Income Tax Appellate Tribunal - Hyderabad
Highradius Technologies Private ... vs Deputy Commissioner Of Income Tax, ... on 12 November, 2025
आयकर अपील य याया धकरण म, है दराबाद 'ए' बच, है दराबाद
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A' Bench, Hyderabad
ी मंजूनाथ जी, माननीय लेखा सद य एवं ी रवीश सूद, माननीय या यक सद य
SHRI G. MANJUNATHA, HON'BLE ACCOUNTANT MEMBER
AND
SHRI RAVISH SOOD, HON'BLE JUDICIAL MEMBER
आयकर अपील सं ./I.T.A.No.436/Hyd/2024
(िनधारण वष/ Assessment Year : 2020-21)
HighRadius Tecnologies Vs. DCIT
Private Limited Circle-2(1)
Hyderabad Hyderabad
PAN : AABCH8840F
(अपीलाथ / Appellant) ( थ / Respondent)
करदाता का ितिनिध / : Shri Ketan K.Ved, CA, AR
Assessee Represented by
राज का ितिनिध / : Ms.U.Mini Chandran,CIT-DR
Department Represented by
सुनवाई समा होने की ितिथ/ : 19.08.2025
Date of Conclusion of
Hearing
घोषणा की तारीख/Date of : 12.11.2025
Pronouncement
ित रवीश सूद, जे .एम./PER RAVISH SOOD, J.M.
The present appeal filed by the assessee company is directed
against the order passed by the A.O under Section 143(3)
r.w.s.144C(13) of the Income Tax Act, 1961 ("the Act") dated
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25.02.2024, which in turn arises from the directions issued by the
Dispute Resolution Panel-1, Bengaluru (for short, "DRP") for the
assessment year 2020-21. The assessee company has assailed the
impugned order on the following grounds of appeal before us:
"1. Erroneous transfer pricing adjustment of INR 10,58,23,162 in
respect of international transaction of provision of software development
and support services
1.1. The learned AO erred, on the facts and circumstances of the case
and in law, in proposing a transfer pricing adjustment of INR
10.58,23,162/- to the income of the Appellant in relation to the international
transection of provision of software development and support services
("SDS services"), vide Assessment Order under section 143(3) r.w
144C(13) read with section 144B of the Income-tax Ac, 1961 ("he Ac"
1.2. The learned AO/Transfer Pricing Officer ("TPO") erred in law and
in facts in rejecting the Appellant's transfer pricing documentation without
any cogent reasons.
1.3 The learned AO/TPO erred in law and in facts by inappropriately
rejecting some of the comparability filters adopted by the Appellant in its
TP study report and applying additional filters and proceeded to undertake
a fresh search for benchmarking the said international transaction of SOS
services.
1.4 The learned AO/TPO erred in law and in facts in rejecting the
following comparable companies accepted by the Appellant in its transfer
pricing study report for benchmarking the said international transaction of
provision of SDS services:
•Inteq Software Pvt Ltd.
•Yudiz Solutions Pvt. Ltd
•R Systems International Ltd
•Sasken Technologies Ltd.
•Info Bears Technologies Ltd.
1.5 The learned AO erred in law and in facts in rejecting the following
additional comparable companies proposed by the Appellant for
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HighRadius Technologies Private Limited
benchmarking the said international transaction of provision of SDS
services:
•Indian Infotech Ltd.
•Kireeti Soft Technologies
•Hurix System Private Limited
1.6 The learned AO/TPO erred in law and in facts in selecting the
following additional companies as comparable for benchmarking the said
international transection of provision of SDS services:
•Great Software Laboratory Pvt Ltd
•Robosoft Technologies Ltd
•Daffodil Software Pvt Ltd
•Wipro Limited
•Nihilent Limited
•L&T Infotech Ltd
•Virinchi Limited
•CC VAK Software & Exports Ltd
•XS CAD India Pvt Ltd.
•Tata Elxsi Limited
•Infosys Limited
•Cybage Software Pvt Ltd
•Harbinger Systems Pvt Ltd
•Evoke Technologies Ltd
•Mindtree Ltd
1.7 The learned AO/TPO erred in not applying the upper limit turnover
filter while selecting comparable companies for benchmarking the said
international transaction of provision of SDS services.
1.8 The learned AO/TPO erred in including companies as
comparable having significant revenue/expenses from onsite activities
while benchmarking the said international transaction of provision of SDS
services.
1.9 The learned AO/TPO erred in computing the net operating
margins of certain companies accepted as comparable for benchmarking
the said international transaction of provision of SDS services.
1.10 The learned AO/TPO erred in law and in facts, in not allowing
adjustment for differences in the levels of working capital of the Appellant
and the comparable companies proposed to be selected in determining
the arm's length prices of the international transaction of provision of SDS
services.
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1.11 The learned AO/TPO erred in law and in facts, in not allowing
adjustment for differences in the levels of risks assumed by the Appellant
and the comparable companies proposed to be selected in determining
the arm's length price of the international transaction of provision of SDS
services.
2 Erroneously considering the total income of the Appellant in
excess in terms of the Intimation" u/s. 143(1) of the Act.
2.1 The learned AO has erred in considering the total income of the
Appellant under the normal provisions of the Act in excess in terms of the
'Intimation' u/s. 143(1) of the Act
2.2 The Appellant submits that considering the facts and
circumstances of its case and the law prevailing on the subject, no
intimation u/s. 143(1) of the Act has been received/served.
2.3 The Appellant submits that considering the facts and
circumstances of its case and the law prevailing on the subject the
disallowance made in terms of the Intimation u/s. 143(1) of the Act is
misconceived, erroneous, illegal, and unwarranted.
2.4 The Appellant submits that the learned AO be directed to consider
the correct total income of the Appellant and to re-compute the tax thereon
accordingly.
3. Erroneous disallowance of INR 13,13,770 pertaining to leave
encashment expenses claimed by the Appellant under section 43B of the
Act
3.1 The learned AO has erred in not granting a deduction of INR
13,13,770/- /s.43B of the Act
3.2 The Appellant submits that considering the facts and
circumstances of its case and the law prevailing on the subject, it is inter-
alia eligible for claiming deduction u/s. 43B of the Act on account of leave
encashment which has been paid on or before the due date of filing the
return of income and the stand taken by the learned AO in this regard is
illegal, incorrect, erroneous and misconceived.
3.3 The Appellant submits that the learned AO be directed to grant
deduction w/s. 43B of the Act and to re-compute its total income and tax
liability accordingly.
4. Others
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4.1 The learned AO erred in initiating proceedings for penalty under
section 274 read with section 270A of the Act, consequent to the above
adjustment.
4.2 The Appellant submits that each ground of appeal are without
prejudice to one another.
4.3 The Appellant desires to leave to amend, alter or to add, by
deletion, substitution or otherwise, any or all of the above grounds of
objections, at any time before or during the hearing of the Appeal.
2. Succinctly stated, the assessee company is a wholly-owned
subsidiary of its overseas parent company and is engaged in the
business of providing software development services exclusively to
its associated enterprise (for short, "AE"), and is characterized as a
captive service provider assuming limited risks.
3. The assessee company had filed its return of income for AY
2020-21 on 24.12.2020, declaring an income of Rs. 6,41,92,580/-.
Subsequently, the case of the assessee company was selected for
scrutiny assessment, and notice under Section 143(2) of the Act,
dated 29.06.2021, was issued to the assessee company. Also, as
observed by the AO the return of income filed by the assessee
company was thereafter processed vide an intimation issued under
Section 143(1)(a) of the Act, dated 30.11.2022, wherein after making
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HighRadius Technologies Private Limited
an addition of Rs. 13,13,770/- under Section 43B of the Act the
income of the assessee company was determined at Rs.
6,55,06,350/-.
4. During the course of the assessment proceedings, the AO
made a reference to the Transfer Pricing Officer (for short, "TPO")
under section 92CA(1) of the Act for determining the Arm's Length
Price (for short, "ALP") of the international transactions of software
development services that were provided by the assessee company
to its Associate Enterprise (for short, "AE"), viz. High Radius
Corporation, USA.
5. The TPO, in the course of proceedings before him, rejected
certain comparables included in the assessee's transfer pricing
study report, and selected a new set of comparables by applying
filters, viz. (i). rejection of companies having R&D expenses in
excess of 3% of sales; (ii). turnover filter of more than Rs. 1 crore;
(iii). rejection of companies having export income of less than 75%
of sales; (iv). employee cost filter of less than 25% of sales; (v).
exclusion of companies having different financial year endings; and
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(vi). application of RPT filter of 25%. Thereafter, the TPO, based on
the final set of comparables selected by him, determined the mean
margin at 21.43% as against the assessee's margin of 14.29%,
resulting in an upward adjustment of Rs. 12,32,46,335/- to the arm's
length price of the international transactions of provision of software
development services to its AE.
6. Aggrieved, the assessee company filed objections before the
DRP, which, vide its order dated 30.01.2024, substantially upheld
the action of the TPO, except for minor corrections.
7. Thereafter, the AO vide his final assessment order passed under
Section 143(3) r.w.s 144C(13) r.w.s 144B of the Act, dated 25/02/2024
(after taking the income of the assessee company determined vide an
impugned intimation issued u/s 143(1)(a) of the Act, dated 30.11.2021 at
Rs. 6,55,06,350/-) made TP adjustment as directed by the DRP-1,
Bengaluru of Rs. 10,58,23,162/-, and determined its income at Rs.
17,13,29,510/-.
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8. The assessee company aggrieved with the order passed by the AO
under Section 143(3) r.w.s 144C(13) r.w.s 144B of the Act, dated
25.02.2024, has carried the matter in appeal before us.
9. We have heard the Ld. Authorized Representatives of both parties,
perused the orders of the lower authorities and the material available on
record, as well as considered the judicial pronouncements that have been
pressed into service by them to drive home their respective contentions.
10. The core dispute relates to the adjustment of Rs. 10,58,23,162/-
made by the Transfer Pricing Officer (TPO), while giving effect to the
directions of the DRP-1, Bengaluru, for determining the Arm's Length
Price (ALP) of the international transaction of software development and
support services provided by the assessee company to its Associated
Enterprise (AE).
11. As observed hereinabove, the assessee company is a captive
service provider remunerated by its AE on a cost-plus basis. Ostensibly,
a perusal of the record reveals that the assessee company neither owns
any intellectual property (IP) nor undertakes research and development
(R&D) and bears only limited operational risks.
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12. During the subject year, the assessee company had earned an
operating margin (OP/TC) of 14.29 %. It had applied the Transactional
Net Margin Method (TNMM) with Operating Profit/Total Cost (OP/TC) as
the Profit Level Indicator (PLI). The arm's-length range determined by the
assessee company in its Transfer Pricing Study Report (TPSR) (after
working-capital adjustment), considering 8 comparables selected by it
was 11.36% to 16.80%, with a median of 14.27%. Accordingly, the
assessee company had claimed its international transactions with its AE
as being at arm's length
13. However, we find that the TPO rejected certain comparable and
had, inter alia, included seven new companies, viz. (i). L&T Infotech Ltd.;
(ii). Tata Elxsi Ltd. (iii). Infosys Ltd.; (iv). Wipro Ltd.; (v). Nihilent Ltd.; (vi);
Great Software Laboratory Pvt. Ltd.; and (vii). Cybage Software Pvt. Ltd.
Also, the TPO had excluded R Systems International Ltd., i.e., one of the
comparable that was selected by the assessee company. Accordingly, the
TPO vide his order passed u/s 92CA(3) of the Act, dated 27/03/2023,
suggested an upward adjustment of Rs. 12,32,46,335/-.
14. Thereafter, the Dispute Resolution Panel-1, Bengaluru, vide its
order dated 30.01.2024, directed the TPO to exclude certain comparables
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from the software development segment for comparability analysis.
Accordingly, the TPO, in view of the directions of the DRP-1, Bengaluru,
made the final adjustment of Rs. 10,58,23,162/-.
15. We have heard the Ld. Authorized Representatives of both
parties in the backdrop of the orders of the authorities below.
16. Shri. Ketan Ved, Ld. Authorized Representative (for short,
"AR") for the assessee company has assailed the orders of the
authorities below on the limited extent that they had erred in
including/excluding certain comparables in the final list of
comparables for benchmarking the international transaction of
provision of software development services by the assessee
company to its Associate Enterprise (for short, "AE"), viz. High
Radius Corporation, USA. As the Ld. AR has confined his
contentions to the extent of sustainability of the inclusion/exclusion
of certain comparable in the final list of comparables, therefore, we
shall confine our adjudication only to the said limited extent.
