. 397/Hyd/2021 dated 28.06.2024, has held as under :
"9. We have considered these contentions in the light of the decided case law. Insofar as the turnover filter is concerned, Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. (supra), held that huge profit or a huge turnover, ipso facto does not lead to its exclusion; whereas in the case of Pentair Water India Pvt. Ltd. (supra), the Hon'ble Bombay High Court held that turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. Hon'ble Karnataka High Court, however, in the case of Obopay Mobile Technology (supra), having noticed the view taken by the Hon'ble Delhi High Court in the case Chryscapital Investment Advisors (India) (P.) Ltd. (supra), and also the decision of the Hon'ble Bombay High Court in the case of M/s.
Pentair Water India Pvt. Ltd. (supra), upheld the Tribunal order excluding certain entities from the list of comparables on the ground of huge turnover, while following the principle that where two views are possible on an issue, the view favourable to the assessee has to be adopted.
10. In these circumstances, following the foot prints of the Hon'ble Karnataka High Court in the case of Obopay Mobile Technology India Private Ltd., (supra), we hold that the turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases.
11. Now turning to the next question as to the appropriate turnover filter, in all the decisions relied upon by the learned AR, a consistent view is taken that the application of tolerance range of turnover of ten times on both sides of assessee's turnover was proper. Following the same, we direct the learned Assessing Officer to adopt the same for a fresh search. With this view of the matter, we set aside the findings of the authorities below and direct the learned Assessing Officer/learned TPO to take the range of turnover filter at ten times on both the ends and conduct search afresh to take a plausible view."
66. On perusal of above, we found that this Tribunal has dealt with an identical issue relating to the adoption of turnover filter. The Tribunal, relying upon the judgment of the Hon'ble Karnataka High Court in the case of CIT Vs. Softbrands India Pvt. Ltd. has held that turnover is a relevant criterion for selecting comparable companies in transfer pricing analysis. Respectfully following the aforesaid decision of the coordinate bench of this Tribunal as well as the binding precedent of the Hon'ble Karnataka High Court, we hold that there is no infirmity in the order of the Ld. CIT(A) in directing the adoption of turnover filter. Further, in para no. 11 of the said order, the Tribunal has upheld the adoption of turnover range of 10 times on both ends as a reasonable and judicially accepted filter. Therefore, we find no infirmity in the direction of the Ld. CIT(A) to adopt the turnover range of 10 times on both ends. Accordingly, Ground No. 1 raised by the Revenue is dismissed.
Submission of the Ld. DR qua Ground nos. 2 & 3 :
7. The Ground Nos. 2 and 3 raised by the Revenue relate to the exclusion following eight comparables from the set of comparables by the Ld. CIT(A):
S.No. Comparable
1. Kals Information Systems Ltd
2. Rheal Software (P) Ltd
3. CG-VAK Software & Exports Ltd
4. Cimiti Technologies Ltd
5. RS Software (India) Ltd
6. Inteq Software Pt Ltd
7. Infobeans Technolosics Ltd
8. Thirdware Solutions Ltd
8. The general objection of the Ld. DR is that the Ld. CIT(A) has adopted a liberal and assumption-based approach for inclusion of comparables, while applying a strict and technical approach for exclusion, thereby resulting in an 7 inconsistent and biased selection process. It was further submitted that under the Transactional Net Margin Method ("TNMM"), broad functional similarity is sufficient, and minor differences ought to be tolerated. However, in the present case, according to the Ld. DR, several comparables have been excluded on minor differences while certain allegedly unreliable comparables have been retained.
9. With regard to exclusion of Thirdware Solutions Ltd., the Ld. DR submitted that the Ld. CIT(A) has adopted an incorrect methodology in computing the Related Party Transactions ("RPT") ratio by aggregating both revenue and expenditure transactions in the numerator, while considering only total revenue in the denominator. It was contended that such computation is erroneous and, therefore, exclusion based on failure of RPT filter is not justified. Reliance was placed on following decisions of coordinate benches in support of the said contention:
(a) Pune Bench of the Tribunal in the case of M/s. SunGard Solutions (India) Pvt. Ltd Vs. Dy. Director of Income Tax (International Taxation) in ITA No.122/PN/2011 dated 30.09.2014.