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17. Before dealing with the respective comparables in question,
we deem it apposite to cull out the functional, asset, and risk (FAR)
profile of the assessee company before us. The FAR analysis of the
assessee company as per its TP study report and other documents,
reveals as under:
Functions: The assessee company performs software
development, testing, and maintenance for its AE. It works
strictly as per the specifications provided by the AE and does
not carry out any independent research or marketing.
Assets: The assessee company owns computers, servers,
and software tools required for its work and does not possess
any proprietary software or intellectual property.
Risks: The assessee company as a captive service provider,
bears only the operational risks, viz. employee-related or
delivery-related risks, while the market, credit, and product
risks are borne entirely by its AE.
Accordingly, based on the FAR analysis of the assessee company,
it can safely be characterized as a low-risk captive software
development service provider.
18. We shall now deal with the respective comparables, whose
inclusion/exclusion by the TPO/DRP has been assailed by the Ld.
AR before us in the backdrop of the observations arrived at by the
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HighRadius Technologies Private Limited
DRP after considering the objections of the assessee company, as
under:
(A). Larsen & Toubro Infotech Ltd.
19. We have thoughtfully considered the contentions advanced by the
Learned Authorized Representatives of both parties in context of the
aforesaid comparable viz., Larsen & Turbo Infotech Ltd (for short, "LTI")
which had been included by the Transfer Pricing Officer (in short, "TPO")
in the list of comparables for benchmarking the international transactions
of the assessee company with the Associated Enterprise (for short, "AE").
Before proceeding further, we deem it apposite to cull out the
observations of the DRP, which had upheld the inclusion of LTI in the final
list of comparables by the TPO, as under:
"2.5.6.1 Having considered the submissions, we note, the company is
engaged in providing application maintenance and Development,
Enterprise Resource Planning and Testing. For the period ended March
31, 2018, March 31, 2019 and March 31, 2020, as per the information
in the annual reports, 100 percent of the operating revenues respectively
were derived from software development services. The activities IT
services like Application maintenance and Development, Enterprise
Resource Planning and Testing are all software development activities
and fall within the umbrella IT services, as per NASSCOM. As per the
annual report information for the year ended 31.03.2020, the main object
of the Assessee company is to carry on the business of designing
software development, software maintenance and support services the
areas of computer networks, computer software and hardware, data
communication equipment, पैectronic equipment, radio and wireless
communication product and equipment wireless telecommunication
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equipment of every description. Thus, the activities of L&T are
functionally comparable to the Assessee company, as evident from the
nature of services rendered by it. Therefore, the plea that this company
performs different functions has no basis. The nature of activity
performed by this company is given at page 83 of the annual report, as
under:
"Larsen & Toubro infotech Limited ('Company') together with its
subsidiaries shall mean Larsen and Toubro infotech Limited ("Group').
The Group offers extensive range of IT services like application
development, maintenance and outsourcing, enterprise solutions,
infrastructure management services, testing, digital solutions, and
platform-based solutions to the clients in diverse Industries."
2.5.6.2 In view of the above information, it is very clear that this company
is engaged in software development services only and hence
functionally comparable. The plea that it has diversified activities has no
basis, as could be seen from the above information and discussion in
the annual report of this company. The financial statements do not
mention about any product sale or Inventory. As there is no revenue
stream on account of product sales, we do not find any ment in the
argument that the company is engaged in product sales. Accordingly,
we hold that this company is functionally comparable to the Assessee.
2.5.6.3 It was argued that during the year under consideration, L&T
Infotech has acquired Lymbyc Solutions Private Limited and
Powerupcloud Technologies Private Limited (F.Y.2019-20).
Accordingly, the company has experienced in organic growth owing to
which, financial year 2019-20 has been a year with extraordinary events.
The Assessee has not furnished any information to demonstrate the said
plea. Having examined the plea, we note that with the acquisition of M/s
Lymbyc Solutions Private Limited and with regards to M/s.
Powerupcloud Technologies Private Limited, it had become wholly
owned subsidiary operating in the same field of rendering software
services. The method of accounting to give effect to the amalgamation
into the accounts is discussed at pages 206 & 207 of the annual report.
2.5.6.4 As per the Annual report, pursuant to scheme of acquisition of
the abovementioned entities during the FY 2019-20 and there is no
impact as such on comparability, as the transferor company is also in
the same line of business activity- namely software development
services. Thus, there is no functional difference so as to affect
comparability on account of the said acquisition. On further perusal of
the financial reports for the three years, we note that there is no impact
on the profitability of the transferee company on account of such
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acquisition, as could be seen from the following information extracted
from the annual report:
Financial Year Operating profit
2012-13 22.7%
2013-14 21.19%
2014-15 21.6%
2015-16 21.7%
2016-17 19.15%
2017-18 18.11%
2018-19 20.15%
2019-20 18.15%
2.5.6.5. The above information clearly shows that the amalgamation has
not impacted in increasing the profitability of the transferee company.
Besides, it is also seen that the company has not reported
amalgamation as a significant factor affecting its revenue growth or
profitability. In view of these, we reject the plea that this company has to
be excluded on account of amalgamation.
2.5.6.6 The Assessee has also argued that this company derives a
significant amount of revenue from its onsite activities as well as
incurring onsite branch office expenses. Although the Assessee has
argued for the exclusion of the company also on this ground but, has not
given any reasons or justification as to how this affect comparability.
2.5.6.7 At the outset, we note that in many cases, the expenditure
incurred in foreign currency has been assumed to represent onsite
expenses which are totally incorrect. All expenses incurred in foreign
currency cannot be assumed to relate to expenditure incurred for onsite
activity. There will be many situations, that for the offshore activity, the
enterprise may have to incur expenses in foreign currency, such as
towards commission payment, consultancy payment, travel expenses
etc., Therefore, the percentage working of onsite expenses given, in all
are found to be erroneous and unreliable. Only in the case of some
comparables there is clear mention of onsite activity and onsite
expenses. As to the incurrence of onsite expenses, we note that the
Assessee has not given any reasons or justification as to how these
affects functional comparability as such.
2.5.6.8 In this regard, we also note profit margins for onsite work is
normally low as compared to offshore work and average rate per hour
differs for onsite and offshore work; the salary structure in case of on-
site project is governed by the economic conditions prevailing in the
resident country where work is actually performed, whereas in offshore
projects, Indian conditions govern the salary structure which is much
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lower as compared to the country where associated enterprise is
located. Further, the employees if sent overseas have certain dead
hours, which cannot be properly utilized as can be done in the home
country. These facts are favorable to the Assessee on which, there
should be no grievances to the Assessee. Accordingly, there is no need
to reject a functionally comparable company on account of onsite
activity. In this regard reliance is placed on the order of ITAT, Mumbai
in the case of Capgemini in Para 5.3.7 wherein it was held that "The Id.
Sr. Counsel has also pointed out that Infosys and Wipro have substantial
revenue, 51.7% in case of 33 Infosys, and 45.3% in case of Wipro from
on-site work done overseas at the site of clients whereas the onsite work
in the case of the Assessee is just 5%. It has been pointed out that the
employees if sent overseas have certain dead hours, which cannot be
properly utilized as can be done in the home country. But this argument
as rightly pointed out by the Id, CIT-DR does not support the case of
higher margin in case of onsite work because dead hours would mean
less output with the same employee cost, which would in fact reduce the
margin. No material has also been placed before us to show that the
margin in case of on-site work is higher. Therefore, we do not find merit
in the objection for exclusion of companies merely on account of onsite
expenditure." In view of the above, the argument made by the Assessee
is rejected on onsite activity
2.5.6.9 A plea was also raised that this company has incurred
substantial expenditure towards R&D and hence not to be taken as
comparable. However, perusal of the information in the annual report
shows that there is an expenditure of Rs.302 million as against total
revenue of Rs.69,064 million which comes to 0.43% of total revenue.
This percentage of expenditure is below the threshold limit of 3%
adopted in case of R&D expenditure. There is no indication in the annual
report to show that the R&D had resulted in any distinct product
development giving rise to source of separate revenue stream. The
information on technology absorption on which the Assessee has relied
on states that R&D activities are integrated with software development
process with objective of ensuring efficiency and quality. Therefore, they
are to be taken as routine activities in enhancing the quality of delivery
of services. In view of the above these pleas are rejected.
2.5.6.10 The plea of the turnover range will not affect the comparability
as discussed in paras 2.4.3.1 & 2.4.12.1 to 2.4.12.12 above.
2.5.6.11 In view of the above, we uphold the selection of this
comparable."
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20. At the threshold, we may herein observe that LTI is engaged in
diversified activities, wherein it is offering an extensive range of IT
services, viz., application development, maintenance and outsourcing,
enterprise solutions, infrastructure management services, testing, digital
solutions, and platform-based solutions to its clients in diverse industries,
which, thus, renders it functionally dissimilar to the assessee company
which is a low-end captive service provider of software development
services to its AE. Apart from that, we find that there is no segment-wise
breakup regarding the software development services provided by the
aforementioned comparable. Also, we find that during the year under
consideration, the aforementioned comparable, viz., LTI had acquired
Lymbyc Solutions Pvt. Ltd. on 01.08.2019, a specialist in AI, machine
learning, and an advanced analytics company with their proprietary
product, viz. "Leni"; and Powerupcloud Technologies Pvt Ltd. on
01.10.2019, a born-in-cloud company with cloud consulting capability
across all three leading cloud platforms - AWS, Microsoft Azure, and
Google Cloud. Although the DRP had observed that pursuant to the
acquisition of the aforementioned companies, there was no impact
regarding the comparability as the transferor company was also in the
same line of business activity, i.e., software development services, but we
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are unable to persuade ourselves to concur with the same. Further, we
find that the operation of the LTI for the subject year is significantly higher
in comparison to the assessee company before us. On perusal of the
"annual return" of the comparable for the year under consideration, i.e.,
Financial Year ending 31/03/2020, we find that its revenue from
operations was Rs. 10184.20 crores as against the revenue of Rs. 195.39
crores of the assessee company. Further, we find that the said
comparable owns proprietary platforms, viz. "Mosaic" and "Canvass",
spend significantly on R&D and operate on a global scale.
21. We find that the issue of inclusion of LTI as a comparable company
in the case of software development services (SDS) had come up before
the ITAT, Hyderabad in the case of ADP Pvt. Ltd vs. DCIT (2022) 135
taxmann.com 44 (Hyderabad). The Tribunal had, after exhaustive
deliberations, concluded that the said company cannot be considered as
a comparable for benchmarking the transactions in the software
development segment for the reason that there was an extraordinary
event during the subject year, i.e., amalgamation. Also, we find that the
ITAT, Bangalore in the case of EMC Software and Services India
Private Limited in IT(TP)A No. 191/Bang/2022 had observed that LTI
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could not have been considered as a comparable for benchmarking the
transactions of software development segment in the case before them
for the reason that it was functionally dissimilar, and also that no
segmental information etc. of its software development segment was
available. We find that the ITAT, Bangalore in the case of AMD India
Private Limited vs. ACIT, IT(TP)A. No. 775/Bang/2022, while disposing
of the case of the assessee before them for AY 2018-19, had held that
the aforementioned company could not be selected for benchmarking the
transactions in the software development segment for the reason that the
same was functionally dissimilar and was involved in diversified activities.
For the sake of clarity, the observations of the Tribunal wherein it had held
that the LTI could not be selected as a comparable for benchmarking the
transactions of software development services are culled out as under:
"15. The Id. AR submitted that this company is functionally different as it is
engaged in diversified business activities like infrastructure management
services, digital consultation, data and analytics and is not a pure software
development company. The services are provided under two segments, namely
Services cluster and Industrial cluster. Software service segmental data is not
available in the AR. The Company has global brand value and has business
spread across borders. AugmentIQ Data Sciences Private Limited
amalgamated with L&T in FY 2017-18. This company has substantial onsite
operations for all 3 FY's i.e., FY2017-18 (54.17%), FY 2016-17 (53.32%) & FY
2015-16 (57.20%). Thus, business model is different from Appellant. Reliance
is placed on the decision of this Tribunal in assessee's own case for AYs 2016-
17 & 2017-18 in IT(TP)A Nos. 238 & 262 /Bang/2021 dated 26.06.2023 and
other decisions in M/s. Huawei Technologies India Pvt. Ltd. (TS-855-ITAT-2022
Bang-TP) for AY 2018-19 and M/s. Yahoo Software Development India Pvt. Ltd.
in IT(TP)A No. 178/Bang/2022 for AY 2017-18."
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22. Apart from that, we find that as the turnover of the comparable for
the subject year i.e., Financial Year 2019-20 is Rs. 10184.20 crores as
against the turnover of the assessee company of Rs 195.39 crores,
therefore, on the said count itself it cannot be selected as a comparable
for benchmarking the software development services provided by the
assessee company as a captive service provider to its AE.
23. Also, we may herein observe that the aforementioned comparable,
viz., LTI provides end-to-end digital transformation services and
consulting across multiple industries, incurs significantly on R&D, and
operates on a global scale with a substantial turnover generated from
consulting and IP-based solutions, while for the assessee company, on
the other hand provides only captive software development services and
neither owns any IP nor bears any market risk.
24. Accordingly, in terms of our aforesaid observations, we are of a firm
conviction that the aforementioned company, i.e., LTI, for the reasons
stated hereinabove, could not have been picked up as a comparable for
benchmarking the international transactions of the assessee company,
and accordingly direct the AO/TPO to exclude the same from the final list
of comparables.
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HighRadius Technologies Private Limited
(B) Tata Elxsi Ltd.
25. We have thoughtfully deliberated upon the contentions advanced
by the Learned Authorized Representatives of both parties in the context
of inclusion of the aforementioned comparable, viz., Tata Elxsi Ltd., in the
final list of comparables by the TPO for benchmarking the transactions of
providing software development services by the assessee company to its
AE. Before proceeding further, we deem it apposite to cull out the
observations of the DRP, which had upheld the inclusion of Tata Elxsi Ltd.
in the final list of comparables by the TPO, as under:
"2.5.10.1 Having considered the submissions, on perusal of the annual
report of this company, the operations of the company are into Design
and Development of Computer Hardware and Software as its principal
business activity. On further perusal of the Annual report (page no. 79)
of the company, the Panel has noticed that the company provides
product design and engineering services to the consumer electronics,
communications & transportation industries and systems integration and
support services for enterprise customers. The software development of
the company provides design and engineering services to the consumer
electronics, communications and transportation industries. The principal
business activity of the company as per the Form MGT-9 (page 40 of
the annual report) is design and development of computer hardware and
software which contributes 97.08% of the total revenue of the company.
This is supported by the breakup of revenue from operations given at
Note 21 of financial statements wherein the revenue of Rs.1562.78
crores as against total revenue of Rs.1609.86 crores constituting
97.07% of the total revenue. Therefore, the software development and
services segment of this company is functionally comparable to the
Assessee and passes the filters of the TPO. We also note that the
revenue streams from this segment are on account of rendition of
services and not on account of product sales. Thus, the Software
Development and Services segment of this company can be
characterised as a software development &
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HighRadius Technologies Private Limited
design service provider and functionally comparable to the Assessee's
activities. Therefore, the plea that this company is functionally different
is rejected.
2.5.10.2 it was argued that the company is functionally different as it
involved in content management which is classified as KPO. In this case
as we have pointed out earlier that difference in various segments i.e.
low end to high end in IT services is mainly on account of differences in
the skill/qualification and pay structure of employees and, therefore, the
main point to be considered is whether such differences between
employees is going to materially affect the margin of the comparables.
On the basis of billing rates/skills no conclusion could be drawn that
margins in different segments of IT services are also different. This is
because if the billing rate is high in the high-end services, the cost of the
employees who are highly qualified/skilled also goes up steeply and,
therefore, the margins are not much affected. In fact, no evidence has
been produced before us to show that margins in the high-end segments
of IT services is high compared to low end services. Therefore, we are
unable to accept the argument that the comparable belonging to high
end segments such as KPO etc. should be excluded from the
comparability list on this ground alone. In fact, KPO is a term given to a
branch of BPO in which apart from processing data, knowledge is also
applied. In view of the above, IT services cannot be further classified as
BPO and KPO services for the purpose of comparability analysis. Under
the TNMM, functional similarity is more relevant than product similarity.
Accordingly, we reject this plea of the Assessee. In view of the above,
the company is involved in diversified activities is not acceptable.
2.5.10.3 The plea of the turnover range will not affect the comparability
as discussed in paras 2.4.3.1 & 2.4.12.1 to 2.4.12.12 above.
2.5.10.4 With regard to the plea that the company has significant
intangibles, we note that the value of intangibles assets shown in the
balance sheet (Note 3.(ii) -Page 74) represent the computer software.
The value of intangible assets as on 31-3-2020 was only Rs. 3462.77/-
lakhs (page no 90 of AR) as against total revenue of Rs. 1,60,986.04
lakhs constituting 2.15% of total revenue. There is no reference to any
IPR or patent owned or developed by the company, in the stand-alone
qual report. There is also no acquisition of IPR during the year. The
Assessee se did not point to any information in the annual report to
indicate that the intangibles have materially affected the profitability of
the company as required in clause (i) of sub-rule (3) of Rule 108. Taking
into account all these aspects, we do not find any material difference so
as to affect comparability. Hence, these pleas of the Assessee for
exclusion of the company are hereby rejected.
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HighRadius Technologies Private Limited
2.5.10.5 It was plead that this company is engaged in R&D activities and
has significant intangibles. However, perusal of the information in the
annual report (ref p. 27) that the expenses incurred towards R&D was
only 1.42% of total revenue, and quiet less to the generally acceptable
tolerable limit of 3%. There is no indication in the annual report to show
that the R&D had resulted in any distinct product development giving
rise to source of separate revenue stream. On the other hand, the
information in the annual report indicates, that the R&D activities are
undertaken towards continuous training, human resource development
and to facilitate the engineering teams in upcoming projects in terms of
delivery capability and capacity. Therefore, the R&D activities are to be
considered as routine and towards enhancing the development
capability of the employees for efficient delivery. In view of the above
these pleas are rejected.
2.5.10.6 Regarding the Assessee's assertion that the company owns the
brand and produced an exception from the Annual report from page no.
109. The Panel finds this argument of the Assessee without any ground
as the Assessee has failed to establish that which all brands are owned
by the Assessee. Even if it is assurned that the company owns any
brand or brand, the Assessee could not demonstrate that how this fact
could possibly impact the margin of the company which is otherwise
comparable to the Assessee. Therefore, the Assessee's plea on this
ground is hereby rejected.
2.5.10.7 Regarding the plea to exclude the company from the
comparable since the selection of the company is in conflict with the
contemporaneous requirement, the Panel concurs with the TPO's view
of rejecting comparables with financial years outside the period of April
to March is well-founded and aligns with sound Transfer Pricing
principles. By applying this filter, the Assessee aims to ensure a more
accurate and meaningful comparison between its financials and those
of selected comparables. The decision to focus on companies with
financial years ending in March is logical, as it maintains consistency
and facilitates a genuine comparison profit level indicators. Comparing
companies with different financial year periods could lead to distorted
results, as their financials correspond to different timeframes. This
approach is not only in accordance with the taxpayer's accounting
practices but also enhances the reliability of the Transfer Pricing
analysis by promoting a more robust and relevant set of comparables
for determining the arm's length price of international transactions
entered into by the Assessee. Thus, the Panel finds no infirmity with
TPO's findings and accordingly the objection raised by the Assessee are
hereby rejected.
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HighRadius Technologies Private Limited
2.5.10.8 In view of the above, we uphold the selection of this
comparable."
26. Having given thoughtful consideration, we concur with the Ld. AR
that, as the aforementioned company, viz., Tata Elxsi Ltd., is engaged in
diversified activities, viz., provision of high-end services like embedded
product design and engineering services to its consumers in electronics,
communications & transport industries and systems integration and
support services for enterprise customers, and works with leading OEM's
and suppliers in the automotive and transportation industries for R&D
design and product engineering services from architecture to launch and
beyond, and further works with leading car manufacturers and suppliers,
in developing electronics and software for powertrain, infotainment,
connectivity, active safety and comfort and convenience, which cannot be
compared to a routine provider of software development services,
therefore, the same renders it functionally dissimilar in comparison to the
assessee company before us. Also, we find that Tata Elxsi Ltd (supra) is
engaged in the provision of digital content creation for the media and
entertainment industry. Also, the revenue from software development
services of the aforesaid company, viz. Tata Elxsi during the financial year
ending 31.03.2020 is significantly high at Rs. 1562.78 crores (approx.) as
against that of the assessee company of Rs. 195.39 crores.
24
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HighRadius Technologies Private Limited
27. Further, we find that Tata Elxsi Ltd (supra) also makes use of highly
innovative and IP led technology and undertakes various learning and
development initiatives to build critical organizational capabilities to its
employees in the course of its services rendered to its customers. As the
said comparable owns intellectual property (IP) in the form of technology
and brand, thus, the same, in our view, cannot be picked up as a
comparable to benchmark the ALP of the SDS provided by the assessee
company to its AE. Also, we find that on perusal of the annual report of
the aforementioned company reveals that it had invested an amount of
Rs. 22.83 crores, i.e., 1.42% of its revenue, towards in-house R&D
projects, i.e., investment in technology IP development, especially those
related to automotive, broadcast, and communication.
28. We, thus, in terms of our aforementioned observations are of the
view that Tata Elxsi Ltd (supra) operates in the fields of product design,
engineering, and R&D, providing solutions for automotive broadcast,
healthcare sectors, and further owns intellectual property (IP) in the form
of embedded software design and simulation tools and operates multiple
R&D centers, which all factors renders it functionally incomparable to the
25
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HighRadius Technologies Private Limited
assessee company which neither carries out any R&D nor owns any
intellectual property.
29. We find that the ITAT, Hyderabad Bench in the case of ADP Pvt.
Ltd vs. DCIT (2022) 135 taxmann.com 44 (Hyderabad) had observed
that Tata Elxsi Ltd (supra) cannot be considered as a comparable for
benchmarking the transaction in the software development segment for
the reasons that it being engaged in diversified activities was functionally
dissimilar. For the sake of clarity, we deem it apposite to cull out the
observations of the Tribunal, as under:
"28. In the case of Tata Elxsi, the assessee has taken the following objections:
(a) It is not functionally comparable to the assessee. In the financial statements
of the company, the nature of business carried out by Tata Elxsi is given below:
(1) Corpoprate Information "Tata Elxsi Ltd was incorporated in 1989. The
Company provides product design and engineering services to the consumer
electronics, communications and transportation industries and systems
integration and support services for enterprise customers. It also provides
digital content creation for media and entertainment industry
29. We find that in the case of Infor (India) (P) Lad. v. ACIT in ITA No.
2307/Hyd/2018, the Co-ordinate Bench of the Tribunal has considered similar
objections of the assessee therein and has held that these two companies
along with Thirdware Solutions Ltd is not comparable to the software
development company like the assessee before us. The relevant portions has
been reproduced by us in the above paras. Respectfully following the same,
these two companies are also directed to be excluded from the final list of ITA
No 2233 of 2018 ADP Private Ltd."
26
ITA No.436/Hyd/2024
HighRadius Technologies Private Limited
30. Further, we find that a similar view had been taken by the ITAT,
Hyderabad Bench in the case of Indeed India Operations Pvt Ltd vs.
DCIT (2022) 143 taxmann.com 44 (Hyderabad), wherein it was once
again observed that as the aforementioned comparable was functionally
dissimilar and was involved in the diversified activities, etc., therefore, the
same could not be considered as a comparable for benchmarking the
transactions in software development segment. Further, we find that the
ITAT, Hyderabad in the case of Infor India Pvt Ltd vs. DCIT, IT(TP)A
No. 198/Hyd/2021, had also, on account of functional dissimilarity, i.e.,
the provision of product design services and trading etc., directed the
exclusion of the aforementioned company from the final list of
comparables. Also, the ITAT, Bangalore in the case of AMD India Pvt
Ltd vs. ACIT in IT(TP)A No. 775/Bang/2022 had taken a similar view and
had concluded that as the aforementioned company, viz., Tata Elxsi Ltd.,
was functionally dissimilar and into diversified activities, i.e., engaged in
product design and engineering services, digital content creation for
media and entertainment industries etc., therefore, the same could not
have been picked up as a comparable for benchmarking the international
transactions of the software development segment of the assessee
company before them.