(b) Pune Bench of the Tribunal in the case of PTC Software (India) Pvt. Ltd vs. Assistant Commissioner of Income Tax in ITA No.1605/PN/2011 dated 30.04.2013.
(c) Delhi Bench of the Tribunal in the case of M/s. Chrys Capital Investment Advisors (India) Pvt. Ltd vs. Assistant Commissioner of Income Tax in ITA No.458/Del/2016 dated 19.04.2022.
10. As far the exclusion of Kals Information Systems Ltd., Cigniti Technologies Ltd., R S Software (India) Ltd., Inteq Software Pvt. Ltd. and Infobeans Technologies Ltd. from the final set of comparables is concerned, the Ld. DR submitted that these companies were rightly selected by the Ld. TPO as comparables. It was contended that all these companies are 8 predominantly engaged in the business of software development services and are not significantly involved in software product development. It was further submitted that each of these companies satisfies the requisite filters applied in the transfer pricing analysis and does not own significant intangibles nor earns substantial revenue from software products. The Ld. DR argued that any product-related revenue, if at all, is merely incidental and insignificant. It was also submitted that the assessee has relied upon website extracts and marketing materials without undertaking a proper analysis of the audited financial statements and FAR (Functions, Assets, Risks) profile of these companies. Emphasizing the principles of the TNMM, the Ld. DR submitted that broad functional similarity is sufficient and minor differences should not lead to exclusion of otherwise comparable companies. Accordingly, she supported the inclusion of these companies in the final set of comparables.
Submission of the Ld. AR qua Ground nos. 2 & 3 :
11. On the other hand, with regard to exclusion of Thirdware Solutions Ltd. the Learned Authorized Representative ("Ld. AR") invited our attention to page No. 263 of the order of the Ld. CIT(A) and submitted that Thirdware Solutions Ltd. has been excluded not only on account of failure of RPT filter but also on the ground of functional dissimilarity. It was submitted that the Ld. CIT(A) has relied upon the decision of the coordinate bench of this Tribunal in the case of Infor (India) Pvt. Ltd. Vs. DCIT in ITA No. 198/Hyd/2021 for A.Y 2016-17, dated 06.10.2021, wherein this company has been held to be functionally not comparable to a routine software development service provider. The Ld. AR also relied on Indeed India Operations Private Limited Vs. Dy. CIT in ITA 9 No.254/Hyd/2021 for the A.Y 2016-17, dated 10.08.2022, and ADP Private Limited Vs. Dy. CIT in ITA Nos. 227 & 228/Hyd/2021 for the A.Y 2016-17, dated 03.02.2022, wherein also this company have been held to be functionally not comparable to a routine software development service provider. It was further contended that even independent of the RPT filter, the company fails the test of functional comparability.
12. With regards to exclusion of Kals Information Systems Ltd., the Ld. AR submitted that the said company is primarily engaged in software product development and also undertakes implementation and maintenance of such products. It was submitted that the assessee, on the other hand, is a routine software development service provider without owning any intangibles or developing any software products. Therefore, the functional profile of Kals Information Systems Ltd. is materially and fundamentally different from that of the assessee. In support of this contention, reliance was placed on the decision of the Coordinate Benche of this Tribunal in the case of Purpletalk India Pvt. Ltd Vs. DCIT, Circle 9(1) in ITA No.193/Hyd/2021, dated 27.03.2025 for the A.Y. 2016-17.