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HighRadius Technologies Private Limited
31. We thus, in terms of our aforesaid observations, are of a firm
conviction that the aforementioned company, i.e., Tata Elxsi, for the
reasons stated hereinabove, could not have been picked up as a
comparable for benchmarking the international transactions of the
assessee company, and accordingly direct the AO/TPO to exclude the
same from the final list of comparables.
(C). Infosys Ltd.
32. We shall now deal with the Ld. AR's contention that the TPO/DRP
had erred in including Infosys Limited as a comparable for benchmarking
the software development services rendered by the assessee company
to its AE. Before proceeding further, we deem it apposite to cull out the
observations of the DRP, which had upheld the inclusion of Infosys Ltd.
in the final list of comparables by the TPO, as under:
"2.5.11.1 Having considered the submissions, and on perusal of the
annual report of the company, we note that this company provides
business IT services (comprising software application development,
integration, maintenance, validation, enterprise system implementation,
product engineering, infrastructure management and business process
management); consulting and systems integration services (comprising
consulting, enterprise solutions, systems Integration and advanced
technologies); products, business platforms and solutions to accelerate
intellectual property-led innovation. All these activities fall within the
gamut of 'software services. The mere reason that these services are
rendered in regard to different industries such Financial, Manufacturing,
Life Science, Energy, Retall does not make it functionally dissimilar. As
per information in the stand-alone P&L account of this company
(available at page 172 of the annual report), it has reported revenue from
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HighRadius Technologies Private Limited
'software services' of Rs. 78,809 crores and from 'software products of
Rs. 238 crores, and thus it could be seen that the product revenue
constitute meagre 0.30% of total operating revenue. Therefore, the
contention of the Assessee that it is involved in licensing of Software
products and hence functionally dissimilar is not acceptable. Taking into
consideration, the information available in the annual report and the fact
that the মাউn ◌y is predominantly having revenue from software
services. (1.e.. more than its operating revenue) we are of the
considered view that this company can be considered as functionally
comparable to the Assessee. The pleas that it has diversified activities,
rendering services to various industries, and licensing software products
and hence it is functionally dissimilar, are hereby rejected.
2.5.11.2 The perusal of the details in the annual report show that the
company has incurred R & D expenditure to the tune of Rs.458 crores
(page 182 of the AR), which constitute meagre 0.58% of its total
operating revenue, and which is much less than the generally
acceptable tolerable limit of 3% of the total revenue. Hence, this plea is
hereby rejected.
2.5.11.3 It was plead that this company has a huge brand which has
contributed to its growth in revenue and hence not comparable. A
perusal of the annual report shows that the growth in revenue was on
account of various business initiatives taken to accelerate growth such
as ability to keep pace with ever-changing technology, ability to increase
scale and breadth of service offerings to provide one stop solutions for
customer needs, high quality management technology professionals
and sales personnel, providing high-quality cost-effective services, high
ethical and corporate governance standards and recognized brand.
2.5.11.4 As the company is primarily engaged in software development
services and earns the revenue majorly from this activity, there is no
need of providing segmental information as per AS 17. Accordingly, the
plea of the Assessee to exclude the company as there is no segmental
information is available in the Annual Report, is hereby rejected.
2.5.11.5 The plea of the turnover range will not affect the comparability
as discussed in paras 2.4.3.1 & 2.4.12.1 to 2.4.12.12 above.
2.5.11.6 In view of the above, we uphold this company as comparable
to the Assessee."
33. We may herein observe that Infosys Limited is admittedly a leading
provider of consulting, technology, outsourcing, and next-generation
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HighRadius Technologies Private Limited
digital services, wherein it enables its clients to execute strategies for their
digital transformation. Apart from that, Infosys Limited is also engaged in
the development of software products. Also, no segment-wise breakup
regarding software development services of the aforementioned company
can be gathered from its annual report. We are of the considered view
that, in the backdrop of the diversified business transactions of Infosys
Limited, it could not have been picked up as a comparable for
benchmarking the software development segment of the assessee
company, i.e., a low-risk captive software development service provider
to its AE. Apart from that, we find that Infosys Limited has a huge brand
value and continues to own and create significant intangible assets.
Further, we find that the scale of operation of Infosys Limited is
significantly higher than that of the assessee company before us. On a
perusal of the annual report of the Infosys Limited, we find that it had
during the subject year i.e., Financial Year 2019-20 revenue generation
of Rs. 79,047 crores primarily from the IT services comprising of software
application development, integration, maintenance, validation, consulting
and technology implementation and from licensing of the software
products (referred to as software related services) aggregating to Rs.
30
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HighRadius Technologies Private Limited
79,047 crores as in comparison to the revenue of the assessee company
of Rs 195.39 crores.
34. We find that the issue of inclusion of Infosys Limited as a
comparable company in the case of software development segment for
AY 2016-17 had come up before the ITAT, Hyderabad in the case of ADP
Private Limited vs. DCIT, (2022) 135 taxmann.com 44 (Hyderabad).
The Tribunal had observed that as the said company was functionally
dissimilar and was into diversified activities like artificial intelligence,
product services, platforms, consulting etc., and had no segmental,
therefore, it could be considered as a comparable for benchmarking the
software development segment of the assessee company before them.
For the sake of clarity, the observations of the Tribunal in the case of ADP
Pvt Ltd (supra) are culled out as under:
"9. Infosys Ltd: The AR submitted referring to the Rule 10B of the IT
Rules, which expressly lay down the preconditions for comparability of
uncontrolled transactions with international transactions as under:
1. The specific characteristics of the property transferred or services
provided in either transaction
2. The functions performed taking into account assets employed or to
be employed and the risks assumed, by the respective parties to the
transactions
31
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HighRadius Technologies Private Limited
3. The contractual terms of the transactions which lay down explicitly or
implicitly how the responsibilities, risks and benefits are to be divided
between the respective parties to the transactions.
4. Conditions prevailing in the markets in which the respective parties to
the transactions operate, including the geographical location and size of
the markets the laws and govt orders in force, cost of labour and capital
in the markets, the laws and government orders in force, costs of labour
and capital in the markets, overall economic development and level of
competition and whether the markets are wholesale or retail.
9.1 He further submitted that this company offers end to end business
solutions including product support, product engineering and lifecycle
solutions, artificial intelligence, software products, business platforms
and solutions. Further, he submitted that it crores and the turnover of
this company is 123 times more than assessee. He, therefore, submitted
that this it has a turnover of Rs. 53,983 crores whereas assessee's
turnover is Rs. 437 company cannot be compared as the different in its
size and scale of operations have a direct impact on their profitability.
He relied on various decisions of ITAT including the decision in ADP (P)
Ltd. (supra) wherein this company is excluded as comparable.
9.2 On the other hand, Id. DR submitted that under TNMM comparable
transactions needs to be broadly similar with this company and
significant product diversity and some functional diversity between the
controlled and uncontrolled parties are acceptable.
9.3 We have considered the rival submissions and perused the material
on record as well as gone through the orders of revenue authorities. The
co-ordinate bench in assessee's own case in ADP (P) Ltd. (supra),
directed the AO/TPO to exclude this company from the list of
comparables for determining ALP by observing as under:
25. Having regard to the rival contentions and the material on record,
we find that in a number of decisions including the assessee's own case,
Infosys Lid has been held to be not comparable with any other software
development company such as the assessee due to its huge turnover
and high profit margin and also as it is into software products and owns
intangible intellectual property rights. In the case of Agnity India
Technologies Ltd, 36 Taxmann.com 289 (Del), the Hon'ble Delhi High
Court has held that Infosys Ltd is not comparable to other software
development company. Relevant paragraphs are reproduced
hereunder:
"8. It is a common case that Satyam Computer Services Ltd. should not
be taken into consideration. The Tribunal for valid and good reasons has
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HighRadius Technologies Private Limited
pointed out that Infosys Technologies Ltd. cannot be taken as a
comparable in the present case. This leaves L&T Infotech Ltd. which
gives us the figure of 11.11%, which is less than the figure of 17%
margin as declared by the respondent-assessee. This is the finding
recorded by the Tribunal. The Tribunal in the impugned order has also
observed that the assessee had furnished details of workables in
respect of 23 companies and the mean of the comparables worked out
to 10%, as against the margin of 17% shown by the assessee. Details
of these companies are mentioned in para 5 of the impugned order".
26. Respectfully following the same, we direct the exclusion of this
company from the final list of comparables.
9.4 On perusal of the entire financial statements, we observe that the
company is functionally not comparable and selling and marketing
expenses are 5% of revenue and there were extraordinary events also
noted ie. transfer of product financial & edge services as well as
diversified activities like artificial intelligence, products services,
platforms, consulting etc. Also onsite revenue was 52.7% and no
segmental details like services, consulting products are available. In
view of the above observations the coordinate bench in assessee's own
case for AY 2014-15 directed to exclude this company as comparable.
Respectfully following the said decision, we direct the AO/TPO to
exclude this company as comparable from the list of comparables."
35. Also, we find that a similar view was taken by the ITAT, Hyderabad
in the case of Indeed India Operations Pvt Ltd vs. DCIT, (2022) 143
taxmann.com 212 (Hyderabad), wherein the aforementioned
comparable was excluded from the final list of comparables for
benchmarking the software development segment for the reason that it
was found to be functionally dissimilar and into diversified activities, owns
intangibles etc. Also, we find that the ITAT, Bangalore in the case of AMD
India Pvt Ltd vs. ACIT, IT(TP)A No. 775/Bang/2022, while disposing of
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ITA No.436/Hyd/2024
HighRadius Technologies Private Limited
the appeal of the assessee company for the AY 2018-19, had held that
the aforementioned company could not be considered as a comparable
for benchmarking the software development segment for the reason that
it was functionally dissimilar and into diversified activities. Also, we find
that the ITAT, Hyderabad in the case of SSNC Fin Tech Services India
Private Limited vs. DCIT, ITA No. 916/Hyd/2024, dated 03/07/2025,
had directed the exclusion of Infosys Limited as a comparable for
benchmarking the software development services provided by the
assessee company before them, by observing as under:
"7. We have heard both the parties, perused the material on record and
the orders of the authorities below. The appellant-company is a captive
service provider to it's AEs on cost plus basis as per the agreement
entered into by it with it's AEs. The appellant-company provides
software development services to it's AEs on cost plus basis, whereas,
Infosys Limited being a giant software developer provides software
development services to multidimensional industries including banks,
manufacturing etc. Further, Infosys Limited is having huge brand value
which is definitely impacts the operating margins of any company.
Further, the Company has incurred substantial expenditure for
marketing and R & D, whereas, the said expenditure is absent in the
case of the appellant-company. Therefore, in our considered view,
Infosys Limited cannot be a good comparable to the appellant-company
which is engaged in software development services to it's AEs on cost
plus basis. Further, Infosys Limited has been considered to be not
comparable to the appellant-company in appellantcompany's own case
for the assessment year 2014-2015 in ITA.No.2234/Hyd./2018 (supra),
where under identical set of facts, Infosys Limited has been excluded
from the list of final set of comparables. The relevant findings of the
Tribunal are as under :
"4.4. Coming to ground no.4, the companies which the assessee is
seeking exclusion are:
34
ITA No.436/Hyd/2024
HighRadius Technologies Private Limited
i. Infosys Ltd.
ii. ii. Persistent Systems Ltd.
iii. e-Infochips Ltd.
iv. Infobeans Technologies Ltd.
v. Thirdware Solutions Limited
The Ld. Counsel for the assessee submitted that in the case of Kony
India P Ltd. Vs. DCIT for the very same AY 2014-15, the above
companies have been held to be functionally not comparable to the
Kony India Pvt.Ltd. which is also engaged in the business of providing
Software Development Services to it's A.E. like assessee company. He,
therefore, placed reliance on the decision of the Coordinate Bench of
this Tribunal in the case of :
i. M/s Kony India Private Ltd. Vs. DCIT (ITA No. 2305/H/18 -
AY 2014-15); and
ii. ii. Kony IT Services P Ltd. Vs. DCIT (ITA 2304/H/2018 - AY
2014-15) and prayed for exclusion of the above 5 companies
from the final list of comparables.