13. With regard to the exclusion of Cigniti Technologies Ltd., Infobean Technologies Ltd., R S Software (India) Ltd. and Inteq Software Pvt. Ltd., the Ld. AR relied upon the order of the Ld. CIT(A) and submitted that the Ld. CIT(A), after detailed examination of the FAR analysis, as well as the audited financials of these companies, has rightly excluded them from the final set of comparables. The Ld. AR further submitted that the exclusion of these companies is squarely covered by decisions of various coordinate benches of the Tribunal for the 10 same assessment year, i.e., A.Y. 2016-17. It was submitted that:
(a) Exclusion of Cigniti Technologies Ltd. is covered by the decision of the Hyderabad Bench of Tribunal in the case of M/s. Clinasia Labs Private Ltd Vs. ITO in ITA No.202/Hyd/2021, for the A.Y 2016-17 dated 11.06.2024.
(b) Exclusion of Infobean Technologies Ltd. is covered by the decision of this Tribunal in the case of ADP Pvt. Ltd. Vs. Dy.CIT (Supra), the Bangalore Bench of the Tribunal in the case of Microchip Technology (India) Pvt. Ltd Vs. DCIT in IT(TP)A No.211/Bang/2011 for the A.Y 2016-17, dated 19.12.2022 and Pune Bench of the Tribunal in the case of Optiva India Technologies Pvt. Ltd Vs. ACIT in ITA No.194/PUN/2021 for the A.Y 2016-17, dated 21.07.2022.
(c) Exclusion of R S Software (India) Ltd. is covered by the decisions of the Bangalore Bench of the Tribunal in the cases of Arm Embedded Technologies Pvt. Ltd Vs. Dy. CIT in ITA No.235/Bang/2021 for the A.Y 2016-17, dated 30.08.2022 and Microchip Technology (India) Pvt. Ltd. Vs. Dy. CIT (Supra) and Pune Bench of the Tribunal in the case of Optiva India Technologies Pvt. Ltd. Vs. Asstt. CIT (Supra).
(d) Exclusion of Inteq Software Pvt. Ltd. is covered by the decision of the Bangalore Bench of the Tribunal in the case of Microchip Technology (India) Pvt. Ltd. Vs. Dy.CIT (Supra) and the Delhi Bench of the Tribunal in the case of GlobalLogic India Pvt. Ltd. Vs. Dy. CIT in ITA No.868/Del/2021 for the A.Y. 2016-17, dated 12.11.2021.
13.1 Accordingly, the Ld. AR submitted that the issue is no longer res integra and the order of the Ld. CIT(A) deserves to be upheld.
11Findings of the Tribunal qua Ground nos. 2 & 3 :
14. We have considered the rival submissions and perused the material available on record including the case laws relied upon. With regard to exclusion of Thirdware Solutions Ltd. , we have gone through page Nos. 267 & 268 of the order of the Ld. CIT(A), which is to the following effect:
12 1314.1 On perusal of the above, we find that the Ld. CIT(A) has excluded Thirdware Solutions Ltd. from the list of comparables not only on account of failure of the RPT filter but also on the ground of functional dissimilarity. We further find that the Ld. CIT(A), while holding the said company as functionally dissimilar, has relied upon the decision of the coordinate bench of this Tribunal in the case of Infor (India) Pvt. Ltd. Vs. DCIT (Supra) for Assessment Year 2016-17. The Ld. DR has primarily challenged the computation of the RPT filter adopted by the Ld. CIT(A); however, she has failed to bring on record any material or evidence to demonstrate that Thirdware Solutions Ltd. is functionally comparable to the assessee, which is engaged in providing routine software development services. We have also gone through para nos. 12 to 12.4 of the decision of this Tribunal in the case of Indeed India Operations Pvt. Ltd. Vs. DCIT (Supra) for the same assessment year, which is to the following effect:14 15 16
14.2 On perusal of the above, we find that this Tribunal has directed Ld. AO/TPO to exclude Thirdware Solutions Ltd.
from the list of comparable being not functionally comparable. Therefore, as a matter of consistency and respectfully following the decisions of the Coordinate Bench of this Tribunal in identical facts, we hold that Thirdware Solutions Ltd. is functionally different from the assessee company and hence not a valid comparable. Since we have upheld the exclusion on 17 the ground of functional dissimilarity, we do not consider it necessary to adjudicate upon the issue relating to the computation of the RPT filter. Accordingly, the action of the Ld. CIT(A) in excluding Thirdware Solutions Ltd. from the list of comparables is upheld.
15. With regard to exclusion of Kals Information Systems Ltd, we have gone through Note No. 1 of the audited financial statements of this company placed at page No. 2342 of the paper book, which is to the following effect:
"NOTE 1 NOTES TO THE FINANCIAL STATEMENTS
1. Background:
The company was incorporated under the Companies Act 1956 as a Private Limited Company in the year 1993. Subsequently the company was converted into a public limited company in the year 2000. The company is engaged in development of software and software products since its inception. The company consisting of STPI unit engaged in Development of Software."
15.1 On perusal of the above, we find that the company has categorically stated that it is engaged in the development of software as well as software products since its inception. Thus, it is evident that the said company is not merely a software development service provider but is also involved in software product development, which entails a different functional profile, asset base, and risk profile as compared to a software development service provider like the assessee. We have also gone through para no. 31 of the order of this Tribunal in the case of Purpletalk India Pvt. Ltd Vs. DCIT (Supra), which is to the following effect:
"31. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also considered the arguments of both the sides in light of findings of DRP on the issue of exclusion of Kals Information Systems Private Limited and Cigniti Technologies Limited from the final list of comparable companies. Although, the DRP has directed the TPO to exclude the above 02 companies, but, the Learned Counsel 18 for the Assessee submitted that the TPO has not given full effect to the directions of the DRP to exclude the above 02 companies. In our considered view, once the DRP has given a direction to the TPO/AO to exclude or include any company, the Assessing Officer/TPO is bound to give full effect to the directions of the DRP without any modifications. Therefore, we direct the Assessing Officer/TPO to verify the fact and give effect to the order of the DRP in toto and exclude the above 02 companies viz., Kals Information Systems Private Limited and Cigniti Technologies Limited from the final list of comparable companies."
15.2 On perusal of the above, we find that this Tribunal for the same assessment year has excluded Kals Information Systems Ltd. from the list of comparables. Further, the Revenue has not brought on record any distinguishing facts or contrary judicial precedent to deviate from the view taken by the Tribunal. Therefore, as a matter of consistency and respectfully following the decision of the coordinate bench of this Tribunal, we uphold the action of the Ld. CIT(A) in excluding Kals Information Systems Ltd. from the final set of comparables. Accordingly, the action of the Ld. CIT(A) in excluding Kals Information Systems Ltd. from the list of comparables is upheld.
16. With regard to the exclusion of Cigniti Technologies Ltd., we have gone through the para nos.18 to 20 of the order of this Tribunal in the case of Clinasia Labs Private Limited Vs. ITO (Supra) which is to the following effect:
19 2016.1 On perusal of the above, we find that this Tribunal has directed Ld. AO/TPO to exclude Cigniti Technologies Ltd.
from the list of comparable. Further, the Revenue has not brought on record any distinguishing facts or contrary judicial precedent to deviate from the view taken by the Tribunal. Therefore, as a matter of consistency and respectfully following the decisions of the coordinate Bench of this Tribunal in identical facts, we hold that Cigniti Technologies Ltd.is functionally different from the assessee company and hence not a valid comparable. Accordingly, the action of the Ld. CIT(A) in excluding Cigniti Technologies Ltd. from the list of comparables is upheld.
17. With regard to the exclusion of R S Software (India) Ltd., we have gone through the para no.25 of the order of the Bangalore Bench of the Tribunal in the case of M/s. Arm Embedded Technologies Pvt. Ltd Vs. Dy. CIT (Supra), which is to the following effect:
21 2217.1 On perusal of the above, we find that the Bangalore Bench of the Tribunal has directed Ld. AO/TPO to exclude R S Software (India) Ltd. from the list of comparable. Further, the Revenue has not brought on record any distinguishing facts or contrary judicial precedent to deviate from the view taken by the Tribunal. Therefore, as a matter of consistency and respectfully following the decisions of the Coordinate Bench of the Tribunal in identical facts, we hold that R S Software (India) Ltd. is functionally different from the assessee company and hence not a valid comparable. Accordingly, the action of the Ld. CIT(A) in excluding R S Software (India) Ltd. from the list of comparables is upheld.