5. Ld. DR on the other hand supported the orders of the authorities
below.
6. Having regard to rival contentions and material placed on record, we
find that the assessee is into providing Software Development Services
and M/s Kony India Private Ltd. was also into similar business of
providing Software Development Services to it's AE, we also find that
the TPO has taken the very same 12 companies as comparables in the
case of Kony India Ltd. Since the relevant AY is also 2014-15, the facts
and circumstances under which those companies have been held to be
not comparable to M/s. Kony India Private Limited are also the same,
the said decision is also applicable to the case before us.
6.1. In view of the same, respectfully following the decision of
Coordinate Bench of this Tribunal to which one of us (i.e. J.M.) is a
signatory, we direct the exclusion of above mentioned companies from
the final list of comparables. For the sake of ready reference, the
relevant paragraphs from the order of this Tribunal are reproduced
hereunder:-
"9. We have heard the rival submissions and carefully perused the
materials on record. From the paper book furnished by the assessee as
well as the arguments advanced by the Ld.AR, we find merit in his
contention because of the following reasons:-
(i) E-Infochips Limited:-
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ITA No.436/Hyd/2024
HighRadius Technologies Private Limited
(a) As per the annual report of M/s. E-Infochips Limited for the period
1/4/2013 to 31/3/2014 (Page No.98 of the paper book-Volume-II) it is
evident that the company is primarily engaged in software development,
IT Enables Services and product-based company. Further, no
segmental details are available in the Annual Report. While as the
assessee's company's only activity is Captive Software Development
Services.
Extraction from page-98 of PB-II
"The company is primarily engaged in Software Development and IT
Enable Services and products which is considered the only reportable
business segment as per Accounting Standard-AS 17 Segment
Reporting prescribed in Companies Accounting standards notified under
Section 211(3C) (Which continues to be applicable in terms of General
Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate
affairs in respect of Section 133 of the companies Act, 1961."
(b) The company also manufactures products such as electronic boards
and printer circuits by importing raw materials and holding inventory, as
apparent from Page No. 119 of the PB-II. The assessee company is not
engaged into any activity of producing physical goods.
Page No. 119 of the PB-II
(c) The company has also incurred expenses in R & D and therefore
generated intangible assets as apparent from page no. 65 & 121 of PB-
II, while as the assessee company is not involved in any R & D activity.
In the case of the assessee company neither such expenses are
incurred, or any intangibles are acquired during the relevant period.
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HighRadius Technologies Private Limited
Extraction from page no. 65 of PB-II
(d) The company has also earned revenue from Information Technology
consultancy of Rs. 29.07 Crs as apparent from page no.123 of PB-II.
However, the assessee company have not earned any income from
information technology consultancy activities.
Extraction from page No.123 of PB-II :
37
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HighRadius Technologies Private Limited
10. Considering the nature of activities carried out by M/s. E infochips
Limited discussed hereinabove and since the assessee company is
primarily engaged in custom-built mobile platform, applications and
software support and maintenance related services to M/s. Kony Group
of Companies, we are of the view that M/s. E infochips Limited cannot
be considered as a comparable company because of the reasons stated
hereinabove."
36. We, thus, in terms of our aforesaid observations which reveal that
the subject company, viz., Infosys Limited is functionally dissimilar and
into diversified business operations with a significantly higher revenue
generation from operations, and owns huge brand value and continues to
own and create intangible assets, therefore, it could not have been picked
up as a comparable for benchmarking the software development segment
of the assessee company before us.
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HighRadius Technologies Private Limited
37. Accordingly, in terms of our aforesaid observations, we are of a firm
conviction that the aforementioned company, i.e., Infosys Limited, for the
reasons stated hereinabove, could not have been picked up as a
comparable for benchmarking the international transactions of the
assessee company, thus, direct the AO/TPO to exclude the same from
the final list of comparables.
(D). Wipro Ltd.
38. We shall now deal with the Ld. AR's contention that the TPO/DRP
had erred in including Wipro Limited as a comparable for benchmarking
the software development services rendered by the assessee company
to its AE. Before proceeding further, we deem it apposite to cull out the
observations of the DRP, which had upheld the inclusion of Wipro Ltd. in
the final list of comparables by the TPO, as under:
"2.5.4.1 Having considered the submissions, we ascertained that the
TPO has considered the IT services segment on standalone basis. The
segment of 'Global IT services and products' finds place in consolidated
accounts and not in standalone financials. The IT services of the
segment the company is into software development services and such
segmental details are available. The above facts have been confirmed
by the company in its response to notice u/s 133(6) of the Act in earlier
years. The principal business activity of the company as given page 107
of the annual report is IT Software Services and related activities
deriving 90% of income. As per the Note 22 forming part of standalone
financial statements (page 199 of the annual report) the revenue of
Rs.494.47.1 crores is derived from sale of services and the revenue
from sale of product is only Rs.940.8 crores as against total revenue of
Rs.50387.7 crores. The segmental information given in the consolidated
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HighRadius Technologies Private Limited
financial statements also reflects that the substantial revenue is derived
from IT services only. Therefore, the IT service segment of the company
being the major revenue earning segment is very much comparable to
the Assessee on functional aspect. The company's IT services segment
is considered as a comparable on standalone basis. This segment is
into software services development. Therefore, the plea of the Assessee
that it is into diversified activities and no segmental details are not
acceptable.
2.5.4.2 At the outset, it is pertinent to note, that the assessee has
challenged the selection of some comparables, relying on some
decisions of Hon'ble ITAT either in assessee's own case or in some
other case, holding that certain companies are to be excluded as
comparable for some other years. We are of the humble view that the
comparability of a company cannot be determined with regard to
decisions of the appellate bodies rendered for some other year, as the
business and economic factors are dynamic and different in each year
both in the case of tested party and comparables.
2.5.4.3 The issue is well settled that simply because a comparable has
been. included or excluded in some year that action or inaction by itself
in transfer pricing issues on comparability cannot constitute a precedent
to be blindly followed ad infinitum. Whether a particular company is a
comparable or not is an exercise which has to be carried out every year
in the case of an Assessee considering the facts of that specific year
and not blindly following the precedent which has been laid down in
earlier or subsequent year. A comparable is a comparable on facts and
not because a precedent makes it so. Neither can the tax payer insist
that a comparable be included nor can it be insisted that it be excluded
only on the ground of it having been included or excluded in some other
a previous assessment year.
2.5.4.4 In case of Agnity India Technologies Pvt. Ltd vs Assessee,
Hon'ble ITAT, New Delhi in I.T.A.No.6485/Del/2012 for assessment year
2008-09 observed that precedents cannot be blindly followed. The
relevant observations made are extracted as under: -
"Para 7.33. Having heard the rival submissions and perused the material
available on record we find that in the peculiar facts and circumstances
of the case where the Hon'ble High Court has not approved of the
approach of the ITAT in relying upon the precedent available in
assessee's see's own case for the immediately preceding assessment
year which precedent stood approved by the Hon'ble High Court itself,
we find that the prayer of the Ld. DR that decision be made first on facts
on record and thereafter precedence be considered is not only a settled
legal position but in the facts of the present case following this settled
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HighRadius Technologies Private Limited
position the issue has been remanded despite the fact that the Co-
ordinate Bench had followed the precedence in assessee's own case.
Para 13. We find on facts that the prayer of the tax payer for exclusion
of the said comparable cannot be ousted on the ground that it was not
objected to in the previous assessment year. Whether a particular
comparable is accepted or rejected in a previous assessment year
consciously or inadvertently by the Assessee or the authorities is not the
basis on which the issues can be decided. As and when challenge is
posed to the inclusion or exclusion of a comparable the challenge has
to be considered on the basis of facts and evidence on record for that
year. It is only after the facts and evidences are taken into consideration
that the relevance of applying a precedent would come into play. In the
facts of the present case, we find that the revenues from the software
development segment of this comparable constituted 96% and this
finding of fact has not been assailed by the Assessee."
2.5.4.5 Therefore, inclusion or exclusion of a comparable has to be
necessarily justified on the basis of facts available on record, the FAR
analysis and the information in the annual reports submitted for each
year and not on the basis of judicial precedent.
2.5.4.6 It was also pleaded that the company has significant intangibles.
However, on perusal of the information at page 177 of the annual report,
we note that the value of intangible assets as on 31.03.2020 is Rs. 4571
millions which is insignificant (0.90%) considering its turnover of Rs.
503877 million. As per the information in page 144 the customer
relationship is added to the company during the previous year under a
contract with a group company. Therefore, this intangible does not
pertain to year under consideration and there is no indication of any
revenue generated on account of customer relationship. Other
intangible assets like technical know-how and trade-marks are very
meagre compare to the turnover of the company so as to affect the
profitability significantly. We also note the Assessee has failed to
establish that such differences, if any, on account of intangibles have
material effect on the margin of the above company, in terms of clause
(i) of sub-rule (3) of Rule 10B. Taking into account all these aspects, we
do not find any material difference so as to affect comparability. Hence,
these pleas are rejected.
2.5.4.7 The perusal of the details in the annual report shows that the
company has incurred R & D expenditure to the tune of Rs. 4619
millions, which constitute meagre 0.91% of its total operating revenue,
and which is much less than the generally acceptable tolerable limit of
3% of the total revenue. It is also noted that the R&D initiatives are
substantially routine for immediate business purposes for developing
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HighRadius Technologies Private Limited
expertise and improved process execution to serve the clients in a much
better manner. We also note that, the Assessee has failed to establish
that such differences, if any, on account of R&D have material effect on
the margin of the above company, in terms of clause (i) of sub-rule (3)
of Rule 108. Taking into account all these aspects, we do not find any
material difference so as to affect comparability. Hence, these pleas are
rejected.
2.5.4.8 The plea of the turnover range will not affect the comparability
as discussed in foregone paras 2.4.3.1 & 2.4.12.1 to 2.4.12.12."
39. On a perusal of the annual report of Wipro Limited, we find that it is
a global information technology (IT), consulting and business process
services company, and also into the sale of IT and other products. It owns
trademarks, patents, and software products. Also, we find that the said
company bears fully entrepreneurial, market, and credit risks.
40. Considering the diversified business streams of the aforementioned
company, i.e., global information technology, consulting, and business
process services, we are of firm conviction that on account of the
functional dissimilarity itself, the said company could not have been
picked up as a comparable to the routine provider of software
development services like the assessee company before us. Also, we
find that as no separate segment-wise breakup regarding software
development services of the aforementioned comparable can be gathered
from its annual report, therefore, for the said reason also it could not have
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been selected as a comparable for benchmarking the software
development services provided by the assessee company to its AE.
Further, we find that as stated by the Ld. AR, and rightly so, the
aforementioned company, viz., Wipro Limited, uses its highly innovative
and IP led technology to provide its service offerings and solutions to its
customers, which, thus, on the said count also renders it incomparable to
the assessee company before us. Further, we find that the scale of
operations of the aforementioned company for the subject year reveals
that it had, during the subject year, i.e., Financial Year 2019-20, generated
revenue from operations of Rs. 50,387.70 crores, which is significantly
higher as in comparison to the revenue from operations of the assessee
company of Rs 195.39 crores during the subject year.
41. We find that the ITAT, Bangalore in the case of AMD India Pvt Ltd
vs. ACIT, IT(TP)A No. 775/Bang/2022 for AY 2018-19, had observed that
the aforementioned company, viz., Wipro Limited cannot be considered
as a comparable for benchmarking the software development segment of
the assessee company before them, inter alia, for the reason that it was
functionally dissimilar and was into diversified activities, i.e., engaged in
global information technology, consulting and business process solutions,
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HighRadius Technologies Private Limited
etc. For the sake of clarity, the observations of the Tribunal are culled out
as under:
"27. The Id. AR referred to the following written submissions for
exclusion of this company which is as under:-
Reasons for rejection Reference & case laws
Substantial related party transactions 1.Submission at Pg 1422-
1423 of PB I& Relevant
1.The Company has substantial RPT for extracts of AR at Pg 1935,
FY2017-18 (15.97%)and thus fails RPT PB 1942-1949of
filter of 15%. II(Computation of RPT is
given at Pg 30 of the
Note).