18. With regard to the exclusion of Inteq Software Private Ltd., we have gone through the para nos. 25 to 31 of the order of the Bangalore Bench of the Tribunal in the case of Microchip Technology (India) Pvt. Ltd vs. Dy. CIT (Supra) which is to the following effect:
"25. Functionally different: It is submitted that the company is engaged in outsourced product development for small, medium corporation and emerging technology businesses. The company undertakes all the process of product development life cycles, which is a high-end product development, which is incomparable to the SWD services rendered by the Assessee. As per the website of the company, the company renders data warehousing services, consulting services, EI and EDI services, testing services healthcare BPO services, and in respect of the diverse services, no segmental details are available. It is submitted that the company is not a pure software development company like the Assessee. The presence of assets such as data processing equipment and electrical installations denote the diversified business segments of the company.
26. It is submitted that the company earns revenue from software development services and service charges and the same is shown in the annual report of the company in a composite manner with no segmental profitability and therefore, it is submitted that the company is not comparable to a routine software development service provider.23
27. Significant related party transactions: It was submitted that the company's related party transactions (sales) for the FY 2013-14 stand at 79.49% of sales, and therefore the company ought to be excluded.
28. Wide fluctuation in the margin: The ld. AR submitted that the company's margin fluctuate widely, suggesting that there exists a peculiar economic circumstance. For the FY 2013-14, the company's margin stood at 47.21%, for the FY 2014-15 32.14% and for the FY 2015-16 7.56%.
29. It is submitted that the TPO has relied on the information received under Section 133(6) of the Income tax Act, 1961 ("the Act") for the assessment year 2015- 16 on the ground that no response was received from the company to the notice issued under Section 133(6) of the Act for AY 2016-17. It is submitted that in the absence of IT(TP)A No.211/Bang/2021 response to notice by the Company for AY 2016-17, the TPO erred in considering the information received for AY 2015-16 and holding that the company is functional comparable for the assessment year in question when the details available in the public domain illustrate otherwise.
30. It is submitted that in the case of Barracuda Networks India Pvt. Ltd., the Tribunal upheld the inclusion of the aforesaid company on the ground that the Company cannot be excluded basis non receipt of response to the notice issued under Section 133(6) of the Act. In this regard, it is submitted that the Assessee herein is seeking exclusion of the aforesaid company on the basis of its functional dissimilarity and not for the reason that no response was received from the company under Section 133(6) of the Act. In fact, in Barracuda/BORQS, this Hon'ble Tribunal proceeded on the basis that the Assessee therein had not placed material to doubt the functional comparability of the company whereas, the submissions above in the instant case clearly show that the Company is not similar coupled with the website extracts it is evident that the company is not a pure software developer. It is submitted that annual report of Inteq for AY 2016-17 clearly shows that the company is engaged in consultancy services and therefore is not into pure software development services like the assessee company [pages 107-108 of the appeal set and pages 268 and 303 of the PB].
31. Reliance is placed on the decision of this Hon'ble Tribunal in the cases of NTT Data FA Insurance Systems (India) Pvt. Ltd. v. DCIT (order dated 03.10.2022 in IT(TP)A No. 261/Bang/2021) at para nos. 19-21 and Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 235/Bang/2021]). Reliance is placed on the decision of the Delhi Bench of the Hon'ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 24 taxmann.com 35)) for AY 2016-17. In view of the above, it is submitted that Inteq ought to be excluded from the final list of comparables."
18.1 On perusal of the above, we find that the Bangalore Bench of the Tribunal has directed Ld. AO/TPO to exclude Inteq Software Private Ltd. from the list of comparable. Further, the Revenue has not brought on record any distinguishing facts or contrary judicial precedent to deviate from the view taken by the Tribunal. Therefore, as a matter of consistency and respectfully following the decision of the Coordinate Bench of the Tribunal in identical facts, we hold that Inteq Software Private Ltd. is functionally different from the assessee company and hence not a valid comparable. Accordingly, the action of the Ld. CIT(A) in excluding Inteq Software Private Ltd. from the list of comparables is upheld.