Functionally Different 1. Submission at Pg 1423-
1425 of PB I& Relevant
2.The Company is functionally different extracts of AR at Pg 1951-
as it is not engaged in rendering of pure 1957 of PB II.
software development services. Wipro is
engaged in diversified businesses like 2. The TPO has himself
information technology, consulting and not considered
business process outsourcing. comparable in his list of
Wipro as comparables for
3. The Company has global brand image AY 2017-18. Further, the
and has high R&D Expenses. Appellant relies on
decisions of the
4. There is vast difference between the Honourable the following
profile of Wipro and the Appellant. ITAT wherein, it was held
that Wipro Ltd is
functionally different:
ADP Pvt. Ltd., Hyderabad
vs DCIT-1(1), Hyderabad
for AY 2016-17 [2022] 135
taxmann.com (Hyderabad
44 Trib.) (Para 5.2 & 5.3 at
Pg2252 of PB-III-Case
law Compilation) Since,
profile of this company
remains same for all the 3
years, ratio of decision of
earlier year is applicable.
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HighRadius Technologies Private Limited
Substantial Onsite Operations 1. Submission at Pg 1426-
1427 of PB I& Relevant
5. The Company has substantial onsite extracts of AR at Pg 1955
revenue for all 3 FYs i.e., FY 2017-18- of PB II.
56.17%, FY 2016-17-56.24% & FY 2015-
16-56.42%. Thus, Wipro has different
business model, when compared
Appellant.
27.1 The Id. DR relied on the orders of lower authorities.
27.2 Considering the rival submissions, we note from the company's
overview that Wipro Ltd. is a leading global information technology (IT)
consulting and business process services. It is clear that the company
is engaged in diversified activities and not a pure software development
company like the assessee and hence functional profile is different.
Therefore, this company is directed to be excluded from comparables
list."
42. Also, we find that the ITAT, Bangalore in the case of Metricstream
Infotech (India) Pvt Ltd vs. DCIT, IT(TP)A No. 827/Bang/2022, had
adopted a similar view and observed that the aforementioned company
cannot be picked up as a comparable for benchmarking the software
development segment of the assessee company before them, for the
reason that it was found to be functionally dissimilar and into diversified
activities, viz., engaged in global information technology, consulting and
business process solutions, etc.
43. We thus, in terms of our aforesaid observations are of the view that,
unlike the assessee company before us which is a captive service
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HighRadius Technologies Private Limited
provider of software development services to its AE, the subject
comparable i.e., Wipro Limited (supra) which is engaged in diversified
business of global information technology, consulting and business
process solutions, is functionally dissimilar with no separate segment-
wise breakup available. Also, the said company owns intangible assets
and undertakes R&D activities and has significantly higher scale of
operations as in comparison to the assessee company before us.
Accordingly, in the backdrop of our aforesaid observations and the view
taken by the coordinate benches of the Tribunal as referred by us herein
above, we direct the TPO/AO to exclude the said company, viz. Wipro
Limited from the final list of comparables.
(E). Nihilent Ltd.
44. We shall now deal with the Ld. AR's contention that the TPO/DRP
had erred in including Nihilent Limited as a comparable for benchmarking
the software development services rendered by the assessee company
to its AE. Before proceeding further, we deem it apposite to cull out the
observations of the DRP, which had upheld the inclusion of Nihilent Ltd.
in the final list of comparables by the TPO, as under:
"2.5.5.1 Having considered the submissions, and on perusal of the
annual report, we note that this company is engaged primarily in
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HighRadius Technologies Private Limited
rendering IT Consultancy. Software development and related services.
As per information at pages 24, the company is primarily rendering
software services. Accordingly, it does not hold any physical inventories
as can be seen on in the balance sheet of the company (page no.40).
As per the background information given at page 232 of the annual
report, the company is engaged in rendering software services,
business consulting in the area of enterprise transformation, change and
performance management and providing related IT Services. This fact
is further supported by she information disclosed at page 24 of the
annual report that the whole revenue of the company is derived from IT
consultancy, software development and related services. Thus, it is
functionally comparable to the Assessee which renders software
development services and other allied services. Thus, the contentions
of the Assessee that it is engaged in diverse activities and not
functionally comparable are without merit. Besides, there is no
information in the annual report to indicate that this company is engaged
in product development or to indicate that it has revenue stream from
product sales. The Assessee also could not point to any such
information in the annual report. We also note at page 30 of the annual
report, the independent auditor has certified, "the company is in the
business of rendering services and consequently, does not hold any
inventory." There is no information in the annual report that the company
is into diversified activities. In view of these, we hold that this company
is functionally comparable to the Assessee and the pleas raised in this
regard are rejected.
2.5.5.2 As the company is primarily engaged in software development
services and earns the revenue from this activity there is no need of
providing segmental information as per AS 17.
2.5.5.3 In view of the above discussion, the selection of this company is
upheld."
45. We may herein observe that a perusal of the "annual report" of the
aforementioned company, it transpires, that it is a business consulting and
enterprise transformation company which renders software services,
business consulting in the area of enterprise transformation, change, and
performance management and related IT services by using proprietary
frameworks and methodologies. Also, the said company earns revenue
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HighRadius Technologies Private Limited
mainly from online consulting assignments. Further, we may herein
observe that no separate data of providing segment-wise breakup and
revenue generation by the aforesaid comparable from its software
development services is available.
46. We, thus, find substance in the Ld. AR's claim that, as the
aforementioned company, being into diversified activities, is not only
functionally dissimilar vis-à-vis the assessee company before us, but also
as no segmental information for its software development services is
available in the public domain, therefore, it could not have been selected
as a comparable for benchmarking the software development segment of
the assessee company before us.
47. We find that the issue regarding the inclusion of Nihilent Ltd (supra)
as a comparable company in the case of software development segment,
had come up before the ITAT, Bangalore in the case of AMD India Pvt
Ltd vs. ACIT, IT(TP)A No. 775/Bang/2022 for AY 2018-19, wherein it
was held that as the said company was functionally dissimilar and into
diversified activities, viz., engaged in global business consulting and IT
services solutions i.e., consulting, analytics, technology etc., therefore, it
could not have been considered as a comparable for the software
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HighRadius Technologies Private Limited
development segment of the assessee company before them. For the
sake of clarity, the observations of the Tribunal are culled out as under:
"Nihilent Ltd.
18. The Id. AR for the assessee submitted that that The company is
functionally different as it is engaged software product development. It
renders software services, business consulting in the area of enterprise
transformation, change and performance management and providing
related IT services. This company is into diversified business and is
therefore functionally different to pure software development
companies. The Company has substantial onsite revenue for all 3 FYs
i.e., FY 2017-18 (40.57%), FY 2016-17 (43.34%) & FY 2015-16
(43.64%). Thus, Nihilent has different business model when compared
to the Appellant. He relied on the decision of this Tribunal in assessee's
own case for AYs 2016-17 & 2017-18 (supra) and submitted that Since,
profile of this company remains same for all the 3 years, ratio of decision
of earlier year is applicable. He further relied on the following decisions
wherein it was held that Nihilent Ltd is functionally different:-
M/s. Subex Ltd. vs DCIT, BengaluruTS-853-ITAT-2022 Bang-
TP-for AY 2017-18
Etisalat Software Solutions (P.) Lad v DCIT (2022) 144
taxmann.com 162 (Bangalore-Trib.) for AY 2017-18
17.1 The Id. DR relied on the orders of lower authorities.
17.2 Considering the rival submissions, we note from the financial
statements placed at page 1882-1889 of PB that the core activity of
Nihilent Ltd. as per NIC Code No.99831319 allotted, "other professional,
technical and business services" and the turnover is Rs.2800.62 crores
during the year from the core activity of "other IT consultancy services".
The comparable company is engaged in global business consulting and
IT services solutions, the major revenue is received from South Africa.
In the annual report, it is stated as under:-
"Our customer engagements comprise holistic analysis of problems
which span across people, process, technology, as well as learning and
innovation. Our service offerings include:
Consulting: Nihilent partners with businesses in transforming their
organizations with solutions using a holistic design-thinking led
approach to problem solving. Our suite of consulting-led offerings
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HighRadius Technologies Private Limited
include customer driven digital transformation, industry transformation
and organizational change management services We have deep
expertise and several person-years or experience in strategy alignment
and execution, organizational design and process restricting, balanced
scorecards, customer loyalty evaluation among others.
Analytics: We help enterprises answer complex business questions of
the day by getting them to make sense of all the data they have. Our
leading-edge analytics solutions include predictive analytics techniques
like fraud analytics, churn analytics, market basket analysis among
others, data visualization and dashboards, and data enrichment and
insight offerings. including sentiment analysis, data abstraction, deep
learning & artificial intelligence.
Technology: Our technology-driven service offerings help business
achieve greater agility in the digital era and enable systems to be future-
ready, using a holistic design-thinking approach. Some of our most
important technology offerings include product development, user
experience testing, technology re-engineering, cloud-based services,
blockchain. Internet of Things, SAP S4 HANA implementation &
consulting, among others."
17.3 Considering the above activity undertaken by Nihilent Ltd., it cannot
be considered as a comparable with assessee company. Therefore, the
AO/TPO is directed to exclude this company on the basis of functional
dissimilarity."
48. We, thus, in terms of our aforesaid deliberations are of the view that
as the aforementioned company, viz., Nihilent Ltd (supra) is functionally
dissimilar, and there is no segmental information for its software
development segment, therefore, it could not have been picked up as a
comparable for benchmarking the SDS segment of the assessee
company before us. Accordingly, we are unable to persuade ourselves to
concur with the selection of the said company as a comparable by the
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HighRadius Technologies Private Limited
TPO, and direct that the same be excluded from the final list of
comparables for benchmarking the software development segment of the
assessee company before us.
(F). Great Software Laboratory Pvt. Ltd.
49. We shall now deal with the Ld. AR's contention that the TPO/DRP
had erred in including Great Software Laboratory Pvt. Ltd. as a
comparable for benchmarking the software development segment of the
assessee company. Before proceeding further, we deem it apposite to
cull out the observations of the DRP, which had upheld the inclusion of
Great Software Laboratory Pvt. Ltd. in the final list of comparables by the
TPO, as under:
"2.5.1.1. Having considered the submissions, it is gathered from annual
report (page No.2 that the principal business activity for the company is
development and design of software application, As per Page 28 of the
Annual report, the Principle business of the company is mentioned as
Computer Programming and consultancy and related activities. As per
the statement of profit and loss account the revenue is derived from sale
of services amounting to Rs.236.59 crores in the relevant financial year
ending on 31.03.2020 (page No. 126 of the AR). There is no revenue
from sale of products. At page 133 of the annual report, the footnote to
the statement of profit and loss account specifically mentions that the
revenue from software development includes software development
services only. In this case the difference in various segments i.e. low
end to high end in services is mainly on account of differences in the
skill/qualification and pay structure of employees and, therefore, the
main point to be considered is whether such differences between
employees is going to materially affect the margin of the comparables.
On the basis of billing rates/skills no conclusion could be drawn that
margins in different segments of SWD services is also different. This is
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HighRadius Technologies Private Limited
because if the billing rate is high in the high-end services, the cost of the
employees who are highly qualified/skilled also goes up steeply and,
therefore, the margins are not much affected. In fact, no evidence has
been produced before us to show that margins in the high-end segments
of SWD services is high compared to low end services. Therefore, we
are unable to accept the argument advanced by the Assessee that this
comparable company belonging to high end segments should be
excluded from the comparability list on this ground alone. In fact, the skill
set and the languages that required for both programming and
developing software applications are broadly similar. Computer
programmers and software developers share a similar work
atmosphere. Both roles lean heavily on problem-solving ability,
teamwork, planning and communication. Under the TNMM, functional
similarity is more relevant than product similarity.
2.5.1.2 It is seen that the Assessee has raised pleas against functional
comparability of the company, with reference to certain information said
to be available in the company's website. At the outset, we note that the
information put in website cannot be given complete credence, as they
are mere forward-looking information and statements with the motive of
advertisement and other promotional gains. Further, the information in
website is dynamic and cannot be related to a particular period. There
is no way to verify whether the said information has any relevance for
the year under scrutiny or it totally related to Subsequent current year
developments. There is no way to verify the correctness of this
information and the relevant period to which they may pertain to.
Therefore, the information in the annual report which is based on audited
financial statements and management reports is more reliable and
authentic, for qualitative analysis of comparability. Therefore, the pleas
raised based on information said to be available in the website are liable
to be rejected is in limine.