19. With regard to the exclusion of Infobeans Technologies Ltd., we have gone through the para nos. 7 to 7.4 of the order of this Tribunal in the case of ADP Pvt. Ltd Vs. Dy. CIT (Supra), which is to the following effect:
25 2619.1 On perusal of the above, we find that this Tribunal has directed Ld. AO/TPO to exclude Infobeans Technologies Ltd. from the list of comparable. Further, the Revenue has not brought on record any distinguishing facts or contrary judicial precedent to deviate from the view taken by the Tribunal.
Therefore, as a matter of consistency and respectfully following the decisions of the Coordinate Bench of this Tribunal in identical facts, we hold that Infobeans Technologies Ltd. is functionally different from the assessee company and hence not a valid comparable. Accordingly, the action of the Ld. CIT(A) in excluding Infobeans Technologies Ltd. from the list of comparables is upheld.
2720. With regard to the exclusion of Rheal Software Pvt Ltd and CG-VAK Software & Exports Ltd., we have considered the submissions of both the parties and perused the material available on record. We find that the Ld. CIT(A) has excluded the aforesaid companies after examining their functional profile and other relevant parameters for comparability analysis. The Ld. DR, though supported the order of the Ld. TPO, could not place on record any material to controvert the specific findings recorded by the Ld. CIT(A) for exclusion of these companies. No contrary evidence or distinguishing facts have been brought before us to demonstrate that these companies are functionally comparable to the assessee or that the findings of the Ld. CIT(A) suffer from any infirmity. In the absence of any contrary material produced by the Revenue, we do not find any reason to interfere with the well-reasoned order of the Ld. CIT(A). Therefore, we uphold the action of the Ld. CIT(A) in excluding Rheal Software Pvt. Ltd. and CG-VAK Software & Exports Ltd. from the final set of comparables.
21. Accordingly, the ground nos. 2 and 3 raised by the Revenue are dismissed.
22. Under Ground No. 4, the Revenue has challenged the inclusion of Evoke Technologies Ltd. in the final set of comparables by the Ld. CIT(A). The Ld. DR contended that the financial statements of Evoke Technologies Ltd. are not reliable since the company has foreign branch operations and no standalone audited segmental financials of the Indian operations are available. It was submitted that the Ld. CIT(A) erred in observing that the Profit Level Indicator ("PLI") was computed considering only Indian operations.
2823. Per contra, the Ld. AR relied upon the order of the Ld. CIT(A) and invited our attention to Note No. 2.29 of the audited financial statements of the company placed at page No. 2391 of the paper book. It was submitted that the revenue attributable to Indian operations has been specifically disclosed in the audited financials, enabling computation of PLI on a standalone basis, excluding overseas branch revenue. It was further submitted that this issue is covered by decisions of the Coordinate Bench of this Tribunal for the same assessment year in the case of ADP Private Limited Vs. DCIT (Supra).
24. We have carefully considered the rival submissions and perused the material available on record including the case laws relied upon. We have specifically gone through Note No. 2.29 of the financial statements of Evoke Technologies Ltd. placed at page No. 2391 of the paper book and on perusal of the same, we find that the revenue attributable to the Indian business has been clearly and specifically disclosed in the audited financial statements, thereby enabling the computation of PLI on a standalone basis, exclusive of the overseas branch revenue. Therefore, the contention of the Ld. DR that reliable standalone financial data is not available does not hold merit. Once the relevant financial data pertaining to Indian operations is identifiable from audited statements, the same can be safely adopted for comparability analysis. Further, we have also gone through para nos. 12.3 and 12.4 of the order of this Tribunal in the case of ADP Private Limited Vs. DCIT (Supra), which is to the following effect:
2925. On perusal of the above, we find that this Tribunal has directed the Ld.AO/TPO for inclusion of Evoke Technologies Ltd. by taking the revenue from Indian branch only. Further, the Revenue has not brought on record any contrary decision or distinguishing facts warranting a different view. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) in including Evoke Technologies Ltd. in the final set of comparables. Accordingly, Ground No. 4 raised by the Revenue is dismissed.30
26. The Ld. DR has also submitted that upon giving effect to both inclusion as well as exclusion of comparables, in terms of the directions of the Ld. CIT(A), only two comparables would remain in the final set, and therefore, such a limited set would not yield a reliable benchmarking or determination of the arm's length price. However, we find that the said contention is devoid of merit. In this regard, we have carefully gone through para no. 14 of the order of the Mumbai Bench of the Tribunal in the case of JP Morgan Advisors India Pvt. Ltd.