2.5.1.3 The value of intangible assets as on 31-03-2020 was only Rs.
59,88,486/-(page no 146 of AR) as against total revenue of Rs.
249,75,28,071/- constituting 0.24% of operating revenue. There is no
reference to any IPR or patent owned or developed by the company, in
the stand-alone annual report. There is also no acquisition of IPR during
the year. The intangibles shown in the Asset Schedule are only
computer software acquired for the business. The intangible assets
schedule shows no other intangibles generated internally are acquired.
The Assessee also did not point to any information in the annual report
to indicate that the intangibles have materially affected the profitability
of the company as required in clause (i) of sub-rule (3) of Rule 10B.
Thus, as stated in above paras, the information put in website cannot be
given complete credence and there is no way to verify whether the said
information has any relevance for the year under scrutiny or it totally
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HighRadius Technologies Private Limited
related to subsequent current year developments. Therefore, the
information in the annual report which is based on audited financial
statements and management reports is more reliable and authentic, for
qualitative analysis of comparability. Taking into account all these
aspects, we do not find any material difference so as to affect
comparability. Hence, these pleas are rejected.
2.5.1.4 As the company derives 100% income from computer
programming consultancy and related activities, there is no need of
reporting segmental information as per AS17. Further, since the
company derives income from software development activities the
contention of the Assessee that it performs diversified activities is not
correct as per the information available in the annual report.
2.5.1.5 Accordingly, TPO's action of selecting this comparable is
upheld."
50. As is discernible from the consolidated financial statement of the
aforementioned company, it is engaged in the business of providing
software development services with expertise in cloud applications,
communication, identity management, and system technologies. The
aforementioned company develops proprietary software frameworks and
solutions for its clients, and its focus areas include innovation and product
development, which are R&D intensive in nature. We find that the
aforementioned company is engaged in the business of providing
services related to cloud applications, communications, identity
management, and system technologies. It is engaged in diversified
activities, i.e., design and development of software applications, including
customized and packaged software, along with development of products,
and other professional, technical and business services, etc., and had
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HighRadius Technologies Private Limited
invested in R&D and has filed several global patents during the year under
consideration, which, thus, renders it functionally dissimilar to the assesse
company before us. Also, it is a matter of fact borne from record that the
aforementioned company does not maintain segmental information in
respect of its reported profitability from its diversified streams of business
activities.
51. We find that the issue regarding the inclusion of Great Software
Laboratory Pvt Ltd (supra) as a comparable company in the case of
software development segment had come up before the ITAT, Bangalore
in the case of NTT Data Information Processing Services Pvt Ltd vs.
DCIT, IT(TP)A No.922/Bang/2022, and the said company was held to be
incomparable for benchmarking the software development services, inter
alia, for the reason that it was functionally dissimilar and no segmental
details etc., were available in the public domine. For the sake of clarity,
the observations of the ITAT, Bangalore in the case of NTT Data
Information Processing Services Pvt Ltd vs. DCIT (supra) are culled out
as under:
"(B). Great Software Laboratory Pvt. Ltd.
The Ld.AR submitted that this company is engaged in the business of
design and development services of software applications including
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HighRadius Technologies Private Limited
customisation and packaged software. She further submitted that the
primary service of the Company are cloud products and operations
management, IDM and connected experience practice, big data
analytics and support services. The Company has also earned revenue
from sale of products. The company is engaged in diverse activities for
which no segmental details is available. It is further submitted that the
company owns significant intangibles and that this company earned
significant onsite revenue which demonstrates that it operates on a
different model and therefore functionally not comparable with the
assessee. The Ld.AR placed reliance on the decision of Coordinate
Bench of this Tribunal in case of Sprinklr India Pvt. Ltd. in IT(TP)A No.
713/Bang/2022 by order dated 11.01.2023.
The Ld.DR on the contrary, relied on the observations of the authorities
below.
We have perused the submissions advanced by both sides in the light
of records placed before us.
We note that in case of Sprinklr India Pvt. Ltd. (supra), this comparable
was remanded for want of complete annual reports. However in the
present case, the Ld.AR has filed the necessary details and complete
annual report to verify the arguments advanced. On perusal of the
detailed submissions, filed by the assessee at pages 141-145 of the
appeal set as well as 820-822 of the paper book, we note that admittedly
the TPO accepts that this comparable provides various services using
the same platform of SWD. It is also an admitted fact that this company
works in a different horizontal and this company has been retained by
the Ld.TPO only because it renders services under the category SWD.
It is also noted by the Ld.TPO that the operations of this comparable is
from SWD segment without there being any segmental details, which
according to the Ld.TPO is irrelevant. In our considered opinion, this
Tribunal has been consistently rejecting the comparables whether there
are no segmental information available in order to compare "an apple
with an apple". Therefore the services rendered by the assessee under
a contract with its AE cannot be compared with a company that renders
various services under SWD segment. We do not find any reason to
include this comparable in the final list.
Accordingly we direct the Ld.AO/TPO to exclude Great software
Laboratory Pvt. Ltd."
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52. We, thus, in terms of our aforesaid observations, which reveals that
the subject comparable, viz., Green Software Laboratory Pvt Ltd (supra)
which is into diversified activities is functionally dissimilar with no
segmental information of its profitability reported from its varied streams
of business activities, cannot be included in the final list of comparables
for benchmarking the software development services provided by the
assessee company to its AE. We, thus, in terms of our aforesaid
observations, direct the AO/TPO to exclude Great Software Laboratory
Pvt Ltd (supra) from the final list of comparables for benchmarking the
software development services provided by the assessee company to its
AE.
(G). Cybage Software Pvt. Ltd.
53. We shall now deal with the Ld. AR's contention that the TPO/DRP
had erred in including Cybage Software Pvt. Ltd. as a comparable for
benchmarking the software development segment of the assessee
company. Before proceeding further, we deem it apposite to cull out the
observations of the DRP, which had upheld the inclusion of Cybage
Software Pvt. Ltd. in the final list of comparables by the TPO, as under:
"2.5.12.1 Having considered the submissions, and on perusal
of the annual report, we note that as per information at page 2 of
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the annual report, the principal business activity of the company is
stated to be Information Technology Consulting and Support
services. The company information at page 68 of the annual report
states that it is engaged in the business of software development
services only The Revenue Recognition Statement also discussed
about the accounting principle adopted in recognizing revenue
from software development services and not as to product sales.
There is no discussion about any other revenue stream in its
annual and financial statements. Further, in the various notes of
the annual report, it is mentioned that the company had entire
earnings from software development services. Under operating
segments in the annual report, it is mentioned that the company
operates in a single business segment namely software
development services and no other reportable segments
mentioned. The independent Audit Report specifies that the
company is engaged in software services and does not hold any
inventory. In view of the categorical information in the annual
report that the company is engaged in software development
services, we hold that this company is software service provider
and functionally comparable to the assessee.
2.5.12.2 It was contended that the company is engaged in
functionally dissimilar activities and involved in providing plethora
services with reference to certain information said to be available
in the company's website. We note that the information put in
website cannot be given much credence, as they are mere
forward-looking statements with the motive of advertisement and
other promotion. Besides, such information pertains to the
activities of the entire group. Further, the information in website is
dynamic and cannot be related to a particular period. There is no
way to verify whether the said information has relevance for the
year under scrutiny. Therefore, the information in the annual
report, which is based on audited financial statements, which
categorically mentions that the company is engaged in software
services is more reliable and authentic. Therefore, we reject the
pleas raised and uphold the selection of this company as
functionally comparable to the Assessee.
2.5.12.3 As stated above, the company is primarily engaged in
single segment i.e., software development services and earns the
revenue from this activity, there is no need of providing segmental
information as per AS 17.
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The plea of the turnover range will not affect the comparability as
discussed in paras 2.4.3.1 & 2.4.12.1 to 2.4.12.12 above.
2.5.12.5 In view of the above discussion, we uphold the inclusion
of this company as functionally comparable to the Assessee.
54. We shall now deal with the Ld. AR's contention seeking exclusion
of Cybage Software Pvt Ltd from the final list of comparables. We find that
Cybage Software Pvt Ltd. is primarily focused on product engineering
services, i.e., information technology, consulting, and support services
(IT). Also, it transpires that the aforementioned company, viz. Cybage
Software Pvt Ltd. (supra) owns its own proprietary software frameworks
and tools and offers various solutions (IT enabled and BPO services etc.),
and had invested in R&D activities with the object of devising efficient
method of product development, as in comparison to the assessee
company before us, which is a low-end captive service provider of
software development services to its AE. Although the aforesaid company
had during the subject year primarily earned revenue from software
development services but it does not maintain segmental information, as
a result whereof in the absence of the bifurcated details of the revenue
generated, viz., (i) software development services; and (ii) ITeS and digital
marketing services it could not have been picked up as a comparable for
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benchmarking the software development services provided by the
assessee company to its AE.
55. We find that the ITAT, Bangalore in the case of NTT Data
Information Processing Services Pvt Ltd vs. DCIT, IT(TP)A No.
922/Bang/2022, had observed that, as the aforementioned company, viz.,
Cybage Software Pvt Ltd (supra), was functionally dissimilar, wherein it
had undertaken R&D activities involving developing new technologies
under the software segment. Referring to its annual report, it was
observed that the said company had R&D activities which were
incorporated with the software development process with the object of
devising an efficient method of product development. Further, it was
observed that the said company owned huge intangibles due to the R&D
activities undertaken by it. Further, the Tribunal by drawing support from
the order of the ITAT, Hyderabad in the case of Infor (India) Pvt. Ltd.,
IT(TP)A No. 198/Hyd/2021, dated 06.10.2021, had observed that as the
aforementioned comparable was functionally different than a routine
software development service provider and had abnormally high average
margins, therefore, the same was to be excluded from the final list of
comparables for benchmarking the international transactions of the
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software development segment of the assessee company before them.
For the sake of clarity, the observations of the Tribunal are culled out as
under:
"(C) Cybage Software Pvt. Ltd.
The Ld.AR submitted that this comparable is not functionally similar with
that of assessee as it is providing IT consulting and related support
services. It is also submitted that this comparable undertakes R&D
activities involving developing new technologies under the software
segment.
Referring to the annual report at page 2018, the Ld.AR submitted that
this company has R&D activities which are incorporated with software
development process with the object of devising efficient method of
product development. It is submitted by the Ld.AR that this comparable
owns huge intangibles due to the R&D activities undertaken by it. It is
also submitted that this comparable has a huge turnover of 7,000 crores
and therefore is an entrepreneur by itself which cannot be compared
with the captive service provider like assessee. The Ld.AR placed
reliance on the decision of Coordinate Bench of this Tribunal in case of
Wipro GE Healthcare Ltd. in IT(TP)A No. 803/Bang/2022 by order dated
17.05.2023.
On the contrary, the Ld. DR placed reliance on orders passed by
authorities below.
We have perused the submissions advanced by both sides in the light
of records placed before us.
We note that the Coordinate Bench of this Tribunal rejected this
comparable by observing as under:
"14.10 Regarding the comparable Cybage Software Pvt. Ltd., the
assessee had objected before the TPO and DRP that the same is not
functionally comparable, lacks segmental information and has extra
ordinary high margins. However, the TPO and DRP rejected the
objections of the assessee. The Pune Tribunal in the case of Optiva
India Technologies Pvt Ltd in ITA 194/Pun/2021 dt.21.07.2022 has
directed to exclude comparable Cybage Software Pvt. Ltd on the ground
of functional dissimilarity. Relevant portion is extracted hereunder:
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"Cubage Software
17.1 The assessee contends that this company is mainly Onsite service
provider whereas the assessee is offsite service provider and therefore,
functionally different. Further, there is incorrect reporting figures which
are unreliable. This company is product development as well as R & D
Intensive Company. The arguments of the assessee were not accepted
by the A.O/T.P.O and the company was held to be comparable. The Id.
A.R demonstrated through Annual Report at page 1804, as per the
description of the business of this company that it is onsite service
provider. Furthermore at page 1796 of the Annual Report this company
is doing other computer related activities but nowhere software services
are mentioned. On the other hand, the assessee is offsite provider and
thus functionally different. We direct the A.O/T.P.O to exclude this
company from the list of comparables.
14.11 Similarly, the Hyderabad Tribunal in the case of Infor (India) Pvt
Ltd Π(ΤΡΙΑ 198/Hyd/2021 dt.06.10.2021 has directed exclusion of
Cybage Software. Relevant portion is extracted hereunder.
"4.3. Next come M/s.Thirdware Solution Limited and M/s.Cybage
Software Private Limited which have already have been ordered to be
excluded by the tribunal after holding the same to be functionally
different than software development services and having abnormally
average high margin; respectively."
14.12 The Tribunal in assessee's own case for AY 2016-17 in ITA
285/Bang/2021 dated 03.02.2023 considering the above decisions in
Optiva and Infor has rejected Cybage Software Pvt Ltd as comparable.
The Tribunal in for AY 2017-18 in ITA assessee's own case
291/Bang/2022 dated 15.03.2023 has rejected this company as
comparable. In consideration of the above, we direct the Id. DRP to
remove the company Cybage Software Pvt Ltd. from the list of
comparables for the impugned year.
The Ld.DR has not been able to produce any contrary to the above
observation and therefore this comparable is directed to be excluded
from the final list."
Also, a similar view had been taken by the ITAT, Hyderabad in the case
of Infor India Pvt. Ltd vs. DCIT, IT(TP)A No. 198/Hyd/2021. The
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Tribunal had observed that the aforementioned company could not be
taken as a comparable for benchmarking the software development
services provided by the assessee company before them, inter alia, for
the reason that it had abnormally high margins.
56. We have given thoughtful consideration to the aforesaid issues,
and are of the view, that as the aforementioned company owned huge
intangibles due to the R&D activities undertaken by it, and its segmental
information is not available, coupled with the fact that it had during the
subject year disclosed profit of Rs. 320.20 crores on its revenue from
operations of 998.63 crores, which, is abnormally high, thus, as the fact
situation during the subject year has not witnessed any shift as in
comparison to the preceding years, therefore, following the view taken by
the coordinate benches of the tribunal in the aforementioned cases for the
earlier years, we are of the view that the said company should not not
have been picked up as a comparable for benchmarking the software
development segment of the assessee company i.e., a low end captive
software development service provider to its AE. We, thus, in terms of our
aforesaid observations, direct the AO/TPO to exclude the
abovementioned company from the final list of comparables for
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benchmarking the software development services provided by the
assessee company to its AE.
(H). R Systems International Ltd.
57. We have thoughtfully considered the contentions advanced by the
Learned Authorized Representatives of both parties in the backdrop of the
records available before us and the judicial pronouncements that have
been pressed into service by them to drive home their respective
contentions.
58. As observed herein above, the assessee company has sought for
inclusion of the aforementioned company, viz., R. Systems International
Ltd (supra) in the final list of comparables. However, we find that the TPO
had rejected the inclusion of the aforementioned comparables for the
reason that it had a different financial year ending. Thereafter, the DRP
had concurred with the view taken by the TPO and had upheld the
exclusion of the aforementioned comparable of the assessee company.
59. Before us, it is the Ld. AR's claim that comparable companies
having a different financial year would not vitiate the comparability
analysis if a major portion of the financial year of the comparable falls
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within the relevant financial year under consideration and can safely be
extrapolated for the relevant financial year.
60. We have thoughtfully considered the contentions of the Learned
Authorized Representatives on the issue based on which the said
comparable selected by the assessee company was excluded by the
TPO/DRP from the final list of comparables.
61. We find that the ITAT, Hyderabad in the case of Marcomill
Research India LLP vs. DCIT, ITA No. 308/Hyd/2017, had held that if
the comparable company is having a different financial year ending but
the data available in the public forum can be extrapolated for the financial
year ending as that of the assessee company, then, the said company
can be considered as a comparable. For the sake of clarity, the
observations of the Tribunal with respect to inclusion of the
aforementioned comparable, viz., R. Systems International Ltd (supra) in
the final list of comparables, which, however, was rejected by the
TPO/DRP on the ground that it had a different accounting year, are culled
out as under:
"8. Coming to the issue relating to the inclusion of the entities, R
Systems International Limited (segmental) was rejected as it has
different accounting year and in terms of the decision of the Hon'ble
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Delhi High Court in the case of CIT vs. Mckinsey Knowledge Centre
India Pvt. Ltd., in ITA No. 217/2024, decided on 27/03/2015, if the
comparable is functionally same as that of tested party then same
cannot be rejected merely on the ground that data for entire financial
year is not available. If from the available data on record, the results for
financial year can reasonably be extrapolated then the comparable
cannot be excluded solely on the ground that the comparables have
different financial year endings. Following this dictum respectfully, we
direct the learned Assessing Officer to permit the assessee to
extrapolate the results for the relevant financial year and consider the
same as a good comparable."
62. We further find that the ITAT, Hyderabad in the case of Hyundai
Motor India Engineering Private Limited vs. ITO (2017) 78
taxmann.com 22 (Hyderabad), had observed, that a company having a
different financial year ending can be considered as a comparable in case
its data available in the public domain can be extrapolated for the financial
year ending of the assessee company.
63. We, thus, in terms of our aforesaid deliberations, read along with
the orders of the coordinate Benches of the Tribunal, concur with the Ld.
AR's contention that though the aforementioned comparable, viz., R.
Systems International Ltd (supra) has a different financial year ending viz-
a-vis the assessee company, but considering that its data available in the
public forum can be extrapolated for the financial year ending of the
assessee company, therefore, it can be considered as a comparable for
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benchmarking the provision of software development services by the
assessee company to its AE.
64. We, thus, herein direct the AO/TPO to include the aforementioned
company in the final list of comparables for determining the ALP of the
software development segment of the assessee company before us.
65. Accordingly, in terms of our aforesaid deliberations, we direct the
AO/TPO to recompute the ALP of the software development services
provided by the assessee company to its AE after excluding and including
the aforementioned companies from the final list of comparables.
66. Before parting on the aforesaid issue, we may herein observe that
as the Ld. AR has raised his contentions only regarding the exclusion and
inclusion of the aforementioned companies from the final list of
comparables, therefore, we have our adjudication only to the said extent.
The Ground of appeal No.1 is allowed in terms of our aforesaid
observations.
67. We shall now deal with the assessee's contention that the AO, while
framing the assessment, had grossly erred in considering the total income
of the assessee company under the normal provisions of the Act in excess
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by referring to an Intimation under section 143(1) of the Act, dated
30.11.2021 wherein the income of the assessee company is stated to
have been processed at an amount of Rs. 6,55,06,350/-.
68. As is discernible from the record, the assessee company had filed
its return of income for AY 2020-21 on 24/12/2020, declaring its income
at Rs. 6,41,92,580/. Ostensibly, the AO in his order passed under section
143(3) r.w.s 144C(13) r.w.s 144B of the Act, dated 25/02/2024, had
observed that the return of income filed by the assessee company was
processed by the CPC vide an Intimation issued under section 143(1)(a)
of the Act, dated 30/11/2021, wherein after disallowing its claim for
deduction of leave encashment expenses of Rs. 13,13,770/- under
section 43B of the Act, the income of the assessee company was
determined at Rs. 6,55,06,350/-.
69. Although the Ld. AR has assailed before us the validity of the
disallowance of its claim for deduction of leave encashment expenses by
the AO under section 43B of the Act, but we deem it apposite to deal with
the validity of the Intimation issued by the AO under section 143(1)(a) of
the Act, dated 30/11/2022 itself, which the Ld. AR states was never served
upon the assessee company.
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70. Be that as it may, we find that as per the assessment order passed
by the AO under section 143(3) r.w.s 144C(13) r.w.s 144B of the Act,
dated 25/02/2024, the return of income filed by the assessee company is
stated to have been processed by the CPC vide its intimation issued
under section 143(1)(a) of the Act, dated 30/11/2022 at an income of Rs.
6,55,06,350/-, i.e., after making an addition/adjustment of Rs. 13,13,770/-
under section 43B of the Act. At this stage, it would be relevant to point
out that the notice under section 143(2), dated 29/06/2021, was issued
much before the processing of the return of the assessee company vide
the aforesaid impugned intimation that is stated to have been issued by
the CPC under section 143(1)(a) of the Act on 30/11/2022.
71. We are of the view that as the Intimation under section 143(1) of
the Act, dated 30/11/2022, was issued after the notice under section
143(2) of the Act, dated 29/06/2021, was issued by the AO, therefore, the
same has no sanctity of law. Once the AO has issued a notice under
section 143(2), he is thereafter divested of his jurisdiction to issue an
Intimation under section 143(1) of the Act. Our aforesaid view is fortified
by the judgment of the Hon'ble Supreme Court in the case of CIT Vs.
Gujarat Electricity Board (2003) 260 ITR 84 (SC). The Hon'ble Supreme
Court had observed that it is not open for the revenue to issue an
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intimation under Section 143(1)(a) of the Act after notice for regular
assessment is issued under Section 143(2). The Hon'ble Apex Court was
seized of the issue, viz. that as to whether or not it is open to the revenue
to issue intimation under Section 143(1)(a) of the Income-tax Act, after
notice for regular assessment has been issued under Section 143(2) of
the Income-tax Act, 1961? The Hon'ble Apex Court, while approving the
order of the High Court of Gujarat which had answered the aforesaid issue
in the negative, had observed as under:
"Even otherwise, the view taken by the Gujarat High Court seems to be correct
on principle. There is no dispute that Section 143(1)(a) of the Act enacts a
scheme that if there is a serious objection to any of the orders made by the
Assessing Officer determining the income, it is open to the assessee to ask for
rectification under section 154. Apart therefrom, the provisions of section
143(1)(a)(i) indicate that the intimation sent under section 143(1)(a) shall be
without prejudice to the provisions of sub-section (2). The Legislature,
therefore, intended that, where the summary procedure under sub-section
(1) has been adopted, there should be scope available for the Revenue,
either suo motu or at the instance of the assessee to make regular
assessment under sub-section (2) of section 143. The converse is not
available; a regular assessment proceedings having been commenced
under section 143(2), there is no need for a summary proceeding under
section 143(1)(a).
In the result, we see no infirmity in the judgment of the High Court. The
appeals are dismissed. There shall be no order as to costs."
(emphasis supplied by us)
72. We thus, are of a firm conviction, that as the disallowance of Rs.
13,13,770/- made by the AO under section 43B of the Act is not based on
any independent observations recorded by him in the course of the
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assessment proceedings, but is rather based on the intimation u/s 143(1)
of the Act, dated 30/11/2022, which was issued by the A.O,
CPC/Bengaluru (as mentioned in the assessment order) much after the
initiation of assessment proceedings vide notice u/s 143(2) of the Act,
dated 29.06.2021, and, thus, is devoid and bereft of any force of law,
therefore, the same cannot be sustained and is liable to be vacated.
Accordingly, we herein set aside the order passed by the CIT(A), wherein
he had impliedly approved the disallowance made by the A.O.,
CPC/Bengaluru u/s 143(1) of the Act of Rs. 13,13,770/-. The Grounds of
appeal Nos. 2 & 3 are allowed.
73. That as the assessee company has vide the Ground of appeal no.
4 assailed the validity of the penalty proceedings initiated by the AO under
Section 270A of the Act, the same being premature, is accordingly
rejected.
74. Resultantly, the appeal filed by the assessee company is allowed
in terms of our aforesaid observations.
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12 नवंबर, 2025 को खुल अदालत म सुनाया गया आदे श।
Order pronounced in the Open Court on 12th November,
2025.
Sd/- Sd/-
Sd/- Sd/-
(मंजूनाथ जी) (रवीश सूद)
(MANJUNATHA G.) (RAVISH SOOD)
लेखा सद /ACCOUNTANT MEMBER ाियक सद /JUDICIAL MEMBER
Hyderabad, dated 12.11.2025.
**OKK/SPS
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आदे शकी ितिलिप अ ेिषत/ Copy of the order forwarded to:-
1. िनधा रती/The Assessee : M/s HighRadius Technologies Private
Limited, First Floor, Building 12C,
Raheja Mindspace IT Park, Madhapur
Road, Hyderabad
2. राज / The Revenue : The DCIT, Circle-2(1), Signature Towers,
Hyderabad
3. The Principal Commissioner of Income Tax, Hyderabad
4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, है दराबाद / DR, ITAT, Hyderabad
5. गाडफ़ाईल / Guard file
आदे शानुसार / BY ORDER
Sr. Private Secretary ITAT, Hyderabad