Vs. DCIT in ITA No.7979/Mum/2010 dated 16.03.2017, which is to the following effect:
"14. Lastly, coming to the learned CIT-DR's argument that, if there is only one comparable left, then it would not be proper to benchmark the margin as the factors of comparative analysis will not throw fruitful result. However, we are unable to appreciate the learned CIT DR's contentions. First of all, Rule 10B(1)(e)(ii) envisages that net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. Here comparison of net margin is done between enterprise or unrelated enterprise from a comparable transaction or number of comparable transactions, that is, one or more. The comparability analysis between the controlled transaction and the comparable uncontrolled transaction has to be on the same base, i.e., either cost incurred; or sales effected; or assets employed; for determining the PLI. Thus, this rule envisages that the net profit margin realized can be bench marked either from one comparable uncontrolled transaction or from more than one. Further first proviso to section 92C provides that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be arithmetic mean of said prices. Thus, the main emphasis under the law is to identify comparable case to benchmark the arm's length price of the controlled transaction. If there are more than one comparables then various comparability factors can be examined and it may lead to a proper determination of ALP, because many factors and differences J P Morgan Advisors India Private Limited gets weed out by benchmarking the margin of various comparables. More than one comparable is though desirable to get appropriate arm's length results, but there is no mandate in the law that one may choose more than one comparable only. The only limitation in choosing one comparable would be that 31 the tolerance range of plus/minus 5% (or 3%) as envisaged in second proviso to section 92C will not be applicable. Thus, we do not subscribe to the contention raised by the learned CIT (DR) that one comparable company cannot be taken for benchmarking the arm's length price of a party. Accordingly, we direct the TPO to benchmark the assessee's margin with only one comparable.
26.1 On perusal of the above, we find that the Coordinate Bench has categorically held that even a single comparable, if found to be functionally similar and otherwise acceptable, can be adopted for the purpose of benchmarking the arm's length price under the Transfer Pricing provisions. Therefore, respectfully following the aforesaid decision of the Coordinate Bench, we hold that merely because only two comparables remain in the final set, the same cannot be a ground to reject the benchmarking exercise, so long as the comparables retained are found to be functionally comparable and satisfy all the requisite filters. Accordingly, we find no infirmity in the approach adopted, and the contention raised by the Revenue is hereby rejected.
27. Ground No. 5 raised by the Revenue is general in nature and does not call for any specific adjudication. Accordingly, the same is dismissed.
28. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on 24th April, 2026.
Sd/- Sd/-
(VIJAY PAL RAO) (MADHUSUDAN SAWDIA)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, dated 24th April, 2026.
Vinodan/sps
32
Copy to:
S.No Addresses
1 Dy. CIT, Circle 1(1) Room No.724, 7th Floor, B Block, IT Towers,
Masab Tank, Hyderabad 500004
2 Charter Global Technologies (P) Ltd, 3-6-770/2 Himayath
Nagar, Hyderabad 500029
3 Pr. CIT - Hyderabad
4 DR, ITAT Hyderabad Benches
5 Guard File
By Order
TIRUPATI Digitally signed by
TIRUPATI YAMINI NAGA
YAMINI NAGA MALLESWARI
Date: 2026.04.24
MALLESWARI 14:48:33 +05'30'